SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______
COMMISSION FILE NUMBER: 001-14875
FTI CONSULTING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1261113
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2021 RESEARCH DRIVE, ANNAPOLIS, MARYLAND 21401
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(Address of Principal Executive Offices) (Zip Code)
(410) 224-8770
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Common Stock, $.01 par value American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of Registrant's Common Stock outstanding on March 24, 1999
was 4,829,132.
The aggregate market value of voting stock held by non-affiliates of the
Registrant, based upon the average sales price of the Registrant's Common Stock
on March 24, 1999 was $12,767,238.*
* Excludes 1,011,178 shares deemed to be held by directors, officers and
greater than 10% holders of the Common Stock outstanding at March 24, 1999.
Exclusion of Common Stock held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the Company,
or that such person is controlled by, or under common control with, the
Company.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's definitive Proxy Statement to be filed
with the Securities and Exchange Commission on April 30, 1999 are incorporated
by reference into Part III of this Annual Report on Form 10-K. Certain exhibits
to the Company's (1) Registration Statement on Form SB-1 (File No. 333-2002),
(2) Registration Statement on Form S-8 (File No. 333-30173), (3) Registration
Statement on Form S-8 (File No. 333-30357), (4) Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (File No. 001-14875), (5) Current
Reports on Form 8-K filed July 15, 1998, October 2, 1998, October 13, 1998 and
December 8, 1998 (File No. 001-14875) and (6) Form 8-A filed on March 3, 1999
(File No. 001-14875), are incorporated by reference into Part IV of this Annual
Report on Form 10-K.
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FTI CONSULTING, INC.
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
PAGE REFERENCE TO
FORM 10-K
Part I
- ------
Item 1. Business...............................................4
Item 2. Properties............................................11
Item 3. Legal Proceedings.....................................11
Item 4. Submission of Matters to a Vote of Security Holders...12
Part II
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Item 5. Market for the Company's Common Equity and
Related Shareholder Matters..........................13
Item 6. Selected Financial Data...............................14
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations........15
Item 7A. Quantitative and Qualitative Disclosure about
Market Risk..........................................20
Item 8. Financial Statements and Supplementary Data...........21
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure..................46
Part III
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Item 10. Directors and Executive Officers of the Company.......46
Item 11. Executive Compensation................................46
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................46
Item 13. Certain Relationships and Related Transactions........46
Part IV
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Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K..................................47
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ITEM 1. BUSINESS
COMPANY OVERVIEW
FTI Consulting, Inc. ("FTI" or the "Company") provides consulting services
to major corporations, law firms, banks and insurance companies in the United
States. FTI has three business divisions: Litigation Services, Applied Sciences
and Expert Financial Services. Through its Litigation Services division, FTI
provides advice and services in connection with all phases of the litigation
process, including discovery, jury selection, trial monitoring and visual
communications services. FTI offers its clients, through the Applied Sciences
division, engineering and scientific consulting services, accident
reconstruction, fire investigation, equipment procurement and expert testimony
regarding intellectual property rights. FTI provides a range of financial
consulting services, such as forensic accounting, fraud investigation, claims
management and expert testimony in connection with quantifying damages, and
bankruptcy and turnaround analysis, through its Expert Financial Services
division. The Company's strategy is to be a one-stop shop for corporations, law
firms, banks and insurance companies that wish to maximize the efficiency and
effectiveness of their litigation support and claims management requirements.
FTI focuses on developing and providing innovative applications from the
fields of science, education, communications and technology to meet its clients
needs in the best fashion. For example, the Company has adapted methods
traditionally used in marketing and political polling to analyze how juries
reach decisions, and has applied computer animation and simulation to enhance
presentations and expert testimony on complex subjects such as airplane crashes,
financial disputes, intellectual property resolutions and physical phenomena.
The Company's staff of statistic, accounting, engineering, scientific,
communication, artistic, computer management and jury professionals are
recognized experts in their fields.
In 1998, FTI completed three major acquisitions which brought the Company
new consulting capabilities, expanded its existing capabilities and furthered
its geographic reach. These were:
o Klick, Kent & Allen, Inc. -- Klick, Kent & Allen, Inc. ("KK&A"),
located in Alexandria, Virginia and serving the Washington, D.C.
metropolitan area, provides strategic and economic consulting. FTI
completed the acquisition of KK&A on June 1, 1998.
o Kahn Consulting, Inc. -- Kahn Consulting, Inc. ("KCI"), located in
New York, New York, provides specialized consulting services in
three primary areas: (1) bankruptcy, trustee and examiner accounting
and financial services; (2) turnaround and strategic advisory
services; and (3) expert accounting testimony and government
contract consulting. The Company completed its acquisition of KCI on
September 17, 1998.
o S.E.A., Inc. -- S.E.A., Inc. ("S.E.A."), located in Columbus, Ohio,
provides specialized consulting services in fire investigation,
product failure analysis, vehicular accident reconstruction, vehicle
dynamics, qualitative and quantitative chemical analysis and
structural distress and failure evaluation. FTI completed the
acquisition of S.E.A. on September 1, 1998.
4
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MARKET OVERVIEW
The Litigation Market
According to U.S. Bureau of Census statistics, the market for legal
services in the United States exceeds $100 billion. These costs, in addition to
the risks of incurring large monetary judgments in litigation, have led many
corporations to focus on the management of the litigation process. Rather than
attempting to manage the process internally, corporations and even outside law
firms increasingly have been turning to litigation service consultants to manage
aspects of the litigation process.
Dramatic increases in the costs and complexity of litigation have created a
need for litigation support specialists. Consulting firms have taken advantage
of the emergence of new media, including animation and image enhancement, to
improve the quality of trial preparation and presentation. The complex and
sophisticated nature of recent cases in such areas as toxic torts, intellectual
property infringements and medical products liability have lent themselves to
new media presentation techniques. The presentation of complicated concepts is
dramatically enhanced by visual presentation and 3D animation using media
commonly accepted and understood by jurors. Consequently, visual technology is
becoming increasingly prevalent in the courtroom. The significant decrease in
the cost of the technology has made it a cost effective alternative for most
trials. The dramatic increase in size of trials and volume of information has
made it a necessity.
Perhaps the most dramatic trend affecting the growth of the litigation
support services market, however, has been the increasing sophistication of
courtroom presentation and document management techniques. Computerized document
management in cases involving millions of pages of deposition testimony and
exhibits has become widely used in the federal and state court systems.
Improvements in document management enable litigation support firms to provide a
higher quality of service at a reduced cost. Moreover, effective document
management and exhibit and trial preparation allows companies to better focus on
the issues involved in litigation so that they can better chart a cost effective
strategy with regard to resolution of the issues and control of the expenses.
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Litigation Services
FTI believes its litigation services division has benefited from the
efforts of major corporations to better manage the litigation process and reduce
their overall legal costs. The Company also believes its TrialMax II software is
among the leading trial preparation and presentation software tools available in
the industry and its use fosters the efficiencies sought by our clients.
Applied Sciences
The Applied Sciences Division specializes in analyzing the causes of
accidents resulting from such events as poor product design, fires, chemicals
mishaps and construction accidents. The Division also assists companies in
assessing preventative measures relating to product design and the evaluation of
the causes of product failures. As a result, we are engaged by companies at an
early stage of potential litigation or on a quality control basis absent any
litigation at all. We have been called upon to assess the causes and relative
levels of responsibility of an accident, as well as to design preventative
measures. As a result of being engaged so early in the process, the Company
believes that revenues from these services generally are steadier and less
incident-driven than the revenues of other firms involved exclusively in the
latter stages of litigation preparation or other types of consulting services.
Expert Financial Services
While the litigation support market traditionally has focused on the latter
stages of the trial process, such as jury selection, exhibit preparation and the
trial process itself, today's clients are looking to manage costs effectively
over the entire process, including the pre-litigation phase. For this reason,
FTI has entered the broader field of providing financial consulting services. To
provide financial consulting services, we generally employ statistical and
economic tools to help companies evaluate issues such as determining the
economic impact of deregulation of certain industries, the amount of commercial
damages suffered by businesses as a result of a tort or a breach of contract,
the existence of discriminatory employment practices and the value of a business
or professional practice for appraisal purposes. Additionally, we work with
clients to develop business strategy and tactics on an ongoing basis. Forensic
accounting specialists, such as those employed by KCI, work with companies
dealing with the investigation of disclosure and fraud issues, as well as
companies which are undergoing restructuring or bankruptcy reorganizations. We
believe that by providing these services we often have access to companies at an
especially early stage of the litigation process.
BUSINESS STRATEGIES
Traditionally, litigation consulting firms, including the Company, focused
on discrete stages of the litigation process from the inception of a cause of
action to final resolution through a jury trial. Recently, however, FTI has
sought to integrate complementary litigation, applied sciences and financial
services and products. FTI believes that this integration gives it a distinct
advantage over smaller niche players because it can become involved with
potential clients at a much earlier stage of the dispute resolution process or
even on an ongoing, retainer-type basis.
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FTI's strategy is to become a national company possessing a critical mass,
a broad range of services and a cost-effective delivery of high-quality services
to clients. The Company's business strategy, combining strong internal growth
with an aggressive acquisition philosophy, is designed to achieve these goals.
The Company believes the following elements are key to the continued
success of its business strategy:
o Quality. The Company believes that size and reputation are critical
elements to the purchasing decisions of corporations, law firms,
banks and insurance companies. By hiring the most qualified
professionals and by acquiring highly respected firms, FTI has
sought to distinguish itself within this industry. The Company has
benefited both from the skills of these professionals, as well as
the client relationships brought by them to FTI. The Company has
also sought to foster its existing client relationships by providing
its clients with the highest quality products and services.
o Expand to a Broader Range of Services. By adopting an integrated
services approach to its business, FTI is transitioning itself from
its vendor-based roots to a more full-service advisor. In this
capacity, the Company hopes to better fulfill its clients'
expectations. Whereas FTI started as an expert witness firm in 1982,
it has since expanded to offer its clients services in visual
communications (1987), jury consulting (1992), insurance claims
management (1997), and analytic engineering, economic consulting and
forensic accounting (1998). The increased range of services
available has led to increased expectations from FTI's clients. As
its clients have sought more broad-based and strategic assignments,
FTI has been able to market its other services.
o Size and Critical Mass. Large forensic and litigation matters today
often require the service provider to be able to provide services on
a number of matters. To enhance its ability to service such
contracts, the Company has pursued a strategy of increasing the
number of, and range of skills provided by, its professionals and
investing in support equipment.
o Geographic Expansion. The Company seeks new business opportunities
by expanding its operations in strategic geographic markets. The
Company believes that the ability to provide services on a
nationwide basis is a competitive advantage in securing business
from large, geographically diverse corporations. Furthermore,
proximity to a client provides a significant cost advantage. The
Company's strategy is to expand both the number of offices it
maintains and the services provided by each office.
o Cost Effective Delivery of Service. The Company is dedicated to
providing cost-effective solutions to its clients. The Company
offers a disciplined project management approach to ensure adherence
to the client's budgets and schedules. The Company also maintains a
flexible cost structure by using a mix of employees and outside
consultants. This reduces fixed overhead costs while offering
solutions and expertise tailored to the specific requirements of a
client's case.
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BUSINESS SERVICES
Consistent with the Company's strategy of being an integrated provider of
litigation support services, it offers a broad range of trial consulting
services to corporations, insurance companies and law firms at every stage of
the trial process. In the pre-trial phase, FTI offers services relating to the
discovery process. Such services include determining the cause of accidents,
assessing damages, developing databases, investigating the possible infringement
of patents and analyzing damaged physical structures. In addition, FTI helps
litigants prepare for the jury selection and venue choice phases of trial by
soliciting community attitudes through focus group studies and venue surveys.
Increasingly, the Company is also called upon to consult on the logistics and
management of the myriad of documents that are part of large cases.
In the trial phase, the Company assists attorneys in the preparation of
their cases by performing mock trials, preparing expert witnesses for testimony
and surveying people with regard to the effectiveness of specific legal
arguments and the general sentiment towards its client. These surveys can
enlighten litigants on the strength of their case and the likelihood of
prevailing, as well as the advisability of seeking settlement. FTI's document
management, visual communication and courtroom technology products are designed
to facilitate the trial process and help litigants present clear and strong
legal arguments to a jury.
The Company also offers services regarding the post-trial phase of the
litigation process. By surveying jurors, FTI can help its clients understand the
basis of a jury's verdict. This information is useful for determining the
likelihood of prevailing on similar litigation in other venues. Moreover, FTI
can help its clients appreciate the full economic consequences of a verdict, and
whether an appeal would even be cost-effective. Such information may also be
relevant with regard to the determination of future courses of action for the
client.
The Company also performs a number of non-trial consulting services such as
quality assurance assessments for industrial, utility and automobile companies
with regard to their products, analysis of computer and equipment problems
related to Year 2000 ("Y2K") issues, forensic accounting and turnaround
consulting services to businesses restructuring either on their own or through
the bankruptcy process and consulting services to clients in regulated
industries such as pipeline, railroad and telecommunications regarding their
general business strategy, their rates and the general industry.
CLIENTS
In 1998, the Company performed work for 1,994 clients, including 1,061 law
firms, 54 of which were rated in the top 100 law firms in 1998, as measured by
the American Lawyer, based on revenues in the United States; 308 industrial
clients, 83 of which were rated in the FORTUNE 500 for 1998; and 477 insurance
companies, 19 of which were rated in the FORTUNE 500 for 1998. As of December
31, 1998, the Company was actively working on 3,753 different matters for 1,348
different clients. None of the Company's clients represented more than 10% of
the Company's revenues during 1998.
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COMPETITION
The legal support services market is highly competitive. The Company faces
various sources of competition, including several national companies, large
public accounting firms and economic consulting organizations and a number of
smaller firms that provide one or more services to local and regional markets.
The source of competition often depends upon the services being provided by the
Company. The litigation services group generally competes against other
litigation consulting firms and small sole proprietorships. The applied science
group competes against various regional or national concerns, independent
experts and research organizations. The expert financial services group competes
against accounting and economic consulting firms.
In addition to pricing, competitive factors for the Company's services
include reputation, geographic locations, performance record, quality of work,
range of services provided and existence of an ongoing client relationship. On a
nationwide basis, the Company's competitors include Engineering Animation, Inc.,
which provides animation services; Exponent, Inc., which provides engineering
analysis services and a limited amount of animation services; Decision Quest,
which provides jury analysis, visual packaging and animation services; and the
national accounting firms. Certain national support service providers are larger
than the Company and, on any given engagement, may have a competitive advantage
over the Company with respect to one or more competitive factors. In addition,
smaller local or regional firms, while not offering the range of services
provided by FTI, often are able to provide the lowest price on a specific
engagement because of their lower overhead costs and proximity to the
engagement. The fragmented nature of the legal support services industry may
also provide opportunities for large companies that offer complementary services
to enter the market through acquisition. In the future, these and other
competitive pressures could require the Company to modify its pricing or
increase its spending for marketing to attract business.
EMPLOYEES
As of December 31, 1998, the Company had 416 employees. Approximately 72 of
the employees are in litigation support services, 161 in applied sciences and 43
in expert financial services. The remaining employees are administrative
employees. The Company also maintains consulting arrangements with approximately
1,472 independent consultants, of whom approximately 379 were utilized on
Company engagements during 1999.
None of the Company's employees are covered by collective bargaining
agreements. The Company considers its relationship with its employees to be
good.
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BUSINESS RISKS
This Annual Report on Form 10-K, including the documents incorporated by
reference, contains forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934. When the Company refers to
forward-looking statements or information, sometimes the Company uses words such
as "may," "will," "could," "should," "plans," "intends," "expects," "believes,"
"estimates," "anticipates" and "continues." In particular, the following summary
of "Business Risks" describe forward-looking information. The business risks
that are described are not all inclusive, particularly with respect to possible
future events. Other parts of this Annual Report on Form 10-K may also describe
forward-looking information. Things can happen that can cause actual results to
be very different from those described. The Company also makes no promise to
update any of our forward-looking statements, or to publicly release the results
if we revise any of them. Factors which may cause the actual results of
operations in future periods to differ materially from intended or expected
results include, but are not limited to:
o the loss of a number of key employees could adversely impact its
ability to secure and complete engagements because the Company's
business involves the delivery of professional services and is
labor-intensive. Moreover, the loss of Jack B. Dunn, IV or Stewart
J. Kahn as employees of FTI without a suitable replacement within 90
days could constitute a default under the Company's $13 million
Investment and Loan Agreement with Allied Capital Corporation;
o the availability and terms of additional capital or debt financing
to fund future acquisitions and for working capital purposes;
o significant competition for business opportunities and acquisition
candidates, because of the fragmented nature of companies offering
similar services and the strategy of competitors to also grow and
diversify through acquisitions;
o fluctuations of revenue and operating income between quarters
because revenues are primarily derived from services provided in
response to client requests or events that occur without notice, and
engagements, generally billed on a "time and expenses" basis, are
terminable at any time by clients and because of acquisitions; and
o the continued integration of KK&A, KCI and S.E.A., acquired in 1998,
and the integration of future acquisitions, involve inherent
uncertainties, such as the expense of integrating businesses, the
effect on the acquired business and on FTI of FTI's efforts to
integrate and achieve economies of scale and the availability of
management resources to oversee the operations of the acquired
business.
o Risks associated with quantitative and qualitative market risks such
as fluctuations in interest rates as described under Item 7.A. of
this Annual Report on Form10-K.
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ITEM 2. PROPERTIES
FTI leases its principal facility in Annapolis, Maryland, which totals
approximately 39,100 square feet under a lease that expires in December 2003.
The Company also leases offices across the United States, in cities such as New
York, Chicago, Houston, Los Angeles, Philadelphia, Atlanta, Columbus and
Washington, D.C.
The Company believes that its leased facilities are adequate for its
current needs, and that suitable additional space, should it be needed, will be
available to accommodate expansion of the Company's operations on commercially
reasonable terms.
The Company also owns 5,000 square feet in Germantown, Maryland, from which
the Company conducted the business of its former Annapplix division. The Company
is attempting to lease or sell these premises.
ITEM 3. LEGAL PROCEEDINGS
Titanium
FTI entered into a Stock Purchase Agreement (the "Agreement") with Glenn R.
Baker and Dennis A. Guenther (the "Selling Stockholders") dated September 25,
1998. Pursuant to the Agreement, FTI acquired (the "Acquisition") all of the
issued and outstanding shares of S.E.A. Prior to the Acquisition, in 1993
Titanium Industries filed suit against S.E.A., Inc. in the Court of Common
Pleas, Mahoning County, Ohio, (the "Titanium Claim") claiming negligent
misrepresentation and breach of contract. On June 27, 1994, a judgment of decree
was rendered in favor of Titanium Industries and against S.E.A., Inc. The
judgment was appealed to the Court of Appeals of Ohio - Seventh District. On
April 11, 1997, the Court of Appeals ordered that the judgment of the Common
Pleas Court of Mahoning County, Ohio be reversed and remanded the case to the
trial court. The Agreement provides that the Selling Stockholders will indemnify
FTI for any loss in connection with the Titanium Claim.
Pixel
In 1997, FTI and six of its Stamford, Connecticut employees were sued by
Pixel, Inc. ("Pixel"), a California company, which previously had an office in
Stamford, Connecticut (at which the individual defendants worked). The complaint
asserts multiple tort claims and two statutory claims against FTI and the
individuals, all related to the decision of the individual defendants to leave
the employ of Pixel and work for FTI, allegedly in competition with Pixel using
Pixel's confidential and proprietary information. FTI is accused of encouraging
this behavior. The action is pending in Connecticut state court and all
defendants, including FTI, are represented by the Connecticut law firm of
Shipman & Goodwin. Piper & Marbury has also been admitted for purposes of the
case. The case is styled Pixel, Incorporated v. Forensic Technologies
International Corporation, et al., Docket No. CV-97-9349702S and is pending in
the Supreme Court for the Judicial District of Fairfield at Bridgeport.
In addition to injunctive relief against all defendants, including FTI,
Pixel seeks the return of any of its records taken by the individual defendants.
Pixel also seeks unspecified damages (and, to the extend the alleged acts are
violative of Conn. Gen. Stats. ss.52-564 relating to theft of property, treble
damages) plus interest, costs, disbursements and attorneys' fees. In
interrogatory answers, Pixel claims $7,000,000
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in damages for the destruction of its business and over $1,000,000 a year lost
income (beginning presumably in late 1996).
While the case is pending for almost two years, only recently have
interrogatory answers and documents been exchanged and only part of the
deposition of the president of Pixel has been conducted. Based on the discovery
to date, FTI appears to have good and meritorious defenses to the allegations in
the complaint. As a result, the range of potential loss has not been estimated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's stockholders for
consideration during the quarter ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
(a) The Company did not conduct any sales of Restricted Securities during
Fiscal 1998.
(b) On March 9, 1999, FTI's common stock began trading on the American
Stock Exchange under the symbol "FCN." Prior to that time, the common stock was
listed on the Nasdaq National Market and traded under the symbol "FTIC." The
following table sets forth for the periods indicated the high and low sales
prices for the common stock, as reported on the Nasdaq National Market for each
fiscal quarter during the last two fiscal years.
HIGH LOW
---- ---
FISCAL YEAR ENDED DECEMBER 31, 1997
First fiscal quarter
$9 5/8 $5 1/2
Second fiscal quarter
$8 $5 5/8
Third fiscal quarter
$9 1/2 $6 3/4
Fourth fiscal quarter
$14 3/4 $9
FISCAL YEAR ENDED DECEMBER 31, 1998
First fiscal quarter
$16 1/4 $10
Second fiscal quarter
$20 3/4 $13 1/2
Third fiscal quarter
$17 3/16 $4
Fourth fiscal quarter
$8 3/8 $2 3/8
On March 29, 1999, the closing sales price for the Company's common stock
on the American Stock Exchange was $2.875.
The number of record holders of the Company's common stock as of March 22,
1999 was 98 and the number of beneficial holders was 1,950.
The Company has not declared or paid any cash dividends on the Company's
common stock to date and does not anticipate paying any cash dividends on its
shares of common stock in the foreseeable future because it intends to retain
its earnings, if any, to finance the expansion of its business and for general
corporate purposes. Pursuant to the Investment and Loan Agreement between the
Company, Allied Capital Corporation and Allied Investment Corporation dated
March 29, 1999, the Company has agreed not to declare or pay any dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the five years ended December 31, 1998 are
derived from the Company's consolidated financial statements. The financial
statements for the years ended December 31, 1994, 1995, 1996, 1997, and 1998
were audited by Ernst & Young LLP. The data below should be read in conjunction
with the consolidated financial statements and related notes thereto included
elsewhere in this report and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
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1998 1997 1996 1995 (1) 1994
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 58,615 $ 44,175 $ 30,648 $ 23,381 $ 20,254
Direct cost of revenues 31,402 23,564 17,020 11,366 10,499
Selling, general and administrative expenses 21,528 15,241 10,786 9,887 8,320
----------- ----------- ------------ -------------- -----------
Total costs and expenses 52,930 38,805 27,806 21,253 18,819
----------- ----------- ------------ -------------- -----------
Income from operations 5,685 5,370 2,842 2,128 1,435
Other income (expense) (1,163) 173 107 (222) (110)
----------- ----------- ------------ -------------- -----------
Income from continuing operations before
Income taxes 4,522 5,543 2,949 1,906 1,325
Income taxes 1,954 2,250 1,235 779 552
----------- ----------- ------------ -------------- -----------
Income from continuing operations 2,568 3,293 1,714 1,127 773
Loss from operations of discontinued
Operations, net of tax (1)
(65)
Loss on disposal of discontinued operations,
Net of tax
(365)
----------- ----------- ------------ -------------- -----------
Net income 2,568 3,293 1,714 697 773
Preferred stock dividends - - 62 125 125
Income available to common stockholders $ 2,568 $ 3,293 $ 1,652 $ 572 $ 648
---------- ---------- ----------- -------------- -----------
=========== =========== ============ ============== ===========
Earnings per common share from continuing
Operations, assuming dilution $ 0.54 $ 0.73 $ 0.46 $ 0.27 $ 0.28
Earnings per common share, assuming dilu-
tion $ 0.51 $ 0.70 $ 0.42 $ 0.24 $ 0.26
Shares used in computation 5,077 4,698 4,174 3,316 3,354
<CAPTION>
AS OF DECEMBER 31,
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1998 1997 1996 1995 1994
----------- ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 9,071 $ 10,634 $ 13,311 $ 2,259 $ 3,368
Total assets 79,747 29,176 20,868 10,756 8,071
Long-term debt, capital lease obligations
And redeemable stock 36,016 1,014 254 3,941 3,764
Total stockholders' equity 25,594 21,019 17,629 1,463 1,838
</TABLE>
(1) Effective March 31, 1996, the Company sold Annapolis to a group that
includes Annapplix's former owner and certain officers and stockholders of
the Company. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition,".
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives revenue primarily from three business divisions: Litigation
Services, Applied Sciences and Expert Financial Services. Through its Litigation
Services division, FTI provides advice and services in connection with all
phases of the litigation process. FTI offers its clients, through the Applied
Sciences division, engineering and scientific consulting services, accident
reconstruction, fire investigation, equipment procurement and expert testimony
regarding intellectual property rights. FTI provides a range of financial
consulting services, such as forensic accounting, fraud investigation, claims
management and expert testimony, and bankruptcy and turnaround analysis, through
its Expert Financial Services division. The revenues generated from the business
divisions consist of: (i) fees for professional services; (ii) fees for use of
the Company's equipment and facilities, particularly animation computers; (iii)
pass-through expenses such as the recruiting of subjects and participants for
research surveys and mock trial activities and travel; and (iv) fees associated
with work product production, such as static graph boards, color copies and
digital video production. The Company recognizes revenue as work is performed or
as related expenses are incurred.
The Company's goal is to provide value-added services to its clients either on a
case-by-case basis or through ongoing relationships with major users of
litigation and claims services. Over the past three years, the Company has taken
several steps to grow the business and its industry prominence. Such steps
include expanding into financial consulting services for trials, turnarounds
and bankruptcies and recruiting additional visual communication staff and
recognized professionals in the trial consulting business. By virtue of its
recent acquisitions, the Company has further expanded its geographic reach with
major offices now in New York, Columbus, Chicago, Houston, Los Angeles and
Washington, DC.
In September 1996, the Company acquired Teklicon, Inc., in a transaction
accounted for as a pooling of interests as further described in Note 4 of the
"Notes to Consolidated Financial Statements." This acquisition significantly
enhanced the Company's capabilities in high technology consulting and expert
witness services to the legal profession and industry clients who require
assessment of intellectual property rights and other industry problems that have
high technology content.
15
<PAGE>
In September 1997, the Company acquired LWG, Inc. (LWG) and Bodaken Associates
(Bodaken) in transactions accounted for as purchases as further described in
Note 4 of the "Notes to Consolidated Financial Statements." LWG broadened the
Company's offerings to the insurance market by adding capabilities in claims
management consulting and restoration services. Bodaken enhanced the Company's
jury and trial consulting capabilities, particularly in the western region of
the U.S.
In 1998, the Company made three major acquisitions, all of which were accounted
for as purchases as further described in Note 4 of "Notes to Consolidated
Financial Statements." In June, the Company acquired Klick, Kent & Allen (KK&A).
KK&A provides strategic and economic consulting to various regulated businesses,
advising on such matters as industry deregulation, mergers and acquisitions,
rate and cost structures, economic and financial modeling and litigation risk
analysis.
In September 1998, the Company acquired both S.E.A., Inc. (S.E.A.) and Kahn
Consulting, Inc. (KCI). S.E.A., headquartered in Columbus, Ohio, provides
investigation, research, analysis and quality control services in areas such as
distress, product failure, fire and explosion and vehicle and workplace
accidents. The S.E.A. acquisition has allowed the Company to significantly
expand it scientific consulting offerings, in addition to providing geographic
expansion into the southeast and midwest markets. KCI, headquartered in New York
City, provides expert testimony on accounting and financial issues; forensic
accounting and fraud investigation services; strategic advisory, turnaround,
bankruptcy and trustee services, and government contract consulting. The
acquisitions of KCI and KK&A provide the foundation for the expansion of expert
financial services into markets where the Company already has a presence.
In connection with the September acquisitions, the Company expanded and amended
its line of credit with its bank and utilized $26 million of borrowings to fund
the initial acquisition payments. In March 1999, the Company further amended its
bank financing extending the maturity to September 2001, or possibly later under
certain conditions, and revising certain covenants and other terms. The Company
obtained $13 million of additional debt financing through the sale of
subordinated debentures (with warrants) to an investor, maturing in March 2004.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES. Total revenues in 1998 increased 32.7% over 1997. Excluding
acquisitions completed in 1998, revenues would have increased 6.9%. Litigation
services revenues decreased 5.2% from 1997 to 1998 as a result of softness in
the markets during the second and third quarter of 1998; however, there was a
14.4% improvement in our fourth quarter compared with the third quarter of 1998
as our volume of cases improved. The Applied Sciences Division experienced 90.4%
growth in 1998 with more than half of that growth coming from the acquisition of
S.E.A. The Expert Financial Services division grew by 120.2% with substantially
all of that growth coming from acquisitions.
16
<PAGE>
Total revenues in 1997 increased 44.1% or $13.5 million from 1996. Excluding
acquisitions during 1997, total revenues increased 29.9%. The growth in total
revenues resulted from a 35.0% increase in revenues generated by Litigation
Services and a 17.0% increase in revenues generated by Applied Sciences,
excluding acquisitions.
DIRECT COST OF REVENUES. Direct cost of revenues consists primarily of billable
employee compensation and related payroll benefits, the cost of contractors
assigned to revenue-generating activities and other related expenses billable to
clients. Direct cost of revenues as a percent of revenues was 53.6% in 1998,
53.3% in 1997 and 55.5% in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of salaries and benefits paid to
office and corporate staff, as well as rent, marketing, and corporate overhead
expenses. Selling, general and administrative expenses also include amortization
of goodwill. As a percent of revenues, these expenses were 36.7% in 1998, 34.5%
in 1997 and 35.2% in 1996. Excluding goodwill amortization, selling, general and
administrative expenses as a percentage of sales were 35.0% in 1998 and 34.3% in
1997, both lower than the 35.2% in 1996.
OTHER INCOME AND EXPENSES. Interest expense consists of interest on a line of
credit and Convertible Debentures in 1996 and, in 1997 and 1998, the interest
expense associated with the purchased businesses referred to above. Additional
cash, raised from the initial public offering allowed the Company to pay off the
line of credit in mid-1996, thus reducing interest expense and increasing
interest income during the second half of 1996 and the majority of 1997. In May
1996, the $1.8 million of 8% Subordinated Debentures converted into common
stock, further contributing to the decrease in interest expense in 1996 as
compared to 1995.
INCOME TAXES. In 1998, principally as a result of some of the goodwill
amortization not being deductible for income tax purposes, the effective tax
rate increased to 43.2%. It is expected that the effective tax rates will be
between 45% and 49% in the foreseeable future. The Company's effective tax rate
during the two years ended December 31, 1997, approximated 41%. See Note 7 of
"Notes to Consolidated Financial Statements" for a reconciliation of the federal
statutory rate to the effective tax rates during each of these years, and a
summary of the components of the Company's deferred tax assets and liabilities.
FUTURE ASSESSMENT OF RECOVERABILITY AND IMPAIRMENT OF GOODWILL
In connection with its various acquisitions, the Company recorded goodwill,
which is being amortized on a straight-line basis over periods of 15 to 25
years, its estimated periods that the Company will be benefited by such
goodwill. At December 31, 1998, the unamortized goodwill was $45.2 million
(which represented 57% of total assets and 176% of stockholders' equity).
Goodwill arises when an acquirer pays more for a business than the fair value of
the tangible and separately measurable intangible net assets. For financial
reporting purposes, goodwill and all other intangible assets are amortized over
the estimated period benefited. The Company has determined the life for
amortizing goodwill based upon several factors, the most significant of which
are the relative size, historical financial viability and growth trends of the
acquired companies and the relative lengths of time such companies have been in
existence.
Management of the Company periodically reviews the Company's carrying value and
recoverability of unamortized goodwill. If the facts and circumstances suggest
that the goodwill may be impaired, the carrying value of such goodwill will be
adjusted which will result in an immediate charge against income
17
<PAGE>
during the period of the adjustment and/or the length of the remaining
amortization period may be shortened, which will result in an increase in the
amount of goodwill amortization during the period of adjustment and each period
thereafter until fully amortized. Once adjusted, there can be no assurance that
there will not be further adjustments for impairment and recoverability in
future periods. Of the various factors to be considered by management of the
Company in determining whether goodwill is impaired, the most significant will
be (i) losses from operations, (ii) loss of customers, and (iii) industry
developments, including the Company's inability to maintain its market share,
development of competitive products or services, and imposition of additional
regulatory requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Company in 1998 generated $5.3 million of cash flow from operations, an
improvement of $1.7 million as compared to 1997. This increase is attributable
to an increase in net income excluding non-cash charges (principally
depreciation and amortization) of $271,000, and the favorable net cash effects
of changes in working capital balances. The Company expects that cash flows from
operations will increase in 1999, in part as a result of additional operating
cash provided from businesses acquired in late 1998.
The Company borrowed $26.0 million in 1998 under its $27.0 million long-term
credit facility with a bank to provide the $26.4 million of cash needed to
acquire Klick, Kent & Allen, Inc., Kahn Consulting, Inc., and SEA, Inc. This
credit facility was renegotiated in March 1999, and the new terms extend the
maturity date of the loan to September 2001. This maturity date may be extended
an additional year if the Company is successful in extending the maturity dates
of certain notes issued to sellers of the acquired 1998 and 1997 businesses.
In connection with the acquisition of certain businesses in 1998 and 1997, and
as described more fully in Note 4 of the 1998 consolidated financial statements,
the Company is obligated under certain seller notes totaling $20.2 million at
December 31, 1998. Of the $20.2 million outstanding at December 31, 1998, $10.65
million will become payable in 1999. The Company in March 1999 issued $13.0
million of subordinated debentures to provide additional cash resources as the
seller notes begin to mature. The subordinated debentures initially bear
interest at 9.25% per annum, and mature in lump sum in March 2004. The
debentures prohibit the payment of dividends without the written consent of the
holder.
18
<PAGE>
The Company is required to comply with certain financial covenants related to
operating performance and liquidity, as calculated quarterly, for both the
revised and extended long-term credit facility and the subordinated debentures.
The Company believes that it will be in compliance with all covenants throughout
1999.
During 1998 the Company expended $3.3 million for additions to property and
equipment. This amount included expenditures for internal information systems
that allow the Company to better manage its expanding operations. At December
31, 1998, the Company had no material commitments for the acquisition of
property and equipment.
The Company believes that cash generated from operations and the financing
arrangements completed in March 1999 will allow it to meet its obligations under
notes maturing in 1999, and further provide for the necessary cash resources
required in the near term to fund its expanding operations.
YEAR 2000 COMPLIANCE
The year 2000 issue is the result of computer programs written using two digits
(rather than four) to define the applicable year. Absent corrective actions,
programs with date-sensitive logic may recognize "00" as 1900 rather than 2000.
This could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company has commenced a process to assure Year 2000 compliance of all
hardware, software, and ancillary equipment that are date dependent. The process
involves four phases:
Phase I - Inventory and Data Collection. This phase involves an identification
of all items that are date dependent. The Company commenced this phase in the
first quarter of 1998 and is now complete.
Phase II - Compliance Requests. This phase involves requests to systems vendors
for verification that the systems identified in Phase I are Year 2000 compliant.
The Company continues to replace critical systems that cannot be updated or
certified compliant. The Company commenced this phase in the first quarter of
1998 and expects to complete this phase before the end of the second quarter of
1999. The Company's principal compliance issue is focused on the existing
business and accounting system developed over the past ten years. A new business
and accounting system has been implemented and is vendor-certified to be Year
2000 compliant. In addition, the Company has determined that substantially all
of its personal computers and PC applications are compliant.
Phase III - Test, Fix and Verify. This phase involves testing all items that are
date dependent and upgrading the critical, non-compliant system as well as
completing the implementation of the new business and accounting system. The
Company has begun this phase and expects completion by the middle of the third
quarter of 1999.
Phase IV - Final Testing, New Item Compliance. This phase involves review of all
systems for compliance and re-testing as necessary. During this phase, all new
systems and equipment will be tested for Year 2000 compliance. The Company
expects to complete this phase by the end of the third quarter of 1999. The
Company presently believes that, with the implementation of the new business and
accounting system, including hardware and software, the Year 2000 issue will not
pose any significant operational problem.
