SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 28, 1996
ESQUIRE COMMUNICATIONS LTD.
(Exact name of registrant as specified in charter)
DELAWARE 1-11782 13-3703760
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
216 EAST 45TH STREET, NEW YORK, NY 10017
- ---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8010
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to an Asset Purchase Agreement dated as of May 22, 1996, as
amended (the "Agreement"), by and among Esquire Communications Ltd. ("Esquire"),
M&M Reporting Referral Service, Inc. (the "Seller") and the stockholders of
Seller, on October 28, 1996, Esquire, through Sarnoff Deposition Service, Inc.,
a wholly-owned subsidiary, acquired substantially all the assets of Seller. The
purchase price paid by Esquire consisted of $2,600,000 of cash, subordinated
promissory notes in the aggregate principal amount of $2,712,700 and 132,258
unregistered shares of Common Stock of Esquire. The principal amount of one of
the notes is subject to reduction or increase, and the cash portion of the
purchase price is subject to increase, each based on the annual revenues derived
from the Seller's business for the twelve months commencing November 1, 1996.
The promissory notes are payable in equal quarterly installments over a period
of five years, together with interest at the rate of 9% per annum.
In connection with the Agreement, Harvey Melman, one of the
stockholders of Seller, entered into a three year employment agreement with
Sarnoff Deposition Service, Inc.
Esquire granted to Seller the right after a period of one year to
register the shares of Common Stock received by it pursuant to the Agreement
under a registration statement to be filed under the Securities Act of 1933.
The cash portion of the purchase price was obtained by Esquire from the
sale by Esquire of 7,500 shares of Series A Convertible Preferred Stock. See
Item 5 of this Report.
The purchase price and all negotiations relating to the transaction
were on an arm's length basis. The assets acquired by Esquire will continue to
be used in Esquire's court reporting business.
The foregoing description of the acquisition is qualified in its
entirety by reference to the complete text of the Agreement which is filed as an
exhibit to this Report.
ITEM 5. OTHER EVENTS.
On October 23, 1996, Esquire entered into a Purchase Agreement (the
"Purchase Agreement") pursuant to which Esquire sold to Golder, Thoma, Cressey,
Rauner Fund IV, L.P. ("GTCR") and Antares Leveraged Capital Corp. (collectively
with GTCR, the "Investors") 7,312.50 and 187.50 shares of Series A Convertible
Preferred Stock (the "Preferred Stock"), respectively, for an aggregate purchase
price of $7,500,000. In addition, the Investors have the right from time to time
within 21 months to acquire up to an additional 7,500 shares of Preferred Stock
at a price of $1,000 per share.
The Preferred Stock is convertible into Common Stock of Esquire at a
conversion price of $3.00 per share (subject to anti-dilution adjustments) and
bears cumulative annual dividends at the rate of 6% ($60.00) per annum. The
holders of Preferred Stock have a liquidation preference of $1,000 per share,
plus accrued dividends. Holders of Preferred Stock have the right to vote
together with the holders of Common Stock and are entitled to one vote for each
whole share of Common Stock into which the Preferred Stock is convertible
(presently 333-1/3 votes per share). GTCR was granted various rights to ask for
registration under the Securities Act of 1933 of any shares of Common Stock
acquired by it upon conversion of the Preferred Stock. Without the consent of
the holders of a majority of the Preferred Stock, Esquire may not take various
actions, including paying dividends on capital stock if there are any accrued
but unpaid dividends on the Preferred Stock, issuing any equity securities which
are senior to or on a parity with the Preferred Stock, merging with another
entity, selling or otherwise disposing of all or substantially all its assets,
or acquiring other entities. In addition, Esquire may not issue in a private
offering any equity securities without first offering the holders of Preferred
Stock the right to acquire their pro rata share.
In connection with the Purchase Agreement, the Investors and Malcolm L.
Elvey, Chairman of the Board and Chief Executive Officer of Esquire, Cary A.
Sarnoff, Vice Chairman of Esquire, David J. Feldman, President of Esquire, CMNY
Capital L.P. and Allied Investment Corporation, Allied Investment Corporation II
and Allied Capital Corporation II ( collectively, "Allied") entered into a
Stockholder's Agreement dated October 23, 1996 (the "Stockholder's Agreement")
pursuant to which (a) the parties agreed to vote their shares to elect as
directors three representatives designated by Messrs. Elvey, Sarnoff and Feldman
(the "Management Stockholders"), two representatives designated by GTCR and two
representatives jointly designated by GTCR and the Management Stockholders;
provided, however, that if they are unable to agree on such joint designees
within 90 days, then GTCR may elect the joint designees; (b) the Management
Stockholders granted to the other stockholders rights of first refusal to
acquire their shares if they desire to sell the same, subject to exceptions for
public sales and for transfers to family members; and (c) if Esquire's Board of
Directors approves a sale of Esquire's assets or capital stock (whether by
merger or otherwise), each stockholder other than Allied and CMNY Capital L.P.
agreed to consent to such transaction. The Stockholder's Agreement dated June
22, 1994 among Esquire and the Management Stockholders was terminated. In
addition, GKN Securities Corp. and Allied terminated their rights to designate
directors of Esquire.
Effective October 23, 1996, Messrs. Howard Davidoff and Robert Wunder
resigned as directors of Esquire and Messrs. Bruce V. Rauner and Joseph P.
Nolan, representatives of GTCR, were elected as directors of Esquire. Messrs.
Andrew Garvin and Mortimer Feinberg, directors of Esquire, agreed to resign as
directors at any time upon the request of GTCR.
The foregoing description of the Purchase Agreement and related
transactions is qualified by reference to the complete text of the Purchase
Agreement and related documents which are filed as exhibits to this Report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) The appropriate financial statements of Seller are
attached hereto.
(b) It is impractical to provide the pro forma financial information at
this time. Such pro forma financial information will be filed as soon as
practicable but not later than 60 days from the date hereof.
EXHIBITS
3.1 Certificate of Incorporation of Esquire, as amended.
3.2 By-Laws of Esquire, as amended.
10.1 Asset Purchase Agreement dated as of May 22, 1996, as
amended, among Esquire, M&M Reporting Referral Service,
Inc. and the stockholders of M&M Reporting Referral
Service, Inc.
10.2 Employment Agreement dated as of October 28, 1996
between Esquire and Harvey Melman.
10.3 Registration Rights Agreement dated as of October 28,
1996 between Esquire and M&M Reporting Referral Service,
Inc.
10.4 Purchase Agreement dated October 23, 1996, among
Esquire, Golder, Thoma, Cressey, Rauner Fund IV, L.P. and
Antares Leveraged Capital Corp.
10.5 Stockholder's Agreement dated October 23, 1996 among
Esquire, Malcolm L. Elvey, David J. Feldman, Cary A.
Sarnoff, Golder, Thoma, Cressey, Rauner Fund IV, LP.,
Antares Leveraged Capital Corp., CMNY Capital L.P.,
Allied Investment Corporation, Allied Investment
Corporation II and Allied Capital Corporation II.
10.6 Registration Agreement dated October 23, 1996, among
Esquire, Golder, Thoma, Cressey, Rauner Fund IV, L.P.
and Antares Leveraged Capital Corp.
10.7 Agreement dated October 23, 1996 among Esquire, Golder,
Thoma, Cressey, Rauner Fund IV, L.P., David J. Feldman,
The Sarnoff Trust, Allied Investment Corporation, Allied
Investment Corporation II and Allied Capital Corporation
II relating to registration rights.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESQUIRE COMMUNICATIONS LTD.
Dated: November 6, 1996 By:/s/ _______________
Vasan Thatham
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
3.1 Certificate of Incorporation of
Esquire, as amended
3.2 By-Laws of Esquire, as amended
10.1 Asset Purchase Agreement dated as
of May 22, 1996, as amended, among
Esquire, M&M Reporting Referral
Service, Inc. and the stockholders
of M&M Reporting Referral Service,
Inc.
10.2 Employment Agreement dated as of
October 28, 1996 between Esquire
and Harvey Melman
10.3 Registration Rights Agreement dated
as of October 28, 1996 between
Esquire and M&M Reporting Referral
Service, Inc.
10.4 Purchase Agreement dated October 23,
1996, among Esquire, Golder, Thoma,
Cressey, Rauner Fund IV, L.P. and
Antares Leveraged Capital Corp.
10.5 Stockholder's Agreement dated October
23, 1996 among Esquire, Malcolm L.
Elvey, David J. Feldman, Cary A.
Sarnoff, Golder, Thoma, Cressey,
Rauner Fund IV, L.P., Antares
Leveraged Capital Corp., CMNY Capital
L.P., Allied Investment Corporation,
Allied Investment Corporation II
and Allied Capital Corporation II
10.6 Registration Agreement dated
October 23, 1996, among Esquire,
Golder, Thoma, Cressey, Rauner Fund
IV, L.P. and Antares Leveraged
Capital Corp.
10.7 Agreement dated October 23, 1996
among Esquire, Golder, Thoma,
Cressey, Rauner Fund IV, L.P.,
David J. Feldman, The Sarnoff
Trust, Allied Investment
Corporation, Allied Investment
Corporation II and Allied Capital
Corporation II relating to
registration rights.
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
FINANCIAL STATEMENTS AND INDEPENDENT
AUDITOR'S REPORT
December 31, 1994 and 1995
<PAGE>
CONTENTS
Page
Independent Auditors' Report 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Earnings and Retained Earnings 5
Statements of Cash Flows 6
Notes to Financial Statements 8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
M & M REPORTING REFERRAL SERVICE, INC.
We have audited the accompanying balance sheets of M & M REPORTING REFERRAL
SERVICE, INC. dba M & M CERTIFIED COURT REPORTERS as of December 31, 1994 and
1995 and the related statements of earnings and retained earnings and cash flows
for the years ended December 31, 1994 and 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of M & M REPORTING REFERRAL
SERVICE, INC. as of December 31, 1994 and 1995 and the results of its operations
and its cash flows for each of the two years in the period ended December 31,
1994 and 1995, in conformity with generally accepted accounting principles.
Santa Ana, Ca
February 23, 1996
PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
BALANCE SHEETS
December 31, 1994 and 1995
<TABLE>
<CAPTION>
ASSETS
1994 1995
CURRENT ASSETS
<S> <C> <C>
Cash $ 101,959 $ 253,708
Accounts receivable 870,796 889,023
Allowance for doubtful accounts (65,000) (100,000)
Prepaid expenses 10,130 12,132
----------- ----------
TOTAL CURRENT ASSETS 917,885 1,054,863
PROPERTY AND EQUIPMENT - NET (NOTE C) 79,971 86,383
NOTE RECEIVABLE - RELATED PARTY 24,687 16,927
---------- ----------
TOTAL ASSETS $1,022,543 $1,158,173
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 147,722 179,968
Accrued expenses 41,407 68,139
Deferred income tax payable 15,000 15,000
Current portion of long-term
debt (NOTE - 3,565
----------- ----------
TOTAL CURRENT LIABILITIES 204,128 266,672
LONG-TERM DEBT (NOTE D) 20,921
STOCKHOLDERS' EQUITY
Common stock-authorized 1000 shares
of no par value; 600 shares issued 22,481 22,481
Retained earnings 1,061,686 1,113,852
Treasury stock - 300 shares at cost (265,752) (265,752)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 818,415 870,581
------------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,022,543 $1,158,174
============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
<CAPTION>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
For The Years Ended December 31, 1994 and 1995
1994 1995
<S> <C> <C>
REVENUES $4,868,916 $5,081,388
COSTS AND EXPENSES
Operating expenses 2,825,452 3,019,555
General and administrative expenses 831,813 856,764
Officers salaries 448,500 450,049
Depreciation and amortization 17,723 18,634
------------- -----------
4,123,488 4,345,002
EARNINGS FROM OPERATIONS 745,428 736,386
OTHER INCOME (EXPENSE)
Interest expense (641)
Interest income 3,977 4,588
Other 27,927 27,685
------------- -----------
31,904 31,632
------------- -----------
NET EARNINGS 777,332 768,018
RETAINED EARNINGS AT BEGINNING OF YEAR 1,059,999 1,061,686
DISTRIBUTIONS TO STOCKHOLDERS (775,645) (715,852)
------------- ------------
RETAINED EARNINGS AT END OF YEAR $1,061,686 $1,113,852
============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
<CAPTION>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1994 and 1995
1994 1995
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 777,332 $ 768,018
Adjustments to reconcile net earnings to
net cash provided by operating activities - -
Depreciation 17,723 18,634
Increase in allowance for doubtful accounts 20,000 35,000
(Increase) decrease in assets
Accounts receivable 14,536 (18,227)
Prepaid expenses 13,330 (2,002)
Increase (decrease) in liabilities
Accounts payable (920) 32,246
Accrued liabilities (10,828) 26,732
------------ -----------
Net cash provided from operating
activities 831,173 860,401
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (22,409) -
Decrease in related party loan receivable 12,340 7,760
Distributions to stockholders (775,645) (715,852)
------------ -----------
Net cash used in investing activities (785,714) (708,092)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt - (560)
- (560)
------------ ------------
NET INCREASE IN CASH 45,459 151,749
BEGINNING CASH BALANCE 56,500 101,959
----------- ------------
ENDING CASH BALANCE $ 101,959 $253,708
=========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
<CAPTION>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 1994 and 1995
SUPPLEMENTAL SCHEDULE OF CASH
<S> <C> <C>
CASH PAID DURING THE PERIOD FOR:
Interest $ - $ 641
Income taxes $ 10,130 $ 7,465
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligation incurred for lease of equipment of $25,050.
</TABLE>
The accompanying notes are an integral part of this statement.
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1995
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
M & M REPORTING REFERRAL SERVICE, INC. (Company) is a court reporting firm
providing printed and computerized transcripts and video recordings of testimony
from depositions to the legal profession and insurance industry, primarily in
the five county Southern California area.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
Revenues and the related direct costs of independent contractor court reporters
and transcribers are recognized when services rendered are billable, which is at
the time the final documents are transcribed and completed.
2. Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized over the shorter of the estimated useful life of the
assets or lease terms.
3. Income Taxes
Deferred state income tax is provided for accumulated temporary differences due
to basis differences for assets and liabilities for financial reporting and
state income tax purposes. The Company's temporary differences are due to
recognizing income on the cash method for tax return purposes and the accrual
method for financial reporting.
The federal income taxes on the net earnings are payable personally by the
stockholders, pursuant to an election under Subchapter S of the Internal Revenue
Code not to have the Company taxed as a corporation. The income taxes assumed
payable, had this election not been made, amount to $319,000 and $309,000 for
December 31, 1994 and 1995, respectively.
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1995
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
4. Concentration of Credit Risk
The Company provides court reporting services primarily in the five county
Southern California area. Credit is extended to clients under normal industry
terms.
The Company maintains its cash in bank deposit accounts at high credit quality
financial institutions. The balances, at times, may exceed federally insured
limits. At December 31, 1994 and 1995, the Company exceeded the insured limit by
approximately $285,000 and $288,800, respectively.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
1994 1995
Office furniture and equipment $ 98,025 $ 123,071
Leasehold improvements 55,991 55,991
----------- ---------
154,016 179,062
Less accumulated depreciation 74,045 92,679
----------- ----------
$ 79,971 $ 86,383
=========== ==========
NOTE D - LONG-TERM DEBT
Capital lease obligation with monthly payments of $601 including interest at
15.4% matures November 2000.
Future minimum lease payments under capitalized lease obligations are as follows
at December 31, 1995:
1996 $ 7,200
1997 7,200
1998 7,200
1999 7,200
2000 6,600
-----------
35,400
Amount representing imputed
interest at 15.4% (10,914)
----------
$ 24,486
==========
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1995
NOTE D - LONG-TERM DEBT - CONT'D
At December 31, equipment under capitalized lease obligations was included on
the balance sheet under the caption of furniture totaled $25,036 with
accumulated depreciation of $895.
NOTE E - COMMITMENTS
The Company conducts its operations in facilities under month to month rental
agreements except for the Los Angeles office which runs through May 1996. The
rental for the Orange County office is with a related party.
The Company has various equipment leases expiring through 1998. The minimum
rental commitments under operating leases are as follows:
Year Ended December 31,
1996 $ 21,700
1997 17,800
1998 5,300
----------
Total minimum payments required $ 44,800
============
Rental expense for all operating leases for the years ending December 31, 1994
and 1995 is $132,200 and $116,400 respectively.
NOTE F - RELATED PARTY TRANSACTIONS
The Company leases their Orange County office from a partnership owned by the
stockholders. The rental is on a month to month basis at $7,500 per month. The
Company pays for normal maintenance and all improvements. Lease payments made to
the partnership for December 31, 1994 and 1995 were $90,000 for both years.
Interest and other income from stockholders was $11,500 for both December 31,
1994 and 1995.
Certain family members of the stockholders provide court reporting services to
the company, at gross billable rates, aggregating $296,500 and $309,500 for the
years ended December 31, 1994 and 1995 respectively.
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1995
NOTE G - SUBSEQUENT EVENTS
After year end the Company entered into a preliminary agreement with another
court reporting agency to sell substantially all of its net assets.
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
FINANCIAL STATEMENTS AND ACCOUNTANTS'
COMPILATION REPORT
September 30, 1995 and 1996
CONTENTS
Page
Accountants' Compilation Report 3
FINANCIAL STATEMENTS
Balance Sheets 4
Statements of Earnings and Retained Earnings 5
Statements of Cash Flows 6
Notes to Financial Statements 8
To the Board of Directors of
M & M REPORTING REFERRAL SERVICE, INC.
We have compiled the accompanying balance sheets of M & M REPORTING
REFERRAL SERVICE, INC. dba M & M CERTIFIED COURT REPORTERS (a California
corporation) as of September 30, 1995 and 1996 and the related statements of
earnings and retained earnings and cash flows for the nine months then ended, in
accordance with Statements on Standard for Accounting and Review Services issued
by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
Santa Ana, Ca
October 24, 1996
<TABLE>
<CAPTION>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
BALANCE SHEETS
September 30, 1995 and 1996
S ASSETS
1995 1996
CURRENT ASSETS
<S> <C> <C>
Cash $ 222,518 $ 182,602
Accounts receivable 997,705 898,202
Allowance for doubtful accounts (100,000) (57,500)
Prepaid expenses 9,099 23,394
TOTAL CURRENT ASSETS 1,129,322 1,046,698
PROPERTY AND EQUIPMENT - NET (NOTE C) 64,026 72,652
NOTE RECEIVABLE RELATED PARTY 18,216 7,541
TOTAL ASSETS $1,211,564 $1,126,891
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 195,767 149,661
Accrued expenses 34,197 23,791
Purchase advance - 100,000
Deferred income tax payable 15,000 15,000
Current portion of debt (NOTE D) - 3,565
TOTAL CURRENT LIABILITIES 244,964 292,017
LONG-TERM DEBT (NOTE D) - 18,234
STOCKHOLDERS' EQUITY
Common stock-authorized 1000 shares
of no par value; 600 shares
issued 300 shares outstanding 22,481 22,481
Treasury stock-300 shares at cost (265,752) (265,752)
Retained earnings 1,209,871 1,059,911
TOTAL STOCKHOLDERS' EQUITY 966,600 816,640
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,211,564 $1,126,891
</TABLE>
The accompanying notes are an integral part of these statements.
See Accountants' Compilation Report
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
Nine Months Ended September 30, 1995 and 1996
1995 1996
REVENUES $3,980,867 $3,582,155
COSTS AND EXPENSES
Operating expenses 2,370,915 1,994,674
General and administrative expenses 667,320 641,461
Officers salaries 337,549 337,500
Depreciation and amortization 13,273 16,221
3,389,057 2,989,856
EARNINGS FROM OPERATIONS 591,810 592,299
OTHER INCOME (EXPENSE)
Interest expense - (2,718)
Interest income 3,331 2,720
Other 14,895 12,254
18,226 12,256
NET EARNINGS 610,036 604,555
RETAINED EARNINGS AT BEGINNING OF PERIOD 1,061,686 1,113,852
DISTRIBUTIONS TO STOCKHOLDERS (461,851) (658,496)
RETAINED EARNINGS AT END OF PERIOD $1,209,871 $1,059,911
The accompanying notes are an integral part of these statements.
See Accountants' Compilation Report
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1996
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 610,036 $ 604,555
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities - -
Depreciation 13,273 16,221
Increase (Decrease) in allowance for
doubtful accounts 35,000 (42,500)
(Increase) decrease in assets
Accounts receivable (126,909) (9,179)
Prepaid expenses 1,031 (7,611)
Increase (decrease) in liabilities
Accounts payable 48,046 (30,307)
Accrued liabilities (7,210) (44,348)
Net cash provided from operating
activities 573,267 486,831
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment - (2,491)
Decrease in related party loan receivable 6,472 8,785
(Increase) decrease in deposits 2,672 (3,049)
Distributions to stockholders (461,852) (658,495)
Net cash used in investing
activities (452,708) (655,250)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase advance - 100,000
Principal payments on long-term debt - (2,687)
- 97,313
NET INCREASE (DECREASE) IN CASH 120,559 (71,106)
BEGINNING CASH BALANCE 101,959 253,708
ENDING CASH BALANCE $ 222,518 $182,602
The accompanying notes are an integral part of these statements.
See Accountants' Compilation Report
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995 and 1996
SUPPLEMENTAL SCHEDULE OF CASH
CASH PAID DURING THE PERIOD FOR:
Interest $ - $ 2,718
Income taxes $ 9,000 $ 16,500
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligation incurred for lease of equipment of $25,050.
The accompanying notes are an integral part of these statements.
See Accountants' Compilation Report
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
NOTE A - ORGANIZATION AND NATURE OF BUSINESS
M & M REPORTING REFERRAL SERVICE, INC. (Company) is a court
reporting firm providing printed and computerized transcripts and
video recordings of testimony from depositions to the legal profession
and insurance industry, primarily in the five county Southern
California area. Credit is extended to clients under normal industry
terms.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Revenue Recognition
Revenues and the related direct costs of independent contractor
court reporters and transcribers are recognized when services rendered
are billable, which is at the time the final documents are transcribed
and completed.
2. Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements are amortized over the
shorter of the estimated useful life of the assets or lease terms.
3. Income Taxes
Deferred state income tax is provided for accumulated temporary
differences due to basis differences for assets and liabilities for
financial reporting and state income tax purposes. The Company's
temporary differences are due to recognizing income on the cash method
for tax return purposes and the accrual method for financial
reporting.
The federal income taxes on the net earnings are payable
personally by the stockholders, pursuant to an election under
Subchapter S of the Internal Revenue Code not to have the Company
taxed as a corporation. The income taxes assumed payable, had this
election not been made, amount to $250,000 and $248,000 for September
30, 1995 and 1996, respectively.
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
4. Concentration of Credit Risk
The Company provides court reporting services primarily in the
five county Southern California area. Credit is extended to client
under normal industry terms.
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times, may
exceed federally insured limits. At September 30, 1995 and 1996, the
Company exceeded the insured limit.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30,
1995 1996
Office furniture and equipment $ 95,353 $ 125,561
Leasehold improvements 55,991 55,991
151,344 181,552
Less accumulated depreciation 87,318 108,900
$ 64,026 $ 72,652
NOTE D - LONG-TERM DEBT
Capital lease obligation with monthly payments of $601 including
interest at 15.4% matures November 2000.
Future minimum lease payments under capitalized lease obligations
are as follows at September 30, 1996:
1996 $ 1,800
1997 7,200
1998 7,200
1999 7,200
2000 6,600
30,000
Amount representing imputed
interest at 15.4% (8,201)
$ 21,799
<PAGE>
M & M REPORTING REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
NOTE D - LONG-TERM DEBT - CONT'D
At September 30, 1996, equipment under capitalized lease
obligations was included on the balance sheet under the caption of
furniture totaled $25,036 with accumulated depreciation of $2,900.
NOTE E - COMMITMENTS
The Company conducts its operations in facilities under month to
month rental agreements except for the Los Angeles office which runs
through May 1996. The rental for the Orange County office is with a
related party.
The Company has various equipment leases expiring through 1998.
The minimum rental commitments under operating leases are as follows:
Year Ended December 31,
1996 $ 5,400
1997 17,800
1998 5,300
Total minimum payments required $ 28,500
Rental expense for all operating leases for the nine months
ending September 30, 1995 and 1996 is $99,000 and $118,900
respectively.
NOTE F - RELATED PARTY TRANSACTIONS
The Company leases their Orange County office from a partnership
owned by the stockholders. The rental is on a month to month basis at
$7,500 per month. The Company pays for normal maintenance and all
improvements. Lease payments made to the partnership for the nine
months ended September 30, 1995 and 1996 were $67,500 for both
periods. Interest and other income from stockholders was $7,500 for
both September 30, 1995 and 1996.
Certain family members of the stockholders provide court
reporting services to the company, at gross billable rates,
aggregating $232,000 and $265,500 for the nine months ended September
30, 1995 and 1996 respectively.
M & M REFERRAL SERVICE, INC.
dba
M & M CERTIFIED COURT REPORTERS
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 and 1996
NOTE G - ASSET SALE AGREEMENT
During the period ending September 30, 1996 the Company entered
into an asset sale agreement with another court reporting agency to
sell substantially all of its net assets. The Company received an
advance of $100,000 of the purchase price.
NOTE H - SUBSEQUENT EVENTS
Subsequent to September 30, 1996 the Company sold substantially
all of its net assets to another court reporting company. The Company
will not continue in operations as a separate entity.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS LTD.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware") hereby
certifies that:
FIRST: The name of this Corporation (hereinafter called
the "Corporation") is Esquire Communications Ltd.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle 19801; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Corporation Trust Company.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation are to conduct any lawful business, to promote
any lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 11,000,000 shares, of which 10,000,000 shares shall be
designated Common Stock, $.01 par value per share, and 1,000,000 shares shall be
designated Preferred Stock, $.01 par value per share.
A. The Board of Directors of the Corporation is hereby
expressly granted the authority by resolution or resolutions to issue one or
more series of Preferred Stock with such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and with such qualifications, limitations or
restrictions thereon, as shall be stated and expressed by the Board of Directors
in such resolution or resolutions.
B. Each holder of Common Stock shall be entitled to
vote and shall have one vote for each share thereof held.
FIFTH: The name and mailing address of the incorporator
are as follows: Martin H. Neidell, Esq.
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders, of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three- fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH: The original By-Laws of the Corporation shall be
adopted by the incorporator. Thereafter, the power to make,
alter, or repeal the By-Laws, and to adopt any new By-Law, shall
be vested in the Board of Directors.
EIGHTH: To the fullest extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or as it may hereafter be
amended, permits the limitation or elimination of the liability of directors, no
director of this Corporation shall be personally liable to this Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Notwithstanding the foregoing, a director shall be liable to the
extent provided by applicable law (1) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the General Corporation Law of the State of
Delaware, or (4) for any transaction from which the director derived any
improper personal benefit. Neither the amendment or repeal of this Article, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article shall adversely affect any right or protection of a director
of the Corporation existing at the time of such amendment or repeal.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, or by any successor thereto, indemnify any and
all persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section. The Corporation shall advance expenses to the
fullest extent permitted by said section. Such right to indemnification and
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The indemnification and
advancement of expenses provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise.
Executed at New York, New York on February 9, 1993.
-------------------------------
Martin H. Neidell, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS LTD.
_________________________________
Under Section 242 of the
Delaware General Corporation Law
_________________________________
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Esquire Communications Ltd.
2. The Certificate of Incorporation of the Corporation is
hereby amended to amend the first paragraph of Article FOURTH to
increase the number of shares of Common Stock which the
Corporation is authorized to issue. The first paragraph of
Article FOURTH is hereby amended to read as follows:
"FOURTH: The total number of shares of stock
which the Corporation is authorized to issue is
26,000,000 shares, of which 25,000,000 shares shall be
designated Common Stock, $.01 par value per share, and
1,000,000 shares shall be designated Preferred Stock,
$.01 par value per share."
3. This Certificate of Amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
Signed and attested to this 4th day of June, 1996.
_______________________________
Name: Malcolm L. Elvey
Title: Chairman of the Board
Attest:
_______________________________
Name: Vasan Thatham
Title: Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF THE SERIES A CONVERTIBLE PREFERRED STOCK
OF
ESQUIRE COMMUNICATIONS LTD.
(the "Corporation")
-----------------------------------------------------
Under Section 151 of the
Delaware General Corporation Law
-----------------------------------------------------
Esquire Communications Ltd., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation, the Board of Directors, at a
meeting duly called and held, adopted a resolution providing for the
authorization of a series of Preferred Stock consisting of 15,000 shares of
Series A Convertible Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to Article FOURTH of the Certificate
of Incorporation of the Corporation, there be and hereby is authorized
and created a series of Preferred Stock, hereby designated as the
Series A Convertible Preferred Stock (the "SERIES A PREFERRED") to
consist of 15,000 shares with a par value of $.01 per share and that
the designations, preferences and relative participating, optional or
other special rights of the Series A Preferred, and the qualifications,
limitation or restrictions thereof be as follows:
Section 1. DIVIDENDS.
1.1 GENERAL OBLIGATION. When and as declared by the Corporation's Board of
Directors and to the extent permitted under the General Corporation Law of
Delaware, the Corporation shall pay preferential dividends in cash to the
holders of the Series A Convertible Preferred Stock (the "SERIES A PREFERRED")
as provided in this Section 1. Dividends on each share of the Series A Preferred
(a "SHARE") shall accrue on a daily basis at the rate of 6% per annum, subject
to adjustments pursuant to Sections 1.4 and 9.2 (the "DIVIDEND RATE"), of the
Liquidation Value thereof from and including the date of issuance of such Share
to and including the first to occur of (i) the date on which the Liquidation
Value of such Share, plus all accrued and unpaid dividends thereon, is paid to
the holder thereof in connection with the liquidation of the Corporation or the
redemption of such Share by the Corporation, (ii) the date on which such Share
is converted into shares of Conversion Stock hereunder or (iii) the date on
which such Share is otherwise acquired by the Corporation. Such dividends shall
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends, and such dividends shall be cumulative such that all
accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Junior Securities
(as defined in Section 12 below). The date on which the Corporation initially
issues any Share shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Share is made on the stock records maintained
by or for the Corporation and regardless of the number of certificates which may
be issued to evidence such Share.
1.2 DIVIDEND PAYMENT DATES. All dividends which have accrued on the Series
A Preferred shall be payable on November 1 of each year, beginning November 1,
1997 (the "DIVIDEND PAYMENT DATE"). Failure to pay the accrued dividends on the
Shares on the Dividend Payment Date shall be an Event of Noncompliance (as
defined in Section 9 below).
1.3 DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as otherwise provided
herein, if at any time the Corporation pays less than the total amount of
dividends then accrued with respect to the Series A Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Shares held by each such holder.
1.4 SEVENTH ANNIVERSARY INCREASE IN DIVIDEND RATE. Upon the seventh
anniversary of the Closing (as defined in the Purchase Agreement defined in
Section 12 below), if the Series A Preferred is still outstanding, then the
Dividend Rate shall increase to 15% per annum.
Section 2. LIQUIDATION.
Upon any liquidation, dissolution or winding up of the Corporation (whether
voluntary or involuntary), each holder of Series A Preferred shall be entitled
to receive, prior and in preference to any distribution or payment made to the
holders of any Junior Securities, an amount in cash equal to the aggregate
Liquidation Value of all Shares held by such holder, plus all accrued and unpaid
dividends thereon, and the holders of Series A Preferred shall not be entitled
to any further payment. If upon any such liquidation, dissolution or winding up
of the Corporation the Corporation's assets to be distributed among the holders
of the Series A Preferred are insufficient to permit payment to such holders of
the aggregate amount which they are entitled to be paid under this Section 2,
then the entire assets available to be distributed to the Corporation's
stockholders shall be distributed pro rata among such holders of Series A
Preferred based upon the aggregate Liquidation Value, plus all accrued and
unpaid dividends, of the Series A Preferred held by each such holder. Prior to
the liquidation, dissolution or winding up of the Corporation, the Corporation
shall declare for payment all accrued and unpaid dividends with respect to the
Series A Preferred, but only to the extent of funds of the Corporation legally
available for the payment of dividends. Not less than 30 days prior to the
payment date stated therein, the Corporation shall mail written notice of any
such liquidation, dissolution or winding up to each record holder of Series A
Preferred, setting forth in reasonable detail the amount of proceeds to be paid
with respect to each Share and each share of Common Stock in connection with
such liquidation, dissolution or winding up. Neither the consolidation or merger
of the Corporation into or with any other entity or entities (whether or not the
Corporation is the surviving entity), nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation nor any other form of recapitalization or
reorganization affecting the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
2. Instead, upon the occurrence of any event set forth in the foregoing
sentence, the provisions of Section 6.5 shall become applicable.
Section 3. PRIORITY OF SERIES A PREFERRED ON DIVIDENDS AND REDEMPTIONS.
So long as any Series A Preferred remains outstanding, without the prior
written consent of the holders of a majority of the outstanding shares of Series
A Preferred, the Corporation shall not, nor shall it permit any Subsidiary to,
redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any distribution upon any Junior Securities, if at the time of
or immediately after any such redemption, purchase, acquisition, dividend or
distribution the Corporation has failed to or will be unable to pay the full
amount of dividends accrued on the Series A Preferred.
Section 4. REDEMPTIONS.
4.1 OPTIONAL REDEMPTIONS. The Corporation may redeem upon not less than 30
day's notice at any time after (a) the fourth anniversary of the Closing all,
but not less than all, of the Shares of Series A Preferred then outstanding;
provided that the Average Market Price (determined at the time of the sending of
the notice) of Common Stock is not less than 200% of the applicable Conversion
Price or (b) the seventh anniversary of the Closing all, but not less than all,
of the Shares of Series A Preferred then outstanding. Upon any such redemption,
the Corporation shall pay to each holder of Shares a price per Share equal to
the Liquidation Value thereof, plus all accrued and unpaid dividends thereon. At
any time prior to the Redemption Date (as defined in Section 12 below) any
holder of Shares may elect to convert such holder's Shares into Conversion
Stock.
4.2 REDEMPTION PAYMENTS. For each Share which is to be redeemed hereunder,
the Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Share) an amount in cash equal to the
Liquidation Value of such Share, plus all accrued and unpaid dividends thereon.
If the funds of the Corporation legally available for redemption of Shares on
any Redemption Date are insufficient to redeem the total number of Shares to be
redeemed on such date, the Corporation may not make a redemption pursuant to
Section 4.1. Prior to any redemption of Series A Preferred, the Corporation
shall declare for payment all accrued and unpaid dividends with respect to the
Shares which are to be redeemed, but only to the extent of funds of the
Corporation legally available for the payment of dividends.
4.3 NOTICE OF REDEMPTION. Except as otherwise provided herein, the
Corporation shall mail written notice of any redemption of any Series A
Preferred to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein which are
not converted prior to such time.
4.4 DIVIDENDS AFTER REDEMPTION DATE. No Share shall be entitled to any
dividends accruing after the date on which the Liquidation Value of such Share,
plus all accrued and unpaid dividends thereon, is paid to the holder of such
Share. On such date, all rights of the holder of such Share shall cease, and
such Share shall no longer be deemed to be issued and outstanding.
4.5 REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which are redeemed or
otherwise acquired by the Corporation shall be canceled and retired to
authorized but unissued shares and shall not be reissued, sold or transferred as
Series A Preferred.
4.6 OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall not, nor shall
it permit any Subsidiary to, redeem or otherwise acquire any Shares of Series A
Preferred, except as expressly authorized herein.
Section 5. VOTING RIGHTS.
The holders of the Series A Preferred shall be entitled to notice of all
stockholders meetings in accordance with the Corporation's bylaws, and the
holders of the Series A Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of the Common
Stock voting together as a single class with each share of Common Stock entitled
to one vote per share and each Share of Series A Preferred entitled to one vote
for each whole share of Conversion Stock issuable upon conversion of the Series
A Preferred as of the record date for such vote or, if no record date is
specified, as of the date of such vote; provided, however, that all Shares held
beneficially or of record by a holder shall be aggregated in determining the
number of whole shares of Conversion Stock and thus the number of votes.
