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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________________
Commission file number: 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, $.02 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.02
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 26, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price, was approximately
$23,110,000.
As of March 25, 1999, the registrant had 5,171,979 shares of Common Stock
outstanding.
Registrant's revenues for the fiscal year ended December 31, 1998 were
$110,586,000.
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 the nation's leading
provider of court reporting services to law firms, insurance companies and
corporations through Company-owned offices located in 24 markets in 11 states
and the District of Columbia. In certain markets, the Company also provides
permanent and temporary staffing of legal and financial professionals, legal
video services, records retrieval, process service and document depository
services. The Company also has contractual relationships with approximately 400
independent court reporting, legal video and process service firms through its
DepoNet(R) marketing network, which enables the Company to deliver these
services to its clients in every market within the United States and in certain
international markets. In 1998, the Company provided court reporting and related
services to over 1,000 law firms, insurance companies and corporations.
Founded in 1988, the Company's predecessor was created to consolidate
the highly fragmented court reporting industry. In October 1996, Golder, Thoma,
Cressey, Rauner Fund IV, L.P. ("GTCR"), a private equity fund with a focus on
investing in and consolidating highly fragmented business services industries,
became a principal stockholder of the Company and has invested approximately $25
million to date and expanded the Company's operations to include other legal
support services. The Company subsequently recruited a senior management team
with significant experience in increasing profitability and managing and
implementing aggressive acquisition programs in consolidating service
industries. The Company's acquisition program has emphasized expanding into new
geographic markets through platform acquisitions, building market share in
existing markets through smaller "tuck-in" acquisitions and focusing on strong,
locally managed companies with a well-recognized market presence. Management has
further developed an integration strategy to (i) streamline operations to
increase the profitability of acquired operations, (ii) increase internal growth
and (iii) expand the range of legal support services available to its clients.
INDUSTRY
The legal support services industry is comprised of a broad range of
services that assist legal professionals in all aspects of their practice. Based
on available industry data, the Company believes that the market for court
reporting and temporary and permanent legal staffing services is growing and
exceeds $5 billion and is highly fragmented with more than 1,000 independent
court reporting and over 400 legal staffing firms. The Company believes that the
legal support services market is growing due to several trends, including an
increase in: (i) efforts by law firms and corporations, especially insurance
companies, to reduce legal expenses; (ii) the outsourcing of legal support
services to companies that specialize in providing such services; (iii) the use
of lawyers on a temporary basis by law firms and corporations; (iv) the volume
and complexity of litigation; and (v) the national scope of litigation,
particularly in class action and product liability lawsuits.
Legal support services, such as court reporting, records retrieval and
temporary and permanent legal staffing, traditionally have been marketed to law
firms. Increasingly, insurance companies and corporations, who ultimately pay
the cost of legal support services used by their counsel, are seeking to control
and reduce the costs associated with lawsuits, centralize their purchasing
decisions and ensure consistent service quality. As a result, these companies
are more frequently selecting the providers of legal support services
themselves, rather than delegating that decision to the law firms engaged to
represent them.
The highly fragmented legal support services industry consists
primarily of local and regional firms that typically provide a single or limited
number of services. Legal support businesses often lack a broad range of
services, regional or national coverage, access to capital or effective
marketing programs and, therefore, are unable to meet the needs of large,
geographically dispersed clients. In addition, as there are limited
opportunities for owners of local legal support service firms to obtain
liquidity or to sell their businesses, the Company believes that many such
owners will be receptive to consolidation.
OPERATING STRATEGY
The Company seeks to become the nationally recognized leader in
providing a broad range of legal support services. The key elements of the
Company's operating strategy are:
o FOCUS ON LEGAL SUPPORT SERVICES. The Company's core business has been
to provide court reporting and related services to the legal
profession. Law firms, insurance companies and corporations are
increasingly seeking to control costs and ensure quality.
Consequently, the Company believes these firms increasingly seek to do
business with companies that offer a range of legal support services
on a regional or national basis. The Company intends to offer a broad
range of legal support services to its current and prospective
clients. The Company requires distinct operational knowledge to screen
and recruit personnel with functional or industry expertise, to match
resources to client needs and manage, service and expand ongoing
client relationships. Recent acquisitions have given the Company
additional capabilities in permanent and temporary placement of legal
and financial professionals, records retrieval, process service and
document depository services. The Company continuously evaluates other
legal support services to offer to its clients.
o MAINTAIN STRONG LOCAL PRESENCE AND ENTREPRENEURIAL ENVIRONMENT. The
Company's management promotes a culture that rewards quality, client
service and performance. To capitalize on existing client
relationships of acquired companies and be responsive to local
business practices and market conditions, the Company intends to
continue to manage its business on a local basis. General managers are
given considerable latitude in running their day-to-day operations in
such areas as hiring, pricing and sales and are accountable for the
profitability of their operations. The Company believes that allowing
local management to retain appropriate autonomy and aligning their
long-term interests with those of the Company provide greater
opportunity for profitable internal growth and increase the Company's
attractiveness to prospective sellers. The Company believes its
operating structure enables it to react more effectively to business
opportunities in dynamic local markets as well as to utilize managers
of acquired companies as an important resource for identifying
additional acquisition candidates and implementing its acquisition
strategy.
o CENTRALIZE FUNCTIONAL MANAGEMENT. The Company's experienced corporate
management team provides support and strategic direction to assist
general managers in executing their local business and growth plans.
The Company's corporate management has developed financial and
administrative procedures to help integrate and manage the Company's
local operations. These systems and controls include the preparation
of annual business plans and budgets and the submission of detailed
daily, weekly and monthly financial reports, which are reviewed with
general managers. Corporate management also oversees marketing, human
resources and information technology to increase operating
efficiencies, maintain control and ensure consistent management of
these functional areas. The Company's corporate management also
conducts weekly operations committee meetings to review performance,
identify areas for improvement and develop strategies to increase
profitability.
o ATTRACT AND RETAIN HIGH-QUALITY PROFESSIONALS. The Company seeks to
attract, retain and develop strong local general managers through its
management development and training programs. In addition, the Company
places great emphasis on developing relationships with skilled court
reporters and recruiting permanent and temporary legal and financial
professionals. Operating employees screen each financial and legal
staffing candidate to assess qualifications and match the candidate
with specific client requirements. The Company further participates in
several legal trade associations and has developed an active
recruitment program.
o EMPHASIZE VALUE-ADDED SERVICES. The Company's marketing and
operational staff seeks to establish and maintain long-term client
relationships by developing knowledge of each client's business,
responding promptly to client needs and measuring individual job
performance and overall client satisfaction through a structured
quality assurance program. The Company offers additional value-added
services including video depositions, video editing, remote electronic
access to client deposition databases, electronic delivery of
depositions, client activity and cost savings reports and consolidated
billing. The Company targets clients who consider quality of service,
such as timeliness, accuracy and customized solutions, to be as
important as pricing of services.
INTERNAL GROWTH STRATEGY
The Company's internal growth strategy will focus on the following key
elements:
o OFFER A BROAD RANGE OF SERVICES. The Company believes that national
and regional clients are increasingly contracting with service
providers, such as the Company, that are capable of delivering a broad
range of legal support services. Many of the businesses acquired by
the Company to date have specialized in providing a narrow range of
legal support services. The Company seeks to capitalize on the trend
towards consolidation of service providers and is implementing a plan
to introduce permanent and temporary placement of legal professionals,
records retrieval, process service and document depository services
into each of the Company's existing operations within the next 18
months. The Company will introduce a range of services in new markets
in which the Company makes platform acquisitions in an effort to meet
client demands.
o DEVELOP NEW AND LEVERAGE EXISTING CLIENT RELATIONSHIPS. The Company
intends to establish new client relationships through expansion of its
sales force. The Company's business development process focuses on
regular contact with decision makers responsible for procuring legal
support services. These client contacts work within numerous
functional areas and at many different levels of the client's
organization. The Company's sales personnel are trained to develop a
thorough understanding of each client's total legal support services
needs and are motivated to identify opportunities to sell additional
services to existing clients. The Company believes that cross- selling
opportunities exist as a result of the interrelationships among its
service offerings, thereby enabling the Company to leverage new and
existing relationships.
o LEVERAGE THE ESQUIRE BRAND TO DEVELOP A NATIONAL ACCOUNTS PROGRAM. The
Company is engaged in an initiative to transition the brand names of
the local and regional companies it has acquired to the Esquire brand
name. The Company believes that it is developing significant brand
equity through its leadership position in court reporting services and
intends to further leverage the Esquire brand to develop a national
accounts program. Large national law firms, insurance providers and
corporations are increasingly seeking to centralize their purchasing
decisions to control litigation costs and ensure quality. The Company
believes that a national accounts program will allow it greater access
to senior decision-makers, which management believes will enable the
Company to increase market share and achieve marketing efficiencies
and greater operating leverage. To date, the Company has established
several national and regional relationships with corporate law
departments and large law firms. The Company has also entered into a
marketing alliance with the American Corporate Counsel Association
("ACCA") to serve as ACCA's preferred provider of court reporting
services for corporate law departments.
o OPEN NEW LOCATIONS. The Company continually evaluates potential
expansion into new geographic markets. To facilitate entry into new
markets, the Company transfers or recruits experienced personnel to
manage new locations as they are opened. The Company opened an office
in 1997 in the San Francisco market and intends to open offices in
four new markets over the next 18 months.
o LEVERAGE DEPONET(R) REFERRAL NETWORK. The Company provides referrals
for court reporting, process service and legal video services through
its DepoNet(R) subsidiary, a referral network with contractual
relationships with approximately 400 independent court reporting,
legal videography and process service firms. DepoNet(R) targets legal
professionals who require services outside of their normal work
locations, but do not have the ability to easily identify and contact
directly quality out-of-town providers. Using sophisticated
call-forwarding telecommunications technology, DepoNet(R) is a
marketing delivery system that enables the Company to provide services
in every zip code in the United States and in certain international
markets through either Company-owned operations or through members of
the DepoNet(R) system (who pay an annual license fee to the Company).
The Company leverages the DepoNet(R) system, which receives in excess
of 75,000 calls annually, to service approximately 25% of these
requests through its Company-owned operations. The Company expects the
retention rate to increase as it opens or acquires additional
locations in new markets and also plans to offer other legal support
services that it may make available through the DepoNet(R) system.
ACQUISITION STRATEGY
The Company's corporate management has extensive experience in
acquiring and integrating service businesses in consolidating industries. The
Company has an acquisition committee that reviews and evaluates potential
acquisition candidates. Since the formation of the new management team, the
Company has acquired 37 court reporting companies and three providers of
permanent and temporary staffing of legal and financial professionals. The
Company believes its national presence, strategies, reputation and locally
focused, entrepreneurial management structure facilitates its effort to acquire
companies. In targeting acquisitions, the Company will continue to focus on
businesses with a history of profitable operations, a strong management team, a
strong local market position, services that complement the Company's operations
and compatible corporate philosophies and culture. The Company's acquisition
growth strategy consists of the following key elements:
o ENTER NEW MARKETS THROUGH PLATFORM ACQUISITIONS. The Company presently
operates in 24 markets and intends to expand into additional major
metropolitan markets. The Company will continue to target acquisitions
in new markets where the Company seeks to establish operations,
particularly in markets with substantial legal activity.
o ACQUIRE SMALLER TUCK-IN BUSINESSES IN EXISTING MARKETS. The Company
targets businesses in existing markets to increase market share and
leverage the Company's fixed cost structure in each existing market.
Tuck-in acquisitions also enable the Company to leverage the existing
relationships of the acquired businesses in that local market.
Furthermore, such acquisitions enable the Company to retain
experienced professionals and avoid the costs and time associated with
hiring new personnel.
o EXPAND SERVICE OFFERINGS. The Company intends to pursue acquisitions
of firms that will expand its service offerings. In 1998, the Company
acquired three providers of permanent and temporary staffing of legal
and financial professionals. These firms establish the Company's
management and service capabilities and serve as a platform to expand
these new services throughout the Company-owned operations.
The following table summarizes the Company's acquisition activity
since the formation of the new management team in February 1997. All
acquisitions were of court reporting firms, except as otherwise indicated.
Date of
Acquired Company Acquisition Markets Served
Wolfe, Rosenberg & Associates......... May 1997 Chicago
Krauss, Katz & Ackerman............... June 1997 Philadelphia
American Network Services
(DepoNet)........................... June 1997 Nationwide Referral
Network
Hyatt Court Reporting................. August 1997 Denver
Kim Tindall & Associates.............. October 1997 San Antonio
Associates/Certified Reporting........ October 1997 Fort Lauderdale
County Reporting...................... October 1997 Fort Lauderdale
Justice Reporting..................... October 1997 Fort Lauderdale
Lauderdale Reporting.................. October 1997 Fort Lauderdale
Merit Reporting....................... October 1997 Fort Lauderdale
Haynes & Harpster Court Reporters..... October 1997 Southern California
Cynthia Varelli....................... October 1997 Chicago
Jurist-Begley Reporting Services...... November 1997 Philadelphia
Henry Jacobs & Associates............. December 1997 New York City
Certified Reporting Company........... December 1997 New York City
A&A Court Reporters................... January 1998 Houston
Brody & Geiser........................ January 1998 Northern New Jersey
Kerns & Gradillas..................... January 1998 Southern California
Jewelinski Court Reporters............ February 1998 Southern California
Friedli, Wolff & Pastore.............. February 1998 District of Columbia
VerbaVolant........................... March 1998 New York City
McGuire's Reporting Service........... March 1998 Chicago
Morrissy & Others..................... March 1998 Chicago
Pollock & Upshaw...................... April 1998 San Antonio
Atlantic Court Reporting.............. April 1998 Fort Lauderdale
Bright & Associates................... May 1998 Austin
Riggleman, Turk & Nelson.............. May 1998 Baltimore
A-L Associates(1)/A-L Attorneys on
Assignment(2)....................... May 1998 New York City
Rubin Reporting....................... May 1998 Chicago
Summit Reporting(3)................... June 1998 Houston
Hamilton-Legato Deposition Centers.... June 1998 Michigan
Cooksey-Regal Deposition Reporters.... July 1998 Sacramento
Messenger and Associates.............. July 1998 Dallas
Mudrick Witt Professional
Reporting........................... July 1998 South Florida
Sandra S. Phillips and Associates..... August 1998 Sacramento
Gregory & Gregory Associates(1)/
Gregory & Gregory Staffing(2)....... August 1998 New York City
Lieberman & Chaim..................... October 1998 Philadelphia
Precise/Verbatim Reporting............ November 1998 Ft. Lauderdale
Mannion Reporting..................... November 1998 Southwest New Jersey
The Granite Group(2).................. December 1998 New York City
CAT-LINKS Incorporated(4)............. January 1999 Southern California
- ----------
(1) Permanent staffing services.
(2) Temporary legal staffing services.
(3) Includes document retrieval business.
(4) Computer software development.
LEGAL SUPPORT SERVICES OFFERED BY THE COMPANY
The Company provides court reporting, records retrieval, process
service, permanent and temporary placement of legal and financial personnel and
document depository services as described below.
COURT REPORTING. 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: (i) the recording of proceedings
in court, or "official" court reporting and (ii) all other private sector court
reporting. Official court reporting is performed by civil servant court
reporters employed by local, state or federal courts. All other private sector
court reporting is performed outside the courtroom by free-lance court
reporters, who are self-employed or employees of, or have an independent
contractor relationship with, a court reporting agency. Through the use of
independent contractors, the Company provides court reporting services for legal
proceedings (typically civil proceedings) 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. The
Company can provide its clients with a transcript in an electronic format
thereby enabling the client to search, store, index, annotate and manage the
transcribed information. Documents can be searched easily for relevant portions
of testimony and can be integrated into larger databases containing other
information pertaining to a particular proceeding.
Most states require court reporters to be licensed, which requires
them to attend a certified court reporting school and pass required
examinations. Court reporting requires a skilled professional capable of
transcribing speech, which generally approximates 200 words per minute, using
shorthand symbols. Most of the Company's court reporters use a computer-aided
transcription ("CAT") system for transcribing the spoken word into phonetic
symbols. The shorthand notes, which can be recorded in both paper and electronic
form, are translated and edited to produce a final transcript. CAT systems
enable the computer to interpret the shorthand symbols and translate them into
English.
The Company believes that the services it provides through the
following technologies offer its clients significant value and its experience
and expertise in the use of such technologies gives it a competitive advantage
over court reporting firms that have not successfully integrated these
technologies into their regular service offerings. The Company's value- added
services include:
o LEGAL VIDEO SERVICES. The Company provides a staff of certified legal
video specialists using broadcast quality equipment to record
depositions, presentations and other events. The Company provides
editing, indexing and courtroom playback that enables the client to
search time-coded transcripts and retrieve key segments of testimony
with software that synchronizes the video with the text of the
transcript. Video has gained wider acceptance among legal
professionals as a strategic tool to impeach adverse witnesses.
o REALTIME TRANSCRIPTION. The Company's court reporters provide instant
transcripts of testimony on lap-top computer monitors, which may be
located where the testimony is taking place, as well as at remote
locations. This system also allows attorneys to receive a transcript
of the testimony on diskette at the conclusion of the proceeding.
o INTERACTIVE REALTIME TRANSCRIPTION. Interactive realtime transcription
enables an attorney to connect a computer to the court reporter's
system using specialized software which enables the attorney to review
earlier testimony and make notes during or immediately following the
deposition.
o TEXT SEARCH AND RETRIEVAL PROGRAMS. The Company uses specialized
software that enables the client to search, store, index and manage
transcripts and other documents to locate a word or portion of text
quickly and easily.
RECORDS RETRIEVAL. Records retrieval services are labor-intensive and
involve the preparation, handling, tracking and delivery of large numbers of
written documents from public or private sources, a significant portion of which
involves medical records acquired on behalf of insurance companies and their
counsel, for litigation or other legal proceedings.
PROCESS SERVICE. Process service includes the preparation and delivery
of written notices and subpoenas and the monitoring of the recipient's response.
PERMANENT AND TEMPORARY PLACEMENT OF LEGAL AND FINANCIAL
PROFESSIONALS. The Company provides permanent and temporary staffing of legal
and financial professionals as a result of the Company's 1998 acquisitions of
three leading New York-based executive search firms. The Company's permanent
placement activities consist primarily of the recruitment and placement of legal
and financial professionals with financial services firms, law firms and
corporate legal departments. The Company is engaged and paid by the hiring firm
or corporation on either an exclusive or non-exclusive basis pursuant to
arrangements that may include a non-refundable retainer paid to the Company or
that entitle the Company to a fee contingent upon the successful placement of a
candidate with the client. Temporary attorney or paralegal assignments may range
from one day to more than a year and may involve one professional or a team of
professionals.
DOCUMENT DEPOSITORY SERVICES. The Company offers document depository
services which include document storage, archiving, indexing and retrieval of
documents in a hardcopy or digital format. The Company is able to quickly
retrieve specific documents on demand for use by its clients in various legal
proceedings.
CLIENT RELATIONSHIPS, SALES AND MARKETING
The Company believes that its clients purchase services based on a
variety of factors, the most important of which are the quality of the local
service provided, the strength of their relationship with the Company and price.
The Company's client base is comprised of more than 1,000 law firms, insurance
companies and corporations. The Company has a broad client base, and no single
client accounted for more than 2.0% of the Company's revenue for 1998. Clients
typically engage the Company for a single job, an entire litigation matter or
pursuant to a contractual relationship to provide ongoing legal support services
on a regional or nationwide basis.
The Company has developed sales and marketing strategies to expand its
business with local, regional and national accounts. As a cornerstone of this
strategy, the Company is currently implementing a new corporate identification
program through which it is transitioning the brand identity of each owned
operation from its original name at acquisition to the Esquire name. The program
involves the design and implementation of new letterhead and print materials and
is supported by an extensive advertising, public relations and direct marketing
campaign in each local market. The Company intends to continue to create
national awareness of and value in the Esquire brand, under which the Company
believes it will be able to more efficiently market a broad line of legal
support services. The marketing plan also focuses on converting satisfied local
clients to the Esquire name.
In May 1998, the Company entered into a two-year marketing alliance
with the ACCA, the largest national trade association for in-house corporate
attorneys. Under this agreement, ACCA, which has over 12,000 members, endorses
the Company as a preferred provider for court reporting services in return for
the Company's sponsorship of several association events and initiatives each
year. This alliance offers the Company access to ACCA members who manage
corporate law departments across the nation.
The Company's general managers and local sales staff target regional
and local accounts, permitting the Company to capitalize on the local expertise
and client relationships of its branch office employees. The Company currently
employs 33 local, four national and eight staffing sales representatives and
plans to add additional sales representatives in 1999. The Company also views
its network of independent court reporters as a source of new business and has
introduced an incentive program designed to motivate court reporters to generate
additional new and repeat business. The Company solicits new business through
personal sales presentations, telemarketing, direct mail, referrals from
existing clients and advertising in a variety of local and national legal trade
publications and journals. The Company also participates in a number of legal
trade shows.
Sales personnel are compensated with a competitive base salary and can
earn substantial commissions calculated as a function of gross profit from
individual jobs. Court reporters have the opportunity to earn similar
commissions by originating new business.
COMPETITION
The market for legal support services is highly competitive. The
Company competes with numerous local and regional court reporting and record
retrieval companies, and also competes with permanent and temporary legal
staffing companies, including national temporary staffing firms. There can be no
assurance that these businesses will continue to increase their outsourcing of
legal support and staffing services needs or that such businesses will not bring
in-house services that they currently outsource. Certain of the Company's
competitors in legal staffing have substantially greater resources and operate
in broader geographic areas than the Company. Many larger clients retain
multiple legal support and placement and staffing service providers, which
exposes the Company to continuous competition. The Company competes primarily on
the basis of quality, personal relationships with clients, reputation, breadth
and timeliness of service, geographic coverage and price.
The Company believes that further consolidation among legal support
services providers will continue during the next few years and that there will
be significant competition for attractive acquisition candidates. This
competition could lead to higher prices being paid for businesses. The Company
believes that it will have certain advantages in completing acquisitions,
including: (i) management's personal relationships with existing legal support
companies; (ii) its decentralized, entrepreneurial management strategy; and
(iii) its greater size and scope of services. However, there can be no assurance
that the Company's acquisition program will be successful or that the Company
will be able to compete effectively for acquisitions.
INDEPENDENT CONTRACTORS
The Company provides court reporting services through the use of
independent contractors who are not employees of the Company. The Company has
active relationships with in excess of 1,000 independent contractors. The
Company does not pay federal or state employment taxes or withhold income taxes
with respect to these independent contractors or include such persons in the
Company's employee benefit plans. Independent court reporters are responsible
for purchasing and operating their own court reporting equipment. The use of
independent contractors as court reporters is a widespread practice in the court
reporting industry. In the event the Company were required to treat court
reporters as its employees, the Company could become responsible for the taxes
required to be paid or withheld and could incur additional costs associated with
employee benefits and other employee costs on both a current and retroactive
basis, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of March 1, 1999, the Company had approximately 700 full-time
employees. The Company's employees are not represented by a collective
bargaining agreement. Hourly wages for the Company's temporary employees are
determined based on local market conditions. The Company pays mandated costs of
employment, including the employer's share of social security taxes, federal and
state unemployment taxes, unemployment compensation insurance, general payroll
expenses and workers' compensation insurance. The Company offers access to
various insurance programs and benefits to its temporary employees. The Company
believes its employee relations are good.
REGULATION
Court reporters in many states and attorneys in every state are
subject to licensure requirements and to the continuing oversight by their
respective regulatory bodies, many of whom have broad discretion in interpreting
and enforcing applicable laws and regulations. The conduct of court reporters is
also subject to ethical and other restrictions imposed by state laws and
regulations. While these regulations are not directly applicable to the Company,
they affect the Company's court reporting business. Legislation has been adopted
by several states, where the Company does not currently have Company-owned
operations, and in Georgia, where the Company does have a Company-owned
operation, that prohibit the provision of services by a court reporter under any
agreement other than on a case-by-case basis. Legislation has also been enacted
or proposed in certain other states that prohibit a court reporter from being
employed by, or serving as an independent contractor for, a court reporting firm
unless a majority of the firm is owned by certified shorthand reporters. Any
such laws effectively prohibit the Company from providing court reporting
services in such states. The Company expects that there will continue to be
efforts to sponsor the adoption of similar prohibitions by legislative or
regulatory action or through the ethics codes governing the conduct of court
reporters. In addition, recent federal and state legislative proposals have
included limitations on the number and length of depositions or have proposed
the substitution of video tape recording for stenographic transcription of
certain legal proceedings.
In addition, attorneys are subject to significant regulation by
committees on legal ethics and professional responsibility of the various state
and national bar associations, who, from time to time, examine and issue
opinions regarding attorney services, including the use of temporary attorneys
through a placement agency. These opinions have suggested that the payment of
fees to agencies that place temporary attorneys may constitute, in certain
circumstances, the improper splitting of legal fees with a non-lawyer. The
applicability of these opinions to the Company's business is uncertain, and
there can be no assurance that a state will not determine that the business as
conducted by the Company violates ethical or professional responsibility
regulations for attorneys. In addition, the practice of placing temporary
lawyers with a number of firms may raise conflict of interest issues under
applicable ethics codes, particularly when attorneys from the same placement
firm are placed with opposing parties, or law firms representing such parties,
in a lawsuit or business transaction.
Although the Company believes that its existing operations, which
include an integrated offering of legal support services in one state, are in
material compliance with applicable laws, the relationships among various legal
support services are unique, and many aspects of these relationships have not
been subject to judicial or regulatory interpretations. The Company has not
sought judicial or regulatory interpretations with respect to the manner in
which it conducts and plans to conduct its business. Changes in these laws and
regulations, particularly in the states from which the Company derives most of
its revenues, could have a material adverse effect on the Company's business,
financial condition or results of operations.
ITEM 2. PROPERTIES
The Company leases office space in all the locations where the Company
operates. The leases generally run for a term of five years and expire at
various dates ranging from October 31, 1999 through August 31, 2008, with annual
rents ranging from $13,900 to $422,600. 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. The Company believes its
facilities are generally adequate for its needs and does not anticipate
difficulty replacing such facilities or locating additional facilities if needed
in the future.
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
On November 17, 1998, the Company held its annual meeting of
stockholders to vote for the election of directors, to amend the Company's 1993
Stock Option Plan, to amend the Company's Certificate of Incorporation to
effectuate a reverse one-for-two stock split of its Common Stock and to approve
the appointment of KPMG LLP as independent public auditors. All directors were
elected and all proposals were approved.
The votes with respect to election of directors and the proposals were
as follows:
FOR WITHHELD
Malcolm L. Elvey 12,808,961 25,205
Mortimer R. Feinberg 12,810,961 23,205
David A. Higson 12,808,628 25,538
Gary L. Monroe 12,810,028 24,138
Joseph P. Nolan 12,763,528 70,638
Bruce V. Rauner 12,810,028 24,138
Cary A. Sarnoff 12,811,261 22,905
David A. White 12,810,628 25,538
Amendment of Stock Option Plan:
For Against Abstain Broker Non-Votes
10,911,063 579,200 26,850 1,317,053
Amendment of Certificate of Incorporation:
For Against Abstain Broker Non-Votes
12,731,938 77,363 24,865
Approval of auditors:
For Against Abstain Broker Non-Votes
12,813,303 17,260 3,603
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
All share and per share information set forth herein has been adjusted
to reflect the Company's one-for-two reverse stock split of its Common Stock
which occurred in November 1998. 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, 1997. 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
1998
First Quarter $14.75 $9.50
Second Quarter 13.75 10.50
Third Quarter 14.50 6.50
Fourth Quarter 7.125 4.25
1997
First Quarter $9.25 $4.75
Second Quarter 11.25 6.50
Third Quarter 18.75 9.126
Fourth Quarter 17.25 9.25
There were approximately 120 stockholders of record of Common Stock as
of March 25, 1999. 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 declaration or 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, capital requirements, financial condition, and other
relevant factors. Pursuant to the terms of the Company's Series A and Series C
Preferred Stock and Credit Agreement with its lenders, the Company is prohibited
from paying cash dividends on its Common Stock. The Company has paid cash
dividends on its Series A Preferred Stock. The Company presently intends to
retain all earnings for use in its business and does not anticipate declaring or
paying cash dividends on its Common Stock in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
Revenue from court reporting services are primarily derived from
services provided for recording sworn testimony at depositions and typically are
based on the number of pages transcribed, with a significant portion of revenues
being derived from the production of additional certified copies. Substantially
all of the Company's court reporting services are performed by independent
contractors. Under arrangements with independent court reporters, the Company
retains a portion, averaging 50%, of the total court reporting fee and the
independent court reporter receives the balance. The different types of court
reporting services provided by the Company yield varying profit margins, with
accelerated delivery transcripts, transcript copies and compressed transcripts
providing higher margins. In addition, profit margins vary among the different
geographic markets in which the Company operates. The Company also derives
revenues from its DepoNet(R) network, which consists, in part, of over 400
affiliated firms in locations not directly served by the Company. Under
contractual arrangements with DepoNet(R) members, the Company refers court
reporting and certain other assignments to network participants for which it
receives an annual fee.
The Company recruits and places legal professionals on a temporary or
contract basis. The Company charges its clients an hourly fee for the number of
hours worked by attorneys and paralegals placed with clients on a temporary or
contract basis. Recruiters are paid commissions based upon revenues from hourly
fee income less the direct cost of the attorneys or paralegals placed. The
Company's permanent placement recruiters are compensated on a commission basis.
Fees for successful placement of professionals typically are based upon a
percentage, approximately 25% to 30% of such professional's total compensation
earned during the year following the placement, of which 40% to 50% is
customarily paid to the individual permanent placement recruiter. This fee is
subject to a partial refund if the new employment arrangement is terminated
prior to the expiration of a negotiated period, usually three months.
Since 1993, the Company has pursued an aggressive acquisition
strategy, having acquired 45 court reporting companies and three permanent and
temporary staffing companies. Of these acquisitions, three were acquired in 1996
(the "1996 Acquisitions"), 17 were acquired in 1997 (the "1997 Acquisitions")
and 25 were acquired in 1998 (the "1998 Acquisitions"). All but one of these
acquisitions have been accounted for using the purchase method, and a
substantial portion of each acquisition's purchase price is represented by
goodwill. The Company will incur non-cash charges as a result of the
amortization of such assets over their lives.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. Revenue increased by approximately $57.4 million, or 108.0%,
to $110.6 million in 1998 from $53.2 million in 1997. Substantially all of the
increase was due to the effect of acquisitions completed after June 30, 1997.
OPERATING EXPENSES. Operating expenses increased by approximately
$33.2 million, or 109.6%, to $63.5 million in 1998 from $30.3 million in 1997.
This increase was consistent with the increase in revenue. Operating expenses as
a percentage of revenue increased to 57.4% in 1998 from 57.0% in 1997. This
small increase is the result of higher operating expenses, principally salaries,
in the staffing business, which was added in 1998 as compared to the court
reporting business.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by approximately $17.2 million, or 85.6%, to $37.2 million in
1998 from $20.0 million in 1997. General and administrative expenses in 1998
included approximately $839,000 relating to the write-off of costs
associated with its abandoned secondary offering, and general and administrative
expenses in 1997 included approximately $1.3 million 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. Excluding the foregoing items, general and administrative expenses
increased by approximately $18.6 million, or 104.1%, to $36.4 million in 1998
from $17.8 million in 1997. The increase was largely due to expenses related to
the acquisitions completed after June 30, 1997, consisting of payroll and
occupancy expenses, as well as increased sales compensation, marketing and
promotional expenses and administrative support expenses due to increased
revenue levels. Excluding the items described above, general and administrative
expenses as a percentage of revenue decreased to 32.9% in 1998 from 33.5% in
1997. This decrease was due to the large number of tuck-in acquisitions
completed in 1998 (which allowed the Company to operate the acquired businesses
through its existing infrastructure), resulting in a lower impact of corporate
overhead as a percentage of revenue.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
by approximately $2.2 million, or 88.5%, to $4.7 million in 1998 from $2.5
million in 1997. This increase was due primarily to additional amortization
resulting from the 1997 and 1998 Acquisitions. A significant component of the
amortization expense relates to goodwill, which is the cost in excess of fair
market value of net tangible assets of acquired businesses.
INCOME FROM OPERATIONS. Income from operations increased by
approximately $4.8 million to $5.1 million in 1998 from $326,000 in 1997.
Excluding the $839,000 relating to the write-off of costs associated with
its abandoned secondary offering in 1998, and approximately $1.3 million
relating to an officer's termination agreement and termination expenses relating
to certain marketing activities and approximately $922,000 in costs incurred in
connection with an acquisition accounted for using the pooling of interests
method of accounting in 1997, income from operations increased by approximately
$3.5 million, or 135.0%, to $6.0 million in 1998 from $2.5 million in 1997.
Excluding the foregoing items, income from operations as a percentage of
revenues increased to 5.4% in 1998 from 4.8% in 1997.
OTHER EXPENSE, NET. Other expense, net, consisting primarily of
interest expense, increased by approximately $3.9 million to $6.6 million in
1998 from $2.7 million in 1997 due to the incurrence of additional debt to
finance acquisitions and to fund working capital.
PROVISION FOR INCOME TAXES (BENEFIT). The Company recorded a tax
benefit of approximately $589,000 in 1998 as a result of a tax refund generated
by the carryback of its tax loss generated in 1997, and recorded a tax expense
of approximately $125,000 in 1997 as a result of offsetting the majority of its
current income tax expense by utilizing its deferred tax asset.
<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUE. Revenue increased approximately $23.7 million, or 80.3%, to
$53.2 million in 1997 from $29.5 million in 1996. Substantially all of the
increase in revenue was due to the 1997 Acquisitions as well as a full year of
operating results from the 1996 Acquisitions.
OPERATING EXPENSES. Operating expenses increased by $13.6 million, or
81.8%, to $30.3 million in 1997 from $16.7 million in 1996. Operating expenses
as a percentage of revenue increased to 57.0% in 1997 from 56.5% in 1996. This
increase was due primarily to the increase in revenue of acquired companies
during the year which generally experienced higher operating expenses, offset,
in part, by the benefit of the ongoing standardization and integration of these
acquired companies.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased by approximately $9.4 million to $20.0 million in 1997 from
$10.6 million in 1996. General and administrative expenses in 1997 included
approximately $1.3 million relating to an officer's termination agreement and
termination expenses relating to certain marketing activities, as well as
approximately $922,000 of costs incurred in connection with an acquisition
accounted for under the pooling of interests method of accounting. General and
administrative expenses in 1996 included a $150,000 expense relating to a
sublease loss. Excluding these items, general and administrative expenses
increased by approximately $7.4 million, or 70.8%, to $17.8 million in 1997 from
$10.4 million in 1996. Excluding the foregoing items, general and administrative
expenses, as a percentage of revenue, decreased to 33.5% in 1997 from 35.4% in
1996. This decrease was due to the large number of tuck-in acquisitions
completed in 1996 and 1997, resulting in a lower impact of corporate overhead as
a percentage of revenue.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
by approximately $1.3 million, or 110.5%, to $2.5 million in 1997 from $1.2
million in 1996. This increase was primarily due to additional amortization
expense arising from the 1996 Acquisitions and 1997 Acquisitions. A significant
component of the amortization expense relates to goodwill, which is the cost in
excess of fair market value of the net tangible assets of acquired businesses.
INCOME FROM OPERATIONS. Income from operations decreased by
approximately $730,000 to $326,000 in 1997 from $1.1 million in 1996. Excluding
the approximately $1.3 million relating to an officer's termination agreement
and termination expenses relating to certain marketing activities and $922,000
of costs incurred in connection with an acquisition accounted for using the
pooling of interests method of accounting in 1997, as well as a $150,000 expense
relating to a sublease loss in 1996, income from operations increased by
approximately $1.3 million, or 111.3%, to $2.5 million in 1997 from $1.2 million
in 1996. Excluding these items, income from operations as a percentage of
revenue increased to 4.8% in 1997 from 4.1% in 1996.
OTHER EXPENSE, NET. Other expense, net, consisting primarily of
interest expense, increased by approximately $1.5 million to $2.7 million in
1997 from $1.2 million in 1996 due to the incurrence of additional debt to
finance acquisitions and fund working capital.
PROVISION FOR INCOME TAXES (BENEFIT). Provision for income taxes for
1997 was $125,000 compared to $216,000 in 1996. For 1997, the Company offset the
majority of its current income tax expense by utilizing its deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources have been significantly
affected by acquisitions and, given the Company's acquisition strategy, may be
significantly affected for the foreseeable future. The Company's primary source
of cash in the past year has been from bank borrowings and equity investments by
GTCR which has been used primarily for acquisitions, repayment of debt, capital
expenditures and working capital.
OPERATING ACTIVITIES
Net cash used in operating activities totaled $1,560,000 for the year
ended December 31, 1998 compared to $416,000 in 1997. The increase in usage of
operating cash flow in 1998 was due primarily to an increase in accounts
receivable and prepaid expenses, which was offset by a decrease in net loss and
accounts payable.
INVESTING ACTIVITIES
Net cash used in investing activities totaled $45.9 million and $36.2
million for the years ended December 31, 1998 and 1997, respectively, and
primarily has been used to fund payments for the net assets of acquired
businesses and investments in capital equipment. Net cash used to acquire
businesses was $43.7 million and $34.9 million for the years ended December 31,
1998 and 1997, respectively. Cash used to invest in capital equipment totaled
$3.3 million and $737,000 in 1998 and 1997, respectively. The Company continues
to invest in capital equipment, principally to upgrade facilities, computer
systems and photocopy equipment. At December 31, 1998, the Company had no
commitments to purchase equipment; however, the Company expects to make
additional capital expenditures of between $1.75 million and $2.25 million in
1999, none of which is pursuant to a firm commitment.
FINANCING ACTIVITIES
Net cash provided by financing activities for 1998 and 1997 was $48.3
million and $36.6 million, respectively, and consisted primarily of proceeds
from Credit Agreement borrowings and the issuance of Series A Convertible
Preferred Stock used to fund payments for acquired businesses and for working
capital. In addition, the Company from time to time issues promissory notes in
connection with acquisitions.
The Company currently has a Credit Agreement with financial institutions which,
as amended, provides for borrowings up to $80.8 million through May 31, 1999 and
$83.5 million thereafter based on operating cash flow as defined therein. The
Credit Agreement expires January 3, 2000. Borrowings under the Credit Agreement
bear interest at the prime rate, plus specified margins. The payment of certain
of the margins is deferred until the maturity of the Credit Agreement. The
Credit Agreement, which is secured by substantially all the assets of the
Company, restricts future indebtedness, investments, distributions, acquisitions
or sale of assets and capital expenditures and also requires maintenance of
certain financial covenants. At December 31, 1998, the effective interest rate
was 8.7% and aggregate borrowings under the Credit Agreement were $79.7 million.
In connection with the Company's acquisition of Gregory & Gregory Associates and
Gregory & Gregory Staffing in August 1998, GTCR has guaranteed the repayment of
a $2.5 million overadvance made to the Company under the Credit Agreement and
received a fee of $125,000 in consideration of such guarantee. In January 1999,
GTCR paid $2,437,500 pursuant to its guaranty and received 2,437.5 shares of
Series C Preferred Stock. At December 31, 1998, the Company had approximately
$13.0 million of indebtedness payable to sellers of various acquired businesses.