19
<PAGE>
This substantial compliance has been achieved without the need to acquire
significant new hardware, software, or systems other than in the ordinary course
of business. The Company is not aware of any other material Year 2000
non-compliance that would require repair or replacement that would have a
material effect on its financial position. As part of the Year 2000 process,
formal communication with the Company's suppliers, customers and other support
services has been initiated during the first quarter of 1999 and efforts will
continue until positive statements of readiness have been received from all
third parties. To date, the Company is not aware of any Year 2000 non-compliance
by its customers or suppliers that would have material impact on the Company's
business. Nevertheless, there can be no assurance that unanticipated Year 2000
non-compliance will not occur, and such Year 2000 non-compliance could require
material costs to repair or could cause material disruptions if not repaired.
The Company is in the process of developing a strategy to address these
potential consequences that may result from unresolved Year 2000 issues, which
will include the development of one or more contingency plans by mid 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
At December 31, 1998, $26.0 million of the Company's long-term debt bears
interest at variable rates. Accordingly, the Company's earnings and after tax
cash flow are affected by changes in interest rates. Assuming the current level
of borrowings and assuming a hypothetical 200 basis point increase in interest
rates under the Company's long-term bank credit facility for one year, the
Company's interest expense would increase by approximately $520,000 and net
income would decrease by approximately $296,000.
In the event of an adverse change in interest rates, management would likely
take actions to further mitigate its exposure. However, due to the uncertainty
of the actions that would be taken and their possible effects, the analysis
assumes no such actions. Further, the analysis does not consider the effects of
the change in the level of overall economic activity that could exist in such an
environment.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FTI Consulting, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors .............................................22
Consolidated Financial Statements
Consolidated Balance Sheets.................................................23
Consolidated Statements of Income...........................................25
Consolidated Statements of Stockholders'Equity..............................26
Consolidated Statements of Cash Flows.......................................27
Notes to Consolidated Financial Statements..................................28
21
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
FTI Consulting, Inc.
We have audited the accompanying consolidated balance sheets of FTI Consulting,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of FTI Consulting,
Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Baltimore, Maryland
March 30, 1999
22
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,223 $ 2,456
Accounts receivable, less allowance of $1,305
in 1998 and $487 in 1997 13,139 10,198
Unbilled receivables, less allowance of $1,117
in 1998 and $415 in 1997 7,803 4,194
Income taxes recoverable 794 -
Deferred income taxes - 160
Prepaid expenses and other current assets 1,262 681
-------------------------
Total current assets 26,221 17,689
Property and equipment:
Buildings 411 411
Furniture and equipment 14,752 11,745
Leasehold improvements 1,891 1,591
-------------------------
17,054 13,747
Accumulated depreciation and amortization (8,767) (7,459)
-------------------------
8,287 6,288
Goodwill, net of accumulated amortization of $1,077
in 1998 and $81 in 1997 45,164 5,141
Other assets 75 58
-------------------------
Total assets $ 79,747 $ 29,176
=========================
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,924 $2,825
Accrued compensation expense 2,765 1,995
Income taxes payable - 297
Current portion of long-term debt 10,650 1,200
Advances from clients 498 519
Other current liabilities 313 219
--------------------------------------
Total current liabilities 17,150 7,055
Long-term debt, less current portion 35,630 730
Other long-term liabilities 269 203
Deferred income taxes 1,104 169
Commitments and contingent liabilities - -
Stockholders' equity:
Preferred stock, $.01 par value; 4,000,000 shares authorized
in 1998 and 1997, none outstanding - -
Common stock, $.01 par value; 16,000,000 shares
authorized; 4,781,895 and 4,550,912 shares issued and
outstanding in 1998 and 1997, respectively 48 46
Additional paid-in capital 16,531 14,526
Retained earnings 9,015 6,447
--------------------------------------
Total stockholders' equity 25,594 21,019
--------------------------------------
Total liabilities and stockholders' equity $ 79,747 $ 29,176
======================================
</TABLE>
See accompanying notes.
24
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues $58,615 $44,175 $30,648
Direct cost of revenues 31,402 23,564 17,020
Selling, general and administrative expenses 21,528 15,241 10,786
-----------------------------------------------------
Total costs and expenses 52,930 38,805 27,806
-----------------------------------------------------
Income from operations 5,685 5,370 2,842
Other income (expenses):
Interest and other income 319 343 286
Interest expense (1,482) (170) (179)
-----------------------------------------------------
(1,163) 173 107
-----------------------------------------------------
Income from operations before income taxes 4,522 5,543 2,949
Income taxes 1,954 2,250 1,235
-----------------------------------------------------
Net income $ 2,568 $ 3,293 $ 1,714
Preferred stock dividends - - 62
-----------------------------------------------------
Income available to common stockholders $ 2,568 $ 3,293 $ 1,652
=====================================================
Earnings per common share, basic $ 0.54 $ 0.73 $ 0.46
=====================================================
Earnings per common share, diluted $ 0.51 $0.70 $ 0.42
=====================================================
</TABLE>
See accompanying notes.
25
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED UNEARNED
STOCK STOCK CAPITAL EARNINGS COMPENSATION TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $20 $15 $1 $1,455 $(29) $1,462
Repurchase of 55 shares of Class A common stock and 8
shares of Class B common stock (105) (25) (130)
Issuance of 1,520 shares of common stock, net of
expenses of $1,671 in initial public offering of 15 11,101 11,116
stock
Conversion of Class B common stock into 15 shares of
common stock (15) 15 -
Conversion of Series A Preferred Stock into 655
shares of common stock 6 1,553 1,559
Conversion of Convertible Subordinated Debt in 378
shares of common stock 4 1,796 1,800
Value of common stock options issued to directors 29 29
Exercise of options to purchase 14 shares of Class A
common stock 39 39
Amortization of unearned compensation 29 29
Dividends paid on Series A Preferred Stock (62) (62)
Accounting adjustment due to pooling-of-interests 72 72
Net income for 1996 1,714 1,714
----------------------------------------------------------------------------
Balance at December 31, 1996 45 - 14,429 3,154 - 17,628
Exercise of options to purchase 34 shares of Class A 97 98
common stock 1
Net income for 1997 3,293 3,293
----------------------------------------------------------------------------
Balance at December 31, 1997 46 - 14,526 6,447 - 21,019
Exercise of options to purchase 218 shares of Class A 2,005 2,007
common stock 2
Net income for 1998 2,568 2,568
----------------------------------------------------------------------------
Balance at December 31, 1998 $48 $ - $16,531 $9,015 $ - $25,594
============================================================================
</TABLE>
See accompanying notes.
26
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,568 $ 3,293 $ 1,714
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 1,789 1,434 757
Amortization 1,192 307 105
Provision for doubtful accounts 473 526 (1)
Deferred income taxes (626) (227) 341
Loss on disposal of discontinued Annapplix division - - (479)
Other 208 - 134
Changes in operating assets and liabilities:
Accounts receivable 1,207 (3,284) (1,701)
Unbilled receivables 51 (788) (723)
Income taxes recoverable/payable (694) 408 (320)
Prepaid expenses and other current assets (270) 170 (599)
Accounts payable and accrued expenses (83) 826 331
Accrued compensation expense (205) 1,017 (221)
Advances from clients (21) (67) 309
Other current liabilities (296) 33 (162)
------------------------------------------------------
Net cash provided by (used in) operating activities 5,293 3,648 (515)
INVESTING ACTIVITIES
Purchase of property and equipment (3,327) (2,800) (1,672)
Proceeds from sale of property and equipment 130 - -
Contingent payments to former shareholders of LWG (440) - -
Acquisition of KK&A, including acquisition costs (6,242) - -
Acquisition of KCI, including acquisition costs (10,237) - -
Acquisition of SEA, including acquisition costs (9,961) - -
Acquisition of Anamet Laboratories - - (400)
Acquisition of Bodaken, including acquisition costs - (1,875) -
Acquisition of LWG, including acquisition costs - (1,956) -
Change in other assets - 480 (238)
------------------------------------------------------
Net cash used in investing activities (30,077) (6,151) (2,310)
FINANCING ACTIVITIES
Issuance of common stock - - 11,116
Repurchase of Class A common stock - - (130)
Repurchase of Class A common stock subject to repurchase and Class B - - (310)
common stock
Exercise of stock options 1,610 98 39
Repayments under line of credit - - (2,110)
Borrowings under long-term debt arrangements 26,000 - -
Payments of other long-term debt (100) (191) (69)
Repayments of long-term liabilities (1,959) (842) -
Dividends paid - - (62)
------------------------------------------------------
Net cash provided by (used in) financing activities 25,551 (935) 8,474
------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 767 (3,438) 5,649
Cash and cash equivalents at beginning of year 2,456 5,894 245
------------------------------------------------------
Cash and cash equivalents at end of year $ 3,223 $ 2,456 $ 5,894
======================================================
</TABLE>
See accompanying notes.
27
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
(Dollars in thousands, except per share data)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
Description of Business
FTI Consulting, Inc. and subsidiaries (the Company) provides forensic and
strategic consulting services to major corporations, law firms, banks, and
insurance companies in the United States. These services include visual
communications and trial consulting, engineering and scientific services, expert
financial services, assessment and expert testimony regarding intellectual
property rights and claims management outsourcing services, from assessment to
restoration. The Company has 35 offices throughout the United States and in
Canada.
Principles of Consolidation
The consolidated financial statements include the accounts of wholly-owned
subsidiaries. All significant intercompany transactions have been eliminated.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company uses estimates to determine the amount of the allowance for doubtful
accounts necessary to reduce accounts receivable and unbilled receivables to
their expected net realizable value. The Company estimates the amount of the
required allowance by reviewing the status of significant past-due receivables
and analyzing historical bad debt trends. The Company has not experienced
significant variations in the estimate of the allowance for doubtful accounts,
due primarily to credit policies, collection experience, and a lack of
concentrations of accounts receivable. Accounts receivable balances are not
collateralized.
28
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method. Buildings are depreciated over a period of 40 years, furniture and
equipment is depreciated over estimated useful lives ranging from 5 to 7 years,
and leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the lease term.
Intangible Assets
Goodwill consists of the cost in excess of fair value of the net assets of
entities acquired in purchase transactions, and is amortized over the expected
periods of benefit, which range from 15 to 25 years. On a periodic basis, the
Company evaluates goodwill for impairment. In completing this evaluation, the
Company compares its best estimates of undiscounted future cash flows with the
carrying value of goodwill.
Revenue Recognition
The Company derives most of its revenues from professional service activities.
The majority of these activities are provided under "time and materials" billing
arrangements, and revenues, consisting of billed fees and expenses, are recorded
as work is performed and expenses are incurred. Revenues recognized but not yet
billed to clients have been recorded as unbilled receivables in the accompanying
consolidated balance sheets.
29
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Direct Cost of Revenues
Direct cost of revenues consists primarily of billable employee compensation and
related payroll benefits, the cost of consultants assigned to revenue generating
activities, and direct expenses billable to clients. Direct cost of revenues
does not include an allocation of overhead costs.
Stock Options Granted to Employees
The Company records compensation expense for all stock-based compensation plans
using the intrinsic value method prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). Under APB No. 25, if the exercise
price of the Company's employee stock options equals the estimated fair value of
the underlying stock on the date of grant, no compensation expense is generally
recognized. Financial Accounting Standards Board Statement No. 123, Accounting
for Stock-Based Compensation ("Statement 123") encourages companies to recognize
expense for stock-based awards based on their estimated value on the date of
grant. Statement 123 requires the disclosure of pro forma income and earnings
per share data in the notes to the financial statements if the fair value method
is not adopted. The Company has supplementally disclosed in Note 6 the required
pro forma information as if the fair value method had been adopted.
Income Taxes
The Company uses the liability method of accounting for 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 the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
30
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. EARNINGS PER SHARE
The following table summarizes the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- -------------- -----------------
<S> <C> <C> <C>
NUMERATOR
Net income $2,568 $3,293 $1,714
Preferred stock dividends - - (62)
--------------- -------------- -----------------
Numerator for basic earnings per share - income available
to common stockholders 2,568 3,293 1,652
Effect of dilutive securities:
Preferred stock dividends - - 62
Interest on convertible debentures - - 31
--------------- -------------- -----------------
- - 93
Numerator for diluted earnings per share - income
available to common stockholders after assumed
conversions 2,568 3,293 1,745
DENOMINATOR
Denominator for basic earnings per common share - weighted
average shares 4,725 4,529 3,591
Effect of dilutive securities:
Convertible preferred stock - - 240
8% convertible subordinated debentures - - 139
Warrants - - 1
Employee stock options 352 169 203
--------------- -------------- -----------------
352 169 583
--------------- -------------- -----------------
Denominator for diluted earnings per common
share - weighted average shares and
assumed conversions 5,077 4,698 4,174
=============== ============== =================
Earnings per common share, basic $0.54 $0.73 $0.46
=============== ============== =================
Earnings per common share, diluted $0.51 $0.70 $0.42
=============== ============== =================
</TABLE>
31
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
In 1998, the Company purchased three entities for total consideration of
$45,630. In connection with these acquisitions, assets with a fair market value
of $50,426 were acquired and liabilities of approximately $4,796 were assumed.
In 1997, the Company purchased two entities for total consideration of $5,350.
In connection with these acquisitions, assets with a fair market value of $7,300
were acquired and liabilities of approximately $1,950 were assumed.
The Company paid interest of $1,048, $117 and $242 and income taxes of $2,953,
$1,452 and $1,213 during fiscal years 1998, 1997 and 1996, respectively.
4. ACQUISITIONS
Kahn Consulting Inc.
On September 17, 1998, the Company acquired all of the outstanding common stock
of Kahn Consulting Inc. and KCI Management Corp. (collectively, "KCI"). KCI,
based in New York, New York, provides strategic advisory, turnaround,
bankruptcy, and trustee services, as well as litigation consulting services. The
purchase price of $20,000 included an initial payment of $10,000 in cash, with
the remainder evidenced by notes payable bearing interest at 7.5%. The
acquisition was accounted for using the purchase method of accounting. At the
acquisition date, approximately $17,400 of goodwill was recorded which is being
amortized over its estimated useful life of 20 years. The results of operations
of KCI are included in the accompanying 1998 consolidated statement of income
for the period from September 17, 1998 through December 31, 1998.
S.E.A., Inc.
Effective September 1, 1998, the Company acquired all of the outstanding common
stock of S.E.A., Inc. (SEA). SEA, based in Columbus, Ohio, provides
investigation, research, analysis and quality control services in areas such as
distress, product failure, fire and explosion, and vehicle and workplace
accidents. The purchase price of $15,630 included an initial payment of $10,000
in cash, with the remainder evidenced by notes payable bearing interest at 7.5%.
The acquisition was accounted for using the purchase method of accounting. At
the acquisition date, approximately $13,600 of goodwill was recorded which is
being amortized over its estimated useful life of 20 years. The results of
operations of SEA are included in the accompanying 1998 consolidated statement
of income for the period from September 1, 1998 through December 31, 1998.
32
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
Klick, Kent & Allen, Inc.
On June 1, 1998, the Company acquired all of the outstanding common stock of
Klick, Kent & Allen, Inc. (KK&A). KK&A, based in Alexandria, Virginia, provides
strategic and economic consulting to various regulated businesses, advising on
such matters as industry deregulation, mergers and acquisitions, rate and cost
structures, economic and financial modeling and litigation risk analysis. The
purchase price of $10,000 included an initial payment of $6,000 in cash, with
the remainder evidenced by notes payable bearing interest at 7.5%. The
acquisition was accounted for using the purchase method of accounting. At the
acquisition date, approximately $9,700 of goodwill was recorded which is being
amortized over its estimated useful life of 20 years. The results of operations
of KK&A are included in the accompanying 1998 consolidated statement of income
for the period from June 1, 1998 through December 31, 1998.
Pro Forma Information for 1998 Acquisitions
The following summarizes the unaudited pro forma consolidated results of
operations for 1997 and 1998 assuming the KK&A, KCI and SEA acquisitions had
occurred on January 1, 1997, after giving effect to certain adjustments,
including amortization of intangible assets, increased interest expense on the
acquisition debt, decrease in owner compensation, and related income tax
effects. In connection with the acquisitions, the Company entered into
employment agreements with certain stockholders and executive officers of these
companies. The future amount of compensation paid to these officers, who have
substantially the same duties and responsibilities, is less than the amounts
paid in periods prior to the acquisitions.
YEAR ENDED DECEMBER 31
1998 1997
----------------- ----------------
Revenues $78,823 $74,265
Net income 2,900 3,476
Net income per common share -
diluted $0.57 $0.74
The pro forma consolidated results of operations are not necessarily indicative
of the results that would have occurred had these transactions been consummated
as of the beginning of the year presented or of future operations of the
Company.
33
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. ACQUISITIONS (CONTINUED)
LWG, Inc.
Effective September 1, 1997, the Company acquired all of the outstanding common
stock of LWG, Inc. and its subsidiary (collectively "LWG"). LWG is based in
Northbrook, Illinois and provides claims management consulting and restoration
services to the insurance industry. The acquisition was accounted for using the
purchase method of accounting. The purchase price consists of an initial cash
payment of $1,800, plus additional consideration equal to 50% of the pre-tax
profits of LWG for each quarterly period from October 1, 1997 through September
30, 2001. Upon the resolution of the amount of any contingent payments, the
Company records any additional consideration payable as additional goodwill, and
amortizes that amount over the remaining amortization period. At September 1,
1997, goodwill of approximately $1,500 was recorded and is being amortized over
a period of 25 years. During 1998, additional contingent consideration of $440
was paid and recorded as goodwill. The results of operations of LWG are included
in the accompanying consolidated statements of income from September 1, 1997
through December 31, 1997.
Bodaken & Associates
Effective September 1, 1997, the Company acquired substantially all of the
assets of Bodaken & Associates, a trial research and consulting firm serving law
firms and corporations. The acquisition was accounted for using the purchase
method of accounting. The purchase price of $3,550 included an initial cash
payment of $1,700 with the remainder of $1,850 evidenced by a note payable
bearing interest at 7%. Approximately $3,500 in goodwill was recorded and is
being amortized over 20 years.
34
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31
1998 1997
-------- --------
Amounts due under a $27,000 long-term credit facility
expiring in May 2000, bearing interest at LIBOR plus
variable percentages (7.06% at December 31, 1998). The
facility is secured by substantially all of the assets
of the Company. $26,000 $ -
Notes payable to former shareholders of acquired
businesses, maturing in 1999 and 2000, and bearing
interest payable quarterly at 7% or 7.5% per annum. 20,280 1,850
Mortgage note payable for a building, bearing interest
at the prime rate plus 1.5% (9.25% at December 31, 1998).
The note matured in 1998. - 80
-------- -------
Total long-term debt $46,280 $1,930
======== =======
Future maturities of long-term debt are as follows: 1999--$10,650;
2000--$35,630. The $27,000 credit facility was renegotiated in March 1999 (see
Note 12). The fair value of the notes approximates their carrying value at
December 31, 1998 and 1997.
6. STOCK OPTION PLANS
Prior to 1997, the Company granted certain options to key employees under the
1992 Stock Option Plan. This plan was terminated in 1997 upon the adoption of
the 1997 Stock Option Plan ("the 1997 Plan"). The 1997 Plan provides for the
granting to employees and non-employee directors of non-qualified options to
purchase an aggregate of up to 2,000,000 shares of common stock. Options to
purchase common stock may be granted at prices not less than 50% of the fair
market value of the common stock at the date of grant, for a term of no more
than ten years. Vesting provisions for individual awards are at the discretion
of the Board of Directors.
35
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
The following table summarizes the option activity under the Plan for the
three-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1996
WEIGHTED WEIGHTED
AVG. 1997 AVG.
EXERCISE WEIGHTED AVG. EXERCISE
1998 PRICE 1997 EXERCISE PRICE 1996 PRICE
-------------- -------------- ----------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1 1,495,229 $ 7.96 576,179 $ 5.88 242,659 $ 3.14
Options granted 565,000 7.73 995,850 9.02 353,600 7.59
Options exercised (217,900) 6.83 (34,000) 2.85 (14,200) 2.73
Options forfeited (21,500) 8.92 (42,800) 8.48 (5,880) 3.57
---------- ------ ---------- ------ ---------- ------
Options outstanding at December 31 1,820,829 $ 7.86 1,495,299 $ 7.96 576,179 $ 5.88
========== ====== ========== ====== ========== ======
Options exercisable at December 31 674,580 $ 7.69 448,325 $ 6.47 206,899 $ 3.58
========== ====== ========== ====== ========== ======
Weighted avg. fair value of
options granted during the year $ 4.58 $ 2.98 $ 1.56
========== ====== ========== ====== ========== ======
</TABLE>
All options granted have an exercise price equal to or greater than the fair
value of the Company's common stock on the date of grant. Exercise prices for
options outstanding as of December 31, 1998 ranged from $2.38 to $19.59 as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING WEIGHTED AVERAGE
RANGE OF WEIGHTED AVERAGE CONTRACTUAL LIFE EXERCISE PRICES
EXERCISE PRICES OPTIONS EXERCISE PRICES OF OF OPTIONS OPTIONS OF OPTIONS
OUTSTANDING OPTIONS OUTSTANDING OUTSTANDING EXERCISABLE EXERCISABLE
---------------- ------------------ -------------------- ------------------ --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
$2.38 - $7.98 752,081 $ 5.45 8.21 290,654 $5.35
$8.50 - $9.90 983,748 $8.97 8.39 358,926 $8.94
$12.38 - $19.59 85,000 $16.45 9.29 25,000 $17.00
</TABLE>
36
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. STOCK OPTION PLANS (CONTINUED)
Pro Forma Disclosures Required by Statement 123
For the years ended December 31, 1998 and 1997, pro forma net income and
earnings per share information required by Statement 123 has been determined as
if the Company had accounted for its stock options using the fair value method.
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.50%, dividend yields of 0%, volatility factors ranging from
1.224 to .397, and an expected life of the granted options which varied from one
to three years depending upon the vesting period. The Black-Scholes option
pricing model and other models were developed for use in estimating the fair
value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net income is $1,022 and $2,355 for the years ended December 31, 1998 and
1997, respectively. Pro forma earnings per common share, basic is $0.22 and
$0.52 for the year ended December 31, 1998 and 1997, respectively. Pro forma
earnings per share, diluted is $0.20 and $0.50 for the year ended December 31,
1998 and 1997, respectively.
37
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 404 $ 361
Accrued vacation 82 52
-----------------------------------
Total deferred tax assets 486 413
Deferred tax liabilities:
Use of cash basis for income tax purposes by subsidiary 1,268 192
Capitalized software 134 156
Prepaid expenses 50 62
Other 138 12
-----------------------------------
Total deferred tax liabilities 1,590 422
-----------------------------------
Net deferred tax liability $(1,104) $ (9)
===================================
</TABLE>
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 2,038 $ 1,983 $ 726
State 542 494 168
------------------------------------------------
2,580 2,477 894
Deferred (benefit):
Federal (525) (253) 269
State (101) 26 72
------------------------------------------------
(626) (227) 341
------------------------------------------------
$ 1,954 $ 2,250 $ 1,235
================================================
</TABLE>
38
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
The Company's provision for income taxes resulted in effective tax rates that
varied from the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------
<S> <C> <C> <C>
Expected federal income tax provision at 34% $ 1,537 $ 1,885 $ 1,003
Expenses not deductible for tax purposes 181 70 48
State income taxes, net of federal benefit 239 293 159
Other (3) 2 25
====================================================
$ 1,954 $ 2,250 $ 1,235
====================================================
</TABLE>
8. OPERATING LEASES
The Company leases office space under noncancelable operating leases that expire
in various years through 2008. The leases for certain office space contain
provisions whereby the future rental payments may be adjusted for increases in
maintenance and insurance above specified amounts. The Company also leases
certain furniture and equipment in its operations under operating leases having
initial terms of less than one year.
Future minimum payments under noncancelable operating leases with initial terms
of one year or more consist of the following at December 31, 1998:
1999 $2,123
2000 2,040
2001 1,688
2002 1,529
2003 1,209
Thereafter 323
============
Total minimum lease payments $8,912
============
39
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. OPERATING LEASES (CONTINUED)
Rental expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment $ 326 $ 211 $ 97
Office and storage 1,975 1,131 839
===================================================
$ 2,301 $ 1,342 $ 936
===================================================
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Company maintains qualified defined contribution plans and 401(k) plans
which cover substantially all employees. Under the plans, participants are
entitled to make both pre-tax and after-tax contributions. The Company matches a
certain percentage of participant contributions pursuant to the terms of each
plan which are limited to a percent of the participant's eligible compensation.
Typically, the percentage match is based on each participant's respective years
of service and are at the discretion of the Board of Directors. The Company made
contributions of $233, $153 and $146 during 1998, 1997 and 1996, respectively,
related to these plans.
10. CONTINGENCIES
The Company is subject to various legal proceedings generally incidental to its
business. The Company and six employees have been sued by Pixel, Inc. ("Pixel")
in a complaint that alleges that the Company and the individual employees
committed various torts related to the employees' decision to leave the employ
of Pixel and work for the Company. The Company and the employees believe the
grounds of the lawsuit are without merit and intends to defend the lawsuit
vigorously. Management is unable to predict the ultimate outcome of the lawsuit,
but believes that the ultimate resolution of the matter will not have a material
effect on consolidated financial position or results of operations.
The Company is subject to other legal actions arising in the ordinary course of
its business. In management's opinion, the Company has adequate legal defenses
and/or insurance coverage with respect to the eventuality of such actions and
does not believe any settlement would materially affect the Company's financial
position.
40
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosure about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 supercedes
Financial Accounting Standards Board Statement No. 14, Financial Reporting for
Segments of a Business Enterprise, and establishes new standards for the way
that public business enterprises report selected information about operating
segments in annual and interim financial statements. It also established
standards for the related disclosures about products and services, geographical
areas, and major customers. Statement 131 is effective for financial statements
for fiscal years beginning after December 15, 1997. The Company adopted
Statement 131 in 1998, and accordingly, the disclosures for all periods have
been presented to conform to the Statement 131 requirements.
The Company provides litigation and claims management consulting services
through three distinct operating segments. The Expert Financial Services
division provides services in various financial proceedings such as mathematical
and statistical analysis, forensic accounting, fraud investigation and strategic
advisory, turnaround, bankruptcy and trustee services. The Applied Sciences
division provides services in connection with engineering and scientific
investigation and analysis of failures and accidents alleged in court cases. The
Litigation Services division provides consulting services in the areas of visual
communications, trial management and courtroom technology.
The Company evaluates performance and allocated resources based on operating
income before depreciation and amortization, corporate general and
administrative expenses and income taxes. The Company does not allocate assets
to its reportable segments as assets are not specifically attributable to any
particular segment. Accordingly, asset information by reportable segment is not
presented. The accounting policies used by the reportable segments are the same
as those used by the Company and described in Note 1 to the consolidated
financial statements. There are no significant intercompany sales or transfers.
41
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. SEGMENT REPORTING (CONTINUED)
The Company's reportable segments are business units that offer distinct
services. The segments are managed separately by division presidents who are
most familiar with the segment operations. The following table sets forth
information on the Company's reportable segments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------------------------
EXPERT FINANCIAL APPLIED LITIGATION
SERVICES SCIENCES SERVICES TOTAL
- ------------------------------ ------------------ ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $9,264 $22,844 $26,507 $58,615
OPERATING EXPENSES 6,696 18,931 18,971 44,598
SEGMENT PROFIT 2,568 3,913 7,536 14,017
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------
EXPERT FINANCIAL APPLIED LITIGATION
SERVICES SCIENCES SERVICES TOTAL
- ------------------------------ ------------------ ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $4,207 $12,000 $27,968 $44,175
OPERATING EXPENSES 3,445 9,238 17,671 30,354
SEGMENT PROFIT 762 2,762 10,297 13,821
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
EXPERT FINANCIAL APPLIED LITIGATION
SERVICES SCIENCES SERVICES TOTAL
- ------------------------------ ------------------ ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
REVENUES $2,779 $7,150 $20,719 $30,648
OPERATING EXPENSES 2,878 5,633 14,382 22,893
SEGMENT (LOSS) PROFIT (99) 1,517 6,337 7,755
</TABLE>
42
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. SEGMENT REPORTING (CONTINUED)
A reconciliation of segment profit for all segments to income before income
taxes is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
OPERATING PROFIT:
TOTAL SEGMENT PROFIT $14,017 $13,821 $7,755
CORPORATE GENERAL AND ADMINISTRATIVE
EXPENSES (5,351) (6,710) (4,051)
DEPRECIATION AND AMORTIZATION (2,981) (1,741) (862)
OTHER INTEREST (EXPENSE) INCOME (1,163) 173 107
------------------ ------------------ ------------------
INCOME BEFORE INCOME TAXES $4,522 $5,543 $2,949
------------------ ------------------ ------------------
</TABLE>
Substantially all of the revenue and assets of the Company's reportable segments
are attributed to or located in the United States. Additionally, the Company
does not have a single customer which represents ten percent of more of its
consolidated revenues.
43
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarter ended
-----------------------------------------------------------------------------------
March 31, 1998 June 30, 1998 September 30,1998 December 31, 1998
- ------------------------------------ -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Operating revenues $ 14,109 $ 11,860 $ 13,501 $ 19,145
Operating expenses 12,241 10,818 12,474 17,397
-------- -------- -------- --------
Operating income 1,868 1,042 1,027 1,748
Non-operating items, net (3) (82) (336) (742)
-------- -------- -------- --------
Income before income taxes 1,865 960 691 1,006
Income taxes 759 390 309 496
-------- -------- -------- --------
Net income $ 1,106 $ 570 $ 382 $ 510
-------- -------- -------- --------
Net income per common share
Basic $ .24 $ .12 $ .08 $ .11
-------- -------- -------- --------
Diluted $ .22 $ .11 $ .08 $ .11
-------- -------- -------- --------
Weighted average shares outstanding
Basic 4,598 4,744 4,774 4,782
-------- -------- -------- --------
Diluted 5,072 5,267 4,878 4,800
-------- -------- -------- --------
</TABLE>
13. SUBSEQUENT EVENTS
In March 1999, the Company renegotiated the terms of its $27,000 long-term
credit facility. Amounts borrowed under the revolving credit facility are
secured by all assets of the Company, bear interest at LIBOR or prime plus
specified margins (as elected by the Company each quarter), and mature on
September 30, 2001. The maturity date may be extended to September 30, 2002 if
certain specified events occur. The Company is also required to comply with
certain specified financial covenants related to operating performance and
liquidity at the end of each quarter.
In connection with the renegotiation of the financing, the lender was issued
warrants to purchase 25,000 shares of common stock at an exercise price of $3.00
per share. The warrants expire in March 2006 and contain anti-dilution
provisions.
44
<PAGE>
FTI Consulting, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. SUBSEQUENT EVENTS (CONTINUED)
The Company in March 1999 also issued $13,000 of subordinated notes bearing
interest at 9.25% per annum through June 2000, and 12% per annum thereafter
until maturity in March 2004. The subordinated notes are secured by a second
priority interest in all of the assets of the Company, and prohibits the payment
of dividends without the consent of the lender. The proceeds from the issuance
of the notes will be used to fund 1999 maturities of long-term debt.
In connection with the issuance of the subordinated debt, the lender was issued
warrants to purchase 392,506 shares of common stock at an exercise price of
$3.21 per share. The warrants expire six years from the date of final payment on
the subordinated debt.
45
<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
Certain information required in Part III is omitted from this Report but is
incorporated herein by reference from the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders for fiscal 1999 to be filed within 120
days after the end of the Company's fiscal year ended December 31, 1998 (the
"Proxy Statement") pursuant to Regulation 14A with the Securities and Exchange
Commission.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained in the Proxy Statement under the caption "The
Board of Directors" and "Executive Officers and Compensation" is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the Proxy Statement under the caption
"Executive Officers and Compensation" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained in the Proxy Statement under the caption "Stock
Ownership" is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained in the Proxy Statement under the caption
"Executive Officers and Compensation -- Certain Relationships and Related
Transactions" is incorporated herein by reference.
46
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS, EXHIBITS AND SCHEDULES
1. FINANCIAL STATEMENTS (See Item 8 hereof.)
Consolidated Balance Sheet as of December 31, 1998 and December 31,
1997
Consolidated Statement of Income for the fiscal years ended December
31, 1998, December 31, 1997 and December 31, 1996
Consolidated Statement of Stockholders' Equity for the fiscal years
ended December 31, 1998, December 31, 1997 and December 31, 1996
Consolidated Statement of Cash Flows for the fiscal years ended
December 31, 1998, December 31, 1997 and December 31, 1996
Notes to Consolidated Financial Statements
47
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves
All schedules, other than those outlined above, are omitted as the
information is not required or is otherwise furnished.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------
FTI Consulting, Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------------------------------------------------------------------------
Additions
- ------------------------------------------------------------------------------------------------------------------------------
Description Balance at Charged to Charged to Other Deductions Balance at End
Beginning of Costs and Accounts of Period
Period Expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Reserves and allowances deducted from asset accounts:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts 902 527 1,048 (2) 55 (1) 2,422
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Reserves and allowances deducted from asset accounts:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts 376 439 110 (2) 23 (1) 902
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Reserves and allowances deducted from asset accounts:
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts 377 115 116 (1) 376
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
(1) Uncollectible accounts written off, net of recoveries.
- ------------------------------------------------------------------------------------------------------------------------------
(2) Allowance recorded during acquisitions.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
3. EXHIBITS
NUMBER DESCRIPTION
------ -----------------------------------------------------------
* 3.1 Amended and Restated Articles of Incorporation of FTI
Consulting, Inc.
* 3.2 Bylaws of FTI Consulting, Inc.
- - 3.3 Amendment to Articles of Incorporation
- - 3.4 Amendment No. 1 to By-laws
** 4.2 Specimen Common Stock Certificate
*** 10.1 Financing and Security Agreement dated September 15, 1998,
between the Company and NationsBank, N.A., regarding a
revolving credit facility in the maximum amount of $35
million
* 10.2 1992 Stock Option Plan, as amended
* 10.3 Employment Agreement dated as of January 1, 1996, between
Forensic Technologies International Corporation and Jack B
Dunn, IV
* 10.4 Employment Agreement dated as of January 1, 1996, between
Forensic Technologies International Corporation and Joseph
R. Reynolds, Jr.
**** 10.6 1997 Stock Option Plan
***** 10.7 Employee Stock Purchase Plan
****** 10.8 Stock Purchase Agreement dated as of June 30, 1998 by and
among FTI Consulting, Inc., Klick, Kent & Allen, Inc. and
the Stockholders Named Therein
******* 10.9 Stock Purchase Agreement dated as of September 25, 1998 by
and among FTI Consulting, Inc., Glen R. Baker and Dennis A.
Guenther
******** 10.10 Stock Purchase Agreement dated as of September 17, 1998, by
and between FTI Consulting, Inc., Kahn Consulting, Inc.,
KCI Management Corp. and the Stockholders Named Therein
** 10.11 $13,000,000 Investment and Loan Agreement dated March 29,
1999, among FTI Consulting, Inc., its subsidiaries and
Allied Capital Corporation and Allied Investment
Corporation
** 10.12 Amended and Restated Financing and Security Agreement dated
March 30, 1999, among FTI Consulting, Inc., its
subsidiaries and NationsBank N.A.
** 11. Computation of Per Share Earnings (included in Note 2 to
the Consolidated Financial Statements included in Item 7,
herein)
** 21.0 Schedule of Subsidiaries
** 23.0 Consent of Ernst & Young LLP
24.0 Power of Attorney (included on signature page)
** 27.0 Financial Data Schedule
49
<PAGE>
- ----------
* Filed as an exhibit to the Company's Registration Statement on Form
SB-1, as amended (Filed No. 333-2002) and incorporated herein by
reference.
- - Filed as an exhibit to the Company's Registration Statement on Form
8-A (File No. 001-14875) and incorporated herein by reference
** Filed as an exhibit to this Form 10-K.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998 (File No. 001-14875) and
incorporated herein by reference.
**** Filed as an exhibit to the Company's Registration Statement on Form
S-8 (File No. 333-30173) and incorporated herein by reference.
***** Filed as an exhibit to the Company's Registration Statement on Form
S-8 (File No. 333-30357) and incorporated herein by reference.
****** Filed as an exhibit to the Company's Current Report on Form 8-K filed
July 15, 1998 (File No. 333-02002).
******* Filed as an exhibit to the Company's Current Report on Form 8-K filed
October 13, 1998 (File No. 333-02002).
******** Filed as an exhibit to the Company's Current Report on Form 8-K filed
October 2, 1998 (File No. 333-02002).
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized this 30
day of March, 1999.
FTI CONSULTING, INC.