Section 6. CONVERSION.
6.1 CONVERSION PROCEDURE.
(a) At any time, any holder of Series A Preferred may convert all, but not
less than all, of the Series A Preferred held by such holder into a number of
shares of Conversion Stock (as defined in Section 12 below) computed by
multiplying the number of Shares to be converted by the Liquidation Value, plus
any accrued and unpaid dividends thereon, and dividing the result by the
Conversion Price (as defined in Section 6.2 below) then in effect.
(b) Except as otherwise provided herein, each conversion of Series A
Preferred shall be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing the Series A
Preferred to be converted have been surrendered for conversion at the principal
office of the Corporation. At the time any such conversion has been effected,
the rights of the holder of the Shares converted as a holder of Series A
Preferred shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(c) The conversion rights of any Share subject to redemption hereunder
shall terminate on the Redemption Date for such Share unless the Corporation has
failed to pay to the holder thereof the Liquidation Value of such Share, plus
all accrued and unpaid dividends thereon.
(d) Notwithstanding any other provision hereof, if a conversion of Series A
Preferred is to be made in connection with a Public Offering, Organic Change (as
defined in Section 6.5 below) or other transaction affecting the Corporation,
the conversion of any Shares of Series A Preferred may, at the election of the
holder thereof, be conditioned upon the consummation of such transaction, in
which case such conversion shall not be deemed to be effective until such
transaction has been consummated.
(e) As soon as possible after a conversion has been effected (but in any
event within five business days), the Corporation shall deliver to the
converting holder:
(i) a certificate or certificates representing the number of shares of
Conversion Stock issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting holder
has specified; and
(ii) the amount payable under Section 6.1(i) below with respect to such
conversion.
(f) The issuance of certificates for shares of Conversion Stock upon
conversion of Series A Preferred shall be made without charge to the holders of
such Series A Preferred for any original issuance tax in respect thereof (but
not any transfer taxes payable upon issuance of certificates to a person who is
not the owner of the Shares) or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of each Share of Series A Preferred, the Corporation
shall take all such actions as are necessary in order to insure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable, free and clear of all taxes, liens,
charges and encumbrances with respect to the issuance thereof.
(g) The Corporation shall not close its books against the transfer of
Series A Preferred or of Conversion Stock issued or issuable upon conversion of
Series A Preferred in any manner which interferes with the timely conversion of
Series A Preferred. The Corporation shall assist and cooperate with any holder
of Shares required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Shares hereunder
(including, without limitation, making any filings required to be made by the
Corporation).
(h) The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Conversion Stock, solely for the purpose
of issuance upon the conversion of the Series A Preferred, such number of shares
of Conversion Stock issuable upon the conversion of all outstanding Series A
Preferred. All shares of Conversion Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of the Series A Preferred.
(i) If any fractional interest in a share of Conversion Stock would, except
for the provisions of this subsection, be delivered upon any conversion of the
Series A Preferred, the Corporation, in lieu of delivering the fractional share
therefor, shall pay an amount to the holder thereof equal to the Closing Price
of such fractional interest as of the date of conversion.
6.2 CONVERSION PRICE.
(a) The initial Conversion Price shall be $3.00. In order to prevent
dilution of the conversion rights granted under this Section 6, the Conversion
Price shall be subject to adjustment from time to time pursuant to this Section
6.2.
(b) If and whenever on or after the original date of issuance of the Series
A Preferred the Corporation issues or sells, or in accordance with Section 6.3
is deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then immediately upon such issue or
sale or deemed issue or sale the Conversion Price shall be reduced to the
Conversion Price determined by dividing (i) the sum of (A) the product derived
by multiplying the Conversion Price in effect immediately prior to such issue or
sale by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (B) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.
(c) Notwithstanding the foregoing, there shall be no adjustment in the
Conversion Price as a result of (i) any issue or sale (or deemed issue or sale)
of Common Stock or Options at not less than the Closing Price of the Common
Stock at such time of issuance to employees, directors, or consultants of the
Corporation and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors (as such number
of shares is proportionately adjusted for subsequent stock splits, combinations
and dividends affecting the Common Stock); (ii) any issue or sale of Common
Stock at not less than the Closing Price in conjunction with an acquisition of
the stock or other equity securities of a company or the assets of a business,
or (iii) any issue or sale of Common Stock issued or sold upon the exercise or
conversion of any Options or Convertible Securities outstanding on the date of
the initial issuance of the Series A Preferred.
6.3 EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 6.2, the following shall
be applicable:
(a) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner grants
or sells any Options and the price per share for which Common Stock is issuable
upon the exercise of such Options, or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Options, is less than the
Conversion Price in effect immediately prior to the time of the granting or sale
of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to be outstanding and to have been issued and
sold by the Corporation at the time of the granting or sale of such Options for
such price per share. For purposes of this paragraph, the "price per share for
which Common Stock is issuable" shall be determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting or sale of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Conversion Price
shall be made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock is actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities.
(b) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any manner
issues or sells any Convertible Securities and the price per share for which
Common Stock is issuable upon conversion or exchange thereof is less than the
Conversion Price in effect immediately prior to the time of such issue or sale,
then the maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the issuance or sale
of such Convertible Securities for such price per share. For the purposes of
this paragraph, the "price per share for which Common Stock is issuable" shall
be determined by dividing (i) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment of the
Conversion Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 6, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(c) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time (other than by reason of the antidilution provisions
contained therein), the Conversion Price in effect at the time of such change
shall be immediately adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold;
provided that if such adjustment would result in an increase of the Conversion
Price then in effect, such adjustment shall not be effective until 30 days after
written notice thereof has been given by the Corporation to all holders of the
Series A Preferred. For purposes of Section 6.3, if the terms of any Option or
Convertible Security which was outstanding as of the date of issuance of the
Series A Preferred are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change.
(d) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE SECURITIES.
Upon the expiration of any Option or the termination of any right to convert or
exchange any Convertible Security without the exercise of any such Option or
right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued; provided that if such expiration or termination would result
in an increase in the Conversion Price then in effect, such increase shall not
be effective until 30 days after written notice thereof has been given to all
holders of the Series A Preferred. For purposes of Section 6.3, the expiration
or termination of any Option or Convertible Security which was outstanding as of
the date of issuance of the Series A Preferred shall not cause the Conversion
Price hereunder to be adjusted unless, and only to the extent that, a change in
the terms of such Option or Convertible Security caused it to be deemed to have
been issued after the date of issuance of the Series A Preferred.
(e) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Option or
Convertible Security is issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, Option or Convertible Security is issued or sold
for a consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation shall be the Closing Price thereof
as of the date of receipt. If any Common Stock, Option or Convertible Security
is issued to the owners of the non-surviving entity in connection with any
merger in which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Option or Convertible Security, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the outstanding
Series A Preferred. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Series A Preferred. The determination of such appraiser shall
be final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne by the Corporation.
(f) INTEGRATED TRANSACTIONS. In case any Option is issued in connection
with the issue or sale of other securities of the Corporation, together
comprising one integrated transaction in which no specific consideration is
allocated to such Option by the parties thereto, the Option shall be deemed to
have been issued for a consideration of $.01.
(g) TREASURY SHARES. The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held by or for the account of
the Corporation or any Subsidiary, and the disposition of any shares so owned or
held shall be considered an issue or sale of Common Stock.
(h) RECORD DATE. If the Corporation takes a record of the holders of Common
Stock for the purpose of entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
6.4 SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more series of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6.5 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Corporation's assets or other transaction, in
each case which is effected in such a manner that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as an "Organic Change." Prior to the consummation of any
Organic Change, the Corporation shall make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Series A Preferred
then outstanding) to insure that each of the holders of Series A Preferred shall
thereafter have the right to acquire and receive, at such holder's election,
either (a) such shares of stock, securities or assets as such holder would have
received in connection with such Organic Change if such holder had converted its
Series A Preferred immediately prior to such Organic Change or (b) such shares
of stock of the successor entity having the same or comparable rights,
privileges and preferences as the Series A Preferred. In each such case, the
Corporation shall also make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the Series A Preferred then
outstanding) to insure that the provisions of this Section 6 and Sections 7 and
8 hereof shall thereafter be applicable to the Series A Preferred (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Corporation, an immediate adjustment of
the Conversion Price to the value for the Common Stock reflected by the terms of
such consolidation, merger or sale, and a corresponding immediate adjustment in
the number of shares of Conversion Stock acquirable and receivable upon
conversion of Series A Preferred, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). If the successor entity after a consolidation, merger or sale is other
than the Corporation, then prior to the consummation thereof, the holders of
Series A Preferred shall have the right to convert all of their Shares to
Conversion Stock. To the extent that Shares are not converted to Conversion
Stock in such case, the Corporation shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor entity
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the holders
of a majority of the Series A Preferred then outstanding) the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
6.6 CERTAIN EVENTS. If any event occurs of the type contemplated by the
provisions of this Section 6 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features or the payment,
issuance or distribution by the Corporation to the holders of Common Stock of
any debt securities of the Corporation), then the Corporation's Board of
Directors shall make an appropriate adjustment in the Conversion Price so as to
protect the rights of the holders of Series A Preferred; provided that no such
adjustment shall increase the Conversion Price as otherwise determined pursuant
to this Section 6 or decrease the number of shares of Conversion Stock issuable
upon conversion of each Share of Series A Preferred.
6.7 NOTICES.
(a) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series A
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(b) The Corporation shall give written notice to all holders of Series A
Preferred at least 20 days prior to the date on which the Corporation closes its
books or takes a record (i) with respect to any dividend or distribution upon
Common Stock, (ii) with respect to any pro rata subscription offer to holders
of Common Stock or (iii) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
(c) The Corporation shall also give written notice to the holders of Series
A Preferred at least 20 days prior to the date on which any Organic Change shall
take place.
6.8 MANDATORY CONVERSION. Beginning on the second anniversary of the date
of issuance, the Corporation may require the conversion of all, but not less
than all, of the outstanding shares of Series A Preferred in the event of the
consummation of a firm commitment underwritten Public Offering of shares of the
Corporation's Common Stock in which (a) the aggregate price paid by the public
for the shares shall be at least $30 million and (b) the price per share paid by
the public for such shares shall be at least 200% of the then applicable
Conversion Price. Any such automatic conversion shall only be effected at the
time of and subject to the closing of the sale of such shares pursuant to such
Public Offering and upon written notice of such automatic conversion delivered
to all holders of Series A Preferred at least seven days prior to such closing.
Section 7. LIQUIDATING DIVIDENDS.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "LIQUIDATING
DIVIDEND"), then the Corporation shall pay to the holders of Series A Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series A Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
Section 8. PURCHASE RIGHTS.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then each holder of Series A Preferred shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Series A Preferred immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
Section 9. EVENTS OF NONCOMPLIANCE.
9.1 DEFINITION. An "Event of Noncompliance" shall have occurred if:
(a) the Corporation fails to pay on any Dividend Payment Date the full
amount of dividends then accrued on the Series A Preferred, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject;
(b) the Corporation fails to make any redemption payment with respect to
the Series A Preferred which it is required to make hereunder, whether or not
such payment is legally permissible or is prohibited by any agreement to which
the Corporation is subject;
(c) the Corporation breaches or otherwise fails to perform or observe any
other covenant or agreement set forth herein or in the Purchase Agreement,
provided that no Event of Noncompliance shall have occurred under this Section
9.1(c) if the Corporation establishes (to the reasonable satisfaction of the
holders of at least a majority of the Series A Preferred then outstanding) that
the Event of Noncompliance is not material to the financial condition, operating
results, operations, assets or business prospects of the Corporation and its
Subsidiaries, taken as a whole;
(d) any representation or warranty contained in the Purchase Agreement or
required to be furnished to any holder of Series A Preferred pursuant to the
Purchase Agreement, or any information contained in writing furnished by the
Corporation or any Subsidiary to any holder of Series A Preferred, is not true
and correct in all material respects on the date made or furnished; or
(e) the Corporation makes an assignment for the benefit of creditors or
admits in writing its inability to pay its debts generally as they become due;
or an order, judgment or decree is entered adjudicating the Corporation bankrupt
or insolvent (which is not dismissed within 30 days); or any order for relief
with respect to the Corporation is entered under the Federal Bankruptcy Code; or
the Corporation petitions or applies to any tribunal for the appointment of a
custodian, trustee, receiver or liquidator of the Corporation or of any
substantial part of the assets of the Corporation, or commences any proceeding
relating to the Corporation under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Corporation and such petition, application
or proceeding is not dismissed within 60 days.
9.2 CONSEQUENCES OF EVENTS OF NONCOMPLIANCE.
If an Event of Noncompliance has occurred, the then applicable Dividend
Rate on the Series A Preferred shall increase immediately by an increment of two
percentage points (2%) and shall be payable on the sum of the Liquidation Value
plus all accrued and unpaid dividends thereon. Any increase of the dividend rate
resulting from the operation of this subparagraph shall terminate as of the
close of business on the date on which no Event of Noncompliance exists, subject
to subsequent increases pursuant to this Section.
Section 10. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register for the
registration of Series A Preferred. Upon the surrender of any certificate
representing Series A Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Series A Preferred
represented by such new certificate from the date to which dividends have been
fully paid on such Series A Preferred represented by the surrendered
certificate.
Section 11. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Shares
of Series A Preferred, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Corporation (provided
that if the holder is a financial institution or other institutional investor
its own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like kind
representing the number of Shares of such Series represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate, and dividends shall accrue on the
Series A Preferred represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
Section 12. DEFINITIONS.
"AVERAGE MARKET PRICE" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the Nasdaq System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 90 days
consisting of the day as of which "Average Market Price" is being determined and
the 89 consecutive business days prior to such day. If at any time such security
is not listed on any securities exchange or quoted in the Nasdaq System or the
over-the-counter market, the "Average Market Price" shall be the fair value
thereof determined jointly by the Corporation and the holders of a majority of
the Series A Preferred. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities jointly selected by the Corporation
and the holders of a majority of the Series A Preferred. The determination of
such appraiser shall be final and binding upon the parties, and the Corporation
shall pay the fees and expenses of such appraiser.
"CLOSING" shall have the meaning ascribed to such term in the Purchase
Agreement.
"CLOSING PRICE" of any security means the average of the closing prices of
such security's sales on all securities exchanges on which such security may at
the time be listed on the trading day immediately prior to any date of
determination, or, if there has been no sales on any such exchange, the average
of the highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any such day such security is not so listed, the average of
the representative bid and asked prices quoted in the Nasdaq System as of 4:00
P.M., New York time, or, if on any such day such security is not quoted in the
Nasdaq System, the average of the highest bid and lowest asked prices on such
day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization. If at any
time such security is not listed on any securities exchange or quoted in the
Nasdaq System or the over-the-counter market, the "Closing Price" shall be the
fair value thereof determined jointly by the Corporation and the holders of a
majority of the Series A Preferred. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Corporation and the holders of a majority of the Series A
Preferred. The determination of such appraiser shall be final and binding upon
the parties, and the Corporation shall pay the fees and expenses of such
appraiser.
"COMMON STOCK" means, collectively, the Corporation's Common Stock, par
value $.01 per share, and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Section 6.3(a) and
(b) hereof whether or not the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable upon
conversion of the Series A Preferred.
"CONVERSION STOCK" means shares of the Corporation's Common Stock, par
value $0.01 per share; provided that if there is a change such that the
securities issuable upon conversion of the Series A Preferred are issued by an
entity other than the Corporation or there is a change in the type or Series of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Series A Preferred if such security
is issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"JUNIOR SECURITIES" means any capital stock or other equity securities of
the Corporation, except for the Series A Preferred.
"LIQUIDATION VALUE" of any Share as of any particular date shall be equal
to $1,000.
"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PUBLIC OFFERING" means any offering by the Corporation of its capital
stock or equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force; provided that for
purposes of Section 6.8 hereof, a Public Offering shall not include an offering
made in connection with a business acquisition or combination or an employee
benefit plan.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of October __,
1996, by and between the Corporation and Golder, Thoma, Cressey, Rauner Fund IV
Limited Partnership, as such agreement may from time to time be amended in
accordance with its terms.
"REDEMPTION DATE" as to any Share means the date specified in the notice of
any redemption at the Corporation's option; provided that no such date shall be
a Redemption Date unless the Liquidation Value of such Share, plus all accrued
and unpaid dividends thereon, is actually paid in full on such date, and if not
so paid in full, the Redemption Date shall be the date on which such amount is
fully paid.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
Section 13. AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 14 hereof without the prior written
consent of the holders of a majority of the Series A Preferred outstanding at
the time such action is taken; provided that no change in the terms hereof may
be accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Series A Preferred
then outstanding.
Section 14. NOTICES.
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto signed his
name and affirms that the statements made herein are true under the penalties of
perjury this 23rd day of October, 1996.
/s/ Malcolm L. Elvey
Malcolm L. Elvey
Chairman of the Board
ATTEST:
/s/ Vasan Thatham
Vasan Thatham
Secretary
Exhibit 3.2
BY-LAWS
OF
ESQUIRE COMMUNICATIONS LTD.
(A Delaware Corporation)
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK.
(a) Every holder of stock in the Corporation shall be entitled to have
a certificate signed by, or in the name of, the Corporation by the Chairman or
Vice-Chairman of the Board of Directors, if any, or by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation representing the number of shares
owned by such person in the Corporation. If such certificate is countersigned by
a transfer agent other than the Corporation or its employee or by a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
(b) Whenever the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
(c) The Corporation may issue a new certificate of stock in place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of any lost, stolen
or destroyed certificate, or such person's legal representative, to give the
Corporation a bond sufficient to indemnify the Corporation against any claim
that may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTERESTS.
The Corporation may, but shall not be required to, issue fractions of a
share.
3. STOCK TRANSFERS.
Upon compliance with provisions restricting the transfer or
registration of transfer of shares of stock, if any, transfers or registration
of transfer of shares of stock of the Corporation shall be made only on the
stock ledger of the Corporation by the registered holder thereof, or by such
person's attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and on surrender of the certificate or certificates for such
shares of stock properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date has been fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date has been fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
5. MEANING OF CERTAIN TERMS.
As used herein in respect of the right to notice of a meeting of
stockholders or a waiver thereof or to participate or vote thereat or to consent
or dissent in writing in lieu of a meeting, as the case may be, the term "share"
or "shares" or "share of stock" or "shares of stock" or "stockholder" or
"stockholders" refers to an outstanding share or shares of stock and to a holder
or holders of record of outstanding shares of stock when the Corporation is
authorized to issue only one class of shares of stock, and said reference is
also intended to include any outstanding share or shares of stock and any holder
or holders of record of outstanding shares of stock of any class upon which or
upon whom the Certificate of Incorporation confers such rights where there are
two or more classes or series of shares of stock or upon which or upon whom the
General Corporation Law confers such rights notwithstanding that the Certificate
of Incorporation may provide for more than one class or series of shares of
stock, one or more of which are limited or denied such rights thereunder;
PROVIDED, HOWEVER, that no such right shall vest in the event of an increase or
a decrease in the authorized number of shares of stock of any class or series
which is otherwise denied voting rights under the provisions of the Certificate
of Incorporation, including any preferred stock which is denied voting rights
under the provisions of the resolution or resolutions adopted by the Board of
Directors with respect to the issuance thereof.
6. STOCKHOLDER MEETINGS.
(a) TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the Board of Directors. A special meeting shall be
held on the date and at the time fixed by the Board of Directors.
(b) PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the Board of Directors may,
from time to time, fix. Whenever the Board of Directors shall fail to fix such
place, the meeting shall be held at the registered office of the Corporation in
the State of Delaware.
(c) CALL. Annual meetings and special meetings may be
called by the Board of Directors or by any officer instructed by the
Board of Directors to call the meeting.
(d) NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date and hour of the meeting. The notice of an annual
meeting shall state that the meeting is called for the election of Directors and
for the transaction of other business which may properly come before the
meeting, and shall (if any other action which could be taken at a special
meeting is to be taken at such annual meeting), state such other action or
actions as are known at the time of such notice. The notice of a special meeting
shall in all instances state the purpose or purposes for which the meeting is
called. If any action is proposed to be taken which would, if taken, entitle
stockholders to receive payment for their shares of stock, the notice shall
include a statement of that purpose and to that effect. Except as otherwise
provided by the General Corporation Law, a copy of the notice of any meeting
shall be given, personally or by mail, not less than ten days nor more than
sixty days before the date of the meeting, unless the lapse of the prescribed
period of time shall have been waived, and directed to each stockholder at such
person's address as it appears on the records of the Corporation. Notice by mail
shall be deemed to be given when deposited, with postage thereon prepaid, in the
United States mail. If a meeting is adjourned to another time, not more than
thirty days hence, and/or to another place, and if an announcement of the
adjourned time and place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the Board of Directors, after
adjournment, fixes a new record date for the adjourned meeting. Notice need not
be given to any stockholder who submits a written waiver of notice before or
after the time stated therein.
Attendance of a person at a meeting of stockholders shall constitute a waiver
of notice of such meeting, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
(e) STOCKHOLDER LIST. There shall be prepared and made, at least ten
days before every meeting of stockholders, a complete list of the stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
Corporation, or to vote at any meeting of stockholders.
(f) CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting: the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice President, a chairman for the meeting chosen by
the Board of Directors or, if none of the foregoing is in office and present and
acting, by a chairman to be chosen by the stockholders. The Secretary of the
Corporation or, in such person's absence, an Assistant Secretary, shall act as
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the chairman for the meeting shall appoint a secretary of
the meeting.
(g) PROXY REPRESENTATION. Every stockholder may authorize another
person or persons to act for such stockholder by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by such
person's attorney-in-fact. No proxy shall be voted or acted upon after three
years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and, if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
(h) INSPECTORS AND JUDGES. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more inspectors of election or judges
of the vote, as the case may be, to act at the meeting or any adjournment
thereof. If an inspector or inspectors or judge or judges are not appointed by
the Board of Directors, the person presiding at the meeting may, but need not,
appoint one or more inspectors or judges. In case any person who may be
appointed as an inspector or judge fails to appear or act, the vacancy may be
filled by appointment made by the person presiding thereat. Each inspector or
judge, if any, before entering upon the discharge of such person's duties, shall
take and sign an oath faithfully to execute the duties of inspector or judge at
such meeting with strict impartiality and according to the best of his ability.
The inspectors or judges, if any, shall determine
the number of shares of stock outstanding and the voting power of each, the
shares of stock represented at the meeting, the existence of a quorum and the
validity and effect of proxies, receive votes, ballots or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count and tabulate all votes, ballots or consents, determine the result,
and do such other acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the person presiding at the meeting,
the inspector or inspectors or judge or judges, if any, shall make a report in
writing of any challenge, question or matter determined by such person or
persons and execute a certificate of any fact so found.
(i) QUORUM. Except as the General Corporation Law or these By-Laws may
otherwise provide, the holders of a majority of the outstanding shares of stock
entitled to vote shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum. When a quorum is once present to organize a
meeting, it is not broken by the subsequent withdrawal of any shareholders.
(j) VOTING. Each stockholder entitled to vote in accordance with the
terms of the Certificate of Incorporation and of these ByLaws, or, with respect
to the issuance of preferred stock, in accordance with the terms of a resolution
or resolutions of the Board of Directors, shall be entitled to one vote, in
person or by proxy, for each share of stock entitled to vote held by such
stockholder. In the election of Directors, a plurality of the votes present at
the meeting shall elect. Any other action shall be authorized by a majority of
the votes cast except where the Certificate of Incorporation or the General
Corporation Law prescribes a different percentage of votes and/or a different
exercise of voting power.
Voting by ballot shall not be required for corporate action except as
otherwise provided by the General Corporation Law.
7. STOCKHOLDER ACTION WITHOUT MEETINGS.
Any action required to be taken, or any action which may be taken, at
any annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of the
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing and shall
be delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors of the Corporation. The use of the
phrase "whole Board" herein refers to the total number of Directors which the
Corporation would have if there were no vacancies.
2. QUALIFICATIONS AND NUMBER.
A Director need not be a stockholder, a citizen of the United States,
or a resident of the State of Delaware. The initial Board of Directors shall
consist of 5 persons. Thereafter the number of Directors constituting the whole
board shall be at least one. Subject to the foregoing limitation and except for
the first Board of Directors, such number may be fixed from time to time by
action of the stockholders or of the Board of Directors, or, if the number is
not fixed, the number shall be three. The number of Directors may be increased
or decreased by action of the stockholders or of the Board of Directors.
3. ELECTION AND TERM.
The first Board of Directors, unless the members thereof shall have
been named in the Certificate of Incorporation, shall be elected by the
incorporator or incorporators and shall hold office until the first annual
meeting of stockholders and until their successors have been elected and
qualified or until their earlier resignation or removal. Any Director may resign
at any time upon written notice to the Corporation. Thereafter, Directors who
are elected at an annual meeting of stockholders, and Directors who are elected
in the interim to fill vacancies and newly created Directorships, shall hold
office until the next annual meeting of stockholders and until their successors
have been elected and qualified or until their earlier resignation or removal.
In the interim between annual meetings of stockholders or of special meetings of
stockholders called for the election of Directors and/or for the removal of one
or more Directors and for the filling of any vacancies in the Board of
Directors, including vacancies resulting from the removal of Directors for cause
or without cause, any vacancy in the Board of Directors may be filled by the
vote of a majority of the remaining Directors then in office, although less than
a quorum, or by the sole remaining Director.
4. MEETINGS.
(a) TIME. Regular meetings shall be held at such time as
the Board shall fix. Special meetings may be called upon notice.
(b) FIRST MEETING. The first meeting of each newly elected Board may be
held immediately after each annual meeting of the stockholders at the same place
at which the meeting is held, and no notice of such meeting shall be necessary
to call the meeting, provided a quorum shall be present. In the event such first
meeting is not so held immediately after the annual meeting of the stockholders,
it may be held at such time and place as shall be specified in the notice given
as provided for special meetings of the Board of Directors, or at such time and
place as shall be fixed by the consent in writing of all of the Directors.
(c) PLACE. Meetings, both regular and special, shall be
held at such place within or without the State of Delaware as shall be
fixed by the Board.
(d) CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the Directors.
(e) NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral or any other mode of notice of the time and place shall be given
for special meetings at least twenty-four hours prior to the meeting; notice may
be given by telephone of telefax (in which case it is effective when given) or
by mail (in which case it is effective seventy-two hours after mailing by
prepaid first class mail). The notice of any meeting need not specify the
purpose of the meeting. Any requirement of furnishing a notice shall be waived
by any Director who signs a written waiver of such notice before or after the
time stated therein. Attendance of a Director at a meeting of the Board shall
constitute a waiver of notice of such meeting, except when the Director attends
a meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
(f) QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the Directors in office shall constitute a quorum, provided that
such majority shall constitute at least one-third (1/3) of the whole Board. Any
Director may participate in a meeting of the Board by means of a conference
telephone or similar communications equipment by means of which all Directors
participating in the meeting can hear each other, and such participation in a
meeting of the Board shall constitute presence in person at such meeting. A
majority of the Directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
act of the Board shall be the act by vote of a majority of the Directors present
at a meeting, a quorum being present. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these By-Laws which govern a meeting of Directors held to
fill vacancies and newly created Directorships in the Board.
(g) CHAIRMAN OF THE MEETING. The Chairman of the Board, if
any and if present and acting, shall preside at all meetings.
Otherwise, the Vice-Chairman of the Board, if any and if present
and acting, or the President, if present and acting, or any other
Director chosen by the Board, shall preside.
5. REMOVAL OF DIRECTORS.
Any or all of the Directors may be removed for cause or without cause
by the stockholders.
6. COMMITTEES.
The Board of Directors may, by resolution passed by a majority of the
whole Board, designate one or more committees, each committee to consist of one
or more of the Directors of the Corporation. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, to the
extent provided in the resolution of the Board, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it. In the absence or disqualification of any
member of any such committee or committees, the members thereof present at any
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
7. ACTION IN WRITING.
Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
ARTICLE III
OFFICERS
1. EXECUTIVE OFFICERS.
The Board of Directors may elect or appoint a Chairman of the Board of
Directors, a President, one or more Vice Presidents (which may be denominated
with additional descriptive titles), a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers and such other
officers as it may determine. Any number of offices may be held by the same
person.
2. TERM OF OFFICE: REMOVAL.
Unless otherwise provided in the resolution of election or appointment,
each officer shall hold office until the meeting of the Board of Directors
following the next annual meeting of stockholders and until such officer's
successor has been elected and qualified or until the earlier resignation or
removal of such officer. The Board of Directors may remove any officer for cause
or without cause.
3. AUTHORITY AND DUTIES.
All officers, as between themselves and the Corporation, shall have
such authority and perform such duties in the management of the Corporation as
may be provided in these By-Laws, or, to the extent not so provided, by the
Board of Directors.
4. THE CHAIRMAN OF THE BOARD OF DIRECTORS.
The Chairman of the Board of Directors, if present and
acting, shall preside at all meetings of the Board of Directors, otherwise, the
President, if present, shall preside, or if the President does not so preside,
any other Director chosen by the Board shall preside.
5. THE PRESIDENT.
The President shall be the chief executive officer of the Corporation.
6. VICE PRESIDENTS.
Any Vice President that may have been appointed, in the absence or
disability of the President, shall perform the duties and exercise the powers of
the President, in the order of their seniority, and shall perform such other
duties as the Board of Directors shall prescribe.
7. THE SECRETARY.
The Secretary shall keep in safe custody the seal of the Corporation
and affix it to any instrument when authorized by the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors.
The Secretary (or in such officer's absence, an Assistant Secretary, but if
neither is present another person selected by the Chairman for the meeting)
shall have the duty to record the proceedings of the meetings of the
stockholders and Directors in a book to be kept for that purpose.
8. THE TREASURER.
The Treasurer shall have the care and custody of the corporate funds,
and other valuable effects, including securities, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, taking proper vouchers for such
disbursements, and shall render to the President and Directors, at the regular
meetings of the Board, or whenever they may require it, an account of all
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, the Treasurer shall give the Corporation a
bond for such term, in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of such
office and for the restoration to the Corporation, in case of such person's
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in such person's possession
or under such person's control belonging to the Corporation.
ARTICLE IV
CORPORATE SEAL
AND
CORPORATE BOOKS
The corporate seal shall be in such form as the Board of Directors
shall prescribe. The books of the Corporation may be kept within or without the
State of Delaware, at such place or places as the Board of Directors may, from
time to time, determine.
ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
INDEMNITY
(a) Any person who was or is a party or threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he or she is or was a
Director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including employee benefit plans) (hereinafter an "indemnitee"), shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the General Corporation Law, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification than
permitted prior thereto), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such indemnitee in connection with such action, suit or proceeding, if the
indemnitee acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Corporation, and with respect
to any criminal action or proceeding, had no reasonable cause to believe such
conduct was unlawful. The termination of the proceeding, whether by judgment,
order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe such conduct was
unlawful.
(b) Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a Director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise (including employee benefit plans) shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification than permitted prior thereto),
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection with the defense or settlement of such action or suit
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court in which such suit or action was
brought, shall determine, upon application, that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(c) All reasonable expenses incurred by or on behalf of the
indemnitee in connection with any suit, action or proceeding, may
be advanced to the indemnitee by the Corporation.
(d) The rights to indemnification and to advancement of
expenses conferred in this article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Certificate of Incorporation, a By-Law of the Corporation, agreement, vote of
stockholders or disinterested Directors or otherwise.
(e) The indemnification and advancement of expenses provided by this
article shall continue as to a person who has ceased to be a Director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
<PAGE>
By-Law Amendments
ARTICLE I
(c) CALL. Annual Meetings and special meetings may be
called by the Board of Directors, by any director or by any officer
instructed by the Board of Directors to call the meeting.
ARTICLE I
(j) VOTING. Except as may otherwise be permitted or required by the
terms of any preferred stock issued by the Corporation in accordance with the
terms of a resolution or resolutions adopted by the Board of Directors, each
stockholder entitled to vote in accordance with the terms of the Certificate of
Incorporation and of these By-Laws, shall be entitled to one vote, in person or
by proxy, for each share of stock entitled to vote held by such stockholder. In
the election of Directors, a plurality of the votes present at the meeting shall
elect. Any other action shall be authorized by a majority of the votes cast
except where the Certificate of Incorporation or the General Corporation Law
prescribes a different percentage of votes and/or a different exercise of voting
power.
Voting by ballot shall not be required for corporate action
except as otherwise provided by the General Corporation Law.
ARTICLE II
(d) CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or by any Director.
ASSET PURCHASE AGREEMENT
BETWEEN
M & M REPORTING REFERRAL SERVICE, INC.
AND
ESQUIRE COMMUNICATIONS LTD.
May 22, 1996
ASSET PURCHASE AGREEMENT
THIS AGREEMENT, made this 22nd day of May, 1996, by and among M & M
Reporting Referral Service, Inc., a California corporation doing business as M &
M Certified Shorthand Reporters ("Seller"), Harvey Melman, Richard Barrett and
Carlton Dawson (collectively, the "Principals") and Esquire Communications
Ltd., a Delaware corporation ("Buyer").
WHEREAS, Seller desires to sell, and Buyer desires to purchase,
substantially all the assets of Seller relating to the operation of Seller's
court reporting business (the "Business") upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
1. SALE AND TRANSFER OF ASSETS
1.1. Based upon and subject to the terms, conditions,
agreements, representations and warranties hereinafter set forth, the Seller
does hereby agree to sell, assign, transfer, deliver and convey to Buyer on the
Closing Date (as hereinafter defined), and Buyer does hereby agree to purchase,
acquire, accept and take possession of on the Closing Date, all of Seller's
right, title and interest in and to all assets, properties, rights and business
of Seller of every kind and description wherever located, except for Excluded
Assets (as hereinafter defined), used in or related to the Business (all of
which are hereinafter sometimes referred to as the "Assets"), including without
limitation, the following assets of Seller:
(a) All accounts receivable of Seller;
(b) All office supplies, office machines, office
furniture, machinery, equipment, inventory, and computer hardware and software
systems, including those described on Schedule 1.1(b) hereto;
(c) All vendor and customer lists,
work-in-process and computerized information of the Seller with respect to the
Assets;
(d) All general intangibles relating to Seller's
Business including, without limitation, any trade name, any design and logo
relating to the name, contracts and commitments with customers, licenses, claims
and deposits, including those described on Schedule 1.1(c) hereto; and
(e) All books, records, forms, promotional
materials and documents of Seller relating to the foregoing, including, without
limitation, accounting, payroll and tax records and telephone and telecopier
numbers; provided, however, that after the Closing Date, at the reasonable
request of Seller, Buyer will make the foregoing items reasonably available to
Seller during normal business hours.
1.2. There shall be excluded from the Assets to be
conveyed hereunder, the following (collectively, the "Excluded Assets"):
(a) cash, cash equivalents and bank accounts;
(b) amounts owing to Seller from shareholders or
entities related to the shareholders;
(c) any interest in the premises presently
occupied by Seller, any fixtures attached thereto and any
leasehold improvements thereto;
(d) Seller's franchise tax or income tax refunds;
(e) any life insurance policies on the lives of
shareholders which are owned by Seller;
(f) insurance refunds and insurance dividends
(workmen's compensation);
(g) rights under insurance policies, indemnity
agreements, or reimbursement agreements to the extent that Buyer has not assumed
responsibility hereunder for the liability covered by such insurance policy or
agreement;
(h) any contract rights relating to the Excluded
Assets;
(i) utility deposits, lease deposits, or similar
items not relating to assets being transferred to Buyer hereunder;
(j) the corporate franchise of Seller, stock
record and minute books of Seller and such accounting books and other records
that the Seller is required by law or government regulations to keep in its
possession; and
(k) approximately $40,000 of accounts receivable
referred to collection prior to January 31, 1996 and which are not included in
the accounts receivable set forth in Seller's financial statements.
