UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________________
Commission file number: 1-11782
ESQUIRE COMMUNICATIONS LTD.
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 13-3703760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
750 B STREET, SAN DIEGO, CALIFORNIA 92101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 515-0811
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.01 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $.01
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of March 18, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price, was approximately
$34,688,000.
As of March 18, 1998, the registrant had 7,842,101 shares of Common Stock
outstanding.
Registrant's revenues for the fiscal year ended December 31, 1997 were
$53,178,000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Transitional Small Business Disclosure Format Yes ___ No X
<PAGE>
BUSINESS
GENERAL
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 in several large metropolitan areas, including New York City,
Atlanta, Chicago, Denver, Philadelphia, Southern California, San Francisco,
South Florida, San Antonio and Houston, Texas and Washington, D.C. 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; (v) quality and loyalty of court reporting staff; and (vi)
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.
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 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:
o 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.
o 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.
o 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.
o 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.
o MULTIMEDIA TECHNOLOGY SYSTEMS. This format allows text
and video images to be shown concurrently on a single
screen. The proceedings are taped on video while the
court reporter records the proceedings on a stenotype
machine connected to a computer equipped with the
appropriate software. A videotape or CD ROM can later be
accessed via video cassette recorder or computer, as
appropriate.
While the Company believes that the services it provides through these
technologies are high quality, none of these services are unique in the industry
or represent any significant investments that would act as a barrier to entry by
competitors. Rather, the Company believes that its experience and expertise in
the use of such technologies give it a competitive advantage over those court
reporting firms that have not successfully integrated these technologies into
the services they provide on a regular basis.
ACQUISITION STRATEGY
The Company intends to continue expanding geographically by making
initial acquisitions in new geographic markets of one or more court reporting
companies that can operate effectively on a decentralized basis resulting in the
creation of a new "hub." Subsequent to the establishment of a hub, the Company
intends to acquire additional court reporting agencies in that market. The
Company believes that these "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. ("SDS"), 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. ("CHMS"), 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 was subject to
adjustment based on revenue levels attained by CHMS in 1995 and 1996. As a
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.
On July 26, 1996, the Company acquired the assets and liabilities of
Kitlas, Dickman & Associates, a court reporting agency based in San Diego,
California.
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 and liabilities
of Sherry Roe & Associates, Inc., a Washington, D.C. based court reporting
company. The purchase price paid consisted of $600,000 in cash, a subordinated
promissory note in the principal amount of $530,000 and 71,748 unregistered
shares of Common Stock.
On January 3, 1997, the Company acquired the assets and liabilities 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 $1,550,000 in cash,
subordinated promissory notes in the aggregate principal amount of $735,000 and
100,000 unregistered shares of Common Stock. The promissory notes are payable
over a period of six years, together with interest at the rate of 8% or 9% per
annum. Effective July 1, 1997, the Company issued additional subordinated
promissory notes in the aggregate principal amount of $1,500,000 payable over
five years, without interest, in connection with such acquisitions.
On May 28, 1997, the Company acquired the assets of Wolfe, Rosenberg &
Associates, Inc. ("WRA"), a court reporting agency based in Chicago, Illinois.
The purchase price, inclusive of associated costs, approximated $6,169,000, paid
in cash. The purchase price is subject to revision based upon the revenue
derived from WRA's business for 24 months commencing June 1997.
On June 13, 1997, the Company acquired the assets of Krauss, Katz &
Ackerman, Inc. ("KKA"), a court reporting agency based in Philadelphia,
Pennsylvania. The purchase price, inclusive of associated costs, consisted of
approximately $9,504,000 in cash. The purchase price was subject to an increase
based upon the revenue derived from KKA's business for the 36 months ending
December 31, 1999. The increase was payable in unregistered shares of the
Company's Common Stock, up to a maximum of 300,000 shares. In November 1997, the
agreement with KKA was amended to delete any increase to the purchase price and
the Company issued 300,000 unregistered shares of Common Stock.
On June 18, 1997, the Company acquired the assets of American Network
Services, Inc. (DepoNet), a court reporting referral network, based in Atlanta,
Georgia. The purchase price, inclusive of associated costs, consisted of
approximately $6,633,000 in cash and 750,000 unregistered shares of the
Company's Common Stock.
On August 29, 1997, the Company acquired substantially all the assets
of Hyatt Court Reporting & Video, Inc., a Denver, Colorado based court reporting
firm. The purchase price paid by the Company consisted of $600,000 in cash and a
promissory note in the principal amount of $100,000. The promissory note is
payable in equal quarterly installments over a period of two years, without
interest.
On October 1, 1997, the Company acquired substantially all the assets
of Kim Tindall & Associates, a San Antonio, Texas court reporting firm. The
purchase price paid by the Company consisted of $1,900,000 in cash and 120,000
unregistered shares of Common Stock.
On October 7, 1997 and effective October 15, 1997, the Company
acquired substantially all of the assets of five court reporting firms in Fort
Lauderdale, Florida, consisting of Associates/Certified Reporting, County
Reporting, Justice Reporting, Lauderdale Reporting and Merit Reporting. The
aggregate purchase price for the five companies consisted of $3,040,000 in cash,
86,000 unregistered shares of Common Stock and a $50,000 promissory note payable
in 16 equal quarterly installments, with interest at the rate of 8% per annum.
On October 9, 1997, the Company acquired substantially all of the
assets of Haynes & Harpster Court Reporters, a southern California court
reporting firm. The purchase price paid by the Company consisted of $400,000 in
cash and a promissory note in the principal amount of $175,000, payable in eight
equal quarterly installments, without interest.
On October 9, 1997, the Company acquired substantially all the assets
of Cynthia Varelli, a Chicago, Illinois court reporting firm. The purchase price
paid consisted of $275,000 in cash and $300,000 payable in twelve equal
quarterly installments and two promissory notes in the aggregate principal
amount of $397,000, payable $297,000 on October 1, 1998, with the balance
payable in eight equal quarterly installments, without interest.
On November 7, 1997, the Company acquired by merger
Jurist-Begley Reporting Services, Inc. and related entities, a court reporting
agency based in Philadelphia, Pennsylvania. The purchase price consisted of
854,427 unregistered shares of the Company's Common Stock.
On December 8 and 11, 1997, respectively, the Company acquired
substantially all the assets of Henry Jacobs & Associates and Affiliated
Reporters (doing business as Certified Reporting Company), two court reporting
agencies based in New York City. The aggregate purchase price consisted of
$3,400,000 in cash, a promissory note in the principal amount of $450,000
payable in 20 equal quarterly installments, together with interest at the rate
of 8% per annum, and a convertible promissory note in the principal amount of
$500,000 payable in three years, without interest.
On January 5, 1998, the Company acquired substantially all the
assets of A&A Court Reporters, a court reporting agency based in Houston, Texas.
The purchase price paid by the Company consisted of $2,500,000 in cash and
141,000 unregistered shares of the Company's Common Stock.
On January 7, 1998, the Company acquired substantially all the assets
of Brody & Geiser, a court reporting agency based in Northern New Jersey. The
purchase price paid by the Company consisted of $1,650,000 in cash and 227,586
unregistered shares of the Company's Common Stock.
On January 16, 1998, the Company acquired substantially all the assets
of Kerns & Gradillas, a southern California court reporting agency. The purchase
price paid by the Company consisted of $5,500,000 of cash, a convertible
subordinated promissory note in the principal amount of $1,300,000 payable in
three years (convertible into common stock at a conversion price of $8.00 per
share) and 171,429 unregistered shares of the Company's Common Stock.
On February 12, 1998, the Company acquired substantially all the
assets of Jewelinski Court Reporters, a southern California court reporting
agency. The purchase price paid by the Company consisted of $150,000 of cash and
a promissory note in the principal amount of $390,000 (subject to reduction)
payable in 24 equal monthly installments, without interest.
On February 20, 1998, the Company acquired all the assets of Friedi,
Wolff & Pastore, a Washington, D.C. court reporting agency. The purchase price
paid by the Company consisted of $600,000 of cash and 20,000 unregistered shares
of the Company's Common Stock,
On March 16, 1998, the Company acquired all the assets of VerbaVolant,
a New York City court reporting agency, and all the assets of McGuire's
Reporting Service and Morrissy & Others, both Chicago court reporting agencies.
The aggregate purchase price paid by the Company for all three acquisitions was
$1,354,000 of cash, promissory notes in the aggregate principal amount of
$375,000, options to purchase 30,000 shares of the Company's Common Stock and
18,000 unregistered shares of the Company's Common Stock.
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 changing technology, 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'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
At December 31, 1997, the Company had 349 full-time employees and
approximately 950 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.
ITEM 2. PROPERTIES
The Company's three principal leases relate to its corporate
headquarters in San Diego, California and its office leases in New York City and
Santa Ana, California. The Company leases approximately 4,600 square feet of
office space in San Diego, California for a term ending June 30, 2000, at an
annual rent of $86,400. The Company leases approximately 19,870 square feet of
office space in Santa Ana, California for a term ending January 1, 2002 at an
annual rent of $425,724. The Company leases approximately 11,500 square feet of
office space in New York, New York for a term ending December 31, 2005, at an
annual rent of $147,829.
The Company also leases office space in the several locations where
the Company has court reporting agencies. 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Effective May 18, 1993, the Common Stock of the Company was listed on
the Boston Stock Exchange and Nasdaq Stock Market under the symbol "ESQS." 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 for the period
commencing January 1, 1996. 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.
HIGH LOW
1997
First Quarter $4.625 $2.375
Second Quarter 5.625 3.25
Third Quarter 9.375 4.563
Fourth Quarter 8.625 4.625
1996
First Quarter $3.50 $2.75
Second Quarter 3.50 2.75
Third Quarter 3.25 2.00
Fourth Quarter 3.375 2.125
There were approximately 75 shareholders of record of Common Stock as
of January 12, 1998. 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.
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 terms of the Company's Series A Preferred Stock and
Credit Agreement with its lenders, the Company is prohibited from paying cash
dividends. The Company presently intends to retain all earnings for use in its
business and does not anticipate paying dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
The revenues of the Company are primarily derived from services for
recording 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.
In 1997, the Company acquired 17 court reporting agencies
(collectively referred to as "1997 Acquisitions"). 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 to as "1996 Acquisitions").
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues increased by $23.7 million or 80.3%. The Company believes
that the increase in revenues from its pre-1997 Acquisition operations was due
to its marketing efforts as well as full year operating results from its 1996
Acquisitions that took place primarily in the third quarter of 1996.
Operating expenses increased by $13.6 million, from $16.7 million in
1996 to $30.3 million in 1997, consistent with the increase in revenue. As a
percentage of revenue, operating expenses were 56.9% in 1997 and 56.5% in 1996.
General and administrative expenses increased by $9.5 million to $20.0
million. General and administrative expenses in 1997 included approximately
$1,300,000 primarily relating to an officer's termination agreement and
termination expenses relating to certain marketing activities, as well as
approximately $922,000 in costs incurred in connection with an acquisition
accounted for using the pooling of interests method of accounting. General and
administrative expense in 1996 included a $150,000 expense relating to a
sublease loss. Excluding these items, general and administrative expenses
increased by $7.4 million to $17.8 million. The increase in 1997 was primarily
due to the large volume of 1997 Acquisitions, consisting of payroll and
occupancy expenses, as well as increased sales commissions, marketing and
promotional expenses and administrative support expenses due to increased
revenue levels. As a percentage of revenue, general and administrative expenses,
excluding the items described above, decreased from 35.4% in 1996 to 33.5% in
1997.
Depreciation and amortization increased by $1.3 million. The increase
is primarily due to additional amortization charges arising from the 1996 and
1997 Acquisitions. A significant component of the amortization expense relates
to the cost in excess of the net tangible assets of acquired businesses
(goodwill).
Interest expense, net increased by $1,440,000 due to the incurrence of
additional debt to finance acquisitions and fund working capital.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues increased by $2.7 million or 10.2%. Excluding revenues from
1996 Acquisitions, the revenues increased by approximately 4.8% or $1.3 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 $1.6 million, from $15.1 million in
1995 to $16.7 million in 1996 in line with the revenue increase. As a percentage
of revenues, operating expenses were 56.5% in 1996 and 56.4% in 1995.
General and administrative expenses increased by $1.9 million to $10.6
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 administrative 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 32.3% to 35.9%. 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 $147,000 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 acquired
businesses (goodwill).
Interest expense increased by $133,000 due to incurrence of additional
debt to finance acquisitions and fund working capital.
The Company's operations resulted in a net loss of $376,000 before
extraordinary item compared to income of $321,000 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.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's working capital was approximately
$1.6 million, which was approximately $2.0 million less than at December 31,
1996. The decrease was primarily due to the increase in the Company's accounts
payable and accrued expenses and increase in the current maturities of long-term
debt, net of the increase in the Company's accounts receivable. The increase in
the Company's accounts receivable was due to the 1997 Acquisitions and increased
revenue levels. The increase in the Company's accounts payable and accrued
expenses was primarily due to the 1997 Acquisitions and certain expenses accrued
in connection with an officer's termination agreement.
In December 1996, the Company entered into a three-year revolving loan
agreement ("Loan Agreement") with a financial institution which, as amended in
June, September and November 1997, provides for borrowings up to $65.0 million
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 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, 1997 was 9.3%. 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. Effective
December 26, 1997, the Company entered into a guaranty agreement ("Guaranty")
with a preferred stockholder, whereby the stockholder would guaranty up to
$1,000,000 of advances in excess of the Company's operating cash flows for a
period of 30 days, which was subsequently amended to expire on February 10,
1998. As of February 10, 1998, the Guaranty expired, and the Company was in
compliance with all financial ratios and covenants. The aggregate borrowings at
December 31, 1997 were $40.1 million.
In June 1997, the Company raised approximately $7.1 million through a
private sale of Convertible Preferred Stock. The funds were principally used to
finance 1997 Acquisitions. In January 1998, the Company commenced a private sale
of Convertible Preferred Stock, whereby up to $4.8 million would be raised. As
of March 23, 1998, $4.4 million was raised, with the funds principally used to
finance acquisitions subsequent to December 31, 1997.
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 1998 are expected to range between
$700,000 and $800,000. 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 1998.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("Statement No. 130"). Statement No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purposes financial
statements. Statement No. 130 shall be effective for fiscal years beginning
after December 15, 1997 and requires reclassification of earlier periods
presented. The Company does not believe the adoption of Statement No. 130 will
have a significant impact on the Company's business, results of operations or
financial position for the year ending December 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("Statement No. 131"), effective for fiscal years beginning after
December 15, 1997. Statement No. 131 establishes standards for reporting
information about operating segments in annual financial statements and selected
information about operating segments in interim financial reports issued to
stockholders. The Company does not believe the adoption of Statement 131 will
have a significant impact on the Company's financial statement disclosures.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Reference is made to the Financial Statements, the reports thereon and
notes thereto, commencing on page F-1 to this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
DIRECTOR OR
NAME AGE POSITION WITH COMPANY OFFICER SINCE
Malcolm L. Elvey 56 Chairman of the Board and Director 1993
David A. White 45 Chief Executive Officer and 1997
Director
Cary A. Sarnoff 50 Vice Chairman and Director 1994
David A. Higson 50 Senior Vice President, Chief 1997
Financial Officer and Secretary
Carole L. Hughes 50 Senior Vice President- East Coast 1998
Operations
Gregory J. 42 Senior Vice President, Marketing, 1997
Mazares Sales and Strategic Planning
Steven L. 38 Vice President and Treasurer 1997
Wolkenstein
John C. Durham 43 Director 1997
Mortimer R. 75 Director 1993
Feinberg(1)(2)
David J. Feldman 58 Director 1993
Andrew P. 52 Director 1993
Garvin(1)(2)
Fir M. Geenen 43 Director 1997
Joseph P. 33 Director 1996
Nolan(1)(2)
Bruce V. Rauner 41 Director 1996
- --------------
(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 and its predecessors since their respective incorporations. Mr.
Elvey also served as Chief Executive Officer of these entities from the time of
their respective incorporations until 1997. 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.
DAVID A. WHITE has been Chief Executive Officer of the Company since
February 1997. He has also been an officer of Harlingwood & Company LLC
("Harlingwood") since 1997. From 1992 to December 1996, Mr. White was employed
by MedTrans, a division of Laidlaw, Inc., as President. From 1991 to 1992, Mr.
White was Vice President, Financial Operations for a division of Laidlaw, Inc.
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 A. HIGSON has been Senior Vice President, Chief Financial
Officer and Secretary of the Company since May 1997. From June 1993 to April
1997, he was Senior Vice President-Administration and Financial Operations of
MedTrans. For more than five years prior thereto he was regional director for
financial operations of Laidlaw Inc.
CAROLE L. HUGHES was appointed Senior Vice President of the Company in
February 1998. From 1981 to November 1997, Ms. Hughes was the owner of
Jurist-Begley Reporting Services (or its predecessor), a court reporting
company.
GREGORY J. MAZARES was appointed Senior Vice President, Marketing,
Sales and Strategic Planning of the Company in September 1997. For nine years
prior thereto, he was a senior executive in the litigation support field,
including the past four years as President of Litigation Sciences Inc. Prior
thereto, he was regional vice president and general manager for First Interstate
Bank of California.
STEVEN L. WOLKENSTEIN was appointed Vice President and Treasurer of
the Company in September 1997. From April 1993 to August 1997, he was tax and
treasury/international finance manager for the Upper Deck Company, and for 5
years prior thereto he was with KPMG Peat Marwick LLP, with his last position
being senior tax manager.
JOHN C. DURHAM, MD, became a director of the Company as of June 18,
1997. Dr. Durham was a founder of American Network Services, Inc., the nation's
largest network of court reporting, process serving and legal videography
providers, a company acquired by the Company on June 18, 1997. From 1993 to
1997, Dr. Durham served as chief executive officer and subsequently chief
executive officer and president of American Network Services. From 1985 to 1993,
Dr. Durham was a partner in the practice of DuVall and Durham Internal Medicine
Associates of Cordele, Georgia.
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.
DAVID J. FELDMAN served as President, Chief Operating Officer and a
director of the Company from September 1993 to May 1, 1997, when he resigned as
President and Chief Operating Officer. 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.
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.
FIR M. GEENEN is a principal of Harlingwood and managing partner of
Harlingwood's affiliate Harlingwood Partners, L.P., an acquisition advisory
firm. Mr. Geenen has been with Harlingwood since 1988. Mr. Geenen is also a
director of Global Passenger Services, Digital Medical Records, Mercy Medical
Transportation and Franchise Bancorp.
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 Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("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.
Messrs. Garvin, Geenen, Feinberg and White 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 Securities Exchange Act of 1934 (the "1934 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 Securities and Exchange Commission (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, 1997, its executive officers, directors and holders of more
than ten percent complied with all applicable Section 16(a) filing requirements.
ITEM 10. 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, 1997, to the Company's
Chief Executive Officer and to each of the other most highly compensated
executive officers of the Company whose aggregate cash compensation exceeded
$100,000:
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------------------ ----------------------------------------------------
Awards Payouts
---------- ----------------
Other Restricted
Annual Stock Options LTIP All Other
Name and Salary Bonus Compensation Awards(s) /SARS Payouts Compensation
Principal Year ($) ($) ($) ($) (#) ($) ($)
Position
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey 1997 $200,043 100,000
Chairman 1996 194,595 $115,000 50,000
1995 166,431
David A. White 1997 174,791 100,000
Chief Executive
Officer(1)
Cary A. Sarnoff, 1997 191,675 75,000
Vice Chairman 1996 190,436 50,000
1995 160,629
David A. Higson 1997 93,750 13,000 125,000
Senior Vice
President(2)
David J. Feldman 1997 229,890
President (3) 1996 188,927 358,665 50,000
1995 161,335 238,543
Debra Neiderfer 1997 183,175 20,000
Vice President 1996 115,967 48,666 5,000
1995 82,660 18,650
(1) Amounts were paid to Harlingwood.
(2) Represents compensation for the partial year from May 15, 1997.
(3) Mr. Feldman resigned as president in May 1997
</TABLE>
<PAGE>
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 willful 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.
In connection with the acquisition of the DFA, on September 30, 1993,
the Company entered into an employment agreement with David J. Feldman pursuant
to which Mr. Feldman was employed as President and Chief Operating Officer of
the Company. The agreement was to expire four years from the date thereof and
was to be 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
received an annual salary at the rate of $188,927. Mr. Feldman was 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, as adjusted for subsequent acquisitions by the Company. During the
first two years, Mr. Feldman was entitled to a minimum bonus of $175,000 per
year and during the third and fourth years was entitled to a minimum bonus of
$225,000 per year.
Effective May 1, 1997, Mr. Feldman resigned as an officer and employee
of the Company, but remains as a Director of the Company. In connection with the
resignation, the Company agreed to pay to Mr. Feldman the aggregate amount of
$641,035, payable as follows: (a) from May 1, 1997 through March 31, 1998, the
amount of $22,185 per month; (b) for the period April 1, 1998 through September
30, 1998, the amount of $6,000 per month; (c) on August 15, 1997, the amount of
$161,000; (d) on November 15, 1997, the amount of $150,000; and (e) on May 1,
1997 through September 30, 1997, the amount of $100,000 per month. On May 1,
1997 through September 30, 1998, Mr. Feldman will be paid the amount of $1,500
per month in connection with conducting monthly sales meetings. Mr. Feldman has
also agreed to make himself available to the Company through September 30, 1998
for consulting services for which he will be entitled to additional compensation
at the rate of $2,000 per day (or portion thereof). All options to purchase
Common Stock held by Mr. Feldman will become vested on September 30, 1998 and
will continue to be exercisable until the first to occur of two years from his
ceasing to be a director of the Company or ten years from the respective dates
the options were granted. Mr. Feldman has agreed not to compete with the Company
through September 30, 1998. The Company has agreed to use its best efforts to
cause Mr. Feldman to be elected as a director for as long as he desires through
the later of September 30, 1998 and the date he ceases to own at least 400,000
shares of Common Stock of the Company.
Effective February 13, 1997, the Company entered into a management
agreement with Harlingwood pursuant to which Harlingwood has been engaged to
provide management services to the Company for a one year period of time.
Pursuant to this agreement, Harlingwood agreed to assign Mr. White to fulfill
its duties and to act as Chief Executive Officer of the Company. Harlingwood
will be paid an annual fee at the rate of $175,000 per annum. In connection with
such agreement, the Company granted options to Harlingwood to purchase 150,000
shares of Common Stock at an exercise price of $9.00 per share and sold to
Harlingwood 250,000 shares of Common Stock at a price of $3.125 per share, which
purchase price was paid by Harlingwood issuing to the Company a promissory note
in the principal amount of $781,250, bearing interest at the rate of 7% per
annum. The note is secured by a pledge of the shares and is payable in full on
April 15, 2001. The shares and options vest 25% on February 13, 1998 and ratably
over a three year period of time subsequent thereto. On December 15, 1997,
Harlingwood exercised options to purchase 100,000 shares of Common Stock at a
exercise price of $3.75 per share and delivered to the Company in payment of the
exercise price a promissory note in the principal amount of $375,000, bearing
interest at the rate of 7% per annum. The note is secured by a pledge of the
shares and is payable in full on December 15, 2001. As the result of the
foregoing, at December 31, 1997, Harlingwood was indebted to the Company in the
principal amount of $1,156,250. The Company has agreed to loan to Harlingwood
any funds needed to pay the exercise price in connection with the exercise of
the options. The Company and Harlingwood are presently negotiating an extension
of this agreement.
Carole L. Hughes is employed under a three year employment agreement
which expires November 2000 at an annual salary of $135,000. Ms. Hughes is also
entitled to a performance bonus of up to 50% of her annual salary if the Company
achieves financial and operating objectives agreed to by Ms. Hughes and the
Company, with Ms. Hughes to receive a minimum bonus of at least $60,000 for the
first year. Ms. Hughes' employment agreement contains termination provisions
which are substantially the same as those of Mr. Elvey's employment agreement.
Ms. Hughes has agreed not to compete with the Company for a period of two years
following the termination of her employment with the Company.
Gregory J. Mazares is employed under a two year agreement which
expires August 31, 1999 at an annual salary of $150,000. Mr. Mazares received an
initial bonus of $50,000 and is entitled to an additional $50,000 bonus on
September 1, 1998. If the employment of Mr. Mazares is terminated by the
Company, the Company has agreed to pay to him $200,000 in severance payments,
payable in 12 equal monthly installments.
STOCK OPTION PLAN
In February, 1993, the Board of Directors of the Company adopted the
1993 Stock Option Plan (the "Plan"), which was approved by all stockholders of
the Company. The Plan was amended to increase the number of options which may be
granted thereunder to 2,000,000 shares of Common Stock. Incentive stock options,
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended, and nonqualified stock options may be granted under the Plan.
The Plan is administered by the compensation committee of the Board of
Directors, which may grant options to key employees, directors, consultants and
independent contractors to the Company. The term of each option may not exceed
ten years from the date of grant. The exercise price of an option may not be
less than 100% of the fair market value of a share of Common Stock. The options
vest over a three-year period, commencing one year following their issuance.
