<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION STATEMENT NO. 333-19721
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ESQUIRE COMMUNICATIONS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<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
CHAIRMAN OF THE BOARD
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 LLP
180 MAIDEN LANE
NEW YORK, NEW YORK 10038-4982
(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. [ ]
------------------------
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 APRIL 15, 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
Future Profitability; 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; Trading Market for Warrants....................................................... 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 Years ended December 31, 1996 and 1995..................................... 14
Comparison of the Years ended December 31, 1995 and 1994..................................... 15
Liquidity and Capital Resources................................................................... 15
Business............................................................................................... 16
General........................................................................................... 16
The Court Reporting Industry...................................................................... 16
Services and Technology........................................................................... 17
Acquisition Strategy.............................................................................. 18
Competitive Factors............................................................................... 19
Clients and Marketing............................................................................. 20
Human Resources................................................................................... 20
Properties........................................................................................ 20
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
Summary Compensation Table........................................................................ 25
Employment and Related Agreements................................................................. 25
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Stock Option Plan................................................................................. 26
Certain Relationships and Related Transactions.................................................... 27
The Exchange Offer..................................................................................... 28
Purpose and Effects of the Exchange Offer......................................................... 28
Description of the Warrants....................................................................... 28
Effect of the Exchange Offer on the Warrantholders................................................ 29
Terms of the Exchange Offer....................................................................... 29
IPO Unit Options.................................................................................. 30
Expiration Date; Extensions; Amendments........................................................... 30
Procedure for Tendering Warrants.................................................................. 31
Guaranteed Delivery Procedures.................................................................... 32
Assistance........................................................................................ 32
Acceptance of Warrants for Exchange............................................................... 33
Withdrawal Rights................................................................................. 33
Conditions to the Exchange Offer.................................................................. 33
Fractional Shares................................................................................. 34
Solicitation of Warrant Holders................................................................... 35
Transfer Taxes.................................................................................... 35
Certain U.S. Federal Income Tax Considerations.................................................... 35
The Exchange Agent................................................................................ 36
Warrant Transfer Agent............................................................................ 36
Description of Securities.............................................................................. 36
Common Stock...................................................................................... 36
Preferred Stock................................................................................... 36
Legal Matters.......................................................................................... 37
Experts................................................................................................ 37
</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 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. Future Profitability; 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 $541,000 for its fiscal year
ended December 31, 1996. There is no assurance that the Company will be
profitable in the future. As of December 31, 1996, the Company had an
accumulated deficit of $885,000, a total stockholders' equity of $12,769,000,
and a negative tangible book value (excess of liabilities over tangible assets)
of $6,912,000. 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. A decrease in revenues will adversely affect
the Company's results of operations and financial condition. 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 December 31, 1996, the Company had
approximately $14.3 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, 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 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,
9
<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. Since the parties to the Stockholder's Agreement
are able to elect a majority of the Company's directors, they are able to
control management of the Company. In addition, since the parties have agreed to
vote in favor of transactions approved by the Board of Directors and have a
majority of the voting power, such transactions may be approved regardless of
the votes of the other stockholders 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 based upon
recent market prices for shares of Common Stock and recent market prices for the
Warrants. The Exchange Rate 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.'
14. Potential Adverse Effect of Redemption of Warrants Not Exchanged in the
Exchange Offer. Any Warrants not exchanged hereby 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; Trading Market for Warrants. 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
10
<PAGE>
<PAGE>
Company does not meet Nasdaq's proposed new maintenance listing standards since
it does not have $4 million in net tangible assets, $50 million in market
capitalization, total assets or total revenues and a $5.00 minimum bid.
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, the Company intends to delist the Warrants from
trading on the Boston Stock Exchange and the Nasdaq Stock Market and deregister
the Warrants under the Exchange Act if it determines that the Warrants are held
of record by fewer than 300 persons.
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>
1997
First Quarter............................................ $ $ $ $
Second Quarter (through April )........................
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 66 shareholders of record of Common Stock as of
March 18, 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
December 31, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Long-term debt, including current portion........................................... $14,285
Stockholders' equity:
Preferred Stock $.01 par value, 1,000,000 shares authorized; 7,500 shares
issued and outstanding........................................................ --
Common Stock, $.01 par value, 25,000,000 shares authorized; 4,330,829 shares
issued and 3,897,329 shares outstanding....................................... 43
Additional paid-in capital.......................................................... 14,911
Treasury stock, at cost 433,500 shares.............................................. (1,300)
Accumulated deficit................................................................. (885)
-------
Total stockholders' equity.......................................................... 12,769
-------
Total capitalization........................................................... $27,054
-------
-------
</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, 1996 and the balance sheet data as of
December 31, 1995 and 1996 are derived from the Company's financial statements,
which statements have been audited by Freed Maxick Sachs & Murphy, P.C.,
independent certified public accountants, as of December 31, 1995 and for each
of the years in the two-year period ended December 31, 1995, and by KPMG Peat
Marwick LLP, independent certified public accountants, as of and 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 ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AND OTHER DATA)
<S> <C> <C> <C>
Revenues................................................................ $24,583 $20,692 $12,818
------- ------- -------
Costs and expenses:
Operating expenses................................................. 13,925 11,660 7,277
General and administrative expenses................................ 8,443 6,120 4,496
Depreciation and amortization...................................... 1,158 1,025 654
------- ------- -------
23,526 18,805 12,427
------- ------- -------
Income from operations.................................................. 1,057 1,887 391
------- ------- -------
Other income (expense).................................................. (1,154) (1,059) (515)
------- ------- -------
(Loss) income before provision for income taxes and extraordinary
item.................................................................. (97) 828 (124)
Provision for income taxes.............................................. 212 549 59
------- ------- -------
(Loss) income before extraordinary item................................. (309) 279 (183)
Extraordinary item-loss on early extinguishment of debt, net of tax
benefit............................................................... (157)
------- ------- -------
(466) 279 (183)
Dividends on preferred stock............................................ (75)
Net (loss) income applicable to common stockholders..................... $ (541) $ 279 $ (183)
------- ------- -------
------- ------- -------
Earnings per common share:
Income (loss) before extraordinary item............................ $ (0.09) $ 0.07 $ (0.05)
Extraordinary item................................................. (0.04)
------- ------- -------
Net (loss) income.................................................. $ (0.13) $ 0.07 $ (0.05)
------- ------- -------
------- ------- -------
Weighted average common shares outstanding.............................. 4,104,680 4,125,348 3,694,420
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Balance Sheet Data:
Total assets................................................................... $ 19,074 $ 30,335
Working capital................................................................ 1,600 3,415
Long-term debt including current portion....................................... 10,239 14,285
Total liabilities.............................................................. 11,674 17,566
Stockholders' equity........................................................... $ 7,400 $ 12,769
</TABLE>
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 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 can
result in large amounts of revenues being recognized over a relatively short
period. The key variable in the Company's operating expenses are the fees paid
to reporters and transcribers engaged by the Company. The different types of
services provided by the Company represent varying profit margins, with
accelerated delivery transcripts, transcript copies and compressed transcripts
yielding the highest margins. In addition, profit margins vary in the different
geographic markets in which the Company operates.