2. ASSUMPTION OF LIABILITIES AND OBLIGATIONS
2.1. The Assets will be sold, conveyed, transferred
and assigned to the Buyer on the Closing Date free and clear of all liens,
security interests, mortgages, claims, restrictions, charges and encumbrances
(collectively, "Liens") whatsoever. The Buyer does not assume, accept or
undertake any obligations, duties, debts or liabilities of Seller of any kind
whatsoever pursuant to this Agreement or otherwise, except that from and after
the Closing Date Buyer hereby agrees to assume and to pay and discharge the
following liabilities (the "Assumed Liabilities") of Seller (to the extent
Seller is not in default and solely to the extent to be performed after the
Closing Date):
(a) All liabilities and obligations with respect
to work-in-process and other liabilities incurred in the normal course of
business, including accrued vacation and sick pay for Seller's employees; and
(b) All liabilities and obligations arising
under the agreements with customers set forth on Schedule 2.1 hereto.
2.2. Except as provided in paragraph 2.1 and
notwithstanding anything else to the contrary contained herein, Buyer is not
assuming and shall not be liable for any liabilities of Seller, including,
without limitation, any liabilities (i) under contracts and leases which shall
not have been assigned to Buyer pursuant to this Agreement (including, but not
limited to, office lease and any union agreements); (ii) for indebtedness for
borrowed money; (iii) by reason of or arising as the result of any default or
breach by Seller of any contract, for any penalty assessed against Seller under
any contract or relating to or arising out of any event which with the passage
of time or after giving of notice, or both, would constitute or give rise to
such a breach, default or penalty, whether or not such contract is being
assigned to and assumed by Buyer pursuant to this Agreement; (iv) the existence
of which would conflict with or constitute a breach of any representation,
warranty, covenant or agreement of Seller or the Principals contained herein;
(v) to any shareholder or affiliate of Seller or to any present or former
employee, officer or director of or consultant to Seller (or independent
contractor retained by Seller), including, without limitation, any bonuses, any
termination or severance pay related to Seller's employees, and any post
retirement medical benefits or other compensation or benefits; (vi) relating to
the execution, delivery and consummation of this Agreement and the transactions
contemplated hereby, including, without limitation, any and all taxes incurred
as a result of the sale contemplated by this Agreement, except for sales, use or
transfer taxes as set forth in paragraph 12 hereof; (vii) for any taxes accrued
or incurred prior to the Closing Date or relating to any period (or portion of a
period) prior thereto; (viii) relating to or arising out of any environmental
matter, including, without limitation, any violation of any environmental law or
any other law relating to health and safety of the public or the employees of
Seller; or (ix) relating to, or arising out of, services rendered by Seller, or
the conduct or operation of the business of Seller, prior to the Closing Date.
3. CLOSING
The closing of this Agreement (the "Closing") shall take place
at a place mutually determined by Seller and Buyer at 10:00 A.M. local time, on
such date and time as Buyer and Seller may agree upon (the date of Closing being
hereinafter referred to as the "Closing Date").
4. PURCHASE PRICE
4.1. The total purchase price (the "Purchase Price") to be
paid by Buyer for the Assets is $5,662,700, to be paid in the following manner:
(a) On the Closing Date, Buyer shall pay
$2,400,000 of the Purchase Price by the delivery by Buyer to Seller of a
certified or bank cashier's check in such amount or by means of a wire transfer
in such amount to an account number and depository designated by Seller not less
than three days prior to the Closing by notice in writing to Buyer. The cash
portion of the Purchase Price shall be subject to increase as set forth in
paragraph 4.5 hereof.
(b) On the Closing Date, Buyer shall deliver to
Seller a subordinated promissory note (the "Note") payable to Seller in the form
attached hereto as Exhibit A in the principal amount of $2,512,700, which Note
shall be payable in equal quarterly installments over five years from the
Closing Date, together with interest at the rate of 9% per annum. The Note shall
be subject to reduction or increase as provided in paragraphs 4.4, 4.6 and 13.1
and shall be subordinated to other indebtedness of the Buyer to the same extent
as other notes issued by Buyer in connection with its other acquisitions. On or
prior to the Closing Date, the Seller agrees to enter into a subordination
agreement with The Chase Manhattan Bank (National Association) (or other senior
lenders) and an intercreditor agreement with the holders of certain debentures
or senior indebtedness of the Buyer, such agreements to be in substantially the
forms executed by the holders of Buyer's notes issued in connection with Buyer's
other acquisitions.
(c) Buyer shall deliver on the Closing Date to
Seller a number of shares (the "Shares") of Common Stock of the Buyer, par value
$.01 per share (the "Common Stock"), that have an aggregate Market Value (as
hereinafter defined) of $750,000. The Shares shall not be registered under the
Securities Act of 1933, as amended (the "Securities Act"). As used herein,
"Market Value" shall mean the average of the last sale price of a share of
Common Stock of Buyer for the ten trading days ended ten days prior to the date
hereof. The owners of the Shares will be afforded registration rights pursuant
to a Registration Rights Agreement (the "Registration Rights Agreement") in
substantially the form of Exhibit B attached hereto. The number of Shares to be
delivered to Seller shall be subject to adjustment as provided in paragraph
13.1.
4.2. Seller shall pay to Buyer on the Closing Date the
aggregate amount of all prepayments made to or advances received by Seller under
all contracts being assumed by Buyer pursuant to this Agreement including, but
not limited to, all deposits made with respect to such agreements. All
adjustments customary in acquisitions, including utilities, compensation, rent
and other items, shall be apportioned between Buyer and Seller as of the Closing
Date.
4.3. The Purchase Price shall be allocated by Buyer and Seller
to the Assets in accordance with Schedule 4.3 hereto, which Schedule shall be
prepared on or prior to the Closing Date. Each party hereto agrees to reflect
the Assets upon its books for tax reporting purposes in accordance with such
determination and to file all tax returns in accordance with and based upon such
determination.
4.4. The Purchase Price shall be subject to reduction or
increase based on accrued annual revenues as hereinafter set forth. If the total
aggregate accrued annual revenues for the first twelve months commencing on the
first day of the calendar month immediately after the Closing Date derived from
the Business (other than revenues which were derived from persons who were
clients of Buyer or any of its subsidiaries on the Closing Date and who were not
also clients of Seller on the Closing Date) are more or less than the amounts
set forth below, then the principal amount of the Note shall be increased or
reduced, as the case may be, as follows: (a) if the revenues are less than
$4,549,200, the principal amount of the Note shall be reduced to an amount equal
to $2,512,700 multiplied by a fraction, the numerator of which is the revenues
for such twelve months and the denominator of which is $4,549,200; and (b) if
the revenues are more than $4,891,000, the principal amount of the Note shall be
increased to an amount equal to $2,512,700 multiplied by a fraction, the
numerator of which is the revenues for such twelve months and the denominator of
which is $4,891,000. Any reduction or increase shall be amortized over the
remaining term of the Note. The accrued annual revenues shall be increased by
any revenues derived after the Closing Date by the Buyer or any of its
subsidiaries from persons who were clients of Seller immediately prior to the
Closing Date and who were not also clients of Buyer on the Closing Date.
4.5. In addition to the provisions of paragraph 4.4, the
Purchase Price shall be subject to increase based on annual revenues as
determined pursuant to this paragraph 4.5. If the annual revenues from the
Business (determined as set forth in paragraph 4.4) for the first twelve month
period commencing on the first day of the calendar month immediately after the
Closing Date are more than $4,549,200, then Buyer shall pay to Seller an
additional dollar for each dollar of revenues above $4,549,200, up to a maximum
amount of $341,800. Any such payment shall be made in cash, payable by certified
or bank cashier's check or by means of a wire transfer, within ten days after
determination of such revenues, together with interest at the rate of 9% per
annum on the amount so paid from the Closing Date to the date of payment.
4.6. On the Closing Date, the accounts receivable of Seller
shall exceed the Assumed Liabilities (accrued as of the Closing Date) by at
least $567,500. If the accounts receivable do not exceed such Assumed
Liabilities by at least $567,500, then the principal amount of the Note shall be
reduced by the amount by which accounts receivable are less than $567,500 in
excess of such Assumed Liabilities. This reduction shall be applied against the
next succeeding installments of principal and interest due under the Note. If
the accounts receivable exceed the Assumed Liabilities by more than $567,500,
then this excess shall be paid by Buyer to Seller in cash, payable by check
within ten days after determination. Within 60 days after the Closing Date,
Buyer shall prepare and furnish to Seller a statement (the "Statement")
reflecting the accounts receivable and Assumed Liabilities as of the Closing
Date, which shall be prepared in accordance with generally accepted accounting
principles and in accordance with the same practices as used by Seller in
preparing the December 31, 1995 financial statements. Seller shall have the
right to review the Statement and to object to any items contained therein
within 30 days after its receipt of the Statement. If Seller does not object to
the Statement, it shall be final and binding on the parties. If Seller objects
to any items within such 30 days, Seller and Buyer shall consult with each other
and attempt to reach an agreement. If they are unable to reach any agreement
within 60 days, the matter shall be referred to an independent accounting firm
mutually selected by Buyer and Seller, whose determination will be final and
binding on the parties. The fees and expenses of the mutually agreed upon
accounting firm shall be shared equally between Buyer and Seller.
5. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE PRINCIPALS
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Seller and the Principals
jointly and severally represent and warrant as follows:
5.1. Seller is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation (except
that Seller and its shareholders have adopted a plan of liquidation of which
consummation of the transaction contemplated by this Agreement is a part).
Seller has the power and the authority and all licenses and permits required by
governmental authorities to own and operate its properties and carry on its
business as now being conducted. The Seller does not have any subsidiaries and
does not own beneficially or of record any equity interest in any corporation,
partnership or other business organization or entity.
5.2. Seller has the corporate power and authority and the
Principals have the legal capacity to execute and perform this Agreement and all
other agreements to be entered into in connection with the transactions
contemplated hereby. All the issued and outstanding shares of capital stock of
the Seller are owned beneficially and of record by the Principals and/or
revocable trusts of which a Principal is presently a trustee.
5.3. The execution, delivery and performance of this Agreement
and all other agreements to be entered into in connection with the transactions
contemplated hereby have been duly authorized by the Board of Directors and
shareholders of the Seller and by all necessary corporate action, and do not
violate or conflict with any provisions of the Certificate of Incorporation or
Bylaws of the Seller or any agreement, instrument, law, order or regulation to
which Seller or any Principal is a party or by which Seller or any Principal is
bound. No consent, approval or authorization of, or filing with or notification
to, any lender, security holder, governmental agency or other person or entity
is required by Seller or the Principals in connection with the execution,
delivery and performance by the Seller and the Principals of this Agreement and
the consummation of the transactions contemplated hereby.
5.4. This Agreement, and all other instruments delivered by
Seller and the Principals in connection herewith, have been duly executed and
delivered by the Seller or the Principals and are legal, valid and binding
obligations of Seller and the Principals, enforceable in accordance with their
respective terms.
5.5. The Seller is the owner of and has good, valid and
marketable title to the Assets (other than those Assets which are being leased
by Seller from third parties as described on Schedule 5.5) free and clear of all
Liens. The Assets to be sold and conveyed to Buyer hereunder constitute all of
the assets used in, related to or required by Seller in the normal operation and
conduct of its Business, other than Excluded Assets and those Assets which are
leased as set forth on Schedule 5.5. The fixed assets included in the Assets are
in good repair and operating condition.
5.6. Except as set forth on Schedule 5.6, there is no action,
suit, litigation or proceeding pending, or to the knowledge of Seller or the
Principals, threatened against or relating to the Assets or Business nor does
Seller or any Principal know of any basis for any such action, or of any
governmental investigation relating to the Assets or the Business.
5.7. There does not exist any order, writ, injunction or
decree that has been issued by, or requested of, any court or governmental
agency which is against, or binding on, Seller or the Principals which do or may
affect, limit or control the Assets or Buyer's use thereof.
5.8. Seller and the Principals have obtained all required
approvals or authorizations of this Agreement and any other agreements to be
entered into in connection with the transactions contemplated hereby which are
required by law or otherwise in order to make this Agreement or any other
agreements entered into in connection with the transactions contemplated hereby
binding upon Seller and the Principals.
5.9. The utilization of the Assets being sold and conveyed to
Buyer hereunder do not infringe upon or violate in any way the rights evidenced
by any outstanding patents, trademarks or trade names, whether registered or
unregistered, held or owned by any third parties.
5.10. Seller's relationships with its customers are in all
material respects good, and Seller and the Principals are not aware of any facts
or circumstances which might alter, negate, impair or in any way adversely
affect the continuity of any such customer relationships, other than normal
competitive forces in the marketplace.
5.11. The accounts receivable of Seller are actual and bona
fide receivables representing obligations for the total amount thereof which
arose in the ordinary course of business, and, to the knowledge of the Seller
and the Principals, are collectible in full accordance with their terms;
provided, however, that since January 31, 1996, Seller has referred to
collection approximately $16,000 of accounts receivable.
5.12. There are no liens for any federal, state, county or
local franchise, income, excise, property, business, sales, commercial rent,
employment or other taxes upon the Assets, except for liens for personal
property taxes which are not yet due. Seller has timely filed all federal,
state, county and local franchise, income, excise, property, business, sales,
commercial rent and employment and other tax returns which are required to be
filed through the Closing Date, and has paid, or will pay, all taxes which are
due and payable on or before the Closing Date.
5.13. Schedule 5.13 contains a complete and accurate list of
all personnel utilized in Seller's business, including full and part-time
persons, in-house and outside personnel, and employees and independent
contractors. Except as set forth in paragraph 2.1 hereof, Buyer will not be
liable for any obligations to the foregoing persons, including, but not limited
to, obligations for severance pay or other fringe benefits for such persons.
5.14. The Seller has furnished to Buyer a balance sheet of the
Seller as at December 31, 1995 (the "Balance Sheet Date"), and the related
statements of earnings, retained earnings and cash flows for the year then
ended, together with the notes thereto (collectively, the "Financial
Statements"), as audited by independent accountants. The Financial Statements
fairly present the financial position and results of operations of the Seller as
at, or for the period ended on, such date. Seller's average annual revenues and
operating profits (before deducting salaries, fringe benefits and related
payroll expenses of the Principals) for its three fiscal years ended December
31, 1995 were not less than $4,891,000 and $1,208,000, respectively. Since the
Balance Sheet Date, (a) Seller has conducted its business in a consistent manner
in the regular and ordinary course, (b) there has not been any material adverse
change in the business, operations or financial condition of Seller, and (c)
there has not been any damage, destruction or loss affecting the Business.
5.15. Each of the agreements to which Seller is a party or to
which it is subject or by which it is bound is listed on Schedule 5.15 attached
hereto (true and complete copies of which have been furnished to Buyer) and is a
valid and subsisting contract of all of the parties thereto in full force and
effect without modification. Seller has performed all obligations required to be
performed by it and is not in default under any agreement, instrument or other
document to which it is a party or to which it is subject or by which it is
bound, and no event has occurred thereunder which, with or without the lapse of
time or the giving of notice, or both, would constitute a default by it
thereunder. No other party is in default under any such agreement, instrument or
other document.
5.16. There are no labor strikes, disputes, slow downs, work
stoppages or other labor troubles or grievances pending or, to Seller's or the
Principals' knowledge, threatened against or involving Seller. Seller is not a
party to any union agreements. No unfair labor practice complaint before the
National Labor Relations Board, no discharge or grievance before the Equal
Employment Opportunity Commission and no complaint, charge or grievance of any
nature before any similar or comparable state, local or foreign agency, in any
case relating to Seller or the conduct of its business is pending or, to
Seller's or the Principals' knowledge, threatened.
5.17. Seller has complied and is in compliance with all laws,
orders and regulations of any governmental authority applicable to Seller, its
Business, assets or property or its operations, including, without limitation,
laws relating to zoning, building codes, antitrust, occupational safety and
health, environmental protection and conservation, water or air pollution, toxic
and hazardous waste and substances control, consumer product safety, product
liability, hiring, wages, hours, employee benefit plans and programs, collective
bargaining and withholding and social security taxes.
5.18. Seller and the Principals do not know of any facts or
circumstances not disclosed to Buyer which indicate that the Assets or the
future operations, profits or business of Seller may be adversely affected or
which otherwise should be disclosed to Buyer in order to make any of the
representations or warranties made herein on the part of the Seller and the
Principals not misleading. No representation or warranty by Seller or any
Principal contained in this Agreement, and no statement contained in any
Schedule, Exhibit, certificate or other instrument furnished to Buyer under or
in connection with this Agreement, contains any untrue statement of any material
fact, or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
5.19. Seller is acquiring the Shares for its own account and
not with a present view to, or for sale in connection with, any distribution
thereof in violation of the Securities Act; provided, however, that Seller may
distribute the Shares to its shareholders who hereby agree to acquire these
Shares subject to all the provisions contained in this Agreement. Seller
consents to the placement of the following legend on each certificate
representing the Shares and acknowledges that stop transfer instructions will be
placed with the Buyer's transfer agent:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR SOLD UNLESS (i) A REGISTRATION STATEMENT UNDER
SUCH ACT (OR AN EXEMPTION FROM SUCH REGISTRATION) IS THEN IN
EFFECT WITH RESPECT THERETO, (ii) A WRITTEN OPINION FROM
COUNSEL FOR THE ISSUER OR OTHER COUNSEL FOR THE HOLDER
REASONABLY ACCEPTABLE TO THE ISSUER HAS BEEN OBTAINED TO THE
EFFECT THAT NO SUCH REGISTRATION IS REQUIRED OR (iii) A 'NO
ACTION' LETTER OR ITS THEN EQUIVALENT HAS BEEN ISSUED BY THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT
TO SUCH TRANSFER OR SALE."
5.20. Seller and the Principals understand that the Shares
will not be registered at the Closing Date under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4 of the Securities Act and that the reliance of the Buyer on such
exemption is predicated in part on the Seller's and Principals' representations
set forth herein. Seller and the Principals represent that they are experienced
in evaluating companies such as the Buyer, have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of their investment, and have the ability to suffer the total loss of
their investment in the Shares. Seller and the Principals are accredited
investors within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act. Seller and the Principals further represent that they have had
access during the course of the transaction and prior to their acquisition of
the Shares to such information relating to the Buyer as they have desired and
that they have had the opportunity to ask questions of and receive answers from
the Buyer concerning the transaction and to obtain additional information (to
the extent the Buyer possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to them or to which they had access.
Seller and the Principals understand that the Shares may not
be sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom and that in the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act, the Shares must be held indefinitely.
5.21. The representations and warranties of Seller and the
Principals contained in this Agreement will be true and correct on and as of the
Closing Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller to enter into this
Agreement and to consummate the transactions contemplated herein, Buyer
represents and warrants as follows:
6.1. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Buyer has the
power and the authority and all licenses and permits required by governmental
authorities to own and operate its properties and carry on its business as now
being conducted.
6.2. The Buyer has the corporate power and authority to
execute and perform this Agreement and all other agreements to be entered into
in connection with the transactions contemplated hereby.
6.3. The execution, delivery and performance of this Agreement
and all other agreements to be entered into in connection therewith have been
duly authorized by the Board of Directors of the Buyer and by all necessary
corporate action, and do not violate or conflict with any provisions of the
Certificate of Incorporation or Bylaws of the Buyer or, except as set forth on
Schedule 6.3, any agreement, instrument, law or regulation to which the Buyer is
a party or by which Buyer is bound.
6.4. No approval or authorization of this Agreement or any
other agreement to be entered into in connection with the transactions
contemplated by this Agreement is required by law or otherwise in order to make
this Agreement or any other agreements entered into in connection herewith
binding upon the Buyer, except as set forth on Schedule 6.3 and except for
approval of the listing of the Shares on the Nasdaq Stock Market and on the
Boston Stock Exchange. Upon the execution and delivery of this Agreement and any
other agreement in connection therewith, such agreements will constitute legal,
valid and binding obligations of Buyer, enforceable in accordance with their
respective terms.
6.5. The Shares to be issued pursuant to this Agreement, when
so issued, will be duly and validly authorized and issued, fully paid and
non-assessable and free and clear of any liens created by the Buyer (other than
restrictions arising under the Securities Act and state securities laws).
6.6. The duly authorized capital stock of the Buyer consists
of 10,000,000 shares of Common Stock, par value $.01 per share, and 1,000,000
shares of Preferred Stock, par value $.01 per share, of which at March 31, 1996,
4,126,823 shares of Common Stock were issued and outstanding and no shares of
Preferred Stock were issued or outstanding. All of the issued and outstanding
shares of capital stock of the Buyer have been duly and validly issued, are
fully paid and nonassessable and are free of preemptive rights. None of such
shares has been issued in violation of the Securities Act or the securities or
blue sky laws of any country, state, territory or other jurisdiction (whether
domestic or foreign). Except pursuant to the Buyer's stock option plan or as
disclosed in Buyer's Annual Report on Form 10-KSB for the year ended December
31, 1995, there are no outstanding options, warrants or other rights to
subscribe for or purchase or otherwise acquire any shares of capital stock (or
securities directly or indirectly convertible into or exchangeable or
exercisable for shares of capital stock) of the Buyer, nor, except for potential
acquisitions of, and financings related to, other court reporting businesses,
any plans, contracts, agreements or commitments binding upon the Buyer providing
for the issuance or granting of rights to acquire any shares of capital stock
(or securities directly or indirectly convertible into or exchangeable or
exercisable for shares of capital stock) of the Buyer.
6.7. No action, dispute or proceeding at law or in equity is
pending or, to the knowledge of Buyer, threatened, against Buyer or any of its
assets or properties which will have in the aggregate, a material adverse effect
on the business, financial condition or operation of the Buyer.
6.8. Buyer has furnished to the Seller a copy of Buyer's
Annual Report on Form 10-KSB for its fiscal year ended December 31, 1995 as
filed with the Securities and Exchange Commission (the "SEC"). The 10-KSB was
prepared and filed in accordance with the rules and regulations of the SEC. As
of its date, the 10-KSB did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Buyer included in the
10-KSB were prepared in accordance with generally accepted United States
accounting principles as in effect from time to time applied on a consistent
basis (except as otherwise noted in such financial statements) and present
fairly the consolidated financial condition, results of operations and cash
flows of Buyer as of the date and for the period indicated. Since December 31,
1995, (a) the Buyer has conducted its business in a manner generally consistent
with prior practice and in the ordinary course, (b) there has not been any
adverse change in the business, operations or financial condition of the Buyer
which could reasonably be expected to result in a material adverse change in the
Buyer taken as a whole, (c) there has not been any damage, destruction or loss
affecting the business, assets, properties or rights of the Buyer which could
reasonably be expected to result in a material change in the Buyer taken as a
whole, (d) there has not been any action, lawsuit or other proceeding commenced
against the Buyer which could reasonably be expected to materially, adversely
affect Buyer's business or operations taken as a whole and (e) the Buyer has
performed all obligations required to be performed by it and is not in default
under any of its agreements with Chase Manhattan Bank, Allied Investment
Corporation, Allied Investment Corporation II or Allied Capital Corporation II
evidencing the indebtedness of Buyer to which payment under the Note will be
subordinated in accordance with the terms of the subordination agreement and the
intercreditor agreement described in paragraph 4.1(b) hereof.
7. COVENANTS PRIOR TO CLOSING
During the period from the date hereof through the Closing,
the parties hereto covenant and agree as follows:
7.1. The Seller will give to Buyer's officers, employees,
representatives, agents, counsel and accountants, full access during normal
business hours to all of its premises, properties, operations and books and
records, and will cause the Seller's officers, employees, representatives,
agents, counsel and accountants to furnish to Buyer's officers, employees,
representatives, agents, counsel and accountants such financial and operating
data and other information with respect to the business and properties of the
Seller as such officers, employees, representatives, agents, counsel and
accountants shall request.
7.2. The Seller will use its best efforts to preserve intact
its business organization, keep available the services of its present officers
and employees and preserve its present relationships with persons with whom it
has significant business relations.
7.3. (a) During the period from the date hereof through the
Closing, except with the prior written consent of Buyer, the Seller shall
conduct its business in the ordinary course.
(b) During the period from the date hereof through
the Closing, the Seller will not:
(i) issue or commit to issue any capital
stock or other ownership interest of the Seller,
(ii) grant or commit to grant any options,
warrants or other rights to subscribe for or purchase or
otherwise acquire any shares of its capital stock or other
ownership interest or issue or commit to issue any securities
convertible into or exchangeable for shares of its capital
stock or other ownership interest,
(iii) directly or indirectly redeem, purchase or
otherwise acquire or commit to acquire any capital stock or
other ownership interest in the Seller or any option, warrant
or other right to purchase or otherwise acquire any such
capital stock or ownership interest,
(iv) directly or indirectly agree or commit
to terminate or reduce any bank line of credit or the
availability of any funds under any other loan or financing
agreement,
(v) effect a split or reclassification of
any capital stock of the Seller or a recapitalization of
the Seller,
(vi) amend the Certificate of Incorporation,
By-Laws or other governing instruments of the Seller,
(vii) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets or stock of, or in any other manner, any business
of any corporation, partnership, association or other business
organization or division thereof, or acquire or agree to
acquire the beneficial ownership of any class of the
outstanding capital stock or other equity interest of any such
entity, or otherwise acquire or agree to acquire any assets
which are material to the Seller,
(viii) sell, lease or otherwise dispose of, or
grant any options with respect to, any of its assets which are
material, individually or in the aggregate, to the Seller,
(ix) adopt or enter into any collective
bargaining agreement or employee benefit plans,
(x) pay any bonuses to, or incur any bonuses
payable to, any of its officers or directors, grant to any
officer or director any increase in salaries, fees or other
forms of compensation or in severance or termination pay,
otherwise than as required by an agreement existing on the
date hereof or enter into or amend any employment agreement
with any officer or director,
(xi) take any action (including, without limitation,
an action that might otherwise be permitted under this
paragraph 7.3) that would or might result in any of the
representations and warranties of the Seller or the Principals
in this Agreement becoming untrue or that would have been
required to be set forth in any such representation or
warranty or in the Schedules if such action had occurred prior
to the date hereof,
(xii) accelerate the collection of accounts
receivable or defer the payment of liabilities, or
(xiii) take any other action, or enter into
any other transaction, not in the ordinary course of
business and consistent with prior practices.
7.4. Each of the Buyer and the Seller shall use its
best efforts to obtain all consents and approvals of third parties which may be
necessary or required for the consummation of this Agreement and the
transactions contemplated hereby.
7.5. Each of the Buyer and the Seller shall promptly (and in
any event prior to the Closing) advise the other orally and in writing of any
change or event having, or which would have (insofar as can be reasonably
foreseen), a material adverse effect on its business, properties, financial
condition or results of operations or would constitute, or with the passage of
time would constitute, a breach of any representation or warranty of such party
contained in this Agreement. The parties agree that, with respect to their
representations and warranties made in this Agreement, each of them will have a
continuing obligation to supplement or amend the Schedules hereto with respect
to any matter hereafter arising or discovered which, if existing or known at the
date of this Agreement, would have been required to be set forth or described in
the Schedules hereto; provided, however, that neither the supplementing or
amending of any Schedules, nor the discovery of any matters by Buyer or the
Seller in the course of its investigations, shall be deemed to cure any breach
of any representation or warranty made in this Agreement or to have been
disclosed as of the date of this Agreement.
7.6. Pending the Closing Date, neither the Buyer nor the
Seller shall take any action which is inconsistent with this Agreement.
7.7. Seller and the Principals will not, and will cause their
directors, officers, employees, agents and affiliates not to, directly or
indirectly, solicit or initiate the submission of proposals from, or solicit,
encourage, entertain or enter into any arrangement, agreement or understanding
with, or engage in any discussions with, or furnish any information to, any
person, other than Buyer or a representative thereof, with respect to the
acquisition of all or any part of the Assets or Business (whether by merger,
purchase of stock or assets or otherwise).
8. CONDITIONS TO THE OBLIGATIONS OF THE SELLER
The obligations of the Seller hereunder are, at the
option of the Seller, subject to the following conditions:
8.1. The representations and warranties of Buyer
contained herein shall be true and correct on the date when made and at and as
of the Closing Date as if then made, and Buyer shall have performed and complied
with all agreements, covenants and conditions required hereunder to be performed
or complied with by it prior to or at the Closing.
8.2. At the Closing, the Seller shall have received an
opinion, dated the Closing Date, of Stroock & Stroock & Lavan, counsel for
Buyer, in form and substance reasonably satisfactory to the Seller.
8.3. At the Closing, the Seller shall have received certified
copies of the resolutions of the Board of Directors of Buyer authorizing and
approving this Agreement.
8.4. There shall not be any order, injunction or decree of any
court having jurisdiction to restrain, enjoin, invalidate or otherwise prevent
this Agreement and the consummation of the transactions contemplated hereby, and
there shall not be any litigation or proceeding by any commission, agency or
department of the federal or any foreign, state or local government to restrain,
enjoin, invalidate or otherwise prevent this Agreement and the consummation of
the transactions contemplated hereby.
8.5. All governmental approvals required for the consummation
of this Agreement and the other transactions contemplated hereby shall have been
obtained and all consents and approvals of any other persons required for the
consummation of this Agreement and the other transactions contemplated hereby,
the withholding of which would have a material adverse effect on the financial
condition or business of the Buyer, shall have been obtained. The Shares shall
have been approved for listing on the Nasdaq Stock Market and on the Boston
Stock Exchange.
8.6. All legal matters in connection with this Agreement and
the transactions contemplated by this Agreement, and all documents and
instruments incident thereto, shall be reasonably satisfactory in form and
substance to counsel to the Seller, and the Seller and such counsel shall have
received all such documents and instruments, or copies thereof (certified if
requested), as they may have reasonably requested.
8.7. The Seller shall have received a certificate of an
officer of Buyer, dated the Closing Date, in form and substance satisfactory to
the Seller, certifying as to the fulfillment on behalf of Buyer of the
conditions specified in paragraphs 8.1, 8.5 and 8.6 hereof.
8.8. Harvey Melman shall have entered into an employment
agreement with the Buyer in substantially the form of Exhibit C attached hereto.
8.9. The Registration Rights Agreement shall have
been executed and delivered by the parties thereto.
9. CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are, at the option
of Buyer, subject to the following conditions:
9.1. The representations and warranties of the Seller and the
Principals contained herein shall be true and correct on the date when made and
at and as of the Closing Date as if then made and the Seller and the Principals
shall have performed and complied with all agreements, covenants and conditions
required hereunder to be performed or complied with by them prior to or at the
Closing. For purposes of determining pursuant to this paragraph 9.1 whether
representations and warranties are true and correct at the Closing, references
in such representations and warranties to the Seller's or Principals' knowledge
or best knowledge shall not be given any effect so that such representations and
warranties shall be deemed to have been given absolutely and without reference
to the Seller's or Principals' knowledge or best knowledge.
9.2. At the Closing, Buyer shall have received an opinion
dated the Closing Date, from counsel for the Seller, in form and substance
reasonably satisfactory to Buyer.
9.3. At the Closing, Buyer shall have been furnished, at
Buyer's expense, with financial statements of the Seller, audited (if required
by Buyer), at Buyer's expense by a firm of independent public accountants
acceptable to the Buyer, sufficient to satisfy Buyer's public company reporting
requirements pursuant to the Securities Act and the Securities Exchange Act of
1934.
9.4. Buyer shall have received certified copies of the
resolutions of the Board of Directors and shareholders of the Seller authorizing
and approving this Agreement.
9.5. There shall not be any order, injunction or decree of any
court having jurisdiction to restrain, enjoin, invalidate or otherwise prevent
this Agreement and the consummation of the transactions contemplated hereby, and
there shall not be any litigation or proceeding by any commission, agency or
department of the federal or any foreign, state or local government to restrain,
enjoin, invalidate or otherwise prevent this Agreement and the consummation of
the transactions contemplated hereby.
9.6. All governmental approvals required for the consummation
of this Agreement and the other transactions contemplated hereby shall have been
obtained and all consents and approvals of any other persons required for the
consummation of this Agreement and the other transactions contemplated hereby,
the withholding of which would have a material adverse effect on the financial
condition or business of the Seller, shall have been obtained. The Shares shall
have been approved for listing on the Nasdaq Stock Market and on the Boston
Stock Exchange.
9.7. At the Closing, Buyer shall have received from each state
or other jurisdiction in which the Seller is incorporated or qualified as a
foreign corporation, good standing (or equivalent) certificates dated within
thirty days prior to the Closing Date, as to the due incorporation or
organization, legal existence and qualification of the Seller in such
jurisdiction.
9.8. Since the Balance Sheet Date, there shall have been no
material adverse change in the properties, assets, business, results of
operations or financial condition of the Seller. Between the date hereof and the
Closing Date, there shall not have been any loss, damage or destruction to or of
any of the assets, properties or business of Seller, whether or not covered by
insurance, nor shall the assets, properties or business of Seller have been
adversely affected in any way as a result of any fire, accident, or other
casualty, war, civil strife, labor dispute, riot or act of God or the public
enemy.
9.9. All legal matters in connection with this Agreement and
the transactions contemplated by this Agreement, and all documents and
instruments incident thereto, shall be reasonably satisfactory in form and
substance to Stroock & Stroock & Lavan, counsel to Buyer, and Buyer and such
counsel shall have received such documents and instruments, or copies thereof
(certified if requested), as they may have reasonably requested.
9.10. Buyer shall have received a certificate of the Seller
executed by its President, dated the Closing Date, in form and substance
satisfactory to Buyer, certifying as to the fulfillment on behalf of the Seller
of the conditions specified in paragraphs 9.1, 9.5, 9.6, and 9.8 hereof.
9.11. Harvey Melman shall have entered into an employment
agreement with the Buyer in substantially the form of Exhibit C attached hereto.
9.12. Buyer shall have received the financing necessary to
consummate this Agreement and the transactions contemplated by this Agreement.
10. TERMINATION OF AGREEMENT
10.1. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of the Seller and the
Buyer;
(b) by either Seller or the Buyer if this
Agreement shall not have been consummated on or before July 31, 1996; provided,
however, that a material breach of this Agreement by a terminating party shall
not be the reason for the failure of the Closing to occur;
(c) after July 31, 1996, by the Seller if any of
the conditions specified in Section 8 hereof has not been met in
all material respects or waived by the Seller; or
(d) after July 31, 1996, by Buyer if any of the
conditions specified in Section 9 hereof has not been met in all material
respects or waived by Buyer.
11. CLOSING DOCUMENTS
11.1. Seller agrees to deliver to Buyer on the Closing Date
appropriate assignments and bills of sale with respect to the Assets being
sold hereunder, together with the documents required to be delivered by Seller
pursuant to Section 9 hereof. At the Closing, Seller shall amend its Certificate
of Incorporation to change its name so that Buyer may utilize the corporate name
of Seller after the Closing.
11.2. Buyer agrees to deliver on the Closing the Purchase
Price, consisting of cash, the Note and the Shares, and the documents required
to be delivered by Buyer pursuant to Section 8 hereof.
12. COSTS
Each party covenants and agrees that it shall be responsible
for and bear its respective costs and expenses in connection with, or arising
out of, the negotiation or consummation of this Agreement and the transactions
contemplated hereby; provided, however, that if Buyer terminates this Agreement
because of its failure to obtain financing as provided in paragraph 9.12, then
Buyer shall reimburse Seller for its reasonable legal fees and legal expenses
incurred in connection with this Agreement. Buyer shall be responsible for any
sales, use or transfer taxes applicable to the transactions provided for herein.
