<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 for the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the transition period from ______ to ______
Commission file number: 33-81666
AREMISSOFT CORPORATION
(formerly known as Juno Acquisitions, Inc.)
(Exact name of Registrant as specified in its charter)
NEVADA 13-3690905
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
60 BISHOPSGATE LONDON EC2N 4AJ ENGLAND
(Address of principal executive offices)
(Registrant's telephone number, including area code 011-44-171-3091555
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock None
Indicate by check mark whether the 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 such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
at least the past 90 days.
Yes [ ] No [X]
As of June 24, 1998, the aggregate market value for the 7,129,870 shares
of the common stock, par value $0.001 per share, held by non-affiliates was
approximately $42,779,220.
The number of shares outstanding of registrant's only class of common
stock, as of June 24, 1998, was 17,097,720 shares of its common stock, par value
$0.001 per share.
Documents Incorporated by Reference: None
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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-K or any
amendment to this Form 10-K. [X]
<PAGE> 2
This Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those discussed below as well as
those discussed elsewhere in this Report. THE COMPANY DISCLAIMS AN INTENT OR
OBLIGATION TO PUBLICLY UPDATE THESE "FORWARD-LOOKING" STATEMENTS, WHETHER AS A
RESULT OF NEW INFORMATION, FUTURE EVENTS, OR OTHERWISE.
All references to the "Company" or "AremisSoft" refer to AremisSoft Corporation,
a Nevada corporation, and its consolidated subsidiaries, except as otherwise
specifically noted herein.
PART I
ITEM 1. BUSINESS
ORGANIZATION OF THE COMPANY
The Company's predecessor, LK Global Information Systems, B.V., a
Netherlands corporation ("LK Global"), reorganized into a holding company in the
United States by acquiring the Company, a Nevada corporation incorporated on
November 16, 1992, through a share exchange. The name of the Nevada corporation
was subsequently changed to AremisSoft Corporation.
Prior to 1995, several of the Company's operating subsidiaries were
wholly owned by the Company's Chairman and Chief Executive Officer, Dr.
Lycourgos K. Kyprianou. In 1995, all of the Company's operating subsidiaries
were reorganized under a holding company, LK Global.
The Company's principal executive offices are located at 60 Bishopsgate,
London EC2N 4AJ, England, and its telephone number is 011-44-171-3091555.
2
<PAGE> 3
BUSINESS
THE COMPANY
AremisSoft develops, markets, implements and supports enterprise-wide
applications software targeted to mid-sized organizations in the healthcare,
manufacturing, hospitality and construction industries (the "Vertical Markets").
Its software products provide an array of functions that address the
mission-critical information requirements of customers in the Vertical Markets.
The Company's software products incorporate object-oriented and client-server
technologies and are designed for rapid implementation, flexibility and
scalability across multiple platforms. The modular design and industry
specialization of its products limit the need for extensive customization which
the Company believes provides it with a competitive advantage. In addition, the
interoperability of the Company's products with other software applications and
their ability to grow with an organization permit rapid adaptation of the
Company's products in response to ongoing business changes. The Company believes
that it provides substantial benefits to its customers with legacy systems,
including reduced upgrade disruptions and costs, the ability to extend such
systems' useful lives and improved interoperability with existing software
applications. The Company markets its software products primarily through its
own sales force and provides product support worldwide through ten offices in
seven countries. The Company currently has more than 5,000 customers. Revenues
from customers located in the United Kingdom comprised 75% of total revenues in
both 1997 and in the first three months of 1998. Customers using the Company's
software products include Southampton Multifund (healthcare), Birmingham
Multifund (healthcare), Telefon AB LM Ericsson (manufacturing), Nabisco Biscuit
Co. (manufacturing), Forte Limited (hospitality), and London Electricity plc
(construction).
The Company's software products have been designed using a three-tiered,
object-oriented software architecture (the "Aremis Architecture"). The Aremis
Architecture achieves economies of scale and cost reductions in the software
development process by capitalizing on the common functional requirements of
customers across a variety of industries. The Aremis Architecture facilitates
customization and modification of the Company's software solutions to address
the mission-critical information requirements of its customers. The Company has
been developing its software in an object computing environment since 1986 and
believes that its substantial investment in the development of the Aremis
Architecture provides it with a competitive advantage in developing
enterprise-wide applications software.
In the past five years, the Company has experienced rapid growth both
internally and through acquisitions, with revenues increasing from $2.7 million
in 1993 to $42.4 million in 1997. During this period, the Company successfully
acquired and integrated the operations of eleven businesses. In each
acquisition, the Company sought to reduce expenses, rejuvenate existing products
of the acquired business and migrate the customers of the acquired business to
products that utilize the Aremis Architecture. Since 1986, the Company has
developed an extensive software development and support facility in New Delhi,
India, that provides the Company with access to highly-skilled technical
personnel who rejuvenate acquired products and support the Company's research
and development activities on a cost-effective basis.
The Company's business strategy is to continue its growth by (i) targeting
mid-sized organizations, including divisions and business units of larger
companies, with annual revenues of less than $1 billion, (ii) focusing on
strategic markets, (iii) leveraging the Company's cost-efficient India
operations, (iv) capitalizing on the Company's investment in the Aremis
Architecture, (v) expanding the Company's marketing, sales, support and service
capabilities and (vi) acquiring related software businesses, products or
technologies.
INDUSTRY BACKGROUND
Enterprise-wide applications software is designed to help streamline and
enhance an organization's ability to manage and execute mission-critical
operations, such as accounting, payroll, purchasing, manufacturing,
3
<PAGE> 4
human resources, customer service and sales and marketing. Enterprise-wide
applications software that is capable of generating and disseminating critical
information across a business organization and its extended enterprise provide a
strategic resource that enables an organization to respond rapidly to changing
market environments and customer needs.
With the growth of computer networks across local and remote parts of an
enterprise and the sharing of information between departments, the demand for
flexible solutions that address continually changing business requirements is
rapidly increasing. In the past, host-centric systems operating on mainframes or
mid-range computers and offering high levels of performance, scalability and
data security achieved broad market acceptance. Although these systems served
the near-term needs of customers, they lacked the flexibility necessary to
operate in today's marketplace. As a result, open architecture, client/server
based computing systems were developed and offer the following advantages: (i)
easier access to corporate data, (ii) improved reporting and analysis, (iii)
flexibility in decision-making, (iv) quicker time to market and (v) a more
strategic computing model. Along with the growth in demand for these systems, an
increasing demand for a new generation of enterprise-wide applications software
has emerged to address various business requirements.
In addition, object-oriented technology is rapidly emerging as a desired
feature of enterprise-wide client/server-based applications software.
Object-oriented technology consists of component objects that are essentially
building blocks of small, discrete pieces of functionality. These component
objects can be configured to create complete applications and enable software
developers to rapidly create and modify systems to provide the desired
functionality for specific markets or individual customers. Object-oriented
technology also allows for the creation of systems that are scalable, flexible
and capable of accommodating variations in business requirements and technology
infrastructure.
According to International Data Corporation, growth in the enterprise-wide
applications software market has been strong in recent years and is expected to
continue. This growth may be attributed to a variety of factors, including a
shift among organizations from developing enterprise-wide applications software
in-house to purchasing enterprise-wide applications software from outside
sources. The Company believes this trend is principally fueled by the growing
complexity of new technology and the increasing failure rate of in-house
enterprise-wide applications software development projects. By outsourcing their
enterprise-wide applications software needs, organizations reduce the risk of
in-house development failures and ensure quicker time to market with new and
increased functionality, creating a competitive advantage.
The Company believes that a significant portion of the future growth in the
enterprise-wide applications software industry will be generated from purchases
by mid-sized organizations, including divisions and business units of larger
companies, with annual revenues less than $1 billion. Within this market,
organizations with annual revenues between $150 million and $1 billion are
generally referred to as "Tier II" organizations and organizations with annual
revenues less than $150 million are generally referred to as "Tier III"
organizations. "Tier I" organizations typically have annual revenues in excess
of $1 billion. The number of organizations in Tier II and Tier III is
substantially greater than in Tier I. Tier III and certain Tier II organizations
have attractive characteristics for enterprise-wide applications software
providers. Enterprise software marketed to Tier II and Tier III organizations is
generally less expensive and has significantly shorter sales and implementation
cycles than software for Tier I organizations.
The Company believes there is a substantial market opportunity for
enterprise-wide applications software that offers ease of integration, faster
implementation, reduced risks associated with business and technological
changes, lower overall cost of ownership and industry-specific and customized
functionality. At the same time, these applications should attempt to mask the
complexities of the underlying hardware, software or network technologies.
4
<PAGE> 5
THE AREMIS ARCHITECTURE
The Aremis Architecture provides Advanced, Real-time, Enterprise-wide,
Mission-critical, Integrated Systems to customers in each of the Vertical
Markets. The Company believes that the Aremis Architecture enables it to produce
high quality, scalable enterprise-wide applications software with substantially
reduced software development, implementation and maintenance costs. The Aremis
Architecture incorporates a three-tiered, object-oriented approach in its
enterprise-wide applications software, which is depicted below:
[FLOW CHART]
The three tiers of the Aremis Architecture consist of presentation, logic
and database. The presentation tier relates to what the end user sees on the
screen when using the software. The logic tier consists of the actual
applications in the system and interacts with the database tier which stores
mission-critical enterprise-wide data. A primary advantage of this three-tier
structure is that it allows software programmers to make changes and
enhancements to one of the tiers without disrupting the logic of the other
tiers.
The Aremis Architecture utilizes graphical user interface ("GUI"), which
uses icons and other graphical methods to guide a user through the software. GUI
is more user-friendly than character user interface ("CUI"), commonly known as
"green screen" technology, which requires users to know numerous commands when
using the software.
A central feature of the Aremis Architecture's logic tier is its object
orientation. The Company has devoted significant resources to developing an
extensive proprietary software library of well-defined, re-usable business
objects. These objects link business rules and policies to applications written
in C++ and Java languages. This object orientation enables customers or the
Company's developers to easily create additional modules or to rapidly adapt
existing software to changing business conditions or requirements. It also
facilitates the re-use of functional applications which are similar across
products and industries. The Aremis Architecture has 70% commonality of objects
across the Vertical Markets, which the Company believes provides it with a
significant competitive advantage.
The object orientation of the Aremis Architecture also helps to minimize
training costs as the Company's software developers who are already trained in
its development methods and language can be assigned to new markets with little
training. In a similar manner, customers with multiple AremisSoft products can
minimize their training and implementation costs as each of the products
operates in a similar manner.
The Aremis Architecture encompasses industry standard database technologies
and is designed to be compatible with Oracle, Sybase, SQL Server, Informix and
other open database connectivity ("ODBC") compliant databases. This industry
standard database tier provides AremisSoft customers with the flexibility to
utilize high quality data warehouse and data-mining applications.
The Aremis Architecture is based on open, client/server computing
technology. This open environment provides interoperability with other software
applications, even among multiple revision levels of the same or different
products. The Aremis Architecture is also platform independent and operates
seamlessly with
5
<PAGE> 6
Windows NT, Windows 95, UNIX, Novell and multitasking DOS environments on
numerous hardware platforms and interfaces with Internet and intranet
technologies.
THE AREMISSOFT SOLUTION
The Company's enterprise-wide applications software products address the
mission-critical, business information requirements of organizations in the
Vertical Markets. AremisSoft's products are designed to provide the following
benefits:
Enhanced Functionality. The Company's visual development environment allows
customers to focus on incorporating business logic into a solution instead of on
complex technical details. With the Company's visual, object-oriented
development environment, developers and end users can rapidly build applications
that automate and integrate business processes such as credit checking, order
handling and inventory management. From its history of working closely with its
customers, the Company believes that it has gained a high level of expertise in
industry-specific, complex business processes. The close mapping between a
business process and the Aremis Architecture enables developers to more easily
design, maintain and re-use applications. This also enables endusers to be an
integral part of the development of business solutions and results in more
successful implementation.
Ease of Integration. AremisSoft's software products operate in Windows NT,
Windows 95, UNIX, AS/400, Novell and multitasking DOS environments on numerous
hardware platforms and are compatible with Oracle, Sybase, SQL Server, Informix
and other ODBC compliant databases. Because of the flexible 32-bit open
architecture and open approach to development, the Company's products can also
be integrated with technologies such as Java, Visual Basic, Visual Basic for
Applications and C++. Ease of integration with existing technologies allows
customers to accommodate and modify their business practices without regard to
underlying hardware, software and network technologies.
Industry-Specific Applications. The Company offers enterprise-wide
applications software for mid-sized organizations in the healthcare,
manufacturing, hospitality and construction industries. Through its concentrated
product focus, the Company believes it has developed substantial industry
expertise in the Vertical Markets that has enabled the Company to develop
software applications that address customers' specific industry needs.
Rapid Implementation. The modular product design of AremisSoft's software
combined with the Company's focus and expertise in the Vertical Markets permits
rapid product implementation. Product applications are designed to address the
specific needs of customers in the Vertical Markets, limiting the need for
extensive customization upon implementation. In addition, customers are able to
purchase only those applications with functionality appropriate for their needs,
eliminating implementation and training time for unnecessary features. The
Company also provides all of the system implementation and training services for
its clients using AremisSoft field engineers. By providing implementation
services in-house, the Company believes that its customers benefit from a more
efficient implementation process and by having only one vendor accountable for
system performance.
Protection of Investment in Legacy Systems. AremisSoft's open architecture,
client/server-computing technology allows customers to migrate their existing
mission-critical business software to an open platform, thereby protecting their
legacy systems and reducing the costs and business interruptions associated with
system upgrades.
Global Service and Support. The Company provides a high level of global
service and support as a critical component of its enterprise-wide applications
software. The Company offers product service and support by highly trained and
dedicated personnel through its software development and support facility in
India in addition to local support. The Company believes its investment in
worldwide customer support services and user groups facilitates customer
communication and feedback, enhancing customer satisfaction and engendering
long-term customer relationships.
6
<PAGE> 7
THE AREMISSOFT STRATEGY
The Company's primary business objective is to strengthen its position in
each of the Vertical Markets as a leading provider of enterprise-wide
applications software. The key elements of the Company's business strategy
include the following:
Target Tier II and Tier III Organizations. The number of organizations in
the Tier II and Tier III markets is significantly larger than Tier I, which
affords the Company opportunities to expand its customer base. In addition, the
Company's software products are suited to the needs of Tier II and Tier III
organizations because they are generally less expensive and have significantly
shorter sales cycles and implementation periods than products marketed to Tier I
organizations, which typically require implementation periods in excess of one
year. Moreover, unlike the Tier I market, the Tier II and Tier III markets are
not easily penetrated by large software vendors who face difficulty in scaling
monolithic applications to fit the needs of Tier II and Tier III organizations.
In addition, large software vendors cannot offer cost savings, rapid
implementation and ease of integration and maintenance, benefits that are
particularly important to Tier II and Tier III customers. The Tier II and Tier
III markets are also not dominated by one or more vendors of enterprise-wide
applications software, providing the Company with significantly greater internal
growth and acquisition opportunities.
Focus on Strategic Vertical Markets. The Company believes there are
significant opportunities to increase its presence and expand its customer base
within the healthcare, manufacturing, hospitality and construction industries.
The Company has targeted these markets because they (i) enhance the Company's
substantial expertise in each market, (ii) provide international marketing
opportunities which increase the potential for global growth and (iii) have
common software application functional requirements which enable the Company to
leverage the use of the Aremis Architecture.
Shift Operations To Low Cost Environments Utilizing Communication
Technology. AremisSoft believes it has a significant competitive advantage in
its ability to use its software development and support facility in India for
product development, product rejuvenation and administrative functions. The
Company intends to increase utilization of its India software development and
support facility to achieve further cost efficiencies without sacrificing
quality. In 1997, the Company also established a satellite wide area network
("WAN") link between the Company's India operations and each of its other
offices to increase operating efficiency and enhance communications throughout
the Company's operations.
Leverage the Company's Investment in the Aremis Architecture. As an
integral part of its business strategy, the Company intends to continue to
invest in the development of new technologies and products to address the
evolving needs of its customers. The Company believes that the Aremis
Architecture enables it to respond to and incorporate new technologies. In
addition, the Company's technology strategy is focused on migrating its legacy
products to an object-oriented architecture to enable customers to improve
interoperability with existing software applications and to deploy and integrate
new software applications across their businesses.
Expand Marketing, Sales, Support and Service. The Company believes there
are significant opportunities to expand its market position in existing markets
by further developing its sales, marketing and support infrastructure. The
Company primarily sells its software products through an overall sales and
marketing force of 270 employees in the United Kingdom, United States, Ireland,
India, Cyprus, Mexico and Argentina, and indirectly in 12 additional countries.
The Company plans to continue to invest significantly in expanding its
marketing, sales, support and service in such geographic regions. The Company
also believes that prompt and effective service and technical support are
essential elements of enterprise-wide applications software. The Company
continues to invest in its support infrastructure as evidenced by the
establishment of a customer support hotline in each operating division.
Acquire Related Software Products and Companies. A significant aspect of
the Company's growth strategy has been the acquisition of complementary
businesses in order to achieve market presence and increase its customer base
within the Vertical Markets. The Company's strategy is to rejuvenate the
products of acquired businesses utilizing the Aremis Architecture and gradually
migrate the customers of acquired
7
<PAGE> 8
businesses to such products. The Company expects that it will continue to rely
on acquisitions as a significant part of its growth strategy. The Company
believes that significant value can be generated from acquired businesses
through rejuvenation of the acquired businesses' products and the eventual
migration of the acquired businesses' customers to products based on the Aremis
Architecture.
ACQUISITION STRATEGY
From January 1993 to March 1996, the Company acquired eleven businesses
with operations in the Vertical Markets. The aggregate net sales of the acquired
businesses (based on net sales for each business during the last completed
fiscal year immediately preceding the acquisition translated to United States
dollars based on the applicable exchange rate in effect on the date the
acquisition was consummated) totaled approximately $24.2 million.
The following table sets forth certain information concerning the
businesses that have been acquired by the Company since January 1993:
<TABLE>
<CAPTION>
CONSIDERATION(1)
VERTICAL MARKET NAME OF ACQUIRED BUSINESS PRINCIPAL LOCATION DATE ACQUIRED (IN MILLIONS)
--------------- ------------------------------- ------------------ -------------- ----------------
<C> <S> <C> <C> <C>
HEALTHCARE Genisyst Limited United Kingdom October 1994 $5.00
Timemaster Systems Limited United Kingdom September 1995 0.90
Advanced Medical Systems United Kingdom October 1995 1.90
MANUFACTURING BEC Group Limited United Kingdom March 1995 4.00
Online Systems Inc. United States March 1996 0.60
HOSPITALITY HotelMaster Limited United Kingdom January 1993 0.30
IGS Leisure Technology Limited United Kingdom March 1993 1.00
Hotelier Limited United Kingdom June 1993 0.03
Sennen Computers Limited United Kingdom September 1993 0.40
Infoplan Computers Limited Cyprus June 1993 0.50
CONSTRUCTION Briter Computer Systems Limited United Kingdom October 1995 3.10
</TABLE>
- ---------------
(1) For acquisitions of businesses outside of the United States, consideration
figures have been translated to United States dollars based on the
applicable exchange rate in effect on the date the acquisition was
consummated.
Although the Company currently has no agreements, understandings or
arrangements with respect to any future acquisitions, the Company intends to
expand its activities in each Vertical Market globally, including the United
States, and may do so through the acquisition of existing businesses, products
or technologies.
The Company's acquisition strategy focuses on the corporate, financial and
operational characteristics of both the Company and the acquired business. The
Company's acquisition strategy generally involves three phases: Phase I (the
pre-acquisition process), during which the Company identifies and analyzes
acquisition opportunities, Phase II (the post-acquisition assimilation process),
during which the acquired business is integrated into the Company's operations
and Phase III (the post-acquisition product rejuvenation process), during which
the acquired businesses' products are rejuvenated and eventually migrated to the
Aremis Architecture.
Phase I -- Pre-Acquisition
During Phase I, the Company identifies potential acquisition candidates and
analyzes and evaluates various factors to determine the appropriateness of the
acquisition. The Company extensively considers the candidate's products and
their applications, application environment and operating platform to assess the
potential for rejuvenation of the products utilizing the Aremis Architecture. At
the same time, the Company reviews the financial condition of the candidate's
business, its market share and competitors as well as its current customers and
customer support to evaluate various issues, including (i) whether the candidate
can be acquired at an attractive price, (ii) the desirability of the candidate's
customers and markets and (iii) the potential for utilizing the Company's
existing support and back office functions following the acquisition.
8
<PAGE> 9
These and other factors are then considered by the Company in making its
decision whether to complete the acquisition process.
Phase II -- Post-Acquisition Assimilation
During Phase II, the acquired business is integrated into the Company's
operations. The first step in Phase II of the acquisition process is to
establish a satellite WAN link between the Company's software development and
support facility in India and the acquired business. A team within the India
facility immediately assumes responsibility within the acquired business for
product development, finance and administration through the WAN link. As part of
this process, the Company reduces staff in development and administrative
functions previously performed by the acquired business. This team in India is
primarily responsible for research and development while sharing
responsibilities for design and specification with technical personnel in the
United Kingdom.
Phase III -- Post-Acquisition Product Rejuvenation
During Phase III, the Company begins the process of rejuvenating the
acquired businesses' products, transitioning them to the Aremis Architecture. A
customer of the acquired business may elect to (i) transition to an AremisSoft
product, (ii) upgrade to a rejuvenated legacy product or (iii) continue to
utilize its existing legacy product. The Company is sensitive to the acquired
business' investment in legacy systems and does not force customers of the
acquired business to transition to the rejuvenated products. The Company also
continues to support the acquired businesses' legacy products until all
customers are transitioned to a rejuvenated or new AremisSoft product. Because
the migration process is gradual and, to a large extent, is controlled by the
customer, disruption to the customer's operations is minimized.