By: /s/ Jack B. Dunn, IV
-------------------------------------------
Name: Jack B. Dunn, IV
Title: Chief Executive Officer and Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below on the dates indicated by the
following persons in the capacities indicated. Each person whose signature
appears below hereby constitutes and appoints each of Jack B. Dunn, IV as his
attorney-in-fact and agent, with full power of substitution and resubstitution
for him in any and all capacities, to sign any or all amendments to this Report
and to file same, with exhibits thereto and other documents in connection
therewith, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
in connection with such matters and hereby ratifying and confirming all that
such attorney-in-fact and agent or his substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- --------- ------------------------ ----
<S> <C> <C>
/s/ JACK B. DUNN IV Chairman of the Board and Chief March 30, 1999
- ------------------------------------ Executive Officer (principal
Jack B. Dunn, IV executive officer)
/s/ STEWART J. KAHN President and Acting Chief Financial March 30, 1999
- ------------------------------------ Officer (principal financial and
Stewart J. Kahn accounting officer)
/s/ JOSEPH R. REYNOLDS, JR. Vice Chairman of the Board March 30, 1999
- --------------------------------
Joseph R. Reynolds, Jr.
Director March 30, 1999
- ------------------------------------
James A. Flick, Jr.
/s/ PETER F. O'MALLEY Director March 30, 1999
- ------------------------------------
Peter F. O'Malley
/s/ DENNIS J. SHAUGHNESSY Director March 30, 1999
- ------------------------------------
Dennis J. Shaughnessy
/s/ GEORGE P. STAMAS Director March 30, 1999
- ------------------------------------
George P. Stamas
</TABLE>
51
EXHIBIT 4.2
NUMBER SHARES
F [LOGO]
FTI CONSULTING, INC. CUSIP 302941 10 9
Incorporated under the laws of the state of Maryland
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY-PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
FTI CONSULTING, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Articles of Incorporation, as
amended, and the By-Laws of the Corporation, as amended, (copies of which are on
file at the office of the Transfer Agent), to all of which the holder of this
Certificate by acceptance hereof ?????. This Certificate is not valid unless
countersigned and ??????? by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the fascimile signatures
of its duly authorized officers.
Dated:
/s/ FTI CONSULTING, INC. /s/
CORPORATE
SEAL
1998
MARYLAND
*
Exhibit 10.11
FTI CONSULTING, INC.
Annapolis, Maryland
$13,000,000
INVESTMENT AND LOAN AGREEMENT
March 29, 1999
Financing provided by
ALLIED CAPITAL CORPORATION
ALLIED INVESTMENT CORPORATION
--------------------------------------------------
--------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE 1
- --------
Parties 1
Recitals 1
ARTICLE 1 - LOAN 1
----
Section 1.1 Funding 1
Section 1.2 Collateral 2
Section 1.3 Senior Debt 2
ARTICLE 2 - EQUITY 2
------
Section 2.1 Stock Purchase Warrants 2
Section 2.2 Redemption Rights 3
Section 2.3 Valuation of Warrants 3
ARTICLE 3 - INVESTOR EXIT 3
-------------
Section 3.1 Registration Rights 3
(a) Piggy-Back Rights 3
(b) Demand Registration 4
(c) Registration Procedures 4
(d) Expenses; Consent 4
(e) Allocation 5
(f) Certain Obligation of Holders 6
(g) Indemnification and Contribution 6
(h) Underwritten Offerings 8
(i) Suspension 9
(j) Termination 10
Section 3.2 "Put" Rights 10
(a) Price 10
(b) Financing of Put Price 10
ARTICLE 4 - UNDERTAKINGS BY THE PRINCIPALS 10
------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.1 Commitment 11
Section 4.2 Non-Competition; Non-Disclosure 11
Section 4.3 Continued Control 11
Section 4.4 Access to Information 11
Section 4.5 Election of Director 11
Section 4.6 Termination of Undertakings by Each of the Principles 12
Section 4.7 Limitation of Remedies 12
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES 12
------------------------------
Section 5.1 Due Organization; Authority; Binding 12
Obligation; Opinion of Counsel
Section 5.2 Principal Business; Title To Assets 13
Section 5.3 Litigation 13
Section 5.4 Taxes 13
(a) Generally 13
(b) No Open Returns 13
(c) Excess Parachute Payments 14
(d) Deferred Intercompany Transactions 14
(e) True Copies of Returns 14
Section 5.5 Financial Statements 14
Section 5.6 Leases; Status of Payables 14
Section 5.7 Disclosure 14
Section 5.8 Management History 15
Section 5.9 Subsidiaries 15
Section 5.10 Incumbency 15
Section 5.11 No Material Change 15
Section 5.12 No Side Agreements 15
Section 5.13 Non-Contravention 16
Section 5.14 Fees & Brokerage 16
Section 5.15 Other Debts; Subordination of Notes to Sellers; Sources and 16
Uses
Section 5.16 Capital Structure 16
Section 5.17 Solvency 16
Section 5.18 Investment Company 17
Act Representations
Section 5.19 Regulatory Compliance 17
Section 5.20 Employee Benefit Matters 17
Section 5.21 Collective Bargaining 17
Section 5.22 Employees 18
Section 5.23 No Competing Business Interests 18
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.24 No Conflicting Non-Competition 18
Agreements
Section 5.25 Year 2000 Compliance 18
Section 5.26 SBA Representations 19
ARTICLE 6 - AFFIRMATIVE COVENANTS 19
---------------------
Section 6.1 Monthly and Quarterly Financials 19
Section 6.2 Certification of Non-Default 20
Section 6.3 Year-end Financials; Annual Audit 20
Section 6.4 Projected Financials 20
Section 6.5 Regulatory Filings 20
Section 6.6 Notice of Litigation 20
Section 6.7 Notice of Defaults of Judgments 20
Section 6.8 Board Meetings and Representation 21
Section 6.9 Insurance 21
Section 6.10 Use of Proceeds; Certification 21
Section 6.11 First Refusal for Future Financings 21
Section 6.12 Access to Records 21
Section 6.13 Financial Covenants 22
Section 6.14 Payments and other Debts 22
Section 6.15 Maintain Copies; Financing Statements 23
Section 6.16 Information Requests 23
Section 6.17 Protect the Collateral 23
Section 6.18 Further Assurance 23
Section 6.19 Collateral Assignments of Certain Leases; Landlord Consents 23
ARTICLE 7 - NEGATIVE COVENANTS 24
------------------
Section 7.1 Change in Organization 24
Section 7.2 Equity Issuance or Redemption 24
Section 7.3 Dividends 24
Section 7.4 Mergers, Etc. 24
Section 7.5 Capital Expenditures 24
Section 7.6 Employee Compensation 24
Section 7.7 Affiliate Transactions 25
Section 7.8 Change of Site 25
Section 7.9 Change in Company, etc. 25
Section 7.10 Judgments 25
Section 7.11 Cross-Defaults 25
Section 7.12 No Liens 25
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 8 - DEFAULT 25
-------
Section 8.1 Events of Default 25
(a) Principal and Interest Payments 25
(b) Representations and Warranties 26
(c) Covenants 26
(d) Loan Documents 26
(e) Involuntary Bankruptcy or 26
Receivership Proceedings
(f) Voluntary Petitions 26
(g) Assignments for Benefit of 26
Creditors
(h) Attachment 27
(i) Due on Sale 27
(j) Loss of Key Employees 27
Section 8.2 Remedies 27
ARTICLE 9 - FEES AND COSTS 28
--------------
Section 9.1 Closing Costs 28
Section 9.2 Commitment Fee 28
Section 9.3 Exit Fee 28
Section 9.4 Reasonable Fees 28
Section 9.5 Expenses 28
Section 9.6 Costs and Fees 29
ARTICLE 10 - INDEMNIFICATION. ENVIRONMENTAL LIABILITY 29
----------------------------------------
ARTICLE 11 - REMEDIES 30
--------
Section 11.1 Cumulation. Receivership 30
Section 11.2 No Implied Waiver 30
ARTICLE 12 - PARTIES 30
-------
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 13 - NOTICE 31
------
ARTICLE 14 - RELATIONSHIP OF THE PARTIES 32
---------------------------
ARTICLE 15 - CONTROLLING LAW; VENUE AND JURISDICTION; SERVICE OF PROCESS 32
-----------------------------------------------------------
ARTICLE 16 - WAIVER OF TRIAL BY JURY 33
-----------------------
ARTICLE 17 - CAPTIONS; SEVERANCE 33
-------------------
ARTICLE 18 - COUNTERPARTS; ENTIRE AGREEMENT; POWER OF ATTORNEY 33
-------------------------------------------------
ARTICLE 19 - DEFINITIONS AND RULES OF CONSTRUCTION 34
-------------------------------------
Section 19.1 Definitions 34
Section 19.2 Rules of Construction 38
TABLE OF EXHIBITS
</TABLE>
v
<PAGE>
THIS INVESTMENT AND LOAN AGREEMENT is made by and among (i) FTI CONSULTING,
INC., a Maryland corporation (collectively with successors and assigns, the
"Parent"), (ii) TEKLICON, INC., a California corporation ("Teklicon"), L.W.G.,
INC., an Illinois corporation ("L.W.G."), KLICK, KENT & ALLEN, INC., a Virginia
corporation ("KK&A"), KAHN CONSULTING, INC., a New York corporation ("Kahn")
S.E.A, INC., AN OHIO CORPORATION ("SEA") and KCI MANAGEMENT CORP., a New York
corporation ("KCI") (Teklicon, L.W.G., KK&A, Kahn, SEA and KCI, collectively
with successors and assigns the "Subsidiaries", and the Subsidiaries,
collectively with the Parent, the "Companies"; each, a "Company"); (iii) JACK B.
DUNN IV and STEWART J. KAHN, each an executive officer of the Parent, (
sometimes hereinafter being referred to collectively as the "Principals"), and
(iv) ALLIED CAPITAL CORPORATION and ALLIED INVESTMENT CORPORATION, each a
Maryland corporation (collectively with successors and assigns, the "Holders").
RECITALS
A. Under terms of a letter dated March 1, 1999, the Companies propose
to issue to Holders certain subordinated debentures and the Parent proposes to
issue certain warrants to purchase shares of the its common stock, in
consideration for a loan in the aggregate principal amount of Thirteen Million
Dollars ($13,000,000) (collectively with all modifications, renewals, extensions
and replacements thereof and therefor, the "Loan"), to be used to retire certain
existing debt of Parent and for working capital.
B. Under terms of a Credit Agreement dated this date, NationsBank,
N.A. is providing to the Parent a revolving line of credit, one or more term
loans and certain other credit facilities, in the maximum principal amount of
Twenty-seven Million Dollars ($ 27,000,000).
PROVISIONS
In consideration of the premises and the covenants herein, the Holders, the
Principals and the Companies agree as set forth below.
ARTICLE 1.
Loan
Section 1.1 Funding. At Closing (as such term is defined in the definition
section hereof in Article 19, below), the Holders will fund the Loan. The Loan
will be evidenced by, and repaid according to, the terms of two (2) Subordinated
Debentures (collectively, with all modifications, extensions,
<PAGE>
renewals and replacements thereof and therefor, the "Debentures"), each of which
will be issued by the Companies to a Holder at Closing.
Section 1.2 Collateral. Subject to the prior liens described in Section 1.3
below, the Debentures and the Holders' rights herein shall be secured pari passu
against all of the Companies' realty and personality and other property of any
kind, all accessions thereto, substitutions for and all replacements, products
and proceeds thereof, including without limitation the collateral described
below. The Companies hereby grant to the Holders continuing security interests
in all of the foregoing. At Closing, to the extent parties thereto, the
Companies shall execute and deliver to the Holders each of the following
documents (collectively, with all modifications, extensions, renewals and
replacements thereof and therefor, the "Collateral Documents"):
(a) Security Agreement;
(b) UCC-1 Financing Statements in the form attached hereto as EXHIBIT
1.02(B);
(c) Collateral assignments of the Companies' leasehold interests in
the real property and any improvements thereon as identified in Section 6.19, in
the form of EXHIBIT 1.02(C) hereto; and
(d) Pledges of the capital stock of each of the Subsidiaries.
The Collateral Documents, this Agreement and the Debentures, collectively with
all modifications, extensions, renewals and replacements thereof and therefor,
are sometimes hereinafter referred to as the "Loan Documents".
Section 1.3 Senior Debt. The indebtedness under the Debentures and the Holders'
rights herein shall be subordinate in lien priority and right of payment, to
that certain revolving line of credit from NationsBank, N.A. in the amount of no
more than $27,000,000 as more particularly described in documents set out as
EXHIBIT 1.03(A) hereto; the financings set out in such exhibit (as amended from
time to time) are sometimes collectively called the "Senior Debt".
2
<PAGE>
ARTICLE 2.
Equity
Section 2.1 Stock Purchase Warrants.
(a) At Closing, the Parent will issue and sell to each Holder a Stock
Purchase Warrant (collectively with all modifications, extensions, renewals and
replacements thereof and therefor, the "Warrants") to acquire shares of the
Parent's $.01 par value common stock ("Shares") which will entitle the Holders
to receive that number of the Parent's authorized but unissued Shares that will
provide the Holders, in the aggregate, with Seven and one-half Percent (7 []%)
of the Parent's capital stock, calculated on a Fully Diluted Basis at Closing
or, if the Loan is repaid on or before June 30, 2000, Five Percent (5%) of such
capital stock, calculated on a Fully Diluted Basis at Closing. The aggregate
purchase price for such Warrants shall be One Hundred Dollars ($100), which the
Holders shall pay to the Parent at Closing.
(b) The exercise price of the Warrants is based on the lesser of the
trailing seven (7) day average mid-market price of the Shares on (i) March 1,
1999 and (ii) the date hereof, and such averages are as set forth on EXHIBIT
2.01(B) hereto. In the event that the averages as set forth on EXHIBIT 2.01(B)
prove to be incorrect, the parties mutually agree to amend EXHIBIT 2.01(B) and
to take all steps necessary to amend the Warrants to reflect the correct
exercise price.
Section 2.2 Redemption Rights. The Holders shall be entitled to share ratably in
any redemption of stock by the Parent. If the Parent shall redeem or otherwise
purchase for value any of its Shares prior to full exercise of any of the
Warrants, each of the relevant Holders, at its option, may receive, at the time
of such redemption or purchase, the same proceeds it would have been entitled to
receive if its Warrants had been exercised in full prior to such redemption or
purchase.
Section 2.3 Valuation of Warrants. The Holders and the Parent hereby agree that
as of the Closing, the fair market value of the Warrants is One Hundred Dollars
($100), and that they shall prepare and maintain their books of account,
financial statements and tax returns in a manner consistent therewith.
ARTICLE 3.
Investor Exit
3
<PAGE>
Section 3.1 Registration Rights.
(a) Piggy-Back Rights. If the Parent shall at any time prepare and
file a registration statement under the Securities Act with respect to the
public offering of any class of equity or debt security of the Parent, any
Subsidiary or of any other commonly-controlled entity, the Parent shall give
thirty (30) days prior written notice thereof to each Holder and shall, upon the
written request of a Holder and subject to Section 3.1(c), include in the
registration statement such number of the said Holder's Shares as such Holder
may request. In the event the Parent fails to receive a written inclusion
request from a Holder within ten (10) business days after the mailing of its
written notice, then the Parent shall have no obligation to include any of such
Holders' Shares in the offering. Any offer pursuant to this Section 3.1(a) shall
be in accordance with the terms and procedures of Section 3.1(c)-(j) below.
(b) Demand Registration. A Holder may request that the Parent effect a
registration under the Securities Act of all or part of its Shares. The Parent
shall not be required to register Shares pursuant to this Section 3.1(b) on more
than two (2) occasions. A request for registration pursuant to this Section
3.1(b) shall specify the approximate number of Shares requested to be registered
and the anticipated per share price range for such offering. If the Holder
intends to distribute the Shares by means of an underwriting, it shall so advise
the Parent in its request. In the event such registration is underwritten, the
right of the other persons who have "piggyback" registration rights may include
all or a portion of such securities in such registration. Thereupon, the Parent
shall: (i) file a registration statement and related documents with the
Securities and Exchange Commission, and all other applicable securities agencies
or exchanges, for the public offering and sale of all or a portion of the
Holders' Shares; and (ii) use its best efforts to cause such registration
statements to be declared effective as soon as practicable and in any event
within ninety (90) days after the written request is received from any Holder.
Any offer pursuant to this Section 3.1(b) shall be in accordance with the terms
and procedures of Section 3.1(c)-(j) below.
(c) Registration Procedures. The Parent will keep such registration
statement effective and current under the Securities Act permitting the sale of
the said Holder's Shares included therein for the same period that the
registration is maintained effective in respect of Shares of other persons
(including the Parent). In any underwritten offering of Shares the Holders'
Shares to be included will be sold at the same time and the same per-share price
as the Parent's Shares. In connection with any registration statement or
subsequent amendment or similar document filed and subject hereto, the Parent
shall take all reasonable steps to make the Holders' securities covered thereby
eligible for public offering and sale under the securities or blue sky laws of
such jurisdictions as may be specified by the relevant Holders by the
4
<PAGE>
effective date of such registration statement; provided that in no event shall
the Parent be obligated to qualify to do business in any jurisdiction where it
is not so qualified at the time of filing such documents, or to take any action
which would subject it to unlimited service of process in any jurisdiction where
it is not so subject at such time. The Parent shall keep such blue-sky filings
current for the length of time it must keep any registration statement,
post-effective amendment, prospectus or offering circular effective pursuant
hereto.
(d) Expenses; Consent. In connection with any registration statement
or other filing described herein, and in connection with making and keeping such
filings effective as provided herein, the Parent shall bear all the expenses and
professional fees of the Parent and the reasonable fees and expenses of one
counsel for both of the Holders (except that the Parent shall not be responsible
for a Holder's pro rata share of any underwriter's discount or selling
commission). The Parent shall also provide the Holders with a reasonable number
of printed copies of the prospectus, offering circulars and/or supplemental or
amended prospectuses in final and preliminary form. The Parent consents to the
use of each such prospectus or offering circular in connection with the sale of
the Holders' Shares.
(e) Allocation.
(i) If any registration under Section 3.1(a) involves an
underwritten offering and the managing underwriter of such offering shall advise
the Parent by letter that, in its view, the number of securities requested to be
included in such registration exceeds the largest number (the "Maximum Amount")
that can be sold in an orderly manner in such offering and would materially and
adversely effect such offering, then the Parent shall notify the Holders of such
fact and give the Holders the reasonable opportunity to negotiate with the
managing underwriter regarding the inclusion in such registration of all of the
shares requested by the Holders to be included therein. If the managing
underwriter does not agree to include more than eighty (80) percent (or such
lesser percentage as the Holders shall, in their sole discretion, agree to) of
the number of shares initially requested by the Holders to be included in such
registration, then the Parent shall include in such registration, to the extent
of the number and type of which the Parent is so advised can be sold in (or
during the time of) such offering: (1) first, all Shares that the Parent
proposes to register for its own account (the "Company Securities"); and (2)
second, to the extent that the number of Company Securities is less than the
Maximum Amount, the remaining Shares to be included in such registration shall
be allocated on a pro rata basis among the selling Holders requesting that
Shares be included in such registration, based on the number of Shares then
owned by each Holder requesting inclusion in relation to the number of Shares
then owned by both selling Holders requesting inclusion.
5
<PAGE>
(ii) If any registration under Section 3.1(b) involves an
underwritten offering and the managing underwriter of such offering shall advise
the selling Holders by letter that, in its view, the number of securities
requested to be included in such registration exceeds the largest number (the
"Maximum Amount") that can be sold in an orderly manner in such offering by
holders of securities of the Parent other than the Holders to be included in
such registration and would materially and adversely affect the underwritten
offering, then the Parent shall include in such registration, to the extent the
number and type of securities which the Parent is so advised can be sold in (or
during the time of) such offering: (1) first, all Shares requested to be
included in such registration by the selling Holders; and (2) second, to the
extent that the number of Shares to be included by all selling Holders is less
than the Maximum Amount, securities that the Parent proposes to register.
(f) Certain Obligations of Holders.
(i) It shall be a condition precedent to the obligations of the
Parent to take any action under this Agreement with respect to the Shares of any
selling Holder that such Holder shall furnish to the Parent such information
regarding itself, the Shares held by it, and the intended method of disposition
of such securities as shall be reasonably required to effect the registration of
such Holder's Shares.
(ii) Each Holder of Shares covered by a registration statement
agrees that, upon receipt of any notice from the Parent that the registration
materials must be supplemented or amended, such Holder will forthwith
discontinue disposition of Shares pursuant to such registration statement until
such Holder's receipt of copies of a supplemented or amended prospectus covering
such Shares, and, if so directed by the Parent, such Holder will deliver to the
Parent (at the Parent's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Shares current
at the time of its receipt of such notice.
(g) Indemnification and Contribution.
(i) In the event of any registration of any of the Shares under
the Securities Act pursuant to this Agreement, the Parent will indemnify and
hold harmless the selling Holder of such Shares, each underwriter of such
Shares, and each other person, if any, who controls such selling Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities, joint or several, to which
such selling Holder, underwriter, or controlling person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky laws, or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
6
<PAGE>
alleged untrue statement of any material fact contained in any registration
statement under which such Shares were registered under the Securities Act, any
preliminary prospectus, or final prospectus contained in the registration
statement, or any amendment or supplement to such registration statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Parent will reimburse such selling Holder,
underwriter, and each such controlling person in connection with investigation
or defending any such loss, claim, damage, liability, or action; provided,
however, that the Parent will not be liable in any such case to the extent that
any such loss, claim, damage, or liability arises out of or is based upon any
untrue statement or omission made in such registration statement, preliminary
prospectus, or final prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Parent, in a
written instrument, duly executed, by or on behalf of such selling Holder,
underwriter, or controlling person specifically stating that it is for use in
the preparation thereof.
(ii) In the event of any registration of any of the Shares under
the Securities Act pursuant to this Agreement, each selling Holder of Shares,
severally and not jointly, will indemnify and hold harmless the Parent, each of
its directors and officers and each underwriters (if any) and each person, if
any, who controls the Parent or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities, joint or several, to which the Parent, such directors and officers,
underwriter, or controlling person may become subject under the Securities Act,
Exchange Act, state securities or Blue Sky laws, or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the registration statement, or any amendment or
supplement to the registration statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished to the Parent through an instrument duly executed by a
Selling Holder specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that the obligations of
each selling Holder hereunder shall be limited to an amount equal to the
proceeds to such selling Holder of Shares sold in connection with such
registration.
(iii) Each party entitled to indemnification under this Section
3.1(g) (the "Indemnified Party") shall give notice to the party required to
provide
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indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), unless in such Indemnified Party's reasonable judgment a conflict of
interest between such Indemnified and Indemnifying Parties may exist in respect
of such claim; and, provided, further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 3.1(g). The Indemnified Party may participate
in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation, shall except with the
prior written consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party.
(iv) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 3.1(g) but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 3.1(g)
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling Holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 3.1(g); then, in each such case, the Parent and such selling
Holder will contribute to the aggregate losses, claims, damages, or liabilities
to which they may be subject (after contribution from others) in such
proportions so that such holder is responsible for the portion represented by
the percentage that the public offering price of its Shares offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Parent is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the proceeds to it of all
Shares sold by it pursuant to such registration statement, and (B) no person or
entity guilty of
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fraudulent misrepresentation, within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any person or entity who
is not guilty of such fraudulent misrepresentation. In addition, no person shall
be obligated to contribute hereinunder any amounts in payment for any settlement
of any action or claim, effected without such person's prior written consent,
which consent shall not be unreasonably withheld.
(h) Underwritten Offerings.
(i) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by the Holders pursuant to a
registration requested under Section 3.1(b), the Parent will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Parent, the Holders
and the underwriters, and to contain such representations and warranties by the
Parent and the Holders and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in Section 3.1(g). The Holders will cooperate
with the Parent in the negotiation of the underwriting agreement and will give
consideration to the reasonable suggestions of the Parent regarding the form and
substance thereof. The Holders shall each be a party to such underwriting
agreement. The Holders shall not be required to make any representations or
warranties to or agreements with the Parent or the underwriters other than
representations, warranties or agreements regarding the Holders, their shares,
their intended method of distribution and any other representations or
warranties required by law or customarily given by selling shareholders in an
underwritten public offering.
(ii) Piggyback Underwritten Offerings. If the Parent proposes to
register any of its securities under the Securities Act as contemplated by
Section 3.1(a) and such securities are to be distributed by or through one or
more underwriters, subject to the provisions of Section 3.1(e)(i) the Parent
will, if requested by the Holders, arrange for such underwriters to include all
of the Shares to be offered and sold by the Holders among the securities of the
Company to be distributed by such underwriters. The Holders shall each become a
party to the underwriting agreement negotiated between the Company and such
underwriters. The Holders shall not be required to make any representations or
warranties to or agreements with the Parent or the underwriters other than
representations, warranties or agreements regarding the Holders, their shares
and their intended method of distribution or any other representations or
warranties required by law or customarily given by selling shareholders in an
underwritten public offering.
(i) Suspension.
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(i) Prior to its effective date, the Board of Directors of the
Parent may postpone or terminate any registration under Section 3.1(a) in its
sole discretion; provided, however, that (A) such election shall not relieve the
Parent of its obligations to pay expenses pursuant to Section 3.1(d) and (B) the
Holders may request that such registration be effected as a registration under
Section 3.1(b). No registration effected under Section 3.1(a) or postponed or
terminated pursuant to this Section 3.1(i)(i) shall relieve the Parent of its
obligations under Section 3.1(b).
(ii) If the Board of Directors of the Parent, in its good faith
judgment, determines that any registration of Shares should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization, merger, or other material transaction
involving the Parent or any of the Subsidiaries, taken as a whole, (a "Valid
Business Reason") (i) the Parent may postpone filing a registration statement
relating to a registration under Section 3.1(b) until such Valid Business Reason
no longer exists, but in no event for more than 90 days and (ii) in case a
registration statement has been filed relating to a registration under Section
3.1(b), the Parent may cause such registration statement to be withdrawn and its
effectiveness terminated or may postpone amending or supplementing such
registration statement until such Valid Business Reason no longer exists, but in
no event for more than 90 days, provided, that (A) the Parent may not exercise
this deferral right more than once during any twelve (12) month period and (B)
nothing contained in this Section 3.1(ii) shall relieve the Parent of its
obligations under Section 3.1(a) or (d).
(j) Termination. As to any particular Shares, such securities shall
cease to be subject to registration under this Agreement when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
transferred in accordance with such Registration Statement, (b) they shall have
been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act, or provided that at the time such securities are proposed to be
sold, they may be sold under Rule 144 without any limitation on the amount of
such securities which may be sold or (c) they shall have ceased to be
outstanding.
Section 3.2 "Put" Rights.
(a) Price. At any time beginning five (5) years after the Closing, if
the number of Shares traded on a national or regional stock exchange or in the
National Association of Securities Dealers, Inc. National Market System has been
less than 50,000 per day for a period of 20 consecutive trading days, the
Holders, on one occasion, by written notice may require the Parent to
re-purchase its Warrants or the Shares issued thereunder. A redemption of any of
the Holders' Shares pursuant to Section 2.2 shall not be deemed a re-
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purchase under this Section 3.2(a). In the case of Shares issued upon the
exercise of the Warrants, the repurchase price shall be the product of the
average of the closing bid and ask prices for the five (5) trading days prior to
such notice (the "Per-Share Value"), times the number of Shares being
repurchased. In the case of an unexercised Warrant, the price shall be the
difference between the Per-Share Value and the per-share exercise price of the
Warrant, multiplied by number of Shares for which the Warrant is exerciseable.
(b) Financing of Put Price. If upon exercise by a Holder of the Put
right above, the Parent is unable after diligent effort to draw funds from its
Senior Debt loan facility to pay the above-referenced re-purchase prices without
occasioning a breach under the relevant loan agreements, the Companies may
require the Holders to extend them a loan for such purpose on the terms and
conditions set out herein for the Loan.
ARTICLE 4.
Undertakings by the Principals
Section 4.1 Commitment. Each of the Principals will devote his full time and
attention to the Companies' businesses unless (i) prevented from doing so by his
death or disability (ii) the Board of Directors terminates such Principal's
employment with the Companies; or (iii) his employment agreement (listed on
EXHIBIT 5.22) expires pursuant to its existing provisions contained in Section
3.01 thereof.
Section 4.2 Non-Competition; Non-Disclosure. The Non-Competition and
Non-Disclosure Agreements between the Companies, and each of the Principals, in
the form of EXHIBIT 4.02, are in full force and effect.
Section 4.3 Continued Equity Ownership. Except for Exempt Transfers (as defined
below), neither of the Principals shall sell, assign or transfer any Shares or
other equity interest in the Parent which they own, or otherwise divest
themselves of any voting rights which they may hold in regard to stock in the
Parent. "Exempt Transfer" means any of the following sales, assignments or
transfers by either Principal of the capital stock or equity interests of the
Parent or any interest therein (each, a "transfer"):
(a) any transfer pursuant to the laws of descent and distribution upon
the death of such Principal;
(b) any sale of Shares wherein the proceeds are used solely to pay the
exercise price of options to purchase other Shares, issued pursuant to an
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incentive stock option plan described in EXHIBIT 4.03(B) hereof and, in the case
of Mr. Dunn only, the sale of up to 10,000 Shares, per fiscal quarter of the
Parent, acquired pursuant to the incentive stock option plan listed on EXHIBIT
4.03(B);
(c) any sale of Shares where the proceeds are used solely to remedy a
bona fide crisis involving members of the Principal's immediate family and which
is made with the prior consent of the Holders, such consent not to be
unreasonably withheld (such consent being deemed to have been irrevocably given
upon receipt of a written request by the Principal to the Holders and is not
responded to within ten (10) days of the Holders' receipt thereof);
(d) any transfer to a bona fide trust in which the trust beneficiary
is the Principal or a member of his immediate family, provided, that the
Principal retains the right to direct the vote of such shares; and
(e) any transfer pursuant to the prior written consent of the Holders.
Section 4.4 Access to Information. Each of the Principals hereby authorizes the
Holders or their authorized representatives to obtain credit and other
background information on each such Principal in connection herewith.
Section 4.5 Election of Director. Each of the Principals will use his best
efforts (provided, that such efforts shall not require expenses to be incurred
by the Principals) in good faith to cause any one person whom Holders request to
be elected as their designee to the Companies' Boards of Directors pursuant to
Section 6.8, below, to be so elected.
Section 4.6 Termination of Undertakings by Each of the Principals. This Article
4 shall remain in full force and effect, as to each Principal, until the
earliest of: (i) the Debentures are indefeasibly repaid in full; (ii) a Holder
has transferred or disposed of more than ninety (90) percent of the voting or
economic interests represented by the Warrants sold to it pursuant to Section
2.1 (for purposes of this clause, the exercise of Warrants in exchange for
Shares shall not be deemed a disposition of the voting or economic interests
represented by the Warrants, but the disposition of shares issued as a result of
the exercise of the Warrants shall be deemed a disposition of a proportionate
interest in the Warrants); or (iii) that Principal's employment is terminated in
a manner described in Section 4.1.
Section 4.7 Limitation of Remedies. The Holders' sole remedy against either of
the Principals for a violation of the agreements contained in this Article 4
shall be to apply to a court of competent jurisdiction for an injunction
restraining
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such principal from committing or continuing any violation of this Article 4,
and a Principal shall not object to such application except to litigate whether,
in fact, such Principal has violated this Article 4, provided, however, that
this Section 4.7 shall not apply in the case of a fraudulent or intentional
misrepresentation by such Principal, and will not in any case limit the Holders'
remedies against the Companies for such a violation.
ARTICLE 5.
Representations and Warranties
To induce the Holders to enter the transactions contemplated herein and
purchase the Debentures and the Warrants, the Companies, jointly and severally,
represent and warrant as set out below. All representations and warranties in
this Article shall refer to facts as they exist at Closing (unless a
representation is made as of a specific date) and shall survive the Closing.
Section 5.1 Due Organization; Authority; Binding Obligation; Opinion of Counsel.
Each of the Companies is duly incorporated, validly existing and in good
standing under the laws of its state of incorporation having Articles of
Incorporation, as amended (including any certificates of designation), and
By-Laws, as amended, (all terms of which are in full force and effect) as
previously furnished to the Holders, and true copies of which are attached
hereto as part of EXHIBIT 5.01A; each of the Companies is duly qualified to
conduct its business as proposed and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its business or location
of its properties require such qualification and except where the failure to so
qualify would not have a material adverse effect, evidence of which
qualification and good standing is attached hereto as EXHIBIT 5.01B; each of the
Companies has full power and authority to enter into each of the Loan Documents,
to borrow money as contemplated hereby and thereby, and to carry out the
provisions hereof and thereof; each of the Companies has taken all corporate
action necessary for the execution and performance of each of the Loan Documents
to which it is a party as evidenced by the resolutions set forth in EXHIBIT
5.01A; the Loan Documents and each document to be executed by the Companies
therewith will constitute a valid and binding obligation of each such Company,
enforceable in accordance with their respective terms when executed and
delivered; and the Companies have caused their counsel to deliver a letter
opining as to such authority and related matters in the form set forth in
EXHIBIT 5.01C.
Section 5.2 Principal Business; Title to Assets. Each of the Companies is
primarily engaged in the businesses described on Exhibit 5.02; each of the
Companies has good and marketable title to and ownership of all real and
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personal property it purports to own, free and clear of all liens, claims,
security interests and encumbrances except for Permitted Liens.
Section 5.3 Litigation. None of the Companies is a party to or, to any of the
Companies' knowledge, threatened by any suits, actions, claims, investigations
by governmental bodies or legal, administrative or arbitrational proceedings,
except as set out in the litigation schedule attached hereto as EXHIBIT 5.03
(hereinafter "Litigation Schedule"); there are no outstanding orders, judgments,
writs, injunctions or decrees of any court, government agency or arbitrational
tribunal against or affecting any of the Companies or their properties, assets
or businesses.
Section 5.4 Taxes.
(a) Generally. The Companies have filed all tax returns, federal,
state and local, which are required to be filed, and have duly paid or fully
reserved for all taxes or installments thereof (including any interest or
penalties), which have or may become due pursuant thereto or pursuant to any
assessment received by any of the Companies.
(b) No Open Returns. No Federal, state, local, foreign or other return
of any of the Companies for tax years that remain open under any applicable
statute of limitations, has been examined by the Internal Revenue Service or
other tax authorities; or if so examined no deficiencies have been asserted or
assessments made as a result of such examinations (including all penalties and
interest); there are no waivers, agreements or other arrangements providing for
any extension of time with respect to the assessment or collection of any unpaid
tax, interest or penalties relating to any of the Companies; no issues have been
raised by (or are currently pending before) the Internal Revenue Service or any
other taxing authority in connection with any return of any of the Companies,
which could reasonably be expected to have a material adverse effect on the
financial condition of any of the Companies if decided adversely against any of
the Companies, nor are there any such issues which have not been so raised but
if so raised by the Internal Revenue Service, or any other taxing authority,
could, in the aggregate, reasonably be expected to have such a material adverse
effect.
(c) Excess Parachute Payments. None of the Companies has made, has
become obligated to make, or will, as a result of the transactions contemplated
by the Loan Documents, make or become obligated to make, any "excess parachute
payment" as defined in Internal Revenue Code Section 280G.
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(d) Deferred Intercompany Transactions. None of the Companies or their
affiliates has engaged in any "deferred intercompany transactions" within the
meaning of Section 1.1502-13 of the regulations promulgated under the Internal
Revenue Code.
(e) True Copies of Returns. The Companies have delivered to the
Holders true, correct and complete copies of all Federal, state and local tax
returns for each of the Companies' most recent three (3) full taxable years as
of Closing, and all information set forth on such returns is true, complete and
accurate.
Section 5.5 Financial Statements. The audited financial statements of the Parent
prepared by Earnst & Young, L.L.P. for the twelve (12) months ending December
31, 1998, attached as EXHIBIT 5.05 are prepared in accordance with GAAP, are
true and correct in all material respects, and fairly state the results of the
Companies' operations and their financial position at such dates and for the
periods stated.
Section 5.6 Leases; Status of Payables. True copies of all real property leases
to which any of the Companies is a party have been provided to the Holders, and
a list of all such leases is set forth on EXHIBIT 5.06; the Companies'
possession of their leased property has not been disturbed, and no claim has
been asserted against any of the Companies adverse to its leasehold interests.
All lease obligations, accounts payable and other debts of the Companies are
current in all material respects.
Section 5.7 Disclosure. All representations made by any of the Companies, their
officers or directors regarding the Companies or their businesses, in the
Perfection Certificates previously provided to the Holders, and in any other
document described herein or previously supplied to either Holder in regard to
this financing, are true and correct in all material respects as of this date,
and all projections, including the estimated quarterly summary report for the
first fiscal quarter of 1999 dated March 16, 1999, provided to the Holders (in
connection with this financing) in such documents were prepared in good faith
and are based on reasonable assumptions; no representation or warranty made by
any of the Companies or either of the Principles herein or in any such document
statement or writing furnished to any Holder in connection with the transactions
contemplated herein contains or will contain any untrue statement of material
fact, or omits to state a material fact necessary to make a statement therein
not misleading.