The table below sets forth information regarding the grant of stock
options made to the executive officers named in the Summary Compensation Table
during the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
==================================================================================================================================
Percent
Number of of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration
Granted Fiscal Year Price Date
Name (#) ($/Sh)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Malcom L. Elvey 100,000 14.33% $3.75 6/2007
- ----------------------------------------------------------------------------------------------------------------------------------
David A. White (a) 100,000 14.33% $3.75 6/2007
- ----------------------------------------------------------------------------------------------------------------------------------
David Feldman 0 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Cary Sarnoff 75,000 10.24% $3.75 6/2007
- ----------------------------------------------------------------------------------------------------------------------------------
David A. Higson 100,000 14.33% $3.50 5/2007
25,000 3.58% $3.75 6/2007
- ----------------------------------------------------------------------------------------------------------------------------------
Debra Neiderfer 0 - - -
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
The table below sets forth information for the executive officers
named in the Summary Compensation Table concerning option exercises during 1997
and outstanding options at December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND DECEMBER 31, 1997
OPTION/SAR VALUES
==================================================================================================================================
Number of Securities Value of Unexercised
Underlying in-the-Money
SHARES Unexercised Options/SARs at
ACQUIRED Options/SARs at DECEMBER 31, 1997
ON VALUE DECEMBER 31, 1997
NAME EXERCISE REALIZED
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey 0 - 141,666 133,334 $158,332 $191,668
- -----------------------------------------------------------------------------------------------------------------------------------
David A. White(a) 100,000 $212,500 0 150,000 - 0
- -----------------------------------------------------------------------------------------------------------------------------------
David Feldman 0 - 91,666 33,334 108,332 66,668
- -----------------------------------------------------------------------------------------------------------------------------------
Cary Sarnoff 0 - 16,666 108,334 33,332 160,418
- -----------------------------------------------------------------------------------------------------------------------------------
David A. Higson 0 - 0 125,000 - 181,250
- -----------------------------------------------------------------------------------------------------------------------------------
Debra Neiderfer 0 - 51,666 3,334 53,540 7,085
===================================================================================================================================
- ------------------
(a) These options were granted to, and exercised by, Harlingwood.
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1998, certain
information with respect to the beneficial ownership of the Common Stock by: (i)
each of the Company's Directors, (ii) each officer named in the Summary
Compensation Table, (iii) all directors and executive officers of the Company as
a group, and (iii) each other person (including any "group," as that term is
used in Section 13(d)(3) of the Exchange Act) who is known by the Company to own
beneficially 5% or more of the Common Stock. The Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares, except as noted below. The address of each person listed below is
750 "B" Street, Suite 2350, San Diego, California 92101, unless otherwise
indicated.
Percent
NAME AND ADDRESS OF BENEFICIAL OWNER Number of Shares of Class
Malcolm L. Elvey (1) 839,000 10.3%
216 East 45th Street
New York, NY 10017
The Sarnoff Trust (2) 750,000 9.6%
2100 Broadway
Santa Ana, CA 92706
Allied Investment Corporation (3) 625,000 7.4%
Allied Investment Corporation II
Allied Capital Corporation II
1666 K Street
Washington, DC 20006
CMNY Capital, L.P. (4) 472,500 6.0%
135 East 57th Street
New York, NY 10022
Mortimer R. Feinberg __ __
David J. Feldman (5) 620,900 7.8%
216 East 45th Street
New York, NY 10017
Andrew P. Garvin 400 *
Golder, Thoma, Cressey, Rauner Fund IV, 6,337,436 44.7%
L.P. (6)
Joseph P. Nolan (6) __ __
Bruce V. Rauner (6) __ __
Cary A. Sarnoff (7) 885,100 11.1%
John C. Durham 284,775 3.6%
Harlingwood & Company LLC (8) 500,000 6.3%
Fir M. Geenen (8) 500,000 6.3%
David A. White (8) 500,000 6.3%
David A. Higson (9) 125,000 1.6%
Debra Neiderfer (10) 77,000 *
Carole L. Hughes (11) 432,378 5.4%
Kathryn Benavides (11) 432,348 5.4%
1092 The Great Road
Princeton, NJ 08540
All directors and executive officers
as a group (12) (14 persons) 3,807,553 43.0%
- ----------------
* Less than 1%
(1) Includes options to purchase 275,000 shares of the Company's
Common Stock granted to Mr. Elvey under the Plan.
(2) The Sarnoff Trust is a revocable trust of which Cary A. Sarnoff
and his wife, Michelle A. Sarnoff, are settlors, trustees and
beneficiaries.
(3) These entities in the aggregate own warrants to purchase an aggregate
of 625,000 shares of Common Stock at an exercise price of $2.90 per
share, subject to adjustment.
(4) Robert Davidoff and Edwin Marks are the general partners of CMNY
Capital, L.P. and may be deemed to control it.
(5) Includes options to purchase 125,000 shares of the Company's Common
Stock granted to Mr. Feldman under the Plan.
(6) GTCR is the direct owner of 19,012.5 shares of Series A
Convertible Preferred Stock which is convertible into
6,337,436 shares of Common Stock. GTCR IV, L.P., a limited
partnership , is the general partner of GTCR and Golder,
Thoma, Cressey, Rauner, Inc. ("GTCR Inc.") is the general
partner of GTCR IV, L.P. As such, they may be deemed to be
the indirect beneficial owner of such securities. Messrs.
Nolan and Rauner are principals of GTCR Inc.
(7) Includes shares owned by The Sarnoff Trust and options to purchase
125,000 shares of the Company's Common Stock granted to Mr. Sarnoff
under the Plan. See Note (2).
(9) Messrs. White and Geenen are officers of Harlingwood. Includes 350,000
shares owned by Harlingwood and options to purchase 150,000 shares of
Common Stock owned by Harlingwood.
(10) Consists of options to purchase 125,000 shares of the Company's Common
Stock granted to Mr. Higson under the Plan.
(11) Includes options to purchase 55,000 shares of the Company's Common
Stock granting to Ms. Neiderfer under the Plan.
(12) Includes options to purchase 91,000 shares of Common Stock of
the Company.
(13) Includes options to purchase 1,011,000 shares of Common Stock.
ITEM 12. 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. At December 31, 1997, Mr. Sarnoff no longer had an
interest in the premises.
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, as
amended in June 1997 and January 1998 (the "Purchase Agreement"), pursuant to
which the Company sold to GTCR and Antares Leveraged Capital Corp.
(collectively, the "Investors") 19,012.50 and 487.50 shares of Series A
Preferred Stock, respectively, for an aggregate purchase price of $19,500.00. In
addition, the Investors have the right on or prior to December 17, 1998 to
acquire up to an additional 3,000 shares of Series A Preferred Stock at a price
of $1,000 per share. The Investors have the further right on or prior to July 9,
1999 to acquire up to 5,000 shares of Series B 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, former President of the Company, CMNY Capital L.P. and Allied entered
into the Stockholder's Agreement pursuant to which (a) the parties agreed to
vote their shares to elect as directors four representatives designated by the
Management Stockholders, two representatives designated by GTCR and four
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. Subject to specified conditions, the
Management Stockholders have agreed to designate David Feldman and John Durham
as Directors.
The Series B Preferred Stock is identical to the Series A Preferred
Stock except that it is junior to the Series A Preferred Stock, has a conversion
price of $6.00 per share and has 166 2/3 votes per share.
Messrs. Andrew Garvin, Mortimer Feinberg, David White and Fir Geenen,
directors of the Company, have agreed to resign as directors at any time upon
the request of GTCR.
SDS was a party to an agreement with Edward Sarnoff, the father 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.
PART IV
ITEM 13. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1). Financial Statements. The following consolidated
financial statements of Esquire Communications Ltd. and Subsidiaries,
required by Part II, Item 7, are included in Part IV of this report:
Independent Auditors' Reports
Consolidated Balance Sheets as of December 31, 1997 and December 31,
1996.
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.
Notes to the Consolidated Financial Statements
Exhibits
(a)(3). Exhibits:
EXHIBIT NO.
3.1 Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company. Incorporated by reference to
Exhibit 3.2 to the Current Report on Form 8-K reporting on an
event which occurred October 28, 1996 ("October 1996 8-K").
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 Registration Statement on
Form SB-2 (File No. 33-58814 ("SB")).
10.2 Management Agreement dated as of February 13, 1997, among the
Company, Harlingwood & Company, LLC and David A.
White.
10.3 Employment Agreement dated November 7, 1997, between the
Company and Carole L. Hughes.
10.4 Agreement dated as of May 1, 1997 by and between the Company
and David Feldman.
10.5 Employment Agreement dated June 22, 1994 by and between the
Company and Cary A. Sarnoff. Incorporated by reference to
Exhibit 4 to Current Report on Form 8-K reporting on an event
which occurred on June 22, 1994.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 Registration Agreement dated October 23, 1996 among the
Company and the Investors. Incorporated by reference to
Exhibit 10.6 to October 1996 8-K.
10.11 Agreement dated October 23, 1996 among the Company, GTCR,
David J. Feldman, The Sarnoff Trust, Allied Investment
Corporation I, 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.
10.12 Credit Agreement dated as of December 24, 1996 by and among
Esquire Communications Ltd., as Borrower, Antares Leveraged
Capital Corp., as Agent and the Other Financial Institutions
Party Hereto, as Lenders. Incorporated by reference to Exhibit
10.18 to the Company's Annual Report on Form 10- KSB for the
year ended December 31, 1996.
10.13 Asset Purchase Agreement dated as of May 28, 1997 among the
Company, Wolfe Rosenberg & Associates, Inc., M&M Computrans,
Seymour L. Wolfe and Fred R. Rosenberg. Incorporated by
reference to Exhibit 10.1 to Current Report on Form 8-K
reporting on an event which occurred on May 28, 1997.
10.14 Asset Purchase Agreement dated as of June 13, 1997, among the
Company, Krauss, Katz & Ackerman, Inc., Harvey Krauss, Leonard
Katz and Robert Ackerman. Incorporated by reference to Exhibit
10.1 to Current Report on Form 8-K reporting on an event which
occurred June 13, 1997 ("June 1997 8-K").
10.15 Asset Purchase Agreement dated as of June 18,1997, among the
Company, American Network Services, Inc., John C. Durham,
David Rainwater, William Bird and Jeff Johnson. Incorporated
by reference to Exhibit 10.2 to June 1997 8-K.
10.16 Amendment No. 2 dated as of January 8, 1998 to Purchase
Agreement dated October 23, 1996, among the Company,
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Antares
Leveraged Capital Corp.
10.17 Employment Agreement dated September 1, 1997 between the
Company and Gregory J. Mazares.
10.18 Amendment No. 1 dated as of June 17, 1997 to Purchase
Agreement dated October 23, 1996, among Esquire, Golder,
Thoma, Cressey, Rauner Fund IV, L.P. and Antares Leveraged
Capital Corp. Incorporated by reference to Exhibit 10.3 to
June 1997 8-K.
10.19 Amendments No. 1 and No. 2 to Stockholder's Agreement dated
October 23, 1996, among Esquire and various stockholders of
Esquirer. Incorporated by reference to Exhibit 10.4 to June
1997 8-K.
21 Subsidiaries of the Registrant.
23 Consent of independent accountants
(b) Reports on Form 8-K.
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Esquire Communications Ltd.:
We have audited the accompanying consolidated balance sheets of Esquire
Communications Ltd. and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Esquire
Communications Ltd. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
We also audited the combination of the accompanying consolidated statements
of operations, stockholders' equity, and cash flows for the year ended December
31, 1995, after restatement for the 1997 pooling-of-interests; in our opinion,
such consolidated statements have been properly combined on the basis described
in Note 2 of the notes to the consolidated financial statements.
KPMG PEAT MARWICK LLP
San Diego, CA.
March 27, 1998
<PAGE>
To The Board of Directors Of
Esquire Communications Ltd.
We have audited the consolidated balance sheet of Esquire Communications
Ltd. as of December 31, 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented separately herein). 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.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance that 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 statement. 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 our audit provides 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 the year in conformity with generally accepted
accounting principles.
/S/ FREED MAXICK SACHS & MURPHY, P.C
FREED MAXICK SACHS & MURPHY, P.C
Buffalo, New York
March 27, 1998
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
t
Consolidated Balance Sheets
December 31, 1997 and 1996
(In Thousands, Except Share Data)
Assets (pledged)
1997 1996
(Note 2)
Current assets:
<S> <C> <C>
Cash $ 116 186
Accounts receivable, less allowance for
doubtful accounts of $1,334 in 1997 and
$380 in 1996 14,621 8,027
Prepaid expenses 639 903
Deferred tax asset -- 102
---------- --------
Total current assets 15,376 9,218
Property and equipment, net 3,056 2,041
Cost in excess of fair value of net
identifiable assets of acquired businesses,
less accumulated amortization of $2,878
in 1997 and $1,516 in 1996 62,763 19,681
Deferred tax asset -- 38
Other assets, less accumulated amortization
of $714 in 1997 and $364 in 1996 1,656 856
---------- ---------
$ 82,851 31,834
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 3,616 2,083
Accrued expenses 5,622 1,414
Unearned revenue 105 --
Current portion of long-term debt,
including related parties 4,361 2,149
---------- ----------
Total current liabilities 13,704 5,646
Long-term debt, including related parties 45,442 12,990
Other liabilities 165 267
---------- -----------
Total liabilities 59,311 18,903
---------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized in series:
Series A convertible preferred stock 22,500
shares authorized; 15,000 and 7,500 shares
issued and outstanding in 1997 and 1996,
respectively; $15,000,000 and $7,500,000
aggregate liquidation preference in 1997 and
1996, respectively -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 7,049,898 and 5,185,256 shares
issued in 1997 and 1996, respectively;
6,866,398 and 4,751,756 shares outstanding in
1997 and 1996, respectively 63 43
Additional paid-in capital 29,063 14,911
Treasury stock, at cost - 183,500 shares
in 1997 and 433,500 shares in 1996 (550) (1,300)
Notes receivable - stockholder (1,156) --
Accumulated deficit (3,880) (723)
----------- ------------
Total stockholders' equity 23,540 12,931
----------- ------------
Commitments and contingencies
$ 82,851 31,834
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Share and Per Share Data)
1997 1996 1995
(Note 2) (Note 2)
<S> <C> <C> <C>
Revenue $ 53,178 29,501 26,781
--------- --------- ---------
Costs and expenses:
Operating expenses 30,284 16,662 15,095
General and administrative expenses 20,046 10,585 8,647
Depreciation and amortization 2,522 1,198 1,051
--------- --------- ---------
52,852 28,445 24,793
--------- --------- ---------
Income from operations 326 1,056 1,988
--------- --------- ---------
Other income (expense):
Interest expense (2,697) (1,225) (1,092)
Interest income 41 6 12
Other -- 3 (13)
---------- --------- ---------
(2,656) (1,216) (1,093)
----------- --------- ----------
(Loss) income before provision
for income taxes
and extraordinary item (2,330) (160) 895
Provision for income taxes 125 216 574
----------- --------- ----------
(Loss) income before extraordinary item (2,455) (376) 321
Extraordinary item - loss on early
extinguishment of debt, net of tax
benefit of $104 -- 157 --
----------- --------- ----------
Net (loss) income (2,455) (533) 321
Dividends on preferred stock (702) (75) --
----------- ---------- ----------
Net (loss) income applicable
to common stockholders $(3,157) (608) 321
============ =========== ==========
Net (loss) income per common share
Basic:
Weighted-average shares outstanding $5,630,285 4,959,152 4,979,775
Net (loss) income before
extraordinary item $ (0.56) (0.09) 0.06
Extraordinary item $ (0.56) (0.03) 0.06
Diluted:
Weighted-average shares outstanding $5,630,285 4,959,152 5,050,800
Net (loss) income before
extraordinary item $ (0.56) (0.09) 0.06
Extraordinary item $ (0.56) (0.03) 0.06
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 3l, 1997, 1996 and 1995
(Dollars in Thousands)
Additional Total
Series A Common stock paid-in Treasury Notes Accumulated stock-
preferred ---------------- capital stock receivable deficit holders'
stock Shares Amount equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994, as
previously reported $ -- 4,049,900 $ 40 7,491 -- -- (623) 6,908
Adjustment for pooling of interests
(note 2) -- 854,427 -- -- -- -- 187 187
--------- ----------- --------- --------- --------- -------- --------- --------
Balance, December 31, 1994,
as restated -- 4,904,327 40 7,491 -- -- (436) 7,095
Issuance of common stock in
connection with acquisition
of business -- 76,923 1 212 -- -- -- 213
Net income -- -- -- -- -- -- 321 321
---------- ------------ --------- --------- ---------- -------- ---------- ---------
Balance, December 31, 1995 -- 4,981,250 41 7,703 -- -- (115) 7,629
Issuance of common stock in
connection with acquisitions
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 -- -- -- 6,700 -- -- -- 6,700
Net loss -- -- -- -- -- -- (533) (533)
---------- ------------ --------- --------- ---------- -------- ---------- ---------
Balance, December 31, 1996 -- 4,751,756 43 14,911 (1,300) -- (723) 12,931
Issuance of common stock in
connection with acquisitions
of businesses -- 1,356,000 14 5,680 -- -- -- 5,694
Issuance of common stock in
connection with warrant exchange
offering, net of issuance costs -- 184,896 2 (177) -- -- -- (175)
Exercise of non-employee warrants -- 153,081 2 224 -- -- -- 226
Exercise of employee stock options -- 70,665 1 278 -- -- -- 279
Reissuance of treasury stock in
connection with exercise of
employee stock options for note
receivable -- 250,000 -- 31 750 (781) -- --
Issuance of stock options to
non-employees -- -- -- 632 -- -- -- 632
Dividends on preferred stock -- -- -- -- -- -- (702) (702)
Exercise of employee stock options
for note receivable -- 100,000 1 374 -- (375) -- --
Issuance of 7,500 shares of Series A
convertible preferred stock, net
of issuance costs -- -- -- 7,110 -- -- -- 7,110
Net loss -- -- - -- -- -- (2,455) (2,455)
----------- ---------- ------- -------- ---------- ------- -------- -------
Balance, December 31, 1997 $ -- 6,866,398 $63 29,063 (550) (1,156) (3,880) 23,540
=========== ============= ========= ======== ========== ====== ========= =======
</TABLE>
See accompanying notes to consolidated financial statments.
<TABLE>
<CAPTION>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
(Dollars in Thousands)
1997 1996 1995
(Note 2) (Note 2)
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income $ (2,455) (533) 321
Adjustments to reconcile net (loss) income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,522 1,198 1,051
Commission expense related to grant of
stock options 329 -- --
Deferred income taxes 140 (168) 23
Extraordinary item -- 157 --
(Increase) decrease in assets:
Accounts receivable (2,815) (1,284) (613)
Prepaid expenses 205 (427) 7
Increase (decrease) in liabilities:
Accounts payable, accrued expenses
and unearned revenue 1,753 845 122
Other long-term liabilities (95) 37 (6)
----------- ----------- ----------
Net cash (used in) provided by
operating activities (416) (175) 905
----------- ---------- ----------
Cash flows from investing activities:
Acquisitions of businesses (34,866) (3,958) (642)
Increase in other assets (620) (314) (104)
Purchases of property and equipment (737) (952) (273)
---------- ---------- ----------
Net cash used in investing activities (36,223) (5,224) (1,019)
----------- ----------- ----------
Cash flows from financing activities:
Proceeds from long-term debt 31,846 8,218 --
Payment of preferred stock dividends (627) -- --
Principal payments on long-term debt (1,552) (6,317) (822)
Repayment under bank line of credit, net -- (1,600) 1,100
Deferred financing costs (538) (287) --
Proceeds from exercise of employee stock options 279 -- --
Proceeds from issuance of common stock warrants -- -- 6
Purchase of treasury stock -- (1,300) --
Warrant exchange offering issuance costs (175) -- --
Proceeds from issuance of Series A preferred stock,
net 7,110 6,700 --
Proceeds from exercise of warrants, net 226 -- --
----------- ---------- ---------
Net cash provided by financing activities 36,569 5,414 284
----------- ----------- --------
Net increase (decrease) in cash (70) 15 170
Cash at beginning of year 186 171 1
----------- ----------- ---------
Cash at end of year $ 116 186 171
============ =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(Dollars in Thousands, Except Share Data)
(1) Summary of Significant Accounting Policies and Practices
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., southern California, San Francisco, Philadelphia, Chicago, Fort
Lauderdale, Denver and San Antonio areas.
Revenue Recognition
Revenue 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 life
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 expense 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 periods ranging from 25 to 40 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 amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. 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 1997, 1996 and 1995 related to
intangible assets was $1,824, $824 and $699, 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 respective tax bases and operating loss and tax
credit carryforwards. 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.
Income (Loss) Per Common Share
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS
No. 128 supersedes Accounting Principles Board (APB) Opinion No. 15 and
replaces "primary" and "fully diluted" earnings per share (EPS) under APB
No. 15 with "basic" and "diluted" EPS. Unlike primary EPS, basic EPS
excludes the dilutive effects of options, warrants and other convertible
securities. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of the Company's net earnings per common share.
Options, warrants and convertible preferred stock with a dilutive effect of
5,434,432 and 19,869 shares were excluded from the computations of net loss
per common share for the years ended December 31, 1997 and 1996,
respectively, as their effect is anti-dilutive.
The following table sets forth the computation of basic and diluted income
(loss) per share based on the requirements of SFAS No. 128:
Years ended December 31,
1997 1996 1995
(Note 2) (Note 2)
Numerator:
Net (loss) income $(2,455) (533) 321
Less preferred stock dividends (702) (75) --
----------- ---------- ---------
Numerator for basic and diluted
income per share - income
available to common stockholders $(3,157) (608) 321
============ ============ ==========
Denominator for basic income
per share - weighted-average
shares $5,630,285 4,959,152 4,979,775
Effect of dilutive securities-
warrants -- -- 71,025
-------------- ------------- -------------
Denominator for dilutive income
per share-weighted average
shares $5,630,285 4,959,152 5,050,800
============== ============== ============
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans in accordance with the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and the Company provides pro forma net income disclosures for
employee stock option grants made as if the Company had adopted the fair
value method under SFAS No. 123 "Accounting for Stock-Based Compensation."
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." 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.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, current maturities of
long-term debt, accounts payable and accrued expenses approximate their
fair value because of the short-term maturity of these instruments. The
carrying value of long-term 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.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) Business Combinations
Purchase Business Combinations
1995 Acquisition
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 revenue 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. 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 cost in excess of
fair value of net identifiable assets acquired was approximately $1,900.
1996 Acquisitions
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 had an immaterial
effect on the operating results of the Company. The total purchase price,
inclusive of transaction costs, consisted of $305 in cash, $315 estimated
earn out and assumption of net liabilities of $221. The cost in excess of
fair value of net identifiable assets acquired, including the estimated
earn out, was approximately $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 transaction 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 the cash portion of the purchase price were subject to revision
based on the revenue derived from M&M's business for 12 months commencing
November 1, 1996, which is expected to result in a decrease in one of the
notes of $95. The Company will account for the revision as an adjustment to
goodwill. 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 cost in excess of fair value of net identifiable
assets acquired was approximately $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 transaction 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 installments
over a period of six years, together with interest at the rate of 8% per
annum. The cost in excess of fair value of net identifiable assets acquired
was approximately $1,155.
1997 Acquisitions
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 $220. The purchase price for these
companies was amended on July 1, 1997, with the issuance of additional
subordinated promissory notes in the aggregate of $1,500, payable in equal
quarterly installments over a period of five years. The cost in excess of
fair value of net identifiable assets acquired was approximately $3,663,
and other intangible assets of approximately $375 were recognized.
On May 28, 1997, the Company acquired the assets and liabilities of Wolfe,
Rosenberg & Associates, Inc. (WRA), a court reporting agency based in
Chicago, Illinois. The purchase price, inclusive of transaction costs,
consisted of approximately $6,046 paid in cash and liabilities discharged
of $123. The purchase price is subject to revision based upon the revenue
derived from WRA's business for 24 months commencing June 1997. The Company
will account for any such revision as an adjustment to goodwill, when such
contingencies are resolved. The cost in excess of fair value of net
identifiable assets acquired was approximately $6,732.
On June 13, 1997, the Company acquired the assets and liabilities of
Krauss, Katz & Ackerman, Inc. (KKA), a court reporting agency based in
Philadelphia, Pennsylvania. The purchase price, inclusive of transaction
costs, consisted of approximately $9,354 paid in cash and liabilities
discharged of $150. The purchase price was subject to an increase based
upon the revenue derived from KKA's business for the 36 months ending
December 31, 1999. The increase was payable in unregistered shares of the
Company's common stock, up to a maximum of 300,000 shares. In November
1997, the agreement with KKA was amended to delete any increase to the
purchase price and the Company issued 300,000 unregistered shares of the
Company's common stock valued at $1,560. The Company accounted for the
amendment as an adjustment to goodwill. The cost in excess of fair value of
net identifiable assets acquired was approximately $10,719.
On June 18, 1997, the Company acquired the assets and liabilities of
American Network Services, Inc., a court reporting referral network, based
in Atlanta, Georgia. The purchase price, inclusive of transaction costs,
consisted of approximately $6,683 in cash and 750,000 unregistered shares
of the Company's common stock valued at $2,700. The cost in excess of fair
value of net identifiable assets acquired was approximately $9,750.
On August 29, 1997, the Company acquired substantially all the assets and
liabilities of Hyatt Court Reporting & Video, Inc., a Denver, Colorado
based court reporting firm. The purchase price, inclusive of transaction
costs, consisted of $691 in cash and a promissory note in the principal
amount of $100. The promissory note is payable in equal quarterly
installments over a period of two years, without interest. The cost in
excess of fair value of net identifiable assets acquired was approximately
$477, and other intangible assets of approximately $300 were recognized.
