<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997
REGISTRATION STATEMENT NO. 333
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ESQUIRE COMMUNICATIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7338 13-3703760
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
216 EAST 45TH STREET
8TH FLOOR
NEW YORK, NEW YORK 10017
(212) 687-8010
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MALCOLM L. ELVEY
CHIEF EXECUTIVE OFFICER
ESQUIRE COMMUNICATIONS LTD.
216 EAST 45TH STREET
8TH FLOOR
NEW YORK, NEW YORK 10017
(212) 687-8010
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
MARTIN H. NEIDELL, ESQ.
STROOCK & STROOCK & LAVAN
SEVEN HANOVER SQUARE
NEW YORK, NEW YORK 10004-2696
(212) 806-5836
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
MAXIMUM AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value............ 340,450 shares $2.4375 per share $ 829,847 $252
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) on the basis of the price of the Common Stock on
the Nasdaq Stock Market.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 14, 1997
PROSPECTUS
ESQUIRE COMMUNICATIONS LTD.
OFFER TO EXCHANGE COMMON STOCK
FOR
ANY AND ALL
OUTSTANDING REDEEMABLE COMMON STOCK PURCHASE WARRANTS
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
This Prospectus of Esquire Communications Ltd., a Delaware corporation (the
'Company'), is being furnished to the holders of the Company's Redeemable Common
Stock Purchase Warrants (the 'Warrants'). The holders of the Warrants are hereby
being asked to participate in a Warrant exchange offer (the 'Exchange Offer').
The Company hereby offers to the holders of the Warrants (the 'Warrantholders'),
upon the terms and subject to the conditions set forth in this Prospectus and
the accompanying Letter of Transmittal, to exchange one share of the Company's
common stock, par value $.01 ('Common Stock'), for each five Warrants (the
'Exchange Rate').
The expiration date of the Exchange Offer is 5:00 p.m., New York City time,
on , 1997 (the 'Expiration Date'), unless the Expiration Date is
extended, in which case the Expiration Date will be the latest date and time to
which the Expiration Date is extended.
On , 1997, the closing price of a share of Common Stock, as
reported on the Nasdaq Stock Market, was , and the closing price of
a Warrant as so reported was $ .
Tendering Warrantholders will not be obligated to pay transfer taxes or
exchange commissions in connection with the Exchange Offer. Tenders are
irrevocable, except that Warrants tendered pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date, and unless theretofore accepted for
exchange, may be withdrawn after 5:00 p.m., New York City time, on ,
1997.
------------------------
IN EVALUATING THE EXCHANGE OFFER, THE WARRANTHOLDERS ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THE FACTORS DESCRIBED UNDER 'RISK FACTORS' ON PAGE 8
BELOW.
------------------------
THE SECURITIES TO BE ISSUED IN THE EXCHANGE OFFER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
<PAGE>
NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED HEREIN, IN CONNECTION WITH THE
SOLICITATION AND THE OFFERING MADE BY THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF OR AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY
JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'). In accordance with the
Exchange Act, the Company files proxy statements, reports and other information
with the Securities and Exchange Commission (the 'SEC'). This filed material can
be inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices in Chicago, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and in New York, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may also be obtained by mail from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The SEC maintains a Web Site address which contains reports,
proxy and information statements and other information regarding the registrants
that file electronically with the SEC. The address of such site is
http://www.sec.gov.
The Company has filed with the SEC a Registration Statement on Form S-4
(together with any amendments thereto, the 'Registration Statement') under the
Securities Act of 1933, as amended (the 'Securities Act') with respect to the
Warrants to be exchanged for Common Stock. Copies of the Registration Statement
are available from the SEC upon payment of prescribed rates. Statements
contained in this Prospectus relating to the contents of any contract or other
document referred to herein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Prospectus or such other document, each such statement being
qualified in all respects by such reference.
The shares of Common Stock are listed on the Nasdaq Stock Market and the
Boston Stock Exchange. Reports and other information concerning the Company may
be inspected at such places.
2
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Available Information.................................................................................. 2
Prospectus Summary..................................................................................... 5
The Company....................................................................................... 5
The Exchange Offer................................................................................ 5
Use of Proceeds................................................................................... 7
Risk Factors...................................................................................... 7
Risk Factors........................................................................................... 8
History of Losses; Accumulated Deficit; Stockholder's Deficit; Negative Tangible Book Value....... 8
Possible Fluctuations in Revenues................................................................. 8
Acquisitions...................................................................................... 8
Possible Need for Additional Financing............................................................ 8
Trends in Litigation; Alternatives to the Litigation Process...................................... 9
Changing Technology............................................................................... 9
Substantial Level of Indebtedness................................................................. 9
Reliance on Key Employee.......................................................................... 9
Competitive Industry.............................................................................. 9
Control by Insiders............................................................................... 9
Determination of Exchange Rate and Possible Volatility of Price of Common Stock................... 10
Authorization and Discretionary Issuance of Preferred Stock....................................... 10
No Dividends Contemplated on Common Stock......................................................... 10
Potential Adverse Effect of Redemption of Warrants Not Exchanged in the Exchange Offer............ 10
Nasdaq Listing.................................................................................... 10
Use of Proceeds........................................................................................ 11
Price Range of the Company's Securities................................................................ 11
Capitalization......................................................................................... 12
Dividend Policy........................................................................................ 12
Selected Consolidated Financial Data................................................................... 12
Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 14
Introduction...................................................................................... 14
Results of Operations............................................................................. 14
Comparison of the Three and Nine Months ended September 30, 1996 and 1995.................... 14
Comparison of the Years ended December 31, 1995 and 1994..................................... 15
Comparison of the Years ended December 31, 1994 and 1993..................................... 15
Liquidity and Capital Resources................................................................... 16
Other Matters..................................................................................... 16
Business............................................................................................... 17
General........................................................................................... 17
The Court Reporting Industry...................................................................... 17
Services and Technology........................................................................... 17
Acquisition Strategy.............................................................................. 18
Competitive Factors............................................................................... 20
Clients and Marketing............................................................................. 20
Human Resources................................................................................... 20
Properties........................................................................................ 21
Legal Proceedings................................................................................. 21
Recent Events..................................................................................... 21
Management............................................................................................. 23
Directors and Executive Officers.................................................................. 23
Compliance with Section 16(a) of the Securities Exchange Act of 1934.............................. 24
Executive Compensation............................................................................ 24
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Summary Compensation Table........................................................................ 25
Employment and Related Agreements................................................................. 25
Stock Option Plan................................................................................. 26
The Exchange Offer..................................................................................... 26
Purpose and Effects of the Exchange Offer......................................................... 26
Description of the Warrants....................................................................... 26
Effect of the Exchange Offer on the Warrantholders................................................ 27
Terms of the Exchange Offer....................................................................... 27
IPO Unit Options.................................................................................. 28
Expiration Date; Extensions; Amendments........................................................... 28
Procedure for Tendering Warrants.................................................................. 29
Guaranteed Delivery Procedures.................................................................... 30
Assistance........................................................................................ 30
Acceptance of Warrants for Exchange............................................................... 31
Withdrawal Rights................................................................................. 31
Conditions to the Exchange Offer.................................................................. 31
Fractional Shares................................................................................. 32
Solicitation of Warrantholders.................................................................... 33
Transfer Taxes.................................................................................... 33
Certain U.S. Federal Income Tax Considerations.................................................... 33
The Exchange Agent................................................................................ 34
Warrant Transfer Agent............................................................................ 34
Description of Securities.............................................................................. 34
Common Stock...................................................................................... 34
Preferred Stock................................................................................... 34
Legal Matters.......................................................................................... 35
Experts................................................................................................ 35
</TABLE>
4
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including notes thereto, appearing elsewhere in this Prospectus.
Each Warrantholder is urged to read this Prospectus in its entirety.
THE COMPANY
Esquire Communications Ltd. (the 'Company') is a court reporting firm using
state-of-the-art technology to provide printed and computerized transcripts and
video recordings of testimony from depositions to the legal profession primarily
in the New York City metropolitan, Southern California and Washington, D.C.
areas. The Company's strategy is to become a national court reporting firm by
acquiring court reporting companies in major business communities around the
country. The Company believes that by expanding through the acquisition of
established court reporting companies in major cities, the Company will achieve
a significant national presence in the court reporting industry. In evaluating a
prospective acquisition candidate, management of the Company considers the
following material factors: (i) financial condition and results of operations;
(ii) experience and skill of management and management's availability after the
acquisition; (iii) growth potential; (iv) costs associated with the consummation
of the acquisition; and (v) customer base and reputation. The size, nature and
geography of the early acquisitions will determine the pace of the Company's
achievement of national coverage. The Company believes that there are a number
of suitable acquisition candidates in the size range contemplated, and that
national status could be achieved by acquiring an additional 10 to 12 firms in
major metropolitan areas.
The court reporting industry traditionally has consisted of many small
firms relying on personal relationships and quality service. With the advent of
sophisticated and rapidly changing technologies, aggressive marketing and
professional management, the Company believes that some of these small firms are
unlikely to be able to make the necessary capital investments required to
compete effectively against better capitalized competitors. This environment
creates the acquisition opportunities on which the Company intends to
capitalize.
On October 23, 1996, the Company sold an aggregate of 7,500 shares of
Series A Convertible Preferred Stock (the 'Series A Preferred Stock'), for an
aggregate purchase price of $7,500,000. The holders of Series A Preferred Stock
have the right within 21 months to acquire up to an additional 7,500 shares of
Series A Preferred Stock at a price of $1,000 per share. The Series A Preferred
Stock is convertible into Common Stock of the Company at a conversion price of
$3.00 per share (subject to anti-dilution adjustments) and bears cumulative
annual dividends at the rate of 6% per annum. In addition, on October 28, 1996,
the Company acquired the assets of M&M Reporting Referral Service, Inc., a
Southern California-based court reporting company, on November 15, 1996, the
Company acquired the assets of Sherry Roe & Associates, a Washington, D.C.-based
court reporting company and on January 3, 1997, the Company acquired the assets
of Nevill & Swinehart and Pelletier & Jones, two Southern California-based court
reporting companies. On December 24, 1996, the Company entered into a Credit
Agreement (the 'Credit Agreement') with Antares Leveraged Capital Corp. pursuant
to which the Company may borrow from time to time up to an aggregate principal
amount of $20 million. See 'Business -- Recent Events.'
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Expiration................................... The Exchange Offer expires at 5:00 p.m., New York City time, on
, 1997, unless extended (the 'Expiration Date').
Terms of Exchange............................ One share of Common Stock for each five Warrants tendered.
Fractional Shares............................ No fractional shares of Common Stock will be issued.
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Number of Warrants........................... The Company will accept all Warrants validly tendered and not
withdrawn prior to the Expiration Date.
Market for the Common Stock.................. The shares of Common Stock are quoted on the Nasdaq Stock Market
and the Boston Stock Exchange under the symbol 'ESQS.'
Tender Procedures............................ Any Warrantholder wishing to accept the Exchange Offer should
complete the accompanying Letter of Transmittal.
If a Warrantholder holds Warrants in book-entry form, such
Warrantholder may participate in the Exchange Offer by complying
with the procedures for book-entry transfer set forth under 'The
Exchange Offer -- Procedure for Tendering Warrants.' A
Warrantholder may also request his broker, dealer, commercial
bank, trust company or other nominee to effect the transaction
for him. A Warrantholder having shares registered in the name of
a broker, dealer, commercial bank, trust company or other
nominee must contact that broker, dealer, commercial bank, trust
company or other nominee if he tenders shares.
Warrantholders whose certificates are not immediately available or
who cannot deliver the Letter of Transmittal or other documents
required to be delivered to the Exchange Agent prior to the
expiration of the Exchange Offer may nevertheless tender
Warrants in accordance with the guaranteed delivery procedures
described herein. See 'The Exchange Offer -- Guaranteed Delivery
Procedures.'
Tax Consequences............................. Warrantholders are urged to consult their own tax advisors as to
the specific tax consequences to them of the Exchange Offer. See
'The Exchange Offer -- Certain U.S. Federal Income Tax
Considerations.'
Withdrawal Rights............................ Tenders may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date and unless theretofore
accepted for exchange by the Company, may also be withdrawn
after 5:00 p.m., New York City time, on , 1997. To
be effective, a written, telegraphic or facsimile notice of
withdrawal must be received in a timely manner by the Exchange
Agent. See 'The Exchange Offer -- Withdrawal Rights.'
Exchange Agent............................... Continental Stock Transfer & Trust Company is the exchange agent
(the 'Exchange Agent') for the Exchange Offer.
Failure to Participate in Exchange Offer..... The reduced amount of outstanding Warrants as a result of the
Exchange Offer may limit the trading market for the Warrants,
may adversely effect their liquidity and market price and may
terminate their continued listing on The Boston Stock Exchange
and the Nasdaq Stock Market. Holders of the Warrants who do not
exchange their Warrants for shares of Common Stock in the
Exchange Offer will be entitled to receive shares of Common
Stock upon exercise of the Company's Warrants upon the same
terms and conditions as are contained in the Warrants. See 'The
Exchange Offer -- Effect of the Exchange Offer on the
Warrantholders.'
</TABLE>
6
<PAGE>
<PAGE>
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
THAT WARRANTHOLDERS TENDER OR REFRAIN FROM TENDERING THEIR WARRANTS, AND NO ONE
HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION ON BEHALF OF THE COMPANY.
THIS IS A MATTER FOR EACH WARRANTHOLDER TO DETERMINE AFTER CONSULTATION WITH HIS
ADVISORS, INCLUDING TAX COUNSEL, ON THE BASIS OF HIS OWN FINANCIAL POSITION AND
REQUIREMENTS. SEE 'THE EXCHANGE OFFER -- CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS.'
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
RISK FACTORS
Investment in the securities of the Company involves a high degree of risk,
including, but not limited to, risks resulting from the Company's financial
condition, the current trend toward alternatives to the litigation process,
technological changes in the Company's industry, numerous competing firms in the
Company's industry, and the Company's acquisition and growth strategy. See 'Risk
Factors.'
7
<PAGE>
<PAGE>
RISK FACTORS
The following are certain risk factors or investment considerations that
should be carefully considered in evaluating the Exchange Offer, in addition to
the risks and other information described elsewhere in this Prospectus.
1. History of Losses; Accumulated Deficit; Stockholder's Deficit; Negative
Tangible Book Value. Although the Company was profitable in 1995, the Company
incurred a net loss of $183,000 for its fiscal year ended December 31, 1994 and
a net loss of $66,000 for the nine month period ended September 30, 1996. There
is no assurance that the Company will be profitable in the future. As of
September 30, 1996, the Company had an accumulated deficit of $410,000, a total
stockholders' equity of $7,334,000, a negative tangible book value (excess of
liabilities over tangible assets) of $5,794,000 and a working capital deficiency
of $1,406,000. See 'Management's Discussion and Analysis of Financial Condition
and Results of Operations.'
2. Possible Fluctuations in Revenues. The Company's revenues can fluctuate
widely from period to period as a result of the absence or presence of
significant non-recurring litigation matters. Large complex litigation cases can
result in bursts of revenues over a relatively short period. The Company's
revenues can also be adversely affected by a general economic recession that
reduces demand for court reporters. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
3. Acquisitions. The business strategy of the Company involves growth
through acquisitions and internal development. The Company is subject to various
risks associated with its growth strategy, including the risk that it will be
unable to identify and recruit suitable acquisition candidates in the future or
to integrate and manage the acquired court reporting businesses.
The Company has recently completed acquisitions and is still in the process
of integrating those acquired businesses. While the business plans of these
acquired companies are similar, their histories, geographical locations,
business models and cultures are different in many respects. The directors and
senior management of the Company face a significant challenge in their efforts
to integrate the acquired businesses. While management of the Company believes
that the diverse experience of the Company and the acquired companies will
strengthen the Company, there can be no assurance that management's efforts to
integrate the operations of the companies will be successful or that the
anticipated benefits of these business combinations will be fully realized. The
dedication of management resources to such efforts may detract attention from
the day-to-day business of the Company. There can be no assurance that there
will not be substantial costs associated with such activities or that there will
not be other material adverse effects of these integration efforts, which could
have a material adverse effect on the Company's operating results. The Company's
current and anticipated future expansion has placed, and will continue to place,
significant demands on the management, operational and financial resources of
the Company. The Company will need to continue to augment its management and
operational systems to support growth both within existing and into new
geographic markets. There can be no assurance that the Company will be able to
manage its expanded operations effectively.
Pursuant to Delaware general corporate law, stockholders of the Company
will have the opportunity to evaluate potential acquisition candidates only in
the event that the Company consummates an acquisition through a merger of the
Company. In the likely event that the Company consummates an acquisition through
the purchase of the assets or stock of a business or the merger of a subsidiary
with an acquisition target, the stockholders will not have the right to approve
such acquisition. Therefore, the Company will be able to make an acquisition
which may be perceived by a stockholder as not within the best interests of the
Company. If the Company is successful in consummating any acquisitions, there
can be no assurance that it will be able to successfully integrate such
acquisitions into its existing operations. Furthermore, there can be no
assurance that the Company will consummate a sufficient number of acquisitions
to achieve its ultimate goal of becoming a national court reporting firm.
4. Possible Need for Additional Financing. In connection with the Company's
acquisition strategy, the Company anticipates effecting acquisitions with cash
from bank or other debt financing, and/or the issuance of additional equity or
debt securities. The Company has recently entered into a new Credit
8
<PAGE>
<PAGE>
Agreement which provides the Company with up to $20 million of borrowings on a
secured basis. The Credit Agreement contains certain restrictive covenants with
respect to incurring additional debt, investments, distributions, acquisitions
and capital expenditures and also requires the maintenance of certain financial
ratios and covenants. In the event that the Company issues additional securities
with or without incurring bank or other debt financing, such issuance will have
the effect of diluting the interests of the stockholders of the Company. See
'Business -- Acquisition Strategy.'
5. Trends in Litigation; Alternatives to the Litigation Process. Due to the
large volume, complexity and resulting high cost of litigation in the United
States, corporate litigants, governmental agencies, and legal professional
associations are investigating potential changes to existing litigation
procedures and alternatives to the litigation process. Various proposals are
under consideration to limit the number and length of pretrial depositions, and
to substitute audio- and/or video-tape recording for stenographic transcription
of proceedings which may reduce or eliminate the use of court reporters. In
addition, certain alternatives to litigation, such as mediation and arbitration,
are increasingly being used to avoid the litigation process. These or other
trends that reduce litigation and related pretrial depositions could have a
material adverse impact on the Company's business. See 'Business -- Competitive
Factors.'
6. Changing Technology. The Company's business is subject to changes in
technology and new service introductions. Accordingly, the Company's ability to
compete will be dependent upon its ability to adapt to technological changes in
the industry and to develop services based on those changes to satisfy evolving
client requirements. Technological advances may create new products or services
that are competitive with, superior to, or render obsolete the services
currently provided by the Company. There can be no assurance that current
technologies, or technologies yet to emerge, will not in the future compete with
or replace the services provided by the Company. See 'Business -- Competitive
Factors.'