13. INDEMNIFICATION
13.1. INDEMNIFICATION BY SELLER. Seller and the Principals
jointly and severally hereby agree to indemnify Buyer against and hold it
harmless from any and all losses, liabilities, costs, damages, claims and
expenses (including, without limitation, attorneys fees and expenses incurred by
Buyer in any action or proceeding between Buyer and Seller and/or the Principals
or between Buyer and any third party or otherwise) ("Damages") which Buyer may
sustain at any time by reason of (i) noncompliance with any applicable bulk
sales or transfer law, (ii) any liability or contract of, or claim against,
Seller, whether contingent or absolute, direct or indirect, known or unknown,
matured or unmatured (including but not limited to liabilities for taxes),
except for Assumed Liabilities, (iii) any liability or claim arising in any way
from any service rendered, or action taken by, or relating to the operations of,
Seller prior to the Closing Date, except for the Assumed Liabilities, (iv) any
liability or claim under any environmental laws relating to any event, action or
failure to act which occurred prior to the Closing Date, or (v) the breach or
inaccuracy of or failure to comply with, or the existence of any facts resulting
in the inaccuracy of, any of the warranties, representations, conditions,
covenants or agreements of Seller or the Principals contained in this Agreement
or in any agreement or document delivered pursuant hereto or in connection
herewith, or arising out of the consummation of the transactions contemplated
hereby. Buyer shall have the right to set-off and deduct any Damages incurred by
it under this Agreement from any payments required to be made by Buyer under the
Note or under any other obligation of Buyer to Seller; provided, however, that
prior to making any offset from any payment, Buyer shall give at least 10 days'
prior written notice thereof to the holder of the Note. If the holder objects to
such set-off and the parties are unable to resolve such dispute within 10 days,
the Buyer may place the amount in dispute into an escrow account until the
dispute is ultimately resolved. In addition, at Seller's election, Seller shall
have the right to reimburse Buyer for Damages by returning to Buyer Shares
having an aggregate Market Value equal to the amount of the Damages. The Seller
and the Principals shall not have any liability to indemnify the Buyer except to
the extent that the aggregate of the Damages exceeds $25,000 and in no event
shall Seller or the Principals have any liability for any Damages which exceed
the amount of the Purchase Price.
13.2. INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and
hold Seller harmless from and against any and all Damages which Seller may
sustain at any time by reason of (i) any Assumed Liability by Buyer, (ii) the
breach or inaccuracy of or failure to comply with any warranties,
representations, conditions, covenants or agreements of Buyer contained in this
Agreement or in any agreement, certificate or document delivered pursuant to or
in connection with this Agreement or arising out of the Closing of the
transactions contemplated hereby or (iii) any liability or claim relating to the
operations by Buyer of Seller's Business after the Closing Date. The Buyer shall
not have any liability to indemnify the Seller except to the extent that the
aggregate of the Damages exceeds $25,000; provided, however, that the foregoing
amount shall not apply to the Assumed Liabilities or to other amounts which
Buyer has specifically agreed to pay hereunder.
13.3. PROCEDURES FOR INDEMNIFICATION. In the event that any
claim is asserted against any party hereto, or any party hereto is made a party
defendant in any action or proceeding, and such claim, action or proceeding
involves a matter which is the subject of this indemnification, then such party
(an "Indemnified Party") shall give written notice to the other party hereto
(the "Indemnifying Party") of such claim, action or proceeding, and such
Indemnifying Party shall have the right to join in the defense of said claim,
action or proceeding at such Indemnifying Party's own cost and expense and, if
the Indemnifying Party agrees in writing to be bound by and to promptly pay the
full amount of any final judgment from which no further appeal may be taken and
if the Indemnified Party is reasonably assured of the Indemnifying Party's
ability to satisfy such agreement, then at the option of the Indemnifying Party,
such Indemnifying Party may take over the defense of such claim, action or
proceeding, except that, in such case, the Indemnified Party shall have the
right to join in the defense of said claim, action or proceeding at its own cost
and expense.
14. NON-COMPETITION
14.1. Each of the Seller and the Principals agrees that for a
period of five years after the Closing Date, they will not, directly or
indirectly, within a radius of 100 miles of metropolitan Santa Ana, California,
or 100 miles surrounding Seller's existing place of business or in any county or
city in which Seller conducted its business, including without limitation all
counties and cities in which there have been clients, agents, employees or
independent contractors of Seller (the "Territory"), (i) engage in any business
the same as or similar to, or engage in competition with, the business
heretofore or presently engaged in by Seller, (ii) render services to or have
any interest, as a shareholder, owner, agent, consultant, lender or guarantor or
any other interest, in any other person engaged in the rendering of services,
which are currently being rendered by Seller, or similar services, or (iii)
engage in competition with, or sell, services as are referred to in clause (ii)
of this paragraph; provided, however, that the foregoing shall not be deemed to
prevent the Seller from investing in securities if such class of securities in
which the investment is so made is listed on a national securities exchange, is
issued by a company registered under Section 12(g) of the Securities Exchange
Act of 1934 or is traded on the Nasdaq Stock Market or over-the-counter, so long
as such investment holdings do not, in the aggregate, constitute more than 5% of
the voting stock of any company's securities.
14.2. Neither Seller nor the Principals, for a period of three
years from and after the Closing Date, shall, directly or indirectly, (i) hire,
offer to hire, entice away, retain, employ or solicit or attempt to solicit
(either for itself or as agent for another) for employment or induce, persuade
or encourage any person to leave Buyer's employ who, prior to the Closing Date
was, or during such three year period will be, employed or retained by Buyer as
a consultant, independent contractor, reporter, agent, employee or otherwise or
(ii) divert or attempt to divert from Buyer any business whatsoever by
influencing or attempting to influence any client or supplier of Buyer.
14.3. Seller and the Principals acknowledge and agree that any
breach of this Section 14 is likely to result in irreparable injury to Buyer,
that monetary damages will be an inadequate remedy of such breach and that,
accordingly, in addition to any other remedy that Buyer may have, Buyer shall be
entitled to enforce the specific performance of this Section 14 and to seek both
permanent and temporary relief in the event of any breach hereof.
14.4. The parties acknowledge that the time, scope, geographic
area and other provisions of this Section 14 have been specifically negotiated
by sophisticated commercial parties and agree that all such provisions are
reasonable under the circumstances of the transactions contemplated by this
Agreement. If any portion of this Section 14 shall be determined to be invalid
and unenforceable as written, each such portion shall be enforced to the extent
reasonable under the circumstances and such determination shall not affect the
validity or enforceability of the balance hereof, and such balance shall remain
in full force and effect. It is understood that Seller and the Principals are
entering into this non-competition agreement in order to induce Buyer to enter
into this Agreement.
14.5. The provisions of Section 14 shall be terminated and of
no further force or effect and the Principals shall have the exclusive right to
use the corporate name of Seller if (a) during the first twelve months after the
Closing Date the Buyer shall be in default in the payment of principal or
accrued interest on the Note and such default remains uncured for a period of at
least 180 days; or (b) subsequent to the first anniversary of the Closing Date,
the Buyer shall be in default in the payment of principal or accrued interest on
the Note and such default remains uncured for a period of at least 60 days.
14.6. The parties hereto agree that the restrictions contained
in this Section 14 are incidental to the goodwill being acquired by Buyer
hereunder and that no separate compensation or consideration is being paid with
respect to the provisions contained in this Section 14.
15. BROKERS
Each party represents and warrants to the other (and agrees to
indemnify and hold harmless the other against breach of any such representation
and warranty) that it has not engaged any broker, finder or similar person or
entity in connection with the transactions provided for herein.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties contained herein,
and all other representations and warranties of the Seller, the Principals and
Buyer contained in the instruments executed in connection with the consummation
of the transactions provided for herein, shall survive the execution of this
Agreement, the consummation of the sale contemplated hereby and any
investigation made by any party hereto and shall terminate two years after the
Closing Date; provided, however, that the parties shall be liable for all claims
for indemnification made in writing prior to the expiration of such two year
period of time in accordance with the procedures set forth in Section 13.
17. NOTICES
All notices, requests, demands, documents and other
communications given or due hereunder shall hereafter be made in writing and
shall be deemed to have been duly given when hand delivered, when received if
sent by telecopier or by same day or overnight recognized commercial courier
service or three days after being mailed by certified or registered mail,
postage prepaid: if to the Seller or Principals to:
M & M Reporting Referral Service, Inc.
P.O. Box 11466
Santa Ana, California 92711
with a copy to:
Alan H. Wiener
Palmieri, Tyler, Wiener, Wilhelm & Waldron
2603 Main Street
East Tower, Suite 1300
Irvine, California 92714
and if to the Buyer to:
Malcolm Elvey
Esquire Communications Ltd.
342 Madison Avenue
New York, New York 10173
with a copy to:
Martin H. Neidell, Esq.
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
18. COMPLETE AGREEMENT
This Agreement, the accompanying schedules and exhibits and
any other documents delivered in connection with the execution of this Agreement
or at the Closing contain the complete agreement between the parties hereto with
respect to the sale contemplated hereby and supersede all prior covenants and
understandings between the parties hereto with respect to such sale. This
Agreement shall not be amended or modified except by a writing signed by each
party to be charged and this Agreement may not be discharged except by
performance in accordance with its terms or by a writing signed by each party to
be charged.
19. SEVERABILITY
In case any one or more of the provisions hereof shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
20. WAIVER, REMEDIES
No waiver of any breach of any provision of this Agreement
shall be held to be a waiver of any other or subsequent breach, and the failure
of a party to enforce at any time any provision hereof shall not be deemed a
waiver of any right of any such party to subsequently enforce such provision or
any other provision hereunder. All remedies afforded in this Agreement shall be
taken and construed as cumulative, that is, in addition to every other remedy
provided herein or by law.
21. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
22. COOPERATION; COVENANTS AFTER CLOSING
Seller and the Principals will cooperate with Buyer,
and Seller and the Principals will use their best efforts to have the officers,
directors and other employees of Seller cooperate with Buyer, at Buyer's request
and expense, on and after the Closing Date, in endeavoring to effect the
collection of accounts receivable owing to Seller at the Closing Date and in
furnishing information, evidence, testimony and other assistance in connection
with any actions, proceedings, arrangements or disputes involving the Seller
and/or Buyer and based upon contracts, arrangements, commitments or acts of
Seller which were in effect or occurred on or prior to the Closing Date. After
the Closing Date, the Buyer agrees as follows: (a) to continue the existing
working relationship which the children of the Principals who are court
reporters presently have with the Seller (as specifically described in that
certain correspondence dated May 1, 1996 and May 13, 1996 from Harvey Melman to
Alan H. Wiener, a copy of which has been furnished to Buyer) for as long as such
children desire to continue such working relationship; and (b) to continue to
employ Gregory F. Dawson as long as he is willing and able to perform in a
manner substantially consistent with his employment by Seller prior to the
Closing Date. The Buyer shall use its best reasonable efforts to have the
Seller's employees who become employees of Buyer assured of continued health
insurance coverage under Buyer's health insurance plan, notwithstanding any
pre-existing health conditions. Buyer agrees to make its personnel available to
Seller after the Closing Date and during normal business hours to assist Seller
in preparing its final tax returns. For a period of at least one year after the
Closing Date, Buyer shall conduct Seller's Business in at least the same manner
as Seller conducts its existing operations, with Seller's Business being
physically and operationally segregated from the other businesses of Buyer,
although Seller's Business and Buyer's other businesses may be housed in the
same building. In anticipation of Buyer continuing to conduct Seller's Business
at Seller's existing facility for some transition period following the Closing,
the Principals who run the facility where Seller's Business is presently
conducted agree to lease the premises presently occupied by Seller to Buyer for
a period of up to six months at a rental rate of $9,000 per month (which
includes all utilities), payable monthly in advance commencing with the Closing
Date; provided, however, that Buyer may terminate the lease arrangement at any
time upon 30 days prior written notice to the Principals.
23. AUTHORIZATION; MAIL
Seller agrees that Buyer shall have the right and authority to
collect for the account of Buyer all receivables and other items which shall be
transferred to Buyer as provided herein, and to endorse with the name of Seller
any checks received on account of any such receivables or other items. Seller
agrees that it will promptly transfer and deliver to Buyer any cash or other
property that Seller may receive in respect of any such receivables or other
items. Seller authorizes and empowers Buyer from and after the date hereof (i)
to receive and open mail addressed to Seller and (ii) to deal with the contents
thereof in any manner Buyer sees fit, provided such mail and the contents
thereof relate to the Assets or otherwise to the business of Seller as conducted
by Buyer or to any of the Assumed Liabilities. Seller agrees to deliver to Buyer
promptly upon receipt any mail, checks or other documents received by it
pertaining to the Assets or otherwise to the business of Seller, as conducted by
Buyer, or any of the Assumed Liabilities. Buyer agrees to deliver to Seller any
mail which it receives to which it is not entitled by reason of this Agreement
or otherwise and to which Seller is entitled.
24. FURTHER ASSURANCES
Seller agrees at any time and from time to time after the
Closing Date, upon the request of Buyer, to do, execute, acknowledge and
deliver, or to cause to be done, executed, acknowledged and delivered, all such
further acts, assignments, transfers, powers of attorney and assurances as may
be required for the better assigning, transferring, conveying, and confirming to
Buyer, or to its successors and assigns, of any or all of the Assets and to
carry out the terms and conditions of this Agreement.
25. CONFIDENTIALITY
Seller and the Principals, on the one hand, and Buyer, on the
other hand, severally agree not to, directly or indirectly, without the prior
written consent of the other, use or disclose to any person, firm or
corporation, any information, trade secrets, confidential customer information,
technical data or know-how relating to the products, processes, methods,
equipment or business practices of the other.
26. BENEFIT OF PARTIES; ASSIGNMENT
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. The Agreement may not be assigned by Seller or the Principals except
with the prior written consent of Buyer, except that after the Closing Seller
may assign its rights under this Agreement to its shareholders. Buyer may not
assign this Agreement except (i) to a wholly-owned subsidiary of the Buyer or
one of its wholly-owned subsidiaries; provided, however, that in the case of
such assignment the Note and the Shares shall be issued by the Buyer and (ii) in
accordance with the intercreditor agreement referred to in paragraph 4.1(b)
hereof. Nothing herein contained shall confer or is intended to confer on any
third party or entity which is not a party to this Agreement any rights under
this Agreement.
27. GOVERNING LAW
This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the State of New York applicable to contracts made
and to be entirely performed in such State.
IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound, have caused this Agreement to be executed by their authorized
representatives as of the day and year first above written.
M & M Reporting Referral Service, Inc.
By:______________________
______________________
Harvey Melman
______________________
Richard Barrett
______________________
Carlton Dawson
Esquire Communications Ltd.
By:________________________
<PAGE>
AMENDMENT
TO
ASSET PURCHASE AGREEMENT
This AMENDMENT TO ASSET PURCHASE
AGREEMENT (the "Amendment"), dated as of the 31st day of July, 1996, by and
among M&M Reporting Referral Service, Inc., a California corporation ("Seller"),
Harvey Melman, Richard Barrett and Carlton Dawson (collectively, the
"Principals") and Esquire Communications Ltd., a Delaware corporation ("Buyer").
WHEREAS, the Seller, Principals and
Buyer have entered into an Asset Purchase Agreement dated as of May 22, 1996
(the "Agreement");
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, in consideration of the
premises and the mutual agreements contained herein and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
(1.) Terms defined in the Agreement
shall have the same meaning when used herein.
(2.) The references to the date July
31, 1996 contained in paragraphs (b), (c) and (d) of Section 10.1 are hereby
changed to September 15, 1996.
(3.) On or prior to July 31, 1996, the
Buyer shall deposit with the Seller the amount of $100,000 (the "Deposit"). In
the event the Agreement shall not be consummated because of Seller's breach of
its obligations under the Agreement then the Deposit shall be returned to the
Buyer and none of the parties shall have any further obligations or liabilities
under the Agreement. In the event the Agreement shall be terminated for any
reason other than Seller's breach of its obligations thereunder, then the
Deposit shall be retained by Seller and none of the parties shall have any
further obligations or liabilities under the Agreement, except that if the
Agreement is terminated because of Buyer's failure to obtain financing as
provided in paragraph 9.12 of the Agreement, then Buyer shall reimburse Seller
for its reasonable legal fees and legal expenses incurred in connection with
this Agreement. At the Closing, the Deposit shall be applied against the cash
portion of the Purchase Price payable by Buyer to Seller on the Closing Date.
(4.) Except as specifically amended
herein, the Agreement remains unmodified and in full force and effect in
accordance with its terms.
(5.) This Amendment may be executed in
one or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned
have executed this Amendment as of the day and year first above
written.
M&M REPORTING REFERRAL SERVICE, INC.
By:____________________________
-------------------------------
HARVEY MELMAN
-------------------------------
RICHARD BARRETT
-------------------------------
CARLTON DAWSON
ESQUIRE COMMUNICATIONS LTD.
By:____________________________
<PAGE>
AMENDMENT NO. 2
TO
ASSET PURCHASE AGREEMENT
This AMENDMENT TO ASSET PURCHASE
AGREEMENT (the "Amendment"), dated as of the 13th day of September, 1996, by and
among M&M Reporting Referral Service, Inc., a California corporation ("Seller"),
Harvey Melman, Richard Barrett and Carlton Dawson (collectively, the
"Principals") and Esquire Communications Ltd., a Delaware corporation ("Buyer").
WHEREAS, the Seller, Principals and
Buyer have entered into an Asset Purchase Agreement dated as of May 22, 1996, as
amended (the "Agreement");
WHEREAS, the parties desire to amend further the
Agreement;
NOW, THEREFORE, in consideration of the
premises and the mutual agreements contained herein and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Terms defined in the Agreement shall have the
same meaning when used herein.
2. The references to the date September 15, 1996
contained in paragraphs (b), (c) and (d) of Section 10.1 are hereby changed to
October 31, 1996.
3. On or prior to September 15, 1996,
the Buyer shall deposit with the Seller the additional amount of $50,000 (which,
together with the $100,000 previously deposited, is referred to as the
"Deposit"). In the event the Agreement shall not be consummated because of
Seller's breach of its obligations under the Agreement then the Deposit shall be
returned to the Buyer and none of the parties shall have any further obligations
or liabilities under the Agreement. In the event the Agreement shall be
terminated for any reason other than Seller's breach of its obligations
thereunder, then the Deposit shall be retained by Seller and none of the parties
shall have any further obligations or liabilities under the Agreement, except
that if the Agreement is terminated because of Buyer's failure to obtain
financing as provided in paragraph 9.12 of the Agreement, then Buyer shall
reimburse Seller for its reasonable legal fees and legal expenses incurred in
connection with this Agreement. At the Closing, the Deposit shall be applied
against the cash portion of the Purchase Price payable by Buyer to Seller on the
Closing Date.
4. Section 4.1 of the Agreement is hereby amended to read in its
entirety as follows:
"4.1 The total purchase price (the "Purchase Price") to be paid
by Buyer for the Assets is $5,662,700, to be paid in the following manner:
(a) On the Closing Date, Buyer shall pay $2,600,000 of the
Purchase Price (minus the Deposit) by the delivery by Buyer to Seller
of a certified or bank cashier's check in such amount or by means of
a wire transfer in such amount to an account number and depository
designated by Seller not less than three days prior to the Closing by
notice in writing to Buyer. The cash portion of the Purchase Price shall
be subject to increase as set forth in paragraph 4.5 hereof.
(b) On the Closing Date, Buyer shall deliver to Seller (i)
a subordinated promissory note (the "Note") payable to Seller in the
form attached hereto as Exhibit A in the principal amount of $2,512,700,
which Note shall be payable in equal quarterly installments over five
years from the Closing Date, together with interest at the rate
of 9% per annum, and shall be subject to reduction or increase as
provided in paragraphs 4.4, 4.6 and 13.1 and (ii) a subordinated
promissory note (the "Second Note") payable to Seller in the principal
amount of $200,000, which Second Note shall be payable in equal
quarterly installments over five years from the Closing Date,
together with interest at the rate of 9% per annum, and shall be
identical to the Note, except for the amount thereof and that the
Second Note shall not be subject to reduction or increase. The Note and
Second Note shall be subordinated to other indebtedness of the Buyer to
the same extent as other notes issued by Buyer in connection with
its other acquisitions. On or prior to the Closing Date, the Seller
agrees to enter into a subordination agreement with The Chase Manhattan
Bank (National Association) (or other senior lenders) and an
intercreditor agreement with the holders of certain debentures or
senior indebtedness of the Buyer, such agreements to be in
substantially the forms executed by the holders of Buyer's notes issued
in connection with Buyer's other acquisitions.
(c) Buyer shall deliver on the Closing Date to Seller 132,258
shares (the "Shares") of Common Stock of the Buyer, par value $.01
per share (the "Common Stock"). The number of Shares to be delivered
shall be subject to adjustment to reflect stock splits, stock
dividends, recapitalizations, reorganizations or similar events
which may occur from and after the date hereof and prior to the Closing
Date. The Shares shall not be registered under the Securities Act
of 1933, as amended (the "Securities Act"). The owners of the Shares will
be afforded registration rights pursuant to a Registration Rights
Agreement (the "Registration Rights Agreement") in substantially the
form of Exhibit B attached hereto. The number of Shares to be delivered
to Seller shall be subject to adjustment as provided in paragraph 13.1."
5. Section 11.2 of the Agreement is hereby amended to read in its
entirety as follows:
"11.2. Buyer agrees to deliver on the Closing the Purchase
Price, consisting of cash, the Note, the Second Note and the Shares, and
the documents required to be delivered by Buyer pursuant to Section 8
hereof."
6. The penultimate sentence of Section 13.1 is hereby amended to read
in its entirety as follows:
"In addition, at Seller's election, Seller shall have the right to
reimburse Buyer for Damages by returning to Buyer Shares valued at
$2.65 per Share (subject to adjustment to reflect stock splits,
stock dividends, recapitalizations, reorganizations or similar events
which may occur from and after the date hereof)."
7. Except as specifically amended herein, the Agreement remains
unmodified and in full force and effect in accordance with its terms.
8. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the day and year first above written.
M&M REPORTING REFERRAL SERVICE, INC.
By:____________________________
-----------------------------
HARVEY MELMAN
------------------------------
RICHARD BARRETT
-------------------------------
CARLTON DAWSON
ESQUIRE COMMUNICATIONS LTD.
By:____________________________
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 28th day
of October, 1996 by and between Sarnoff Deposition Service, Inc., a
California corporation, with offices at 2100 North Broadway, Santa Ana,
California 92706 (the "Corporation") and Harvey Melman, residing at
17532 Chatham Drive, Justin, CA 92780 (the "Employee").
W I T N E S S E T H :
WHEREAS, in order to induce the Corporation to acquire
the assets of a corporation in which the Employee is a
stockholder, the Employee has agreed to enter into this Agreement; and
WHEREAS, the Corporation desires to
employ the Employee and the Employee desires to accept such
employment upon the terms and conditions contained in this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained in this Agreement, the parties agree as follows:
1. TERM OF EMPLOYMENT
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby agrees to employ the Employee, and the Employee accepts such
employment, as chief operating officer of the M & M Division of the Corporation
(the "Division") beginning on the date hereof and continuing for a period of
three years or until earlier terminated as provided herein. The Employee shall
not be required to relocate outside of Orange County, without his prior consent.
2. DUTIES
2.1 Subject to the direction of the Chairman of the Board of
Directors or Board of Directors of the Corporation, the Employee shall
perform such duties and discharge such responsibilities, commensurate with the
Employee's position, including hiring and firing of Division personnel, salary
structure of Division personnel, client contact and collection of Division
invoices, responsibilities for Division reporting staff and pay schedules, fee
schedules for Division clients, making normal capital expenditures for the
operation of the Division and calendar matters and assignment of reporters with
respect to the Division. The Employee agrees to perform such duties and
discharge such responsibilities in a faithful manner and to the best of his
ability. The Employee agrees to devote his full business time and attention to
the business and affairs of the Corporation and its subsidiaries and to use his
best efforts to promote the interest of the Corporation and its subsidiaries.
The Employee further agrees that he will not engage in any outside business
concerns or activities other than limited activities outside the Corporation
which do not materially detract from the operation of the Division (including
managing personal investments and real estate activities presently engaged in by
the Employee), without the written consent of the Corporation's Board of
Directors.
2.2 The Board of Directors of the Corporation reserves
the right from time to time to assign to the Employee additional duties and
responsibilities, commensurate with the Employee's position. All such
assignments and delegations of duties and responsibilities shall be made by the
Board of Directors of the Corporation in good faith and shall not materially
affect the general character of the work to be performed by the Employee. The
Employee shall hold such officerships in the Corporation and any subsidiary to
which, from time to time, he may be appointed during the term of this Agreement.
3. COMPENSATION
So long as the Employee is employed by the Corporation, the
Corporation agrees that:
3.1 The Employee shall receive an
annual base salary at the rate of $97,000 per annum, payable in accordance with
the Corporation's normal payroll practices. The Corporation shall deduct or
withhold from such payments, and from all other payments made to the Employee
pursuant to this Agreement, all amounts which may be required to be deducted or
withheld under any applicable law now in effect or which may become effective
during the term of this Agreement (including but not limited to Social Security
contributions and income tax withholdings). Any salary and other compensation to
be paid to the Employee hereunder may be paid by subsidiaries of the
Corporation, and not by the Corporation, in such proportion as shall be
allocated among them by the Corporation and such subsidiary.
3.2 The Employee shall be entitled to participate in, and
receive benefits from, any insurance, medical (including medical coverage
for his wife), disability, bonus, incentive compensation, stock option or other
employee benefit plan, if any are adopted, of the Corporation or any subsidiary
which may be in effect at any time during the course of his employment by the
Corporation and which shall be generally available to the Employee on terms no
less favorable than to other employees of the Corporation or its subsidiaries.
3.3 The Board of Directors of the
Corporation in its sole discretion may grant to the Employee a bonus at any time
and from time to time. It is anticipated that any such bonus shall be based on
the profitability and results of operations of the business unit in which the
Employee shall be actively involved. On the date hereof, the Corporation is
herewith paying to the Employee the amount of $144,000 as a bonus for entering
into this Agreement, less any amounts required by law to be deducted or withheld
from such payment.
3.4 The Employee shall be entitled to five weeks of paid vacation
each year.
4. REIMBURSEMENT FOR EXPENSES
The Corporation or its subsidiaries shall reimburse the Employee for up
to $12,000 per year of expenses which the Employee may from time to time
reasonably incur on behalf of the Corporation, without the Corporation's prior
approval, in the performance of his responsibilities and duties under this
Agreement; provided that the Employee shall be required to account to the
Corporation for such expenses in the manner prescribed by the Corporation.
In recognition of Employee's need for an automobile for business purposes, the
Corporation will reimburse the Employee directly for such expenses, up to
$1,000 per month.
5. TERMINATION OF EMPLOYMENT BY REASON OF DEATH
If the Employee shall die during the term of this Agreement, this Agreement
shall terminate automatically as of the date of his death and the Corporation
shall pay to the Employee's legal representatives the compensation which would
otherwise be payable to the Employee up to the end of the month in which his
death occurs and no more.
6. TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY
If the Employee shall become temporarily disabled during the term of this
Agreement, all of the Employee's rights under this Agreement shall continue
until such time as the Employee either returns to work or is deemed "permanently
disabled" (as hereinafter defined in Section 6.1).
6.1 If the Employee shall be deemed permanently disabled, the Employee's
employment shall immediately terminate at such time that the Employee is deemed
to be permanently disabled. The Employee shall be deemed permanently disabled
for purposes of this Agreement if: (i) in the opinion of the Board of Directors,
the Employee is unable to render full-time service to the Corporation pursuant
to the terms of this Agreement for three consecutive months, or (ii) in the
opinion of the Board of Directors, the Employee is unable to render full-time
service to the Corporation pursuant to the terms of this Agreement for four
months out of any twelve consecutive month period.
7. TERMINATION OF EMPLOYMENT FOR CAUSE
The Corporation may immediately terminate the Employee's employment in the
event that the Employee shall do or cause to be done any act which constitutes
"cause" (as hereinafter defined) for termination. For purposes of this
Agreement, cause shall be deemed to mean a material breach by the Employee of
this Agreement, neglect or refusal to attend to the material duties assigned to
him by the Chairman of the Board or Board of Directors of the Corporation, gross
negligence or wilful misconduct in the performance of his duties, dishonesty to
the Corporation (including, without limitation, conviction of a crime in any
court which could have the effect of causing the termination or suspension of
any license which the Corporation holds), conviction of a felony or excessive
absenteeism not related to disability. Should the Employee's employment be
terminated by the Corporation for cause, the Corporation's only obligation shall
be to pay the Employee his salary and other compensation under Sections 3.1 and
3.2 of this Agreement which has accrued as of the date of such termination.
Nothing contained in this Article 7 shall in any way waive, restrict or
prejudice the Corporation's rights and remedies in equity and at law against the
Employee with respect to the matter for which the Employee's employment under
this Agreement is terminated for cause.
8. TERMINATION BY EMPLOYEE
8.1 The Employee may terminate his employment hereunder if (a) during the
first twelve months after the date hereof, Esquire Communications Ltd.
("Esquire") shall be in default in the payment of principal or accrued interest
on the promissory note dated the date hereof in the original principal amount of
$2,512,700 (the "Note") and such default remains uncured for a period of at
least 180 days or (b) subsequent to the first anniversary of the date hereof
Esquire shall be in default in the payment of principal or accrued interest on
the Note and such default remains uncured for a period of at least 60 days. Upon
such termination, the provisions of Section 10 shall be terminated and of no
further force or effect.
8.2 The Employee may terminate this Agreement and his employment
hereunder for the following reasons:
(a) Without Employee's express written
consent, the assignment to Employee of any duties which would constitute a
material reduction in Employee's authority or responsibilities as contemplated
by Section 2 hereof;
(b) Failure by the Corporation to comply with any material
provision of Section 3 hereof, which is not remedied by the Corporation promptly
after receipt of notice thereof given by the Employee;
(c) The Corporation's requiring Employee to be based at any office or
location outside of Orange County, California, except for travel assignments
which are reasonably required for the full discharge of Employee's
responsibilities; or
(d) Any termination by the Corporation of Employee's employment
otherwise than as permitted by this Agreement.
8.3 If the Employee terminates this
Agreement for the reasons set forth in Section 8.1 or 8.2 hereof or if the
Corporation terminates Employee's employment other than for Cause or disability,
the Corporation shall be obligated to make payments to Employee equal to
Employee's salary in effect at the date of termination for the balance of the
term of this Agreement, without limitation to any other rights to which Employee
my be entitled as a matter of law. Notwithstanding the foregoing, the amounts
Employee is entitled to receive pursuant to this Section 8.3 shall be reduced by
the amount of any compensation which Employee may receive, in respect of the
period covered by this Section 8.3 from any company or other entity engaged in
the court reporting business which is in direct competition with the Corporation
or any of its subsidiaries, regardless of whether such compensation is received
as an employee, consultant or otherwise. Termination of this Agreement by
Employee for the reasons set forth in Sections 8.1 or 8.2 shall not impair or in
any other way adversely affect the right to enforce his rights under the Note.
8.4 Any termination by the
Corporation for Cause or for disability or by the Employee for the reasons set
forth in Section 8.1 or 8.2 shall be communicated by Notice of Termination to
the other party given in accordance with Section 12 hereof. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated and (iii) if the termination date is other than the date of receipt of
the notice, specified the termination date of this Agreement (which date shall
not be more than 15 days after the giving of such notice). "Date of Termination"
means the date of receipt of the Notice of Termination or the date specified
therein, as the case may be.
9. CONFIDENTIALITY
During the course of his employment
as an employee of the Corporation, the Employee has had, and will have, access
to and will gain knowledge with respect to all of the lines of business of the
Corporation, including service information, information concerning customers,
court reporters, and other valuable information relating to the development,
marketing and sale of services of the Corporation ("Confidential Information").
The parties also agree that covenants by the Employee not to make unauthorized
disclosures of the Confidential Information and not to use the Confidential
Information after the termination of the Employee's employment with the
Corporation in a business in competition with that of the Corporation are
essential to the growth and stability of the business of the Corporation.
Accordingly, Employee agrees that, except as required by his duties under this
Agreement, he shall not take, use, or disclose to anyone in documentary form or
through electronic media or otherwise, at any time during or after the term of
this Agreement, any Confidential Information obtained by him in the course of
his employment with the Corporation.
10. NON-COMPETITION
10.1 During the term of this Agreement and for a period of 24
months from the date of the termination of this Agreement in accordance
with its terms, the Employee agrees that he shall not directly or indirectly,
for his own account or as agent, employee, officer, director, trustee,
consultant or shareholder of any corporation or a member of any firm or
otherwise, anywhere within 100 miles of metropolitan Santa Ana, California and
within 100 miles of any office of the Corporation engage or attempt to engage in
any business activity which is the same as, substantially similar to or directly
competitive with the Corporation.
10.2 During the term of this Agreement and for
a period of 24 months from the date of termination of this Agreement in
accordance with its terms, the Employee agrees that he shall not, directly or
indirectly, for his own account or as agent, employee, officer, director,
trustee, consultant or shareholder of any corporation, or member of any firm or
otherwise, employ or solicit the employment or retention of any court reporter
retained by the Corporation or any employee of the Corporation.
10.3 The Employee acknowledges and agrees that the foregoing
territorial and time limitations and restrictive covenants are reasonable
and properly required for the adequate protection of the business and affairs of
the Corporation, and in the event any such territorial or time limitation is
found to be unreasonable by a court of competent jurisdiction, the Employee
agrees and submits to the reduction of either said territorial or time
limitation or both, to such an area or period as the court may determine to be
reasonable.
11. RIGHTS TO DISCOVERIES
The Employee agrees that all ideas, inventions, trademarks and other
developments or improvements conceived, developed or acquired by the Employee
during the term of this Agreement, whether or not during working hours, at the
premises of the Corporation or elsewhere, alone or with others, that are within
the scope of the Corporation's business operations or that relate to any work or
projects of the Corporation shall be the sole and exclusive property of the
Corporation. The Employee agrees to disclose promptly and fully to the
Corporation all such ideas, inventions, trademarks or other developments and, at
the request of the Corporation, the Employee shall submit to the Corporation a
full written report thereof regardless of whether the request for a written
report is made after the termination of this Agreement. The Employee agrees that
during the term of this Agreement and thereafter, upon the request of the
Corporation and at its expense, he shall execute and deliver any and all
applications, assignments and other instruments which the Corporation shall deem
necessary or advisable to transfer to and vest in the Corporation the Employee's
entire right, title and interest in and to all such ideas, inventions,
trademarks or other developments and to apply for and to obtain patents or
copyrights for any such patentable or copyrightable ideas, inventions,
trademarks and other developments.
12. NOTICES
All notices and other communications given pursuant to this Agreement shall
be deemed to have been properly given or delivered at the time when hand
delivered, when received if sent by telecopier or by same day or overnight
recognized commercial courier service, or three days after being mailed, by
certified mail, postage prepaid, addressed to the appropriate party, at the
address for such party set forth at the beginning of this Agreement. Any party
may from time to time designate by written notice given pursuant to this Article
12 any other address or party to which any such notice or communication or
copies thereof shall be sent.
13. EQUITABLE RELIEF
The Employee acknowledges that the Corporation will suffer damages
incapable of ascertainment in the event that any of the provisions of Articles
9, 10 or 11 hereof are breached and that the Corporation will be irreparably
damaged in the event that the provisions of Articles 9, 10 or 11 are not
enforced. Therefore, should any dispute arise with respect to the breach or
threatened breach of Articles 9, 10 or 11 of this Agreement, the Employee agrees
and consents, that in addition to any and all other remedies available to the
Corporation, an injunction or restraining order or other equitable relief may be
issued or ordered by a court of competent jurisdiction restraining any breach or
threatened breach of Articles 9, 10 or 11 of this Agreement. The Employee agrees
not to assert in any such action that an adequate remedy exists at law.
14. COSTS AND EXPENSES
All expenses, including, without limitation, attorney's fees
and expenses incurred in connection with any legal proceeding arising as a
result of a breach or threatened breach of this Agreement shall be borne by the
losing party to the fullest extent permitted by law and the losing party hereby
agrees to indemnify and hold the other party harmless from and against all such
expenses.
15. MISCELLANEOUS
This Agreement shall be governed by the internal
domestic laws of the State of California without reference to conflict of laws
principles. This Agreement shall be binding upon and inure to the benefit of the
legal representatives, successors and assigns of the parties hereto (provided,
however, that the Employee shall not have the right to assign this Agreement in
view of its personal nature). All headings and subheadings are for convenience
only and are not of substantive effect. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations, understandings and writings (or any part
thereof) whether oral or written between the parties hereto relating to the
subject matter hereof. There are no oral agreements in connection with this
Agreement. Neither this Agreement nor any provision of this Agreement may be
waived, modified or amended orally or by any course of conduct but only by an
agreement in writing duly executed by both of the parties hereto. If any
article, section, portion, subsection or subportion of this Agreement shall be
determined to be unenforceable or invalid, then such article, section, portion,
subsection or subportion shall be modified in the letter and spirit of this
Agreement to the extent permitted by applicable law so as to be rendered valid
and any such determination shall not affect the remainder of this Agreement,
which shall be and remain binding and effective as against all parties hereto.