Section 5.8 Management History. During the past ten (10) years neither of the
Principals, nor any other officer or director of any of the Companies, has been
arrested for or convicted of any criminal offense, petitioned or been granted
any relief in bankruptcy, or (except in the capacity as a trustee in bankruptcy)
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served as an officer or director of any company or other entity which has
petitioned or been granted such relief (except in a professional capacity).
Section 5.9 Subsidiaries. Except for Parent's ownership of the Subsidiaries, the
Companies have no subsidiaries, partners, commonly controlled or related
entities or (except for their officers and directors) other affiliates. Each of
the Subsidiaries is wholly-owned by the Parent and no other person has any
options, warrants or other rights to acquire capital stock of any Subsidiary.
Section 5.10 Incumbency. Attached hereto as EXHIBIT 5.10 is a true and complete
list of officers, directors and holders of five percent (5%) or more of the
equity securities of each of the Companies.
Section 5.11 No Material Change. Since December 31, 1998, none of the Companies
has suffered any material adverse change in its condition (financial or
otherwise) or, to its knowledge, its overall business prospects, nor entered
into any material transactions, or incurred any material debt, obligation or
liability, absolute or contingent, nor sustained any material loss or damage to
its property, real or personal, whether or not insured except as proposed
herein, nor suffered any material interference with its business or operations,
present or proposed; and there has been no sale, lease, abandonment or other
disposition by any of the Companies of any of their property, real or personal,
or any interest therein or relating thereto, that is material to the financial
position of any of the Companies.
Section 5.12 No Side Agreements. None of the Companies or any of their officers
or directors or any shareholders owning five percent (5%) or more of the equity
securities in the Parent are party to any agreement with either Holder except
for the Loan Documents and the other documents mentioned herein or listed as
exhibits hereto; except for the Loan Documents and agreements with respect to
their acquisition of other consulting businesses, the Companies are not party to
any agreement calling for any action by any of the Companies outside the
ordinary course of their businesses; there exists no agreement or understanding
calling for any payment or consideration from a customer or supplier of any of
the Companies to an officer or director of any of the Companies or shareholder
owning more than five percent (5%) of the equity securities of the Parent in
respect of any transaction between any such Company and such supplier or
customer; no affiliate of any of the Companies, directly or through any business
concern affiliated with such affiliate, transacts any business with any of the
Companies other than employment complying with the terms of Section 7.7 below.
Section 5.13 Non-Contravention. Except for matters set out in the Litigation
Schedule, none of the Companies is in breach of, default under, or in violation
of any applicable law, decree, order, rule or regulation which may
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materially and adversely affect it, or any indenture, contract, agreement, deed,
lease, loan agreement, commitment, bond, note, deed of trust, restrictive
covenant, license or other instrument or obligation to which it is a party, or
by which it is bound, or to which any of its assets are subject and which could
have a material adverse effect on such Company; the execution, delivery and
performance of the Loan Documents and the other documents mentioned herein will
not constitute any such breach, default or violation, or require consent or
approval of any court, governmental agency or body, except as expressly provided
herein.
Section 5.14 Fees & Brokerage. Except as provided in the Commitment Letter or as
set forth on EXHIBIT 5.14, no brokerage or similar fees are due to any party in
respect to the transactions contemplated by any of the Loan Documents.
Section 5.15 Other Debts; Subordination of Notes to Sellers; Sources and Uses.
Except for the Senior Debt described in Section 1.3 above, the matters set out
in the Litigation Schedule, other debts of the types and in the amounts
described in the financial statements included herein as EXHIBIT 5.05; none of
the Companies has debts, liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, arising out of any transaction
entered into or any state of facts existing prior hereto, including without
limitation, liabilities or obligations on account of taxes or government
charges, penalties, interest or fines thereon or in respect thereof; none of the
Companies knows of any basis for any claim against them as of the date of this
Agreement, or of any debt, liability or obligation other than those mentioned
herein; the notes and other indebtedness owed by the Companies to sellers of
previously-acquired businesses have been expressly subordinated to the Loan in
lien priority and in right of payment; EXHIBIT 5.15 hereto correctly states the
sources and uses of the Loan.
Section 5.16 Capital Structure. The authorized capital stock of each of the
Companies is as set forth on EXHIBIT 5.16, and all such stock has been duly
issued in accordance with applicable laws including federal and state securities
laws and is fully paid and nonassessable; except as set forth on EXHIBIT 5.16,
there are no options, warrants or other securities which are convertible or
exchangeable for capital stock of any of the Companies, and there are no
preemptive rights in respect to capital stock of any of the Companies.
Section 5.17 Solvency. As of the date hereof, and after giving effect to the
transactions contemplated by the Loan Documents, the present fair saleable value
of each of the Companies' assets is greater than the amount required to pay each
such Company's total indebtedness (contingent or otherwise), and is greater than
the amount that will be required to pay such indebtedness as it
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matures and as it becomes absolute and matured; the transactions contemplated by
the Loan Documents are being effectuated without intent to hinder, delay or
defraud present or future creditors of any of the Companies; it is each of the
Companies' intention that it will maintain the above-referenced solvent
financial condition, giving effect to the debt incurred hereunder, as long as
each of the Companies is obligated to the Holders under any of the Loan
Documents or in any other manner whatsoever; each of the Companies has
sufficient capital to carry on its previous operations and its business as it is
now conducted, and to consummate the transactions contemplated herein.
Section 5.18 Investment Company Act Representations. None of the Companies
intends to become an Investment Company and none of the Companies nor any of
their officers, directors, partners or controlling persons is an Affiliated
Person of any Holder.
Section 5.19 Regulatory Compliance. Each of the Companies has complied in all
material respects with all laws, ordinances and regulations applicable to it and
to its business, including without limitation laws, ordinances and regulations
relating to securities, zoning, labor, food and drug, the Securities Act of
1933, the Securities Exchange Act of 1934, the Occupational Safety & Health Act
and all federal and state environmental laws and regulations.
Section 5.20 Employee Benefit Matters. There is no existing single-employer plan
defined in Section 4021(a) of ERISA in respect of which any of the Companies is
an "employer" or a "substantial employer" as defined in Sections 3(5) and
4001(a)(2) of ERISA, respectively; the Companies have delivered to the Holders
copies, as listed on EXHIBIT 5.20 attached hereto, of each plan described in
Section 4021(a) of ERISA, in respect of which any of the Companies will be
liable to make contributions or pay benefits; to the Companies knowledge there
have been no reportable events as set forth in Section 4043(b) of ERISA in
respect of any such plan, and no termination of any such plan since the
effective date of ERISA, which could result in any tax, penalty or liability
being imposed any of upon any of the Companies; to the best of the Companies'
knowledge, the purchase of the Debentures or the Warrants by the Holders do not
involve, any "prohibited transaction" (as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended) that could subject any of the
Companies or either Holder to any tax or penalty imposed by said Section 4975;
since the effective date of ERISA, none of the Companies has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA, to which any of the Companies could be subject or for which any such
Company might be liable; none of the Companies is a party to, and none of the
operations of any of the Companies is covered by, a multi-employer plan as
defined in Section 3(37) of ERISA.
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Section 5.21 Collective Bargaining. None of the Companies is a party to or
subject to any collective bargaining agreements or union contracts. There are no
labor disputes pending or, to any of the Companies' knowledge, threatened
against any of the Companies, which could, materially and adversely, affect the
business or the condition of any of the Companies.
Section 5.22 Employees. Each of the Companies has delivered to the Holders
copies of all employment and compensation contracts, including all individual
retirement benefit agreements and union contracts not disclosed on EXHIBIT 5.20,
between any of the Companies and officers and directors of each of the
Companies, and all such contracts are listed on EXHIBIT 5.22; except as set
forth on EXHIBIT 5.22: (i) no employee of any of the Companies is currently on
short-term or long-term disability, (ii) no officer or key employee of any of
the Companies has terminated his or her employment since January 1, 1999, (iii)
no officer or key employee of any of the Companies has advised any such Company
(orally or in writing) that he or she intends to terminate employment with such
Company and (iv) no written notice of termination has been given to any officer
or key employee.
Section 5.23 No Competing Business Interests. Neither the Principals nor any of
the Companies' other officers, directors, or principal employees has any direct
or indirect interest, including, but not limited to, the ownership of stock in
any corporation, in any business, that competes with any of the Companies.
Section 5.24 No Conflicting Non-Competition Agreements. Neither the Companies
nor the Principals are subject to any contract or agreement purporting to limit
their rights to compete in any market in which any of the Companies presently
provides, or proposes to provide, goods or services; or purporting to restrict
their rights to disclose information in respect to such competition.
Section 5.25 Year 2000 Compliance.
(a) Except as set forth on EXHIBIT 5.25, the Information Technology
(as defined below) is Year 2000 Compliant (as defined below) and will not cause
an interruption in the ongoing operations of any of the Companies or give rise
to any material liability due to a problem arising from a failure of the
information Technology relating to Year 2000 Compliance (as defined below);
EXHIBIT 5.25 contains a correct and complete list of all of the hardware,
software, firmware, network systems, embedded systems, telecommunications
systems, and other Information Technology which, to the knowledge of the Parent,
will not be Year 2000 Compliant by the Closing.
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(b) Each of the Companies has been and is in compliance in all
respects with all applicable laws requiring disclosure of the Year 2000
Compliance status of the Information Technology of each such Company, the Year
2000 Compliance efforts of each such Company, and other Year 2000 related
disclosures.
(c) As used in this Agreement, "Year 2000 Compliant" and "Year 2000
Compliance" mean, with respect to Information Technology, that the Information
Technology accurately processes date/time data (including but not limited to,
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations properly exchanges date/time data with it, and the Information
Technology has been tested to verify these capabilities. As used in this
Agreement, "Information Technology" means all software, hardware, firmware,
telecommunications systems, network systems, embedded systems, and other systems
or components that utilize microprocessor technology of any of the Companies.
Section 5.26 SBA Representations. The statements set forth in the Size Status
Declaration (SBA Form 480), Assurance of Compliance for Non-Discrimination (SBA
Form 652-D) and Portfolio Financing Report (SBA Form 1031), as previously
provided and set forth as EXHIBITS 5.26A, 5.26B and 5.26C, respectively, are
complete and accurate.
ARTICLE 6.
Affirmative Covenants
Until the Debentures are indefeasibly repaid in full, and, with respect to
Section 6.8 only, until a Holder has transferred or disposed of more than ninety
(90) percent of the voting or economic interests represented by the Warrants
sold to it pursuant to Section 2.1 (for purposes of this clause, the exercise of
Warrants in exchange for Shares shall not be deemed a disposition of the voting
or economic interests represented by the Warrants, but the disposition of shares
issued as a result of the exercise of the Warrants shall be deemed a disposition
of a proportionate interest in the Warrants)each of the Companies shall:
Section 6.1 Monthly and Quarterly Financials. Maintain a standard modern system
of accounting in accordance with GAAP; make full, true and correct entries in
such system of all dealings and transactions in relation to its business and
affairs; forward, or cause to be forwarded to the Holders a one-page monthly
management information statement and summary description of operations at the
same time as provided to the Parent's executive officers but in
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no event later than thirty (30) days after the end of each calendar month; and
forward, or cause to be forwarded to the Holders a copy of the Parent's Form 10Q
within 45 days of the end of each calendar quarter with such information
required to be disclosed in a Quarterly Report on Form 10Q pursuant to the
Securities Exchange Act of 1934, as amended, and with such financial information
prepared in accordance with any applicable accounting rules relating thereto;
such quarterly information shall be delivered to the Holders irrespective of
whether (a) the Parent has failed to make such filing with the Securities and
Exchange Commission (the "SEC") or (b) the Parent is required to make such
filing with the SEC;
Section 6.2 Certification of Non-Default. Provide to the Holders in writing each
quarter a written certification by the President of the Parent, that no default
has occurred under any Loan Document, or any debt or obligation senior to the
debt hereunder; or if any such default exists, stating the nature of such
default;
Section 6.3 Year-end Financials; Annual Audit. Within ninety (90) days of each
fiscal year-end, provide to the Holders with such information required to be
disclosed in an Annual Report on Form 10K pursuant to the Securities Exchange
Act of 1934, as amended, and with such financial information prepared in
accordance with any applicable accounting rules relating thereto; such annual
information shall be delivered to the Holders irrespective of whether (a) the
Parent has failed to make such filing with the SEC or (b) the Parent is required
to make such filing with the SEC; the Annual Report on Form 10-K shall include
an unqualified written opinion of the Parent's outside independent accountants;
Section 6.4 Projected Financials. Prior to each accounting year-end, provide the
Holders with projected financial statements for the coming three (3) years and
monthly projections for the coming year, in the same format as used for Section
6.1;
Section 6.5 Regulatory Filings. Within thirty (30) days of filing, provide the
Holders with copies of all material returns and documents filed with federal,
state or local government agencies, including without limitation the Internal
Revenue Service, the Environmental Protection Agency, the Occupational Safety &
Health Administration and the Securities & Exchange Commission;
Section 6.6 Notice of Litigation. Notify the Holders of any material litigation
to which any of the Companies is a party by mailing to the Holders, by
registered mail, within thirty (30) days of receipt thereof, a copy of the
Complaint, Motion for Judgment or other such pleadings served on or by any of
the Companies; and any material litigation known to any Company to which any of
the Companies is not a party but which could substantially affect operation of
such
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Company's business or the collateral pledged under the Loan Documents, by
mailing to Holders, by registered mail, a copy of all pleadings obtained by such
Company in regard to such litigation, or if no pleadings are obtained, a letter
setting out the facts known about the litigation within thirty (30) days of
receipt thereof; the Companies shall not be obliged by this paragraph to give
notice of suits wherein a Company is a creditor seeking collection of account
debts or where the amount sought is less than $50,000;
Section 6.7 Notice of Defaults or Judgments. Give the Holders notice of default
declared in regard to any loan or lease of any of the Companies or any judgment
entered against any of the Companies by mailing a copy to the Holders within ten
(10) days of receipt thereof.
Section 6.8 Board Meetings and Representation. Hold meetings of its Board of
Directors at least quarterly; allow one designee of the Holders to attend such
meeting and all meetings of committees of such Board at the Parent's expense
(such expenses shall not include hourly rates of the person attending such
meetings); provide the Holders the same prior notice of such meetings and
written materials as given to the directors (notice to the Holders by facsimile
or voice mail shall be sufficient); notwithstanding the foregoing, if any of the
Companies' Boards desires to act by unanimous written consent in lieu of a
meeting, it may do so provided that the Holders receive, prior to their
adoption, a copy of the resolutions to be adopted in the same manner and at the
same time as provided to the directors; at the Holders' written request, each of
the Companies will use its best efforts to cause such designee to be elected to
its Board of Directors at the annual shareholder's meeting following such
request;
Section 6.9 Insurance. Maintain all-risk hazard insurance on its assets listed
on EXHIBIT 6.09 in full force and effect (or such equivalent replacement
insurance as the Parent shall reasonably determine), with a mortgagee clause in
favor of the Holders; this shall include federal flood insurance if any assets
are in a designated flood plain; and supply the Holders annually with a
certification of such insurance from the relevant insurers in the form set forth
as EXHIBIT 6.09;
Section 6.10 Use of Proceeds; Certification. Use the proceeds of the Loan only
to retire existing seller take-back notes, copies of which are attached hereto
as EXHIBIT 6.10, in an aggregate amount not to exceed Ten Million Dollars
($10,000,000) and for working capital; and allow Holders to conduct a review of
its books and records to confirm such use; within ten (10) days of such use
provide a written certification of such to the Holders;
Section 6.11 First Refusal for Future Financings. Offer to issue to the Holders
all subordinated debt, equity, or convertible securities proposed to be issued
by any of the Companies, on the most favorable terms to be offered to
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any other party; such offer may be accepted in whole but not in part by either
of the Holders who must respond to such offer within ten (10) days of receipt
thereof; failure to respond within such time shall be construed as a decline of
the offer by the relevant Holder; this Section shall not be construed to limit
or qualify any covenant against such issuance;
Section 6.12 Access to Records. Permit from time-to-time any authorized agent of
any Holder to obtain credit and other background information on any of the
Companies and their management, and to inspect, examine and make copies and
abstracts of the books of account and records of such Companies at reasonable
times during normal business hours; allow the Holders' agents to interview the
Companies outside accountants who are by this covenant irrevocably instructed to
respond to such inquiries as fully as if the inquiries were made by the
Companies themselves;
Section 6.13 Financial Covenants.
(a) Fixed Charge Coverage Ratio. Maintain for the trailing twelve (12)
months, a Fixed Charge Ratio of not less than the following amounts as of the
following dates:
Fixed Charge Coverage Ratio: Fiscal Quarter Ending:
Not less than 1.15 to 1.0 Closing Date through September 30, 2000;
Not less than 1.20 to 1.0 December 31, 2000 through March 31,
2001; and
Not less than 1.30 to 1.0 June 30, 2001 and at all times
thereafter.
(b) Funded Debt to EBITDA. Maintain, a ratio of Funded Debt to EBITDA
not greater than the following amounts at the following times, tested as of the
last day of each of the Parent's fiscal quarters for the four (4) quarter period
ending on that date:
Funded Debt to EBITDA Fiscal Quarter Ending:
4.25 to 1.0 Closing Date through September 30, 1999;
4.00 to 1.0 December 31, 1999 through March 31,
2000; and
3.50 to 1.0 June 30, 2000 and at all times
thereafter.
(c) Current Ratio. Maintain a Current Ratio of not less than 1.30 to
1.0, tested as of the last day of each of the Parent's fiscal quarters.
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(d) Minimum EBITDA. Maintain at all times a minimum EBITDA of not less
than the following amounts at the following times:
Minimum EBITDA: Fiscal Quarter Ending:
$11,000,000 Closing Date through June 30, 1999;
$12,500,000 September 30, 1999;
$13,000,000 December 31, 1999; and
$14,500,000 March 31, 2000 and at all times thereafter.
Section 6.14 Payments and Other Debts. Make all payments of principal, interest
and expenses as and when due under the Debentures, without setoff and regardless
of any claim any of the Companies may have against the Holders; and comply in
all respects with all terms, conditions and covenants relating to other debt
obligations of the Companies;
Section 6.15 Maintain Copies; Financing Statements. Maintain an original or a
true copy of each of the Loan Documents and any modifications thereof, which
shall be available for inspection as called for herein or in the Debentures; and
pay the taxes and costs of, or incidental to, any recording or filing of any
financing statements concerning any collateral for the Debentures;
Section 6.16 Information Requests. Furnish from time to time to any Holder at
the Parent's expense all information a Holder may reasonably request to enable
such Holder to prepare and file any report or form required of such Holder by
the Securities and Exchange Commission or any other regulatory authority;
Section 6.17 Protect the Collateral. Take all necessary steps to administer,
supervise, preserve and protect the collateral for the Debentures and to perfect
and maintain the Holders' security interest in such collateral; regardless of
any action taken by the Holders, there shall be no duty upon the Holders in this
respect;
Section 6.18 Further Assurance. From time to time promptly execute and deliver
to the Holders such additional documents, and take such other reasonable steps,
as the Holders may reasonably require to carry out the purposes hereof and of
the other Loan Documents, or to protect the Holders' rights hereunder or
thereunder, including (without limiting the generality of the foregoing) the
execution of recordable documents to reflect the Holders' interests in any
collateral for the Loan, and the recording thereof at the Parent's expense in
the relevant public records; and
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Section 6.19 Collateral Assignments of Certain Leases; Landlord Consents. The
Companies shall (i) promptly (but not more than fifteen (15) days) after
Closing, execute and deliver to the Holders collateral assignments of the
Companies' leasehold interests in real property and any improvements thereon at
the following locations: (A) 1401 K Street, N.W., Washington, D.C.20005, (B)
2021 Research Drive, Annapolis, Maryland 21401, (C) 152 West 57th Street, Suite
4500, New York, New York 10019, (D) 7349 Worthington-Galena Road, Columbus, Ohio
43220, and (E) 333 W. Wacker Drive, Suite 600, Chicago, Illinois 60606; and (ii)
use their best efforts in good faith to obtain, within forty-five (45) days of
Closing, lessor consents as may be reasonably required for the collateral
assignments described in Section 6.19(i) above. The collateral assignments of
leases and lessor consents shall be in a form satisfactory to the Holders.
ARTICLE 7.
Negative Covenants
Until the Debentures are indefeasibly repaid in full, no Company shall
without the prior written consent of the Holders, and with respect to Sections
7.2, 7.4 and 7.8 only, such consent not to be unreasonably withheld:
Section 7.1 Change in Organization. Make or suffer any material change in their
organizational documents; engage in any business other than the businesses of
the type engaged in by the Companies prior to the date hereof and as more
particularly described in EXHIBIT 5.02; or establish, create or acquire any
parent or subsidiary;
Section 7.2 Equity Issuance or Redemption. Sell, authorize, issue or redeem any
capital stock of any class or any convertible debt or other equity security of
any of the Companies except as required by the Warrants or the incentive stock
option plan previously approved by the Parent's Board of Directors and listed in
EXHIBIT 5.22 hereof;
Section 7.3 Dividends. Declare or pay any dividend or make any other
distribution of any type on any class of its equity securities;
Section 7.4 Mergers, Etc. Become a party to, or permit any of the Companies to
become party to, any agreement by which such entity or entities merge or
consolidate into or with any other person or convey, sell, lease or otherwise
dispose of all or substantially all of its assets to another person, or permit
any person to merge or consolidate into or with any of the Companies or convey,
sell, lease or otherwise dispose of all or substantially all of its assets to
the Parent or any subsidiary; provided that any subsidiary may merge into, or
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convey, sell, lease or dispose of its assets to the Parent or a wholly-owned
subsidiary of Parent;
Section 7.5 Capital Expenditures. Make Capital Expenditures in any fiscal year
in excess of a capital improvements budget approved by the Board of Directors of
the Parent and the Holders; or prepay any debt except for that incurred or
contemplated hereunder; provided, however, that the limit on capital
expenditures hereunder may be increased by the Board of Directors without the
consent of the Holders at the beginning of each fiscal year on January 1, 2000,
commensurate with the percentage of the Parent's annual increase of gross
profits during the prior fiscal year;
Section 7.6 Employee Compensation. Pay salaries or other compensation, or make
advances or loans to any employee in excess of Six Hundred Thousand Dollars
($600,000) per annum except pursuant to existing compensation plans listed in
EXHIBIT 5.22, copies of which have been previously provided to the Holders; pay
salaries or other compensation, or make advances or loans to any employee in
excess of Five Hundred Thousand Dollars ($500,000) in the aggregate if (i) an
uncured Event of Default exists or the Senior Debt is in default or (ii) the
Companies are not profitable for any two (2) consecutive quarters;
Section 7.7 Affiliate Transactions. Purchase or sell any property or services or
borrow or lend money or property from or to, or co-invest in any transaction
with, any officer, director, employee or other affiliate of any of the
Companies, or any affiliate of any such officer, director, employee or
affiliate, except for (i) employment complying with Section 7.6 above and
transactions wherein the terms are no less favorable to the Company than the
best terms available from an unaffiliated person and (ii) intercompany loans
among the Companies;
Section 7.8 Change of Site. Change the physical location of its principal
office;
Section 7.9 Change in Company, Etc. Change the current business entities,
establish any subsidiaries or invest in any affiliates or other entities,
provided, that this Section 7.9 shall not preclude intercompany loans among the
Companies;
Section 7.10 Judgments. Permit any judgment obtained against any of the
Companies to remain unpaid for over twenty (20) days without obtaining a stay of
execution or bond; or
Section 7.11 Cross-Default. Incur any declared default under any material lease,
loan or other agreement pertaining to another debt or material obligation of the
Company.
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Section 7.12 No Liens. None of the Companies will, directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to any
property (including any document or instrument with respect to goods or accounts
receivable) of any of the Companies, whether now owned or hereafter acquired, or
any income or profits therefrom except for Permitted Liens.
ARTICLE 8.
Default
Section 8.1 Events of Default. Any of the following events shall be an "Event of
Default" as that term is used herein:
(a) Principal and Interest Payments. The Companies fail to make
payment when due of any principal or interest under the Debentures within three
(3) business days of the due date thereof;
(b) Representations and Warranties. Any representation or warranty
made by any of the Companies proves to have been incorrect in any material
respect; or any representation, statement (including financial statements),
certificate or data furnished or made by any of the Companies (or any officer,
accountant or attorney of any of the Companies) under the Loan Documents proves
to have been untrue in any material respect as of the date as of which the facts
therein set forth were stated or certified;
(c) Covenants. The Companies or Principals default in the observance
or performance of any of the covenants or agreements contained in this Agreement
(other than a default under any other subsections of this Section 8.1), and, in
the case of the affirmative and negative covenants of the Companies, such
default continues unremedied for a period of ten (10) days after the earlier of
(i) notice thereof being given by the Holders to any of the Companies, or (ii)
such default otherwise becoming known to the officers or chief financial officer
of any of the Companies.
(d) Loan Documents. Any of the Companies or either of the Principals
defaults in the observance or performance of any of the covenants or agreements
contained in any Loan Document to which it is a party which continues beyond the
expiration of any notice and cure period pertaining thereto;
(e) Involuntary Bankruptcy or Receivership Proceedings. A receiver,
conservator, liquidator or trustee of any of the Companies or of their property
is appointed by order or decree of any court or agency or supervisory authority
having jurisdiction; or an order for relief is entered against any of the
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Companies under the U.S. Bankruptcy Code; or any of the Companies is adjudicated
bankrupt or insolvent; or any material portion of the properties of any of the
Companies is sequestered by court order, provided, that if an order is entered
pursuant to an ex parte proceeding such Company shall have thirty (30) days to
have such order vacated; or a petition is filed against the any of Companies
under any state, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or receivership law of any jurisdiction, whether now or
hereafter in effect, and such petition is not dismissed within sixty (60) days;
(f) Voluntary Petitions. Any of the Companies files a petition under
the U.S. Bankruptcy Code or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any case or petition against it under any such law;
(g) Assignments for Benefit of Creditors. Any of the Companies makes a
general assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents to the
appointment of a receiver, trustee or liquidator of all or any part of its
property;
(h) Attachment. A writ or warrant of attachment, seizure or any
similar process shall be issued by any court against all or any material portion
of the property of any of the Companies, and such writ or warrant of attachment
or any similar process is not released or bonded within twenty (20) days after
its entry;
(i) Due on Sale. Substantially all of any Company's assets, are sold,
exchanged or transferred; any Subsidiary ceases to be wholly-owned by the
Parent; a change in control of a Company occurs of a nature that would be
required to be reported in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended, ("Exchange Act"); any "person" (as
such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Parent representing more than fifty percent (50%) of the combined voting power
of the Parent's then outstanding voting securities; or during any period of two
(2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Parent cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Parent's shareholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such two (2) year period; and
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(j) Loss of Key Employees. For any reason except his death or
disability, either Principal fails to renew his Employment Agreement with the
Company, is otherwise no longer employed by the Companies and engaged in their
operations and management in substantially his present capacity, or fails to
give his full time and attention to the Companies business; unless the Board of
Directors of the Parent engages, within 90 days of such event, a replacement for
the relevant individual approved in writing by the Holders, which approval shall
not be unreasonably withheld.
Section 8.2 Remedies. Upon the occurrence of any Event of Default, either Holder
may:
(a) by written notice to the Parent, declare the entire principal
amount of the Loan then outstanding, including interest accrued thereon,
together with all other fees and charges payable in connection with the Loan, to
be immediately due and payable without presentment, demand, protest, notice of
protest or dishonor or other notice of default of any kind, all of which are
hereby expressly waived by each of the Companies; and
(b) exercise any of the rights or remedies provided in the Collateral
Documents or avail themselves of any other rights or remedies provided by
applicable law; and
(c) set-off any funds of any of the Companies in the possession of the
Holders against any amounts then due by the Companies to the Holders pursuant to
this Agreement.
Section 8.3 Time Limit on Acceleration After Certain Events. Upon receipt of
written notice in accordance with Article 13 by the Holders from the Company of
an Event of Default occasioned by a "person" (as such term is used in Section
13(d) and 14(d)(2) of the Exchange Act) being or becoming the beneficial owner,
directly or indirectly, of securities of the Parent representing more than fifty
percent (50%) of the combined voting power of the Parent's than outstanding
voting securities (as described in Section 8(i)), if the Holders fail to
exercise their rights to accelerate the maturity of the Loan pursuant to Section
8.2(a) or a corresponding section of another Loan Document within ninety (90)
days of such notice, such event shall no longer constitute an Event of Default.
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ARTICLE 9.
Fees and Costs
The Parent shall pay:
Section 9.1 All closing costs, brokerage commissions, due diligence costs and
other fees and expenses incurred by any of the Companies or the Holders in
connection with the transactions contemplated by the Loan Documents;
Section 9.2 A commitment fee to Holders of Two Hundred Sixty Thousand Dollars
($260,000) at Closing;
Section 9.3 An exit fee of $130,000 if the Loan is repaid, voluntarily or by
acceleration of the maturity of the Debentures, and the Holders' Warrants and
any Common Stock issued thereunder have been sold or otherwise disposed of by
Holders for cash consideration, on or before June 30, 2000; provided, however,
that such exit fee shall not be payable to the extent payment thereof would
cause the Holders' aggregate annual average return on investment, taking into
account the Loan and all other funds paid to the Companies by Holders hereunder,
and all fees, interest, returns and gains (ordinary and capital) realized
hereunder and under the Debentures, the Warrants, and any Common Stock issued
thereunder, to exceed 20% per annum.
Section 9.4 The reasonable fees and expenses of the Holders' attorneys for work
done in connection with the transactions contemplated by this Agreement;
Section 9.5 All of the Holders' expenses of any nature which may be reasonably
necessary, either before or after a default hereunder, for the enforcement or
preservation of the Holders' rights under this Agreement, the Debentures or the
Warrants, or any other agreement of any of the Companies mentioned herein,
including but not limited to reasonable attorneys' fees, appellate costs and
fees, and costs incurred by any Holder as a participant in any bankruptcy
proceeding, workout, debt restructuring, extension of maturity or document
amendment, involving any of the Companies or any other obligor under the
Debentures;
Section 9.6 All costs and fees, including reasonable attorneys' fees and
expenses, incurred by any of the Holders or their affiliates in connection with
any suit, action, claim or other liability asserted against either of the
Holders or their affiliates by any of the Companies or the Principals, in either
case, in which such parties do not prevail with respect to substantially all of
their claims.
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ARTICLE 10.
Indemnification. Environmental Liability
Each of the Companies will indemnify the Holders and their directors,
officers, employees, agents and controlling persons (hereinafter "Indemnitees")
against, and hold the Holders and each such Indemnitee harmless from, any and
all third party claims, damages, liabilities and related expenses (including
attorneys' fees and expenses) incurred by or asserted against the Holders or any
such Indemnitee arising out of, in any way connected with, or resulting from the
following:
(a) this Agreement, the other documents contemplated hereby, the
performance by the parties hereto and thereto of their respective obligations
hereunder and thereunder, or consummation of the transactions contemplated
hereby and thereby;
(b) any and all liability and loss with respect to or resulting from
any and all claims for or on account of any broker's finder's fees or
commissions with respect to this transaction as may have been created by any of
the Companies or their officers, partners, employees or agents, together with
any stamp or excise taxes which may become payable in connection with this
transaction or the issuance of stock hereunder;
(c) the spilling, leaking, pumping, pouring, unsettling, discharging,
leaching or releasing of hazardous substances on property owned by any of the
Companies or any violations by the Company of CERCLA, the Federal Clean Water
Act or any other Federal, state or local environmental law, regulation or
ordinance; and
(d) any claim, litigation investigation or proceeding relating to any
of the foregoing, whether or not the Holders or any such person is a party
thereto;
PROVIDED, HOWEVER, that any such indemnity shall not apply to any such
losses, claims, damages, liabilities or related expenses arising from the
Holders' gross negligence or willful misconduct.
The provisions of this Section shall remain operative and in full force and
effect for the term provided in Article 6 for the effectiveness of Section 6.8,
plus two (2) years, regardless of any repayment of the Debentures, invalidity or
unenforceability of any term or provision of this Agreement, the Debentures or
any Collateral Documents, or any investigation made by or on behalf of the
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Holders. All amounts due under this Article shall be payable on written demand
therefor.
ARTICLE 11.
Remedies
Section 11.1 Cumulation. Receivership. None of the rights or remedies of the
Holders provided herein shall be exclusive, but each shall be cumulative with
and in addition to every other right or remedy of the Holders, now or hereafter
existing, at law or in equity, by statute, agreement or otherwise. In any action
pursuant to an Event of Default under this Agreement, the Debentures or, the
Warrants, as the case may be, the Holders shall be entitled to appointment of a
receiver to administer the Companies, or all or any portion of their assets as
may be subject to the Holders' claims.
Section 11.2 No Implied Waver. No course of dealing between a Holder and any
other party hereto, or any failure or delay on the part of a Holder in
exercising any rights or remedies hereunder, shall operate as a waiver of any
rights or remedies of any Holder under this or any other applicable agreement.
No single or partial exercise of any rights or remedies hereunder shall operate
as a waiver or preclude the exercise of any other rights or remedies hereunder.
ARTICLE 12.
Parties
This Agreement will bind and accrue to the benefit of the Companies, the
Principals, the Holders, any holders of the Warrants or the Debentures, and
their successors and assigns. Any purchaser, assignee, transferee or pledgee of
the Warrants or Debentures, or any document arising in connection with the
transaction subject to this Agreement (or any of them), sold, assigned,
transferred, pledged or repledged by a Holder shall forthwith become vested with
and entitled to exercise all rights and remedies provided herein to the Holders,
as if said purchaser, assignee, transferee or pledgee were originally named in
this Agreement in place of the Holders.
ARTICLE 13.
Notice
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All notices or communications under this Agreement, the Warrants or the
Debentures shall be in writing and mailed, postage prepaid, or delivered by
facsimile or courier as follows:
To Holders: 1919 Pennsylvania Avenue, N.W., 3rd Floor
Washington, D.C. 20006
Attn: Scott S. Binder, Principal
Facsimile: (202) 659-2053
and to
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attn: David P. Parker, Esquire
Facsimile: (202) 887-0689
To the
Companies: 2021 Research Drive
Annapolis, MD 21401
Attn: Jack B. Dunn IV, Chairman & CEO
Facsimile: (410) 224-3552
and to
Wilmer Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: Eric Markus, Esquire
Facsimile: (202) 663-6363
or, to such subsequent addresses as may hereafter be specified by the parties.
Rejection or other refusal to accept, or the inability to deliver because of a
changed address of which no notice was given, shall not affect the date of such
notice sent in accordance with the foregoing provisions. Each such notice,
request or other communication shall be deemed sufficiently given, served, sent
and received for all purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, the affidavit of the messenger
or the answer back being deemed conclusive but not exclusive evidence of such
delivery), or at such time as delivery is refused by addressee upon
presentation.
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ARTICLE 14.
Relationship of the Parties
This Agreement provides, among other things, for the making, of loans by
the Holders, in their capacity as lenders, to the Companies, in their capacity
as a borrowers, and for the payment of interest and repayment of principal by
the Companies to the Holders. The provisions herein for compliance with
financial covenants and delivery of financial statements are intended solely for
the benefit of the Holders to protect their interests as lenders in assuring,
payments of interest and repayment of principal, and as warrant or stock holders
in preserving their equity stake in the Parent. Nothing contained in this
Agreement shall be construed as permitting or obligating the Holders to act as
financial or business advisors or consultants to the Companies, as permitting or
obligating the Holders to control any of the Companies or to conduct the
Companies' operations, as creating any fiduciary obligation on the part of the
Holders to the Companies, or as creating any joint venture, agency or other
relationship between the parties, other than as explicitly and specifically
stated in this Agreement. A Holder is not, and shall not be construed as, a
partner, joint venturer, alter-ego, manager, controlling person, operator or
other business participant of any kind of the Companies; neither the Holders nor
the Companies intend the Holders to assume such status, and, accordingly, the
Holders shall not be deemed responsible for or a participant in any acts or
omissions of the Companies. The Companies and each of the Principals represent
that they have had the advice of experienced counsel of their own choosing in
connection with the negotiation and execution of this Agreement and with respect
to all matters contained herein.
ARTICLE 15.
Controlling Law; Venue and Jurisdiction; Service of Process
This Agreement shall be interpreted, and the rights and liabilities of the
parties hereto determined, in accordance with the laws of the District of
Columbia, without regard to its principles of conflicts of law. Venue for any
adjudication hereof shall be only in the courts of the District of Columbia or
the Federal courts in such District, to the jurisdiction of which courts all
undersigned parties hereby submit as the agreement of such parties, as not
inconvenient, and as not subject to review by any court other than such courts
in the District of Columbia. All parties intend and agree that the courts of
jurisdictions in which the Companies are incorporated and conducts their
businesses shall afford full faith and credit to any judgment rendered by a
court of the District of Columbia against any of the Companies or other obligees
hereunder, and that such District of Columbia and federal courts shall have in
personam jurisdiction to enter a valid judgment against any of the
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Companies or other obligees hereunder. Service of any summons and/or complaint
and any other process which may be served on any of the Companies in any action
in respect hereto, may be made by mailing via registered mail, or delivering a
copy of such process to the Parent at its address specified above. The parties
hereto agree that this submission to jurisdiction and consent to service of
process are reasonable and made for the express benefit of the Holders.