The following table illustrates the product rejuvenation process:
CHART
9
<PAGE> 10
VERTICAL MARKETS
The Company currently provides customized enterprise-wide applications
software for mid-sized organizations in the Vertical Markets. In the United
Kingdom, the Company is one of the leading suppliers of enterprise-wide
applications software to the healthcare and hospitality industries. As of March
31, 1998, the Company had over 5,000 customers across the Vertical Markets. The
Company's customer base is comprised of approximately 2,000 healthcare, 450
manufacturing, 1,200 hospitality and 350 construction customers. The Company
also continues to service approximately 1,000 customers across a variety of
industries in other countries, primarily in Cyprus and India. For the year ended
December 31, 1997, no customer accounted for more than 10% of the Company's
total revenues.
As a result of the acquisitions completed by the Company from January 1993
to March 1996, the Company's customer base in each Vertical Market is in various
stages of the migration process to products utilizing the Aremis Architecture.
Each of the Company's legacy products was originally acquired as part of an
acquisition and subsequently rejuvenated. In the rejuvenation process, the
legacy product is enhanced through the utilization and incorporation of the then
current features of the Aremis Architecture. New customers in each of the
Vertical Markets have been sold rejuvenated products and updated versions of
such products, while existing customers of the acquired business have been
permitted to migrate to the rejuvenated product line at their own pace. As a
result, the Company's product line in each of the Vertical Markets consists of
(i) legacy products of acquired businesses that have not been rejuvenated, (ii)
legacy products of acquired businesses that have been rejuvenated and
incorporate certain features of the Aremis Architecture and (iii) new products,
including those under development, that incorporate all or a substantial portion
of the features of the Aremis Architecture. In each of the Vertical Markets, the
Company markets rejuvenated and new products, and provides service and support
for legacy products that have not been rejuvenated.
The Company's new product offerings in each of the Vertical Markets consist
of products that incorporate all or substantially all of the benefits of the
Aremis Architecture, which include object-oriented technology, seamless
interface with Internet and intranet technologies, full Windows compatibility,
ODBC compliance, transparent access to information from both CUI and GUI
terminals and Year 2000 and Euro compliance.
Within each of the Vertical Markets, the Company has adopted a sales and
marketing strategy that targets end user needs. This strategy includes
advertisements in leading trade publications, participation in trade shows and
sponsorship of user groups. In addition, the Company has developed corporate
sales and marketing materials as well as general financial and technical
materials that are distributed to each of the Company's subsidiaries for
inclusion in their sales materials, thereby promoting a consistent portrayal of
the Company's image and products.
The Company markets its products primarily through a direct sales force in
each of the Vertical Markets. In the manufacturing and hospitality industries,
the Company also relies to a limited extent on distributors to sell the
Company's products. The Company's senior management is typically involved in the
marketing process on contracts with a potential value of $500,000 or more. The
sales cycles for the Company's products vary across each Vertical Market
depending on many factors, including the size of the customer's organization,
the number of individuals within the organization who are involved in the
purchasing decision, whether the potential customer has retained a consultant to
assist in the purchasing decision, the status of the customer's implementation
of a hardware system and the degree of implementation, consulting and training
required. Contracts of $500,000 or more tend to have a longer sales cycle than
those under $500,000.
The enterprise-wide applications software market, including the market for
client/server-based systems, is intensely competitive and rapidly changing. The
competition that the Company encounters varies across and within each market
depending upon, among other things, the customer's size and specific system
requirements. The principal competitive factors affecting the market for the
Company's software products are responsiveness to customer needs, product
architecture, functionality, speed of implementation, ease of integration,
performance, features, quality and reliability, breadth of distribution, vendor
and product reputation, quality of customer support and price. The Company
believes that it has competed effectively to date on the basis of these factors,
particularly on its reputation for high quality service and support and its
ability to provide lower cost implementations.
10
<PAGE> 11
For each of the last three years, revenues in each of the Vertical Markets
as a percentage of the Company's total revenues were as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Healthcare.................................................. 51.9% 47.2% 43.6%
Manufacturing............................................... 15.4 16.1 22.4
Hospitality................................................. 29.4 22.0 22.4
Construction................................................ 3.3 9.7 7.8
Other....................................................... 0.0 5.0 3.8
---- ---- ----
Total.............................................. 100% 100% 100%
==== ==== ====
</TABLE>
HEALTHCARE
The healthcare industry in the United Kingdom, Europe and North America is
characterized by government regulation and rising healthcare costs. Rising costs
have resulted in pressures to reduce costs without sacrificing the quality of
care and have caused significant legislative and regulatory changes in the
healthcare industry. The pressure to reduce costs has encouraged physicians to
join group practices to share administrative costs and achieve economies of
scale. The Company believes that this movement toward group practices has
accelerated the trend toward automation, as group practices require more
efficient and productive management systems. Physician practice management
systems are now available that automate insurance processing and third party
claims, store clinical information and integrate the operations of physician
practices with larger healthcare organizations.
The healthcare industry in the United Kingdom is regulated by the National
Health Service ("NHS"), a government agency. Healthcare services are currently
provided primarily through health authorities and general practitioner ("GP")
fundholders. Health authorities ensure that the healthcare services provided
meet the needs of residents in their designated areas. GP fundholders are groups
of physicians who combine practices to manage a budget for staff, provide
hospital referrals, drug costs, community nursing services and management costs.
Groups of GP fundholders who work together and pool their budgets are known as
"Multifunds".
After April 1, 1999, the GP fundholding structure is expected to terminate
and be replaced by newly created primary care groups ("Primary Care Groups").
Each Primary Care Group is expected to be responsible for approximately 100,000
individuals within a certain territory, based on natural geographical
communities and will have a budget based upon its territory's population and
available resources.
The Company's healthcare products sold in the United Kingdom are regulated
by the NHS through an accreditation process. Requirements for Accreditation
("RFA") was first introduced in April 1993 and the current version, RFA4, was
reprinted in April 1998. RFAs ensure that computer systems provide consistent
core functionality and conform to NHS standards. It was recommended that
existing systems be upgraded and that health authorities and GP fundholders
would only be reimbursed for the cost of such systems if they were accredited to
RFA4. The Aremis Architecture is accredited to RFA4.
In July 1998, a new Information Management and Technology Strategy ("IMTS")
is expected to be published by the NHS. The IMTS is expected to set the
information technology standards for the next seven years, including
specifications for Primary Care Groups. The purpose of the IMTS is to ensure
that all Primary Care Groups will have in place an auditable clinical system
with the ability to provide management information. In addition, the NHS
recently recommended that major investments in information technology systems to
support Primary Care Groups not be made before the IMTS is published. As a
result, the Company anticipates that it may experience a delay in customer
purchases of its healthcare products pending such publication. See "Certain
Considerations -- Government Regulation of Healthcare Product Specifications."
The IMTS is expected to be the basis for drafting an updated RFA, which
will be referred to as "RFA5." The Company is actively involved with the NHS in
the development of the new specifications. The Company believes it is
well-positioned to respond to the new specifications and provide its existing
and potential
11
<PAGE> 12
customers in the healthcare industry with enterprise-wide applications software
that will meet their specific needs and comply with applicable requirements. In
the future, the NHS is expected to only reimburse physicians groups for
purchases of information technology systems that meet RFA5 accreditation
criteria.
The information technology group of the NHS is also working on a project
called PRODIGY, the purpose of which is to test the concept of computer-aided
support for physician prescribing decisions. PRODIGY's proposed computer system
would contain advice on therapeutic options and is intended to work in tandem
with existing physician clinical systems. The system provides decision support
to the physician immediately after an initial diagnosis has been made by
presenting a prescribing recommendation on the condition diagnosed. It is
anticipated that the NHS will specify system requirements for computer aided
decision support as part of RFA5. The Company is one of five organizations
involved in preparing the specifications.
HEALTHCARE PRODUCTS
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- ------------------------------------------------------------------------------------------------------------
Global Clinical System for Global Clinical System AMSyS-v4
Windows AMSyS-v5 Genisyst Clinical System
Genisyst 2.8 GENI Links
Genisyst 4 (NT) GENI
CHARM
Fundman Windows 95
Fundman Windows 3.1
Fundholding
Infolog
- ------------------------------------------------------------------------------------------------------------
To be released in late 1998 1,939 installed customers(1) 560 installed customers(1)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain customers of the Company have been licensed more than one product or
one version of a product and, as a result, are represented more than once in
the number of installed customers.
Global Clinical System for Windows ("GCS for Windows") is currently under
development and is expected to be released in the fourth quarter of 1998. GCS
for Windows operates on a PC/NT platform and provides healthcare providers with
a navigation system for managing medical and administrative tasks routinely
encountered by physicians, physician groups and community hospitals. GCS for
Windows is a Windows-based integrated clinical system compatible with both
Windows 95 and Windows 3.1, facilitating integration with other systems. It
utilizes many features of the Aremis Architecture, incorporating touch screen,
voice recognition and video conferencing technologies. GCS for Windows consists
of nine fully-integrated application modules.
Global Clinical System ("GCS") operates in Windows 95 and contains the same
application modules as GCS for Windows. Because GCS does not incorporate
object-oriented technology, it is expected to be gradually phased out when GCS
for Windows is released.
12
<PAGE> 13
The following table describes the main application modules of GCS for
Windows and GCS and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C> <C>
- Administration Manager - Contains all basic patient record information such as name, age, sex
and address
- Consultation Manager - Delivers an electronic patient record to the clinician's desktop,
providing the user with the significant medical history of the patient,
consultation history, test results and tests due
- Prescription Manager - Provides access to the user's 40 most commonly prescribed drugs, as
well as information on generic types, preferred drugs, packaging and
costs
- Appointment Manager - Creates an appointment calendar for multiple physicians across various
specialties, tracks patient visits, prints details and produces
statistical reports for physicians
- Reporting - Generates reports specific to a practice or health authority, based on
a number of factors such as age, sex, patient profile
- Training - Provides state-of-the-art training techniques from the user's screen
- Communications - Enables a facility to link its system to the NHS intranet, the local
hospital and the health authority
- Word Processing - Allows users to incorporate data from other modules into letters and
referrals
- Dispensing - Enables the cost effective issuance of drugs and prescriptions
</TABLE>
AMSyS-v5 is a DOS-based clinical system released by the Company as a
product rejuvenation for AMSyS-v4 customers. AMSyS-v4 was acquired by the
Company in connection with the acquisition of Advanced Medical Systems Limited
in 1995 and subsequently rejuvenated. AMSyS-v5 incorporates primarily the same
application modules as GCS but in a non-Windows format and operates alone or in
a PC/LAN environment.
Genisyst 2.8 and Genisyst 4(NT) are both rejuvenations of a product
acquired by the Company in connection with its 1994 acquisition of Genisyst
Limited. Both products incorporate functionality similar to GCS and provide a
nondisruptive transition for customers to new products until these products are
phased out.
CHARM is a UNIX-based system primarily developed for community hospitals
and is principally used by physicians to manage home healthcare visits conducted
by health and social workers. CHARM consists of a central database that allows
the user to collect and maintain patient data and treatment information. The
software is installed on palm tops, which allows users to collect data in the
field and later upload the information into the central database. The Aremis
Architecture version of CHARM is under development and is expected to be
released within the next two years.
Fundholding and Fundman are accounting applications software. Fundholding
is a multi-user accounting system designed to operate in accordance with the NHS
Fundholding business model. All accounting modules are integrated with various
software applications, reducing the administrative costs associated with
operating a group practice in the Fundholding system. Fundman is a Windows-based
consolidation system for multifund physician practices and contains a total
purchasing module, which is expected to be the prototype model for the new IMTS
specifications.
Infolog is a hand held terminal which is used for remote data capture by
physicians and home healthcare providers. Infolog is a support product used by
licensees of the Company's GCS, Fundman and Fundholding products and enables
electronic data capture, resource management and contract/logistics management
for physicians and home healthcare providers. As of March 31, 1998, the Company
has sold approximately 5,000 units, used by approximately 3,500 healthcare
providers.
13
<PAGE> 14
HEALTHCARE SALES AND MARKETING
The Company's healthcare products are marketed and distributed to
organizations in the healthcare industry through a dedicated sales force of 19
employees in three offices. The healthcare marketing team is managed by a sales
director who allocates geographic territories among sales executives. The
Company is also exploring marketing opportunities in the healthcare industry in
European countries with healthcare industry models similar to that in the United
Kingdom, such as Denmark and Belgium.
In the United Kingdom, demand for the Company's products is generated by
the Company through contacts with physicians, physician groups and regulatory
authorities. In addition, the NHS sponsors a number of strategic initiatives
which can result in significant sales once product specifications are
determined. The NHS also underwrites a percentage of major information
technology initiatives which effectively reduce operating costs for physicians
and Primary Care Groups.
Sales cycles for the Company's healthcare products vary depending upon,
among other things, the degree of integration, consulting and training required
and the status of the customer's implementation of a hardware system. The
typical sales cycle is one to three months from the time an initial sales
presentation is made to a prospective customer to the time a purchase order is
received by the Company. License fees for GCS products range from approximately
$20,000 for single users to $150,000 for multiple user systems, depending upon
the number of applications licensed. License fees for other rejuvenated products
vary depending on the product but are generally lower than GCS license fees.
HEALTHCARE CUSTOMERS
The Company is recognized as one of the top four suppliers of
enterprise-wide applications software to physicians and physician groups in the
United Kingdom. The Company currently has approximately 2,000 healthcare
customers in the United Kingdom. The following is a list of representative
customers as of March 31, 1998:
<TABLE>
<S> <C>
Birmingham Multifund Kingston & Richmond Multifund
Southampton Multifund Potteries Healthcare
Blackburn National Health Trust Lambeth and Lewisham Multifund
Dudley Multifund BHB Hospital Trust
Durham Multifund South Wales GP Group (120 practices)
</TABLE>
HEALTHCARE COMPETITION
The Company's main competitors in the healthcare industry in the United
Kingdom include Egton Medical Information Services ("EMIS"), Reuters Group plc,
AAH Meditel, GPASS, HCSL, Exeter Systems, Medical Care Systems, Microtest Europe
Limited, PCTI Solutions Ltd. and Seetec Medical Systems. The principal
competitive factors affecting the market for the Company's products in the
healthcare industry in the United Kingdom are the ability to produce products to
market in relatively short periods of time and in compliance with the
requirements of physicians, physician groups, community hospitals and applicable
government regulations, including the specifications of the NHS, access to
reliable software support and system implementation and maintenance costs. As
with other markets, the United Kingdom healthcare market has moved toward open
systems and standardized platforms, which the Company believes could draw new
competitors into the market. This could favor competitors with overseas
operations who can achieve economies of scale. In view of the increased
complexity of NHS specification requirements, the number of enterprise-wide
applications software suppliers in the market may also be significantly reduced.
MANUFACTURING
With the globalization of markets and increased competitive pressures for
lower production costs, improved product quality and performance, shortened
product development and delivery cycles, manufacturers around the world have
become increasingly dependent on enterprise resource planning ("ERP") systems.
ERP systems permit enterprise-wide management of material and human resources
and the integration of
14
<PAGE> 15
sales, forecasting, component procurement, inventory management, manufacturing
control, project management, distribution, transportation, finance and other
functions across a manufacturing organization. These systems manage and store
large amounts of diverse business information, providing continuous and
simultaneous availability of information to geographically dispersed employees,
customers and suppliers. The shortening of product life and demand cycles
creates significant risks to manufacturers who need to make quick, accurate
decisions with respect to demand, purchases and production volumes in order to
maximize production and minimize any materials or product obsolescence. These
challenges require highly efficient processes and smooth integration of the
enterprise from supply chain to sales and marketing channels. As a result, many
manufacturers have begun to restructure their critical business processes and
their organizational structures to be able to accommodate rapid changes in the
marketplace.
In recent years, ERP systems have been developed with client/server
architectures. These systems generally offer users easier access to information,
as well as multi-site processing capabilities. In addition, as compared to
host-centric systems, client/server environments are better able to accommodate
diverse hardware, software and network technology changes that can result from
rapid organizational growth, acquisitions and consolidations. However, such
systems are inherently complex and generally require lengthy and costly
implementation efforts, extensive user training and substantial ongoing support.
Accordingly, the Company believes there is a substantial market opportunity for
ERP applications that offer quick and measurable results, reduce risks
associated with implementation and modification and lower overall cost of
ownership. These solutions should consist of an integrated suite of ERP
applications and services that offer the reliable performance, ease of
implementation and ease of management available in host-centric systems as well
as the flexibility to support multi-site, multi-supplier, multi-platform
environments found in client/server systems. The Company's ERP applications
products are designed to meet the challenges faced by manufacturers in today's
marketplace by providing users with full ERP capability and broad functionality
across a variety of sectors in the manufacturing industry.
MANUFACTURING PRODUCTS
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- ----------------------------------------------------------------------------------------------------------------
MTMS Windows MTMS Enquiry MTMS
MTMS CoPilot MTMS Insight
- ----------------------------------------------------------------------------------------------------------------
35 installed customers(1) 350 installed customers 65 installed customers
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents MTMS CoPilot customers only.
MTMS Windows, the most recent version of the Company's manufacturing
products, is a Windows-based fully-integrated enterprise-wide management and
control system which provides full ERP capabilities and broad functionality.
MTMS Windows contains 13 main application modules and over 1,200 programs and
incorporates all features of the Aremis Architecture. It is expected to be
released in the fourth quarter of 1998.
MTMS consists of an integrated enterprise-wide management and control
system which provides full ERP capabilities and broad functionality and operates
in a DOS format. MTMS was acquired in connection with the Company's 1995
acquisition of BEC Group Limited and subsequently rejuvenated. MTMS contains the
same application modules and programs as MTMS Windows.
15
<PAGE> 16
The following table describes the main application modules of MTMS Windows
and MTMS and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Manufacturing Data Management - Enables the creation and access of parts details, bills of material,
process routes and any other resources that are fundamental to the
control of the manufacturing process
- - Production Planning - Assists in the control of production via daily targets with actual
inventory and labor entries
- - Resource Planning - Allows the preparation of corporate business plans and undertaking of
thorough planning using the key resource planning module
- - Production - Facilitates ordering and controlling work in progress throughout
production
- - Inventory and Stores - Allows the user to define and control inventory requirements, record
unplanned inventory movements, track inventory in all stages of the
manufacturing process and generate product forecasts, which in turn can
be used in creating the master schedule
- - Purchasing - Allows users to fully integrate purchase orders, material requirements
planning, quality control and purchase invoice validation
- - Sales - Provides the user with optional methods of entering purchase orders to
accommodate the different requirements across the manufacturing
industry
- - Marketing - Assists the user in processing sales leads prior to quotation and
producing selective mailings to prospective customers with active
follow-up
- - Financial Management - Provides year-end and interim financial reporting for a variety of
accounts, including inventory, fixed assets and contracts
- - System Software - Provides the framework upon which the MTMS customer implementation is
built and maintained; includes modules to parameterize system
functions, set defaults and provide options for creating and
maintaining basic system data
- - Quality Control - Provides users with a set of comprehensive modules for managing quality
control of raw materials and finished products
- - Environment - Contains the control mechanism to support a range of database
facilities
</TABLE>
MTMS CoPilot is a project management package currently offered by the
Company that integrates the MTMS and MTMS Windows products within the
enterprise. MTMS CoPilot reconfigures MTMS functions to fit a customer's
business model and customizes the appearance and behavior of the system in line
with the customer's business procedures. The Company believes that MTMS CoPilot,
which allows manufacturing customers to review and improve working practices in
a strategic area on a timely basis, is the primary driver of the Company's
success with its MTMS products.
MTMS Enquiry is a Windows-based report writer suite. MTMS Enquiry is
designed to interact with the Company's MTMS products, enabling users to create
sophisticated reports and make inquiries in a single, unified Windows-based
graphical environment.
MTMS Insight is a Windows-based information management system that provides
users with high speed, graphical navigation of multidimensional information.
MTMS Insight is designed to interact with the Company's MTMS products to provide
users with multidimensional reporting and analysis capability. With MTMS
Insight, a user can create numerous graphs, charts and reports based on MTMS
data.
MANUFACTURING SALES AND MARKETING
The Company distributes its products directly in the United Kingdom, United
States, Argentina and Mexico through a direct sales force of 12 employees in
five offices and utilizes distributors in 14 additional countries. The Company
does not grant exclusive distribution rights to any of its distributors and
carefully manages its sales territories to avoid conflicts between distributors.
Products sold through distributors are generally supported by the Company
through a maintenance agreement between the Company and the distributor.
16
<PAGE> 17
Sales cycles for the Company's manufacturing products vary substantially
depending on, among other things, the size of the organization, the degree of
integration, consulting and training required, the status of the customer's
implementation of a hardware system and whether the customer has employed a
consultant to assist it in its purchasing decisions. The MTMS sales cycle is
generally three to nine months from the time an initial sales presentation is
made to a prospective customer to the time a purchase order is received by the
Company. License fees for MTMS products range from approximately $50,000 to
$500,000 depending upon the size of the customer and number of applications
licensed. The license fees for MTMS Enquiry and MTMS Insight are approximately
$1,100 per user. MTMS CoPilot is an MTMS implementation tool and is not licensed
separately. It is licensed with MTMS for an additional $15,000.
MANUFACTURING CUSTOMERS
The Company is becoming a significant supplier of ERP software to mid-sized
organizations in the United Kingdom and Europe and markets its manufacturing
products in 18 countries worldwide. Within the manufacturing industry, the
Company has a significant presence in a number of subvertical sectors including
machinery, transportation, chemicals, food and beverage, fabricated metal
products and textiles. The Company has approximately 450 manufacturing customers
in 18 countries. The following is a list of representative customers as of March
31, 1998:
<TABLE>
<S> <C>
Nabisco Biscuit Co. Watts Industries Europe BV
Telefon AB LM Ericsson Fernz Corporation Ltd.
Alcan Aluminum Limited Spartan Electronics Florida Inc.
ABB Kent plc Tomkins Group plc
Joy Mining Machinery Kvaerner Energy Ltd.