7. Substantial Level of Indebtedness. The Company has a substantial amount
of outstanding indebtedness. As of September 30, 1996, the Company had
approximately $11.4 million of debt. The Company's level of indebtedness could
have important consequences to the holders of the Common Stock, including the
following: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of the principal of and interest on its
indebtedness and will not be available for other purposes; (ii) the ability of
the Company to obtain financing in the future for working capital needs, capital
expenditures, acquisitions, investments, general corporate purposes or other
purposes may be materially limited or impaired; and (iii) the Company's level of
indebtedness may reduce the Company's flexibility to respond to changing
business and economic conditions. Subject to certain limitations contained in
its outstanding debt instruments, the Company may incur additional indebtedness
to finance working capital or capital expenditures, investments or acquisitions
or for other purposes. Substantially all of the Company's assets serve as
collateral security for the Company's indebtedness to its lenders.
8. Reliance on Key Employees. The Company's success depends largely upon
the abilities of Malcolm L. Elvey, Chairman of the Board of Directors and Chief
Executive Officer, Cary A. Sarnoff, Vice Chairman of the Board, and David
Feldman, President. The loss of the services of these people could have a
negative impact on the Company. The Company has employment agreements with each
of these persons. In addition, the Company has purchased and is the beneficiary
of a $1,000,000 key-man insurance policy on the life of Mr. Elvey. See
'Management.'
9. Competitive Industry. The Company competes with numerous other companies
offering many of the same services. Competition is based upon factors such as
the existence of personal relationships with clients and other reporting
agencies and price, service and reputation. Some of the Company's competitors
are larger, have greater resources and are more established than the Company.
The Company is not able at this time to accurately evaluate its competitive
position in the industry. There is no assurance that the Company will be able to
compete successfully in the future. See 'Business -- The Court Reporting
Industry' and 'Business -- Competitive Factors.'
10. Control by Insiders. In connection with the Series A Preferred Stock
Purchase Agreement, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ('GTCR'),
Antares Leveraged Capital Corp., Malcolm L. Elvey, Chairman of the Board and
Chief Executive Officer of the Company, Cary A. Sarnoff, Vice Chairman of the
Company, David J. Feldman, President of the Company, CMNY Capital L.P. and
9
<PAGE>
<PAGE>
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 the Company's Board
of Directors approves a sale of the Company'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. In addition, GKN Securities Corp.
and Allied terminated their rights to designate directors of the Company.
11. Determination of Exchange Rate and Possible Volatility of Price of
Common Stock. The Exchange Rate has been determined by the Company and does not
necessarily have any relationship to the Company's assets, book value, results
of operations or any other generally accepted criteria of value or should it be
regarded as indicative of the intrinsic or market value of the Warrants. In
addition, the trading prices of the Common Stock issued in exchange for the
Warrants could be subject to wide fluctuations in response to quarterly
variations in operating results, announcements or material business events by
the Company or its competitors and other events or factors.
12. Authorization and Discretionary Issuance of Preferred Stock. The
Company's Certificate of Incorporation authorizes the issuance of 'blank check'
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. The preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company, which could have the effect of discouraging bids for the
Company and, thereby, prevent stockholders from receiving the maximum value for
their shares. See 'Business -- Recent Events;' 'Description of Securities.'
13. No Dividends Contemplated on Common Stock. To date, the Company has not
paid any cash or other dividends on its Common Stock and does not anticipate
paying dividends in the foreseeable future. The Series A Preferred Stock and
Credit Agreement contain restrictions on the Company's ability to pay cash
dividends. See 'Dividend Policy.'
To the extent Warrantholders participate in the Exchange Offer, the trading
market for, and liquidity of, the Warrants which remain outstanding, if any,
could be reduced. In addition, such Warrants may no longer be traded on either
the Boston Stock Exchange or the Nasdaq Stock Market and may no longer be
registered securities pursuant to the Exchange Act.
14. Potential Adverse Effect of Redemption of Warrants Not Exchanged in the
Exchange Offer. The Warrants may be redeemed by the Company, at a price of $.01
per Warrant, at any time they are exercisable, subject to not less than 30 days
prior written notice to the holders thereof, provided that the last sale price
of the Common Stock has been at least 150% of the then-effective exercise price
of the Warrants on each of the 20 consecutive trading days ending on the third
day prior to the day on which notice is given. Notice of the redemption of the
Warrants could force the holders thereof to exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, to
sell the Warrants at the then-current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price which is likely to
be substantially less than the market value of the Warrants at the time of
redemption. See 'The Exchange Offer -- Description of the Warrants.'
15. Nasdaq Listing. Although the Company's Common Stock is currently listed
on the Nasdaq Stock Market and Boston Stock Exchange, there is no assurance that
the Company meets or will continue to meet the listing requirements of the
Nasdaq Stock Market. Accordingly, it is possible that the Common Stock may be
delisted from the Nasdaq Stock Market. The Company does not meet Nasdaq's
proposed new maintenance listing standards.
10
<PAGE>
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
PRICE RANGE OF THE COMPANY'S SECURITIES
Effective May 18, 1993, the Common Stock and Warrants of the Company were
listed on the Boston Stock Exchange and Nasdaq Stock Market under the symbols
'ESQS' and 'ESQSW,' respectively. The following table sets forth for the
calendar periods indicated the high and low bid prices on the Nasdaq Stock
Market for the Common Stock and Warrants for the period commencing January 1,
1995. The prices set forth below do not include retail mark-ups, mark-downs or
commissions and represent prices between dealers and are not necessarily actual
transactions.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
---------------- ------------------
HIGH LOW HIGH LOW
------ ------ ------- -------
<S> <C> <C> <C> <C>
1996
First Quarter............................................ $3.50 $2.75 $0.9688 $0.625
Second Quarter........................................... 3.50 2.75 1.00 0.75
Third Quarter............................................ 3.25 2.00 0.9375 0.3125
Fourth Quarter........................................... 3.375 2.125 0.6895 0.375
1995
First Quarter............................................ $3.50 $2.875 $0.7813 $0.5625
Second Quarter........................................... 3.50 2.625 0.7813 0.4375
Third Quarter............................................ 3.375 2.375 0.7188 0.375
Fourth Quarter........................................... 3.063 2.625 0.75 0.625
</TABLE>
There were approximately 62 shareholders of record of Common Stock as of
January 2, 1997. This number does not include beneficial owners holding shares
through nominee or 'street' names. The Company believes that it has more than
2,000 beneficial holders of Common Stock.
11
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996, as adjusted to reflect the acquisitions of M&M, Sherry Roe &
Associates, Nevill & Swinehart and Pelletier & Jones (including related
adjustments required under purchase accounting), the receipt and use of proceeds
from the issuance of the Series A Preferred Stock, the repurchase of Common
Stock of the Company, borrowings and use of proceeds under the Credit Agreement
and the consummation of the Exchange Offer. See Notes to Pro Forma Combined
Financial Information.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, including current portion...................................... $11,421 $16,412
Stockholders' equity:
Preferred Stock $.01 par value, 1,000,000 shares authorized; 7,500 shares
issued, as adjusted..................................................... -- 6,700
Common Stock, $.01 par value, 25,000,000 shares authorized; 4,126,823
shares issued and outstanding; 4,771,279 shares issued and outstanding,
as adjusted............................................................. 41 47
Additional paid-in capital..................................................... 7,703 8,214
Treasury stock, as adjusted.................................................... -- (1,301)
Accumulated deficit............................................................ (410) (558)
------- -----------
Total stockholders' equity..................................................... 7,334 13,102
------- -----------
Total capitalization...................................................... $18,755 $29,514
------- -----------
------- -----------
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid cash or other dividends on its
Common Stock. The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements and financial condition, and other relevant
factors. Pursuant to the Series A Preferred Stock and the Credit Agreement, the
Company is currently prohibited from paying cash dividends. The Company
presently intends to retain all earnings for use in its business and does not
anticipate paying dividends on its Common Stock in the foreseeable future.
SELECTED CONSOLIDATED FINANCIAL DATA
The following statement of selected operating data for each of the three
years in the period ended December 31, 1995 and the balance sheet data as of
December 31, 1994 and 1995 are derived from the Company's financial statements,
which statements have been audited by Freed Maxick Sachs & Murphy, P.C.,
independent accountants.
The selected balance sheet data at September 30, 1996 and the selected
statement of operations data for the nine-month periods ended September 30, 1996
and 1995 have been derived from unaudited consolidated financial statements of
the Company which have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the Company's financial position and results of operations. The results for the
nine-month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
12
<PAGE>
<PAGE>
The financial information set forth below should be read in conjunction
with, and is qualified in its entirety by, the detailed information in the
financial statements and notes referenced above.
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------
1995 1994 1993 1996 1995
------- ------- ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
Revenues................................................ $20,692 $12,818 $5,584 $17,391 $15,384
Costs and expenses:
Operating expenses................................. 11,660 7,276 3,309 9,778 8,690
General and administrative expenses................ 6,120 4,496 1,849 5,769 4,453
Depreciation and amortization...................... 1,025 655 263 811 770
------- ------- ------ ------- -------
18,805 12,427 5,421 16,358 13,913
Income from operations.................................. 1,887 391 163 1,033 1,471
Other income (expense).................................. (1,059) (515) (160) (818) (796)
Income (loss) before provision for income taxes,
extraordinary loss and cumulative effect of change in
accounting............................................ 828 (124) 3 215 675
Provision for income taxes.............................. 549 59 29 281 439
------- ------- ------ ------- -------
Income (loss) before extraordinary loss and cumulative
effect of change in accounting........................ 279 (183) (26) (66) 236
Extraordinary loss (net of tax benefit)................. (73)
------- ------- ------ ------- -------
Income (loss) before cumulative effect of change in
accounting............................................ 279 (183) (99) (66) 236
Cumulative effect of change in accounting............... 160
------- ------- ------ ------- -------
Net income (loss)....................................... $ 279 ($ 183) $ 61 ($ 66) $ 236
------- ------- ------ ------- -------
------- ------- ------ ------- -------
Earnings per common share:
Income (loss) before extraordinary item and
cumulative effect of change in accounting........ $ 0.07 ($ 0.05) ($0.01) ($ 0.02) $ 0.06
Extraordinary loss................................. (0.03)
Cumulative effect of change in accounting.......... 0.07
------- ------- ------ ------- -------
Net income (loss)....................................... $ 0.07 ($ 0.05) $ 0.03 ($ 0.02) $ 0.06
------- ------- ------ ------- -------
------- ------- ------ ------- -------
Weighted average common shares outstanding.............. 4,125,348 3,694,420 2,417,508 4,126,823 4,124,851
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1996
------------------ ----------------------------
1995 1994 ACTUAL AS ADJUSTED(1)(2)
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............................................. $19,073 $17,113 $20,876 $31,984
Working capital (deficiency)............................. 1,601 1,881 (1,406) 2,622
Long-term debt including current portion................. 10,240 8,844 11,421 16,412
Total liabilities........................................ 11,674 10,204 13,542 18,882
Stockholders' equity..................................... $ 7,399 $ 6,908 $ 7,334 $13,102
</TABLE>
- ------------
Notes:
(1) The adjustments include those necessary to record the Company's acquisition
of M&M and the acquisitions of Sherry Roe, Nevill & Swinehart and Pelletier
& Jones (including related adjustments required under purchase accounting),
the receipt and use of proceeds from the private placement, the purchase of
the Company's outstanding stock, borrowing and use of proceeds from the
Credit Agreement and the proposed Exchange Offer.
(2) See Notes to Pro Forma Combined Financial information.
13
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The revenues of the Company are primarily derived from service fees for
recording the sworn testimony at depositions. The key variable in the Company's
operating expenses are the fees paid to the court reporters and transcribers
engaged by the Company. The different types of services provided by the Company
represent varying profit margins, with the highest profit margin for accelerated
delivery transcripts, transcript copies and compressed transcripts. In addition,
profit margins vary in the different geographic markets in which the Company
operates.
On June 22, 1994, the Company acquired Sarnoff Deposition Service, Inc.
('SDS'). In January 1995, the Company acquired the assets of Coleman Haas Martin
& Schwab, Inc. ('CHMS'). On July 26, 1996 the Company acquired the assets of
Kitlas Dickman & Associates ('KDA'). The acquisitions were accounted for under
the purchase method of accounting and accordingly their results of operations
have been included from their respective dates of acquisition.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Revenues increased for the three and nine month periods ended September 30,
1996 by approximately $411,000 or 7.9% and by $2,007,000 or 13.0%, respectively,
over the same periods of the prior year. Excluding revenues from KDA, the
revenues for the three and nine months increased by 4.9% and 12.1%, respectively
over the same periods of the prior year. The Company believes that the increase
in revenues was in part due to its marketing efforts and several large
multi-party projects undertaken in the three and nine month periods ended
September 30, 1996.
For the three month period ended September 30, 1996, operating expenses
increased by approximately $234,000 from $3,009,000 to $3,243,000, in line with
the revenue increase, and remained constant as a percentage of revenues at
57.5%. For the nine month period ended September 30, 1996, operating expenses
increased by approximately $1,088,000, from $8,690,000 to $9,778,000, in line
with the revenue increase, but declined as a percentage of revenues from 56.5%
to 56.2%.
General and administrative expenses for the nine month period ended
September 30, 1996 include approximately $150,000 relating to a loss resulting
from the future rental obligation pursuant to the lease for the Company's old
office space at 342 Madison Avenue, New York. See 'Business -- Properties.' It
is expected that the future rental obligation will exceed the anticipated
sublease rental income. Accordingly, an estimated discounted loss of
approximately $150,000 resulting from the excess of the lease obligation over
the expected sublease income during the remaining term of the lease has been
charged to operations during the nine months ended September 30, 1996. For the
three month period ended September 30, 1996, general and administrative expenses
increased by approximately $467,000 to $1,950,000 or 34.5% of revenues. For the
nine month period ended September 30, 1996 general and administrative expenses
excluding the sublease loss increased by $1,166,000 to $5,619,000 or 32.3% of
revenues. The increase was due in part to additional expenses incurred as a
result of the Company's Corporate Services Division, expenses related to the
acquisition of KDA and due to additional marketing and promotional costs
resulting from increased revenue levels.
The Company's new office in New York is substantially larger in size
compared with its old office without commensurate increase in rent. The Company
believes that a larger and better-equipped facility will enable it to provide
improved service to its clients.
Depreciation and amortization increased by $34,000 and $41,000 for the
three and nine month periods, respectively. Interest expense increased by
$16,000 and $20,000 for the three and nine month periods, respectively, due to
increased debt levels.
The Company generated a net loss for the three and nine month periods ended
September 1996 of approximately $135,000 and $66,000 compared to a net income of
approximately $81,000 and $236,000 over the same periods of the prior year. For
the three month period, earnings before interest, taxes,
14
<PAGE>
<PAGE>
depreciation and amortization ('EBITDA') decreased by $290,000 from $742,000 to
$452,000. For the nine month period, EBITDA decreased by $397,000 from
$2,241,000 to $1,844,000. Excluding the non-recurring sublease loss of $150,000
charged in the second fiscal quarter of 1996, EBITDA and the net income,
adjusted for taxes, for the nine months ended September 30, 1996 approximated
$1,994,000 and $21,000, respectively. The net loss for nine months adjusted for
non-cash items provided positive cash flows of approximately $745,000 compared
to $1,005,000 in 1995.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues increased by $7,874,007 or 61.4% to $20,692,034 for the year ended
December 31, 1995 primarily as a result of the SDS and CHMS acquisitions. On a
pro forma basis, as though the acquisitions were made at January 1, 1994, the
revenues increased by approximately 6.0% for the year ended December 31, 1995.
Operating expenses increase by $4,383,585, from $7,276,812 in 1994 to
$11,660,397 in 1995. As a percentage of revenue, operating expenses declined
from 56.8% to 56.4%.
General and administrative expenses increased by $1,623,787 to $6,119,536.
The increase was due to SDS's and CHMS's general and administrative expenses
consisting of payroll, occupancy, marketing and promotional expenses. As a
percentage of revenue general and administrative expenses decreased from 35.1%
to 29.6%. The decrease in general and administrative expenses as a percentage of
revenues was in part due to the integration of CHMS's operations with SDS's and
the integration of DFA's operations during the latter part of 1994.
Depreciation and amortization increased by $370,830, due to additional
depreciation and amortization charges arising from the SDS and CHMS
acquisitions. A significant component of the amortization expense relates to the
cost in excess of the net tangible assets of the acquired businesses (goodwill)
which is being amortized using the straight-line method over 25 years. The
Company continually reviews the recoverability of the carrying value of
goodwill. In determining whether there is an impairment of goodwill, the Company
compares the sum of the expected future cash flows (undiscounted and without
interest charges) to the carrying amount of the asset. Management believes that
at December 31, 1995, there has been no impairment in the carrying amount of the
asset.
Interest expense increased by $534,774 due to the incurrence of additional
debt to finance acquisitions and fund working capital.
The Company generated a net income of $278,852 compared to a net loss of
$183,000 in 1994. Earnings before interest, tax, depreciation and amortization
('EBITDA') increased by $1,866,635 from $1,045,466 in 1994 to $2,912,101 in
1995. Net income adjusted for non-cash items provided cash flows of
approximately $1,327,000 in 1995 compared to approximately $330,000 in 1994.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Revenues increased by $7,234,087 or 129.6% to $12,818,027 for the year
ended December 31, 1994 primarily as a result of the DFA and SDS acquisitions.
On a pro forma basis, as though the acquisitions were made at January 1, 1993,
the revenues decreased by 1.8% for the year ended December 31, 1994. The Company
believes that the decrease was due to continued soft market and price pressures.
Operating expenses increased by $3,968,115, from $3,308,697 in 1993 to
$7,276,812 in 1994. As a percentage of revenue, operating expenses declined from
59.3% to 56.8%. The decrease was in part due to an increase in the number of
high-margin projects handled in 1994 resulting from the DFA acquisition.
General and administrative expenses increased by $2,646,704 to $4,495,749
or 35.1% of revenues. The increase was due to DFA and SDS's general and
administrative expenses consisting of payroll, occupancy, marketing and
promotional expenses. The Company integrated DFA's operations during the latter
part of 1994, and reduced certain general and administrative expenses. The
general and administrative expenses for the second half of the year were 32.7%
of revenues.
Depreciation and amortization increased by $391,850 due to additional
depreciation and amortization charges arising from the DFA and SDS acquisitions.
A significant component of the
15
<PAGE>
<PAGE>
amortization expense relates to the cost in excess of the net tangible assets of
acquired businesses (goodwill) which is being amortized using the straight-line
method over 25 years. The Company continually reviews the recoverability of the
carrying value of goodwill. In determining whether there is an impairment of
goodwill, the Company compares the sum of the expected future cash flows
(undiscounted and without interest charges) over the remaining life of the asset
to the carrying amount of the asset (see Notes to the Financial Statements, Note
1 Summary of Significant Accounting Policies). Management believes that at
December 31, 1994, there has been no impairment in the carrying amount of the
asset.
Interest expense increased by $340,475 due to debt incurred for the DFA and
SDS acquisitions. In addition, in the second fiscal quarter of 1993, the Company
repaid approximately $1,454,000 of the principal amount of Debentures out of the
proceeds of the initial public offering and reduced the interest rates on the
debentures outstanding thereafter.
The Company's operations resulted in a net loss of $183,000 compared to a
net income of $61,403 in 1993. EBITDA increased by $619,268 from $426,198 in
1993 to $1,045,466 in 1994. Net loss adjusted for non-cash items provided cash
flows of approximately $330,000 in 1994 compared to $197,000 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's working capital decreased by
approximately $3,007,000 from December 31, 1995 to a deficit of approximately
$1,406,000. The decrease was principally due to reclassification of borrowings
under its revolving credit agreement to current liabilities based on the
scheduled maturity date of September 1997. EBITDA for the nine month period
approximated $1,844,000 and net loss adjusted for non-cash items provided
positive cash flows of approximately $745,000.