The Company acquired the assets of Kitlas, Dickman & Associates ('KDA') in
July 1996, M&M Reporting Referral Services, Inc. ('M&M') in October 1996 and
Sherry Roe & Associates, Inc. ('SRA') in November 1996 (collectively referred as
'1996 Acquisitions'). In January of 1995 the Company acquired the assets of
Coleman Haas Martin & Schwab ('CHMS') and in June of 1994 the Company acquired
Sarnoff Deposition Service, Inc. ('SDS') (see Note 2 to Consolidated Financial
Statements).
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues increased by $3.9 million or 18.8%. Excluding revenues from 1996
Acquisitions, the revenues increased by approximately 11.8% or $2.4 million. The
Company believes that the increase in revenues was due to its marketing efforts
and partly due to several large multi-party projects undertaken in 1996.
Operating expenses increased by $2.3 million, from $11.6 million in 1995 to
$13.9 million in 1996 in line with the revenue increase. As a percentage of
revenues, operating expenses were 56.6% in 1996 and 56.4% in 1995.
General and administrative expenses increased by $2.3 million to $8.4
million. The increase was in part due to expenses related to 1996 Acquisitions
consisting of payroll and occupancy expenses and increased sales compensation,
marketing and promotional expenses and admininstrative support expenses due to
increased revenue levels. Expenses incurred by the Company's Corporate Services
Division and additional expenses incurred for planned growth also contributed to
the increase. Corporate Services Division markets court reporting services on a
national basis to large insurance companies and corporations, and the revenues
from such efforts were not significant in 1996. The expenses incurred by
Corporate Services Division consisted of payroll, advertising and promotional
expenses. In addition, general and administrative expenses include approximately
$262,000 relating to the sublease loss (see Note 9 to Consolidated Financial
Statements). As a percentage of revenue, general and administrative expenses
increased from 29.6% to 34.3%. As the increase in general and administrative
expenses was greater than the contribution from increased revenues, overall
operating income declined.
Depreciation and amortization increased by $133,000 due to additional
amortization charges arising from the 1996 Acquisitions and due to additional
depreciation arising from the capital expenditures for the Company's new office
space for its New York operations. 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, 1996, there has been no impairment in
the carrying amount of the assets.
14
<PAGE>
<PAGE>
Interest expense increased by $94,000 due to the incurrence of additional
debt to finance acquisitions and fund working capital.
The Company's operations resulted in a net loss of $309,000 before
extraordinary item compared to income of $279,000 in 1995. As the increases of
above-mentioned expenses negated the additional contribution from increased
revenues, operations for the year resulted in a loss compared to a profit in
1995.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues increased by $7.9 million or 61.4% to $20.7 million 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 6.0% for the year ended December 31, 1995 due to
several large multiparty projects undertaken in 1995.
Operating expenses increased by $4.4 million, from $7.3 million in 1994 to
$11.7 million in 1995. As a percentage of revenue, operating expenses declined
from 56.8% to 56.4%.
General and administrative expenses increased by $1.6 million to $6.1
million. 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 $371,000, 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 $535,000 due to the incurrence of additional
debt to finance acquisitions and fund working capital.
The Company generated a net income of $279,000 compared to a net loss of
$183,000 in 1994 as the additional contributions from increased revenues was
greater than the increases of the above mentioned expenses.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's working capital was approximately $3.4
million, which was approximately $1.8 million more than at December 31, 1995.
The increase was mainly due to the increase in the Company's accounts
receivable, net of accounts payable and accruals, and reduction in the current
maturities of long-term debt due to refinancing. The increase in the Company's
accounts receivable net of accruals was in part due to the 1996 Acquisitions and
increased revenue levels.
In October 1996, the Company raised approximately $6.7 million through a
private sale of Convertible Preferred Stock (See Note 5 to Consolidated
Financial Statements). The funds were used to finance the 1996 Acquisitions and
repay approximately $500,000 of the Company's debt. In addition approximately
$1.3 million of the proceeds were used to repurchase 433,500 shares of the
Company's common stock at $3.00 per share. The purchase of the shares of Common
Stock was from an original investor in the predecessor of the Company and was
designed to permit such investor to liquidate its holdings without affecting the
trading in the Company's Common Stock. The repurchase caused a decrease of $1.3
million of cash and stockholders' equity.
In December 1996, the Company entered into a three-year revolving loan
agreement ('Loan Agreement') with a financial institution which provides for
borrowing up to $20.0 million based on operating cash flows as defined therein.
Borrowings under the Loan Agreement bear interest at either
15
<PAGE>
<PAGE>
prime rate or London Interbank Offered Rate (LIBOR), at the Company's election,
plus the applicable margin rate. The applicable margin varies on the basis of
operating cash flows and the overall leverage ratio as defined in the Loan
Agreement. The effective rate at December 31, 1996 was 9%. The Loan 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 maintenance of certain financial
ratios and covenants. The initial borrowings of $8.2 million under the Loan
Agreement were used to repay all amounts outstanding under the Company's credit
agreement with a bank and approximately $4.5 million of its subordinated
debentures. The aggregate borrowings at December 31, 1996 were $8.2 million with
additional availability of approximately $6.4 million.
The Company's strategy is to continue to finance future acquisitions
principally and/or with the issuance of the Company's securities and borrowings.
The availability of these capital resources is dependent upon prevailing market
conditions, interest rates and the financial condition of the Company.
The capital expenditures for 1997 are expected to range between $575,000
and $625,000. The Company believes that the cash flows from its operations
supplemented, if needed, by additional borrowing capacity from the Loan
Agreement will be sufficient to support the working capital and capital
expenditure requirements through at least the end of 1997.
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 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 ones)
outside the courtroom and, to a lesser extent, the recording of other events
such as hearings, arbitrations, board meetings, 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
16
<PAGE>
<PAGE>
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 local 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 EBTs
(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, or CAT, system for transcribing depositions.