ARTICLE 16.
Waiver of Trial by Jury
EACH PARTY TO THIS AGREEMENT WAIVES ALL RIGHT TO TRIAL BY JURY OF ALL
CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS OF ANY KIND DIRECTLY OR INDIRECTLY
ARISING FROM OR RELATING TO THIS AGREEMENT, THE LOAN, THE LOAN DOCUMENTS OR THE
DEALINGS OF THE PARTIES IN RESPECT THERETO. THE PARTIES HERETO ACKNOWLEDGE AND
AGREE THAT THIS ARTICLE IS A MATERIAL TERM OF THIS AGREEMENT AND THAT THE
HOLDERS WOULD NOT EXTEND ANY FUNDS HEREUNDER IF THIS WAIVER OF JURY TRIAL WERE
NOT A PART OF THIS AGREEMENT. EACH PARTY HERETO ACKNOWLEDGES THAT THIS IS A
WAIVER OF A LEGAL RIGHT AND THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY
AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS
CHOICE. EACH PARTY HERETO AGREES THAT ALL SUCH CLAIMS, DEFENSES, COUNTERCLAIMS
AND SUITS SHALL BE TRIED BEFORE A JUDGE OF COMPETENT JURISDICTION, WITHOUT A
JURY.
ARTICLE 17.
Captions; Severance
The captions in this Agreement, the Warrants and the Debentures are
inserted for convenience of reference only and shall be construed neither to
limit nor amplify the meaning of the other text of such documents. To the extent
any provision herein violates any applicable law, such provision shall be void
and the balance of this Agreement shall remain unchanged.
ARTICLE 18.
Counterparts; Entire Agreement; Power of Attorney
(a) This Agreement may be executed in as many counterpart copies and
with as many counterpart signature pages as may be convenient. It
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shall not be necessary that the signature of, or on behalf of, each party appear
on each counterpart, but it shall be sufficient that the signature of, or on
behalf of, each party appear on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement; it shall not be
necessary in any proof of this Agreement to produce or account for more than a
number of counterparts containing the respective signatures of, or on behalf of,
all of the parties. This Agreement, the Warrants, the Debentures, the exhibits
hereto and the documents entered into in connection herewith set forth the
entire agreements and understandings of the parties hereto in respect of this
transaction. Any verbal agreements in respect of this transaction are hereby
terminated. The terms herein may not be changed verbally but only by a writing
signed by the party against which enforcement of the change is sought.
(b) Allied Investment Corporation hereby appoints Allied Capital
Corporation, and each of its authorized officers to serve as its agents and
attorneys-in-fact (the "Representatives"), with full power and authority
(including power of substitution), in the name of and for and on behalf of it,
to take all actions required or permitted with respect to the Loan Documents, to
sign all certificates, notices, instructions and other documents and to make all
determinations hereunder and thereunder. Any other Person may rely on any
notice, consent, election or other communication received from the
Representatives as if such notice, consent, election or other communication had
been received from Allied Investment Corporation.
ARTICLE 19.
Definitions and Rules of Construction
Section 19.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms shall have the meanings as
follow:
(a) "Accumulated Funding Deficiency" shall have the definition for
such term in Section 302 of the Employee Retirement Income Security Act of 1974;
(b) "Acquisition" means the purchase by the Parent of all of the
outstanding stock of each of the following companies: (i) SEA; (ii) Kahn; and
(iii) KCI.
(c) "Affiliated Person" shall have the definition for such term set
out in section 2(a)(3) of the Investment Company Act of 1940, as amended;
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<PAGE>
(d) "Agreement" is defined as this Investment and Loan Agreement and
the exhibits and schedules hereto, as the same may be amended, supplemented,
extended, modified or replaced in accordance with the terms hereof;
(e) "Capital Expenditures" is defined as expenditures for capital
improvements or acquisitions;
(f) "Closing" is defined as the consummation of this Agreement;
(g) "Collateral Documents" shall have the definition set out in
Section 1.2 hereof;
(h) "Commitment Letter" is defined as the letter dated March 1, 1999
from Scott S. Binder to the Company;
(i) "Companies" shall have the definition set out in the preamble
hereof;
(j) "Current Assets" means at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "total current
assets" (or any like caption) on a consolidated balance sheet of the Parent and
its Subsidiaries.
(k) "Current Liabilities" means at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the Parent
and its Subsidiaries, excluding all amounts outstanding under the Senior Debt.
(l) "Current Ratio" means the ratio of (a) Current Assets to (b)
Current Liabilities.
(m) "Debentures" shall have the definition set out in Section 1.1
hereof;
(n) "EBITDA" means as to the Company and its Subsidiaries for any
period of determination thereof, the sum of (a) the net profit (or loss)
determined in accordance with GAAP consistently applied, plus (b) interest
expense and tax expense for such period, plus (c) depreciation and amortization
of assets for such period. EBITDA shall be calculated on a trailing twelve (12)
month basis, taking into account any Person acquired in an Acquisition during
such twelve (12) months period and adjusting for officer compensation which was
eliminated from the Person so acquired, provided the
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<PAGE>
Holders has received evidence satisfactory to the Holders with respect to
changes and compensation.
(o) "EBITDAR" means as to the Company and its Subsidiaries for any
period of determination thereof, the sum of (a) EBITDA, plus (b) rent expense
for such period.
(p) "Employer" and "Substantial Employer" shall have the definitions
set out therefor in Sections 3(5) and 4001(a)(2) of ERISA, respectively;
(q) "ERISA" is defined as the Employee Retirement Income Security Act
of 1974;
(r) "Exempt Transfer" shall have the definition set out in Section 4.3
hereof;
(s) "Fixed Charge Ratio" means the ratio of (i) EBITDAR, less cash
dividends paid and capital expenditures, to (ii) (a) the sum of interest
expense, plus (b) required principal on Indebtedness (other than prepayments on
the Senior Debt) and capitalized leases scheduled and/or paid in the prior
twelve (12) months period, plus (c) any payments required to be made under any
noncompete or earnout agreements scheduled and/or paid in the prior twelve (12)
month period, plus (d) rent expense, plus (e) income tax expense for such
period, less (f) up to Ten Million Dollars ($10,000,000) scheduled to be paid to
Kahn in September of 1999.
(t) "Fully Diluted Basis" shall mean, in respect to a corporation or
other legal entity, the condition wherein all outstanding options, warrants and
other securities of such entity which are exercisable or exchangeable for
capital stock or other equity interests in the entity, are, for the purpose of
calculating relative ownership rights, presumed to have been exercised or
exchanged in full;
(u) "Funded Debt" means for any period of determination thereof an
amount equal to the sum of all Indebtedness for Borrowed Money (including, but
not limited to senior debt, stockholder debt, subordinated debt, the value of
all capitalized leases, all Seller Notes, all letters of credit issued on the
account of the Parent other than letters of credit which secure Seller Notes,
and estimated liabilities under existing earnout and or noncompete agreements)
all as determined on a consolidated basis.
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<PAGE>
(v) "GAAP" is defined as generally accepted accounting principles as
established from time-to-time by the Financial Accounting Standards Board,
consistently applied and maintained throughout the period indicated;
(w) "Holders" shall have the definition set out in the preamble
hereof;
(x) "Indebtedness" is defined as all obligations for borrowed money,
obligations arising from installment purchases of property or services,
capitalized lease obligations, and the face amount of letters of credit and
without duplication all drafts drawn thereunder.
(y) "Indebtedness for Borrowed Money" of a Person, at any time shall
mean the sum at such time of (a) indebtedness of such Person for borrowed money
or for the deferred purchase price of property or services, (b) any obligations
of such Person in respect of letters of credit, banker's or other acceptances or
similar obligations issued or created for the account of such Person, (c) lease
obligations of such Person which have been or should be, in accordance with
GAAP, capitalized on the books of such Person, (d) all liabilities secured by
any Lien on any property owned by such Person, to the extent attached to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (e) any obligations of such Person or
a commonly controlled entity to a multiemployer plan (as those terms are used
under applicable ERISA statutes and regulations), but excluding trade and other
accounts payable in the ordinary course of business in accordance with customary
trade terms and which are not overdue or which are being disputed in good faith
by such Person and for which adequate reserves are being provided on the books
of such Person in accordance with GAAP.
(z) "Indemnitees" is defined as Holders and their directors, officers,
employees, agents and controlling persons;
(aa) "Independent Third Parties" shall have the meaning set forth in
Section 3.2(b) hereof;
(bb) "Investment Company" shall have the definition for such term set
out in the Investment Company Act of 1940, as amended;
(cc) "Liens" is defined as any interest in property securing an
obligation owed to, or a claim by, a person other than the owner of such
property, whether such interest is based on common law, statute or contract, and
including, but not limited to, the security interest, security title or lien
arising from a security agreement, mortgage, deed of trust, deed to secure debt,
38
<PAGE>
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes;
(dd) "Litigation Schedule" shall have the meaning set forth in Section
5.3 hereof;
(ee) "Loan" shall have the definition set out in Recital A hereof;
(ff) "Loan Documents" shall have the definition set out in Section 1.2
hereof;
(gg) "Offeree" shall have the definition set out in Section 3.2(a)
hereof;
(hh) "Parent" shall have the definition set out in the preamble
hereof;
(ii) "Permitted Liens" is defined as (i) Liens at any time granted in
favor of the Holders or the holders of the Senior Debt; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) which
not yet due or are being contested in good faith and by appropriate proceedings
with adequate reserves maintained in accordance with GAAP; (iii) Liens securing
the claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like persons for labor, materials, supplies or rentals
incurred in the ordinary course of the Companies businesses, but only if the
payment thereof is not at the time required or is being contested in good faith
and by appropriate proceedings with adequate reserves maintained in accordance
with GAAP; (iv) and Liens resulting from deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; and (v) reservations, exceptions,
easements, rights of way, and other similar encumbrances affecting real
property, provided that, they do not in the aggregate detract from the
marketability of said properties or materially interfere with their use in the
ordinary course of any of the Companies' businesses.
(jj) "Principals" shall have the definition set out in the preamble
hereof;
(kk) "Prohibited Transaction" shall have the definition for such term
set out in Section 4975 of the Internal Revenue Code of 1986, as amended;
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<PAGE>
(ll) "Securities Act" is defined as the Securities Act of 1933, as
amended;
(mm) "Senior Debt" shall have the definition set out in Section 1.3
hereof;
(nn) "Shares" shall have the meaning set forth in Section 2.1 hereof;
(oo) "Subsidiaries" shall have the definition set forth in the
preamble hereof;
(pp) "Warrants" shall have the meaning set forth in Section 2.1
hereof.
Section 19.2 Rules of Construction. The rule of ejusdem generis shall not be
applicable herein to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned. Unless the context otherwise requires:
(a) A term has the meaning assigned to it;
(b) "Or" is not exclusive;
(c) Provisions apply to successive events and transactions;
(d) "Herein", "Hereof", "Hereto", "Hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision unless otherwise so provided;
(e) The word "person" shall mean any natural person, partnership,
corporation, nation, state, government, union, association, agency, tribunal,
board, bureau and any other form of business or legal entity;
(f) All words or terms used in this Agreement, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender; and
(g) All financial terms used herein and not capitalized shall have the
meaning accorded them under GAAP.
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[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written
Company: FTI CONSULTING INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: TEKLICON, INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: L.W.G., INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: KLICK, KENT & ALLEN, INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: KAHN CONSULTING, INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
<PAGE>
Company: S.E.A., INC.,
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: KCI MANAGEMENT CORP.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Holders: ALLIED CAPITAL CORPORATION
[Seal]
By:
--------------------------------
Name: Scott S. Binder
Title: Principal
ALLIED INVESTMENT CORPORATION
[Seal]
By:
--------------------------------
Name: Scott S. Binder
Title: Principal
EACH OF THE PRINCIPALS ARE SIGNING ONLY WITH RESPECT TO THE PROVISIONS CONTAINED
IN ARTICLES 4, 11, 12, 13, 14, 17, 18 AND 19.
Principals:
Witness:
------------------------ -----------------------------------
Jack B. Dunn IV, individually
Witness:
------------------------ -----------------------------------
Stewart Kahn, individually
<PAGE>
EXHIBITS
Document Number
- -------- ------
UCC-1 Financing Statements 1.02(b)
Form of Collateral Assignment of Lease 1.02(c)
NationsBank Amended and Restated Financing Security Agreement 1.03(a)
Warrants Exercise Price Calculation 2.01(b)
Non-Competition and Non-Disclosure Agreements 4.02
General Certificate with Exhibits 5.01A
Good Standing Certificates and Certificates of Authority as Foreign
Corporation 5.01B
Opinion of Company's Counsel 5.01C
Descriptions of Businesses 5.02
Litigation Schedule 5.03
Audited 1998 and Stub Period Financial Statements 5.05
Schedule of Leases 5.06
Incumbency and Schedule of Securityholders 5.10
Brokerage Fees 5.14
Statement of Funding Sources and Uses 5.15
Capital Structure 5.16
Schedule of Employee Benefit Plans 5.20
Schedule of Employee Contracts 5.22
Year 2000 Compliance 5.25
Size Status Declaration (SBA Form 480) 5.27A
Assurance of Compliance (SBA Form 652-D) 5.27B
Portfolio Financing Report (SBA Form 1031) 5.27C
Hazard and Liability Insurance Certificate 6.09
Seller Notes 6.10
Exhibit 10.12
AMENDED AND RESTATED
FINANCING AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT (the
"Agreement") is made this 29th day of March 1999, by and among (i) FTI
CONSULTING, INC., a Maryland corporation, formerly known as Forensic
Technologies International Corporation (the "Company"), (ii) the Subsidiaries
signing this Agreement and any Subsidiaries now or hereafter parties to this
Agreement (the "Subsidiaries"; together with the Company, being called
collectively the "Borrowers" and individually, a "Borrower") and (iii)
NATIONSBANK, N.A., a national banking association, its successors and assigns,
as Agent (the "Agent") for itself and its participants (the Agent together with
such participants, each being called a "Lender" and collectively, the
"Lenders").
RECITALS
A. The Agent and the Lenders have provided a line of credit to the
Borrowers as evidenced by that certain Financing and Security Agreement dated as
of September 15, 1998 (the "Original Financing Agreement"). The Borrowers have
requested that the Agent and the Lenders revise certain terms of the Original
Financing Agreement and the Agent, the Lenders and the Borrowers have agreed to
amend and restate the Original Financing Agreement in its entirety pursuant to
this Agreement
B. Pursuant to this Agreement, the Agent and the Lenders have agreed to
provide the Borrowers with a revolving credit facility in the maximum principal
amount of Twenty Seven Million Dollars ($27,000,000) up to Five Million Dollars
($5,000,000) of which the Borrowers may use for working capital needs and for
general corporate purposes (the "Working Capital Advances"), and the balance may
be used to repay the costs of the Seller Notes issued by the Company in
connection with the Acquisitions made by the Company pursuant to the Original
Financing Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, each Subsidiary, the
Agent and the Lenders hereby agree to restate the Original Financing Agreement
in its entirety as follows:
<PAGE>
I DEFINITIONS
SECTION 1.1 Certain Defined Terms. As used in this Agreement, the terms
defined in the Preamble and Recitals hereto shall have the respective meanings
specified therein, and the following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
contract rights, notes, drafts, instruments, acceptances, chattel paper, leases
and writings evidencing a monetary obligation or a security interest in or a
lease of goods, all rights to receive the payment of money or other
consideration under present or future contracts (including, without limitation,
all rights to receive payments under presently existing or hereafter acquired or
created letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, insurance policy, instrument, document or general
intangible, and all extensions and renewals of any thereof, all rights under or
arising out of present or future contracts, agreements or general interest in
merchandise which gave rise to any or all of the foregoing, including all goods,
all claims or causes of action now existing or hereafter arising in connection
with or under any agreement or document or by operation of law or otherwise, all
collateral security of any kind (including real property mortgages) given by any
person with respect to any of the foregoing and all proceeds (cash and non-cash)
of the foregoing.
"Account Debtor" means any Person who is obligated on an Account and
"Account Debtors" mean all Persons who are obligated on the Accounts.
"Additional LIBOR Rate Percentage" shall have the meaning set forth in
the Revolving Note.
"Additional Prime Rate Percentage" shall have the meaning set forth in
the Revolving Note.
"Affiliate" means, with respect to any Borrower, any Person, directly
or indirectly controlling, directly or indirectly controlled by, or under direct
or indirect common control with the Company or any Subsidiary, as the case may
be.
"Acquisitions" means the purchase by the Company of all of the
outstanding stock of each of the following companies: (i) S.E.A., Inc., ("SEA"),
(ii) Kahn Consulting, Inc. ("KAHN") and KCI Management Corp. ("KCI").
"Agreement" means this Financing and Security Agreement and all
amendments, modifications and supplements hereto which may from time to time
become effective in
2
<PAGE>
accordance with the provisions of Section 12.10 hereof.
"Assets" means, at any time, all assets that should, in accordance
with GAAP consistently applied, be classified as assets on a consolidated
balance sheet of the Company and its Subsidiaries.
"Banking Day" shall mean any day that is not a Saturday, Sunday or
banking holiday in the State of Maryland
"Base LIBOR Rate" means with respect to any Interest Period pertaining
to a LIBOR Loan, the rate per annum equal to the London Interbank Offered Rate
for thirty (30), sixty (60) ninety (90) or one hundred eighty (180) day deposits
in United States Dollars in an amount approximately equal to the amount for
which said rate is to be set as 11:00 a.m. (London, time), as adjusted for
Federal Reserve Board reserve requirements and similar assessments, if any,
imposed upon the Agent.
"Chattel Paper" means a writing or writings which evidence both a
monetary obligation and a security interest in or lease of specific goods; any
returned, rejected or repossessed goods covered by any such writing or writings
and all proceeds (in any form including, without limitation, accounts, contract
rights, documents, chattel paper, instruments and general intangibles) of such
returned, rejected or repossessed goods; and all proceeds (cash and non-cash) of
the foregoing.
"Closing Date" shall mean the Banking Day, in any event not later than
March 31, 1999, on which the Agent shall be satisfied that the conditions
precedent set forth in Article VI have been fulfilled.
"Collateral" means all property of the Borrowers subject from time to
time to the Liens of this Agreement, the Security Documents and the other
Financing Documents, including but not limited to, all Accounts, Chattel Paper,
Documents, Equipment, General Intangibles, Instruments and Inventory (whether or
not designated with initial capital letters), as those terms are defined in the
Uniform Commercial Code as presently adopted and in effect in the State and
shall also cover, without limitation, (i) any and all property specifically
included in those respective terms in this Agreement or in the Financing
Documents and (ii) all proceeds (cash and non-cash, including, without
limitation, insurance proceeds) of the foregoing.
"Collection" means each check, draft, cash, money, instrument, item,
and other remittance in payment or on account of payment of the Accounts or
otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed goods, the sale or lease of
which gave rise to an Account, and other proceeds of Collateral; and
"Collections" means the collective reference to all of the foregoing.
3
<PAGE>
"Commonly Controlled Entity" shall mean an entity, whether or not
incorporated, which is under common control with the Company within the meaning
of Section 414(b) or (c) of the Internal Revenue Code.
"Current Assets" means at any date, the amount which, in conformity
with GAAP, would be set forth opposite the caption "total current assets" (or
any like caption) on a consolidated balance sheet of the Company and its
Subsidiaries.
"Current Liabilities" means at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Company and its Subsidiaries, excluding all amounts outstanding under the
Revolving Loan.
"Current Ratio" means the ratio of (a) Current Assets to (b) Current
Liabilities.
"Daily LIBOR Rate" shall mean a fluctuating rate of interest equal to
the one (1) month rate of interest (rounded upwards, if necessary to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the one
(1) month London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) on the second preceding Banking Day, as adjusted from
time to time in the Lender's sole discretion for then-applicable reserve
requirements, deposit insurance assessment rates and other regulatory costs. If
for any reason such rate is not available, the term "Eurodollar Rate" shall mean
the fluctuating rate of interest equal the one (1) month rate of interest
(rounded upwards, if necessary to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the one (1) month London interbank offered rate for deposits
in dollars at approximately 11:00 a.m. (London time) on the second preceding
Banking Day, as adjusted from time to time in Lender's sole discretion for then
applicable reserve requirements, deposit insurance assessment rates and other
regulatory costs; provided, however, if more than one (1) rate is specified on
Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of
all such rates.
"Daily LIBOR Loan" means any Loan for which interest on all or a
portion of the outstanding principal thereof is to be computed with reference to
the Daily LIBOR Rate.
"Default" has the meaning described in Article IX.
"Default Rate" means the default rate of interest set forth in the
Revolving Note.
"Documents" means all documents and documents of title, whether nor
existing or hereafter acquired or created, and all proceeds (cash and non-cash
of the foregoing).
"Dollars" means dollars in lawful currency of the United States of
America.
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"EBITDA" means as to the Company and its Subsidiaries for any period
of determination thereof, the sum of (a) the net profit (or loss) determined in
accordance with GAAP consistently applied, plus (b) interest expense and tax
expense for such period, plus (c) depreciation and amortization of assets for
such period. EBITDA shall be calculated on a trailing twelve (12) month basis,
taking into account any Person acquired in an Acquisition during such twelve
(12) month period and adjusting for officer compensation which was eliminated
from the Person so acquired, provided the Lender has received evidence
satisfactory to Lender with respect to changes and compensation.
"EBITDAR" means as to the Company and its Subsidiaries for any period
of determination thereof, the sum of (a) EBITDA, plus (b) rent expense for such
period.
"Enforcement Costs" shall mean all expenses, charges, costs and fees
whatsoever (including, without limitation, reasonable outside attorney's fees
and expenses) of any nature whatsoever paid or incurred by or on behalf of the
Agent in connection with (a) the collection or enforcement of any or all of the
Obligations, (b) the preparation of or changes to this Agreement, the Note, the
Security Documents and/or any of the other Financing Documents, (c) the
creation, perfection, collection, maintenance, preservation, defense,
protection, realization upon, disposition, sale or enforcement of all or any
part of the Collateral, including, without limitation, those sums paid or
advanced, and costs and expenses, more specifically described in Section 10.3,
and (d) the monitoring, administration, processing, servicing of any or all of
the Obligations and/or the Collateral.
"Equipment" means all equipment, machinery, computers, chattels,
tools, parts, machine tools, furniture, furnishings, fixtures and supplies of
every nature, presently existing or hereafter acquired or created and wherever
located, whether or not the same shall be deemed to be affixed to real property,
together with all accessions, additions, fittings, accessories, special tools,
and improvements thereto and substitutions therefor and all parts and equipment
which may be attached to or which are necessary or beneficial for the operation,
use and/or disposition of such personal property, all licenses, warranties,
franchises and general intangibles related thereto or necessary or beneficial
for the operation, use and/or disposition of the same, together with all
Accounts, Chattel Paper, Instruments and other consideration received by the
Borrower on account of the sale, lease or other disposition of all or any part
of the foregoing, and together with all rights under or arising out of present
or future Documents and contracts relating to the foregoing and all proceeds
(cash and non-cash) of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Banking Day" means a Banking Day in which dealings in
Dollars are carried out on the London interbank eurodollar market.
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"Event of Default" means an event which, with the giving of notice or
lapse of time, or both, could or would constitute a Default under the provisions
of this Agreement.
"Fees" means the fees described in Sections 2.6 and 2.7 hereof.
"Financing Documents" means at any time collectively and include this
Agreement, the Notes, the Security Documents, the Warrant Documents and any
other instrument, agreement or document previously, simultaneously or hereafter
executed and delivered by any Borrower and/or any other Person, singly or
jointly with another Person or Persons, evidencing, securing, guarantying or in
connection with any of the Obligations and/or in connection with this Agreement,
any Note, any of the Security Documents, the Loans and/or any of the
Obligations.
"Fixed Charge Coverage Ratio" means the ratio of (i) EBITDAR, less
capital expenditures, to (ii) (a) the sum of interest expense, plus (b) required
principal on Indebtedness (other than prepayments on the Revolving Loan) and
capitalized leases scheduled and/or paid in the prior twelve (12) month period,
plus (c) any payments required to be made under any non-compete or earn out
agreements scheduled and/or paid in the prior twelve (12) month period, plus (d)
rent expense, plus (e) income tax expense for such period, less (f) up to Ten
Million Dollars ($10,000,000) scheduled to be paid to Kahn Consulting, Inc. in
September of 1999.
"Funded Debt" means for any period of determination thereof an amount
equal to the sum of all Indebtedness for Borrowed Money (including, but not
limited to senior debt, stockholder debt, subordinated debt, the value of all
capitalized leases, all Seller Notes, all letters of credit issued on the
account of the Company other than letters of credit which secure Seller Notes,
and estimated liabilities under existing earn-out and/or non-compete agreements)
all as determined on a consolidated basis.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"General Intangibles" means all general intangibles of every nature,
whether presently existing or hereafter acquired or created, including without
limitation all books and records, claims (including without limitation all
claims for income tax and other refunds), choses in action, contract rights,
judgments, patents, patent licenses, trademarks, trademark licenses, licensing
agreements, rights in intellectual property, goodwill (including goodwill of the
Borrowers' business symbolized by and associated with any and all trademarks,
trademark licenses, copyrights and/or service marks), royalty payments,
licenses, contractual rights, rights as lessee under any lease of real or
personal property, literary rights, copyrights, service names, service marks,
logos, trade secrets, amounts received as an award in or settlement of a suit in
damages, deposit accounts, interests in joint ventures or general or limited
partnerships, rights in applications for any of the foregoing, books and records
in whatever media (paper, electronic or
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otherwise) recorded or stored, with respect to any or all of the foregoing and
all equipment and general intangibles necessary or beneficial desirable to
retain, access and/or process the information contained in those books and
records, and all proceeds (cash and non-cash) of the foregoing.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means (a) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976, as amended from time to
time, and regulations promulgated thereunder; (b) any "hazardous substance" as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time, and regulations promulgated
thereunder; (c) any substance the presence of which on any property now or
hereafter owned or acquired by any Borrower is prohibited by any Law similar to
those set forth in this definition; and (d) any other substance which by Law
requires special handling in its collection, storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by any Borrower or for
which any Borrower has responsibility, including, without limitation,
improvements, facilities, soil, ground water, air or other elements on, or of,
any property now or hereafter owned or acquired by any Borrower, and any other
contamination by Hazardous Materials for which any Borrower is, or is claimed to
be, responsible.
"Indebtedness for Borrowed Money" of a Person, at any time shall mean
the sum at such time of (a) indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services, (b) any obligations of
such Person in respect of letters of credit, banker's or other acceptances or
similar obligations issued or created for the account of such Person, (c) lease
obligations of such Person which have been or should be, in accordance with
GAAP, capitalized on the books of such Person, (d) all liabilities secured by
any Lien on any property owned by such Person, to the extent attached to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (e) any obligation of such Person or
a commonly controlled entity to a multiemployer plan (as those terms are used
under applicable ERISA statutes and regulations), but excluding trade and other
accounts payable in the ordinary course of business in accordance with customary
trade terms and which are not overdue or which are being disputed in good faith
by such Person and for which adequate reserves are being provided on the books
of such Person in accordance with GAAP.
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"Instrument" means a negotiable instrument (as defined under Article 3
of the Uniform Commercial Code), a "certificated security" (as defined under
Article 8 of the Uniform Commercial Code), or any other writing which evidences
a right to payment of money and is not itself a security agreement or lease and
is of a type which is in the ordinary course of business transferred by delivery
with any necessary indorsement.
"Interest Period" means (a) as to any LIBOR Loan the period commencing
on and including the date of such Loan (or on the effective date of the election
pursuant to Section 2.4 (e) by which such Loan became a LIBOR Loan) and ending
on and including the day preceding the same day (or if there is no such same
day, the date preceding the last day) in the first, second, third or sixth
calendar month thereafter, as selected by the Borrowers in accordance with
Section 2.4(e), and thereafter such period commencing on and including the day
immediately following the last day of the then ending Interest Period for such
Loan and ending on and including the day preceding the day corresponding to the
first day of such Interest Period (or if there is no such corresponding day, the
day preceding the last day), in the first, second, third or sixth calendar month
thereafter, as so selected by the Borrowers; provided, however, that if any such
Interest Period would otherwise end on a day prior to a day that is not a
Eurodollar Banking Day, it shall be extended so as to end on the day prior to
the next succeeding Eurodollar Banking Day unless the same would fall in a
different calendar month, in which case such Interest Period shall end on the
day preceding the first Eurodollar Banking Day preceding such next succeeding
Eurodollar Banking Day; and (b) as to any Daily LIBOR Rate Loan or any Prime
Loan, the period commencing on and including the date of such Loan (or on the
effective date of the election pursuant to Section 2.4(e) by which such Loan
became a Daily LIBOR Rate Loan or a Prime Loan, as the case may be) and ending
on and including the day preceding the day 30, 60, 90, or 180 days thereafter,
as so selected by the Borrowers in accordance with Section 2.4 (e), and
thereafter each period commencing on and including the day immediately following
the last day of the then ending Interest Period for such Loan and ending on and
including the day preceding the day 30, 60, 90 or 180 days thereafter, as so
selected by the Borrowers; provided, however, that if any such Interest Period
would otherwise end on a day prior to a day that is not a Banking Day, it shall
be extended so as to end on the day prior to the next succeeding Banking Day.
"Interest Rates" mean the Prime Rate, plus the Additional Prime Rate
Percentage, the Daily LIBOR Rate, plus the Additional LIBOR Rate Percentage or
the LIBOR Rate, plus the Additional LIBOR Rate Percentage, as applicable.
"Inventory" means all inventory of the Borrowers and all right, title
and interest of the Borrowers in and to all of its now owned and hereafter
acquired goods, merchandise and other personal property furnished under any
contract of service or intended for sale or lease, including, without
limitation, all raw materials, work-in-progress, finished goods and materials
and supplies of any kind, nature or description which are used or consumed in
the Borrowers' business or are or might be used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise and other licenses, warranties,
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franchises, general intangibles, personal property and all documents of title or
documents relating to the same and all proceeds (cash and non-cash) of the
foregoing.
"Items of Payment" means each check, draft, cash, money, instrument,
item, and other remittance in payment or on account of payment of the Accounts
or otherwise with respect to any Collateral, including, without limitation, cash
proceeds of any returned, rejected or repossessed Goods, the sale or lease of
which gave rise to an Account, and other proceeds or products of Collateral; and
"Items of Payment" means the collective reference to all of the foregoing.
"Law" or "Laws" means all ordinances, statutes, rules, regulations,
orders, injunctions, writs, or decrees of any Governmental Authority or
political subdivision or agency thereof, or any court or similar entity
established by any thereof.
"Lease Assignments" means those certain Collateral Assignments of
Leases to be delivered by one or more of the Borrowers to the Agent pursuant to
Section 6.11 hereof of the Borrowers' leasehold interests in real property and
any improvements thereon at the following locations: (a) 1401 K Street, N.W.,
Washington, D.C. 20005, (b) 2021 Research Drive, Annapolis, Maryland 21401, (c)
152 West 57th Street, Suite 4500, New York, New York 10019, (d) 7349
Worthington-Galena Road, Columbus, Ohio 43220, and (e) 333 W. Wacker Drive,
Suite 600, Chicago, Illinois 60606.
"Liabilities" means, at any time, all liabilities that should, in
accordance with GAAP consistently applied, be classified as liabilities on a
consolidated balance sheet of the Company and its Subsidiaries.
"LIBOR Loan" means any Loan for which interest on all or a portion of
the outstanding principal thereof is to be computed with reference to the LIBOR
Rate.
"LIBOR Rate" means, in respect to any LIBOR Loan, a rate per annum
equal to the sum of the Base LIBOR Rate for the Interest Period for which
interest is to be determined at the LIBOR Rate, plus the Additional LIBOR Rate
Percentage with respect to the Loans.
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien or charge of
any kind, whether perfected or unperfected, avoidable or unavoidable, including,
without limitation, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any lessor in a
true lease transaction, by any bailor in a true bailment transaction or by any
consignor in a true consignment transaction under the Uniform Commercial Code of
any jurisdiction or the
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agreement to give any financing statement by any lessee in a true lease
transaction, by any bailee in a true bailment transaction or by any consignee in
a true consignment transaction.
"Loan" means a Revolving Loan or a Swing Line Loan, and "Loans" mean
all Revolving Loans and Swing Line Loans, collectively.
"Loan Notice" has the meaning set forth in Section 2.4(e) hereof.
"Material Adverse Effect" means a material adverse change in (i) the
business operations or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole, (ii) the ability of the Company and its
Subsidiaries to repay the Obligations or otherwise perform their obligations
under any of the Financing Documents, or (iii) the value of, or the ability of
the Agent to realize upon, the Collateral.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Note" means the Revolving Promissory Note or the Swing Line Note, and
"Notes" mean collectively the Revolving Promissory Note the Swing Line Note, and
any other promissory notes which may from time to time evidence the Obligations.
"Obligations" means all present and future debts, obligations, and
liabilities, whether now existing or contemplated or hereafter arising, of any
of the Borrowers to the Agent or any of the Lenders under, arising pursuant to,
in connection with and/or on account of the provisions of this Agreement, the
Notes, each Security Document, and any of the other Financing Documents, any of
the Loans, including, without limitation, the principal of, and interest on, the
Notes, late charges, fees charged with respect to any guaranty of any letter of
credit, and also means all other present and future indebtedness, liabilities
and obligations, whether now existing or contemplated or hereafter arising, of
any of the Borrowers to the Agent or any of the Lenders of any nature whatsoever
regardless of whether such debts, obligations and liabilities be direct,
indirect, primary, secondary, joint, several, joint and several, fixed or
contingent; and any and all renewals, extensions and rearrangements of any such
debts, obligations and liabilities.
"Overdraft" means any excess of debit entries over collected funds on
deposit in any banking account of any Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) Liens for Taxes which are not delinquent
or which the Agent has determined in the exercise of its sole and absolute
discretion (i) are being diligently contested in good faith and by appropriate
proceedings, (ii) such Borrower has the financial ability to pay, with all
penalties and interest, at all times without materially and adversely
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affecting such Borrower, and (iii) are not, and will not be with appropriate
filing, the giving of notice and/or the passage of time, entitled to priority
over any Lien of the Agent; (b) deposits or pledges to secure obligations under
worker's compensation, social security or similar laws, or under unemployment
insurance in the ordinary course of business; (c) Liens in favor of the Agent;
(d) judgment Liens to the extent the entry of such judgment does not constitute
an Event of Default under the terms of this Agreement or result in the sale of,
or levy of execution on, any of the Collateral; (f) purchase money security
interest permitted under Section 8.01 hereof, (g) liens of carriers, warehouses,
mechanics and landlords incurred in the ordinary course of business, (h) Liens
currently securing the Subordinated Debt, and (i) such other Liens, if any, as
are set forth on EXHIBIT C attached hereto and made a part hereof.
"Person" shall mean and include an individual, a corporation, a
partnership, a joint venture, a trust, an unincorporated association, a
government or political subdivision or agency thereof or any other entity.
"Pledge Agreement" means those certain Amended and Restated Pledge and
Security Agreements of even date herewith, from the Company in favor of the
Agent for the benefit of the Lenders, as the same may be amended, replaced or
modified from time to time.
"Prime Loan" means any Loan for which interest on all or a portion of
the outstanding principal thereof is to be computed with reference to the Prime
Rate.
"Prime Rate" means the prime rate charged by the Agent as fixed by
management of the Agent for the guidance of its loan officers, whether or not
such rate is otherwise published or announced. The Prime Rate is not necessarily
the lowest rate of interest charged by the Agent to borrowers.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Required Lenders" means at any time the Lenders holding at least
seventy-five percent (75.0%) of the then aggregate unpaid principal amount of
the Loans held by the Lenders, or, if no such principal amount is then
outstanding, the Lenders having at least seventy-five percent (75.0%) of the
Revolving Loan Committed Amount.
"Responsible Officer" means the chief executive officer of the Company
or the president of the Company or, with respect to financial matters, the chief
financial officer of the Company.
"Revolving Loan Committed Amount" means Twenty Seven Million Dollars,
and includes all amounts advanced under the Swing Line Loans.
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"Revolving Loan" and "Revolving Loans" have the meanings described in
Section 2.1(a).
"Revolving Promissory Note" has the meaning described in Section
2.1(c).
"Revolving Loan Account" has the meaning described in Section 2.4.
"Security Agreement" means that certain security agreement for
intellectual property dated the date hereof from the Company for the benefit of
the Agent and the Lenders, as the same may from time to time be amended,
restated, supplemented or otherwise modified.