In September 1994, the Company entered into a revolving credit agreement
with a bank which provided for borrowing up to $3,000,000 through September 1997
based upon eligible accounts receivable and was secured by substantially all of
the assets of the Company. The agreement, as amended in April 1996, provided for
borrowing up to $2,450,000 for working capital and $550,000 as a term loan for
capital expenditures related to the Company's new office space for its New York
operations. The agreement was terminated and all amounts borrowed thereunder
were repaid from the proceeds of the Credit Agreement discussed below.
In October 1996, the Company raised $7,500,000 gross proceeds through a
private sale of Series A Preferred Stock for its acquisitions, working capital
and general corporate purposes. See 'Business -- Recent Events.' The funds were
used to finance the M&M acquisition, repurchase 433,500 shares of Common Stock,
repay approximately $500,000 of the Company's debt and reduce its borrowings
under the revolving credit agreement.
The capital expenditures, excluding any business acquisition, for 1996 are
expected to range between $200,000 and $250,000. In addition, the capital
expenditures for the Company's new office space for its New York operations is
approximately $725,000, substantially all of which was incurred in the nine
months ended September 30, 1996. The Company believes that its current cash
position together with the cash flows from its operations supplemented, if
needed, by additional borrowing capacity from the revolving credit line will be
sufficient to support the working capital and capital expenditure requirements
through at least the end of 1996.
OTHER MATTERS
The Company entered into a new Credit Agreement which provides for the
Company to borrow up to $20 million to finance acquisitions, for working capital
and general corporate purposes. As the result of the Credit Agreement, the
related unamortized financing costs of debt repaid from the proceeds of the
Credit Agreement will be charged to operations. The net book value of the
unamortized financing costs at September 30, 1996 approximated $270,000. See
'Business -- Recent Events.'
16
<PAGE>
<PAGE>
BUSINESS
GENERAL
The Company is a court reporting firm using state-of-the-art technology to
provide printed and computerized transcripts and video recordings of testimony
from depositions to the legal profession primarily in the New York City
metropolitan, Southern California and Washington, D.C. areas. The Company's
strategy is to become a national court reporting firm by acquiring court
reporting companies in major business communities around the country. The
Company believes that by expanding through the acquisition of established court
reporting companies in major cities, the Company will achieve a significant
national presence in the court reporting industry. In evaluating a prospective
acquisition candidate, management of the Company considers the following
material factors: (i) financial condition and results of operations; (ii)
experience and skill of management and management's availability after the
acquisition; (iii) growth potential; (iv) costs associated with the consummation
of the acquisition; and (v) customer base and reputation. The size, nature and
geography of the early acquisitions will determine the pace of the Company's
achievement of national coverage. The Company believes that there are a number
of suitable acquisition candidates in the size range contemplated, and that
national status could be achieved by acquiring an additional 10 to 12 firms in
major metropolitan areas.
THE COURT REPORTING INDUSTRY
Court reporting is the verbatim transcription of the spoken word into the
written word, generally from sworn legal testimony. The industry is divided into
two distinct sectors -- the recording of proceedings in court, or 'official'
court reporting, and all other court reporting. Official court reporting is
performed by civil servant court reporters employed by municipal, state, or
federal courts. All other court reporting is performed outside the courtroom by
free-lance court reporters, who may be either self-employed, or employees or
independent contractors affiliated with a court reporting agency. The Company is
a court reporting agency which primarily uses the services of independent
contractors to handle the recording of legal proceedings (typically civil
proceedings) outside the courtroom, and, to a lesser extent, the recording of
other events such as hearings, arbitrations, board and stockholders' meetings,
conferences, conventions and media events.
Court reporting firms range in size from sole practitioners to firms with
more than 100 free-lance court reporters. Although there are no independently
verified statistics with respect to the number of court reporters or the total
revenues of the court reporting industry, there are approximately 22,000 members
of the National Court Reporting Association ('NCRA'), the only national
professional association in the industry, and an additional 12,000 student
members. The Company estimates that there are approximately 50,000 court
reporters in the United States. The Company believes that, based on its size and
reputation, it is one of the leading court reporting companies in the United
States.
The industry's long-time regional focus is shifting toward a more national
approach to accommodate law firms and corporations whose cases, in many
instances, extend beyond a single city. Attorneys commonly request such
out-of-town referrals from their local court reporting firm. Professional
associations such as the NCRA and various national networks facilitate both the
development of personal relationships between agency owners and the referral of
business between agencies. Through such networks, a member court reporting firm
is able to schedule depositions in other cities for clients so requesting. One
drawback of the networks to date has been the inability of the referring court
reporting firm to guarantee the quality of service that the client ultimately
receives. The Company believes that by expanding nationally, it will be able to
more effectively serve clients across the country, rather than depending on the
loosely-aligned networks or other strategic relationships.
SERVICES AND TECHNOLOGY
The Company's basic business is the verbatim transcription of examinations
before trial or depositions. Court reporting requires a trained professional
capable of transcribing speech, which generally approximates 200 words per
minute, using shorthand symbols. Most of the Company's court reporters use a
computer-aided transcription ('CAT') system for transcribing depositions. Much
like traditional stenotype machines, CAT systems enable a court reporter to
represent what is spoken as
17
<PAGE>
<PAGE>
phonetic symbols. CAT systems, however, have an added feature: the phonetic
symbols are simultaneously recorded on the traditional paper tape and on disk.
Whether taken on a CAT system or a traditional stenotype machine, the shorthand
notes are translated from the paper or magnetic medium, then edited to produce a
final transcript. CAT systems enable the computer to interpret the shorthand
symbols and translate them into English, a process that otherwise must be done
manually. CAT systems have speeded the production of the final transcript; in
fact, a court reporter can connect a computer to his stenotype machine, which
can perform the translation during the proceedings and allow him to provide a
transcript directly following the proceeding. As a by-product of CAT technology,
specialized software has been developed enabling court reporters to provide
clients with a floppy disk containing the translation of the shorthand symbols
in a computer-readable format. This software allows the client to search, store,
index, annotate, and manage transcripts. Documents can be searched easily for
relevant portions of testimony, and can be integrated into larger databases
containing all of the other information pertaining to a particular proceeding.
The Company's state-of-the art technologies include:
Realtime Transcription. The reporter writes on the stenotype machine and
the written translation of what is said instantaneously appears on
monitors located in the conference rooms where the deposition is taking
place and/or at a remote location.
Interactive Realtime Transcription. Specialized software enables the user
to mark, annotate, search, cut and paste the text instantly on a computer
linked to that of the court reporter.
Full-Text Search and Retrieval Programs. These programs allow the computer
to be used to search, store, index and manage transcripts and other
documents. This enables the user to locate a particular word or portion of
text quickly and easily.
Compressed Transcripts. This format eliminates excess white space on the
page and organizes the text in columns, substantially reducing transcript
bulk. The compressed transcripts contain an index listing all of the words
in the transcript, as well as where and how often the words appear,
simplifying the summarizing of transcripts.
Multimedia Technology Systems. This format allows text and video images to
be shown concurrently on a single screen. The proceedings are taped on
video while the court reporter records the proceedings on a stenotype
machine connected to a computer equipped with the appropriate software. A
videotape or CD ROM can later be accessed via video cassette recorder or
computer, as appropriate.
While the Company believes that the services it provides through these
technologies are high quality, none of these services are unique in the industry
or represent any significant investments that would act as a barrier to entry by
competitors. Rather, the Company believes that its experience and expertise in
the use of such technologies give it a competitive advantage over those court
reporting firms that have not successfully integrated these technologies into
the services they provide on a regular basis.
ACQUISITION STRATEGY
The Company intends to continue expanding geographically by making initial
acquisitions in new geographic markets of one or more court reporting companies
that can operate effectively on a decentralized basis resulting in the creation
of a new 'hub.' Subsequent to the establishment of a 'hub,' the Company intends
to acquire additional court reporting agencies in that market. The Company
believes that these 'spoke' acquisitions can be absorbed without significant
increases in administrative costs. The Company's strategy is to become a
national court reporting company by acquiring court reporting companies in both
its present geographic markets and in other major metropolitan areas in the
United States. The Company believes a national court reporting firm will be able
to more effectively serve its clients. The highly fragmented nature of the court
reporting industry provides substantial acquisition opportunities for the
Company. With the advent of sophisticated and rapidly changing technologies,
aggressive marketing and professional management, the Company believes that some
small firms are unlikely to be able to make the necessary capital investments
required to compete effectively against better-capitalized competitors. Through
its utilization of the newest technologies and its ability to provide
professional management, the Company will benefit from
18
<PAGE>
<PAGE>
certain economies of scale in its operations and marketing by expanding in the
New York City metropolitan and Southern California market places. Additionally,
the Company believes that the efficiencies it has achieved in its present
locations can be duplicated in other locations which may be acquired in the
future. For example, the Company has developed a customized computer system to
handle the scheduling of depositions and billing and accounting matters. This
software will be used in managing the firms acquired by the Company without any
corresponding material increases in operating costs. Additionally, the Company's
training program for managers will enable the Company to efficiently streamline
the operations of acquired businesses by reducing or eliminating administrative
offices and certain staff positions of such acquired businesses.
Pursuant to an Agreement of Merger, dated as of September 30, 1993 (the
'Merger Agreement'), by and among the Company, Esquire Communications
Acquisition Corp., a wholly-owned subsidiary of the Company ('Acquisition Sub'),
and David Feldman & Associates (U.S.A.), Ltd. ('DFA'), on September 30, 1993 DFA
was merged into Acquisition Sub. As a result of the merger, DFA became a
wholly-owned subsidiary of the Company. The purchase price paid by the Company
pursuant to the Merger Agreement consisted of 549,900 unregistered shares of
Common Stock of the Company, $1,500,000 in cash and a promissory note in the
principal amount of $600,000. The promissory note is payable in 16 equal
quarterly installments, commencing December 30, 1993, together with interest at
the rate of 10% per annum.
On June 22, 1994, the Company acquired all the outstanding stock of Sarnoff
Deposition Service, Inc., a Southern California based court reporting company.
The purchase price paid by the Company for SDS consisted of approximately
$4,331,000 in cash, a promissory note in the principal amount of $1,500,000 and
750,000 unregistered shares of Common Stock of the Company. The promissory note
is payable in 28 equal quarterly installments commencing September 1994,
together with interest at the rate of 10% per annum.
On January 27, 1995, the Company acquired substantially all the assets of
Coleman, Haas, Martin & Schwab, Inc., a California based court reporting
company. The purchase price paid by the Company for CHMS consisted of $400,000
in cash, promissory notes in the aggregate principal amount of $800,000 and
76,923 unregistered shares of Common Stock of the Company. Upon CHMS attaining
specified revenues in 1995, the Company paid an additional $150,000 in cash. The
principal amount of one of the promissory notes is subject to adjustment based
on revenue levels attained by CHMS in 1995 and 1996. As the result, the
principal balance increased by approximately $35,000 for the 1995 fiscal year
and is estimated to increase for the 1996 fiscal year. The promissory notes are
payable in equal monthly installments over a period of seven years, together
with interest at the rate of 9% per annum.
On July 26, 1996, the Company acquired the assets and liabilities of
Kitlas, Dickman & Associates, a court reporting agency based in San Diego,
California, which has an immaterial effect on the operating results of the
Company.
On October 28, 1996, the Company acquired the assets and liabilities of M&M
Reporting Referral Service, Inc., a Southern California-based court reporting
company. The purchase price consisted of $2,600,000 in cash, subordinated
promissory notes in the aggregate principal amount of $2,712,700 and 132,258
unregistered shares of Common Stock. The principal amount of one of the notes
and the cash portion of the purchase price are subject to revision based on the
revenue derived from M&M's business for the twelve month period 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.
On November 15, 1996, the Company acquired the assets of Sherry Roe &
Associates, Inc., a Washington, D.C. based court reporting company. On January
3, 1997, the Company acquired the assets of Nevill & Swinehart and Pelletier &
Jones, both Southern-California based court reporting companies. The purchase
price in such acquisitions consisted of $2,150,000 in cash, subordinated
promissory notes in the aggregate principal amount of $1,155,000 and 171,748
unregistered shares of Common Stock. The principal amount of some of the notes
and the cash portion of the purchase price are subject to revision based on the
revenue derived from the acquired businesses subsequent to the closing. The
promissory notes are payable over a period of six years, together with interest
at the rate of 8% or 9% per annum.
19
<PAGE>
<PAGE>
COMPETITIVE FACTORS
Court reporting is an increasingly competitive industry, where firms must
adapt to changing technology. The industry is characterized by low barriers to
entry, resulting in a large number of small firms competing for available
business. Most court reporting firms offer substantially the same type of
services which the Company offers. However, larger firms can compete more
effectively due to the economies of scale which can be achieved as a result of
spreading the high cost of computer and video equipment and marketing efforts
over a larger base. Additionally, large court reporting firms can use their
sophisticated facilities and equipment for ancillary services requested by their
clients. Although no statistics are available, the Company believes that there
are only one or two court reporting firms that are truly national in scope;
perhaps a dozen other firms are regional in scope. These firms may represent
more competition for the Company than smaller, presumably less comprehensive
firms.
Various proposals are under consideration by the Federal Advisory Committee
on Civil Rules, the Judicial Conference of the U.S. and the U.S. Supreme Court,
among others, which may reduce or eliminate the use of court reporters. Such
proposals include limitations on the number and length of pretrial depositions,
requirements to use alternative dispute resolution methods and the substitution
of audio- and/or video-tape recordings for stenographic transcription of
proceedings. In addition, on an unofficial basis, certain industries have
adopted alternative dispute resolution methods as standard industry practices.
These or other trends could have a material adverse impact on the court
reporting industry.
Future technological innovations in the court reporting industry may create
new services or products that are competitive with, superior to or render
obsolete the services currently provided by the Company and other court
reporting companies. There can be no assurance that the Company would not be
adversely affected in the event of such technological innovation. In an attempt
to keep abreast of the changing technology, the Company has aggressively sought
to become a 'beta' site for the manufacturers of all types of industry hardware
and software; the Company uses and evaluates new products for the manufacturers
before the products are available to the general public. This policy has proven
to be effective to date and will be aggressively continued. In addition,
representatives of the Company attend trade shows and serve on various industry
group committees.
CLIENTS AND MARKETING
The Company's professional sales team helps create and implement its
marketing efforts. Representatives of the Company attend and perform
demonstrations at industry trade shows. The Company highlights its technological
resources through advertisements in trade magazines and legal periodicals, and
engages in direct mail advertising to lawyers. The Company attracts business
through telemarketing, cold calling, recommendations and referrals, and
participates in competitive bidding.
The Company also attracts new business through contacts made as a result of
its membership in the National Network Reporting Company ('NNRC'), a national
network of approximately 53 large, reputable court reporting agencies set up to
facilitate the exchange of ideas among agency owners. Membership in NNRC is
limited to one court reporting firm in each major metropolitan area in the
United States, Canada and the United Kingdom. The Company also has contractual
relationships with deposition-setting services that refer work to the Company.
In 1995, the Company formed Esq. Com CSD, Inc., as a wholly owned
subsidiary, to market court reporting services to large insurance companies and
corporations on a national basis.
The Company's client base is composed primarily of law firms.
HUMAN RESOURCES
The Company currently has 142 full-time employees and approximately 387
free-lance court reporters. The Company's court reporters are primarily
independent contractors, each of whom owns a stenotype machine and many of whom
own personal computers. The Company's ability to utilize the services of
independent contractors has significant favorable consequences to the Company.
As a result, the Company is able to minimize its fixed operating costs, while
avoiding certain capital expenditures.
20
<PAGE>
<PAGE>
Although the Company does not have the same amount of control over an
independent contractor as it does over an employee of the Company, the Company
does not believe that this has had a negative impact on its business since the
Company has been able to attract highly qualified professionals. The Company
provides comprehensive training to its managers and has an internship program
for its court reporters.
ERC and DFA were signatories to a collective bargaining agreement with the
Federation of Shorthand Reporters, which expired October 31, 1996. The Company
has notified the union that it no longer will retain membership in the
collective bargaining agreement. The Company's other employees and independent
contractors are not represented by any union.
The Company considers its relations with its employees and free-lance court
reporters to be good.
PROPERTIES
In May 1996, the Company moved into a new office space for its New York
operations and, based on its current space requirements, plans to sublease its
old office space which lease expires in February 2000. The Company leases
approximately 11,500 square feet of office space at 216 East 45th Street, New
York, New York for a term ending December 31, 2005. The annual rent for the
premises is $138,000 for 1996, with annual increases thereafter. The Company
also leases approximately 14,000 square feet of office space in Santa Ana,
California for a term ending in June 1999, with a five year renewal option. The
annual rental for these premises is approximately $264,000. The Company also
leases approximately 8,100 square feet of office space in Los Angeles until July
1998 at an annual rental of approximately $133,000. The Company owns an office
condominium consisting of approximately 1100 square feet of office space at 230
Hilton Avenue, Hempstead, New York.
LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
RECENT EVENTS
On October 23, 1996, the Company entered into a Purchase Agreement (the
'Purchase Agreement') pursuant to which the Company 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
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 Series A Preferred Stock at a price
of $1,000 per share.
The Series A Preferred Stock is convertible into Common Stock of the
Company 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 Series A Preferred Stock have a liquidation preference
of $1,000 per share, plus accrued dividends. Holders of Series A 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 Series
A 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 Series A
Preferred Stock. Without the consent of the holders of a majority of the Series
A Preferred Stock, the Company may not take various actions, including paying
dividends on capital stock if there are any accrued but unpaid dividends on the
Series A Preferred Stock, issuing any equity securities which are senior to or
on a parity with the Series A Preferred Stock, merging with another entity,
selling or otherwise disposing of all or substantially all its assets, or
acquiring other entities. In addition, the Company may not issue in a private
offering any equity securities without first offering the holders of Series A
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 the Company, Cary A.
Sarnoff, Vice Chairman of the Company, David J. Feldman, President of the
Company, CMNY Capital L.P. and Allied Investment Corporation,
21
<PAGE>
<PAGE>
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 the Company's Board of Directors
approves a sale of the Company'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 the Company and the Management Stockholders was terminated. In addition,
GKN Securities Corp. and Allied terminated their rights to designate directors
of the Company.
Effective October 23, 1996, Messrs. Howard Davidoff and Robert Wunder
resigned as directors of the Company and Messrs. Bruce V. Rauner and Joseph P.
Nolan, representatives of GTCR, were elected as directors of the Company.
Messrs. Andrew Garvin and Mortimer Feinberg, directors of the Company, agreed to
resign as directors at any time upon the request of GTCR.
Effective October 23, 1996, the Company engaged KPMG Peat Marwick, LLP as
its independent accountants to audit its financial statements in place of Freed
Maxick Sachs & Murphy, P.C. (the 'Former Accountant'). The decision to change
accountants was approved by the Board of Directors and the Audit Committee of
the Company and was the result of the Company's belief that due to its
increasing size and nationwide scope of operations, it needed a 'Big 6'
accounting firm with nationwide operations to audit its financial statements.
The Former Accountant's report on the financial statements of the Company for
each of the past two years did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements of the type described in
paragraph (a)(1)(iv) of Item 304 of Regulation S-K promulgated under the
Securities Act ('Item 304 of Regulation S-K'), or any reportable event as
described in paragraph (a)(1)(v), paragraph (a)(2) or paragraph (b) of Item 304
of Regulation S-K.