In February 1999, GTCR guaranteed $1.5 million of an overadvance made to the
Company under the Credit Agreement and is entitled to receive a fee of $75,000.
GTCR paid $1.5 million pursuant to its guaranty in April 1999. The funds paid by
GTCR on the guaranty are evidenced by a subordinated promissory note with
interest at the rate of 18% per annum, principal and interest to be due and
payable four months after funding.
FUTURE CAPITAL NEEDS
The Company believes that available borrowings under its Credit Agreement, as
amended, and cash from operations, will be sufficient to fund its operations,
planned capital expenditures, payment of certain cash earn-outs and repayment of
indebtedness to certain former owners of acquired businesses through 1999. The
Credit Agreement, as amended, expires on January 3, 2000, and the Company
expects to renegotiate the Credit Agreement, or enter into a new credit
agreement. However, there can be no assurance that the Company will be able to
generate sufficient cash flows from operations or that the terms available for
any future debt or equity financing would be acceptable to the Company.
INFLATION
Certain of the Company's expenses, such as wages and benefits,
occupancy costs and equipment repair and replacement, are subject to normal
inflationary effects. Supplies, such as paper and related products, can be
subject to significant price fluctuations. Although the Company to date has been
able to substantially offset any such cost increases through increased operating
efficiencies, there can be no assurance that the Company will be able to offset
any future cost increases through similar efficiencies or increased charges for
its products and services.
YEAR 2000 COMPLIANCE
The Company uses a significant number of computer software programs
and operating systems in its internal operations, including applications used in
financial business systems, sales and marketing, billing and various
administrative functions. The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year
and impacts both information technology ("IT") and non-IT systems. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could cause the
Company to incur expenses and the risk and potential expense of any disruptions
that may be caused by the software's impaired functioning as the year 2000
approaches and by the modification or replacement of such software, including a
temporary inability to integrate scheduling throughout the Company's offices and
to send correct invoices or engage in similar normal administrative activities.
The Company has completed its identification of IT systems that are
not year 2000 compliant and is in the process of making appropriate responses to
address certain identified problem areas. The Company has hired an outside firm
to assist in developing a new management information system for scheduling,
billing and paying independent contractors that is designed to be year 2000
compliant and it intends to implement the system by September 1999. The Company
planned to replace its existing information system and did not accelerate the
replacement due to year 2000 issues. Testing of all aspects of the new system
commenced in the first quarter of 1999 and is expected to be completed during
the third quarter of 1999. Costs incurred through December 31, 1998 in
connection with the management information system were $500,000 and the total
cost is estimated to be $1,000,000. The Company is currently in the process of
assessing its non-IT systems for year 2000 compliance.
The ability of third parties with whom the Company transacts business
to address adequately their year 2000 compliance is beyond the Company's
control. At this time, the Company has begun to make inquiries of its major
third party vendors to determine their ability to be year 2000 compliant. At
this time, the Company is unable to determine the extent to which it will be
dependent on third parties to identify or address year 2000 issues or the impact
of any year 2000 problems of such third parties on the Company's business,
financial condition or results of operations.
In the event of a delay in the implementation of the new management
information system and the associated year 2000 compliance plan, the Company's
contingency plan is to modify its existing IT system. The Company has been
advised by the outside firm hired to assist in developing and implementing the
new management information system that this would take 90 days and the costs
would not be material (not to exceed $100,000). The Company's contingency plan
also includes some non-computerized backup systems, including manually
scheduling and sending invoices.
The Company's accounting system presently is Year 2000 compliant.
The costs incurred by the Company, including the cost of the
replacement system, to address year 2000 compliance have not had, and are not
anticipated to have, a material adverse effect on the Company's business,
financial condition or results of operations. These costs, and the date on which
the Company plans to complete the year 2000 modification and testing processes,
are based on management's best estimates, which were derived using numerous
assumptions of future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
NEW ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
was issued and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement establishes accounting and reporting
standards for derivative instruments and hedging activities.
The Company anticipates that the adoption of SFAS No. 133 will not
have a material effect on the financial position, results of operations or
liquidity of the Company.
<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.......... 57 Chairman of the Board and Director 1993
David A. White............ 46 Chief Executive Officer and 1997
Director
David A. Higson........... 51 Executive Vice President, Chief 1997
Financial Officer, Secretary and
Director
Cary A. Sarnoff........... 51 Senior Vice President-- 1994
Litigation Support and Director
Carole L. Hughes.......... 51 Senior Vice President-- 1998
Government and Industry Relations
David L. Harju............ 43 Vice President-- Sales 1998
William J. Forbes......... 48 Vice President-- Human Resources 1998
Steven L. Wolkenstein..... 39 Vice President and Treasurer 1997
Mortimer R. Feinberg(1)(2) 76 Director 1993
Gary L. Monroe(1)(2)...... 44 Director 1998
Joseph P. Nolan(1)(2)..... 34 Director 1996
Bruce V. Rauner........... 43 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 since its incorporation in 1993 and also served as Chief Executive
Officer of the Company until February 1997. Mr. Elvey is a Chartered Accountant
and has a Master of Business Administration from the University of Cape Town.
Mr. Elvey is also a director of Algol, a public company based in Italy.
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 January 1997. From 1992 to December 1996, Mr. White was
President of MedTrans ("MedTrans"), a division of Laidlaw, Inc., where he
successfully led the implementation of an acquisition program focused on
consolidating and improving profitability within the ambulance services
industry.
DAVID A. HIGSON has been Executive Vice President of the Company since
February 1998, Chief Financial Officer and Secretary since May 1997 and a
director since June 1998 and was Senior Vice President from May 1997 to February
1998. From June 1993 to April 1997, he was Senior Vice President-Administration
and Financial Operations of MedTrans where he successfully assisted in
implementing an acquisition program focused on consolidating and improving
profitability within the ambulance services industry.
CARY A. SARNOFF is Senior Vice President of Litigation Support and is
the former Vice Chairman of the Company. Mr. Sarnoff has been a director and
officer of the Company since November 1994. Prior thereto, Mr. Sarnoff was
President of Sarnoff Deposition Service, Inc. ("SDS"), a court reporting firm
acquired by the Company in 1994. Mr. Sarnoff has more than 25 years experience
in the court reporting industry.
CAROLE L. HUGHES is Senior Vice president, Government and Industry
Relations. Prior thereto, Ms. Hughes was Senior Vice President of East Coast
Operations for the Company since February 1998. From 1981 to November 1997, Ms.
Hughes was the Vice President and a principal shareholder of Jurist-Begley
Reporting Services (or its predecessor), a court reporting company in
Philadelphia, Pennsylvania, that was acquired by the Company in November 1997.
DAVID L. HARJU was appointed Vice President, Sales of the Company in
December 1998. From May 1998 to November 1998, Mr. Harju was the Western Region
Sales Director. For the ten years prior thereto, he was in the hospitality
field, including positions of Vice President, Sales for Tarsadia Hotels, Vice
President, Sales for Forte Hotels, Inc. and Regional Director for Holiday Inn
Worldwide.
WILLIAM J. FORBES was appointed Vice President, Human Resources, of
the Company in May 1998. From July 1993 to April 1998, Mr. Forbes was director
of Human Resources of MedTrans, where he successfully implemented a human
resources program for the acquired companies. Mr. Forbes has more than 20 years
experience in human resources.
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 five
years prior thereto he was with KPMG LLP, with his last position being senior
tax manager.
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.
GARY L. MONROE has served as a director of the Company since June
1998. Mr. Monroe has been the Chairman of the Board of Lason, Inc. ("Lason"), an
integrated outsourcing services company, since 1998, Chief Executive Officer
since February 1996, President since April 1997 and a director since he joined
Lason in September 1995. From September 1995 to February 1996, Mr. Monroe served
as Executive Vice President of Lason. From May 1992 to September 1995, Mr.
Monroe served as President of Kodak Imaging Services, Inc., a subsidiary of
Eastman Kodak Co.
JOSEPH P. NOLAN has served as director of the Company since October
1996. Mr. Nolan is a Principal of GTCR Golder Rauner, LLC and has been a
Principal of Golder, Thoma, Cressey, Rauner, Inc. ("GTCR Inc."), which is a
general partner of GTCR, since July 1996. Mr. Nolan joined GTCR Inc. in February
1994. From May 1990 to January 1994, Mr. Nolan served as Vice President
Corporate Finance at Dean Witter Reynolds Inc. Mr. Nolan is also a director of
Lason and Province Healthcare, Inc.
BRUCE V. RAUNER has served as director of the Company since October
1996. Mr. Rauner is the Managing Principal of GTCR Golder Rauner, LLC and has
been a Principal of GTCR Inc. for more than the past five years. Mr. Rauner is
also a director of Lason, Polymer Group, Inc., Coinmach Laundry Corporation,
Province Healthcare, Inc. and Answerthink Consulting Group.
DIRECTOR COMPENSATION
Compensation for directors who are not officers of the Company is
$1,250 per meeting, plus reimbursement for any out-of-pocket expenses incurred
in connection with attending such meetings. In addition, each current outside
director has received, and each outside director upon election to the Board of
Directors will receive, options to purchase 5,000 shares of Common Stock of the
Company.
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, 1998, 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, 1998, 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
$100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
---------------------------------------- ------------------------------------------------
Awards Payouts
---------- ------------
Other Restricted
Annual Stock Options LTIP All Other
Name and Salary Bonus Compensation Awards(s) /SARS Payouts Compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ----------------------- -------- --------- -------- ------------ ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey 1998 $203,187 20,000
Chairman 1997 200,043 15,000
1996 194,595 $115,000 25,000
David A. White 1998(1) 233,675 100,000
Chief Executive Officer 1997(2) 174,791 125,000
Cary A.Sarnoff, 1998 213,967 37,500
Senior Vice President 1997 191,675 37,500
1996 190,436 25,000
David A. Higson 1998 170,833 87,500
Executive Vice President 1997(3) 93,750 13,000 62,500
Gregory J. Mazares 1998 150,000 50,000
Senior Vice President
(1) Represents amounts paid to Harlingwood and to Mr. White.
(2) Amounts were paid to Harlingwood.
(3) Represents compensation for the partial year from May 15, 1997.
</TABLE>
EMPLOYMENT AND RELATED AGREEMENTS
Malcolm L. Elvey is employed by the Company under an employment
agreement which expires in May 1999. Mr. Elvey receives an annual salary of
$203,187, which is subject to cost of living increases. Mr. Elvey is also
entitled to an annual bonus ranging from 3% of pre-tax earnings of the Company
in excess of $750,000 to 15% of 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.
David A. White is employed under a one-year agreement which expires
June 1999 at an annual salary of $250,000 and is automatically renewed on a
year-by-year basis unless terminated by either party upon at least 60 days
notice prior to the renewal date. If the agreement is not renewed by the
Company, the Company has agreed to pay to Mr. White six months of severance pay.
Mr. White's employment agreement contains termination provisions which are
substantially the same as those of Mr. Elvey's employment agreement. Mr. White
has agreed not to compete with the Company for a period of one year following
the termination of his employment with the Company.
In connection with the acquisition of SDS, on June 22, 1994, the
Company entered into an employment agreement with Cary A. Sarnoff which expires
in June 1999 and is automatically renewed on a year-by-year basis unless
terminated by either party upon at least 60 days notice prior to the renewal
date. Mr. Sarnoff receives an annual salary at the rate of $213,967, 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.
David A. Higson is employed under a one-year agreement which expires
June 1999 at an annual salary of $175,000 and is automatically renewed on a
year-by-year basis unless terminated by either party upon at least 60 days
notice prior to the renewal date. If the agreement is not renewed by the
Company, the Company has agreed to pay to Mr. Higson six months of severance
pay. Mr. Higson's employment agreement contains termination provisions which are
substantially the same as those of Mr. Elvey's employment agreement. Mr. Higson
has agreed not to compete with the Company for a period of one year following
the termination of his employment with the Company.
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 was employed under a two-year agreement which was
to expire August 31, 1999 at an annual salary of $150,000. Mr. Mazares received
an initial bonus of $50,000 and an additional $50,000 bonus on September 1,
1998. If the employment of Mr. Mazares was terminated by the Company, the
Company had agreed to pay to him $200,000 in severance payments, payable in 12
equal monthly installments. Mr. Mazares voluntarily resigned from the Company in
1999.
The Company has entered into change in control agreements with its key
executive officers, including Messrs. Elvey, Higson, Sarnoff and White, which
provide that if an executive's employment is terminated within six months after
a change in control of the Company, or the executive terminates employment
within such six month period of time, then the executive shall be entitled to a
lump sum severance payment and all of the executive's options, if any, which are
not then vested shall immediately vest. The lump sum severance payment for
Messrs. Higson and White is 150% of base salary and bonus at the time of
termination and for the other executives is 100% of base salary and bonus at the
time of termination. At December 31, 1998 and based on salary levels currently
in effect, in the event of a change in control, Messrs. Elvey, Higson, Sarnoff
and White would have been entitled to receive a lump sum of $203,187, $262,500,
$213,967 and $375,000, respectively. The agreements have a one year term, but
will be automatically renewed for successive one year terms unless terminated at
least 60 days prior to June 30th of any year and prior to a "change in control."
If the payments to be received under the agreements would not be deductible for
tax purposes by the Company as the result of such payment constituting an excess
parachute payment, the payment would be reduced to an amount which would make
the entire payment deductible for tax purposes. As used in the agreements,
change in control means a person or a group of persons becomes the beneficial
owner of more than 30% of the Company's Common Stock, stockholders approve a
merger of the Company into another entity or a sale of substantially all the
Company's assets or a change in the composition of a majority of the members of
the Board of Directors.
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 stockholders of the
Company. The Plan was amended to increase the number of options which may be
granted thereunder to 1,750,000 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, 1998.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
==================================================================================================================================
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Malcom L. Elvey 20,000 6.26% $12.00 4/2008
- ----------------------------------------------------------------------------------------------------------------------------------
David A. White (a) 100,000 31.30% $12.00 4/2008
- ----------------------------------------------------------------------------------------------------------------------------------
Gregory Mazares 0 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Cary Sarnoff 37,500 11.74% $12.00 4/2008
- ---------------------------------------------------------------------------------------------------------------------------------
David A. Higson 87,500 27.39% $12.00 4/2008
==================================================================================================================================
The table below sets forth information for the executive officers named
in the Summary Compensation Table concerning option exercises during 1998 and
outstanding options at December 31, 1998.
AGGREGATED OPTION/SAR EXERCISES IN 1998 AND DECEMBER 31, 1998
OPTION/SAR VALUES
====================================================================================================================================
Number of Securities
Underlying Value of Unexercised
Unexercised in-the-Money
Shares Options/SARs at Options/SARs at
Acquired December 31, 1998 December 31, 1998
On Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm L. Elvey 0 - 95,833 61,667 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
David A. White (a) 0 - 135,937 39,063 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Gregory Mazares 0 - 25,000 25,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Cary Sarnoff 0 - 29,167 70,833 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
David A. Higson 0 - 20,833 129,167 0 0
====================================================================================================================================
- ------------------
(a) These options were granted to Harlingwood.
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 1999, 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) 439,500 8.2%
216 East 45th Street
New York, NY 10017
The Sarnoff Trust (2) 375,000 7.3%
2100 Broadway
Santa Ana, CA 92706
Allied Investment Corporation (3) 312,500 5.7%
Allied Investment Corporation II
Allied Capital Corporation II
1666 K Street
Washington, DC 20006
Mortimer R. Feinberg(4) 5,000 *
David J. Feldman (5) 312,950 6.0%
100A Store Hill Road
Old Westbury, NY 11568
Gary L. Monroe (4) 5,000 *
Golder, Thoma, Cressey, Rauner Fund IV, 4,275,000 47.1%
L.P. (6)
Joseph P. Nolan (6) __ __
Bruce V. Rauner (6) __ __
Cary A. Sarnoff (7) 478,890 9.1%
Harlingwood & Company LLC (8) 350,000 6.5%
David A. White (8) 350,000 6.5%
David A. Higson (9) 150,000 2.8%
Carole L. Hughes (10) 184,263 3.5%
All directors and executive officers as a 1,657,653 28.2%
group (11) (12 persons)
- ----------------
* Less than 1%
(1) Includes options to purchase 157,500 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
312,500 shares of Common Stock at an exercise price of $5.80 per share,
subject to adjustment.
(4) Consists of options to purchase 5,000 shares of Common Stock.
(5) Includes options to purchase 62,500 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 are convertible into 3,656,250 shares of Common
Stock and 2,437.50 shares of Series C Convertible Preferred Stock which
are convertible into 243,750 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 owners of
such securities. Messrs. Nolan and Rauner are principals of GTCR Inc.
(7) Includes shares owned by The Sarnoff Trust and options to purchase
100,000 shares of the Company's Common Stock granted to Mr. Sarnoff
under the Plan. See Note (2).
(8) Mr. White is an officer of Harlingwood. Includes 175,000 shares owned by
Harlingwood and options to purchase 175,000 shares of Common Stock owned
by Harlingwood.
(9) Consists of options to purchase 150,000 shares of the Company's Common
Stock granted to Mr. Higson under the Plan.
(10) Includes options to purchase 57,500 shares of Common Stock of the
Company.
(11) Includes options to purchase 712,500 shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For as long as The Sarnoff Trust owns 20% or more of the Common Stock
issued in connection with the acquisition of Sarnoff Deposition Services
("SDS"), the Company has agreed to nominate, recommend and use its best efforts
to have Mr. Sarnoff elected as a director of the Company.
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 $1.0 million 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.
On October 23, 1996, the Company entered into a Purchase Agreement, as amended
(the "Purchase Agreement"), pursuant to which the Company sold to GTCR and
Antares Leveraged Capital Corp. (collectively, the "Investors") 21,937.5 and
562.5 shares of Series A Convertible Preferred Stock, respectively, for an
aggregate purchase price of $22.5 million. In addition, in January 1998, the
Investors were given the further right on or prior to December 2, 1999 to
acquire up to 5,000 shares of Series B Convertible Preferred Stock at a price of
$1,000 per share. In June 1998, GTCR acquired an option to acquire up to an
additional 2,500 shares of Series B Convertible Preferred Stock at a price of
$1,000 per share, which stock is convertible into an aggregate of 208,333 shares
of Common Stock at a conversion price of $12.00 per share. In August 1998, GTCR
converted its options to acquire 7,500 shares of Series B Convertible Preferred
Stock into 375,000 shares of Common Stock. In connection with the Company's
acquisition of Gregory & Gregory Associates and Gregory & Gregory Staffing in
August 1998, GTCR guaranteed the repayment of a $2.5 million overadvance made to
the Company under the Credit Agreement and received a fee of $125,000 in
consideration of such guarantee. In January 1999, GTCR paid $2,437,500 under the
guarantee and received a new series of convertible preferred stock (Series C
Convertible Preferred Stock) of the Company which is identical to the Series A
Convertible Preferred Stock except that it has a conversion price of $10.00 per
share. The liquidation value of this new series is $2.5 million. In February
1999, GTCR guaranteed the repayment of 50% of a $3 million overadvance made to
the Company under the Credit Agreement and is entitled to receive a fee of
$75,000. In April 1999, GTCR paid $1.5 million pursuant to its guaranty. GTCR
received a subordinated promissory note in the amount of such payment, which
note is due and payable four months after funding, together with interest at the
rate of 18% per annum.
The Series A Convertible Preferred Stock is convertible into Common
Stock of the Company at a conversion price of $6.00 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 Convertible Preferred Stock have
a liquidation preference of $1,000 per share, plus accrued dividends. Holders of
Series A Convertible 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 Convertible Preferred Stock is convertible
(presently 166 2/3 votes per share). GTCR was granted various rights to ask for
registration under the Securities Act of any shares of Common Stock acquired by
it upon conversion of the Series A Convertible Preferred Stock. Without the
consent of the holders of a majority of the Series A Convertible 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
Convertible Preferred Stock, issuing any equity securities which are senior to
or on a parity with the Series A Convertible 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 Convertible 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, an officer and director
of the Company, David J. Feldman, former President of the Company, CMNY Capital
L.P. and Allied entered into a Stockholder's Agreement dated as of October 23,
1996, as amended (the "Stockholder's Agreement"), pursuant to which (a) the
parties agreed to vote their shares to elect as directors four representatives
designated by management, two representatives designated by GTCR and four
representatives jointly designated by GTCR and management; provided, however,
that if they are unable to agree on such joint designees within 90 days, then
GTCR may elect the joint designees; (b) management granted to the other
stockholders rights of first refusal to acquire their shares if they desire to
sell the same, subject to exceptions for public sales and for transfers to
family members; and (c) if the Company's Board of Directors approves a sale of
the Company's assets or capital stock (whether by merger or otherwise), each
stockholder other than Allied and CMNY Capital L.P. agreed to consent to such
transaction.
The Series C Convertible Preferred Stock is identical to the Series A
Convertible Preferred Stock except that it is junior to the Series A Convertible
Preferred Stock, has a conversion price of $10.00 per share and has 100 votes
per share.
In February 1997, the Company entered into a management agreement with
Harlingwood, pursuant to which Harlingwood provided management services to the
Company. This agreement terminated effective in June 1998 upon the Company
entering into an employment agreement with Mr. White. Mr. White fulfilled
Harlingwood's obligations under the management agreement. In connection with the
management agreement, the Company granted options to Harlingwood to purchase
75,000 shares of Common Stock at an exercise price of $18.00 per share and sold
to Harlingwood 125,000 shares of Common Stock at a price of $6.25 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 50,000 shares of Common Stock at an
exercise price of $7.50 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, 1998, Harlingwood was indebted to the Company in the
principal amount of $1,156,250. In May 1998, the Company granted to Harlingwood
options to purchase 100,000 shares of Common Stock at an exercise price of
$12.00 per share. 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 has engaged Harlingwood Partners, L.P., a partnership of
which Mr. White is a principal ("Harlingwood Partners"), to provide acquisition
services for acquisitions other than in the court reporting area. Harlingwood
Partners will be entitled to a fee of 1% of value of each completed transaction.
In connection with the acquisitions of A-L Associates and A-L Attorneys on
Assignment in May 1998 and Gregory & Gregory Associates and Gregory & Gregory
Staffing in August 1998, Harlingwood Partners received total fees of $162,500.
In January 1999, the Company acquired all the stock of a corporation
owned by Cary Sarnoff for a purchase price consisting of 50,000 shares of Common
Stock of the Company.
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' Report
Consolidated Balance Sheets as of December 31, 1998 and December 31,
1997.
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
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 Employment Agreement dated as of June 30, 1998, between the
Company and David A. White.
10.3 Employment Agreement dated November 7, 1997, between the Company
and Carole L. Hughes. Incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 ("1997 10-K").
10.4 Agreement dated as of May 1, 1997 by and between the Company and
David Feldman. Incorporated by reference to Exhibit 10.4 to 1997
10-K.
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 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.
10.7 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.
10.8 Registration Agreement dated October 23, 1996 among the Company
and the Investors. Incorporated by reference to Exhibit 10.6 to
October 1996 8-K.
10.9 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.
10.10 Amended and Restated Credit Agreement dated as of August 10, 1998
by and among Esquire Communications Ltd., as Borrower, Antares
Leveraged Capital Corp., as Agent and the Other Financial
Institutions Party Hereto, as Lenders.
10.11 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.
10.12 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").
10.13 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.
10.14 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.
Incorporated by reference to Exhibit 10.16 to 1997 10-K.
10.15 Employment Agreement dated September 1, 1997 between the Company
and Gregory J. Mazares. Incorporated by reference to Exhibit
10.17 to 1997 10-K.
10.16 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.
10.17 Amendments No. 1 and No. 2 to Stockholder's Agreement dated
October 23, 1996, among Esquire and various stockholders of
Esquire. Incorporated by reference to Exhibit 10.4 to June 1997
8-K.
10.18 Agreement dated February 9, 1998 between the Company and
Harlingwood Partners, L.P.
10.19 Employment Agreement dated June 30, 1998 between the Company and
David A. Higson.
10.20 Form of Change in Control Agreement between the Company and each
of its key executive officers.
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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 consolidated financial position of Esquire
Communications Ltd. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
San Diego, California
March 26, 1999, except as to the second, third and fifth paragraphs of Note
5(A), which are as of April 14, 1999
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Assets (Pledged) 1998 1997
---------- -----------
(Note 2)
Current assets:
<S> <C> <C>
Cash $ 933 116
Accounts receivable, less allowance for doubtful accounts of
$2,098 in 1998 and $1,334 in 1997 27,574 14,621
Prepaid expenses and other current assets 2,944 639
------------ ----------
Total current assets 31,451 15,376
Property and equipment, net 5,937 3,056
Cost in excess of fair value of net identifiable assets of acquired
businesses, less accumulated amortization of $6,039 in 1998
and $2,878 in 1997 112,840 62,763
Other assets, less accumulated amortization of $769 in 1998
and $714 in 1997 1,028 1,656
------------- -----------
$151,256 82,851
============= ===========
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 727 -
Accounts payable 8,826 3,616
Accrued expenses 6,798 5,622
Unearned revenue -- 105
Current portion of long-term debt, including related parties 3,779 4,361
------------- ------------
Total current liabilities 20,130 13,704
Long-term debt, including related parties 90,329 45,442
Other liabilities 331 165
------------- ------------
Total liabilities 110,790 59,311
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized in series:
Series A convertible preferred stock 22,500 shares authorized;
22,500 and 15,000 shares issued and outstanding in 1998
and 1997, respectively; $22,500 and $15,000 aggregate
liquidation preference in 1998 and 1997, respectively -- --
Common stock, $.02 par value, 100,000,000 shares authorized;
5,213,729 and 3,524,949 shares issued in 1998 and 1997,
respectively; 5,121,979 and 3,433,199 shares outstanding
in 1998 and 1997, respectively 104 71
Additional paid-in capital 48,041 29,055
Treasury stock, at cost - 91,750 shares in 1998 and 1997 (550) (550)
Notes receivable - stockholder (1,156) (1,156)
Accumulated deficit (5,973) (3,880)
-------------- ------------
Total stockholders' equity 40,466 23,540
-------------- ------------
Commitments and contingencies
$151,256 82,851
============== ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- -----------
(Note 2) (Note 2)
<S> <C> <C> <C>
Revenue $ 110,586 53,178 29,501
--------------- ---------- -----------
Costs and expenses:
Operating expenses 63,470 30,284 16,662
General and administrative expenses 37,214 20,046 10,585
Depreciation and amortization 4,753 2,522 1,198
--------------- ---------- ------------
105,437 52,852 28,445
--------------- ---------- ------------
Income from operations 5,149 326 1,056
--------------- ---------- ------------
Other income (expense):
Interest expense (6,669) (2,697) (1,225)
Interest income 87 41 6
Other -- -- 3
--------------- ---------- ------------
(6,582) (2,656) (1,216)
--------------- ---------- ------------
Loss before provision for income taxes
and extraordinary item (1,433) (2,330) (160)
Provision (benefit) for income taxes (589) 125 216
--------------- ---------- ------------
Loss before extraordinary item (844) (2,455) (376)
Extraordinary item - loss on early extinguishment of
debt, net of tax benefit of $104 -- -- 157
--------------- ---------- ------------
Net loss (844) (2,455) (533)
Dividends on preferred stock (1,249) (702) (75)
--------------- ---------- ------------
Net loss applicable to common stockholders $ (2,093) (3,157) (608)
=============== ========== ============
Net loss per common share:
Basic and diluted:
Net loss before extraordinary item $ (0.48) (1.12) (0.19)
Extraordinary item -- -- (0.06)
--------------- ----------- ------------
Net loss $ (0.48) (1.12) (0.25)
=============== ============ =============
Weighted-average shares outstanding 4,352,055 2,815,142 2,479,576
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
Series A Stock- Total
convertible preferred stock Common stock Additional holder stock-
--------------------------- --------------- paid-in Treasury Notes Accumulated holders'
Shares Amount Shares Amount capital stock receivable deficit equity
-------- ------ ------ ------ -------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 -- $ -- 2,490,625 $ 49 7,695 -- -- (115) 7,629
Issuance of common stock in
connection with acquisitions
of businesses -- -- 102,003 2 508 -- -- -- 510
Purchase of treasury stock -- -- (216,750) -- -- (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 7,500 -- -- -- 6,700 -- -- -- 6,700
Net loss -- -- -- -- -- -- -- (533) (533)
------- ------- --------- ---- ------- --------- ------- -------- --------
Balance, December 31, 1996 7,500 -- 2,375,878 51 14,903 (1,300) -- (723) 12,931
Issuance of common stock in
connection with acquisitions
of businesses -- -- 678,000 14 5,680 -- -- -- 5,694
Issuance of common stock in connection
with warrant exchange offering, net
of issuance costs -- -- 92,448 2 (177) -- -- -- (175)
Exercise of nonemployee warrants -- -- 76,540 2 224 -- -- -- 226
Exercise of employee stock options -- -- 35,333 1 278 -- -- -- 279
Reissuance of treasury stock in
connection with exercise of employee
stock options for note receivable -- -- 125,000 -- 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 -- -- 50,000 1 374 -- (375) -- --
Issuance of 7,500 shares of Series A
convertible preferred stock, net of
issuance costs 7,500 -- -- -- 7,110 -- -- -- 7,110
Net loss -- -- -- -- -- -- -- (2,455) (2,455)
------- ------- --------- ----- ------ -------- ------ ---------- --------
Balance, December 31, 1997 15,000 -- 3,433,199 71 29,055 (550) (1,156) (3,880) 23,540
Issuance of common stock in
connection with acquisitions
of businesses -- -- 739,290 15 7,066 -- -- -- 7,081
Issuance of stock options in
connection with business
acquisitions -- -- -- -- 514 -- -- -- 514
Exercise of nonemployee warrants -- -- 570,615 11 3,894 -- -- -- 3,905
Exercise of employee stock options -- -- 3,875 -- 31 -- -- -- 31
Exchange of options to purchase
Series B convertible preferred stock
for common stock -- -- 375,000 7 (7) -- -- -- --
Dividends on preferred stock -- -- -- -- -- -- -- (1,249) (1,249)
Issuance of 7,500 shares of Series A
convertible preferred stock,
net of issuance costs 7,500 -- -- -- 7,488 -- -- -- 7,488
Net loss -- -- -- -- -- -- -- (844) (844)
------- ------- ---------- ----- ------ ------- ------- --------- --------
Balance, December 31, 1998 22,500 $ -- 5,121,979 $104 48,041 (550) (1,156) (5,973) 40,466
======= ======= ========== ===== ======= ======== ======= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (844) (2,455) (533)
Adjustments to reconcile net loss to net cash
used in operating activities, excluding effect
of business acquisitions:
Depreciation and amortization 4,753 2,522 1,198
Commission expense related to grant of
stock options -- 329 --
Provision for deferred income taxes -- 140 (168)
Extraordinary item -- -- 157
(Increase) decrease in assets:
Accounts receivable (1,100) (2,815) (1,284)
Prepaid expenses and other current assets (1,498) 205 (427)
Increase (decrease) in liabilities:
Accounts payable, accrued expenses and
unearned revenue (3,037) 1,753 845
Other liabilities 166 (95) 37
----------- ------------ ----------
Net cash used in operating activities (1,560) (416) (175)
----------- ------------ ----------
Cash flows from investing activities:
Acquisitions of businesses (43,683) (34,866) (3,958)
Increase in other assets 1,081 (620) (314)
Purchases of property and equipment (3,324) (737) (952)
----------- ------------- -----------
Net cash used in investing activities (45,926) (36,223) (5,224)
----------- ------------- -----------
Cash flows from financing activities:
Change in bank overdraft 727 -- --
Proceeds from long-term debt 39,650 31,846 8,218
Payment of preferred stock dividends -- (627) --
Principal payments on long-term debt (3,110) (1,552) (6,317)
Repayment under bank line of credit, net -- -- (1,600)
Payment of deferred financing costs (388) (538) (287)
Proceeds from exercise of employee stock
options 31 279 --
Purchase of treasury stock -- -- (1,300)
Warrant exchange offering issuance costs -- (175) --
Proceeds from issuance of Series A convertible
preferred stock, net 7,488 7,110 6,700
Proceeds from exercise of warrants, net 3,905 226 --
----------- ------------ ---------
Net cash provided by financing activities 48,303 36,569 5,414
----------- ------------ ----------
Net increase (decrease) in cash 817 (70) 15
Cash at beginning of year 116 186 171
----------- ------------ ----------
Cash at end of year $ 933 116 186
=========== ============ ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
ESQUIRE COMMUNICAITONS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In Thousands, Except Share and Per Share Data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) 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 the nation's leading provider of court
reporting services to law firms, insurance companies and
major corporations through Company-owned offices located in
24 markets in 11 states and the District of Columbia. In
addition, the Company recently acquired several companies
which provide permanent and temporary staffing of financial
and legal professionals, legal video services, records
retrieval, process service and document depository services.
(b) 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.
Permanent staffing income is recognized when a candidate is
accepted for employment. Provisions are made for estimated losses
in realization (principally due to failure of applicants to
complete stipulated employment periods). Temporary staffing
income is recognized when the temporary personnel provide the
services.
(c) 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. Property and equipment held
under capital leases and leasehold improvements are amortized
straight-line over the shorter of the estimated useful lives of
the assets or the lease terms. Maintenance and repairs are charged
to expense as incurred while improvements are capitalized.
(d) 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 primarily 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 1998, 1997 and 1996
related to intangible assets was $3,217, $1,824 and $824,
respectively.
(e) 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.
(f) LOSS PER COMMON SHARE
In 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 Opinion No. 15 with basic and diluted EPS. Basic
EPS excludes dilution and is calculated using the weighted-average
number of common shares outstanding for the period. 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, convertible preferred stock and debt and
contingently issuable shares of common stock totaling
approximately 4,280,818, 2,717,216 and 9,935 shares were excluded
from the computations of net loss per common share for the years
ended December 31, 1998, 1997 and 1996, respectively, as their
effect is antidilutive.
<PAGE>
ESQUIRE COMMUNICATIONS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(In Thousands, Except Share and Per Share Data)
The following table sets forth the computation of basic and diluted net loss per
share based on the requirements of SFAS No. 128:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------------
1998 1997 1996
------------------ ------------------ ----------------
(Note 2)
<S> <C> <C> <C>
Numerator:
Net loss $ (844) (2,455) (533)
Less dividends on preferred stock (1,249) (702) (75)
------------------ ------------------ ------------------
Numerator for basic and diluted net loss per share -
loss available to common stockholders (2,093) (3,157) (608)
Denominator for basic and diluted net loss per
share - weighted-average shares outstanding 4,352,055 2,815,142 2,479,576
================== ================== ==================
Basic and diluted net loss per share $ (0.48) (1.12) (0.25)
=================== ================== ==================
</TABLE>
(g) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for its stock option plan 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.
(h) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
Long-lived assets and certain identifiable intangibles are
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
exceeds 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.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, current
maturities of long-term debt, accounts payable and accrued
expenses approximates 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.
(j) SEGMENT INFORMATION
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION, in 1998. This statement
establishes standards for the reporting of information about
operating segments in annual and interim financial statements and
requires restatement of prior year information. Operating
segments are defined as components of an enterprise for which
separate financial information is available that is evaluated
regularly by the chief operating decision maker(s) in deciding
how to allocate resources and in assessing performance. SFAS No.
131 also requires disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No.
131 did not affect results of operations or financial position
but did affect the disclosure of segment information, as
presented in Note 10.
(k) 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.
(l) RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996
balances in order to conform with the presentation in 1998.
(2) REVERSE STOCK SPLIT
On November 17, 1998, the Company's stockholders voted to amend the
Company's Certificate of Incorporation and effect a 1-for-2 reverse stock
split of all outstanding common stock and increase the par value of the
Company's common stock from $.01 to $.02 effective November 30, 1998. All
share and per share amounts have been restated to give effect to the
reverse stock split.
(3) BUSINESS COMBINATIONS
(a) PURCHASE BUSINESS COMBINATIONS
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, $367 estimated earn
out and assumption of net liabilities of $221. During 1998 and
1997, the Company paid $125 and $180, respectively, in
connection with the acquisition's earn out provision. The total
cost in excess of fair value of net identifiable assets acquired,
including the estimated earn out, was approximately $893.
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
$3,243 of cash, subordinated promissory notes in the aggregate
amount of $2,625 and 66,129 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 resulted in a decrease
in 1998 in one of the notes of $88. The Company accounted for
this 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 total cost in excess of fair value of net
identifiable assets acquired was approximately $5,581.
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 $684 of cash,
subordinated promissory notes in the aggregate amount of $530 and
35,874 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 were subject to revision based on
the revenue derived from SRA's business for 24 months commencing
December 1, 1996. In 1998, the purchase price was increased by
$60 based on the revenue derived from SRA's business. This
increase was accounted for as an increase to goodwill. 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 total cost in excess of fair
value of net identifiable assets acquired was approximately
$1,223.
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 $4,520 consisting of cash in the amount of
$2,065, subordinated promissory notes and installment payments in
the aggregate amount of $735 payable in equal quarterly
installments over a period of six years, and 50,000 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 amount 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
$3,858, 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 $6,397 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. During 1998, the purchase price
was increased by $239 based upon revenues derived from WRA's
business during the first 12 months and was accounted for as an
adjustment to goodwill. The total cost in excess of fair value of
net identifiable assets acquired was approximately $6,951.
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 $9,374
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 three years ending December 31, 1999.
The increase was payable in unregistered shares of the Company's
common stock, up to a maximum of 150,000 shares. In November
1997, the agreement with KKA was amended to delete any increase
to the purchase price, and the Company issued 150,000
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 $10,589.
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 $6,692 in cash
and 375,000 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 $9,731.
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 $665 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 $450, 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-based court reporting firm. The purchase price,
inclusive of transaction costs, consisted of $2,236 in cash and
60,000 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 $2,191.
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 $3,252 in cash, 43,000
unregistered shares of the Company's common stock valued at $554
and a $50 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 $4,026.
On October 9, 1997, the Company acquired substantially all the
assets and liabilities of Haynes & Harpster Court Reporters, a
Southern California-based court reporting firm. The purchase
price paid by the Company consisted of $409 in cash and a
promissory note in the principal amount of $175, payable in eight
equal quarterly installments without interest. The total cost in
excess of fair value of net identifiable assets acquired was
approximately $488.
On October 9, 1997, the Company acquired substantially all the
assets and liabilities of Cynthia Varelli, a Chicago,
Illinois-based court reporting firm. The purchase price paid,
inclusive of transaction costs, consisted of $345 in cash, $300
payable in twelve equal installments and two promissory notes in
the aggregate principal amount of $397, $297 of which was paid
during 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 $1,066.
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 $3,784 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.
1998 ACQUISITIONS
On 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, inclusive of transaction costs, consisted of approximately
$2,785 paid in cash and 70,500 unregistered shares of the
Company's common stock valued at $606. The terms of the
acquisition agreement provide for additional compensation to be
paid by the Company if within three years from the acquisition
date the Company acquires additional court reporting or video
companies in the Houston, Texas and South Texas areas. Such
additional consideration will be recorded when earned as
additional purchase price. The cost in excess of fair value of
net identifiable assets acquired was approximately $3,131.