For purposes of this Agreement, all references to the Corporation shall include
all subsidiaries of the Corporation.
16. INDEMNIFICATION
The Corporation shall indemnify and hold Employee harmless to the maximum
extent permitted by applicable law against judgments, fines, damages, amounts
paid in settlement and reasonable attorney's fee and costs incurred by the
Employee, in connection with the defense of or as a result of any action or
proceeding (or appeal of any action or proceeding or any investigation which
might result in any such action or proceeding) in which the Employee is made or
is threatened to be made party by reason of his actions within the scope of his
duties and authority as a director, officer or employee of the Corporation or
any of its subsidiaries or affiliates. To the maximum extent permitted by
applicable law, the Corporation will pay the reasonable costs and expenses in
defending any such action or proceeding as such costs and expenses are incurred.
In the event it is determined in such investigation, action or proceeding (or
appeal thereof) that he is guilty or at fault and not entitled to
indemnification, Employee shall reimburse the Corporation for all such costs and
expenses it expended on his behalf.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
---------------------------------
HARVEY MELMAN
SARNOFF DEPOSITION SERVICE, INC.
By:______________________________
GUARANTEE
Esquire Communications Ltd. hereby guarantees the
performance of all of the obligations of Sarnoff Deposition Service, Inc.
under this Agreement.
ESQUIRE COMMUNICATIONS LTD.
By:____________________________
Exhibit 10.3
Registration Rights Agreement
Registration Rights Agreement dated October 28, 1996 by and between Esquire
Communications Ltd., a Delaware corporation (the "Company"), and M & M Reporting
Referral Service, Inc. (the "Investor").
W I T N E S S E T H :
WHEREAS, the Company desires to grant to the Investor certain registration
rights with respect to Registrable Securities (as hereinafter defined) owned by
the Investor;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration set forth herein, the parties
hereto agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms
shall have the respective meanings set forth below:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means shares of common stock, par value $.01 per share,
of the Company.
"Costs and Expenses" means all of the costs and expenses relating to the
Registration Statement involved, including, but not limited to, blue-sky
expenses, printing expenses, Commission filing
fees, fees and disbursements of one counsel for the Selling Investors and fees
and disbursements of counsel to the Company; provided, however, that Costs and
Expenses shall not include underwriting discounts and commissions and
reimbursable underwriters' expenses, all of which shall be borne pro rata by the
Selling Investors.
"Registrable Securities" means (a)
any shares of Common Stock acquired by the Investor pursuant to the provisions
of the Asset Purchase Agreement dated May 22, 1996, as amended, by and among the
Company, the Investor, Harvey Melman, Richard Barrett and Carlton Dawson and (b)
any securities issued as a dividend on or other distribution with respect to, or
in exchange for or in replacement of, the shares of Common Stock referred to in
subsection (a) above including, without limitation, stock splits,
reclassifications, recapitalizations or similar events; provided, however, that
a security is not a Registrable Security after (i) it has been effectively
registered under the Securities Act and transferred pursuant to such
registration or (ii) it is disposed of, or, at the time of the proposed
registration, is capable of being disposed of, pursuant to Rule 144 (or any
similar provisions then in force) under the Securities Act without limitation as
to volume.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal law then in force.
"Selling Investors" means holders whose Registrable Securities are included
in a registration statement filed by the Company pursuant to this Agreement.
2. REGISTRATION RIGHTS.
2.1. REQUIRED REGISTRATION. (a) At
any time after one year from the date hereof and prior to five years from the
date hereof, the Investor may give written notice to the Company of the proposed
disposition of Registrable Securities, specifying the number of Registrable
Securities so to be sold or disposed of and requesting that the Company effect
the registration under the Securities Act of such Registrable Securities. The
Company shall only be required to effect such registration if the Registrable
Securities for which registration has been requested shall constitute at least
25% of the Registrable Securities originally issued, as adjusted for stock
splits, dividends, reclassifications, recapitalizations or other similar events.
The Company shall use its best efforts to cause an appropriate registration
statement (the "Registration Statement") covering such Registrable Securities to
be filed with the Commission within 30 days of receiving such notice from the
Investor and to become effective as soon as reasonably practicable and to remain
effective until the completion of the distribution of the Registrable Securities
to be offered or sold. The Company shall not be obligated to file more than one
Registration Statement pursuant to the provisions of this Section 2.1,
provided such Registration Statement is declared effective by the Commission and
remains effective until the earlier of the expiration of 120 days or the
consummation of the sale of all Registrable Securities thereunder. The Company
shall not be required to keep a Registration Statement effective for a period of
more than 120 days. The Company's registration obligations under this Section
2.1 shall be deemed satisfied (i) when a Registration Statement shall have
become effective and there has been a complete distribution of the Registrable
Securities to be offered or sold, (ii) upon the withdrawal by the Investor of
the request for such Registration Statement after such Registration Statement
has been filed with the Commission or (iii) the expiration of 120 days from
effectiveness of such Registration Statement during which period it remained
fully effective. The Company shall bear the Costs and Expenses of such
Registration Statement. Notwithstanding anything to the contrary contained
herein, the Company may defer compliance with a request until 120 days after the
effective date of a registration statement filed by the Company in which holders
of Registrable Securities shall have been entitled to join pursuant to this
Section 2.1 or Section 2.3 without restriction as to number of shares.
(b) The Company may include in the Registration Statement under Section
2.1(a) any other shares of its Common Stock (including issued and outstanding
shares of Common Stock as to which the holders thereof have contracted with the
Company for "piggyback" registration rights) so long as the inclusion in such
Registration Statement of such shares will not, in the opinion of the managing
underwriter, if the Registration Statement covers an underwritten offering,
interfere with the successful marketing in accordance with the intended method
of sale or other disposition of all the Registrable Securities sought to be
registered by the holder or holders pursuant to Section 2.1(a). If it is
determined as provided above that there will be such interference, the other
shares of Common Stock sought to be included shall be excluded to the extent
deemed appropriate by the managing underwriter.
(c) Notwithstanding the foregoing, if the Company shall furnish to the
holder of Registrable Securities requesting a registration statement pursuant to
Section 2.1(a), a certificate signed by an officer of the Company stating that
(i) the Company is conducting or about to conduct an offering of its securities
and has been advised by its investment banker in writing that such offering will
be adversely affected by the registration so demanded, accompanied by a copy of
such written advice from such investment banker, or (ii) the Company is engaged
in a financing, merger, acquisition of assets, sale of assets, recapitalization
or other similar corporate action which would relate to or involve more than 10%
of the Company's assets or revenues and in the good faith judgment of the Board
of Directors it would seriously impair the ability of the Company to effect the
registration or would be seriously detrimental to the Company and its
stockholders if such transaction were to be disclosed at such time, and it is
therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not more than
90 days after receipt of the request for registration; provided, however, that
the Company may not utilize this deferral right more than once in any twelve
month period.
(d) If the Investor desires to sell Registrable Securities in an
underwritten offering, the underwriter will be selected by the Investor, subject
to the reasonable approval of the Company.
2.2. PROCEDURE FOR REGISTRATION. In connection with the filing of a
Registration Statement pursuant to Section 2.1 or 2.3 hereof, and in
supplementation and not in limitation of the provisions hereof, the Company
shall:
(a) Notify the Selling Investors as to the filing of the Registration
Statement and of all amendments or supplements thereto filed prior to the
effective date of such Registration Statement;
(b) Notify the Selling Investors, promptly after the Company shall receive
notice thereof, of the time when such Registration Statement became effective or
when any amendment or supplement to any prospectus forming a part of such
Registration Statement has been filed;
(c) Notify the Selling Investors promptly of any request by the Commission
for the amending or supplementing of such Registration Statement or prospectus
or for additional information;
(d) Prepare and promptly file with the Commission, and promptly notify the
Selling Investors of the occurrence of any event requiring the preparation of,
any amendments or supplements to such Registration Statement or prospectus as
may be necessary to correct any statements or omissions if, at any time when a
prospectus relating to the Registrable Securities is required to be delivered
under the Securities Act, any event with respect to the Company shall have
occurred as a result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading;
and, in addition, prepare and file with the Commission, promptly upon the
Selling Investors' written request, any amendments or supplements to such
Registration Statement or prospectus which may be reasonably necessary or
advisable in connection with the distribution of the Registrable Securities; in
the event the Company shall be obligated to give such notice and does not
continuously maintain the effectiveness of the Registration Statement, the
Company shall extend the period during which such Registration Statement shall
be maintained effective as provided in Section 2.1(a) hereof by the number of
days from and including the date of the occurrence giving rise to the obligation
to give such notice of supplemented or amended prospectus.
(e) Prepare, promptly upon request of the Selling Investors or any
underwriters for the Selling Investors, such amendment or amendments to such
Registration Statement and such prospectus or prospectuses as may be reasonably
necessary to permit compliance with the requirements of Section 10(a)(3) of the
Securities Act;
(f) Advise the Selling Investors immediately after the Company shall
receive notice or obtain knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of any such Registration Statement or
amendment thereto or of the initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the issuance of any stop
order or obtain its withdrawal promptly if such stop order should be issued;
(g) Use its best efforts to register or qualify, contemporaneously with
federal registration, the Registrable Securities for sale under the securities
or blue-sky laws of such states and jurisdictions within the United States as
shall be reasonably requested by the Selling Investors; provided, that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business, to become subject to taxation or to file a consent to
service of process generally in any of the aforesaid states or jurisdictions
unless the Company is already subject to such service in such jurisdiction and
except as may be required by the Securities Act;
(h) make available for inspection by any Selling Investor and any
underwriter participating in any disposition pursuant to such Registration
Statement, counsel for the Selling Investors and any attorney, accountant or
other agent retained by any such Selling Investor or underwriter (collectively,
the "Inspectors") all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees, and
the independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement, provided, however, that Records the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
Registration Statement, or (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction, provided
that any Selling Investor and any Inspector agrees that it shall, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company (at the Company's expense) to
undertake appropriate action to prevent disclosure of the Records deemed
confidential;
(i) keep each Selling Investor advised in writing as to the initiation and
progress of any registration hereunder;
(j) furnish, at the request of any Selling Investors on the date that such
Registrable Securities are delivered to the underwriters for the sale pursuant
to such registration or, if such Registrable Securities are not being sold
through underwriters, on the date that the Registration Statement with respect
to such Registrable Securities becomes effective, (i) an opinion, dated such
date, of the independent counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the Selling
Investors making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the Selling
Investors requesting such opinion may reasonably request; provided such matters
are of a nature that legal counsel are normally required to opine upon in
connection with such a registration or offering, and (ii) a letter dated such
date, from the independent certified public accountants of the Company,
addressed to the underwriters, if any, and to the Selling Investors making such
request, stating that they are independent certified public accountants within
the meaning of the Securities Act and that in the opinion of such accountants,
the financial statements and other financial data of the Company included in the
Registration Statement or prospectus, or any amendment or supplement thereto,
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act. Such letter from the independent certified
public accountants shall additionally cover such other financial matters with
respect to the registration in respect of which such letter is being given as
the Selling Investors requesting such letter may reasonably request; provided
such matters are of a nature that accountants are normally required to opine
upon in connection with such registration or which shall be necessary to
effectuate such registration or offering.
(k) Furnish the Selling Investors, as soon as available, copies of any
Registration Statement and each preliminary or final prospectus, or supplement
or amendment required to be prepared pursuant hereto and such other documents as
such Selling Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities, all in such quantities as the Selling
Investors may, from time to time, reasonably request; and
(l) If requested by the Selling Investors, enter into and perform
agreements (including an underwriting agreement) containing customary provisions
and reflecting the foregoing and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities.
2.3. INCIDENTAL REGISTRATION. If at
any time prior to five years from the date hereof, the Company shall propose the
filing of a Registration Statement under the Securities Act of any securities of
the Company, otherwise than pursuant to Section 2.1 hereof and other than a
registration statement on Forms S-8 or S-4 or any equivalent form then in
effect, then the Company shall give the holders of Registrable Securities not
less than 15 days written notice prior to the proposed date of such proposed
registration and shall include in any Registration Statement relating to such
securities all or a portion of the Registrable Securities then owned by such
holders, which such holders shall request (such holders to be considered Selling
Investors), by notice given by such holders to the Company within 15 days after
the receipt of such notice by the Company, to be so included with identical
terms and conditions. In the event of the inclusion of Registrable Securities
pursuant to this Section 2.3, the Company shall bear the Costs and Expenses of
such registration. In the event the registration is in connection with a
secondary offering on behalf of holders of Purchase Options dated May 18, 1993
to purchase an aggregate of 125,000 shares of Common Stock and 125,000 warrants
issued in connection with the Company's initial public offering (the "Purchase
Options"), then the prior written consent of the "Majority Holders of the
Registrable Securities" (as defined in the Purchase Options) shall be required
for inclusion of any Registrable Securities. In the event the distribution of
securities of the Company covered by a Registration Statement referred to in
this Section 2.3 is to be underwritten, then the Company's obligation to include
Registrable Securities in such Registration Statement shall be subject, at the
option of the Company, to the following further conditions:
(a) The distribution for the account of the Selling Investors shall be
underwritten by the same underwriters who are underwriting the distribution of
the securities for the account of the Company and/or any other persons whose
securities are covered by such Registration Statement, and the Selling Investors
will enter into an agreement with such underwriters containing customary
provisions no less that those pertaining to the Company and other selling
holders;
(b) If the underwriting agreement entered into with the aforesaid
underwriters contains restrictions upon the sale of securities of the Company,
other than the securities which are to be included in the proposed distribution,
for a period not exceeding 180 days from the effective date of the Registration
Statement, then such restrictions will be binding upon the Selling Investors
and, if requested by the Company, the Selling Investors will enter into a
written agreement to that effect and containing no more restrictive terms or
conditions than those pertaining to the Company and other selling holders; and
(c) (i) If the registration is an underwritten primary registration on
behalf of the Company and the managing underwriters of such offering deliver a
written opinion to the holders of such Registrable Securities that the aggregate
amount of securities of the Company which the holders of Registrable Securities
and the Company propose to include in such Registration Statement would
adversely affect the marketing of the securities or the proceeds of the offering
payable to the Company, the Company will include in such registration, first the
securities which the Company proposes to sell, second, any securities the
Company is required to include pursuant to the Purchase Options, third, any
securities the Company is required to include pursuant to registration rights
granted by the Company prior to the date hereof, fourth, Registrable Securities
of the holders of Registrable Securities, and fifth, securities held by any
holders of other piggyback registration rights, if any, which can be included
herein without, in the good faith judgment of the managing underwriters of such
offering, materially and adversely affecting the marketing of the securities or
the proceeds of the offering payable to the Company, pro rata among the holders
thereof, in each case on the basis of the relative number of securities of the
Company requested to be included in such registration by such holders, and
(ii) if the registration is in connection with an underwritten
secondary offering on behalf of any of the other security holders of the
Company and the managing underwriters of such offering deliver a written opinion
to the holders of such Registrable Securities that the aggregate amount of
securities which the holders of Registrable Securities and such security holders
propose to include in such registration would adversely affect the marketing of
the securities or the proceeds of the offering payable to such other security
holders of the Company, the Company will include in such registration, first,
the securities to be sold for the account of any other holders entitled to
demand registration, second, any securities required to be registered pursuant
to the Purchase Options, third, any securities the Company is required to
include pursuant to registration rights granted by the Company prior to the date
hereof, fourth, the Registrable Securities of the holders of Registrable
Securities, and fifth, securities held by other holders electing to include
securities in such offering which can be included in such offering without, in
the written opinion of the managing underwriters of such offering, adversely
affecting the marketing of the securities or the proceeds of the offering
payable to such other security holders, pro rata among the holders thereof, in
each case on the basis of the relative number of securities of the Company
requested to be included in such registration by such holders. Registrable
Securities proposed to be registered and sold pursuant to an underwritten
offering for the account of the holders of Registrable Securities shall be sold
to prospective underwriters selected or approved by the Company and on the terms
and subject to the conditions of one or more underwriting agreements negotiated
between the Company, the holders of Registrable Securities and any other holders
demanding registration and the prospective underwriters. The Company may
withdraw any Registration Statement initiated by the Company pursuant to this
Section 2.3 at any time before it becomes effective, or postpone the offering of
securities, without obligation or liability to the holders of Registrable
Securities.
2.4. INDEMNIFICATION BY THE COMPANY. The Company will indemnify
and hold harmless each Selling Investor, any underwriter (as defined in the
Securities Act) for such Selling Investor, each officer and director of such
Selling Investor, and each person, if any, who
controls such Selling Investor or such underwriter within the meaning of the
Securities Act (but, in the case of an underwriter or a controlling person, only
if such underwriter or controlling person indemnifies the persons mentioned in
subdivision (b) of Section 2.5 hereof in the manner set forth therein), against
any losses, claims, damages or liabilities, joint or several, to which such
Selling Investor or any such underwriter, officer, director or controlling
person becomes subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) (i) are
caused by any untrue statement or alleged untrue statement of any material fact
contained in any preliminary prospectus (if used prior to the effective date of
the Registration Statement), or contained, on the effective date thereof, in any
Registration Statement under which Registrable Securities were registered under
the Securities Act, the prospectus contained therein, or any amendment or
supplement thereto, or (ii) arising out of or based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (iii) arising out of
any violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to any action or inaction
required of the Company in connection with such registration; and the Company
will reimburse such Selling Investor and any such underwriter, officer, director
or controlling person for any legal or other expenses reasonably incurred by
such Selling Investor, or any such partner, officer, director, underwriter or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable to any such persons in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information furnished to the Company in
writing by such person expressly for inclusion in any of the foregoing
documents.
2.5. INDEMNIFICATION BY SELLING INVESTORS.
Each Selling Investor shall:
(a) Furnish in writing all information to the Company
concerning itself and its holdings of securities of the Company as shall be
required in connection with the preparation and filing of any Registration
Statement covering any Registrable Securities; and
(b) Indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed a Registration Statement,
each person, if any, who controls the Company within the meaning of the
Securities Act and any underwriter (as defined in the Securities Act) for the
Company, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, controlling person or underwriter may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) are caused by any untrue
or alleged untrue statement of any material fact contained in any preliminary
prospectus (if used prior to the effective date of the Registration Statement)
or contained on the effective date thereof, in any Registration Statement under
which Registrable Securities were registered under the Securities Act, the
prospectus contained therein, or any amendment or supplement thereto, or arising
out of or based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by such Selling Investor expressly for inclusion in
any of the foregoing documents, and such Selling Investor shall reimburse the
Company and any such underwriter, officer, director or controlling person for
any legal or other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action.
2.6. CONTRIBUTION. In order to
provide for just and equitable contribution to joint liability under the
Securities Act in any case in which either (a) any Selling Investor or other
person or entity entitled to indemnification under this Agreement, makes a claim
for indemnification pursuant to Section 2.4 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 Section 2.4 provides for indemnification in such case, or (b) contribution
under the Securities Act may be required on the part of any such Selling
Investor or other person in circumstances for which indemnification is provided
under Section 2.4; then, and in each such case, the Company and such holder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportion so that such
Selling Investor or other person is responsible for the portion represented by
the percentage that the public offering price of its Registrable Securities
offered by the Registration Statement bears to the public offering price of all
securities offered in such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (i) no such Selling Investor or other person will be required to
contribute any amount in excess of the public offering price of all such
Registrable Securities offered by it pursuant to such Registration Statement;
and (ii) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 12(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
2.7. NOTIFICATION BY SELLING INVESTORS. Each Selling Investor
and each other person indemnified pursuant to Section 2.4 hereof will, in
the event it receives notice of the commencement of any action against it which
is based upon an alleged act or omission which, if proven, would result in the
Company's having to indemnify it pursuant to Section 2.4 hereof, promptly notify
the Company, in writing, of the commencement of such action and permit the
Company, if the Company so notifies such Selling Investor within 10 days after
receipt by the Company of notice of the commencement of the action, to
participate in and to assume the defense of such action with counsel approved by
the Investor (which approval shall not be unreasonably withheld) or such other
indemnified person, as the case may be; provided, however, that such Selling
Investor shall be entitled to retain its own counsel at the Company's expense if
it believes (i) it has defenses available to it which are not available to the
Company or (ii) the Company fails to timely or actively assume or continue to
assume the defense or (iii) if such Selling Investor believes there exists a
potential for conflict of interest between the Company and such Selling
Investor. The omission to notify the Company promptly of the commencement of any
such action shall not relieve the Company of any liability to indemnify such
Selling Investor or such other indemnified person, as the case may be, under
Section 2.4 hereof, except to the extent the Company shall suffer any loss by
reason of such failure to give notice and shall not relieve the Company of any
other liabilities which it may have under this or any other agreement.
2.8. NOTIFICATION BY COMPANY. The Company agrees that, in the event
it receives notice of the commencement of any action against it which is
based upon an alleged act or omission which, if proven, would result in any
Selling Investor having to indemnify the Company pursuant to subdivision (b) of
Section 2.5 hereof, the Company will promptly notify such Selling Investor in
writing of the commencement of such action and permit such Selling Investor, if
such Selling Investor so notifies the Company within 10 days after receipt by it
of notice of the commencement of the action, to participate in and to assume the
defense of such action with counsel reasonably satisfactory to the Company. The
omission to notify such Selling Investor promptly of the commencement of any
such action will not relieve such Selling Investor of liability to indemnify the
Company under subdivision (b) of Section 2.5 hereof, except to the extent that
such Selling Investor suffers any loss by reason of such failure to give notice
and shall not relieve such Selling Investor of any other liabilities which it
may have under this or any other agreement.
2.9. RESTRICTIONS ON SALES. Each holder of Registrable Securities
severally agrees not to effect any public sale or distribution of
Registrable Securities which are not included in any Registration Statement
filed with respect to securities of the Company during the 10-day period prior
to, and during the 180-day period beginning on, the effective date of each such
Registration Statement.
2.10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view
to making available to the Investor the benefits of Rule 144 promulgated
under the Securities Act, as such rule may be amended from time to time, and any
other rule or regulation of the Commission that may at any time permit the
Investor to sell securities of the Company to the public without registration
(collectively "Exemption Rules") or pursuant to a registration statement, the
Company agrees to: (a) make and keep public information available, as those
terms are understood and defined in Commission Rule 144 or other Exemption
Rules; (b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
(c) take such further action to the extent required from
time to time to enable such Investor to sell Registrable Securities
pursuant to a Registration Statement or without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
under the Securities Act or other Exemption Rules; and
(d) furnish to the Investor, so long as the Investor owns any
Registrable Securities, forthwith upon request a written statement by the
Company that it has complied with the reporting requirements of Commission Rule
144, the Exemption Rules, the Securities Act and the Exchange Act, or that it
qualifies as a registrant whose securities may be resold pursuant to a
Registration Statement.
2.11. NON-ISSUER ELIGIBILITY. The Company will, at all
times during the term hereof, use its best efforts to have its Common Stock
eligible for non-issuer trading in the State of California.
3. MISCELLANEOUS.
3.1. NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier or
similar writing) and shall be deemed to have been given at the time five days
after being mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, or received if
sent by Federal Express or other similar overnight courier service, addressed to
the address of the parties stated below or to such changed address as such party
may have fixed by notice or, if given by telecopier, when such telecopy is
transmitted and the appropriate confirmation is received.
If to the Company: Esquire Communications Ltd.
342 Madison Avenue New York, NY 10173
attn: Malcolm L. Elvey
- copy to -
Stroock & Stroock & Lavan
7 Hanover Square
New York, NY 10004
Attn: Martin H. Neidell
If to the Investor: P.O. Box 11466
Santa Ana, California 92711
- copy to -
Palmieri, Tyler, Wiener,
Wilhelm & Waldron
2603 Main Street
East Tower - Suite 1300
Irvine, CA 92714
Attn: Alan H. Wiener
3.2. SUCCESSORS AND ASSIGNS. This Agreement is solely for the benefit
of the parties and their respective successors and assigns, including subsequent
holders of Registrable Securities. Nothing herein shall be construed to provide
any rights to any other entity or individual.
3.3. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
3.4. HEADINGS. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions of
this Agreement.
3.5. GOVERNING LAW. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York governing contracts to be made and performed therein without giving
effect to principles of conflicts of law, and, with respect to any dispute
arising out of this Agreement, each party hereby consents to the exclusive
jurisdiction of the courts sitting in such State.
3.6. SEVERABILITY. Should any part, term, condition or provision hereof
or the application thereof be declared illegal, invalid or otherwise
unenforceable or in conflict with any other law by
a court of competent jurisdiction, the validity of the remaining parts, terms,
conditions or provisions of this Agreement shall not be affected thereby, and
the illegal, invalid or unenforceable portions of this Agreement shall be and
hereby are redrafted to conform with applicable law, while leaving the remaining
portions of this Agreement intact, except to the extent necessary to conform to
the redrafted portions hereof.
3.7. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the parties and supersedes all proposals,
commitments, writings, negotiations, discussions, agreements and understandings,
oral or written, of every kind and nature between them concerning the subject
matter hereof. This Agreement may not be amended or otherwise modified and no
provision hereof may be waived, without the consent of the holders of a majority
of the Registrable Securities. No discharge of the terms hereof shall be deemed
valid unless by full performance by the parties or by a writing signed by the
parties. A waiver by any party of any breach or violation of any provision of
this Agreement shall not be deemed or construed as a waiver of any other breach
or violation hereof. This Agreement is subject to, and limited by, the
provisions contained in the Purchase Options.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ESQUIRE COMMUNICATIONS LTD.
By:____________________________
M & M REPORTING REFERRAL SERVICE, INC.
By:_____________________________
Exhibit 10.4
PURCHASE AGREEMENT
DATED OCTOBER 23, 1996
AMONG ESQUIRE COMMUNICATIONS LTD.,
ANTARES LEVERAGED CAPITAL CORP.
AND
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
PAGE
1. Authorization and Closing......................................1
1A. Authorization of the Preferred Stock..................1
1B. Purchase and Sale of the Preferred Stock..............1
1C. Option to Purchase Preferred Stock....................1
1D. The Closing...........................................2
2. Conditions of Each Purchaser's Obligation at the Closing............3
2A. Representations and Warranties; Covenants.............3
2B. Certificate of Incorporation..........................3
2C. Certificate of Designation............................3
2D. Registration Agreement................................3
2E. Stockholders Agreement................................3
2F. Sale of Preferred Stock to Each Purchaser.............3
2G. Termination, Amendment or Waiver of Certain
Agreements..........................................3
2H. Securities Law Compliance.............................4
2I. Opinion of the Company's Counsel......................4
2J. Closing Documents.....................................4
2K. Proceedings...........................................4
2L. Waiver................................................5
2M. Expenses..............................................5
3. Covenants...........................................................5
3A. Financial Statements and Other Information............5
3B. Inspection of Property................................7
3C. Restrictions..........................................7
3D. Affirmative Covenants................................10
3E. Compliance with Agreements...........................11
3F. Current Public Information...........................11
4. Transfer of Securities........................................11
4A. General Provisions...................................11
4B. Opinion Delivery.....................................11
4C. Rule 144A............................................12
4D. Legend Removal.......................................12
4E. Restrictions on Transfer of Preferred Stock..........12
5. Preemptive Rights.............................................13
5A. General Provisions...................................13
5B. Exceptions...........................................14
5C. Termination of Preemptive Rights.....................14
6. Representations and Warranties of the Company.................14
6A. Organization, Corporate Power and Licenses...........14
6B. Capital Stock and Related Matters....................15
6C. Subsidiaries; Investments............................15
6D. Authorization; No Breach.............................16
6E. Financial Statements.................................16
6F. Absence of Undisclosed Liabilities...................17
6G. No Material Adverse Change...........................17
6H. Absence of Certain Developments......................17
6I. Assets...............................................19
6J. Real Property........................................19
6K. Tax Matters..........................................20
6L. Contracts and Commitments............................21
6M. Intellectual Property Rights.........................22
6N. Litigation, etc......................................23
6O. Brokerage............................................23
6P. Governmental Consent, etc............................24
6Q. Insurance............................................24
6R. Employees............................................24
6S. ERISA................................................24
6T. Compliance with Laws.................................26
6U. Affiliated Transactions..............................26
6V. Disclosure...........................................26
6W. Closing Date.........................................26
6X. Reports with the Securities and Exchange Commission..26
7. Indemnification And Related Matters................................27
7A. Survival.............................................27
7B. Indemnification......................................27
8. Definitions........................................................28
8A. Definitions..........................................28
9. Miscellaneous......................................................30
9A. Expenses.............................................30
9B. Remedies.............................................31
9C. Purchaser's Investment Representations...............31
9D. Consent to Amendments................................32
9E. Successors and Assigns...............................32
9F. Severability.........................................32
9G. Counterparts.........................................32
9H. Descriptive Headings; Interpretation.................32
9I. Governing Law........................................32
9J. Notices..............................................33
9K. No Strict Construction...............................34
9L. Consents.............................................34
9M. No Effect Upon Lending Relationship..................35
Schedules and Exhibits
List of Exhibits
List of Disclosure Schedules
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PURCHASE AGREEMENT
THIS AGREEMENT is made as of October 23, 1996 between Esquire
Communications Ltd., a Delaware corporation (the "Company"), Antares Leveraged
Capital Corp., a Delaware corporation ("Antares") and Golder, Thoma, Cressey,
Rauner Fund IV, L.P., an Illinois limited Partnership ("GTCR" and collectively
referred to herein with Antares as the "Purchasers" or individually as a
"Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 8 hereof.
The parties hereto agree as follows:
Section 1. AUTHORIZATION AND CLOSING.
1A. AUTHORIZATION OF THE PREFERRED STOCK. The Company shall authorize the
issuance and sale to the Purchasers of 15,000 shares of its Series A Convertible
Preferred Stock, par value $0.01 per share (the "Preferred Stock"), having the
rights and preferences set forth in EXHIBIT A attached hereto. The Preferred
Stock is convertible into shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock").
1B. PURCHASE AND SALE OF THE PREFERRED STOCK. At the Closing, the Company
shall sell to GTCR and Antares and, subject to the terms and conditions set
forth herein, GTCR and Antares shall purchase from the Company 7,312.50 shares
and 187.50 shares, respectively, of Preferred Stock at a price of $1,000 per
share.
1C. OPTION TO PURCHASE PREFERRED STOCK.
(i) GTCR may, at its sole election, subject to clause (ii) below, purchase
from time to time within twenty-one months from the date of the Closing,
upon written notice to the Company's board of directors (the "Board"), up
to an additional 7,500 shares of the Preferred Stock at a price of $1,000
per share (as adjusted from time to time as a result of stock dividends,
stock splits, recapitalizations and similar events) (an "Additional
Purchase"); provided, however, that if the Company delivers to GTCR
consolidated internal financial statements of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles, consistently applied, setting forth a calculation of
Consolidated EBITDA for the preceding nine month period in an amount in
excess of $6.4 million and GTCR thereafter agrees with the Company that
such Consolidated EBITDA fairly reflects a projected annualized
Consolidated EBITDA of at least $8.5 million for the twelve month period
ending three months after the delivery of such statement, GTCR shall not be
entitled to deliver notice of an Additional Purchase after the thirtieth
day following the date of delivery of such financial statements. For the
purpose hereof, "Consolidated EBITDA" shall mean the consolidated net
income (or loss) of the Company and its Subsidiaries PLUS, to the extent
deducted in the computation of such consolidated net income, each of (i)
consolidated interest expense of the Company and its Subsidiaries, (ii)
taxes imposed or measured by income or excess profits of the Company and
its Subsidiaries, (iii) the amount of all depreciation and amortization
expenses of the Company and its Subsidiaries and (iv) any extraordinary
expense (or income) items to be agreed upon by the Company and GTCR.
(ii) At any time that GTCR elects to make an Additional Purchase, Antares
shall have the right to purchase up to 2.5% of the number of shares
constituting such Additional Purchase on the same terms as set forth in
clause (i) and such number of shares purchased by GTCR in an Additional
Purchase shall be correspondingly reduced.
(iii) In the event of an Additional Purchase, the Purchasers shall be
entitled to receive, and the Company shall be obligated to deliver,
satisfactory representations and warranties similar to (and in addition to)
those contained in Section 6 herein and all other information and
documentation as the Purchasers may reasonably request; provided that if
the aggregate amount of such Additional Purchase is less than $5 million,
the Purchasers shall be entitled to receive and the Company shall be
obligated to deliver such representations and warranties only with respect
to the matters set forth in paragraphs 6A, 6B and 6D.
1D. THE CLOSING. The closing of the purchase and sale of the Preferred
Stock (the "Closing") shall take place at the offices of Stroock & Stroock &
Lavan at 10:00 a.m. on October 23, 1996, or at such other place or on such other
date as may be mutually agreeable to the Company and the Purchasers. At the
Closing, the Company shall (i) deliver to GTCR stock certificates evidencing the
Preferred Stock to be purchased by GTCR, registered in GTCR's or its nominee's
name, upon payment of the purchase price thereof by wire transfer of immediately
available funds to the Company's account at Chase Manhattan Bank, N.A., New
York, NY, ABA #021-000021, for credit to Esquire Communications Ltd. A/C
#:910-2-719862, in the aggregate amount of $7,312,500 and (ii) deliver to
Antares stock certificates evidencing the Preferred Stock to be purchased by
Antares, registered in Antares' or its nominee's name, upon payment of the
purchase price thereof by wire transfer of immediately available funds to the
Company's account at Chase Manhattan Bank, N.A., New York, NY, ABA #021-000021,
for credit to Esquire Communications Ltd. A/C #:910-2- 719862, in the aggregate
amount of $187,500.
Section 2. CONDITIONS OF EACH PURCHASER'S OBLIGATION AT THE CLOSING. The
obligation of each Purchaser to purchase and pay for the Preferred Stock at the
Closing is subject to the satisfaction as of the Closing of the following
conditions:
2A. REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties contained in Section 6 hereof shall be true and correct in all
material respects at and as of the Closing as though then made, except to the
extent of changes caused by the transactions expressly contemplated herein, and
the Company shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
2B. CERTIFICATE OF INCORPORATION. The Company's Certificate of
Incorporation (the "Certificate of Incorporation") shall be in full force and
effect under the laws of Delaware as of the Closing and shall not have been
amended or modified.
2C. CERTIFICATE OF DESIGNATION. The Company shall have duly adopted,
executed and filed with the Secretary of State of Delaware a Certificate of
Designation of Rights and Preferences establishing the terms and the relative
rights and preferences of the Preferred Stock in the form set forth in EXHIBIT A
hereto (the "Certificate of Designation"), and the Company shall not have
adopted or filed any other document designating terms, relative rights or
preferences of its preferred stock. The Certificate of Designation shall be in
full force and effect as of the Closing under the laws of Delaware and shall not
have been amended or modified.
2D. REGISTRATION AGREEMENT. The Company, GTCR and Antares shall have
entered into a registration agreement in form and substance as set forth in
EXHIBIT B attached hereto (the "Registration Agreement"), and the Registration
Agreement shall be in full force and effect as of the Closing.
2E. STOCKHOLDERS AGREEMENT. The Company, GTCR and Antares, among others,
shall have entered into a stockholders agreement in form and substance set forth
in EXHIBIT C attached hereto (the "Stockholders Agreement"), and the
Stockholders Agreement shall be in full force and effect as of the Closing.
2F. SALE OF PREFERRED STOCK TO EACH PURCHASER. The Company shall have
simultaneously sold to each Purchaser the Preferred Stock to be purchased by
such Purchaser hereunder at the Closing and shall have received payment therefor
in full.
2G. TERMINATION, AMENDMENT OR WAIVER OF CERTAIN AGREEMENTS. The Company
shall have obtained the necessary consents to terminate, amend or waive certain
agreements or specific provisions thereof as set forth on the attached
"Termination, Amendment or Waiver Schedule".