On October 1, 1997, the Company acquired substantially all the assets and
liabilities of Kim Tindall & Associates, a San Antonio, Texas court
reporting firm. The purchase price, inclusive of tranaction costs,
consisted of $2,075 in cash and 120,000 unregistered shares of the
Company's common stock valued at $660. The cost in excess of fair value of
net identifiable assets acquired was approximately $2,260.
On October 7, 1997 and effective October 15, 1997, the Company acquired
substantially all the assets and liabilities of five court reporting firms
in Fort Lauderdale, Florida, consisting of Associates/Certified Reporting,
County Reporting, Justice Reporting, Lauderdale Reporting and Merit
Reporting. The aggregate purchase price for the five companies, inclusive
of transaction costs, consisted of $3,590 in cash, 86,000 unregistered
shares of the Company's common stock valued at $554, and a $50,000
promissory note payable in 16 equal quarterly installments, with interest
at the rate of 8% per annum. The cost in excess of fair value of net
identifiable assets acquired was approximately $4,429.
On October 9, 1997, the Company acquired substantially all the assets and
liabilities of Haynes & Harpster Court Reporters, a southern California
court reporting firm. The purchase price paid by the Company consisted of
$400 in cash and a promissory note in the principal amount of $175, payable
in eight equal quarterly installments without interest. The cost in excess
of fair value of net identifiable assets acquired was approximately $539.
On October 9, 1997, the Company acquired substantially all the assets and
liabilities of Cynthia Varelli, a Chicago, Illinois court reporting firm.
The purchase price paid, inclusive of transaction costs, consisted of $450
in cash, $300 payable in twelve equal installments and two promissory notes
in the aggregate principal amount of $397, $297 payable on October 1, 1998,
with the balance payable in eight equal quarterly installments without
interest. The cost in excess of fair value of net identifiable assets
acquired was approximately $1,094.
In December 1997, the Company acquired substantially all the assets and
liabilities of Henry Jacobs & Associates and Affiliated Reporters (doing
business as Certified Reporting Company), two court reporting agencies
based in New York City. The aggregate purchase price, inclusive of
transaction costs, consisted of $3,735 in cash, a promissory note in the
principal amount of $450 payable in 20 equal quarterly installments,
together with interest at the rate of 8% per annum, and a convertible
promissory note in the principal amount of $500 payable in three years,
without interest. The cost in excess of fair value of net identifiable
assets acquired was approximately $4,642.
The following unaudited pro forma information assumes the 1997 Acquisitions
and the sale of preferred stock occurred on January 1, 1996 and the 1996
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.
1997 1996 1995
Revenue $ 63,756 53,754 27,683
Net (loss) income applicable
to common stockholders $ (2,826) 571 97
Net (loss) income per common
share - basic $ (0.50) 0.12 0.02
Net (loss) income per common
share - diluted $ (0.50) 0.12 0.02
1998 Acquisitions
Effective January 5, 1998, the Company acquired substantially all the
assets and liabilities of A&A Court Reporters, a court reporting agency
based in Houston, Texas. The purchase price paid by the Company consisted
of $2,500 in cash and 141,000 unregistered shares of the Company's common
stock valued at $1,199. The business combination is to be accounted for
under the purchase method, and the cost in excess of fair value of net
identifiable assets acquired is expected to be approximately $3,100. The
Company borrowed approximately $2,500 under its revolving credit agreement
to finance the transaction.
On January 7, 1998, the Company acquired substantially all the assets and
liabilities of Brody & Geiser, a court reporting agency based in Northern
New Jersey. The purchase price paid by the Company consisted of $1,650 in
cash and 227,586 unregistered shares of the Company's common stock valued
at $1,650. The business combination is to be accounted for under the
purchase method, and the cost in excess of fair value of net identifiable
assets acquired is expected to be approximately $2,600. The Company
borrowed approximately $1,650 under its revolving credit agreement to
finance the transaction.
On January 16, 1998, the Company acquired substantially all the assets and
liabilities of Kerns & Gradillas, a southern California court reporting
agency. The purchase price paid by the Company consisted of $5,500 in cash,
$1,300 payable in three years (convertible into common stock at a
conversion price of $8.00 per share) and 171,429 unregistered shares of the
Company's common stock valued at $1,200. The business combination is to be
accounted for under the purchase method, and the cost in excess of fair
value of net identifiable assets acquired is expected to be approximately
$7,400. The Company borrowed approximately $5,500 under its revolving
credit agreement to finance the transaction.
On February 12, 1998, the Company acquired substantially all the assets and
liabilities of Jewelinski Court Reporters, a southern California court
reporting agency. The purchase price paid by the Company consisted of $150
of cash and a promissory note in the principal amount of $390 (subject to
reduction) payable in 24 equal monthly installments, without interest. The
business combination is to be accounted for under the purchase method, and
the cost in excess of fair value of net identifiable assets acquired is
expected to be approximately $400. The Company borrowed $150 under its
revolving credit agreement to finance the transaction.
On February 20, 1998, the Company acquired all the assets and liabilities
of Friedi, Wolff & Pastore, a Washington, D.C. court reporting agency. The
purchase price paid by the Company consisted of $600 of cash and 20,000
unregistered shares of the Company's common stock valued at $120. The
business combination is to be accounted for under the purchase method, and
the cost in excess of fair value of net identifiable assets acquired is
expected to be approximately $600. The Company borrowed $600 under its
revolving credit agreement to finance the transaction.
In March 1998, the Company acquired all the assets and liabilities of
VerbaVolant, a New York City court reporting agency, and all the assets of
McGuire's Reporting Service and Morrissy & Others, both Chicago court
reporting agencies. The aggregate purchase price paid by the Company for
all three acquisitions was $1,354 of cash, promissory notes in the
aggregate principal amount of $375, options to purchase 30,000 shares of
the Company's common stock and 18,000 unregistered shares of the Company's
common stock valued at $108. The business combination is to be accounted
for under the purchase method, and the cost in excess of fair value of net
identifiable assets acquired is expected to be approximately $1,937. The
Company borrowed $1,354 under its revolving credit agreement to finance the
transaction.
Pooling of Interests Business Combination
On November 7, 1997, the Company acquired all the common stock of
Jurist-Begley Reporting Services, Inc., Jurist, Inc. and Aarons &
Associates, Inc. (collectively "Jurist") in exchange for 854,427 shares of
the Company's common stock. Jurist is a Philadelphia, Pennsylvania-based
court reporting company.
The merger constituted a tax-free reorganization and has been accounted for
as a pooling of interests, and accordingly, the accompanying consolidated
financial statements have been restated to include the results of Jurist
for all periods presented. The fiscal year-end of Jurist was conformed to
the Company's.
Revenue and (loss) income from continuing operations of the combining
companies for the periods preceding the acquisition are as follows
(excluding extraordinary item in 1996):
<TABLE>
<CAPTION>
Period from Year ended Year ended
January 1, 1997 December 31, December 31,
through November 6, 1996 1995
1997
Revenue:
<S> <C> <C> <C>
Esquire $ 37,010 24,583 20,692
Jurist 3,952 4,918 6,089
-------------- ------------- ------------
$ 40,962 29,501 26,781
=============== ============= =============
Net (loss) income
before extraordinary item:
Esquire $ (1,475) (309) 279
Jurist (511) (67) 42
---------------- -------------- -------------
$ (1,986) (376) 321
================ =============== ==============
</TABLE>
The combined financial results presented above, include adjustments made to
conform to the accounting policies of the two companies. In connection with
the merger, the Company recorded charges of $922 in the quarter ended
December 31, 1997. These charges include legal, accounting and other fees.
(3) Property and Equipment
Property and equipment consists of the following as of December 31, 1997
and 1996:
Depreciable
1997 1996 lives
Office condominium $ 203 203 31 years
Equipment 4,495 2,712 5 to 7 years
Leasehold improvements 1,002 861 5 to 10 years
---------- -------
5,700 3,776
Less accumulated depreciation
and amortization (2,644) (1,735)
----------- ---------
$ 3,056 2,041
=========== =========
Depreciation and amortization expense amounted to $698, $432 and $327 for
the years ended December 31, 1997, 1996 and 1995, respectively.
(4) Long-term Debt
Long-term debt consists of the following as of December 31, 1997 and 1996:
1997 1996
Revolving loan agreement (A) $ 40,065 8,218
Promissory notes (B) 8,772 5,181
Contract obligation (C) 341 496
Other notes and obligations (D) 125 390
Convertible note (E) 500 --
Loans payable (F) -- 730
Other loans payable (G) -- 124
------------ ------------
49,803 15,139
Less current portions (4,361) (2,149)
------------ -------------
$ 45,442 12,990
============= ==============
(A) In December 1996, the Company entered into a three-year revolving loan
agreement with a financial institution which, as amended (Loan Agreement),
provides for borrowings up to $65,000 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, 1997 was
9.3%. 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.
(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 $10 and $47 at December 31, 1997 and 1996,
respectively.
(D) 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.
(E) Convertible non-interest bearing promissory note with former stockholders
of acquired business, due in the year 2000. Note is convertible at any time
and at the option of the Company into shares of the Company's common stock
at the conversion price of $8.00 per share.
(F) Loans payable on demand to financial institution. Interest is payable
monthly at 1% above the prime rate. Loans were repaid during 1997.
(G) Loans payable to officers, repaid during 1997.
Scheduled annual principal payments of long-term debt are as follows:
1998 $ 4,361
1999 41,005
2000 2,267
2001 1,563
2002 606
Thereafter 1
----------
$ 49,803
==========
Effective December 26, 1997, the Company entered into a guaranty agreement
("Guaranty") with a preferred stockholder, whereby the stockholder would
guaranty up to $1,000,000 of advances in excess of the Company's operating
cash flows for a period of 30 days, which was subsequently amended to
expire on February 10, 1998. As of February 10, 1998, the Guaranty expired,
and the Company was in compliance with all financial ratios and covenants.
(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 in the year
2002.
In connection with the acquisition of Sarnoff Deposition Service, Inc.
(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
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) or 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 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 shares 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
anytime prior to October 2001.
In connection with the 1996 Acquisitions, 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.
In connection with the 1997 Acquisitions, the Company issued 1,356,000
shares of common stock valued at $7,300.
On April 15, 1997, as provided for in the Management Agreement dated
February 13, 1997 between Esquire Communications Ltd., Harlingwood &
Company, LLC ("Harlingwood") and David A. White, Harlingwood acquired
250,000 shares of common stock at a price of $3.125 per share. Payment by
Harlingwood was with a promissory note, due on April 15, 2001, in the
amount of $781. The note accrues interest at the rate of 7% per annum, and
the interest is payable on April 15, 2001. The amount due under the note is
secured by a pledge of 250,000 shares of common stock issued. The 250,000
common stock shares were issued out of the Company's treasury stock.
On June 12, 1997, the Company completed an offer to exchange common stock
for any and all outstanding redeemable common stock purchase warrants
("Exchange"). The Company offered to exchange one share of the Company's
common stock for each five warrants tendered. As a result of the exchange,
184,896 shares of common stock were issued in exchange for 924,480 warrants
which were tendered.
On June 17 and 18, 1997, the Company's Preferred Stockholders exercised
their right to acquire an additional 7,500 shares of preferred stock at a
price of $1,000 per share. Under the Agreement, as amended, the Preferred
Stockholders have the right to acquire, prior to December 17, 1998, up to
an additional 7,500 shares of Preferred Stock at a price of $1,000 per
share.
On September 12, 1997, the Company sent a Notice of Redemption to the
registered holders of its Redeemable Common Stock Purchase Warrants that
the Company had exercised its rights, pursuant to the Warrant Agreement,
dated May 25, 1993, to redeem on November 12, 1997 (the "Redemption Date")
all of the warrants issued under the Warrant Agreement that were then
outstanding. The Redemption Date was subsequently extended until
February 27, 1998. As of December 31, 1997, 52,454 warrants were exercised
at the exercise price of $4.50 per share.
On December 10, 1997, the placement agent associated with the October 23,
1996 private placement of preferred stock, exercised its right to acquire
shares. Under the terms of the agreement, the placement agent received
100,627 shares of common stock upon the exercise of 187,500 stock warrants.
On June 16, 1997, in connection with the Preferred Stockholders acquiring
an additional 7,500 shares of preferred stock, the Company granted the
Placement Agent warrants to acquire 187,500 shares of common stock of the
Company at an exercise price of $3.00 per share. The warrants are
exercisable at any time prior to October 2001.
During 1997, stock options granted under the Company's stock option plan
(the "Plan") were exercised at exercise prices ranging from $2.88 to $4.00
per share, resulting in the issuance of 70,665 shares of common stock.
On December 15, 1997, Harlingwood exercised 100,000 stock options granted
under the Company's stock option plan at the exercise price of $3.75 per
share, resulting in the issuance of 100,000 shares of common stock. Payment
by Harlingwood was with a promissory note due on December 15, 2001 in the
amount of $375,000. The note accrues interest at the rate of 7% per annum,
and the interest is payable on December 15, 2001. The amount due under the
note is secured by a pledge of 100,000 shares of common stock.
On January 9, 1998, the Company's Series A Preferred Stockholders exercised
their right to acquire an additional 4,500 shares of Series A preferred
stock at a price of $1,000 per share. Under the agreement, as amended, the
Preferred Stockholders have the right to acquire up to 5,000 shares of
Series B Preferred Stock at a price of $1,000 per share. The Series B
Preferred Stock is identical to the Series A Preferred Stock except that it
is junior to the Series A Preferred Stock, has a conversion price of $6.00
per share and has 166 2/3 vote per share.
On January 9, 1998, in connection with the Series A Preferred Stockholder
acquiring an additional 4,500 shares of preferred stock, the Comapny
granted the Placement Agent warrants to acquire 83,333 shares of common
stock of the Company at an exercise price of $6.00 per share. The warrants
are exercisable at any time prior to January, 2003.
(6) Stock Options and Warrants
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 of the
Company. The Plan authorizes grants of options to purchase up to 2,000,000
shares of authorized but unissued common stock. Stock options are granted
with an exercise price equal to the stock's fair market value at the date
of grant. 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
1997, 1996 and 1995 was $1.19, $1.03 and $1.35 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 1997 - expected volatility of 30%, expected dividend yield of
0%, risk-free interest rate of 6%, and an expected life of five years; 1996
- expected volatility of 25%, expected dividend yield of 0%, risk-free
interest rate of 6%, and an expected life of five years; 1995 - expected
volatility of 20%, expected dividend yield of 0%, risk-free interest rate
of 6%, 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 (loss) would have been
adjusted to the pro forma amounts indicated below (excluding extraordinary
item in 1996):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net (loss) income before
extraordinary item applicable
to common stockholders:
As reported $(3,157) (451) 321
Pro forma $(3,511) (497) 307
Basic net (loss) income
before extraordinary item
per common share:
As reported $(0.56) (0.09) 0.06
Pro forma $(0.50) (0.09) 0.06
Diluted net (loss) income
before extraordinary item
per common share:
As reported $(0.62) (0.10) 0.06
Pro forma $(0.62) (0.10) 0.06
</TABLE>
Pro forma net (loss) income reflects only options granted in 1997, 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.
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, 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
Granted 698,000 4.98
Exercised (170,665) 3.84
Forfeited (15,367) 4.00
Expired -- --
--------- ---------
Balance at December 31, 1997 1,240,468 $ 4.42
========= =========
</TABLE>
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options were as follows:
<TABLE>
<CAPTION>
Weighted-
average
Weighted- exercise
average Number of price of
remaining options options
contractual currently currently
Exercise Price life exercisable exercisable
<S> <C> <C> <C>
$2.87 - $4.00 7.99 503,967 $ 3.88
$4.50 - $6.25 9.68 -- --
$9.00 9.83 -- --
</TABLE>
At December 31, 1996, the number of options exercisable was 395,569, and
the weighted-average exercise price of those options was $4.00.
Options Granted Outside the Plan
During the year ended December 31, 1997, the Company granted 350,000 stock
options outside the Plan at a price range of $4.00 to $4.50 to
non-employees. The Company recognized $329 of commission expense to
non-employees relating to these options during the year ended December 31,
1997, and capitalized as goodwill $303 of commission expense for options
granted in connection with a business acquisition accounted for as a
purchase, using the Black-Scholes option-pricing model. The Company
determined that the per share weighted-average fair value of stock options
granted outside the Plan during the year ended December 31, 1997 was $4.41
on the date of grant. The following weighted-average assumptions were
included in this method for 1997: no expected dividend yield; volatility
rate of 30.0%; risk-free interest rate of 6.0%; and an expected life of
five years. At December 31, 1997, all of the 350,000 options were
exercisable.
Warrants
At December 31, 1997 and 1996, the Company had outstanding 1,902,567 and
2,879,502 warrants respectively, at exercise prices ranging from $2.64 to
$4.50 per warrant. At December 31, 1997 and 1996, the weighted average
exercise price of those warrants was $3.57 and $3.88 respectively, and the
weighted average remaining contractual life of those warrants was 2.86 and
2.49 years, respectively.
(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 l5% of compensation. The Company may make discretionary matching
contributions 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 1997, 1996 and 1995 amounted to $15, $12 and $8, respectively.
(8) Income Taxes
The income tax provision (benefit) for the years ended December 31, 1997,
1996 and 1995, excluding the income tax benefit of $104 attributed to the
extraordinary loss in 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(Note 2) (Note 2)
<S> <C> <C> <C>
Current tax expense:
Federal $ -- 284 363
State and city (15) 100 188
--------- ------- -------
Total current (15) 384 551
--------- ------- --------
Deferred tax (benefit) expense:
Federal 101 (135) 16
State and city 39 (33) 7
-------- -------- ---------
Total deferred 140 (168) 23
------- -------- -------
Total income tax provision $ 125 216 574
======= ======== =======
</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, 1997, 1996 and 1995 due to nondeductible
expenses, primarily goodwill amortization amounting to approximately $434,
$230 and $227, respectively.
Significant components of the Company's net deferred tax assets and
liabilities as of December 31, 1997 and 1996 are as follows:
1997 1996
Deferred tax assets:
Contract obligation $ 169 199
Allowances and accrued expenses 266 317
Net operating loss (NOL) carryforwards 689 --
Tax credits 17 21
-------- -------
Total gross deferred tax assets 1,141 537
Less valuation allowance (489) --
-------- -------
Net deferred tax assets 652 537
-------- --------
Deferred tax liabilities:
Depreciation and amortization 652 282
Cash versus accrual accounting
differences, net -- 115
-------- ----------
Total gross deferred tax liabilities 652 397
----- -----
Net deferred tax asset -- 140
===== =====
The Company has approximately $1,700 in net operating loss carryforwards
which expire in 2013.
The Company has state minimum tax credit carryforwards of approximately
$17, which may be carried forward to reduce future year tax liabilities
through the year 2004.
The realization of deferred tax assets associated with the NOL and tax
credit carryforwards is dependent upon the generation of sufficient taxable
income prior to their expiration. Management believes that there is a risk
that certain of these NOL and tax credit carryforwards may expire unused
and accordingly, has established a valuation allowance against them. The
increase in the valuation allowance during 1997 was due to a reassessment
of the Company's ability to realize its net deferred tax asset in the
future.
(9) Commitments
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
earnings of the Company in excess of specified levels. No bonus was earned
under the agreement in each of the years ended December 31, 1997, 1996 and
1995.
In connection with the acquisition of David Feldman & Associates (USA) Ltd.
(DFA) in September 1993 and Sarnoff Deposition Service, Inc. 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 revenue in excess of specified levels. Total bonus amounts
earned under the DFA employment agreement amounted to $359 for the year
ended December 31, 1996.
Effective May 1, 1997, the Company reached an agreement with the former
stockholder of DFA, whereby the Company bought out the remaining term of
the employment agreement. Total compensation earned under the employment
agreement prior to termination amounted to $230. The Company recognized a
$1,000 expense related to the future costs associated with the termination
agreement.
On February 13, 1997, the Company entered into a management agreement with
Harlingwood & Company, LLC (Harlingwood), whereby Harlingwood would provide
the services of a Chief Executive Officer. The agreement expires on
February 13, 1998, and provides for an annual management fee of $175. The
agreement also provides for a bonus up to 50% of the management fee based
upon the achievement of financial and operational objectives. Any bonus
earned for 1997 was waived by Harlingwood. During 1997, the Company paid
$45 to Harlingwood for services rendered in connection with a business
acquisition.
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 1997, 1996 and 1995 under
the above leases amounted to approximately $1,641, $720 and $375,
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 anticipated future annual lease payments under operating leases at
December 31, 1997, inclusive of the base utility, maintenance and property
tax charges for the office facilities, are as follows:
1998 $ 2,402
1999 2,181
2000 1,581
2001 1,319
2002 1,238
Thereafter 1,301
-----------
$ 10,022
===========
Future annual rental income under remaining noncancelable subleases is as
follows: 1998 - $79, 1999 - $79 and 2000 - $13.
Legal Proceedings
The Company is involved in various claims and legal actions in the ordinary
course of business. In the opinion of management, the ultimate disposition
of these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
(10) Supplemental Cash Flow Information
Cash payments for the years ended December 31, 1997, 1996 and 1995 have
included:
1997 1996 1995
Interest $ 2,687 1,197 1,097
Income taxes $ 78 1,011 283
During 1997, $627 in preferred stock dividends were paid. At December 31,
1997 and 1996, accrued and unpaid preferred stock dividends were $150 and
$75, respectively.
During 1997, 350,000 shares of the Company's common stock were issued for
notes receivable of which 250,000 shares were issued from the Company's
treasury stock.
During 1997 and 1996, the Company issued 1,356,000 and 204,006 shares of
common stock, respectively, in connection with the acquisitions.
During 1997, the Company issued 100,627 shares of common stock in
connection with a cashless exercise of warrants.
During 1997, the Company issued 184,896 shares of common stock in
connection with a warrant exchange offering.
1997 1996 1995
Supplemental Noncash Investing
and Financing Activities
Acquisitions:
Fair value of assets acquired $ 7,144 $ 1,525 $ 992
Liabilities assumed (6,674) (988) (379)
Cash paid for acquisitions 34,866 3,958 642
Stock issued (5,694) (509) (213)
Notes issued (4,707) (3,243) (943)
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ESQUIRE COMMUNICATIONS LTD.
March 31, 1998 BY:/S/ David A. White
David A. White
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME TITLE DATE
/S/ MALCOLM L. ELVEY Chairman of the Board March 31, 1998
- ---------------------
Malcolm L. Elvey
/S/ DAVID A. WHITE
- ---------------------- Chief Executive March 31, 1998
David A. White Officer and Director
/A/ DAVID A. HIGSON
- ---------------------- Principal Financial
David A. Higson Officer and Principal March 31, 1998
Accounting Officer
/S/ CARY A. SARNOFF
- ---------------------- Vice Chairman and March 31, 1998
Cary A. Sarnoff Director
/S/ JOHN C. DURHAM
- ---------------------- Director March 31, 1998
John C. Durham
/S/ MORTIMER R. FEINBERG
- ----------------------- Director March 31, 1998
Mortimer R. Feinberg
/S/ DAVID FELDMAN
- ----------------------- Director March 31, 1998
David Feldman
/S/ ANDREW P. GARVIN
- ----------------------- Director March 31, 1998
Andrew P. Garvin
/S/ FIR M. GEENEN
- ----------------------- Director March 31, 1998
Fir M. Geenen
/S/ JOSEPH P. NOLAN
- ----------------------- Director March 31, 1998
Joseph P. Nolan
/S/ BRUCE V. RAUNER
- ----------------------- Director March 31, 1998
Bruce V. Rauner
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS LTD.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto, and known, identified and
referred to as the "General Corporation Law of the State of Delaware") hereby
certifies that:
FIRST: The name of this Corporation (hereinafter called the
"Corporation") is Esquire Communications Ltd.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 1209 Orange
Street, City of Wilmington, County of New Castle 19801; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
The Corporation Trust Company.
THIRD: The nature of the business and of the purposes to be conducted
and promoted by the Corporation are to conduct any lawful business, to promote
any lawful purpose, and to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of shares of stock which the Corporation is
authorized to issue is 11,000,000 shares, of which 10,000,000 shares shall be
designated Common Stock, $.01 par value per share, and 1,000,000 shares shall be
designated Preferred Stock, $.01 par value per share. A. The Board of Directors
of the Corporation is hereby expressly granted the authority by resolution or
resolutions to issue one or more series of Preferred Stock with such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, optional or other special rights, and with such
qualifications, limitations or restrictions thereon, as shall be stated and
expressed by the Board of Directors in such resolution or resolutions. B. Each
holder of Common Stock shall be entitled to vote and shall have one vote for
each share thereof held.
FIFTH: The name and mailing address of the incorporator
are as follows: Martin H. Neidell, Esq.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders, of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three- fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders, of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH: The original By-Laws of the Corporation shall be adopted by
the incorporator. Thereafter, the power to make, alter, or repeal the By-Laws,
and to adopt any new By-Law, shall be vested in the Board of Directors.