On December 24, 1996, the Company entered into a Credit Agreement with
Antares Leveraged Capital Corp. pursuant to which the Company may borrow from
time to time under a revolving credit facility up to an aggregate amount of $20
million. The Credit Agreement, which is secured by substantially all the assets
of the Company, restricts future indebtedness, investments, distributions,
acquisitions or sale of assets and capital expenditures and also requires the
maintenance of certain financial ratios and covenants. The initial borrowings
under the Credit Agreement were used to repay all amounts outstanding under the
Company's credit agreement with The Chase Manhattan Bank and $4.5 million of
subordinated debentures due June 2001 and held by Allied.
22
<PAGE>
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
DIRECTOR OR
NAME AGE POSITION WITH COMPANY OFFICER SINCE
- ------------------------ --- -------------------------------------------------------------- -------------
<S> <C> <C> <C>
Malcolm L. Elvey 55 Chairman of the Board, Chief Executive Officer, and Director 1993
Cary A. Sarnoff 49 Vice Chairman and Director 1994
David J. Feldman 57 President, Chief Operating Officer, and Director 1993
Debra Neiderfer 39 Vice President 1993
Paul Strohfus 44 Vice President 1995
Vasan Thatham 38 Chief Financial Officer and Secretary 1994
Sandra Waite 37 Vice President 1994
Mortimer R. Feinberg(1) 73 Director 1993
Andrew P. Garvin(1)(2) 50 Director 1993
Joseph P. Nolan(1)(2) 32 Director 1996
Bruce V. Rauner 40 Director 1996
</TABLE>
- ------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
------------------------
Malcolm L. Elvey has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company, Pepper and ERC since their respective
incorporations. Mr. Elvey is a Chartered Accountant and has a Master of Business
Administration from the University of Cape Town. From 1985 through 1987, Mr.
Elvey served as President and Chief Executive Officer of Pritchard Services,
Ltd. where he was responsible for the home health care, hospital and building
maintenance, security and food services subsidiaries, and served as a director
of ADT Ltd. (formerly, the Hawley Group Ltd.), an international service company.
Cary A. Sarnoff has served as Vice Chairman of the Company since November
1994. Mr. Sarnoff was President of Sarnoff Deposition Service, Inc. for more
than five years prior thereto. Mr. Sarnoff formed in 1982 and owns CAT-Links, a
litigation support software development company. Mr. Sarnoff has more than 25
years experience in the court reporting industry. He was a founding member of
the NNRC and served as a member of the Board of Directors of the California
Court Reporters Association.
David J. Feldman has served as President, Chief Operating Officer and a
director of the Company since September 1993. Mr. Feldman was President of David
Feldman & Associates (U.S.A.) Ltd. for more than five years prior thereto. Mr.
Feldman has more than thirty years experience in the court reporting industry,
including serving as a court reporter for the Knapp Commission Hearings and the
Nelson Rockefeller Commission on Critical Choices for America.
Debra Neiderfer has served as Vice President of the Company since September
1993. From 1989 to September 1993, Ms. Neiderfer was employed as account
executive and then vice president at David Feldman & Associates (U.S.A.) Ltd.
From 1980 through 1987, Ms. Neiderfer served as marketing manager for Prentice
Hall Law & Business.
Paul Strohfus has served as Vice President of the Company since November
1995. From 1987 to 1995, Mr. Strohfus was employed by Firemans Fund Insurance
Company in various capacities, with his last position having been assistant vice
president of claims.
Vasan Thatham has served as Chief Financial Officer and Secretary of the
Company since 1994. In 1993, Mr. Thatham was controller of the IPC Franchising
Corp. and from 1987 through 1992 was controller (and ultimately Chief Financial
Officer) of Strings, Ltd., a specialty retail chain. From 1978 to
23
<PAGE>
<PAGE>
1987, Mr. Thatham held various positions with Ernst & Whinney in Kuwait and KPMG
Peat Marwick in India. Mr. Thatham is a chartered accountant.
Sandra Waite has served as Vice President of the Company since June 1994.
She served as office manager of Sarnoff Deposition Service, Inc. from 1980
through 1989, as general manager from 1990 to 1994 and as vice president since
June 1994.
Mortimer R. Feinberg, Ph.D., has served as a director of the Company since
its incorporation. He is the co-founder of BFS Psychological Associates, Inc., a
human resources consulting firm, and has served as Chairman of its Board of
Directors since 1960. Dr. Feinberg is Professor Emeritus, Baruch College, City
University of New York and is a frequent contributor to the Wall Street Journal
on human resources and other business topics.
Andrew P. Garvin has served as a director of the Company since its
incorporation. Mr. Garvin is the co-founder of FIND/SVP, a consulting, research
and information gathering company, and has served as its Chief Executive Officer
since 1969.
Joseph P. Nolan has served as director of the Company since October 1996.
Mr. Nolan is a principal and has been with Golder, Thoma, Cressey, Rauner, Inc.,
an affiliate of GTCR, since February 1994. From May 1990 to January 1994, Mr.
Nolan was Vice President Corporate Finance at Dean Witter Reynolds Inc. Mr.
Nolan is also a director of Lason Inc.
Bruce V. Rauner has served as director of the Company since October 1996.
Mr. Rauner is a principal and has been with Golder, Thoma, Cressey, Rauner, Inc.
since 1981. Mr. Rauner is also a director of ERO, Inc., COREStaff, Inc.,
Coinmach Laundry Corporation, Lason Inc. and Polymer Group, Inc.
On October 23, 1996, Messrs. Andrew Garvin and Mortimer Feinberg agreed to
resign as directors at any time upon the request of GTCR. All other directors
will hold office until the next annual meeting of stockholders and until the
election and qualification of their successors, or until death, resignation or
removal. Compensation for directors who are not officers of the Company is
$1,250 per meeting. Officers serve at the discretion of the Board of Directors
and under the terms of any employment agreement which may exist.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than ten percent of the Company's common
stock to file reports of ownership and changes in ownership with the SEC.
Executive officers, directors and holders of more than ten percent are required
by SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the year ended December 31, 1995,
its executive officers, directors and holders of more than ten percent complied
with all applicable Section 16(a) filing requirements, with the following
exception. Mr. Paul Strohfus, a Vice President of the Company, was one day late
in filing his initial Form 3 reporting on his election as an officer of the
Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company or accrued for services rendered in all capacities during
the fiscal year ended December 31, 1995, to the Company's Chief Executive
Officer and to each of the other most highly compensated executive officers of
the Company whose aggregate cash compensation exceeded $100,000.
24
<PAGE>
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION ---------- PAYOUTS
-------------------------------------- RESTRICTED --------------------
OTHER ANNUAL STOCK OPTIONS/ LTIP
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS SARS PAYMENTS
POSITION YEAR $ $ ($) ($) (#) (#)
- ------------------------ ---- -------- -------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey ....... 1995 $166,431 125,000
Chairman & 1994 185,175
Chief Executive 1993 165,000
Officer
David J. Feldman ....... 1995 161,335 $238,543 75,000
President 1994 180,000 188,575
1993(2) 45,000 47,512
Cary A. Sarnoff, ....... 1995 160,629
Vice Chairman 1994(3) 90,000
Debra Neiderfer ........ 1995 82,660 18,650 25,000
Vice President 1994 80,000 7,448 25,000
1993(2) 20,000 1,307
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL COMPENSATION(1)
POSITION ($)
- ------------------------ ---------------
<S> <C>
Malcolm L. Elvey ....... $ 9,375
Chairman &
Chief Executive
Officer
David J. Feldman .......
President
Cary A. Sarnoff, .......
Vice Chairman
Debra Neiderfer ........
Vice President
</TABLE>
- ------------
(1) Consideration paid for the guarantee of certain bank debt.
(2) Represents compensation for the partial year from September 30, 1993.
(3) Represents compensation for the partial year from June 22, 1994.
EMPLOYMENT AND RELATED AGREEMENTS
Malcolm L. Elvey is employed under an employment agreement which expires
May 1988 and is automatically renewable on a year-by-year basis unless
terminated by either party upon at least 60 days notice prior to the renewal
date. Mr. Elvey receives an annual salary of $194,595, which is subject to cost
of living increases. Mr. Elvey is also entitled to an annual bonus ranging from
3% based on pre-tax earnings of the Company in excess of $750,000 to 15% based
on pre-tax earnings of the Company in excess of $2,500,000; provided, however,
that the bonus will not exceed 100% of Mr. Elvey's annual salary. These pre-tax
earnings levels are increased in the event the Company consummates any
acquisitions. In addition, Mr. Elvey has agreed not to compete with the Company
for a period of two years following the termination of his employment with the
Company. The Company maintains and is the beneficiary of key-man life insurance
in the amount of $1,000,000 on the life of Mr. Elvey.
In connection with the acquisition of SDS, on June 22, 1994, the Company
entered into an employment agreement with Cary A. Sarnoff pursuant to which Mr.
Sarnoff is employed as Vice Chairman of the Company. The agreement expires four
years from the date thereof and is automatically renewed on a year-by-year basis
unless terminated by either party upon at least 60 days prior notice. Mr.
Sarnoff receives an annual salary at the rate of $186,455, which is subject to
cost of living increases. Mr. Sarnoff has agreed not to compete with the Company
for a period of two years following the termination of his employment with the
Company.
In connection with the acquisition of DFA, on September 30, 1993, the
Company entered into an employment agreement with David Feldman pursuant to
which Mr. Feldman is employed as President and Chief Operating Officer of the
Company. The agreement expires four years from the date thereof and is
automatically renewed on a year-by-year basis unless terminated by either party
upon at least 60 days notice prior to the renewal date. Mr. Feldman receives an
annual salary at the rate of $188,927, which is subject to cost of living
increases. Mr. Feldman is also entitled to an annual bonus of 4.25% of total
annual revenues of the Company in excess of $4,200,000 and 5% of total annual
revenues of the Company in excess of $9,000,000. During the first two years, Mr.
Feldman is entitled to a minimum bonus of $175,000 per year and during the third
and fourth years is entitled to a minimum bonus of $225,000 per year. The
revenue hurdle levels will be increased in the event the Company consummates any
acquisitions. Upon the termination of Mr. Feldman's employment (except if such
termination results from his death, disability or for cause), the Company will
continue to pay Mr. Feldman his annual salary
25
<PAGE>
<PAGE>
for the balance of the term of the agreement and for a period of six months
thereafter. Mr. Feldman has agreed not to compete with the Company for a period
of one year following the termination of his employment with the Company.
During 1995, Messrs. Elvey, Feldman and Sarnoff voluntarily reduced their
annual salaries by approximately $25,000 each.
STOCK OPTION PLAN
In February, 1993, the Board of Directors of the Company adopted the 1993
Stock Option Plan (the 'Plan'), which was approved by all stockholders of the
Company. The Plan was amended to increase the number of options which may be
granted thereunder from 450,000 to 600,000 shares of Common Stock. Incentive
stock options, intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended, and nonqualified stock options may be granted under
the Plan.
The Plan is administered by the compensation committee of the Board of
Directors, which may grant options to key employees, directors, consultants and
independent contractors to the Company. The term of each option may not exceed
ten years from the date of grant. The exercise price of an option may not be
less than 100% of the fair market value of a share of Common Stock. The options
vest over a three-year period, commencing one year following their issuance.
No stock options were granted in 1995 to any of the executive officers
named in the Summary Compensation Table. In December 1996, options to purchase
50,000 shares of Common Stock at an exercise price of $3.00 per share were
granted to each of Messrs. Elvey, Sarnoff and Feldman.
THE EXCHANGE OFFER
PURPOSE AND EFFECTS OF THE EXCHANGE OFFER
The Exchange Offer is intended to extinguish the Warrants through the
issuance of Common Stock to reduce the future potential dilutive impact on the
Company's earnings per share of Common Stock that would be caused by exercise of
the Warrants. In the absence of the Exchange Offer, 1,702,251 shares of Common
Stock could be issued if all of the currently outstanding Warrants held by the
Warrantholders were exercised. Assuming 100% participation in the Exchange
Offer, 340,450 shares of Common Stock will be issued upon consummation of the
Exchange Offer.
DESCRIPTION OF THE WARRANTS
The Warrants were issued in registered form pursuant to an agreement, dated
May 18, 1993 (the 'Warrant Agreement'), between the Company and Continental
Stock Transfer & Trust Company (the 'Warrant Agent'). The following discussion
of certain terms and provisions of the Warrants is qualified in its entirety by
reference to the detailed provisions of the Warrant Agreement, the form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part.
One Warrant represents the right of the registered Warrantholder to
purchase one share of Common Stock at an exercise price of $4.50 per share,
subject to adjustment (the 'Exercise Price'), from May 18, 1994 until May 18,
1998 (the 'Warrant Expiration Date'). The Exercise Price and the number of
shares of Common Stock issuable upon the exercise of the Warrants are subject to
adjustment in certain circumstances, including a stock dividend, stock split,
reclassification, reorganization, consolidation or merger.
At any time commencing on May 18, 1994 and prior to the close of business
on the Warrant Expiration Date (on which date the Warrants become wholly void
and of no value), the Warrants, unless previously redeemed, or exchanged
pursuant to the Exchange Offer, may be exercised at the office of the Warrant
Agent. No holder of Warrants shall be entitled to vote or receive dividends or
be deemed the holder of shares of Common Stock for any purpose whatsoever until
such Warrants have been duly exercised and the Exercise Price has been paid in
full or exchanged pursuant to the Exchange Offer.
Under the provisions of the Warrant Agreement, the Company has the right at
any time after May 18, 1994, to redeem the Warrants in whole or in part at a
price of $.01 each, by written notice mailed not less than 30 days prior to the
redemption date to each Warrantholder at his address as it appears on the books
of the Warrant Agent. Such notice shall be given only within three days
following any period of
26
<PAGE>
<PAGE>
20 consecutive trading days during which the last sale price for the shares of
Common Stock exceeds 150% of the then-effective exercise price of the Warrants
to be redeemed. If the Warrants are called for redemption, they must be
exercised prior to the close of business on the date of any such redemption or
the right to purchase the applicable shares of Common Stock is forfeited.
EFFECT OF THE EXCHANGE OFFER ON THE WARRANTHOLDERS
Upon acceptance of the tendered Warrants by the Company, the Warrantholders
will receive one share of Common Stock for each five Warrants tendered.
Warrantholders who do not participate in the Exchange Offer will retain the
right to purchase one share of Common Stock at an exercise price of $4.50 per
Warrant, which price will remain subject to the adjustment provisions of the
Warrant Agreement. The Warrants are subject to redemption by the Company under
certain circumstances. See ' -- Description of the Warrants.' To the extent
Warrantholders participate in the Exchange Offer, the trading market for, and
liquidity of, the Warrants which remain outstanding, if any, could be reduced.
In addition, such Warrants may no longer be traded on either the Boston Stock
Exchange or the Nasdaq Stock Market and may no longer be registered securities
pursuant to the Exchange Act.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (the
'Letter of Transmittal'), to exchange one share of Common Stock for each five
Warrants tendered.
The Company will accept any Warrants validly tendered and not withdrawn
prior to 5:00 p.m., New York City time, on the Expiration Date. Warrants which
are not accepted for exchange will be returned as promptly as practicable after
the Expiration Date. Warrantholders may tender all or a portion of their
Warrants pursuant to the Exchange Offer.
If the Company should increase or decrease the number of shares of Common
Stock offered in exchange for the Warrants in the Exchange Offer, such changed
consideration would be paid with regard to all Warrants accepted in the Exchange
Offer. If the consideration is so changed, the Exchange Offer will remain open
at least ten business days from the date the Company first gives notice, by
public announcement or otherwise, of such increase or decrease.
As of January 2, 1997, 1,702,251 Warrants were outstanding and there were
approximately 43 registered Warrantholders. Only a registered holder of Warrants
(or such Warrantholder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record date for
determining registered Warrantholders entitled to participate in the Exchange
Offer. The Company believes that, as of the date of this Prospectus, none of
such holders is an affiliate (as defined in Rule 405 under the Securities Act)
of the Company, except that Cary A. Sarnoff owns 3,000 Warrants. Mr. Sarnoff has
indicated that he will exchange his Warrants pursuant to the Exchange Offer.
Warrantholders do not have any appraisal or dissenters' rights under the
General Corporation Law of the State of Delaware or the Warrant Agreement in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the SEC thereunder.
The Company shall be deemed to have accepted validly tendered Warrants
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for tendering
Warrantholders for the purposes of receiving the Common Stock from the Company.
If any tendered Warrants are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Warrants will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Tendering Warrantholders will not be required to pay brokerage commissions
or fees with respect to the exchange of Warrants for Common Stock pursuant to
the Exchange Offer. The Company will pay all charges and expenses in connection
with the Exchange Offer. The Company will also pay all transfer taxes, if any,
applicable to the transfer and exchange of Warrants to it or its order pursuant
to the Exchange Offer. If, however, Warrants not exchanged are to be delivered
to, or are to be issued in the
27
<PAGE>
<PAGE>
name of, any person other than the registered Warantholder, or if tendered
Warrants are recorded in the name of any person other than the person signing
the Letter of Transmittal, then the amount of such transfer taxes (whether
imposed on the registered Warrantholder or any other person) will by payable by
the tendering Warrantholder. See ' -- Transfer Taxes.'
Although the Company has no plan or intention to do so, it reserves the
right in its sole discretion to purchase or make offers for any Warrants that
remain outstanding after the consummation of the Exchange Offer. The terms of
any such purchases or offers could differ from the terms of the Exchange Offer.
IPO UNIT OPTIONS
In connection with the Company's initial public offering, the Company sold
to the underwriters thereof, GKN Securities Corp. and Royce Investment Group,
Inc. (collectively, the 'Underwriters'), for nominal consideration, the right to
purchase up to an aggregate of 125,000 units (the 'IPO Unit Options') initially
entitling the Underwriters to acquire (a) 125,000 warrants (the 'IPO Warrants')
and/or (b) 125,000 shares of Common Stock. The IPO Warrants and the Common Stock
issuable upon exercise of the IPO Unit Options are identical to the Warrants and
to the Common Stock issuable in exchange for the Warrants pursuant to the terms
of the Exchange Offer except that the IPO Warrants cannot be redeemed. The IPO
Unit Options are exercisable at $2.64 per share of Common Stock and $.06 per IPO
Warrant until May 18, 1998. The IPO Unit Options contain anti-dilution
provisions providing for adjustment of these exercise prices upon the occurrence
of certain events, including the issuance of shares of Common Stock at a price
per share less than the exercise price or the market price of the Common Stock,
or in the event of any recapitalization, reclassification, stock dividend, stock
split, stock combination, or similar transaction. As the result of these
anti-dilution provisions, the Underwriters presently are entitled to acquire
264,751 warrants and 264,751 shares of Common Stock. The IPO Unit Options grant
to the Underwriters certain 'piggyback' and demand rights for periods of seven
and five years respectively, commencing May 18, 1993, with respect to the
registration under the Securities Act of the securities directly or indirectly
issuable upon exercise of the IPO Unit Options. Although they have agreed to
exchange the portion of the IPO Unit Options representing the right to purchase
warrants for 264,751 shares of Common Stock held by them, the Underwriters have
not agreed to exchange the IPO Unit Options to purchase shares of Common Stock.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 5:00 p.m., New York City time, on
, 1997 (20 business days from the date of this Prospectus), unless
the Company, in its sole discretion, extends the Exchange Offer, in which case
the term 'Expiration Date' shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the rights in its sole discretion, (i) to delay
accepting any Warrants, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under 'Conditions of the Exchange Offer' shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (iv) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, termination or amendment will be followed as promptly as practicable
by a public announcement thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendments by means of a prospectus supplement that will
be distributed to the registered Warrantholders, and the Company will extend the
Exchange Offer for a period of five to ten business days, depending upon the
significance of the amendment and the manner of disclosure to the registered
Warrantholders, if the Exchange Offer would otherwise expire during such five to
ten business day period. If the Company amends the terms of the Exchange Offer
to improve the consideration for the Warrants, the Company will give such
improved consideration to all tendering Warrrantholders, including
Warrantholders who have previously tendered Warrants.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall not have an
28
<PAGE>
<PAGE>
obligation to publish, advertise or otherwise communicate any such public
announcement, other than by making a timely public disclosure.