2H. SECURITIES LAW COMPLIANCE. The Company shall have made all filings
under all applicable federal and state securities laws necessary to consummate
the issuance of the Preferred Stock pursuant to this Agreement in compliance
with such laws.
2I. OPINION OF THE COMPANY'S COUNSEL. Each Purchaser shall have received
from Stroock & Stroock & Lavan, counsel for the Company, an opinion with respect
to the matters set forth in EXHIBIT D attached hereto, which shall be addressed
to each Purchaser, dated the date of the Closing and in form and substance
satisfactory to each Purchaser.
2J. CLOSING DOCUMENTS. The Company shall have delivered to each Purchaser
all of the following documents:
(i) an Officer's Certificate, dated the date of the Closing, stating that
the conditions specified in paragraphs 2A through 2H, inclusive, have been fully
satisfied;
(ii) certified copies of the resolutions duly adopted by the Company's
Board authorizing the transaction contemplated herein (including, without
limitation, authorization pursuant to Section 203(a)(1) of Delaware General
Corporation Law), the execution, delivery and performance of this Agreement, the
Registration Agreement and each of the other agreements contemplated hereby, the
filing of the Certificate of Designation, the issuance of the Preferred Stock,
the reservation for issuance upon conversion of the Preferred Stock of an
aggregate of 5,000,000 shares of Common Stock and the consummation of all other
transactions contemplated by this Agreement;
(iii) certified copies of the Certificate of Incorporation, Certificate of
Designation and the Company's bylaws, each as in effect at the Closing;
(iv) copies of all third party and governmental consents, approvals and
filings required in connection with the consummation of the transactions
hereunder (including, without limitation, all blue sky law filings and waivers
of all preemptive rights and rights of first refusal);
(v) evidence satisfactory to each Purchaser of the existence of reasonable
and customary director's and officer's insurance; and
(vi) such other documents relating to the transactions contemplated by this
Agreement as any Purchaser or its special counsel may reasonably request.
2K. PROCEEDINGS. All corporate and other proceedings taken or required to
be taken by the Company in connection with the transactions contemplated hereby
to be consummated at or prior to the Closing and all documents incident thereto
shall be satisfactory in form and substance to any Purchaser and its special
counsel.
2L. WAIVER. Any condition specified in this Section 2 may be waived if
consented to by each Purchaser; provided that no such waiver shall be effective
against any Purchaser unless it is set forth in a writing executed by such
Purchaser.
2M. EXPENSES. At the Closing, the Company shall have reimbursed each
Purchaser for the fees and expenses of its special counsel as provided in
paragraph 9A hereof.
Section 3. COVENANTS.
3A. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall deliver
to each holder of at least 10% of the outstanding Preferred Stock or at least
10% of the Underlying Common Stock:
(i) as soon as available but in any event within 45 days after the end of
each monthly accounting period during the first twelve months following the
date of the Closing, and after the end of each quarterly accounting period
thereafter (except for the fourth fiscal quarter of each year), unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly or quarterly period, as
applicable, and for the period from the beginning of the fiscal year to the
end of such month or quarter, as applicable, and unaudited consolidating
and consolidated balance sheets of the Company and its Subsidiaries as of
the end of such monthly or quarterly period, as applicable, setting forth
in each case comparisons to the Company's annual budget and to the
corresponding period in the preceding fiscal year, and all such statements
shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments, and shall be certified by
the Company's chief financial officer;
(ii) accompanying the financial statements referred to in subparagraph (i)
an Officer's Certificate stating that there is no Event of Noncompliance
(as defined in the Certificate of Designation) in existence and that
neither the Company nor any of its Subsidiaries is in material default
under any of its other material agreements or, if any Event of
Noncompliance or any such default exists, specifying the nature and period
of existence thereof and what actions the Company and its Subsidiaries have
taken and propose to take with respect thereto;
(iii) within 120 days after the end of each fiscal year, consolidating and
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such fiscal year, and consolidating and consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
fiscal year, setting forth in each case comparisons to the Company's annual
budget and to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by (a) with respect to the consolidated portions of such
statements, an opinion of an independent accounting firm of recognized
national standing acceptable to the holders of a majority of the
outstanding Preferred Stock (it being agreed that any Big Six Accounting
Firm is acceptable), (b) a certificate from such accounting firm, addressed
to the Company's board of directors, stating that in the course of its
examination nothing came to its attention that caused it to believe that
there was any default by the Company or any Subsidiary in the fulfillment
of or compliance with any of the terms, covenants, provisions or conditions
of any other material agreement to which the Company or any Subsidiary is a
party or, if such accountants have reason to believe any Event of
Noncompliance or other default by the Company or any Subsidiary exists, a
certificate specifying the nature and period of existence thereof, and (c)
a copy of such firm's annual management letter to the Board;
(iv) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of the
Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials
provided hereunder);
(v) at least 15 days but not more than 90 days prior to the beginning of
each fiscal year, an annual budget prepared on a monthly basis for the
Company and its Subsidiaries for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant budgets prepared by the Company
and any revisions of such annual or other budgets, and within 45 days after
any monthly period in which there is a material adverse deviation from the
annual budget, an Officer's Certificate explaining the deviation and what
actions the Company has taken and proposes to take with respect thereto;
(vi) promptly (but in any event within five business days) after the
discovery or receipt of notice of any Event of Noncompliance, any material
default under any material agreement to which it or any of its Subsidiaries
is a party or any other material adverse change, event or circumstance
affecting the Company or any Subsidiary (including, without limitation, the
filing of any material litigation against the Company or any Subsidiary or
the existence of any dispute with any Person which involves a reasonable
likelihood of such litigation being commenced), an Officer's Certificate
specifying the nature and period of existence thereof and what actions the
Company and its Subsidiaries have taken and propose to take with respect
thereto;
(vii) within ten days after transmission thereof, copies of all financial
statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of
all registration statements and all regular, special or periodic reports
which it files with the Securities and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and
copies of all press releases and other statements made available generally
by the Company to the public concerning material developments in the
Company's and its Subsidiaries' businesses; and
(viii) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as any Person entitled to
receive information under this paragraph 3A may reasonably request.
Each of the financial statements referred to in subparagraph (i) and (iii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments (none of which would, alone
or in the aggregate, be materially adverse to the financial condition, operating
results, assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole).
3B. INSPECTION OF PROPERTY. The Company shall permit any representatives
designated by any holder of at least 10% of the outstanding Preferred Stock or
at least 10% of the Underlying Common Stock, upon reasonable notice and during
normal business hours, to (i) visit and inspect any of the properties of the
Company and its Subsidiaries, (ii) examine the corporate and financial records
of the Company and its Subsidiaries and make copies thereof or extracts
therefrom and (iii) discuss the affairs, finances and accounts of any such
corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries. The presentation of an executed
copy of this Agreement by any Purchaser or any such holder of Preferred Stock or
Underlying Common Stock to the Company's independent accountants shall
constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
3C. RESTRICTIONS. So long as any Preferred Stock remains outstanding, the
Company shall not, without the prior written consent of the holders of at least
a majority of the outstanding Preferred Stock:
(i) directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities
(other than the Preferred Stock pursuant to the terms of the Certificate of
Designation) if there exists any accrued but unpaid dividend on the
Preferred Stock, except for dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock;
(ii) directly or indirectly redeem, purchase or otherwise acquire, or
permit any Subsidiary to redeem, purchase or otherwise acquire, any of the
Company's or any Subsidiary's capital stock or other equity securities
(including, without limitation, warrants, options and other rights to
acquire such capital stock or other equity securities) other than the
Preferred Stock pursuant to the terms of the Certificate of Designation,
except for repurchases of Common Stock from employees of the Company and
its Subsidiaries upon termination of employment pursuant to arrangements
approved by the Company's Board so long as no Event of Noncompliance is in
existence immediately prior to or is otherwise caused by any such
repurchase;
(iii) except as expressly contemplated by this Agreement, authorize, issue
or enter into any agreement providing for the issuance (contingent or
otherwise) of, (a) any notes or debt securities containing equity features
which are senior to or on a parity with the Preferred Stock with respect to
the payment of dividends, redemptions or distributions upon liquidation or
otherwise (including, without limitation, any notes or debt securities
convertible into or exchangeable for capital stock or other equity
securities, issued in connection with the issuance of capital stock or
other equity securities or containing profit participation features), (b)
any capital stock or other equity securities (or any securities convertible
into or exchangeable for any capital stock or other equity securities)
which are senior to or on a parity with the Preferred Stock with respect to
the payment of dividends, redemptions or distributions upon liquidation or
otherwise or (c) any capital stock, warrants, options, or similar rights to
acquire capital stock to employees, officers or directors in excess of 5%
of the fully diluted outstanding Common Stock of the Company as of the date
hereof, in addition to issuances pursuant to written plans or obligations
of the Company in existence on the date hereof;
(iv) merge or consolidate with any Person or, except as permitted by
subparagraph (xi) below, permit any Subsidiary to merge or consolidate with
any Person (other than with the Company or a Wholly Owned Subsidiary);
(v) sell, lease or otherwise dispose of, or permit any Subsidiary to sell,
lease or otherwise dispose of, all or substantially all of the assets of
the Company and its Subsidiaries in any transaction or series of related
transactions;
(vi) liquidate, dissolve or effect a recapitalization or reorganization in
any form of transaction (including, without limitation, any reorganization
into a limited liability company, a partnership or any other non-corporate
entity which is treated as a partnership for federal income tax purposes);
(vii) except for items (d)(1) and (d)(2) of the Contracts Schedule, become
subject to, or permit any of its Subsidiaries to become subject to,
(including, without limitation, by way of amendment to or modification of)
any agreement or instrument which by its terms would (under any
circumstances) restrict the Company's right to perform the provisions of
this Agreement, the Registration Agreement, the Stockholders Agreement, the
Certificate of Designation, the Certificate of Incorporation or the
Company's bylaws;
(viii) except as expressly contemplated by this Agreement, make any
amendment to the Certificate of Incorporation, the Certificate of
Designation or the Company's bylaws, or file any resolution of the Board
with the Delaware Secretary of State containing any provisions, which would
increase the number of authorized shares of the Preferred Stock or
adversely affect or otherwise impair the rights or the relative preferences
and priorities of the holders of the Preferred Stock or the Underlying
Common Stock under this Agreement, the Certificate of Incorporation, the
Certification of Designation, the Company's bylaws, the Stockholders
Agreement or the Registration Agreement;
(ix) enter into, amend, modify or supplement, or permit any Subsidiary to
enter into, amend, modify or supplement, any agreement, transaction,
commitment or arrangement with any of its or any Subsidiary's Affiliates,
except for customary arm's length transactions which are approved by the
Company's Board and except as otherwise expressly contemplated by this
Agreement;
(x) issue or sell any shares of the capital stock, or rights to acquire
shares of the capital stock, of any Subsidiary to any Person other than the
Company or a Wholly Owned Subsidiary; and
(xi) acquire, or permit any Subsidiary to acquire, any interest in any
company or business (whether by a purchase of assets, purchase of stock,
merger or otherwise), or enter into any joint venture, involving an
aggregate consideration (including, without limitation, the assumption of
liabilities whether direct or indirect) exceeding $2.0 million in any one
transaction or series of related transactions.
(xii) the Company shall not engage in any transaction which is reasonably
likely to cause any Purchaser or any of its limited partners which are
exempt from income taxation under Section 501(a) of the Code and if
applicable, any pension plan that any such trust may be a part of, to
recognize unrelated business taxable income as defined in Section 512 and
Section 514 of the Code.
(xiii) in connection with any transaction in which the Company is involved
which is required to be reported under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended from time to time (the "HSR ACT"), the
Company shall prepare and file all documents with the Federal Trade
Commission and the United States Department of Justice which may be
required to comply with the HSR Act, and shall promptly furnish all
materials thereafter requested by any of the regulatory agencies having
jurisdiction over such filings, in connection with the transactions
contemplated thereby. The Company shall take all reasonable actions and
shall file and use reasonable best efforts to have declared effective or
approved all documents and notifications with any governmental or
regulatory bodies, as may be necessary or may reasonably be requested under
federal antitrust laws for the consummation of the subject transaction.
3D. AFFIRMATIVE COVENANTS. So long as any Preferred Stock remains
outstanding, the Company shall, and shall cause each Subsidiary to, unless it
has received the prior written consent of the holders of at least a majority of
the outstanding Preferred Stock:
(i) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses;
(ii) pay and discharge when payable all material taxes, assessments and
governmental charges imposed upon its properties or upon the income or
profits therefrom (in each case before the same becomes delinquent and
before penalties accrue thereon) and all material claims for labor,
materials or supplies to the extent to which the failure to pay or
discharge such obligations would reasonably be expected to have a material
adverse effect upon the financial condition, operating results, assets,
operations or business prospects of the Company and its Subsidiaries taken
as a whole, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(iii) comply with all other material obligations which it incurs pursuant
to any contract or agreement, whether oral or written, express or implied,
as such obligations become due to the extent to which the failure to so
comply would reasonably be expected to have a material adverse effect upon
the financial condition, operating results, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole,
unless and to the extent that the same are being contested in good faith
and by appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently
applied) have been established on its books with respect thereto;
(iv) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Company
and its Subsidiaries taken as a whole; and
(v) for as long as representatives of GTCR are on the Board and for three
years thereafter, apply for and continue in force reasonable and customary
director's and officer's insurance.
3E. COMPLIANCE WITH AGREEMENTS. So long as more than 10% of the Preferred
Stock initially issued pursuant to this Agreement remains outstanding, the
Company shall perform and observe (i) all of its obligations to each holder of
the Preferred Stock and all of its obligations to each holder of the Underlying
Common Stock set forth in the Certificate of Incorporation, the Certificate of
Designation and the Company's bylaws, and (ii) all of its obligations to each
holder of Registrable Securities set forth in the Registration Agreement.
3F. CURRENT PUBLIC INFORMATION. So long as more than 10% of the Preferred
Stock initially issued pursuant to this Agreement remains outstanding, the
Company shall file all reports required to be filed by it under the Securities
Act and the Securities Exchange Act and the rules and regulations adopted by the
Securities and Exchange Commission thereunder and shall take such further action
as any holder or holders of Restricted Securities may reasonably request, all to
the extent required to enable such holders to sell Restricted Securities
pursuant to (i) Rule 144 adopted by the Securities and Exchange Commission under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the Securities and Exchange
Commission or (ii) a registration statement on Form S-2 or S-3 or any similar
registration form hereafter adopted by the Securities and Exchange Commission.
Upon request, the Company shall deliver to any holder of Restricted Securities a
written statement as to whether it has complied with such requirements.
Section 4. TRANSFER OF SECURITIES.
4A. GENERAL PROVISIONS. Restricted Securities are transferable only
pursuant to (i) public offerings registered under the Securities Act, (ii) Rule
144 or Rule 144A of the Securities and Exchange Commission (or any similar rule
or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. OPINION DELIVERY. In connection with the transfer of any Restricted
Securities (other than a transfer described in paragraph 4A(i) or (ii) above),
the holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion of
such holder's counsel which (to the Company's reasonable satisfaction) is
knowledgeable in securities law matters to the effect that such transfer of
Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, if the holder of the
Restricted Securities delivers to the Company an opinion of such holder's
counsel that no subsequent transfer of such Restricted Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates for such Restricted Securities
which do not bear the Securities Act legend set forth in paragraph 9C. If the
Company is not required to deliver new certificates for such Restricted
Securities not bearing such legend, the holder thereof shall not transfer the
same until the prospective transferee has confirmed to the Company in writing
its agreement to be bound by the conditions contained in this paragraph and
paragraph 9C.
4C. RULE 144A. Upon the request of any Purchaser, the Company shall
promptly supply to such Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities and Exchange Commission.
4D. LEGEND REMOVAL. If any Restricted Securities become eligible for sale
pursuant to Rule 144(k), the Company shall, upon the request of the holder of
such Restricted Securities, remove the legend set forth in paragraph 9C from the
certificates for such Restricted Securities.
4E. RESTRICTIONS ON TRANSFER OF PREFERRED STOCK.
(i) TRANSFER OF PREFERRED STOCK. No Purchaser shall sell, transfer, assign,
pledge or otherwise dispose of (whether with or without consideration and
whether voluntarily or involuntarily or by operation of law) any interest
in the Preferred Stock (a "Transfer"), except pursuant to the provisions of
this paragraph. No Purchaser shall consummate any Transfer until 30 days
after the delivery to the Company of a Sale Notice, unless the parties to
the Transfer have been finally determined pursuant to this Section 4E prior
to the expiration of such 30-day period (the "Election Period").
(ii) FIRST OFFER RIGHT. At least 30 days prior to making any Transfer of
any Preferred Stock, the transferring holder (the "Transferring Holder")
shall deliver a written notice of such intention to make a Transfer (a
"Sale Notice") to the Company. The Company may elect to make an offer to
purchase all (but not less than all) of the shares of Preferred Stock that
the Transferring Holder proposes to sell, specifying the price and the
terms of such offer by delivering written notice to the Transferring Holder
(the "Offer Notice") as soon as practical but in any event within ten days
after the delivery of the Sale Notice. If the Company has not delivered an
Offer Notice, the Transferring Holder may, within 120 days after the
expiration of the Election Period, transfer such Preferred Stock to one or
more third parties. If the Company has delivered an Offer Notice, the
Transferring Holder may, within 120 days after receipt of the Offer Notice,
transfer such Preferred Stock to one or more third parties at a price no
less than the price per share specified in the Offer Notice. Any Preferred
Stock not transferred within such 120-day period shall be reoffered to the
Company prior to any subsequent Transfer. In addition, the Transferring
Holder may in its sole discretion, within 120 days after the receipt of the
Offer Notice, elect to accept the Company's terms set forth in such Offer
Notice, and the transfer of the Preferred Stock to the Company shall be
consummated as soon as practical thereafter, but in any event within 15
days after written notice of such acceptance.
(iii) PERMITTED TRANSFERS. The restrictions set forth in this Section 4E
shall not apply with respect to any Transfer of any Preferred Stock among
any Purchaser or any Purchaser's Affiliates. For purposes of this Section
4E, "Affiliate" includes any partner of a Purchaser which is a partnership.
In addition, nothing set forth in this Section 4E shall restrict the
transfer, sale, assignment or other disposition of any Underlying Common
Stock.
(iv) TERMINATION OF RESTRICTIONS. The restrictions set forth in this
Section 4E shall continue with respect to each share of Preferred Stock
until the earlier of (i) the date on which such share of Preferred Stock
has been transferred pursuant to this Section 4E or (ii) the seventh
anniversary of the date of this Agreement.
Section 5. PREEMPTIVE RIGHTS.
5A. GENERAL PROVISIONS. Except as set forth in paragraph 5B below, the
Company will not issue, sell or otherwise transfer for consideration to any
Person in a private offering (an "Issuance") any equity securities or warrants
(or securities or options convertible into or exercisable or exchangeable for
equity securities or warrants) unless, at least 15 business days and not more
than 60 business days prior to such Issuance, the Company notifies each holder
of Preferred Stock in writing of the Issuance (including the price, the
purchasers thereof and the other terms thereof) (the "First Notice") and grants
to each holder of Preferred Stock, the right (the "Right") to subscribe for and
purchase a portion of such additional shares or other securities so issued at
the same price and on the same terms as issued in the Issuance equal to the
quotient determined by dividing (1) the number of shares of Underlying Common
Stock held by such holder by (2) the sum of the total number of shares of
Underlying Common Stock and the total number of shares of Common Stock
outstanding which are not shares of Underlying Common Stock. The Right may be
exercised by such holder of Preferred Stock at any time by written notice to the
Company received by the Company within 15 business days after receipt by such
holder of the First Notice. If that portion of the Issuance which may be
purchased by the holders of the Preferred Stock pursuant to the Right is not
fully subscribed by such holders, the Company shall notify the holders of
Preferred Stock of such fact within 5 business days of determination (the
"Second Notice") and shall make available the remaining part of such portion to
those holders purchasing their full allotment upon the terms set forth in this
Section, except that such holders must notify the Company of any additional
purchase within 5 business days of receipt of the Second Notice. Upon the
expiration of the notice periods described above, the Company shall be entitled
to sell such stock or securities which the holders of Preferred Stock have not
elected to purchase during the 90 business days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those set
forth in the First Notice. The closing of the purchase and sale pursuant to the
exercise of the Right shall occur at least 10 business days after the Company
receives notice of the exercise of the Right and concurrently with the closing
of the Issuance. In the event that the consideration received by the Company in
connection with an Issuance is property other than cash, each holder of
Preferred Stock may, at its election, pay the purchase price for such additional
shares or other securities in such property or solely in cash. In such event
that any such holder elects to pay cash, the amount thereof shall be determined
based on the fair value of the consideration received or receivable by the
Company in connection with the Issuance.
5B. EXCEPTIONS. Notwithstanding the foregoing, the Right shall not apply to
(i) issuances of Common Stock (or securities convertible into or exchangeable
for, or options to purchase, Common Stock), pro rata to all holders of Common
Stock and Underlying Common Stock, as a dividend on, subdivision of or other
distribution in respect of, the Common Stock; (ii) issuances of Common Stock
upon the conversion of the Preferred Stock or upon conversion or exercise of
options or warrants or convertible securities; (iii) the issuance of Common
Stock (or securities convertible into or exchangeable for, or options to
purchase, Common Stock) at not less than fair market value at the time of such
Issuance to employees, officers or directors pursuant to stock option plans and
stock ownership plans approved by the Board; (iv) the issuance of Common Stock
(or securities convertible into or exchangeable for, or options to purchase,
Common Stock) at not less than fair market value at the time of such Issuance in
connection with the acquisition (by merger, consolidation, purchase,
reorganization or otherwise) of all of the stock or other equity securities of a
company or all or substantially all the assets of a business; or (v) the
issuance of Common Stock (or securities convertible into or exchangeable for, or
options to purchase, Common Stock) in amounts where the aggregate fair market
value of such securities included in such issuance is less than $500,000, so
long as the purchase price for each share of Common Stock or the conversion or
exercise price of the securities so issued is not less than the then applicable
Conversion Price (as defined in the Certificate of Designation), provided that
the aggregate fair market value for all securities issued under the exception
set forth in this subparagraph (v) shall not exceed $1.5 million.
5C. TERMINATION OF PREEMPTIVE RIGHTS. The provisions of this Section 5
shall terminate as to each share of Preferred Stock upon its conversion into
Common Stock.
Section 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to each Purchaser to enter into this Agreement and
purchase the Preferred Stock hereunder, the Company hereby represents and
warrants that:
6A. ORGANIZATION, CORPORATE POWER AND LICENSES. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and is qualified to do business in every jurisdiction in which its
ownership of property or conduct of business requires it to qualify, except
where failure to be so qualified will not have a material adverse effect on the
Company. The Company possesses all requisite corporate power and authority and
all material licenses, permits and authorizations necessary to own and operate
its properties, to carry on its businesses as now conducted and presently
proposed to be conducted and to carry out the transactions contemplated by
this Agreement. The copies of the Company's and each Subsidiary's charter
documents and bylaws which have been furnished to the Purchasers' special
counsel reflect all amendments made thereto at any time prior to the date of
this Agreement and are correct and complete.
6B. CAPITAL STOCK AND RELATED MATTERS.
(i) As of the Closing and immediately thereafter, the authorized capital
stock of the Company shall consist of (a) 1,000,000 shares of preferred stock,
of which 7,500 shares shall be designated as the Preferred Stock (all of which
shall be issued and outstanding), (b) 25,000,000 shares of Common Stock, of
which at the date hereof 4,126,823 shares shall be issued and outstanding and
5,000,000 shares shall be reserved for issuance upon conversion of the Preferred
Stock. As of the Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans,
except for the Preferred Stock and except as set forth on the attached
"Capitalization Schedule." The Capitalization Schedule accurately sets forth the
following information with respect to all outstanding options and rights to
acquire the Company's capital stock: the holder, the number of shares covered,
the exercise price and the expiration date. As of the Closing, neither the
Company nor any Subsidiary shall be subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital stock or any warrants, options or other rights to acquire its capital
stock, except as set forth on the Capitalization Schedule and except pursuant to
the Certificate of Designation. As of the Closing, all of the outstanding shares
of the Company's capital stock shall be validly issued, fully paid and
nonassessable.
Except as set forth on the Capitalization Schedule (which rights shall be
waived prior to Closing), there are no statutory or, to the best of the
Company's knowledge, contractual stockholders preemptive rights or rights of
refusal with respect to the issuance of the Preferred Stock hereunder or the
issuance of the Common Stock upon conversion of the Preferred Stock. To the best
of the Company's knowledge, the Company has not violated any applicable federal
or state securities laws in connection with the offer, sale or issuance of any
of its capital stock, and the offer, sale and issuance of the Preferred Stock
hereunder do not require registration under the Securities Act or any applicable
state securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs, except as set forth on the Capitalization Schedule.
6C. SUBSIDIARIES; INVESTMENTS. The attached "Subsidiary Schedule" correctly
sets forth the name of each Subsidiary, the jurisdiction of its incorporation
and the Persons owning the outstanding capital stock of such Subsidiary. Each
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, possesses all requisite corporate
power and authority and all material licenses, permits and authorizations
necessary to own its properties and to carry on its businesses as now being
conducted and as presently proposed to be conducted and is qualified to do
business in every jurisdiction in which its ownership of property or the conduct
of business requires it to qualify, except where the failure to be so qualified
will not have a material adverse effect. All of the outstanding shares of
capital stock of each Subsidiary are validly issued, full paid and
nonassessable, and all such shares are owned by the Company or another
Subsidiary free and clear of any Lien and not subject to any option or right to
purchase any such shares. Except as set forth on the Subsidiary Schedule,
neither the Company nor any Subsidiary owns or holds the right to acquire any
shares of stock or any other security or interest in any other Person.
6D. AUTHORIZATION; NO BREACH. The execution, delivery and performance of
this Agreement, the Stockholders Agreement, the Registration Agreement and all
other agreements contemplated hereby to which the Company is a party and the
filing of the Certificate of Designation have been duly authorized by the
Company. This Agreement, the Stockholders Agreement, the Registration Agreement,
the Certificate of Incorporation, the Certificate of Designation and all other
agreements contemplated hereby to which the Company is a party each constitutes
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms. Except as set forth on the attached "Restrictions
Schedule," the execution and delivery by the Company of this Agreement, the
Registration Agreement, the Stockholders Agreement, and all other agreements
contemplated hereby to which the Company is a party, the offering, sale and
issuance of the Preferred Stock hereunder, the issuance of the Common Stock upon
conversion of the Preferred Stock, the filing of the Certificate of Designation
and the fulfillment of and compliance with the respective terms hereof and
thereof by the Company, do not and shall not (i) conflict with or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's or any Subsidiary's capital stock or assets
pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the Certificate of Designation or the charter or bylaws
of the Company or any Subsidiary, or any law, statute, rule or regulation to
which the Company or any Subsidiary is subject, or any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject.
Except as set forth on the Restrictions Schedule, none of the Subsidiaries are
subject to any restrictions upon making loans or advances or paying dividends
to, transferring property to, or repaying any Indebtedness owed to, the Company
or another Subsidiary.
6E. FINANCIAL STATEMENTS. Attached hereto as the "Financial Statements
Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of the Company and its
Subsidiaries as of December 31, 1995, December 31, 1994 and December 31,
1993 and the related statements of income and cash flows (or the
equivalent) for the respective twelve-month periods then ended; and
(ii) the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of September 30, 1996 (the "Latest Balance Sheet"), and the
related statements of income and cash flows (or the equivalent) for the
nine-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and changes resulting from normal year-end adjustments (none
of which would, alone or in the aggregate, be materially adverse to the
financial condition, operating results, assets, operations or business prospects
of the Company and its Subsidiaries taken as a whole).
6F. ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the attached
"Liabilities Schedule," the Company and its Subsidiaries do not have any
obligation or liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company or any Subsidiary, whether due or
to become due and regardless of when asserted) arising out of transactions
entered into at or prior to the Closing, or any action or inaction at or prior
to the Closing, or any state of facts existing at or prior to the Closing other
than: (i) liabilities set forth on the Latest Balance Sheet (including any notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the Latest Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) and (iii) other liabilities and obligations
expressly disclosed in the other Schedules to this Agreement.
6G. NO MATERIAL ADVERSE CHANGE. Since the date of the Latest Balance Sheet,
there has been no material adverse change in the financial condition, operating
results, assets, operations, business prospects, employee relations or customer
or supplier relations of the Company and its Subsidiaries taken as a whole.
6H. ABSENCE OF CERTAIN DEVELOPMENTS. Except as expressly contemplated by
this Agreement or as set forth on the attached "Developments Schedule," since
the date of the Latest Balance Sheet, neither the Company nor any Subsidiary
have:
(i) issued any notes, bonds or other debt securities or any capital stock
or other equity securities or any securities convertible, exchangeable or
exercisable into any capital stock or other equity securities;
(ii) borrowed any amount or incurred or become subject to any material
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities under contracts entered into in the ordinary
course of business;
(iii) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the
ordinary course of business;
(iv) declared or made any payment or distribution of cash or other property
to its stockholders with respect to its capital stock or other equity
securities or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any warrants,
options or other rights to acquire its capital stock or other equity
securities);
(v) mortgaged or pledged any of its properties or assets or subjected them
to any material Lien, except Liens for current property taxes not yet due
and payable;
(vi) sold, assigned or transferred any of its tangible assets, except in
the ordinary course of business, or canceled any material debts or claims;
(vii) sold, assigned or transferred any patents or patent applications,
trademarks, service marks, trade names, corporate names, copyrights or
copyright registrations, trade secrets or other intangible assets, or
disclosed any material proprietary confidential information to any Person;
(viii) suffered any material extraordinary losses or waived any rights of
material value, whether or not in the ordinary course of business or
consistent with past practice;
(ix) made capital expenditures or commitments therefor that aggregate in
excess of $100,000;
(x) made any loans or advances to, guarantees for the benefit of, or any
Investments in, any Persons in excess of $100,000 in the aggregate;
(xi) made any charitable contributions or pledges;
(xii) suffered any damage, destruction or casualty loss exceeding in the
aggregate $100,000, whether or not covered by insurance;
(xiii) made any Investment in or taken steps to incorporate any Subsidiary;
or
(xiv) entered into any other material transaction other than in the
ordinary course of business.
6I. ASSETS. Except as set forth on the attached "Assets Schedule," the
Company and each Subsidiary have good and marketable title to, or a valid
leasehold interest in, the properties and assets used by them, located on their
premises or shown on the Latest Balance Sheet or acquired thereafter, free and
clear of all Liens, except for properties and assets disposed of in the ordinary
course of business since the date of the Latest Balance Sheet and except for
Liens disclosed on the Latest Balance Sheet (including any notes thereto) and
Liens for current property taxes not yet due and payable. Except as described on
the Assets Schedule, the Company's and each Subsidiary's buildings, equipment
and other tangible assets are in good operating condition in all material
respects and are fit for use in the ordinary course of business.
6J. REAL PROPERTY.
(a) The "Real Property Schedule" sets forth a list of all owned real
property (collectively, the "REAL PROPERTY"). With respect to each such parcel
of Real Property: (i) such parcel is free and clear of all encumbrances, except
Permitted Encumbrances; and (ii) there are no leases, licenses or other
agreements granting to any person the right of use or occupance of any portion
of such parcel.
(b) The "Leases Schedule" sets forth a list of all of the Company's real
property leases ("LEASES") and each leased and subleased parcel of real property
in which the Company has a leasehold interest (the "LEASED REAL PROPERTY"). The
Company holds a valid and existing leasehold or subleasehold interest under each
of the Leases. Seller has delivered to Buyer complete and accurate copies of
each of the Leases as currently in effect. With respect to each Lease: (i) the
Lease is legal, valid, binding, enforceable against the Company (and, to the
Company's knowledge, against the other party thereto) and in full force and
effect; (ii) the Lease will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the Closing; (iii)
neither the Company, nor to the knowledge of the Company any other party to the
Lease, is in breach or default, and no event has occurred which, with notice or
lapse of time, would constitute such a breach or default or permit termination,
modification or acceleration under the Lease.
6K. TAX MATTERS.
(i) Except as set forth on the attached "Taxes Schedule": the Company and
each Subsidiary have filed all Tax Returns which they are required to file under
applicable laws and regulations; all such Tax Returns are complete and correct
and have been prepared in compliance with all applicable laws and regulations;
the Company and each Subsidiary have paid all Taxes due and owing by them
(whether or not such Taxes are required to be shown on a Tax Return) and have
withheld and paid over to the appropriate taxing authority all Taxes which they
are required to withhold from amounts paid or owing to any employee,
stockholder, creditor or other third party; neither the Company nor any
Subsidiary has waived any statute of limitations with respect to any Taxes or
agreed to any extension of time with respect to any Tax assessment or
deficiency; the accrual for Taxes on the Latest Balance Sheet would be adequate
to pay all Tax liabilities of the Company and its Subsidiaries if their current
tax year were treated as ending on the date of the Latest Balance Sheet
(excluding any amount recorded which is attributable solely to timing
differences between book and Tax income); since the date of the Latest Balance
Sheet, the Company and its Subsidiaries have not incurred any liability for
Taxes other than in the ordinary course of business; the assessment of any
additional Taxes for periods for which Tax Returns have been filed by the
Company and each Subsidiary is not expected to exceed the recorded liability
therefor on the Latest Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax income); the
federal income Tax Returns of the Company and its Subsidiaries have been audited
and/or closed for all tax years through 1992; no foreign, federal, state or
local tax audits or administrative or judicial proceedings are pending or being
conducted with respect to the Company or any Subsidiary, no information related
to material Tax matters has been requested by any foreign, federal, state or
local taxing authority and no written notice indicating an intent to open an
audit or other review has been received by the Company from any foreign,
federal, state or local taxing authority.
(ii) Neither the Company nor any of its Subsidiaries has made an election
under ss.341(f) of the IRC. Neither the Company nor any Subsidiary is liable for
the Taxes of another Person that is not a Subsidiary in a material amount under
(a) Treas. Reg. ss. 1.1502-6 (or comparable provisions of state, local or
foreign law), (b) as a transferee or successor, (c) by contract or indemnity or
(d) otherwise. Neither the Company nor any Subsidiary is a party to any tax
sharing agreement. The Company and each Subsidiary have disclosed on their
federal income Tax Returns any position taken for which substantial authority
(within the meaning of IRC ss.6662(d)(2)(B)(i)) did not exist at the time the
return was filed. Neither the Company nor any Subsidiary has made any payments,
is obligated to make payments or is a party to an agreement that could obligate
it to make any payments that would not be deductible under IRC ss.280G.
(iii) "Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not. "Tax Return" means any return, information
report or filing with respect to Taxes, including any schedules attached thereto
and including any amendment thereof.
6L. CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement or as set forth on
the attached "Contracts Schedule" or the attached "Employee Benefits Schedule,"
neither the Company nor any Subsidiary is a party to or bound by any written or
oral:
(a) pension, profit sharing, stock option, employee stock purchase or
other plan or arrangement providing for deferred or other compensation to
employees or any other employee benefit plan or arrangement, or any
collective bargaining agreement or any other contract with any labor union,
or severance agreements, programs, policies or arrangements;
(b) contract for the employment of any officer, individual employee or
other Person on a full-time, part-time, consulting or other basis providing
annual compensation in excess of $100,000 or contract relating to loans to
officers, directors or Affiliates;
(c) contract under which the Company or Subsidiary has advanced or
loaned any other Person amounts in the aggregate exceeding $50,000;
(d) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on any
material asset or material group of assets of the Company and its
Subsidiaries;
(e) guarantee of any obligation in excess of $50,000 (other than by
the Company of a Wholly Owned Subsidiary's debts or a guarantee by a
Subsidiary of the Company's debts or another Subsidiary's debts);
(f) lease or agreement under which the Company or any Subsidiary is
lessee of or holds or operates any property, real or personal, owned by any
other party, except for any lease of real or personal property under which
the aggregate annual rental payments do not exceed $50,000;
(g) lease or agreement under which the Company or any Subsidiary is
lessor of or permits any third party to hold or operate any property, real
or personal, owned or controlled by the Company or any Subsidiary;
(h) agreement under which it has granted any Person any registration
rights (including, without limitation, demand and piggyback registration
rights);
(i) agreement with a term of more than six months which is not
terminable by the Company or any Subsidiary upon less than 30 days notice
without penalty;
(j) any other agreement which is material to its operations and
business prospects or involves a consideration in excess of $75,000
annually.