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,
inclusive of transaction costs, consisted of approximately $1,975
paid in cash and 113,793 unregistered shares of the Company's
common stock valued at $979. The cost in excess of fair value of
net identifiable assets acquired was approximately $2,757.
On January 16, 1998, the Company acquired substantially all the
assets and liabilities of Kerns & Gradillas, a court reporting
agency based in Southern California. The purchase price paid,
inclusive of transaction costs, consisted of approximately $6,602
paid in cash, liabilities discharged of $79, a convertible
promissory note in the principal amount of $1,300 payable in
three years with interest payable quarterly at the rate of 7% per
annum (convertible into common stock at a conversion price of
$16.00 per share) and 85,715 unregistered shares of the
Company's common stock valued at $840. The cost in excess of fair
value of net identifiable assets acquired was approximately
$7,846.
On February 12, 1998, the Company acquired substantially all the
assets and liabilities of Jewelinski Court Reporters
(Jewelinski), a court reporting agency based in Southern
California. The purchase price paid, inclusive of transaction
costs, consisted of approximately $124 paid in cash and a
promissory note in the principal amount of $390 payable in 24
equal monthly installments without interest. The former owners of
Jewelinski were also given the opportunity to receive 37,500
unregistered shares of the Company's common stock based upon
Jewelinski's revenue levels in each of the three years following
the acquisition. Approximately 10,000 to 12,500 shares of common
stock will be issued during 1999 relating to 1998 revenue levels.
Goodwill will be increased by the value of the common stock
issued. The cost in excess of fair value of net identifiable
assets acquired was approximately $548.
On February 20, 1998, the Company acquired substantially all the
assets and liabilities of Friedli, Wolff & Pastore, a court
reporting agency based in Washington, D.C. The purchase price
paid, inclusive of transaction costs, consisted of approximately
$548 paid in cash and 10,000 unregistered shares of the Company's
common stock valued at $88. The cost in excess of fair value of
net identifiable assets acquired was approximately $656.
On March 16, 1998, the Company acquired substantially all the
assets and liabilities of VerbaVolant, Inc., a court reporting
agency based in New York City. The purchase price paid, inclusive
of transaction costs, consisted of approximately $399 paid in
cash and options to purchase 15,000 shares of the Company's
common stock valued at $97. The cost in excess of fair value of
net identifiable assets acquired was approximately $362.
On March 16, 1998, the Company acquired substantially all the
assets and liabilities of McGuire's Reporting Service and
Morrissy & Others Ltd., two court reporting agencies based in
Chicago, Illinois. The aggregate purchase price, inclusive of
transaction costs, consisted of approximately $1,089 paid in
cash, promissory notes in the aggregate principal amount of $375
payable in 12 equal quarterly installments, without interest, and
9,000 unregistered shares of the Company's common stock valued at
$95. The cost in excess of fair value of the aggregate net
identifiable assets acquired was approximately $1,402.
On April 17, 1998, the Company acquired substantially all the
assets and liabilities of Pollock & Upshaw, a court reporting
agency based in San Antonio, Texas. The purchase price, inclusive
of transaction costs, consisted of approximately $267 paid in
cash and a convertible promissory note in the principal amount of
$100 payable in three years with interest payable quarterly at
the rate of 8% per annum (convertible into common stock at a
conversion price of $20.00 per share). The cost in excess of fair
value of net identifiable assets acquired was approximately $337.
On April 30, 1998, the Company acquired substantially all the
assets and liabilities of Atlantic Court Reporting, a court
reporting agency based in Fort Lauderdale, Florida. The purchase
price, inclusive of transaction costs, consisted of approximately
$558 paid in cash and a promissory note in the principal amount
of $150 payable in 16 equal quarterly installments with interest
at the rate of 7% per annum. The purchase price is subject to
revision based upon the revenue derived from Atlantic's business
for 12 months commencing May 1998. 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 $648.
On May 5, 1998, the Company acquired substantially all the assets
and liabilities of Bright & Associates, a court reporting agency
based in Austin, Texas. The purchase price, inclusive of
transaction costs, consisted of approximately $871 paid in cash
and a promissory note in the principal amount of $340 payable in
12 equal quarterly installments with interest at the rate of
6.125% per annum. The cost in excess of fair value of net
identifiable assets acquired was approximately $1,154.
On May 7, 1998, the Company acquired substantially all the assets
and liabilities of Riggleman, Turk & Nelson (RT&N), a court
reporting agency based in Baltimore, Maryland. The purchase
price, inclusive of transaction costs, consisted of approximately
$717 paid in cash and 13,750 unregistered shares of the Company's
common stock valued at $275, which represents the guaranteed
value of the shares issued. On the second anniversary of the
closing date, the former owners of RT&N have the option to
sell the unregistered shares of common stock received back to the
Company at a price of $20.00 per share. The value of the
unregistered shares of common stock issued has been recorded at
its guaranteed value. The cost in excess of fair value of net
identifiable assets acquired was approximately $866.
On May 15, 1998, the Company acquired substantially all the
assets and liabilities of A-L Associates, Inc. and Attorneys on
Assignment, a permanent staffing agency and a temporary staffing
agency, respectively, both of which are based in New York City.
The aggregate purchase price, inclusive of transaction costs,
consisted of approximately $7,650 paid in cash, 83,334
unregistered shares of the Company's common stock valued at $733
and options to purchase 100,000 shares of the Company's common
stock valued at $410. The purchase price is subject to revision
based upon the earnings before interest, taxes and depreciation
and amortization of A-L's business for the period ended December
31, 1998 and each of the years in the three-year period ending
December 31, 2001, payable by the Company in cash and shares of
the Company's common stock. The Company will account for any such
revision as an adjustment to goodwill when such contingencies are
resolved. There was no such revision for the period ended
December 31, 1998. The cost in excess of fair value of net
identifiable assets acquired was approximately $7,185.
On May 27, 1998, the Company acquired substantially all the
assets and liabilities of Rubin Reporting, a court reporting
agency based in Chicago, Illinois. The purchase price, inclusive
of transaction costs, consisted of approximately $1,177 paid in
cash, a promissory note in the principal amount of $250 payable
in 12 equal quarterly installments without interest and 9,924
unregistered shares of the Company's common stock valued at $86.
The cost in excess of fair value of net identifiable assets
acquired was approximately $1,412.
On June 10, 1998, the Company acquired substantially all the
assets and liabilities of Summit Reporting and Summit Document
Retrieval Services, a court reporting agency and records
retrieval agency, respectively, based in Houston, Texas. The
aggregate purchase price, inclusive of transaction costs,
consisted of approximately $1,279 paid in cash, a promissory note
in the principal amount of $200 payable in 12 equal quarterly
installments with interest at the rate of 7% per annum and 17,500
unregistered shares of the Company's common stock valued at $350,
which represents the guaranteed value of the shares issued. The
purchase price is subject to revision based upon the revenue
derived from Summit's business for a period of 12 months
commencing June 1998. The Company will account for any such
revision as an adjustment to goodwill when such contingencies are
resolved. The purchase price is also subject to revision based
upon the market price of the Company's common stock during the
36-month period following the acquisition. If the market price of
the Company's stock does not reach at least $20.00 per share for
a period of at least 15 trading days, the Company could be
required to deliver up to an additional 10,000 shares of the
Company's common stock. The Company will account for the issuance
of the additional shares, if applicable, as a reclassification
from additional paid-in capital to common stock for the par value
of the additional shares issued. The cost in excess of fair value
of net identifiable assets acquired was approximately $1,549.
On June 15, 1998, the Company acquired substantially all the
assets and liabilities of Hamilton-Legato Deposition Centers, a
court reporting agency based in Troy, Michigan. The purchase
price, inclusive of transaction costs, consisted of approximately
$5,165 paid in cash and a convertible promissory note in the
principal amount of $2,800 payable in 20 equal quarterly
installments with interest at the rate of 7% per annum
(convertible into common stock at a conversion price of $20.00
per share). The cost in excess of fair value of net identifiable
assets acquired was approximately $7,598.
On July 10, 1998, the Company acquired substantially all the
assets and liabilities of Cooksey-Regal Deposition Reporters, a
court reporting agency based in Sacramento, California. The
purchase price, inclusive of transaction costs, consisted of
approximately $367 paid in cash, a promissory note in the
principal amount of $250 payable in 16 equal quarterly
installments without interest and 5,000 unregistered shares of
the Company's common stock valued at $52. The cost in excess of
fair value of net identifiable assets acquired was approximately
$664.
On July 17, 1998, the Company acquired substantially all the
assets and liabilities of Messenger & Associates, a court
reporting agency based in Dallas, Texas. The purchase price,
inclusive of transaction costs, consisted of approximately $238
paid in cash and a promissory note in the principal amount of $88
payable in 12 equal quarterly installments with interest at the
rate of 7% per annum. The cost in excess of fair value of net
identifiable assets acquired was approximately $324.
On July 17, 1998, the Company acquired all of the outstanding
common stock of Mudrick Witt Professional Reporting, a court
reporting agency based in West Palm Beach, Florida. The purchase
price, inclusive of transaction costs, consisted of approximately
$3,838 paid in cash and 135,000 unregistered shares of the
Company's common stock valued at $1,404. The cost in excess of
fair value of net identifiable assets acquired was approximately
$4,574.
On August 7, 1998, the Company acquired all of the outstanding
common stock of Philips & Associates, a court reporting agency
based in Sacramento, California. The purchase price, inclusive of
transaction costs, consisted of approximately $41 paid in cash
and 158,000 unregistered shares of the Company's common stock
valued at $1,612. The cost in excess of fair value of net
identifiable assets acquired was approximately $1,164.
On August 28, 1998, the Company acquired substantially all the
assets and liabilities of Gregory & Gregory Associates, Inc. and
Gregory & Gregory Staffing, Inc. (collectively Gregory &
Gregory), a permanent staffing agency and a temporary staffing
agency, respectively, both of which are based in New York City.
The aggregate purchase price, inclusive of transaction costs,
consisted of approximately $6,257 paid in cash, a promissory note
in the principal amount of $750 with interest at the rate of 6.5%
per annum, with $450 payable on November 30, 1998 and the
remainder payable in three equal quarterly installments beginning
February 28, 1999, and 27,778 unregistered shares of the
Company's common stock valued at $238. The purchase price is
subject to revision based upon the earnings before interest,
taxes and depreciation and amortization of Gregory & Gregory's
business for the period ended December 31, 1998. In connection
with this revision, the Company will pay to the former owners of
Gregory & Gregory $200, and 150,000 shares of the Company's
common stock will be issued during 1999. Goodwill will be
increased for the value of the additional consideration received.
The cost in excess of fair value of net identifiable assets
acquired was approximately $6,613.
On October 13, 1998, the Company acquired substantially all the
assets and liabilities of Lieberman & Chaim, Inc., a court
reporting agency based in Philadelphia, Pennsylvania. The
purchase price, inclusive of transaction costs, consisted of
approximately $613 paid in cash, a promissory note in the
principal amount of $150 payable in 8 equal quarterly
installments without interest and options to purchase 5,000
shares of the Company's common stock valued at $7. The cost in
excess of fair value of net identifiable assets acquired was
approximately $693.
On November 6, 1998, the Company acquired substantially all the
assets and liabilities of Mannion Reporting, a court reporting
agency based in Northern New Jersey. The purchase price,
inclusive of transaction costs, consisted of approximately $156
paid in cash and a promissory note in the principal amount of $75
payable in 12 equal quarterly installments with interest at the
rate of 7% per annum. The cost in excess of fair value of net
identifiable assets acquired was approximately $206.
On November 6, 1998, the Company acquired substantially all the
assets and liabilities of Precise Reporting & Video, Inc., a
court reporting agency based in Fort Lauderdale, Florida. The
purchase price, inclusive of transaction costs, consisted of
approximately $489 paid in cash and two promissory notes in the
aggregate amount of $141, payable in 12 equal quarterly
installments with interest at the rate of 6.75% per annum. The
cost in excess of fair value of net identifiable assets acquired
was approximately $616.
On December 1, 1998, the Company acquired certain assets of The
Granite Group, Inc., a temporary staffing agency based in New
York City. The purchase price, inclusive of transaction costs,
consisted of approximately $25 paid in cash and 10,416
unregistered shares of the Company's common stock (the shares
vest in three equal annual installments commencing one year from
the acquisition date). The Company will account for the stock
issuance as an adjustment to goodwill, as such stock becomes
vested.
The following unaudited pro forma information assumes the 1998
Acquisitions occurred on January 1, 1997, 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, 1996.
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:
1998 1997 1996
------------- ------------ ----------
Revenue $ 135,979 135,590 53,754
Net (loss) income
applicable to common
stockholders (1,827) (489) 571
Net (loss) income per
common share - basic (0.40) (0.13) 0.24
Net (loss) income per
common share- diluted (0.40) (0.13) 0.24
1999 ACQUISITION
On January 1, 1999, the Company acquired all of the outstanding
common stock of CAT-LINKS, Inc., a court reporting software
development company from an officer/director of the Company. The
purchase price paid, inclusive of transaction costs, consisted of
approximately $60 paid in cash and 50,000 unregistered shares of
the Company's common stock valued at $170. The cost in excess of
fair value of net identifiable assets acquired was approximately
$387.
(b) POOLING OF INTERESTS BUSINESS COMBINATION
On November 7, 1997, the Company acquired all of the common stock
of Jurist-Begley Reporting Services, Inc., Jurist, Inc. and
Aarons & Associates, Inc. (collectively Jurist) in exchange for
427,214 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 net loss from continuing operations of the combining
companies for the periods preceding the acquisition are as
follows (excluding extraordinary item in 1996):
Period from
January 1,
1997 through Year ended
November 6, December 31,
1997 1996
------------- -------------
Revenue:
Esquire $ 37,010 24,583
Jurist 3,952 4,918
---------------- -------------
$ 40,962 29,501
================ =============
Net loss before extraordinary
item:
Esquire (1,475) (309)
Jurist (511) (67)
---------------- -------------
$ (1,986) (376)
================= =============
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.
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December
31, 1998 and 1997:
Depreciable
1998 1997 lives
----------- --------- -----------
Office condominium $ 208 203 31 years
Equipment 8,128 4,495 5 to 7 years
Leasehold improvements 1,782 1,002 5 to 10 years
----------- --------- -------------
10,118 5,700
Less accumulated
depreciation and
amortization (4,181) (2,644)
----------- -----------
$ 5,937 3,056
=========== ===========
Depreciation and amortization expense for property and equipment
amounted to $1,537, $698 and $432 for the years ended December
31, 1998, 1997 and 1996, respectively.
(5) LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1998
and 1997:
1998 1997
------------- ---------
Revolving loan agreement(A) $ 79,715 40,065
Promissory notes(B) 8,402 8,691
Contract obligation(C) 341 422
Other notes and obligations(D) 815 125
Convertible notes(E) 4,560 500
Common stock repurchase guaranty(F) 275 --
------------ ---------
94,108 49,803
Less current portion of long-term debt (3,779) (4,361)
------------ ---------
$ 90,329 45,442
============ =========
(A) In December 1996, the Company entered into a three-year
revolving loan agreement, as amended, (Loan Agreement) with a
financial institution which is a preferred stockholder of the
company. The Loan Agreement provides for borrowings of up to
$80,000 based on operating cash flows as defined therein.
Borrowings under the Loan Agreement bear interest at either prime
rate or London Inter-Bank 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, 1998 and 1997 was 8.7% and 9.3%, respectively. In
addition, substantially all other lenders to the Company have
entered into a subordination agreement with this financial
institution.
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. At December 31, 1998, the Company
did not comply with certain covenant requirements for which the
Company received waivers and amendments on February 16, 1999 and
April 12, 1999. These amendments contain among other things, an
increase in the total borrowing capacity to $80,800 through May
31, 1999 and $83,500 thereafter, a provision for the payment of
fees equal to $400, a provision for the conversion of all LIBOR
loans to prime rate loans at the end of the Interest Period, as
defined therein, and an extension of the expiration date of
the Loan Agreement to January 3, 2000.
Furthermore, the Loan Agreement, as amended, consists of two
segments. Segment A consists of revolving loans totaling $77,000.
The interest rate on the borrowings under this segment is prime
rate or LIBOR, plus an applicable margin rate of 1.75% and 3.25%,
respectively, plus a PIK margin of 0.75% and an additional PIK
Margin of 1.25% on outstanding borrowings in excess of the
available borrowing capacity based upon operating cash flows, if
any. Segment B consists of revolving loans totaling $3,800
through May 31, 1999 and $6,500 thereafter. The interest rate on
the borrowings under this segment is prime rate, plus an
applicable margin rate of 1.75% plus a PIK margin of 1.50% from
January 1, 1999 through June 30, 1999, 2.25% from July 1, 1999
through September 30, 1999 and 3.75% thereafter. No payments with
respect to the PIK margin are due until January 3, 2000, subject
to certain provisions.
In connection with an acquisition in August 1998, a preferred
stockholder guaranteed the repayment of a $2,500
overadvance made to the Company under the Loan Agreement and
received a fee of $125 in consideration of such guaranty. In
January 1999, preferred stockholders paid $2,500 pursuant
to this guaranty and received 2,500 shares of the Company's
Series C convertible preferred stock.
In February 1999, a preferred stockholder guaranteed $1,500
of an overadvance made to the Company under the Loan Agreement,
and received a fee of $75 in consideration of such guaranty. In
April 1999, the preferred stockholder paid $1,500 pursuant
to this guarantee, which is evidenced by a subordinated
promissory note bearing interest at the rate of 18% per annum,
with interest and principal due and payable four months after
funding.
(B) Promissory notes with former stockholders of acquired
businesses are generally payable in quarterly installments plus
interest at rates ranging from no interest to 10% through August
2006. In December 1998 and January and February 1999, the Company
amended certain of these promissory notes. These amendments
contain provisions to defer all payments until June 30, 1999
and provide an interest rate of 9% on all deferred amounts.
(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 $31
and $10 at December 31, 1998 and 1997, respectively.
(D) Other notes and obligations -- outstanding amounts relate to
various equipment capital leases and are payable in aggregate
monthly installments with interest ranging from 8% to 15% through
February 2002.
(E) Convertible promissory notes with former stockholders of
acquired businesses, with due dates ranging from November 2000
through June 2003. The notes are convertible at any time at the
option of the Company into shares of the Company's common stock
at the conversion prices ranging from $16.00 - $20.00 per share
only if certain conditions are met.
(F) Common stock repurchase guaranty -- contractual obligation to
repurchase 13,750 shares of the Company's common stock at $20.00
per share from former stockholders of an acquired business in May
2000. The obligation is at the option of the former stockholders.
Scheduled annual principal payments of long-term debt are as follows:
1999 $ 3,779
2000 83,698
2001 4,229
2002 1,482
2003 581
Thereafter 339
-------------
$ 94,108
=============
(6) STOCKHOLDERS' EQUITY
(a) COMMON STOCK
In May 1993, the Company completed an initial public offering of
its securities, comprised of 625,000 shares of common stock at a
price of $8.00 per share and 625,000 warrants to purchase common
stock at $0.20 per warrant. In addition, the underwriters
exercised an overallotment and acquired an additional 93,750 of
warrants at $.18 per warrant, net of discount. These initial
public offering warrants (the Redeemable Common Stock Purchase
Warrants) were exercisable until May 18, 1998 at an exercise
price of $9.00 per share and were redeemable by the Company at a
price of $.02 per warrant, subject to certain conditions.
In November 1996, the Company purchased 216,750 shares of its
outstanding common stock at $6.00 per share.
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, 92,448 shares of common
stock were issued in exchange for 462,240 warrants during the
year ended December 31, 1997.
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. During
1998 and 1997, 233,743 and 26,667 warrants, respectively, were
exercised at the exercise price of $9.00 per share.
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 125,000 shares of common stock at a price of
$6.25 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 the 125,000 shares of common stock issued.
The 125,000 common stock shares were issued out of the Company's
treasury stock.
On December 15, 1997, Harlingwood exercised 50,000 stock options
granted under the Company's stock option plan at the exercise
price of $7.50 per share, resulting in the issuance of 50,000
shares of common stock. Payment by Harlingwood was with a
promissory note due on December 15, 2001 in the amount of $375.
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 the 50,000 shares of common
stock issued.
In connection with the October 23, 1996 private placement, the
Company granted the placement agent warrants to acquire 93,750
shares of common stock of the Company at an exercise price of
$6.00 per share in addition to cash compensation. On December 10,
1997, the placement agent exercised its right to acquire the
shares. Under the terms of the agreement, the placement agent
received 50,313 shares of common stock upon the exercise of
93,750 stock warrants.
As part of the Company's initial public offering, the
underwriters received a purchase option (subject to certain
antidilutive provisions) to acquire, until May 18, 1998, 132,376
shares of common stock and warrants at a price of $5.28 and $.12,
respectively. On May 14 and 21, 1998, the underwriters exercised
their rights to acquire the shares and warrants. Under the terms
of the agreement, the underwriters acquired 132,376 shares at the
exercise price of $5.28 per share for the options, acquired
warrants to purchase 132,375 shares at $.12 per warrant and
immediately exercised the warrants acquired for 132,375 shares at
the exercise price of $9.00.
In connection with the Preferred Stockholder acquiring an
additional 7,500 shares of Preferred Stock, the Company granted
the placement agent warrants to acquire 93,750 shares of common
stock of the Company at an exercise price of $6.00 per share. On
March 25, 1998, the placement agent exercised its right to
acquire shares. Under the terms of the agreement, the placement
agent received 52,692 shares of common stock upon the exercise of
93,750 stock warrants issued in June 1997.
In connection with the Preferred Stockholders acquiring an
additional 4,500 shares of Series A convertible preferred stock,
the Company granted the placement agent warrants to acquire
37,500 shares of common stock of the Company at an exercise price
of $9.00 per share. On August 26, 1998, the placement agent
exercised its right to acquire shares. Under the terms of the
agreement, the placement agent received 19,428 shares of common
stock upon the exercise of 37,500 warrants issued on January 9,
1998.
In connection with the 1998, 1997 and 1996 Acquisitions,
the Company issued 739,290, 678,000 and 102,003 shares of common
stock, respectively, valued at approximately $7,081, $5,694 and
$510, respectively.
During 1998 and 1997, stock options granted under the Company's
stock option plan (the Plan) were exercised at the exercise price
of $8.00 per share exercise during 1998 and exercise prices
ranging from $5.75 to $8.00 per share during 1997, resulting in
the issuance of 3,875 and 85,333 shares of common stock,
respectively.
(b) PREFERRED STOCK
On October 23, 1996, the Company completed a private placement of
7,500 shares of Series A convertible preferred stock (the
Preferred Stock) for an aggregate purchase price of $7,500, and
entered into an agreement (the Agreement) with the Preferred
Stockholders. Under the Agreement, the Preferred Stockholders
have the right within 21 months to acquire up to an additional
7,500 shares of Preferred Stock at a price of $1,000 per share.
The Preferred Stock is convertible into common stock of the
Company at a conversion price of $6.00 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 93,750 shares of
common stock of the Company at an exercise price of $6.00 per
share in addition to cash compensation. The warrants are
exercisable at any time prior to October 2001.
On June 16, 1997, in connection with the Preferred Stockholder
acquiring an additional 7,500 shares of Preferred Stock, the
Company granted the Placement Agent warrants to acquire 93,750
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 October 2001.
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 January 9, 1998, the Company's Preferred Stockholders
exercised their rights to acquire an additional 4,500 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 up to 5,000 shares of Series B convertible preferred
stock at a price of $1,000 per share. The Series B convertible
preferred stock is identical to the Series A convertible
preferred stock, except that it is junior to the Series A
convertible preferred stock, has a conversion price of $12.00 per
share and has 166-2/3 votes per share.
On January 9, 1998, in connection with the Preferred Stockholders
acquiring an additional 4,500 shares of Series A convertible
preferred stock, the Company granted the placement agent warrants
to acquire 37,500 shares of common stock of the Company at an
exercise price of $9.00 per share. The warrants are exercisable
at any time prior to January 2003.
On June 15, 1998, the Company's Preferred Stockholders exercised
their rights to acquire an additional 3,000 shares of Series A
convertible 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 7,500 shares of Series B convertible
preferred stock at a price of $1,000 per share. On December 21,
1998, this option was converted into 375,000 shares of common
stock of the Company at the conversion price of $12.00 per share.
In January 1999, pursuant to a guarantee agreement entered into
by the Company with a preferred stockholder (Note 5), the Company
issued 2,500 shares of Series C convertible preferred stock. The
Series C convertible preferred stock is identical to the Series B
convertible preferred stock, except that it has a conversion
price of $10.00 per share and has 100 votes per share.
(7) STOCK OPTIONS AND WARRANTS
(a) 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 was amended in
1998 to increase the number of shares of common stock issued
under the Plan. The Plan, as amended, authorizes grants of
options to purchase up to 1,750,000 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 the date of grant.
The per share weighted-average fair value of stock options
granted during 1998, 1997 and 1996 was $3.77, $1.19 and $1.03,
respectively, on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions: 1998-expected volatility of 51%, expected dividend
yield of 0%, risk-free interest rate of 4.69%, and an expected
life of five years; 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.
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 loss would have been adjusted to the pro forma
amounts indicated below (excluding extraordinary item in 1996):
1998 1997 1996
--------- -------- ------
Net loss before extraordinary
item applicable to common
stockholders:
As reported $ (2,093) (3,157) (451)
Pro forma (3,279) (3,511) (497)
Basic and diluted net loss
before extraordinary item per
common share:
As reported $ (0.48) (1.12) (0.19)
Pro forma (0.75) (1.25) (0.20)
Pro forma net loss reflects only options granted in 1998, 1997
and 1996. Therefore, the full impact of calculating compensation
cost for stock options under SFAS No. 123 is not reflected in the
pro forma net loss 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, 1996 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, 1995 289,300 $ 8.00
Granted 85,000 5.98
Exercised -- --
Forfeited (10,050) 8.00
----------------- ----------------
Balance at December 31, 1996 364,250 7.52
Granted 349,000 9.96
Exercised (85,333) 7.68
Forfeited (7,683) 8.00
------------------ ---------------
Balance at December 31, 1997 620,234 8.84
Granted 319,500 11.44
Exercised (3,875) 8.00
Forfeited (40,625) 8.25
------------------ --------------
Balance at December 31, 1998 895,234 $ 9.80
================== ==============
The following table summarizes information about Plan options
outstanding at December 31, 1998:
Weighted-average Number of Weighted-
remaining options average exercise
contractual currently price of options
Exercise price life exercisable currently exercisable
------------------ -------------------- -------------------- ----------------------------
<S> <C> <C> <C>
$5.75 - $8.00 7.19 years 340,067 $ 7.49
$10.63 -$13.50 9.32 years 103,833 12.02
$18.00 8.08 years 35,937 18.00
</TABLE>
At December 31, 1997 and 1996, the number of options exercisable
was 251,983 and 197,785, respectively, and the weighted-average
exercise price of those options was $7.75 and $8.00,
respectively.
(b) OPTIONS GRANTED OUTSIDE THE PLAN
During the year ended December 31, 1997, the Company granted to
nonemployees options to purchase 120,000 shares of the Company's
common stock outside the Plan at a price range of $8.00 to $9.00.
The Company recognized $329 of commission expense 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 1997 was $8.83
on the date of grant. The following weighted-average assumptions
were included in this method for 1997: expected volatility of
30.0%; expected dividend yield of 0%; risk-free interest rate of
6.0%; and an expected life of five years.
During the year ended December 31, 1998, the Company granted to
nonemployees options to purchase 120,000 shares of the Company's
common stock outside the Plan at prices ranging from $12.50 to
$18.00. The Company capitalized as goodwill $514 for these
options which were granted in connection with certain business
acquisitions 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 1998 was $12.25 on the date of grant. The following
weighted-average assumptions were included in this method for
1998: expected volatility of 51%; expected dividend yield of 0%;
risk-free interest rate of 4.69%; and an expected life of five
years.
The following table summarizes information about options granted
outside the Plan at December 31, 1998:
<TABLE>
<CAPTION>
Weighted-
Weighted-average Number of average exercise
remaining options price of options
contractual currently currently
Exercise price life exercisable exercisable
-------------------- -------------------- ------------- ----------------------------
<S> <C> <C> <C>
$8.00 - $9.00 8.96 years 175,000 $ 8.83
$12.50 - $18.00 8.95 years 120,000 17.23
</TABLE>
(c) WARRANTS
At December 31, 1998, 1997 and 1996, the Company had outstanding
354,500, 951,284 and 1,439,751 warrants, respectively, at
exercise prices ranging from $5.28 to $9.00 per warrant. At
December 31, 1998, 1997 and 1996, the weighted-average exercise
price of those warrants was $6.18, $7.14 and $7.77, respectively,
and the weighted-average remaining contractual life of those
warrants was 3.59, 2.86 and 3.03 years, respectively. All
warrants outstanding are exercisable at December 31, 1998.
(8) 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 1998,
1997 and 1996 amounted to $34, $15 and $12, respectively.
(9) INCOME TAXES
The income tax provision (benefit) for the years ended December
31, 1998, 1997 and 1996, excluding the income tax benefit of $104
attributed to the extraordinary loss in 1996, is as follows:
1998 1997 1996
------- ------- ------
Current tax expense (benefit):
Federal $ (604) -- 284
State and city 15 (15) 100
--------- -------- ------
Total current (589) (15) 384
--------- -------- ------
Deferred tax (benefit) expense:
Federal -- 101 (135)
State and city -- 39 (33)
--------- ------- ------
Total deferred -- 140 (168)
--------- ------- ------
Total income tax provision (589) 125 216
========= ======= ======
Income tax benefit for the years ended December 31, 1998, 1997
and 1996 differs from the amount computed by applying the federal
statutory rate of 34% as follows:
1998 1997 1996
------ --------- --------
Computed at federal statutory rate $(487) (792) (54)
State tax 15 24 67
Change in the valuation allowance (329) 489 --
Amortization of goodwill 210 157 162
Nondeductible expenses - 38 34
Preacquisition earnings - 174 -
Other 2 35 7
------- -------- -----
$ (589) 125 216
======= ======== =====
Significant components of the Company's net deferred tax assets
and liabilities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Deferred tax assets:
Contract obligation $ 136 169
Allowances and accrued expenses 202 266
Net operating loss (NOL) carryforwards 1,869 689
Tax credits -- 17
---------------- --------------
Total gross deferred tax assets 2,207 1,141
Less valuation allowance (160) (489)
---------------- --------------
Net deferred tax assets 2,047 652
---------------- --------------
Deferred tax liabilities- depreciation
and amortization (2,047) (652)
---------------- ---------------
</TABLE>
At December 31, 1998, the Company has approximately $4,407 in net
operating loss carryforwards which begin to expire in 2017.
In accordance with Internal Revenue Code Section 382, the annual
utilization of net operating loss carryforwards and credits
existing prior to a change in control may be limited.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those
temporary differences become deductible. Management believes that
there is a risk that certain of these NOL, tax credit
carryforwards and other deferred tax assets may expire unused
and, accordingly, has established a valuation allowance against
them.
(10) REPORTABLE SEGMENT DATA
The Company believes that all of its material operations are part
of the legal services industry, and it currently reports as a
single industry segment. The Company's reportable segments are
geographically aligned business units and include three regions
within the United States, the Western region, the Northeast
region and the Southeast region. The Western region includes the
Company's corporate operations as well as its operations in
California, Colorado and Texas, the Northeast region includes the
Company's operations in Illinois, Michigan, New Jersey, New York,
Pennsylvania and Washington, D.C. and the Southeast Region
includes the Company's operations in Florida and Georgia.
The geographic reportable segments of the Company's revenues,
operating income and identifiable assets are summarized in the
following table. The "Other" column includes corporate related
items and income and expense not allocated to reportable
segments.
<TABLE>
<CAPTION>
Western Northeast Southeast
Region Region Region Other Consolidated
-------------- ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
1998
Revenue $ 36,975 56,661 16,950 -- 110,586
Operating income 6,413 7,715 1,352 (10,331) 5,149
Identifiable assets 16,830 16,835 5,490 112,101 151,256
1997
Revenue 23,813 26,536 2,829 -- 53,178
Operating income 3,473 2,380 551 (6,078) 326
Identifiable assets 9,547 4,521 2,306 66,477 82,851
1996
Revenue 12,789 16,712 -- -- 29,501
Operating income 1,495 1,248 -- (1,687) 1,056
Identifiable assets 6,013 3,236 -- 22,585 31,834
</TABLE>
No single customer accounted for as much as 10% of consolidated
revenue in 1998, 1997 and 1996.
(11) SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the years ended December 31, 1998, 1997 and
1996 have included:
1998 1997 1996
------------ ------------- -----------
Interest $ 6,636 2,687 1,197
Income taxes 15 78 1,011
During 1997, $627 in preferred stock dividends were paid. At
December 31, 1998, 1997 and 1996, accrued and unpaid preferred
stock dividends were $1,399, $150 and $75, respectively.
During 1997, 175,000 shares of the Company's common stock were
issued for notes receivable of which 125,000 shares were issued
from the Company's treasury stock.
During 1998, 1997 and 1996, the Company issued 739,290, 678,000
and 102,003 shares of common stock, respectively, in connection
with the acquisitions.
During 1998 and 1997, the Company issued 72,120 and 50,313 shares
of common stock, respectively, in connection with cashless
exercises of warrants.
During 1997, the Company issued 92,448 shares of common stock in
connection with a warrant exchange offering.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Supplemental noncash investing and
financing activities:
Acquisitions:
Fair value of assets acquired 14,359 7,144 1,525
Liabilities assumed (8,156) (6,674) (988)
Cash paid for acquisitions 43,683 34,866 3,958
Stock issued (7,081) (5,694) (510)
Stock options issued (541) -- --
Notes issued (7,359) (4,707) (3,243)
</TABLE>
(12) LIQUIDITY
Management of the Company believes that the Company's existing
Loan Agreements (as amended) will provide the necessary working
capital required to fund the Company's operations through 1999.
(13) COMMITMENTS
(a) EMPLOYMENT AGREEMENTS
The Company has employment agreements and arrangements with its
executive officers and certain management personnel. The
agreements generally continue until terminated by the executive
or the Company, and provide for severance payments under certain
circumstances. The majority of the agreements include a covenant
against competition with the Company, which extends for a period
of time after termination. As of December 31, 1998, if all
employees under contract were to be terminated by the Company
without good cause, under these contracts the Company's liability
would be approximately $9,500 payable over the remaining
terms of the employment agreements.
In addition, the Company has entered into change in control
agreements with its key executive officers which provide that if
an executive's employment is terminated within six months after
a change in control of the Company, or the executive terminates
employment within such six month period of time, then the
executive is entitled to a lump sum severance payment ranging
from $105 to $375 based upon salary levels currently in effect,
and all of the executive's options shall immediately vest. As of
December 31, 1998, if a change of control were to occur, the
Company's liability would be approximately $1,500.
Effective May 1, 1997, the Company reached an agreement with the
former stockholder of David Feldman & Associates (USA) Ltd.,
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, whereby Harlingwood would provide the
services of a Chief Executive Officer. The agreement expired on
February 13, 1998 and was verbally extended until June 30, 1998,
and provided for an annual management fee of $175. During 1998
and 1997, the Company paid $163 and $45, respectively, to
Harlingwood for services rendered in connection with business
acquisitions.
(b) LEASE COMMITMENTS
The Company is obligated under operating leases for office
facilities which expire through August 2008. 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 1998, 1997 and 1996 under
the above leases amounted to approximately $3,170, $1,641 and
$720, 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, 1998, inclusive of the base utility,
maintenance and property tax charges for the office facilities,
are as follows:
1999 $ 4,599
2000 4,079
2001 3,361
2002 3,014
2003 2,442
Thereafter 6,862
-------------------
$ 24,357
===================
Future annual rental income under remaining noncancelable
subleases is as follows: 1999 - $218, 2000 - $150, 2001 - $143,
2002 - $131 and 2003 - $101.
(c) 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
statements taken as a whole.
<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.
April 14, 1999 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 April 8, 1999
- --------------------------------
Malcolm L. Elvey
/s/ David A. White Chief Executive
- --------------------------------- Officer and Director April 8, 1999
David A. White
/s/ David A. Higson Principal Financial
- --------------------------------- Officer, Principal
David A. Higson Accounting Officer April 8, 1999
and Director
/s/ Cary A. Sarnoff Senior Vice President
- --------------------------------- and Director April 8, 1999
Cary A. Sarnoff
/s/ Mortimer R. Feinberg Director April 8, 1999
- ----------------------------------
Mortimer R. Feinberg
- ---------------------------------- Director April __, 1999
Gary L. Monroe
/s/ Joseph P. Nolan Director April 8, 1999
- ----------------------------------
Joseph P. Nolan
- ---------------------------------- Director April __, 1999
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 C 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 C 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
<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 B 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 B Convertible Preferred Stock is hereby increased from
5,000 shares to 7,500 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 B 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 B Convertible Preferred Stock is
hereby increased from 5,000 shares with a par value of $.01
per share to 7,500 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 B
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 June, 1998.
ESQUIRE COMMUNICATIONS LTD.
By:_______________________________
<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. In connection with a reverse split of the Corporation's outstanding
Common Stock and an increase in the par value of the Corporation's Common Stock,
the Certificate of Incorporation of the Corporation is hereby amended to amend
the first paragraph of Article FOURTH. 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, $.02 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 17th day of November, 1998.
------------------------------
Name: David A. White
Title: Chief Executive Officer
Attest:
---------------------------
Name: David A. Higson
Title: Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF THE
SERIES C 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 2,500 shares of Series C 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 C Convertible Preferred Stock (the "Series C Preferred") to
consist of 2,500 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 C 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 C Convertible Preferred Stock (the "Series C Preferred")
as provided in this Section 1. Dividends on each share of the Series C 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 C Preferred shall be payable on February 1 of each year, beginning
February 1, 2000 (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 C 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 C 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 C 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 and holders of Series B 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 C 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 C 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 the Series B Preferred
and available to be distributed to the Corporation's stockholders shall be
distributed pro rata among such holders of Series C Preferred based upon the
aggregate Liquidation Value, plus all accrued and unpaid dividends, of the
Series C 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 C 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 C 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 C Preferred on Dividends and
Redemptions.
So long as any Series C Preferred remains outstanding, without the
prior written consent of the holders of a majority of the outstanding shares of
Series C 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 C 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 C 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 C 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 C 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 C
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 C 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 C Preferred, except as expressly authorized herein.
Section 5. Voting Rights.