"Security Documents" shall mean collectively any assignment, pledge
agreement, security agreement, mortgage, deed of trust, deed to secure debt,
financing statement and any similar instrument, document or agreement under or
pursuant to which a Lien is now or hereafter granted to, or for the benefit of,
the Agent on any collateral to secure the Obligations, as the same may from time
to time be amended, restated, supplemented or otherwise modified, including, but
not limited to the Pledge Agreements, the Security Agreement and the Lease
Assignments.
"Seller Notes" shall mean the promissory notes from the Company and
more fully described in Schedule A attached hereto.
"Senior Management" shall be deemed to refer to the following
executive positions: President, CEO, Chairman of the Board, Chief Operating
Officer and Chief Financial Officer.
"State" means the State of Maryland.
"Subsidiary" means the subsidiaries set forth on the signature page to
this Agreement, and any corporation the majority of the voting shares of which
at the time are owned directly by the Company and/or by one or more Subsidiaries
of the Company.
"Subordinated Debt" means that certain Indebtedness for Borrowed Money
of the Company in favor of Allied Capital Corporation and Allied Investment
Corporation, in an aggregate face principal amount of Thirteen Million Dollars
($13,000,000).
"Subordinated Debt Loan Documents" means any and all promissory notes,
agreements, documents or instruments now or at any time evidencing, securing,
guarantying or otherwise executed and delivered in connection with the
Subordinated Debt, as the same may from time to time be amended, restated,
supplemented or modified.
"Subordinated Indebtedness" means the Seller Notes, the Subordinated
Debt and all other Indebtedness incurred at any time by the Borrowers, the
repayment of which is
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subordinated to the Obligations by a written agreement in form and substance
satisfactory to the Lender in its sole and absolute discretion.
"Subordination Agreement" means that certain Subordination Agreement
by and among Allied Capital Corporation and Allied Investment Corporation, the
Borrowers in favor of the Lender, as the same may be from time to time amended,
restated, supplemented or modified.
"Swing Line Loans" means loans made pursuant to Section 2.3 hereof.
"Swing Line Note" has the meaning described in Section 2.3(a) hereof.
"Taxes" mean all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on any
Borrower or any of its properties or assets or any part thereof or in respect of
any of its franchises, businesses, income or profits.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State.
"Warrant Documents" means that stock purchase warrant of even date
herewith from the Company in favor of the Agent, together with all exhibits and
instruments delivered therewith, as the same may be from time to time amended,
restated, supplemented or modified.
"Wholly Owned Subsidiary" means any domestic United States corporation
all the shares of stock of all classes of which (other than directors'
qualifying shares) at the time are owned directly or indirectly by the Company
and/or by one or more Wholly Owned Subsidiaries of the Company.
SECTION 1.2 Accounting Terms and Other Definitional Provisions. Unless
otherwise defined herein, as used in this Agreement and in any certificate,
report or other document made or delivered pursuant hereto, accounting terms not
otherwise defined herein, and accounting terms only partly defined herein, to
the extent not defined, shall have the respective meanings given to them under
GAAP. Unless otherwise defined herein, all terms used herein which are defined
by the Maryland Uniform Commercial Code shall have the same meanings as assigned
to them by the Maryland Uniform Commercial Code unless and to the extent varied
by this Agreement. The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are references to sections or
subsections of, or schedules or exhibits to, as the case may be, this Agreement
unless otherwise specified. As used herein, the singular number shall include
the
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plural, the plural the singular and the use of the masculine, feminine or neuter
gender shall include all genders, as the context may require. Reference to any
one or more of the Financing Documents and any of the Financing Documents shall
mean the same as the foregoing may from time to time be amended, restated,
substituted, extended, renewed, supplemented or otherwise modified.
II BORROWING
SECTION 2.1 The Revolving Loan
(a) The Lenders agree to lend to the Borrowers and the Borrowers
jointly and severally agree to borrow on a revolving basis from time to time the
principal amount outstanding (the "Revolving Loan") not to exceed at any time
Twenty Seven Million Dollars ($27,000,000).
(b) The joint and several obligation of the Borrowers to repay the
advances under the Revolving Loan shall be evidenced by the Borrowers' Amended
and Restated Revolving Promissory Note of even date herewith (the "Revolving
Promissory Note") payable to the Agent in the form attached hereto as EXHIBIT A.
The Revolving Promissory Note shall bear interest and shall be repaid by the
Borrowers in the manner and at the times set forth in the Revolving Promissory
Note.
(c) The Borrowers may prepay the principal sum outstanding on the
Revolving Loan only in accordance with the terms of the Revolving Note. Sums
borrowed and repaid may be readvanced under the terms and conditions of this
Agreement.
(d) The proceeds of the Revolving Loan shall be used by the Borrowers
for the purposes set forth in Recital B above, and, unless prior written consent
of the Lenders is obtained, for no other purpose.
SECTION 2.2 Revolving Loan Procedure. The Borrowers hereby irrevocably
authorize the Agent and each of the Lenders to make advances under the Revolving
Loan at any time and from time to time, without further request from or notice
to the Borrowers, which the Agent, in its sole and absolute discretion, deems
necessary or appropriate to protect the Agent's interests under this Agreement
or otherwise, including, without limitation, advances made to cover Overdrafts,
principal of, and/or interest on, any Loans, fees, and/or Enforcement Costs,
prior to, on, or after the termination of this Agreement, regardless of whether
the aggregate amount of the advances which the Agent may make hereunder exceeds
the Revolving Credit Committed Amount. The Agent and each Lender shall have no
obligation whatsoever to make any advance under this subsection and the making
of one or more advances under this subsection shall not obligate the Agent or
any Lender to make other similar advance or advances. Any such advances will be
secured by the Collateral.
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SECTION 2.3 Swing Line Loans.
(a) Upon the terms and subject to the conditions hereof, and in
reliance upon the representations and warranties herein set forth, NationsBank,
N.A. ("NationsBank") agrees to make a loan or loans to the Borrowers (each a
"Swing Line Loan" and collectively, the "Swing Line Loans"), which Swing Line
Loans (i) shall accrue interest at the Prime Rate, plus the Additional Prime
Rate Percentage or the Daily LIBOR Rate, plus the Additional LIBOR Rate
Percentage, (ii) may be repaid and reborrowed in accordance with the provisions
hereof; (iii) shall not exceed in aggregate principal amount at any time
outstanding the amount of the Revolving Loan Committed Amount minus the
aggregate principal amount of all Revolving Loans then outstanding; (iv) shall
not exceed One Million Dollars ($1,000,000.00) in aggregate principal amount at
any time outstanding; and (v) shall not be made after NationsBank has received
written notice from any Lender that a Default or Event of Default has occurred
and is continuing. The Swing Line Loans shall be evidenced by a Note in the form
of Exhibit D attached hereto.
(b) On any Banking Day, NationsBank may, in its sole discretion, give
notice to the Agent and the Lenders (other than NationsBank) that its
outstanding Swing Line Loans shall be funded with a borrowing of Revolving Loans
(provided that each such notice shall be deemed to have been automatically given
upon the occurrence of an Event of Default), in which case a borrowing of
Revolving Loans constituting Revolving Loans at the Prime Rate, plus the
Additional Prime Rate Percentage or the Daily LIBOR Rate, plus the Additional
LIBOR Percentage, shall be made on the immediately succeeding Banking Day by all
of the Lenders ratably based upon each Lender's percentage of the Revolving
Loans, and the proceeds thereof shall be applied directly to repay NationsBank
for such outstanding Swing Line Loans. Each Lender hereby irrevocably agrees to
make Revolving Loans upon one (1) Banking Day's notice in the amount and in the
manner specified in the preceding sentence and on the date specified in writing
by the Agent notwithstanding (i) that the amount of such borrowing may not
comply with the minimum borrowing amounts otherwise required hereunder, (ii)
whether any conditions specified in Article VI are then satisfied, (iii) whether
a Default or Event of Default has occurred and is continuing, and (iv) any
reduction in the Revolving Loan Committed Amount after any such Swing Line Loans
were made. In the event that any borrowing pursuant to this Section 2.3 cannot
for any reason be made on the date otherwise required above (including, without
limitation, as a result of the commencement of any insolvency proceeding in
respect of any Borrower), each Lender (other than NationsBank) hereby agrees
that it shall forthwith purchase from NationsBank (without recourse or warranty)
such assignment of the outstanding Swing Line Loans as shall be necessary to
cause the Lenders to share in such Swing Line Loans ratably based upon their
respective percentages of the Revolving Loans, provided that all interest
payable on the Swing Line Loans shall be for the account of NationsBank until
the date the respective Revolving Loan is purchased and, to the extent
attributable to the purchased Revolving Loan,
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shall be payable to the Lender purchasing such Revolving Loan from and after
such date of purchase.
(c) Whenever the Borrower desires to borrow a Swing Line Loan
hereunder, it shall deliver to NationsBank irrevocable notice thereof (which
notice may be in writing or by telecopy, telex or telegraph, or by telephone, if
immediately confirmed in writing, substantially in the form of a Loan Notice)
not later than 11:00 a.m., Eastern Time, on the proposed borrowing date. Such
notice shall specify (i) the date of such borrowing and (ii) the amount of the
Swing Line Loan.
SECTION 2.4 Interest.
(a) Interest Rates. Until the date on which the principal is due (at
stated maturity, on acceleration or otherwise), interest on all or any portion
of the outstanding principal balance of the Revolving Loans shall accrue for
each day at either the Prime Rate, plus the Additional Prime Rate Percentage for
such day, or for Working Capital Advances only if elected by the Borrowers, the
Daily LIBOR Rate, plus the Additional LIBOR Rate Percentage, or for any
advances, the LIBOR Rate, plus the Additional LIBOR Rate Percentage for the
Interest Period which includes such day, all as elected and specified (including
specification as to length of Interest Period, as permitted by the definition of
that term, with respect to any election of the LIBOR Rate) by the Borrowers in a
Loan Notice to the Agent in accordance with Subsection (e) hereof. Advances
accruing interest at the LIBOR Rate shall be in minimum amounts of $100,000 and
increments of $100,000.
After the date on which principal is due (at stated maturity, on
acceleration or otherwise), interest on the outstanding principal balance of any
Loan shall accrue at the Default Rate until such principal is paid in full and
shall be jointly and severally payable by the Borrowers upon demand by the
Agent.
(b) Determination of Interest Rates. Upon request of the Borrowers,
the Agent shall, as soon as practicable, notify the Borrowers and the Lenders of
each determination of a LIBOR Rate, provided that any failure to do so shall not
relieve the Borrowers of any liability hereunder. Each determination of an
Interest Rate by the Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrowers and the Lenders in the absence of
manifest error. The Agent shall, at the request of the Borrowers or any Lender,
deliver to the Borrowers or such Lender, as the case may be, a statement showing
the quotations used by the Agent in determining any Interest Rate pursuant
hereto.
(c) Inability to Determine LIBOR Rate. In the event that (i) the Agent
shall have determined (which determination shall be conclusive and binding upon
the Borrowers) that, by reason of circumstances affecting the London interbank
eurodollar market, adequate and reasonable means do not exist for ascertaining
the LIBOR Rate for any requested Interest Period with respect to a Loan that the
Borrowers have requested be made or converted as a LIBOR
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Loan, or (ii) the Required Lenders shall determine and notify the Agent of such
determination (which determination shall be conclusive and binding upon the
Borrowers) that the rates quoted by the Agent for the purpose of computing the
LIBOR Rate for any requested Interest Period with respect to a Loan that the
Borrowers have requested be made or converted as a LIBOR Loan do not adequately
and fairly reflect the cost to such Lenders of funding or converting such Loan,
the Agent shall forthwith give notice of such determination to the Borrowers and
each Lender at least one day prior to the proposed date for funding or
converting such LIBOR Loan. If such notice is given, any requested LIBOR Loan
shall be made or converted as a Prime Loan having an Interest Period of thirty
(30) days. Until such notice has been withdrawn by the Agent, the Borrowers will
not request that any Loan be made or converted as a LIBOR Loan.
(d) Election of Interest Rates. By a proper and timely Loan Notice in
accordance with Subsection (e) hereof, the Borrowers shall select the initial
Interest Rate to be charged on Revolving Loans disbursed on the Closing Date and
from time to time thereafter the Borrowers may elect, by a proper and timely
Loan Notice to the Agent in accordance with the provisions of Subsection (e)
hereof, an initial Interest Rate for any Revolving Loan, or to convert the
Interest Rate on any Revolving Loan to any other Interest Rate (including, when
applicable, the selection of the Interest Period); provided that;
(i) the Borrowers shall not select any Interest Period that
extends beyond the maturity date of the Revolving Loan;
(ii) except as otherwise provided in Subsection (e) hereof no
such change from the LIBOR Rate to another Interest Rate shall become
effective on a day other than the day, which must be a Banking Day, and, if
such change involves a Loan upon which interest is, or will be, calculated
at the LIBOR Rate, also a Eurodollar Banking Day, next following the last
day of the Interest Period last in effect for such LIBOR Loan;
(iii) the Interest Rate on Loans may differ among the Lenders
only as provided in Subsections (c), (e) and Section 2.12 (Requirements of
Law);
(iv) any elections made by the Borrowers pursuant to this Section
shall be in the amount of $100,000, plus any additional increment of
$100,000;
(v) notwithstanding anything herein to the contrary, the
Borrowers may not under any circumstances make any election under this
Section that would result in Loans outstanding at more than five (5) LIBOR
Rates; and
(i) the first day of each Interest Period as to a LIBOR Loan
shall be a Eurodollar Banking Day.
Each election by the Borrowers as between the Prime Rate, the Daily
LIBOR Rate and the LIBOR Rate shall be made, as among the Lenders, pro rata in
accordance with their
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respective proportionate shares, except as a variation from such prorationing
may be required by virtue of termination as to a particular Lender of its
Commitment to make LIBOR Loans, as contemplated by Subsection (d) hereof or by
Section 2.12 (Requirements of Law).
In the absence of an election by the Borrowers of the LIBOR Rate, or,
having made such election but the Borrowers fail or are not entitled under the
terms of this Agreement to elect to continue such Interest Rate and specify the
applicable Interest Period therefor, then upon the expiration of such then
current Interest Period, interest on the Revolving Loan shall accrue for each
day at the Prime Rate for such day, until the Borrowers, in accordance with this
Section, elect a different Interest Rate and specify the Interest Period for the
Revolving Loan.
(e) Loan Notice. The Lenders will not be obligated to make Revolving
Loans, convert the Interest Rate on Revolving Loans to another Interest Rate or
to act upon any election by the Borrowers pertaining to Interest Rates or
Interest Periods unless the Agent shall have received an irrevocable written
notice (a "Loan Notice") from the Borrowers at the times and specifying the
information as follows:
(i) the amount to be borrowed, prepaid or converted,
(ii) any election among the Prime Rate, the Daily LIBOR Rate or
the LIBOR Rate,
(iii) the requested date on which such election is to be
effective, and
(iv) the length of the Interest Period applicable to such
Revolving Loans;
Such Loan Notice (or telephone advice thereof promptly confirmed in
writing) shall be received by the Agent prior to 11:00 a.m. (Washington, D.C.)
time, at least;
(i) four (4) Eurodollar Banking Days prior to the requested
effective date of such election in the case of LIBOR Loans, and
(ii) two (2) Banking Days prior to the requested effective date
of such election in the case of Prime Loans or Working Capital
Advances accruing interest at the Daily LIBOR Rate.
Upon receipt of a Loan Notice, the Agent shall promptly notify each Lender
of the contents thereof. Each Lender will make the amount of its proportionate
share of any Revolving Loan to be made to the Borrowers.
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(f) Indemnity. The Borrowers jointly and severally agree to indemnify
and reimburse each Lender and to hold such Lender harmless from any loss, cost
(including administrative costs) or expense which such Lender may sustain or
incur as a consequence of (a) Default by the Borrowers in payment when due of
the principal amount of or interest on any LIBOR Loans of such Lender, (b)
failure of the Borrowers to make, or convert the Interest Rate of, a Revolving
Loan after the Borrowers have given (or are deemed to have given) a Loan Notice
in accordance with Subsection (d) hereof, or (c) the making by the Borrowers of
a prepayment of a LIBOR Loan on a day which is not the last day of the Interest
Period with respect thereto, including, without limitation, any such loss or
expense arising from the reemployment of funds obtained by such Lender to
maintain its LIBOR Loans hereunder or from fees payable to terminate the
deposits from which such funds were obtained; provided, that such Lender will
use its best efforts to redeploy such funds in a commercially reasonable manner.
This covenant shall survive termination of this Agreement and payment of the
Loans.
(g) Payment of Interest.
(i) Interest accruing on any LIBOR Loan during any Interest
Period shall be jointly and severally payable by the Borrowers on the last
Banking Day of such then current Interest Period; provided, however, that
with respect to LIBOR Loans for which the Interest Period selected by the
Borrowers pursuant to Subsection (c) hereof (Election of Interest Rates) is
greater than three (3) months, interest shall be payable quarterly on the
last Banking Day of such three month period with the first such three month
period commencing on the first day of the applicable Interest Period with
any remaining unpaid interest being due and payable on the last day of such
Interest Period; provided further that all accrued interest on any LIBOR
Loan converted or prepaid prior to the last Banking Day of the applicable
Interest Period shall be paid immediately upon such prepayment or
conversion.
(ii) Interest accruing on Prime Loans shall be paid quarterly in
arrears on the first day of each March, June, September and December,
commencing June 1, 1999, and on the date the principal of such Loans shall
be due (at stated maturity, on acceleration, or otherwise); provided, that
all accrued interest on any Prime Loan converted or prepaid shall be paid
immediately upon such prepayment or conversion.
SECTION 2.5 Revolving Loan Account. The Agent will establish and maintain a
loan account on its books (the "Revolving Loan Account") to which the Agent will
(a) debit (i) the principal amount of each Revolving Loan made by the Lenders
hereunder as of the date made, (ii) the amount of any interest accrued on the
Revolving Loans as and when due, and (ii) any other amounts due and payable by
the Borrowers to the Agent from time to time under the provisions of this
Agreement in connection with the Revolving Loans, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection and audit fees,
as and when due and payable, and (b) credit all payments made by the Borrowers
to the Agent on
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account of the Revolving Loans as of the date made including, without
limitation, funds credited to the Collateral Account and collected and paid to
the Agent, the Agent reserving the right, exercised in its sole and absolute
discretion from time to time, to provide earlier credit or to disallow credit
for any Collection which is unsatisfactory to the Agent.
The Agent may debit the Revolving Loan Account for the amount of any
Collection which is returned to the Agent unpaid. All credit entries to the
Revolving Loan Account are conditional and shall be readjusted as of the date
made if final and indefeasible payment is not received by the Agent in cash or
solvent credits. The Borrowers hereby jointly and severally promises to pay to
the order of the Agent, on demand, an amount equal to the excess, if any, of all
debit entries over all credit entries recorded in the Revolving Loan Account
under the provisions of this Agreement.
SECTION 2.6 Collateral Account. After the occurrence of and during the
continuance of any Event of Default, the Borrowers will deposit or cause to be
deposited to a bank account designated by the Agent and from which the Agent
alone has power of access and withdrawal (the "Collateral Account") all Items of
Payment. After the occurrence of and during the continuance of any Event of
Default, the Borrowers shall deposit Items of Payment for credit to the
Collateral Account not later than the next Banking Day after the receipt
thereof, and in precisely the form received, except for the endorsements of the
Borrowers where necessary to permit the collection of any such Items of Payment,
which endorsement each of the Borrowers hereby agree to make. Pending such
deposit to the Collateral Account, endorsement and/or other delivery thereof to
the Agent, the Borrowers will not commingle any Items of Payment with any of its
other funds or property, but will hold them separate and apart therefrom in
trust and for the account of the Agent. The Agent is not, however, required to
credit the Collateral Account for the amount of any Collection which is
unsatisfactory to the Agent. In addition, the Borrowers shall, if so directed by
the Agent, after the occurrence of and during the continuance of any Event of
Default, establish a lock box to which Items of Payments may be sent and shall
direct each Borrower's customers and others as the Agent may require to forward
payments to that lock box. Items of Payment received in the lock box shall be
deposited in the Collateral Account or as otherwise directed by the Agent from
time to time.
SECTION 2.7 Commitment Fee. The Borrowers jointly and severally agree to
pay to the Agent for the ratable benefit of the Lenders on the first day of each
three month period commencing after the date of this Agreement a commitment fee
(computed on the basis of a year consisting of three hundred and sixty (360)
days for the actual number of days elapsed) of one quarter of one percent (.25%)
per annum on the daily average of the unused amount of the Revolving Loan.
SECTION 2.8 Origination Fee. The Borrowers jointly and severally agree to
pay the Agent an origination fee in the amount of Four Hundred Five Thousand Two
Hundred Fifty Dollars ($405,250), of which one-quarter has been paid, and the
balance of the fee ($303,750) is
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payable on the date of this Agreement. This fee is considered earned when paid
and is not refundable
SECTION 2.9 Transactions under this Agreement Between the Borrowers and the
Agent. The Borrowers in the discretion of their respective management are to
agree among themselves as to the allocation of the benefits of the proceeds of
Loans and the purposes for which such benefits and proceeds will be used so long
as any such allocation or purpose does not violate the provisions of this
Agreement. The Borrowers hereby represent and warrant to the Agent and the
Lenders that each of them will derive benefits, directly and indirectly, from
each Loan, both in its separate capacity and as a member of the integrated group
to which each of the Borrowers belong, since the successful operation of the
integrated group is dependent upon the continued successful performance of the
functions of the integrated group as a whole. For administrative convenience,
the Company is hereby irrevocably appointed by each of the Borrowers as agent
for each of the Borrowers for the purpose of requesting Loans hereunder from the
Agent and the Lenders, receiving the benefits of such Loans and disbursing the
proceeds of such Loans between the Borrowers. By reason thereof, the Company is
hereby irrevocably appointed by each of the Borrowers as the attorney-in-fact of
each of the Borrowers with power and authority through its duly authorized
officer or officers to (a) endorse any check (if any) for the proceeds of any
Loan for and on behalf of each of the Borrowers and in the name of each of the
Borrowers, and (b) instruct the Agent to credit the proceeds of any Loan
directly to a banking account of any of the Borrowers which shall evidence the
making of such Loan and shall constitute the acknowledgment by each of the
Borrowers of the receipt of the proceeds of such Loan. The Agent and the Lenders
assume no responsibility or liability for any errors, mistakes, and/or
discrepancies in the oral, telephonic, written or other transmissions of any
instructions, orders, requests and confirmations between the Agent and the
Borrowers in connection with any Loan or any other transaction in connection
with the provisions of this Agreement.
SECTION 2.10 Account Statements. Any and all periodic or other statements
or reconciliations, and the information contained in those statements or
reconciliations, of the Revolving Loan Account shall be presumed conclusively to
be correct and shall constitute an account stated between the Agent, the Lenders
and the Borrowers unless the Agent receives specific written objection thereto
from the Company within thirty (30) Banking Days after such statement or
reconciliation shall have been sent by the Agent.
SECTION 2.11 Overdraft Advances. If, after the close of business on any
Banking Day, any banking account of the Borrowers with the Agent is determined
by the Agent to have an Overdraft, the Agent, in its sole discretion on each and
any such occasion may (and is hereby irrevocably authorized by the Borrowers
to), but is not obligated to, make an advance under the Revolving Loan to the
Borrowers in a principal amount equal to any such Overdraft as of the close of
business on such Banking Day. All Overdrafts shall be secured by the Collateral.
SECTION 2.12 Requirements of Law.
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(a) In the event that any Laws, treaty, rule, regulation or
determination of an arbitrator or a court or other Governmental Authority of any
country or any change therein or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority:
(i) does or shall subject any Lender to any tax of any kind
whatsoever with respect to this Agreement, any LIBOR Loans made by it, or
change the basis of taxation of payments to such Lender of principal,
commitment fee, interest or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of such Lender);
(ii) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, or deposits or other liabilities in or for the account of, advances or
loans by, or other credit extended by, or any other acquisition of funds
by, any office of such Lender which are not otherwise included in the
determination of the LIBOR Rate hereunder;
(iii) does or shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing or maintaining advances or extensions of credit or to reduce
any amount receivable hereunder, in each case, in respect of its LIBOR Loans,
then, in any such case, the Borrowers jointly and severally shall promptly pay
such Lender, upon its demand, any additional amounts necessary to compensate
such Lender for such additional cost or reduced amount receivable which such
Lender deems to be material as reasonably determined by such Lender with respect
to such LIBOR Loans. If a Lender becomes entitled to claim any additional
amounts pursuant to this Section, it shall provide prompt notice thereof to the
Borrowers, through the Agent, certifying (x) that one on the events described in
this paragraph (a) has occurred and describing in reasonable detail the nature
of such event, (y) as to the increased cost or reduced amount resulting from
such event and (z) as to the additional amount demanded by such Lender and a
reasonably detailed explanation of the calculation thereof. Such a certificate
as to any additional amounts payable pursuant to this subsection submitted by
such Lender, through the Agent, to the Company shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
(b) In the event that any Lender shall have determined that the
adoption of any Laws, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof or compliance by
any Lender or any corporation controlling such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law)
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from any central bank or Governmental Authority, does or shall have the effect
of reducing the rate of return on such Lender's or such corporation's capital as
a consequence of its obligations hereunder to a level below that which such
Lender or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, after submission by such Lender to the
Borrowers (with a copy to the Agent) of a written request therefor, the
Borrowers jointly and severally shall pay to such Lender such additional amount
or amounts as will compensate such Lender for such reduction; provided that the
Borrowers shall not be required to compensate a Lender pursuant to this
paragraph for any amounts incurred more than six months prior to the date that
such Lender notifies Borrowers of such Lender's intention to claim compensation
therefor; and provided further that, if the circumstances giving rise to such
claim have a retroactive effect, then such six-month period shall be extended to
include the period of such retroactive effect.
(c) Notwithstanding subsections (a) and (b) above, if any Lender
incurs the increased costs described in subsection (a) above or makes the
determination described in subsection (b) above and all Loans of such Lender
then outstanding and affected thereby shall be converted into Loans which are
not affected thereby (if not otherwise prohibited under the terms of this
Agreement).
(d) Illegality. Notwithstanding any other provisions herein, if any
Laws or any change therein or in the interpretation or application thereof shall
make it unlawful for any Lender to make or maintain LIBOR Loans as contemplated
by this Agreement, (i) the commitment of such Lender hereunder to make LIBOR
Loans shall forthwith be canceled, and (ii) such Lender's Loans then outstanding
as LIBOR Loans, if any, shall be repaid and made to Prime Loans (if not
otherwise prohibited under the terms of this Agreement) at the option of the
Borrowers in accordance with the election procedures set forth in Section
2.3(e); provided, however, that prior to the effective date of such election,
interest shall be calculated at the Prime Rate. Any remaining commitment of such
Lender hereunder to make LIBOR Loans (but not other Loans) shall terminate
forthwith and borrowings from such Lender at a time when borrowings from the
other banks are to be of LIBOR Loans shall be by way of Prime Loans as provided
herein. Upon the occurrence of any such change, such Lender, acting through the
Agent, shall promptly notify the Borrowers thereof, and shall furnish to the
Borrowers in writing evidence thereof certified by such Lender.
If any repayment to a Lender of any LIBOR Loan (including conversions
thereof) is made under this Section 2.11 (d) on a day other than a day otherwise
scheduled for a payment of principal of or interest on such Loan, the Borrowers
jointly and severally shall pay to such Lender upon its request such amount or
amounts as will compensate it for the amount by which the rate of interest on
such Loan immediately prior to such repayment exceeds the stated rate of
interest on relending or reinvesting the funds received in connection with such
prepayment, in each case for the period from the date of such prepayment to the
Banking Day next succeeding
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the last day of such then current Interest Period, all as determined by such
Lender in its good faith discretion.
(e) Pro Rata Treatment and Payments.
(i) Each borrowing by the Borrowers under the Revolving Loans,
each conversion by the Borrowers of applicable Interest Rates, each
prepayment and (except as otherwise provided in Section 2.11 (d)
(Illegality) shall be made pro rata in accordance with each Lender's
applicable proportionate share. Unless otherwise specifically set forth
among the provisions of this Agreement, all payments to be made by the
Borrowers on account of the Obligations, including, without limitation,
principal, interest and Fees shall be made and/or applied pro rata in
accordance with the applicable proportionate share of each Lender.
(ii) Each Lender will make the amount of its proportionate share
of the Loans available to the Agent for the account of the Borrowers at the
office of the Agent set forth in Section 12.11 hereof by 11:00 a.m.
(Washington, D.C. time) in funds immediately available to the Agent on the
Closing Date in the case of Loans to be disbursed on the Closing Date and
in the case of Loans disbursed after the Closing Date, on the date
specified in the Loan Notice made in connection therewith. Unless the Agent
and the Borrowers shall have been notified in writing by any Lender prior
to the date due that such Lender will not make its proportionate share of
any borrowing on such date available to the Agent, the Agent may assume
that such Lender has made such amount available to the Agent on such date
and the Agent may, in reliance upon such assumption, make available to the
Borrowers a corresponding amount. If such amount is made available to the
Agent on a date after such date, such Lender shall pay to the Agent on
demand an amount equal to the product of (a) a fraction, the numerator of
which is the daily average federal funds rate during such period as quoted
by the Agent and the denominator of which is 360, times (b) the amount of
such Lender's proportionate share of such borrowing, times (c) the number
of days that elapse from and including such borrowing date to the date on
which such Lender's proportionate share of such borrowing shall have become
immediately available to the Agent. A certificate of the Agent submitted to
any Lender with respect to any amounts owing hereunder shall be conclusive,
absent manifest error. If such Lender's proportionate share of such
borrowing is not in fact made available to the Agent by such Lender within
three (3) Banking Days of such borrowing date, the Agent shall be entitled
to recover such amount with interest thereon at the rate per annum
applicable to Revolving Loans accruing interest at the Prime Rate
hereunder, on demand, from the Borrowers (without prejudice to the rights
of the Borrowers against such Lender). Nothing herein shall be deemed to
relieve any Lender from its obligation to fund its proportionate share of
any borrowings hereunder or to prejudice any rights which the Borrowers may
have against any Lender as a result of any default by such Lender
hereunder. No Lender shall be responsible for any default of the
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other Lender in respect of the other Lender's obligation to make available
its proportionate share of borrowings hereunder nor shall any Commitment of
any Lender hereunder be increased as a result of such default of any other
Lender. Each Lender shall be obligated only to the extent provided herein
regardless of the failure of any other Lender to fulfill its obligations
hereunder.
(iii) All payments of the Obligations, including, without
limitation, principal, interest and Fees, shall be paid by the Borrowers
without setoff or counterclaim to the Agent on behalf of the Lender's at
the Agent's office specified in Section 12.1 hereof in Dollars in
immediately available funds not later than 12:00 noon (Washington, D.C.
time) on the due date of such payment. All payments received by the Agent
after such time shall be deemed to have been received by the Agent, for
purposes of computing interest and Fees, as of the next following Banking
Day. Promptly upon receipt thereof, the Agent shall distribute to each
Lender in like funds such Lender's proportionate share of such payments.
Unless the Agent shall have received notice from the Borrowers prior to the
date on which any payment of any of the Obligations is due to the Agent
that the Borrowers will not make such payment in full, the Agent may assume
that the Borrowers have made such payment in full to the Agent on such date
and the Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount
then due such Lender. If and to the extent the Borrowers shall not have so
made such payment in full to the Agent, each Lender shall repay to the
Agent forthwith on demand such amount distributed to such Lender together
with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to
the Agent, at the interest rate applicable at the time to the obligation in
respect of which payment is due. The Agent shall send the Borrowers
statements of all amounts due hereunder for interest, principal and Fees,
etc., which statements shall be considered correct and conclusively binding
on the Borrowers unless the Borrowers notify the Agent to the contrary
within thirty (30) days of their receipt of any statement that they deem to
be incorrect. Alternatively, at its sole discretion, each of the Banks may
charge any deposit account of either or both of the Borrowers with all or
any part of any amount due hereunder.
(iv) If any Lender makes a new Loan on a day on which the
Borrowers are to repay all or any part of any outstanding Loan from such
Bank, such Lender shall apply the proceeds of its new Loan to make such
repayment, and only an amount equal to the difference (if any) between the
amount being borrowed and the amount being repaid shall be made available
by such Lender to the Agent as provided above in this Section or remitted
by the Borrowers to the Agent as provided above in this Section.
III COLLATERAL
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As security for the payment of all of the Obligations, the Borrowers hereby
assign, grant and convey to the Agent for the ratable benefit of each Lender and
agrees that the Agent and each Lender shall have a perfected, continuing
security interest in all of the Collateral. The Borrowers further agree that the
Agent for the ratable benefit of each Lender shall have in respect the
Collateral all of the rights and remedies of a secured party under the Maryland
Uniform Commercial Code and under other applicable Laws and Security Documents,
as well as those provided in this Agreement. The Borrowers covenant and agree to
execute and deliver such financing statements and other instruments and filings
as are necessary in the opinion of the Agent to perfect such security interest.
Notwithstanding the fact that the proceeds of the Collateral constitute a part
of the Collateral, the Borrowers may not dispose of the Collateral, or any part
thereof, other than in the ordinary course of its business or as otherwise may
be permitted by this Agreement.
IV UNCONDITIONAL OBLIGATIONS
The joint and several payment and performance by the Borrowers of the
Obligations shall be absolute and unconditional, irrespective of any defense or
any rights of set-off, recoupment or counterclaim it might otherwise have
against the Agent or any Lender and the Borrowers shall pay absolutely net all
of the Obligations, free of any deductions and without abatement, diminution or
set-off; and until payment in full of all of the Obligations, the Borrowers: (a)
will not suspend or discontinue any payments provided for in the Notes; (b) will
perform and observe all of its other agreements contained in this Agreement,
including (without limitation) all payments required to be made to the Agent;
and (c) will not terminate or attempt to terminate this Agreement for any cause.
V. REPRESENTATIONS AND WARRANTIES
To induce the Lenders to make the Loans, the Borrowers represent and
warrant to the Agent and each Lender and, unless the Agent is notified by the
Borrowers of a change or changes effecting such representations and warranties,
shall be deemed to represent and warrant to the Agent and the Lenders at the
time each request for an advance under the Loans is submitted and again at the
time any advance is made under the Loans that:
SECTION 5.1 Subsidiaries. The Company has no Subsidiaries, except as set
forth on the signature page of this Agreement.
SECTION 5.2 Good Standing. The Company and each of its Subsidiaries (a) is
a corporation duly organized, existing and in good standing under the laws of
the jurisdiction of its incorporation, (b) has the corporate power to own its
property and to carry on its business as now being conducted, and (c) is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned by it therein or in which the
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transaction of its business makes such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
SECTION 5.3 Power and Authority. The Company and each of its Subsidiaries
has full power and authority to execute and deliver this Agreement and each of
the other Financing Documents executed and delivered by it, to make the
borrowing hereunder, and to incur the Obligations, all of which have been duly
authorized by all proper and necessary corporate action. No consent or approval
of stockholders or of any public authority is required as a condition to the
validity or enforceability of this Agreement or any of the other Financing
Documents executed and delivered by the Company and each Subsidiary, except that
with respect to the sale of the Collateral which is pledged under the Pledge
Agreements, such sale may be subject to compliance with certain Laws.
SECTION 5.4 Binding Agreements. This Agreement and each of the other
Financing Documents executed and delivered by the Company and each Subsidiary
have been properly executed by the Company and each Subsidiary, constitute valid
and legally binding obligations of the Company and each Subsidiary, and are
fully enforceable against the Company and each Subsidiary in accordance with
their respective terms, subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, (b) general
principles of equity (regardless of whether such principles of equity are
asserted in an action or proceeding at law or in equity) or the discretion of
the court before which any action or proceeding may be brought and (c) other
applicable laws which may limit the enforceability of certain of the remedial or
procedural provisions contained in the Financing Documents.
SECTION 5.5 Litigation. There are no proceedings pending or, so far as the
Company or any Subsidiary knows, threatened before any court or administrative
agency which will materially adversely affect the financial condition or
operations of the Company or any Subsidiary, or the authority of the Company or
Subsidiary to enter into this Agreement or any of the other Financing Documents
executed and delivered by the Company or any Subsidiary.
SECTION 5.6 No Conflicting Agreements. There is (a) no charter, by-law or
preference stock provision of the Company or any Subsidiary and no provision of
any existing mortgage, indenture, contract or agreement binding on the Company,
or any Subsidiary, or affecting their properties, and (b) to the knowledge of
the Company and each Subsidiary, no provision of law or order of court binding
upon the Company or any Subsidiary, which would conflict with or in any way
prevent the execution, delivery, or performance of the terms of this Agreement
or of any of the other Financing Documents executed and delivered by the Company
or any Subsidiary, or which would be violated as a result of such execution,
delivery or performance.