Much like traditional stenotype machines, CAT systems enable a court reporter to
represent what is spoken as 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.
17
<PAGE>
<PAGE>
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 'tuck-in' 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 certain economies of
scale in its operations and marketing by expanding in its present 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. DFA serves the metropolitan New York
City area. 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 $143,000 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.
18
<PAGE>
<PAGE>
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 inclusion
of the historical financial statements would not have had a material effect on
the operating results of the Company. The purchase price in such acquisitions
consisted of $2,160,000 in cash, subordinated promissory notes in the aggregate
principal amount of $1,265,000 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.
The Company has entered into letters of intent to acquire Krauss, Katz &
Ackerman and Wolfe, Rosenberg & Associates, court reporting companies in
Philadelphia and Chicago, respectively. Consummation of these acquisitions is
subject to negotiation and execution of definitive agreements and to the
satisfaction of any conditions to be contained in such agreements. There is no
assurance that either of such acquisitions will be consummated.
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. Competition in the court reporting industry is based on factors such as
the existence of personal relationships with clients and other reporting
agencies, price, service and reputation.
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
19
<PAGE>
<PAGE>
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 is the NNRC
representative for each of New York City, New York, Long Island, New York, Los
Angeles, California and San Diego, California. The Company also has contractual
relationships with deposition-setting services that refer work to the Company.
The Company recently formed Esq. Com CSD, Inc., as a wholly owned
subsidiary, to market court reporting services to large insurance companies and
corporations. Revenues generated from these operations have not been
significant.
The Company's client base is composed primarily of law firms. Since the
Company provides verbatim transcriptions of sworn legal testimony, it is
unlikely that customers which are not law firms or others involved in legal
proceedings would be interested in the Company's services. Thus, the Company's
future is dependent upon the continued use of legal proceedings and the need for
transcriptions thereof by interested parties.
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. 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. The
Company's 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
The Company has leased offices in New York, New York, Santa Ana,
California, Los Angeles, California, San Diego, California and Washington, D.C.
The aggregate area under the leases approximates 50,000 square feet. The leases
generally run for a term of five years and expire at various dates from time to
time. In addition, the Company owns an office condominium of approximately 1,100
square feet of office space at 230 Hilton Avenue, Hempstead, New York.
20
<PAGE>
<PAGE>
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 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, 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
21
<PAGE>
<PAGE>
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.
On April 3, 1997, David White was appointed Chief Executive Officer of the
Company. Mr. White and Fir Geenen have been elected as directors of the Company.
Messrs. White and Geenen have agreed to resign as directors at any time upon the
request of GTCR.
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, and Director 1993
Cary A. Sarnoff 49 Vice Chairman and Director 1994
David A. White 44 Chief Executive Officer and Director 1997
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
Fir Geenen 42 Director 1997
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 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., Principal Hospital, Inc., UllO
International and Excaliber Tubular Corporation.
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., Polymer Group, Inc., Cherrydale Farms,
Inc., International Computer Graphics, Principal Hospital, Inc. and U.S.
Aggregates.
Fir Geenen has been an officer of Harlingwood Corp., an affiliate of
Harlingwood & Company LLC ('Harlingwood') since 1988. Harlingwood provides
advisory services to growing companies. From 1993 to September 1996, Mr. Geenen
served as Executive Vice President of Medical Transport, Inc., a division of
Laidlaw Inc. ('MedTrans').
David White has been an officer of Harlingwood since 1997. From 1992 to
December 1996, Mr. White was employed by MedTrans as President. From 1991 to
1992, Mr. White was Vice President, Financial Operations for a division of
Laidlaw, Inc.
Messrs. Andrew Garvin, Mortimer Feinberg, David White and Fir Geenen have
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, 1996,
its executive officers, directors and holders of more than ten percent complied
with all applicable Section 16(a) filing requirements.
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, 1996, to the
24
<PAGE>
<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION ---------- PAYOUTS
-------------------------------------- RESTRICTED --------------------
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS SARS PAYMENTS COMPENSATION
POSITION YEAR $ $ ($) ($) (#) (#) ($)
- ------------------------ ---- -------- -------- ------------ ---------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey ....... 1996 $194,595 $115,000 50,000
Chairman & 1995 166,431
Chief Executive 1994 185,175
Officer
David J. Feldman ....... 1996 188,927 358,665 50,000
President 1995 161,335 238,543
1994 180,000 188,575 75,000
Cary A. Sarnoff, ....... 1996 190,436 50,000
Vice Chairman 1995 160,629
1994(1) 90,000
Debra Neiderfer ........ 1996 115,967 48,666 5,000
Vice President 1995 82,660 18,650
1994 80,000 7,448 25,000
Paul Strohfus .......... 1996 155,764
Vice President 1995(2) 42,577 50,000
</TABLE>
- ------------
(1) Represents compensation for the partial year from June 22, 1994.
(2) Represents compensation for the partial year.
EMPLOYMENT AND RELATED AGREEMENTS
Malcolm L. Elvey is employed under an employment agreement which expires
May 1998 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. In the event
the Company consummates any acquisitions, these pre-tax earnings levels are
increased by 70% of the net income before taxes of the acquired business,
excluding any extraordinary items of gain or loss (which amount is prorated for
the portion of any year in which the acquired business operations are
consolidated with the Company's). The employment agreement terminates upon the
death or permanent disability of Mr. Elvey or for cause. Cause is defined as a
material breach of the employment agreement by Mr. Elvey, his gross negligence
or wilful misconduct in the performance of his duties, his dishonesty to the
Company, conviction of a felony or excessive absenteeism unrelated to a
disability. 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's employment agreement contains
termination provisions which are substantially the same as those of Mr. Elvey's
employment agreement. 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.
25
<PAGE>
<PAGE>
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. Mr. Feldman's employment agreement contains termination provisions
which are substantially the same as those of Messrs. Elvey's and Sarnoff's
employment agreements, and in addition, Mr. Feldman may terminate the employment
agreement for a material reduction in his responsibilities or authority, failure
of the Company to pay Mr. Feldman compensation or amounts due him under a
certain promissory note, relocation of his office or a termination not permitted
under the employment agreement. 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 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.
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 to 1,400,000 shares of Common Stock, subject to stockholder
approval. 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.