The holders of the Series C Preferred shall be entitled to notice of
all stockholders meetings in accordance with the Corporation's bylaws, and the
holders of the Series C 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 C Preferred entitled to one vote
for each whole share of Conversion Stock issuable upon conversion of the Series
C 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 C Preferred may convert all, but
not less than all, of the Series C 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 C
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 C
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 C
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 C 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 C 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 C Preferred shall be made without charge to the holders of
such Series C 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 C 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 C Preferred or of Conversion Stock issued or issuable upon conversion of
Series C Preferred in any manner which interferes with the timely conversion of
Series C 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 C Preferred, such number
of shares of Conversion Stock issuable upon the conversion of all outstanding
Series C 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 C 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 C 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 $10.00. 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 C 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 (1) 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 C 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 C 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 C 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 C 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 C 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 C 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 C 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 C 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 C Preferred then outstanding) to insure that each of the holders of
Series C 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 C 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 C 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 C 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 C 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 C 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 C 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 C 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 C 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 C 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 C
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
C 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 C 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 C 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 C 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 C Preferred
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Conversion Stock had such Series C 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 C 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 C 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 C 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 C 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 C 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 C Preferred pursuant to the
Purchase Agreement, or any information contained in writing furnished by the
Corporation or any Subsidiary to any holder of Series C 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 C 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 C Preferred. Upon the surrender of any certificate
representing Series C 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 C Preferred
represented by such new certificate from the date to which dividends have been
fully paid on such Series C 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 C 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 C 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 C 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 C 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 C 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 C
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 C 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 C 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 C 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, the Series B Preferred
and the Series C 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.
"Series B Preferred" means the Corporation's Series B 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 1 to 14 hereof without the prior
written consent of the holders of a majority of the Series C 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 C
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 ________day of January, 1999.
/s/ David A. White
-----------------------
Title: Chief Executive Officer
Name: David A. White
ATTEST:
/s/ David Higson
- ---------------------
Name: David Higson
Title: Secretary
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 30th day of June, 1998 by and between
ESQUIRE COMMUNICATIONS LTD., a Delaware corporation, with offices at 750 B
Street, Suite 2350, San Diego, California 92101 (the "Corporation"), and David
A. White (the "Executive"), with 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 employ the Executive and the
Executive desires to accept such employment upon the terms and conditions
contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
1. Term of Employment
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby agrees to employ the Executive, and the Executive accepts
such employment, in an executive capacity as Chief Executive Officer of 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. Upon the expiration of such one year period, this Agreement
shall be automatically renewed on a year to year basis unless terminated by
either the Corporation or the Employee by the giving of written notice of
termination to the other party hereto at least 60 days' prior to the expiration
of the initial term or any successive term.
2. Duties
2.1. As Chief Executive Officer, the Executive shall perform such
duties and discharge such responsibilities as the 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 Executive as
a Director 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. Compensation
So long as the Executive is employed by the Corporation pursuant to
this Agreement, the Corporation agrees that:
3.1. The Executive shall receive an annual base salary at the rate of
$250,000 per annum, payable in accordance with the Corporation's normal
practices. The Corporation shall deduct or withhold from such payments all
amounts which may be required to be deducted or withheld under any applicable
law now in effect or which may become effective during the term of this
Agreement (including but not limited to Social Security contributions and income
tax withholdings). Any salary and other compensation 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 Executive shall be entitled to participate in, and receive
benefits from, any insurance, medical, disability, bonus, incentive
compensation, stock option or other employee benefit plan, if any are adopted,
of the Corporation or any subsidiary which may be in effect at any time during
the course of his employment by the Corporation and which shall be generally
available to the Executive on terms no less favorable than to the other
executive officers of the Corporation or its subsidiaries.
3.3. In the event this Agreement is not renewed by the Corporation in
accordance with Article 1 of this Agreement, the Corporation shall continue to
pay to the Executive the Executive's annual base salary for a period of six
months following the expiration of the initial term or any successive term,
payable in accordance with the Corporation's normal payroll practices.
4. Reimbursement for Expenses
The Corporation or its subsidiaries shall reimburse the Executive for
expenses which the Executive may from time to time reasonably incur on behalf of
and at the request of the Corporation in the performance of his responsibilities
and duties under this Agreement, provided that the Executive 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 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 Executive's legal representatives the compensation
which would otherwise be payable to the Executive up to the end of the month in
which his death occurs and no more.
6. Termination of Employment by Reason of Disability If the Executive
shall become temporarily disabled during the term of this Agreement, all of the
Executive'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
Executive's employment 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, the Executive is unable to render full-time
employment 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, the Executive is unable to render full-time employment 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 for Cause
The Corporation may immediately terminate the Executive's employment
under this Agreement in the event that the Executive 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 of this Agreement, consistent neglect or
refusal to attend to the material duties assigned to him by the Board of
Directors of the Corporation, gross negligence or willful misconduct in the
performance of his duties, dishonesty of the Executive 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 conviction of a felony offense. Should this Agreement
be terminated by the Corporation for cause, the Corporation's only obligation
shall be to pay the Executive his compensation due to date under Sections 3.1
and 3.2 of this Agreement. 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 Executive with respect to the matter for which this Agreement
is terminated for cause.
8. Confidentiality
During the course of this Agreement, 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 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, Executive agrees that, except as
required by his duties under this Agreement, he shall not take, use, or disclose
to anyone in documentary form or through electronic media or otherwise, at any
time during or after the term of this Agreement, any Confidential Information
obtained by him in the course of his employment with the Corporation.
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 agrees that he shall not directly or indirectly, for his own
account or as agent, employee, officer, director, trustee, consultant or
shareholder of any corporation or a member of any firm or otherwise, anywhere
within 100 miles of 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 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, solicit the employment or
retention of any court reporter retained by the Corporation or any employee of
the Corporation.
9.3. The Executive 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, he 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. 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
10 any other address or party to which any such notice or communication or
copies thereof shall be sent.
11. Equitable Relief
The Executive acknowledges that the Corporation will suffer damages
incapable of ascertainment in the event that any of the provisions of Articles 8
or 9 hereof are breached and that the Corporation will be irreparably damaged in
the event that the provisions of Articles 8 or 9 are not enforced. Therefore,
should any dispute arise with respect to the breach or threatened breach of
Articles 8 or 9 of this Agreement, the Executive 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 or 9 of this Agreement. The Executive 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 or 9 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.
12. Miscellaneous
This Agreement shall be governed by the internal domestic laws of the
State of California, where the Executive has 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 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.
----------------------------
David A. White
ESQUIRE COMMUNICATIONS LTD.
By:_________________________
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of August 10, 1998
by and among
ESQUIRE COMMUNICATIONS LTD.
as Borrower
ANTARES LEVERAGED CAPITAL CORP.
for itself, as a Lender and
as Agent for all Lenders
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
as Lenders
<PAGE>
TABLE OF CONTENTS
ARTICLE I - THE CREDITS........................ 1
1.1 Amount and Terms of Commitment..................................... 1
(a) Intentionally Omitted......................................... 1
(b) The Revolving Credit.......................................... 1
(c) Lender Letters of Credit and Letter of
Credit Participation Agreements..............................4
1.2 Notes................................................................5
1.3 Interest.............................................................5
1.4 Loan Accounts........................................................6
1.5 Procedure for Revolving Credit Borrowing.............................6
1.6 Conversion and Continuation Elections................................7
1.7 Optional Prepayments.................................................9
1.8 Mandatory Prepayments of Loans.......................................9
(a) Revolving Loan.................................................9
(b) Issuance of Securities.........................................9
1.9 Fees.................................................................10
(a) Arrangement and Agent's Fees...................................10
(b) Commitment Fee.................................................10
(c) Letter of Credit Participation Fee.............................10
1.10 Payments by the Borrower........................................... 11
1.11 Payments by the Lenders to the Agent............................... 11
1.12 Disbursements of Advances; Settlements Among
Agent and Lenders; Payments of Interest and
Fees; Disgorgement Obligations...................................12
1.13 Security............................................................13
ARTICLE II - CONDITIONS PRECEDENT............13
2.1 Conditions of Initial Loans..........................................13
(a) Credit Agreement and Notes.....................................13
(b) Secretary's Certificates; Resolutions;
Incumbency..............................................14
(c) Articles of Incorporation; By-laws and Good
Standing................................................14
(d) Master Reaffirmation; Collateral Documents.....................14
(e) Legal Opinions.................................................15
(f) Payment of Fees................................................15
(g) Certificate....................................................15
(h) Financial Statements...........................................16
(i) Insurance Policies.............................................16
(j) Environmental Review...........................................16
(k) Due Diligence..................................................16
(l) Accountants' Review............................................16
(m) Insurance Review...............................................16
(n) Availability Certificate.......................................16
(o) Related Transactions...........................................16
(p) Prior Indebtedness.............................................16
(r) Other Documents................................................17
2.2 Conditions to All Borrowings.........................................17
(a) Notice of Borrowing............................................17
(b) Continuation of Representations and
Warranties...................................................17
(d) No Existing Default............................................17
(e) Availability Certificate.......................................17
(f) Subsidiary...................................................17
2.3 Conditions to Certain Revolving Loans................................18
(a) Evidence of Perfected First Priority
Security Interest............................................18
(b) Approval.......................................................18
(c) Availability Certificate.......................................18
(d) Additional Documentation.......................................18
ARTICLE III - REPRESENTATIONS AND WARRANTIES.........19
3.1 Corporate Existence and Power........................................19
3.2 Corporate Authorization; No Contravention............................19
3.3 Governmental Authorization...........................................20
3.4 Binding Effect.......................................................20
3.5 Litigation...........................................................20
3.6 No Default...........................................................21
3.7 ERISA Compliance.....................................................21
3.8 Use of Proceeds; Margin Regulations..................................22
3.9 Title to Properties..................................................22
3.10 Taxes................................................................22
3.11 Financial Condition..................................................22
3.12 Environmental Matters................................................23
3.13 Collateral Documents.................................................23
3.14 Regulated Entities...................................................23
3.15 No Burdensome Restrictions...........................................23
3.16 Solvency.............................................................23
3.17 Labor Relations......................................................23
3.18 Copyrights, Patents, Trademarks and Licenses,
etc................................................................23
3.19 Subsidiaries.........................................................24
3.20 Brokers' Fees; Transaction Fees......................................24
3.21 Insurance............................................................24
3.22 Full Disclosure......................................................24
3.23 Year 2000 Issues.....................................................24
ARTICLE IV - AFFIRMATIVE COVENANTS.........25
4.1 Financial Statements.................................................25
4.2 Certificates; Availability Certificates; Other
Information........................................................26
4.3 Notices..............................................................27
4.4 Preservation of Corporate Existence, Etc.............................29
4.5 Maintenance of Property..............................................29
4.6 Insurance............................................................29
4.7 Payment of Obligations...............................................30
4.8 Compliance with Laws.................................................30
4.9 Inspection of Property and Books and Records.........................30
4.10 Use of Proceeds......................................................31
4.11 Solvency.............................................................31
4.12 Further Assurances...................................................31
ARTICLE V - NEGATIVE COVENANTS...........31
5.1 Limitation on Liens..................................................31
5.2 Disposition of Assets................................................32
5.3 Consolidations and Mergers...........................................33
5.4 Loans and Investments................................................33
5.5 Limitation on Indebtedness...........................................34
5.6 Transactions with Affiliates.........................................34
5.7 Management Fees and Compensation.....................................35
5.8 Use of Proceeds......................................................35
5.9 Contingent Obligations...............................................35
5.10 Compliance with ERISA................................................35
5.11 Operating Lease Obligations..........................................36
5.12 Restricted Payments..................................................36
5.13 Change in Business...................................................37
5.14 Change in Structure..................................................37
5.15 Accounting Changes...................................................37
5.16 Amendments to Related Agreements and
Subordinated Indebtedness..........................................37
5.17 Acquisitions.........................................................38
ARTICLE VI - FINANCIAL COVENANTS.........39
6.1 Capital Expenditures.................................................39
6.2 Leverage Ratio.......................................................39
6.3 Fixed Charge Coverage Ratio..........................................39
6.4 Interest Coverage Ratio..............................................39
ARTICLE VII - EVENTS OF DEFAULT..........39
7.1 Event of Default.....................................................39
(a) Non-Payment....................................................39
(b) Representation or Warranty.....................................39
(c) Specific Defaults..............................................40
(d) Other Defaults.................................................40
(e) Cross-Default..................................................40
(f) Insolvency; Voluntary Proceedings..............................40
(g) Involuntary Proceedings........................................40
(h) ERISA..........................................................41
(i) Monetary Judgments.............................................41
(j) Non-Monetary Judgments.........................................41
(k) Collateral.....................................................42
(m) Subsidiary Guaranty............................................42
(n) Invalidity of Subordination Provisions.........................42
7.2 Remedies.............................................................42
7.3 Rights Not Exclusive.................................................43
7.4 Cash Collateral for Letters of Credit................................43
ARTICLE VIII - THE AGENT..............43
8.1 Appointment and Authorization........................................43
8.2 Delegation of Duties.................................................43
8.3 Liability of Agent...................................................44
8.4 Reliance by Agent....................................................44
8.5 Notice of Default....................................................44
8.6 Credit Decision......................................................45
8.7 Indemnification......................................................45
8.8 Agent in Individual Capacity.........................................46
8.9 Successor Agent......................................................46
8.10 Collateral Matters...................................................47
ARTICLE IX - MISCELLANEOUS.............47
9.1 Amendments and Waivers...............................................47
9.2 Notices..............................................................48
9.3 No Waiver; Cumulative Remedies.......................................49
9.4 Costs and Expenses...................................................49
9.5 Indemnity............................................................50
9.6 Marshalling; Payments Set Aside......................................51
9.7 Successors and Assigns...............................................51
9.8 Assignments, Participations, etc.....................................51
9.9 Confidentiality......................................................53
9.10 Set-off; Sharing of Payments.........................................54
9.11 Automatic Debits of Fees.............................................54
9.12 Notification of Addresses, Lending Offices, Etc......................55
9.13 Counterparts.........................................................55
9.14 Severability.........................................................55
9.15 Captions.............................................................55
9.16 Independence of Provisions...........................................55
9.17 Interpretation.......................................................55
9.18 No Third Parties Benefited...........................................55
9.19 Governing Law and Jurisdiction.......................................55
9.20 Waiver of Jury Trial.................................................56
9.21 Entire Agreement.....................................................57
9.22 Continued Effective; No Novation.....................................57
ARTICLE X - TAXES, YIELD PROTECTION AND ILLEGALITY.58
10.1 Taxes................................................................58
10.2 Illegality...........................................................60
10.3 Increased Costs and Reduction of Return..............................61
10.4 Funding Losses.......................................................61
10.5 Inability to Determine Rates.........................................62
10.6 Reserves on LIBOR Rate Loans.........................................62
10.7 Certificates of Lenders..............................................63
10.8 Survival.............................................................63
10.9 Replacement of Lender in Respect of Increased
Costs..............................................................63
ARTICLE XI - DEFINITIONS..............63
11.1 Defined Terms........................................................63
11.2 Other Interpretive Provisions........................................80
(a) Defined Terms.................................................80
(b) The Agreement.................................................80
(c) Certain Common Terms..........................................80
(d) Performance; Time.............................................80
(e) Contracts.....................................................80
(f) Laws..........................................................80
11.3 Accounting Principles................................................81
<PAGE>
SCHEDULES
Schedule 1.1(b) Revolving Loan Commitments
Schedule 3.2 Capitalization
Schedule 3.5 Litigation
Schedule 3.7 ERISA
Schedule 3.11 Liabilities
Schedule 3.12 Environmental Matters
Schedule 3.18 Intellectual Property
Schedule 3.19 Subsidiaries and Equity Investments
Schedule 5.1 Liens
Schedule 5.5 Indebtedness
Schedule 5.8 Contingent Obligations
Schedule 11.1 Prior Indebtedness
EXHIBITS
Exhibit A Availability Certificate
Exhibit B Notice of Borrowing
Exhibit C Notice of Continuation/Conversion
Exhibit D Revolving Note
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is
entered into as of August 10, 1998, by and among Esquire Communications Ltd., a
Delaware corporation (the "Borrower"), Antares Leveraged Capital Corp., a
Delaware corporation, as agent (the "Agent") for the several financial
institutions from time to time party to this Agreement (collectively, the
"Lenders" and individually each a "Lender") and for itself as a Lender and such
Lenders.
W I T N E S S E T H:
WHEREAS, the Borrower, Agent and certain of the Lenders are parties to
that certain Credit Agreement dated as of December 24, 1996 (as heretofore
amended, modified and supplemented, the "Existing Credit Agreement"); and
WHEREAS, the Borrower, Agent and Lenders desire to amend and restate
in its entirety the Existing Credit Agreement, all on the terms and subject to
the conditions contained herein;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereby amend and restate in its
entirety the Existing Credit Agreement.
ARTICLE I - THE CREDITS
1.1 Amount and Terms of Commitment.
(a) Intentionally Omitted.
(b) The Revolving Credit. Each Lender with a Revolving Loan Commitment
severally and not jointly agrees, on the terms and conditions hereinafter set
forth, to make Loans to the Borrower (each such Loan, a "Revolving Loan") from
time to time on any Business Day during the period from the Restatement
Effective Date to the Revolving Termination Date, in an aggregate amount not to
exceed at any time outstanding the amount set forth opposite the Lender's name
in Schedule 1.1(b) under the heading "Revolving Loan Commitment" (such amount as
the same may be reduced from time to time as a result of one or more assignments
pursuant to Section 9.8, being referred to herein as such Lender's "Revolving
Loan Commitment"); provided, however, that, after giving effect to any Borrowing
of Revolving Loans, the aggregate principal amount of all outstanding Revolving
Loans shall not exceed the Maximum Revolving Loan Balance. Within the limits of
each Lender's Revolving Loan Commitment, and subject to the other terms and
conditions hereof, amounts borrowed under this subsection 1.1(b) may be repaid
and reborrowed from time to time. The "Maximum Revolving Loan Balance" from time
to time will be the lesser of:
(i) the sum of (A) the product obtained by multiplying four(4), times
Adjusted Court Reporting EBIDAT and (B) the product obtained by multiplying
three(3)(or such larger multiple, not to exceed three and one-half (3.5) as
Agent and, if Requisite Lender approval of the Acquisition is required pursuant
to subsection 5.17(a), Requisite Lenders, may approve), times Adjusted Staffing
Services EBIDAT, or
(ii) the Aggregate of all Revolving Loan Commitments then in effect;
less, in either case, any Letter of Credit Reserve then in effect. If at any
time the Revolving Loans exceed the Maximum Revolving Loan Balance, then
Revolving Loans must be repaid immediately in an amount sufficient to eliminate
such excess.
For purposes of this Agreement, the following terms shall have the
following meanings:
"Adjusted EBIDAT" means the sum of Adjusted Court Reporting EBIDAT and
Adjusted Staffing Services EBIDAT.
"Adjusted Court Reporting EBIDAT" means, as of any determination date,
the sum of the following:
(1) with respect to court reporting businesses/companies owned by
Borrower for twelve (12) months or more for which Agent has
received financial statements for not less than a twelve (12)
month period, (a) EBIDAT for the trailing twelve (12) month
period ending on the last day of the immediately preceding month
for which Agent has received financial statements, minus (b)
Capital Expenditures for such period, plus (c) in Agent's
discretion, verifiable expense reductions expected to be realized
and for which Borrower has provided evidence satisfactory to
Agent of such expense reductions, minus (d) increases in expenses
which are reasonably anticipated to occur, plus (e) Capital
Expenditures for such period which Capital Expenditures Agent has
agreed to add back to EBIDAT; plus
(2) with respect to court reporting businesses/companies owned by
Borrower for twelve (12) months or less for which Agent has not
received from Borrower financial statements for at least a twelve
(12) month period, (a) EBIDAT for each full month owned by
Borrower for which Agent has received financial statements, plus
(b) EBIDAT for that number of months immediately prior to
Borrower's acquisition equal to twelve minus the number of full
months owned by Borrower for which Agent has received financial
statements, as calculated by Borrower in good faith based on
financial statements delivered by the former owner/seller and
approved by Agent (provided, however, that in the event such
financial statements are not on a monthly basis, Borrower and
Agent will work together in good faith to allocate EBIDAT over
the period covered by such financial statements), plus (c) Excess
Owner's Compensation, less (d) Capital Expenditures for such
twelve (12) month period, including Capital Expenditures expended
during such period but prior to Borrower's acquisition of such
court reporting business/company, plus (e) in Agent's discretion,
verifiable expense reductions expected to be realized and for
which Borrower has provided evidence satisfactory to Agent of
such expense reductions, minus (f) increases in expenses which
are reasonably anticipated to occur, plus (g) Capital
Expenditures for such period which Capital Expenditures Agent has
agreed to add back to EBIDAT.
"Adjusted Staffing Services EBIDAT" means, as of any determination
date, the sum of the following:
(1) with respect to executive placement and temporary legal services
businesses/companies owned by Borrower for twelve (12) months or
more for which Agent has received financial statements for not
less than a twelve (12) month period, (a) EBIDAT for the trailing
twelve (12) month period ending on the last day of the
immediately preceding month for which Agent has received
financial statements, minus (b) Capital Expenditures for such
period, plus (c) in Agent's discretion, verifiable expense
reductions expected to be realized and for which Borrower has
provided evidence satisfactory to Agent of such expense
reductions, minus (d) increases in expenses which are reasonably
anticipated to occur, plus (e) Capital Expenditures for such
period which Capital Expenditures Agent has agreed to add back to
EBIDAT; plus
(2) with respect to executive placement and temporary legal services
businesses/companies owned by Borrower for twelve (12) months or
less for which Agent has not received from Borrower financial
statements for at least a twelve (12) month period, (a) EBIDAT
for each full month owned by Borrower for which Agent has
received financial statements, plus (b) EBIDAT for that number of
months immediately prior to Borrower's acquisition equal to
twelve minus the number of full months owned by Borrower for
which Agent has received financial statements, as calculated by
Borrower in good faith based on financial statements delivered by
the former owner/seller and approved by Agent (provided, however,
that in the event such financial statements are not on a monthly
basis, Borrower and Agent will work together in good faith to
allocate EBIDAT over the period covered by such financial
statements), plus (c) Excess Owner's Compensation, less (d)
Capital Expenditures for such twelve (12) month period, including
Capital Expenditures expended during such period but prior to
Borrower's acquisition of such executive placement or temporary
legal services business/company, plus (e) in Agent's discretion,
verifiable expense reductions expected to be realized and for
which Borrower has provided evidence satisfactory to Agent of
such expense reductions, minus (f) increases in expenses which
are reasonably anticipated to occur, plus (g) Capital
Expenditures for such period which Capital Expenditures Agent has
agreed to add back to EBIDAT.
"Excess Owner's Compensation" means the net compensation, salaries and
benefits paid prior to Borrower's acquisition of (i) the court reporting
business/company or (ii) the executive placement or temporary legal services
business/company to former owners, sellers and former management personnel which
are no longer required to be paid by Borrower or any of its Subsidiaries, to the
extent deducted in computing EBIDAT pursuant to clause 2(a) above in each of the
definitions of Adjusted Court Reporting EBIDAT and Adjusted Staffing Services
EBIDAT, minus the compensation, salaries and benefits Borrower would have had to
pay had Borrower owned such court reporting business/company or executive
placement or temporary legal services business/company during such period.
(c) Lender Letters of Credit and Letter of Credit Participation
Agreements. Subject to the terms and conditions of this Agreement and in
reliance upon the representations and warranties of Borrower herein set forth,
the Revolving Loan Commitment may, in addition to advances under the Revolving
Loan, be utilized, upon the request of Borrower, for (i) the issuance of letters
of credit by Agent (each such letter of credit, a "Lender Letter of Credit") or
(ii) the issuance of letter of credit participation agreements by Agent (each
such letter of credit participation, a "Letter of Credit Participation
Agreement") to confirm payment to banks (whether or not such banks are Lenders)
which issue letters of credit for the account of Borrower on behalf of each
Lender having a Revolving Loan Commitment (severally and not jointly) according
to such Lender's Revolving Loan Commitment.
The aggregate amount of Letter of Credit Participation Liability with
respect to all Lender Letters of Credit and Letter of Credit Participation
Agreements outstanding at any time shall not exceed $1,000,000.
The Borrower shall be irrevocably and unconditionally obligated
forthwith without presentment, demand, protest or other formalities of any kind,
to reimburse the Agent for any amounts paid by the Agent under any Lender Letter
of Credit or Letter of Credit Participation Agreement. The Borrower hereby
authorizes and directs the Lenders, at the Agent's option, to make a Revolving
Loan in the amount of any payment made by the Agent with respect to any Lender
Letter of Credit or Letter of Credit Participation Agreement. All amounts paid
by the Agent with respect to any Lender Letter of Credit or Letter of Credit
Participation Agreement that are not immediately repaid by Borrower with the
proceeds of a Revolving Loan or otherwise shall bear interest at the interest
rate then applicable to Revolving Loans, calculated using the Base Rate and the
Applicable Margin in effect. Each Lender agrees to fund its Commitment
Percentage of any Revolving Loan made pursuant to this subsection 1.1(c) and, if
no such Revolving Loans are made, each Lender agrees to purchase, and shall be
deemed to have purchased, a participation in such Lender Letter of Credit or
Letter of Credit Participation Agreement in an amount equal to its ratable share
of such Lender Letter of Credit or Letter of Credit Participation Agreement
based upon the Revolving Loan Commitments then in effect and each Lender agrees
to pay to the Agent such share of any payments made by the Agent under such
Lender Letter of Credit or Letter of Credit Participation Agreement. The
obligations of each Lender under the preceding two (2) sentences shall be
absolute and unconditional and such remittance shall be made notwithstanding the
occurrence or continuation of an Event of Default or Default or the failure to
satisfy any condition set forth in Section 2.2 hereof.
In addition to all other terms and conditions set forth in this
Agreement, the issuance by Agent of any Lender Letter of Credit or Letter of
Credit Participation Agreement shall be subject to the conditions precedent that
the Lender Letter of Credit, Letter of Credit Participation Agreement or the
letter of credit or written contract for which Borrower requests a Letter of
Credit Participation Agreement shall support a transaction entered into by
Borrower in the Ordinary Course of Business of Borrower and shall be in such
form, be for such amount, and contain such terms as are reasonably satisfactory
to Agent.
The expiration date of each Lender Letter of Credit shall be on a date
which is the earlier of (a) one year from its date of issuance, or (b) the
thirtieth day before the Revolving Termination Date. Each Letter of Credit
Participation Agreement shall provide that the Letter of Credit Participation
Agreement terminates and all demands or claims for payment must be presented by
a date certain, which date will be the earlier of (a) one year from its date of
issuance, or (b) the thirtieth day before the Revolving Termination Date.
Borrower shall give Agent at least ten (10) Business Days prior notice
specifying the date a Lender Letter of Credit or Letter of Credit Participation
Agreement is to be issued, identifying the beneficiary and describing the nature
of the transactions proposed to be supported thereby. The notice shall be
accompanied by the form of the Lender Letter of Credit or the letter of credit
or other written contract to be guarantied.
1.2 Notes. The Revolving Loans made by each Lender shall be evidenced
by a Revolving Note payable to the order of such Lender in an amount equal to
such Lender's Revolving Loan Commitment.
1.3 Interest. (a) Subject to subsections 1.3(c) and 1.3(d), each Loan
shall bear interest on the outstanding principal amount thereof from the date
when made at a rate per annum equal to the LIBOR or the Base Rate, as the case
may be, plus the Applicable Margin, as the same may be adjusted pursuant to the
provisions of the definition of Applicable Margin. Commencing on the first day
of the first full month after the Restatement Effective Date, and continuing
thereafter, the Applicable Margin for Loans shall be subject to adjustment as
set forth in the definition of Applicable Margin. Any change in the interest
rate on a Loan resulting from a change in the Applicable Margin shall become
effective as of the first day of the month immediately succeeding the month in
which such change in the Applicable Margin becomes effective. The Agent will
with reasonable promptness notify the Borrower and the Lenders of the effective
date and the amount of each such change, provided that any failure to do so
shall not relieve the Borrower of any liability hereunder or provide the basis
for any claim against the Agent. Each determination of an interest rate by the
Agent shall be conclusive and binding on the Borrower and the Lenders in the
absence of manifest error. All computations of fees and interest payable under
this Agreement shall be made on the basis of a 360-day year and actual days
elapsed. Interest and fees shall accrue during each period during which interest
or such fees are computed from the first day thereof to the last day thereof.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any payment or
prepayment of Loans in full pursuant to Section 1.7 and/or 1.8, and, during the
existence of any Event of Default, interest shall be payable on demand of the
Agent.
(c) At the election of the Agent or the Requisite Lenders while any
Event of Default exists, the Borrower shall pay interest (after as well as
before entry of judgment thereon to the extent permitted by law) on the
Obligations, at a rate per annum which is determined by adding two percent
(2.0%) per annum to the Applicable Margin then in effect for such Loans (plus
the LIBOR or Base Rate, as the case may be) and, in the case of Obligations not
subject to an Applicable Margin (other than the fees described in Section 1.9),
at a rate per annum equal to the Base Rate plus two percent (2.0%); provided,
however, that, on and after the expiration of any Interest Period applicable to
any LIBOR Rate Loan outstanding on the date of occurrence of such Event of
Default, the principal amount of such Loan shall, during the continuation of
such Event of Default, bear interest at a rate per annum equal to the Base Rate
plus the Applicable Margin plus two percent (2.0%).
(d) Anything herein to the contrary notwithstanding, the obligations
of the Borrower hereunder shall be subject to the limitation that payments of
interest shall not be required, for any period for which interest is computed
hereunder, to the extent (but only to the extent) that contracting for or
receiving such payment by the respective Lender would be contrary to the
provisions of any law applicable to such Lender limiting the highest rate of
interest which may be lawfully contracted for, charged or received by such
Lender, and in such event the Borrower shall pay such Lender interest at the
highest rate permitted by applicable law.
1.4 Loan Accounts. The Agent, on behalf of the Lenders, shall record
on its books and records the amount of each Loan made, the interest rate
applicable, all payments of principal and interest thereon and the principal
balance thereof from time to time outstanding, and such record shall, absent
manifest error be conclusive evidence of the amount of the Loans made by the
Lenders to the Borrower and the interest and payments thereon. Any failure to so
record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Borrower hereunder (and under any Note) to pay any amount
owing with respect to the Loans.
1.5 Procedure for Revolving Credit Borrowing. (a) Each Borrowing under
the Revolving Loan shall be made upon the Borrower's irrevocable written notice
delivered to the Agent in the form of a Notice of Borrowing (which notice must
be received by the Agent prior to 10:30 a.m. (Chicago time) (x) on the requested
Borrowing date in the case of each Base Rate Loan equal to or less than
$1,000,000, (y) on the day which is one (1) Business Day prior to the requested
Borrowing date in the case of each Base Rate Loan in excess of $1,000,000 but
equal to or less than $3,000,000 and (z) on the day which is three (3) Business
Days prior to the requested Borrowing date in the case of each LIBOR Rate Loan
and each Base Rate Loan in excess of $3,000,000; provided, that with respect to
Loans subsequent to the initial Loans, the Borrower may give notice of the
requested Borrowing to the Agent by telephone call, with such notice confirmed
within 24 hours by delivery to the Agent of a signed Notice of Borrowing. Such
Notice of Borrowing shall specify:
(i) the amount of the Borrowing (which, in the case of a
Borrowing of LIBOR Rate Loans, shall be in an aggregate minimum
principal amount of $100,000 and multiples of $100,000 in excess
thereof and in the case of Base Rate Loans, shall be in a minimum
principal amount of $100,000 and multiples of $50,000 in excess
thereof);
(ii) the requested Borrowing date, which shall be a Business
Day;
(iii) whether the Borrowing is to be comprised of LIBOR Rate
Loans or Base Rate Loans; and
(iv) if the Borrowing is to be LIBOR Rate Loans, the
Interest Period applicable to such Loans.
provided, however, that with respect to the Borrowing to be made on the
Restatement Effective Date, if any, the Notice of Borrowing shall be delivered
to the Agent not later than 10:30 a.m. (Chicago time) one Business Day before
the Restatement Effective Date and such Borrowing will consist of Base Rate
Loans only.
(b) Upon receipt of the Notice of Borrowing, the Agent will promptly
notify each Lender with a Commitment affected thereby of such Notice and of the
amount of such Lender's Commitment Percentage of the Borrowing.
(c) Unless Agent is otherwise directed in writing by Borrower, the
proceeds of each requested Borrowing after the Restatement Effective Date will
be made available to the Borrower by the Agent by wire transfer (or ACH
transfer) of such amount to the Borrower at Union Bank of California, 530 B
Street, San Diego, CA 92101, ABA Number 122-00496 for the account of Esquire
Communications Ltd., Account No. 4000146892.
1.6 Conversion and Continuation Elections. (a) The Borrower may upon
irrevocable written notice to the Agent in accordance with subsection 1.6(b):
(i) elect to convert on any Business Day, any Base Rate
Loans (or any part thereof in an amount not less than $100,000, or
that is in an integral multiple of $100,000 in excess thereof) into
LIBOR Rate Loans or;
(ii) elect to convert on the last day of the applicable
Interest Period any LIBOR Rate Loans having Interest Periods maturing
on such day (or any part thereof in an amount not less than $100,000,
or that is in an integral multiple of $100,000 in excess thereof) into
Base Rate Loans; or
(iii) elect to renew on the last day of the applicable
Interest Period any LIBOR Rate Loans having Interest Periods maturing
on such day (or any part thereof in an amount not less than $100,000,
or that is in an integral multiple of $100,000 in excess thereof);
provided, that if the aggregate amount of LIBOR Rate Loans in respect of any
Borrowing shall have been reduced, by payment, prepayment, or conversion of part
thereof to be less than $100,000, such LIBOR Rate Loans shall automatically
convert into Base Rate Loans, and on and after such date the right of the
Borrower to continue such Loans as, and convert such Loans into, LIBOR Rate
Loans, as the case may be, shall terminate.
(b) The Borrower shall deliver a Notice of Conversion/Continuation to
be received by the Agent not later than 10:30 a.m. (Chicago time) at least three
(3) Business Days in advance of the requested Conversion Date or continuation
date, if the Loans are to be converted into or continued as LIBOR Rate Loans and
on the requested Conversion Date, if the Loans are to be converted into Base
Rate Loans, specifying:
(i) the proposed Conversion Date or continuation date;
(ii) the aggregate amount of Loans to be converted or renewed;
and
(iii) the duration of the requested Interest Period with
respect to any Loans to be converted or continued as LIBOR Rate Loans.
(c) If upon the expiration of any Interest Period applicable to LIBOR
Rate Loans, the Borrower has failed to select timely a new Interest Period to be
applicable to such LIBOR Rate Loans, as the case may be, or if any Default or
Event of Default shall then exist, the Borrower shall be deemed to have elected
to convert such LIBOR Rate Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation, the Agent
will promptly notify each Lender thereof, or, if no timely notice is provided by
the Borrower, the Agent will promptly notify each Lender of the details of any
automatic conversion. All conversions and continuations shall be made pro rata
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Lender.
(e) Unless the Requisite Lenders shall otherwise agree, during the
existence of a Default or Event of Default, the Borrower may not elect to have a
Loan converted into or continued as a LIBOR Rate Loan.
(f) Notwithstanding any other provision contained in this Agreement,
after giving effect to any Borrowing, or to any continuation or conversion of
any Loans, there shall not be more than five (5) different Interest Periods in
effect.
(g) The Agent will, with reasonable promptness, notify the Borrower
and the Lenders of each determination of a LIBOR Rate; provided that any failure
to do so shall not relieve the Borrower of any liability hereunder or provide
the basis for any claim against the Agent.
1.7 Optional Prepayments. (a) Subject to Section 10.4, the Borrower
may at any time, (i) upon at least one (1) Business Day's written notice to the
Agent, prepay the Loans in whole or in part in an amount greater than $1,000,000
and (ii) prepay the Loans in part in an amount less than $1,000,000 but greater
than or equal to $100,000 without notice, in each instance, without penalty or
premium except as provided in Section 10.4. Optional prepayment in amounts less
than $100,000 shall not be permitted.
(b) The notice of any prepayment shall not thereafter be revocable by
the Borrower and the Agent will promptly notify each Lender thereof and of such
Lender's Commitment Percentage of such prepayment. The payment amount specified
in such notice shall be due and payable on the date specified therein, together
with (i) accrued interest to such date on the amount prepaid, and (ii) any
amounts required to be paid in connection therewith pursuant to Section 10.4.
(c) Amounts prepaid shall be applied first to any Base Rate Loans then
outstanding and then to outstanding LIBOR Rate Loans with the shortest Interest
Periods remaining; provided, however, that if the amount of Base Rate Loans then
outstanding is not sufficient to satisfy the entire prepayment requirement and
if no Default or Event of Default has occurred and is then continuing, the
Borrower may, at its option, place any amounts which it would otherwise be used
to prepay LIBOR Rate Loans on a day other than the last day of the Interest
Period(s) therefor in an interest-bearing account pledged to the Agent for the
benefit of the Lenders until the end of such Interest Period(s) at which time
such pledged amounts will be applied to prepay such LIBOR Rate Loans.
1.8 Mandatory Prepayments of Loans. (a) Revolving Loan. The Borrower
shall repay to the Lenders in full on the Revolving Termination Date the
aggregate principal amount of the Revolving Loans outstanding on the Revolving
Termination Date, all accrued and unpaid interest and all other amounts due and
payable hereunder and under the other Loan Documents.
(b) Issuance of Securities. Immediately upon the receipt by Borrower
or any of its Subsidiaries of the Net Issuance Proceeds of the issuance of
equity securities or debt securities (other than Net Issuance Proceeds from the
issuance of debt securities in respect of Indebtedness permitted hereunder),
Borrower shall deliver to Agent an amount (i) in the case of equity securities
(other than equity contributions from GTCR and other Persons who are
stockholders on the Restatement Effective Date in conjunction with the funding
of an Acquisition), equal to at least 50% of such proceeds or (ii) in the case
of debt securities, equal to the amount of such proceeds, in both cases net of
underwriting discounts associated therewith, for application to the Loans;
provided that in no event shall such amount exceed the amount of all outstanding
Obligations.
1.9 Fees.
(a) Arrangement and Agent's Fees. The Borrower shall pay to the Agent
for the Agent's own account an arrangement fee and an agent's fee in the amounts
and at the times set forth in a letter agreement between the Borrower and the
Agent dated as of the date hereof.
(b) Commitment Fee. From and after the execution and delivery of this
Agreement, Borrower shall pay to Agent, for the ratable benefit of the Lenders,
a fee (the "Commitment Fee") in an amount equal to
(i) the Aggregate Revolving Loan Commitment, less
(ii) the sum of (x) the average daily balance of all Revolving
Loans outstanding plus (y) the average daily face amount of the Letter
of Credit Reserve during the preceding month,
multiplied by one-half of one percent (0.50%) per annum (or, after the GTCR
Event has occurred, three-quarters of one percent (0.75%) per annum), such fee
to be payable monthly in arrears on the first day of the month following the
Restatement Effective Date and the first day of each month thereafter. The
Commitment Fee provided in this subsection 1.9(b) shall accrue at all times
after execution and delivery of this Agreement, including at any time during
which one or more conditions in Article II hereof are not met.