EIGHTH: To the fullest extent that the General Corporation Law of the
State of Delaware, as it exists on the date hereof or as it may hereafter be
amended, permits the limitation or elimination of the liability of directors, no
director of this Corporation shall be personally liable to this Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. Notwithstanding the foregoing, a director shall be liable to the
extent provided by applicable law (1) for any breach of the directors' duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the General Corporation Law of the State of
Delaware, or (4) for any transaction from which the director derived any
improper personal benefit. Neither the amendment or repeal of this Article, nor
the adoption of any provision of this Certificate of Incorporation inconsistent
with this Article shall adversely affect any right or protection of a director
of the Corporation existing at the time of such amendment or repeal.
NINTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, or by any successor thereto, indemnify any and
all persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section. The Corporation shall advance expenses to the
fullest extent permitted by said section. Such right to indemnification and
advancement of expenses shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person. The indemnification and
advancement of expenses provided for herein shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise.
Executed at New York, New York on February 9, 1993.
/S/ Martin H. Neidell
Martin H. Neidell, Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS LTD.
---------------------------------
Under Section 242 of the
Delaware General Corporation Law
---------------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Esquire Communications Ltd.
2. The Certificate of Incorporation of the Corporation is hereby
amended to amend the first paragraph of Article FOURTH to increase the number of
shares of Common Stock which the Corporation is authorized to issue. The first
paragraph of Article FOURTH is hereby amended to read as follows:
"FOURTH: The total number of shares of
stock which the Corporation is authorized to issue is
26,000,000 shares, of which 25,000,000 shares shall be designated
Common Stock, $.01 par value per share, and 1,000,000 shares shall be
designated Preferred Stock, $.01 par value per share."
3. This Certificate of Amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to this 4th day of June, 1996.
/s/ Malcom L. Elvey
Name: Malcolm L. Elvey
Title: Chairman of the Board
Attest:
/s/ Vascan Thatham
Name: Vasan Thatham
Title: Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ESQUIRE COMMUNICATIONS LTD.
(the "Corporation")
---------------------------------
Under Section 151 of the
Delaware General Corporation Law
---------------------------------
Esquire Communications Ltd., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation, the Board of Directors, at a meeting duly
called and held, adopted a resolution providing for the authorization of a
series of Preferred Stock consisting of 15,000 shares of Series A Convertible
Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to Article FOURTH of the Certificate
of Incorporation of the Corporation, there be and hereby is authorized
and created a series of Preferred Stock, hereby designated as the
Series A Convertible Preferred Stock (the "SERIES A PREFERRED") to
consist of 15,000 shares with a par value of $.01 per share and that
the designations, preferences and relative participating, optional or
other special rights of the Series A Preferred, and the qualifications,
limitation or restrictions thereof be as follows:
Section 1. DIVIDENDS.
1.1 GENERAL OBLIGATION. When and as declared by the Corporation's
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends in cash to the
holders of the Series A Convertible Preferred Stock (the "SERIES A PREFERRED")
as provided in this Section 1. Dividends on each share of the Series A Preferred
(a "SHARE") shall accrue o a daily basis at the rate of 6% per annum, subject to
adjustments pursuant to Sections 1.4 and 9.2 (the "DIVIDEND RATE"), of the
Liquidation Value thereof from and including the date of issuance of such Share
to and including the first to occur of (i) the date on which the Liquidation
Value of such Share, plus all accrued and unpaid dividends thereon, is paid to
the holder thereof in connection with the liquidation of the Corporation or the
redemption of such Share by the corporation, (ii) the date on which such Share
is converted into shares of Conversion Stock hereunder or (iii) the date on
which such Share is otherwise acquired by the Corporation. Such dividends shall
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends, and such dividends shall be cumulative such that all
accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Junior Securities
(as defined in Section 12 below). The date on which the Corporation initially
issues any Share shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Share is made on the stock records maintained
by or for the Corporation and regardless of the number of certificates which may
be issued to evidence such Share.
1.2 DIVIDEND PAYMENT DATES. All dividends which have accrued on the
Series A Preferred shall be payable on November 1 of each year, beginning
November 1, 1997 (the "DIVIDEND PAYMENT DATE"). Failure to pay the accrued
dividends on the Shares on the Dividend Payment Date shall be an Event of
Noncompliance (as defined in Section 9 below).
1.3 DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Shares held by each such holder.
1.4 SEVENTH ANNIVERSARY INCREASE IN DIVIDEND RATE. Upon the seventh
anniversary of the Closing (as defined in the Purchase Agreement defined in
Section 12 below), if the Series A Preferred is still outstanding, then the
Dividend Rate shall increase to 15% per annum.
Section 2. LIQUIDATION.
Upon any liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), each holder of Series A Preferred shall be
entitled to receive, prior and in preference to any distribution or payment made
to the holders of any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Shares held by such holder, plus all accrued
and unpaid dividends thereon, and the holders of Series A Preferred shall not be
entitled to any further payment. If upon any such liquidation, dissolution or
winding up of the Corporation the Corporation's assets to be distributed among
the holders of the Series A Preferred are insufficient to permit payment to such
holders of the aggregate amount which they are entitled to be paid under this
Section 2, then the entire assets available to be distributed to the
Corporation's stockholders shall be distributed pro rata among such holders of
Series A Preferred based upon the aggregate Liquidation Value, plus all accrued
and unpaid dividends, of the Series A Preferred held by each such holder. Prior
to the liquidation, dissolution or winding up of the Corporation, the
Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Series A Preferred, but only to the extend of funds of the
Corporation legally available for the payment of dividends. Not less than 30
days prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each record
holder of Series A Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each Share and each share of Common Stock in
connection with such liquidation dissolution or winding up. Neither the
consolidation or merger of the Corporation into or with any other entity or
entities (whether or not the Corporation is the surviving entity), nor the sale
or transfer by the Corporation of all or any part of its assets, nor the
reduction of the capital stock of the Corporation nor any other form of
recapitalization or reorganization affecting the Corporation shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 2. Instead, upon the occurrence of any event set forth
in the foregoing sentence, the provisions of Section 6.5 shall become
applicable.
Section 3. PRIORITY OF SERIES A PREFERRED ON DIVIDENDS AND
REDEMPTIONS.
So long as any Series A Preferred remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Series A Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, nor shall the Corporation directly or indirectly pay or
declare any dividend or make any distribution upon any Junior Securities, if at
any time of or immediately after any such redemption, purchase, acquisition,
dividend or distribution the Corporation has failed to or will be unable to pay
the full amount of dividends accrued on the Series A Preferred.
Section 4. REDEMPTIONS.
4.1 OPTIONAL REDEMPTIONS. The Corporation may redeem upon not less
than 30 day's notice at any time after (a) the fourth anniversary of the Closing
all, but not less than all, of the Shares of Series A Preferred then
outstanding; provided that the Average Market Price (determined at the time of
the sending of the notice) of Common Stock is not less than 200% of the
applicable Conversion Price or (b) the seventh anniversary of the Closing all,
but not less than all, of the Shares of Series A Preferred then outstanding.
Upon any such redemption, the Corporation shall pay to each holder of Shares a
price per Share equal to the Liquidation Value thereof, plus all accrued and
unpaid dividends thereon. At any time prior to the Redemption Date (as defined
in Section 12 below) any holder of Shares may elect to convert such holder's
Shares into Conversion Stock.
4.2 REDEMPTION PAYMENTS. For each Share which is to be redeemed
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in cash equal to
the Liquidation Value of such Share, plus all accrued and unpaid dividends
thereon. If the funds of the Corporation legally available for redemption of
Shares on any Redemption Date are insufficient to redeem the total number of
Shares to be redeemed on such date, the Corporation may not make a redemption
pursuant to Section 4.1. Prior to any redemption of Series A Preferred, the
Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Shares which are to be redeemed, but only to the extent of funds
of the Corporation legally available for the payment of dividends.
4.3 NOTICE OF REDEMPTION. Except as otherwise provided herein, the
Corporation shall mail written notice of any redemption of any Series A
Preferred to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein which are
not converted prior to such time.
4.4 DIVIDENDS AFTER REDEMPTION DATE. No Share shall be entitled to any
dividends accruing after the date on which the Liquidation Value of such Share,
plus all accrued and unpaid dividends thereon, is paid to the holder of such
Share. On such date, all rights of the holder of such Share shall cease, and
such Share shall no longer be deemed to be issued and outstanding.
4.5 REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and retired
to authorized but unissued shares and shall not be reissued, sold or transferred
as Series A Preferred.
4.6 OTHER REDEMPTIONS OR ACQUISITION. The Corporation shall not, nor
shall it permit any Subsidiary to, redeem or otherwise acquire any Shares of
Series A Preferred, except as expressly authorized herein.
Section 5. VOTING RIGHTS.
The holders of the Series A Preferred shall be entitled to notice of
all stockholders meetings in accordance with the Corporation's bylaws, and the
holders of the Series A Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of the Common
Stock voting together as a single class with each share of Common Stock entitled
to one vote per share and each Share of Series A Preferred entitled to one vote
for each whole share of Conversion Stock issuable upon conversion of the Series
A Preferred as of the record date for such vote or, if no record date is
specified, as of the date of such vote; provided, however, that all Shares held
beneficially or of record by a holder shall be aggregated in determining the
number of whole shares of Conversion Stock and thus the number of votes.
Section 6. CONVERSION.
6.1 CONVERSION PROCEDURE.
(a) At any time, any holder of Series A Preferred may convert all, but
not less than all, of the Series A Preferred held by such holder into a number
of shares of Conversion Stock (as defined in Section 12 below) computed by
multiplying the number of Shares to be converted by the Liquidation Value, plus
any accrued and unpaid dividends thereon, and dividing the result by the
Conversion Price (as defined in Section 6.2 below) then in effect.
(b) Except as otherwise provided herein, each conversion of Series A
Preferred shall be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing the Series A
Preferred to be converted have been surrendered for conversion at the principal
office of the Corporation. At the time any such conversion has been effected,
the rights of the holder of the Shares converted as a holder of Series A
Preferred shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(c) The conversion rights of any Share subject to redemption hereunder
shall terminate on the Redemption Date for such Share unless the Corporation has
failed to pay to the holder thereof the Liquidation Value of such Share, plus
all accrued and unpaid dividends thereon.
(d) Notwithstanding any other provision hereof, if a conversion of
Series A Preferred is to be made in connection with a Public Offering, Organic
Change (as defined in Section 6.5 below) or other transaction affecting the
Corporation, the conversion of any Shares of Series A Preferred may, at the
election of the holder thereof, be conditioned upon the consummation of such
transaction, in which case such conversion shall not be deemed to be effective
until such transaction has been consummated.
(e) As soon as possible after a conversion has been effected (but in
any event within five business days), the Corporation shall deliver to the
converting holder:
(i) a certificate or certificates representing
the number of shares of Conversion Stock issuable by reason of such conversion
in such name or names and such denomination or denominations as the converting
holder has specified; and
(ii) the amount payable under Section 6.1(i)
below with respect to such conversion.
(f) The issuance of certificates for shares of Conversion Stock upon
conversion of Series A Preferred shall be made without charge to the holders of
such Series A Preferred for any original issuance tax in respect thereof (but
not any transfer taxes payable upon issuance of certificates to a person who is
not the owner of the Shares) or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of each Share of Series A Preferred, the Corporation
shall take all such actions as are necessary in order to insure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable, free and clear of all taxes, liens,
charges and encumbrances with respect to the issuance thereof;
(g) The Corporation shall not close its books against the transfer of
Series A Preferred or of Conversion Stock issued or issuable upon conversion of
Series A Preferred in any manner which interferes with the timely conversion of
Series A Preferred. The Corporation shall assist and cooperate with any holder
of Shares required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Shares hereunder
(including, without limitation, making any filings required to be made by the
Corporation).
(h) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Series A Preferred, such number
of shares of Conversion Stock issuable upon the conversion of all outstanding
Series A Preferred. All shares of Conversion Stock which are so issuable shall,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of the Series A Preferred.
(i) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subsection, be delivered upon any conversion
of the Series A Preferred, the Corporation, in lieu of delivering the fractional
share therefor, shall pay an amount to the holder thereof equal to the Closing
Price of such fractional interest as of the date of conversion.
6.2 CONVERSION PRICE.
(a) The initial Conversion Price shall be $3.00. In order to prevent
dilution of the conversion rights granted under this Section 6. The Conversion
Price shall be subject to adjustment from time to time pursuant to this Section
6.2.
(b) If and whenever on or after the original date of issuance of the
Series A Preferred the Corporation issues or sells, or in accordance with
Section 6.3 is deemed to have issued or sold, any shares of its Common Stock for
a consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then immediately upon such issue or
sale or deemed issue or sale the Conversion Price shall be reduced to the
Conversion Price determined by dividing (i) the sum of (A) the product derived
by multiplying the Conversion Price in effect immediately prior to such issue or
sale by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (B) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.
(c) Notwithstanding the foregoing, there shall be no adjustment in the
Conversion Price as a result of (i) any issue or sale (or deemed issue or sale)
of Common Stock or Options at not less than the Closing Price of the Common
Stock at such time of issuance to employees, directors, or consultants of the
Corporation and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors (as such number
of shares is proportionately adjusted for subsequent stock splits, combinations
and dividends affecting the Common Stock); (ii) any issue or sale of Common
Stock at not less than the Closing Price in conjunction with an acquisition of
the stock or other equity securities of a company or the assets of a business,
or (iii) any issue or sale of Common Stock issued or sold upon the exercise or
conversion of any Options or Convertible Securities outstanding on the date of
the initial issuance of the Series A Preferred.
6.3 EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 6.2, the following shall
be applicable:
(a) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in ally manner
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Conversion Price in effect immediately prior to the time of the granting or
sale of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to be outstanding and to have been issued and
sold by the Corporation at the time of the granting or sale of such Options for
such price per share. For purposes of this paragraph the "price per share for
which Common Stock is issuable" shall be determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting or sale of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof; by (ii) the total maximum
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Conversion Price
shall be made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock is actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities.
(b) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Conversion Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For the purposes
of this paragraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (i) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment of the
Conversion Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 6, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(c) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time (other than by reason of the antidilution provisions
contained therein), the Conversion Price in effect at the time of such change
shall be immediately adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold:
provided that if such adjustment would result in an increase of the Conversion
Price then in effect, such adjustment shall not be effective until 30 days after
written notice thereof has been given by the Corporation to all holders of the
Series A Preferred. For purposes of Section 6.3, if the terms of any Option or
Convertible Security which was outstanding as of the date of issuance of the
Series A Preferred are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change.
(d) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued; provided that if such expiration or termination would result
in an increase in the Conversion Price then in effect, such increase shall not
be effective until 30 days after written notice thereof has been given to all
holders of the Series A Preferred. For purposes of Section 6.3, the expiration
or termination of any Option or Convertible Security which was outstanding as of
the date of issuance of the Series A Preferred shall not cause the Conversion
Price hereunder to be adjusted unless, and only to the extent that, a change in
the terms of such Option or Convertible Security caused it to be deemed to have
been issued after the date of issuance of the Series A Preferred.
(e) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Option
or Convertible Security is issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, Option or Convertible Security is issued or sold
for a consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation shall be the Closing Price thereof
as of the date of receipt. If any Common Stock, Option or Convertible Security
is issued to the owners of the non-surviving entity in connection with any
merger in which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Option or Convertible Security, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the outstanding
Series A Preferred. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Series A Preferred. The determination of such appraiser shall
be final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne by the Corporation.
(f) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.01.
(g) TREASURY SHARES. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Corporation or any Subsidiary, and the disposition of any shares so owned
or held shall be considered an issue or sale of Common Stock.
(h) RECORD DATE. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
6.4 SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more series of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6.5 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the Series A Preferred then outstanding) to insure that each of the holders of
Series A Preferred shall thereafter have the right to acquire and receive, at
such holder's election, either (a) such shares of stock, securities or assets as
such holder would have received in connection with such Organic Change if such
holder had converted its Series A Preferred immediately prior to such Organic
Change or (b) such shares of stock of the successor entity having the same or
comparable rights, privileges and preferences as the Series A Preferred. In each
such case, the Corporation shall also make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Series A Preferred
then outstanding) to insure that the provisions of this Section 6 and Sections 7
and 8 hereof shall thereafter be applicable to the Series A Preferred
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion Stock
acquirable and receivable upon conversion of Series A Preferred, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). If the successor entity after a consolidation,
merger or sale is other than the Corporation, then prior to the consummation
thereof, the holders of Series A Preferred shall have the right to convert all
of their Shares to Conversion Stock. To the extent that Shares are not converted
to Conversion Stock in such case, the Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the holders of a majority of the Series A Preferred then outstanding) the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
6.6 CERTAIN EVENTS. If any event occurs of the type contemplated by
the provisions of this Section 6 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features or the
payment, issuance or distribution by the Corporation to the holders of Common
Stock of any debt securities of the Corporation), then the Corporation's Board
of Directors shall make an appropriate adjustment in the Conversion Price so as
to protect the rights of the holders of Series A Preferred; provided that no
such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 6 or decrease the number of shares of Conversion Stock
issuable upon conversion of each Shares of Series A Preferred.
6.7 NOTICES.
(a) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series A
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(b) The Corporation shall give written notice to all holders of Series
A Preferred at least 20 days prior to the date on which the Corporation closes
its books or takes a record (i) with respect to any dividend or distribution
upon Common Stock, (ii) with respect to any pro rata subscription offer to
holders of Common Stock or (iii) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(c) The Corporation shall also give written notice to the holders of
Series A Preferred at least 20 days prior to the date on which any Organic
Change shall take place.
6.8 MANDATORY CONVERSION. Beginning on the second anniversary of the
date of issuance, the Corporation may require the conversion of all, but not
less than all, of the outstanding shares of Series A Preferred in the event of
the consummation of a firm commitment underwritten Public Offering of shares of
the Corporation's Common Stock in which (a) the aggregate price paid by the
public for the shares shall be at least $30 million and (b) the price per share
paid by the public for such shares shall be at least 200% of the then applicable
Conversion Price. Any such automatic conversion shall only be effected at the
time of and subject to the closing of the sale of such shares pursuant to such
Public Offering and upon written notice of such automatic conversion delivered
to all holders of Series A Preferred at least seven days prior to such closing.
Section 7. LIQUIDATING DIVIDENDS.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "LIQUIDATING
DIVIDEND"), then the Corporation shall pay to the holders of Series A Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series A Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
Section 8. PURCHASE RIGHTS.
If at any time the Corporation grants, issues or sells any Options,
(Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"PURCHASE RIGHTS"), then each holder of Series A Preferred shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Series A Preferred immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
Section 9. EVENTS OF NONCOMPLIANCE.
9.1 DEFINITION. An "Event of Noncompliance" shall have occurred if:
(a) the Corporation fails to pay on any Dividend Payment Date the full
amount of dividends then accrued on the Series A Preferred, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject;
(b) the Corporation fails to make any redemption payment with respect
to the Series A Preferred which it is required to make hereunder, whether or not
such payment is legally permissible or is prohibited by any agreement to which
the Corporation is subject;
(c) the Corporation breaches or otherwise fails to perform or observe
any other covenant or agreement set forth herein or in the Purchase Agreement,
provided that no Event of Noncompliance shall have occurred under this Section
9.1(c) if the Corporation establishes (to the reasonable satisfaction of the
holders of at least a majority of the Series A Preferred then outstanding) that
the Event of Noncompliance is not material to the financial condition, operating
results, operations, assets or business prospects of the Corporation and its
Subsidiaries, taken as a whole;
(d) any representation or warranty contained in the Purchase Agreement
or required to be furnished to any holder of Series A Preferred pursuant to the
Purchase Agreement, or any information contained in writing furnished by the
Corporation or any Subsidiary to any holder of Series A Preferred, is not true
and correct in all material respects on the date made or furnished; or
(e) the Corporation makes an assignment for the benefit of creditors
or admits in writing its inability to pay its debts generally as they become
due; or an order, judgment or decree is entered adjudicating the Corporation
bankrupt or insolvent (which is not dismissed within 30 days); or any order for
relief with respect to the Corporation is entered under the Federal Bankruptcy
Code; or the Corporation petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator of the Corporation
or of any substantial part of the assets of the Corporation, or commences any
proceeding relating to the Corporation under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Corporation and such petition, application
or proceeding is not dismissed within 60 days.
9.2 CONSEQUENCES OF EVENTS OF NONCOMPLIANCE.
If an Event of Noncompliance has occurred, the then applicable
Dividend Rate on the Series A Preferred shall increase immediately by an
increment of two percentage points (2%) and shall be payable on the sum of the
Liquidation Value plus all accrued and unpaid dividends thereon. Any increase of
the dividend rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no Event of
Noncompliance exists, subject to subsequent increases pursuant to this Section.
Section 10. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register for the
registration of Series A Preferred. Upon the surrender of any certificate
representing Series A Prefrred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Series A Preferred
represented by such new certificate from the date to which dividends have been
fully paid on such Series A Preferred represented by the surrendered
certificate.
Section 11. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
Shares of Series A Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such Series
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series A Preferred represented by such new certificate from
the date to which dividends have been fully paid on such lost, stolen, destroyed
or mutilated certificate.
Section 12. DEFINITIONS.
"AVERAGE MARKET PRICE" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 P.M. New York time, or, if on any day such security
is not quoted in the Nasdaq System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization, in each such case averaged over a period of 90 days consisting of
the day as of which "Average Market Price" is being determined and the 89
consecutive business days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the Nasdaq System or the
over-the-counter market, the "Average Market Price" shall be the fair value
thereof determined jointly by the Corporation and the holders of a majority of
the Series A Preferred. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities jointly selected by the Corporation
and the holders of a majority of the Series A Preferred. The determination of
such appraiser shall be final and binding upon the parties, and the Corporation
shall pay the fees and expenses of such appraiser.
"CLOSING" shall have the meaning ascribed to such term in the Purchase
Agreement.
"CLOSING PRICE" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed on the trading day immediately prior to any
date of determination, or, if there has been no sales on any such exchange, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any such day such security is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq System
as of 4:00 P.M., New York time, or, if on any such day such security is not
quoted in the Nasdaq System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization.
If At any time such security is not listed on any securities exchange or quoted
in the Nasdaq System or the over-the-counter market, the "Closing Price" shall
be the fair value thereof determined jointly by the Corporation and the holders
of a majority of the Series A Preferred. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Corporation and the holders of a majority of the Series A
Preferred. The determination of such appraiser shall be final and binding upon
the parties, and the Corporation shall pay the fees and expenses of such
appraiser.
"COMMON STOCK" means, collectively, the Corporation's Common Stock,
par value $.01 per share, and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Section 6.3(a) and
(b) hereof whether or not the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable upon
conversion of the Series A Preferred.
"CONVERSION STOCK" means shares of the Corporation's Common Stock, par
value $0.01 per share; provided that if there is a change such that the
securities issuable upon conversion of the Series A Preferred are issued by an
entity other than the Corporation or there is a change in the type or Series of
securities so issuable, then the term "Conversion Stock " shall mean one share
of the security issuable upon conversion of the Series A Preferred if such
security is issuable in shares, or shall mean the smallest unit in which such
security is issuable if such security is not issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"JUNIOR SECURITIES" means any capital stock or other equity securities
of the Corporation, except for the Series A Preferred.
"LIQUIDATION VALUE" of any Share as of any particular date shall be
equal to $1,000.
"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PUBLIC OFFERING" means any offering by the Corporation of its capital
stock or equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force; provided that for
purposes of Section 6.8 hereof, a Public Offering shall not include an offering
made in connection with a business acquisition or combination or an employee
benefit plan.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of October
23, 1996, by and among the Corporation, Antares Leveraged Capital Corp. and
Golder, Thoma, Cressey, Rauner Fund IV Limited Partnership, as such agreement
may from time to time be amended in accordance with its terms.
"REDEMPTION DATE" as to any Share means the date specified in the
notice of any redemption at the Corporation's option; provided that no such date
shall be a Redemption Date unless the Liquidation Value of such Share, plus all
accrued and unpaid dividends thereon, is actually paid in full on such date, and
if not so paid in full, the Redemption Date shall be the date on which such
amount is fully paid.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
Section 13. AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or effective
with respect to any provision of Sections 1 to 14 hereof without the prior
written consent of the holders of a majority of the Series A Preferred
outstanding at the time such action is taken; provided that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Series A
Preferred then outstanding.
Section 14. NOTICES.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
* * * * * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made herein are true under the penalties of perjury
this 23rd day of October, 1996.
/S/ MALCOLM L. ELVEY
Malcolm L. Elvey
Chairman of the Board
ATTEST:
/S/ VASAN THATHAM
Vasan Thatham
Secretary
<PAGE>
AMENDED CERTIFICATE OF DESIGNATION
OF
ESQUIRE COMMUNICATIONS LTD.
(Under Section 151 of the Delaware General Corporation Law)
Esquire Communications Ltd., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(hereinafter called the "Corporation"), hereby certifies that:
1. The name of the Corporation is Esquire Communications Ltd.
2. The Certificate of Incorporation of the Corporation is hereby
amended as follows: The number of shares constituting the Series A Convertible
Preferred Stock of the Corporation, as provided in the Certificate of
Designations, Preferences and Relative, Participating, Optional or Other Special
Rights of the Series A Convertible Preferred Stock is hereby increased from
15,000 shares to 22,500 shares and that pursuant to authority conferred upon the
Board of Directors by the Certificate of Incorporation, said Board of Directors
adopted a resolution providing for the increase in the number of shares of
Series A Convertible Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the Certificate of
Incorporation of the Corporation, the number of shares
constituting the Series A Convertible Preferred Stock is
hereby increased from 15,000 shares with a par value of $.01
per share to 22,500 shares with a par value of $.01 per share.