Rotork Controls, Ltd. Rheem Manufacturing Company
</TABLE>
MANUFACTURING COMPETITION
The Company's principal competitors in the manufacturing industry include
QAD Inc., FOURTH SHIFT CORPORATION, Symix Systems, Inc., DataWorks Corporation,
MDIS Group plc and a number of smaller independent companies that have developed
or are attempting to develop advanced planning and scheduling software which
complement or compete with enterprise-wide applications software or
manufacturing resource planning applications. The Company also believes that
large enterprise-wide applications software vendors such as Oracle Corporation,
SAP AG, Baan Company N.V., and PeopleSoft, Inc. are increasing their marketing
efforts to mid-sized manufacturing companies. The principal competitive factors
affecting the market for the Company's products in the manufacturing industry
are product functionality, ease of implementation, customer service, training
and price.
HOSPITALITY
The Company's hospitality customers are primarily comprised of hotels,
motels and inns which seek property management systems that allow staff access
to reservation data, guest histories and demographics, simplify check-in and
check-out procedures, automate maintenance and housekeeping schedules and
provide information regarding guest preferences. Property management systems can
also consolidate data from restaurants, bars and other points of sale, which
helps to achieve greater accuracy and fewer delays for guests. One of the most
significant aspects of property management systems is their ability to trace the
source of existing business, identify potential sources of new business and
forecast how often a given guest, or type of guest, will use the establishment
in the future. The Company believes that its customers in the hospitality
industry require systems that are capable of managing guest requirements while,
at the same time, providing access to information which assists the customer in
its sales and marketing efforts.
17
<PAGE> 18
HOSPITALITY PRODUCTS
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- -------------------------------------------------------------------------------------------------------
Aremis 4.0 PMS IGS Hotel (Version 3) IGS Hotel
IGS Hotel (Version 2.5) AccountMaster
IGS Hotel (Version 1.xx) HotelMaster
AccountMaster
- -------------------------------------------------------------------------------------------------------
To be released in late 1998 850 installed customers 350 installed customers
- -------------------------------------------------------------------------------------------------------
</TABLE>
Aremis 4.0 Property Management System ("Aremis 4.0 PMS") is an enhanced
version of IGS Hotel and is expected to be released in the fourth quarter of
1998. Aremis 4.0 PMS is a comprehensive hotel property management system that
can be dynamically configured to match the customer's business model. It offers
a wide range of functionality for both the front and back office operations in a
hotel and incorporates all features of the Aremis Architecture. Aremis 4.0 PMS
can be fully integrated with Microsoft Office. An attractive feature of Aremis
4.0 PMS is that its scalability will allow the Company to target customers that
have in excess of 500 rooms at a given site. Aremis 4.0 PMS consists of six main
application modules.
Aremis 4.0 PMS can also be used as a marketing tool for hotels, providing
its users with a comprehensive database of guest profiles and histories. From
the database, the system can be used to generate personalized letters and other
mailings to corporations and individuals in the database. The database also
enables the user to develop marketing strategies aimed at corporate guests and
other types of marketing campaigns. The information available through Aremis 4.0
PMS allows the hotel to offer a higher level of service through guest
recognition and to target preferred guests during particular periods through
directed marketing efforts.
IGS Hotel Property Management System (Version 3) ("IGS Hotel") is a
client/server based comprehensive hotel property management system that offers a
wide range of functionality for both the front and back office operations in a
hotel and operates in a DOS format. It is a rejuvenation of a product acquired
in connection with the Company's 1993 acquisition of IGS Leisure Technology
Limited. Similar to Aremis 4.0 PMS, IGS Hotel consists of six main application
modules and can be used as a marketing tool.
The following table describes the main application modules of Aremis 4.0
PMS and IGS Hotel and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Front Office - Assists hotels in managing its front office operations from the point
of reservations until check out
- - History & Marketing - Provides hotels with key profile information on guests and prospects
- - Conferencing & Banqueting - Assists hotels in organizing events and facilitates the complex
reservation process, consolidating billing statements and maintaining
detailed information on guests and events
- - Point of Sale (Restaurant & Bar) - Provides automatic and direct settlement of restaurant and bar charges
onto the appropriate account; advanced inventory module also controls all
aspects of the catering process
- - Interfaces - Allows hotels to interface with a wide range of high quality
third-party hardware and software systems such as room access control
systems, telephone systems, television systems, mini-bar systems and
in-room fax facilities
- - AccountMaster - Provides hotels with a comprehensive range of management accounting and
reporting software designed specifically for the hospitality industry
</TABLE>
AccountMaster is a rejuvenation of a product which was acquired by the
Company in connection with the 1993 acquisition of HotelMaster Limited. It
provides hotels with a basic accounting system tailored for the hospitality
industry and includes functions such as tracking profit and loss and inventory,
generating numerous reports, including a general ledger, sales ledger and audit
reports, and creating receipts.
18
<PAGE> 19
HOSPITALITY SALES AND MARKETING
The Company's hospitality products are marketed and distributed to
mid-sized organizations in the hospitality industry in the United Kingdom,
Ireland, Cyprus and India through a direct sales force of 12 employees in two
offices. Each sales team is managed by a sales director who allocates geographic
territories among sales executives. In the Channel Islands and Scotland, the
Company also utilizes distributors on a nonexclusive basis.
Sales cycles for the Company's hospitality products vary substantially
depending on, among other things, the size of the organization, the degree of
integration, consulting and training required, the status of the customer's
implementation of a hardware system, the number of individuals involved in the
purchasing decision and whether the customer has retained a consultant to assist
in the purchasing decision. The sales cycle for IGS Hotel is three to six months
from the time an initial sales presentation is made to a prospective customer to
the time a purchase order is received by the Company. License fees for the
Company's property management system products range from approximately $11,000
to $1 million, depending on the size of the customer and number of applications
licensed. The license fee for AccountMaster is approximately $1,000.
HOSPITALITY CUSTOMERS
The Company is a leading supplier of property management systems to hotels
in the United Kingdom. AremisSoft currently has approximately 1,200 hospitality
customers in the United Kingdom, Cyprus and India, including major hotel chains
with multiple sites. The Company's current customer base consists of inns and
hotels with 500 rooms or less. The following is a list of representative
customers as of March 31, 1998:
<TABLE>
<S> <C>
Forte Group Jarvis Hotels plc
Whitbread plc (Travel Inn) Jurys Hotel Group plc
Bass plc (Toby Inns) Millennium & Copthorne Hotels plc
Regal Hotel Group plc Thistle Hotels plc
Friendly Hotels plc Cliveden plc
</TABLE>
HOSPITALITY COMPETITION
In the hospitality industry, the Company's principal competitor in the
United Kingdom is Innsite Hotel Services Ltd. With respect to the other markets
in Europe in which the Company sells its products, the principal competitor is
MICROS-Fidelio International. The principal competitive factors affecting the
market for the Company's products in the hospitality industry are product
functionality, ease of implementation and use, return on the customers'
investment, customer service, training and price.
CONSTRUCTION
Historically, the construction industry in the United Kingdom has been
characterized by fragmentation, lack of investment in technology, focus on cost
rather than quality and a lack of standardization with respect to contracts,
insurance and related matters. As a result, significant changes in the United
Kingdom construction industry have begun to occur and more are expected to occur
in the future. Many of these expected changes focus on improving efficiency and
incorporating information and communication technology into the decision-making
and control processes.
Businesses in the construction industry typically seek enterprise-wide
applications software that provides purchasing control, inventory, estimating,
job costing, project management, purchase orders, invoicing, accounting, service
and maintenance, payroll, inventory control and sales and marketing functions.
As a result, the Company believes that many organizations in the construction
industry are shifting away from in-house applications toward more sophisticated,
third-party enterprise-wide applications software. In addition, the Company
believes that a substantial number of organizations in the construction industry
are seeking solutions related to Year 2000 and Euro compliance and plan to
upgrade or replace their existing information technology systems.
19
<PAGE> 20
CONSTRUCTION PRODUCTS
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NEW PRODUCTS REJUVENATED PRODUCTS LEGACY PRODUCTS
- ----------------------------------------------------------------------------------------------------------------
ViXEN Windows ViXEN Plus & ODBC ViXEN
- ----------------------------------------------------------------------------------------------------------------
To be released in late 1998 60 installed customers 300 installed customers
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
ViXEN Windows, the most recent version of the Company's ViXEN Contracting
System is a fully-integrated Windows-based management and control system
designed specifically for contracting companies across a variety of industries.
It incorporates many features of the Aremis Architecture, including ODBC
compliance and GUI. ViXEN Windows consists of 13 fully-integrated main
application modules and over 600 programs. It is expected to be released in the
fourth quarter of 1998.
ViXEN Plus & ODBC ("ViXEN Plus") is a UNIX-based management and control
system for contracting companies consisting of an integrated, modular system
which offers broad functionality. ViXEN Plus is a rejuvenation of the ViXEN
product acquired by the Company in connection with the Company's 1995
acquisition of Briter Computer Systems Limited. The product was rejuvenated to
operate in a multi-user environment and consists of the same main application
modules as ViXEN Windows.
The following table describes the main application modules of ViXEN Windows
and ViXEN Plus and their primary customer benefits:
<TABLE>
<CAPTION>
APPLICATION MODULES PRIMARY CUSTOMER BENEFITS
------------------- -------------------------
<S> <C>
- - Services and Maintenance - Controls various aspects of servicing and maintaining equipment and
facilities, allowing users to record and manage numerous customer
address and plant equipment parameters
- - Job Costing - Enables users to record and analyze costs of each job; is the hub of
the ViXEN contracting system and is fully-integrated with each other
application module
- - Purchase Orders - Allows users to produce printed orders, to calculate prices and
discounts automatically and to record the value of outstanding orders as
part of work in progress
- - Estimating - Enables users to create a quote based on the resources required for the
job and to perform sensitivity analyses based on changes in labor rates,
overhead, task factors, wastage, allowances, increased cost percentages
and desired profit margin
- - Inventory Control - Allows users to maintain control of inventory changes by providing
detailed information on inventory levels, goods ordered from suppliers
and incoming and outgoing transactions
- - Price File Database - Provides users with instant access to current prices on frequently used
products for a variety of purposes, including estimating, material
requisitions, purchase orders, inventory control and small works
invoicing
- - Client Reconciliation - Assists users in the complex tasks of recording, reconciling and
accounting for interim applications, client certificates, deferred
value-added taxes and discounts and retentions on contracts
- - Subcontractor Reconciliation - Provides the same functionality for subcontractors as Client
Reconciliation provides for contractors
- - Sales Ledger - Allows users to automatically post invoices through the Job Costing
module and to analyze sales
- - Purchase Ledger - Allows users to log invoices, validate input data, specify payment
options, make automatic payments and produce invoices and checks
- - Nominal Ledger - Provides users with extensive reporting modules in a variety of formats
based on a user-defined structure
- - Payroll - Processes the wage and salary payments of various types of employees
- - System Management - Embraces a range of necessary features, integrating other ViXEN modules
in a UNIX environment
</TABLE>
20
<PAGE> 21
CONSTRUCTION SALES AND MARKETING
The Company distributes its construction products through a direct sales
force of six employees in two offices. Similar to the Company's marketing
strategy in the healthcare and hospitality markets, the sales force is divided
into teams, each of which is managed by a sales director who allocates
geographic territories among sales executives.
Sales cycles for the Company's construction products vary substantially
depending on, among other things, the size of the organization, the degree of
integration, consulting and training required, the status of the customer's
implementation of a hardware system and whether the customer has retained a
consultant to assist in the purchasing decisions. The sales cycle for ViXEN
Windows is six to 12 months from the time an initial sales presentation is made
to a prospective customer to the time a purchase order is received by the
Company. License fees for a ViXEN contracting system range from approximately
$80,000 to $500,000 depending on the size of the customer and the number of
applications licensed.
CONSTRUCTION CUSTOMERS
The Company is a major supplier of enterprise-wide applications software to
the electrical/mechanical contracting sector of the construction industry in the
United Kingdom. Ten of the recently privatized electricity supply companies
(seven of which are now owned by United States companies) in the United Kingdom
are customers of the Company, together with most of the major electrical and
mechanical contracting companies representing a customer base of over 350
contractors. The following is a list of representative customers as of March 31,
1998:
<TABLE>
<S> <C>
London Electricity plc Midlands Electricity plc
Southern Electric plc Norweb Contracting
East Midlands Electricity South Western Electricity
Yorkshire Electricity N G Bailey & Co., Ltd
CWS Engineering Services Ltd. ROMEC
</TABLE>
CONSTRUCTION COMPETITION
In the construction market, larger competitors tend to operate across the
entire construction spectrum and offer enterprise-wide applications software to
suit every division, such as construction, contracting, security and service and
maintenance. The Company's principal competitors in the construction industry
are Misys plc, FCG Computer Systems/Red Sky Software Ltd., MicaBuild Products,
Estimation Inc., Database, and Engineering Technology. The principal competitive
factors affecting the market for the Company's products in the construction
industry are the ability to collect marketing data, effective organization of
pricing and buying information, accurate invoicing and profit control.
PRODUCT DEVELOPMENT AND QUALITY ASSURANCES
Since its formation, the Company has made substantial investments in
research and development. New generations of software products are continually
being designed and developed to provide improved performance and greater
functionality while utilizing the most recent proven technology.
The Company maintains research and development centers in both the United
Kingdom and India. The Company's operation in the United Kingdom concentrates
primarily on new product design and prototyping using the Aremis Architecture.
Coding, integration and testing are performed at the Company's software
development and support facility in India where employees are divided into teams
for each Vertical Market. The Company's teams in India also focus on
enhancements and error corrections to existing products.
Use of the software development and support facility in India provides
AremisSoft with access to highly skilled software engineers. In contrast, the
available pool of appropriately skilled software professionals in Europe and the
United States is decreasing as a result of Year 2000 and other projects
including, the conversion to the Euro. Further, the cost of recruiting and
training software developers in C++ and Java is
21
<PAGE> 22
substantially more expensive in Europe and North America. The Company believes
its facility in India provides it with a significant advantage over its
competitors in Western Europe and the United States, even with the additional
communications and management overhead associated with remote development.
All of AremisSoft's employees in India are full-time employees. The Company
does not employ contractors or fixed term temporary personnel in India. In order
to retain key personnel the Company operates a number of incentive programs,
including subsidized housing, car allowances, and generous overseas allowances
and bonuses for employees working on special projects. Currently, the Company
utilizes a three-shift system at its facility in India, thereby allowing the
Company to ensure key projects are delivered on time and to specification and
facilitating customer access to software staff. The Company's software
engineering research division also evaluates and develops new technologies and
methodologies for the future benefit of the Company's broad range of products.
Currently, these include hand held, EDI, imaging, Internet/intranet, voice
activation, touchscreen and multimedia technology.
CUSTOMER SERVICE AND SUPPORT
The Company provides the following services to its customers in an effort
to promote rapid and efficient implementation, product consultation and
technical support:
Installations and Training. Installations are planned and overseen by
specialist project managers in accordance with customer requirements and
pre-installation consultation is provided when necessary. The Company offers a
fully-integrated training program to support customer implementation of the
Company's products to help ensure successful installations.
Customer Support. The Company provides a high level of customer support
through its software development and support facility in India in addition to
the local support provided on a daily basis. Support and product information are
also provided through the Company's Web page. In addition, the Company supports
user groups in the United Kingdom and North America to enhance the support and
development of the Company's products as well as its image.
Business Review Services. AremisSoft recently introduced a business review
service to ensure that its customer organizations recognize and respond to
market trends. These reviews assess the factors influencing the performance of a
business with respect to the management of required information services. As
part of the service, the Company produces a comprehensive report containing
recommendations for change and the related costs and benefits.
PROPRIETARY RIGHTS AND LICENSING
The Company's success is dependent upon its proprietary technology and
other intellectual property. The Company has no patents or pending patent
applications. The Company relies primarily on a combination of the protections
provided by applicable copyright, trademark and trade secret laws, as well as on
confidentiality procedures and licensing arrangements, to establish and protect
its rights in its software. The Company believes that the foregoing measures
afford only limited protection. Despite the Company's efforts, it may be
possible for third parties to copy certain portions of the Company's products or
reverse engineer or obtain and use information that the Company regards as
proprietary. In addition, the laws of certain countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Accordingly, no assurances can be given that the Company will be able to
protect its proprietary software against unauthorized third-party copying or
use, which could adversely affect the Company's competitive position. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a problem. No assurances can be
given that the Company's competitors will not independently develop technology
similar to that of the Company. Moreover, litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition. See "Certain
Considerations -- Intellectual Property Rights."
22
<PAGE> 23
The Company enters into license arrangements that provide for the
nonexclusive license of the Company's software. The Company's license agreements
generally allow the use of its software solely by the customer for internal
purposes without the right to sublicense or transfer the software to third
parties. Such licenses generally are perpetual, but subject to termination for
breach or on notice, and contain confidentiality and nondisclosure provisions, a
limited warranty covering the software, and indemnification for the customer
from any infringement action related to the software.
Although the Company is not aware that any of its products infringes upon
the proprietary rights of third parties, no assurances can be given that third
parties will not claim infringement by the Company with respect to current or
future products. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company. The Company may also initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Litigation to determine the
validity of any claims could result in significant expense to the Company and
divert the efforts of the Company's technical and management personnel from
productive tasks, whether or not such litigation were determined in favor of the
Company. See "Certain Considerations -- Intellectual Property Rights."
The Company has in the past and may in the future resell certain software
that it licenses from third parties. In addition, the Company may in the future
jointly develop software in which the Company will have co-ownership or
cross-licensing rights. No assurances can be given that these third-party
software licenses will continue to be available to the Company on terms that
provide the Company with the third-party software it requires to provide
adequate functionality in its products, on terms that adequately protect the
Company's proprietary rights or on terms that are commercially favorable to the
Company. The loss of or inability to maintain to obtain any of these software
licenses, including a loss as a result of a third-party infringement claim,
could result in delays or reductions in product shipments until equivalent
software, if any, could be identified, licensed and integrated, which could have
a material adverse effect on the Company's business, operating results and
financial condition. See "Certain Considerations -- Intellectual Property
Rights."
EMPLOYEES
As of March 31, 1998, the Company had 520 full-time employees. Of these
employees, 295 are based in the Company's offices in the United Kingdom and 165
are based in the Company's software development and support facility in New
Delhi, India. The remaining 60 employees are in various facilities in other
locations. Of the Company's 295 employees in the United Kingdom, 118 are in the
healthcare division, 59 are in the manufacturing division, 84 are in the
hospitality division and 34 are in the construction division. None of the
Company's employees is represented by any collective bargaining agreements and
the Company has never experienced a work stoppage. The Company considers its
relationship with its employees to be good and has not experienced any
interruptions of operations due to labor disagreements.
23
<PAGE> 24
CERTAIN CONSIDERATIONS
This Report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such a
difference include, but are not limited to, those discussed below as well as
those discussed elsewhere in this Report.
LOSS HISTORY; VOLATILITY AND SEASONALITY OF QUARTERLY OPERATING RESULTS
The Company has incurred net losses in the past five fiscal years. For the
years ended December 31, 1997, and December 31, 1996, the Company incurred net
losses of $1,620,000 and $15,304,000, respectively, and, as of December 31,
1997, had an accumulated deficit of $19,534,000. Although the Company achieved
limited profitability during the third and fourth quarters of 1997 and the first
quarter of 1998, no assurances can be given that the Company will sustain
profitability on a quarterly basis or achieve profitability on an annual basis.
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The Company's quarterly operating results have varied, sometimes
substantially, in the past, and are expected to vary in the future. These
fluctuations may be caused by a variety of factors, many of which are outside of
the Company's control, including the relatively long sales cycles for the
Company's products, the size and timing of individual licensing transactions,
the timing, proper operation and market acceptance of new products or product
enhancements by the Company or its competitors, the potential for delay or
deferral of customer implementations of the Company's products, changes in
customer budget cycles, seasonality of technology purchases, foreign currency
exchange rates and other general industry and economic conditions. In addition,
the timing of revenue recognition can be affected by many factors, including the
timing of contract execution and delivery, customer acceptance and post-delivery
obligations of the Company related to installation and implementation. As a
result, the time between contract execution and the satisfaction of criteria for
revenue recognition can be lengthy and unpredictable and, consequently, affect
revenues and the Company's operating results in any given quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
A significant portion of the Company's accounts receivable are derived from
licensing arrangements to customers with which the Company does not have a
payment history. In addition, the Company's customers may decide not to honor
contractual obligations for license fees for various reasons including, but not
limited to, changes in their business levels or plans or implementation problems
associated with the Company's products. Although the Company provides reserves
and allowances for such circumstances, no assurances can be given that such
reserves and allowances will be adequate to cover any receivables which are
later determined to be uncollectible, particularly if such receivables are
large. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In the event one or more customers failed to honor its
contractual obligations and the Company's reserves and allowances were
inadequate, such failure could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's business has experienced and is expected to continue to
experience seasonality due in large part to the buying cycles of its customers.
In recent years, the Company has generally had stronger demand for its products
during the second half of the calendar year. This seasonality is not uncommon in
the computer software industry and typically results in revenues for the first
half of the calendar year being lower than revenues in the second half of the
immediately preceding calendar year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ASSIMILATION OF ACQUISITIONS
As part of its business strategy to increase its presence in certain
Vertical Markets and complement and expand its existing business and product
offerings, the Company expects to continue to pursue acquisitions of
24
<PAGE> 25
other businesses, products of technologies that are complementary to those of
the Company. Although the Company currently has no agreement, understanding or
arrangement with respect to any future acquisitions, the Company evaluates
potential strategic business opportunities, some of which may be material in
size and scope on an ongoing basis. No assurances can be given that any
acquisition by the Company will occur or that any acquisition will not have a
material adverse effect on the Company's business, operating results and
financial condition.
Acquisitions, including those consummated by the Company to date, involve a
number of risks and difficulties, including technology acceptance, expansion
into new geographic markets and business areas, the diversion of management's
attention, the assimilation of the operations and personnel of acquired
businesses and the integration of acquired operations and financial reporting
systems with those of the Company. No assurances can be given that the Company
will successfully integrate the operations of acquired businesses, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Further, possible future acquisitions by the Company could
result in dilutive issuances of debt or equity securities, the incurrence of
additional debt and contingent liabilities, potential reductions in income due
to losses incurred by the acquired business, additional amortization expenses
related to goodwill and other intangible assets, and post-acquisition
restructuring charges, any of which could have a material adverse effect on the
Company's business, operating results and financial condition. The Company has
in the past and may in the future incur significant indebtedness to finance
acquisitions, with associated interest costs, repayment terms and restrictive
covenants. See "Business -- Acquisition Strategy."