(c) Letter of Credit Participation Fee. Borrower shall pay to Agent,
for the ratable benefit of the Lenders having Revolving Loan Commitments, fees
for each Lender Letter of Credit and each Letter of Credit Participation
Agreement (the "Letter of Credit Participation Fee") for the period from and
including the date of issuance of same to and excluding the date of expiration
or termination, equal to the daily average face amount of Letter of Credit
Participation Liability multiplied by three percent (3.00%) per annum (or, after
the GTCR Event has occurred, three and one-quarter percent (3.25%) per annum);
provided, however, at Agent's or Requisite Lenders' option, while an Event of
Default exists, such percent shall be increased to five percent (5.00%) per
annum (or, after the GTCR Event has occurred, five and one-quarter percent
(5.25%) per annum), such fees to be payable monthly in advance on the
Restatement Effective Date and the first day of each month thereafter. Borrower
shall also reimburse Agent for any and all out-of-pocket fees and expenses, if
any, paid by Agent to the issuer of the letter of credit guarantied.
1.10 Payments by the Borrower. (a) All payments (including
prepayments) to be made by the Borrower on account of principal, interest, fees
and other amounts required hereunder shall be made without set-off, recoupment
or counterclaim, shall, except as otherwise expressly provided herein, be made
to the Agent for the ratable account of the Lenders at the Agent's Payment
Office, and shall be made in dollars and in immediately available funds, no
later than 10:30 a.m. (Chicago time) on the date specified herein. The Agent
will promptly distribute to each Lender its Commitment Percentage (or other
applicable share as expressly provided herein) of such principal, interest, fees
or other amounts, in like funds as received. Any payment which is received by
the Agent later than 10:30 a.m. (Chicago time) shall be deemed to have been
received on the immediately succeeding Business Day and any applicable interest
or fee shall continue to accrue. Borrower hereby authorizes Agent and each
Lender to make a Revolving Loan (which shall be a Base Rate Loan) to pay (i)
interest, principal, agent fees, Commitment Fees and Letter of Credit
Participation Fees, in each instance, on the date due, or (ii) after five (5)
days' prior notice to Borrower, other fees, costs or expenses payable by
Borrower or any of its Subsidiaries hereunder or under the other Loan Documents.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, if any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.
(c) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full as and when required hereunder, the
Agent may assume that the Borrower has made such payment in full to the Agent on
such date in immediately available funds and the Agent may (but shall not be so
required), in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent the Borrower shall not have made such payment in full to the
Agent, each Lender shall repay to the Agent on demand such amount distributed to
such Lender, together with interest thereon for each day from the date such
amount is distributed to such Lender until the date such Lender repays such
amount to the Agent, at the Agent's cost of funds.
1.11 Payments by the Lenders to the Agent. (a) Unless the Agent shall
have received notice from a Lender on the Restatement Effective Date or, with
respect to each Borrowing after the Restatement Effective Date, at least one
Business Day prior to the date of any proposed Borrowing, that such Lender will
not make available to the Agent as and when required hereunder for the account
of the Borrower the amount of that Lender's Commitment Percentage of the
Borrowing, the Agent may assume that each Lender has made such amount available
to the Agent in immediately available funds on the applicable Borrowing date and
the Agent may (but shall not be so required), in reliance upon such assumption,
make available to the Borrower on such date a corresponding amount. If and to
the extent any Lender shall not have made its full amount available to the Agent
in immediately available funds and the Agent in such circumstances has made
available to the Borrower such amount, that Lender shall on the next Business
Day following the date of such Borrowing make such amount available to the
Agent, together with interest at the Agent's cost of funds for and determined as
of each day during such period. A notice of the Agent submitted to any Lender
with respect to amounts owing under this subsection 1.11(a) shall be conclusive,
absent manifest error. If such amount is so made available, such payment to the
Agent shall constitute such Lender's Loan on the date of Borrowing for all
purposes of this Agreement. If such amount is not made available to the Agent on
the next Business Day following the date of such Borrowing, the Agent shall
notify the Borrower of such failure to fund and, upon demand by the Agent, the
Borrower shall pay such amount to the Agent for the Agent's account, together
with interest thereon for each day elapsed since the date of such Borrowing, at
a rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any date of
Borrowing shall not relieve any other Lender of any obligation hereunder to make
a Loan on the date of such Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make the Loan to be made by such other Lender on
the date of any Borrowing. Without limiting the generality of the foregoing,
each Lender shall be obligated to fund its Commitment Percentage of any
Revolving Loan made after any acceleration of the Obligations with respect to
any draw on any Lender Letter of Credit or any payment made under any Letter of
Credit Participation Agreement.
1.12 Disbursements of Advances; Settlements Among Agent and Lenders;
Payments of Interest and Fees; Disgorgement Obligations. (a) The Revolving Loan
balance may fluctuate from day to day through the Agent's disbursement of funds
to, and receipt of funds from, the Borrower. In order to minimize the frequency
of transfers of funds between the Agent and each Lender, Revolving Loan advances
and payments will be settled according to the procedures described in this
Section 1.12. Notwithstanding these procedures, each Lender's obligation to fund
its portion of any advances made by the Agent to the Borrower will commence on
the date such advances are made by the Agent. Such payments will be made by each
Lender without setoff, counterclaim or reduction of any kind.
(b) On the first Business Day of each week, or more frequently
(including daily) if the Agent so elects (each such day being a "Settlement
Date"), the Agent will advise each Lender by telephone or telecopy of the amount
of each such Lender's Commitment Percentage of the Revolving Loan balance as of
the close of business of the second Business Day immediately preceding the
Settlement Date. In the event that payments are necessary to adjust the amount
of such Lender's share of the Revolving Loan balance to equal such Lender's
Commitment Percentage of the Revolving Loan Obligations as of any Settlement
Date, such Lender will pay to the Agent, or the Agent will pay to such Lender
(as applicable) the amount necessary in same day funds by wire transfer to the
other's account not later than 2:00 p.m. Chicago time on the Business Day
following the Settlement Date.
(c) Notwithstanding the foregoing, the Agent, at its option, may elect
to require that each Lender provide funds in connection with any requested
Borrowing hereunder on the scheduled Borrowing date, and in such event the Agent
shall advise each Lender by telephone or telecopy of the amount to be funded by
such Lender no later than one (1) Business Day prior to the Borrowing date
applicable thereto, and each such Lender shall pay to the Agent such Lender's
Commitment Percentage of the Borrowing in same day funds by wire transfer to the
Agent's account not later than 10:30 a.m. Chicago time on such Borrowing date.
(d) On the first Business Day of each month (each, an "Interest
Settlement Date"), the Agent will advise each Lender by telephone or telecopy of
the amount of such Lender's Commitment Percentage of interest and fees on each
Loan as of the end of the last day of the immediately preceding month. Provided
that such Lender has made all payments required to be made by it under this
Agreement, the Agent will pay to such Lender, by wire transfer to such Lender's
account (as specified by such Lender on the signature page of this Agreement or
the applicable Assignment and Acceptance) not later than 2:00 p.m. Chicago time
on the next Business Day following the Interest Settlement Date, such Lender's
Commitment Percentage of interest, Commitment Fees and Letter of Credit
Participation Fees, in each instance, received by Agent in the immediately
preceding month.
(e) If the Agent pays an amount to a Lender under this Agreement in
the belief or expectation that a related payment has been or will be received by
the Agent from the Borrower and such related payment is not received by the
Agent, the Agent shall be entitled to recover such amount from such Lender,
without setoff, counterclaim or deduction of any kind. If the Agent determines
at any time that any amount received by the Agent under this Agreement must be
returned to the Borrower or paid to any other Person pursuant to any solvency,
fraudulent conveyance or similar law or otherwise, then, notwithstanding any
other term or condition of this Agreement, the Agent will not be required to
distribute any portion of such payment to any Lender. In addition, each Lender
will repay to the Agent on demand any portion of such amount that the Agent has
distributed to such Lender, together with interest thereon at such rate, if any,
as the Agent is required to pay to the Borrower or such other Person, without
setoff, counterclaim or deduction of any kind.
1.13 Security. All obligations of the Borrower under this Agreement,
the Notes and all other Loan Documents shall be secured in accordance with the
Collateral Documents.
ARTICLE II - CONDITIONS PRECEDENT
2.1 Conditions of Initial Loans. The obligation of each Lender to make
a Loan on the Restatement Effective Date and to otherwise close the amendment
and restatement of the credit facilities is subject to the condition that the
Agent shall have received on or before the Restatement Effective Date all of the
following, in form and substance satisfactory to the Agent and each Lender and
(except for the Notes and any instruments or documents which are Pledged
Collateral) in sufficient counterparts for each Lender, duly executed by all
parties thereto:
(a) Credit Agreement and Notes. This Agreement executed by the
Borrower, the Agent and each of the Lenders and the Notes, executed by the
Borrower;
(b) Secretary's Certificates; Resolutions; Incumbency. A certificate
of the Secretary or Assistant Secretary of the Borrower, and each Subsidiary of
the Borrower which is a party to any Loan Documents, certifying:
(i) the names and true signatures of the officers of the Borrower and
each such Subsidiary authorized to execute, deliver and perform, as
applicable, this Agreement, and all other Loan Documents to be
delivered hereunder; and
(ii) Copies of the resolutions of the board of directors of the
Borrower and each such Subsidiary approving and authorizing the
execution, delivery and performance by the Borrower or such Subsidiary
of this Agreement and the other Loan Documents to be executed or
delivered by it hereunder;
(c) Articles of Incorporation; By-laws and Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation of the Borrower and
each Subsidiary of the Borrower which is party to any Loan Documents
as in effect on the Restatement Effective Date, certified by the
Secretary of State (or similar, applicable Governmental Authority) of
the state of incorporation of the Borrower or such Subsidiary as of a
recent date, and the bylaws of the Borrower and each such Subsidiary
as in effect on the Restatement Effective Date, certified by the
Secretary or Assistant Secretary of the Borrower or such Subsidiary as
of the Restatement Effective Date; and
(ii) a good standing and, if available, tax good standing certificate
for the Borrower and each Subsidiary of the Borrower from the
Secretary of State (or similar, applicable Governmental Authority) of
its state of incorporation and each state where the Borrower or such
Subsidiary is qualified to do business as a foreign corporation as of
a recent date;
(d) Master Reaffirmation; Collateral Documents. The Master
Reaffirmation and Amendment to Loan Documents executed by Borrower and each
Subsidiary and the Collateral Documents, executed by the Borrower and each
Subsidiary, as applicable, in appropriate form for recording, where necessary,
together with:
(i) acknowledgment copies of all UCC-l financing statements filed,
registered or recorded to perfect the security interests of the Agent
for the benefit of the Lenders, or other evidence satisfactory to the
Agent that there has been filed, registered or recorded all financing
statements and other filings, registrations and recordings necessary
and advisable to perfect the Liens of the Agent for the benefit of the
Lenders in accordance with applicable law;
(ii) written advice relating to such Lien and judgment searches as the
Agent shall have requested of the Borrower and each Subsidiary, and
such termination statements or other documents as may be necessary to
confirm that the Collateral is subject to no other Liens in favor of
any Persons (other than Permitted Liens);
(iii) all certificates and instruments representing the Pledged
Collateral, irrevocable proxies and stock transfer powers executed in
blank or other executed endorsements satisfactory to the Agent, with
signatures guaranteed as the Agent may require;
(iv) evidence that all other actions necessary or, in the opinion of
the Agent, desirable to perfect and protect the Liens created by the
Collateral Documents have been taken;
(v) funds sufficient to pay any filing or recording tax or fee in
connection with any and all UCC-1 financing statements;
(vi) if required by the Agent, flood insurance and earthquake
insurance on terms satisfactory to the Agent; and
(vii) such consents, estoppels, subordination agreements and other
documents and instruments executed by landlords, tenants and other
Persons party to material contracts relating to any Collateral as to
which the Agent shall be granted a Lien for the benefit of the
Lenders, as requested by the Agent;
(e) Legal Opinions. Such opinions of counsel to the Borrower and its
Subsidiaries, addressed to the Agent and the Lenders, in form and substance
reasonably satisfactory to Agent;
(f) Payment of Fees. The Borrower shall have paid all accrued and
unpaid fees, costs and expenses to the extent then due and payable on the
Restatement Effective Date, together with Attorney Costs of the Agent;
(g) Certificate. A certificate signed by a Responsible Officer, dated
as of the Restatement Effective Date, stating that:
(i) the representations and warranties contained in Article III hereof
are true and correct on and as of the Restatement Effective Date or
such other date as indicated in such representations and warranties,
as though made on and as of such date;
(ii) no Default or Event of Default exists or would result from the
amendment and restatement of the credit facilities; and
(iii) there has occurred since December 31, 1997, no event or
circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect;
(h) Financial Statements. Copies of all of the financial statements of
the Borrower and its Subsidiaries referred to in Section 3.11 together with pro
forma financial statements giving effect to the transactions contemplated hereby
and by the Related Agreements, certified by a Responsible Officer;
(i) Insurance Policies. Standard lenders' loss payable endorsements in
favor of the Agent with respect to the insurance policies or other instruments
or documents evidencing insurance coverage on the properties of the Borrower and
its Subsidiaries in accordance with Section 4.6 and endorsements to all
liability insurance policies naming the Agent and the Lenders as additional
insureds thereunder;
(j) Environmental Review. At Agent's request, an environmental site
assessment with respect to any real property as to which the Agent is granted a
Lien for the benefit of the Lenders, if any, dated as of a recent date prior to
the Restatement Effective Date, prepared by a qualified firm acceptable to the
Agent and the Lenders, stating, among other things, that such real property is
free from Hazardous Materials and that operations conducted thereon are in
compliance with all Environmental Laws;
(k) Due Diligence. Evidence of completion to the satisfaction of the
Agent of such investigations, reviews and audits with respect to the Borrower
and the transactions contemplated by the Related Agreements as the Agent or any
Lender may deem appropriate;
(l) Accountants' Review. An accountants' review of the books and
records of the Borrower and its Subsidiaries prepared by Ernst & Young in form
and substance satisfactory to Agent;
(m) Insurance Review. A review of the Borrower's and its Subsidiaries'
insurance coverages, prepared by a qualified firm acceptable to the Agent, in
form and substance satisfactory to the Agent;
(n) Availability Certificate. A duly completed Availability
Certificate setting forth the availability as of a date not more than five (5)
days prior to the Restatement Effective Date;
(o) Related Transactions. The Related Transactions shall have closed
in the manner contemplated by the Related Agreements and shall otherwise be in
form and substance satisfactory to the Agent;
(p) Prior Indebtedness. A payoff letter from each lender of any Prior
Indebtedness in form and substance satisfactory to the Agent, together with such
UCC-3 termination statements, releases of Liens and other instruments, documents
and/or agreements necessary or appropriate to terminate any Liens in favor of
such lenders securing Prior Indebtedness which is to be paid off on the
Restatement Effective Date as the Agent may reasonably request, duly executed
and in form and substance satisfactory to the Agent;
(q) Subordination. Subordination agreements with each holder of
Indebtedness, other than Prior Indebtedness, in form and substance satisfactory
to Agent; and
(r) Other Documents. Such other approvals, opinions, documents or
materials as the Agent or any Lender may request.
2.2 Conditions to All Borrowings. The obligation of each Lender to
make any Loan and of the Agent to issue any Lender Letter of Credit or Letter of
Credit Participation Agreement, or to continue or convert any Loan hereunder, is
subject to the satisfaction of the following conditions precedent on the
relevant borrowing or continuation or conversion date:
(a) Notice of Borrowing or Continuation/Conversion. The Agent shall
have received (with, in the case of Loans on the Restatement Effective Date, a
copy for each Lender) a Notice of Borrowing or a Notice of
Continuation/Conversion, as applicable, in accordance with Section 1.5 or
Section 1.6;
(b) Continuation of Representations and Warranties. The
representations and warranties made by the Borrower contained in Article III
shall be true and correct on and as of such Borrowing, or continuation or
conversion date with the same effect as if made on and as of such Borrowing or
continuation or conversion date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date);
(c) Ownership by GTCR. GTCR shall directly own and control at least
60% of the number of shares of capital stock of Borrower (i) owned by GTCR on
the Restatement Effective Date plus (ii) acquired by GTCR after the Restatement
Effective Date (without double counting any shares of capital stock which have
been converted from preferred stock to common stock), in each case free and
clear of all liens, claims and encumbrances;
(d) No Existing Default. No Default or Event of Default shall exist or
shall result from such Borrowing or continuation or conversion;
(e) Availability Certificate. The Agent shall have received a duly
completed Availability Certificate setting forth availability under the Loan as
of a date not more than five (5) days prior to the date of Borrowing and, after
giving effect to such Loan, the outstanding principal balance of the Revolving
Loans does not exceed the Maximum Revolving Loan Balance; and
(f) Subsidiary. Borrower shall have pledged the stock or other equity
interest of each of its Subsidiaries to the Agent, for the benefit of Agent and
the Lenders, and shall have delivered, or caused to be delivered, to the Agent
the items described in subsection 2.1(d)(iii) and, to the extent not previously
delivered, the items described in subsections 2.1(b) and 2.1 (c), with respect
to each such Subsidiary. In addition, each such Subsidiary shall have guaranteed
the Obligations and shall have granted to the Agent, for the benefit of Agent
and the Lenders, a security interest in all of such Subsidiary's property to
secure such guaranty.
Each Notice of Borrowing and Notice of Continuation/ Conversion submitted by
the Borrower hereunder shall constitute a representation and warranty by the
Borrower hereunder, as of the date of each such notice or application and as of
the date of each Borrowing or continuation or conversion, as applicable, that
the conditions in Section 2.2 are satisfied.
2.3 Conditions to Certain Revolving Loans. In the event the proceeds
of the Revolving Loan are to be used to finance all or a portion of the purchase
price of an Acquisition, the obligations of each Lender to make such Loan is
subject to the satisfaction of the following conditions precedent on the
relevant Borrowing date:
(a) Evidence of Perfected First Priority Security Interest. With
respect to the Target acquired with the proceeds of a Revolving Loan, and prior
to the funding of such Loan, Agent shall have been granted, for the benefit of
Lenders, a first priority lien on and security interest in such Target
(including any equity security acquired by Borrower or any of its Subsidiaries),
and shall have received evidence of the proper filing in all required filing
offices of duly executed UCC financing statements or amendments to existing
financing statements with respect to such Target, in form and substance
satisfactory to Agent and perfecting the first priority security interest of
Agent for the benefit of Lenders, in such property. In the event real property
is being acquired in connection with such Acquisition, Agent shall have received
a fully executed Mortgage, in form and substance reasonably satisfactory to
Agent together with an ALTA lender's title insurance policy issued by a title
insurer reasonably satisfactory to Agent, in form and substance and in an amount
reasonably satisfactory to Agent insuring that the Mortgage is a valid and
enforceable first priority lien on the respective property, free and clear of
all defects, encumbrances and Liens, other than Permitted Liens. In addition,
Agent shall have received then current surveys, certified by a licensed surveyor
sufficient to allow the issuer of the lender's title insurance policy to issue
such policy without a survey exception. In the event the Acquisition is
structured as a stock purchase, or other purchase of equity securities, the
Person so acquired shall be required to guaranty the Obligations and pledge all
of its assets to secure such guaranty.
(b) Approval. Requisite Lenders shall have approved such Acquisition
in accordance with Section 5.17;
(c) Availability Certificate. Agent shall have received an
Availability Certificate as required pursuant to subsection 4.2(d) and, after
giving effect to such Loan, the outstanding principal balance of the Revolving
Loans does not exceed the Maximum Revolving Loan Balance.
(d) Additional Documentation.
(i) Agent shall have received complete executed or conformed
copies of each document, instrument and agreement executed in
connection with such Acquisition (collectively, "Acquisition
Documents"), all of which shall be subject to Lenders' review and
approval;
(ii) such Acquisition Documents shall be in full force and effect
and no material term or condition thereof shall have been amended,
modified or waived after the execution thereof (other than solely to
extend the date by which the Acquisition is required to occur) except
with the prior written consent of Requisite Lenders;
(iii) none of the parties to any of such Acquisition Documents
shall have failed to perform any material obligation or covenant
required to be performed or complied with on or before the date of
Borrowing; and
(iv) Agent shall have received, for the benefit of Lenders, a
collateral assignment of the seller's representations, warranties and
indemnities to Borrower under the Acquisition Documents.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Lender that
the following are, and after giving effect to the Related Transactions will be,
true, correct and complete:
3.1 Corporate Existence and Power. The Borrower and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and execute, deliver, and perform its obligations under, the Loan Documents and
the Related Agreements to which it is a party;
(c) is duly qualified as a foreign corporation, and licensed and in
good standing, under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (c) or clause (d), to the extent that
the failure to do so could not reasonably be expected to have a Material Adverse
Effect.
3.2 Corporate Authorization; No Contravention. (a) The execution,
delivery and performance by the Borrower and its Subsidiaries of this Agreement,
and any other Loan Document and Related Agreements to which such Person is
party, have been duly authorized by all necessary corporate action, and do not
and will not:
(i) contravene the terms of any of that Person's
Organization Documents;
(ii) conflict with or result in any breach or contravention
of, or the creation of any Lien under, any document evidencing any
Contractual Obligation to which such Person is a party or any order,
injunction, writ or decree of any Governmental Authority to which such
Person or its Property is subject; or
(iii) violate any Requirement of Law.
(b) Schedule 3.2 sets forth the authorized capital stock of Borrower
and each of its Subsidiaries. All issued and outstanding shares of capital stock
of Borrower and each of its Subsidiaries are duly authorized and validly issued,
fully paid, non-assessable. To the best of Borrower's knowledge, all capital
stock of Borrower owned by GTCR is owned by GTCR free and clear of all Liens.
All of the outstanding capital stock of Borrower's Subsidiaries is owned by
Borrower, free and clear of all Liens other than those in favor of Agent, for
the benefit of Lenders. All shares of capital stock of Borrower and each of its
Subsidiaries were issued in compliance with all applicable state and federal
laws concerning the issuance of securities. The outstanding capital stock of
Borrower's Subsidiaries is owned by Borrower. As of the Restatement Effective
Date, the capital stock of Borrower owned by GTCR and Management Stockholders is
owned of record by such Persons in the amounts set forth on Schedule 3.2. Except
as set forth on Schedule 3.2, to the best of Borrower's knowledge there are no
pre- emptive or other outstanding rights, options, warrants, conversion rights
or other similar agreements or understandings for the purchase or acquisition of
any shares of capital stock or other securities of any such entity.
3.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings and filings in connection with the
Liens granted to the Agent under the Collateral Documents) is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, the Borrower or any of its Subsidiaries of this Agreement,
any other Loan Document or Related Agreement.
3.4 Binding Effect. This Agreement and each other Loan Document and
Related Agreement to which the Borrower or any of its Subsidiaries is a party
constitute the legal, valid and binding obligations of the Borrower and each
Subsidiary which is a party thereto, enforceable against such Person in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by equitable principles relating to
enforceability.
3.5 Litigation. Except as specifically disclosed in Schedule 3.5,
there are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of the Borrower, threatened or contemplated, at law, in equity,
in arbitration or before any Governmental Authority, against the Borrower, or
its Subsidiaries or any of their respective Properties which:
(a) purport to affect or pertain to this Agreement, any other
Loan Document or Related Agreement, or any of the transactions
contemplated hereby or thereby; or
(b) if determined adversely to the Borrower or any of its
Subsidiaries, could reasonably be expected to have a Material Adverse
Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement, any other
Loan Document or any Related Agreement, or directing that the transactions
provided for herein or therein not be consummated as herein or therein provided.
3.6 No Default. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Borrower or the grant or perfection
of the Agent's Liens on the Collateral. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any Contractual Obligation
in any respect which, individually or together with all such defaults, could
reasonably be expected to have a Material Adverse Effect or that would, if such
default had occurred after the Restatement Effective Date, create an Event of
Default under subsection 7.1(e).
3.7 ERISA Compliance. (a) Schedule 3.7 lists all Plans and separately
identifies Plans intended to be Qualified Plans and Multiemployer Plans.
Borrower and each of its Subsidiaries is in compliance with all requirements of
each Plan, and each Plan complies with and is operated in compliance with all
applicable provisions of law in all respects. Each Qualified Plan and each
related trust has been determined by the IRS to qualify and will continue to
qualify under, and be exempt from tax under, the IRC. Nothing has occurred or
will be permitted to occur which would cause the loss of such qualification or
tax-exempt status. All required contributions have been and will be made in
accordance with the provisions of each Plan, and with respect to Borrower or any
ERISA Affiliate, there are and will be no Unfunded Pension Liabilities or
Withdrawal Liabilities. Neither Borrower nor any ERISA Affiliate has engaged or
will engage in a prohibited transaction, as defined in Section 4975 of the Code
or Section 406 of ERISA.
(b) No ERISA Event has occurred or is expected to occur with respect
to any Plan. No liability under any Title IV Plan has been or will be funded,
nor has such obligation been (nor will it be) satisfied with, the purchase of a
contract from an insurance company that is not rated AAA by Standard & Poor's
Corporation and the equivalent by each other nationally recognized rating
agency.
(c) Except as specifically disclosed in Schedule 3.7, no member of the
Controlled Group has ever represented, promised or contracted (whether in oral
or written form) to any current or former employee (either individually or to
employees as a group) that such current or former employee(s) would be provided,
at any cost to any member of the Controlled Group, with life insurance or
employee welfare plan benefits (within the meaning of section 3(1) of ERISA)
following retirement or termination of employment.
(d) Members of the Controlled Group have complied in all material
respects with the notice and continuation coverage requirements of Section 4980B
of the Code. No member of the Controlled Group has engaged, directly or
indirectly, in a non-exempt prohibited transaction (as defined in Section 4975
of the Code or Section 406 of ERISA) in connection with any Plan which could
reasonably be expected to have a Material Adverse Effect.
3.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
intended to be and shall be used solely for the purposes set forth in and
permitted by Section 4.10, and are intended to be and shall be used in
compliance with Section 5.8. Neither the Borrower nor any of its Subsidiaries is
generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
3.9 Title to Properties. The Borrower and each of its Subsidiaries
have good record and marketable title in fee simple to, or valid leasehold
interests in, all real Property necessary or used in the ordinary conduct of
their respective businesses, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect. As of the
Restatement Effective Date, the Property of the Borrower and its Subsidiaries is
subject to no Liens, other than Permitted Liens.
3.10 Taxes. The Borrower and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their Properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP and no Notice of Lien has been filed or recorded. There is
no proposed tax assessment against the Borrower or any of its Subsidiaries which
would, if the assessment were made, have a Material Adverse Effect.
3.11 Financial Condition. (a) Each of (i) the audited consolidated
annual financial statements of financial condition of the Borrower and its
Subsidiaries dated December 31, 1997, and the related audited consolidated
statements of income, shareholders' equity and cash flows for the fiscal year
ended on that date and (ii) the unaudited interim consolidated financial
statements of Borrower and its Subsidiaries dated May 31, 1998 and the related
unaudited consolidated statements of income and cash flows for the five (5)
months then ended:
(x) were prepared in accordance with GAAP consistently applied
throughout the respective periods covered thereby, except as otherwise
expressly noted therein, subject to, in the case of the unaudited
interim financial statements, normal year-end adjustments and the lack
of footnote disclosures;
(y) present fairly the consolidated financial condition of the
Borrower and its Subsidiaries as of the dates thereof and results of
operations for the periods covered thereby; and
(z) except as specifically disclosed in Schedule 3.11, show all
material indebtedness and other liabilities, direct or contingent of
the Borrower and its consolidated Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since December 31, 1997, there has been no Material Adverse
Effect.
(c) Borrower and its Subsidiaries have no Indebtedness other than
Indebtedness permitted pursuant to Section 5.5 and have no Contingent
Obligations other than Contingent Obligations permitted pursuant to Section 5.9.
3.12 Environmental Matters. The on-going operations of the Borrower
and each of its Subsidiaries comply in all material respects with all
Environmental Laws.
3.13 Collateral Documents. All representations and warranties of the
Borrower, any of its Subsidiaries or any other party to any Collateral Document
(other than the Agent and/or any Lender) contained in the Collateral Documents
are true and correct.
3.14 Regulated Entities. None of the Borrower, any Person controlling
the Borrower, or any Subsidiary of the Borrower, is (a) an "Investment Company"
within the meaning of the Investment Company Act of 1940; or (b) subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
Indebtedness.
3.15 No Burdensome Restrictions. Neither the Borrower nor any of its
Subsidiaries is a party to or bound by any Contractual Obligation, or subject to
any charter or corporate restriction, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
3.16 Solvency. The Borrower and each of its Subsidiaries is Solvent.
3.17 Labor Relations. There are no strikes, lockouts or other labor
disputes against the Borrower or any of its Subsidiaries, or , to the best of
the Borrower's knowledge, threatened against or affecting the Borrower or any of
its Subsidiaries, and no significant unfair labor practice complaint is pending
against the Borrower or any of its Subsidiaries or, to the best knowledge of the
Borrower, threatened against any of them before any Governmental Authority.
3.18 Copyrights, Patents, Trademarks and Licenses, etc. Schedule 3.18
identifies all United States and foreign patents, trademarks, service marks,
trade names and copyrights, and all registrations and applications for
registration thereof and all licenses thereof, owned or held by Borrower or any
of its Subsidiaries on the Restatement Effective Date after giving effect to the
Related Transactions, and identifies the jurisdictions in which such
registrations and applications have been filed. Except as otherwise disclosed in
Schedule 3.18, as of the Restatement Effective Date, Borrower and its
Subsidiaries are the sole beneficial owners of, or have the right to use, free
from any restrictions, claims, rights encumbrances or burdens, the intellectual
property referred to in Schedule 3.18 and all other processes, designs,
formulas, computer programs, computer software packages, trade secrets,
inventions, product manufacturing instructions, technology, research and
development, know-how and all other intellectual property that are necessary for
the operation of Borrower's and its Subsidiaries' businesses as being operated
on the Restatement Effective Date after giving effect to the Related
Transactions. Each patent, trademark, service mark, trade name, copyright and
license listed on Schedule 3.18 is in full force and effect except to the extent
the failure to be in effect will not have a Material Adverse Effect. Except as
set forth in Schedule 3.18, to the best knowledge of Borrower, as of the
Restatement Effective Date (a) none of the present or contemplated products or
operations of Borrower or its Subsidiaries infringes any patent, trademark,
service mark, trade name, copyright, license or other right owned by any other
Person, and (b) there is no pending or threatened claim or litigation against or
affecting Borrower or any of its Subsidiaries contesting the right of any of
them to manufacture, process, sell or use any such product or to engage in any
such operation except for claims and/or litigation which will not have a
Material Adverse Effect.
3.19 Subsidiaries. The Borrower has no Subsidiaries or equity
investments in any other corporation or entity other than those specifically
disclosed in Schedule 3.19.
3.20 Brokers' Fees; Transaction Fees. Neither the Borrower nor any of
its Subsidiaries has any obligation to any Person in respect of any finder's,
broker's or investment banker's fee in connection with the transactions
contemplated hereby.
3.21 Insurance. The Properties of the Borrower and its Subsidiaries
are insured with financially sound and reputable insurance companies not
Affiliates of the Borrower, in such amounts, with such deductibles and covering
such risks as are customarily carried by companies engaged in similar businesses
and owning similar Properties in localities where the Borrower or such
Subsidiary operates. A true and complete listing of such insurance, including,
issuers, coverages and deductibles, has been provided to the Agent.
3.22 Full Disclosure. None of the representations or warranties made
by the Borrower or any of its Subsidiaries in the Loan Documents as of the date
such representations and warranties are made or deemed made, and none of the
statements contained in each exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any of its Subsidiaries in connection with
the Loan Documents (including the offering and disclosure materials delivered by
or on behalf of the Borrower to the Lenders prior to the Restatement Effective
Date), contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
3.23 Year 2000 Issues. Borrower has reviewed its operations and those
of its Subsidiaries with a view to assessing whether its businesses, or the
businesses of any of its Subsidiaries, will be vulnerable to a Year 2000
Problem. Borrower shall take all actions necessary and commit adequate resources
to assure that its computer-based and other systems (and those of all
Subsidiaries) are able to effectively process data, including dates before, on
or after January 1, 2000, without experiencing any Year 2000 Problem that could
cause a Material Adverse Effect. At the request of Agent, Borrower will provide
Agent with assurances and substantiations (including, but not limited to, the
results of internal or external audit reports prepared in the ordinary course of
business) reasonably acceptable to Agent as to the capability of Borrower and
its Subsidiaries to conduct its and their businesses and operations before, on
and after January 1, 2000 without experiencing a Year 2000 Problem and has a
reasonable basis to believe that no Year 2000 Problem exists. "Year 2000
Problem" means any significant risk that computer hardware, software or
equipment containing embedded microchips essential to the business or operations
of Borrower or any of its Subsidiaries will not, in the case of dates or time
periods occurring after December 31, 1999, function at least as effectively and
reliably as in the case of times or time periods occurring before January 1,
2000, including the making of accurate leap year calculations.
ARTICLE IV - AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Lender shall
have any Commitment hereunder, or any Loan or other Obligation shall remain
unpaid or unsatisfied, unless the Requisite Lenders waive compliance in writing:
4.1 Financial Statements. The Borrower shall maintain, and shall cause
each of its Subsidiaries to maintain, a system of accounting established and
administered in accordance with sound business practices to permit the
preparation of financial statements in conformity with GAAP (provided that
monthly financial statements shall not be required to have footnote disclosure).
The Borrower shall deliver to the Agent in form and detail satisfactory to the
Agent and the Requisite Lenders, with sufficient copies for each Lender:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year, a copy of the audited consolidated balance sheet of
the Borrower as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such fiscal
year, setting forth in each case in comparative form the figures for the
previous fiscal year, and accompanied by the opinion of KPMG Peat Marwick or
another nationally-recognized independent public accounting firm acceptable to
the Agent which report shall state that such consolidated financial statements
present fairly the financial position for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years. Such opinion shall not
be qualified or limited because of a restricted or limited examination by such
accountant of any material portion of the Borrower's or any Subsidiary's
records; and
(b) as soon as available, but not later than forty five (45) days
after the end of each fiscal month of each year (i) on a business by business
basis, a copy of the unaudited consolidated and consolidating balance sheets of
the Borrower and each of its Subsidiaries, and the related consolidated and
consolidating statements of income, shareholders' equity and cash flows, and
(ii) without duplication of the statements required to be delivered pursuant to
clause (i) above, a copy of unaudited statements of income and cash flows with
respect to each court reporting business/company or executive
placement/provision of temporary legal services business/company, as the case
may be, as of the end of such month and for the portion of the fiscal year then
ended, in each instance in clause (i) and (ii), all certified by an appropriate
Responsible Officer of the Borrower as being complete and correct and fairly
presenting, in accordance with GAAP, the financial position and the results of
operations of the Borrower and the Subsidiaries, subject to normal year-end
adjustments and absence of footnote disclosure.
4.2 Certificates; Availability Certificates; Other Information. The
Borrower shall furnish to the Agent, with sufficient copies for each Lender:
(a) concurrently with the delivery of the annual financial statements
referred to in subsection 4.1(a) above, a certificate of the independent
certified public accountants reporting on such financial statements stating that
in making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 4.1(a) and 4.1(b) above, a certificate of a
Responsible Officer (i) stating that, to the best of such officer's knowledge,
the Borrower,during such period, has observed and performed all of its covenants
and other agreements, and satisfied every condition contained in this Agreement
to be observed, performed or satisfied by it, and that such officer has obtained
no knowledge of any Default or Event of Default except as specified (by
applicable subsection reference) in such certificate, and (ii) showing in detail
the calculations supporting such statement in respect of Article VI hereof;
(c) promptly after the same are sent, copies of all financial
statements and reports which the Borrower sends to its shareholders; and
promptly after the same are filed, copies of all financial statements and
regular, periodical or special reports which the Borrower may make to, or file
with, the Securities and Exchange Commission or any successor or similar
Governmental Authority;
(d) (i) as soon as available and in any event within thirty (30) days
after the end of each calendar month, and at such other times at the Agent may
require, and (ii) not later than ten (10) Business Days prior to the
consummation of an Acquisition (whether or not such Acquisition is to be
financed, in whole or in part, with proceeds of Loans), an Availability
Certificate, certified by a Responsible Officer, as at the end of the
most-recently ended fiscal month or as at such other date as the Agent may
reasonably require;
(e) together with each delivery of financial statements pursuant to
subsection 4.1(b) for the months of March, June, September and December, a
management report, in reasonable detail, signed by the chief financial officer
of the Borrower, describing the operations and financial condition of the
Borrower and its Subsidiaries for the quarter and the portion of the fiscal year
then ended (or for the fiscal year then ended in the case of annual financial
statements), and setting forth in comparative form the corresponding figures for
the corresponding periods of the previous fiscal year and the corresponding
figures from the most recent projections for the current fiscal year delivered
to the Agent pursuant to subsection 4.2(g) and discussing the reasons for any
significant variations;
(f) intentionally omitted;
(g) as soon as available and in any event no later than the last day
of each fiscal year of the Borrower, projections of the Borrower's (and its
Subsidiaries') consolidated and consolidating financial performance for the
forthcoming fiscal year on a month by month basis;
(h) annually, concurrently with the Borrower's delivery of the
projections under subsection 4.2(g), the Borrower shall supplement in writing
and deliver to the Agent revisions of and supplements to Schedules 3.5, 5.1, 5.5
and 5.9 hereto to the extent necessary to disclose new or changed facts or
circumstances after the Restatement Effective Date; provided that delivery or
receipt of such subsequent disclosure shall not constitute a waiver by the Agent
or any Lender or a cure of any Default or Event of Default resulting in
connection with the matters disclosed;
(i) promptly upon receipt thereof, copies of any reports submitted by
the Borrower's certified public accountants in connection with each annual,
interim or special audit or review of any type of the financial statements or
internal control systems of the Borrower made by such accountants, including any
comment letters submitted by such accountants to management of the Borrower in
connection with their services; and
(j) promptly, such additional business, financial, corporate affairs
and other information as the Agent, at the request of any Lender, may from time
to time reasonably request.