PROCEDURE FOR TENDERING WARRANTS
The tender by a Warrantholder as set forth below and the acceptance thereof
by the Company will constitute a binding agreement between the tendering
Warrantholder and the Company upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal. Except
as set forth below, a Warrantholder who wishes to tender Warrants for exchange
pursuant to the Exchange Offer must transmit such Warrants, together with a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at the
address set forth herein on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
THE METHOD OF DELIVERY OF WARRANTS, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE WARRANTHOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
A signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, need not be guaranteed if the Warrants surrendered for exchange
pursuant thereto (i) are tendered by a registered Warrantholder of the Warrants
who has not completed either the box entitled 'Special Exchange Instructions' or
the box entitled 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) are tendered by an Eligible Institution (as defined below). In the event
that a signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, is required to be guaranteed, such guarantee must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or is otherwise
an 'eligible guarantor institution' within the meaning of Rule l7Ad-l5 under the
Exchange Act (collectively, 'Eligible Institutions'). If Warrants are registered
in the name of a person other than a signer of the Letter of Transmittal, the
Warrants surrendered for exchange must either (i) be endorsed by the registered
holder, with the signature thereon guaranteed by an Eligible Institution or (ii)
be accompanied by a stock power, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Warrantholder,
with the signature thereon guaranteed by an Eligible Institution. The term
'registered Warrantholders' as used herein with respect to the Warrants means
any person in whose name the Warrants are registered on the books of the
registrar for the Warrants.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Warrants tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Warrants not properly
tendered or to reject any particular Warrants which acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Warrants either before or after the
Expiration Date. The interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Warrants for exchange must be cured
within such reasonable period of time as the Company shall determine. The
Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of Warrants for exchange but shall not
incur any liability for failure to give such notification. Tenders of the
Warrants will not be deemed to have been made until such irregularities have
been cured or waived.
If any Letter of Transmittal, endorsement, stock power, power of attorney
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in- fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such
29
<PAGE>
<PAGE>
person should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of such person's authority to so act
must be submitted.
Any beneficial owner whose Warrants are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to tender
Warrants in the Exchange Offer should contact such registered Warrantholder
promptly and instruct such registered Warrantholder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender directly, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and tendering Warrants, make appropriate arrangements to register
ownership of the Warrants in such beneficial owner's name. Beneficial owners
should be aware that the transfer of registered ownership may take considerable
time.
GUARANTEED DELIVERY PROCEDURES
Warrantholders who wish to tender their Warrants but whose Warrants are not
immediately available or who cannot deliver their Warrants and Letter of
Transmittal or any other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must tender their Warrants according
to the guaranteed delivery procedures set forth in the Letter of Transmittal.
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution and a Notice of Guaranteed Delivery (as defined in the
Letter of Transmittal) must be signed by such Warrantholder, (ii) prior to the
Expiration Date, the Exchange Agent must have received from the Warrantholder
and the Eligible Institution a properly completed and duly executed Letter of
Transmittal and a Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Warrantholder, the
certificate number or numbers of the tendered Warrants, stating that the tender
is being made thereby and guaranteeing that, within four business days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Warrants and
any other required documents will be deposited by the Eligible Institution with
the Exchange Agent, and (iii) such properly completed and executed documents
required by the Letter of Transmittal and the tendered Warrants in proper form
for transfer must be received by the Exchange Agent within four business days
after the Expiration Date. Any Warrantholder who wishes to tender Warrants
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Warrants prior to 5:00 p.m., New York City time, on
the Expiration Date. Failure to complete the guaranteed delivery outlined above
will not, of itself, effect the validity or effect a revocation of any Letter of
Transmittal properly completed if executed by a holder who attempted to use the
guaranteed delivery process.
ASSISTANCE
All tendered Warrants, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of this Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
By Registered or Certified Mail:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
2 Broadway
New York, New York 10004
Attention: Reorganization Dept.
By Facsimile:
(212) 509-5150
Confirmed by Telephone
(212) 509-4000, ext. 226
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier, or registered or certified mail.)
30
<PAGE>
<PAGE>
ACCEPTANCE OF WARRANTS FOR EXCHANGE
Upon satisfaction or waiver of all conditions to the Exchange Offer, the
Company will promptly accept all Warrants properly tendered, and will
immediately thereafter issue the appropriate number of corresponding shares of
Common Stock to eligible Warrantholders. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted Warrants that are tendered for exchange
when, and if, the Company has given oral or written notice thereof to the
Exchange Agent.
In all cases, issuances of Common Stock for Warrants that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Warrants, a properly completed and duly executed
Letter of Transmittal, and all other required documents; provided, however, that
the Company reserves the absolute right to waive any defects or irregularities
in the tender or conditions of the Exchange Offer. If any tendered Warrants are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Warrant certificates are submitted for a greater number
than the holder desires to exchange, such unaccepted or nonexchanged Warrants or
substitute Warrants evidencing the unaccepted portion, as appropriate, will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Warrants may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date and unless theretofore accepted for
exchange by the Company, may also be withdrawn after 5:00 p.m., New York City
time, on 1997.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth herein. Any such notice
of withdrawal must (i) specify the name of the person having deposited the
Warrants to be withdrawn ('Depositor'), (ii) identify the Warrants to be
withdrawn (including the Warrant certificate number or numbers and number of
Warrants), and (iii) be signed in the same manner required for the Letter of
Transmittal by which such Warrants were tendered. All questions as to the
validity, form, and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. The Warrants so withdrawn, if any, will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Warrants
which have been tendered for exchange but which are withdrawn will be returned
to the Warrantholder without cost to such Warrantholder as soon as practicable
after withdrawal. Warrants properly withdrawn may be re-tendered by following
the procedures described under ' -- Procedure for Tendering Warrants' at any
time on or prior to the Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue the Common Stock in
exchange for, any Warrants and may terminate or amend the Exchange Offer if, any
time before the acceptance of the Warrants for exchange or the exchange of the
Common Stock for the Warrants, any of the following events shall occur, which
occurrence, in the sole judgment of the Company and regardless of the
circumstances (including any action by the Company) giving rise to any such
events, makes it inadvisable to proceed with the Exchange Offer:
(i) there shall be threatened, instituted, or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (a) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (b) resulting in a material delay in the
ability of the Company to accept for exchange some or all of the Warrants
pursuant to the Exchange Offer, or any statute, rule, regulation, order or
injunction shall be sought, proposed, introduced, enacted, promulgated or
deemed applicable to the Exchange Offer or any of the transactions
contemplated by the Exchange Offer by any domestic or foreign government or
31
<PAGE>
<PAGE>
governmental authority that, in the reasonable judgment of the Company,
might directly or indirectly result in any of the consequences referred to
in clauses (a) or (b) above, or would otherwise in the reasonable judgment
of the Company make it inadvisable to proceed with the Exchange Offer;
provided, however, that the Company will use reasonable efforts to modify
or amend the Exchange Offer or to take such other reasonable steps as to
make the provisions of this section inapplicable;
(ii) there shall have occurred (a) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States or any limitation by any governmental agency or authority which
adversely affects the extension of credit or (b) a commencement of war,
armed hostilities or other similar international calamity directly or
indirectly involving the United States, or, in the case of any of the
foregoing existing at the time of the commencement of the Exchange Offer, a
material acceleration or worsening thereof;
(iii) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operation or
prospects of the Company that, in the reasonable judgment of the Company,
is or may be adverse to the Company, or the Company shall have become aware
of facts that, in the sole judgment of the Company, have or may have
adverse significance with respect to the value of the Warrants or the
Common Stock; or
(iv) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Warrants and return
all tendered Warrants to the tendering holders, (ii) extend the Exchange Offer
and retain all Warrants tendered prior to the Expiration Date, subject, however,
to the rights of holders to withdraw such Warrants (see ' -- Withdrawal
Rights'), or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all validly tendered Warrants which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Warrantholders, and the
Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered Warrantholders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be asserted
by the Company regardless of the circumstances giving rise to any such condition
or may be waived by the Company in whole or in part at any time and from time to
time in its reasonable discretion. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above will be final and binding upon all parties.
FRACTIONAL SHARES
No fractional shares of Common Stock will be issued as a result of the
Exchange Offer. Each holder of a fractional interest in shares of the Company's
Common Stock will be entitled to receive a cash payment in lieu of such
fractional amount based on the current market price of a share of Common Stock.
The current market price will be determined as follows: (i) if the shares of the
Company's Common Stock are listed on a national securities exchange or admitted
to unlisted trading privileges on such exchange or listed for trading on the
Nasdaq Stock Market or Boston Stock Exchange, the current market price shall be
the last reported sale price of the shares of the Company's Common Stock on the
last business day prior to the date of exchange or, if no such sale is made on
such day, the average of the closing bid and asked prices for such day; or (ii)
if not so listed or admitted for trading, the current market price, if the
shares of Common Stock are not so listed or admitted to trading
32
<PAGE>
<PAGE>
and bid and asked prices are not so reported, the current value shall be an
amount determined in a reasonable manner by the Board of Directors of the
Company.
As soon as practicable after the determination of the amount of cash, if
any, to be paid to the holder of shares of Common Stock with respect to any
fractional share interests, the Exchange Agent shall distribute in cash the
amount payable to such fractional holder.
SOLICITATION OF WARRANTHOLDERS
The Company and the Underwriters have entered into an agreement pursuant to
which the Underwriters shall solicit Warrantholders in connection with the
Exchange Offer and shall receive from the Company a fee of $.05 for each Warrant
tendered and accepted by the Company in the Exchange Offer. The Underwriters
shall also be reimbursed by the Company for all of their reasonable out-of-
pocket expenses in connection with such solicitation.
Other than the fee to be paid to the Underwriters, the Company will not
make any payments to brokers, dealers or others soliciting acceptances of the
Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse the Exchange Agent for its
reasonable out-of-pocket expenses in connection therewith. The Company will also
pay brokers, dealers and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus and related documents to the beneficial owners of the Warrants, and
in handling or forwarding tenders for their customers.
The cash expenses to be incurred by the Company in connection with the
Exchange Offer are estimated to be approximately $200,000, which include
registration fees, listing fees, solicitation fees to the Underwriters,
accounting, legal and printing fees, and associated expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Warrants pursuant to the Exchange Offer. If, however, tendered Warrants are
registered in the name of any person other than the person signing the Letter of
Transmittal or if a transfer tax is imposed for any reason other than the
exchange of Warrants pursuant to the Exchange Offer, the amount of any such
transfer tax (whether imposed on the registered Warrantholder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such transfer tax or exemption therefrom is not submitted, the amount
of such transfer tax will be billed directly to such tendering holder.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER AND DOES NOT
CONSIDER ALL POTENTIAL TAX EFFECTS OF THE EXCHANGE OFFER OR THE TAX CONSEQUENCES
TO A PARTICULAR WARRANTHOLDER IN LIGHT OF SUCH WARRANTHOLDER'S PERSONAL
CIRCUMSTANCES. THIS DISCUSSION ALSO DOES NOT ADDRESS THE U.S. FEDERAL INCOME TAX
CONSEQUENCES TO WARRANTHOLDERS (AND UNDERLYING COMMON STOCK) NOT HELD AS CAPITAL
ASSETS OR TO WARRANTHOLDERS SUBJECT TO SPECIAL TREATMENT, SUCH AS NON-U.S.
PERSONS, DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, WARRANTHOLDERS OWNING AT LEAST 10% OF THE VOTING POWER OF THE
COMPANY AND WARRANTHOLDERS WHO ACQUIRED THEIR INTERESTS PURSUANT TO THE EXERCISE
OF OPTIONS OR SIMILAR DERIVATIVE SECURITIES OR OTHERWISE AS COMPENSATION, NOR
PROVIDE AN ANALYSIS OF ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE,
LOCALITY, OR FOREIGN JURISDICTION. THIS DISCUSSION IS BASED ON CURRENT
PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE 'CODE'),
CURRENT AND PROPOSED TREASURY REGULATIONS PROMULGATED THEREUNDER, AND
ADMINISTRATIVE AND JUDICIAL DECISIONS AS OF THE DATE HEREOF, ALL OF WHICH ARE
SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. ACCORDINGLY,
WAR-
33
<PAGE>
<PAGE>
RANTHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE
EXCHANGE OFFER TO THEM.
The exchange of Warrants for shares of Common Stock will result in the
following federal income tax consequences to participating Warrantholders:
1. A participating Warrantholder will recognize gain or loss equal to
the excess of (a) the sum of the fair market value of the shares of Common
Stock received in the Exchange Offer and any cash received in lieu of a
fractional share of Common Stock over (b) the participating Warrantholder's
tax basis in the Warrants exchanged therefor;
2. Such gain or loss will be capital gain or loss if the Warrants were
capital assets in the hands of a participating Warrantholder;
3. The tax basis of the shares of Common Stock received in the
Exchange Offer will be equal to the fair market value of such shares of
Common Stock received in the Exchange Offer; and
4. The holding period for the shares of Common Stock received in the
Exchange Offer will commence on the day following the consummation of the
Exchange Offer if the shares of Common Stock are capital assets in the
hands of a participating Warrantholder.
THE EXCHANGE AGENT
Continental Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. All correspondence in connection with the Exchange
Offer and the Letters of Transmittal should be addressed to the Exchange Agent,
as follows:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
WARRANT TRANSFER AGENT
The Warrants are issued in registered form under a Warrant Agreement
between the Company and Continental Stock Transfer & Trust Company, as Warrant
Agent.
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, par value $.01 per share, and 1,000,000 shares of
Preferred Stock, par value $.01 per share (the 'Preferred Stock'). The following
descriptions of the capital stock are qualified in all respects by reference to
the Certificate of Incorporation and By-laws of the Company.
COMMON STOCK
The holders of Common stock elect all directors and are entitled to one
vote for each share held of record. All holders of shares of Common Stock will
participate equally in dividends, when, as and if declared by the Board of
Directors, and in net assets on liquidation. All shares of Common Stock
presently outstanding are, and the shares of Common Stock issuable upon exchange
of the Warrants will be, duly authorized, validly issued, fully paid and
non-assessable. The shares of Common Stock have no preference, conversion,
exchange, preemptive or cumulative voting rights.
PREFERRED STOCK
The Company is authorized to issue shares of Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue shares of Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the shares of
34
<PAGE>
<PAGE>
Preferred Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. On
October 23, 1996, the Company issued 7,500 shares of Series A Preferred Stock.
See 'Business -- Recent Events.'
LEGAL MATTERS
Certain legal matters, including the legality of the issuance of the shares
of Common Stock in exchange for the Warrants, are being passed upon for the
Company by Stroock & Stroock & Lavan, 7 Hanover Square, New York, New York
10004.
EXPERTS
The audited Consolidated Financial Statements included in this Prospectus
have been included herein in reliance on the report of Freed Maxick Sachs &
Murphy, P.C., independent certified public accountants, 800 Liberty Building,
Buffalo, New York, 14202, for the periods indicated, given on the authority of
that firm as experts in auditing and accounting.
35
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED FINANCIAL INFORMATION
SEPTEMBER 30, 1996
(UNAUDITED)
A-1
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED FINANCIAL INFORMATION
(UNAUDITED)
BASIS OF COMBINATION -- PRO FORMA
The accompanying pro forma combined statements of operations have been
derived from Esquire Communications Ltd's ('ESQ.COM') statements of operations
for year ended December 31, 1995 and the nine-month period ended September 30,
1996. Adjustments have been made to such information to give effect to the
following transactions and events as if each had occurred as of the beginning of
the period covered by these pro forma combined statements of operations:
A. ESQ.COM's acquisition of M&M Reporting Referral Service, Inc.
('M&M') on October 28, 1996.
B. ESQ.COM's acquisition of Sherry Roe & Associates in November 1996,
Pelletier & Jones in January 1997 and Nevill & Swinehart in January 1997
('1996 Acquisitions').
C. ESQ.COM's private placement of Series A Convertible Preferred Stock
which closed on October 23, 1996.
D. ESQ.COM's purchase in November 1996, of 433,500 shares of its
outstanding common stock.
E. ESQ.COM's Revolving Loan Credit Agreement ('Senior Line') with
Antares Leveraged Capital Corporation in December 1996 pursuant to which
the Company may borrow from time to time up to an aggregate principal
amount of $20 million.
F. This exchange offering pursuant to which the Company will issue
340,450 shares of common stock in exchange for 1,702,251 warrants to
acquire common stock.
The accompanying unaudited pro forma combined balance sheet gives effect to
the above transactions as if all of such events occurred on September 30, 1996.
The pro forma combined statements of operations and pro forma combined
balance sheet have been adjusted on a pro forma basis for the above transactions
and assumptions (pro forma adjustments) discussed in the accompanying notes.
The accompanying pro forma financial information does not purport to
represent what ESQ.COM's results of operations or financial condition would have
been had such transactions in fact occurred at the beginning of the periods
presented nor to project ESQ.COM's results of operations or financial position
in or for any future periods.
A-2
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA
ESQ. 1996 ---------------------------------------
COM M&M ACQUISITIONS ADJUSTMENTS ADJUSTMENTS COMBINED
------- ------ ------------ ----------- ----------- --------
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................... $ 22 $ 183 $ 206(2&3) ($5,818)(1&4) $ 5,691 $ 284
Accounts receivable, less allowance....... 4,743 841 808(3) (308) 6,084
Prepaid and other current assets.......... 289 23 28(3) (51) 289
------- ------ ------------ ----------- ----------- --------
Total current assets............ 5,054 1,047 1,042 (6,177) 5,691 6,657
Property and equipment, net.................... 1,709 73 140 1,922
Other assets:
Costs in excess of fair value of net
tangible assets of acquired businesses,
net..................................... 13,128 (2) 9,188 22,316
Other assets, net......................... 985 7 90(3) (97)(1) 104 1,089
------- ------ ------------ ----------- ----------- --------
14,113 7 90 9,091 104 23,405
------- ------ ------------ ----------- ----------- --------
$20,876 $1,127 $1,272 $ 2,914 $ 5,795 $31,984
------- ------ ------------ ----------- ----------- --------
------- ------ ------------ ----------- ----------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................... $1,161 $ 150 $ 273 $ 1,584
Accrued expenses and other current
liabilities............................. 667 138 43(3) $ (157) $ (98) 593
Current portion of long term debt......... 4,632 4 (2) 881(1) (3,659) 1,858
------- ------ ------------ ----------- ----------- --------
Total current liabilities............ 6,460 292 316 724 (3,757) 4,035
Long-term debt................................. 6,789 18 148(2) 3,099(1) 4,500 14,554
Other liabilities.............................. 293 293
Stockholders' equity:
Preferred stock -- $.01 par value, 7,500
issued, liquidation preference
$7,500,000.............................. (1) 6,700 6,700
Common stock.............................. 41 22 14(2&3) (33)(1&4) 3 47
Additional paid-in capital................ 7,703 (2) 713(1&4) (202) 8,214
Treasury stock............................ (265) (3) 265(1) (1,301) (1,301)
Retained earnings (deficit)............... (410 ) 1,060 794(3) (1,854) (148) (558)
------- ------ ------------ ----------- ----------- --------
7,334 817 808 (909) 5,052 13,102
------- ------ ------------ ----------- ----------- --------
$20,876 $1,127 $1,272 $ 2,914 $ 5,795 $31,984
------- ------ ------------ ----------- ----------- --------
------- ------ ------------ ----------- ----------- --------
</TABLE>
A-3
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
The pro forma balance sheet adjustments include those necessary to record
ESQ.COM's acquisition of M&M and 1996 Acquisitions (including related
adjustments required under purchase accounting), the receipt and use of proceeds
from the private placement, the purchase of ESQ.COM's outstanding stock,
borrowing and use of the proceeds from the Senior Line and the proposed exchange
offer.