3. This Certificate of Amendment and the amendment to the Certificate
of Incorporation contained herein were declared advisable and adopted by the
Board of Directors of the Corporation at a meeting duly held and were approved
by written consent of the holders of the outstanding shares of the Series A
Convertible Preferred Stock pursuant to Section 228 of the General Corporation
Law of the State of Delaware, and have thereby been duly adopted in accordance
with the provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed this ____ day of July, 1997.
ESQUIRE COMMUNICATIONS LTD.
By:/s/ Malcolm L. Elvey
Malcolm L. Elvey
Chairman of the Board
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
ESQUIRE COMMUNICATIONS LTD.
(the "Corporation")
---------------------------------
Under Section 151 of the
Delaware General Corporation Law
---------------------------------
Esquire Communications Ltd., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation, the Board of Directors, at a meeting duly
called and held, adopted a resolution providing for the authorization of a
series of Preferred Stock consisting of 5,000 shares of Series B Convertible
Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to Article FOURTH of the Certificate of
Incorporation of the Corporation, there be and hereby is authorized and created
a series of Preferred Stock, hereby designated as the Series B Convertible
Preferred Stock (the "Series B Preferred") to consist of 5,000 shares with a par
value of $.01 per share and that the designations, preferences and relative
participating, optional or other special rights of the Series B Preferred, and
the qualifications, limitation or restrictions thereof be as follows:
Section 1. DIVIDENDS.
1.1 GENERAL OBLIGATION. When and as declared by the Corporation's
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends in cash to the
holders of the Series B Convertible Preferred Stock (the "SERIES B PREFERRED")
as provided in this Section l. Dividends on each share of the Series B Preferred
(a "SHARE") shall accrue on a daily basis at the rate of 6% per annum, subject
to adjustments pursuant to Sections 1.4 and 9.2 (the "DIVIDEND RATE"), of the
Liquidation Value thereof from and including the date of issuance of such Share
to and including the first to occur of (i) the date on which the Liquidation
Value of such Share, plus all accrued and unpaid dividends thereon, is paid to
the holder thereof in connection with the liquidation of the Corporation or the
redemption of such Share by the Corporation, (ii) the date on which such Share
is converted into shares of Conversion Stock hereunder or (iii) the date on
which such Share is otherwise acquired by the Corporation. Such dividends shall
accrue whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends, and such dividends shall be cumulative such that all
accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Junior Securities
(as defined in Section 12 below). The date on which the Corporation initially
issues any Share shall be deemed to be its "date of issuance" regardless of the
number of times transfer of such Share is made on the stock records maintained
by or for the Corporation and regardless of the number of certificates which may
be issued to evidence such Share.
1.2 DIVIDEND PAYMENT DATES. All dividends which have accrued on the
Series B Preferred shall be payable on November l of each year, beginning
November 1, 1998 (the "Dividend Payment Date"). Failure to pay the accrued
dividends on the Shares on the Dividend Payment Date shall be an Event of
Noncompliance (as defined in Section 9 below).
1.3 DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series B Preferred, such payment
shall be distributed pro rata among the holders thereof based upon the number of
Shares held by each such holder.
1.4 SEVENTH ANNIVERSARY INCREASE IN DIVIDEND RATE. Upon the seventh
anniversary of the Closing (as defined in the Purchase Agreement defined in
Section 12 below), if the Series B Preferred is still outstanding, then the
Dividend Rate shall increase to 15% per annum.
Section 2. LIQUIDATION.
Upon any liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), each holder of Series B Preferred shall be
entitled to receive, prior and in preference to any distribution or payment made
to the holders of any Junior Securities (but after distributions to the holders
of Series A Preferred), an amount in cash equal to the aggregate Liquidation
Value of all Shares held by such holder, plus all accrued and unpaid dividends
thereon, and the holders of Series B Preferred shall not be entitled to any
further payment. If upon any such liquidation, dissolution or winding up of the
Corporation the Corporation's assets to be distributed among the holders of the
Series B Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 2, then
the entire assets then remaining after distributions with respect to the Series
A Preferred and available to be distributed to the Corporation's stockholders
shall be distributed pro rata among such holders of Series B Preferred based
upon the aggregate Liquidation Value, plus all accrued and unpaid dividends, of
the Series B Preferred held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Series B Preferred,
but only to the extent of funds of the Corporation legally available for the
payment of dividends. Not less than 30 days prior to the payment date stated
therein, the Corporation shall mail written notice of any such liquidation,
dissolution or winding up to each record holder of Series B Preferred, setting
forth in reasonable detail the amount of proceeds to be paid with respect to
each Share and each share of Common Stock in connection with such liquidation,
dissolution or winding up. Neither the consolidation or merger of the
Corporation into or with any other entity or entities (whether or not the
Corporation is the surviving entity), nor the sale or transfer by the
Corporation of all or any part of its assets, nor the reduction of the capital
stock of the Corporation nor any other form of recapitalization or
reorganization affecting the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
2. Instead, upon the occurrence of any event set forth in the foregoing
sentence, the provisions of Section 6.5 shall become applicable.
Section 3. PRIORITY OF SERIES B PREFERRED ON DIVIDENDS AND
REDEMPTIONS.
So long as any Series B Preferred remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Series B Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities, nor shall the Corporation directly or indirectly pay or
declare any dividend or make any distribution upon any Junior Securities, if at
the time of or immediately after any such redemption, purchase, acquisition,
dividend or distribution the Corporation has failed to or will be unable to pay
the full amount of dividends accrued on the Series B Preferred.
Section 4. REDEMPTIONS.
4.1 OPTIONAL REDEMPTIONS. The Corporation may redeem upon not less
than 30 day's notice at any time after (a) the fourth anniversary of the Closing
all, but not less than all, of the Shares of Series B Preferred then
outstanding; provided that the Average Market Price (determined at the time of
the sending of the notice) of Common Stock is not less than 200% of the
applicable Conversion Price or (b) the seventh anniversary of the Closing all,
but not less than all, of the Shares of Series B Preferred then outstanding.
Upon any such redemption, the Corporation shall pay to each holder of Shares a
price per Share equal to the Liquidation Value thereof, plus all accrued and
unpaid dividends thereon. At any time prior to the Redemption Date (as defined
in Section l2 below) any holder of Shares may elect to convert such holder's
Shares into Conversion Stock.
4.2 REDEMPTION PAYMENTS. For each Share which is to be redeemed
hereunder, the Corporation shall be obligated on the Redemption Date to pay to
the holder thereof (upon surrender by such holder at the Corporation's principal
office of the certificate representing such Share) an amount in cash equal to
the Liquidation Value of such Share, plus all accrued and unpaid dividends
thereon. If the funds of the Corporation legally available for redemption of
Shares on any Redemption Date are insufficient to redeem the total number of
Shares to be redeemed on such date, the Corporation may not make a redemption
pursuant to Section 4.1. Prior to any redemption of Series B Preferred, the
Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Shares which are to be redeemed, but only to the extent of funds
of the Corporation legally available for the payment of dividends.
4.3 NOTICE OF REDEMPTION. Except as otherwise provided herein, the
Corporation shall mail written notice of any redemption of any Series B
Preferred to each record holder thereof not more than 60 nor less than 30 days
prior to the date on which such redemption is to be made. Upon mailing any
notice of redemption which relates to a redemption at the Corporation's option,
the Corporation shall become obligated to redeem the total number of Shares
specified in such notice at the time of redemption specified therein which are
not converted prior to such time.
4.4 DIVIDENDS AFTER REDEMPTION DATE. No Share shall be entitled to any
dividends accruing after the date on which the Liquidation Value of such Share,
plus all accrued and unpaid dividends thereon, is paid to the holder of such
Share. On such date, all rights of the holder of such Share shall cease, and
such Share shall no longer be deemed to be issued and outstanding.
4.5 REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be canceled and retired
to authorized but unissued shares and shall not be reissued, sold or transferred
as Series B Preferred.
4.6 OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall not, nor
shall it permit any Subsidiary to, redeem or otherwise acquire any Shares of
Series B Preferred, except as expressly authorized herein.
Section 5. VOTING RIGHTS.
The holders of the Series B Preferred shall be entitled to notice of
all stockholders meetings in accordance with the Corporation's bylaws, and the
holders of the Series B Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of the Common
Stock voting together as a single class with each share of Common Stock entitled
to one vote per share and each Share of Series B Preferred entitled to one vote
for each whole share of Conversion Stock issuable upon conversion of the Series
B Preferred as of the record date for such vote or, if no record date is
specified, as of the date of such vote; provided, however, that all Shares held
beneficially or of record by a holder shall be aggregated in determining the
number of whole shares of Conversion Stock and thus the number of votes.
Section 6. CONVERSION.
6.1 CONVERSION PROCEDURE.
(a) At any time, any holder of Series B Preferred may convert all, but
not less than all, of the Series B Preferred held by such holder into a number
of shares of Conversion Stock (as defined in Section 12 below) computed by
multiplying the number of Shares to be converted by the Liquidation Value, plus
any accrued and unpaid dividends thereon, and dividing the result by the
Conversion Price (as defined in Section 6.2 below) then in effect.
(b) Except as otherwise provided herein, each conversion of Series B
Preferred shall be deemed to have been effected as of the close of business on
the date on which the certificate or certificates representing the Series B
Preferred to be converted have been surrendered for conversion at the principal
office of the Corporation. At the time any such conversion has been effected,
the rights of the holder of the Shares converted as a holder of Series B
Preferred shall cease and the Person or Persons in whose name or names any
certificate or certificates for shares of Conversion Stock are to be issued upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Conversion Stock represented thereby.
(c) The conversion rights of any Share subject to redemption hereunder
shall terminate on the Redemption Date for such Share unless the Corporation has
failed to pay to the holder thereof the Liquidation Value of such Share, plus
all accrued and unpaid dividends thereon.
(d) Notwithstanding any other provision hereof, if a conversion of
Series B Preferred is to be made in connection with a Public Offering, Organic
Change (as defined in Section 6.5 below) or other transaction affecting the
Corporation, the conversion of any Shares of Series B Preferred may, at the
election of the holder thereof, be conditioned upon the consummation of such
transaction, in which case such conversion shall not be deemed to be effective
until such transaction has been consummated.
(e) As soon as possible after a conversion has been effected (but in
any event within five business days), the Corporation shall deliver to the
converting holder:
(i) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of
such conversion in such name or names and such denomination or
denominations as the converting holder has specified; and
(ii) the amount payable under Section 6.1(i) below
with respect to such conversion.
(f) The issuance of certificates for shares of Conversion Stock upon
conversion of Series B Preferred shall be made without charge to the holders of
such Series B Preferred for any original issuance tax in respect thereof (but
not any transfer taxes payable upon issuance of certificates to a person who is
not the owner of the Shares) or other cost incurred by the Corporation in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of each Share of Series B Preferred, the Corporation
shall take all such actions as are necessary in order to insure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable, free and clear of all taxes, liens,
charges and encumbrances with respect to the issuance thereof.
(g) The Corporation shall not close its books against the transfer of
Series B Preferred or of Conversion Stock issued or issuable upon conversion of
Series B Preferred in any manner which interferes with the timely conversion of
Series B Preferred. The Corporation shall assist and cooperate with any holder
of Shares required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Shares hereunder
(including, without limitation, making any filings required to be made by the
Corporation).
(h) The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Conversion Stock, solely for the
purpose of issuance upon the conversion of the Series B Preferred, such number
of shares of Conversion Stock issuable upon the conversion of all outstanding
Series B Preferred. All shares of Conversion Stock which are so issuable shall,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof. The
Corporation shall take all such actions as may be necessary to assure that all
such shares of Conversion Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Conversion Stock may be listed (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance). The Corporation shall not take any action
which would cause the number of authorized but unissued shares of Conversion
Stock to be less than the number of such shares required to be reserved
hereunder for issuance upon conversion of the Series B Preferred.
(i) If any fractional interest in a share of Conversion Stock would,
except for the provisions of this subsection, be delivered upon any conversion
of the Series B Preferred, the Corporation, in lieu of delivering the fractional
share therefor, shall pay an amount to the holder thereof equal to the Closing
Price of such fractional interest as of the date of conversion.
6.2 CONVERSION PRICE.
(a) The initial Conversion Price shall be $6.00. In order to prevent
dilution of the conversion rights granted under this Section 6, the Conversion
Price shall be subject to adjustment from time to time pursuant to this Section
6.2.
(b) If and whenever on or after the original date of issuance of the
Series B Preferred the Corporation issues or sells, or in accordance with
Section 6.3 is deemed to have issued or sold, any shares of its Common Stock for
a consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then immediately upon such issue or
sale or deemed issue or sale the Conversion Price shall be reduced to the
Conversion Price determined by dividing (i) the sum of (A) the product derived
by multiplying the Conversion Price in effect immediately prior to such issue or
sale by the number of shares of Common Stock Deemed Outstanding immediately
prior to such issue or sale, plus (B) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the number of shares of Common
Stock Deemed Outstanding immediately after such issue or sale.
(c) Notwithstanding the foregoing, there shall be no adjustment in the
Conversion Price as a result of (i) any issue or sale (or deemed issue or sale)
of Common Stock or Options at not less than the Closing Price of the Common
Stock at such time of issuance to employees, directors, or consultants of the
Corporation and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors (as such number
of shares is proportionately adjusted for subsequent stock splits, combinations
and dividends affecting the Common Stock); (ii) any issue or sale of Common
Stock at not less than the Closing Price in conjunction with an acquisition of
the stock or other equity securities of a company or the assets of a business,
or (iii) any issue or sale of Common Stock issued or sold upon the exercise or
conversion of any Options or Convertible Securities outstanding on the date of
the initial issuance of the Series B Preferred.
6.3 EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 6.2, the following shall
be applicable:
(a) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any manner
grants or sells any Options and the price per share for which Common Stock is
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Conversion Price in effect immediately prior to the time of the granting or
sale of such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the exercise
of such Options shall be deemed to be outstanding and to have been issued and
sold by the Corporation at the time of the granting or sale of such Options for
such price per share. For purposes of this paragraph, the "price per share for
which Common Stock is issuable" shall be determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting or sale of such Options, plus the minimum aggregate amount of
additional consideration payable to the Corporation upon exercise of all such
Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Conversion Price
shall be made when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock is actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities.
(b) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon conversion or exchange thereof is less than
the Conversion Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Stock issuable upon conversion
or exchange of such Convertible Securities shall be deemed to be outstanding and
to have been issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For the purposes
of this paragraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (i) the total amount received or receivable by
the Corporation as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment of the
Conversion Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 6, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(c) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities or the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time (other than by reason of the antidilution provisions
contained therein), the Conversion Price in effect at the time of such change
shall be immediately adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold;
provided that if such adjustment would result in an increase of the Conversion
Price then in effect, such adjustment shall not be effective until 30 days after
written notice thereof has been given by the Corporation to all holders of the
Series B Preferred. For purposes of Section 6.3, if the terms of any Option or
Convertible Security which was outstanding as of the date of issuance of the
Series B Preferred are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change.
(d) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued; provided that if such expiration or termination would result
in an increase in the Conversion Price then in effect, such increase shall not
be effective until 30 days after written notice thereof has been given to all
holders of the Series B Preferred. For purposes of Section 6.3, the expiration
or termination of any Option or Convertible Security which was outstanding as of
the date of issuance of the Series B Preferred shall not cause the Conversion
Price hereunder to be adjusted unless, and only to the extent that, a change in
the terms of such Option or Convertible Security caused it to be deemed to have
been issued after the date of issuance of the Series B Preferred.
(e) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock, Option
or Convertible Security is issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor (net of discounts, commissions and related
expenses). If any Common Stock, Option or Convertible Security is issued or sold
for a consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Corporation shall be the Closing Price thereof
as of the date of receipt. If any Common Stock, Option or Convertible Security
is issued to the owners of the non-surviving entity in connection with any
merger in which the Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Option or Convertible Security, as the case may be. The fair
value of any consideration other than cash and securities shall be determined
jointly by the Corporation and the holders of a majority of the outstanding
Series B Preferred. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall be
determined by an independent appraiser experienced in valuing such type of
consideration jointly selected by the Corporation and the holders of a majority
of the outstanding Series B Preferred. The determination of such appraiser shall
be final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne by the Corporation.
(f) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for a consideration of $.0l.
(g) TREASURY SHARES. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Corporation or any Subsidiary, and the disposition of any shares so owned
or held shall be considered an issue or sale of Common Stock.
(h) RECORD DATE. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (ii) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or upon the making of such other distribution or
the date of the granting of such right of subscription or purchase, as the case
may be.
6.4 SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect immediately prior to
such subdivision shall be proportionately reduced, and if the Corporation at any
time combines (by reverse stock split or otherwise) one or more series of its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6.5 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Corporation's assets or other
transaction, in each case which is effected in such a manner that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock, is referred to herein as an Organic Change. Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the Series B Preferred then outstanding) to insure that each of the holders of
Series B Preferred shall thereafter have the right to acquire and receive, at
such holder's election, either (a) such shares of stock, securities or assets as
such holder would have received in connection with such Organic Change if such
holder had converted its Series B Preferred immediately prior to such Organic
Change or (b) such shares of stock of the successor entity having the same or
comparable rights, privileges and preferences as the Series B Preferred. In each
such case, the Corporation shall also make appropriate provisions (in form and
substance satisfactory to the holders of a majority of the Series B Preferred
then outstanding) to insure that the provisions of this Section 6 and Sections 7
and 8 hereof shall thereafter be applicable to the Series B Preferred
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, and a
corresponding immediate adjustment in the number of shares of Conversion Stock
acquirable and receivable upon conversion of Series B Preferred, if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation, merger or sale). If the successor entity after a consolidation,
merger or sale is other than the Corporation, then prior to the consummation
thereof, the holders of Series B Preferred shall have the right to convert all
of their Shares to Conversion Stock. To the extent that Shares are not converted
to Conversion Stock in such case, the Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the holders of a majority of the Series B Preferred then outstanding) the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
6.6 CERTAIN EVENTS. If any event occurs of the type contemplated by
the provisions of this Section 6 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features or the
payment, issuance or distribution by the Corporation to the holders of Common
Stock of any debt securities of the Corporation), then the Corporation's Board
of Directors shall make an appropriate adjustment in the Conversion Price so as
to protect the rights of the holders of Series B Preferred; provided that no
such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 6 or decrease the number of shares of Conversion Stock
issuable upon conversion of each Share of Series B Preferred.
6.7 NOTICES.
(a) Immediately upon any adjustment of the Conversion Price, the
Corporation shall give written notice thereof to all holders of Series B
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(b) The Corporation shall give written notice to all holders of Series
B Preferred at least 20 days prior to the date on which the Corporation closes
its books or takes a record (i) with respect to any dividend or distribution
upon Common Stock, (ii) with respect to any pro rata subscription offer to
holders of Common Stock or (iii) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(c) The Corporation shall also give written notice to the holders of
Series B Preferred at least 20 days prior to the date on which any Organic
Change shall take place.
6.8 MANDATORY CONVERSION. Beginning on the second anniversary of the
date of issuance, the Corporation may require the conversion of all, but not
less than all, of the outstanding shares of Series B Preferred in the event of
the consummation of a firm commitment underwritten Public Offering of shares of
the Corporation's Common Stock in which (a) the aggregate price paid by the
public for the shares shall be at least $30 million and (b) the price per share
paid by the public for such shares shall be at least 200% of the then applicable
Conversion Price. Any such automatic conversion shall only be effected at the
time of and subject to the closing of the sale of such shares pursuant to such
Public Offering and upon written notice of such automatic conversion delivered
to all holders of Series B Preferred at least seven days prior to such closing.
Section 7. LIQUIDATING DIVIDENDS.
If the Corporation declares or pays a dividend upon the Common Stock
payable otherwise than in cash out of earnings or earned surplus (determined in
accordance with generally accepted accounting principles, consistently applied)
except for a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of Series B Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series B Preferred been
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
Section 8. PURCHASE RIGHTS.
If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then each holder of Series B Preferred shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Conversion Stock acquirable upon conversion of such
holder's Series B Preferred immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
Section 9. EVENTS OF NONCOMPLIANCE.
9.1 DEFINITION. An "Event of Noncompliance" shall have occurred if:
(a) the Corporation fails to pay on any Dividend Payment Date the full
amount of dividends then accrued on the Series B Preferred, whether or not such
payment is legally permissible or is prohibited by any agreement to which the
Corporation is subject;
(b) the Corporation fails to make any redemption payment with respect
to the Series B Preferred which it is required to make hereunder, whether or not
such payment is legally permissible or is prohibited by any agreement to which
the Corporation is subject;
(c) the Corporation breaches or otherwise fails to perform or observe
any other covenant or agreement set forth herein or in the Purchase Agreement,
provided that no Event of Noncompliance shall have occurred under this Section
9.1(c) if the Corporation establishes (to the reasonable satisfaction of the
holders of at least a majority of the Series B Preferred then outstanding) that
the Event of Noncompliance is not material to the financial condition, operating
results, operations, assets or business prospects of the Corporation and its
Subsidiaries, taken as a whole;
(d) any representation or warranty contained in the Purchase Agreement
or required to be furnished to any holder of Series B Preferred pursuant to the
Purchase Agreement, or any information contained in writing furnished by the
Corporation or any Subsidiary to any holder of Series B Preferred, is not true
and correct in all material respects on the date made or furnished; or
(e) the Corporation makes an assignment for the benefit of creditors
or admits in writing its inability to pay its debts generally as they become
due; or an order, judgment or decree is entered adjudicating the Corporation
bankrupt or insolvent (which is not dismissed within 30 days); or any order for
relief with respect to the Corporation is entered under the Federal Bankruptcy
Code; or the Corporation petitions or applies to any tribunal for the
appointment of a custodian, trustee, receiver or liquidator of the Corporation
or of any substantial part of the assets of the Corporation, or commences any
proceeding relating to the Corporation under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Corporation and such petition, application
or proceeding is not dismissed within 60 days.
9.2 CONSEQUENCES OF EVENTS OF NONCOMPLIANCE.
If an Event of Noncompliance has occurred, the then applicable
Dividend Rate on the Series B Preferred shall increase immediately by an
increment of two percentage points (2%) and shall be payable on the sum of the
Liquidation Value plus all accrued and unpaid dividends thereon. Any increase of
the dividend rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no Event of
Noncompliance exists, subject to subsequent increases pursuant to this Section.
Section 10. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register for the
registration of Series B Preferred. Upon the surrender of any certificate
representing Series B Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of Shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and dividends shall accrue on the Series B Preferred
represented by such new certificate from the date to which dividends have been
fully paid on such Series B Preferred represented by the surrendered
certificate.
Section 11. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation
(an affidavit of the registered holder shall be satisfactory) of the ownership
and the loss, theft, destruction or mutilation of any certificate evidencing
Shares of Series B Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Shares of such Series
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Series B Preferred represented by such new certificate from
the date to which dividends have been fully paid on such lost, stolen, destroyed
or mutilated certificate.
Section 12. DEFINITIONS.
"AVERAGE MARKET PRICE" of any security means the average of the
closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the Nasdaq System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the Nasdaq System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 90 days
consisting of the day as of which "Average Market Price" is being determined and
the 89 consecutive business days prior to such day. If at any time such security
is not listed on any securities exchange or quoted in the Nasdaq System or the
over-the-counter market, the "Average Market Price" shall be the fair value
thereof determined jointly by the Corporation and the holders of a majority of
the Series B Preferred. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
appraiser experienced in valuing securities jointly selected by the Corporation
and the holders of a majority of the Series B Preferred. The determination of
such appraiser shall be final and binding upon the parties, and the Corporation
shall pay the fees and expenses of such appraiser.
"CLOSING" shall have the meaning ascribed to such term in the Purchase
Agreement.
"CLOSING PRICE" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed on the trading day immediately prior to any
date of determination, or, if there has been no sales on any such exchange, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any such day such security is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq System
as of 4:00 P.M., New York time, or, if on any such day such security is not
quoted in the Nasdaq System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization.
If at any time such security is not listed on any securities exchange or quoted
in the Nasdaq System or the over-the-counter market, the "Closing Price" shall
be the fair value thereof determined jointly by the Corporation and the holders
of a majority of the Series B Preferred. If such parties are unable to reach
agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Corporation and the holders of a majority of the Series B
Preferred. The determination of such appraiser shall be final and binding upon
the parties, and the Corporation shall pay the fees and expenses of such
appraiser.
"COMMON STOCK" means, collectively, the Corporation's Common Stock,
par value $.0l per share, and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Section 6.3(a) and
(b) hereof whether or not the Options or Convertible Securities are actually
exercisable at such time, but excluding any shares of Common Stock issuable upon
conversion of the Series B Preferred.
"CONVERSION STOCK" means shares of the Corporation's Common Stock, par
value $0.01 per share; provided that if there is a change such that the
securities issuable upon conversion of the Series B Preferred are issued by an
entity other than the Corporation or there is a change in the type or Series of
securities so issuable, then the term "Conversion Stock" shall mean one share of
the security issuable upon conversion of the Series B Preferred if such security
is issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"JUNIOR SECURITIES" means any capital stock or other equity securities
of the Corporation, except for the Corporation's Series A Convertible Preferred
Stock, par value $.0l per share, and the Series B Preferred.