4.3 Notices. The Borrower shall promptly notify the Agent and each
Lender of any of the following, promptly (and in no event later than three (3)
Business Days after the Borrower's becoming aware thereof):
(a) the occurrence or existence of any Default or Event of Default, or
any event or circumstance that foreseeably will become a Default or Event of
Default, and any event or circumstance that would cause the condition to
Borrowing set forth in subsection 2.2(b) not to be satisfied if a Borrowing were
requested on or after the date of such event or circumstance;
(b) any breach or non-performance of, or any default under, any
Contractual Obligation of the Borrower or any of its Subsidiaries which could
result in a Material Adverse Effect;
(c) any dispute, litigation, investigation, proceeding or suspension
which may exist at any time between the Borrower or any of its Subsidiaries and
any Governmental Authority which could result in a Material Adverse Effect;
(d) of the commencement of, or any material development in, any
litigation or proceeding affecting the Borrower or any Subsidiary (i) in which
the amount of damages claimed is $250,000 (or its equivalent in another currency
or currencies) or more, (ii) in which injunctive or similar relief is sought and
which, if adversely determined, would reasonably be expected to have a Material
Adverse Effect, or (iii) in which the relief sought is an injunction or other
stay of the performance of this Agreement, any Loan Document or any Related
Agreement;
(e) any of the following if the same could reasonably be expected to
have or involve a Material Adverse Effect: (i) any enforcement, cleanup, removal
or other governmental or regulatory actions instituted, completed or threatened
against the Borrower or any of its Subsidiaries or any of their respective
Properties pursuant to any applicable Environmental Laws, (ii) any other
Environmental Claims, and (iii) any environmental or similar condition on any
real property adjoining or in the vicinity of the property of the Borrower or
any Subsidiary that could reasonably be anticipated to cause such property or
any part thereof to be subject to any restrictions on the ownership, occupancy,
transferability or use of such property under any Environmental Laws;
(f) of any of the following if the same could reasonably be expected
to have or involve a Material Adverse Effect, together with a copy of any notice
with respect to such event that may be required to be filed with a Governmental
Authority and any notice delivered by a Governmental Authority to the Borrower
or any member or its Controlled Group with respect to such event:
(i) an ERISA Event;
(ii) the adoption of any new Plan that is subject to Title IV of ERISA
or section 412 of the Code by any member of the Controlled Group;
(iii) the adoption of any amendment to a Plan that is subject to Title
IV of ERISA or section 412 of the Code, if such amendment results in a
material increase in benefits or unfunded liabilities; or
(iv) the commencement of contributions by any member of the Controlled
Group to any Plan that is subject to Title IV of ERISA or section 412
of the Code;
(g) any Material Adverse Effect subsequent to the date of the most
recent audited financial statements of the Borrower delivered to the Lenders
pursuant to this Agreement;
(h) of any change in accounting policies or financial reporting
practices by the Borrower or any of its Subsidiaries; and
(i) of any labor controversy resulting in or threatening to result in
any strike, work stoppage, boycott, shutdown or other labor disruption against
or involving the Borrower or any of its Subsidiaries if the same could have a
Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a written statement
by a Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein, and stating what action the Borrower proposes to take with
respect thereto and at what time. Each notice under subsection 4.3(a) shall
describe with particularity any and all clauses or provisions of this Agreement
or other Loan Document that have been breached or violated.
4.4 Preservation of Corporate Existence, Etc. The Borrower shall, and
shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation except in connection with transactions permitted by Section 5.3;
(b) preserve and maintain in full force and effect all rights,
privileges, qualifications, permits, licenses and franchises necessary or
desirable in the normal conduct of its business except in connection with
transactions permitted by Section 5.3 and sales of assets permitted by Section
5.2;
(c) use its reasonable efforts, in the Ordinary Course of Business, to
preserve its business organization and preserve the goodwill and business of the
customers, suppliers and others having material business relations with it; and
(d) preserve or renew all of its registered trademarks, trade names
and service marks, the non-preservation of which could reasonably be expected to
have a Material Adverse Effect.
4.5 Maintenance of Property. The Borrower shall maintain, and shall
cause each of its Subsidiaries to maintain, and preserve all its Property which
is used or useful in its business in good working order and condition, ordinary
wear and tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
4.6 Insurance. The Borrower shall maintain, and shall cause each of
its Subsidiaries to maintain, with financially sound and reputable independent
insurers, insurance with respect to its Properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons, including workers'
compensation insurance, public liability and property and casualty insurance,
which amounts shall not be reduced by the Borrower in the absence of thirty (30)
days' prior notice to the Agent and business interruption insurance in an amount
not less than $1,000,000. All property damage and casualty insurance shall name
the Agent as loss payee/mortgagee, all liability insurance shall name the Agent
and the Lenders as additional insureds and all business interruption insurance
shall name Agent as assignee. Upon request of the Agent or any Lender, the
Borrower shall furnish the Agent, with sufficient copies for each Lender, at
reasonable intervals (but not more than once per calendar year) a certificate of
a Responsible Officer of the Borrower (and, if requested by the Agent, any
insurance broker of the Borrower) setting forth the nature and extent of all
insurance maintained by the Borrower and its Subsidiaries in accordance with
this Section 4.6.
4.7 Payment of Obligations. The Borrower shall, and shall cause its
Subsidiaries to, pay, discharge and perform as the same shall become due and
payable or required to be performed, all their respective obligations and
liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings which stay the enforcement of any Lien
and adequate reserves in accordance with GAAP are being maintained by the
Borrower or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its Property;
(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained herein and/or in any instrument or agreement
evidencing such Indebtedness; and
(d) all obligations under any Contractual Obligation, including the
Related Agreements.
4.8 Compliance with Laws. The Borrower shall comply, and shall cause
each of its Subsidiaries to comply, in all material respects, with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including, without limitation, all Environmental Laws), except
such as may be contested in good faith by appropriate proceedings without risk
of loss of any Collateral and as to which a bona fide dispute exists and
appropriate reserves have been established on the Borrower's financial
statements.
4.9 Inspection of Property and Books and Records. The Borrower shall
maintain and shall cause each of its Subsidiaries to maintain proper books of
record and account, in which full, true and correct entries in conformity with
GAAP consistently applied shall be made of all financial transactions and
matters involving the assets and business of the Borrower and such Subsidiaries.
The Borrower shall permit, and shall cause each of its Subsidiaries to permit,
representatives and independent contractors of the Agent (once a year at the
expense of Borrower), or any Lender (at such Lender's expense), to visit and
inspect any of their respective Properties, to examine their respective
corporate, financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective directors, officers, and independent public accountants, at
such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Borrower; provided,
however, when an Event of Default exists the Agent or any Lender may do any of
the foregoing at the expense of Borrower at any time during normal business
hours and without advance notice.
4.10 Use of Proceeds. The Borrower shall use the proceeds of the Loans
solely as follows: (a) to repay the Prior Indebtedness, (b) to finance a portion
of the purchase price of Acquisitions permitted hereunder, and (c) for working
capital and other general corporate purposes not in contravention of any
Requirement of Law and not in violation of this Agreement.
4.11 Solvency. The Borrower shall at all times be, and shall cause
each of its Subsidiaries to be, Solvent.
4.12 Further Assurances. (a) The Borrower shall ensure that all
written information, exhibits and reports furnished to the Agent or the Lenders
do not and will not contain any untrue statement of a material fact and do not
and will not omit to state any material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which made, and will promptly disclose to the Agent and the Lenders and correct
any defect or error that may be discovered therein or in any Loan Document or in
the execution, acknowledgement or recordation thereof.
(b) Promptly upon request by the Agent, the Borrower shall (and shall
cause any of its Subsidiaries to) take such additional actions as the Agent may
reasonably require from time to time in order (i) to carry out more effectively
the purposes of this Agreement or any other Loan Document, including causing any
Subsidiary to guaranty the Obligations and to grant to Agent, for the benefit of
Lenders, a security interest in all assets of such Subsidiary to secure such
guaranty, (ii) to subject to the Liens created by any of the Collateral
Documents any of the Properties, rights or interests covered by any of the
Collateral Documents, (iii) to perfect and maintain the validity, effectiveness
and priority of any of the Collateral Documents and the Liens intended to be
created thereby, and (iv) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm to the Agent and Lenders the rights granted or now
or hereafter intended to be granted to the Agent and the Lenders under any Loan
Document or under any other document executed in connection therewith.
ARTICLE V - NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, so long as any Lender
shall have any Commitment hereunder, or any Loan or other Obligation shall
remain unpaid or unsatisfied, unless the Requisite Lenders waive compliance in
writing:
5.1 Limitation on Liens. The Borrower shall not, and shall not suffer
or permit any of its Subsidiaries to, directly or indirectly, make, create,
incur, assume or suffer to exist any Lien upon or with respect to any part of
its Property, whether now owned or hereafter acquired, other than the following
("Permitted Liens"):
(a) any Lien (other than Liens on the Collateral) existing on the
Property of the Borrower or its Subsidiaries on the Restatement Effective Date
and set forth in Schedule 5.1 securing Indebtedness outstanding on such date and
permitted by Section 5.5;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 4.7, provided that no Notice of
Lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the Ordinary Course of Business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the Property subject thereto
and for which adequate reserves in accordance with GAAP are being maintained;
(e) Liens (other than any Lien imposed by ERISA and other than on the
Collateral) consisting of pledges or deposits required in the Ordinary Course of
Business in connection with workers' compensation, unemployment insurance and
other social security legislation;
(f) Liens (other than Liens on the Collateral) consisting of judgment
or judicial attachment liens, provided that the enforcement of such Liens is
effectively stayed and all such Liens in the aggregate at any time outstanding
for the Borrower and its Subsidiaries do not exceed $100,000;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the Ordinary Course of Business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the Property subject thereto or interfere
with the ordinary conduct of the businesses of the Borrower and its
Subsidiaries;
(h) Purchase money security interests on any Property acquired or held
by the Borrower or its Subsidiaries in the Ordinary Course of Business, securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such Property and permitted under subsection 5.5(d);
provided that (i) any such Lien attaches to such Property concurrently with or
within twenty (20) days after the acquisition thereof, (ii) such Lien attaches
solely to the Property so acquired in such transaction, and (iii) the principal
amount of the debt secured thereby does not exceed 100% of the cost of such
Property; and
(i) Liens securing Capital Lease Obligations permitted under
subsection 5.5(d).
5.2 Disposition of Assets. The Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether in one or a
series of transactions) any Property (including accounts and notes receivable,
with or without recourse) or enter into any agreement to do any of the
foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus equipment,
all in the Ordinary Course of Business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment; and
(c) dispositions not otherwise permitted hereunder which are made for
fair market value; provided, that (i) at the time of any disposition, no Event
of Default shall exist or shall result from such disposition, (ii) the aggregate
sales price from such disposition shall be paid in cash, and (iii) EBIDAT of the
asset group or business unit so sold by the Borrower and its Subsidiaries,
together, shall not exceed, in the aggregate, in any fiscal year ten percent
(10%) of EBIDAT for the twelve (12) month period ending on the last day of the
most recent month for which Agent has received financial statements.
5.3 Consolidations and Mergers. The Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary of the Borrower may merge with the Borrower,
provided that the Borrower shall be the continuing or surviving corporation, or
with any one or more Subsidiaries of the Borrower, provided that if any
transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the
Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and
(b) any Subsidiary of the Borrower may sell all or substantially all of
its assets (upon voluntary liquidation or otherwise), to the Borrower or another
Wholly-Owned Subsidiary of the Borrower.
5.4 Loans and Investments. The Borrower shall not purchase or acquire,
or suffer or permit any of its Subsidiaries to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, including the establishment
or creation of a Subsidiary, or make or commit to make any Acquisitions, or make
or commit to make any advance, loan, extension of credit or capital contribution
to or any other investment in, any Person including any Affiliate of the
Borrower, except for:
(a) investments in Cash Equivalents;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the Ordinary
Course of Business;
(c) extensions of credit by the Borrower to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its
Wholly-Owned Subsidiaries of the Borrower;
(d) additional purchases of or investments in the stock of
Subsidiaries, Joint Ventures or the capital stock, assets, obligations or other
securities of or interest in other Persons not exceeding, in the aggregate,
$250,000 as to all such purchases and investments;
(e) Acquisitions permitted hereunder; and
(f) the purchase, redemption or other acquisition of Borrower's
capital stock pursuant to Section 5.12.
5.5 Limitation on Indebtedness. The Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, create, incur, assume, suffer to
exist, or otherwise become or remain directly or indirectly liable with respect
to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 5.9;
(c) Indebtedness existing on the Restatement Effective Date and set
forth in Schedule 5.5;
(d) Indebtedness not to exceed $750,000 in the aggregate at any time
outstanding, consisting of Capital Lease Obligations or secured by purchase
money Liens permitted by subsection 5.1(h);
(e) unsecured Subordinated Indebtedness incurred after the date hereof
in connection with Acquisitions permitted hereunder; provided (i) the holder of
such Subordinated Indebtedness enters into a subordination agreement in form and
substance satisfactory to Requisite Lenders; and (ii) no Default or Event of
Default shall exist or shall result from the incurrence of such Subordinated
Indebtedness; and
(f) other Indebtedness not exceeding in the aggregate at any time
outstanding $300,000.
5.6 Transactions with Affiliates. The Borrower shall not, and shall
not suffer or permit any of its Subsidiaries to, enter into any transaction with
any Affiliate of the Borrower or of any such Subsidiary, except:
(a) as expressly permitted by this Agreement;
(b) in the Ordinary Course of Business and pursuant to the reasonable
requirements of the business of the Borrower or such Subsidiary; or
(c) the payment of reasonable salaries and expenses of officers of
Borrower and de minimis fees and expenses of directors of Borrower, in each case
for actual services rendered in the Ordinary Course of Business;
and, in each case (a) and (b), upon fair and reasonable terms no less favorable
to the Borrower or such Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of the Borrower or such
Subsidiary and which are disclosed in writing to Agent.
5.7 Management Fees and Compensation. Except as permitted by Section
5.6, Borrower shall not, and shall not permit any of its Subsidiaries to pay any
management, consulting or similar fees to any Affiliate of the Borrower or to
any officer, director or employee of the Borrower or any of its Subsidiaries or
any Affiliate of the Borrower.
5.8 Use of Proceeds. The Borrower shall not and shall not suffer or
permit any of its Subsidiaries to use any portion of the Loan proceeds, directly
or indirectly, to purchase or carry Margin Stock or repay or otherwise refinance
indebtedness of the Borrower or others incurred to purchase or carry Margin
Stock, or otherwise in any manner which is in contravention of any Requirements
of Law.
5.9 Contingent Obligations. The Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the Ordinary Course of
Business;
(b) Rate Contracts entered into in the Ordinary Course of Business;
and
(c) Contingent Obligations of the Borrower and its Subsidiaries
existing as of the Restatement Effective Date and listed in Schedule 5.9.
5.10 Compliance with ERISA. The Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to:
(a) terminate any Plan subject to Title IV of ERISA so as to result in
any material liability to the Borrower or any ERISA Affiliate;
(b) permit to exist any ERISA Event or any other event or condition,
which presents the risk of a material liability to any member of the Borrower or
any ERISA Affiliate;
(c) make a complete or partial withdrawal (within the meaning of ERISA
Section 4201) from any Multiemployer Plan so as to result in any material
liability to the Borrower or any ERISA Affiliate;
(d) enter into any new Plan or modify any existing Plan so as to
increase its obligations thereunder which could result in any material liability
to Borrower or any ERISA Affiliate; or
(e) permit the present value of all nonforfeitable accrued benefits
under any Plan (using the actuarial assumptions utilized by the PBGC upon
termination of a Plan) materially to exceed the fair market value of Plan assets
allocable to such benefits, all determined as of the most recent valuation date
for each such Plan.
5.11 Operating Lease Obligations. The Borrower shall not, and shall
not suffer or permit any of its Subsidiaries to, create or suffer to exist any
obligations for the payment of rent for any Property under lease or agreement to
lease (other than Capital Leases) if the aggregate annual rental payments for
any one such operating lease shall exceed $800,000 in any fiscal year of the
Borrower.
5.12 Restricted Payments. The Borrower shall not, and shall not suffer
or permit any of its Subsidiaries to, (a) declare or make any dividend payment
or other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock, (b)
purchase, redeem or otherwise acquire for value any shares of its capital stock
or any warrants, rights or options to acquire such shares, now or hereafter
outstanding or (c) make any payment or prepayment of principal of, premium, if
any, redemption, exchange, purchase, retirement, defeasance, sinking fund or
similar payment with respect to, Subordinated Indebtedness (the items described
in clauses (a), (b) and (c) are referred to as "Restricted Payments"); except
that any Wholly-Owned Subsidiary of the Borrower may declare and pay dividends
to the Borrower or any Wholly-Owned Subsidiary of the Borrower, and except that
the Borrower may:
(i) declare and make dividend payments or other distributions
payable solely in its common stock;
(ii) purchase, redeem or otherwise acquire shares of its capital
stock or warrants or options to acquire any such shares; provided (x)
at the time of, and on a proforma basis after giving effect to, such
purchase, redemption or acquisition, no Default or Event of Default
shall exist and (y) the aggregate amount of purchases, redemptions and
acquisitions shall not exceed $1,000,000 for any fiscal year;
(iii) pay dividends on its Series A Convertible Preferred Stock
at the rate of 6% per annum on the liquidation value thereof, and if
an "Event of Noncompliance" (as defined in the Certificate of
Designations, Preferences and Relative, Participating, Optional or
Other Special Rights of such stock) has occurred, then at a rate of 8%
per annum on the liquidation value thereof, provided in each case that
at the time of, and on a proforma basis after giving effect to, such
payment, no Default or Event of Default exists;
(iv) make scheduled payments of principal and interest with
respect to Subordinated Indebtedness permitted hereunder, as required
in accordance with the terms thereof, but only, in each instance,
subject to the subordination provisions contained in the agreement
evidencing such Indebtedness or other subordination agreement executed
in connection therewith, provided at the time of, and on a pro forma
basis after giving effect to, such payment, no Default or Event of
Default exists; and
(v) repurchase the existing Allied warrants totalling 312,500
shares for an amount not to exceed $1,440,000; provided that such
repurchase shall be permitted only after Borrower has successfully
consummated the public offering of its common stock by itself and
certain selling shareholders pursuant to Borrower's Registration
Statement on Form S-1, File No. 333-59461.
5.13 Change in Business. (a) Borrower shall not engage in any business
activity other than (i) the ownership or purchase of stock or other equity
securities of Subsidiaries, (ii) performance of its obligations under the Loan
Documents to which it is a party and (iii) performance of certain administrative
and managerial functions on behalf of itself and its Subsidiaries.
(b) Borrower shall not permit any of its Subsidiaries to engage in any
material line of business substantially different from those lines of business
carried on by such Subsidiary on the date hereof.
5.14 Change in Structure. Except as expressly permitted under Section
5.3, the Borrower shall not and shall not permit any of its Subsidiaries to,
make any changes in its equity capital structure (including in the terms of its
outstanding stock), or amend its certificate of incorporation or by-laws if such
change or amendment could reasonably be expected to have a Material Adverse
Effect.
5.15 Accounting Changes. The Borrower shall not, and shall not suffer
or permit any of its Subsidiaries to, make any significant change in accounting
treatment or reporting practices, except as required by GAAP, or change the
fiscal year of the Borrower or of any of its consolidated Subsidiaries.
5.16 Amendments to Related Agreements and Subordinated Indebtedness.
(a) The Borrower shall not (i) amend, modify, supplement, waive or otherwise
modify any provision of, the Related Agreements the effect of which could
reasonably be expected to have a Material Adverse Effect, or (ii) take or fail
to take any action under the Related Agreements that could reasonably be
expected to have a Material Adverse Effect.
(b) Borrower shall not and shall not permit any of its Subsidiaries
directly or indirectly to change or amend the terms of any Subordinated
Indebtedness if the effect of such amendment is to: (i) increase the interest
rate on such Indebtedness; (ii) accelerate the dates upon which payments of
principal or interest are due on such Indebtedness; (iii) change any event of
default or add or make more restrictive any covenant with respect to such
Indebtedness; (iv) change the prepayment provisions of such Indebtedness; (v)
change the subordination provisions thereof (or the subordination terms of any
guaranty thereof); or (vi) change or amend any other term if such change or
amendment would materially increase the obligations of the obligor or confer
additional material rights on the holder of such Indebtedness in a manner
adverse to Borrower, any of its Subsidiaries, Agent or Lenders.
5.17 Acquisitions.
(a) When Borrower or any of its Subsidiaries desires to make an
Acquisition, Borrower shall deliver, or cause to be delivered, to Agent and each
Lender an acquisition summary with respect to the Target and such potential
Acquisition, such summary to include a reasonably detailed description of the
Target, its business (including financial information) and operating results
(including financial statements), the scope and results of Borrower's due
diligence inspections and investigations and the terms and conditions, including
economic terms, of the proposed Acquisition. Borrower will not consummate and
will not permit any Subsidiary to consummate any Acquisition without the prior
written consent of Requisite Lenders if the sum of the gross purchase price
(including the value of any non-cash component thereof and non- compete
payments) and all closing costs (collectively, "Acquisition Cost") to be paid
for the Target to be paid by Borrower and its Subsidiaries is greater than
$3,000,000.
(b) It is understood and agreed that (i) each Lender's decision to
consent to an Acquisition shall be based upon such Lender's evaluation and
approval of the business and financial condition of the Target and review and
approval of the Acquisition Documents in connection with the proposed
Acquisition; (ii) each transaction must be structured as an asset purchase by,
or merger with, a Subsidiary of Borrower or a stock purchase by Borrower or a
Subsidiary of Borrower and (iii) Agent shall have received an Availability
Certificate as required by subsection 4.2(d) and, after giving effect to such
Loan, the Maximum Revolving Loan Balance exceeds the outstanding principal
balance of the Revolving Loans by not less than $250,000.
(c) Within five (5) Business Days after receipt of the summary, Agent
will notify Borrower if it or any Lender reasonably requires any additional
information with respect to the proposed Acquisition and the Target which is the
subject thereof. No later than the later of (x) ten (10) Business Days after
Agent's receipt of the acquisition summary and additional information as Agent
or any Lender shall reasonably request if the amount of the Revolving Loan to
finance such Acquisition is less than $5,000,000 and (y) twenty (20) Business
Days after such receipt if the amount of the Revolving Loan so required is
$5,000,000 or more, Agent will notify Borrower, in writing, whether or not
Requisite Lenders approve or disapprove of the proposed Acquisition on the terms
set forth in the acquisition summary. Any failure on the part of Requisite
Lenders either to approve or disapprove, in writing, the proposed Acquisition
within said ten (10) or twenty (20) Business Day period, as applicable, shall
constitute disapproval by Requisite Lenders of such Acquisition on the terms and
conditions set forth in the acquisition summary. If there is any material change
to the terms of the proposed Acquisition or any adverse change to the Target
which is the subject of such proposed Acquisition, Borrower shall notify Agent
of the same and further approval will be required, which approval will be
granted or denied within five (5) Business Days of receipt of written notice of
such material change. Any failure on the part of Requisite Lenders either to
approve or disapprove within said five (5) Business Day period shall constitute
Requisite Lenders' disapproval.
(d) The foregoing provisions do not impair, vitiate or affect the
conditions to Lenders' obligations to fund Loans as provided in Article II of
this Agreement.
ARTICLE VI - FINANCIAL COVENANTS
6.1 Capital Expenditures. Borrower and its Subsidiaries shall not make
or commit to make Capital Expenditures for the twelve (12) month period ending
on the last day of any calendar quarter in excess of two percent (2%) of gross
revenues (calculated in accordance with GAAP) for such twelve (12) month period.
6.2 Leverage Ratio. The Borrower shall not permit its Leverage Ratio
for the twelve (12) month period ending on the last day of any fiscal quarter to
be greater than 5.5.
6.3 Fixed Charge Coverage Ratio. The Borrower shall not permit its
ratio of Cash Flow to Fixed Charges as determined as of the last day of any
fiscal quarter for the twelve (12) months then ended to be less than 1.05.
6.4 Interest Coverage Ratio. The Borrower shall not permit its ratio
of Cash Flow to Consolidated Net Interest Expense as determined as of the last
day of any fiscal quarter for the twelve (12) months then ended to be less than
1.75.
ARTICLE VII - EVENTS OF DEFAULT
7.1 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. The Borrower fails to pay, (i) when and as required
to be paid herein, any amount of principal of or interest on any Loan, including
after maturity of the Loans, whether by acceleration or otherwise, or (ii)
within five (5) days after the same shall become due, any fee or any other
amount payable hereunder or pursuant to any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
Borrower or any of its Subsidiaries made or deemed made herein, in any Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Borrower, any of its Subsidiaries, or their respective
Responsible Officers, furnished at any time under this Agreement, or in or under
any Loan Document, shall prove to have been incorrect in any material respect on
or as of the date made or deemed made; or
(c) Specific Defaults. The Borrower fails to perform or observe any
term, covenant or agreement contained in Sections 4.1, 4.2(b), 4.2(d), 4.9 or
Article V or Article VI hereof; or
(d) Other Defaults. The Borrower or, except as provided in subsection
7.1(m), any of its Subsidiaries fails to perform or observe any other term or
covenant contained in this Agreement or any Loan Document, and such default
shall continue unremedied for a period of thirty (30) days after the date upon
which written notice thereof is given to the Borrower by the Agent or any
Lender; or
(e) Cross-Default. The Borrower or any of its Subsidiaries (i) fails
to make any payment in respect of any Indebtedness or Contingent Obligation
having an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than $1,000,000 when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise) and
such failure continues after the applicable grace or notice period, if any,
specified in the document relating thereto on the date of such failure; or (ii)
fails to perform or observe any other condition or covenant, or any other event
shall occur or condition exist, under any agreement or instrument relating to
any such Indebtedness or Contingent Obligation, if the effect of such failure,
event or condition is to cause the holder or holders of such Indebtedness or
beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated maturity,
or such Contingent Obligation to become payable or cash collateral in respect
thereof to be demanded; or
(f) Insolvency; Voluntary Proceedings. The Borrower or any of its
Subsidiaries (i) ceases or fails to be Solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding
is commenced or filed against the Borrower or any Subsidiary of the Borrower, or
any writ, judgment, warrant of attachment, execution or similar process, is
issued or levied against a substantial part of the Borrower's or any of its
Subsidiaries' Properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within sixty (60) days
after commencement, filing or levy; (ii) the Borrower or any of its Subsidiaries
admits the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law) is
ordered in any Insolvency Proceeding; or (iii) the Borrower or any of its
Subsidiaries acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial portion of its Property or business;
(h) ERISA. (i) A member of the Controlled Group shall fail to pay when
due, after the expiration of any applicable grace period, any installment
payment with respect to its withdrawal liability under a Multiemployer Plan;
(ii) the Borrower or an ERISA Affiliate shall fail to satisfy its contribution
requirements under Section 412(c)(11) of the Code, whether or not it has sought
a waiver under Section 412(d) of the Code; (iii) in the case of an ERISA Event
involving the withdrawal from a Plan of a "substantial employer" (as defined in
Section 4001(a)(2) or Section 4062(e) of ERISA), the withdrawing employer's
proportionate share of that Plan's Unfunded Pension Liabilities is more than
$250,000; (iv) in the case of an ERISA Event involving the complete or partial
withdrawal from a Multiemployer Plan, the withdrawing employer has incurred a
withdrawal liability in an aggregate amount exceeding $250,000; (v) in the case
of an ERISA Event not described in clause (iii) or (iv), the Unfunded Pension
Liabilities of the relevant Plan or Plans exceed $250,000; (vi) a Plan that is
intended to be qualified under Section 401(a) of the Code shall lose its
qualification, and the loss can reasonably be expected to impose on members of
the Controlled Group liability (for additional taxes, to Plan participants, or
otherwise) in the aggregate amount of $250,000 or more; (vii) the commencement
or increase of contributions to, or the adoption of or the amendment of a Plan
by, a member of the Controlled Group shall result in a net increase in unfunded
liabilities to the Controlled Group in excess of $250,000; (viii) any member of
the Controlled Group engages in or otherwise becomes liable for a non-exempt
prohibited transaction and the initial tax or additional tax under section 4975
of the Code relating thereto might reasonably be expected to exceed $250,000;
(ix) a violation of section 404 or 405 of ERISA or the exclusive benefit rule
under section 401(a) of the Code if such violation might reasonably be expected
to expose a member or members of the Controlled Group to monetary liability in
excess of $250,000; (x) any member of the Controlled Group is assessed a tax
under section 4980B of the Code in excess of $250,000; or (xi) the occurrence of
any combination of events listed in clauses (iii) through (x) that involves a
potential liability, net increase in aggregate Unfunded Pension Liabilities,
unfunded liabilities, or any combination thereof, in excess of $250,000.
(i) Monetary Judgments. One or more judgments, non-interlocutory
orders, decrees or arbitration awards shall be entered against the Borrower or
any of its Subsidiaries involving in the aggregate a liability (not fully
covered by independent third-party insurance) as to any single or related series
of transactions, incidents or conditions, of $250,000 or more, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period of
thirty (30) days after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or decree
shall be rendered against the Borrower or any of its Subsidiaries which does or
would reasonably be expected to have a Material Adverse Effect, and there shall
be any period of ten (10) consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(k) Collateral. Any material provision of any Collateral Document
shall for any reason cease to be valid and binding on or enforceable against the
Borrower or any Subsidiary of the Borrower party thereto or the Borrower or any
Subsidiary of the Borrower shall so state in writing or bring an action to limit
its obligations or liabilities thereunder; or any Collateral Document shall for
any reason (other than pursuant to the terms thereof and other than the failure
of Agent to take any action within its control) cease to create a valid security
interest in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and first priority
security interest subject only to Permitted Liens other than due to the failure
of Agent to take any action within its control; or
(l) Ownership. Subject to the provisions of Section 5.2(c) and 5.3,
Borrower ceases to own 100% of the outstanding capital stock of each of Esq. Com
CSD, Inc., Esq. Com Georgia, Inc., Esquire Deposition Services, Inc., Esquire
Staffing Services, Inc., Esquire Document Retrieval Services, Inc. and any other
wholly-owned Subsidiary acquired or created in an Acquisition permitted
hereunder.
(m) Subsidiary Guaranty. A Subsidiary shall fail in any material
respect to perform or observe any term, covenant or agreement in the guaranty
executed by such Subsidiary, or any guaranty shall for any reason be partially
(including with respect to future advances) or wholly revoked or invalidated, or
otherwise cease to be in full force and effect, or Borrower or any of its
Subsidiaries shall contest in any manner the validity or enforceability thereof
or deny that it has any further liability or obligation thereunder; or
(n) Invalidity of Subordination Provisions. The subordination
provisions of the subordination agreements delivered to Agent pursuant to
Section 2.1(q) or 5.5(e) or any agreement or instrument governing any
Subordinated Debt shall for any reason be revoked or invalidated, or otherwise
cease to be in full force and effect, or any Obligor a party thereto shall
contest in any manner the validity or enforceability thereof or deny that it has
any further liability or obligation thereunder, or the Obligations for any
reason shall not have the priority contemplated by this Agreement or such
subordination provisions.
7.2 Remedies. If any Event of Default occurs, the Agent may, and shall
at the request of the Requisite Lenders:
(a) declare the Commitment of each Lender to make Loans or issue
Letters of Credit to be terminated, whereupon such Commitments shall forthwith
be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable;
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in
subsections 7.1(f) and (g) above (in the case of clause (i) of paragraph (g)
upon the expiration of the 60-day period mentioned therein), the obligation of
each Lender to make Loans shall automatically terminate and the unpaid principal
amount of all outstanding Loans and all interest and other amounts as aforesaid
shall automatically become due and payable without further act of the Agent or
any Lender.
7.3 Rights Not Exclusive. The rights provided for in this Agreement
and the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
7.4 Cash Collateral for Letters of Credit. If an Event of Default has
occurred and is continuing or this Agreement shall be terminated for any reason,
then the Agent may demand (which demand shall be deemed to have been delivered
automatically upon any acceleration of the Loans and other obligations hereunder
pursuant to Section 7.2 hereof), and Borrower shall thereupon deliver to the
Agent, to be held for the benefit of the Agent and the Lenders entitled thereto,
an amount of cash equal to the amount of all outstanding Letters of Credit
(determined in accordance with subsection 1.1(c) hereof) as additional
collateral security for Borrower's Obligations in respect of any outstanding
Letters of Credit. The Agent may at any time apply any or all of such cash and
cash collateral to the payment of any or all of Borrower's Obligations in
respect of any Lender Letters of Credit or Letter of Credit Participation
Agreements. Pending such application, the Agent may (but shall not be obligated
to) invest the same in an interest bearing account in the Agent's name, for the
benefit of the Agent and the Lenders entitled thereto, under which deposits are
available for immediate withdrawal, at such bank or financial institution as the
Agent may, in its discretion, select.
ARTICLE VIII - THE AGENT
8.1 Appointment and Authorization. Each Lender hereby irrevocably
appoints, designates and authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
8.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
8.3 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document (except for its own
gross negligence or willful misconduct), or (ii) be responsible in any manner to
any of the Lenders for any recital, statement, representation or warranty made
by the Borrower or any Subsidiary or Affiliate of the Borrower, or any officer
thereof, contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or for the value of any Collateral or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Borrower or any other party
to any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the Properties, books or records of the Borrower or any of the
Borrower's Subsidiaries or Affiliates.
8.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile or telephone message,
statement or other document or conversation believed by it to be genuine and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to the Borrower), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Lenders (or, where an action or waiver need only be approved by the
Requisite Lenders, by the Requisite Lenders) as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Lenders
(or, where an action or waiver need only be approved by the Requisite Lenders,
by the Requisite Lenders) and such request and any action taken or failure to
act pursuant thereto shall be binding upon all of the Lenders.
8.5 Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Lenders, unless the Agent shall have
received written notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Lenders. The Agent shall take
such action with respect to such Default or Event of Default as shall be
requested by the Requisite Lenders in accordance with Article VII; provided,
however, that unless and until the Agent shall have received any such request,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable or in the best interest of the Lenders.
8.6 Credit Decision. Each Lender expressly acknowledges that none of
the Agent-Related Persons has made any representation or warranty to it and that
no act by the Agent hereinafter taken, including any review of the affairs of
the Borrower and its Subsidiaries shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrower and
its Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated thereby, and made its own decision to enter into this
Agreement and extend credit to the Borrower hereunder. Each Lender also
represents that it will, independently and without reliance upon the Agent and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Borrower
which may come into the possession of the Agent.
8.7 Indemnification. Whether or not the transactions contemplated
hereby shall be consummated, upon demand therefor the Lenders shall indemnify
the Agent (to the extent not reimbursed by or on behalf of the Borrower and
without limiting the obligation of the Borrower to do so), ratably from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind
whatsoever which may at any time (including at any time following the repayment
of the Loans and the termination or resignation of the Agent) be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of this Agreement or any document contemplated by or referred to herein or the
transactions contemplated hereby or thereby or any action taken or omitted by
the Agent under or in connection with any of the foregoing; provided, however,
that no Lender shall be liable for the payment to the Agent of any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from the Agent's gross
negligence or willful misconduct. In addition, each Lender shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of the Borrower. Without limiting the generality of the foregoing, if the
Internal Revenue Service or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section 8.7, together with all related costs and
expenses (including Attorney Costs). The obligation of the Lenders in this
Section 8.7 shall survive the payment of all Obligations hereunder.
8.8 Agent in Individual Capacity. Antares and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory or other business with the Borrower and its Subsidiaries and
Affiliates as though Antares were not the Agent hereunder and without notice to
or consent of the Lenders. With respect to its Loans, Antares shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
shall include Antares in its individual capacity.
8.9 Successor Agent. The Agent may resign as Agent upon thirty (30)
days' prior notice to the Lenders. If the Agent shall resign as Agent under this
Agreement, the Requisite Lenders shall appoint from among the Lenders a
successor agent for the Lenders. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may thereupon appoint
a successor agent from among the Lenders. Upon the acceptance of its appointment
as successor agent hereunder, such successor agent shall succeed to all the
rights, powers and duties of the retiring Agent and the term "Agent" shall mean
such successor agent and the retiring Agent's appointment, powers and duties as
Agent shall be terminated. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article VIII and Sections 9.4 and 9.5 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. If no successor agent has accepted appointment as
Agent by the date which is thirty (30) days following a retiring Agent's notice
of resignation (or, if later, ten (10) days after the date upon which the Agent
designates a successor agent), the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the Agent hereunder until such time, if any, as the Requisite Lenders
appoint a successor agent as provided for above.
8.10 Collateral Matters.
(a) The Agent is authorized (but not required) on behalf of all the
Lenders, without the necessity of any notice to or further consent from the
Lenders, from time to time to take any action with respect to any Collateral or
the Collateral Documents which may be necessary to perfect and maintain
perfected the security interest in and Liens upon the Collateral granted
pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Agent, at its option and in
its discretion, to release any Lien granted to or held by the Agent upon any
Collateral:
(i) upon termination of the Commitments and payment in full of
all Loans and all other Obligations then payable under this Agreement
and under any other Loan Document;
(ii) constituting Property sold or to be sold or disposed of as
part of or in connection with any disposition permitted hereunder;
(iii) consisting of an instrument evidencing Indebtedness or of
any other debt instrument, if the indebtedness evidenced thereby has
been paid in full; or
(iv) if approved, authorized or ratified in writing by the
Requisite Lenders or all the Lenders, as the case may be, as provided
in subsection 9.1(f).
Upon request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this subsection 8.10(b).
(c) Each Lender agrees with and in favor of each other Lender (which
agreement shall not be for the benefit of the Borrower or any of its
Subsidiaries) that the Borrower's obligation to such Lender under this Agreement
and the other Loan Documents shall be equally and ratably secured by any real
property and/or other collateral now or hereafter securing any obligations of
the Borrower or any of its Subsidiaries to such Lender, whether or not the same
constitutes Collateral hereunder.
ARTICLE IX - MISCELLANEOUS
9.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Requisite Lenders, the Borrower and acknowledged by
the Agent, and then such waiver shall be effective only in the specific instance
and for the specific purpose for which given; provided, however, that no such
waiver, amendment, or consent shall, unless in writing and signed by all the
Lenders, the Borrower and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Lender (or reinstate any
Commitment terminated pursuant to subsection 7.2(a)) or subject any Lender to
any additional obligations;
(b) postpone or delay any date fixed for any payment of principal,
interest, fees or other amounts due to the Lenders (or any of them) hereunder or
under any Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
or the amount of interest payable in cash specified herein on any Loan, or of
any fees or other amounts payable hereunder or under any Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which shall be required for the Lenders or
any of them to take any action hereunder;
(e) amend this Section 9.1 or the definition of Requisite Lenders or
any provision providing for consent or other action by all Lenders; or
(f) release all or substantially all of the Collateral except as
otherwise may be provided in this Agreement or the other Loan Documents;
and, provided further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Requisite Lenders or all the
Lenders, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document.
9.2 Notices. (a) All notices, requests and other communications
provided for hereunder shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission) and mailed by certified
or registered mail, faxed or delivered, to the address or facsimile number
specified for notices on the applicable signature page hereof; or, if directed
to the Borrower or the Agent, to such other address as shall be designated by
such party in a written notice to each of the other parties hereto given in
compliance herewith, or, if directed to any other party hereto, to such other
address as shall be designated by such party in a written notice given in
compliance herewith to the Borrower and the Agent.
(b) All such communications shall be deemed to have been given or made
(i) if delivered in person, when delivered, (ii) if delivered by telecopy, on
the date of transmission if transmitted on a Business Day before 4:00 p.m.
Chicago time, otherwise on the next Business Day, (iii) if delivered by
overnight courier, one (1) Business Day after delivery to the courier properly
addressed and (iv) if mailed, three (3) Business Days after deposited in the
United States mail, certified or registered; except that notices pursuant to
Article I or VII shall not be effective until actually received by the Agent.