PRO FORMA ADJUSTMENTS
(1) To record:
(a) the net proceeds from the private placement of $6.7 million (Gross
$7.5 million and estimated related cost of $.8 million).
(b) the use of $1.3 million to purchase 433,500 shares of the
Company's outstanding stock at $3.00 per share.
(c) the assumed borrowing of $9 million from the Senior Line and use
of approximately $7.4 million to repay borrowings existing on September 30,
1996.
(d) the additional deferred financing cost related to the Senior Line
and write off of unamortized deferred financing cost related to debt repaid
out of the proceeds of the Senior Line.
(2) To record the acquisition of M&M and the 1996 Acquisitions for an
aggregate consideration, inclusive of estimated associated costs, of
approximately $10.2 million consisting of 304,006 shares of common stock of
ESQ.COM (with a recorded value of $716,000), cash of $5.4 million and
subordinated promissory notes in the aggregate amount of $4 million.
Approximately $9.2 million of such preliminary purchase price has been allocated
to goodwill.
(3) To eliminate the equity accounts of M&M and 1996 Acquisitions and
adjust for assets and liabilities of those companies that were not acquired.
(4) To record the effect of the proposed exchange offer.
A-4
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
------------------------------- PRO FORMA
1996 ----------------------
ESQ.COM M&M ACQUISITIONS ADJUSTMENTS COMBINED
------- ------ ------------ ----------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................... $20,692 $5,081 $5,780 $ $31,553
Costs and expenses:
Operating expenses............................ 11,660 3,019 3,816 18,495
General and administrative expenses........... 6,120 1,307 1,915(5) (1,377) 7,965
Depreciation and amortization................. 1,025 19 83(5) 398 1,525
------- ------ ------------ ----------- --------
18,805 4,345 5,814 (979) 27,985
------- ------ ------------ ----------- --------
Income from operations............................. 1,887 736 (34) 979 3,568
Other income (expense)
Interest expense.............................. (1,069) (52)(5) (361) (1,482)
Interest and other income..................... 10 32 (43)(5) 12 11
------- ------ ------------ ----------- --------
(1,059) 32 (95) (349) (1,471)
------- ------ ------------ ----------- --------
Income before provision for income taxes and
extraordinary item............................... 828 768 (129) 630 2,097
Provision for taxes................................ 549 (49)(5) 557 1,057
------- ------ ------------ ----------- --------
Income before extraordinary item................... 279 768 (80) 73 1,040
------- ------ ------------ ----------- --------
Extraordinary loss (net of tax benefit) --
write-off of deferred financing cost............. (5) 239 239
------- ------ ------------ ----------- --------
Net income (loss).................................. $ 279 $ 768 ($ 80) ($ 166) $ 801
------- ------ ------------ ----------- --------
------- ------ ------------ ----------- --------
Preferred dividend requirements.................... (5) 450 450
------- ------ ------------ ----------- --------
Net income applicable to common stockholders....... $ 279 $ 768 ($ 80) ($ 616) $ 351
------- ------ ------------ ----------- --------
------- ------ ------------ ----------- --------
Pro forma earnings (loss) per share:
Income before extraordinary loss.............. $0.14
Extraordinary item............................ ($0.06)
Net income.................................... $0.08
Pro forma weighted average common shares
outstanding...................................... 4,338
</TABLE>
A-5
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
BASIS OF COMBINATION OF HISTORICAL FINANCIAL INFORMATION
ESQ.COM's operating results represent historical results of operations for
the year ended December 31, 1995. See ESQ.COM's 1995 financial statements
previously filed with its annual report on form 10-KSB. M&M and 1996
Acquisitions include historical results of operations for the year ended
December 31, 1995.
PRO FORMA ADJUSTMENTS
(5) Expenses
General and administrative: To record the estimated salary reduction to be
realized with respect to the negotiated employment agreement entered into with
the principals of M&M and 1996 Acquisitions and anticipated rent reduction
pursuant to the planned integration of certain offices.
Depreciation and amortization: To record amortization of goodwill arising
from M&M acquisition and 1996 Acquisitions and adjust the deferred financing
arising from the costs associated with the Senior Line.
Interest expense: To record the additional interest cost as a result of the
assumed debt increase with the proceeds of the Senior Line and the interest cost
arising from borrowings (subordinated promissory notes) to finance the
acquisition of M&M and 1996 Acquisitions. The proceeds of the Senior Line were
used to repay certain existing debt and to finance the cash portion of 1996
Acquisitions.
Other income: To adjust M&M and 1996 Acquisitions' income from assets, that
were not acquired by ESQ.COM.
Provision for taxes: To record income tax on the pro forma income at
effective statutory rates with assumed termination of Subchapter S Corporation
status of M&M and 1996 Acquisitions.
Preferred dividend requirements: To record the dividend payable on the
Series A Convertible Preferred Stock.
Extraordinary item: To record the write-off of the unamortized financing
costs related to the debt repaid out of Senior Line borrowing, after recognizing
the related tax benefit.
Pro Forma Per Share Computation: The computation of pro forma net income
per common share amounts for the year ended December 31, 1995 has, in
determining the average number of common shares outstanding, given the
retroactive effect for the following transactions:
304,006 shares of common stock of ESQ.COM assumed to be issued in the
acquisition of M&M and 1996 Acquisitions.
433,500 shares of common stock of ESQ.COM assumed to be acquired by
ESQ.COM.
340,450 shares of common stock of ESQ.COM to be issued in this
exchange offering.
A-6
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------- PRO FORMA
1996 -----------------------
ESQ.COM M&M ACQUISITIONS ADJUSTMENTS COMBINED
------- ------ ------------ ----------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................................................ $17,391 $3,582 $4,113 $25,086
Costs and expenses:
Operating expenses......................................... 9,778 1,995 2,728 14,501
General and administrative expenses........................ 5,769 979 1,271(6) ($806) 7,213
Depreciation and amortization.............................. 811 16 48(6) 298 1,173
------- ------ ------------ ----------- --------
16,358 2,990 4,047 (508) 22,887
------- ------ ------------ ----------- --------
Income from operations.......................................... 1,033 592 66 508 2,199
Other income (expense):
Interest expense........................................... (824) (3) (35)(6) (171) (1,033)
Interest and other income.................................. 6 15 0(6) (15) 6
------- ------ ------------ ----------- --------
(818) 12 (35) (186) (1,027)
------- ------ ------------ ----------- --------
Income before provision for income taxes........................ 215 604 31 322 1,172
Provision (benefit) for taxes................................... 281 (35)(6) 418 664
------- ------ ------------ ----------- --------
Net Income (loss)............................................... ($ 66) $ 604 $ 66 ($ 96) $ 508
------- ------ ------------ ----------- --------
------- ------ ------------ ----------- --------
Preferred dividend requirements................................. (6) 338 338
------- ------ ------------ ----------- --------
------- ------ ------------ ----------- --------
Net income applicable to common stockholders.................... ($ 66) $ 604 $ 66 ($434) $ 170
------- ------ ------------ ----------- --------
------- ------ ------------ ----------- --------
Pro forma net income per share.................................. $0.04
-----
-----
Pro forma weighted average common shares outstanding............ 4,338
-----
-----
</TABLE>
A-7
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
BASIS OF COMBINATION OF HISTORICAL FINANCIAL INFORMATION
ESQ.COM's operating results represent historical results of operations for
the nine months ended September 30, 1996. See ESQ.COM's September 30, 1996
financial statements previously filed with its form 10-QSB. M&M and 1996
Acquisitions include historical results of operations for the nine months ended
September 30, 1996.
PRO FORMA ADJUSTMENTS
(6) Expenses
General and administrative: To record the estimated salary reduction to be
realized with respect to the negotiated employment agreement entered into with
the principals of M&M and 1996 Acquisitions and anticipated rent reduction
pursuant to the planned integration of certain offices.
Depreciation and amortization: To record amortization of goodwill arising
from M&M acquisition and 1996 acquisition and adjust the deferred financing
arising from the costs associated with Senior Line.
Interest expense: To record the additional interest cost as a result of the
assumed debt increase with the proceeds of the Senior Line and the interest cost
arising from borrowings ( subordinated promissory notes) to finance the
acquisition of M&M and 1996 Acquisitions. The proceeds of the Senior Line were
used to repay certain existing debt and to finance the cash portion of 1996
Acquisitions.
Other income: To adjust M&M and 1996 Acquisitions' income from assets that
were not acquired by ESQ.COM.
Provision for taxes: To record income tax on the pro forma income at
effective statutory rates with assumed termination of Subchapter S Corporation
status of M&M and 1996 Acquisitions.
Preferred dividend requirements: To record the dividend payable on the
Series A Convertible Preferred Stock.
Pro Forma Per Share Computation: The computation of pro forma net income
per common share amounts for the nine months ended September 30, 1996 has, in
determining the average number of common shares outstanding, given the
retroactive effect for the following transactions:
304,006 shares of common stock of ESQ.COM assumed to be issued in the
acquisition of M&M and 1996 Acquisitions.
433,500 shares of common stock of ESQ.COM assumed to be acquired by
ESQ.COM.
340,450 shares of common stock of ESQ.COM to be issued in this
exchange offering.
A-8
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
B-1
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets...................................................................... B-3
Condensed Consolidated Statements of Operations............................................................ B-4
Condensed Consolidated Statements of Cash Flows............................................................ B-5
Notes to Condensed Consolidated Financial Statements....................................................... B-6
</TABLE>
B-2
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995(1)
------------- ------------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 22 $ 95
Accounts receivable, less allowance........................................... 4,743 4,263
Prepaid expenses and other current assets..................................... 289 247
------------- ------------
Total current assets..................................................... 5,054 4,605
Property and equipment, net........................................................ 1,709 1,026
Other assets:
Costs in excess of fair value of net tangible assets of acquired businesses,
net.......................................................................... 13,128 12,752
Other assets, net............................................................. 985 690
------------- ------------
14,113 13,442
------------- ------------
$20,876 $ 19,073
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 1,161 $ 577
Accrued expenses and other current liabilities................................ 667 822
Current portion of long-term debt............................................. 4,632 1,605
------------- ------------
Total current liabilities................................................ 6,460 3,004
Long-term debt..................................................................... 6,789 8,634
Deferred rent obligation........................................................... 100 35
Deferred income taxes and other payables........................................... 193
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares
issued.......................................................................
Common stock, $.01 par value, 25,000,000 shares authorized, 4,126,823 issued
and outstanding.............................................................. 41 41
Additional paid-in capital.................................................... 7,703 7,703
Accumulated deficit........................................................... (410) (344)
------------- ------------
Total stockholders' equity............................................... 7,334 7,400
------------- ------------
$20,876 $ 19,073
------------- ------------
------------- ------------
</TABLE>
- ------------
(1) The balance sheet at December 31, 1995 is derived from audited financial
statements at that date.
See notes to condensed consolidated financial statements.
B-3
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C>
Revenues........................................................................... $17,391 $15,384
Costs and expenses:
Operating expenses............................................................ 9,778 8,690
General and administrative.................................................... 5,769 4,453
Depreciation and amortization................................................. 811 770
------------- -------------
16,358 13,913
------------- -------------
Income from operations............................................................. 1,033 1,471
Other income (expense):
Interest expense.............................................................. (824) (804)
Interest income............................................................... 4 7
Other......................................................................... 2 1
------------- -------------
(818) (796)
------------- -------------
Income (loss) before income tax provision.......................................... 215 675
Income tax provision............................................................... 281 439
------------- -------------
Net income (loss).................................................................. ($ 66) $ 236
------------- -------------
------------- -------------
Per common share:
Net income (loss)............................................................. ($0.02) $0.06
------- -----
------- -----
Weighted average common shares outstanding......................................... 4,127 4,125
------- -----
------- -----
</TABLE>
See notes to condensed consolidated financial statements.
B-4
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................. ($ 66) $ 236
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................ 811 769
Deferred income tax expense (benefit).................................... (56) 5
(Increase) decrease in assets:
Accounts receivable................................................. (325) (208)
Prepaid expenses and other current assets........................... 27 (25)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses............................... 126 (52)
Deferred rent obligation............................................ 65 (5)
------------- ------
Net cash provided by operating activities.......................................... 582 720
------------- ------
Cash flows from investing activities:
Purchase of property and equipment............................................ (747) (128)
Increase in other assets...................................................... (477) (67)
Business acquired, and related expenses....................................... (290) (550)
------------- ------
Net cash used in investing activities.............................................. (1,514) (745)
------------- ------
Cash flows from financing activities:
Borrowings under bank line of credit, net..................................... 1,864 800
Principal payments on long-term debt.......................................... (1,005) (633)
------------- ------
Net cash provided by financing activities.......................................... 859 167
------------- ------
Net increase (decrease) in cash.................................................... (73) 142
Cash -- beginning of period........................................................ 95 14
------------- ------
Cash -- end of period.............................................................. $ 22 $ 156
------------- ------
------------- ------
Supplemental information:
Approximate interest paid during the period................................... $ 839 $ 785
------------- ------
------------- ------
Approximate income taxes paid during the period............................... $ 696 $ 258
------------- ------
------------- ------
</TABLE>
The Company incurred capital lease obligations of approximately $176,000
during the nine months ended September 30, 1996.
See notes to condensed consolidated financial statements.
B-5
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included. The results of operations for the interim
periods are not necessarily indicative of the results that may be attained for
an entire year. For further information, refer to the Financial Statements and
footnotes thereto in the Company's annual report on Form 10-KSB for the fiscal
year ended December 31, 1995.
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
NOTE B -- EARNINGS PER COMMON SHARE
Earnings per common share are computed on the basis of weighted average
number of shares outstanding. No effect has been given to outstanding warrants
and options since their assumed exercise would be antidilutive.
NOTE C -- SUBLEASE LOSS
In May 1996, the Company moved into a new office space for its New York
operations and, based on its current space requirements, plans to sublease its
old office space which lease expires in February 2000. It is expected that the
future rental obligation pursuant to the lease would exceed the anticipated
sublease rental income. Accordingly, an estimated discounted loss of
approximately $150,000 resulting from the excess of the lease obligation over
the expected sublease income during the remaining term of the lease has been
charged to operations during the nine months ended September 30, 1996. The non
current portion of the liability is included in the financial statements under
the caption 'deferred rent obligation'.
NOTE D -- STOCKHOLDERS' EQUITY
In June 1996, the Company's stockholders approved an amendment to the
Certificate of Incorporation of the Company increasing the number of authorized
shares of Common Stock to 25,000,000.
NOTE E -- BUSINESS COMBINATION
On July 26, 1996, the Company acquired the assets and liabilities of Kitlas
Dickman & Associates (KDA), a court reporting agency based in San Diego,
California. The acquisition, accounted for under the purchase method of
accounting, has resulted in the inclusion of the results of operations of KDA
from the date of acquisition. The excess of the cost of the Company's investment
over the fair values of the assets acquired and liabilities assumed including an
estimated earn-out approximated $792,000. The approximate value of tangible
assets acquired and liabilities assumed were $200,000 and $407,000,
respectively.
NOTE F -- SUBSEQUENT EVENTS
On October 23, 1996, the Company completed a private placement of 7,500
shares of Series A Convertible Preferred Stock (the 'Preferred Stock') for an
aggregate purchase price of $7,500,000 and entered into an agreement (the
'Agreement') with the Preferred Stockholders. The Preferred
B-6
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(UNAUDITED)
Stockholders have the right 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 the Company at a conversion price of
$3.00 per share (subject to anti-dilution adjustments) and bears cumulative
annual dividends at the rate of 6% per annum. The holders of Preferred Stock
have a liquidation preference of $1,000 per share, plus accrued dividends. The
Preferred Stockholders have the right to vote 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). The
Agreement restricts future dividend payments on common stock, issuance of
certain equity securities, mergers, acquisitions and sale of assets. In
connection with the private placement, the Company granted the placement agent
warrants to acquire 187,500 of common stock of the Company at an exercise price
of $3.00 per share in addition to cash compensation. The warrants are
exercisable at any time prior to October 2001.
Effective October 28, 1996, the Company acquired the assets and liabilities
of M&M Reporting Referral Service, Inc. (M&M), a Southern California-based court
reporting company. The purchase price consisted of $2,600,000 of cash,
subordinated promissory notes in the aggregate principal amount of $2,712,700
and 132,528 unregistered shares of the Company's common stock. The principal
amount of one of the notes and the cash portion of the purchase price are
subject to revision based on the revenue 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. For the year ended December 31, 1995,
M&M's revenues, income before officers compensation and net income approximated
$5 million, $1.2 million and $768,000, respectively.
B-7
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
WITH
INDEPENDENT AUDITOR'S REPORT
C-1
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report............................................................................... C-3
Consolidated Financial Statements:
Balance Sheets........................................................................................ C-4
Statements of Operations.............................................................................. C-5
Statements of Stockholders' Equity.................................................................... C-6
Statements of Cash Flows.............................................................................. C-7
Notes to the Consolidated Financial Statements............................................................. C-8
</TABLE>
C-2
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
ESQUIRE COMMUNICATIONS LTD.
We have audited the accompanying consolidated balance sheets of Esquire
Communications Ltd. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 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 consolidated financial position of Esquire
Communications Ltd. as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, effective
as of the beginning of 1993, the Company changed its method of accounting for
income taxes to conform with Statement of Financial Accounting Standards No.