(ii) All of the contracts, agreements and instruments set forth on the
Contracts Schedule are valid, binding and enforceable against the Company (and,
to the Company's knowledge, against the other party thereto), in accordance with
their respective terms. Except as set forth on the Contracts Schedule, the
Company and each Subsidiary have performed all obligations required to be
performed by them under the contracts, agreements and instruments listed on the
Contracts Schedule and are not in default under or in breach of nor in receipt
of any claim of default or breach under any contract, agreement or instrument
listed on the Contracts Schedule; no event has occurred which with the passage
of time or the giving of notice or both would result in a default, breach or
event of noncompliance by the Company or any Subsidiary under any material
contract, agreement or instrument listed on the Contracts Schedule; neither the
Company nor any Subsidiary has any present expectation or intention of not fully
performing all such obligations; neither the Company nor any Subsidiary has
knowledge of any breach or anticipated breach by the other parties to any
material contract, agreement, instrument or commitment listed on the Contracts
Schedule; and neither the Company nor any Subsidiary is a party to any
materially adverse contract or commitment.
(iii) The Purchasers' special counsel has been supplied with a true and
correct copy of each of the written instruments, plans, contracts and agreements
and an accurate description of each of the oral arrangements, contracts and
agreements which are referred to on the Contracts Schedule, together with all
amendments, waivers or other changes thereto.
6M. INTELLECTUAL PROPERTY RIGHTS.
(i) The attached "Intellectual Property Schedule" contains a complete and
accurate list of all (a) patented or registered Intellectual Property Rights
owned or used by the Company or any Subsidiary, (b) pending patent applications
and applications for registrations of other Intellectual Property Rights filed
by the Company or any Subsidiary, (c) unregistered trade names and corporate
names owned or used by the Company or any Subsidiary and (d) unregistered
trademarks, service marks, and computer software owned or used by the Company or
any Subsidiary. The Intellectual Property Schedule also contains a complete and
accurate list of all licenses and other rights granted by the Company or any
Subsidiary to any third party with respect to any Intellectual Property Rights
and all licenses and other rights granted by any third party to the Company or
any Subsidiary with respect to any Intellectual Property Rights, in each case
identifying the subject Intellectual Property Rights. Except as set forth on the
Intellectual Property Schedule, the Company or one of its Subsidiaries owns all
right, title and interest to, or has the right to use pursuant to a valid
license, all Intellectual Property Rights necessary for the operation of the
businesses of the Company and its Subsidiaries as presently conducted. Except as
set forth on the Intellectual Property Schedule, the loss or expiration of any
Intellectual Property Right or related group of Intellectual Property Rights
owned or used by the Company or any Subsidiary has not had and would not
reasonably be expected to have a material adverse effect on the conduct of the
Company's and its Subsidiaries' respective businesses.
(ii) Except as set forth on the Intellectual Property Schedule, (a) the
Company and its Subsidiaries own all right, title and interest in and to all of
the Intellectual Property Rights listed on such schedule, (b) neither the
Company nor any Subsidiary has received any notices of, and is not aware of any
facts which indicate a likelihood of, any infringement or misappropriation by,
or conflict with, any third party with respect to such Intellectual Property
Rights, and (c) to the knowledge of the Company, the conduct of the Company's
and each Subsidiary's business has not infringed, misappropriated or conflicted
with and does not infringe, misappropriate or conflict with any Intellectual
Property Rights of other Persons.
6N. LITIGATION, ETC. Except as set forth on the attached "Litigation
Schedule," there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Subsidiary (or to the best of the Company's
knowledge, pending or threatened against or affecting any of the officers,
directors or key employees of the Company and its Subsidiaries with respect to
their businesses or proposed business activities) at law or in equity, or before
or by any governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, any actions, suits, proceedings
or investigations with respect to the transactions contemplated by this
Agreement); nor has there been any such actions, suits, proceedings, orders,
investigations or claims pending against or affecting the Company or any
Subsidiary during the past three years; and neither the Company nor any
Subsidiary is subject to any arbitration proceedings under collective bargaining
agreements or otherwise or, to the best of the Company's knowledge, any
governmental investigations or inquiries. Neither the Company nor any Subsidiary
is subject to any judgment, order or decree of any court or other governmental
agency, and neither the Company nor any Subsidiary has received any opinion or
memorandum or legal advice from legal counsel to the effect that it is exposed,
from a legal standpoint, to any liability or disadvantage which may be material
to its business.
6O. BROKERAGE. Except for Prudential Securities Incorporated
("Prudential"), there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement binding upon the Company or any
Subsidiary. The Company shall pay Prudential, and hold Purchaser harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses) arising in connection
with any brokerage claim.
6P. GOVERNMENTAL CONSENT, ETC. Except as set forth on the "Consent
Schedule," no permit, consent, approval or authorization of, or declaration to
or filing with, any governmental authority is required in connection with the
execution, delivery and performance by the Company of this Agreement or the
other agreements contemplated hereby, or the consummation by the Company of any
other transactions contemplated hereby or thereby, except as expressly
contemplated herein or in the exhibits hereto.
6Q. INSURANCE. The attached "Insurance Schedule" contains a description of
each insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses, and each such policy is in
full force and effect as of the Closing. Neither the Company nor any Subsidiary
is in default with respect to its obligations under any insurance policy
maintained by it, and neither the Company nor any Subsidiary has been denied
insurance coverage. The insurance coverage of the Company and its Subsidiaries
is customary for corporations of similar size engaged in similar lines of
business.
6R. EMPLOYEES. Except as set forth on the attached "Employees Schedule,"
the Company is not aware that any executive or key employee of the Company or
any Subsidiary or any group of employees of the Company or any Subsidiary has
any plans to terminate employment with the Company or any Subsidiary. The
Company and each Subsidiary have complied in all material respects with all laws
relating to the employment of labor (including, without limitation, provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes), and the Company is not aware
that it or any Subsidiary has any material labor relations problems (including,
without limitation, any union organization activities, threatened or actual
strikes or work stoppages or material grievances).
6S. ERISA.
(i) MULTIEMPLOYER PLANS. The Company does not have any obligation to
contribute to (or any other liability, including current or potential withdrawal
liability, with respect to) any "multiemployer plan" (as defined in Section
3(37) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")).
(ii) RETIREE WELFARE PLANS. The Company does not maintain or have any
obligation to contribute to (or any other liability with respect to) any plan or
arrangement whether or not terminated, which provides medical, health, life
insurance or other welfare-type benefits for current or future retired or
terminated employees (except for limited continued medical benefit coverage
required to be provided under Section 4980B of the IRC or as required under
applicable state law).
(iii) DEFINED BENEFIT PLANS. The Company does not maintain, contribute to
or have any liability under (or with respect to) any employee plan which is a
tax-qualified "defined benefit plan" (as defined in Section 3(35) of ERISA),
whether or not terminated.
(iv) DEFINED CONTRIBUTION PLANS. The Company does not maintain, contribute
to or have any liability under (or with respect to) any employee plan which is a
tax-qualified "defined contribution plan" (as defined in Section 3(34) of
ERISA), whether or not terminated, other than the Esquire Communications Ltd.
401(k) Savings Plan (the "Plan").
(v) OTHER PLANS. The Company does not maintain, contribute to or have any
liability under (or with respect to) any plan or arrangement providing benefits
to current or former employees, including any bonus plan, plan for deferred
compensation, employee health or other welfare benefit plan or other
arrangement, whether or not terminated.
(vi) THE COMPANY. For purposes of this paragraph 6S, the term "Company"
includes all organizations under common control with the Company pursuant to
Section 414(b) or (c) of the IRC.
(vii) PAYMENTS AND ACCRUALS. With respect to the Plan, all required or
recommended (in accordance with historical practices) payments, premiums,
contributions, reimbursements or accruals for all periods (or partial periods)
ending prior to or as of the Latest Balance Sheet shall have been made or
properly accrued on the Latest Balance Sheet. The Plan has no material unfunded
liabilities which are not reflected on the Latest Balance Sheet.
(viii) COMPLIANCE. The Plan and all related trusts, insurance contracts and
funds have been maintained, funded and administered in compliance in all
material respects with the applicable provisions of ERISA, the IRC and other
applicable laws. Neither the Company nor any trustee or administrator of the
Plan has engaged in any transaction with respect to the Plan which could subject
the Company or any trustee or administrator or the Plan, or any party dealing
with the Plan to either a civil penalty assessed pursuant to Section 502(i) of
ERISA or the tax or penalty on prohibited transactions imposed by Section 4975
of the IRC. No actions, suits or claims with respect to the assets of the Plan
(other than routine claims for benefits) are pending or threatened which could
result in or subject the Company to any liability, and there are no
circumstances which could give rise to or be expected to give rise to any such
actions, suits or claims.
(ix) TAX QUALIFICATION. A favorable determination letter from the IRS has
been received by the Company with respect to the Plan as amended to comply with
the IRC as in effect up to the Tax Reform Act of 1986 stating that it is a
qualified plan under Section 401(a) of the IRC and there are no circumstances
which would cause the Plan to lose such qualified status.
(x) CORRECT COPIES. The Company has provided the Purchasers with true and
complete copies of all documents pursuant to which the Plan is maintained and
administered and the most recent annual reports (Form 5500 and attachments) for
the Plan.
6T. COMPLIANCE WITH LAWS. Neither the Company nor any Subsidiary has
violated any law or any governmental regulation or requirement which violation
has had or would reasonably be expected to have a material adverse effect upon
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole, and neither the
Company nor any Subsidiary has received notice of any such violation. Neither
the Company nor any Subsidiary is subject to, or has reason to believe it may
become subject to, any liability (contingent or otherwise) or corrective or
remedial obligation arising under any federal, state, local or foreign law, rule
or regulation (including the common law) relating to or regulating health,
safety, pollution or the protection of the environment.
6U. AFFILIATED TRANSACTIONS. Except as set forth on the attached
"Affiliated Transactions Schedule," and except for normal employee benefits
incurred in the ordinary course of business, no officer, director, employee,
stockholder or Affiliate of the Company or any Subsidiary, is a party to any
agreement, contract, commitment or transaction with the Company or any
Subsidiary or has any material interest in any material property used by the
Company or any Subsidiary.
6V. DISCLOSURE. Neither this Agreement nor any of the exhibits, schedules,
attachments, written statements, documents, certificates or other items prepared
or supplied to Purchaser by or on behalf of the Company with respect to the
transactions contemplated hereby contain any untrue statement of a material fact
or omit a material fact necessary to make each statement contained herein or
therein not misleading. There is no fact which the Company has not disclosed to
each Purchaser in writing and of which any of its officers or directors is aware
and which has had or would reasonably be expected to have a material adverse
effect upon the financial condition, operating results, assets, customer or
supplier relations, employee relations or business prospects of the Company and
its Subsidiaries taken as a whole.
6W. CLOSING DATE. The representations and warranties of the Company
contained in this Section 6 and elsewhere in this Agreement and all information
contained in any exhibit, schedule or attachment hereto or in any certificate or
other writing delivered by, or on behalf of, the Company to any Purchaser shall
be true and correct on the date of the Closing as though then made, except as
affected by the transactions expressly contemplated by this Agreement.
6X. REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION. The Company has
furnished the Purchasers with complete and accurate copies of its annual report
on Form 10-K for its three most recent fiscal years, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its stockholders. Such reports
and filings do not contain any material false statements or any misstatement of
any material fact and do not omit to state any fact necessary to make the
statements set forth therein not misleading. The Company has made all filings
with the Securities and Exchange Commission which it is required to make, and
the Company has not received any request from the Securities and Exchange
Commission to file any amendment or supplement to any of the reports described
in this paragraph.
Section 7. INDEMNIFICATION AND RELATED MATTERS.
7A. SURVIVAL. All representations, warranties, covenants and agreements set
forth in this Agreement or in any writing delivered in connection with this
Agreement will survive the Closing and the consummation of the transactions
contemplated hereby and will not be affected by any examination made for or on
behalf of the Purchasers, the knowledge of any of their officers, directors,
stockholders, employees or agents, or the acceptance of any certificate or
opinion.
7B. INDEMNIFICATION.
(i) The Company agrees to indemnify the Purchasers and their Affiliates
(the "Purchaser Group") and hold them harmless from and against any loss,
liability, deficiency, damage or expense (including, without limitation, legal
expenses and costs and including interest and penalties) (a "Loss") which the
Purchaser Group may suffer, sustain or become subject to, as a result of (a) the
breach by the Company of any representation, warranty, covenant or agreement
made by the Company contained in this Agreement, any exhibit hereto or any
certificate delivered by the Company to the Purchasers in connection with the
Closing or (b) arising out of, or relating to the execution, delivery,
performance or enforcement of this Agreement and any other agreement relating
hereto.
(ii) With respect to claims for breaches of representations and warranties
referred to in paragraph 7B(i) above, the Company will be liable to the
Purchaser Group for Losses arising therefrom only if the aggregate amount of all
such Losses resulting to the Purchaser Group from all such breaches or claims
exceeds $150,000, in which case the Company will be liable only for such excess,
but not in excess of $15,000,000.
(iii) The Company will be liable to the Purchaser Group with respect to
claims for breaches of representations and warranties referred to in paragraph
7B(i) above only if a Purchaser gives the Company written notice thereof within
two years after the Closing Date, except for claims arising from breaches of the
representations and warranties set forth in paragraphs 6K and 6T as to which
claims must be made prior to the expiration of the applicable statute of
limitation with respect thereto.
Section 8. DEFINITIONS.
8A. DEFINITIONS. For the purposes of this Agreement, the following terms
have the meanings set forth below:
"AFFILIATE" of any particular Person means any other Person controlling,
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
"INDEBTEDNESS" means all indebtedness for borrowed money (including
purchase money obligations) maturing one year or more from the date of creation
or incurrence thereof or renewable or extendible at the option of the debtor to
a date one year or more from the date of creation or incurrence thereof, all
indebtedness under revolving credit arrangements extending over a year or more,
all capitalized lease obligations and all guarantees of any of the foregoing.
"INTELLECTUAL PROPERTY RIGHTS" means all (i) patents, patent applications,
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names, logos and corporate names and registrations and applications for
registration thereof together with all of the goodwill associated therewith,
(iii) copyrights (registered or unregistered) and copyrightable works and
registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation thereof, (vi) trade secrets and other
confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular IRC section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"IRS" means the United States Internal Revenue Service.
"LIENS" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company, any Subsidiary or any Affiliate,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute other than to reflect ownership
by a third party of property leased to the Company or any Subsidiaries under a
lease which is not in the nature of a conditional sale or title retention
agreement, or any subordination arrangement in favor of another Person (other
than any subordination arising in the ordinary course of business).
"OFFICER'S CERTIFICATE" means a certificate signed by the Company's
chairman of the board, president or its chief financial officer, stating that
(i) the officer signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit him to verify the accuracy of
the information set forth in such certificate and (ii) to the best of such
officer's knowledge, such certificate does not misstate any material fact and
does not omit to state any fact necessary to make the certificate not
misleading.
"PERMITTED ENCUMBRANCES" shall mean: (A) statutory liens for current taxes
or other governmental charges with respect to the Real Property not yet due and
payable or the amount or validity of which is being contested; (B) mechanics,
carriers, workers, repairers and similar statutory liens arising or incurred in
the ordinary course of business; (C) zoning, entitlement, building and other
land use regulations imposed by governmental agencies having jurisdiction over
the Real Property which are not violated by the current use and operation of the
Real Property; and (D) covenants, conditions, restrictions, easements and other
matters of record affecting title to the Real Property which do not impair the
occupancy or use of the Real Property for the purposes for which it is used in
connection with the Company.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"RESTRICTED SECURITIES" means (i) the Preferred Stock issued hereunder and
pursuant to paragraph 1C hereof, (ii) the Common Stock issued upon conversion of
Preferred Stock and (iii) any securities issued with respect to the securities
referred to in clauses (i) or (ii) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Restricted
Securities, such securities shall cease to be Restricted Securities when they
have (a) been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (b) become eligible
for sale pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 9C have been
delivered by the Company in accordance with paragraph 4B. Whenever any
particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
paragraph 9C.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"SUBSIDIARY" means any corporation of which the securities having a
majority of the ordinary voting power in electing the board of directors are, at
the time as of which any determination is being made, owned by the Company
either directly or through one or more Subsidiaries.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or issuable
upon conversion of the Preferred Stock and (ii) any Common Stock issued or
issuable with respect to the securities referred to in clause (i) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes of
this Agreement, any Person who holds Preferred Stock shall be deemed to be the
holder of the Underlying Common Stock obtainable upon conversion of the
Preferred Stock in connection with the transfer thereof or otherwise regardless
of any restriction or limitation on the conversion of the Preferred Stock, such
Underlying Common Stock shall be deemed to be in existence, and such Person
shall be entitled to exercise the rights of a holder of Underlying Common Stock
hereunder. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them, (b) distributed to the public pursuant to
Rule 144 under the Securities Act (or any similar provision then in force) or
(c) repurchased by the Company or any Subsidiary.
"WHOLLY OWNED SUBSIDIARY" means, with respect to any Person, a Subsidiary
of which all of the outstanding capital stock or other ownership interests are
owned by such Person or another Wholly Owned Subsidiary of such Person.
Section 9. MISCELLANEOUS.
9A. EXPENSES. The Company shall pay, and hold each Purchaser and all
holders of Preferred Stock and Underlying Common Stock harmless against
liability for the payment of, (i) the reasonable fees and expenses of their
special counsel arising in connection with the negotiation and execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement which shall be payable at the Closing or, if the Closing does not
occur, payable upon demand, (ii) the reasonable fees and expenses incurred with
respect to any amendments or waivers (whether or not the same become effective)
under or in respect of this Agreement, the agreements contemplated hereby, the
Certificate of Incorporation or the Certificate of Designation, (iii) stamp and
other taxes which may be payable in respect of the execution and delivery of
this Agreement or the issuance, delivery or acquisition of any shares of
Preferred Stock or any shares of Common Stock issuable upon conversion of
Preferred Stock, (iv) the reasonable fees and expenses incurred with respect to
the enforcement of the rights granted under this Agreement, the agreements
contemplated hereby, the Certificate of Incorporation and the Certificate of
Designation, and (v) the reasonable fees and expenses incurred by each such
Person in any filing with any governmental agency (other than a federal or state
taxing authority) with respect to its investment in the Company.
9B. REMEDIES. Each holder of Preferred Stock and Underlying Common Stock
shall have all rights and remedies set forth in this Agreement, the Certificate
of Incorporation and the Certificate of Designation and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any Person
having any rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
9C. PURCHASER'S INVESTMENT REPRESENTATIONS. Each Purchaser hereby
represents that it is acquiring the Restricted Securities purchased hereunder or
acquired pursuant hereto for its own account with the present intention of
holding such securities for purposes of investment, and that it has no intention
of selling such securities in a public distribution in violation of the federal
securities laws or any applicable state securities laws; provided that nothing
contained herein shall prevent any Purchaser and subsequent holders of
Restricted Securities from transferring such securities in compliance with the
provisions of Section 4 hereof. Each certificate or instrument representing
Restricted Securities shall be imprinted with a legend in substantially the
following form:
"The securities represented by this certificate were originally issued
on October 23, 1996 and have not been registered under the Securities
Act of 1933, as amended. The transfer of the securities represented by
this certificate is subject to the conditions specified in the Purchase
Agreement, dated as of October 23, 1996 and as amended and modified
from time to time, among the issuer (the "Company"), Antares Leveraged
Capital Corp. and Golder, Thoma, Cressey, Rauner Fund IV Limited
Partnership, and the Company reserves the right to refuse the transfer
of such securities until such conditions have been fulfilled with
respect to such transfer. A copy of such conditions shall be furnished
by the Company to the holder hereof upon written request and without
charge."
9D. CONSENT TO AMENDMENTS. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of a majority of the outstanding Preferred Stock; provided that if there
is no Preferred Stock outstanding, the provisions of this Agreement may be
amended and the Company may take any action herein prohibited, only if the
Company has obtained the written consent of the holders of a majority of the
Underlying Common Stock. No other course of dealing between the Company and the
holder of any Preferred Stock or Underlying Common Stock or any delay in
exercising any rights hereunder or under the Certificate of Incorporation or
Certificate of Designation shall operate as a waiver of any rights of any such
holders. For purposes of this Agreement, shares of Preferred Stock or Underlying
Common Stock held by the Company or any Subsidiaries shall not be deemed to be
outstanding.
9E. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. In
addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's benefit as a
purchaser or holder of Preferred Stock or Underlying Common Stock are also for
the benefit of, and enforceable by, any subsequent holder of such Preferred
Stock or such Underlying Common Stock.
9F. SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
9G. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement.
9H. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a substantive
part of this Agreement. The use of the word "including" in this Agreement shall
be by way of example rather than by limitation.
9I. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE SHALL GOVERN
ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND ITS STOCKHOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING THE
CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE
EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF ILLINOIS OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF ILLINOIS. IN FURTHERANCE OF THE FOREGOING,
THE INTERNAL LAW OF THE STATE OF ILLINOIS SHALL CONTROL THE INTERPRETATION AND
CONSTRUCTION OF THIS AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN
THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE
SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
9J. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable overnight courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to the Purchasers and to the Company at the
addresses indicated below:
IF TO THE COMPANY:
Esquire Communications Ltd.
216 East 45th Street, 8th Floor
New York, NY 10017
Attention: Malcolm L. Elvey
WITH A COPY TO:
Stroock & Stroock & Lavan
7 Hanover Square
New York, NY 10004
Attention: Martin H. Neidell
IF TO GTCR:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
c/o Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606
Attention: Joseph P. Nolan
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Kevin R. Evanich
John A. Schoenfeld
IF TO ANTARES:
Antares Leveraged Capital Corp.
311 S. Wacker Drive, Suite 2725
Chicago, IL 60606
Attention: Steven J. Robinson
WITH A COPY TO:
Katten, Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Stuart Shulruff
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
9K. NO STRICT CONSTRUCTION. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
9L. CONSENTS. Whenever prior written consent of the holders of at least a
majority of outstanding Preferred Stock is required under this Agreement, so
long as any Purchaser continues to own a majority of the Preferred Stock, the
affirmative vote or consent of a member of the Board designated by such
Purchaser shall constitute such consent.
9M. NO EFFECT UPON LENDING RELATIONSHIP. Notwithstanding anything herein to
the contrary, nothing contained in this Agreement shall affect, limit or impair
the rights and remedies of Antares or any other lender in their capacity as a
lender to the Company pursuant to any agreement under which the Company has
borrowed money.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Purchase
Agreement on the date first written above.
ESQUIRE COMMUNICATIONS LTD.
By: /s/ Malcolm Elvery
Its: Chairman of the Board
GOLDER, THOMA, CRESSEY, RAUNER FUND IV LIMITED
PARTNERSHIP
By: GTCR IV, L.P., General partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its: General Partner
By: /s/
Its: Principal
<PAGE>
[Continuation of Purchase Agreement Signature Page]
ANTARES LEVERAGED CAPITAL CORP.
By: /s/
Its: Director
<PAGE>
LIST OF EXHIBITS
Exhibit A - Certificate of Designation
Exhibit B - Registration Agreement
Exhibit C - Stockholders Agreement
Exhibit D - Opinion of Counsel
<PAGE>
LIST OF DISCLOSURE SCHEDULES
Termination, Amendment or Waiver Schedule
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Developments Schedule
Assets Schedule
Real Property Schedule
Leases Schedule
Taxes Schedule
Contracts Schedule
Employee Benefits Schedule
Intellectual Property Schedule
Litigation Schedule
Consent Schedule
Insurance Schedule
Employees Schedule
Affiliated Transactions Schedule
Exhibit 10.5
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT is made as of October 23, 1996, by and among
Esquire Communications Ltd., a Delaware corporation (the "COMPANY"), Golder,
Thoma, Cressey, Rauner Fund IV, L.P., an Illinois limited partnership ("GTCR"),
each of the Persons listed on SCHEDULE I attached hereto (the "MANAGEMENT
STOCKHOLDERS") and each of the Persons listed on SCHEDULE II attached hereto
(the "INVESTOR STOCKHOLDERS") (GTCR, the Management Stockholders and the
Investor Stockholders are collectively referred to herein as the "STOCKHOLDERS,"
and each as a "STOCKHOLDER"). Unless otherwise indicated herein, capitalized
terms used herein are defined in Section 8 hereof.
WHEREAS, the parties hereto desire to establish the composition of the
Company's Board of Directors (the "BOARD"), to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock and to provide
for certain rights and obligations in respect thereto as hereinafter provided.
NOW, THEREFORE, the parties to this Agreement hereby agree as follows:
1. VOTING AGREEMENT.
(a) From and after the date of this Agreement each Stockholder shall vote
all of his Stockholder Shares and shall take all other necessary or desirable
actions within his control (whether in his capacity as a stockholder, director
or officer of the Company or otherwise, and including, without limitation,
attendance at meetings in person or by proxy for purposes of obtaining a quorum
and execution of written consents in lieu of meetings), and the Company shall
take all necessary and desirable actions within its control (including, without
limitation, calling special board and stockholder meetings and filling Board
vacancies), so that:
(i) the authorized number of directors on the Board shall be established at
seven directors;
(ii) the following individuals shall be elected to the Board:
(A) two representatives designated by GTCR (the "GTCR REPRESENTATIVES");
(B) three representatives designated by the Management Stockholders (the
"MANAGEMENT REPRESENTATIVES"), determined by vote of the Management
Stockholders owning a majority of the Stockholder Shares held by all
Management Stockholders;
(C) two representatives jointly designated by GTCR and the Management
Stockholders (the "JOINT REPRESENTATIVES"), it being agreed that Mortimer
Feinberg and Andrew Garvin (collectively, the "INITIAL REPRESENTATIVES")
are acceptable to GTCR; provided that GTCR shall have the right at any time
(with or without cause) to remove the Initial Representatives from the
Board. The Joint Representatives shall be renominated and elected to the
Board at each subsequent annual meeting of the stockholders unless GTCR
notifies the Management Stockholders that it does not wish to renominate as
directors the then existing Joint Representatives. In such event, new Joint
Representatives shall be nominated pursuant to clause (iii) below;
(iii) the removal from the Board (with or without cause) of any GTCR
Representative or Management Representative designated hereunder shall be
at the written request, but only upon such written request, of the party or
parties that had designated such representative and under no other
circumstances. The removal from the Board (with or without cause) of any
Joint Representative (other than the Initial Representatives) designated
hereunder shall be either (A) at the written request of GTCR and the
Management Stockholders or (B) at the written request of GTCR provided that
such removal shall not be effective until such Joint Representative has
served at least six (6) months or, if earlier, until the next annual
stockholder meeting. Upon the removal of any Joint Representative
(including the Initial Representatives), the replacement Joint
Representative shall be jointly designated by GTCR and the Management
Stockholders; provided that if GTCR and the Management Stockholders cannot
agree on the replacement Joint Representative within 90 days after the
delivery of the applicable removal request, then GTCR shall designate such
new Joint Representative;
(iv) in the event that any GTCR Representative, Management Representative
or Joint Representative designated hereunder for any reason ceases to serve
as a member of the Board during his term of office, the resulting vacancy
on the Board shall be filled by a representative designated by the party or
parties that had the right to designate such representative as provided
hereunder; provided that, with respect to any vacancy resulting from the
departure of any Joint Representative, if GTCR and the Management
Stockholders cannot agree within 90 days following such departure on a
replacement then such vacancy shall be filled by a representative
designated by GTCR;
(v) the Compensation Committee of the Board shall include at least one
GTCR Representative; and
(vi) the Audit Committee of the Board shall include at least one GTCR
Representative.
(b) The Company shall pay the reasonable out-of-pocket expenses incurred by
each director in connection with attending the meetings of the Board or any
committee thereof. So long as any GTCR Director serves on the Board and for
three years thereafter, the Company shall maintain directors and officers
indemnity insurance coverage satisfactory to GTCR, and the Company's certificate
of incorporation and bylaws shall provide for indemnification and exculpation of
directors to the fullest extent permitted under applicable law.
(c) The rights of GTCR under this Section 1 shall terminate at such time as
GTCR and/or Affiliates of GTCR cease to hold in the aggregate at least 10% of
the Common Stock Outstanding; provided that GTCR may assign its right to
designate representatives hereunder to any Person or group of affiliated Persons
who acquire more than 50% of the Stockholder Shares held by GTCR as of the date
hereof.
(d) The rights of each Management Stockholder under this Section 1 shall
terminate at such time as such Management Stockholder ceases to hold in the
aggregate at least 20% of the Stockholder Shares held by such Management
Stockholder as of the date hereof.
(e) If any party fails to designate a representative to fill a directorship
pursuant to the terms of this Section 1, the election of an individual to such
directorship shall be accomplished in accordance with the Company's bylaws and
applicable law.
(f) The provisions of this Section 1 and of Section 2 below shall be
effective until the tenth anniversary of the date hereof and shall then
terminate automatically and be of no further force and effect unless extended in
writing by mutual agreement of the parties hereto.
2. IRREVOCABLE PROXY. In order to secure each Management Stockholder's and
each Investor Stockholder's obligation to vote his Stockholder Shares and other
voting securities of the Company in accordance with the provisions of Section 1
hereof, each Management Stockholder hereby appoints GTCR as his true and lawful
proxy and attorney-in-fact, with full power of substitution, to vote all of his
Stockholder Shares and other voting securities of the Company for the election
and/or removal of directors and all such other matters as expressly provided for
in Section 1. GTCR may exercise the irrevocable proxy granted to it hereunder at
any time any Management Stockholder or Investor Stockholder fails to comply with
the provisions of this Agreement. The proxies and powers granted by each
Management Stockholder pursuant to this Section 2 are coupled with an interest
and are given to secure the performance of each Management Stockholder's and
each Investor Stockholder's obligations under this Agreement.
3. REPRESENTATIONS AND WARRANTIES. Each Stockholder represents and warrants
that (a) such Stockholder is the record owner of the number of Stockholder
Shares set forth opposite its name on SCHEDULE III attached hereto, (b) this
Agreement has been duly authorized, executed and delivered by such Stockholder
and constitutes the valid and binding obligation of such Stockholder,
enforceable in accordance with its terms, and (c) such Stockholder has not
granted and is not a party to any proxy, voting trust or other agreement which
is inconsistent with, conflicts with or violates any provision of this
Agreement, other than the Existing Stockholder Agreement, which will be
terminated pursuant to Section 7 hereof. No holder of Stockholder Shares shall
grant any proxy or become party to any voting trust or other agreement which is
inconsistent with, conflicts with or violates any provision of this Agreement.
4. RESTRICTIONS ON TRANSFER OF STOCKHOLDER SHARES.
(a) TRANSFER OF STOCKHOLDER SHARES. No Stockholder shall sell, transfer,
assign, pledge or otherwise dispose of (a "TRANSFER") any interest in any
Stockholder Shares, except pursuant to and in accordance with Sections 4(b),
4(c), and 5 below; provided that Section 4(b) shall not apply to GTCR or to the
Investor Stockholders. Each Stockholder agrees not to consummate any Transfer
until at least 30 days after the delivery to the Company and the other holders
of Stockholder Shares of such Stockholder's Sale Notice (as defined below), if
so required by the terms hereof, unless the parties to the Transfer have been
finally determined pursuant to this Section 4 prior to the expiration of such
30-day period (the date of the first to occur of such events is referred to
herein as the "AUTHORIZATION DATE").
(b) FIRST REFUSAL RIGHTS.
(i) Prior to making any Transfer other than pursuant to Section 5, each
Management Stockholder seeking to Transfer any interest in any Stockholder
Shares (a "SELLING STOCKHOLDER"), shall deliver written notice (the "SALE
NOTICE") to the Company and to each other Stockholder. Such Sale Notice shall
disclose in reasonable detail the identity of the prospective transferee(s), the
number of shares to be transferred and the terms and conditions of the proposed
transfer.
(ii) The Company may elect to purchase all (but not less than all) of the
shares specified in the Sale Notice (the "SALE STOCK") upon the same terms and
conditions as those set forth in the Sale Notice by delivering a written notice
of such election to the Selling Stockholder and each of the other Stockholders
within 10 days after the Sale Notice has been delivered to the Company. If the
Company has not elected to purchase all of the Sale Stock within such ten-day
period, GTCR and the other Management Stockholders (the "OTHER STOCKHOLDERS")
may elect to purchase all (but not less than all) of his or its Pro Rata Share
of the Sale Stock specified in the Sale Notice at the price and on the terms
specified therein by delivering written notice of such election to the Selling
Stockholder as soon as practical but in any event within 20 days after delivery
of the Sale Notice. If any portion of Sale Stock is not elected to be purchased
by the end of such 20-day period, the Selling Stockholder shall notify all Other
Stockholders of such fact within 5 days of determination (the "SECOND SALE
NOTICE") and shall offer such remaining shares of Sale Stock to the Other
Stockholders purchasing their Pro Rata Share upon the terms set forth in this
Section, except that such Other Stockholders must notify the Selling Stockholder
of any additional purchase within 5 days of receipt of the Second Sale Notice.
If neither the Company nor the Other Stockholders elect to purchase all of the
shares of Sale Stock, the Selling Stockholder may transfer all of the shares of
Sale Stock, at a price no less than the price per share specified in the Sale
Notice and on terms no more favorable, to the transferee(s) thereof than
specified in the Sale Notice, within the 90-day period immediately following the
Authorization Date. Any shares of Sale Stock not transferred within such 90-day
period shall be subject to the provisions of this Section 4(b) upon subsequent
transfer. If the Company or the Other Stockholders have elected to purchase
shares of Sale Stock hereunder, the Transfer of such shares shall be consummated
as soon as practical after the delivery of notice of such election to the
Selling Stockholder, but in any event within 30 days after the delivery of such
notice of election.
(c) PERMITTED TRANSFERS. Notwithstanding anything to the contrary in any
other provision of this Agreement, the restrictions contained in this Section 4
shall not apply to (i) any Transfer of Stockholder Shares by any Stockholder to
or among any of its Affiliates, (ii) any Transfer of Stockholder Shares by a
Stockholder to another Stockholder, (iii) a Public Sale, (iv) an Approved Sale
(as hereinafter defined), (v) a Transfer of Stockholder Shares by any
Stockholder pursuant to the laws of descent and distribution or among such
Stockholder's Family Group; provided that the restrictions contained in this
Agreement will continue to be applicable to the Stockholder Shares after any
Transfer pursuant to clauses (i), (ii) and (v) above and the transferees of such
Stockholder Shares shall agree in writing to be bound by the provisions of this
Agreement. Upon the Transfer of Stockholder Shares pursuant to this Section
4(c), the transferees will deliver a written notice to the Company, which notice
will disclose in reasonable detail the identity of such transferee.
(d) TERMINATION OF RESTRICTIONS. The restrictions set forth in this Section
4 shall continue with respect to each Stockholder Share until the earlier of (i)
the date on which such Stockholder Share has been transferred in a Public Sale,
(ii) the consummation of an Approved Sale, (iii) the date on which such
Stockholder Share has been transferred pursuant to this Section 4 (other than
Section 4(c)) or (iv) the tenth anniversary of the date hereof.
5. SALE OF THE COMPANY.
(a) If the Board approves a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale of all or
substantially all of the Company's outstanding capital stock (whether by merger,
recapitalization, consolidation, reorganization, combination or otherwise) to an
Independent Third Party (collectively an "APPROVED SALE"), each holder of
Stockholder Shares shall consent to and raise no objections against such
Approved Sale. If the Approved Sale is structured as (i) a merger or
consolidation, each holder of Stockholder Shares will waive any dissenters
rights, appraisal rights or similar rights in connection with such merger or
consolidation or (ii) sale of stock, each holder of Stockholder Shares will
agree to sell all of his Stockholder Shares and rights to acquire Stockholder
Shares on the terms and conditions approved by the Board and the holders of a
majority of the Stockholder Shares then outstanding. Each holder of Stockholder
Shares will take all necessary or desirable actions in connection with the
consummation of the Approved Sale as requested by the Company. Notwithstanding
anything to the contrary contained herein, Section 5 shall not be applicable to
the Investor Stockholders (other than Antares).