"LIQUIDATION VALUE" of any Share as of any particular date shall be
equal to $1,000.
"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PUBLIC OFFERING" means any offering by the Corporation of its capital
stock or equity securities to the public pursuant to an effective registration
statement under the Securities Act of 1933, as then in effect, or any comparable
statement under any similar federal statute then in force; provided that for
purposes of Section 6.8 hereof, a Public Offering shall not include an offering
made in connection with a business acquisition or combination or an employee
benefit plan.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of October
23, 1996, by and among the Corporation, Antares Leveraged Capital Corp. and
Golder, Thoma, Cressey, Rauner Fund IV Limited Partnership, as such agreement
may from time to time be amended in accordance with its terms.
"REDEMPTION DATE" as to any Share means the date specified in the
notice of any redemption at the Corporation's option; provided that no such date
shall be a Redemption Date unless the Liquidation Value of such Share, plus all
accrued and unpaid dividends thereon, is actually paid in full on such date, and
if not so paid in full, the Redemption Date shall be the date on which such
amount is fully paid.
"SERIES A PREFERRED" means the Corporation's Series A Convertible
Preferred Stock, par value of $.01 per share.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity. Section 13.
AMENDMENT AND WAIVER.
No amendment, modification or waiver shall be binding or effective
with respect to any provision of Sections l to 14 hereof without the prior
written consent of the holders of a majority of the Series B Preferred
outstanding at the time such action is taken; provided that no change in the
terms hereof may be accomplished by merger or consolidation of the Corporation
with another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Series B
Preferred then outstanding.
Section 14. NOTICES.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made herein are true under the penalties of penury
this 19th day of January, 1998.
/S/ ________________________
Title:
Name:
ATTEST:
/S/___________________
Name:
Title:
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ESQUIRE COMMUNICATIONS LTD.
-----------------------------------
Under Section 242 of the
Delaware General Corporation Law
-----------------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Esquire Communications Ltd.
2. The Certificate of Incorporation of the Corporation is hereby
amended to amend the first paragraph of Article FOURTH to increase the number of
shares of Common Stock which the Corporation is authorized to issue. The first
paragraph of Article FOURTH is hereby amended to read as follows:
"FOURTH: The total number of shares of stock which
the Corporation is authorized to issue is 101,000,000
shares, of which 100,000,000 shares shall be designated
Common Stock, $.01 par value per share, and 1,000,000
shares shall be designated Preferred Stock, $.01 par value
per share."
3. This Certificate of Amendment was duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of the State of
Delaware.
Signed and attested to this 24th day of February, 1998.
/s/ Malcolm L. Elvey
Name: Malcolm L. Elvey
Title: Chairman of the Board
Attest:
/s/ David A. Higson
Name: David A. Higson
Title: Secretary
MANAGEMENT AGREEMENT
THIS AGREEMENT is made as of the 13th day of February, 1997 by and
among ESQUIRE COMMUNICATIONS LTD., a Delaware corporation, with offices at 216
East 45th Street, New York, New York 10017 (the "Corporation"), Harlingwood &
Company, LLC, a California limited liability company (the "Manager") and David
A. White (the "Executive"). Manager and Executive each have offices at 750 B
Street, Suite 2350, San Diego, California 92101.
W I T N E S S E T H :
WHEREAS, the Corporation desires to engage the services of Manager and
the Manager desires to accept such engagement upon the terms and conditions
contained in this Agreement; and
WHEREAS, Manager has agreed to provide its services hereunder
primarily through the provision of the Executive, one of its officers;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
1. TERM OF ENGAGEMENT
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby agrees to engage the Manager, and the Manager accepts such
engagement to provide management services, including corporate development
services to the Corporation and each of its subsidiaries for the period
beginning on the date hereof and continuing for a period of one year or until
earlier terminated as provided herein. Manager agrees to assign Executive to
this engagement, and Executive agrees to accept such assignment, to fulfill
Manager's duties hereunder, and in that regard, Executive's role will be in the
capacity of Chief Executive Officer of the Corporation.
2. DUTIES
2.1 Manager shall ensure that the Executive performs, and Executive
hereby agrees to perform, such duties and discharges such responsibilities as
the Chairman of the Board of Directors or Board of Directors of the Corporation
shall from time to time direct, which duties and responsibilities shall be
commensurate with the Executive's position as Chief Executive Officer, including
general review and integration of acquisitions and formulation of strategies to
enhance growth and profitability. The Executive agrees to perform such duties
and discharge such responsibilities in a faithful manner and to the best of his
ability. The Executive agrees to devote substantially all his business time and
attention to the business and affairs of the Corporation and its subsidiaries
and to use his best efforts to promote the interests of the Corporation and its
subsidiaries. The Executive further agrees that he will not engage in any
significant outside business concerns or activities, without the written consent
of the Corporation's Board of Directors, provided that Executive may sit on up
to two Boards of companies unrelated to the Corporation without the need for
such consent.
2.2 The Corporation shall use its best efforts to elect each of
Executive and Fir Geenen as Directors of the Corporation and each of its
subsidiaries during the term of this Agreement. The Executive shall hold such
officerships in the Corporation and any subsidiary to which, from time to time,
he may be appointed during the term of this Agreement.
3. MANAGEMENT FEE
So long as the Manager is engaged by the Corporation pursuant to this
Agreement, the Corporation agrees that:
3.1 The Manager shall receive an annual management fee (the
"Management Fee") at the rate of $175,000 per annum, payable in semi-monthly
installments. Unless required by law, the Corporation agrees that it shall not
deduct or withhold from such payments any Social Security contributions and
income tax withholdings or any other amount. Any Management Fee payable
hereunder may be paid by subsidiaries of the Corporation, and not by the
Corporation, in such proportion as shall be allocated among them by the
Corporation and such subsidiary.
3.2 The Board of Directors of the Corporation shall grant to the
Manager a performance bonus (the "Bonus") of up to 50% of the Management Fee
payable hereunder annually within 90 days after the end of the Corporation's
fiscal year, upon the achievement of financial and operational objectives to be
agreed upon by the Manager, the Board of Directors and the Chairman of the
Board.
3.3 The Corporation shall insure that the Manager will be paid the
cost of providing benefits commensurate with the position of Chief Executive
Officer at the rate of $25,000 per annum, payable in semi-monthly installments.
In addition, the Corporation shall make a secretary available for use by the
Manager at the Corporation's offices.
3.4 Effective on the date hereof, the Corporation hereby grants to the
Manager under the Corporation's 1993 Stock Option Plan (the "Plan"), options to
purchase 150,000 shares of common stock at an exercise price of $9.00 per share.
Pursuant to a separate agreement to be entered into, the Corporation will sell
to the Manager 250,000 shares of Common Stock (the "Shares") at a purchase price
to be set forth therein, subject to the vesting schedule set forth below, which
purchase price will be evidenced by the Manager's promissory note in the
principal amount equal to the purchase price. Such note will have a four year
term and will be secured by a pledge of the Shares. The Corporation will have
the right to repurchase vested Shares at the greater of cost or fair market
value and unvested Shares at cost. This right may only be exercised in the event
this Agreement is terminated or expires, subject to the provisions of Sections 6
and 7 hereof. The Shares and options will vest 25% on the first anniversary of
the date hereof, with the balance vesting ratably on a daily basis over a period
of three years subsequent thereto, subject to acceleration of vesting upon the
sale of the Corporation or the sale by Golder, Thoma, Cressey, Rauner Fund IV,
L.P. of more than 50% of the stock of the Corporation presently owned by it or
to which it is entitled. The Corporation will loan to Manager the funds to
exercise the options on terms similar to the terms above as they relate to the
purchase of the Shares. The grant of the options is subject to approval by the
stockholders of the Corporation of an amendment to the Plan increasing the
number of options which may be granted under the Plan.
4. REIMBURSEMENT FOR EXPENSES
The Corporation or its subsidiaries shall reimburse the Manager for
expenses which the Manager may from time to time reasonably incur on behalf of
and at the request of the Corporation in the performance of its responsibilities
and duties under this Agreement, provided that the Manager shall be required to
account to the Corporation for such expenses in the manner prescribed by the
Corporation.
5. TERMINATION OF ENGAGEMENT BY REASON OF DEATH
If the Executive shall die during the term of this Agreement, this
Agreement shall terminate automatically as of the date of his death and the
Corporation shall pay to the Manager the Management Fee and any other
compensation due under Section 3.2 or 3.3 hereof which would otherwise be
payable to the Manager up to the end of the month in which his death occurs and
no more.
6. TERMINATION OF ENGAGEMENT BY REASON OF DISABILITY
If the Executive shall become temporarily disabled during the term of
this Agreement, all of the Manager's rights under this Agreement shall continue
until such time as the Executive either returns to work or is deemed
"permanently disabled" (as hereinafter defined in Section 6.1).
6.1 If the Executive shall be deemed permanently disabled, the
Manager's engagement shall immediately terminate at such time that the Executive
is deemed to be permanently disabled. The Executive shall be deemed permanently
disabled for purposes of this Agreement if: (i) in the good faith opinion of the
Board of Directors, based solely on a duly ordered medical opinion by a
physician reasonably acceptable to the Manager and the Corporation, the
Executive is unable to render management services to the Corporation pursuant to
the terms of this Agreement for three consecutive months, or (ii) in the good
faith opinion of the Board of Directors, based solely on a duly ordered medical
opinion by a physician reasonably acceptable to the Manager and the Corporation,
the Executive is unable to render management services to the Corporation
pursuant to the terms of this Agreement for four months out of any twelve
consecutive month period.
7. TERMINATION OF AGREEMENT
7.1 TERMINATION FOR CAUSE
The Corporation may immediately terminate this Agreement in the event
that the Executive or Manager shall do or cause to be done any act which
constitutes "cause" (as hereinafter defined) for termination. For purposes of
this Agreement, cause shall be deemed to mean a material and continuing breach
by the Executive or the Manager of this Agreement, consistent neglect or refusal
to attend to the material duties assigned to them by the Chairman of the Board
or Board of Directors of the Corporation, gross negligence or willful misconduct
in the performance of their duties, dishonesty of the Executive or the Manager
to the Corporation (including, without limitation, conviction of a crime in any
court which could have the effect of causing the termination or suspension of
any license which the Corporation holds), conviction of a felony offense or
Executive shall no longer be an officer of or employed by Manager.
Notwithstanding the foregoing, the Manager shall not be deemed to have been
terminated for cause unless and until there shall have been delivered to it a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors of the Corporation
at a meeting of the Board called and held for the purpose (after reasonable
notice (which shall be at least 3 days prior notice) to Manager and an
opportunity for it to be heard before the Board), finding that in the good faith
opinion of the Board the Executive or the Manager was guilty of the conduct set
forth in the previous sentence and specifying the particulars thereof in detail.
Should this Agreement be terminated by the Corporation for cause, the
Corporation's only obligation shall be to pay the Manager its compensation due
to date under Sections 3.1, 3.2 and 3.3 of this Agreement and Manager may retain
all vested stock or other vested options, subject to the Corporation's right to
repurchase the same. Nothing contained in this Article 7 shall in any way waive,
restrict or prejudice the Corporation's rights and remedies in equity and at law
against the Manager with respect to the matter for which this Agreement is
terminated for cause.
7.2 TERMINATION WITHOUT CAUSE; GOOD REASON
This Agreement shall also terminate if:
(a) Manager is terminated (and this Agreement
is terminated)without cause;
(b) Manager terminates this Agreement for "Good
Reason";
(c) Manager terminates this Agreement without
"Good Reason";
(d) the term of this Agreement expires without
renewal.
The term "Good Reason" shall mean without the Executive's written
consent (i) a material change in the Executive's status, position or
responsibilities if, as a result of such change, the Executive could reasonably
be considered as constructively dismissed by the Corporation; (ii) a material
reduction by the Corporation in the Executive's incentives as in effect on the
date hereof or as the same may be increased from time to time during the term;
(iii) any request by the Corporation that the Executive participate in an
unlawful act or take any action constituting a material breach of the
Executive's professional standard of conduct; or (iv) any other material and
continuing breach of this Agreement by the Corporation.
7.3 RESULTS OF TERMINATION
If termination hereof occurs under Sections 5 or 6 (Death or
Disability) all shares, options and other rights which would have vested within
one year shall be deemed vested. In the event this Agreement is terminated by
reason of Sections 7.2(a) or (b), the Corporation shall within five days make a
lump sum payment to the Manager equal to 12 months of the annual Management Fee,
plus the cost of benefits as described in Section 3.3 and in such event Manager
and the Executive shall execute an appropriate release of claims against the
Corporation. Such lump sum payment shall be considered management fees, and not
damages, and Manager shall have no duty to mitigate. In addition, in such event,
all rights of Manager to receive common stock or to exercise options which have
previously been granted, including the rights in Section 3.4 hereof, shall vest.
8. CONFIDENTIALITY
During the course of this Agreement, the Manager and the Executive
will have access to and will gain knowledge with respect to all of the lines of
business of the Corporation, including service information, information
concerning customers, court reporters, and other valuable information relating
to the development, marketing and sale of services of the Corporation
("Confidential Information"). The parties also agree that covenants by the
Executive and the Manager not to make unauthorized disclosures of the
Confidential Information and not to use the Confidential Information after the
termination of this Agreement in a business in competition with that of the
Corporation are essential to the growth and stability of the business of the
Corporation. Accordingly, Manager and Executive agree that, except as required
by their duties under this Agreement, they shall not take, use, or disclose to
anyone in documentary form or through electronic media or otherwise, at any time
during or after the term of this Agreement, any Confidential Information
obtained by them in the course of their engagement with the Corporation.
9. NON-COMPETITION
9.1 During the term of this Agreement and for a period of 12 months
from the date of the termination of this Agreement in accordance with its terms,
the Executive and the Manager agree that they shall not directly or indirectly,
for their own account or as agent, employee, officer, director, trustee,
consultant or shareholder of any corporation or a member of any firm or
otherwise, anywhere within 100 miles of any office of the Corporation engage or
attempt to engage in any business activity which is the same as, substantially
similar to or directly competitive with the Corporation.
9.2 During the term of this Agreement and for a period of 24 months
from the date of termination of this Agreement in accordance with its terms, the
Executive and the Manager agree that they shall not, directly or indirectly, for
their own account or as agent, employee, officer, director, trustee, consultant
or shareholder of any corporation, or member of any firm or otherwise, solicit
the employment or retention of any court reporter retained by the Corporation or
any employee of the Corporation.
9.3 The Manager and the Executive acknowledge and agree that the
foregoing territorial and time limitations and restrictive covenants are
reasonable and properly required for the adequate protection of the business and
affairs of the Corporation, and in the event any such territorial or time
limitation is found to be unreasonable by a court of competent jurisdiction,
they agree and submit to the reduction of either said territorial or time
limitation or both, to such an area or period as the court may determine to be
reasonable.
10. RIGHTS TO DISCOVERIES
The Executive and the Manager agree that all ideas, inventions,
trademarks and other developments or improvements conceived, developed or
acquired by them during the term of this Agreement, whether or not during
working hours, at the premises of the Corporation or elsewhere, alone or with
others, that are within the scope of the Corporation's business operations or
that relate to any work or projects of the Corporation shall be the sole and
exclusive property of the Corporation. The Executive and the Manager agree to
disclose promptly and fully to the Corporation all such ideas, inventions,
trademarks or other developments and, at the request of the Corporation, they
shall submit to the Corporation a full written report thereof regardless of
whether the request for a written report is made after the termination of this
Agreement. The Executive and the Manager agree that during the term of this
Agreement and thereafter, upon the request of the Corporation and at its
expense, they shall execute and deliver any and all applications, assignments
and other instruments which the Corporation shall deem necessary or advisable to
transfer to and vest in the Corporation their entire right, title and interest
in and to all such ideas, inventions, trademarks or other developments and to
apply for and to obtain patents or copyrights for any such patentable or
copyrightable ideas, inventions, trademarks and other developments.
11. NOTICES
All notices and other communications given pursuant to this Agreement
shall be deemed to have been properly given or delivered at the time when hand
delivered, when received if sent by telecopier or by same day or overnight
recognized commercial courier service, or three days after being mailed, by
certified mail, postage prepaid, addressed to the appropriate party, at the
address for such party set forth at the beginning of this Agreement. Any party
may from time to time designate by written notice given pursuant to this Article
11 any other address or party to which any such notice or communication or
copies thereof shall be sent.
12. EQUITABLE RELIEF
The Executive and the Manager acknowledge that the Corporation will
suffer damages incapable of ascertainment in the event that any of the
provisions of Articles 8, 9 or 10 hereof are breached and that the Corporation
will be irreparably damaged in the event that the provisions of Articles 8, 9 or
10 are not enforced. Therefore, should any dispute arise with respect to the
breach or threatened breach of Articles 8, 9 or 10 of this Agreement, the
Executive and the Manager agree and consent, that in addition to any and all
other remedies available to the Corporation, an injunction or restraining order
or other equitable relief may be issued or ordered by a court of competent
jurisdiction restraining any breach or threatened breach of Articles 8, 9 or 10
of this Agreement. The Executive and the Manager agree not to assert in any such
action that an adequate remedy exists at law. All expenses, including, without
limitation, attorney's fees and expenses incurred in connection with any legal
proceeding arising as a result of a breach or threatened breach of Articles 8, 9
or 10 of this Agreement shall be borne by the losing party to the fullest extent
permitted by law and the losing party hereby agrees to indemnify and hold the
other party harmless from and against all such expenses.
13. MISCELLANEOUS
This Agreement shall be governed by the internal domestic laws of the
State of California, where the Manager and the Executive have executed the same,
without reference to conflict of laws principles. This Agreement shall be
binding upon and inure to the benefit of the legal representatives, successors
and assigns of the parties hereto (provided, however, that the Manager and the
Executive shall not have the right to assign this Agreement). All headings and
subheadings are for convenience only and are not of substantive effect. This
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior negotiations,
understandings and writings (or any part thereof) whether oral or written
between the parties hereto relating to the subject matter hereof. There are no
oral agreements in connection with this Agreement. Neither this Agreement nor
any provision of this Agreement may be waived, modified or amended orally or by
any course of conduct but only by an agreement in writing duly executed by all
of the parties hereto. If any article, section, portion, subsection or
subportion of this Agreement shall be determined to be unenforceable or invalid,
then such article, section, portion, subsection or subportion shall be modified
in the letter and spirit of this Agreement to the extent permitted by applicable
law so as to be rendered valid and any such determination shall not affect the
remainder of this Agreement, which shall be and remain binding and effective as
against all parties hereto. For purposes of this Agreement, all references to
the Corporation shall include all subsidiaries of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
HARLINGWOOD & COMPANY, LLC
By:/s/ David A. White
David A. White
/s/ David A. White
David A. White
ESQUIRE COMMUNICATIONS LTD.
By:_________________________
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 7th day of November, 1997 by and
between Esquire Communications Ltd., a Delaware corporation, with offices at 216
East 45th Street, New York, New York 10017 (the "Corporation") and Carole L.
Hughes, residing at 250 Ridings Way, aAmbler, PA 19004 (the "Employee").
W I T N E S S E T H :
WHEREAS, in order to induce the Corporation to acquire a corporation
(the "Seller") owned in part by the Employee, the Employee has agreed to enter
into this Agreement; and
WHEREAS, the Corporation desires to employ the Employee and the
Employee desires to accept such employment upon the terms and conditions
contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. TERM OF EMPLOYMENT
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby agrees to employ the Employee, and the Employee accepts such
employment, as an employee of the Corporation for the period beginning on the
date hereof and continuing for a period of three years or until earlier
terminated as provided herein.
2. DUTIES
2.1. The Employee shall perform such duties and discharge such
responsibilities as the Chief Executive Officer of the Corporation shall from
time to time direct. The Employee agrees to perform such duties and discharge
such responsibilities in a faithful manner and to the best of her ability. The
Employee agrees to devote her full business time and attention to the business
and affairs of the Corporation and its subsidiaries and to use her best efforts
to promote the interest of the Corporation and its subsidiaries. The Employee
shall not be required to relocate outside of the Philadelphia metropolitan area.
The Employee further agrees that she will not engage in any outside business
concerns or activities, without the written consent of the Corporation's Chief
Executive Officer; provided, however, Employee may engage in personal investment
activities as long as they do not interfere with the performance of her duties
hereunder.
2.2. The Chief Executive Officer of the Corporation reserves the right
from time to time to assign to the Employee additional duties and
responsibilities and to delegate to other employees of the Corporation duties
and responsibilities normally discharged by the Employee. All such assignments
and delegations of duties and responsibilities shall be made by either of them
in good faith and shall not materially affect the general character of the work
to be performed by the Employee. The Employee shall hold such officerships in
the Corporation and any subsidiary to which, from time to time, she may be
appointed during the term of this Agreement.
3. COMPENSATION
So long as the Employee is employed by the Corporation, the
Corporation agrees that:
3.1. The Employee shall receive an annual base salary at the rate of
$135,000 per annum, payable in accordance with the Corporation's normal payroll
practices. The Corporation shall deduct or withhold from such payments, and from
all other payments made to the Employee pursuant to this Agreement, all amounts
which may be required to be deducted or withheld under any applicable law now in
effect or which may become effective during the term of this Agreement
(including but not limited to Social Security contributions and income tax
withholdings). Any salary to be paid to the Employee hereunder may be paid by
subsidiaries of the Corporation, and not by the Corporation, in such proportion
as shall be allocated among them by the Corporation and such subsidiary.
3.2. The Employee shall be entitled to participate in, and receive
benefits from, any medical and disability plan of the Corporation or any
subsidiary which may be in effect at any time during the course of her
employment by the Corporation and which shall be generally available to the
Employee on terms no less favorable than to other employees of the Corporation
or its subsidiaries.
3.3. The Employee shall be entitled to a performance bonus of up to
50% of her annual salary, payable within 90 days after the end of the
Corporation's fiscal year, upon the achievement of financial and operating
objectives to be agreed upon by the Employee and the Corporation; provided,
however, that for the first year of her employment, Employee shall receive a
minimum bonus of at least $60,000.
4. REIMBURSEMENT FOR EXPENSES
The Corporation or its subsidiaries shall reimburse the Employee for
expenses which the Employee may from time to time reasonably incur on behalf of
and at the request of the Corporation in the performance of her responsibilities
and duties under this Agreement, provided that the Employee shall be required to
account to the Corporation for such expenses in the manner prescribed by the
Corporation.
5. TERMINATION OF EMPLOYMENT BY REASON OF DEATH
If the Employee shall die during the term of this Agreement, this
Agreement shall terminate automatically as of the date of her death and the
Corporation shall pay to the Employee's legal representatives the compensation
which would otherwise be payable to the Employee up to the end of the month in
which her death occurs and no more; provided, however, that if death of the
Employee shall occur during the first year of this Agreement, then the
Corporation shall pay to the Employee's legal representative one year's salary
and any accrued bonus, less any salary previously paid to the Employee through
the date of her death.
6. TERMINATION OF EMPLOYMENT BY REASON OF DISABILITY
If the Employee shall become temporarily disabled during the term of
this Agreement, all of the Employee's rights under this Agreement shall continue
until such time as the Employee either returns to work or is deemed "permanently
disabled" (as hereinafter defined in Section 6.1).
6.1. If the Employee shall be deemed permanently disabled, the
Employee's employment shall immediately terminate at such time that the Employee
is deemed to be permanently disabled. The Employee shall be deemed permanently
disabled for purposes of this Agreement if, in the opinion of a licensed
physician (mutually satisfactory to the Corporation and the Employee), based on
an examination of the Employee (such examination to be paid by the Corporation),
the Employee has become physically or mentally disabled such that she cannot
perform her assigned duties and: (i) in the opinion of the Chief Executive
Officer, the Employee is unable to render full-time service to the Corporation
pursuant to the terms of this Agreement for three consecutive months, or (ii) in
the opinion of the Chief Executive Officer, the Employee is unable to render
full-time service to the Corporation pursuant to the terms of this Agreement for
four months out of any twelve consecutive month period.
6.2. Notwithstanding the above, if termination of the Employee for
disability shall occur during the first year of the Agreement, then the
Corporation shall pay to the Employee's legal representative one year's salary
and any accrued bonus, less any salary previously paid to the Employee up to the
date of her disability.
7. TERMINATION OF EMPLOYMENT FOR CAUSE
Except as provided in Sections 5 and 6 hereof, the Corporation may
only terminate the Employee's employment for cause as provided in this Section
7. The Corporation may terminate the Employee's employment in the event that the
Employee shall do or cause to be done any act which constitutes "cause" (as
hereinafter defined) for termination. For purposes of this Agreement, "cause"
shall be deemed to mean (i) a material breach by the Employee of this Agreement,
(ii) material neglect or refusal to attend to the material duties assigned to
her by the Chief Executive Officer of the Corporation, (iii) gross negligence or
willful misconduct in the performance of her duties which results in harm to the
Corporation, (iv) dishonesty to the Corporation (including, without limitation,
conviction of a crime in any court which could have the effect of causing the
termination or suspension of any license which the Corporation holds), or (v)
conviction of a felony or excessive absenteeism not related to disability. In
the case of conduct described in clauses (i), (ii) or (iii) above, such conduct
shall not enable the Corporation to terminate this Agreement for cause unless
(A) the Board of Directors of the Corporation shall have given the Employee
notice setting forth (x) the conduct deemed to constitute cause and (y) a
reasonable time (not less than 5 days) within which the Employee may remedy the
breach and (B) the Employee shall not have remedied such breach within the
reasonable time specified by the Board of Directors. Should the Employee's
employment be terminated by the Corporation for cause, the Corporation's only
obligation shall be to pay the Employee her salary and accrued bonuses and other
compensation under Sections 3.1 and 3.2 of this Agreement which has accrued as
of the date of such termination. Nothing contained in this Article 7 shall in
any way waive, restrict or prejudice the Corporation's rights and remedies in
equity and at law against the Employee with respect to the matter for which the
Employee's employment under this Agreement is terminated for cause.