(c) The Borrower acknowledges and agrees that any agreement of the
Agent and the Lenders in Article I hereof to receive certain notices by
telephone and facsimile is solely for the convenience and at the request of the
Borrower. The Agent and the Lenders shall be entitled to rely on the authority
of any Person purporting to be a Person authorized by the Borrower to give such
notice and the Agent and the Lenders shall not have any liability to the
Borrower or other Person on account of any action taken or not taken by the
Agent or the Lenders in reliance upon such telephonic or facsimile notice. The
obligation of the Borrower to repay the Loans shall not be affected in any way
or to any extent by any failure by the Agent and the Lenders to receive written
confirmation of any telephonic or facsimile notice or the receipt by the Agent
and the Lenders of a confirmation which is at variance with the terms understood
by the Agent and the Lenders to be contained in the telephonic or facsimile
notice.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
9.4 Costs and Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Borrower shall pay or reimburse:
(a) Antares (including in its capacity as Agent) within five (5)
Business Days after demand (except as otherwise provided in subsection 2.1(f))
for all costs and expenses incurred by Antares (including in its capacity as
Agent) in connection with the development, preparation, syndication, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including the reasonable Attorney Costs incurred by Antares (including
in its capacity as Agent) with respect thereto; provided, however, that Attorney
Costs for each Acquisition after the Restatement Effective Date shall not exceed
$20,000 plus out-of-pocket expenses unless otherwise agreed to by Agent and
Borrower;
(b) pay or reimburse each Lender and the Agent within five (5)
Business Days after demand for all costs and expenses incurred by them in
connection with the enforcement, attempted enforcement, or preservation of any
rights or remedies during the existence of an Event of Default (including in
connection with any "workout" or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding) under this
Agreement, any other Loan Document, and any such other documents, including
Attorney Costs, incurred by the Agent and/or any Lender; and
(c) pay or reimburse Agent within five (5) Business Days after demand
for all appraisal, audit, environmental inspection and review (including the
allocated cost of such internal services), search and filing costs, fees and
expenses, incurred or sustained by Agent in connection with the matters referred
to under subsections (a) and (b) of this Section 9.4.
9.5 Indemnity. Whether or not the transactions contemplated hereby
shall be consummated, the Borrower shall indemnify, defend and hold harmless
each Lender, the Agent and each of their respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person")
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses or disbursements
(including Attorney Costs):
(a) of any kind or nature whatsoever with respect to the execution,
delivery, enforcement, performance and administration of this Agreement and any
other Loan Documents, or the transactions contemplated hereby and thereby, and
with respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to this Agreement or the
Loans or the use of the proceeds thereof, whether or not any Indemnified Person
is a party thereto; and
(b) which may be incurred by or asserted against such Indemnified
Person in connection with or arising out of any pending or threatened
investigation, litigation or proceeding, or any action taken by any Person, with
respect to any Environmental Claim arising out of or related to any Property
subject to a Mortgage in favor of the Agent or any Lender;
(all the foregoing, collectively, the "Indemnified Liabilities"); provided,
that the Borrower shall have no obligation hereunder to any Indemnified Person
with respect to Indemnified Liabilities arising from the gross negligence or
willful misconduct of such Indemnified Person.
No action taken by legal counsel chosen by the Agent or any Lender in
defending against any investigation, litigation or proceeding or requested
remedial, removal or response action shall vitiate or any way impair the
Borrower's obligation and duty hereunder to indemnify and hold harmless the
Agent and each Lender. In no event shall any site visit, observation, or testing
by the Agent or any Lender (or any contractee of the Agent or any Lender) be
deemed a representation or warranty that Hazardous Materials are or are not
present in, on, or under, the site, or that there has been or shall be
compliance with any Environmental Law. Neither the Borrower nor any other Person
is entitled to rely on any site visit, observation, or testing by the Agent or
any Lender. Neither the Agent nor any Lender owes any duty of care to protect
the Borrower or any other Person against, or to inform the Borrower or any other
party of, any Hazardous Materials or any other adverse condition affecting any
site or Property. Neither the Agent nor any Lender shall be obligated to
disclose to the Borrower or any other Person any report or findings made as a
result of, or in connection with, any site visit, observation, or testing by the
Agent or any Lender.
The obligations in this Section 9.5 shall survive payment of all other
Obligations. At the election of any Indemnified Person, the Borrower shall
defend such Indemnified Person using legal counsel satisfactory to such
Indemnified Person in such Person's sole discretion, at the sole cost and
expense of the Borrower. All amounts owing under this Section 9.5 shall be paid
within thirty (30) days after demand.
9.6 Marshalling; Payments Set Aside. Neither the Agent nor any Lender
shall be under any obligation to marshall any assets in favor of the Borrower or
any other Person or against or in payment of any or all of the Obligations. To
the extent that the Borrower makes a payment or payments to the Agent or any
Lender, or the Agent or any Lender enforces its Liens or exercise its rights of
setoff, and such payment or payments or the proceeds of such enforcement or
setoff or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Agent in its discretion) to be repaid to a
trustee, receiver or any other party in connection with any Insolvency
Proceeding, or otherwise, then:
(a) to the extent of such recovery the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred; and
(b) each Lender severally agrees to pay to the Agent upon demand its
ratable share of the total amount so recovered from or repaid by the Agent.
9.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns; provided that any assignment by any Lender shall be
subject to the provisions of Section 9.8 hereof, and provided further that the
Borrower may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the Agent and each Lender.
9.8 Assignments, Participations, etc. (a) Any Lender may, with the
written consent of the Agent and Borrower, which consent shall not be
unreasonably withheld, at any time assign and delegate to one or more Eligible
Assignees (provided that no written consent of the Agent or Borrower shall be
required in connection with any assignment and delegation by a Lender to an
Eligible Assignee that is an Affiliate of such Lender) (each an "Assignee") all,
or any ratable part of all, of the Loans, the Commitments and the other rights
and obligations of such Lender hereunder, in a minimum amount of $5,000,000 or,
if less, the entire Commitment of such Lender; provided, however, that the
Borrower and the Agent may continue to deal solely and directly with such Lender
in connection with the interest so assigned to an Assignee until:
(i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the
Assignee, shall have been given to the Borrower and the Agent by such
Lender and the Assignee;
(ii) such Lender and its Assignee shall have delivered to the
Borrower and the Agent an Assignment and Acceptance in form and
substance reasonably satisfactory to Agent, such Lender and its
Assignee (an "Assignment and Acceptance"); and
(iii) the assignor Lender or the Assignee has paid to the Agent a
processing fee in the amount of $3,000.
(b) From and after the date that the Agent notifies the assignor
Lender that the Agent has received and provided its consent with respect to an
executed Assignment and Acceptance and payment of the above-referenced
processing fee:
(i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, shall have the rights and
obligations of a Lender under this Agreement and the other Loan
Documents; and
(ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under the Loan
Documents.
(c) Immediately upon the making of the processing fee payment to the
Agent in respect of the Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent, necessary to reflect
the addition of the Assignee and the resulting adjustment of the Commitments
arising therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender to the same extent.
(d) Any Lender may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Borrower (a "Participant") participating
interests in any Loans, the Commitment of that Lender and the other interests of
that Lender (the "Originating Lender") hereunder and under the other Loan
Documents; provided, however, that:
(i) the Originating Lender's obligations under this Agreement
shall remain unchanged;
(ii) the Originating Lender shall remain solely responsible for
the performance of such obligations;
(iii) the Borrower and the Agent shall continue to deal solely
and directly with the Originating Lender in connection with the
Originating Lender's rights and obligations under this Agreement and
the other Loan Documents;
(iv) no Lender shall transfer or grant any participating interest
under which the Participant shall have rights to approve any amendment
to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or
waiver would require unanimous consent of the Lenders as described in
the first proviso to Section 9.1; and
(v) the participation shall be in a minimum amount of $5,000,000
or, if less, the entire commitment of such Originating Lender.
In the case of any such participation, the Participant shall not have any rights
under this Agreement, or any of the other Loan Documents, and all amounts
payable by the Borrower hereunder shall be determined as if such Lender had not
sold such participation.
(e) Notwithstanding any other provision contained in this Agreement or
any other Loan Document to the contrary, any Lender may assign all or any
portion of the Loans held by it to any Federal Reserve Lender or the United
States Treasury as collateral security pursuant to Regulation A of the Federal
Reserve Board and any Operating Circular issued by such Federal Reserve Lender,
provided that any payment in respect of such assigned Loans made by the Borrower
to or for the account of the assigning or pledging Lender in accordance with the
terms of this Agreement shall satisfy the Borrower's obligations hereunder in
respect to such assigned Loans to the extent of such payment. No such assignment
shall release the assigning Lender from its obligations hereunder.
9.9 Confidentiality. Each of the Agent and the Lenders shall maintain
in confidence in accordance with its customary procedures for handling
confidential information, all written information that Borrower or any of its
Subsidiaries, or any of their authorized representatives, furnishes to the Agent
or any Lender on a confidential basis clearly marked as such ("Confidential
Information"), other than any such Confidential Information that becomes
generally available to the public other than as a result of a breach by the
Agent or any Lender of its obligations hereunder or that is or becomes available
to the Agent or such Lender from a source other than Borrower or any of its
Subsidiaries, or any of their authorized representatives, and that is not, to
the actual knowledge of the recipient thereof, subject to obligations of
confidentiality with respect thereto; provided, however, that the Agent and each
Lender shall in any event have the right to deliver copies of any such
documents, and to disclose any such information, to:
(a) its directors, officers, trustees, partners, employees, agents,
attorneys and professional consultants;
(b) any other Lender and any successor Agent;
(c) any Person to which such Lender offers to sell any Loan or any
part thereof or interest or participation therein (provided such Person agrees
to keep such information confidential on the terms set forth in this Section
9.9);
(d) any Person from which such Lender offers to purchase any security
of the Borrower or any of its Subsidiaries;
(e) any federal or state regulatory authority or examiner, or any
insurance industry association, including, without limitation, the National
Association of Insurance Commissioners, regulating or having jurisdiction over
the Agent or such Lender; and
(f) any other Person to which such delivery or disclosure may be
necessary or appropriate (i) in compliance with any applicable law, rule,
regulation or order, (ii) in response to any subpoena or other legal process or
informal investigative demand, (iii) in connection with any litigation to which
the Agent or such Lender is a party, or (iv) in connection with the enforcement
of the rights and remedies of the Agent or the Lenders under this Agreement and
the other Loan Documents at any time when an Event of Default shall have
occurred and be continuing.
9.10 Set-off; Sharing of Payments. In addition to any rights and
remedies now or hereafter granted under applicable law, and not by way of
limitation of any such rights or remedies, upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized by the
Borrower at any time and from time to time, with reasonably prompt subsequent
notice to the Borrower or to any other Person (any prior or contemporaneous
notice being hereby expressly waived by the Borrower) to set off and to
appropriate and to apply any and all
(a) balances held by such Lender at any of its offices for the account
of the Borrower or any of its Subsidiaries (regardless of whether such balances
are then due to the Borrower or any of its Subsidiaries); and
(b) other Property at any time held or owing by such Lender to or for
the credit or for the account of the Borrower or any of its Subsidiaries;
against and on account of any and all Obligations which are not paid when
due; except that no Lender shall exercise such right without the prior
written consent of the Agent. Any Lender having a right to set off shall
purchase for cash (and the other Lenders shall sell) participations in each such
other Lender's pro rata share of the Obligations as would be necessary to cause
such Lender to share the benefit of such right of set-off with each other Lender
in accordance with their respective pro rata shares of the Obligations. The
Borrower agrees, to the fullest extent permitted by law, that (i) any Lender may
exercise its right to set off with respect to amounts in excess of its pro rata
share of the Obligations and may sell participations to other Lenders, and (ii)
any Lender so purchasing a participation in the Obligations held by other
Lenders may exercise all rights of setoff, bankers' lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Obligations in the amount of such participation. The
Borrower hereby grants to each Lender a security interest in all such deposits
and other Property, whether now existing or hereafter arising, held by each
Lender for the purposes set forth herein.
9.11 Automatic Debits of Fees. The Borrower hereby irrevocably
authorizes the Agent to debit any deposit account of the Borrower with the Agent
in such amounts as may be necessary with respect to any interest, Commitment
Fee, Letter of Credit Participation Fee, facility fee, wire transfer fee or
other fee, or any other cost or expense (including Attorney Costs) due and
payable to the Agent, for itself or for the benefit of the Lenders, under the
Loan Documents. Agent shall give Borrower prior notice of such debits with
respect to Attorneys Costs. No such debit under this Section 9.11 shall be
deemed a setoff.
9.12 Notification of Addresses, Lending Offices, Etc. Each Lender
shall notify the Agent in writing of any changes in the address to which notices
to the Lender should be directed, of addresses of its Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
9.13 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement in any number of separate counterparts, each of
which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with each of the Borrower and the Agent.
9.14 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
9.15 Captions. The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
9.16 Independence of Provisions. The parties acknowledge that this
Agreement and other Loan Documents may use several different limitations, tests
or measurements to regulate the same or similar matters, and that such
limitations, tests and measurements are cumulative and must each be performed,
except as expressly stated to the contrary in this Agreement.
9.17 Interpretation. This Agreement is the result of negotiations
among and has been reviewed by counsel to the Agent, the Borrower and other
parties, and is the product of all parties hereto. Accordingly, this Agreement
and the other Loan Documents shall not be construed against the Lenders or the
Agent merely because of the Agent's or Lenders' involvement in the preparation
of such documents and agreements.
9.18 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrower, the Lenders and
the Agent, and their permitted successors and assigns, and no other Person shall
be a direct or indirect legal beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any of the other
Loan Documents. Neither the Agent nor any Lender shall have any obligation to
any Person not a party to this Agreement or other Loan Documents.
9.19 Governing Law and Jurisdiction.
(A) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT
AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(B) BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS AND BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY BORROWER AGAINST AGENT OR ANY LENDER OR
ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT
ONLY IN A COURT IN CHICAGO, ILLINOIS.
(C) BORROWER DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND SUCH
OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH IRREVOCABLY AGREE
IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF SERVICE OF ALL
PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWL EDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.
A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
BORROWER AT ITS ADDRESS PROVIDED IN SUBSECTION 9.3 EXCEPT THAT UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO
ACCEPT SERVICE, BORROWER HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
9.20 Waiver of Jury Trial. THE BORROWER, THE LENDERS AND THE AGENT
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE BORROWER, THE LENDERS AND THE AGENT EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO
ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.21 Entire Agreement; Release. This Agreement, together with the
other Loan Documents, embodies the entire agreement and understanding among the
Borrower, the Lenders and the Agent, and supersedes all prior or contemporaneous
Agreements and understandings of such Persons, oral or written, relating to the
subject matter hereof and thereof, except for the fee letter referenced in
subsection 1.9(a), and any prior arrangements made with respect to the payment
by the Borrower of (or any indemnification for) any fees, costs or expenses
payable to or incurred (or to be incurred) by or on behalf of the Agent or the
Lenders. Execution of this Agreement by the Borrower constitutes a full,
complete and irrevocable release of any and all claims which the Borrower may
have at law or in equity in respect of all prior discussions and understandings,
oral or written, relating to the subject matter of this Agreement and the other
Loan Documents.
9.22 Continued Effective; No Novation. Notwithstanding anything
contained herein, this Agreement is not intended to and does not serve to effect
a novation of the Obligations. Instead, it is the express intention of the
parties hereto to reaffirm the indebtedness created under the Existing Credit
Agreement which is evidenced by the notes provided for therein and secured by
the Collateral. Borrower acknowledges and confirms that the liens and security
interests granted pursuant to the Loan Documents secure the indebtedness,
liabilities and obligations of Borrower to Agent and Lenders under the Existing
Credit Agreement, as amended and restated hereby, and that the term
"Obligations" as used in the Loan Documents (or any other term used therein to
describe or refer to the indebtedness, liabilities and obligations of Borrower
to Agent and Lenders) includes, without limitation, the indebtedness,
liabilities and obligations of Borrower under the Notes to be delivered
hereunder, and under the Credit Agreement, as amended and restated hereby, as
the same may be further amended, modified, supplemented or restated from time to
time. The Loan Documents and all agreements, instruments and documents executed
or delivered in connection with any of the foregoing shall each be deemed to be
amended to the extent necessary to give effect to the provisions of this
Agreement. Cross- references in the Loan Documents to particular section numbers
in the Existing Credit Agreement shall be deemed to be cross-references to the
corresponding sections, as applicable, of this Agreement.
ARTICLE X - TAXES, YIELD PROTECTION AND ILLEGALITY
10.1 Taxes. (a) Subject to subsection 10.1(g), any and all payments by
the Borrower to each Lender or the Agent under this Agreement shall be made free
and clear of, and without deduction or withholding for, any and all present or
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Lender and the
Agent, such taxes (including income taxes or franchise taxes) as are imposed on
or measured by each Lender's net income by the jurisdiction under the laws of
which such Lender or the Agent, as the case may be, is organized or maintains a
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
(b) In addition, the Borrower shall pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Documents (hereinafter referred to as "Other Taxes").
(c) Subject to subsection 10.1(g), the Borrower shall indemnify and
hold harmless each Lender and the Agent for the full amount of Taxes or Other
Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 10.1) paid by the Lender or the Agent and any
liability (including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within thirty (30) days from the date the Lender or the Agent makes written
demand therefor.
(d) If the Borrower shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, then, subject to subsection 10.1(g):
(i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 10.1) such Lender or the
Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deductions been made;
(ii) the Borrower shall make such deductions; and
(iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law.
(e) Within thirty (30) days after the date of any payment by the
Borrower of Taxes or Other Taxes, the Borrower shall furnish to the Agent the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Agent.
(f) Each Lender that is not a citizen or resident of the United States
of America, a corporation, partnership or other entity created or organized in
or under the laws of the United States (or any jurisdiction thereof), or any
estate or trust that is subject to federal income taxation regardless of the
source of its income (a "Non-U.S. Lender") shall deliver to the Borrowers and
the Agent two copies of each U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a Form W-8, or any subsequent versions thereof
or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a
certificate representing that such Non-U.S. Lender is not a "bank" for purposes
of Section 881(c) of the Code, is not a 10-percent shareholder (within the
meaning of Section 871(h)(3)(B) of the Code) of Borrower and is not a controlled
foreign corporation related to Borrower (within the meaning of Section 864(d)(4)
of the Code)), properly completed and duly executed by such Non-U.S. Lender
claiming complete exemption from, or a reduced rate of, U.S. federal withholding
tax on all payments by Borrower under this Agreement and the other Loan
Documents. Such forms shall be delivered by each Non-U.S. Lender on or before
the date it becomes a party to this Agreement. In addition, each Non-U.S. Lender
shall deliver such forms promptly upon the obsolescence or invalidity of any
form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall
promptly notify the Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Borrower (or any
other form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of this subsection, a Non-U.S.
Lender shall not be required to deliver any form pursuant to this subsection
that such Non-U.S. Lender is not legally able to deliver.
(g) The Borrower will not be required to pay any additional amounts in
respect of United States Federal income tax pursuant to subsection 10.1(d) to
any Lender for the account of any Lending Office of such Lender:
(i) if the obligation to pay such additional amounts would not
have arisen but for a failure by such Lender to comply with its
obligations under subsection 10.1(f) in respect of such Lending
Office;
(ii) if such Lender shall have delivered to the Borrower a Form
1001 and/or 4224 in respect of such Lending Office pursuant to
subsection 10.1(f), and such Lender shall not at any time be entitled
to exemption from deduction or withholding of United States Federal
income tax in respect of payments by the Borrower hereunder for the
account of such Lending Office for any reason other than a change in
United States law, treaty or regulations or in the official
interpretation of such law or regulations by any governmental
authority charged with the interpretation or administration thereof
(whether or not having the force of law) after the date of delivery of
such Form 1001 and/or 4224;
(iii) if the Lender shall have delivered to the Borrower a
Form W-8 in respect of such Lending Office pursuant to Subsection
10.1(f), and such Lender shall not at any time be entitled
to exemption from deduction or withholding of United States
Federal income tax in respect of payments by the Borrowers hereunder
for the account of such Lending Office for any reason other than a
change in the United States law or regulations or any applicable tax
treaty or regulations or in the official interpretation of any such
law, treaty or regulations by any governmental authority charged with
the interpretation or administration thereof (whether or not having
the force of law) after the date of delivery of such Form W-8; or
(iv) if the last sentence of subsection 10.1(f) applies to the
reporting status of the Lender and the delivery of forms.
(h) If, at any time, the Borrower requests any Lender to deliver any
forms or other documentation pursuant to subsection 10.1(f)(iv), then the
Borrower shall, on demand of such Lender through the Agent, reimburse such
Lender for any costs and expenses (including Attorney Costs) reasonably incurred
by such Lender in the preparation or delivery of such forms or other
documentation.
(i) If the Borrower is required to pay additional amounts to any
Lender or the Agent pursuant to subsection 10.1(d), then such Lender shall use
its reasonable best efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Borrower which may thereafter accrue if such change in
the judgment of such Lender is not otherwise disadvantageous to such Lender.
10.2 Illegality. (a) If any Lender shall determine that the
introduction of any Requirement of Law, or any change in any Requirement of Law
or in the interpretation or administration thereof, has made it unlawful, or
that any central bank or other Governmental Authority has asserted that it is
unlawful, for any Lender or its Lending Office to make LIBOR Loans, then, on
notice thereof by the Lender to the Borrower through the Agent, the obligation
of that Lender to make LIBOR Rate Loans shall be suspended until the Lender
shall have notified the Agent and the Borrower that the circumstances giving
rise to such determination no longer exists.
(b) If a Lender shall determine that it is unlawful to maintain any
LIBOR Rate Loan, the Borrower shall prepay in full all LIBOR Rate Loans of that
Lender then outstanding, together with interest accrued thereon, either on the
last day of the Interest Period thereof if the Lender may lawfully continue to
maintain such LIBOR Rate Loans to such day, or immediately, if the Lender may
not lawfully continue to maintain such LIBOR Rate Loans, together with any
amounts required to be paid in connection therewith pursuant to Section 10.4.
(c) If the obligation of any Lender to make or maintain LIBOR Rate
Loans has been terminated, the Borrower may elect, by giving notice to the
Lender through the Agent that all Loans which would otherwise be made by the
Lender as LIBOR Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent pursuant to this Section
10.2, the affected Lender shall designate a different Lending Office with
respect to its LIBOR Rate Loans if such designation will avoid the need for
giving such notice or making such demand and will not, in the judgment of the
Lender, be illegal or otherwise disadvantageous to the Lender.
10.3 Increased Costs and Reduction of Return. (a) If any Lender shall
determine that, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation or (ii) the compliance with any
guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Lender of agreeing to make or making, funding or maintaining any
LIBOR Rate Loans, then the Borrower shall be liable for, and shall from time to
time, upon demand therefor by such Lender (with a copy of such demand to the
Agent), pay to the Agent for the account of such Lender, additional amounts as
are sufficient to compensate such Lender for such increased costs.
(b) If any Lender shall have determined that:
(i) the introduction of any Capital Adequacy Regulation;
(ii) any change in any Capital Adequacy Regulation;
(iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof;
or
(iv) compliance by the Lender (or its Lending Office) or any
corporation controlling the Lender, with any Capital Adequacy
Regulation;
affects or would affect the amount of capital required or expected to be
maintained by the Lender or any corporation controlling the Lender and (taking
into consideration such Lender's or such corporation's policies with respect to
capital adequacy and such Lender's desired return on capital) determines that
the amount of such capital is increased as a consequence of its Commitment(s),
loans, credits or obligations under this Agreement, then, upon demand of such
Lender (with a copy to the Agent), the Borrower shall upon demand pay to the
Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
10.4 Funding Losses. The Borrower agrees to reimburse each Lender and
to hold each Lender harmless from any loss or expense which the Lender may
sustain or incur as a consequence of:
(a) the failure of the Borrower to make any payment or mandatory
prepayment of principal of any LIBOR Rate Loan (including payments made after
any acceleration thereof);
(b) the failure of the Borrower to borrow, continue or convert a Loan
after the Borrower has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
(c) the failure of the Borrower to make any prepayment after the
Borrower has given a notice in accordance with Section 1.7;
(d) the prepayment of a LIBOR Rate Loan on a day which is not the last
day of the Interest Period with respect thereto; or
(e) the conversion pursuant to Section 1.6 of any LIBOR Rate Loan to a
Base Rate Loan on a day that is not the last day of the applicable Interest
Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans hereunder or from fees
payable to terminate the deposits from which such funds were obtained. Solely
for purposes of calculating amounts payable by the Borrower to the Lenders under
this Section 10.4 and under subsection 10.3(a): each LIBOR Rate Loan made by a
Lender (and each related reserve, special deposit or similar requirement) shall
be conclusively deemed to have been funded at the LIBOR used in determining the
interest rate for such LIBOR Rate Loan by a matching deposit or other borrowing
in the interbank eurodollar market for a comparable amount and for a comparable
period, whether or not such LIBOR Rate Loan is in fact so funded.
10.5 Inability to Determine Rates. If the Agent shall have determined
that for any reason adequate and reasonable means do not exist for ascertaining
the LIBOR for any requested Interest Period with respect to a proposed LIBOR
Rate Loan or that the LIBOR applicable pursuant to subsection 1.3(a) for any
requested Interest Period with respect to a proposed LIBOR Rate Loan does not
adequately and fairly reflect the cost to the Lenders of funding such Loan, the
Agent will forthwith give notice of such determination to the Borrower and each
Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate
Loans hereunder shall be suspended until the Agent revokes such notice in
writing. Upon receipt of such notice, the Borrower may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted by it. If the
Borrower does not revoke such notice, the Lenders shall make, convert or
continue the Loans, as proposed by the Borrower, in the amount specified in the
applicable notice submitted by the Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans.
10.6 Reserves on LIBOR Rate Loans. The Borrower shall pay to each
Lender, as long as such Lender shall be required under regulations of the
Federal Reserve Board to maintain reserves with respect to liabilities or assets
consisting of or including Eurocurrency funds or deposits (currently known as
"Eurocurrency liabilities"), additional costs on the unpaid principal amount of
each LIBOR Rate Loan equal to actual costs of such reserves allocated to such
Loan by the Lender (as determined by the Lender in good faith, which
determination shall be conclusive), payable on each date on which interest is
payable on such Loan provided the Borrower shall have received at least fifteen
(15) days' prior written notice (with a copy to the Agent) of such additional
interest from the Lender. If a Lender fails to give notice fifteen (15) days
prior to the relevant Interest Payment Date, such additional interest shall be
payable fifteen (15) days from receipt of such notice. This covenant shall
survive payment of all other Obligations.
10.7 Certificates of Lenders. Any Lender claiming reimbursement or
compensation pursuant to this Article X shall deliver to the Borrower (with a
copy to the Agent) a certificate setting forth in reasonable detail the amount
payable to the Lender hereunder and such certificate shall be conclusive and
binding on the Borrower in the absence of manifest error.
10.8 Survival. The agreements and obligations of the Borrower in this
Article X shall survive the payment of all other Obligations.
10.9 Replacement of Lender in Respect of Increased Costs. Within
forty-five (45) days after receipt by the Borrower of written notice and demand
from any Lender (an "Affected Lender") for payment of additional costs as
provided in subsections 10.1, 10.3 and 10.6, the Borrower may, at its option,
notify the Agent and such Affected Lender of the Borrower's intention to obtain,
at the Borrower's expense, a replacement Lender ("Replacement Lender") for such
Affected Lender, which Replacement Lender shall be reasonably satisfactory to
the Administrative Agent and the Agent. In the event the Borrower obtains a
Replacement Lender within ninety (90) days following notice of its intention to
do so, the Affected Lender shall sell and assign its Loans and Commitments to
such Replacement Lender, provided that the Borrower has reimbursed such Affected
Lender for its increased costs for which it is entitled to reimbursement under
this Agreement through the date of such sale and assignment.
ARTICLE XI - DEFINITIONS
11.1 Defined Terms. The following terms are defined in the Sections or
subsections referenced opposite such terms:
"Acquisition Cost" 5.17(a)
"Acquisition Documents" 2.3(d)
"Adjusted EBIDAT" 1.1(b)
"Adjusted Court Reporting EBIDAT" 1.1(b)
"Adjusted Staffing Services EBIDAT" 1.1(b)
"Affected Lender" 10.9
"Agent" Preamble
"Agreement" Preamble
"Assignee" 9.8(a)
"Assignment and Acceptance" 9.8(a)(ii)
"Borrower" Preamble
"Capital Expenditure Limitation" 6.1
"Commitment Fee" 1.9(b)
"Confidential Information" 9.9
"Event of Default" 7.1
"Excess Owner's Compensation" 1.1(b)
"Existing Credit Agreement" Preamble
"Form 1001" 10.1(f)
"Form 4224" 10.1(f)
"Form W-8" 10.1(f)
"Indemnified Person" 9.5
"Indemnified Liabilities" 9.5
"Interest Settlement Date" 1.12(d)
"Lender" Preamble
"Lender Letter of Credit" 1.1(c)
"Letter of Credit Participation Agreement" 1.1(c)
"Letter of Credit Participation Fee" 1.9(b)
"Maximum Revolving Loan Balance" 1.1(b)
"Originating Lender" 9.8(d)
"Other Taxes" 10.1(b)
"Participant" 9.8(d)
"Permitted Liens" 5.1
"Replacement Lender" 10.9
"Restricted Payments" 5.12
"Revolving Loan Commitment" 1.1(b)
"Revolving Loan" 1.1(b)
"Settlement Date" 1.12(b)
"Taxes" 10.1(a)
In addition to the terms defined elsewhere in this Agreement, the following
terms have the following meanings:
"Acquisition" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any business or
division of a Person, including a court reporting business, executive placement
business or business relating to the provision of temporary legal services, (b)
the acquisition of in excess of fifty percent (50%) of the capital stock,
partnership interests or equity of any Person or otherwise causing any Person to
become a Subsidiary of the Borrower, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a Subsidiary
of the Borrower) provided that the Borrower or the Borrower's Subsidiary is the
surviving entity.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract or otherwise. Without
limitation, any director, executive officer or beneficial owner of five percent
(5%) or more of the equity of a Person shall for the purposes of this Agreement,
be deemed to control the other Person. Notwithstanding the foregoing, no Lender
nor the Agent shall be deemed an "Affiliate" of the Borrower or of any
Subsidiary of the Borrower.
"Agent" means Antares in its capacity as agent for the Lenders
hereunder, and any successor agent.
"Agent-Related Persons" means Antares and any successor agent arising
under Section 8.9, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set forth on
the signature page hereto in relation to the Agent or such other address as the
Agent may from time to time specify in accordance with Section 9.2.
"Aggregate Revolving Loan Commitment" or "Aggregate Commitment" means
the combined Revolving Loan Commitments of the Lenders, which shall initially be
in the amount of $80,000,000, as such amount may be reduced from time to time
pursuant to this Agreement.
"Antares" means Antares Leveraged Capital Corp., a Delaware
corporation.
"Applicable Margin" means with respect to LIBOR Rate Loans and Base
Rate Loans, respectively, the applicable LIBOR margin or Base Rate margin (which
margins shall be increased by .25% after the occurrence of a GTCR Event) in
effect from time to time determined based upon the applicable Senior Leverage
Ratio and Adjusted EBIDAT level then in effect pursuant to the appropriate
column under the table below:
Senior Leverage LIBOR Base Rate
Ratio Margin Margin
*2.25 2.25% .75%
**2.25, but
less than 2.5 2.50% 1.00%
**2.5, but
less than 3.0 2.75% 1.25%
**3.0, but
less than 3.5 3.00% 1.50%
**3.5 3.25% 1.75%
* Less Than
** Greater Than
The Applicable Margin shall be adjusted from time to time upon delivery to the
Agent of the monthly financial statements required to be delivered pursuant to
Section 4.1 hereof accompanied by a written calculation of the Senior Leverage
Ratio and Adjusted EBIDAT certified by a Responsible Officer as of the end of
the fiscal month for which such financial statements are delivered. If such
calculation indicates that the Applicable Margin shall increase or decrease,
then on the first day of the fiscal month following the date of delivery of such
financial statements and written calculation the Applicable Margin shall be
adjusted in accordance therewith; provided, however, that if Borrower shall fail
to deliver any such financial statements for any such fiscal month by the date
required pursuant to Section 4.1, then, effective as of the first day following
the end of the fiscal month for which such financial statements were to have
been delivered, and continuing through the first day of the month following the
date (if ever) when such financial statements and such written calculation are
finally delivered, the Applicable Margin shall be conclusively presumed to equal
the highest Applicable Margin specified in the pricing table set forth above.
"Attorney Costs" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"Availability Certificate" means a duly completed certificate of
Borrower in substantially the form of Exhibit A hereto.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. ss 101, et seq.), as amended and in effect from time to time and the
regulations issued from time to time thereunder.
"Base Rate" means, for any day, a rate of interest equal to rate of
interest which is identified as the "Prime Rate" and normally published in the
Money Rates section of The Wall Street Journal (or, if such rate ceases to be so
published, as quoted from such other generally available and recognizable source
as the Agent may select).
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"Borrowing" means a borrowing hereunder consisting of Loans made to
the Borrower on the same day by the Lenders pursuant to Article I.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in Chicago, Illinois or New York, New York are
authorized or required by law to close and, if the applicable Business Day
relates to any LIBOR Rate Loan, a day on which dealings are carried on in the
London interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any Lender or of any corporation controlling a
Lender.
"Capital Expenditures" means, for any period and with respect to any
Person, the aggregate of all expenditures by such Person and its Subsidiaries
for the acquisition or leasing of fixed or capital assets or additions to fixed
or capital assets (including replacements, capitalized repairs and improvements
during such period) which should be capitalized under GAAP on a consolidated
balance sheet of such Person and its Subsidiaries. Capital Expenditures does not
include the purchase price of an Acquisition permitted hereunder. For the
purposes of the capital expenditures covenant in Section 6.1, the entire payment
stream for such Capital Expenditure shall be deemed to have been made on the
date the Property which is the subject thereof is put into service.
"Capital Lease" means any leasing or similar arrangement which, in
accordance with GAAP, is classified as a capital lease.
"Capital Lease Obligations" means all monetary obligations of the
Borrower or any of its Subsidiaries under any Capital Leases.
"Cash Equivalents" means: (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof having maturities
of not more than six (6) months from the date of acquisition; (b) certificates
of deposit, time deposits, repurchase agreements, reverse repurchase agreements,
or bankers' acceptances, having in each case a tenor of not more than six (6)
months, issued by any Lender, or by any U.S. commercial bank or any branch or
agency of a non-U.S. bank licensed to conduct business in the U.S. having
combined capital and surplus of not less than $250,000,000; (c) commercial paper
of an issuer rated at least A-1 by Standard & Poor's Corporation or P-1 by
Moody's Investors Service Inc. and in either case having a tenor of not more
than three (3) months.
"Cash Flow" means, for any period, EBIDAT for such period minus
Capital Expenditures actually paid in cash for such period and otherwise
permitted by this Agreement, all as determined for Borrower and its Subsidiaries
on a consolidated basis in accordance with GAAP.
"CERCLA" has the meaning specified in the definition of "Environmental
Laws."
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Collateral" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by the Borrower and its Subsidiaries in
or upon which a Lien now or hereafter exists in favor of any Lender or the Agent
for the benefit of the Lenders, whether under this Agreement or under any other
documents executed by any such persons and delivered to the Agent.
"Collateral Documents" means, collectively, the Security Agreement,
the Mortgages, the Pledge Agreement, the guaranties executed by Borrower's
Subsidiaries and all other security agreements, mortgages, deeds of trust,
patent and trademark assignments, lease assignments, guarantees and other
similar agreements, and all amendments, restatements, modifications or
supplements thereof or thereto, between the Borrower or its Subsidiaries and any
Lender or the Agent for the benefit of the Lenders now or hereafter delivered to
the Lenders or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents now
or hereafter filed in accordance with the UCC or comparable law) against the
Borrower or any Subsidiaries as debtor in favor of any Lender or the Agent for
the benefit of the Lenders, as secured party.
"Commitment" means, for each Lender, its Revolving Loan Commitment.
"Commitment Percentage" means, as to any Lender, the percentage
equivalent of such Lender's Revolving Loan Commitment divided by the Aggregate
Revolving Loan Commitment.
"Consolidated Net Income (Loss)" means, for any period, the net income
(or loss) of Borrower and its Subsidiaries on a consolidated basis for such
period, determined in accordance with GAAP; provided that in determining
Consolidated Net Income (Loss) there shall be excluded:
(a) the income (or loss) of any Person which is not a Subsidiary
of Borrower, except to the extent of the amount of dividends or other
distributions actually paid to Borrower or any of its Subsidiaries in
cash by such Person during such period and the payment of dividends or
similar distributions by that Subsidiary is not at the time
prohibited;
(b) the income (or loss) of any Person accrued prior to the date
it becomes a Subsidiary of Borrower or is merged into or consolidated
with Borrower or any of its Subsidiaries or that Person's assets are
acquired by Borrower or any of its Subsidiaries;
(c) the proceeds of any life insurance policy;
(d) gains (but not losses) from the sale, exchange, transfer or
other disposition of Property or assets not in the ordinary course of
business of Borrower and its Subsidiaries, and related tax effects in
accordance with GAAP; and
(e) any other extraordinary or non-recurring gains (but not
losses) of Borrower or its Subsidiaries, and related tax effects in
accordance with GAAP.
"Consolidated Net Interest Expense" means, for any period, gross
interest expense for the period required to be paid in cash (including all
commissions, discounts, fees and other charges in connection with standby
letters of credit and similar instruments) for the Borrower and its Subsidiaries
on a consolidated basis, less interest income for that period; all as determined
in accordance with GAAP.
"Contingent Obligation" means, as to any Person: (a) any Guaranty
Obligation of that Person; and (b) any direct or indirect obligation or
liability, contingent or otherwise, of that Person:
(i) in respect of any Surety Instrument issued for the account of
that Person or as to which that Person is otherwise liable for
reimbursement of drawings or payments;
(ii) to purchase any materials, supplies or other Property from,
or to obtain the services of, another Person if the relevant contract
or other related document or obligation requires that payment for such
materials, supplies or other Property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or
other Property is ever made or tendered, or such services are ever
performed or tendered; or
(iii) in respect of any Rate Contract that is not entered into in
connection with a bona fide hedging operation that provides offsetting
benefits to such Person.
The amount of any Contingent Obligation shall (subject, in the case of Guaranty
Obligations, to the last sentence of the definition of "Guaranty Obligation") be
deemed equal to the maximum reasonably anticipated liability in respect thereof,
and shall, with respect to item (b)(iii) of this definition, be marked to market
on a current basis.
"Contractual Obligations" means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound, and
includes the Related Agreements.
"Controlled Group" means the Borrower and all Persons (whether or not
incorporated) under common control or treated as a single employer with the
Borrower pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Conversion Date" means any date on which the Borrower converts a Base
Rate Loan to a LIBOR Rate Loan or a LIBOR Rate Loan to a Base Rate Loan.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Dollars", "dollars" and "$" each mean lawful money of the United
States of America.
"EBIDAT" means, for any period, for the Borrower and its Subsidiaries
on a consolidated basis, determined in accordance with GAAP, the sum of (a)
Consolidated Net Income (Loss) for such period plus (b) all amounts deducted
from net income (or net loss) for such period for depreciation or amortization,
plus (c) interest expense deducted from net income (or net loss) for such
period, plus (d) all accrued taxes on or measured by income to the extent
included in the determination of such net income (or loss); plus (e) to the
extent included in net income (or net loss) for such period, any extraordinary
losses or losses from discontinued operations; plus (f) all other non-cash
charges which reduced Consolidated Net Income (Loss) for such period.