(b) Notwithstanding anything to the contrary, (i) Antares will only be
required to make representations and warranties as to due power and authority,
non-contravention and ownership of stock, free and clear of all liens, (b)
Antares shall be severally obligated to join on a pro rata basis (based on
Antares' share of the aggregate proceeds paid with respect to its interest) in
any indemnification obligation the other Stockholders have agreed to in
connection with such Approved Sale other than any such obligations that relate
specifically to a particular Stockholder, such as indemnification with respect
to representations and warranties given by a Stockholder regarding such
Stockholder's title to and ownership of stock; provided, however, that Antares
shall not be obligated in connection with such Approved Sale to indemnify the
prospective transferee or its affiliates with respect to an amount in excess of
the net cash proceeds paid to Antares in connection with such Approved Sale
(other than as a result of a breach of its representations and warranties
described in clause (i) above, as to which no limitation shall apply).
(c) The obligations of the Stockholders with respect to an Approved Sale
are subject to the satisfaction of the following conditions: (i) each holder of
shares of a class of stock will be given the same consideration with respect to
each share of such class, and, if any holders of Stockholder Shares are given an
option as to the form and amount of consideration to be received, each holder of
Stockholder Shares will be given the same option and (ii) each holder of then
currently exercisable or convertible rights to acquire shares of Common Stock
will be given an opportunity to exercise such rights or to convert prior to the
consummation of the Approved Sale and participate in such sale as holders of
Common Stock.
(d) If the Company or the holders of the Company's securities enter into
any negotiation or transaction for which Rule 506 under the Securities Act (or
any similar rule then in effect) promulgated by the Securities and Exchange
Commission may be available with respect to such negotiation or transaction
(including a merger, consolidation or other reorganization), the Management
Stockholders, if required under the Securities Act, will, at the request of the
Company, appoint a purchaser representative (as such term is defined in Rule
501) reasonably acceptable to the Company. If any Management Stockholder
appoints a purchaser representative designated by the Company, the Company will
pay the fees of such purchaser representative.
6. LEGEND. Each certificate evidencing Stockholder Shares and each
certificate issued in exchange for or upon the transfer of any Stockholder
Shares (if such shares remain Stockholder Shares as defined herein after such
Transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
TRANSFERS AND VOTING RESTRICTIONS PURSUANT TO STOCKHOLDERS AGREEMENT DATED AS OF
OCTOBER 23, 1996, AMONG THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND
CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF SUCH STOCKHOLDERS AGREEMENT
WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof. The legend set forth above shall be
removed from the certificates evidencing any shares which cease to be
Stockholder Shares in accordance with the definition thereof in Section 8.
7. TERMINATION OF EXISTING STOCKHOLDER AGREEMENT. Each of the Management
Stockholders and the Investor Stockholders (other than Antares) hereby agree and
acknowledge that the certain Stockholder Agreement dated June 22, 1994 (the
"EXISTING STOCKHOLDER AGREEMENT") by and among each of the Management
Stockholders is hereby terminated in its entirety and shall be of no further
force or effect.
8. DEFINITIONS.
"AFFILIATE" of a Stockholder means any other person, entity or investment
fund controlling, controlled by or under common control with the Stockholder
and, in the case of a Stockholder which is a partnership, any partner of the
Stockholder.
"ANTARES" means Antares Leveraged Capital Corp., a Delaware corporation.
"CERTIFICATE OF INCORPORATION" means the Company's certificate of
incorporation in effect at the time as of which any determination is being made.
"COMMON STOCK" means the Common Stock of the Company, par value $.01 per
share.
"COMMON STOCK OUTSTANDING" means at any given time, the number of shares of
Common Stock outstanding at such time, on a fully diluted basis, plus the number
of shares of Common Stock issuable upon the conversion of all Preferred Stock
then outstanding.
"FAMILY GROUP" means a Stockholder's spouse and descendants (whether or not
adopted) and any trust solely for the benefit of the Stockholder and/or the
Stockholder's spouse and/or descendants.
"INDEPENDENT THIRD PARTY" means any Person who, immediately prior to the
contemplated transaction, does not own in excess of 5% of the Company's Common
Stock on a fully-diluted basis (a "5% OWNER"), and who is not controlling,
controlled by or under common control with any such 5% Owner.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PREFERRED STOCK" means the Company's Series A Convertible Preferred Stock,
par value $.01 per share.
"PRO RATA SHARE" shall mean for any given Stockholder a fraction equal to
the number of Stockholder Shares held by such Stockholder divided by the Common
Stock Outstanding less the Stockholder Shares held by the Selling Stockholder.
"PUBLIC SALE" means any sale of Stockholder Shares to the public pursuant
to an offering registered under the Securities Act or to the public pursuant to
the provisions of Rule 144 adopted under the Securities Act.
"PURCHASE AGREEMENT" means that certain Purchase Agreement dated as of the
date hereof, between the Company, Golder, Thoma, Cressey, Rauner Fund IV, L.P.
and Antares.
"REGISTRATION AGREEMENT" means that certain Registration Agreement dated
the date hereof, between the Company, GTCR and Antares.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"STOCKHOLDER SHARES" means (i) any shares of Common Stock or Preferred
Stock held by any Stockholder; (ii) any shares of Common Stock issued or
issuable upon the conversion of the Preferred Stock held by any Stockholder and
(iii) any equity securities issued or issuable directly or indirectly with
respect to the Common Stock or Preferred Stock referred to in clauses (i) or
(ii) by way of stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other reorganization. For
purposes of this Agreement, any Stockholder who holds Preferred Stock shall be
deemed to be the holder of the Stockholder Shares issuable upon conversion of
the Preferred Stock. As to any particular shares constituting Stockholder
Shares, such shares will cease to be Stockholder Shares when they have been (x)
sold pursuant to a Public Sale or (y) repurchased by the Company.
9. TRANSFERS IN VIOLATION OF AGREEMENT. Any Transfer or attempted Transfer
of any Stockholder Shares in violation of any provision of this Agreement shall
be void, and the Company shall not record such Transfer on its books or treat
any purported transferee of such Stockholder Shares as the owner of such shares
for any purpose.
10. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement shall be
effective against the Company or the Stockholders unless such modification,
amendment or waiver is approved in writing by the Company and the holders of at
least a majority of the then outstanding Stockholder Shares; provided, however,
that in the event that such amendment or waiver would materially and adversely
affect a holder or group of holders of Stockholder Shares in a manner different
than any other holders of Stockholder Shares, then such amendment or waiver will
require the consent of such holder of Stockholder Shares or a majority of the
Stockholder Shares held by such group of holders materially and adversely
affected. The failure of any party to enforce any of the provisions of this
Agreement shall in no way be construed as a waiver of such provisions and shall
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
11. SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
12. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein, this
document, the Purchase Agreement and the Registration Agreement embody the
complete agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersede and preempt any prior understandings,
agreements or representations by or among the parties, written or oral, which
may have related to the subject matter hereof in any way.
13. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
15. REMEDIES. The parties hereto agree and acknowledge that money damages
may not be an adequate remedy for any breach of the provisions of this Agreement
and that the Company and any Stockholder shall have the right to injunctive
relief, in addition to all of its rights and remedies at law or in equity, to
enforce the provisions of this Agreement. Nothing contained in this Agreement
shall be construed to confer upon any Person who is not a signatory hereto any
rights or benefits, as a third party beneficiary or otherwise.
16. NOTICES. Any notice provided for in this Agreement shall be in writing
and shall be either personally delivered, or sent by certified mail, return
receipt requested, or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on SCHEDULE III and to any subsequent holder
of Stockholder Shares subject to this Agreement at such address as indicated by
the Company's records, or at such address or to the attention of such other
person as the recipient party has specified by prior written notice to the
sending party. Notices will be deemed to have been given hereunder when
delivered personally, three days after deposit in the U.S. mail and one day
after deposit with a reputable overnight courier service. The Company's address
is:
Esquire Communications Ltd.
216 East 45th Street, 8th Floor
New York, NY 10017
Telecopier No. (212) 557-5972
c/o Chief Executive Officer
with a copy (not to constitute notice to the Company) to:
Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606
Telecopier No. (312) 382-2201
Attention: Joseph P. Nolan
17. GOVERNING LAW. The corporate law of Delaware will govern all issues
concerning the relative rights of the Company and its stockholders. All other
issues concerning this Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than the State of Delaware.
18. NO EFFECT UPON LENDING RELATIONSHIPS. Notwithstanding anything herein
to the contrary, nothing contained in this Agreement shall affect, limit or
impair the rights and remedies of Antares or any other lender in their capacity
as a lender to the Company pursuant to any agreement under which the Company has
borrowed money.
19. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement on the day and year first above written.
ESQUIRE COMMUNICATIONS LTD.
By: /s/
Its: Chairman of the Board
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By: GTCR IV, L.P., General Partner
By: GOLDER, THOMA, CRESSEY,
RAUNER, INC.
Its: General Partner
By: /s/
Its: Principal
/s/
Malcolm Elvey
/s/
David Feldman
THE SARNOFF TRUST
By: /s/
Cary A. Sarnoff, as Trustee
By: /s/
Michelle A. Sarnoff, as Trustee
ALLIED INVESTMENT CORPORATION
By: /s/
Its: Vice President
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
ALLIED INVESTMENT CORPORATION II
By: /s/
Its: Vice President
ALLIED CAPITAL CORPORATION II
By: /s/
Its: Vice President
CMNY CAPITAL, L.P.
By:
Its: General Partner
By: /s/
Its:
<PAGE>
[Continuation of Stockholders Agreement Signature Page]
ANTARES LEVERAGED CAPITAL CORP.
By: /s/
Its: Director
<PAGE>
SCHEDULE I
MANAGEMENT STOCKHOLDERS
Malcolm Elvey
David Feldman
The Sarnoff Trust
<PAGE>
SCHEDULE II
INVESTOR STOCKHOLDERS
Allied Investment Corporation
Allied Investment Corporation II
Allied Capital Corporation II
CMNY Capital, L.P.
Antares Leveraged Capital Corp.
<PAGE>
SCHEDULE III
NUMBER OF SHARES
Golder, Thoma, Cressey, Rauner Fund IV, L.P. 7,312.50 (Preferred Stock)
c/o Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, Illinois 60606
Attention: Joseph P. Nolan
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Kevin R. Evanich
John A. Schoenfeld
Malcolm Elvey 555,000 (Common Stock)
216 East 45th Street, 8th floor
New York, NY 10017
David Feldman 515,900 (Common Stock)
216 East 45th Street, 8th floor
New York, NY 10017
The Sarnoff Trust 750,000 (Common Stock)
c/o Cary Sarnoff
Sarnoff Deposition Service, Inc.
2100 North Broadway
Santa Ana, CA 92706
Allied Investment Corporation 625,000 (warrants to purchase
Allied Investment Corporation II Common Stock)
Allied Capital Corporation II
1666 K Street, N.W., 9th floor
Washington, D.C. 20006
Attention: Philip A. McNeill
CMNY Capital, L.P. 472,500 (Common Stock
135 East 57th Street, 27th floor
New York, NY 10022
Antares Leveraged Capital Corp. 187.50 (Preferred Stock)
311 South Wacker Drive, suite 2725
Chicago, IL 60606
Attention: Steven J. Robinson
Exhibit 10.6
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT dated as of October 23, 1996 is
made by and between Esquire Communications Ltd., a Delaware corporation (the
"COMPANY"), Golder, Thoma, Cressey, Rauner Fund IV, L.P., an Illinois limited
partnership ("GTCR") and Antares Leveraged Capital Corp., a Delaware corporation
("Antares").
GTCR, Antares and the Company are parties to a Purchase
Agreement dated October 23, 1996 (the "PURCHASE AGREEMENT"). In order to induce
GTCR and Antares to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
The Company and various other investors are parties to a
Letter Agreement dated October 23, 1996 by which such investors agreed to modify
their existing registration rights relating to the Common Stock they currently
hold or may hold thereafter (the "OTHER REGISTRABLE SECURITIES") to conform to
certain of the terms hereof. Unless otherwise provided in this Agreement,
capitalized terms used herein shall have the meanings set forth in paragraph 9
hereof.
The parties to this Agreement hereby agree as follows:
1. GTCR DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time the holders of a majority of the
GTCR Registrable Securities may request registration under the Securities Act of
all or part of their GTCR Registrable Securities on Form S-1, Form SB-1, Form
S-2 or any similar long-form registration ("LONG-FORM REGISTRATIONS") or, if
available, on Form S-3 or any similar short-form registration ("SHORT-FORM
REGISTRATIONS"). Each request for a GTCR Demand Registration shall specify the
approximate number of GTCR Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and,
subject to paragraph 1(d) below, will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice. All registrations requested pursuant to this paragraph 1(a) are referred
to herein as "GTCR DEMAND REGISTRATIONS."
(b) LONG-FORM REGISTRATIONS. The holders of a majority of the GTCR
Registrable Securities will be entitled to request two (2) Long-Form
Registrations in which the Company will pay all Registration Expenses (as
defined below in paragraph 5); provided that the GTCR Registrable Securities
sought to be registered in any Long-Form Registration have a minimum anticipated
aggregate net offering price of $5 million. A registration will not count as one
of the permitted Long-Form Registrations (i) if it does not become effective or
(ii) if a Cutback (as defined below) has occurred; provided that in any event
the Company will pay all Registration Expenses in connection with any
registration initiated as a Long-Form Registration whether or not it has become
effective; provided further, however, that in the event that two Long-Form
Registrations have been withdrawn or abandoned by GTCR, GTCR shall be
responsible for paying the Registration Expenses in connection with any
subsequent Long-Form Registration which is a GTCR Demand Registration. All
Long-Form Registrations shall be underwritten registrations.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form Registrations
provided pursuant to paragraph 1(b), the holders of a majority of the GTCR
Registrable Securities will be entitled to request one (1) Short-Form
Registration per calendar year in which the Company will pay all Registration
Expenses; provided that the GTCR Registrable Securities sought to be registered
in any Short-Form Registration have a minimum anticipated aggregate net offering
price of $1 million. A Short-Form Registration will not count as a permitted
Short-Form Registration unless it has become effective. GTCR Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. The Company will use its best efforts to make
Short-Form Registrations available for the sale of GTCR Registrable Securities.
(d) PRIORITY ON DEMAND REGISTRATIONS. If a GTCR Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and other
securities requested to be included in such offering exceeds the number of
Registrable Securities and other securities, if any, which can be sold therein
without adversely affecting the marketability of the offering, the Company will
include in such registration (i) FIRST, the number of Registrable Securities and
Other Registrable Securities requested to be included which in the opinion of
such underwriters can be sold without adverse effect, pro rata among the
respective holders thereof on the basis of the number of Total Registrable
Securities owned by each such holder (if less than 100% of the Registrable
Securities sought to be registered, a "CUTBACK"), (ii) SECOND, any securities
the Company is required to include pursuant to the Purchase Options, (iii)
THIRD, any securities held by persons other than the holders of Registrable
Securities or Other Registrable Securities which the Company is required to
include pursuant to registration rights granted by the Company prior to the date
hereof, and (iv) FOURTH, other securities requested to be included in such GTCR
Demand Registration, pro rata among the holders of such securities on the basis
of the number of shares of such securities owned by each such holder.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company will not be obligated
to effect any GTCR Demand Registration within six months after the effective
date of a previous GTCR Demand Registration. The Company may postpone for up to
six months (from the date of the request) the filing or the effectiveness of a
registration statement for a GTCR Demand Registration if the Company believes
that such GTCR Demand Registration would reasonably be expected to have an
adverse effect on any proposal or plan by the Company or any of its Subsidiaries
to engage in any acquisition of stock or assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction; provided, however, that in such event, the holders of GTCR
Registrable Securities initially requesting such GTCR Demand Registration will
be entitled to withdraw such request and, if such request is withdrawn, such
GTCR Demand Registration will not count as one of the permitted GTCR Demand
Registrations hereunder and the Company will pay all Registration Expenses in
connection with such registration.
(f) SELECTION OF UNDERWRITERS. The holders of a majority of the GTCR
Registrable Securities included in any GTCR Demand Registration will have the
right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval which will not be unreasonably
withheld.
(g) OTHER REGISTRATION RIGHTS. Except as provided in this Agreement, in
agreements in effect on the date hereof, or pursuant to acquisitions of the
assets or the stock of another entity, the Company will not grant to any Persons
the right to request the Company to register any equity securities of the
Company, or any securities convertible or exchangeable into or exercisable for
such securities, without the prior written consent of the holders of a majority
of the GTCR Registrable Securities.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of
its equity securities under the Securities Act (other than pursuant to a
registration on Form S-4 or S-8 or any successor or similar forms) and the
registration form to be used may be used for the registration of Registrable
Securities (a "PIGGYBACK REGISTRATION"), whether or not for sale for its own
account, the Company will give prompt written notice to all holders of
Registrable Securities of its intention to effect such a registration and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the holders of
Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing (with a copy to each holder of
Registrable Securities requesting registration) that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of such offering, the Company will include in such registration (I) FIRST, the
securities the Company proposes to sell; (ii) SECOND, any securities the Company
is required to include pursuant to the Purchase Options, (iii) THIRD, any
securities held by persons other than the holders of Registrable Securities or
Other Registrable Securities which the Company is required to include pursuant
to registration rights granted by the Company prior to the date hereof, (iv)
FOURTH, the number of Registrable Securities and Other Registrable Securities
requested to be included, pro rata among the respective holders thereof on the
basis of the number of Total Registrable Securities owned by each such holder;
and (v) FIFTH, other securities requested to be included in such registration
pro rata among the holders of such securities on the basis of the number of
shares of such securities owned by each such holder.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing (with a
copy to each holder of Registrable Securities requesting registration) that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
in such registration (i) FIRST, the securities requested to be included therein
by the holders requesting such registration, pro rata among the holders of such
securities on the basis of the number of shares owned by each such holder;
provided that if such registration is demanded by a holder of GTCR Registrable
Securities or Other Registrable Securities, then this clause (i) shall not be
applicable and priority shall be determined as set forth in paragraph 1(d); (ii)
SECOND, any securities the Company is required to include pursuant to the
Purchase Options, (iii) THIRD, any securities held by persons other than the
holders of Registrable Securities or Other Registrable Securities which the
Company is required to include pursuant to registration rights granted by the
Company prior to the date hereof, (iv) FOURTH, the number of Registrable
Securities and Other Registrable Securities requested to be included, pro rata
among the respective holders thereof on the basis of the number of Total
Registrable Securities owned by each such holder; and (v) FIFTH, other
securities requested to be included in such registration pro-rata among the
holders of such securities on the basis of the number of shares of such
securities owned by each such holder.
3. HOLDBACK AGREEMENTS.
(a) To the extent not inconsistent with applicable law, each holder of
Registrable Securities agrees not to effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities, options or rights convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of any underwritten public offering of
the Company's common stock (including Demand and Piggyback Registrations)
(except as part of such underwritten registration), unless the underwriters
managing the registered public offering otherwise agree.
(b) The Company (i) agrees not to effect any public sale or distribution of
its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and during the
90-day period beginning on the effective date of any underwritten public
offering of the Company's common stock (including GTCR Demand and Piggyback
Registrations) (except as part of such underwritten registration or pursuant to
registrations on Form S-4 or S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree and (ii) shall cause
each holder of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any distribution (including notes pursuant to
Rule 144) or any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and (within 60 days after the end of the period within which
requests for registration may be given to the Company) file with the Securities
and Exchange Commission a registration statement with respect to such
Registrable Securities and thereafter use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsel selected by the holders of a majority of
the Registrable Securities covered by such registration statement copies of all
such documents proposed to be filed, which documents will be subject to review
of such counsel);
(b) prepare and file with the Securities and Exchange Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective for a period of either (i) not less than six months (subject
to extension pursuant to paragraph 7(b)) or, if such registration statement
relates to an underwritten offering, such longer period as in the opinion of
counsel for the underwriters a prospectus is required by law to be delivered in
connection with sales of Registrable Securities by an underwriter or dealer or
(ii) such shorter period as will terminate when all of the securities covered by
such registration statement have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement (but in any event not before the expiration of any
longer period required under the Securities Act), and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any seller
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the discovery of the happening of any event as
a result of which, the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made, and, at the request of any such seller, the Company
will prepare and furnish to such seller a reasonable number of copies of a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made;
(f) cause all such Registrable Securities to be listed on each securities
exchange or Nasdaq Stock Market on which similar securities issued by the
Company are then listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting agreements
in customary form) and take all such other actions as the holders of a majority
of the Registrable Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities;
(i) make available for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order; and
(l) obtain a comfort letter, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
dated the date of the closing under the underwriting agreement), signed by the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request (provided
that such Registrable Securities constitute at least 10% of the securities
covered by such registration statement).
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or compliance
with this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and disbursements of counsel
for the Company and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Persons retained by the Company
(all such expenses being herein called "REGISTRATION EXPENSES"), will be borne
as provided in this Agreement, except that the Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any liability
insurance and the expenses and fees for listing the securities to be registered
on each securities exchange on which similar securities issued by the Company
are then listed or on the NASD automated quotation system.
(b) In connection with each GTCR Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
counsel chosen by the holders of a majority of the Registrable Securities
included in such registration.
(c) To the extent Registration Expenses are not required to be paid by the
Company, each holder of securities included in any registration hereunder will
pay those Registration Expenses allocable to the registration of such holder's
securities so included, and any Registration Expenses not so allocable will be
borne by all sellers of securities included in such registration in proportion
to the aggregate selling price of the securities to be so registered.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless, to the full extent
permitted by law, each holder of Registrable Securities, its officers,
directors, agents, and employees and each Person who controls such holder
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities, joint or several, together with reasonable costs and expenses
(including reasonable attorney's fees), to which such indemnified party may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon (i) any untrue or
alleged untrue statement of material fact contained (A) in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or (B) in any application or other document or communication
(in this paragraph 6 collectively called an "application") executed by or on
behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to qualify any
securities covered by such registration statement under the "blue sky" or
securities laws thereof, or (ii) any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company will reimburse such holder and each such
director, officer and controlling Person for any legal or any other expenses
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission, made in such registration statement, any such
prospectus or preliminary prospectus or any amendment or supplement thereto, or
in any application, in reliance upon, and in conformity with, written
information prepared and furnished to the Company by such holder expressly for
use therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the full extent permitted by law, will indemnify and hold
harmless the other holders of Registrable Securities and the Company, and their
respective directors, officers, agents and employees and each other Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities, joint or several, together with reasonable
costs and expenses (including reasonable attorney's fees), to which such
indemnified party may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (i) any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or in any application or (ii) any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is made in such registration statement,
any such prospectus or preliminary prospectus or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information prepared and furnished to the Company by such holder expressly for
use therein, and such holder will reimburse the Company and each such other
indemnified party for any legal or any other expenses incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that the obligation to indemnify will
be individual, not joint and several, to each holder and will be limited to the
net amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party will not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnifying party shall not, except with the approval of each
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to each indemnified party of a release from all liability
in respect to such claim or litigation without any payment or consideration
provided by such indemnified party.
(e) If the indemnification provided for in this paragraph 6 is unavailable
to or is insufficient to hold harmless an indemnified party under the provisions
above in respect to any losses, claims, damages or liabilities referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect not only the
relative benefits received by the Company on the one hand and the sellers of
Registrable Securities and any other sellers participating in the registration
statement on the other from the sale of Registrable Securities pursuant to the
registered offering of securities as to which indemnity is sought but also the
relative fault of the indemnified party and the indemnifying party as well as
any other relevant equitable considerations or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
sellers of Registrable Securities and any other sellers participating in the
registration statement on the other in connection with the registration
statement on the other in connection with the statement or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the sellers of Registrable Securities and any other sellers
participating in the registration statement on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) to the Company bear to the total net proceeds from the
offering (before deducting expenses) to the sellers of Registrable Securities
and any other sellers participating in the registration statement. The relative
fault of the Company on the one hand and of the sellers of Registrable
Securities and any other sellers participating in the registration statement on
the other shall be determined by reference to, among other things, whether the
untrue or alleged omission to state a material fact relates to information
supplied by the Company or by the sellers of Registrable Securities or other
sellers participating in the registration statement and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the sellers of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this paragraph 6 were
determined by pro rata allocation (even if the sellers of Registrable Securities
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
paragraph 6, no seller of Registrable Securities shall be required to contribute
any amount in excess of the net proceeds received by such seller from the sale
of Registrable Securities covered by the registration statement filed pursuant
hereto. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
(f) The indemnification and contribution by any such party provided for
under this Agreement shall be in addition to any other rights to indemnification
or contribution which any indemnified party may have pursuant to law or contract
and will remain in full force and effect regardless of any investigation made or
omitted by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and will survive the transfer of
securities.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements (including, without
limitation, pursuant to the terms of any over-allotment or "green shoe" option
requested by the managing underwriter(s), provided that no holder of Registrable
Securities will be required to sell more than the number of Registrable
Securities that such holder has requested the Company to include in any
registration) and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
(b) Each Person that is participating in any registration hereunder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in paragraph 4(e) above, such Person will forthwith
discontinue the disposition of its Registrable Securities pursuant to the
registration statement until such Person's receipt of the copies of a
supplemented or amended prospectus as contemplated by such paragraph 4(e). In
the event the Company shall give any such notice, the applicable time period
mentioned in paragraph 4(b) during which a Registration Statement is to remain
effective shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to this paragraph to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by paragraph 4(e).
8. CURRENT PUBLIC INFORMATION. At all times after the Company has filed a
registration statement with the Securities and Exchange Commission pursuant to
the requirements of either the Securities Act or the Securities Exchange Act,
the Company will file all reports required to be filed by it under the
Securities Act and the Securities Exchange Act and the rules and regulations
adopted by the Securities and Exchange Commission thereunder, and will take such
further action as any holder or holders of Registrable Securities may reasonably
request, all to the extent required to enable such holders to sell Registrable
Securities pursuant to Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission.
9. DEFINITIONS.
"ANTARES REGISTRABLE SECURITIES" means (i) any shares of Common Stock
issued or issuable upon conversion of the Preferred Stock issued to Antares
pursuant to the Purchase Agreement, (ii) any shares of Common Stock otherwise
acquired by Antares, and (iii) any shares of Common Stock issued or issuable
directly or indirectly with respect to the securities referred to in clauses
(i)or (ii) above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization, including a recapitalization or exchange. For purposes of this
Agreement, a Person will be deemed to be a holder of Antares Registrable
Securities whenever such Person has the right to acquire directly or indirectly
such Antares Registrable Securities (upon conversion or exercise in connection
with a transfer of securities or otherwise, but disregarding any, restrictions
or limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
"GTCR REGISTRABLE SECURITIES" means (i) any shares of Common Stock issued
or issuable upon conversion of the Preferred Stock issued to GTCR pursuant to
the Purchase Agreement or thereafter acquired by GTCR, (ii) any shares of Common
Stock otherwise acquired by GTCR, and (iii) any shares of Common Stock issued or
issuable directly or indirectly with respect to the securities referred to in
clauses (i)or (ii) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization, including a recapitalization or exchange. For purposes
of this Agreement, a Person will be deemed to be a holder of GTCR Registrable
Securities whenever such Person has the right to acquire directly or indirectly
such GTCR Registrable Securities (upon conversion or exercise in connection with
a transfer of securities or otherwise, but disregarding any, restrictions or
limitations upon the exercise of such right), whether or not such acquisition
has actually been effected.
"PERSON" means an individual, a partnership, a joint venture, an
association, a joint stock company, a corporation, a limited liability company,
a trust, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PREFERRED STOCK" means the Series A Convertible Preferred Stock, par value
$.01 per share, of the Company.
"PURCHASE OPTIONS" means the Purchase Options dated May 18, 1993 with the
various parties thereto to purchase an aggregate of 125,000 shares of Common
Stock and 125,000 warrants to purchase Common Stock.
"REGISTRABLE SECURITIES" means GTCR Registrable Securities and Antares
Registrable Securities. As to any particular shares constituting Registrable
Securities, such shares will cease to be Registrable Securities when they (x)
have been effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (y) sold to the public
pursuant to Rule 144 (or by similar provision then in force) under the
Securities Act or (z) have become eligible to be sold without restrictions or
volume limitations.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar federal law then in force.
"TOTAL REGISTRABLE SECURITIES" means the Registrable Securities plus the
Other Registrable Securities.
Unless otherwise stated, other capitalized terms contained herein have the
meanings set forth in the Purchase Agreement.
10. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will not take
any action, or permit any change to occur, with respect to its securities which
would materially and adversely affect the ability of the holders of Registrable
Securities to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or which would adversely affect the marketability of
such Registrable Securities in any such registration.
(c) REMEDIES. Any Person having rights under any provisions of this
Agreement shall be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party hereto shall have the right
to injunctive relief, in addition to all of its other rights and remedies at law
or in equity, to enforce the provisions of this Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the Registrable
Securities; provided, however, that in the event that such amendment or waiver
would treat a holder or group of holders of Registrable Securities materially
and adversely differently from any other holders of Registrable Securities, then
such amendment or waiver will require the consent of such holder or the holders
of a majority of the Registrable Securities of such group materially adversely
treated.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. In addition, and whether or not any express assignment
shall have been made, the provisions of this Agreement which are for the benefit
of the holders of Registrable Securities (or any portion thereof) as such shall
be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities (or of such portion thereof).
(f) SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement shall be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
(g) COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(i) GOVERNING LAW. The corporate law of the State of Delaware shall govern
all issues and questions concerning the relative rights and obligations of the
Company and its stockholders. All other issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York. In furtherance of the foregoing,
the internal law of the State of New York shall control the interpretation and
construction of this Agreement, even though under that jurisdiction's choice of
law or conflict of law analysis, the substantive law of some other jurisdiction
would ordinarily apply.
(j) NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when personally delivered or
received by certified mail, return receipt requested, or sent by guaranteed
overnight courier service. Such notices, demands and other communications will
be sent to the GTCR at the address indicated below and to any subsequent holder
of Registrable Securities at such address as indicated by the Company's records,
or at such address or to the attention of such other person as the recipient
party has specified by prior written notice to the sending party, and to the
Company at the address indicated below:
IF TO THE COMPANY:
Esquire Communications, Ltd.
216 East 45th Street, 8th Floor
New York, NY 10017
Attention: Malcolm L. Elvey
Telecopier No.: (212) 557-5972
WITH A COPY TO:
Stroock & Stroock & Lavan
7 Hanover Square
New York, NY 10004
Attention: Martin H. Neidell
Telecopier No.: (212) 806-6006
IF TO GTCR:
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
c/o Golder, Thoma, Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606
Attention: Joseph P. Nolan
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Kevin R. Evanich
John A. Schoenfield
IF TO ANTARES:
Antares Leveraged Capital Corp.
311 S. Wacker Drive, Suite 2725
Chicago, IL 60606
Attention: Steve Robinson
WITH A COPY TO:
Katten, Muchin & Zavis
525 West Monroe, suite 1600
Chicago, IL 60661
Attention: Stuart Shulruff
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * * * *
IN WITNESS WHEREOF, the parties have executed this
Registration Agreement on the day and year first above written.
ESQUIRE COMMUNICATIONS LTD.
By:/s/
Its: Chairman of the Board
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.
By: GTCR IV, L.P., General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its: General Partner
By: /s/
Its: Principal
[Continuation of Registration Agreement Signature Page]
ANTARES LEVERAGED CAPITAL CORP.
By: /s/
Its: Director
Exhibit 10.7
AGREEMENT
Agreement dated as of October 23, 1996, by and among Esquire Communications
Ltd. (the "Company"), Golder, Thoma, Cressy, Rauner Fund IV, L.P. ("GTCR") and
the persons or entities listed on Schedule A attached hereto (GTCR and such
persons or entities are collectively referred to herein as the "Stockholders").
W I T N E S S E T H :
WHEREAS, the Stockholders have been granted registration rights by the
Company to register shares of Common Stock of the Company which now may be owned
by them or which may be acquired by them in the future (the "Registrable
Securities") on registration statements to be filed by the Company or by other
holders of registration rights; and
WHEREAS, the Stockholders propose to provide for an orderly fashion
pursuant to which their Registrable Securities may be included in any
registration statement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, the parties hereto agree as follow:
1. If a Stockholder requests registration of its Registrable Securities
pursuant to demand registration rights granted to it and if the managing
underwriters advise the Company in writing (with a copy to each Stockholder
requesting registration of its Registrable Securities) that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of such offering, then the Company will include in such
registration, (i) first, the number of Registrable Securities requested to be
included by the Stockholders which in the opinion of such underwriters can be
sold without adverse effect, pro rata among the holders of Registrable
Securities on the basis of the total number of Registrable Securities owned by
each such Stockholder, (ii) second, any securities the Company is required to
include pursuant to registration rights granted by the Company prior to the date
hereof, and (iv) next, if available, securities held by any other holders of
registration rights pro rata among such holders based on the number of
securities requested to be included.
2. If at any time the Stockholders are entitled to include Registrable
Securities owned by them in any primary registration on behalf of the Company
and if the managing underwriters advise the Company in writing (with a copy to
each Stockholder requesting registration of its Registrable Securities) that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of such offering, then the Company will
include in such registration, (i) First, the securities the Company proposes to
sell, (ii) second, any securities the Company is required to include pursuant to
the Purchase Options, (iii) third, any securities held by persons other than the
Stockholders which the Company is required to include pursuant to registration
rights granted by the Company prior to the date hereof, (iv) fourth Registrable
Securities held by the Stockholders, pro rata among the holders of Registrable
Securities on the basis of the total number of Registrable Securities owned by
each such Stockholder and (v) next, if available, securities held by any other
holders of registration rights pro rata among such holders based on the number
of securities requested to be included.
3. If at any time the Stockholders are entitled to include Registrable
Securities owned by them in any registration statement other than pursuant to
Section 1 or 2 hereof and if the managing underwriters advise the Company in
writing (with a copy to each Stockholder requesting registration of its
Registrable Securities) that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of such offering, then
the Company will include in such registration, (i) first, the securities
requested to be included therein by the holders requesting such registration,
(ii) second, any securities the Company is required to include pursuant to the
Purchase Options, (iii) third, any securities held by persons other than the
Stockholders which the Company is required to include pursuant to registration
rights granted by the Company prior to the date hereof, (iv) fourth, Registrable
Securities held by the Stockholders, pro rata among the holders of Registrable
Securities on the basis of the total number of Registrable Securities owned by
each such Stockholder and (v) next, if available, securities held by any other
holders of registration rights pro rata among such holders based on the number
of securities requested to be included.
4. In the event the registration is in connection with a secondary offering
on behalf of holders of Purchase Options dated May 18, 1993 to purchase an
aggregate of 125,000 shares of Common Stock and 125,000 warrants issued in
connection with the Company's initial public offering (the "Purchase Options"),
then the prior written consent of the "Majority Holders of the Registrable
Securities" (as defined in the Purchase Options) shall be required for inclusion
of any Registrable Securities.
5. This Agreement may be executed in one or more counterparts, each of
which shall be an original, and all of which taken together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first above written.
ESQUIRE COMMUNICATIONS LTD.
By:______________________
GOLDER THOMA, CRESSY, RAUNER
FUND IV. L.P.
By:________________________
David J. Feldman
THE SARNOFF TRUST
By: ________________________
Cary A. Sarnoff, Trustee
By: ________________________
Michell A. Sarnoff, Trustee
ALLIED INVESTMENT CORPORATION
By:__________________________
ALLIED INVESTMENT CORPORATION II
By:____________________________
ALLIED CAPITAL CORPORATION
By:____________________________
SCHEDULE A
Allied Investment Corporation
Allied Investment Corporatiion II
Allied Capital Corporation
David Feldman
The Sarnoff Trust