SECTION 5.7 Financial Condition. The unaudited consolidated financial
statements of the Company dated ______________, 1998 are complete and correct
and, in the
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opinion of the Company, fairly present the current financial condition of the
Company on a consolidated basis as of the date and for the period referred to
and have been prepared in accordance with GAAP applied on a consistent basis
throughout the period involved. There are no material liabilities, direct or
indirect, fixed or contingent, of the Company, or any of its Subsidiaries as of
the date of such financial statements which are not reflected therein or in the
notes thereto. There has been no material adverse change in the financial
condition or operations of the Company on a consolidated basis since the date of
such financial statements (and to each Borrower's knowledge, no such material
adverse change is pending or threatened), and no Borrower has guaranteed the
obligations of, or made any investments in or advances to, any company,
individual or other entity, except as disclosed in such financial statements and
on Schedule 5.7 hereto.
SECTION 5.8 Taxes. The Company and each Subsidiary has filed or has caused
to have been filed all federal, state and local tax returns which, to the
knowledge of the Company and each Subsidiary, are required to be filed, and has
paid or caused to have been paid all taxes as shown on such returns or on any
assessment received by it, to the extent that such taxes have become due, unless
and to the extent only that such taxes, assessments and governmental charges are
currently contested in good faith and by appropriate proceedings by the Company
or such Subsidiary and adequate reserves therefor have been established as
required under GAAP.
SECTION 5.9 Compliance With Law. The Company and each Subsidiary is not in
violation of any applicable law, ordinance, governmental rule or regulation to
which it is subject and each Borrower has obtained any and all material
licenses, permits, franchises or other governmental authorizations necessary for
the ownership of its properties and the conduct of its business, except to the
extent such failure would not have a Material Adverse Effect.
SECTION 5.10 Places of Business and Location of Collateral. The Company and
each Subsidiary warrants that the address of the Company's and each Subsidiary's
chief executive office is as specified in EXHIBIT B attached hereto and made a
part hereof and that the address of each other place of business of the Company
and each Subsidiary, if any, is as disclosed to the Agent in EXHIBIT B. The
Collateral and all books and records pertaining to the Collateral are and will
be located at the address indicated on EXHIBIT B. The Company will promptly
advise the Agent in writing of the opening of any new place of business or the
closing of any Borrower's existing places of business, and of any change in the
location of the places where the Collateral, or any part thereof, or the books
and records concerning the Collateral, or any part thereof, are kept. The proper
and only places to file financing statements with respect to the Collateral
within the meaning of the Uniform Commercial Code are the State Department of
Assessments and Taxation and the locations listed on EXHIBIT E. A copy of a
fully executed financing statement shall be sufficient to satisfy for all
purposes the requirements of a financing statement as set forth in Article 9 of
the Maryland Uniform Commercial Code.
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SECTION 5.11 Title to Properties. The Company and each Subsidiary has good
and marketable title to all of its properties, including the Collateral, and the
Collateral is free and clear of Liens other than the Permitted Liens.
SECTION 5.12 Margin Stock. None of the proceeds of the Loan will be used,
directly or indirectly, by the Company or any Subsidiary for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any "margin
security" within the meaning of Regulation G (12 CFR Part 207), or "margin
stock" within the meaning of Regulation U (12 CFR Part 221), of the Board of
Governors of the Federal Reserve System (herein called "margin security" and
"margin stock") or for any other purpose which might make the transactions
contemplated herein a "purpose credit" within the meaning of said Regulation G
or Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.
SECTION 5.13 ERISA. With respect to any "pension plan" as defined in
Section 3(2) of ERISA, which plan is now or previously has been maintained or
contributed to by the Company and/or by any Commonly Controlled Entity: (a) no
"accumulated funding deficiency" as defined in Code ss.412 or ERISA ss.302 has
occurred, whether or not that accumulated funding deficiency has been waived;
(b) no "reportable event" as defined in ERISA ss.4043 has occurred, other than
events for which reporting has been waived or which could not have a Material
Adverse Effect; (c) no termination of any plan subject to Title IV of ERISA has
occurred; (d) neither the Company nor any Commonly Controlled Entity has
incurred a "complete withdrawal" within the meaning of ERISA ss.4203 from any
multiemployer plan; that could have a Material Adverse Effect, (e) neither the
Company nor any Commonly Controlled Entity has incurred a "partial withdrawal"
within the meaning of ERISA ss.4205 with respect to any multiemployer plan; (f)
no multiemployer plan to which the Company or any Commonly Controlled Entity has
an obligation to contribute is in "reorganization" within the meaning of ERISA
ss.4241 nor has notice been received by the Company or any Commonly Controlled
Entity that such a multiemployer plan will be placed in "reorganization".
SECTION 5.14 Governmental Consent. Neither the nature of any Borrower or of
any Borrower's business or properties, nor any relationship between any Borrower
and any other entity or person, nor any circumstance in connection with the
making of the Loans, or the offer, issue, sale or delivery of the Notes is such
as to require a consent, approval or authorization of, or filing, registration
or qualification with, any governmental authority, on the part of any Borrower,
as a condition to the execution and delivery of this Agreement or any of the
other Financing Documents, the borrowing of the principal amounts of the Loans
or the offer, issue, sale or delivery of the Note.
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SECTION 5.15 Subordinated Debt. None of the Subordinated Debt Loan
Documents has been amended, supplemented, restated or otherwise modified except
as otherwise disclosed to the Lender in writing on or before the date of this
Agreement. In addition, there does not exist any default or any event which upon
notice or lapse of time or both would constitute a default under the terms of
any of the Subordinated Debt Loan Documents.
SECTION 5.16 Full Disclosure. The financial statements referred to in this
Part V do not, nor does this Agreement, nor do any written statements furnished
by any Borrower to the Agent in connection with the making of the Loans, contain
any untrue statement of material fact or omit a material fact necessary to make
the statements contained therein or herein when taken in their entirety in light
of the circumstances under which they were made not misleading. There is no
material fact which the Borrowers have not disclosed to the Agent in writing
with respect to the transactions contemplated hereby which materially adversely
affects or, will or could prove to materially adversely affect the properties,
business, prospects, profits or condition (financial or otherwise) of the
Borrowers or the ability of any Borrower to perform its obligation under this
Agreement.
SECTION 5.17 Presence of Hazardous Materials or Hazardous Materials
Contamination. To the best of each Borrower's knowledge, (a) no Hazardous
Materials are located on any real property owned, controlled or operated by of
any Borrower or for which any Borrower is responsible, except for reasonable
quantities of necessary supplies for use by any Borrower in the ordinary course
of the its current line of business and stored, used and disposed in accordance
with applicable Laws; and (b) no property owned, controlled or operated by any
Borrower has ever been used as a manufacturing, storage, or dump site for
Hazardous Materials nor is affected by Hazardous Materials Contamination at any
other property.
SECTION 5.18 Intellectual Property. Each Borrower owns or possesses all of
the material patents, trademarks, service marks, trade names, copyrights and
licenses and all rights with respect thereto necessary for the present operation
of its business, to the best of each Borrower's knowledge without any conflict
with the rights of any other Person.
SECTION 5.19 Business Names and Addresses. Except a set forth in Schedule
5.19, in the twelve (12) years preceding the date hereof, no Borrower has
conducted business under any name other than its current name nor conducted its
business in any jurisdiction other than those disclosed on EXHIBIT B attached
hereto.
SECTION 5.20 Year 2000 Compliance. (a) The Borrowers have (i) begun
analyzing the operations of the Company and its Subsidiaries and affiliates that
could be adversely affected by failure to become Year 2000 compliant (that is,
that computer applications, imbedded microchips and other systems will be able
to perform date-sensitive functions prior to and after December 31, 1999) and;
(ii) developed a plan for becoming Year 2000 compliant in a timely manner, the
implementation of which is on schedule in all material respects. Each
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Borrower reasonably believes that it will become Year 2000 compliant for its
operations and those of its subsidiaries and affiliates on a timely basis except
to the extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(b) Each Borrower reasonably believes any suppliers and vendors that
are material to the operations of the Company or its Subsidiaries and affiliates
will be Year 2000 compliant for their own computer applications except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect.
(c) The Company will promptly notify the Agent in the event any
Borrower determines that any computer application which is material to the
operations of the Company, its Subsidiaries or any of its material vendors or
suppliers will not be fully Year 2000 compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to have a Material
Adverse Effect.
SECTION 5.21 Perfection and Priority of Collateral. The Agent has, or upon
execution and recording of this Agreement and the Security Documents will have,
and will continue to have as security for the Obligations, a valid and perfected
Lien on and security interest in all Collateral, free of all other Liens, claims
and rights of third parties whatsoever except Permitted Liens.
SECTION 5.22 Equipment. To the best of the Borrowers' knowledge, all
Equipment is personalty and is not and will not be affixed to real estate in
such manner as to become a fixture or part of such real estate. No equipment is
held by any Borrower on a sale on approval basis.
SECTION 5.23 Inventory. The Inventory of each Borrower is (a) of good and
merchantable quality, free from defects, (b) not stored with a bailee,
warehouseman, carrier, or similar party, (c) not on consignment, sale on
approval, or sale or return, and (d) located at the places of business set forth
on Exhibit B hereto. No goods offered for sale by, or in the possession or
control of, any Borrower are consigned to or held on sale or return terms by any
Borrower.
SECTION 5.24 No Default. There is no Event of Default (as hereinafter
defined) and no event has occurred and no condition exists an is continuing
which with the giving of notice or the passage of time would constitute an Event
of Default. The Borrowers are not in default under the terms of any other
agreement or instrument to which it may be a party or by which the Collateral or
any of its properties may be bound or subject, except where such default could
not result in a Material Adverse Effect.
VI. CONDITIONS OF LENDING
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The making of the Loan and any advance thereunder is subject to the
following conditions precedent:
SECTION 6.1 Opinion of Counsel for the Borrowers. On the date hereof, the
Agent shall receive the favorable written opinion of counsel for the Borrowers
satisfactory in all respects to the Agent.
SECTION 6.2 Approval of Counsel for the Agent. All legal matters incident
to the Loans and all documents necessary in the opinion of the Agent to make the
Loans shall be satisfactory in all material respects to counsel for the Agent.
SECTION 6.3 Supporting Documents. The Agent shall receive on the date
hereof: (a) a certificate of the Secretary of each Borrower, in a form
acceptable to the Agent in all respects, dated as of the date hereof and
certifying (i) that attached thereto is a true, complete and correct copy of
resolutions adopted by the Board of Directors of such Borrower authorizing the
execution and delivery of this Agreement, the Notes and the other Financing
Documents, and the Obligations, and (ii) as to the incumbency and specimen
signature of each officer of such Borrower executing this Agreement, the Notes
and the other Financing Documents, and a certification by the President or any
Vice President of such Borrower as to the incumbency and signature of the
Secretary of such Borrower; (b) such other documents as the Agent may reasonably
require each Borrower to execute, in form and substance acceptable to the Agent;
and (c) such additional information, instruments, opinions, documents,
certificates and reports as the Agent may reasonably deem necessary.
SECTION 6.4 Financing Documents. All of the Financing Documents required by
the Agent shall be executed, delivered and, if deemed necessary by the Agent,
recorded, all at the sole expense of the Borrowers.
SECTION 6.5 Insurance. The Borrowers shall have satisfied the Agent that
any and all insurance required by this Agreement is in effect as of the date of
this Agreement, and that, to the extent required by the Financing Documents, the
Agent has been named as an insured lienholder.
SECTION 6.6 Security Documents. In order to perfect the lien and security
interest created by this Agreement, the Borrowers shall have executed and
delivered to the Agent all financing statements and Security Documents (in form
and substance acceptable to the Agent in its sole discretion) deemed necessary
by the Agent, in a sufficient number of counterparts for recordation, and, at
the Borrowers' sole expense, shall record all such financing statements and
Security Documents, or cause them to be recorded, in all public offices deemed
necessary by the Agent.
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SECTION 6.7 Termination Statements. The Agent shall have received from
creditors of each Borrowers all termination statements covering the Collateral
required by the Agent. The termination statements shall be fully and properly
executed, in recordable form and sufficient, in the opinion of counsel for the
Agent, to terminate the interests of other creditors of each Borrowers in the
Collateral.
SECTION 6.8 Subordinated Indebtedness. The Agent shall have received the
fully executed Subordination Agreement in form and content acceptable to the
Agent. The Agent shall have received and approved copies of the fully executed
Subordinated Debt Loan Documents, all of which must be in form and content
acceptable to the Agent.
SECTION 6.9 Subordinated Indebtedness . The Agent shall have received a
certificate signed by a Responsible Officer of the Company, certifying to the
Agent that the Company (a) has received the proceeds of the Subordinated Debt,
in accordance with, and pursuant to, the terms and conditions of the
Subordinated Debt Loan Documents, and have applied the same to such purposes as
has been previously disclosed to, and approved by, the Agent, and (b) the
Subordinated Debt Loan Documents which the Company has delivered to the Agent is
a true and correct photocopy of all Subordinated Debt Loan Documents.
SECTION 6.10 Compliance. At the time of the making of each advance
hereunder (a) the Company and each Subsidiary shall have complied and shall then
be in compliance with all the terms, covenants and conditions of this Agreement
which are binding upon it, (b) there shall exist no Event of Default and no
event which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default, and (c) the representations and warranties
contained in Part V shall be true with the same effect as though such
representations and warranties had been made at the time of the making of the
advance.
SECTION 6.11 Conditions Subsequent. Each Lender's obligation to made
advances under the Loans is expressly conditioned upon (i) the Agent's receipt
of the fully executed Lease Assignments promptly after the Closing Date, but not
more than fifteen (15) days) after the Closing Date, and (ii) each Borrower
using its best efforts in good faith to obtain, within forty-five (45) days of
Closing Date, lessor consents as may be reasonably required for the Lease
Assignments. The Lease Assignments and all lessor consents shall be in a form
satisfactory to the Agent.
VII. AFFIRMATIVE COVENANTS OF BORROWERS
Until payment in full and the performance of all of the Obligations
hereunder, the Company shall, and shall cause each of its Subsidiaries to:
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SECTION 7.1 Financial Statements. Furnish to the Agent:
(a) Annual Statements and Certificates. As soon as available but in no
event more than ninety (90) days after the close of each of the Company's fiscal
years, a copy of the consolidated and consolidating audited financial statement
relating to the Company and its Subsidiaries in reasonable detail satisfactory
to the Agent, prepared in accordance with GAAP and certified by an independent
certified public accountant satisfactory to the Agent, which financial statement
shall include a balance sheet as at the end of such fiscal year, profit and loss
statement and a statement of changes in financial condition. The annual
statements shall be in such detail as Agent may reasonably require and will
provide, among other things, detail with regard to expenses, lease expense,
non-cash charges and interest expense and shall be accompanied by a certificate
in form and detail satisfactory to the Agent in all material respects (the
"Compliance Certificate") of that officer stating whether any event has occurred
which constitutes an Event of Default or which would constitute an Event of
Default with the giving of notice or the lapse of time or both, and, if so,
stating the facts with respect thereto. Each Compliance Certificate will clearly
set forth the methodology used in determining compliance and/or non-compliance
with all financial covenants and shall state the basis for determining the
Additional Prime Rate Percentage and the Additional LIBOR Rate Percentage under
the Note. In addition, the Company shall provide to the Agent within sixty (60)
days of the close of each of the Company's fiscal years an annual budget for the
Company and each Subsidiary for the following fiscal year
(b) Annual Opinion of Accountant. As soon as available but in no event
more than ninety (90) days after the close of each of the Company's fiscal
years, a letter or opinion of the independent certified public accountant who
examined the annual financial statement relating to the Company and its
Subsidiaries stating whether anything in such certified public accountant's
examination has revealed the occurrence of an event which constitutes an Event
of Default or which would constitute an Event of Default with the giving of
notice or the lapse of time or both, and, if so, stating the facts with respect
thereto.
(c) Quarterly Statements and Certificates. As soon as available but in
no event more than forty five (45) days after the close of each of the Company's
fiscal quarters, other than the fourth fiscal quarter, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as at the close
of such period and consolidated and consolidating income and expense statements
for such period, and an aging of accounts receivable, all certified by the
principal financial officer of the Company. The quarterly statements shall be in
such detail as Agent may reasonably require and shall be accompanied by a
Compliance Certificate. Each Compliance Certificate will clearly set forth the
methodology used in determining compliance and/or non-compliance and shall set
forth the basis for determining the Additional Prime Rate Percentage and the
Additional LIBOR Rate Percentage under the Note.
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(d) Reports to SEC and to Stockholders. The Company will furnish to
the Agent, promptly upon the filing or making thereof, but not later than
fifteen (15) days after the date of filing, at least one (l) copy of all
financial statements, reports, notices and proxy statements sent by any Borrower
to its stockholders, and of all regular and other reports filed by any Borrower
with any securities exchange or with the Securities and Exchange Commission.
(e) Additional Reports and Information. With reasonable promptness,
such additional information, reports or statements as the Agent may from time to
time reasonably request.
SECTION 7.2 Financial Covenants.
(a) Fixed Charge Coverage Ratio. Maintain for the trailing twelve (12)
months, a Fixed Charge Ratio of not less than the following amounts as of the
following dates:
Fixed Charge Coverage Ratio: Fiscal Quarter Ending:
Not less than 1.15 to 1.0 Closing Date through September 30, 2000;
Not less than 1.20 to 1.0 December 31, 2000 through March 31,
2001; and
Not less than 1.30 to 1.0 June 30, 2001 and at all times thereafter.
(b) Funded Debt to EBITDA. Maintain, a ratio of Funded Debt to EBITDA
not greater than the following amounts at the following times, tested as of the
last day of each of the Company's fiscal quarters for the four (4) quarter
period ending on that date:
Funded Debt To EBITDA: Fiscal Quarter Ending:
4.25 to 1.0 Closing Date through September 30, 1999;
4.00 to 1.0 December 31, 1999 through March 31,
2000; and
3.50 to 1.0 June 30, 2000 and at all times thereafter.
(c) Current Ratio. Maintain a Current Ratio of not less than 1.30 to
1.0, tested as of the last day of each of the Company's fiscal quarters.
(d) Minimum EBITDA. Maintain at all times a minimum EBITDA (the
"EBITDA Requirements") of not less than the following amounts at the following
times:
Minimum EBITDA: Fiscal Quarter Ending:
$11,000,000 Closing Date through June 30, 1999;
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$12,500,000 September 30, 1999;
$13,000,000 December 31, 1999; and
$14,500,000 March 31, 2000 and at all times thereafter.
SECTION 7.3 Taxes and Claims. Pay and discharge and cause each of its
Subsidiaries to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or any of its income or properties prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a Lien upon any of its properties; provided, however, the
Company and the Subsidiaries shall not be required to pay any such tax,
assessment, charge, levy or claim, the payment of which is being contested in
good faith and by proper proceedings.
SECTION 7.4 Corporate Existence. Maintain, and cause each of its
Subsidiaries to maintain, its corporate existence in good standing in the
jurisdiction in which it is incorporated and in each jurisdiction where it is
required to register or qualify to do business, except where such failure could
not have a Material Adverse Effect.
SECTION 7.5 Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, with all applicable federal, state and local laws, rules
and regulations to which it is subject and the violation of which could have a
Material Adverse Effect.
SECTION 7.6 Governmental Regulation. Promptly notify the Agent in the event
that the Company or any Subsidiary receives any notice, claim or demand from any
governmental agency which alleges that the Company or any Subsidiary is in
violation of any of the terms of, or has failed to comply with any applicable
order issued pursuant to any federal or state statute regulating its operation
and business, including, but not limited to, the Occupational Safety and Health
Act and the Environmental Protection Act.
SECTION 7.7 Litigation. Give prompt notice in writing, with a full
description to the Agent, of all litigation and of all proceedings before any
court or any governmental or regulatory agency affecting the Company or any
Subsidiary which, if adversely decided, could have a Material Adverse Effect.
SECTION 7.8 Use of Proceeds. Use the proceeds of the Loan for the purpose
or purposes set forth in Recital B above and, without the prior written consent
of the Agent, for no other purpose or purposes.
SECTION 7.9 Maintenance of Properties. Keep, and cause the Subsidiaries to
keep and maintain, its properties, whether owned in fee or otherwise, or leased,
in good operating condition (normal war and tear excepted); make and, cause the
Subsidiaries to make, all proper repairs, renewals, replacements, additions and
improvements thereto needed to maintain such
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properties in good operating condition; comply, and cause the Subsidiaries to
comply, with the material provisions of all material leases to which it is party
or under which it occupies property so as to prevent any loss or forfeiture
thereof or thereunder; and comply, or cause the Subsidiaries to comply, with all
laws, rules, regulations and orders applicable to its properties or business or
any part thereof and the violation of which could have a Material Adverse
Effect.
SECTION 7.10 Other Liens, Security Interests, etc. Keep, and cause the
Subsidiaries to keep, its material properties and assets, including, without
limitation, the Collateral, free from all Liens, of every kind and nature, other
than the security interest granted to the Agent and the Lenders pursuant to this
Agreement and the Permitted Liens.
SECTION 7.11 Books and Records. (a) Keep and maintain and cause the
Subsidiaries to keep and maintain accurate books and records, (b) make and cause
the Subsidiaries to make entries on such books and records in form satisfactory
to the Agent disclosing the Agent's assignment of, and security interest in and
lien on, the Collateral and all collections received by the Company or any of
the Subsidiaries on its Accounts, (c) furnish and cause the Subsidiaries to
furnish to the Agent promptly upon request such information, reports, contracts,
invoices, lists of purchases of Inventory (showing names, addresses and amount
owing) and other data concerning Account Debtors and the Company's and the
Subsidiaries' Accounts and Inventory and all contracts and collection(s)
relating thereto as the Agent may from time to time specify, (d) unless the
Agent shall otherwise consent in writing, keep and maintain and cause the
Subsidiaries to keep and maintain all such books and records mentioned in (a)
above only at the addresses listed in EXHIBIT B, and (e) permit and cause the
Subsidiaries to permit any Person designated by the Agent to enter the premises
of the Company and each of the Subsidiaries and examine, audit and inspect the
books and records at any reasonable time and from time to time without notice.
SECTION 7.12 Business Names. Immediately notify, and cause each of the
Subsidiaries to notify, the Agent of any change in the name under which it
conducts its business.
SECTION 7.13 ERISA. Maintain at all times such bonding as is required by
ERISA. As soon as practicable and in any event within fifteen (15) days after it
knows or has reason to know that, with respect to any plan, a "reportable event"
has occurred, the Company will deliver to the Agent a certificate signed by its
chief financial officer setting forth the details of such "reportable event".
The Company shall agrees that with respect to any pension plan which the Company
and/or any Commonly Controlled Entity maintains or contributes to, either now or
in the future, that: (a) such bonding as is required under ERISA will be
maintained; (b) as soon as practicable and in any event within fifteen (15) days
after the Company or any Commonly Controlled Entity knows or has reason to know
that a "reportable event" has occurred or is likely to occur, the Company will
deliver to the Agent a certificate signed by its chief financial officer setting
forth the details of such "reportable event"; (c) within fifteen (15) days after
notice is received by the Company or any Commonly Controlled Entity that any
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multiemployer plan has been or will be placed in "reorganization" within the
meaning of ERISA ss.4241, the Company will notify the Agent to that effect; and
(d) upon the Agent's request, the Company will deliver to the Agent a copy of
the most recent actuarial report, financial statements and annual report
completed with respect to any "defined benefit plan", as defined in ERISA
ss.3(35).
SECTION 7.14 Management. Promptly notify the Agent of any contemplated
changes in its Senior Management subsequent to the date hereof.
SECTION 7.15 Banking Relationship. Maintain the Agent as its principal
depository.
SECTION 7.16 Notification of Events of Default and Adverse Developments.
The Borrowers will promptly notify the Agent upon obtaining knowledge of the
occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any event, development or circumstance whereby the financial
statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition
and operational results of the Company or its Subsidiaries;
(d) any judicial, administrative or arbitral proceeding pending
against the Company or any of its Subsidiaries and any judicial
or administrative proceeding known by the Company to be
threatened against it or any of its Subsidiaries which, if
adversely decided, could have a Material Adverse Effect; and
(e) any other development in the business or affairs of the Company
and any of its Subsidiaries which could have a Material Adverse
Effect;
in each case describing in detail satisfactory to the Agent the nature thereof
and, in the case of notification under clauses (a) and (b), the action the
Company proposes to take with respect thereto.
SECTION 7.17 Insurance Generally. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible insurance companies on such
of its properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity; maintain
general public liability insurance against claims for personal injury, death or
property damage in such amounts as are satisfactory to the Agent in its
reasonable
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discretion and workmen's compensation insurance in statutory amounts with such
companies as are licensed to do business in the state requiring the same; file,
and cause each of its Subsidiaries to file, with the Agent, upon its request, a
detailed list of the insurance then in effect and stating the names of the
insurance companies, the amounts and rates of the insurance, dates of the
expiration thereof and the properties and risks covered thereby; and, within
thirty (30) days after notice in writing from the Agent, obtain, and cause each
of its Subsidiaries to obtain, such additional insurance as the Agent may
reasonably request.
SECTION 7.18 Maintenance of the Collateral. Not permit anything to be done
to the Collateral which may materially impair the value thereof, other than
normal war and tear on tangible collateral and the sale of Inventory in the
ordinary course of business for fair consideration. The Agent, or an agent
designated by the Agent, shall be permitted to enter the premises of the
Company, and the Subsidiaries, and examine, audit and inspect the Collateral at
any reasonable time and from time to time without notice. The Agent agrees to
act in a commercially reasonable manner when inspecting, examining or auditing
the Collateral. The Agent shall not have any duty to, and the Borrowers hereby
release the Agent and each Lender from all claims of loss or damage caused by
the delay or failure to collect or enforce any of the Accounts or to, preserve
any rights against any other party with an interest in the Collateral.
SECTION 7.19 Defense of Title and Further Assurances. At its expense defend
the title to the Collateral (or any part thereof), and promptly upon request
execute, acknowledge and deliver any financing statement, renewal, affidavit,
deed, assignment, continuation statement, security agreement, certificate or
other document the Agent may reasonably require in order to perfect, preserve,
maintain, protect, continue and/or extend the lien or security interest granted
to the Agent and the Lenders under this Agreement and its priority. The
Borrowers shall pay to the Agent on demand all taxes, costs and reasonable
expenses incurred by the Agent in connection with the preparation, execution,
recording and filing of any such document or instrument.
SECTION 7.20 Subsequent Opinion of Counsel as to Recording Requirements.
Provide to the Agent a subsequent opinion of counsel as to the filing, recording
and other requirements with which the Company and the Subsidiaries have complied
to maintain the lien and security interest in favor of the Agent in the
Collateral in the event that the Company or any Subsidiary shall transfer its
principal place of business or the office where it keeps its records pertaining
to the Accounts.
SECTION 7.21 Assignments of Accounts. Promptly, upon request, execute and
deliver to the Agent written assignments, in form and content acceptable to the
Agent, of specific Accounts or groups of Accounts; provided, however, the lien
and/or security interest granted to the Agent and each of the Lenders under this
Agreement shall not be limited in any way to or by the inclusion or exclusion of
Accounts within such assignments. Such Accounts shall secure payment of the
Obligations and are not sold to the Agent whether or not any assignment thereof,
which is separate from this Agreement, is in form absolute.
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SECTION 7.22 Notice of Returned Goods, etc. Promptly notify and cause the
Subsidiaries to promptly notify the Agent of the return, rejection or
repossession of any material amount of goods sold or delivered in respect of any
Accounts, and of any claims made in regard thereto. Whenever any Borrower
obtains possession (by return, rejection, repossession or otherwise) of any
material amount of goods, the sale or lease of which gave rise to an Account,
the Borrowers will (if requested by the Agent) physically segregate such goods
from the any Borrower's other property, and label and hold such goods as trustee
for the Agent for such disposition as the Agent may direct.
SECTION 7.23 Collections. Until such time as the Agent shall notify the
Company and each of the Subsidiaries of the revocation of such privilege, the
Company and each of the Subsidiaries (a) shall at its own expense have the
privilege for the account of and in trust for the Agent of collecting its
Accounts and receiving in respect thereto all items of payment and shall
otherwise completely service all of the Accounts including (i) the billing,
posting and maintaining of complete records applicable thereto, and (ii) the
taking of such action with respect to such Accounts as the Agent may request or
in the absence of such request, as the Company and each of the Subsidiaries may
deem advisable; and (b) may grant, in the ordinary course of business, to any
Account Debtor, any discount, rebate, refund or adjustment to which the Account
Debtor may be lawfully entitled, and may accept, in connection therewith, the
return of goods, the sale or lease of which shall have given rise to an Account.
The Agent may, at its option, at any time or from time to time after default
hereunder and continuation thereof, revoke the collection privilege given to the
Company and each of the Subsidiaries herein by either giving notice of its
assignment of, and lien on the Collateral to the Account Debtors or giving
notice of such revocation to the Company.
SECTION 7.24 Notice to Account Debtors and Escrow Account. In the event (a)
an Event of Default exists or (b) an event has occurred or condition exists and
is continuing which, with the giving of notice or the lapse of time will
constitute an Event of Default, the Company and the Subsidiaries shall promptly
upon the request of the Agent (a) in such form and at such times as specified by
the Agent, give notice of the Agent's lien on the Accounts to the Account
Debtors requiring the Account Debtors to make payments thereon directly to the
Agent, (b) promptly upon receipt deposit the Items of Payment into the
Collateral Account in the original form received by the Company and the
Subsidiaries (except for the endorsement of the Company and the Subsidiaries
where necessary, which endorsement each Borrower agrees to make, and the Agent,
by its duly authorized officers or nominee, is also hereby irrevocably
authorized to make such endorsement on each Borrower's behalf). Pending deposit
thereof to the Collateral Account, the Company and the Subsidiaries shall not
commingle any Items of Payment with any of its other funds or property, but will
hold them separate and apart therefrom in trust and for the account of the Agent
until deposit to the Collateral Account or other delivery thereof is made to the
Agent. The Agent will in its discretion apply the whole or any part of the
collected funds credited to the Collateral Account against the Obligations or
credit such collected
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funds to the depository account of the Borrowers with the Agent, the order and
method of such application to be in the sole discretion of the Agent.
SECTION 7.25 Government Accounts. Immediately notify the Agent if any of
the Accounts arise out of contracts with the United States or with any state or
political subdivision thereof or any department, agency or instrumentality of
the United States, or any state or political subdivision thereof, and execute
any instruments and take any steps required by the Agent in order that all
moneys due and to become due under such contracts shall be assigned to the Agent
and notice thereof given to the government under the Federal Assignment of
Claims Act or any other applicable law.
SECTION 7.26 Hazardous Materials; Contamination. The Borrowers agree to (a)
give notice to the Agent promptly upon any Borrower's acquiring knowledge of the
presence of any Hazardous Materials on any property owned or controlled by any
Borrower or for which any Borrower is responsible or of any Hazardous Materials
Contamination with a full description thereof, except for reasonable quantities
of necessary supplies for use by such Borrower in the ordinary course of the its
current line of business and stored, used and disposed in accordance with
applicable Laws; (b) promptly comply with any Laws requiring the removal,
treatment or disposal of Hazardous Materials or Hazardous Materials
Contamination and provide the Agent with satisfactory evidence of such
compliance; (c) provide the Agent, within thirty (30) days after a demand by the
Agent, with a bond, letter of credit or similar financial assurance evidencing
to the Agent's satisfaction that the necessary funds are available to pay the
cost of removing, treating, and disposing of such Hazardous Materials or
Hazardous Materials Contamination and discharging any Lien which may be
established as a result thereof on any property owned or controlled by any
Borrower or for which any Borrower is responsible; and (d) defend, indemnify and
hold harmless the Agent and its agents, employees, trustees, successors and
assigns from any and all claims which may now or in the future (whether before
or after the termination of this Agreement) be asserted as a result of the
presence of any Hazardous Materials on any property owned or controlled by any
Borrower for which any Borrower is responsible for any Hazardous Materials
Contamination.
SECTION 7.27 Equipment. The Borrowers shall (a) maintain all Equipment as
personalty, (b) not affix any Equipment to any real estate in such manner as to
become a fixture or part of such real estate, and (c) shall hold no Equipment on
a sale on approval basis. The Borrowers hereby declare their intent that,
notwithstanding the means of attachment, no goods of the Borrowers hereafter
attached to any realty shall be deemed a fixture, which declaration shall be
irrevocable, without the Agent's consent, until all of the Obligations have been
paid in full and all of the commitments have been terminated.
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VIII. NEGATIVE COVENANTS OF BORROWERS
Until payment in full and the performance of all of the Obligations,
without the prior written consent of the Agent, the Company will not and will
neither cause nor permit any of its Subsidiaries to, directly or indirectly:
SECTION 8.1 Borrowings. Create, incur, assume or suffer to exist any
Indebtedness for Borrowed Money in excess of One Million Dollars ($1,000,000) in
the aggregate at any one time, including capital leases, purchase money security
interests, except (a) borrowings in existence on the date hereof and reflected
on the financial statements which the Borrowers furnished to the Agent in
writing prior to the date hereof, (b) borrowings secured by Permitted Liens, and
(c) the Subordinated Debt.
SECTION 8.2 Mortgages and Pledges. Create, incur, assume or suffer to exist
any Lien on any of its property or assets, whether now owned or hereafter
acquired, except for Permitted Liens.
SECTION 8.3 Method of Accounting. Change the method of accounting employed
in the preparation of the financial statements furnished prior to the date of
this Agreement to the Agent pursuant to Part V of this Agreement, unless
required to conform to GAAP and on the condition that the Company's accountants
shall furnish such information as the Agent may request to reconcile the changes
with the Company's prior consolidated financial statements.
SECTION 8.4 Merger, Acquisition or Sale of Assets.
(a) The Company and each Subsidiary shall not alter or amend its
capital structure or authorize any additional class of equity, except that the
issuance or sale of additional securities of the Company, at fair market value
taking into account the restrictions on resale of such securities, as
applicable, and issuances under the Company's stock option and employee stock
purchase plans shall not be deemed an alteration or amendment to its capital
structure or authorization of additional class of equity, except as permitted
under subsection (b) hereof, or sell, lease or otherwise dispose of any of net
assets in excess of One Million Dollars ($1,000,000) in the aggregate, during
any twelve (12) month period.
(b) The Company may not acquire by merger, stock purchase or asset
purchase all or substantially all the assets of any Person or make investments
in any such during the existence of this Agreement.
SECTION 8.5 Advances and Loans. Lend money, give credit or make advances to
any Person which exceed $100,000 in the aggregate, including, without
limitation, officers,
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directors, employees, Subsidiaries and Affiliates of the Company, other than
intercompany accounts and loans or advances to Subsidiaries, made in the
ordinary course of business.
SECTION 8.6 Dividends. No Borrowers will purchase, redeem or otherwise
acquire any shares of its capital stock or warrants now or hereafter
outstanding, declare or pay any dividends thereon (other than other than
dividends between the Company and the Subsidiaries or between Subsidiaries)
apply any of its property or assets to the purchase, redemption or other
retirement of, set apart any sum for the payment of any dividends on, or for the
purchase, redemption, or other retirement of, make any distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital stock
of any Borrower, or any warrants, permit any Subsidiary to purchase or acquire
any shares of any class of capital stock of, or warrants issued by, any Company,
make any distribution to stockholders or set aside any funds for any such
purpose, and not prepay, purchase or redeem any Indebtedness for Borrowed Money
other than the Obligations, except upon the exercise of outstanding warrants in
accordance with their terms, and pursuant to the Company's employee stock
purchase and stock option plans.
SECTION 8.7 Contingent Liabilities. Assume, guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any Person, except (a) by the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business and (b)
guaranties by any Borrower of contractual obligations (other than for the
payment of borrowed money) of any Wholly Owned Subsidiary of the Company..
SECTION 8.8 Investments. Purchase or acquire the obligations or stock of,
or any other or additional interest in, any Person, except (a) obligations of,
or obligations unconditionally guaranteed as to principal and interest by, the
United States of America, (b) bonds, debentures, participation certificates or
notes issued by any agency or corporation which is or may hereafter be created
by Act of the Congress of the United States as an agency or instrumentality
thereof, (c) Public Housing Bonds, Temporary Note or Preliminary Loan Notes,
fully secured by contracts with the United States, and (d) certificates of
deposit issued by the Agent.
SECTION 8.9 Subsidiaries. Except as permitted under Section 8.04 of this
Agreement, create or acquire any Subsidiaries other than the Subsidiaries
existing as of the date hereof.
SECTION 8.10 Additional Stock. Issue any additional stock of any class,
except stock of an existing class issued as a stock split or a stock dividend or
as permitted under Section 8.04, upon exercise of outstanding warrants, or in
the case of a Subsidiary, in connection with the merger or consolidation of a
Wholly Owned Subsidiary into the Company, where the Company is the sole
surviving corporation, or into another Wholly Owned Subsidiary, provided,
further, however, that any additional stock issued in connection with any of the
preceding shall be
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delivered to the Agent together with a Pledge Agreement and such additional
documents and information as the Agent may require.