The table below sets forth information regarding the grant of stock options
made to the executive officers named in the Summary Compensation Table during
the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE
- ----------------------------------------------------------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Malcolm L. Elvey........................................... 50,000 29.41% $ 3.00 12/2006
David Feldman.............................................. 50,000 29.41% $ 3.00 12/2006
Cary Sarnoff............................................... 50,000 29.41% $ 3.00 12/2006
Debra Neiderfer............................................ 5,000 2.94% $ 2.875 2/2006
Paul Strohfus.............................................. 0 -- -- --
</TABLE>
26
<PAGE>
<PAGE>
The table below sets forth information for the executive officers named in
the Summary Compensation Table concerning option exercises during 1996 and
outstanding options at December 31, 1996.
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND DECEMBER 31, 1996 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES DECEMBER 31, 1996 DECEMBER 31, 1996
ACQUIRED ---------------------------- ----------------------------
NAME ON EXERCISE(a) VALUE REALIZED(a) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- -------------- ----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey...... 0 -- 125,000 50,000 0 0
David Feldman......... 0 -- 37,500 87,500 0 0
Cary Sarnoff.......... 0 -- 0 50,000 0 0
Debra Neiderfer....... 0 -- 41,667 13,333 0 0
Paul Strohfus......... 0 -- 16,667 33,333 0 0
</TABLE>
- ------------
(a) There were no exercises of options by the Company's executives during 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its Santa Ana, California office from an affiliate of
Cary A. Sarnoff. The lease expires in June 1999 and grants to the Company an
option to renew for five years. The Company believes the terms of the lease are
comparable to market terms.
For as long as The Sarnoff Trust owns 20% or more of the Common Stock
issued in connection with the acquisition of SDS, the Company has agreed to
nominate, recommend and use its best efforts to have Mr. Sarnoff elected as a
director of the Company. As long as Messrs. Elvey, Feldman and Sarnoff continue
as directors of the Company, the Company has agreed that they shall be the sole
members of the Executive Committee and that all decisions to be made by the
Executive Committee shall require unanimous approval.
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 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, Allied Investment Corporation II and Allied Capital Corporation II
(collectively, 'Allied') entered into a Stockholder's Agreement dated October
23, 1996 (the 'Stockholder's
27
<PAGE>
<PAGE>
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, Mortimer Feinberg, David White and Fir Geenen, directors
of the Company, agreed to resign as directors at any time upon the request of
GTCR.
SDS was a party to an agreement with Edward Sarnoff, the farther of Cary
Sarnoff, pursuant to which SDS agreed to pay to Edward Sarnoff, in the event of
the sale of SDS, the amount of $1,000,000 payable in equal monthly installments
over a period of five years. In connection with the Company's acquisition of
SDS, the Company assumed the obligations of SDS under this agreement.
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
28
<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, the Company intends to delist the Warrants from trading on the
Boston Stock Exchange and the Nasdaq Stock Market and deregister the Warrants
under the Exchange Act if it determines that the Warrants are held of record by
fewer than 300 persons.
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 7,600 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
29
<PAGE>
<PAGE>
Exchange Offer. If, however, Warrants not exchanged are to be delivered to, or
are to be issued in the 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
264,751 warrants, each exercisable to purchase one share 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.
30
<PAGE>
<PAGE>
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 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-
31
<PAGE>
<PAGE>
in-fact, officer of a corporation or other person acting in a fiduciary or
representative capacity, such 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.)
32
<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
33
<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
34
<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 WARRANT HOLDERS
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. The Company has paid to
the Underwriters the amount of $25,000 as a credit against such expenses.
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
35
<PAGE>
<PAGE>
SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. ACCORDINGLY, WARRANTHOLDERS
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
36
<PAGE>
<PAGE>
or other rights of the holders of the Company's Common Stock. In the event of
issuance, the shares of 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 LLP, 180 Maiden Lane, New York, New York
10038.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing. The
consolidated financial statements of the Company as of December 31, 1995 and for
each of the years in the two-year period ended December 31, 1995, have been
included herein and in the registration statement in reliance upon the report of
Freed Maxick Sachs & Murphy, P.C., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
37
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
A-1
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports.............................................................................. A-3
Consolidated Financial Statements:
Balance Sheets -- December 31, 1996 and 1995.......................................................... A-5
Statements of Operations -- Years ended December 31, 1996, 1995 and 1994.............................. A-6
Statements of Stockholders' Equity -- Years ended December 31, 1996, 1995 and 1994.................... A-7
Statements of Cash Flows -- Years ended December 31, 1996, 1995 and 1994.............................. A-8
Notes to Consolidated Financial Statements................................................................. A-9
</TABLE>
A-2
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ESQUIRE COMMUNICATIONS LTD.:
We have audited the accompanying consolidated balance sheet of Esquire
Communications Ltd. and subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. 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 audit. The accompanying consolidated financial
statements of Esquire Communications Ltd. and subsidiaries as of December 31,
1995 and for the years ended December 31, 1995 and 1994 were audited by other
auditors whose report, dated January 27, 1996, on those statements expressed an
unqualified opinion.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Esquire Communications Ltd. and subsidiaries as of December 31,
1996, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
February 12, 1997
Short Hills, New Jersey
A-3
<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 the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two 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 the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
January 27, 1996
A-4
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995
---------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 165 $ 95
Accounts receivable, less allowance for doubtful accounts of $380 in 1996
and $245 in 1995....................................................... 6,764 4,263
Prepaid expenses......................................................... 792 247
Deferred tax asset....................................................... 102 --
---------- ----------
Total current assets................................................ 7,823 4,605
Property and equipment, net................................................... 1,946 1,026
Cost in excess of fair value of net identifiable assets of acquired
businesses, less accumulated amortization of $1,516 in 1996 and $962 in
1995........................................................................ 19,681 12,752
Deferred tax asset............................................................ 38 21
Other assets, net............................................................. 847 670
---------- ----------
$30,335 $19,074
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 1,708 $ 577
Accrued expenses......................................................... 1,306 413
Income taxes payable..................................................... -- 361
Deferred tax liability................................................... -- 49
Current portion of long-term debt, including related parties............. 1,394 1,605
---------- ----------
Total current liabilities........................................... 4,408 3,005
Long-term debt, including related parties..................................... 12,891 8,634
Other liabilities............................................................. 267 35
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized in series:
Series A convertible preferred stock, authorized 15,000 shares, 7,500
shares issued and outstanding in 1996 (none in 1995) aggregate
liquidation preference $7,500,000...................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized, 4,330,829 and
4,126,823 shares issued in 1996 and 1995, respectively, 3,897,329 and
4,126,823 shares outstanding in 1996 and 1995, respectively............ 43 41
Additional paid-in capital............................................... 14,911 7,703
Treasury stock, at cost -- 433,500 shares in 1996 (none in 1995)......... (1,300) --
Accumulated deficit...................................................... (885) (344)
---------- ----------
Total stockholders' equity.......................................... 12,769 7,400
Commitments and contingencies.................................................