MANAGEMENT OF GROWTH
The Company's business has grown rapidly in the last five fiscal years,
with total net revenues increasing from $2,670,000, $6,449,000 and $21,422,000
in fiscal 1993, 1994 and 1995, respectively, to $34,432,000 and $42,374,000 in
fiscal 1996 and 1997, respectively. The growth in the Company's business and
expansion of the Company's customer base has placed a significant strain on the
Company's management, operations and financial resources. The Company's recent
expansion has resulted in substantial growth in the number of its employees, the
scope of its operating and financial reporting systems and the geographic area
of its operations, creating increased responsibility for both existing and new
management personnel. The Company's ability to support the growth of its
business will be substantially dependent upon the ability to attract and retain
highly skilled personnel. Accordingly, the Company's future operating results
will depend on the ability of its officers and other key employees to continue
to implement and improve its operational and customer support systems and to
expand, train and manage its employee base. No assurances can be given that the
Company will be able to manage its recent or any future expansion successfully,
and any inability to do so would have a material adverse effect on the Company's
business, operating results and financial condition. See " -- Dependence on Key
Personnel; Need for Additional Qualified Personnel."
To manage its operations, the Company must continuously evaluate the
adequacy of its management structure and its existing procedures including,
among others, its financial and internal controls. No assurances can be given
that the Company's management will adequately anticipate all of the changing
demands that growth may impose on the Company's procedures and structure. Any
failure to adequately anticipate and respond to such changing demands could have
a material adverse effect on the Company's business, operating results and
financial condition.
RAPID TECHNOLOGICAL CHANGE; NEW VERSIONS AND PRODUCTS; RISK OF DEFECTIVE
PRODUCTS
The market for the Company's software products is characterized by rapid
technological changes, evolving industry standards in computer hardware and
software technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company's future success will depend upon
its ability to continue to enhance its current product line and to develop and
introduce new products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve market acceptance.
The Company's customers utilize a wide variety of hardware, software, database
and networking platforms and, as a result, the Company must continue to support
and maintain its products on a variety of such platforms. In particular, the
Company must continue to anticipate and respond adequately to
25
<PAGE> 26
advances in other software and desktop computer operating systems such as
Microsoft Windows and its successors. The Company's future success will depend
upon its ability to address the increasingly sophisticated needs of its
customers by supporting existing and emerging hardware, software, database and
networking platforms and by developing and introducing enhancements to its
products and new products on a timely basis to keep pace with technological
developments, evolving industry standards and changing customer requirements. No
assurances can be given that the Company will be successful in developing and
marketing, on a timely and cost-effective basis, fully functional product
enhancements or new products that respond to technological advances by others,
or that its new or enhanced products will achieve market acceptance.
The Company has, on occasion, experienced delays in the scheduled
introduction of new versions and new products. In addition, enterprise-wide
applications software products as complex as those offered by the Company may
contain undetected errors or "bugs" when first introduced or as new versions are
released that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. No assurances can be given
that the Company's most current releases or future releases of its products will
not contain significant software errors that could impair the market acceptance
of these products and have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the announcement and
introduction of new products may depress sales of existing products. Further,
problems can be encountered by customers in installing and implementing new
releases or with the performance of the Company's products. Delays in the
introduction of new and enhanced products, or significant problems with the
implementation and installation of new releases could have a material adverse
effect on the Company's business, operating results and financial condition.
EXPOSURE TO REGULATORY AND GENERAL ECONOMIC CONDITIONS IN INDIA
A significant element of the Company's business strategy is to continue to
develop its offshore software development and support facility in New Delhi,
India. As of March 31, 1998, the Company had approximately 32% of its workforce
in India. The Indian government, as a means of encouraging foreign investment,
provides significant tax incentives and exemptions to regulatory restrictions.
Certain of these benefits that directly affect the Company include, among
others, tax holidays (temporary exemptions from taxation on operating income)
and liberalized import and export duties. The current tax holiday to which the
Company is subject expires in 2004. To be eligible for certain of these tax
benefits, the Company must continue to meet certain conditions. A failure to
meet such conditions could result in the cancellation of the benefits. With
respect to duties, subject to certain conditions, goods, raw materials and
components for production imported by the Company's offices in India are exempt
from the levy of a customs duty. No assurances can be given that such tax
benefits will be continued in the future at their current levels.
Although wage costs in India are significantly lower than in the United
States, United Kingdom and similar markets for comparably skilled software
engineering and other technical personnel, wages in India are increasing at a
faster rate than in the United States and United Kingdom. In the past, India has
experienced significant inflation and shortages of foreign exchange, and has
been subject to civil unrest and acts of terrorism. Although the inflation rate
for the periods discussed in this Report has been insignificant, increases
in inflation in the future could have a material adverse affect on the Company's
business, operating results and financial condition. In addition, changes in
interest rates, taxation or other social, political, economic or diplomatic
developments affecting India in the future could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business -- The AremisSoft Strategy."
On May 13, 1998, the United States imposed immediate economic sanctions
against India, as required under Section 102 of the Arms Export Control Act, in
response to the detonation by India of nuclear devices. Japan and certain other
nations have also announced sanctions against India. Although most of the
current sanctions imposed by the United States restrict the United States from
providing assistance to India and do not directly limit the activities of United
States businesses, the precise ramifications of the sanctions are not expected
to be known for some time. Further, although the current sanctions do not
directly affect United States businesses, additional sanctions could be imposed
which could have a material adverse effect on United
26
<PAGE> 27
States businesses with operations, sales or suppliers in India. In addition, one
of these sanctions prohibits the export to India of specific goods and
technology, which may include certain technologies and equipment such as
computers, certain software and fiber optic devices. The United States
Department of Commerce and other agencies are currently preparing guidelines to
clarify the specific technologies that are affected. Although the Company does
not believe its activities are affected by the current sanctions, no assurances
can be given that the Company's technologies will not be included in the
specific technologies that are subject to the sanctions.
COMPETITION
The market for enterprise-wide applications software is intensely
competitive, fragmented, subject to rapid changes and significantly affected by
new product introductions and other market activities of industry participants.
The Company's products are primarily designed for and marketed to mid-sized
organizations in the Vertical Markets. A number of companies offer competitive
products to organizations in the Vertical Markets. In addition, the Company
faces indirect competition from suppliers of customized enterprise-wide
applications software primarily designed for proprietary mainframe and
minicomputer-based systems with highly customized software and the internal MIS
departments of large organizations who develop their own systems. Many of the
Company's present or potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company. As a result, they may be able to respond more quickly than the Company
to new or emerging technologies and to changes in customer requirements, or they
may be able to devote greater resources to the development, promotion and sale
of their products.
The Company's products are currently marketed and sold primarily in the
United Kingdom. The Company's principal competitors in the healthcare industry
in the United Kingdom include Egton Medical Information Services ("EMIS"),
Reuters Group plc ("Reuters"), AAH Meditel, GPASS, HCSL, Exeter Systems, Medical
Care Systems, Microtest Europe Limited, PCTI Solutions Ltd. and Seetec Medical
Systems. Principal competitors in the manufacturing industry include QAD Inc.,
FOURTH SHIFT Corporation ("Fourth Shift"), Symix Systems, Inc. ("Symix"),
DataWorks Corporation ("DataWorks") and MDIS Group plc ("MDIS"). The Company's
principal competitor in the United Kingdom in the hospitality industry is
Innsite Hotel Services Ltd. and in Europe is MICROS-Fidelio International. In
the construction industry, the Company's principal competitors include FCG
Computer Systems/Red Sky Software Ltd., Misys plc, The Database Ltd.,
Engineering Technology Ltd. and Estimation Inc. The Company also believes that
large enterprise software vendors, such as Oracle Corporation ("Oracle"), SAP AG
("SAP"), Baan Company N.V. ("Baan") and PeopleSoft, Inc. ("PeopleSoft") are
increasing their marketing efforts to mid-sized organizations in the
manufacturing sector, one of the Vertical Markets in which the Company competes.
See "Business -- Vertical Markets." No assurances can be given that the Company
will be able to compete successfully against any of these competitors.
In addition, because the barriers to entry in the enterprise-wide
applications software market are relatively low, additional competitors may
emerge as the market continues to develop and expand. Because the
enterprise-wide applications software market is fragmented, the Company also
anticipates that acquisitions of competitors by large software companies or
strategic alliances will occur and that significant consolidation in the
Company's industry will occur over the next few years. Increased competition
from new entrants to the industry or through strategic acquisitions or alliances
could lead to price erosion, reduced margins or loss of market share, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. Further, the Company's growth strategy has been
and is expected to remain dependent to a significant extent on the Company's
ability to acquire complementary businesses, products or technologies in the
future. Increasing consolidation in the Company's industries will require the
Company to compete with other software companies and alliances for strategic
acquisition opportunities. No assurances can be given that the Company will be
able to successfully identify acquisition opportunities, that any acquisitions
will be successfully consummated and integrated into the Company's operations or
that the Company will be successful in competing for acquisition opportunities.
See "Business -- Acquisition Strategy" and "-- Assimilation of Acquisitions."
27
<PAGE> 28
GOVERNMENT REGULATION OF HEALTHCARE PRODUCT SPECIFICATIONS
The Company's healthcare products sold in the United Kingdom are regulated
by the National Health Service (the "NHS"), a government agency, through a
product accreditation procedure. While the Company's healthcare products
currently meet NHS specifications for information systems, the requirements are
expected to be updated pursuant to the NHS' new Information Management and
Technology Strategy, which is expected to be published in July 1998. The new
mandatory specifications are expected to be introduced to conform all
information technology systems in the United Kingdom's healthcare marketplace.
See "Business -- Vertical Markets -- Healthcare." Although the Company is
currently modifying its healthcare industry products in anticipation of the
proposed product specifications, no assurances can be given that the Company
will be able to meet all such specifications or, if met, that the related costs
will not be substantial or make the cost of the Company's healthcare products
prohibitive for potential customers. In addition, the Company expects to
experience a decrease in the number of purchases of its existing healthcare
products as businesses in the healthcare industry in the United Kingdom postpone
purchases pending release of the final new regulations and related product
specifications. Such regulations and related product specifications, as well as
future changes to NHS specifications for information systems, could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Vertical Markets -- Healthcare."
LENGTHY SALES AND IMPLEMENTATION CYCLES
The Company's products are generally used for division- or enterprise-wide
purposes and involve significant capital outlays by customers and relatively
complex installations. Potential customers generally commit significant
resources to an evaluation of available enterprise-wide applications software
and require the Company to provide a significant level of education about the
use and benefits of the Company's products. Sales of the Company's software
products require an extensive marketing effort because decisions to license such
software generally involve the evaluation of the software by a significant
number of a potential customer's personnel in various functional and geographic
areas, many of which may have specific and conflicting requirements. A variety
of factors over which the Company has little or no control may cause potential
customers to favor a particular supplier or to delay or forego a purchase. As a
result of these or other factors, the sales cycles for the Company's products
can be lengthy and vary among customers and across the Vertical Markets. See
"Business -- Vertical Markets." As a result of the length of the sales cycle for
its products, the Company's ability to forecast the timing and amount of
specific sales is limited, and the delay or failure to complete one or more
large license transactions could have a material adverse effect on the Company's
business, operating results and financial condition and cause the Company's
operating results to vary significantly from quarter to quarter. See "-- Loss
History; Volatility and Seasonality of Quarterly Operating Results" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company's products are designed to perform or directly affect
business-critical functions across many different functional and geographic
areas of a customer's organization. Consequently, implementation of the
Company's software is subject to delays over which the Company has little or no
control. Delays in the completion of implementation of any of the applications
of its products by the Company can result in delay in revenue recognition and
may result in customer dissatisfaction or damage to the Company's reputation and
could have a material adverse effect on the Company's business, operating
results and financial condition. See "-- Loss History; Volatility and
Seasonality of Quarterly Operating Results."
INTERNATIONAL OPERATIONS AND CURRENCY FLUCTUATIONS
The Company currently has operations in the United Kingdom, United States,
Argentina, Mexico, India, Ireland and Cyprus and distributors in 14 additional
countries. A significant portion of the Company's revenues are received in
currencies other than the United States dollar (the currency into which the
Company's historical financial statements have been translated), primarily
British pounds. In the past, the Company has not engaged in hedging transactions
designed to manage currency fluctuation risks but may implement programs to
mitigate foreign currency risk exposure in the future as the Company's
management deems appropriate. Foreign currency transaction gains and losses
arising from normal business operations are
28
<PAGE> 29
credited to, or charged against, earnings in the period realized. As a result,
fluctuations in the value of the currencies in which the Company conducts its
business relative to British pounds have caused and will continue to cause
foreign currency transaction gains and losses. Because of the number of
currencies involved, the constantly changing currency exposures and the
substantial volatility of currency exchange rates, no assurances can be given
that the Company will not experience currency losses in the future, nor can
there be any assurances that foreign exchange rate fluctuations will not have a
material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's international operations are subject to other risks inherent
in international business activities, such as the imposition of governmental
controls, export license requirements, restrictions on the export of certain
technology, cultural and language difficulties associated with servicing
customers, the impact of a recessionary environment in economies outside the
United States, reduced protection for intellectual property rights in some
countries, the potential exchange and repatriation of foreign earnings,
political instability, sanctions imposed as a result of violations of
international law or other governmental action, trade restrictions, tariff
changes, localization and translation of products for foreign countries,
difficulties in staffing and managing international operations, difficulties in
collecting accounts receivable and longer collection periods and the impact of
local economic conditions and practices. See "-- Exposure to Regulatory and
General Economic Conditions in India." The Company's success in expanding its
international business will be dependent, in part, on its ability to anticipate
and effectively manage these and other risks. No assurances can be given that
these and other factors will not have a material adverse effect on the Company's
business, operating results and financial condition.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE UNITED STATES SECURITIES LAWS
A majority of the Company's directors and substantially all of its
executive officers are non-residents of the United States. A substantial portion
of the assets of the Company and all or a substantial portion of the assets of
such persons are located outside the United States. As a result, it may not be
possible to effect service of process within the United States upon such persons
with respect to matters arising under the United States securities laws or to
enforce against the Company or such persons in United States courts judgments of
United States courts predicated upon civil liability under such securities laws.
Further, there is doubt as to the enforceability in the United Kingdom, in
original actions or in actions for enforcement of judgment of United States
courts, of civil liabilities predicated upon United States securities laws.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL QUALIFIED PERSONNEL
The Company's success depends, to a significant extent, upon a limited
number of members of senior management of the Company and other key employees.
Although the Company maintains and is the beneficiary under a key man life
insurance policy in the amount of $3,000,000 on the life of its Chairman of the
Board and Chief Executive Officer, Dr. Lycourgos K. Kyprianou, and maintains
such insurance for certain other key personnel in amounts ranging from $150,000
to $500,000, the loss of the services of Dr. Kyprianou or other key personnel
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company believes that its future operating results will also depend in
significant part on its ability to attract and retain highly skilled technical,
managerial, sales, marketing, service and support personnel. Competition for
such personnel within the software industry is intense. Although the Company has
increased the number of its technical, sales, services and support personnel in
recent years, the Company could experience difficulty in recruiting such
personnel in the future. The Company anticipates that it will need to continue
to increase the size of its direct sales, services and support personnel in
future periods. No assurances can be given that the Company will be successful
in attracting and recruiting qualified personnel. An inability to hire qualified
personnel on a timely basis could have a material and adverse effect on the
Company's business, operating results and financial condition. See
"-- Management of Growth."
29
<PAGE> 30
YEAR 2000 AND EURO COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. In addition, the Euro is expected to be introduced as the
currency of participating nations of the European Union in 1999. A significant
number of the Company's customers are located in participating European Union
countries. As a result, the computer systems or software used by many companies
may need to be upgraded to comply with Year 2000 and Euro requirements. Although
all of the software products currently marketed by the Company are designed to
be Year 2000 and Euro compliant, no assurances can be given that the Company's
software products contain all necessary date code or other applicable
modifications.
The purchasing patterns of customers and potential customers may be
affected by Year 2000 and Euro issues in a variety of ways. Many companies are
expending significant resources to correct or patch their current software
systems for Year 2000 and Euro compliance. Even though the Company believes that
Year 2000 and Euro compliance could create a marketing opportunity for the
Company, the expenditures that potential customers are making may result in
reduced funds available to purchase software products such as those offered by
the Company. Many potential customers may also choose to defer purchasing Year
2000 and Euro compliant products until they believe it is absolutely necessary,
thus resulting in potentially stalled market sales within the industry.
Conversely, Year 2000 and Euro compliance may cause other companies to
accelerate purchases, thereby causing an increase in short-term demand and a
consequent decrease in long-term demand for software products. Additionally,
Year 2000 and Euro compliance could cause a significant number of companies,
including current Company customers, to reevaluate their current enterprise
software needs and, as a result, consider switching to products offered by other
software vendors. Moreover, the Company believes that some customers may be
purchasing the Company's products as an interim solution for Year 2000 or Euro
compliance until their current software vendors reach compliance. No assurances
can be given that such customers will purchase support services from the Company
or that they will upgrade beyond their current version of the Company's software
once their current software suppliers reach compliance. Any of the foregoing
could have a material adverse effect on the Company's business, operating
results and financial condition.
INTELLECTUAL PROPERTY RIGHTS
The Company relies on the protection provided by applicable copyright,
trademark and trade secret laws, confidentiality procedures and licensing
arrangements to establish and protect its proprietary rights. Despite the
Company's efforts, which afford only limited protection, it may be possible for
unauthorized third parties to copy certain portions of the Company's products or
to reverse engineer or obtain and use information that the Company regards as
proprietary. Policing unauthorized use of the Company's software is difficult
and, while the Company is unable to determine the extent to which piracy of its
products exists, software piracy can be expected to be a problem. In addition,
the laws of certain countries do not protect the Company's proprietary rights to
the same extent as do the laws of the United States. Accordingly, no assurances
can be given that the Company will be able to protect its proprietary rights
against unauthorized third-party copying or use, which could adversely affect
the Company's competitive position. Further, litigation may be necessary in the
future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company expects that enterprise-wide applications software products
will increasingly be subject to claims of infringement relating to software
codes as the number of products and competitors in the Company's industry
segment grows and the functionality of products overlaps. No assurances can be
given that legal actions claiming copyright or other intellectual property
infringement will not be commenced against the Company, or that the Company
would necessarily prevail in such litigation given the complex technical issues
and inherent uncertainties in intellectual property litigation. Any such claim,
with or without merit, could be time-consuming, result in costly litigation and
require the Company to enter into royalty and licensing
30
<PAGE> 31
agreements. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to the Company or at all. A successful claim
against the Company and the failure of the Company to develop or license a
substitute technology could have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Proprietary Rights and Licensing."
FIXED-PRICE SERVICE CONTRACTS
The Company offers a combination of enterprise-wide applications software,
implementation and support services to its customers. Certain customers have
asked for, and the Company has from time to time entered into, fixed-price
service contracts. These contracts specify certain milestones to be met by the
Company regardless of actual costs incurred by the Company in fulfilling those
obligations. The Company may enter into more fixed-price contracts in the
future. No assurances can be given that the Company will be able to successfully
complete these contracts within budget and the Company's inability to do so
could have a material adverse effect on its business, operating results and
financial condition.
CONTROL BY EXISTING STOCKHOLDERS
As of June 24, 1998, Dr. Kyprianou and other members of management
beneficially own approximately 58.3% of the outstanding Common Stock and have
the power to control all matters submitted for a stockholder vote, including the
election of directors and the approval of significant corporate transactions,
such as mergers, consolidations, sales of all or substantially all of the assets
of the Company and other change in control transactions. Management's
significant equity interest in the Company also may have the effect of making
certain transactions more difficult without their support and may have the
effect of delaying, deferring or preventing a change in control of the Company.
See "Principal and Selling Stockholders" and "Description of Capital Stock."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There has been no public market for the Common Stock. No assurances can be
given that an active public market for the Common Stock will develop or be
sustained in the future. The market price of the Common Stock is likely to be
highly volatile and may be subject to significant fluctuations in response to
actual or anticipated variations in quarterly operating results and other
31
<PAGE> 32
factors, such as announcements of technological innovations, new products or
new contracts by the Company or its competitors, conditions and trends in the
software and other technology industries, adoption of new accounting standards
affecting the software industry, changes in earning estimates or recommendations
by securities analysts, general market conditions or other events. In addition,
equity markets have experienced extreme volatility that has particularly
affected the market prices of equity securities of many high technology
companies and that has been unrelated or disproportionate to the operating
performance of such companies. Broad market fluctuations, as well as economic
conditions generally and in the software industry specifically, may result in
material adverse effects on the market price of the Common Stock. No assurances
can be given that the market price of the Common Stock will not decline in the
future. In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. No assurances can be given that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition.
32
<PAGE> 33
ITEM 2. PROPERTIES
The Company leases various facilities in the United Kingdom, United States,
Ireland, India, Mexico, Argentina and Cyprus which house the Company's
administration, sales, marketing, support and research and development
functions. The Company does not currently own any of its facilities.
The following table sets forth certain information concerning the Company's
principal facilities as of March 31, 1998:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION FUNCTION LEASE EXPIRATION SQUARE FOOTAGE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
London, United Kingdom Principal Executive Offices 2002 1,725
New Delhi, India Research and Development, 1999 7,620
Customer Support
Hitchin, United Kingdom Healthcare Division 2000 7,125
Blackburn, United Kingdom Manufacturing Division 2010 12,000
Westmont, New Jersey Manufacturing Division 1999 4,200
Woking, United Kingdom Hospitality Division 2012 7,430
Alton, United Kingdom Construction Division 2005 4,500
Nicosia, Cyprus Sales and Marketing 2004 4,000
- --------------------------------------------------------------------------------------------
</TABLE>
As a result of the Company's acquisitions from 1993 through 1996, the
Company has also been assigned relatively small leaseholdings elsewhere in the
United Kingdom and in the United States, Ireland, India, Mexico, Argentina and
Cyprus which expire on various dates between December 1998 and 2013. The Company
does not currently own any of these facilities and does not intend to renew
these leases beyond the current expiration dates. The Company believes that its
current facilities will be sufficient to meet its needs for its next 12
months. See Note 7 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its leases.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material litigation or claims pending, threatened,
or contemplated to which the Company is or may become a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
When the Company acquired LK Global Information Systems BV, a Netherlands
corporation, in a reverse stock acquisition, the new business of the Company
became the development and sale of software and information systems on a global
basis.