Notwithstanding the above, if termination of the Employee for cause shall occur
during the first year of this Agreement, then the Corporation shall pay to the
Employee one year's salary and accrued bonus, less any salary previously paid to
the date of termination of the Employee.
8. CONFIDENTIALITY
During the course of her employment as an employee of the Corporation,
the Employee has had, and will have, access to and will gain knowledge with
respect to all of the lines of business of the Corporation, including service
information, information concerning customers, court reporters, and other
valuable information relating to the development, marketing and sale of services
of the Corporation ("Confidential Information"). The parties also agree that
covenants by the Employee not to make unauthorized disclosures of the
Confidential Information and not to use the Confidential Information after the
termination of the Employee's employment with the Corporation in a business in
competition with that of the Corporation are essential to the growth and
stability of the business of the Corporation. Accordingly, Employee agrees that,
except as required by her duties under this Agreement, she shall not take, use,
or disclose to anyone in documentary form or through electronic media or
otherwise, at any time during or after the term of this Agreement, any
Confidential Information obtained by her in the course of her employment with
the Corporation. Employee's covenants contained in this Section 8 shall not
apply to any information which (i) is in the public domain through no wrongful
act of the Employee, (ii) has been rightfully received from a third party
without restriction or breach hereof or (iii) is required to be disclosed by
law.
9. NON-COMPETITION
9.1. During the term of this Agreement and for a period of 24 months
from the date of the termination of this Agreement in accordance with its terms,
the Employee agrees that she shall not directly or indirectly, within a radius
of 100 miles of metropolitan Philadelphia, Pennsylvania (the "Territory"), (i)
engage in any business the same as or similar to, or engage in competition with,
the business heretofore or presently engaged in by the Corporation, (ii) render
services to or have any interest, as a shareholder, owner, agent, consultant,
lender or guarantor or any other interest, in any other person engaged in the
rendering of services, which are currently being rendered by the Corporation, or
similar services, or (iii) engage in competition with, or sell, services as are
referred to in clause (ii) of this paragraph; provided, however, that the
foregoing shall not be deemed to prevent the Employee from (x) investing in
securities if such class of securities in which the investment is so made is
listed on a national securities exchange, is issued by a company registered
under Section 12(g) of the Securities Exchange Act of 1934 or is traded on the
Nasdaq Stock Market or over-the-counter, so long as such investment holdings do
not, in the aggregate, constitute more than 5% of the voting stock of any
company's securities or (y) owning any stock of Esquire Communications Ltd. or
any subsidiary thereof.
9.2. During the term of this Agreement and for a period of 24 months
from the date of termination of this Agreement in accordance with its terms, the
Employee agrees that she shall not, directly or indirectly, (i) hire, offer to
hire, entice away, retain, employ or solicit or attempt to solicit (either for
herself or as agent for another) for employment or induce, persuade or encourage
any person to leave the Corporation's employ who, prior to the date hereof was,
or during such 24 month period will be, employed or retained by the Corporation
or Seller as a consultant, independent contractor, reporter, agent, employee or
otherwise or (ii) divert or attempt to divert from the Corporation any business
whatsoever by influencing or attempting to influence any client or supplier of
the Corporation.
9.3. The Employee acknowledges and agrees that the foregoing
territorial and time limitations and restrictive covenants are reasonable and
properly required for the adequate protection of the business and affairs of the
Corporation, and in the event any such territorial or time limitation is found
to be unreasonable by a court of competent jurisdiction, the Employee agrees and
submits to the reduction of either said territorial or time limitation or both,
to such an area or period as the court may determine to be reasonable.
10. RIGHTS TO DISCOVERIES
The Employee agrees that all ideas, inventions, trademarks and other
developments or improvements conceived, developed or acquired by the Employee
during the term of this Agreement, whether or not during working hours, at the
premises of the Corporation or elsewhere, alone or with others, that are within
the scope of the Corporation's business operations or that relate to any work or
projects of the Corporation shall be the sole and exclusive property of the
Corporation. For purposes of this Section 10, the scope of the Corporation's
business is expressly limited to court reporting and the preparation of
transcripts of depositions, meetings, hearings and trials. The Employee agrees
to disclose promptly and fully to the Corporation all such ideas, inventions,
trademarks or other developments and, at the request of the Corporation, the
Employee shall submit to the Corporation a full written report thereof
regardless of whether the request for a written report is made after the
termination of this Agreement. The Employee agrees that during the term of this
Agreement and thereafter, upon the request of the Corporation and at its
expense, she shall execute and deliver any and all applications, assignments and
other instruments which the Corporation shall deem necessary or advisable to
transfer to and vest in the Corporation the Employee's entire right, title and
interest in and to all such ideas, inventions, trademarks or other developments
and to apply for and to obtain patents or copyrights for any such patentable or
copyrightable ideas, inventions, trademarks and other developments.
11. NOTICES
All notices and other communications given pursuant to this Agreement
shall be deemed to have been properly given or delivered at the time when hand
delivered, when received if sent by telecopier or by same day or overnight
recognized commercial courier service, or three days after being mailed, by
certified mail, postage prepaid, addressed to the appropriate party, at the
address for such party set forth at the beginning of this Agreement. Any party
may from time to time designate by written notice given pursuant to this Article
11 any other address or party to which any such notice or communication or
copies thereof shall be sent.
12. EQUITABLE RELIEF
The Employee acknowledges that the Corporation will suffer
damages incapable of ascertainment in the event that any of the provisions of
Articles 8, 9 or 10 hereof are breached and that the Corporation will be
irreparably damaged in the event that the provisions of Articles 8, 9 or 10 are
not enforced. Therefore, should any dispute arise with respect to the breach or
threatened breach of Articles 8, 9 or 10 of this Agreement, the Employee agrees
and consents, that in addition to any and all other remedies available to the
Corporation, an injunction or restraining order or other equitable relief may be
issued or ordered by a court of competent jurisdiction restraining any breach or
threatened breach of Articles 8, 9 or 10 of this Agreement. The Employee agrees
not to assert in any such action that an adequate remedy exists at law. All
expenses, including, without limitation, attorney's fees and expenses incurred
in connection with any legal proceeding arising as a result of a breach or
threatened breach of Articles 8, 9 or 10 of this Agreement shall be borne by the
losing party to the fullest extent permitted by law and the losing party hereby
agrees to indemnify and hold the other party harmless from and against all such
expenses.
13. MISCELLANEOUS
This Agreement shall be governed by the internal domestic laws of the
Commonwealth of Pennsylvania without reference to conflict of laws principles.
This Agreement shall be binding upon and inure to the benefit of the legal
representatives, successors and assigns of the parties hereto (provided,
however, that the Employee shall not have the right to assign this Agreement in
view of its personal nature). All headings and subheadings are for convenience
only and are not of substantive effect. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations, understandings and writings (or any part
thereof) whether oral or written between the parties hereto relating to the
subject matter hereof. There are no oral agreements in connection with this
Agreement. Neither this Agreement nor any provision of this Agreement may be
waived, modified or amended orally or by any course of conduct but only by an
agreement in writing duly executed by both of the parties hereto. If any
article, section, portion, subsection or subportion of this Agreement shall be
determined to be unenforceable or invalid, then such article, section, portion,
subsection or subportion shall be modified in the letter and spirit of this
Agreement to the extent permitted by applicable law so as to be rendered valid
and any such determination shall not affect the remainder of this Agreement,
which shall be and remain binding and effective as against all parties hereto.
For purposes of this Agreement, all references to the Corporation shall include
all subsidiaries of the Corporation.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
/S/ CAROLE L. HUGHES
------------------------------
Carole L. Hughes
Esquire Communications Ltd.
By:/S/
---------------------------
AGREEMENT
Agreement dated as of May 1, 1997, by and between David Feldman
("Feldman") and Esquire Communications Ltd., a Delaware corporation (the
"Corporation").
W I T N E S S E T H :
WHEREAS, the Corporation and Feldman are parties to an Amended and
Restated Employment, Non-Competition and Non-Disclosure Agreement dated as of
September 30, 1993 (the "Employment Agreement"); and
WHEREAS, the Corporation and Feldman mutually desire to provide for
the resignation of Feldman as President and Chief Operating Officer of the
Corporation and for the termination of Feldman's employment with the Corporation
pursuant to a buyout of the Employment Agreement by the Corporation under which
the Corporation will make various payments to Feldman;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Unless otherwise defined herein, terms defined in the Employment
Agreement shall have the same meaning when used herein.
2. Effective the date hereof, (a) Feldman's employment with the
Corporation is hereby terminated and Feldman hereby resigns as President and
Chief Operating Officer and as an employee of the Corporation and (b) the term
of the Employment Agreement is hereby ended. Concurrently herewith, all accrued
but unpaid amounts due to Feldman under Sections 3.1, 3.4, 3.5, 3.6 and 4 of the
Employment Agreement are being paid to Feldman, all as listed on Schedule A
hereto; provided, however that in the event Feldman shall have incurred prior to
the date hereof expenses in an amount not to exceed $5,000 in the aggregate
otherwise reimbursable under Section 4 of the Employment Agreement, but not
included for any reason in such Schedule A, he shall promptly be reimbursed by
the Corporation therefor upon submission to the Corporation of receipts or other
documents reasonably evidencing the same.
3. Except for the provisions contained in Section 14(b) of the
Employment Agreement, the Employment Agreement is hereby terminated and is of no
further force and effect irrespective of any other provisions therein contained
which might otherwise have survived. The provisions of Section 14(b) shall
continue in full force and effect, except as modified in this Agreement.
4. In consideration of the Corporation's buyout of the Employment
Agreement pursuant to this Agreement, the non-competition covenants contained
herein, and Feldman's execution and delivery of the release pursuant to Section
15 hereof, the Corporation agrees to pay to Feldman (even if Feldman dies or is
disabled or ceases rendering services as provided herein, other than as
expressly provided herein) an aggregate amount of $641,035, payable as follows:
(a) commencing on the date hereof and continuing through March 31, 1998, an
amount of $22,185 per month, payable on the first business day of each month;
(b) for the period April 1, 1998 through September 30, 1998, the amount of
$6,000 per month payable on the first business day of each month; (c) on August
15, 1997, the amount of $161,000; (d) on November 15, 1997, the amount of
$150,000; and (e) through September 30, 1997, the amount of $10,000 per month,
payable in advance on the execution and delivery hereof and thereafter on the
first business day of each month; provided, however that if Feldman continues to
use the automobile heretofore provided for his personal use (to which the
Corporation hereby consents), (x) the Corporation will also pay the monthly
automobile lease payments with respect thereto through January 13, 1998 (the
last day of the lease), but the $10,000 per month to be paid by the Corporation
under this subparagraph (e) shall be reduced by an amount equal to such lease
payments, and (y) the Corporation will use its best efforts to cause Feldman to
have the right to exercise the lease purchase option under the automobile lease.
Notwithstanding anything herein to the contrary, none of the foregoing payments
or benefits shall be subject to deduction or setoff, except solely the amount of
up to $7,500 per month which may be withheld (but not retroactively in respect
of any prior months) solely upon the occurrence of any one or more of the
following events which shall have remained uncured after the expiration of any
applicable notice and opportunity to cure periods: a material breach by Feldman
of his obligations under Sections 6 or 10(a) or the first and third sentences of
Section 16 hereof; or if Feldman takes any action which materially damages the
Corporation, except for actions taken by him in his capacity as a consultant or
director or pursuant to any rights of indemnification. Of the foregoing amounts,
$70,000 shall be allocated to the covenant not to compete contained in Section 6
hereof. The Corporation, after having consulted with its independent tax
advisors, believes that under current law none of the payments under this
Agreement are subject to tax withholding and the Corporation shall not issue a
Form 1099 (except with respect to amounts paid for consulting services provided
by Feldman pursuant to Section 10 hereof) or a Form W-2 to Feldman in respect
thereof unless hereafter otherwise required by a change in law.
5. Although as a result of this Agreement Feldman is no longer an
employee of the Corporation, the Corporation's 1993 Stock Option Plan (the
"Plan") is applicable to directors and consultants of the Corporation and its
Subsidiaries (as defined in the Plan) and shall remain applicable to Feldman,
subject to the provisions hereof. Effective September 30, 1998, all then
unvested options to purchase shares of Common Stock of the Corporation held by
Feldman shall immediately become vested on such date if Feldman is in material
compliance with the provisions of Section 6 of this Agreement and such options
shall be exercisable in full by Feldman at that time and remain exercisable as
provided herein. All unvested options held by Feldman as of the date hereof
shall continue to vest in accordance with their terms as if Feldman's employment
had not terminated, subject to accelerated vesting pursuant to the immediately
preceding sentence. All options held by Feldman shall continue to be exercisable
by Feldman in accordance with their terms so long as Feldman remains a director
of the Corporation as if Feldman's employment had not terminated, and upon his
no longer being a director the options shall continue to be exercisable until
the first to occur of two years from his ceasing to be a director or ten years
from the respective dates on which the options were granted. The provisions of
Section 14 of the Plan shall not apply to options held by Feldman or shares of
common stock issued upon exercise thereof. The provisions of this Section 5
shall be deemed to constitute an amendment to Feldman's stock option
certificates or other evidences of his option grants and the Plan as it relates
to Feldman's options, notwithstanding anything to the contrary contained
therein. The Corporation hereby confirms that the provisions of this Section 5
have been approved by the Corporation's Board of Directors and Stock Option
Committee. Notwithstanding anything to the contrary contained in this Section 5
or the Plan, options held by Feldman shall continue to be exercisable for a
period of at least two years after Feldman is no longer a director or consultant
to the Corporation or such longer period as may otherwise be provided herein,
but in no event for a period longer than ten years from the respective dates on
which the options were granted. The provisions of this Section 5 shall apply
even if Feldman dies or is disabled or for any reason ceases rendering services
to the Corporation or any of its Subsidiaries (as defined in the Plan) as
provided herein or contemplated hereby or if such services are terminated for
any reason, except as otherwise may be expressly provided in the second sentence
of this Section 5, and none of the foregoing shall operate to limit or prevent
the vesting or exercise of any of Feldman's options. The Corporation hereby
further confirms that all options granted to Feldman were validly granted and
are outstanding. Upon the request of Feldman, the Corporation will prepare and
timely file a Form 4 if Feldman advises the Corporation that such Form is
required to be filed in connection with the provisions of this Section 5.
6. (a) During the period commencing the date hereof and through and
including September 30, 1998, Feldman agrees that he shall not directly or
indirectly, for his own account or as agent, employee, officer, director,
trustee, consultant or shareholder of any corporation or a member of any firm or
otherwise, anywhere within 50 miles of metropolitan New York and within 25 miles
of any office of the Corporation engage or attempt to engage in any business
activity which is the same as, substantially similar to or directly competitive
with the Corporation.
(b) During the period commencing the date hereof and through and
including September 30, 1998, Feldman agrees that he shall not, directly or
indirectly, for his own account or as agent, employee, officer, director,
trustee, consultant or shareholder of any corporation, or member of any firm or
otherwise, employ or solicit the employment or retention of any court reporter
retained by the Corporation or any employee of the Corporation.
7. Until the later of September 30, 1998 or the date Feldman is no
longer a director of the Corporation (subject to the Corporation's applicable
insurance policies not prohibiting the same, or if they do the Corporation
obtaining permission from the insurance carriers, which the Corporation shall
use its best reasonable efforts to procure; in the event such permission is not
obtained, Feldman at his option may elect at any time or from time to time
either to (x) be entitled to receive, and not be deemed to have waived, any fees
or compensation for services as a director under Section 8 hereof or (y) have
the Corporation pay for his COBRA coverage), the Corporation shall continue to
pay for Feldman and his family all costs for medical and dental coverage under
the Corporation's medical and dental insurance plans; thereafter, the
Corporation will use its best reasonable efforts to make equivalent COBRA
coverage available to Feldman at Feldman's expense, up to age 65. At any time
Feldman ceases to participate in the Corporation's 401(k) plan, he may elect to
transfer any funds in his account to another account selected by him. The
provisions contained in this Section 7 shall not be subject to set off or
deduction by the Corporation.
8. If Feldman decides to remain as a director of the Corporation, he
shall not be entitled to any fees or compensation for services as a director
solely for so long as the Corporation provides and pays for his family medical
and dental insurance pursuant to Section 7 hereof; thereafter, Feldman shall be
entitled to any and all applicable directors fees and compensation. The
Corporation agrees to use its best efforts to cause Feldman to remain and
continue to be re-elected as a director of the Corporation for so long as he may
desire through the later of (a) September 30, 1998 and (b) the date Feldman or
his affiliates ceases to own an aggregate of at least 400,000 shares of Common
Stock (subject to adjustment to reflect stock splits or similar events) of the
Corporation if Feldman is not a principal, officer, director or greater than 5%
stockholder of a competing court reporting business. When Feldman is no longer a
director of the Corporation, the Corporation shall use its best efforts to have
Feldman released from all his rights and obligations under the October 23, 1996
Stockholders Agreement (the "Stockholders Agreement"). The Corporation hereby
agrees to indemnify and hold Feldman harmless from and against any and all
liabilities, obligations, claims, losses and expenses (including, without
limitation, reasonable attorneys' fees), which Feldman may suffer, incur or
otherwise have arising out of, or related to (x) the amendment dated as of the
date hereof to the Stockholders Agreement not being approved or executed by all
of the parties thereto or Feldman not being released from all his obligations
thereunder or Feldman's voting in favor of the election of Messrs. Geenen and
White as directors of the Corporation or (y) the Stockholders Agreement dated
June 22, 1994 not having been terminated in all respects. After Feldman is no
longer a director of the Corporation and is permitted under Rule 144(k) of the
Securities Act of 1933, as amended, to sell his shares, the Corporation will
cause any restrictive legend to be removed promptly from Feldman's stock
certificates. The Corporation further agrees to cause to be provided promptly,
upon Feldman's request, legal opinions enabling Feldman to sell his shares in
compliance with Rule 144.
9. The Corporation shall pay to the existing driver for Feldman's
automobile two months severance pay.
10. (a) From the calendar month which commences following the date
hereof through September 30, 1998, Feldman shall make himself reasonably
available at times and from time to time as may hereafter be mutually agreed
upon by Feldman and the Corporation during normal business hours to conduct one
sales meeting per calendar month. If Feldman is unable for personal reasons to
be available in any one or more particular months, Feldman shall so make himself
available for an additional sales meeting in a subsequent month; provided,
however, that at any given time no more than three sales meetings may be carried
forward to subsequent months. For such availability and any such services,
Feldman shall be paid, commencing as of the date hereof and continuing through
September 30, 1998, an amount equal to $1,500 per month, payable by the
Corporation on the first business day of each month, which shall not be subject
to setoff or deduction.
(b) Feldman may accept voluntary consulting assignments with the
Corporation from time to time through September 30, 1998, if, as and to the
extent as may hereafter be mutually agreed upon between the Corporation and
Feldman. Such assignments may include the solicitation of key accounts,
solicitation of acquisition candidates, training of sales personnel, attendance
at conferences and high level consulting. For such services, Feldman shall be
paid by the Corporation promptly $2,000 per day (or portion thereof) and will be
eligible for periodic grants of stock options and additional compensation for
exemplary service to the Corporation as reasonably determined by the Board of
Directors in the exercise of its discretion. In addition, Feldman will be
reimbursed promptly for his out-of-pocket expenses incurred in connection with
the foregoing upon submission of receipts or other documentation reasonably
evidencing the same. In performing such services, Feldman will be entitled to
travel in a manner consistent with past practice.
11. Each of the Corporation and Feldman shall be responsible for its
professional fees and out-of-pocket expenses incurred in connection with the
negotiation, execution and delivery of this Agreement.
12. The Corporation will continue to pay in accordance with its terms
the promissory note (without giving effect to any provisions therein contained
accelerating the payment of such note if Feldman is no longer employed by the
Corporation) dated September 30, 1993 in the original principal amount of
$600,000 payable to the order of Feldman; provided, however, that such amount
shall be paid without offset or deduction.
13. Except solely for its right to withhold amounts payable to Feldman
as and to the extent set forth in the second sentence of Section 4, the
Corporation shall not offset or deduct from any amounts, payments or benefits
now or hereafter payable or owing to Feldman hereunder any damages which may
arise in the event of or as the result of Feldman's breach of any of his
obligations hereunder or for any other reason. Notwithstanding the foregoing,
the Corporation shall not be deemed to have waived and may seek to exercise any
and all other rights and remedies (except for offset and deduction), it may have
in connection with any such breach, whether at law or in equity.
14. In the event of Feldman's death or disability, all payments
otherwise payable to, and benefits of, Feldman under this Agreement shall
continue to accrue and shall be payable to Feldman's estate or legal
representatives at the time or times otherwise payable hereunder to Feldman.
15. The Corporation and Feldman shall execute and deliver releases in
the form attached hereto. Concurrently herewith, the Corporation, Feldman and
certain other parties to the Stockholders Agreement are entering into an
amendment thereto in the form attached hereto.
16. Through September 30, 1998 and thereafter for as long as Feldman
is a director of the Corporation, Feldman agrees not to make to anyone outside
of his immediate family or legal or financial advisors or outside of the
Corporation any statements which are false, defamatory or derogatory in any
material respect, either orally or in writing, about the Corporation, its
officers or directors, and during the term of this Agreement and through
September 30, 1998 and thereafter for as long as Feldman is a director of the
Corporation the Corporation, Malcolm Elvey and Cary Sarnoff agree not to, and to
use their best efforts to cause the officers and directors of the Corporation
not to, make outside the Corporation any statements which are false, defamatory
or derogatory in any material respect, either orally or in writing, about
Feldman. Upon Feldman's request, the Corporation, Malcolm Elvey and Cary Sarnoff
will provide to Feldman solely positive references for submission by him to
third parties and, upon Feldman's prior written request, oral confirmation
thereof. Feldman agrees that he shall not take or disclose to anyone in
documentary form or otherwise at any time from and after the date hereof any
material confidential or proprietary information of the Corporation relating to
the Corporation's customers or sales, including, but not limited to, customer
calling cards, customer lists or pricing information; provided, however, that
this shall not prevent and shall not be construed to operate to limit Feldman
from using any such information which is known to him. Any documents of the
Corporation evidencing the foregoing are the property of the Corporation and may
not be removed from the premises of the Corporation. Feldman and the Corporation
agree to the joint press release attached hereto relating to the substance of
this Agreement and neither the Corporation nor Feldman shall issue a press
release or make any public statement relating to this Agreement without the
prior approval of the other party. Notwithstanding anything to the contrary
contained herein, Feldman shall be given the reasonable opportunity to
personally inform the staff of the Corporation of the changes in Feldman's
status. If there is a claim that any party violated the provisions of this
Section 16, the parties shall cooperate to resolve promptly such dispute and if
they are unable to do so to have such dispute promptly resolved by a mutually
acceptable independent mediator.
17. The provisions of Section 14(b) of the Employment Agreement will
survive the termination of the Employment Agreement and will apply and continue
to apply to (a) Feldman as a director of the Corporation and to all of Feldman's
actions and omissions and consulting or other services provided by Feldman to
the Corporation and its subsidiaries pursuant to or contemplated by this
Agreement, including, without limitation, his service as a director of the
Corporation and (b) any and all matters which occurred or arose in whole or in
part prior to the date hereof. Nothing contained in this Agreement shall be
deemed to release any rights which Feldman may have for indemnification from the
Corporation or otherwise under the Corporation's directors and officers
liability insurance policy.
18. In the event that the Corporation shall at any time or from time
to time believe that Feldman shall have committed a breach of, or be in default
of, this Agreement, or have committed any act under which the Corporation would
seek to withhold payment of any of the amounts set forth in and pursuant to the
provisions of the second sentence of Section 4, then the Corporation shall
promptly provide Feldman with written notice thereof, specifying the alleged
breach, default, act or omission, as the case may be, in reasonable detail, and
affording Feldman a period of at least ten days following Feldman's receipt of
such notice to cure any such alleged breach, default, act or omission.