----------- ---------
$30,335 $19,074
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
A-5
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues......................................................................... $24,583 $20,692 $12,818
------- ------- -------
Costs and expenses:
Operating expenses.......................................................... 13,925 11,660 7,277
General and administrative expenses......................................... 8,443 6,120 4,496
Depreciation and amortization............................................... 1,158 1,025 654
------- ------- -------
23,526 18,805 12,427
------- ------- -------
Income from operations........................................................... 1,057 1,887 391
------- ------- -------
Other income (expense):
Interest expense............................................................ (1,163) (1,069) (534)
Interest income............................................................. 6 9 9
Other....................................................................... 3 1 10
------- ------- -------
(1,154) (1,059) (515)
------- ------- -------
(Loss) income before provision for income taxes and extraordinary item........... (97) 828 (124)
Provision for income taxes....................................................... 212 549 59
------- ------- -------
(Loss) income before extraordinary item.......................................... (309) 279 (183)
Extraordinary item -- loss on early extinguishment of debt, net of tax benefit of
$104........................................................................... (157) -- --
------- ------- -------
Net (loss) income................................................................ (466) 279 (183)
Dividends on preferred stock..................................................... (75) -- --
------- ------- -------
Net (loss) income applicable to common stockholders.............................. $ (541) $ 279 $ (183)
------- ------- -------
------- ------- -------
(Loss) earnings per common share:
(Loss) income before extraordinary item..................................... $(.09) $ .07 $(.05)
Extraordinary item.......................................................... (.04) -- --
Net (loss) income........................................................... $(.13) $.07 $(.05)
Weighted average common shares outstanding....................................... 4,104,680 4,125,348 3,694,420
</TABLE>
See accompanying notes to consolidated financial statements.
A-6
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
SERIES A ------------------- PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
PREFERRED STOCK SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
--------------- --------- ------ ---------- ----------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... $-- 3,299,900 $ 33 5,242 (440) -- 4,835
Issuance of common stock and
stock purchase warrants in
connection with financing and
acquisition of subsidiary.... -- 750,000 7 2,249 -- -- 2,256
Net loss....................... -- -- -- -- (183) -- (183)
------- --------- ------ ---------- ----------- -------- -------------
Balance, December 31, 1994..... -- 4,049,900 40 7,491 (623) -- 6,908
Issuance of common stock in
connection with acquisition
of business.................. -- 76,923 1 212 -- -- 213
Net income..................... -- -- -- -- 279 -- 279
------- --------- ------ ---------- ----------- -------- -------------
Balance, December 31, 1995..... -- 4,126,823 41 7,703 (344) -- 7,400
Issuance of common stock in
connection with acquisition
of businesses................ -- 204,006 2 508 -- -- 510
Purchase of treasury stock..... -- (433,500) -- -- -- (1,300) (1,300)
Dividends on preferred stock... -- -- -- -- (75) -- (75)
Issuance of 7,500 shares of
Series A convertible
preferred stock, net of
issuance costs of $800....... -- -- -- 6,700 -- -- 6,700
Net loss....................... -- -- -- -- (466) -- (466)
------- --------- ------ ---------- ----------- -------- -------------
Balance, December 31, 1996..... $-- 3,897,329 $ 43 $ 14,911 $ (885) (1,300) $12,769
------- --------- ------ ---------- ----------- -------- -------------
------- --------- ------ ---------- ----------- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-7
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income..................................................... $ (466) $ 279 $ (183)
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 1,158 1,025 655
Deferred income taxes............................................ (168) 23 (141)
Extraordinary item............................................... 157 -- --
(Increase) decrease in assets:
Accounts receivable......................................... (1,284) (501) (178)
Prepaid expenses............................................ (427) 7 (13)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses.......................... 873 (156) (145)
Deferred rent obligation and other long-term liabilities....... 37 (6) (2)
------- ------ ------
Net cash (used in) provided by operating activities....... (120) 671 (7)
------- ------ ------
Cash flows from investing activities:
Acquisitions of businesses............................................ (3,958) (642) (4,331)
Certificate of deposit redemption..................................... -- -- 110
Increase in other assets.............................................. (314) (104) (50)
Purchases of property and equipment................................... (952) (161) (159)
------- ------ ------
Net cash used in investing activities..................... (5,224) (907) (4,430)
------- ------ ------
Cash flows from financing activities:
Proceeds from long-term debt.......................................... 8,218 -- 4,994
Principal payments on long-term debt.................................. (6,317) (783) (633)
Repayment under bank line of credit, net.............................. (1,600) 1,100 160
Deferred financing costs.............................................. (287) -- (365)
Proceeds from issuance of common stock warrants....................... -- -- 6
Purchase of treasury stock............................................ (1,300) -- --
Proceeds from issuance of Series A preferred stock, net............... 6,700 -- --
------- ------ ------
Net cash provided by financing activities................. 5,414 317 4,162
------- ------ ------
Net increase (decrease) in cash........................... 70 81 (275)
Cash -- beginning of year.................................................. 95 14 289
------- ------ ------
Cash -- end of year........................................................ $ 165 $ 95 $ 14
------- ------ ------
------- ------ ------
</TABLE>
See accompanying notes to consolidated financial statements.
A-8
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the financial
statements of Esquire Communications Ltd. and its subsidiaries, all of which are
wholly owned (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, Washington, D.C. and
Southern California areas.
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.
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.
GOODWILL AND OTHER INTANGIBLE ASSETS
The cost in excess of the fair values of net identifiable tangible and
intangible assets of acquired businesses (goodwill) is amortized using the
straight-line method over 25 years. The Company assesses the recoverability of
this intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
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 1996, 1995 and 1994 related to
intangible assets was $824, $699 and $476, respectively.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their
A-9
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share are computed on the basis of weighted
average number of common shares outstanding. No effect has been given to
outstanding warrants and options or convertible preferred stock since their
assumed exercise would be antidilutive or not have a material effect on
dilution.
RECENT ACCOUNTING PRONOUNCEMENTS
Accounting For Stock-Based Compensation
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, 'Accounting for Stock Issued to Employees', and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123, 'Accounting for Stock-Based Compensation', which permits
entities to recognize as expense, over the vesting period, the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123. See note 6.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,' on
January 1, 1996. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or change in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future cash flows (undiscounted
and without interest charges) expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less selling costs. Adoption of this statement
did not have a material impact on the Company's financial position or results of
operations.