To better reflect the Company's new business, it proposed changing its name
to AremisSoft Corporation. Proxies presenting this proposal were submitted to
the shareholders of the Company. On November 7, 1997, at a duly held and noticed
meeting, a vote was held and 9,968,535 votes were cast by the Common Stock
holders, of a possible 12,956,690 votes, in favor of changing the Company's name
to AremisSoft Corporation. There were no votes cast against the proposal, no
abstentions, no broker non-votes and no votes by the Preferred Stock holders.
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's Common
Stock.
33
<PAGE> 34
As of June 24, 1998, the Company had approximately 87 shareholders of
record. This number does not include shareholders who hold the Company's
securities in street name.
The Company has not declared or paid any cash dividends since its inception.
The Company currently intends to retain future earnings for use in the operation
and expansion of the business. The Company does not intend to pay any cash
dividends in the foreseeable future. The declaration of dividends in the future
will be at the discretion of the Board of Directors and will depend upon the
earnings, capital requirements, and financial position of the Company.
Recent Sales in Unregistered Securities.
In October 1997, the Company effected a "Plan and Agreement of
Reorganization" with LK Global Information Systems, BV, a Netherlands
corporation ("LK Global"). Pursuant to the terms of the reorganization
agreement, the Company acquired 100% of the issued and outstanding stock of LK
Global in exchange for 12,845,000 shares of the Company's Common Stock and
1,750,000 Shares of its Series A Preferred Stock, each convertible into one
share of Common Stock. These securities were offered and sold to only non-US
Persons, pursuant to an exemption from registration under Regulation S. On June
16, 1998, all of the holders of the Company's Series A preferred stock converted
their shares into common stock and waived all rights to unpaid dividends.
Commencing in February 1998, the Company engaged in a private placement of
its Common Stock. The Common Stock was offered only to "accredited investors" in
reliance on the exemption from registration statement provided by Regulation D.
In this offering, the Company sold 1,580,530 shares of its Common Stock at $6.00
per share, for an aggregate placement of $9,483,180, less expenses.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1997 and 1996 and for the three years ended December 31, 1997, have been derived
from the Company's Consolidated Financial Statements, which have been audited by
independent auditors whose reports are included elsewhere in this Report. The
selected consolidated financial data set forth below as of December 31, 1995,
1994 and 1993 and for the two years ended December 31, 1994 have been derived
from the Company's historical financial statements. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Report.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $ 812 $ 2,039 $ 6,641 $ 12,052 $ 17,024
Maintenance and services 1,193 2,822 9,426 15,839 18,990
Hardware and other 665 1,588 5,355 6,541 6,360
-------- -------- -------- -------- --------
Total revenues 2,670 6,449 21,422 34,432 42,374
-------- -------- -------- -------- --------
Cost of revenues:
Software licenses 129 281 875 1,555 2,079
Maintenance and services 380 842 2,735 5,393 5,377
Hardware and other 585 1,323 4,829 5,760 5,147
Amortization of purchased software
and capitalized software
development costs 325 331 2,374 2,327 70
-------- -------- -------- -------- --------
Total cost of revenues 1,419 2,777 10,813 15,035 12,673
-------- -------- -------- -------- --------
Gross profit 1,251 3,672 10,609 19,397 29,701
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing 766 2,133 10,811 15,182 17,834
Research and development 251 521 6,428 6,409 6,233
General and administrative 436 1,282 3,442 5,605 5,227
</TABLE>
34
<PAGE> 35
<TABLE>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1993 1994 1995 1996 1997
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Amortization of intangible assets 607 2,550 3,176 5,649 97
-------- -------- -------- -------- --------
Total operating expenses 2,060 6,486 23,857 32,845 29,391
-------- -------- -------- -------- --------
Profit (loss) from operations (809) (2,814) (13,248) (13,448) 310
-------- -------- -------- -------- --------
Interest expense, net 6 207 1,284 1,906 1,895
-------- -------- -------- -------- --------
Income (loss) before income taxes (815) (3,021) (14,532) (15,354) (1,585)
Income tax expense (benefit) 6 (54) 37 (50) 35
-------- -------- -------- -------- --------
Net income (loss) $ (821) $ (2,967) $(14,569) $(15,304) $ (1,620)
======== ======== ======== ======== ========
Basic earnings (loss) per share $ (0.06) $ (0.23) $ (1.13) $ (1.19) $ (0.13)
Diluted earnings (loss) per share $ (0.06) $ (0.23) $ (1.13) $ (1.19) $ (0.13)
Weighted average number of shares
used in computing:
Basic earnings (loss) per share 12,845 12,845 12,845 12,845 12,870
Diluted earnings (loss) per share 12,845 12,845 12,845 12,845 12,870
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
------- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 1 $ 120 $ 255 $ 867 $ 239
Working capital (deficit) 522 863 (8,244) (15,438) (12,971)
Total assets 2,668 10,012 22,729 18,449 17,242
Long-term debt 358 679 12,453 13,388 10,096
Total stockholders' equity (deficit) 196 2,219 (12,365) (25,103) (19,534)
</TABLE>
35
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with information
contained in "Selected Consolidated Financial Data" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Report.
All statements other than statements of historical fact included in the
following discussion regarding the Company's financial position, business
strategy and plans of management for future operations are forward-looking
statements. The Company's actual results could differ materially from those
anticipated in these forward looking statements as a result of certain factors,
including those set forth under "Certain Considerations" and elsewhere in this
Report.
GENERAL
AremisSoft develops, markets, implements and supports enterprise-wide
applications software targeted to mid-sized organizations in the Vertical
Markets. Its software products provide an array of functions that address the
mission-critical information requirements of customers in the Vertical Markets.
The Company was founded in Cyprus in 1978 as LK Global Information Systems
(Cyprus) Limited and originally focused on developing customized enterprise-wide
applications software for international organizations located in the Middle/Near
East. In 1986, the Company established its New Delhi, India software development
and support facility to access the skilled Indian labor force and capture cost
efficiencies. The Company established operations in the United Kingdom in 1992.
From 1993 to 1996, the Company successfully completed eleven acquisitions and
established operations in the United States, Mexico, Argentina and Ireland. As
of March 31, 1998, the Company had 520 full time employees and operations in
seven countries.
The Company derives its revenues primarily from software licenses,
maintenance and service contracts and hardware sales. Software license revenues
are mainly derived from the licensing and service of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are primarily derived from the ongoing support of
installed software and training, consulting and implementation services.
Occasionally, the Company may discount its fees on relatively large service
contracts to remain competitive. Hardware sales revenues are primarily derived
from the sale of third-party hardware to customers requiring turnkey solutions.
For the year ended December 31, 1997, 44%, 22%, 22% and 8% of the Company's
revenues were derived from customers in the healthcare, manufacturing,
hospitality and construction markets, respectively. The remaining 4% of the
Company's revenues for the year ended December 31, 1997, was derived from sales
to approximately 1,000 relatively small customers in various industries
primarily based in Cyprus and India. For the year ended December 31, 1997, 75%
of the Company's revenues were derived from customers located in the United
Kingdom and 15% from customers located in Europe. The remaining 10% of revenues
for the year ended December 31, 1997, were derived from customers located in
North and South America, Cyprus and other regions.
The sales cycles for the Company's products can vary widely among customers
and across the Vertical Markets. Historically, the Company's sales cycles have
ranged from three to 12 months. Similar to other enterprise-wide applications
software companies, the Company has experienced and expects to continue to
experience seasonal fluctuations in its operating results. See "Certain
Considerations -- Loss History; Volatility and Seasonality of Quarterly
Operating Results." The Company has generally realized lower revenues in its
first and second fiscal quarters and higher revenues in its third and fourth
fiscal quarters. This is due, in part, to the March 31 fiscal year-end of many
of the Company's customers. During the Company's first fiscal quarter, many
customers have already expended their information technology budgets. As a
result, the Company's third and fourth fiscal quarters generally reflect greater
revenue recognition because of a higher concentration of software system
installations.
The Company recognizes software license and hardware revenues at the time
of the installation, provided no significant obligations remain and collection
of the resulting receivable is deemed probable. Maintenance contract revenues
are recognized ratably over the life of the contract, service contract revenues
are recognized
36
<PAGE> 37
in accordance with the terms of the contract and add-on hadware sales revenues
are recognized when the hardware is shipped to the customer.
The cost of software license revenues consist primarily of personnel costs
as well as the costs of third-party software, media and freight. The cost of
maintenance and service contract revenues consist primarily of salary, travel
and other personnel costs. In addition, cost of service revenues may include the
cost of outsourcing services when relatively large service contracts require
resources in excess of the Company's resources. In general, the Company's costs
are higher when services are outsourced. The cost of hardware revenues consist
primarily of the cost of hardware purchased from third parties.
Sales and marketing expenses consist primarily of sales personnel costs,
advertising and other public relations expenses. Research and development
expenses consist primarily of personnel costs, facility overhead and other
expenses associated with the development of new and enhanced products and
technologies. General and administrative expenses include salaries and benefits
for administrative, executive, finance, legal, human resources, data center,
distribution and internal systems personnel and associated overhead costs, as
well as bad debt, accounting and legal expenses. General and administrative
expenses also include depreciation, which represents the write down of the cost
of tangible fixed assets over their expected useful lives. Amortization of
intangible assets consists of the amortization of customer lists and management
contracts of acquired businesses.
The Company continues to make substantial investments and operational cost
improvements in its sales and marketing, research and development and
administrative infrastructure. From the year ended December 31, 1995 through the
three month period ended March 31, 1998, the Company increased its sales and
marketing staff from 85 employees to 270 employees. During this same period, the
Company reduced its total research and development and administrative staff from
331 employees to 250 employees. The major impetus behind this transition is the
continuous shift of the research and development and, to a lesser degree,
administrative functions from the United Kingdom to India, where the relative
cost of operations is lower. During this period, the Company's research and
development and administrative personnel in India increased from 115 to 165,
while research and development and administrative personnel in the United
Kingdom and other countries decreased from 216 to 85.
A significant portion of the Company's business is conducted in currencies
other than United States dollars (the currency into which the Company's
historical financial statements have been translated). Historically, the Company
has recorded a majority of its operating expenses in British pounds, and a
substantial portion of its research and development costs in Indian rupees.
Because of the number of currencies involved, the constant currency exposures
and the substantial volatility of exchange rates, no assurances can be given
that the Company will not experience currency losses in the future. The Company
cannot predict the effect of exchange rate fluctuations on the Company's future
operating results. The Company has not previously undertaken hedging
transactions to cover its currency exposure, but may implement programs to
mitigate foreign currency risk exposure in the future as management deems
appropriate. See "Certain Considerations -- International Operations and
Currency Fluctuations."
37
<PAGE> 38
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of revenues represented by each item in the Company's Consolidated Statements of
Operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses........................... 30% 32% 31% 35% 40%
Maintenance and services.................... 45 44 44 46 45
Hardware and other.......................... 25 24 25 19 15
--- --- --- --- ---
Total revenues......................... 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software licenses........................... 5 4 4 5 5
Maintenance and services.................... 14 13 13 16 13
Hardware and other.......................... 22 21 22 16 12
Amortization of purchased software and
capitalized software development costs.... 12 5 11 7 --
--- --- --- --- ---
Total cost of revenues................. 53 43 50 44 30
--- --- --- --- ---
Gross profit................................ 47 57 50 56 70
--- --- --- --- ---
Operating expenses:
Sales and marketing......................... 29 33 51 44 42
Research and development.................... 9 8 30 19 15
General and administrative.................. 16 20 16 16 12
Amortization of intangible assets........... 23 40 15 16 --
--- --- --- --- ---
Total operating expenses............... 77 101 112 95 69
--- --- --- --- ---
Profit (loss) from operations................... (30) (44) (62) (39) 1
Interest expense, net........................... 1 3 6 6 5
--- --- --- --- ---
Income (loss) before income taxes............... (31) (47) (68) (45) (4)
Income tax expense (benefit).................... -- 1 -- --
--- --- --- --- ---
Net income (loss)............................... (31)% (46)% (68)% (45)% (4)%
=== === === === ===
</TABLE>
38
<PAGE> 39
FISCAL YEAR ENDED DECEMBER 31, 1997, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Revenues
Total revenues increased 23% to $42.4 million for 1997 from $34.4 million
for 1996, primarily due to increased software license revenues and associated
maintenance contract revenues for 1997. This increase was partially offset by a
decrease in hardware and other and service contract revenues.
Software license revenues increased 40% to $16.9 million for 1997 from
$12.1 million for 1996, primarily due to an increase in the number of software
licenses sold. This increase in software licenses sold consisted principally of
upgrades to existing customers and an increase in the average price of
individual software licenses. As a percentage of total revenues, software
license revenues increased to 40% for 1997 from 35% for 1996, reflecting the
increase in the number of software licenses sold and a decline in service
contract and hardware and other revenues.
Maintenance and service contract revenues increased 20% to $19.0 million
for 1997 from $15.8 million for 1996. As a percentage of total revenues,
maintenance and service contract revenues declined to 45% for 1997 from 46% for
1996 primarily as a result of the completion of certain large contracts.
Hardware and other revenues declined 2% to $6.4 million for 1997 from $6.5
million for 1996. As a percentage of total revenues, hardware and other revenues
declined to 15% for 1997 from 19% for 1996 primarily as a result of the
Company's efforts to reduce the sale of lower margin third-party hardware.
Cost of Revenues
Cost of revenues declined 15% to $12.7 million for 1997 from $15.0 million
for 1996. As a percentage of total revenues, cost of revenues declined to 30%
for 1997 from 44% for 1996. This decline was primarily due to (i) the reduction
of amortization charges relating to purchased and capitalized software, which
totaled $70,000 for 1997 compared with $2.3 million for 1996, (ii) reduced costs
for services as a result of the decreased use of outside consultants, which
totaled $1.3 million for 1997 and $2.4 million for 1996, and (iii) lower
hardware costs as a result of the Company's efforts to reduce its sales of lower
margin third-party hardware. The cost of hardware and other revenues totaled
$5.1 million, or 12% of total revenues, for 1997 and $5.8 million, or 16% of
total revenues, for 1996.
Sales and Marketing
Sales and marketing expenses increased 17% to $17.8 million for 1997 from
$15.2 million for 1996, primarily due to an increase in marketing activity as
well as costs associated with the Company's expansion in the United States,
Mexico and Argentina. As a percentage of total revenues, sales and marketing
expenses declined to 42% for 1997 from 44% for 1996 primarily as a result of the
realization of operating efficiencies in the United Kingdom in connection with
the integration of acquired businesses.
Research and Development
Research and development expenses declined 3% to $6.2 million for 1997 from
$6.4 million for 1996. As a percentage of total revenues, research and
development expenses declined to 15% for 1997 from 19% for 1996, primarily due
to the cost savings resulting from the shifting of research and development
functions from the United Kingdom to India. In addition, a significant portion
of the planned expenditures relating to the Company's new generation of software
products were incurred in prior accounting periods.
39
<PAGE> 40
General and Administrative
General and administrative expenses declined 7% to $5.2 million for 1997
from $5.6 million for 1996. As a percentage of total revenues, general and
administrative expenses declined to 12% for 1997 from 16% for 1996. This decline
reflects the effect of the Company's cost-cutting and cost control measures in
1997, including the closure of the Company's office at Dukes Court, Central
Woking, England, during the fourth quarter of 1997.
Amortization of Intangible Assets
Amortization of intangible assets declined 98% to $97,000 for 1997 from
$5.6 million for 1996, primarily due to the accelerated expiration of
amortization periods as a result of the termination of certain management
employment agreements in 1996.
Net Interest Expense
The net interest expense was $1.9 million for each of 1997 and 1996.
Income Taxes
The Company recorded a provision for income taxes of $35,000 for 1997
compared to a benefit of $50,000 for 1996.
FISCAL YEAR ENDED DECEMBER 31, 1996, COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Revenues
Total revenues increased 61% to $34.4 million for 1996 from $21.4 million
for 1995, primarily due to increased software license revenues and associated
maintenance and service contract revenues as well as the inclusion of revenues
from businesses acquired in 1995.
Software license revenues increased 83% to $12.1 million for 1996 from $6.6
million for 1995, primarily due to an increase in the number of software
licenses sold, upgrades to existing customers and an increase in the average
price of individual software licenses. As a percentage of total revenues,
software license revenues increased to 35% for 1996 from 31% for 1995,
reflecting that the increases in the Company's software license revenues
exceeded the increases in maintenance and service contract and hardware and
other revenues.
Maintenance and service contract revenues increased 68% to $15.8 million
for 1996 from $9.4 million for 1995. As a percentage of total revenues,
maintenance and service contract revenues increased to 46% for 1996 from 44% for
1995. This increase was primarily attributable to an increase in the number of
installed customers as a result of an increase in software licenses sold and the
integration of businesses acquired in 1995.
Hardware and other revenues increased 20% to $6.5 million for 1996 from
$5.4 million for 1995, primarily as a result of the Company's growth in system
sales in which the Company's software products are sold with hardware pursuant
to turnkey contracts. As a percentage of total revenues, hardware and other
revenues decreased to 19% for 1996 from 25% for 1995, reflecting the Company's
efforts to reduce sales of lower margin third-party hardware.
Cost of Revenues
Cost of revenues increased 39% to $15.0 million for 1996 from $10.8 million
for 1995, primarily due to an increase in the number of installed customers. As
a percentage of total revenues, cost of revenues declined to 44% for 1996 from
50% for 1995, primarily as a result of (i) a reduction of hardware and other
costs, as a percentage of total revenues, to 16% for 1996 from 22% for 1995, and
(ii) a reduction of amortization charges relating to purchased and capitalized
software, as a percentage of total revenues, to 7% for 1996 from 11% for
40
<PAGE> 41
1995. This decline was partially offset by higher cost of revenues for service
contracts as a result of the increased use of outside consultants in 1996.
Sales and Marketing
Sales and marketing expenses increased 41% to $15.2 million for 1996 from
$10.8 million for 1995, primarily due to an increase in marketing activity as
well as costs associated with the Company's expansion in the United States,
Mexico and Argentina. As a percentage of total revenues, sales and marketing
expenses declined to 44% for 1996 from 51% for 1995, primarily due to the
realization of operating efficiencies in the United Kingdom in connection with
the integration of acquired businesses.
Research and Development
Research and development expenses totaled $6.4 million for each of 1996 and
1995. As a percentage of total revenues, research and development expenses
declined to 19% for 1996 from 30% for 1995, primarily due to the increase in
total revenues and relatively constant research and development expenses.
General and Administrative
General and administrative expenses increased 65% to $5.6 million for 1996
from $3.4 million for 1995, primarily due to an increase in the number of
installed customers. As a percentage of total revenues, general and
administrative expenses were 16% for each of 1996 and 1995.
Amortization of Intangible Assets
Amortization of intangible assets increased 75% to $5.6 million for 1996
from $3.2 million for 1995, primarily due to the accelerated expiration of
amortization periods as a result of the termination of certain management
employment agreements in 1996.
Net Interest Expense
Net interest expense increased 46% to $1.9 million for 1996 from $1.3
million for 1995, primarily due to greater amount of indebtedness outstanding in
1996.
Income Taxes
The Company recorded a benefit for income taxes of $50,000 in 1996 compared
to a provision for income taxes of $37,000 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations since inception primarily through
cash generated from operations, borrowings under bank credit facilities, private
placements of equity securities and equity contributions by its principal
stockholder. As of March 31, 1998, the Company had $5.3 million of cash and cash
equivalents and a $4.4 million short-term demand facility. The Company had a
working capital deficit of $3.3 million as of March 31, 1998.
The Company had an operating cash flow deficit of $3.6 million for the
three months ended March 31, 1998. This deficit was primarily due to reductions
in prepaid expenses, accounts payable and accrued income taxes. The Company had
operating cash flow deficits of $4.0 million, $1.3 million and $6.1 million for
1997, 1996 and 1995, respectively. Operating cash flow is affected by
seasonality, among other factors, and is often disproportionately higher in the
Company's third and fourth fiscal quarters than in the first two quarters of its
fiscal year.
Accounts receivable declined to $9.6 million as of March 31, 1998, from
$11.2 million as of March 31, 1997. Accounts receivable declined to $9.5 million
as of December 31, 1997, from $11.0 million as of December 31, 1996. These
declines were primarily due to management's efforts to collect outstanding
41
<PAGE> 42
accounts receivable. Accounts receivable days sales outstanding was 86 days as
of March 31, 1998, compared to 142 days as of March 31, 1997, and 80 days as of
December 31, 1997, compared to 115 days as of December 31, 1996. During 1997,
the Company funded $2.6 million of prepaid expenses and $5.7 million of deferred
maintenance revenues from cash flows from operating activities.
The Company utilized cash for investing activities of $287,000 for the
three months ended March 31, 1998, and $1.0 million, $4.1 million and $8.4
million for 1997, 1996 and 1995, respectively. During these periods, the Company
experienced significant growth and invested in property and equipment. In 1996
and 1995, the Company expended $3.3 million and $7.5 million, respectively (net
of cash acquired), to purchase complementary businesses.