SECTION 8.11 ERISA Compliance. Neither the Company nor any Commonly
Controlled Entity will: (a) engage in or permit any "prohibited transaction" (as
defined in ERISA); (b) cause any "accumulated funding deficiency" as defined in
ERISA and/or the Internal Revenue Code; (c) terminate any pension plan in a
manner which could result in the imposition of a lien on the property of any
Borrower pursuant to ERISA; (d) terminate or consent to the termination of any
Multiemployer Plan; or (e) incur a complete or partial withdrawal with respect
to any Multiemployer Plan.
SECTION 8.12 Prohibition on Hazardous Materials. The Borrowers shall not
place, manufacture or store or permit to be placed, manufactured or stored any
Hazardous Materials on any property owned, controlled or operated by any
Borrower or for which any Borrower is responsible, except for reasonable
quantities of necessary supplies for use by such Borrower in the ordinary course
of business and stored, used and disposed in accordance with all applicable
Laws.
SECTION 8.13 Transfer of Collateral. Transfer, or permit the transfer, to
another location of any of the Collateral or the books and records related to
any of the Collateral; provided, however, that the Borrowers may transfer the
Collateral or the books and records related thereto to another location if (a)
the Company shall have provided to the Agent prior to such transfer an opinion
of counsel addressed to the Agent to the effect that the Agent's perfected
security interest shall not be affected by such move or if it shall be affected,
setting forth the steps necessary to continue the Agent's perfected security
interest together with the commencement of such steps by the Company at its
expense, and shall have taken such steps, or (b) such Collateral is immaterial
in value and constitutes items or goods used, consumed, leased or sold in the
ordinary course of business.
SECTION 8.14 Sale and Leaseback. Directly or indirectly enter into any
arrangement to sell or transfer all or any substantial part of its fixed assets
then owned by it and thereupon or within one year thereafter rent or lease the
assets so sold or transferred.
SECTION 8.15 Sale of Accounts. Sell, discount, transfer, assign or
otherwise dispose of any of its Accounts, notes receivable, installment or
conditional sales agreements or any other rights to receive income, revenues or
moneys, however evidenced.
SECTION 8.16 Line of Business. Enter into any lines or areas of business
which do not complement the Borrowers' current line of business.
SECTION 8.17 Liquidation, Termination, Dissolution, Change in Management,
etc. The Borrowers shall not liquidate, dissolve or terminate its existence or
suspend or
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terminate a substantial portion of their business operations, change the conduct
of their businesses, including, but not limited to, acquiring a line of business
which does not complement any Borrower's current line of business, or changing
the composition of more than two (2) members of the Senior Management of the
Company without the prior written consent of the Agent.. For purposes hereof, a
change in ownership would include any Person indirectly or directly being a
beneficial owner of more than thirty percent (30%) of the total voting power of
the voting stock of any Borrower.
SECTION 8.18 Subordinated Indebtedness. The Borrowers will not, and will
not permit any Subsidiary to make:
(a) any payment of principal of, or interest on, any of the
Subordinated Indebtedness, including, without limitation, the Subordinated Debt,
if prohibited by the Subordination Agreement or if any Event of Default then
exists hereunder or would result from such payment;
(b) any payment of the principal or interest due on the Subordinated
Indebtedness as a result of acceleration thereunder or a mandatory prepayment
thereunder;
(c) any amendment or modification of or supplement to the documents
evidencing or securing the Subordinated Indebtedness; and
(d) payment of principal or interest on the Subordinated Indebtedness
other than when due (without giving effect to any acceleration of maturity or
mandatory prepayment).
IX. EVENTS OF DEFAULT
The occurrence of one or more of the following events shall be a "Default"
under this Agreement, and the term "Default" shall mean, whenever it is used in
this Agreement, any one or more of the following events:
SECTION 9.1 Failure to Pay. The Borrowers shall fail to (a) make any
payment of principal or interest on the Notes or (b) pay any of the Obligations,
when and as the same shall become due and payable, and such failure shall
continue for ten (10) days.
SECTION 9.2 Breach of Representations and Warranties. Any representation or
warranty made herein or in any report, certificate, opinion (including any
opinion of counsel for the Borrowers), financial statement or other instrument
furnished in connection with the Obligations or with the execution and delivery
of any of the Financing Documents, shall prove to have been false or misleading
when made in any material respect.
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SECTION 9.3 Failure to Comply with Insurance Provisions. The Borrowers
shall fail to duly and promptly perform, comply with or observe the terms,
covenants, conditions and agreements set forth in SECTION 7.17.
SECTION 9.4 Failure to Comply with Covenants. Default shall be made by any
Borrower in the due observance and performance of any covenant, condition or
agreement contained in SECTIONS 7.02, 7.04 or 7.08 hereof or in Part VIII
hereof.
SECTION 9.5 Other Defaults. Default shall be made by any Borrower in the
due observance or performance of any other term, covenant or agreement herein
contained, which default shall remain unremedied for thirty (30) days after
written notice thereof to the Company by the Agent.
SECTION 9.6 Default Under Other Financing Documents. An event of default
shall occur under any of the other Financing Documents, and such event of
default is not cured within any applicable grace period provided therein.
SECTION 9.7 Receiver; Bankruptcy. The Company or any Subsidiary shall (a)
apply for or consent to the appointment of a receiver, trustee or liquidator of
itself or any of its property, (b) admit in writing its inability to pay its
debts as they mature, (c) make a general assignment for the benefit of
creditors, (d) be adjudicated a bankrupt or insolvent, (e) file a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material allegations of a petition filed
against it in any proceeding under any such law or if corporate action shall be
taken by the Company or any Subsidiary for the purposes of effecting any of the
foregoing, or (f) by any act indicate its consent to, approval of or
acquiescence in any such proceeding or the appointment of any receiver of or
trustee for any of its property, or suffer any such receivership, trusteeship or
proceeding to continue undischarged for a period of sixty (60) days.
SECTION 9.8 Judgment. Unless adequately insured in the opinion of the
Agent, the entry of a final judgment for the payment of money involving more
than $500,000 against the Company or any Subsidiary and the failure by the
Company or such Subsidiary to discharge the same, or cause it to be discharged,
within thirty (30) days from the date of the order, decree or process under
which or pursuant to which such judgment was entered, or to secure a stay of
execution pending appeal of such judgment.
SECTION 9.9 Execution; Attachment. Any execution or attachment shall be
levied against the Collateral, or any part thereof, and such execution or
attachment shall not be set aside, discharged or stayed within thirty (30) days
after the same shall have been levied.
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SECTION 9.10 Default Under Other Borrowings. Default shall be made with
respect to any evidence of indebtedness or liability for borrowed money (other
than the Loan), including, but not limited to any Subordinated Indebtedness if
the effect of such default is to accelerate the maturity of such evidence of
indebtedness or liability or to permit the holder or obligee thereof to cause
any indebtedness to become due prior to its stated maturity.
SECTION 9.11 Material Adverse Change. If the Agent in its sole discretion
determines in good faith that a material adverse change has occurred in the
financial condition of any Borrower from the financial condition set forth in
the financial statements dated _____ , 1998 or from the financial condition of
the Borrowers most recently disclosed to the Agent in any manner.
SECTION 9.12 Change in Management. Any change in the composition of more
than two (2) members of the Senior Management of the Company, unless a
replacement member of Senior Management satisfactory in all respects to the
Lender is hired within ninety (90) days of such change.
SECTION 9.13 Audit Results. If the results of any audits of the Company's
or any Subsidiary's books and records or the Collateral is unsatisfactory.
X. RIGHTS AND REMEDIES UPON DEFAULT
SECTION 10.1 Demand; Acceleration. The occurrence or non-occurrence of an
Event of Default under this Agreement shall in no way affect or condition the
right of the Agent to demand payment at any time of any of the Obligations which
are payable on demand regardless of whether or not an Event of Default has
occurred. Upon the occurrence of a Default, and in every such event and at any
time thereafter, the Agent may declare the Obligations due and payable, without
presentment, demand, protest, or any notice of any kind, all of which are hereby
expressly waived, anything contained herein or in any of the other Financing
Documents to the contrary notwithstanding.
SECTION 10.2 Specific Rights With Regard to Collateral. In addition to all
other rights and remedies provided hereunder or as shall exist at law or in
equity from time to time, the Agent may, after a Default without notice to the
Borrowers:
(a) request any Account Debtor obligated on any of the Accounts to
make payments thereon directly to the Agent, with the Agent taking control of
the cash and non-cash proceeds thereof;
(b) compromise, extend or renew any of the Collateral or deal with the
same as it may deem advisable;
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(c) make exchanges, substitutions or surrenders of all or any part of
the Collateral;
(d) remove from any of the Company's or any Subsidiary's place of
business all books, records, ledger sheets, correspondence, invoices and
documents, relating to or evidencing any of the Collateral or without cost or
expense to the Agent, make such use of the Company's or any Subsidiary's
place(s) of business as may be reasonably necessary to administer, control and
collect the Collateral;
(e) repair, alter or supply goods if necessary to fulfill in whole or
in part the purchase order of any Account Debtor;
(f) demand, collect, receipt for and give renewals, extensions,
discharges and releases of any of the Collateral;
(g) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Collateral;
(h) settle, renew, extend, compromise, compound, exchange or adjust
claims in respect of any of the Collateral or any legal proceedings brought in
respect thereof;
(i) endorse the name of any Borrower upon any items of payment
relating to the Collateral or on any proof of claim in bankruptcy against an
Account Debtor; and
(j) notify the post office authorities to change the address for the
delivery of mail to each Borrower to such address or post office box as the
Agent may designate and receive and open all mail addressed to any Borrower.
SECTION 10.3 Performance by Agent. Upon the occurrence and continuation of
any Event of Default, the Agent without notice to or demand upon the Borrowers
and without waiving or releasing any of the Obligations or any Event of Default,
may (but shall be under no obligation to) at any time thereafter make such
payment or perform such act for the account and at the expense of the Borrowers,
and may enter upon the premises of each Borrower for that purpose and take all
such action thereon as the Agent may consider necessary or appropriate for such
purpose. All sums so paid or advanced by the Agent and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection therewith (the "Expense Payments") together with interest
thereon from the date of payment, advance or incurring until paid in full at the
rate of two percent (2.0%) per annum in excess of the highest fluctuating
interest rate payable under the Revolving Note from time to time shall be paid
by the Borrowers to the Agent on demand and shall constitute and become a part
of the Obligations.
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SECTION 10.4 Uniform Commercial Code and Other Remedies. Upon the
occurrence of a Default (and in addition to all of its rights, powers and
remedies under this Agreement), the Agent shall have all of the rights and
remedies of a secured party under the Maryland Uniform Commercial Code and other
applicable laws, and the Agent is authorized to offset and apply to all or any
part of the Obligations all moneys, credits and other property of any nature
whatsoever of any Borrower now or at any time hereafter in the possession of, in
transit to or from, under the control or custody of, or on deposit with, the
Agent. Upon demand by the Agent, the Borrowers shall assemble the Collateral and
make it available to the Agent, at a place designated by the Agent. The Agent or
its agents may enter upon any of the Borrower's premises to take possession of
the Collateral, to remove it, to render it unusable, or to sell or otherwise
dispose of it.
Any written notice of the sale, disposition or other intended action by the
Agent with respect to the Collateral which is sent by regular mail, postage
prepaid, to the Borrowers at the address set forth in Article XII hereof, or
such other address of any Borrower which may from time to time be shown on the
Agent's records, at least ten (10) days prior to such sale, disposition or other
action, shall constitute reasonable notice to the Borrowers. The Borrowers shall
pay on demand all costs and expenses, including, without limitation, reasonable
attorney's fees and expenses, incurred by or on behalf of the Agent in preparing
for sale or other disposition, selling, managing, collecting or otherwise
disposing of, the Collateral. All of such costs and expenses (the "Liquidation
Costs") together with interest thereon from the date incurred until paid in full
at the Default Rate, shall be paid by the Borrowers to the Agent on demand and
shall constitute and become a part of the Obligations. Any proceeds of sale or
other disposition of the Collateral will be applied by the Agent to the payment
of the Liquidation Costs and Expense Payments, and any balance of such proceeds
will be applied by the Agent to the payment of the balance of the Obligations in
such order and manner of application as the Agent may from time to time in its
sole discretion determine. After such application of the proceeds, any balance
shall be paid to the Borrowers or to any other party entitled thereto.
XI. THE AGENT
SECTION 11.1 Appointment and Authority. Each Lender hereby irrevocably
designates and appoints NationsBank, N.A. as Agent of such Lender hereunder and
under the other Financing Documents, and hereby irrevocably authorizes
NationsBank, N.A. as Agent for such Lender, to take such actions on its behalf
under the provisions of this Agreement and the other Financing Documents and to
exercise such powers and perform such duties as are expressly delegated to the
Agent or required of the Agent by the provisions of this Agreement and the other
Financing Documents, together with such powers as are reasonably incidental
thereto. The relationship between the Agent and each Lender is and shall be that
of agent and principal only and nothing herein shall be construed to constitute
Agent a trustee for any Lender or to establish a fiduciary relationship with any
Lender or impose on the Agent any duties, responsibilities, or obligations other
than those expressly set forth in the Financing Documents. No implied
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covenants, functions, responsibilities, duties, obligations, or liabilities
shall be read into this Agreement and the other Financing Documents or otherwise
exist against the Agent.
SECTION 11.2 Performance and Delegation of Duties. In exercising its duties
and powers hereunder, the Agent shall exercise the same care which it would
exercise in dealing with loans for its own account. The Agent may execute any of
its duties under this Agreement and the other Financing Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care. In acting hereunder as the Agent
(including, without limitation, the taking out, holding, managing and disposing
of Collateral), NationsBank, N.A. shall be acting for its own account and for
the account of, and as agent for, the other Lenders to the extent of their
respective shares in the Loan.
SECTION 11.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(a) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or the other Financing
Documents (except for its or such Person's own gross negligence or willful
misconduct), (b) liable for any action lawfully taken or omitted to be taken by
it or such Person at the request or with the approval of the Required Lenders,
or, where expressly provided herein, all the Lenders, as the case may be, or (c)
responsible in any manner to any Lender for any recitals, representations or
warranties made by any other Lender or the Borrowers or any officer thereof
contained in the Financing Documents or in any certificate, report, statement or
other document referred to or provided for in, or received by it under or in
connection herewith or therewith or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of the Financing Documents or the
Collateral or perfection of Liens on the Collateral or the priority of Liens on
the Collateral or for any failure of any or all of the Borrowers or any other
Person who is a party to the Financing Documents to perform its obligations
under the Financing Documents. The Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of the
Financing Documents or to inspect the properties, books, or records of any
Borrower.
SECTION 11.4 Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying upon, any note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document, conversation, or
communication believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrowers,
independent accountants, and other experts selected by it), and shall not be
liable to any of the parties hereto or any future holder of either Note for the
consequences of such reliance. The Agent shall be fully justified in failing or
refusing to take any action under the Financing Documents unless it first
receives such advice or concurrence of the Required Lenders as it deems
appropriate or it is
50
<PAGE>
first indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Furthermore, in connection with any action
taken or failure or refusal to act under the Financing Documents, the Agent may
request and each Lender shall provide specific indemnification, to the Agent's
satisfaction, ratably according to such Lender's share of the Loan, against any
and all liability and expense which may be incurred by the Agent by taking,
failing to take, or refusing to take, such action. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, under the Financing
Documents in accordance with an instruction to it of the Required Lenders,
unless the consent of all the Lenders is expressly required hereunder, in which
case the Agent shall be so protected when acting in accordance with instructions
from all the Lenders. Such request and any action taken or failure to act
pursuant thereto shall be binding upon all Lenders and future holders of the
Note. In fulfilling any agreement in any of the Financing Documents relating to
the release of any item of Collateral, the Agent may rely upon any certification
of the Borrowers as to the fulfillment of any conditions to, or the compliance
with any covenants or agreements relating to, such release, including, without
limitation, any such condition as to the nonexistence of any Default or Event of
Default and any such covenant that any such item be sold or otherwise disposed
of in connection with such release.
SECTION 11.5 No Amendment to Agent's Duties Without Consent. The Agent
shall not be bound by any waiver, amendment, supplement, or modification of this
Agreement which affects its duties under this Agreement unless it shall have
given its prior written consent as Agent thereto.
SECTION 11.6 Non-Reliance of Lenders on Agent and Other Lenders. Each
Lender expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to such Lender and that no act by the Agent
hereinafter taken, including any review of the affairs of the Borrowers, shall
be deemed to constitute any representation or warranty by it to such Lender.
Each Lender represents to the Agent and each other Lender that it has,
independently and without reliance upon the Agent or such other Lender, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial, and other condition and creditworthiness of the Borrowers and made
its own decision to make its Loan hereunder, authorize the issuance of Letters
of Credit and to enter into the Financing Documents. Each Lender also represents
that it will, independently and without reliance upon the Agent or any other
Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals,
and decisions in taking or not taking action required of or permitted to it
under the Financing Documents and the agreements contemplated thereby, and to
make such investigation as it deems necessary to inform itself as to the
business, operations, property, financial, and other condition and
creditworthiness of the Borrowers. Except for any notices, reports, and other
documents expressly required to be furnished to the Lenders by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide the
Lenders with any credit or other
51
<PAGE>
information concerning the business, operations, property, financial, and other
condition or creditworthiness of the Borrower which may come into its possession
or any of its officers, directors, employees, agents, attorneys-in-fact, or
Affiliates.
SECTION 11.7 Indemnification of Agent. Each Lender hereby agrees to
indemnify the Agent (in its capacity as such) to the extent not reimbursed by
the Borrowers and without limiting the obligation of the Borrowers to do so,
ratably according to its share of the Loans, from and against any and all
liabilities, Obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including without limitation at any time following the payment
of the Notes and the other Obligations) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of the Financing
Documents or the transactions contemplated thereby or any action taken or
omitted by the Agent under or in connection with any of the foregoing; provided,
however, that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of Agent. The agreements in this Section
shall survive the payment of the Notes and all other Obligations.
SECTION 11.8 Reliance by Borrowers on Agent. The Borrowers shall not be
bound to ascertain the authority of the Agent to act on behalf of the Lenders in
connection with any of the matters governed or contemplated by this Agreement or
the other Financing Documents, or to inquire as to the satisfaction of any
conditions precedent to the exercise of such authority. The Borrowers shall be
entitled to rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document, conversation or communication believed by it to be genuine and correct
and to have been signed, sent or made by the Agent on behalf of the Lenders.
SECTION 11.9 Knowledge of Default. The Agent shall be entitled to assume
that no Default or Event of Default has occurred and is continuing, unless the
Agent has been notified in writing by a Lender or the Borrowers that such Lender
or Borrowers considers that a Default or an Event of Default has occurred and is
continuing and specifying the nature thereof.
SECTION 11.10 Action by the Agent. So long as the Agent shall be entitled,
pursuant to Section 11.09, to assume that no Default or Event of Default shall
have occurred and be continuing, the Agent shall be entitled to use its
discretion with respect to exercising or refraining from exercising any rights
which may be vested in it by this Agreement, or with respect to anything it may
do or refrain from doing which may seem to it to be necessary or desirable.
SECTION 11.11 Actions After Default, etc. In the event that the Agent,
pursuant to Section 11.09 shall have been notified of any Default or Event of
Default, the Agent:
52
<PAGE>
(a) shall promptly notify the Lenders;
(b) shall take such action and assert such rights under this Agreement
as it is expressly required to do pursuant to the terms of this Agreement;
(c) may take such other actions and assert such other rights as it
deems advisable, in its sole discretion, for the protection of the interests of
the Lenders;
(d) shall, upon the written request of the Required Lenders, as
expeditiously and effectively as is reasonably practicable, enforce or attempt
to enforce the Security Documents or to otherwise realize upon the Collateral;
provided, however, (i) the Agent shall be guided by the Required Lenders as to
the action to be taken in enforcing or attempting to enforce the Security
Documents; and (ii) the Agent, notwithstanding indemnification, need not take
any action which it believes, upon advice of counsel, is prohibited by this
Agreement or applicable Law; and
(e) shall inform all the Lenders of the taking of action or assertion
of rights pursuant to this Section.
Each Lender agrees with the Agent and the other Lenders that the decisions and
determinations of the Required Lenders in enforcing the Note, the Security
Documents and the other Financing Documents and realizing (or attempting to
realize) upon the Collateral and in guiding the Agent in those matters shall be
binding upon all the Lenders, including, without limitation, authorizing the
Agent at the pro rata expense of all the Lenders (to the extent not reimbursed
by the Borrowers) to retain attorneys to seek judgment on the Notes and to
foreclose upon or exercise other rights under the Security Documents. Each
Lender similarly agrees with the other Lenders that it will not, without the
consent of the Required Lenders, seek to separately institute any legal action
on its Note or the other Financing Documents or to institute proceedings to
foreclose upon the Collateral. All rights of action under the Financing
Documents and all rights to the Collateral may be enforced by the Agent and any
suit or proceeding instituted by the Agent in furtherance of such enforcement
may be brought in its name as Agent without the necessity of joining as
plaintiffs or defendants any of the Lenders, and the recovery of any judgment
shall be for the benefit of the Lenders, subject to the expenses of the Agent.
SECTION 11.12 Distribution of Proceeds. All collections upon the
Obligations and all proceeds of the Collateral and all other sums and property
received by the Agent and/or any Lender or then held by the Agent and/or any
Lender or received by voluntary payment or through exercise of the right of
setoff, counterclaim, cross-action, or otherwise, shall be shared by the Lenders
pro rata in accordance with their respective shares of the Loans, in the
following order:
53
<PAGE>
(a) First, to all Enforcement Costs and other expenses of the Agent
and/or the Lenders;
(b) Second, to all amounts due to the Agent (in its capacity as Agent
hereunder) from the Borrowers or the Lenders;
(c) Third, to the Lenders, in accordance with their respective shares
of the Loans, for past due interest on the Loans, and any of the other
Obligations;
(d) Fourth, to the Lenders, in accordance with their respective shares
of the Loans, for principal of the Loans;
(e) Fifth, to the Lenders, in accordance with their respective shares
of the Loans, for all other amounts owed the Lenders pursuant to the provisions
of this Agreement or the other Financing Documents; and
(f) Sixth, to the Lenders to the extent permitted by applicable Laws,
in accordance with their respective shares of the Loans, for all Obligations
arising other than under this Agreement or the other Financing Documents.
SECTION 11.13 Obligations of Lenders Several. The obligations,
representations, and warranties of the Lenders hereunder are several, and no
Lender hereunder shall be responsible for the obligations, representations and
warranties of any other Lender hereunder, and the failure of any Lender to
perform any of its obligations hereunder shall not relieve the other Lenders, or
any of them, from the performance of their or its respective obligations
hereunder.
SECTION 11.14 Participation for Own Account. Each Lender represents and
warrants to the other Lenders that it is participating herein for its own
account as a commercial transaction and not with a view to the distribution,
disposition, or participation of its interest herein, and it has no present
intention of making any such distribution, disposition, or participation.
SECTION 11.15 Agent in Its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from, and generally engage in any
kind of business with the Borrowers as though the Agent were not the Agent
hereunder. With respect to any Loan made or renewed by it, and any Notes issued
to it, the Agent shall have the same duties, rights and powers under the
Financing Documents as any Lender and may exercise the same as though it were
not the Agent and the terms "Lender" and "Lenders" shall include the Agent in
its individual capacity.
54
<PAGE>
SECTION 11.16 Removal of Agent. The Agent, or any successor Agent, may be
removed for "cause" (as hereinafter defined) upon at least thirty (30) days
prior written notice to such Agent and the Borrowers by the Lenders together
holding seventy-five percent (75.0%) or more of the aggregate shares of the Loan
of all Lenders, after deducting the share of the Loan of the Agent in its
individual Lender capacity. For purpose of this Section, the term "cause" shall
mean a material breach by the Agent, or any successor Agent, of its obligations
and duties to the Lenders hereunder. Any notice of removal shall set forth the
specific reasons constituting such removal. Such removal shall be effective upon
the appointment of a successor Agent and the acceptance of such appointment in
accordance with Section 11.17 hereof. All costs of removing an Agent and
appointing a successor shall be borne by the Lenders.
SECTION 11.17 Successor Agent. The Lenders shall appoint one of the Lenders
to succeed the Agent or any successor Agent removed pursuant to Section 11.16
hereof, and the successor Agent so appointed shall execute and deliver to its
predecessor, the Lenders, and the Borrowers an instrument in writing accepting
such appointment and assuming all of the obligations and liabilities of the
Agent for the Lenders under the Financing Documents, and thereupon such
successor Agent, without any further act, deed or conveyance, shall become fully
vested with all the properties, rights, duties and obligations of its
predecessor Agent. The predecessor Agent shall deliver to its successor Agent
forthwith all collateral security, documents, and moneys, if any, held by it as
Agent for the Lenders, whereupon such predecessor Agent shall be discharged from
its duties and obligations as Agent for the Lenders under this Agreement;
provided, however, that it shall not be relieved of any liabilities incurred or
arising prior to the effective date of such removal or arising out of its
agency.
SECTION 11.18 Action by Lenders. Wherever the mutual consent, approval or
agreement of the Required Lenders or all of the Lenders is required by the
provisions hereof, each of the Lenders agrees to use its best efforts to act
reasonably under the circumstances and, if reasonably possible under the
circumstances, to act in concert with the other.
SECTION 11.19 Benefits. None of the provisions contained in this Article
are intended to benefit the Borrowers or any Person other than the Lenders and
the Agent; provided, however, such provisions are binding upon the Borrowers.
Accordingly, neither the Borrowers nor any Person other than one of the Lenders
and the Agent shall be entitled to rely upon or to raise as a defense the
failure of the Agent or one of the Lenders to comply with the provisions of this
Article.
SECTION 11.20 Participations. Each of the Lenders shall have the right to
grant participations in the Obligations held by it to others at any time and
from time to time in minimum increments of One Million Dollars ($1,000,000), and
such Lender may divulge to any such participant or potential participant all
information, reports, financial statements and documents obtained in connection
with this Agreement, any Notes and any of the other Financing Documents or
otherwise.
55
<PAGE>
XII. MISCELLANEOUS
SECTION 12.1 Notices. All notices, certificates or other communications
hereunder shall be deemed given when delivered by hand or courier, or three (3)
days after the date when mailed by certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Agent
and the Lenders: NATIONSBANK, N.A.
6610 Rockledge Drive
Bethesda, Maryland 20817
Attn: Barbara P. Levy, Senior Vice President
if to the Borrowers: c/o FTI CONSULTING, INC.
2021 Research Drive
Annapolis, Maryland 21401
Attn: Mr. Jack B. Dunn, IV, Chairman
and Chief Financial Officer
SECTION 12.2 Consents and Approvals. If any consent, approval, or
authorization of any state, municipal or other governmental department, agency
or authority or of any person, or any person, corporation, partnership or other
entity having any interest therein, should be necessary to effectuate any sale
or other disposition of the Collateral, each Borrower agrees to execute all such
applications and other instruments, and to take all other action, as may be
required in connection with securing any such consent, approval or
authorization.
SECTION 12.3 Remedies, etc. Cumulative. Each right, power and remedy of the
Agent as provided for in this Agreement or in any of the other Financing
Documents or now or hereafter existing at law or in equity or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Agreement or in any of the
other Financing Documents or now or hereafter existing at law or in equity, by
statute or otherwise, and the exercise or beginning of the exercise by the Agent
of any one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by the Agent of any or all such other rights,
powers or remedies. In order to entitle the Agent to exercise any remedy
reserved to it herein, it shall not be necessary to give any notice, other than
such notice as may be expressly required in this Agreement.
SECTION 12.4 No Waiver of Rights by the Agent. No failure or delay by the
Agent to insist upon the strict performance of any term, condition, covenant or
agreement of this Agreement or of any of the other Financing Documents, or to
exercise any right, power or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant or agreement or of any
such breach or preclude the Agent from exercising any such
56
<PAGE>
right, power or remedy at any later time or times. By accepting payment after
the due date of any amount payable under this Agreement or under any of the
other Financing Documents, the Agent shall not be deemed to waive the right
either to require prompt payment when due of all other amounts payable under
this Agreement or under any of the other Financing Documents, or to declare a
default for failure to effect such prompt payment of any such other amount.
SECTION 12.5 Entire Agreement. The Financing Documents shall completely and
fully supersede all other agreements, both written and oral, including, but not
limited to the Original Financing Agreement, between the Agent, the Lenders and
the Borrowers relating to the Obligations. Neither the Agent, the Lenders nor
the Borrowers shall hereafter have any rights under such prior agreements but
shall look solely to the Financing Documents for definition and determination of
all of their respective rights, liabilities and responsibilities relating to the
Obligations.
SECTION 12.6 Survival of Agreement; Successors and Assigns. All covenants,
agreements, representations and warranties made by the Borrowers herein and in
any certificate, in the Financing Documents and in any other instruments or
documents delivered pursuant hereto shall survive the making by the Agent and
the Lenders of the Loans and the execution and delivery of the Note, and shall
continue in full force and effect so long as any of the Obligations are
outstanding and unpaid. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party; and all covenants, promises and agreements by or on
behalf of any Borrower, which are contained in this Agreement shall inure to the
benefit of the successors and assigns of the Agent and each Lender, and all
covenants, promises and agreements by or on behalf of the Agent which are
contained in this Agreement shall inure to the benefit of the permitted
successors and permitted assigns of the Borrowers, but this Agreement may not be
assigned by the Borrowers without the prior written consent of the Agent.
SECTION 12.7 Expenses. The Borrowers jointly and severally agree to pay all
out-of-pocket expenses of the Agent (including the reasonable fees and expenses
of its legal counsel) in connection with the preparation of this Agreement, the
recordation of all financing statements and such other instruments as may be
required by the Agent at the time of, or subsequent to, the execution of this
Agreement to secure the Obligations (including any and all recordation tax and
other costs and taxes incident to recording), the enforcement of any provision
of this Agreement and the collection of the Obligations. The Borrowers jointly
and severally agree to indemnify and save harmless the Agent and each Lender for
any liability resulting from the failure to pay any required recordation tax,
transfer taxes, recording costs or any other expenses incurred by the Agent in
connection with the Obligations. The provisions of this Section shall survive
the execution and delivery of this Agreement and the repayment of the
Obligations. The Borrowers further jointly and severally agree to reimburse the
Agent and each Lender upon demand for all out-of-pocket expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Agent and each
Lender in enforcing any of the Obligations or any
57
<PAGE>
security therefor, which agreement shall survive the termination of this
Agreement and the repayment of the Obligations.
SECTION 12.8 Counterparts. This Agreement may be executed in any number of
counterparts all of which together shall constitute a single instrument.
SECTION 12.9 Governing Law. This Agreement and all of the other Financing
Documents shall be governed by, and construed in accordance with the laws of the
State of Maryland.
SECTION 12.10 Modifications. No modification or waiver of any provision of
this Agreement or of any of the other Financing Documents, nor consent to any
departure by any Borrower therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on any Borrower in any case shall entitle any Borrower to any other or
further notice or demand in the same, similar or other circumstance.
SECTION 12.11 Illegality. If fulfillment of any provision hereof or any
transaction related hereto or to any of the other Financing Documents, at the
time performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity; and if any clause or
provisions herein contained other than the provisions hereof pertaining to
repayment of the Obligations operates or would prospectively operate to
invalidate this Agreement in whole or in part, then such clause or provision
only shall be void, as though not herein contained, and the remainder of this
Agreement shall remain operative and in full force and effect; and if such
provision pertains to repayment of the Obligations, then, at the option of the
Agent, all of the Obligations of the Borrowers to the Agent and each Lender
shall become immediately due and payable.
SECTION 12.12 Extension of Maturity. Should the principal of or interest on
the Notes become due and payable on other than a Banking Day, the maturity
thereof shall be extended to the next succeeding Banking Day and in the case of
principal, interest shall be payable thereon at the rate per annum specified in
the Notes during such extension.
SECTION 12.13 Gender, etc. Whenever used herein, the singular number shall
include the plural, the plural the singular and the use of the masculine,
feminine or neuter gender shall include all genders.
SECTION 12.14 Headings. The headings in this Agreement are for convenience
only and shall not limit or otherwise affect any of the terms hereof.
58
<PAGE>
SECTION 12.15 Liability of the Agent. The Borrowers each hereby agree that
the Agent and each of the Lenders shall not be chargeable for any negligence,
mistake, act or omission of any accountant, examiner, agency or attorney
employed by the Agent or any Lender (except for the willful misconduct or gross
negligence of any Person employed by the Agent or any Lender) in making
examinations, investigations or collections, or otherwise in perfecting,
maintaining, protecting or realizing upon any lien or security interest or any
other interest in the Collateral or other security for the Obligations.
SECTION 12.16. Joint and Several Liability. Each of the Borrowers shall be
jointly and severally liable for the payment of the Obligations as and when due
and payable in accordance with the provisions of this Agreement, the Notes
and/or the other Financing Documents. The term "Borrowers" whenever used herein
shall include each Borrower, individually and jointly, and the Agent (with the
necessary approval of the Lenders as herein required) may (without notice to or
consent of any or all of the Borrowers and with or without consideration)
release, compromise, settle with, and proceed against any or all of the
Borrowers and any Collateral given by such Borrower without affecting,
impairing, lessening and releasing the obligations of the other Borrowers
hereunder.
[SIGNATURES ON FOLLOWING PAGE]
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement on the day and year first above written.
Company:
WITNESS OR ATTEST: FTI CONSULTING, INC.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
Subsidiaries:
WITNESS OR ATTEST: TEKLICON, INC.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
WITNESS OR ATTEST: L.W.G., INC.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
WITNESS OR ATTEST: KLICK, KENT & ALLEN, INC.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
<PAGE>
WITNESS OR ATTEST: S.E.A., INC.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
WITNESS OR ATTEST: KAHN CONSULTING, INC.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
WITNESS OR ATTEST: KCI MANAGEMENT CORP.
By: (Seal)
- ------------------------------- --------------------------------
Name:
Title:
WITNESS: NATIONSBANK, N.A. , as Agent and for
itself as a lender
By: (Seal)
- ------------------------------- --------------------------------
Barbara P. Levy
Senior Vice President
<PAGE>
EXHIBITS
A. Note
B. Places of Business
C. Liens on Collateral
D. Swing Line Note
E. Places to Record Financing Statements
<PAGE>
SCHEDULES
5.7 Changes in Financial Condition
5.19 Business Names
<PAGE>
EXHIBIT B
PLACES OF BUSINESS
The Company's Chief Executive Office is:
2021 Research Drive
Annapolis, Maryland 21401
Subsidiaries' Chief Executive Offices are:
The Company and Subsidiaries have other places of business at the following
addresses:
The Collateral is located at the following addresses:
2021 Research Drive
Annapolis, Maryland 21401
<PAGE>
EXHIBIT C
LIENS ON COLLATERAL
<PAGE>
SCHEDULE 5.7
<PAGE>
SCHEDULE 5.19
Exhibit 21.0
SCHEDULE OF SUBSIDIARIES
Jurisdiction of
Name Incorporation
- ---- -------------
Kahn Consulting, Inc. New York
KCI Management, Inc. New York
Klick, Kent & Allen, Inc. Virginia
L.W.G., Inc. Illinois
S.E.A., Inc. Ohio
Teklicon, Inc. California
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following Registration
Statements of our report dated March 30, 1999, with respect to the consolidated
financial statements and schedule of FTI Consulting, Inc. and subsidiaries
included in the Annual Report (Form 10-K) for the year ended December 31, 1998.
REGISTRATION STATEMENTS ON FORM S-8
Name Registration Number Date Filed
1992 Stock Option Plan (As Amended) 33-19251 January 3, 1997
1997 Stock Option Plan 33-30357 June 30, 1997
Employee Stock Purchase Plan 33-30173 June 27, 1997
/s/ Ernst & Young LLP
Baltimore, Maryland
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,222,989
<SECURITIES> 0
<RECEIVABLES> 23,364,997
<ALLOWANCES> 2,422,290
<INVENTORY> 0
<CURRENT-ASSETS> 26,221,472
<PP&E> 17,054,722
<DEPRECIATION> 8,767,285
<TOTAL-ASSETS> 79,747,422
<CURRENT-LIABILITIES> 17,150,423
<BONDS> 0
0
0
<COMMON> 47,819
<OTHER-SE> 25,545,463
<TOTAL-LIABILITY-AND-EQUITY> 79,747,422
<SALES> 58,614,810
<TOTAL-REVENUES> 58,614,810
<CGS> 31,402,355
<TOTAL-COSTS> 52,929,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,482,326
<INCOME-PRETAX> 4,521,488
<INCOME-TAX> 1,953,874
<INCOME-CONTINUING> 2,567,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,567,614
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.51
</TABLE>