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. The carrying value of debt
approximates its fair value as such amounts bear rates of interest which
approximate the Company's current borrowing rate for instruments with similar
terms.
A-10
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(2) BUSINESS COMBINATIONS
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 in cash, a $1,500 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. The acquisition, accounted for under the purchase
method of accounting, 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.
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 $1,413 consisting of cash in the amount of $400,
promissory notes in the aggregate of $800 with interest at 9% payable monthly
over seven years, and 76,923 unregistered shares of the Company's common stock
valued at $213. In addition, the purchase agreement provided for an additional
$150 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 $143 in 1996 and $35 in 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 amounted to approximately
$1,900.
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 which has had an immaterial effect on the operating
results of the Company. The total purchase price, inclusive of associated costs,
consisted of $305 in cash, $315 estimated earn out and assumption of net
liabilities of $221. The excess of the cost of the Company's investment over the
fair values of the assets acquired and liabilities assumed, including the
estimated earn out, approximated $841.
On October 28, 1996, the Company acquired the assets and liabilities of M&M
Reporting Referral Services, Inc. (M&M), a Southern California-based court
reporting company. The purchase price, inclusive of associated costs, consisted
of approximately $2,991 of cash, subordinated promissory notes in the aggregate
amount of $2,713, and 132,258 unregistered shares of the Company's common stock
valued at $309. The principal amount of one of the notes and cash portion of the
purchase price are subject to revision based on the revenue derived from M&M's
business for 12 months commencing November 1, 1996. The Company will account for
any such revisions as an adjustment to goodwill, when such contingencies are
resolved. The subordinated promissory notes are payable in equal quarterly
installments over a period of five years, together with interest at the rate of
9% per annum. The excess of the cost of the Company's investment over the fair
values of the assets acquired and liabilities assumed approximated $5,418.
On November 15, 1996, the Company acquired the assets and liabilities of
Sherry Roe & Associates, Inc. (SRA), a Washington, D.C.-based court reporting
company. The purchase price, inclusive of associated costs, consisted of
approximately $656 of cash, subordinated promissory notes in the aggregate
amount of $530, and 71,748 unregistered shares of the Company's common stock
valued at $200. The principal amount of one of the notes and cash portion of the
purchase price are subject to revision based on the revenue derived from SRA's
business for 24 months commencing December 1, 1996. The Company will account for
any such revisions, as an adjustment to goodwill, when such contingencies are
resolved. The subordinated promissory notes are payable in equal quarterly
A-11
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
installments over a period of six years, together with interest at the rate of
8% per annum. The excess of the cost of the Company's investment over the fair
values of the assets acquired and liabilities assumed approximated $1,155.
The following unaudited pro forma information assumes the M&M and SRA
acquisitions, the private placement of Series A convertible preferred stock, the
Company's repurchase of its common stock and the revolving loan credit agreement
and related repayment of certain existing debt occurred on January 1, 1995.
These results are not necessarily indicative of future operations nor of results
that would have occurred had the acquisitions and other transactions been
consummated as of the beginning of the periods presented.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revenues................................................................ $30,275 $27,683
Net (loss) income applicable to common stockholders..................... (211) 97
------- -------
------- -------
(Loss) earning per common share......................................... $(.05) $.03
------- -------
------- -------
</TABLE>
On January 3, 1997, the Company acquired the assets and liabilities of
Nevill & Swinehart and Pelletier & Jones, both Southern California-based court
reporting companies, and entered into consulting and noncompetition agreements
for an aggregate consideration of $2,560 consisting of cash in the amount of
$1,550, subordinated promissory notes and installment payments in the aggregate
amount of $735 payable in equal quarterly installments over a period of six
years and 100,000 unregistered shares of the Company's common stock valued at
$275. The business combinations are to be accounted for under the purchase
method, the excess of cost over the fair value of assets acquired and
liabilities assumed is expected to be approximately $1,950, and other intangible
assets of approximately $425 are expected to be recognized. The Company borrowed
approximately $1,500 under its revolving credit agreement to finance the
acquisition.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1996
and 1995:
<TABLE>
<CAPTION>
DEPRECIABLE
1996 1995 LIVES
------ ------ --------------
<S> <C> <C> <C>
Office condominium....................................... $ 203 $ 203 31 years
Equipment................................................ 2,365 1,590 5 to 7 years
Leasehold improvements................................... 820 283 5 to 10 years
------ ------ --------------
--------------
3,388 2,076
Less accumulated depreciation............................ 1,442 1,050
------ ------
$1,946 $1,026
------ ------
------ ------
</TABLE>
Depreciation expense amounted to $392, $327, $178 for the years ended
December 31, 1996, 1995 and 1994, respectively.
A-12
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(4) LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Revolving loan agreement(A)............................................. $ 8,218 $ --
Subordinated debentures(D).............................................. -- 5,440
Promissory notes(B)..................................................... 5,181 2,367
Revolving credit note(E)................................................ -- 1,600
Contract obligation(C).................................................. 496 609
Other notes and obligations(F).......................................... 390 223
------- -------
14,285 10,239
Less current portions................................................... 1,394 1,605
------- -------
$12,891 $ 8,634
------- -------
------- -------
</TABLE>
(A) In December 1996, the Company entered into a three-year revolving loan
agreement (Loan Agreement) with a financial institution which provides for
borrowings up to $20,000 based on operating cash flows as defined therein.
Borrowings under the Loan Agreement bear interest at either prime rate or
London Interbank Offered Rate (LIBOR), at the Company's election, plus
applicable margin rate. The applicable margin varies on the basis of
operating cash flows and overall leverage ratio as defined in the Loan
Agreement. The effective rate at December 31, 1996 was 9%. The Loan
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. In addition, substantially all
other lenders to the Company have entered into a subordination agreement
with this financial institution. The initial borrowings under the Loan
Agreement were used to repay all amounts outstanding under the Company's
credit agreement with a bank and approximately $4.5 million of its
subordinated debentures due June 2001.
(B) Promissory notes with former stockholders of acquired businesses are
generally payable in quarterly installments plus interest at rates ranging
from 8% to 10% through November 2002.
(C) Contract obligation -- an agreement with a former employee of an acquired
company, who is related to an officer/director of the Company, provides for
monthly payments of $9 through June 2002. The obligation is carried net of
imputed interest, at 8%, of $47 and $91 at December 31, 1996 and 1995,
respectively.