Cash provided by financing activities was $8.8 million for the three months
ended March 31, 1998, and $4.5 million, $6.5 million and $14.8 million for 1997,
1996 and 1995, respectively. Financing activities for the three months ended
March 31, 1998, primarily consisted of a private placement of $9.3 million of
equity securities. Financing activities for 1997 primarily consisted of a
private placement of $6.4 million of equity securities and repayment of bank
indebtedness of $2.0 million. In 1996, financing activities primarily consisted
of a stockholder contribution of $5.3 million, long-term borrowings under the
Company's bank credit facilities of $1.9 million, an increase in the short-term
demand facility of $1.3 million and repayment of bank indebtedness of $1.7
million. Financing activities in 1995, primarily consisted of long-term
borrowings of $13.5 million under the Company's bank credit facilities and an
increase in the short-term demand facility of $1.8 million.
As of March 31, 1998, the Company had outstanding indebtedness under its
bank credit facilities of $16.9 million, which included approximately $2.3
million with maturities of one year or less at interest rates ranging from
Sterling LIBOR plus 3% to Sterling LIBOR plus 4% and a $4.4 million short-term
demand facility that bears interest at the lending bank's base rate plus the
applicable margin.
The Company believes that the net proceeds from the Offering, together with
existing cash and cash equivalents, will be sufficient to meet the Company's
working capital and currently planned expenditure requirements for the next
twelve months. The Company may, from time to time, consider acquisitions of
complementary businesses, products or technologies, which may require additional
financing. In addition, continued growth in the Company's business may, from
time to time, require additional capital. No assurances can be given that
additional capital will be available to the Company at such time or times as
such capital may be required or, if available, that it will be on commercially
acceptable terms or would not result in additional dilution to the Company's
stockholders.
IMPACT OF THE YEAR 2000 AND EURO COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
or its suppliers' and customers' computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. In addition, in 1999 the Euro is expected to be introduced as the
currency of participating nations of the European Union.
The Company's internal information system is a client/server environment
and the Company believes that its internal software is currently both Year 2000
and Euro compliant. The Company has not yet identified any Year 2000 or Euro
compliance problems but will continue to monitor its information systems for
compliance problems. However, no assurances can be given that Year 2000 or Euro
compliance problems will not eventually occur with respect to the Company's
information systems.
Neither the Company nor its subsidiaries has initiated formal
communications with suppliers to determine the extent to which those third
parties' failure to remedy their own Year 2000 or Euro compliance problems would
materially effect the Company and its subsidiaries. The Company has not received
any indication from its suppliers that Year 2000 or Euro compliance may
materially effect their ability to conduct business and the Company has no
current plans to formally undertake such an assessment.
42
<PAGE> 43
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company, including the notes thereto and the
reports of the independent auditors thereon, are attached hereto as exhibits
following page number 49.
ITEM 9. CHANGE IN ACCOUNTANTS
Effective May 15, 1998, Ernst & Young, chartered accountants, was
engaged as the Company's independent auditors to audit the consolidated
financial statements for the year ended December 31, 1997. Accordingly, the
engagement of Pannell Kerr Forster, chartered accountants, was discontinued. The
decision to change independent auditors was approved by the Company's Board of
Directors.
In the period from January 1, 1995 through December 31, 1997, Pannell
Kerr Forster issued no audit report which was qualified or modified as to
uncertainty, audit scope or accounting principles, or which contained adverse
opinions or disclaimers of opinion on any of the Company's financial statements
and there were no disagreements with Pannell Kerr Forster on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
Prior to May 15, 1998 the Company had not consulted with Ernst & Young
on items which involved the Company's accounting principles, the application of
accounting principles to a specified transaction, or the form of audit opinion
to be rendered on the Company's financial statements.
43
<PAGE> 44
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company consists of five directors, all of
whom are elected for one-year terms at each annual meeting of stockholders.
Holders of shares of Common Stock have no right to cumulative voting in the
election of directors. Consequently at each annual meeting, a majority of the
stockholders will be able to elect all of the directors. The Company's executive
officers are elected annually by the Board of Directors, however, they may be
removed at any time by the Board of Directors.
The following table sets forth certain information with respect to the
current directors, executive officers and key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dr. Lycourgos K. Kyprianou 43 Chairman of the Board and Chief
Executive Officer
Roys Poyiadjis 32 President, Secretary and Vice Chairman
of the Board
Nigel A. Spence 42 Chief Financial Officer and Director
Noel R. Voice 56 Chief Operating Officer, General Manager
of Healthcare Systems and Assistant
Secretary
M.C. Mathews 33 General Manager of Group Software
Development
Barry J. Crowe 54 General Manager of Manufacturing Systems
Michael Gadbury 49 General Manager of Hospitality Systems
Brian Rogers 58 General Manager of Construction Systems
</TABLE>
Dr. Lycourgos K. Kyprianou has served as the Chairman of the Board and Chief
Executive Officer since May 1998. From 1997 to 1998, Dr. Kyprianou also served
as the Company's President, Secretary and Chief Financial Officer and served as
Chairman of the Board and Managing Director of LK Global from 1979 to 1998. Dr.
Kyprianou is the sole founder of the Company's worldwide business, including the
software development and support facility in India. Dr. Kyprianou obtained a
Doctorate in Philosophy (Computer Science) from Cambridge University in 1979 and
a Bachelor of Science with first class honors in Computer Science from the
University of London in 1977.
Roys Poyiadjis has served as the Company's President, Secretary and Vice
Chairman of the Board since the May 1998. From 1997 to 1998, Mr. Poyiadjis
served as a partner of Alpha Capital Limited, an investment banking firm, where
he advised the Company in connection with two private placements of equity
securities. From 1995 to 1996, he served as a director of Lehman Brothers
International (United Kingdom) Ltd. and from 1993 to 1995 he served as an
associate with Morgan Stanley & Co. International Limited. Mr. Poyiadjis
received a Masters in Business Administration from the London Business School in
1993 and a Bachelor of Science (Honors) in Communications Engineering from the
University of Kent in 1989.
Nigel A. Spence has served as the Company's Chief Financial Officer and a
Director since June 1998. From 1997 to 1998, he served as a financial consultant
to the Company. From 1995 to 1997, Mr. Spence was self-employed as a corporate
finance analyst. From 1994 to 1995, he served as Chief Investment Officer of The
Ondaatje Corporation, an investment banking firm, and from 1992 to 1994 he
served as a Director of Lehman Brothers International (UK) Ltd.
Noel R. Voice has served as the Company's Chief Operating Officer, General
Manager of Healthcare Systems and Assistant Secretary since June 1998. From 1997
to 1998, he also served as a director of AremisSoft. From 1992 to 1997, he
served as the Senior Vice President of Administration of LK Global. From 1987 to
1989, he was Managing Director of Cara Consulting Ltd., a United Kingdom hotel
systems company. From 1987 to 1992 he was founder and Managing Director of Noble
Marketing Ltd., a sales and marketing consulting firm. Prior to that, he served
in various senior sales and marketing positions with Motorola Information
Systems (United Kingdom) (1983-1985), Philips NV (1980-1983) and IBM (United
Kingdom) Ltd (1970-1980).
M.C. Mathews has served as the Company's General Manager of Group Software
Development since 1997. From 1995 to 1997, he served as the Managing Director of
Software Engineering of LK Global Software Engineering (India) Private Limited
("LK Global
44
<PAGE> 45
(India)") and from 1992 to 1995, he served as its Group Project Manager. Prior
to joining LK Global (India) in 1990, Mr. Mathews was employed as a programmer
with Alphabetics Ltd., an IBM distributor in India. Mr. Mathews has a
Bachelor of Science (Honors) and Master of Science in Physics from Kerala and
Delhi Universities, respectively.
Barry J. Crowe has served as the Company's General Manager of Manufacturing
Systems since 1997. From 1995 to 1997, Mr. Crowe served as Project Manager,
Account Manager and Director of LK Global Manufacturing Systems (UK) Limited.
From 1992 to 1995, he was a Managing Director of BEC Group Limited, a
manufacturing computer systems company, that was acquired by LK Global in 1995.
From 1988 to 1991, he served as a consultant for the BM Group plc, a
construction company. Prior to that, he was General Manager and Construction
Director of the Beazer Group plc, a construction company. Mr. Crowe is a
Chartered Structural Engineer.
Michael Gadbury has served as the Company's General Manager of Hospitality
Systems since June 1998. From 1993 to 1996, he served as Managing Director of LK
Global Hospitality Systems (UK) Limited and later served as its Director of
International Business Development from 1996 to 1998. From 1984 to 1993, he was
a Director of IGS Leisure Techology Limited, a hotel computer systems company.
International Guest Systems was acquired by LK Global in 1993.
Brian Rogers has served as the Company's General Manager of Construction Systems
since June 1998. From 1995 to 1998, he served as Managing Director of LK Global
Construction Systems (UK) Limited. From 1978 to 1995, Mr. Rogers served as
Managing Director for Briter Computer Systems Limited, a manufacturing computer
systems company that was acquired by LK Global Construction Systems (UK) Limited
in 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors plans to establish an Audit Committee and a Compensation
Committee in the next several months. The functions of the Audit Committee will
include recommending to the Board of Directors the retention of independent
auditors, reviewing the scope of the annual audit undertaken by the Company's
independent auditors and the progress and results of their work, and reviewing
the Company's financial statements, internal accounting and auditing procedures
and corporate program to ensure compliance with applicable laws. The functions
of the Compensation Committee will include reviewing and approving executive
compensation policies and practices, reviewing salaries and bonuses for certain
officers of the Company, administering the Company's benefit plans, including
any stock option plans, and considering such other matters as may from time to
time be referred to the committee by the Board of Directors.
COMPENSATION OF THE BOARD OF DIRECTORS
The directors of the Company receive no compensation for services as a
director. The directors are, however, reimbursed for their expenses incurred in
attending meetings.
Officers are elected at the first board of directors meeting following the
stockholders' meeting at which directors are elected and serve at the discretion
of the Board of Directors. There are no family relationships among any of the
directors or executive officers of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Company's officers and directors, and the persons who own more than
ten percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission.
Based solely upon a review of copies of such forms received by it, the
Company believes that during fiscal 1997 all filing requirements applicable to
officers, directors and greater than ten percent stockholders were timely
satisfied.
45
<PAGE> 46
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to the
Company's Chairman of the Board and Chief Executive Officer for services
rendered in all capacities to the Company and its subsidiaries during the fiscal
year ended December 31, 1997. No other executive officer's total annual
compensation for services rendered in all capacities to the Company and its
subsidiaries during the fiscal year ended December 31, 1997, exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
- --------------------------- ------ ----- ------- ------------
<S> <C> <C> <C> <C>
Dr. Lycourgos K. Kyprianou $198,000(1) -- -- --
Chairman of the Board and
Chief Executive Officer
</TABLE>
- ---------
(1) As translated into United States dollars based upon the average conversion
rate in effect during fiscal 1997.
STOCK OPTIONS
As of June 24, 1998, there were no options to purchase Common Stock
outstanding.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted Section 78.751 of the Domestic and Foreign
Corporation Laws of the State of Nevada in its bylaws. Section 78.751 states:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action, suit
or proceeding if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he
had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually
and reasonably incurred by him in connection with the defense or settlement
of the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in
view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for such expenses as the court deems
proper.
The Company has also adopted certain indemnification provisions to its
bylaws that allows the Company to indemnify current and former directors,
officers, employees or agents for expenses, including attorney fees, as a result
of any threatened, pending suit or proceedings arising as a result of such
person being a director, officer, employee or agent of the Company.
46
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of June 24, 1998 (i) for
each person or entity known by the Company to own beneficially more than five
percent of the then outstanding shares of Common Stock, (ii) each of the
Company's directors, (iii) the Company's Chief Executive Officer, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Common Shares
Beneficially Owned(1)
---------------------
Name and Address Number Percent
- ---------------- ------ -------
<S> <C> <C>
Dr. Lycourgos K. Kyprianou(2) 8,949,850 52.3%
60 Bishopsgate
London EC2N 4 AJ
England
Roys Poyiadjis(3) 1,000,000 5.8%
60 Bishopsgate
London EC2N 4 AJ
England
Nigel A. Spence 18,000 *
60 Bishopsgate
London EC2N 4 AJ
England
All directors and executive officers
as a group (four persons) 9,967,850 58.3%
</TABLE>
- --------------------
* Less than 1%
(1) Unless otherwise indicated in these footnotes and any applicable community
property laws, each stockholder has sole voting and investment power with
respect to the shares of Common Stock beneficially owned.
(2) Represents shares held by LK Global (Holdings) N.V, a Netherlands
corporation, for which Dr. Kyprianou serves as trustee and has sole voting
and investment power.
(3) Represents shares held by Raleigh Nominees Ltd. as trustee for Roys
Poyiadjis who has sole voting and investment power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 15, 1998, the Company loaned $2.6 million to Dr. Kyprianou. The loan
matures on May 15, 2000, and is an unsecured personal obligation of Dr.
Kyprianou. The loan bears interest at LIBOR plus 2% per annum.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits, Financial Statement Schedules
Unless otherwise noted, the following exhibits are filed with this Report.
2.1 Plan and Agreement of Reorganization between AremisSoft-Nevada and LK
Global Information Systems, BV ("LK Global") (the "Plan of
Reorganization")(1)
2.2 Addendum to the Plan of Reorganization (1)
47
<PAGE> 48
3.1 Certificate of Incorporation(2)
3.2 Bylaws(2)
4.1 Certificate of Designation for Series A and Series B Preferred Stock.
10.1 Lock-up agreement
10.2 pound sterling1,750,000 Medium Term Loan between LK Global Healthcare
Systems (United Kingdom) PLC and Barclays Bank PLC dated October 6,
1994, and all amendments thereto
10.3 pound sterling5,000,000 Term Loan Facility between LK Global and
Barclays Bank PLC dated March 31, 1995
10.4 Overdraft Facility of up to pound sterling2,500,000 to LK Global and
its subsidiaries with Barclays Bank PLC dated November 25, 1997
16.1 Letter of Pannell Kerr Forster, chartered accountants regarding
change in chartered accountants (3)
21.1 Subsidiaries of the Company
27 Financial Data Schedule
- -----------------------
(1) Filed with the Company's Current Report on Form 8-K, dated October 10, 1997.
(2) Filed with the Company's initial registration statement on Form S-1, filed
July 15, 1994.
(3) Filed with the Company's Current Report on Form 8-K, dated May 15, 1998.
Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules have been omitted as not applicable or
not required under the rules of regulation S-X.
(b) Reports on Form 8-K
Date of Report: October 10, 1997, amended February 27, 1998 and July 1,
1998, reporting the reorganization between the Company and LK Global Information
Systems, BV.
Date of Report: January 8, 1998, reporting the change of the Company's name
from Juno Acquisitions, Inc. to AremisSoft Corporation.
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, duly authorized.
Date: June 30, 1998 AREMISSOFT CORPORATION,
A NEVADA CORPORATION
L K Kyprianou
---------------------------------
Dr. Lycourgos K. Kyprianou,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, which include the
Principal Executive Officer, the Principal Financial Officer and a majority of
the Board of Directors on behalf of the Registrant and in the capacities and on
the dates indicated.
Signatures Date
- ---------- ----
L K Kyprianou June 30, 1998
- ----------------------------------------------------- -------------
Dr. Lycourgos K. Kyprianou, Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Executive Officer)
Roys Poyiadjis June 30, 1998
- ----------------------------------------------------- -------------
Roys Poyiadjis, President and Director
N. A. Spence June 30, 1998
- ----------------------------------------------------- -------------
Nigel A. Spence, Chief Financial Officer and Director
(Principal Accounting and Financial Officer)
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
49
<PAGE> 50
AREMISSOFT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1997
<PAGE> 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young, Independent Auditors F-2
Report of Pannell Kerr Forster, Independent Auditors F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit) F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE> 52
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
AremisSoft Corporation
We have audited the accompanying consolidated balance sheet of AremisSoft
Corporation as of December 31, 1997, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
year then ended. Our audit also included the financial statement schedule listed
in the index. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AremisSoft
Corporation at December 31, 1997, and the consolidated results of its operations
and its consolidated cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
ERNST & YOUNG
Chartered Accountants
Reading, England
June 30, 1998
F-2
<PAGE> 53
REPORT OF PANNELL KERR FORSTER, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
AremisSoft Corporation
We have audited the accompanying consolidated balance sheet of AremisSoft
Corporation as of December 31, 1996, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for each of
the two years in the period ended December 31, 1996. Our audit also included the
financial statement schedule listed in the index. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with United Kingdom auditing
standards which do not differ materially from United States 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
opinions.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AremisSoft
Corporation at December 31, 1996, and the consolidated results of its operations
and its consolidated cash flows for each of the two years in the period ended
December 31, 1996, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements take as
a whole, presents fairly, in all material respects, the information set forth
therein.
As described in note 1 to the consolidated financial statements, AremisSoft
Corporation has restated its previously issued 1996 and 1995 consolidated
financial statements.
PANNELL KERR FORSTER
Chartered Accountants
London, England
June 30, 1998
F-3
<PAGE> 54
AREMISSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 867 $ 239
Accounts receivable, less allowances for doubtful accounts
of $484, and $971 at December 31, 1996 and 1997,
respectively............................................ 11,017 9,458
Other receivables......................................... 254 670
Inventory................................................. 1,283 1,070
Prepaid expenses and other assets......................... 1,284 2,169
-------- --------
Total current assets........................................ 14,705 13,606
Property and equipment, net................................. 2,386 2,040
Purchased and developed software, net of accumulated
amortization of $5,912 and $5,755 at December 31, 1996 and
1997, respectively........................................ 334 764
Intangible assets, net of accumulated amortization of
$13,241 and $12,766, at December 31, 1996 and 1997,
respectively.............................................. 1,024 832
-------- --------
Total assets................................................ $ 18,449 $ 17,242
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 3,596 $ 4,244
Accrued taxes payable..................................... 3,828 4,887
Current portion of capital lease obligations.............. 68 40
Other accrued expenses.................................... 4,565 4,507
Bank loans and short-term demand facility................. 6,490 7,207
Deferred revenue.......................................... 11,596 5,692
-------- --------
Total current liabilities................................... 30,143 26,577
Long-term debt.............................................. 13,388 10,096
Capital lease obligations, less current portion............. 21 103
Stockholders' equity (deficit):
Series A convertible preferred stock, par value $0.001;
authorized 2,100 shares; no shares and 1,945 shares
issued and outstanding at December 31, 1996 and 1997,
respectively; liquidating preference at par value....... -- 2
Series B convertible preferred stock, par value $0.001;
authorized 3,500 shares; no shares issued and
outstanding at December 31, 1996 and 1997, respectively;
liquidating preference at par value..................... -- --
Common stock, par value $0.001; authorized 75,000 shares;
814 and 12,957 shares issued and outstanding at
December 31, 1996 and 1997, respectively................ 13 13
Additional paid-in capital................................ 11,359 17,761
Accumulated deficit....................................... (33,756) (35,376)
Cumulative translation adjustment......................... (2,719) (1,934)
-------- --------
Total stockholders' equity (deficit)........................ (25,103) (19,534)
-------- --------
Total liabilities and stockholders' equity (deficit)........ $ 18,449 $ 17,242
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 55
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Software licenses............................. $ 6,641 $ 12,052 $ 17,024
Maintenance and services...................... 9,426 15,839 18,990
Hardware and other............................ 5,355 6,541 6,360
-------- -------- --------
Total revenues......................... 21,422 34,432 42,374
Cost of revenues:
Software licenses............................. 875 1,555 2,079
Maintenance and services...................... 2,735 5,393 5,377
Hardware and other............................ 4,829 5,760 5,147
Amortization of purchased software and
capitalized software development costs...... 2,374 2,327 70
-------- -------- --------
Total cost of revenues................. 10,813 15,035 12,673
-------- -------- --------
Gross profit.................................... 10,609 19,397 29,701
Operating expenses:
Sales and marketing........................... 10,811 15,182 17,834
Research and development...................... 6,428 6,409 6,233
General and administrative.................... 3,442 5,605 5,227
Amortization of intangible assets............. 3,176 5,649 97
-------- -------- --------
Total operating expenses............... 23,857 32,845 29,391
-------- -------- --------
Profit (loss) from operations................... (13,248) (13,448) 310
Other income (expense):
Interest income............................... 5 11 6
Interest expense.............................. (1,289) (1,917) (1,901)
-------- -------- --------
Income (loss) before income taxes............... (14,532) (15,354) (1,585)
Income tax expense (benefit).................... 37 (50) 35
-------- -------- --------
Net income (loss)............................... $(14,569) $(15,304) $ (1,620)
======== ======== ========
Basic earnings (loss) per share................. $ (1.13) $ (1.19) $ (0.13)
======== ======== ========
Diluted earnings (loss) per share............... $ (1.13) $ (1.19) $ (0.13)
======== ======== ========
Weighted average number of shares used in
computing:
Basic earnings (loss) per share................. 12,845 12,845 12,870
======== ======== ========
Diluted earnings (loss) per share............... 12,845 12,845 12,870
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 56
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
--------------- --------------- PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
------ ------ ------ ------ ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1994.... -- $-- 12,845 $13 $ 6,054 $ (3,883) $ -- $ 2,184
Net loss......................... -- -- -- -- -- (14,569) -- (14,569)
Currency translation
adjustment..................... -- -- -- -- -- -- 19 19
------ --- ------ --- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1995.... -- -- 12,845 13 6,054 (18,452) 19 (12,366)
Stockholder contribution......... -- -- -- -- 5,305 -- -- 5,305
Net loss......................... -- -- -- -- -- (15,304) -- (15,304)
Currency translation
adjustment..................... -- -- -- -- -- -- (2,738) (2,738)
------ --- ------ --- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1996.... -- -- 12,845 13 11,359 (33,756) (2,719) (25,103)
Issuance of common stock in
connection with the acquisition
of the net assets of Juno (Note
1)............................. -- -- 112 -- -- -- -- --
Issuance of Series A preferred
stock, net of costs of $609.... 1,945 2 -- -- 6,402 -- -- 6,404
Net loss......................... -- -- -- -- -- (1,620) -- (1,620)
Currency translation
adjustment..................... -- -- -- -- -- -- 785 785
------ --- ------ --- ------- -------- ------- --------
BALANCES AT DECEMBER 31, 1997.... 1,945 2 12,957 13 17,761 (35,376) (1,934) (19,534)
====== === ====== === ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 57
AREMISSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(14,569) $(15,304) $(1,620)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................... 345 958 977
Amortization and write-off of capitalized
software and intangible assets............... 5,550 7,976 167
Changes in assets and liabilities, net of
acquisitions.................................