19. Feldman agrees that all ideas, inventions, trademarks and other
developments or improvements conceived, developed or acquired by Feldman during
the term of his employment with the Corporation under the Employment Agreement,
whether or not during working hours, at the premises of the Corporation or
elsewhere, alone or with others, that are within the scope of the Corporation's
business operations or that relate to any work or projects of the Corporation
shall be the sole and exclusive property of the Corporation. Feldman agrees to
disclose promptly and fully to the Corporation all such ideas, inventions,
trademarks or other developments conceived, developed or acquired by Feldman
during the term of his employment under the Employment Agreement if not already
disclosed to the Corporation and, at the request of the Corporation, Feldman
shall submit to the Corporation a full written report thereof regardless of
whether the request for a written report is made after the termination of his
employment. Feldman agrees that upon the request of the Corporation and at its
expense, he shall execute and deliver any and all applications, assignments and
other instruments which the Corporation shall deem necessary or advisable to
transfer to and vest in the Corporation Feldman's entire right, title and
interest in and to all such ideas, inventions, trademarks or other developments
conceived, developed or acquired by Feldman during the term of his employment
under the Employment Agreement and to apply for and to obtain patents or
copyrights for any such patentable or copyrightable ideas, inventions,
trademarks and other developments. Notwithstanding the foregoing, none of the
foregoing provisions of this Section 19 shall apply to sales techniques.
20. Feldman acknowledges that the Corporation will suffer damages
incapable of ascertainment in the event that any of the provisions of Sections 6
or 19 or the third sentence of Section 16 hereof are breached and that the
Corporation will be irreparably damaged in the event that the provisions of
Sections 6 or 19 or the third sentence of Section 16 are not enforced.
Therefore, in the event of Feldman's breach or threatened breach of Sections 6
or 19 or the third sentence of Section 16 of this Agreement, Feldman agrees and
consents, that in addition to any and all other remedies available to the
Corporation, an injunction or restraining order or other equitable relief may be
issued or ordered by a court of competent jurisdiction restraining any breach or
threatened breach of Sections 6 or 19 or the third sentence of Section 16 of
this Agreement. Feldman agrees not to assert in any such action that an adequate
remedy exists at law. All expenses, including, without limitation, reasonable
attorney's fees and expenses incurred in connection with any legal proceeding
arising as a result of a breach of Sections 6 or 19 or the third sentence of
Section 16 of this Agreement shall be borne by the losing party to the fullest
extent permitted by law and the losing party hereby agrees to indemnify and hold
the other party harmless from and against all such expenses.
21. This Agreement shall be governed by the internal domestic laws of
the State of New York without reference to conflict of laws principles. This
Agreement shall be binding upon and inure to the benefit of the executors,
administrators, legal representatives, successors and permitted assigns of the
parties hereto (provided, however, that neither party shall have the right to
assign this Agreement or delegate any of its obligations hereunder without the
prior written consent of the other party). All headings and subheadings are for
convenience only and are not of substantive effect. This Agreement, including
the provisions of Section 14(b) of the Employment Agreement which expressly
survives as provided herein, constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all prior
negotiations, understandings and writings (or any part thereof) whether oral or
written between the parties hereto relating to the subject matter hereof. There
are no oral agreements in connection with this Agreement. Neither this Agreement
nor any provision of this Agreement may be waived, modified or amended orally or
by any course of conduct but only by an agreement in writing duly executed by
both of the parties hereto. If any article, section, portion, subsection or
subportion of this Agreement shall be determined to be unenforceable or invalid,
then such article, section, portion, subsection or subportion shall be modified
in the letter and spirit of this Agreement to the extent permitted by applicable
law so as to be rendered valid and any such determination shall not affect the
remainder of this Agreement, which shall be and remain binding and effective as
against all parties hereto. This Agreement may be executed in counterparts, each
of which when taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
--------------------------
David Feldman
ESQUIRE COMMUNICATIONS LTD.
By:_________________________
Print Name:
Title:
The first two sentences of Section 16
are hereby agreed to and the undersigned
hereby agree not to pursue, and hereby forever
waive and release, any claims
against Feldman relating to the subject of the
first sentence of Section 16
which may have occurred prior to the date hereof:
- ------------------------------
Malcolm L. Elvey
- ------------------------------
Cary A. Sarnoff
AMENDMENT NO. 2 TO PURCHASE AGREEMENT
THIS AMENDMENT NO. 2 TO PURCHASE AGREEMENT (this "Amendment") is made
as of January 9, 1998, by and among Esquire Communications Ltd., a Delaware
corporation (the "Company"), Golder, Thoma, Cressey, Rauner Fund IV Limited
Partnership, an Illinois limited partnership ("GTCR") and Antares Leveraged
Capital Corp., a Delaware corporation ("Antares" and collectively with GTCR
referred to herein collectively as the "Purchasers" or individually as a
"Purchaser"). Each capitalized term used herein which is not defined herein
shall have the meaning given to such term in the Purchaser Agreement.
WHEREAS, the Company and the Purchasers are parties to a Purchase
Agreement dated as of October 23, 1996 (the "Purchase Agreement") and Amendment
No. 1 to Purchase Agreement, dated as of June 17, 1997;
WHEREAS, the Company's execution of this Amendment is a condition for
the Purchasers' execution of Supplement No. 3 to Purchase Agreement, dated as of
the date hereof, between the Company and the Purchasers ("Supplement No. 3");
and
WHEREAS, the Company and the Purchasers desire to amend certain
provisions of the Purchase Agreement as set forth herein.
NOW, THEREFORE, the Parties to this Amendment hereby, for good and
valuable consideration, including, without limitation, in consideration for, and
as a condition to, the Purchaser's execution of Supplement No. 3, agree as
follows:
Section 1. AMENDMENT.
(a) The first sentence of Section 1A of the Purchase Agreement is
hereby deleted in full and the following sentence inserted in lieu thereof:
"The Company shall authorize the issuance and sale to the
Purchasers of 22,500 shares of its Series A Convertible Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"),
having the rights and preferences set forth in EXHIBIT A attached
hereto. By January 19, 1998 the Company shall have authorized the
issuance and sale to the Purchasers of 5,000 shares of its Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred Stock" and, together with the Series A Preferred Stock, the
"Preferred Stock") and made all filing required therefor, including
filing a Certificate of Designation with respect to the Series B
Preferred Stock, containing identical rights and preferences as the
Series A Preferred Stock, but providing that the Series B Preferred
Stock is junior to the Series A Preferred Stock and changing the
initial conversion price in Section 6.2(a) thereof from $3.00 to
$6.00."
(b) Section 1C(i) is hereby deleted in full and the following
paragraph inserted in lieu thereof:
"(i) (A) GTCR may, at its sole discretion, subject to clause (ii)
below, purchase from time to time prior to December 17, 1998, upon
written notice to the Company's board of directors (the "Board"), up to
an additional 15,000 shares of the Series A Preferred Stock at a price
of $1,000 per share (as adjusted from time to time as a result of stock
dividends, stock splits, recapitalizations and similar events).
(B) GTR may, at its sole election, subject to clause (ii)
below, purchase from time to time prior to July 9, 1999, upon written
notice to the Company's Board, up to 5,000 shares of Series B Preferred
Stock at a price of $1,000 per share (as adjusted from time as a result
of stock dividends, stock splits, recapitalizations and similar events)
(a purchase pursuant to clause (A) above or this clause (B), an
"Additional Purchase")."
Section 2. BOARD AUTHORIZATION. On or prior to the date of this
Amendment the Company's board of directors shall have authorized the execution,
delivery and performance of this Amendment. The Company hereby covenants that by
January 19, 1998 the Company's board of directors shall have authorized the
issuance of 5,000 shares of the Series B Preferred Stock (including without
limitation, filing the Certificate of Designation to provide for the designation
of 5,000 shares of the Series B Preferred Stock), and the reservation for
issuance upon conversion of the Series B Preferred Stock of an additional
833,333 shares of Common Stock plus any shares of Common Stock issuable upon
conversion of accrued dividends.
Section 3. COUNTERPARTS. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
This Amendment shall become effective upon the execution of a counterpart by
each of the parties hereto.
Section 4. EFFECT OF AMENDMENT. Except as expressly amended hereby,
the Purchase Agreement, as amended hereby and otherwise as in effect immediately
prior to this Amendment, continues in full force and effect in accordance with
the original terms thereof.
Section 5. APPLICABLE LAW. The corporate law of the State of Delaware
shall govern all issues and questions concerning the relative rights and
obligations of the Company and its stockholders. All other issues and questions
concerning the construction, validity, interpretation and enforceability of this
Amendment shall be governed by, and construed in accordance with, the laws of
the State of Illinois, without giving effect to any choice of law or conflict of
law provisions (whether of the State of Illinois or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Illinois.
Section 6. DESCRIPTIVE HEADINGS. The descriptive headings of this
Amendment are inserted for convenience only and do not constitute a part of this
Amendment.
Section 7. SEVERABILITY. Whenever possible, each provision of this
Amendment shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Amendment is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Amendment.
* * * * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year first above written.
ESQUIRE COMMUNICATIONS LTD.
By:_______________________
Its:______________________
GOLDER, THOMA, CRESSEY, RAUNER
FUND IV LIMITED PARTNERSHIP
By: GTCR IV, L.P.
Its: General Partner
By: Golder, Thoma, Cressey, Rauner, Inc.
Its: General Partner
By:__________________________
Its:__________________________
ANTARES LEVERAGED CAPITAL CORP.
By:__________________________
Its:__________________________
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, made as of September 1, 1997 (this "Agreement"),
by and between ESQUIRE COMMUNICATIONS LTD., a Delaware corporation ("ESQ.COM"),
and GREGORY J. MAZARES ("Mazares").
WHEREAS, ESQ.COM desires to retain the services of Mazares and Mazares
desires to be employed by ESQ.COM according to the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
1. EMPLOYMENT. Esq.Com hereby employs Mazares, and Mazares hereby
agrees to serve, as Senior Vice President of Marketing, Sales and Strategic
Planning of ESQ.COM, reporting to ESQ.COM's Chief Executive Officer, for the
Term of Employment as hereinafter defined. Mazares agrees to perform faithfully
and to the best of his ability such services customary to such office as shall
from time to time be assigned to him by ESQ.COM's Chief Executive Officer and/or
Board of Directors (the "Board") and, in the absence of such assignment, such
services customary to such positions as are necessary to the operations of
ESQ.COM. Mazares further agrees to use his best efforts to promote the interests
of ESQ.COM, and to devote his full business time and energies during normal
business hours to the business and affairs of ESQ.COM during the Term of
Employment.
2. TERM OF EMPLOYMENT. Mazares' employment hereunder shall be for the
period (the "Term of Employment") which shall commence on September 1, 1997 and
continuing through August 31, 1999, unless earlier terminated (a) upon death of
employee, (b) at the option of ESQ.COM upon 30 days' prior written notice to
Mazares, in the event of the inability of Mazares to perform his duties
hereunder, whether by reason of injury (physical or mental), illness or
otherwise, incapacitating Mazares for a continuous period exceeding 120 days,
(c) upon the discharge of Mazares by the Chief Executive Officer and/or Board of
ESQ.COM for cause, or (d) upon 30 days' prior written notice to Mazares, upon
the discharge of Mazares by the Chief Executive Officer and/or Board of ESQ.COM
without cause. A termination of the Term of Employment pursuant to this Section
2 shall become effective upon the delivery of notice, unless otherwise specified
in the aforementioned notice, informing Mazares of such termination and the
reasons therefor.
For the purposes of this Agreement, an event or occurrence
constituting "cause" shall mean the following:
(i) Mazares' failure or refusal, after notice therefor, to
perform specific directives of the Chief Executive
Officer and/or Board when such directives are
consistent with the scope and nature of Mazares' duties
and responsibilities as set forth in Section 1 hereof;
(ii) Dishonesty of Mazares affecting ESQ.COM;
(iii) Drunkenness or use of drugs which interfere with the
performance of Mazares' obligations under this
Agreement, continuing after warning;
(iv) Any gross negligence or willful misconduct of Mazares
resulting in substantial loss to ESQ.COM, substantial
damage to ESQ.COM's reputation or theft or defalcation
from ESQ.COM;
(v) Gross incompetence on the part of Mazares in the
performance of the duties undertaken by Mazares under
the terms of this Agreement;
(vi) Any other event or occurrence for which removal is
permitted under Section 2924 of the California Labor
Code, or any successor statutory provision; and
(vii) Any material breach (not covered by any of the clauses
(i) through (vi)) of any of the provisions of this
Agreement if such breach is not cured within 10 days
after written notice thereof to Mazares by ESQ.COM.
3. COMPENSATION DURING TERM OF EMPLOYMENT.
(a) COMPENSATION PACKAGE. Subject to Sections 3(b) and
3(c) hereof, as compensation for services hereunder
and in consideration of Mazares' covenants set forth in
Section 4, ESQ.COM shall pay Mazares during the Term of
Employment the following:
(i) BASE SALARY. A salary of $150,000 per annum,
except that for any period less than a complete
year such salary shall be prorated. Such salary
shall be payable in installments to conform with
the regular payroll dates for salaried personnel
of ESQ.COM and otherwise in accordance with the
policies of ESQ.COM. Salary may be subject to
increase during the Term of Employment at the
sole discretion of ESQ.COM and its Board.
(ii) BONUSES. A sign-on bonus in the amount of
$50,000, payable September 5, 1997, and an
additional bonus in the amount of $50,000, payable
September 1, 1998. In the event that Mazares'
base salary is at a level greater than $150,000
as of August 18, 1998, the amount of the bonus due
to Mazares on August 18, 1998 will be equal to
$200,000 less Mazares' annual base salary as of
August 18, 1998.
(iii) AUTOMOBILE ALLOWANCE. Commencing August 1997,
and throughout the Term of Employment, an
automobile allowance of $850.00 per month,
payable by separate check once per month. In
addition to the monthly automobile allowance,
ESQ.COM agrees to reimburse Mazares for the cost
of gasoline, insurance, tires, maintenance and
repairs upon the submission of documentation
supporting such expenses.
(iv) INCENTIVE COMPENSATION. Mazares will be eligible
to participate in an annual incentive
compensation program to be developed for all
senior management personnel of ESQ.COM.
Participation in any incentive compensation
program introduced by ESQ.COM will not impact any
of the other areas of the compensation package
due Mazares, except that Mazares will receive the
incentive compensation he earns less any annual
lump-sum bonus, as outlined in Section 3 a (ii)
above, he actually receives.
(v) INCENTIVE STOCK OPTIONS. Mazares will receive
options to purchase 100,000 shares of ESQ.COM
common stock. The option price will be set at
$4.00 per share. Options will vest at the rate
of 4,167 shares per month in which Mazares
remains employed in good standing by ESQ.COM
during the Term of Agreement. Thus, 50% (50,000
shares) will be fully-vested as of August 31,
1998 and 50% (the additional 50,000 shares) will
be fully-vested as of August 31, 1999. ESQ.COM
and its Board, at its sole discretion, may grant
additional stock options (at option prices to be
determined) to Mazares and other members of the
ESQ.COM senior management team.
(vi) VACATION. Mazares will be eligible to earn twenty (20)
days of paid vacation per annum, accruing at the rate
of 1.67 days per month. Carryover of earned but unused
vacation will be limited to ten (10) days per annum,
but never to exceed twenty (20) days carried over in
total.
(vii) OTHER BENEFITS. Mazares will be eligible to
receive the fringe benefits, perquisites, and
other benefits of employment enjoyed by all of the
five highest paid executives of ESQ.COM,
including, without limitation, inclusion in
ESQ.COM's Directors and Officers insurance
coverage, medical and dental insurance coverage
and premiums paid for Mazares and his spouse, and
participation in the ESQ.COM 401(k) plan and other
programs which may be introduced from time to
time.
(viii) RELOCATION. ESQ.COM agrees to pay for the
cost of Mazares' relocation to San Diego from Los
Angeles at any time during the Term of
Employment. The moving expenses will include,
but are not limited to, realtor fees; packing,
transporting and unpacking personal goods;
documented charges for utilities and other
one-time expenses incurred by Mazares in the
move-in to a new residence in San Diego; and
associated travel and expenses relating to the
acquisition or lease of a new residence in San
Diego. Until Mazares relocates to San Diego,
ESQ.COM agrees to cover the cost of lodging and
meals during periods in which it is necessary for
Mazares to stay overnight in San Diego.
(ix) GENERAL BUSINESS EXPENSES. Authorized expenses for
business travel, client entertainment, telephone,
facsimile, and other necessary business activities will
be reimbursed to Mazares according to ESQ.COM policy.
(b) PAYMENT UPON EARLY TERMINATION. In the event the Term
of Employment is ended by ESQ.COM pursuant to Section
2(d) hereof, Mazares shall be entitled to receive a
termination bonus of $200,000 payable over one year in
12 monthly installments at the rate of $16,667 per
month, commencing thirty (30) days after notice of
termination has been given, plus any other amounts
accrued under 3(a)iii, iv and vi to the end of the
month preceding the termination of the Term of Employment. The
payment of such termination bonus shall not affect Mazares'
right to exercise previously unexercised but vested stock
options according to the policies and guidelines within
ESQ.COM's Stock Option Agreement. In the event the Term of
Employment is ended pursuant to Section 2(a) or 2(b), Mazares or
his estate shall be entitled to receive his base salary earned
to the date of termination, together with any other amounts
accrued under Sections 3(a)iii, iv and vi to the end of the
month preceding the termination of the Term of Employment. In
the event that the Term of Employment is ended by ESQ.COM
pursuant to Section 2(c), or by Mazares, ESQ.COM shall have no
further obligation to make any payments of any kind whatsoever
to Mazares except that any base salary payments, bonuses,
incentive compensation, and/or earned but unused vacation
payments under Sections 3(a)i, ii, iv, and vi that Mazares shall
have earned prior to the date of termination but which shall not
yet have been paid shall be paid by ESQ.COM to Mazares.
(c) SALE OF ASSETS OR STOCK. In the event ESQ.COM, in one
or more related transactions, sells all or
substantially all of its assets or stock, and this
Agreement is not assigned to the purchaser of the
assets or stock, ESQ.COM shall be deemed to have
terminated Mazares according to Section 2 (d) hereof,
effective upon the closing of the sale or, in the case
of a series of related sales, the last related sale.
In the event ESQ.COM, in one or more related
transactions, sells all or substantially all of its
assets or stock, and this Agreement is assigned to the
purchaser of the assets or stock, ESQ.COM shall not be
deemed to have terminated Mazares as a result of such
assignment and ESQ.COM shall be discharged from its
obligations to Mazares hereunder and such purchaser
shall thereafter be deemed the "Employer" to Mazares
for all purposes under this Agreement.
4. COVENANT NOT TO COMPETE; INTELLECTUAL PROPERTY;
CONFIDENTIALITY. It is recognized by Mazares that the
business of ESQ.COM and Mazares' connection therewith is
or will be international in scope, and that geographical
limitations on the following covenants are therefore not
appropriate and, as a result of Mazares' employment by
ESQ.COM, Mazares will have access to trade secrets and
confidential information about ESQ.COM, its products and
services, customers and methods of doing business. In
consideration of the mutual premises and compensation
paid to Mazares hereunder, Mazares agrees as follows:
(a) COVENANT NOT TO COMPETE. While Mazares is employed by
ESQ.COM and for one (1) year after his date of
termination, Mazares will not, within any city, county
or state in the United States or in any foreign
country in which ESQ.COM is duly qualified to do
business, directly or indirectly own, manage, operate,
control, be employed by or participate in the
ownership, management, operation or control of, or
otherwise perform services for or be connected in any
manner with, any business of the type and character
engaged in and competitive with that of ESQ.COM. For
these purposes, Mazares' ownership of securities of a
public company not in excess of 1% of any class of
such securities shall not be considered to be
competition with ESQ.COM.
(b) INTELLECTUAL PROPERTY. During the Term of Employment,
and for as long thereafter as Mazares is providing
services to ESQ.COM (whether pursuant to this Agreement
or otherwise or whether Mazares is performing such
services for ESQ.COM or otherwise), Mazares will
disclose to ESQ.COM all ideas, inventions and business
plans developed by Mazares during such period which
relate directly to the business of ESQ.COM
(collectively "Intangible Rights"). Mazares agrees
that such Intangible Rights as may be developed by him
while actually engaged in the performance of the
services set forth in Section 1 hereof will be the
property of ESQ.COM and that he will, at ESQ.COM's
request and cost, do whatever is necessary to secure
the rights thereto by patent, copyright or otherwise to
ESQ.COM.
(c) CONFIDENTIALITY. Mazares agrees that he shall not
divulge to anyone (other than to ESQ.COM and its
affiliates or any persons employed or designated by
ESQ.COM) any knowledge or information of any type
whatsoever of a confidential nature relating to the
business of ESQ.COM or any of its affiliates,
including, without limitation, all types of trade
secrets (unless readily ascertainable from public or
published information or trade sources). Mazares
further agrees not to disclose, publish or make use of
any such knowledge or information of a confidential
nature without the prior written consent of ESQ.COM.
The provisions of this paragraph shall apply both
during the Term of Employment and thereafter.
5. BREACH BY MAZARES. Both parties recognize that the
services to be rendered under this Agreement by Mazares
are special, unique and extraordinary in character, and
that in the event of the breach by Mazares of the terms
and conditions of this Agreement to be performed by him,
or in the event Mazares performs services for any
person, firm or corporation engaged in a competing line
of business with ESQ.COM, then ESQ.COM shall be
entitled, if it so elects, to institute and prosecute
proceedings in any court or competent jurisdiction,
either in law or in equity, to obtain damages for any
breach of this Agreement, or to enforce the specific
performance thereof by Mazares, or to enjoin Mazares
from performing services for any such other person, firm
or corporation.
6. ASSIGNMENT. The rights and obligations of Mazares pursuant to this
Agreement may not be sold, transferred, delegated, assigned,
pledged, or hypothecated without the prior written consent of ESQ.
COM. The rights and obligations of ESQ.COM hereunder shall be
binding upon and shall run in favor of ESQ.COM and its successors
and assigns.
7. GOVERNING LAW; ARBITRATION OF DISPUTES.
7.1 GOVERNING LAW. This Agreement shall be deemed made
under and shall be governed by the substantive laws of
the State of California, excluding its conflict of laws
rules.
7.2 ARBITRATION. All disputes which arise under this
Agreement shall be settled by arbitration in the
City of Los Angeles (or such other location to be
mutually agreed upon by ESQ.COM and Mazares)
before a panel of three (3) arbitrators according
to the rules of the American Arbitration
Association. The losing party in any such
proceeding shall bear the costs and expenses of
the winning party. In the event a controversy or
claim should arise with respect to any
computation or payment of any amount owed under
this Agreement, the party alleged to owe the
amount shall pay to the other that portion of the
total amount that is not in dispute, and only that
portion of the amount that is in dispute shall be the
subject of the arbitration. The award of the
arbitrators shall be nonappealable, final, conclusive
and binding upon the parties and judgment thereon may
be entered in any court or competent jurisdiction.
8. NOTICES. Any notice to be given concerning this
Agreement shall be given in writing and either: (i)
sent by certified or registered mail, postage prepaid;
or (ii) hand delivered to the recipient personally.
In the case of the notice sent by mail, the date of
the giving of the notice shall be deemed to be: (i) the
date of the postmark if postmarked by the United
States Postal Service; or (ii) the date of the actual
receipt if not postmarked by the United States Postal
Service. In the case of the notice being hand
delivered, a written dated receipt shall be given
therefor. Hand delivery of any notice to ESQ.COM
shall be delivered to ESQ.COM's chief executive officer
personally.
8.1 Notice by mail shall be sent as follows:
If to Mazares: Gregory J. Mazares
10751 Wilshire Boulevard
Suite 709
Los Angeles, California 90024
If to ESQ.COM: Esquire Communications Ltd.
750 B Street
Suite 2350
San Diego, California 92101
Attention: Chief Executive Officer
8.2 By giving notice to the other party, either party may,
from time to time, designate (i) a different address to
which notice by mail to such party shall be sent and/or
(ii) a different person to receive notices which are
hand delivered.
9. CAPTIONS. Paragraph headings are for the convenience
of reference only and shall not be considered a part
of this Agreement.
10. SEVERABILITY. If any provisions of this Agreement are held
invalid or unenforceable, such invalidity or unenforceability
shall not affect the validity or enforceability of the other
portions hereof, all of which provisions are hereby declared
severable.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties hereto as to the subject
matter covered herein, and except as expressly noted otherwise,
all prior understandings and agreements are terminated and
merged herein and succeeded hereby.
12. AMENDMENT; WAIVER. No amendment or other modification of this
Agreement nor any waiver of any term of this Agreement shall be
valid unless it is in writing and signed by the party against whom
enforcement of the amendment, modification or waiver is sought. No
waiver by any party of the breach of any term contained in this
Agreement, whether by conduct or otherwise, in any one or more
instances shall be deemed to be or construed as a further or
continuing waiver of any similar breach or of the breach of any
other term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first written above.
ESQUIRE COMMUNICATIONS LTD. EMPLOYEE
By:______________________ By:______________________
DAVID A. WHITE GREGORY J. MAZARES
CHIEF EXECUTIVE OFFICER
Exhibit 21
All subsidiaries are 100% owned by Esquire Communications Ltd.
Esquire Deposition Services, Inc., a Delaware corporation
Esq. Com CSD, Inc., a Delaware corporation
Esq. Com Georgia, Inc., a Delaware corporation
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Esquire Communications Ltd:
We consent to incorporation by reference in the registration statement (No. 333-
33629) on Form S-8 of Esquire Communications Ltd. of our report dated March 27,
1998, relating to the balance sheets of Esquire Communications Ltd. as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the two-year
period ended December 31, 1997, which report appears in the December 31, 1997,
annual report on Form 10-KSB of Esquire Communications Ltd.
KPMG Peat Marwick LLP
San Diego, CA.
March 30, 1998
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0
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