(D) Debentures -- in June 1994, the Company completed a private placement of
subordinated debentures (the Debentures) in the aggregate principal amount
of $5,000 to fund the cash portion of the purchase price of the SDS
acquisition and entered into an agreement with the debentureholders (the
Investment Agreement). The Debentures provided for quarterly principal
payments commencing in January 1996 in the amount of $125 through June
2001. The Debentures were repaid in 1996.
(E) Revolving credit note -- in September 1994, the Company entered into a
three-year revolving credit agreement (the Credit Agreement) with a bank
which provided for borrowings up to $3,000 based on eligible accounts
receivables as defined therein. The borrowings under the Credit Agreement
bore interest at prime plus 1% and interest payments were required monthly.
The Company repaid the outstanding balance under the Credit Agreement from
borrowings under the Loan Agreement. In conjunction with the repayment and
termination of the Credit Agreement and Investment Agreement, the Company
recognized an extraordinary loss of $157, net of a $104 tax benefit,
relating to unamortized deferred financing costs.
(footnotes continued on next page)
A-13
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(footnotes continued from previous page)
(F) Other notes and obligations -- outstanding amounts relate to various
equipment capital leases and are payable in aggregate monthly installments
with interest at 9% to 19% maturing through 1999.
Scheduled annual principal payments of long-term debt subsequent to
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997..................................................................... $ 1,394
1998..................................................................... 1,183
1999..................................................................... 9,413
2000..................................................................... 1,135
2001..................................................................... 1,005
Thereafter............................................................... 155
-------
$14,285
-------
-------
</TABLE>
(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 at a price of $4.00 per
share and 1,250,000 warrants to purchase common stock at $.10 per warrant.
The warrants are exercisable until May 18, 1998 at an exercise price of
$4.50 per share. 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, as defined. The Company may call the warrants for redemption at a
price of $.01 per warrant, provided the sales price of the common stock has been
at least 150% of the then effective exercise price of the warrants over a
specified period of time. If the warrants are called for redemption, they must
be exercised prior to such redemption or the right to purchase the applicable
shares of common stock is forfeited. As part of the Initial Public Offering, the
underwriters exercised an 'overallotment' and acquired an additional 187,500 of
warrants at $.09 per warrant, net of discount. In addition, they received a
purchase option (subject to certain antidilutive provisions) to acquire, until
May 18, 1998, 264,751 shares and warrants at a price of $2.64 and $.06,
respectively. The warrants are exercisable at an exercise price of $4.50 per
share.
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.
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
June 1999.
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.
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 and entered into an agreement (the Agreement)
with the Preferred Stockholders. Under the Agreement, the Preferred 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 antidilution adjustments) and bears
A-14
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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.
In connection with the acquisitions of M&M on October 28, 1996 and SRA on
November 15, 1996, the Company issued 204,006 shares of common stock valued at
approximately $509.
In November 1996, the Company purchased 433,500 shares of its outstanding
common stock at $3.00 per share.
(6) STOCK OPTION PLAN
In 1993, the Company adopted a stock option plan (the Plan) pursuant to
which the Company's Board of Directors may grant stock options to officers,
employees, directors, consultants and independent contractors to the Company.
The Plan authorizes grants of options to purchase up to 1,400,000 shares of
authorized but unissued common stock subject to stockholder approval. Stock
options are granted with an exercise price equal to the stock's fair market
value at the date of grant. All stock options have ten-year terms and generally
vest and become fully exercisable over a three-year period, commencing one year
from date of grant.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $1.03 and $1.35 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
1996 -- expected volatility 25%, expected dividend yield 0%, risk-free interest
rate of 6%, and an expected life of five years; 1995 -- expected volatility 20%,
expected dividend yield 0%, risk-free interest rate of 7%, and an expected life
of five years. The Company applies APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
----- ----
<S> <C> <C>
Net (loss) income applicable to common stockholders:
As reported.............................................................. $(541) $279
Pro forma................................................................ (587) 265
Net (loss) income per common share:
As reported.............................................................. (.13) .07
Pro forma................................................................ $(.14) $.06
----- ----
----- ----
</TABLE>
Pro forma net (loss) income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net (loss) income amounts
presented above because compensation cost is reflected over the options' vesting
period of three years and compensation cost for options granted prior to January
1, 1995 is not considered.
A-15
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Balance at December 31, 1993........................................... 227,100 $4.00
Granted................................................................ 320,650 4.00
Exercised.............................................................. -- --
Forfeited.............................................................. (32,933) 4.00
Expired................................................................ -- --
---------
Balance at December 31, 1994........................................... 514,817 4.00
Granted................................................................ 105,000 4.00
Exercised.............................................................. -- --
Forfeited.............................................................. (41,217) 4.00
Expired................................................................ -- --
---------
Balance at December 31, 1995........................................... 578,600 4.00
Granted................................................................ 170,000 2.99
Exercised.............................................................. -- --
Forfeited.............................................................. (20,100) 4.00
Expired................................................................ -- --
---------
Balance at December 31, 1996........................................... 728,500 $3.76
--------- ---------
--------- ---------
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.77 -- $4.00 and 8.5
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was
395,569 and 216,877, respectively, and the weighted-average exercise price of
those options was $4.00 in each year.
(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 1996 and 1995 amounted
to $12 and $8, respectively.
A-16
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(8) INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 1996,
1995 and 1994, excluding the income tax benefit of $104 attributed to the
extraordinary loss in 1996, is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- -----
<S> <C> <C> <C>
Current tax expense:
Federal......................................................... $ 284 $363 $ 130
State and city.................................................. 96 163 70
----- ---- -----
Total current.............................................. 380 526 200
----- ---- -----
Deferred tax (benefit) expense:
Federal......................................................... (135) 16 (92)
State and city.................................................. (33) 7 (49)
----- ---- -----
Total deferred............................................. (168) 23 (141)
----- ---- -----
$ 212 $549 $ 59
----- ---- -----
----- ---- -----
</TABLE>
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, 1996, 1995 and 1994 due to nondeductible expenses,
primarily goodwill amortization, amounting to approximately $230, $227 and $128,
respectively.
Significant components of the Company's net deferred tax assets and
liabilities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Contract obligation...................................................... $199 $269
Allowances and accrued expenses.......................................... 317 115
Net operating loss carryforwards......................................... -- 2
Tax credits.............................................................. 21 21
---- ----
Total deferred tax assets........................................... 537 407
---- ----
Deferred tax liabilities:
Depreciation and amortization............................................ 282 149
Cash versus accrual accounting differences, net.......................... 115 286
---- ----
Total deferred tax liabilities...................................... 397 435
---- ----
Net deferred tax asset (liability).................................. $140 $(28)
---- ----
---- ----
</TABLE>
The Company has state minimum tax credit carryforwards of approximately $22
which may be carried forward to reduce future year tax liabilities through the
year 2004.