Accounts receivable.......................... (5,091) 1,106 2,933
Other receivables............................ (30) 832 (461)
Inventory.................................... 74 (477) 163
Prepaid expenses............................. (365) 653 (2,595)
Accounts payable............................. 1,034 422 788
Deferred maintenance revenue................. 4,098 (1,290) (5,726)
Accrued taxes payable........................ 754 1,679 1,242
Other accrued expenses....................... 2,062 2,191 103
-------- -------- -------
Net cash used in operating activities............ (6,138) (1,254) (4,029)
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (495) (1,130) (684)
Capitalized software development costs......... (514) (223) (515)
Payment for acquisitions, net of cash
acquired..................................... (7,527) (3,256) --
Proceeds from disposal of property and
equipment.................................... 167 549 228
-------- -------- -------
Net cash used in investing activities............ (8,369) (4,060) (971)
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of stock............ -- -- 6,402
Stockholder contribution....................... -- 5,305 --
Long-term borrowings........................... 13,475 1,936 33
Principal payments of long-term borrowings..... (268) (1,732) (2,040)
Principal payments of capital lease
obligations.................................. (246) (353) (53)
Short-term demand facility..................... 1,818 1,301 186
-------- -------- -------
Net cash provided by financing activities........ 14,779 6,457 4,528
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents.................................... 272 1,143 (472)
Effect of foreign currency exchange rates on cash
and cash equivalents........................... (17) (531) (156)
Cash and cash equivalents, at beginning of
period......................................... -- 255 867
-------- -------- -------
Cash and cash equivalents, at end of period...... $ 255 $ 867 $ 239
======== ======== =======
Supplemental disclosure:
Interest paid.................................. $ 975 $ 1,887 $ 1,900
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 58
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AremisSoft Corporation develops, markets, implements and supports
enterprise-wide applications software targeted to mid-sized organizations,
principally in the healthcare, manufacturing, hospitality and construction
industries.
Organization and Basis of Presentation
In October 1997, AremisSoft Corporation, under its previous name of Juno
Acquisitions, Inc. ("Juno"), entered into a Plan and Agreement of Reorganization
(the "Plan") with LK Global Information Systems BV ("LK Global"), a company
incorporated in The Netherlands. Under the terms of the Plan, Juno acquired all
of the issued and outstanding common stock of LK Global in exchange for
12,845,000 shares of its common stock (the "1997 Acquisition"). Prior to the
1997 Acquisition, Juno had no significant operations.
LK Global is accounted for as the acquirer and as the surviving accounting
entity because the former stockholders of LK Global received approximately 99%
of the voting rights in the combined corporation. The shares issued by Juno have
been accounted for as if those shares comprised the historical share capital of
LK Global. The outstanding capital stock of Juno, at the date of the 1997
Acquisition, has been accounted for as shares issued by LK Global to acquire the
net assets of Juno.
Because LK Global is the accounting survivor, the financial statements
presented for all periods are those of LK Global and its subsidiaries
(collectively the "Company") with a change in the name to AremisSoft
Corporation. All intercompany accounts and transactions are eliminated in
consolidation.
In connection with the preparation of the consolidated financial
statements of AremisSoft Corporation for the first reporting period subsequent
to the 1997 Acquisition, management discovered certain accounts included in the
previously issued financial statements were not in accordance with AremisSoft
Corporation's prescribed accounting policies. Accordingly management has
restated its 1996 and 1995 financial statements as detailed in a Form 8-KA
dated July 1, 1998.
At March 31, 1998, the Company was not in compliance with certain financial
covenants in the agreements relating to its long-term debt. However, by
subsequent agreements the principal lender has waived all covenants for the
period to September 30, 1998, or until the completion of an initial public
offering of its common stock ("IPO"), whichever occurs first. In the event that
the Company does not complete an IPO by September 30, 1998, in order for the
Company to remain in compliance with any reinstated covenants it must achieve
its operating plan and/or raise additional capital or obtain an extension of the
waiver from the principal lender.
Revenue Recognition
The Company derives its revenue primarily from software licenses,
maintenance and service contracts and hardware sales. Software license revenues
are mainly derived from the licensing of industry-specific software
applications, primarily the sale of upgrades to existing customers. Maintenance
and service contract revenues are derived from ongoing support of installed
software, and training, consulting and implementation services. Hardware sales
revenues are primarily derived from the sale of third-party hardware to
customers requiring turnkey solutions.
The Company recognizes software license and hardware revenues at the time
of installation, provided no significant obligations remain and collection of
the resulting receivable is deemed probable. Maintenance contract revenues are
recognized ratably over the life of the contract, service contract revenues are
recognized
F-8
<PAGE> 59
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in accordance with the terms of the contract and add-on hardware sales revenues
are recognized when the hardware is shipped to the customer.
Foreign Currency
The functional currency of the Company and its United Kingdom subsidiaries
is the British pound. The functional currencies of the other subsidiaries are
their local currencies.
For reporting purposes, the financial statements are presented in United
States dollars in accordance with principles set out in Statement of Financial
Accounting Standard No. 52, "Foreign Currency Transaction". The consolidated
balance sheets are translated into United States dollars at the exchange rates
prevailing at the balance sheet dates and the statements of operations and cash
flows at the average rates for the relevant periods. Gains and losses resulting
from translation are accumulated as a separate component of stockholders'
equity.
Net gains and losses resulting from foreign exchange transactions are
included in the consolidated statements of operations.
Cash Equivalents
Cash equivalents consist of highly liquid investments with insignificant
interest rate risk and a maturity date of three months or less when purchased.
They are carried at cost which approximates fair value.
Inventory
Inventory is comprised of finished goods held for resale and maintenance
parts. Finished goods held for resale are stated at the lower of cost or net
realizable value. Cost is determined on a first-in first-out basis, and includes
all direct costs incurred and attributable production overheads. Net realizable
value is based on estimated selling price as of further costs of completion and
disposal. Maintenance parts are valued at cost and are depreciated over a
three-year period.
Purchased and Developed Software
The Company capitalizes the qualifying costs of developing its software
products. Capitalization of costs requires that technological feasibility has
been established. Development costs incurred prior to the establishment of
technological feasibility are expensed as incurred. When the software is fully
documented and available for unrestricted sale, capitalization of development
costs ceases, and amortization commences and is computed on a product-by-product
basis, based on either a straight-line basis over the economic life of the
product or the ratio of current gross revenues to the total of current and
anticipated future gross revenues, whichever is greater.
The Company capitalizes as purchased software the costs associated with
software products either purchased from other companies for resale or developed
by other companies under contract with the Company. The cost of the software is
amortized on the same basis as capitalized software development costs. The
amortization period is re-evaluated quarterly with respect to certain external
factors including, but not limited to, technological feasibility, anticipated
future gross revenues, estimated economic life and changes in software and
hardware technologies.
The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life and changes in software and hardware technologies.
Realization of capitalized software costs is subject to the Company's ability to
market its software products in the future and generate cash flows sufficient to
support future operations.
F-9
<PAGE> 60
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Intangible assets consist of customer lists and management employment
agreements related to acquired businesses. Customer lists are amortized over 1
to 3 years, depending on the circumstances of the company acquired, and
management employment agreements are amortized over 4 to 5 years.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets as
shown:
<TABLE>
<S> <C>
Leasehold improvements shorter of the lease term or economic life
Fixtures and equipment 3-5 years
Motor vehicles 4 years
</TABLE>
Impairment of Long-lived Assets
In the event that facts and circumstances indicate that the carrying value
of an asset may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated fair market value of the asset would
be compared to the asset's carrying value to determine if a write-down to the
lower of carrying value or market value is required.
The Company made certain acquisitions in 1995 on the assumption that
further funding would be made available by its bankers. This financing was not
obtained and, as a result, the Company wrote off $388,000 of purchased and
developed software during 1995.
In 1996, the Company elected to replace certain members of management in
connection with the integration of an acquired business. Accordingly, the
Company accelerated the amortization of an additional $505,000 of intangible
assets over and above the normal amortization that would have been expensed had
this event not occurred.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to net operating
loss carryforwards and differences between the financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Deferred tax assets are
recorded at their estimated realizable value.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain estimates used by management are particularly susceptible to
significant changes, such as the recoverability and amortization periods of
purchased and developed software and intangible assets. Management believes
that, as of December 31, 1997, the estimates used are adequate based on the
information currently available.
F-10
<PAGE> 61
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Loss Per Common Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
pursuant to which the calculation of primary and fully diluted earnings per
share was replaced with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities, except as required by Staff
Accounting Bulletin No. 98 ("SAB 98"). Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
On February 23, 1998, the staff of the Securities and Exchange Commission
("SEC") issued SAB 98 which changes the SEC staff's guidance on cheap stock in
initial public offering filings and the subsequent reporting of cheap stock.
Under the SEC's old guidance, Staff Accounting Bulletin No. 83, common stock
issued during a one-year period prior to an initial public offering at prices
below the initial public offering price, including any option or warrant, was
considered cheap and was treated as being outstanding for all periods in a
manner similar to a stock split.
Under SAB 98, common stock, options or warrants to purchase common stock or
other potentially dilutive instruments issued for nominal consideration
(collectively "nominal issuances") during any of the periods covered by
statements of operations that are included in initial public offering filings,
must be reflected in basic (for common stock) and diluted earnings per share
(for common stock or other potentially dilutive instruments) for all periods
subsequent to their respective issuances in a manner similar to a stock split,
even if anti-dilutive.
All earnings (loss) per share amounts for all periods presented have been
stated to conform to the SFAS 128 and SAB 98 requirements.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------- -------- -------
<S> <C> <C> <C>
Numerator used for both basic and diluted
earnings (loss) per share...................... $(14,569) $(15,304) $(1,620)
Denominator for basic earnings per share:
Weighted average shares outstanding............ 12,845 12,845 12,870
======== ======== =======
Denominator for diluted earnings per share:
Denominator for basic earnings per share....... 12,845 12,845 12,870
======== ======== =======
Basic earnings (loss) per share.................. $ (1.13) $ (1.19) $ (0.13)
======== ======== =======
Diluted earnings (loss) per share................ $ (1.13) $ (1.19) $ (0.13)
======== ======== =======
</TABLE>
Fair Value of Financial Instruments
The carrying amounts for the Company's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, accrued
expenses and long-term debt approximate fair values.
F-11
<PAGE> 62
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Estimates are not necessarily indicative of the amounts which could be
realized or would be paid in a current market exchange. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amount.
New Accounting Standards
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new
rules for the reporting and display of comprehensive income and its components.
SFAS 130 requires unrealized gains or losses on the Company's available-for-sale
securities, which currently are reported in stockholders' equity, to be included
in other comprehensive income and the disclosure of total comprehensive income.
The adoption of SFAS 130 is required in 1998 and will not have an impact on the
Company's net income or stockholders' equity.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS 131 is required for
periods beginning after December 15, 1997, though it is not required for interim
financial statements in its initial year of adoption in 1998 and will not have
any impact on the Company's consolidated results of operations, financial
position or cash flows.
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants' ("AICPA") Statement of Position No. 97-2 "Software
Revenue Recognition" ("SOP 97-2"), which supersedes Statement of Position No.
91-1. SOP 97-2 addresses software revenue recognition matters primarily from a
conceptual level and detailed implementation guidelines have not been issued.
Restatement of prior financial statements is prohibited.
In March 1998, the AICPA issued Statement of Position No. 98-4, "Deferral
of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition,"
which defers for one year the application of certain provisions of SOP 97-2.
These provisions limit what is considered vendor-specific objective evidence of
the fair value of the various elements in a multiple-element arrangement. All
other provisions of SOP 97-2 remain in effect.
2. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Finished goods held for resale............................. $ 498 $ 262
Maintenance parts.......................................... 785 808
------ ------
$1,283 $1,070
====== ======
</TABLE>
F-12
<PAGE> 63
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
<S> <C> <C>
Fixtures and equipment..................................... $ 4,779 $ 5,160
Motor vehicles............................................. 605 459
Leasehold improvements..................................... 294 283
------- -------
5,678 5,902
Less accumulated depreciation.............................. (3,292) (3,862)
------- -------
$ 2,386 $ 2,040
======= =======
</TABLE>
At December 31, 1996 and 1997, the Company held property and equipment with
a net book value of $51,000 and $90,000, respectively, under capital leases.
Depreciation expense was $345,000, $958,000 and $977,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
4. BUSINESS COMBINATIONS
The Company made various acquisitions during 1995 and 1996, which have been
accounted for using the purchase method of accounting.
In each case the Company acquired all of the outstanding stock of the
acquired company. All of the companies were involved with the development of
computer software and the supply of software and services.
The aggregate estimated fair value of the assets and liabilities of the
acquired businesses and the aggregate consideration paid are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Current assets (including cash of $504 in 1995 and $88 in
1996)..................................................... $ 3,078 $ 424
Property and equipment...................................... 1,417 346
Software development costs and intellectual property........ 3,972 331
Accounts payable and accrued expenses....................... (3,777) (581)
Intangible assets........................................... 4,323 2,862
------- ------
$ 9,013 $3,382
======= ======
Consideration paid:
Cash consideration.......................................... $ 7,998 $3,302
Deferred consideration...................................... 982 38
Related acquisition costs................................... 33 42
------- ------
$ 9,013 $3,382
======= ======
</TABLE>
The operating results of these acquisitions are included in the Company's
Consolidated Statements of Operations from the date of acquisition. Revenues and
net income (loss) pro forma financial data for the year ended December 31, 1996,
is not materially different from the data presented in the Consolidated
Statements of Operations. No pro forma data reflecting the Company's results of
operations for the year ended December 31, 1995, is provided as the Company does
not consider such data to be meaningful because of the write down of purchased
software and intangible assets.
F-13
<PAGE> 64
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. SHORT-TERM DEBT
Short-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------ ------
<S> <C> <C>
Current portion of long-term debt (Note 6)....... $2,103 $2,803
Short-term demand facility....................... 4,387 4,404
------ ------
$6,490 $7,207
====== ======
</TABLE>
The short-term demand facility bears interest at the lending bank's base
rate plus the applicable margin.
6. LONG-TERM DEBT
Long-term debt, all of which is collateralized and fully guaranteed,
consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
DESCRIPTION 1996 1997
----------- ------- -------
<S> <C> <C>
Loan payable to bank, interest payable quarterly at 3% over
bank base rate, principal due in monthly installments of
$10, maturing June 2000. ................................. $ 449 $ 309
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $144, maturing October
2000. .................................................... 2,246 1,584
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $48, maturing September
1998. .................................................... 349 144
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $82, maturing October
1998. .................................................... 685 329
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR plus 1/16% associated costs, principal due
in quarterly installments of $84, maturing
May 2001. ................................................ 1,493 1,098
Loan payable to bank, interest payable quarterly at 3% over
Sterling LIBOR inclusive of associated costs, principal
due in quarterly installments of $118, maturing April
2000. .................................................... 1,712 1,176
Loan payable to bank, interest payable monthly at 4% over
Sterling LIBOR plus variable associated funding costs,
averaging 1/32% in 1997, principal due $823 in February
1998, balance in equal annual installments, maturing
February 2002. ........................................... 8,557 8,226
Loan payable to bank, interest payable at 12% per annum,
maturing 2002. ........................................... -- 33
------- -------
15,491 12,899
Less current installments................................... (2,103) (2,803)
------- -------
$13,388 $10,096
======= =======
</TABLE>
The lending bank's base rate ranged between 6.0% and 7.3% and Sterling
LIBOR ranged between 6.6% and 7.9% during the year ended December 31, 1997.
F-14
<PAGE> 65
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 31, 1998, the Company was not in compliance with certain financial
covenants in the agreements relating to its long-term debt but has obtained a
waiver in respect of all covenants for the period to September 30, 1998, or
until the completion of an IPO, whichever occurs first.
As of December 31, 1997, future minimum annual principal payments of the
Company's long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998..................................................... $ 2,803
1999..................................................... 3,359
2000..................................................... 2,918
2001..................................................... 1,936
2002..................................................... 1,883
-------
$12,899
=======
</TABLE>
7. CAPITAL LEASE OBLIGATIONS
The Company has entered into various noncancelable capital lease agreements
for items of property and equipment. Annual payments for the years ending
December 31, are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 56
1999........................................................ 48
2000........................................................ 47
2001........................................................ 36
2002........................................................ 8
----
195
Less amount representing interest........................... (52)
----
143
Less current portion........................................ (40)
----
$103
====
</TABLE>
8. COMMITMENTS
Operating Leases
The Company leases office space, equipment and motor vehicles under
noncancelable operating leases which expire on various dates through 2012.
Required future minimum rentals to be paid as of December 31, 1997, are as
follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $1,548
1999........................................................ 1,050
2000........................................................ 639
2001........................................................ 349
2002........................................................ 327
Thereafter.................................................. 3,057
------
$6,970
======
</TABLE>
F-15
<PAGE> 66
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Benefit Plans
The Company has various defined contribution retirement plans for qualified
employees. Contributions made under the plans were $192,000, $298,000 and
$328,000 in 1995, 1996 and 1997, respectively.
9. INCOME TAX
The Company's principal subsidiaries are not resident in the United States
for tax purposes. The Company made acquisitions during both 1995 and 1996 and
the income tax expense (benefit) has principally related to prior period
adjustments (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -----
<S> <C> <C> <C>
Statutory tax at 31%........................................ $ (4,505) $(4,759) $(491)
Non deductible expenses..................................... 2,831 2,600 733
Valuation allowance on operating loss....................... 1,674 2,159 (207)
Other prior period adjustments.............................. 37 (50) --
-------- ------- -----
Income tax expense (benefit)................................ $ 37 $ (50) $ 35
======== ======= =====
</TABLE>
The Company's deferred tax assets as of December 31, primarily consist of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C> <C>
Loss carryforwards.......................................... $ 3,482 $ 2,978
Equipment................................................... 1,009 856
Other....................................................... 8 24
------- -------
4,499 3,858
Valuation allowance......................................... (4,499) (3,858)
------- -------
Total deferred tax assets.......................... $ -- $ --
======= =======
</TABLE>
As of December 31, 1997, the Company had approximately $9,600,000 of net
operating loss carryforwards. These losses will not expire at any particular
time provided the Company does not change its principal activity or cease
operations. The Company has recorded a valuation allowance to offset the entire
deferred tax asset.
10. STOCKHOLDERS' EQUITY
The Company is authorized to issue 75,000,000 shares of common stock, par
value $0.001 per share, and 15,000,000 shares of preferred stock, par value
$0.001 per share, two series of which have been issued: 2,100,000 shares of
Series A convertible preferred stock and 3,500,000 shares of Series B
convertible preferred stock.
The Company's Series A and Series B convertible preferred stock rank pari
passu except with respect to the right to receive dividends. In respect of
dividends, Series A holders are entitled to a non-cumulative cash dividend of
$0.40 per share per annum and Series B holders are entitled to a non-cumulative
cash dividend of $0.50 per share per annum, each commencing on September 1,
1998. If, within 120 days of issuance of the Series A and Series B shares, the
Company fails to register the common stock into which such shares are
convertible, the shares of Series A will be entitled to a cumulative cash
dividend of $0.40 per share per annum and the shares of Series B will be
entitled to a cumulative cash dividend of $0.50 per share per annum, increasing
each month, until registration of the underlying common stock, by $0.08 and
$0.10 per share per annum, respectively, to a maximum of $1.80 and $2.25 per
share per annum, respectively. In a liquidation, the preferred stock ranks in
preference to the common stock as to repayment of par value, and ratably with
the common stock thereafter.
F-16
<PAGE> 67
AREMISSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The preferred stock is convertible at the rate of one share of preferred
stock for one share of common stock at the option of the holder and
automatically on the effective date of a registration statement covering the
underlying common stock. The preferred stock is not redeemable. There are
provisions to protect the preferred holders from dilution in events such as
subdivision or combination of the common stock, the payment of stock dividends
or distributions of other securities or other reclassifications, exchanges or
substitutions. The preferred stock votes with the common stock on an
as-converted basis.
11. WARRANTS
In connection with the issuance of its Series A convertible preferred
stock, the Company issued warrants to purchase an aggregate of 87,500 shares of
common stock. Such warrants have an exercise price of $5.00 per share, are
assignable and expire on April 10, 2000.
12. SUBSEQUENT EVENTS
Private Placement
Commencing in February 1998, the Company engaged in a private placement of
its Common Stock. The Common Stock was offered only to "accredited investors" in
reliance on the exemption from registration provided by Regulation D. In this
offering, the Company sold 1,580,530 shares of its Common Stock at $6.00 per
share, for an aggregate placement of $9,483,180, less expenses.
Conversion of Preferred Stock
On June 16, 1998, the holders of the Company's Series A preferred stock
converted their shares into common stock.
F-17
<PAGE> 68
EXHIBIT INDEX
2.1 Plan and Agreement of Reorganization between AremisSoft-Nevada and LK
Global Information Systems, BV ("LK Global") (the "Plan of
Reorganization")(1)
2.2 Addendum to the Plan of Reorganization (1)
3.1 Certificate of Incorporation(2)
3.2 Bylaws(2)
4.1 Certificate of Designation for Series A and Series B Preferred Stock.
10.1 Lock-up Agreement
10.2 pound sterling1,750,000 Medium Term Loan between LK Global Healthcare
Systems (United Kingdom) PLC and Barclays Bank PLC dated October 6,
1994, and all amendments thereto
10.3 pound sterling5,000,000 Term Loan Facility between LK Global and
Barclays Bank PLC dated March 31, 1995
10.4 Overdraft Facility of up topound sterling2,500,000 to LK Global and
its subsidiaries with Barclays Bank PLC dated November 25, 1997
16.1 Letter of Pannell Kerr Forster, chartered accountants regarding
change in chartered accountants (3)
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
- -----------------------
(1) Filed with the Company's Current Report on Form 8-K, dated October 10, 1997.