109.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
January 27, 1996
C-3
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 95,339 $ 13,958
Accounts receivable, less allowance of $245,000 ($225,000 -- 1994)............ 4,263,330 3,486,289
Prepaid expenses.............................................................. 246,678 213,883
----------- -----------
Total current assets..................................................... 4,605,347 3,714,130
Property and equipment, net........................................................ 1,025,567 1,117,089
Other assets:
Cost in excess of fair values of net tangible assets of acquired businesses,
net.......................................................................... 12,751,931 11,528,835
Other assets, net............................................................. 669,577 732,757
Deferred tax asset............................................................ 20,996 19,806
----------- -----------
13,442,504 12,281,398
----------- -----------
$19,073,418 $17,112,617
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 576,888 $ 693,888
Accrued expenses.............................................................. 412,577 415,458
Income taxes payable.......................................................... 360,785 184,456
Deferred tax liability........................................................ 49,342 25,041
Current portion of long-term debt............................................. 1,604,948 513,789
----------- -----------
Total current liabilities................................................ 3,004,540 1,832,632
Long-term debt, including related parties.......................................... 8,634,595 8,330,408
Deferred rent obligation........................................................... 34,790 41,436
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares
issued....................................................................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized 4,126,823 and
4,049,900 shares issued and outstanding...................................... 41,268 40,499
Additional paid-in capital.................................................... 7,702,576 7,490,845
Accumulated deficit........................................................... (344,351) (623,203)
----------- -----------
Total stockholders' equity............................................... 7,399,493 6,908,141
----------- -----------
$19,073,418 $17,112,617
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
C-4
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................................ $20,692,034 $12,818,027 $ 5,583,940
Costs and expenses:
Operating expenses............................................. 11,660,397 7,276,812 3,308,697
General and administrative expenses............................ 6,119,536 4,495,749 1,849,045
Depreciation and amortization.................................. 1,025,407 654,577 262,727
----------- ----------- -----------
18,805,340 12,427,138 5,420,469
----------- ----------- -----------
Income from operations.............................................. 1,886,694 390,889 163,471
Other income (expense):
Interest expense............................................... (1,068,995) (534,221) (193,746)
Interest income................................................ 8,957 9,016 29,000
Other.......................................................... 910 9,932 4,360
----------- ----------- -----------
(1,059,128) (515,273) (160,386)
----------- ----------- -----------
Income (loss) before provision for income taxes, extraordinary loss
and cumulative effect of change in accounting..................... 827,566 (124,384) 3,085
Provision for income taxes.......................................... 548,714 58,616 28,782
----------- ----------- -----------
Income (loss) before extraordinary loss and cumulative effect of
change in accounting.............................................. 278,852 (183,000) (25,697)
Extraordinary loss (net of tax benefit)............................. -- -- (72,900)
----------- ----------- -----------
Income (loss) before cumulative effect of change in accounting...... 278,852 (183,000) (98,597)
Cumulative effect of change in accounting........................... -- -- 160,000
----------- ----------- -----------
Net income (loss)................................................... $ 278,852 ($ 183,000) $ 61,403
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Income (loss) before extraordinary item and cumulative effect
of change in accounting...................................... $.07 ($.05) ($.01)
Extraordinary loss............................................. -- -- (.03)
Cumulative effect of change in accounting...................... -- -- .07
----------- ----------- -----------
Net income (loss).............................................. $.07 ($.05) $.03
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares outstanding.......................... 4,125,348 3,694,420 2,417,508
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
C-5
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT)
--------- ------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992................................... 1,500,000 $15,000 $ 296,400 ($1,142,355)
Public offering of 1,250,000 common shares and stock purchase
warrants at $4.00 and $.10, respectively, net of
expenses................................................... 1,250,000 12,500 3,951,481 --
Revocation S Corporation status.............................. -- -- (640,749) 640,749
Issuance of common stock in connection with acquisition of
subsidiary................................................. 549,900 5,499 1,634,963 --
Net income................................................... -- -- -- 61,403
--------- ------- ---------- ------------
Balance, December 31, 1993................................... 3,299,900 32,999 5,242,095 (440,203)
Issuance of common stock and stock purchase warrants in
connection with financing and acquisition of subsidiary.... 750,000 7,500 2,248,750 --
Net loss..................................................... -- -- -- (183,000)
--------- ------- ---------- ------------
Balance, December 31, 1994................................... 4,049,900 40,499 7,490,845 (623,203)
Issuance of common stock in connection with acquisition of
business................................................... 76,923 769 211,731 --
Net income................................................... -- -- -- 278,852
--------- ------- ---------- ------------
Balance, December 31, 1995................................... 4,126,823 $41,268 $7,702,576 ($ 344,351)
--------- ------- ---------- ------------
--------- ------- ---------- ------------
</TABLE>
See accompanying notes.
C-6
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................ $ 278,852 ($ 183,000) $ 61,403
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization............................... 1,025,407 654,577 262,727
Deferred income tax benefit................................. 23,111 (141,084) (40,000)
Cumulative effect of change in accounting for income
taxes..................................................... -- -- (160,000)
(Increase) decrease in assets:
Accounts receivable.................................... (501,461) (178,314) 27,910
Prepaid expenses....................................... 7,413 (12,597) (39,646)
Decrease in liabilities:
Accounts payable and accrued expenses.................. (155,801) (144,496) (204,938)
Deferred rent obligation............................... (6,646) (1,524) (1,521)
---------- ----------- -----------
Net cash provided by (used in) operating activities before
extraordinary loss........................................ 670,875 (6,438) (94,065)
Extraordinary loss.......................................... -- -- 72,900
---------- ----------- -----------
Net cash provided by (used in) operating activities......... 670,875 (6,438) (21,165)
---------- ----------- -----------
Cash flows from investing activities:
Acquisitions of businesses, net of acquired cash................. (641,824) (4,331,431) (1,593,357)
Certificate of deposit redemption (purchase)..................... -- 110,000 (110,000)
Purchases of property and equipment.............................. (161,453) (159,036) (104,351)
Increase in other assets......................................... (103,769) (49,445) (38,904)
---------- ----------- -----------
Net cash used in investing activities............................ (907,046) (4,429,912) (1,846,612)
---------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt..................................... -- 4,993,750 --
Principal payments on long-term debt............................. (782,448) (633,301) (1,836,812)
Net borrowings under bank note................................... 1,100,000 160,000 --
Deferred financing costs......................................... -- (365,070) --
Issuance of warrants............................................. -- 6,250 --
Proceeds from initial public offering, net....................... -- -- 4,015,512
Repayment of officer loan........................................ -- -- (50,000)
---------- ----------- -----------
Net cash provided by financing activities........................ 317,552 4,161,629 2,128,700
---------- ----------- -----------
Net increase (decrease) in cash....................................... 81,381 (274,721) 260,923
Cash -- beginning of year............................................. 13,958 288,679 27,756
---------- ----------- -----------
Cash -- end of year................................................... $ 95,339 $ 13,958 $ 288,679
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes.
C-7
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Business -- The accompanying consolidated
financial statements include the financial statements of Esquire Communications
Ltd. (ECL) and each of its wholly-owned subsidiaries, Esquire Reporting Company,
Inc. (ERC), Pepper Services, Ltd. (Pepper), David Feldman & Associates (USA)
Ltd. (DFA), and Sarnoff Deposition Services, Inc. (SDS) (see Note 2)
(Collectively the 'Company'). All significant intercompany accounts and
transactions have been eliminated.
The Company is a court reporting firm providing printed and computerized
transcripts, and video recordings of testimony from depositions, to the legal
profession primarily in the New York City Metropolitan and Southern California
areas.
Reorganization -- In connection with the Company's initial securities
offering in May 1993, certain stock transactions were effectuated (the
reorganization) whereby the former sole stockholder and debentureholders of ERC
and Pepper contributed to ECL all of the outstanding stock and warrants of ERC
and Pepper in exchange for an aggregate of 1,027,500 shares of common stock of
ECL. The exchange transaction constituted a reorganization of the Company, which
was accounted for in a manner similar to a pooling of interest, with assets and
liabilities recorded at their historical book values.
Revenue Recognition -- Revenues and the related direct costs of court
reporters and transcribers are recognized when services rendered are billable,
which generally occurs at the time the final documents are transcribed and
completed.
Property and Equipment -- Property and equipment are recorded at cost.
Depreciation is computed using both accelerated and straight-line methods over
the estimated useful lives of the assets. Leasehold improvements are amortized
over the shorter of the estimated useful lives of the assets or lease terms.
Maintenance and repairs are charged to expenses as incurred while improvements
are capitalized.
Intangible Assets -- The cost in excess of the fair values of net tangible
assets of acquired businesses (goodwill) is amortized using the straight-line
method over 25 years. The Company continually reviews the recoverability of the
carrying value of goodwill. In determining whether there is an impairment of
goodwill, the company compares the sum of the expected future net cash flows
(undiscounted and without interest charges) to the carrying amount of the asset.
At December 31, 1995 and 1994, no impairment in value has been recognized.
Other intangible assets consisting of customer lists, covenants not to
compete, and deferred financing costs, are amortized using the straight-line
method over the assets' respective estimated lives or terms, typically no more
than ten years. Amortization expense for fiscal years 1995, 1994, and 1993
related to intangible assets was $699,042, $476,791, and $251,670, respectively.
Accumulated amortization at December 31, 1995 and 1994 amounted to $1,709,737
and $1,853,712, respectively.
Income Taxes -- The Company and its subsidiaries file a consolidated
federal income tax return. The Company's deferred tax asset and liability have
been determined under the provisions of Statement of Financial Accounting
Standards No. 109 -- 'Accounting for Income Taxes,' which the Company adopted
effective January 1, 1993 (see Note 9).
Earnings (Loss) Per Common Share -- Earnings (loss) per common share are
computed on the basis of weighted average number of common shares outstanding
after giving retroactive effect to the shares issued in connection with the
reorganization. No effect has been given to outstanding warrants and options;
since their assumed exercise would not have a material effect on dilution.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
C-8
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments -- The carrying value of cash, accounts
receivable, the current maturities of long term debt, and accounts payable
approximate their fair value because of the short term maturity of these
instruments. Due to the lack of quoted market prices for the Company's long term
debt obligations, the fair value of long term debt was estimated based upon the
present value of estimated future cash flows at prevailing interest rates.
Company management estimates that the stated interest rates on its debt
obligations are commensurate with the credit risks associated with the debt and
would approximate the discount rate the Company would have to pay a creditworthy
third party to assume its obligations. Based on these assumptions, management
believes the fair market values of the Company's long term debt are not
materially different from their recorded amounts at December 31, 1995.
NOTE 2 -- BUSINESS COMBINATIONS
Effective September 30, 1993, the Company acquired 100% of the outstanding
stock of David Feldman & Associates (USA) Ltd. (DFA), a New York-based court
reporting firm. The purchase price, inclusive of associated costs, consisted of
approximately $1,593,000 in cash, a promissory note in the amount of $600,000
payable over four years with interest at 10%, and 549,900 unregistered shares of
the Company's common stock valued at $1,640,462. The acquisition, accounted for
under the purchase method of accounting, has resulted in the inclusion of the
results of operations of the acquired subsidiary from the date of acquisition.
The excess of the cost of the Company's investment over the fair values of the
assets acquired and liabilities assumed at the date of acquisition amounted to
approximately $3,665,000.
Effective June 22, 1994, the Company acquired 100% of the outstanding stock
of Sarnoff Deposition Service, Inc. (SDS), a Southern California-based court
reporting company. The purchase price, inclusive of associated costs, consisted
of approximately $4,331,000 in cash, a $1,500,000 promissory note payable over
seven years with interest at 10%, and 750,000 unregistered shares of the
Company's common stock valued at $2,250,000. The acquisition, accounted for
under the purchase method of accounting, has resulted in the inclusion of the
results of operations of SDS from the date of acquisition. The excess of the
cost of the Company's investment over the fair values of the assets acquired and
liabilities assumed at the date of acquisition amounted to approximately
$8,031,000.
Effective January 27, 1995, the Company acquired the assets and liabilities
of Coleman, Haas, Martin & Schwab (CHMS), Inc., a California-based court
reporting company, and entered into consulting and noncompetition agreements for
the total consideration of $1,412,500 consisting of cash in the amount of
$400,000, promissory notes in the aggregate of $800,000 with interest at 9%
payable monthly over 7 years, and 76,923 unregistered shares of the Company's
common stock valued at $212,500. In addition, the purchase agreement provided
for an additional $150,000 payment based upon the attainment of certain revenues
in 1995. The principal amount payable under one of the promissory notes is
subject to adjustment based upon revenue levels attained in 1995 and 1996. As a
result, the principal balance increased by approximately $35,000 for fiscal year
1995. The acquisition, accounted for under the purchase method of accounting,
has resulted in the inclusion of the results of operations of CHMS from the date
of acquisition. The excess of the cost of the Company's investment over the fair
values of the assets acquired and liabilities assumed at the date of acquisition
amounted to approximately $1,750,000. CHMS's unaudited revenues for the 12-month
period ended December 31, 1994 amount to approximately $2,540,000.
The following table summarizes on an unaudited pro forma basis the combined
results of operations of the Company as though the acquisitions of DFA and SDS
were made at January 1, 1993. The pro forma amounts give effect to appropriate
adjustments for the fair value of assets acquired, interest expense,
amortization of intangibles, and the issuance of common shares, but do not
reflect any
C-9
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating efficiencies or cost savings which management of ECL believes are
achievable through eliminating duplicative functions and realigning business
practices.
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Revenues................................................................. $17,154,762 $17,470,766
----------- -----------
----------- -----------
Earnings before interest, taxes, depreciation and amortization........... $ 1,666,802 $ 2,017,395
----------- -----------
----------- -----------
Net loss................................................................. ($ 234,054) ($ 92,939)
----------- -----------
----------- -----------
Per share................................................................ ($.06) ($.02)
------ ------
------ ------
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
DEPRECIABLE ------------------------
LIVES 1995 1994
-------------- ---------- ----------
<S> <C> <C> <C>
Office condominium.............................. 31 Years $ 202,800 $ 202,800
Equipment....................................... 5 to 7 Years 1,589,722 1,404,380
Leasehold improvements.......................... 5 to 10 Years 283,070 264,236
---------- ----------
2,075,592 1,871,416
Less accumulated depreciation.................................... 1,050,025 754,327
---------- ----------
$1,025,567 $1,117,089
---------- ----------
---------- ----------
</TABLE>
NOTE 4 -- LONG TERM DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- ----------
<S> <C> <C>
Subordinated debentures(A)....................................... $ 5,439,503 $5,539,504
Promissory notes(B).............................................. 2,367,468 1,805,357
Revolving credit note(C)......................................... 1,600,000 500,000
Contract obligation(D)........................................... 608,784 753,724
Other notes and obligations(E)................................... 223,788 245,612
----------- ----------
10,239,543 8,844,197
Less current portions............................................ 1,604,948 513,789
----------- ----------
$ 8,634,595 $8,330,408
----------- ----------
----------- ----------
</TABLE>
A. Debentures -- In June 1994, the Company completed a private placement of
subordinated debentures (the 'Debentures') in the aggregate principal amount of
$5,000,000 to fund the cash portion of the purchase price of the SDS acquisition
(see Note 2) and entered into an agreement with the debentureholders (the
'Investment Agreement'). The Debentures bear interest currently at 11% per annum
and provide for quarterly principal payments commencing in January 1996 in the
amount of $125,000 through June 2001. The Debentures are secured by second
security interest in all tangible and intangible assets of the Company. The
Investment Agreement restricts future indebtedness, investments, distributions,
merger, acquisition or sale of assets and certain leasing transactions and
requires the maintenance of certain financial ratios and covenants.
In addition, previously outstanding debentures aggregating to $545,754 at
December 31, 1994 and maturing in May 1995 were modified in 1995 to increase the
interest rate to prime plus 4% and to require payment of $100,000 in 1995. The
balance will be paid in 18 equal monthly installments commencing January 1996.
C-10
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. Promissory Notes -- Promissory notes with former stockholders of
acquired businesses are payable in aggregate quarterly and monthly installments
of $100,341 and $22,048, respectively, plus interest at 9% and 10%, maturing
through June 2002. Interest incurred on the notes amounted to approximately
$249,000 and $128,000 in 1995 and 1994, respectively.
C. Revolving Credit Note -- In September 1994, the Company entered into a
3-year revolving credit agreement (the 'Credit Agreement') with a bank which
provides for borrowings up to $3,000,000, based on eligible accounts receivable
as defined therein. Borrowings under the Credit Agreement bear interest at prime
plus 1% and interest payments are required monthly. The Credit Agreement
restricts future indebtedness, investments, distributions, merger, acquisition
or sale of assets and capital expenditures, and also requires the maintenance of
certain financial ratios and covenants. The agreement matures in September 1997.
In addition, substantially all other lenders to the Company have entered into a
subordination agreement with the bank.
D. Contract Obligations -- An agreement with a former employee of SDS, who
is related to an officer/director of the Company, provides for monthly payments
of $16,667 for five years. The obligation is carried net of imputed interest at
8% amounting to $91,216 at December 31, 1995 ($146,276 -- 1994). Interest
expense included in results of operations for 1995 amounted to $55,060
($29,522 -- 1994).
E. Other Notes and Obligations -- Outstanding amounts are payable in
aggregate monthly installments of $8,275 ($9,224 -- 1994) with interest at 9% to
19%, maturing through 1999.
Scheduled annual principal payments of long term debt subsequent to
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996....................................................... $ 1,604,948
1997....................................................... 2,964,088
1998....................................................... 1,074,819
1999....................................................... 993,454
2000....................................................... 858,898
Thereafter................................................. 2,743,336
-----------
$10,239,543
-----------
-----------
</TABLE>
NOTE 5 -- STOCKHOLDERS' EQUITY
In May 1993, the Company completed an initial public offering of its
securities comprised of 1,250,000 shares of common stock and 1,250,000 warrants
to purchase common stock at prices of $4.00 and $.10, respectively. The gross
proceeds and total costs of the offering were $5,143,875 and $1,178,863,
respectively.
The warrants included in the units are exercisable for five years
commencing one year after the offering at an exercise price of $4.50 per share.
The Company may call the warrants for redemption at any time they are
exercisable at a price of $.01 per warrant, provided the sales price of the
common stock has been at least 150% of the exercise price of the warrants for a
specified period of time. The underwriters exercised an 'over-allotment' and
acquired an additional 187,500 of warrants at $.09 per warrant, net of discount.
In addition, they acquired a purchase option to acquire shares and warrants
which are exercisable for a period of four years and contain certain
antidilutive provisions. After giving effect to subsequent stock transactions,
211,523 shares and warrants are exercisable at a price of $3.25 and $.08,
respectively.
As a result of the Company's reorganization (Note 1), cumulative losses
incurred prior to the revocation of the subsidiary's S Corporation status
amounting to $640,749, have been reclassified against additional paid-in
capital. Such losses are not available to the Company for carryforward and
utilization against future taxable income.
C-11
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the private placement of Debentures in 1994, the Company
issued warrants to the holders to acquire an aggregate of 625,000 shares of
common stock. The exercise price of the warrants is $2.90, subject to revision
under specified circumstances. The warrants expire upon the earlier of (a) six
years from the date of the final payment on the Debentures, or (b) the tenth
anniversary of the date of issuance. The Investment Agreement provides for
certain call and put provisions with respect to the warrants under certain
circumstances.
In connection with the acquisition of SDS in June 1994, the Company issued
750,000 shares of common stock at a recorded share price of $3.00. The Company
granted warrants to acquire 100,000 shares of its common stock at $4.50 per
share to its investment bankers in connection with the SDS acquisition in
addition to cash compensation. The warrants are exercisable at any time prior to
May 1998.
In connection with the acquisition of CHMS in January 1995, the Company
issued 76,923 shares of common stock at a recorded share price of $2.76.
NOTE 6 -- STOCK OPTION PLAN
The Company has a stock option plan that provides for the issuance of up to
600,000 shares of common stock upon the exercise of incentive stock options or
nonqualified stock options. The terms of each granted option is not to exceed
ten years from the date of grant and the exercise price of an option may not be
less than 100% of the fair market value of a share of common stock on the date
of the grant of the option. At December 31, 1995 and 1994 there were 578,600 and
514,817 options outstanding, respectfully, under the plan with an exercise price
of $4.00 per share. During December 31, 1995 and 1994 41,217 and 48,933 options,
respectively, were canceled. The options generally vest ratably over a
three-year period, commencing one year after grant.