"Eligible Assignee" means any of: (a) a commercial bank organized
under the laws of the United States, or any State thereof; (b) a commercial bank
organized under the laws of any other country; or (c) a finance company,
insurance company or other financial institution or fund which is engaged in
making, purchasing or otherwise investing in commercial loans for its own
account in the ordinary course of its business.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief, resulting from
or based upon the presence, placement, discharge, emission or release (including
intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from Property,
whether or not owned by the Borrower.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters; including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Clean Air Act, the Federal Water Pollution
Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency
Planning and Community Right-to-Know Act.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b), 414(c) or 414(m) of the Code.
"ERISA Event" means (a) a Reportable Event with respect to a Qualified
Plan or a Multiemployer Plan; (b) a withdrawal by the Borrower or any ERISA
Affiliate from a Qualified Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer (as defined in Section 4001(a)(2) of
ERISA); (c) a complete or partial withdrawal by the Borrower or any ERISA
Affiliate from a Multiemployer Plan; (d) the filing of a notice of intent to
terminate, the treatment of a plan amendment as a termination under Section 4041
or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a
Qualified Plan or Multiemployer Plan subject to Title IV of ERISA; (e) a failure
by the Borrower or any member of the Controlled Group to make required
contributions to a Qualified Plan or Multiemployer Plan; (f) an event or
condition which might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Qualified Plan or Multiemployer Plan; (g) the imposition of any
liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA
Affiliate; (h) an application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code with respect to any
Plan; (i) a non- exempt prohibited transaction occurs with respect to any Plan
for which the Borrower or any Subsidiary of the Borrower may be directly or
indirectly liable; or (j) a violation of the applicable requirements of Section
404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the
Code by any fiduciary or disqualified person with respect to any Plan for which
the Borrower or any member of the Controlled Group may be directly or indirectly
liable.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any entity succeeding to any of its principal functions.
"Fixed Charges" means, for any period, (i) Consolidated Net Interest
Expense for such period plus (ii) scheduled principal payments of Indebtedness
during such period plus (iii) without duplication, all payments in cash during
such period on account of (w) taxes, (x) dividends, (y) management fees and (z)
any other Restricted Payment by the Borrower and its Subsidiaries on a
consolidated basis.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary obligations") of
another Person (the "primary obligor"), including any obligation of that Person,
whether or not contingent:
(a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security
therefor; or
(b) to advance or provide funds (i) for the payment or discharge
of any such primary obligation, or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or
financial condition of the primary obligor; or
(c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of
the ability of the primary obligor to make payment of such primary
obligation; or
(d) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof;
in each case, including arrangements wherein the rights and remedies of the
holder of the primary obligation are limited to repossession or sale of certain
property of such Person. The amount of any Guaranty Obligation shall be deemed
equal to the stated or determinable amount of the primary obligation in respect
of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect thereof.
"GTCR" means Golder, Thoma, Cressey, Rauner Fund IV, L.P., an Illinois
limited partnership.
"GTCR Event" means if GTCR ceases to directly own and control at least
60% of the number of shares of capital stock of Borrower (i) owned by GTCR on
the Restatement Effective Date plus (ii) acquired by GTCR after the Restatement
Effective Date (without double counting any shares of capital stock which have
been converted from preferred stock to common stock), in each case free and
clear of all liens, claims and encumbrances.
"Hazardous Materials" means all those substances which are regulated
by, or which may form the basis of liability under, any Environmental Law.
"Indebtedness" of any Person means, without duplication: (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business pursuant to ordinary
terms); (c) all non-contingent reimbursement or payment obligations with respect
to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses; (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
Property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) the capitalized portion of all
Capital Lease Obligations; (g) all net obligations with respect to Rate
Contracts; (h) all indebtedness referred to in clauses (a) through (g) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in Property
(including accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness;
and (i) all Guaranty Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through (g) above.
"Insolvency Proceeding" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (b) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors; in each case undertaken under U.S. Federal, State or foreign law,
including the Bankruptcy Code.
"Interest Payment Date" means, (a) with respect to any LIBOR Rate Loan
(other than a LIBOR Rate Loan having an Interest Period of six months), the last
day of each Interest Period applicable to such Loan, (b) with respect to any
LIBOR Rate Loan having an Interest Period of six months, the last day of each
three (3) month interval, and (c) with respect to Base Rate Loans, the first
Business Day of each calendar month."
"Interest Period" means, with respect to any LIBOR Rate Loan, the
period commencing on the Business Day the Loan is disbursed or continued or on
the Conversion Date on which the Loan is converted to the LIBOR Rate Loan and
ending on the date one, two, three or six months thereafter, as selected by the
Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(a) if any Interest Period pertaining to a LIBOR Rate Loan would
otherwise end on a day which is not a Business Day, that Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall
end on the immediately preceding Business Day;
(b) any Interest Period pertaining to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Revolving
Termination Date;
"Joint Venture" means a partnership, joint venture or other similar
legal arrangement (whether created pursuant to contract or conducted through a
separate legal entity) now or hereafter formed by the Borrower or any of its
Subsidiaries with another Person in order to conduct a common venture or
enterprise with such Person.
"Lending Office" means, with respect to any Lender, the office or
offices of the Lender specified as its "Lending Office" opposite its name on the
applicable signature page hereto, or such other office or offices of the Lender
as it may from time to time notify the Borrower and the Agent.
"Letter of Credit Participation Liability" means, as to each Lender
Letter of Credit and each Letter of Credit Participation Agreement, all
reimbursement obligations of Borrower or any of its Subsidiaries to Agent and
the Lenders in connection with the Lender Letter of Credit or to the obligee
with respect to the transaction for which the Letter of Credit Participation
Agreement was issued, whether contingent or otherwise, including with respect to
any letter of credit: (a) the amount available to be drawn or which may become
available to be drawn; (b) all amounts which have been paid or made available by
the issuing bank to the extent not reimbursed; and (c) all unpaid interest, fees
and expenses.
"Letter of Credit Reserve" means, at any time, an amount equal to all
liabilities of the Borrower to the Agent in respect of any Lender Letter of
Credits and Letter of Credit Participation Agreements outstanding at such time,
whether contingent or otherwise, including: (a) the amount available to be drawn
or which may become available to be drawn; (b) all-amounts which have been paid
or made available by the Agent under such Lender Letters of Credit or Letter of
Credit Participation Agreement to the extent not reimbursed; and (c) all unpaid
interest, fees and expenses in respect of such Lender Letter of Credits and
Letter of Credit Participation Agreements.
"Leverage Ratio" means, as of any date of determination thereof, the
ratio of consolidated total Indebtedness of the Borrower and its Subsidiaries on
a consolidated basis as of such date to Adjusted EBIDAT for the twelve fiscal
months then ended.
"LIBOR" means, for each Interest Period, the offered rate per annum
for deposits of Dollars for the applicable Interest Period that appears on
Telerate Page 3750 as of 11:00 A.M. (London, England time) two (2) Business Days
prior to the first day in such Interest Period. If no such offered rate exists,
such rate will be the rate of interest per annum, as determined by the Agent
(rounded upwards, if necessary, to the nearest 1/16 of 1%) at which deposits of
Dollars in immediately available funds are offered at 11:00 A.M. (London,
England time) two (2) Business Days prior to the first day in such Interest
Period by major financial institutions reasonably satisfactory to the Agent in
the London interbank market for such Interest Period for the applicable
principal amount on such date of determination.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security interest or preferential
arrangement of any kind or nature whatsoever (including those created by,
arising under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a Capital Lease Obligation, any
financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the UCC or any comparable law)
and any contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an Operating Lease.
"Loan" means an extension of credit by a Lender to the Borrower
pursuant to Article I hereof, and may be a Base Rate Loan or a LIBOR Rate Loan.
"Loan Documents" means this Agreement, the Notes, the Collateral
Documents, all documents delivered to the Agent in connection therewith and all
Rate Contracts between the Borrower and any of the Lenders.
"Management Stockholders" means those officers and directors of
Borrower who own equity securities of the Borrower.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the Federal Reserve Board.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of the
Borrower to perform under any Loan Document and avoid any Event of Default; or
(c) a material adverse effect upon (i) the legality, validity, binding effect or
enforceability of any Loan Document, or (ii) the perfection or priority of any
Lien granted to the Lenders or to the Agent for the benefit of the Lenders under
any of the Collateral Documents.
"Mortgage" means any deed of trust, mortgage or other document
creating a Lien on real property or any interest in real property.
"Multiemployer Plan" means a "multiemployer plan" (within the meaning
of Section 4001(a)(3) of ERISA) and to which any member of the Controlled Group
makes, is making, or is obligated to make contributions or, during the preceding
three calendar years, has made, or been obligated to make, contributions.
"Net Issuance Proceeds" means, in respect of any issuance of debt or
equity, cash proceeds and non-cash proceeds received or receivable in connection
therewith, net of reasonable out-of-pocket costs and expenses paid or incurred
in connection therewith in favor of any Person not an Affiliate of the Borrower.
"Note" means any Revolving Note and "Notes" means all such Notes.
"Notice of Borrowing" means a notice given by the Borrower to the
Agent pursuant to Section 1.5, in substantially the form of Exhibit B hereto.
"Notice of Conversion/Continuation" means a notice given by the
Borrower to the Agent pursuant to Section 1.6, in substantially the form of
Exhibit C hereto.
"Notice of Lien" means any "notice of lien" or similar document
intended to be filed or recorded with any court, registry, recorder's office,
central filing office or other Governmental Authority for the purpose of
evidencing, creating, perfecting or preserving the priority of a Lien securing
obligations owing to a Governmental Authority.
"Obligations" means all Loans, and other Indebtedness, advances,
debts, liabilities, obligations, covenants and duties owing by the Borrower to
any Lender, the Agent, or any other Person required to be indemnified, that
arises under any Loan Document, whether or not for the payment of money, whether
arising by reason of an extension of credit, loan, guaranty, indemnification or
in any other manner, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired.
"Operating Lease" means, as applied to any Person, any lease of
Property which is not a Capital Lease.
"Ordinary Course of Business" means, in respect of any transaction
involving the Borrower or any Subsidiary of the Borrower, the ordinary course of
such Person's business, as conducted by any such Person in accordance with past
practice and undertaken by such Person in good faith and not for purposes of
evading any covenant or restriction in any Loan Document.
"Organization Documents" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
any shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any of its principal functions under ERISA.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower or any member of the Controlled Group sponsors or
maintains or to which the Borrower or any member of the Controlled Group makes,
is making or is obligated to make contributions.
"Pledge Agreement" means the Pledge Agreement, in form and substance
reasonably satisfactory to Agent, made by the Borrower in favor of the Agent for
the benefit of the Lenders.
"Pledged Collateral" has the meaning specified in the Pledge
Agreement.
"Prior Indebtedness" means the indebtedness and obligations specified
on Schedule 11.1 hereto.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
"Qualified Plan" means a pension plan (as defined in Section 3(2) of
ERISA) intended to be tax-qualified under Section 401(a) of the Code and which
any member of the Controlled Group sponsors, maintains, or to which it makes, is
making or is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding period covering at least five (5)
plan years, but excluding any Multiemployer Plan.
"Rate Contracts" means swap agreements (as such term is defined in
Section 101 of the Bankruptcy Code) and any other agreements or arrangements
designed to provide protection against fluctuations in interest or currency
exchange rates.
"Related Agreements" means the Purchase Agreement dated October 23,
1996 among Borrower, Antares and GTCR, as amended and supplemented, Registration
Agreement dated October 23, 1996 among Borrower, GTCR and Antares, and the
Acquisition Documents from time to time in effect.
"Related Transactions" means the transactions contemplated by the
Related Agreements.
"Reportable Event" means, as to any Plan, (a) any of the events set
forth in Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been waived
in regulations issued by the PBGC, (b) a withdrawal from a Plan described in
Section 4063 of ERISA, or (c) a cessation of operations described in Section
4062(e) of ERISA.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Requisite Lenders" means at any time Lenders then having at least
sixty six and two-thirds percent (66-2/3%) of the Commitments.
"Responsible Officer" means the chief executive officer or the
president of the Borrower, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the Borrower, or any
other officer having substantially the same authority and responsibility.
"Restatement Effective Date" means the date on which all conditions
precedent set forth in Section 2.1 are satisfied or waived by the Agent and all
Lenders.
"Revolving Note" means an amended and restated promissory note of the
Borrower payable to the order of a Lender and otherwise substantially the form
of Exhibit D hereto, evidencing indebtedness of the Borrower under the Revolving
Loan Commitment of such Lender.
"Revolving Termination Date" means the earlier to occur of: (a)
December 24, 1999; and (b) the date on which the Aggregate Revolving Loan
Commitment shall terminate in accordance with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any entity
succeeding to any of its principal functions.
"Security Agreement" means each Security Agreement, in form and
substance reasonably satisfactory to Agent, made or to be made, by the Borrower
and each of its Subsidiaries, in favor of the Agent for the benefit of the
Lenders.
"Senior Leverage Ratio" means, as of any date of determination
thereof, the ratio of the outstanding principal balance of all Loans as of such
date to Adjusted EBIDAT for the twelve (12) fiscal months then ended.
"Solvent" means, as to any Person at any time, that (a) the fair value
of the Property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code and, in the alternative, for purposes of the
Uniform Fraudulent Transfer Act; (b) the present fair saleable value of the
Property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (c) such Person is able to realize upon its Property and pay its debts
and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"Subordinated Indebtedness" means the Indebtedness described on
Schedule 5.5 and all other Indebtedness of Borrower or any of its Subsidiaries
which is subordinated in right of payment to the Obligations, including, without
limitation, Indebtedness incurred in connection with Acquisitions permitted
hereunder.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than fifty
percent (50%) of the voting stock or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly or indirectly
by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof.
"Surety Instruments" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
"Target" means any other Person, or business unit or asset group of
any other Person, including court reporting business, executive placement
business, business relating to the provision of temporary legal services,
acquired or proposed to be acquired in an Acquisition.
"UCC" means the Uniform Commercial Code as in effect in the State of
Illinois.
"Unfunded Pension Liabilities" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used by the Plan's
actuaries for funding the Plan pursuant to section 412 for the applicable plan
year.
"United States" and "U.S." each means the United States of America.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of each
class having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Borrower, or by one or more of the
other Wholly-Owned Subsidiaries, or both.
"Withdrawal Liabilities" means, as of any determination date, the
aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA
if the Controlled Group made a complete withdrawal from all Multiemployer Plans
and any increase in contributions pursuant to Section 4243 of ERISA.
11.2 Other Interpretive Provisions.
(a) Defined Terms. Unless otherwise specified herein or therein, all
terms defined in this Agreement shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto. The meaning of
defined terms shall be equally applicable to the singular and plural forms of
the defined terms. Terms (including uncapitalized terms) not otherwise defined
herein and that are defined in the UCC shall have the meanings therein
described.
(b) The Agreement. The words "hereof", "herein", "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; and subsection,
section, schedule and exhibit references are to this Agreement unless otherwise
specified.
(c) Certain Common Terms. The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices and other
writings, however evidenced. The term "including" is not limiting and means
"including without limitation."
(d) Performance; Time. Whenever any performance obligation hereunder
(other than a payment obligation) shall be stated to be due or required to be
satisfied on a day other than a Business Day, such performance shall be made or
satisfied on the next succeeding Business Day. In the computation of periods of
time from a specified date to a later specified date, the word "from" means
"from and including"; the words "to" and "until" each mean "to but excluding",
and the word "through" means "to and including." If any provision of this
Agreement refers to any action taken or to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be interpreted to
encompass any and all means, direct or indirect, of taking, or not taking, such
action.
(e) Contracts. Unless otherwise expressly provided herein, references
to agreements and other contractual instruments, including this Agreement and
the other Loan Documents, shall be deemed to include all subsequent amendments,
thereto, restatements thereof and other modifications and supplements thereto
which are in effect from time to time, but only to the extent such amendments
and other modifications are not prohibited by the terms of any Loan Document.
(f) Laws. References to any statute or regulation are to be construed
as including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.
11.3 Accounting Principles. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) References herein to "fiscal year", "fiscal quarter" and "fiscal
month" refer to such fiscal periods of the Borrower.
[Balance of page intentionally left blank; signature page follows.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their duly authorized officers as of the day
and year first above written.
ESQUIRE COMMUNICATIONS LTD.
By: ---------------------------------
Title: ------------------------------
Address for notices:
750 "B" Street
Suite 2350
San Diego, California 92101
Attn: Steven L. Wolkenstein
Facsimile: (619) 515-0808
<PAGE>
ANTARES LEVERAGED CAPITAL CORP.,
as Agent and as a Lender
By:--------------------------------
Title:-----------------------------
Address for notices:
311 South Wacker Drive
Suite 2725
Chicago, IL 60606
Attn: Steven J. Robinson
Facsimile: (312) 697-3998
Address for payments:
Antares Leveraged Capital Corp.
Account # 4070-6016
Citibank N.A., NY
ABA # 021000089
Reference: Esquire Communications Ltd.
Please advise Jim Luchansky (312) 697-3991
upon receipt
<PAGE>
HELLER FINANCIAL, INC., a Delaware
corporation, as Lender
By: ---------------------------------
Title: __________ Vice President
Address for notices:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Account Manager
Corporate Finance Group
Telecopy: (312) 441-7367
and
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Legal Department
Corporate Finance Group
Telecopy: (312) 441-7367
Address for payments:
ABA No. 0710-0001-3
Account Number 55-00540
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
Reference: Heller Corporate Finance Group
for the benefit of Esquire
<PAGE>
MASSMUTUAL CORPORATE VALUE PARTNERS LIMITED
By: Massachusetts Mutual Life Insurance
Company, its Investment Manager
By:---------------------------------
Name:-------------------------------
Title:------------------------------
Address for Notices other than with respect
to payments:
c/o Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attn: Securities Investment Division
John Wheeler/John Joyce
Telephone: (413) 744-6975
Facsimile: (413) 846-5027
With a Copy of Notices to:
c/o Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attn: Steve Katz, Esq.
Telephone: (413) 744-6125
Facsimile: (413) 744-6210
Address for Notices with respect to payments:
c/o Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attn: Securities Custody and Collection
Department, F381
<PAGE>
Address for payments:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For MassMutual Account No. 000-37778
Re: Esquire Communications, identifying
Revolving Loan, and principal and interest
split
With telephone advise of payment to
Securities Custody and Collection Department
of Massachusetts Mutual Life Insurance
Company
Attn: Laura Hamel
Telephone: (413) 744-3878
Facsimile: (413) 744-7922
<PAGE>
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:---------------------------------
Name:-------------------------------
Title:-------------------------------
Address for Notices other than with respect
to payments:
c/o Massachusetts Mutual Life Insurance
Company 1295 State Street
Springfield, MA 01111
Attn: Securities Investment Division
John Wheeler/John Joyce
Telephone: (413) 744-6975
Facsimile: (413) 846-5027
With a Copy of Notices to:
c/o Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attn: Steve Katz, Esq.
Telephone: (413) 744-6125
Facsimile: (413) 744-6210
Address for Notices with respect to payments:
c/o Massachusetts Mutual Life Insurance
Company
1295 State Street
Springfield, MA 01111
Attn: Securities Custody and Collection
Department, F381
<PAGE>
Address for payments:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For MassMutual Account No. 000-37778
Re: Esquire Communications,
identifying Revolving Loan, and principal
and interest split
With telephone advise of payment
to Securities Custody and Collection
Department of Massachusetts Mutual Life
Insurance Company
Attn: Laura Hamel
Telephone: (413) 744-3878
Facsimile: (413) 744-7922
<PAGE>
LASALLE NATIONAL BANK
By:---------------------------------
Name:-------------------------------
Title:------------------------------
Address for notices:
135 South LaSalle Street
Chicago, Illinois 60603
Attn: James Tucker
Facsimile: (312) 904-4605
Address for payments:
LaSalle National Bank
135 South LaSalle Street
Chicago,Illinois 60603
ABA Acct. # 071-000-505
Name on Acct: Commercial Loans
Attn: Linda, ext. 47361
Acct No. 1378018/7300
<PAGE>
SCHEDULE 1.1(b)
Revolving Loan Commitments
Antares Leveraged Capital Corp. $30,000,000.00
Heller Financial, Inc. $20,000,000.00
MassMutual Corporate Value Partners Limited $11,000,000.00
Massachusetts Mutual Life Insurance Company $9,000,000.00
LaSalle National Bank $10,000,000.00
H A R L I N G W O O D
February 9, 1998
PERSONAL & CONFIDENTIAL
Esquire Communications Ltd.
750 B Street, Suite 2350
San Diego, CA 92101
Attention: Mr. David A. Higson
Executive Vice President & CFO
Gentlemen:
This letter will confirm our understanding of the arrangements under
which Harlingwood Partners, LP ("Harlingwood"), is engaged by Esquire
Communications Ltd. ("Esquire") as exclusive financial advisor in connection
with mergers or acquisitions made by Esquire of companies not predominately
engaged in the business of providing court reporting services. The exclusive
nature of this engagement shall not preclude Esquire from pursuing acquisitions
on its own behalf of companies not introduced by Harlingwood ("Non-Harlingwood
Deals"), in which case no Transaction Fee shall be due Harlingwood.
During the term of our engagement Harlingwood anticipates providing
financial advice and assistance in connection with potential transactions,
including:
1. Identification of suitable target acquisitions;
2. Qualification of the target companies based upon Esquire's
criteria and the target companies' potential interest in a
transaction;
3. Securing of the target companies' preliminary financial data,
including execution of confidentiality agreements;
4. Performing preliminary valuation analysis;
5. Assisting in the structuring, planning and negotiating of
transactions as needed, including the execution of letters of
intent.
Esquire agrees to pay Harlingwood a "Transaction Fee" equal to 1% of
the Transaction Value. The "Transaction Value" shall be defined as the total
consideration paid by Esquire for the company's common equity (or, in the case
of a purchase of assets, the consideration paid for the assets) plus the value
of any debt, capital lease, and preferred stock obligations of the Company
assumed, retired or defeased by Esquire in connection with the transaction. The
Transaction Fee in respect of any amounts to be paid by Esquire contingent upon
future events shall be paid upon actual payment thereof, except that amounts
held in escrow shall be deemed paid at closing.
<PAGE>
The Transaction Fee shall be paid by wire transfer upon the closing of
each transaction concurrently with consideration paid to the seller. Moreover,
Esquire agrees that a Transaction Fee shall be payable on all acquisitions made
by Esquire other than Non-Harlingwood Deals. Such obligation shall survive the
term of this Agreement.
In addition to our fee for professional services, Harlingwood will
submit out-of-pocket expenses for reimbursement by Esquire approximately
monthly. Generally these expenses include travel costs and document production,
mailing and other expenses of this type. Harlingwood shall not engage legal
counsel or other professionals on behalf of Esquire without its prior consent.
Further, Harlingwood shall obtain approval from Esquire before incurring any
expense, other than travel related expenses, that individually exceeds $1,500.
Esquire will indemnify and hold Harlingwood harmless from and against
any and all losses, claims, suits, expenses, damages or liabilities of
whatsoever nature or kind to which we may be subject, including counsel fees
incurred by us in connection with any claims or actions (whether or not
resulting in any liability and whether or not we are a defendant or party
therein or thereto) insofar as those losses, claims, suits, expenses, damages or
liabilities arise out of or pursuant to the services contemplated in this
agreement and to the extent such losses, claims, suits, expenses, damages or
liabilities are not caused by Harlingwood's gross negligence or willful
misconduct. The indemnity provided herein will survive the term of this
agreement. The foregoing will be in addition to any rights we may have at common
law or otherwise.
Our services hereunder shall have an initial term of 12 months and may
be terminated at any time thereafter with or without cause by you or by us
without liability or continuing obligation to you or to us (except for any
compensation earned and expenses incurred by us to the date of termination and
except, in the case of termination by you, for our right to fees pursuant to
this letter for any transactions, other than Non-Harlingwood Deals, effected
within one year of such termination) and provided the indemnity provisions will
remain operative regardless of any such termination.
If the foregoing correctly reflects the terms of Harlingwood's
engagement by you, kindly sign and return the enclosed copy of this letter of
agreement.
Very truly yours,
HARLINGWOOD PARTNERS, LP
By: /s/ Christopher T. Nguyen
-----------------------------
Christopher T. Nguyen
Principal
<PAGE>
Accepted and Agreed:
ESQUIRE COMMUNICATIONS LTD.
By: /s/ David A. Higson
----------------------------
David A. Higson
Executive Vice President & CFO
Date: February 9, 1998
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 30th day of June, 1998 by and between
Esquire Communications Ltd., a Delaware corporation, with offices at 750 B
Street, Suite 2350, San Diego, California 92101 (the "Corporation") and David A.
Higson, residing at Poway, California (the "Employee").
W I T N E S S E T H :
WHEREAS, the Corporation desires to continue to employ the Employee
and the Employee desires to continue to accept such employment upon the terms
and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
1. Term of Employment
Subject to the terms and conditions set forth in this Agreement, the
Corporation hereby agrees to employ the Employee, and the Employee accepts such
employment, in an executive capacity as Executive Vice President and Chief
Financial Officer of the Corporation for the period beginning on the date hereof
and continuing for a period of one year or until earlier terminated as provided
herein. Upon the expiration of said one -year period, this Agreement shall be
automatically renewed on a year to year basis unless terminated by either the
Corporation or the Employee by the giving of written notice of termination to
the other party hereto at least 60 days' prior to the expiration of the initial
term or any successive term.
<PAGE>
2. Duties
2.1. As Executive Vice President and Chief Financial Officer, the
Employee shall perform such duties and discharge such responsibilities as the
Chief Executive Officer of the Corporation shall from time to time direct, which
duties and responsibilities shall be commensurate with the Employee's position
as Executive Vice President and Chief Financial Officer. The Employee agrees to
perform such duties and discharge such responsibilities in a faithful manner and
to the best of Employee's ability. The Employee agrees to devote full business
time and attention to the business and affairs of the Corporation and its
subsidiaries and to use best efforts to promote the interest of the Corporation
and its subsidiaries. The Employee further agrees that Employee will not engage
in any outside business concerns or activities, without the written consent of
the Corporation's Chief Executive Officer.
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 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 and directorships in the
Corporation and any subsidiary to which, from time to time, Employee may be
appointed or elected during the term of this Agreement.
3. Compensation
3.1. The Employee shall receive an annual base salary at the rate of
$175,000 per annum, payable in accordance with the Corporation's normal payroll
practices. The Corporation shall deduct or withhold from such payments, and from
all other payments made to the Employee pursuant to this Agreement, all amounts
which may be required to be deducted or withheld under any applicable law now in
effect or which may become effective during the term of this Agreement
(including but not limited to Social Security contributions and income tax
withholdings). Any salary and other compensation to be paid to the Employee
hereunder may be paid by subsidiaries of the Corporation, and not by the
Corporation, in such proportion as shall be allocated among them by the
Corporation and such subsidiary.
3.2. The Employee shall be entitled to participate in, and receive
benefits from, any insurance, medical, disability, bonus, incentive
compensation, stock option or other employee benefit plan, if any are adopted,
of the Corporation or any subsidiary which may be in effect at any time during
the course of his employment by the Corporation and which shall be generally
available to the Employee on terms no less favorable than to other executive
officers of the Corporation or its subsidiaries. The Employee shall be entitled
to receive up to 50% of his base salary as a bonus in accordance with any
incentive bonus program which the Corporation has in effect during the term of
this Agreement.
3.3. In the event this Agreement is not renewed by the Corporation in
accordance with Article 1 of this Agreement, the Corporation shall continue to
pay to the Employee the Employee's annual base salary for a period of six months
following the expiration of the initial term or any successive term, payable in
accordance with the Corporation's normal payroll practices. In addition, during
such six month period of time, the Corporation shall continue to provide to
Employee (a) his automobile allowance (including reimbursement for related
expenses as set forth in Section 4 below) and (b) the medical and any other
benefits he was receiving from the Corporation prior to termination.
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 Employee's
responsibilities and duties under this Agreement, provided that the Employee
shall be required to account to the Corporation for such expenses in the manner
prescribed by the Corporation. In recognition of Employee's need for an
automobile for business purposes, the Corporation should provide to Employee an
automobile allowance not to exceed $1,200 per month and shall reimburse Employee
for all related expenses, including gasoline, repairs, insurance and
maintenance.
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 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 death occurs and no more.
6. Termination of Employment by Reason of Disability
If the Employee shall become temporarily disabled during the term of
this Agreement, all of the Employee's rights under this Agreement shall continue
until such time as the Employee either returns to work or is deemed "permanently
disabled" (as hereinafter defined in Section 6.1).
6.1. If the Employee shall be deemed permanently disabled, the
Employee's employment shall immediately terminate at such time that the Employee
is deemed to be permanently disabled. The Employee shall be deemed permanently
disabled for purposes of this Agreement if: (i) in the opinion of the 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.
7.Termination of Employment for Cause
The Corporation may immediately terminate the Employee's employment in
the event that the Employee shall do or cause to be done any act which
constitutes "cause" (as hereinafter defined) for termination. For purposes of
this Agreement, cause shall be deemed to mean a material breach by the Employee
of this Agreement, continued neglect or refusal to attend to the material duties
assigned to Employee by the Chief Executive Officer of the Corporation, gross
negligence or willful misconduct in the performance of Employee's duties,
dishonesty to the Corporation (including, without limitation, conviction of a
crime in any court which could have the effect of causing the termination or
suspension of any license which the Corporation holds), conviction of a felony
or excessive absenteeism not related to disability. Should the Employee's
employment be terminated by the Corporation for cause, the Corporation's only
obligation shall be to pay the Employee the salary and other compensation under
Sections 3.1 and 3.2 of this Agreement which has accrued as of the date of such
termination. Nothing contained in this Article 7 shall in any way waive,
restrict or prejudice the Corporation's rights and remedies in equity and at law
against the Employee with respect to the matter for which the Employee's
employment under this Agreement is terminated for cause. If Employee's
employment is terminated without cause, all options to purchase Common Stock of
the Corporation shall immediately vest and Employee shall have all rights and
remedies available under law.
8. Confidentiality
During the course of 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 Employee's duties under this Agreement, Employee 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 Employee in the course of employment 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 Employee agrees that he shall not directly or indirectly, for his own
account or as agent, employee, officer, director, trustee, consultant or
shareholder of any corporation or a member of any firm or otherwise, anywhere
within 100 miles of 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
Employee agrees that he shall not, directly or indirectly, for his own account
or as agent, employee, officer, director, trustee, consultant or shareholder of
any corporation, or member of any firm or otherwise, employ or solicit the
employment or retention of any court reporter retained by the Corporation or any
employee of the Corporation.
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. 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.
11. 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
or 9 hereof are breached and that the Corporation will be irreparably damaged in
the event that the provisions of Articles 8 or 9 are not enforced. Therefore,
should any dispute arise with respect to the breach or threatened breach of
Articles 8 or 9 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 or 9 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 or 9 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.
12. Miscellaneous
12.1 This Agreement shall be governed by the internal domestic laws of
the State of California without reference to conflict of laws principles. This
Agreement shall be binding upon and inure to the benefit of the legal
representatives, successors and assigns of the parties hereto (provided,
however, that the Employee shall not have the right to assign this Agreement in
view of its personal nature). All headings and subheadings are for convenience
only and are not of substantive effect. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior negotiations, understandings and writings (or any part
thereof) whether oral or written between the parties hereto relating to the
subject matter hereof. There are no oral agreements in connection with this
Agreement. Neither this Agreement nor any provision of this Agreement may be
waived, modified or amended orally or by any course of conduct but only by an
agreement in writing duly executed by both of the parties hereto. If any
article, section, portion, subsection or subportion of this Agreement shall be
determined to be unenforceable or invalid, then such article, section, portion,
subsection or subportion shall be modified in the letter and spirit of this
Agreement to the extent permitted by applicable law so as to be rendered valid
and any such determination shall not affect the remainder of this Agreement,
which shall be and remain binding and effective as against all parties hereto.
For purposes of this Agreement, all references to the Corporation shall include
all subsidiaries of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
--------------------------------
David A. Higson
ESQUIRE COMMUNICATIONS LTD.
By:
-----------------------------
Esquire Communications Ltd.
750 B Street
Suite 2350
San Diego, California 92101
March , 1999
Mr. ___________
Esquire Communications Ltd.
750 B Street, Suite 2350
San Diego, California 92101
Dear Mr. _________:
Esquire Communications Ltd. (the "Corporation") considers it essential
to the best interests of its stockholders to foster the continuous employment of
key management personnel. In this connection, the Board of Directors of the
Corporation (the "Board") recognizes that the possibility of a change in control
of the Corporation exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Corporation and its
stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Corporation's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Corporation.
In order to induce you to remain in the employ of the Corporation, the
Corporation agrees that you shall receive the severance benefits set forth in
this letter agreement (the "Agreement") in the event your employment with the
Corporation terminates or is terminated under the circumstances described below
subsequent to a "change in control of the Corporation", as such term is defined
in Section 2.
1. Term of Agreement. This Agreement shall commence on the date
hereof, and shall continue in effect through June 30, 1999; provided, however,
that commencing on June 30, 1999, and each June 30 thereafter, the term of this
Agreement shall automatically be extended for one additional year, unless not
later than 60 days prior to such June 30 the Corporation shall have given notice
that it does not wish to extend this Agreement; and provided, further, that if a
change in control of the Corporation shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of not less than one year beyond the month in which such change in
control occurred.
2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a change in control of the Corporation, as set forth
below. For purposes of this Agreement, a "change in control of the Corporation"
shall be deemed to have occurred if
(a) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Corporation, any existing director or officer
of the Corporation, any existing beneficial owner of more than 5% of the
Corporation's outstanding common stock, any trustee or other fiduciary holding
securities under an employee benefit plan of the Corporation, or any corporation
owned, directly or indirectly, by the stockholders of the Corporation in
substantially the same proportions as their ownership of stock of the
Corporation, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing 30% or more of the Common Stock of the Corporation;
(b) during any period of two consecutive years (not including any
period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement with the
Corporation to effect a transaction described in clause (a), (b) or (d) of this
Section) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
(hereinafter referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;
(c) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation; or
(d) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets.
3. Termination Following Change in Control. (a) General. If any of the
events described in Section 2 constituting a change in control of the
Corporation shall have occurred, you shall be entitled to the benefits provided
in Section 4 upon the subsequent termination of your employment during the term
of this Agreement as set forth in Section 4 unless such termination is because
of your death or Disability.
(b) Disability. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for four (4) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability."
4. Compensation Upon Termination. Following a change in control of the
Corporation and if for any reason whatsoever (other than death or Disability)
your employment with the Corporation terminates or is terminated within six
months after the change in control (the "Termination Date") then you shall be
entitled to the following benefits:
(a) in lieu of any further salary payments to you for periods
subsequent to the Termination Date, the Corporation shall pay as severance pay
to you, no later than the fifth day following the Termination Date, a lump-sum
severance payment equal to 100% of the sum of (i) your annual salary rate in
effect as of the Termination Date or, if greater, such rate in effect
immediately prior to the change in control of the Corporation and (ii) any cash
bonus received by you or to which you were entitled during the calendar year
preceding the change in control.
(b) if you resort to any action or proceeding to recover any
amount which the Corporation has failed to pay to you under this Agreement and
if you are awarded or receive any amounts as the result of such action or
proceeding, the Corporation also shall pay or reimburse to you all legal fees
and expenses incurred by you in and with respect to such action or proceeding.
(c) for a twelve month period after the Termination Date, the
Corporation shall arrange to provide you with group health insurance benefits
substantially similar to those which you were receiving immediately prior to the
Termination Date (or, if better, such benefits in effect immediately prior to
the change in control of the Corporation); provided, however, if it is not so
obtainable upon reasonable terms, the Corporation shall pay to you in cash the
annual amount paid by the Corporation during the previous year of your
employment. Benefits otherwise receivable by you pursuant to this paragraph (c)
shall be reduced to the extent comparable benefits are actually received by you
during the twelve month period following the Termination Date, and any such
benefits actually received by you shall be reported to the Corporation.
(d) If the severance payment under this Agreement, either alone
or together with other payments which you have the right to receive from the
Corporation, would not be deductible (in whole or in part) by the Corporation as
a result of such payment constituting an excess parachute payment as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), such
severance payment shall be reduced to the largest amount as will result in no
portion not being fully deductible by the Corporation as the result of Section
280G of the Code, which determination shall be made by the Corporation's
independent accountants and shall be conclusive and binding. This provision may
be waived by the Board of Directors of the Corporation in the exercise of its
discretion.
(e) Except as provided in Subsection (c) hereof, you shall not be
required to mitigate the amount of any payment provided for in this Section 4 by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer, by retirement benefits, by
offset against any amount claimed to be owed by you to the Corporation, or
otherwise.
(f) All options which have been granted to you which are not
vested shall vest immediately on the Termination Date.
5. Successors; Binding Agreement. (a) The Corporation will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
it if no such succession had taken place.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, heirs, distributees, devisees and legatees. If you should die
while any amount would still be payable to you hereunder if you had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devisee, legatee or other
designee or, if there is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to the
attention of the Board with a copy to the Secretary of the Corporation, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of New York without regard to its conflicts of law
principles. All references to sections of the Exchange Act or the Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law. The obligations of the Corporation under
Section 4 shall survive the expiration of the term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted by JAMS/Endispute (or its successor) in New York, New York, in
accordance with its rules then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that you
shall be entitled to seek specific performance of your right to be paid until
the Termination Date during the pendency of any dispute or controversy arising
under or in connection with this Agreement.
11. Coordination with Employment Agreement. If applicable, the terms
of this Agreement shall be coordinated with and applied in conjunction with the
terms of your employment agreement with the Corporation. In general, it is the
intent of the parties that in the event of a change in control of the
Corporation the terms of this Agreement shall supersede and substitute for the
provisions of the employment agreement relating to any items of current
compensation during the term of this Agreement. Accordingly, benefits are
payable under this Agreement without regard for any obligation under any
agreement with or policy of the Corporation to refrain from competing with the
Corporation or entering into employment with or owning an interest in any firm
or business competing with the Corporation. Nothing in this Agreement shall be
construed to be a commitment or guarantee of future employment with the
Corporation. Except for circumstances relating to a change in control of the
Corporation as provided for herein, all terms and conditions of your employment
with the Corporation shall be governed by the terms of your employment
agreement, if any.
12. Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter,
which will then constitute our agreement on this subject.
Sincerely,
Esquire Communications Ltd.
By______________________
Agreed to as of this __ day of
_________, 1999.
- -----------------------------
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
Esquire Staffing Services, Inc., a Delaware corporation
Esquire Document Retrieval Services, Inc., a Delaware corporation
Esquire Gregory Staffing Services, 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 26,
1999, except as to the second, third and fifth paragraphs of Note 5(A) which are
as of April 14, 1999, relating to the consolidated balance sheets of Esquire
Communications Ltd. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report appears in the December 31, 1998, annual report on Form 10-KSB of
Esquire Communications Ltd.
KPMG LLP
San Diego, CA.
April 15, 1999
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