Based upon recoverable taxes paid, historical taxable income and
projections of future taxable income over the periods which the deferred tax
assets are deductible, management believes that it is more likely than not that
the Company will realize the benefits of deductible temporary differences.
(9) COMMITMENTS
(A) EMPLOYMENT AGREEMENTS
The chairman of the board entered into an employment agreement with a
five-year term through May 1998 which is renewable on a year to year basis
thereafter. The agreement provides for a base salary of $180 plus cost of living
increases, and an annual bonus based on a percentage of the pretax
A-17
<PAGE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
earnings of the Company in excess of specified levels. No bonus was earned under
the agreement in each of the years ended December 31, 1996, 1995 and 1994.
In connection with the acquisition of David Feldman & Associates (USA) Ltd.
(DFA) in September 1993 and SDS in 1994, the Company entered into employment and
noncompetition 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 plus cost of living increases for each
individual. 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 $359 and $239 for
the respective years ended December 31, 1996 and 1995.
(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 leases which expire through
September 1999. Total lease expense for 1996, 1995 and 1994 under the above
leases amounted to approximately $720, $375 and $337, respectively.
During 1996, the Company relocated its headquarters and recognized a $262
expense related to the net present value of future rental payments, net of
sublease income, pertaining to the vacated premises.
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 1996 and 1995 amounted to $265 in each
year.
The anticipated future annual lease payments under operating leases at
December 31, 1996, inclusive of the base utility, maintenance and property tax
charges for the office facilities, are as follows:
<TABLE>
<S> <C>
1997........................................................................ $868
1998........................................................................ 773
1999........................................................................ 546
2000........................................................................ 291
2001........................................................................ 251
Thereafter.................................................................. $815
----
----
</TABLE>
Future annual rental income under remaining noncancelable subleases is as
follows: 1997 -- $63, 1998 -- $79, 1999 -- $79 and 2000 -- $13.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the years ended December 31, 1996, 1995 and 1994 have
included:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Interest........................................................... $1,140 $1,074 $528
------ ------ ----
------ ------ ----
Income taxes....................................................... $1,007 $ 200 $ 12
------ ------ ----
------ ------ ----
</TABLE>
During 1996, $75 in preferred stock dividends were accrued and unpaid.
In connection with the acquisitions of M&M and SRA, during 1996, the
Company issued 204,006 shares of common stock valued at $509.
A-18
<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 LLP with respect to the securities being registered.
8.1 -- Opinion of Stroock & Stroock & Lavan LLP 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-KSB 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.
10.18 -- Credit Agreement dated as of December 24, 1996, by and among the Company, Antares Leveraged Capital
Corp., as Agent, and other lenders. Incorporated by reference to Exhibit 10.18 to Annual Report on
Form 10-KSB for the fiscal year ended December 31, 1996.
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, 1996.
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included as part of Exhibit 5.1).
23.2 -- Consent of Freed Maxick Sachs & Murphy, P.C.
23.3 -- Consent of KPMG Peat Marwick LLP.
*24.1 -- Powers of Attorney of Directors and Officers of Registrant (included on signature page).
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* Previously filed.
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 Amendment to the 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 April 15, 1997.
ESQUIRE COMMUNICATIONS LTD.
By /S/ MALCOLM L. ELVEY
...................................
MALCOLM L. ELVEY
CHAIRMAN OF THE BOARD
Pursuant to the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------ ----------------
<C> <S> <C>
* Chairman of the Board and Director April 15, 1997
.........................................
(MALCOLM L. ELVEY)
* President, Chief Operating Officer and April 15, 1997
......................................... Director
(DAVID J. FELDMAN)
* Chief Financial Officer April 15, 1997
.........................................
(VASAN THATHAM)
* Vice Chairman and Director April 15, 1997
.........................................
(CARY A. SARNOFF)
Director April , 1997
.........................................
(MORTIMER R. FEINBERG)
* Director April 15, 1997
.........................................
(ANDREW P. GARVIN)
* Director April 16, 1997
.........................................
(JOSEPH P. NOLAN)
* Director April 15, 1997
.........................................
(BRUCE V. RAUNER)
*By: /s/ MALCOLM L. ELVEY April 15, 1997
.........................................
MALCOLM L. ELVEY
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
LOCATION OF EXHIBIT
IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ----------- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
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 LLP with respect to the securities being registered.
8.1 -- Opinion of Stroock & Stroock & Lavan LLP 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-KSB 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>
LOCATION OF EXHIBIT
IN SEQUENTIAL
EXHIBIT NO. DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ----------- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
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.
10.18 -- Credit Agreement dated as of December 24, 1996, by and among the Company, Antares Leveraged Capital
Corp., as Agent, and other lenders. Incorporated by reference to Exhibit 10.18 to Annual Report in Form
10-KSB for the fiscal year ended December 31, 1996.
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, 1996.
23.1 -- Consent of Stroock & Stroock & Lavan LLP (included as part of Exhibit 5.1).
23.2 -- Consent of Freed Maxick Sachs & Murphy, P.C.
23.3 -- Consent of KPMG Peat Marwick LLP.
*24.1 -- Powers of Attorney of Directors and Officers of Registrant (included on signature page).
27.1 -- Financial Data Schedule
</TABLE>
- ------------
*Previously filed.
<PAGE>
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF FREED MAXICK SACHS & MURPHY, PC]
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 (Registration Statement No. 333-19721) 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, reference to
the selected consolidated financial data of each of the two years in the period
ended December 31, 1995 and balance sheet as of December 31, 1995 which was
audited by us and reference to Freed Maxick Sachs & Murphy, P.C. as experts.
FREED MAXICK SACHS & MURPHY, P.C.
Buffalo, New York
April 10, 1997
<PAGE>
<PAGE>
EXHIBIT 23.3
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Esquire Communications Ltd.:
We consent to the inclusion of our report dated February 12, 1997, with respect
to the consolidated balance sheet of Esquire Communications Ltd. as of December
31, 1996 and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended, which report appears in the
registration statement/prospectus of Esquire Communications Ltd., and to the
references to our firm under the headings "Selected Consolidated Financial Data"
and "Experts" in the registration statement/prospectus.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
April 10, 1997
<PAGE>