NOTE 7 -- PROFIT SHARING PLAN
In September 1995, the Company adopted a 401(k) savings plan covering all
eligible employees. The plan allows employees to voluntarily contribute up to
15% of compensation. The Company may make matching contributions as may be
determined prior to the end of each plan year. The current matching percentage
is 10%. The Company may also make discretionary additional contributions to the
plan. The Company's total contributions to the plan for 1995 amounted to $7,603.
NOTE 8 -- INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 1995,
1994 and 1993, excluding the income tax benefit attributed to the extraordinary
loss in 1993, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Current tax expenses:
U.S. federal.................................................. $362,303 $ 129,805 $ 20,700
State and city................................................ 163,300 69,895 48,082
-------- --------- --------
Total current............................................ 525,603 199,700 68,782
Deferred tax (benefit):
U.S. federal.................................................. 15,947 (91,705) (10,000)
State and city................................................ 7,164 (49,379) (30,000)
-------- --------- --------
Total deferred........................................... 23,111 (141,084) (40,000)
-------- --------- --------
Total provision.......................................... $548,714 $ 58,616 $ 28,782
-------- --------- --------
-------- --------- --------
</TABLE>
C-12
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes,' which requires the
asset and liability method of accounting for income taxes. The Company recorded
a net benefit of $160,000 in fiscal 1993 as the cumulative effect of accounting
change principally arising from net operating loss carryforwards which were not
recognized under prior accounting standards. As permitted by the new statement,
prior year financial statements were not restated to account for the change in
accounting method.
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to income before income taxes for
the years ended December 31, 1995, 1994 and 1993 due to non-deductible expenses,
primarily goodwill amortization, with a tax cost of approximately $227,000,
$128,000 and $25,000, respectively.
DFA had elected the provisions of FAS No. 109 in its fiscal year ended June
30, 1993, prior to acquisition by ECL. At the date of acquisition, a net
deferred tax liability of $230,000 existed.
SDS had elected the provisions of FAS No. 109 concurrent with its
acquisition by ECL. At the acquisition date a net deferred tax liability of
$116,000 was recognized relating to the difference attributed to the cash versus
accrual methods of accounting, offset in part by a deferred asset arising from
the financial statement recognition of a contract obligation which is payable
over five years.
Significant components of the Company's net deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Contract obligation........................................................ $269,200 $301,490
Allowances and accrued expenses............................................ 115,104 107,600
Net operating loss carryforwards........................................... 1,000 66,225
Tax credits................................................................ 21,650 43,569
-------- --------
Total deferred tax assets............................................. 406,954 518,884
Deferred tax liabilities:
Depreciation and amortization.............................................. 149,300 47,487
Cash versus accrual accounting differences, net............................ 286,000 476,632
-------- --------
Total deferred tax liabilities........................................ 435,300 524,119
-------- --------
Net deferred tax liability................................................. $ 28,346 $ 5,235
-------- --------
-------- --------
</TABLE>
The Company has state minimum tax credit carryforwards of approximately
$22,000 which may be carried forward to reduce future year tax liabilities
through the year 2004.
NOTE 9 -- COMMITMENTS
A. Employment Agreements -- Concurrent with the commencement of the
Company's public stock offering, the chairman of the board entered into an
employment agreement with a five-year term through May 1998 and renewable on a
year to year basis thereafter. The agreement provides for a base salary of
$180,000 plus cost of living increases, and an annual bonus based on a
percentage of the pre-tax earnings of the Company in excess of specified levels.
No bonus was earned under the agreement in each of the years ended December 31,
1995, 1994 and 1993.
Concurrent with the acquisition of DFA and SDS (see Note 2), the Company
entered into employment and non competition agreements with the former
stockholders of each of the companies which expire in September 1997 and June
1998, respectively. The agreements provide for an annual base salary of $180,000
plus cost of living increases. The DFA agreement also provides for an annual
bonus based on percentages of consolidated revenues in excess of specified
levels. Total bonus amounts earned under the DFA employment agreement amounted
to $238,601 and $188,575 for the respective years ended December 31, 1995 and
1994.
C-13
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. Lease Commitments -- The Company is obligated under operating leases for
office facilities which expire through December 2005. The leases provide, among
other things, that the Company is responsible for its share of increases in
certain utilities, maintenance and property taxes over a base amount. In
addition, the Company is also obligated under various equipment and vehicle
operating leases which expire through September 1999. Total lease expense for
1995, 1994, and 1993 under the above leases amounted to approximately $374,500,
$337,000, and $185,000, respectively.
The Company leases its Santa Ana, California, office from an affiliate of
an officer/director which expires in June 1999 with an option to renew for five
years. Management believes that the terms of the lease agreement are comparable
to market rates. Total lease expense for 1995 and 1994 amounted to $264,796 and
$131,850, respectively.
The anticipated future annual lease payments under operating leases at
December 31, 1995 inclusive of the base utility, maintenance and property tax
charges for the office facilities are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 775,753
1997........................................................ 748,445
1998........................................................ 658,967
1999........................................................ 437,503
2000........................................................ 182,000
Thereafter.................................................. 1,002,249
----------
$3,804,917
----------
----------
</TABLE>
The ERC office leases provide for specified rent increases over the term of
the leases. The effects of these scheduled rent increases are being amortized on
a straight-line basis over the lease term. Included in the financial statements
under the caption 'deferred rent obligation' is the excess of the straight-line
amortization of the lease obligation over the payments made to date of $34,790
and $41,436 at December 31, 1995 and 1994, respectively.
NOTE 10 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments have included:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Interest............................................... $1,073,812 $528,294 $316,818
---------- -------- --------
---------- -------- --------
Income taxes........................................... $ 199,737 $ 12,055 $ 48,335
---------- -------- --------
---------- -------- --------
</TABLE>
In connection with the acquisition of DFA in 1993, the Company issued a
note payable in the amount of $600,000 and 549,900 shares of its common stock
valued at approximately $1,640,000.
In connection with the acquisition of SDS in 1994, the Company issued a
note payable of $1,500,000 and 750,000 shares of common stock valued at
approximately $2,250,000.
In connection with the acquisition of CHMS in 1995, the Company issued
notes payable totaling $834,807 and 76,923 shares of common stock valued at
approximately $212,500.
C-14
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporate Law ('DGCL') provides that a
business corporation may indemnify directors and officers against liabilities
they may incur in such capacities provided certain standards are met, including
good faith and the reasonable belief that the particular action was in, or not
opposed to, the best interest of the corporation. Subsection (a) of Section 145
of the DGCL empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth above, except that no indemnification
may 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 Delaware Court of Chancery or the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that, among other things, to the
extent that a director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to in Subsections (a) and (b)
of Section 145 of the DGCL, or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 of the DGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that a corporation is empowered to purchase and maintain insurance on behalf
of a director or officer of the corporation against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
against such liability under Section 145 of the DGCL.
The Bylaws of the Company provide for the mandatory indemnification of
directors and officers to the fullest extent permitted by law.
Section 102(b)(7) of the DGCL permits the Certificate of Incorporation of a
corporation to provide that a director shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of his or her
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (dealing with
unlawful stock purchases or redemptions), or (iv) for any transaction from which
the director derived an improper personal benefit.
The Certificate of Incorporation of the Company provides that the liability
of the Company's directors to the Company or to its stockholders shall be
eliminated to the fullest extent permitted by law.
II-1
<PAGE>
<PAGE>
The Company has a directors' and officers' liability insurance policy which
affords directors and officers insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts.
ITEM 21. EXHIBITS.
(a) Financial Statements:
None.
(b) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the Current
Report on 8-K reporting on an event which occurred on October 28, 1996 ('October 1996 8-K').
3.2 -- By-Laws of the Company. Incorporated by reference to Exhibit 3.2 to October 1996 8-K.
4.1 -- Warrant Agreement between the Company and Continental Stock Transfer & Trust Company. Incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form SB-2 (File No. 33-48814).
*5.1 -- Opinion of Stroock & Stroock & Lavan with respect to the securities being registered.
8.1 -- Opinion of Stroock & Stroock & Lavan with respect to tax matters (included as part of Exhibit 5.1).
10.1 -- Employment Agreement dated as of March 1, 1993, between the Company and Malcolm L. Elvey. Incorporated
by reference to Exhibit 10.1 to the Registration Statement on Form SB-2 (File No. 33-48814).
10.2 -- Agreement of Merger dated as of September 30, 1993 by and among the Company, Esquire Communications
Acquisition Corp. and David Feldman & Associates (U.S.A.), Ltd. Incorporated by reference to Exhibit 1
to Current Report on Form 8-K reporting on an event which occurred on September 10, 1993 ('1993 8-K').
10.3 -- Employment Agreement dated as of September 30, 1993 by and between the Company and David Feldman.
Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.4 -- Registration Rights Agreement dated as of September 30, 1993 by and between the Company and David
Feldman. Incorporated by reference to Exhibit 3 to 1993 8-K.
10.5 -- Stock Purchase Agreement dated June 22, 1994 by and between the Company and Sarnoff Deposition
Service, Inc. Incorporated by reference to Exhibit 1 to Current Report on Form 8-K reporting on an
event which occurred on June 22, 1994 ('1994 8-K').
10.6 -- Registration Rights Agreement dated June 22, 1994 by and between the Company and The Sarnoff Trust.
Incorporated by reference to Exhibit 2 to 1994 8-K.
10.7 -- Employment Agreement dated June 22, 1994 by and between the Company and Cary A. Sarnoff. Incorporated
by reference to Exhibit 4 to 1994 8-K.
10.8 -- Confidentiality and Non-Competition Agreement dated as of June 22, 1994 by and between Edward L.
Sarnoff and Sarnoff Deposition Service, Inc. Incorporated by reference to Exhibit 6 to 1994 8-K.
10.9 -- Investment Agreement dated June 22, 1994 by and among the Company, Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation II. Incorporated by reference to
Exhibit 12 to 1994 8-K.
10.10 -- Asset Purchase Agreement dated January 27, 1995 by and between the Company and Coleman, Haas, Martin &
Schwab, Inc. Incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995 ('1995 10-KSB').
10.11 -- Registration Rights Agreement dated January 27, 1995 by and between the Company and Coleman, Haas,
Martin & Schwab, Inc. Incorporated by reference to Exhibit 10.16 to 1995 10-KSB.
10.12 -- Asset Purchase Agreement dated May 22, 1996, as amended, among the Company, M&M Reporting Referral
Service, Inc. and the stockholders of M&M Reporting Referral Service, Inc. Incorporated by reference
to Exhibit 10.1 to October 1996 8-K.
10.13 -- Registration Rights Agreement dated as of October 28, 1996 between the Company and M&M Reporting
Referral Service, Inc. Incorporated by reference to Exhibit 10.3 to October 1996 8-K.
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.14 -- Purchase Agreement dated October 23, 1996 by and between the Company, Golder, Thoma, Cressey, Rauner
Fund IV, L.P. ('GTCR') and Antares Leveraged Capital Corp. (collectively with GTCR, the 'Investors').
Incorporated by reference to Exhibit 10.4 to October 1996 8-K.
10.15 -- Stockholders Agreement dated October 23, 1996 by and between the Investors, Malcolm L. Elvey, Cary A.
Sarnoff, David J. Feldman, CMNY Capital L.P. and Allied Investment Corporation, Allied Investment
Corporation II and Allied Capital Corporation II. Incorporated by reference to Exhibit 10.5 to October
1996 8-K.
10.16 -- Registration Agreement dated October 23, 1996 among the Company and the Investors. Incorporated by
reference to Exhibit 10.6 to October 1996 8-K.
10.17 -- Agreement dated October 23, 1996 among the Company, GTCR, David J. Feldman, The Sarnoff Trust, Allied
Investment Corporation, Allied Investment Corporation II and Allied Capital Corporation II relating to
registration rights. Incorporated by reference to Exhibit 10.7 to October 1996 8-K.
16.1 -- Letter from Freed Maxick Sachs & Murphy, P.C. Incorporated by reference to Exhibit 16 to Current
Report on Form 8-K reporting an event which occurred October 23, 1996.
21.1 -- Subsidiaries of the Registrant. Incorporated by reference to Exhibit 21 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
23.1 -- Consent of Stroock & Stroock & Lavan (included as part of Exhibit 5.1).
23.2 -- Consent of Freed Maxick Sachs & Murphy, P.C.
24.1 -- Powers of Attorney of Directors and Officers of Registrant (included on signature page).
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 13, 1997.
ESQUIRE COMMUNICATIONS LTD.
By /s/ MALCOLM L. ELVEY
...................................
MALCOLM L. ELVEY
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Malcolm L.
Elvey and Vasan Thatham, and each of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
to this Registration Statement (including post-effective amendments) and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing, ratifying and confirming all that said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ ----------------
<C> <S> <C>
/s/ Chairman of the Board, Chief Executive January 13, 1997
......................................... Officer and Director
(MALCOLM L. ELVEY)
/s/ President, Chief Operating Officer and January 13, 1997
......................................... Director
(DAVID J. FELDMAN)
/s/ Chief Financial Officer January 13, 1997
.........................................
(VASAN THATHAM)
/s/ Vice Chairman and Director January 13, 1997
.........................................
(CARY A. SARNOFF)
Director January 13, 1997
.........................................
(MORTIMER R. FEINBERG)
/s/ Director January 13, 1997
.........................................
(ANDREW P. GARVIN)
/s/ Director January 13, 1997
.........................................
(JOSEPH P. NOLAN)
/s/ Director January 13, 1997
.........................................
(BRUCE V. RAUNER)
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
3.1 -- Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 to the
Current Report on 8-K reporting on an event which occurred on October 28, 1996 ('October 1996 8-K').
3.2 -- By-Laws of the Company. Incorporated by reference to Exhibit 3.2 to October 1996 8-K.
4.1 -- Warrant Agreement between the Company and Continental Stock Transfer & Trust Company. Incorporated
by reference to Exhibit 4.1 to the Registration Statement on Form SB-2 (File No. 33-48814).
*5.1 -- Opinion of Stroock & Stroock & Lavan with respect to the securities being registered.
8.1 -- Opinion of Stroock & Stroock & Lavan with respect to tax matters (included as part of Exhibit 5.1).
10.1 -- Employment Agreement dated as of March 1, 1993, between the Company and Malcolm L. Elvey.
Incorporated by reference to Exhibit 10.1 to the Registration Statement on Form SB-2 (File No.
33-48814).
10.2 -- Agreement of Merger dated as of September 30, 1993 by and among the Company, Esquire Communications
Acquisition Corp. and David Feldman & Associates (U.S.A.), Ltd. Incorporated by reference to
Exhibit 1 to Current Report on Form 8-K reporting on an event which occurred on September 10, 1993
('1993 8-K').
10.3 -- Employment Agreement dated as of September 30, 1993 by and between the Company and David Feldman.
Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.4 -- Registration Rights Agreement dated as of September 30, 1993 by and between the Company and David
Feldman. Incorporated by reference to Exhibit 3 to 1993 8-K.
10.5 -- Stock Purchase Agreement dated June 22, 1994 by and between the Company and Sarnoff Deposition
Service, Inc. Incorporated by reference to Exhibit 1 to Current Report on Form 8-K reporting on an
event which occurred on June 22, 1994 ('1994 8-K').
10.6 -- Registration Rights Agreement dated June 22, 1994 by and between the Company and The Sarnoff Trust.
Incorporated by reference to Exhibit 2 to 1994 8-K.
10.7 -- Employment Agreement dated June 22, 1994 by and between the Company and Cary A. Sarnoff.
Incorporated by reference to Exhibit 4 to 1994 8-K.
10.8 -- Confidentiality and Non-Competition Agreement dated as of June 22, 1994 by and between Edward L.
Sarnoff and Sarnoff Deposition Service, Inc. Incorporated by reference to Exhibit 6 to 1994 8-K.
10.9 -- Investment Agreement dated June 22, 1994 by and among the Company, Allied Investment Corporation,
Allied Investment Corporation II and Allied Capital Corporation II. Incorporated by reference to
Exhibit 12 to 1994 8-K.
10.10 -- Asset Purchase Agreement dated January 27, 1995 by and between the Company and Coleman, Haas,
Martin & Schwab, Inc. Incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995 ('1995 10-KSB').
10.11 -- Registration Rights Agreement dated January 27, 1995 by and between the Company and Coleman, Haas,
Martin & Schwab, Inc. Incorporated by reference to Exhibit 10.16 to 1995 10-KSB.
10.12 -- Asset Purchase Agreement dated May 22, 1996, as amended, among the Company, M&M Reporting Referral
Service, Inc. and the stockholders of M&M Reporting Referral Service, Inc. Incorporated by
reference to Exhibit 10.1 to October 1996 8-K.
10.13 -- Registration Rights Agreement dated as of October 28, 1996 between the Company and M&M Reporting
Referral Service, Inc. Incorporated by reference to Exhibit 10.3 to October 1996 8-K.
10.14 -- Purchase Agreement dated October 23, 1996 by and between the Company, Golder, Thoma, Cressey,
Rauner Fund IV, L.P. ('GTCR') and Antares Leveraged Capital Corp. (collectively with GTCR, the
'Investors'). Incorporated by reference to Exhibit 10.4 to October 1996 8-K.
10.15 -- Stockholders Agreement dated October 23, 1996 by and between the Investors, Malcolm L. Elvey, Cary
A. Sarnoff, David J. Feldman, CMNY Capital L.P. and Allied Investment Corporation, Allied
Investment Corporation II and Allied Capital Corporation II. Incorporated by reference to
Exhibit 10.5 to October 1996 8-K.
10.16 -- Registration Agreement dated October 23, 1996 among the Company and the Investors. Incorporated by
reference to Exhibit 10.6 to October 1996 8-K.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.17 -- Agreement dated October 23, 1996 among the Company, GTCR, David J. Feldman, The Sarnoff Trust,
Allied Investment Corporation, Allied Investment Corporation II and Allied Capital Corporation II
relating to registration rights. Incorporated by reference to Exhibit 10.7 to October 1996 8-K.
16.1 -- Letter from Freed Maxick Sachs & Murphy, P.C. Incorporated by reference to Exhibit 16 to Current
Report on Form 8-K reporting an event which occurred October 23, 1996.
21.1 -- Subsidiaries of the Registrant. Incorporated by reference to Exhibit 21 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
23.1 -- Consent of Stroock & Stroock & Lavan (included as part of Exhibit 5.1).
23.2 -- Consent of Freed Maxick Sachs & Murphy, P.C.
24.1 -- Powers of Attorney of Directors and Officers of Registrant (included on signature page).
27.1 -- Financial Data Schedule
</TABLE>
- ------------
*To be filed by amendment
<PAGE>
<PAGE>
[COMPANY LETTERHEAD]
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in the January 10, 1997
Registration Statement on Form S-4 (Registration No. 333) of our report dated
January 27 ,1996, which appears on page F-1 of the annual report on Form 10-K
of Esquire Communications LTD. for the year ended December 31, 1995.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
January 9, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 5,018
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 5,054
<PP&E> 3,027
<DEPRECIATION> 1,318
<TOTAL-ASSETS> 20,876
<CURRENT-LIABILITIES> 6,460
<BONDS> 6,789
0
0
<COMMON> 41
<OTHER-SE> 7,703
<TOTAL-LIABILITY-AND-EQUITY> 20,876
<SALES> 0
<TOTAL-REVENUES> 17,391
<CGS> 0
<TOTAL-COSTS> 9,778
<OTHER-EXPENSES> 6,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 824
<INCOME-PRETAX> 215
<INCOME-TAX> 281
<INCOME-CONTINUING> (66)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<PAGE>