(2) Filed with the Company's initial registration statement on Form S-1, filed
July 15, 1994.
(3) Filed with the Company's Current Report on Form 8-K, dated May 15, 1998.
63
<PAGE> 1
Exhibit 4.1
CERTIFICATE OF DESIGNATION
OF
JUNO ACQUISITIONS, INC.
Gary Takata certifies that:
1. He is the president and the secretary of Juno Acquisitions, Inc., a
Nevada corporation.
2. The authorized number of shares of Preferred Stock, par value $0.001,
is Fifteen Million (15,000,000) of which none has been issued.
3. The Board of Directors wishes to establish two new series of
Preferred Stock to be designated Series A Convertible Preferred Stock and the
initial number of shares constituting such series shall be Two Million One
Hundred Thousand (2,100,000) of which none are outstanding, and Series B
Convertible Preferred Stock and the initial number of shares constituting such
series shall be Three Million Five Hundred Thousand (3,500,000) of which none
are outstanding, respectively.
4. The Board of Directors duly adopted the following resolution:
WHEREAS, Article Fourth of the Corporation's Articles of
Incorporation authorizes the Preferred Stock of the Corporation to be
issued in series and authorizes the Board of Directors to determine the
rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock and to fix the number
of shares and designation of any such series, now therefore it is
RESOLVED, that the Board of Directors does hereby establish two
series of Preferred Stock as follows:
SERIES A CONVERTIBLE PREFERRED STOCK
A. DESIGNATION AND AMOUNT. The designation of such
series of Preferred Stock is Series A Convertible Preferred
Stock, $0.001 par value (the "Series A Shares"), and the initial
number of shares constituting such series shall be Two Million
One Hundred Thousand (2,100,000).
B. EQUAL RANK. The Series A Shares shall be in pari
passu with all preferred shares, regardless of series,
including, but not limited to, the Series B Convertible
Preferred Stock of the corporation.
1
<PAGE> 2
C. DIVIDEND RIGHTS.
i. STANDARD. The holders of the outstanding
Series A Shares shall be entitled to receive
non-cumulative stock dividends of $0.40 per share per
annum, when and as declared by the Board and out of
funds legally available therefor. Dividends shall accrue
on September 1 of each year, commencing September 1,
1998, so long as the Series A Shares have not converted
into Common Stock prior to the dividend date.
ii. SPECIAL. If, within 120 days of the issuance
of the Series A Shares, the corporation fails to file a
registration statement registering the Common Stock into
which the Series A Shares are convertible, the holders
of the outstanding Series A Shares shall be entitled to
a special cumulative cash dividend, when and as declared
by the Board and out of funds legally available
therefor, as follows:
(1) Commencing the 121st day after the
issuance of the Series A Shares, the holders of
the outstanding Series A Shares shall be
entitled to receive cash dividends of $0.40 per
share per annum, payable on March 1 and
September 1 annually;
(2) The cash dividend rate shall
increase $0.08 per share per annum each month
the registration statement has not been filed,
up to and including a maximum rate of $1.80 per
share per annum.
D. LIQUIDATION PREFERENCE. The holders of the
Series A Shares shall be entitled, upon dissolution or
liquidation of the corporation, to share in the assets of
the corporation, ratably, in an aggregate amount equal to
the par value of the shares held before any such
distribution is made of the holders of the Common shares,
and ratably thereafter with the holders of the Common
shares.
E. REDEMPTION. The Series A Shares shall not be
redeemable by the corporation.
3
<PAGE> 3
F. CONVERSION FEATURES.
i. CONVERSION RATE. Each one share of
Series A Preferred stock may be converted into
one share of Common Stock ("Conversion Rate").
ii. VOLUNTARY CONVERSION. At the option
of the holder.
iii. AUTOMATIC CONVERSION. All shares of
Series A Preferred Stock shall automatically
convert into shares of Common Stock on the
effective date of a registration statement
registering the Common Stock underlying the
Series A Shares.
iv. ANTIDILUTION PROTECTION.
(1) ADJUSTMENTS FOR SUBDIVISIONS
AND COMBINATIONS. If the corporation
shall at any time or from time to time
effect a subdivision of the outstanding
Common Stock, the Conversion Rate then
in effect immediately before such
subdivision shall be proportionately
increased, and conversely, if the
Corporation shall at any time or from
time to time combine the outstanding
Common Stock, the Conversion Rate then
in effect immediately before such
combination shall be proportionately
decreased.
(2) ADJUSTMENTS FOR CERTAIN
DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or
from time to time, shall make or issue
or fix a record date for the
determination of holders of Common Stock
entitled to receive a stock dividend or
other distribution payable in additional
Common Stock, then and in each such
event the Conversion Rate then in effect
shall be increased as of the time of
such issuance or, in the event such a
record date shall have been fixed, as of
the close of business on such record
date, by multiplying the Conversion Rate
then in effect by a fraction:
4
<PAGE> 4
(a) the numerator of
which shall be the total
number of shares of Common
Stock issued and outstanding
immediately prior to the
time of such issuance or the
close of business on such
record date plus the number
of shares of Common Stock
issuable in payment of such
dividend or distribution;
and
(b) the denominator
of which shall be the total
number of shares of Common
Stock issued and outstanding
immediately prior to the
time of such issuance or the
close of business on such
record date.
(3) ADJUSTMENTS FOR OTHER STOCK DIVIDENDS AND
DISTRIBUTIONS. In the event the Corporation at any time
shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in
securities of the Corporation other than Common Stock,
then and in each such event provision shall be made so
that the holders of Series A Preferred Stock shall
receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon,
the amount of securities of the Corporation that they
would have received had their Series A Preferred Stock
been converted into Common Stock on the date of such
event and had such holders thereafter, during the period
from the date of such event to and including the
conversion date, retained such securities receivable by
them as aforesaid during such period giving application
to all adjustments called for during such period under
this subsection with respect to the rights of the
holders of the Series A Preferred Stock.
(4) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE
OR SUBSTITUTION. If the Common Stock issuable upon the
conversion of the Series A Preferred Stock shall be
changed into the same or a different number of shares of
any class or
5
<PAGE> 5
classes of stock of the Corporation, whether by capital
reorganization, reclassification of otherwise (other
than by a subdivision, a combination or a stock dividend
as provided for elsewhere in this Section), then and in
each event the holder of each Series A Preferred Stock
shall have the right thereafter to convert such shares
into the kind and amount of shares of stock or other
securities and property receivable upon such
reorganization, reclassification or other change by the
holders of the number of shares of Common Stock into
which such Series A Preferred Stock might have been
converted immediately prior to such reorganization,
reclassification or other change, all subject to further
adjustment as provided elsewhere in this Section.
G. VOTING RIGHTS.
i. Holders of Series A Shares have a number of
votes equal to the number of shares of common stock into
which Series A is convertible as of record date.
ii. Unless required by law, such votes shall be
counted together with all other shares of stock of the
Company having general voting power and not separately
as a class.
SERIES B CONVERTIBLE PREFERRED STOCK
A. DESIGNATION AND AMOUNT. The designation of such
series of Preferred Stock is Series B Convertible Preferred
Stock, $0.001 par value (the "Series B Shares"), and the initial
number of shares constituting such series shall be Three Million
Five Hundred Thousand (3,500,000).
B. EQUAL RANK. The Series B Shares shall be in pari
passu with all preferred shares, regardless of series,
including, but not limited to, the Series A Convertible
Preferred Stock of the corporation.
6
<PAGE> 6
C. DIVIDEND RIGHTS.
i. STANDARD. The holders of the
outstanding Series B Shares shall be entitled to
receive non-cumulative stock dividends of $0.50
per share per annum, when and as declared by the
Board and out of funds legally available
therefor. Dividends shall accrue on September 1
of each year, commencing September 1, 1998, so
long as the Series B Shares have not converted
into Common Stock prior to the dividend date.
ii. SPECIAL. If, within 120 days of the
issuance of the Series B Shares, the corporation
fails to file a registration statement
registering the Common Stock into which the
Series B Shares are convertible, the holders of
the outstanding Series B Shares shall be entitled
to a special cumulative cash dividend, when and
as declared by the Board and out of funds legally
available therefor, as follows:
(1) Commencing the 121st day
after the issuance of the Series B
Shares, the holders of the outstanding
Series B Shares shall be entitled to
receive cash dividends of $0.50 per
share per annum, payable on March 1 and
September 1 annually;
(2) The cash dividend rate shall
increase $0.10 per share per annum each
month the registration statement has not
been filed, up to and including a
maximum rate of $2.25 per share per
annum.
D. LIQUIDATION PREFERENCE. The holders of the
Series B Shares shall be entitled, upon dissolution or
liquidation of the corporation, to share in the assets of
the corporation, ratably, in an aggregate amount equal to
the par value of the shares held before any such
distribution is made of the holders of the Common shares,
and ratably thereafter with the holders of the Common
shares.
E. REDEMPTION. The Series B Shares shall not be
redeemable by the corporation.
7
<PAGE> 7
F. CONVERSION FEATURES.
i. CONVERSION RATE. Each one share of
Series B Preferred stock may be converted into
one share of Common Stock ("Conversion Rate").
ii. VOLUNTARY CONVERSION. At the option
of the holder.
iii. AUTOMATIC CONVERSION. All shares of
Series B Preferred Stock shall automatically
convert into shares of Common Stock on the
effective date of a registration statement
registering the Common Stock underlying the
Series B Shares.
iv. ANTIDILUTION PROTECTION.
(1) ADJUSTMENTS FOR SUBDIVISIONS
AND COMBINATIONS. If the corporation
shall at any time or from time to time
effect a subdivision of the outstanding
Common Stock, the Conversion Rate then
in effect immediately before such
subdivision shall be proportionately
increased, and conversely, if the
Corporation shall at any time or from
time to time combine the outstanding
Common Stock, the Conversion Rate then
in effect immediately before such
combination shall be proportionately
decreased.
(2) ADJUSTMENTS FOR CERTAIN
DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or
from time to time, shall make or issue
or fix a record date for the
determination of holders of Common Stock
entitled to receive a stock dividend or
other distribution payable in additional
Common Stock, then and in each such
event the Conversion Rate then in effect
shall be increased as of the time of
such issuance or, in the event such a
record date shall have been fixed, as of
the close of business on such record
date, by multiplying the Conversion Rate
then in effect by a fraction:
(a) the numerator of
which shall be the total
number of shares of Common
Stock issued and outstanding
immediately prior
8
<PAGE> 8
to the time of such issuance
or the close of business on
such record date plus the
number of shares of Common
Stock issuable in payment of
such dividend or
distribution; and
(b) the denominator
of which shall be the total
number of shares of Common
Stock issued and outstanding
immediately prior to the
time of such issuance or the
close of business on such
record date.
(3) ADJUSTMENTS FOR OTHER STOCK
DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time shall make or issue, or
fix a record date for the determination of
holders of Common Stock entitled to receive, a
dividend or other distribution payable in
securities of the Corporation other than Common
Stock, then and in each such event provision
shall be made so that the holders of Series B
Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of
securities of the Corporation that they would
have received had their Series B Preferred Stock
been converted into Common Stock on the date of
such event and had such holders thereafter,
during the period from the date of such event to
and including the conversion date, retained such
securities receivable by them as aforesaid
during such period giving application to all
adjustments called for during such period under
this subsection with respect to the rights of
the holders of the Series B Preferred Stock.
(4) ADJUSTMENTS FOR RECLASSIFICATION,
EXCHANGE OR SUBSTITUTION. If the Common Stock
issuable upon the conversion of the Series B
Preferred Stock shall be changed into the same
or a different number of shares of any class or
classes of stock of the Corporation, whether by
capital reorganization, reclassification of
otherwise (other than by a subdivision, a
9
<PAGE> 9
combination or a stock dividend as provided for
elsewhere in this Section), then and in each
event the holder of each Series B Preferred
Stock shall have the right thereafter to convert
such shares into the kind and amount of shares
of stock or other securities and property
receivable upon such reorganization,
reclassification or other change by the holders
of the number of shares of Common Stock into
which such Series B Preferred Stock might have
been converted immediately prior to such
reorganization, reclassification or other
change, all subject to further adjustment as
provided elsewhere in this Section.
G. VOTING RIGHTS.
i. Holders of Series B Shares have a
number of votes equal to the number of shares of
common stock into which Series B is convertible
as of record date.
ii. Unless required by law, such votes
shall be counted together with all other shares
of stock of the Company having general voting
power and not separately as a class.
I further declare under penalty of perjury under the laws of the
State of Nevada that the matters set forth in the foregoing Certificate are true
and correct of my own knowledge.
Dated: October 1, 1997 /s/ GARY TAKATA
----------------------------------
Gary Takata, President and
Secretary
10
<PAGE> 1
EXHIBIT 10.1
FORM OF 18-MONTH LOCK-UP AGREEMENT
Date: September 30, 1997
To: Juno Acquisitions, Inc.
370 Lexington Avenue, Suite 1808
New York, NY 10017
Re: Lock-up of Shares of Common Stock
Ladies/Gentlemen:
LK Global (Holdings) NV ("LKNV") is the legal and beneficial owner of 12,845,000
shares of LK Global Information Systems, BV ("LK Global"). LK Global (Holdings)
NV is aware that LK Global is contemplating a reorganization with Juno
Acquisitions, Inc. ("Juno").
I hereby confirm that I have full power and authority to enter into this letter
agreement to restrict the transferability of LKNV's shares. LKNV agrees that it
will not sell or otherwise dispose of 10,160,400 shares of the Juno Common Stock
received by it in the Reorganization owned directly, indirectly or beneficially
by it or available to it at this time or at the Closing Date of the
Reorganization, for a period of eighteen months subsequent to the Closing Date
of the Reorganization, without the written consent of the Juno Board of
Directors.
LKNV represents that it has not taken, and will not take, directly or
indirectly, any action designed to or which might reasonably be expected to
cause or result in the stabilization or manipulation of the price of the Common
Stock, or to facilitate the sale or resales of the Common Stock.
Very truly yours,
LK Global (Holdings) NV
- -----------------------------
By: Lycourgos K. Kyprianou
Managing Director
Address: Duke's Court, Duke's Street
Woking Surrey GU215BH
England
<PAGE> 1
EXHIBIT 10.2
[BARCLAYS LETTERHEAD] Sorting Code:
20-05-75
BARCLAYS BANK PLC
Bedford Square Business Centre
P.O. Box 314, Bedford Square, London WCIB 3TB
Telephone: (0171) 441 2500
Private & Confidential Please reply to:
The Directors Your Ref:
L K Global Healthcare Systems (UK) PLC Our Ref: DLI/TM/AC
Coombelands House Ext. No.: 2559
Coombelands Lane
Addlestone
Weybridge
Surrey 7th October 1994
KT15 1BW
Dear Sirs
We refer to the letter (the "Letter") dated 6th October 1994 from Barclays Bank
PLC (the "Bank") setting out the terms and conditions of a pounds sterling
1,750,000 Medium Term Loan (the "Loan") to L K Global Healthcare Systems (UK)
PLC (the "Borrower").
We vary the terms and conditions of the facility letter as follows:
SECURITY
In addition to the security set out in the letter the Bank require a Guarantee
from Dr. Kyprisou for pounds sterling 500,000 in favour of the Bank.
All other terms and conditions will remain unchanged.
Acceptance of the amended terms and conditions shall be signified by the
Borrower returning to the Bank within one month:
a) The enclosed duplicate of this letter duly signed on the Borrower's
behalf as evidence of acceptance of the amended terms and conditions,
and
b) A certified true copy of a Resolution of the Borrower's Board of
Directors;
i) Accepting the amended terms and conditions stated.
ii) Authorizing a specified person, or persons, to endorse and return
to the Bank the duplicate of this letter.
Yours faithfully
For and on behalf of
BARCLAYS BANK PLC
Accepted
/s/ O L ILIWSS For and on behalf of
- ---------------- L K Global Healthcare Systems (UK) PLC
O L ILIWSS /s/ [SIG]
Senior Corporate Manager -----------------------------
Chairman
<PAGE> 2
[BARKLAYS BANK PLC LETTERHEAD] Sorting Code:
20-05-75
PRIVATE & CONFIDENTIAL
The Directors
L K Global Healthcare Systems (UK) PLC Please reply to:
Coombelands House Your Ref:
Coomberlands Lane Our Ref: TM/JCL
Addlestone Ext. No. 0171 441 2559 Direct
Weybridge
Surrey KT15 1HY 10th April 1995
Dear Sirs
We refer to the letter (the "Letter") dated 11th October 1994 from Barclays
Bank PLC (the "Bank") setting out the terms and conditions of a pounds sterling
2,750,000 Medium Term Loan (the "Loan") to L K Global Healthcare Systems (UK)
PCL (the "Borrower").
We vary the terms and conditions of the letter as follows:-
Covenants - b
The Borrower undertakes that save for the prior written consent of the Bank on
any balance sheet the aggregate amount of interest and loan instalments paid,
payable or capitalised by the Borrower and its subsidiaries in respect of the
period ended 31st December 1995 will not exceed 20% of operational cashflow and
as at the 31st December 1996 and subsequent balance sheet dates will not exceed
16.7% of operational cashflow of the Borrower and its subsidiaries for that
period before the deduction of any amounts in respect of taxation and interest
and such loan instalments and ignoring any extraordinary items (whether profits
or losses).
For the purpose of this sub-clause "interest and loan instalments" shall be
defined as all continuing, regular or periodic costs, charges and expenses
incurred by the Borrower and its subsidiaries in effecting, servicing or
maintaining their borrowings or borrowing facilities, including discount,
acceptance and commitment charges and commissions.
"Operational cashflow" means total operating profit plus depreciation and
amounts charged to depreciation in the relevant period, capital receipts from
the disposal of assets and funds received from equity subscription and capital
issues, minus corporation tax paid and capital expenditure of the Borrower and
its subsidiaries plus or minus movements in the working capital of the Borrower
and its subsidiaries (and so that such items shall be calculated in a manner
satisfactory to the Branch).
All other terms and conditions, including covenant (a) will remain unchanged.
<PAGE> 3
Acceptance of the amended terms and conditions shall be signified by the
Borrower returning to the Bank within one month:
(a) the enclosed duplicate of this letter duly signed on the Borrower's behalf
as evidence of acceptance of the amended terms and conditions, and
(b) a certified true copy of a resolution of the Borrower's Board of Directors:
i) accepting the amended terms and conditions stated herein, and
ii) authorising a specified person, or persons, to endorse and return to
the Bank the duplicate of this letter.
Yours faithfully
For and on behalf of Barclays Bank PLC
/s/ D L ILIMES
D L ILIMES
SENIOR CORPORATE MANAGER
Accepted for and on behalf of L K Global Healthcare Systems (UK) PLC
[SIG]
- -------------------------
SIGNATURE
5th May 1995
- -------------------------
DATE
<PAGE> 4
Sorting Code:
20-05-75
[BARCLAYS LETTERHEAD]
The Directors Please reply to:
L K Global Healthcare Sys (UK) Plc Your Ref:
Coombelands House TM/PM
Coombelands Lane Our Ref:
Addlestone Ext. No:
Weybridge
Surrey KT15 1HY 1st September 1995
Dear Sirs
We refer to the Facility Letter dated 6th October 1994 and Letter of Variation
dated 10th April 1995 (the "Letters"), from Barclays Bank PLC (the "Bank")
setting out the terms and conditions of a L.1,750,000 medium term loan (the
"Loan") to L K Global Healthcare Systems (UK) Plc (the "Borrower").
We are pleased to vary the terms and conditions of the Letter as follows:-
Financial Covenants
- -------------------
The Borrower undertakes that save for the prior written consent of the Bank:
a) on any balance sheet date the aggregate amount of financing costs paid,
payable or capitalized by the Borrower and its Subsidiaries respect of
the period ended on such balance sheet date with effect from 31st
December 1996, will not exceed 25% of profits of the Borrower and its
Subsidiaries for that period before the deduction of any amounts in
respect of taxation and such financing costs and ignoring any
extraordinary items (whether profits or losses).
For the purpose of this sub-clause "financing costs" shall be defined as
all continuing, regular or periodic costs, charges and expenses
(including the interest element in hire purchase and finance leasing
charges as determined in accordance with applicable accounting standards)
incurred by the Borrower and its Subsidiaries in effecting, servicing or
maintaining their borrowings or borrowing facilities, including discount
acceptance and commitment charges and commissions;
b) The ratio of cash flow before Gross Financing Costs to Debt Service for
each Relevant period shall not fall below 2 to 1 with effect from 31st
December 1996.
Definition and Interpretation
- -----------------------------
"Cash Flow Before Gross Financing Costs" means, in respect of any Relevant
Period, PBIT for such Relevant period:-
<PAGE> 5
- -2-
(i) adding back any amount in respect of depreciation and amortisation of
know-how and of other intangibles charged during such Relevant Period;
(ii) less any increase in Working Capital (or plus any decreases in Working
Capital); and
(iii) deducting amounts paid in respect of tax on corporate profits
(including advance corporate tax), and capital element of all lease,
credit sales or conditional sale agreement or hire purchase agreements
during such Relevant Period;
"Debt Service" means:
(i) the aggregate amount of interest (whether paid, payable or capitalized)
under the Facility during such Relevant period; and
(ii) the principal amount of the Facility scheduled to be repaid during such
Relevant Period under the Facility;
"Relevant Period" means such consecutive period of three months during a
financial year of the Borrower and, in addition, each period of twelve months
ending on the last day of a financial year of the Borrower (each a "Relevant
Period");
All other terms and conditions will remain unchanged.
Acceptance of the amended terms and conditions shall be signified by the
Borrower returning to the Bank within one month;
(a) the enclosed duplicate of this letter duly signed on the Borrower's
behalf as evidence of acceptance of the amended terms and conditions,
and
(b) a certified true copy of a resolution of the Borrower's Board of
Directors;-
(i) accepting the amended terms and conditions stated,
(ii) authorising a specified person, or persons, to endorse and return
to the Bank the duplicate of this letter.
Yours faithfully
for and on behalf of BARCLAYS BANK PLC
/s/
- ------------------------
MA TATTON
D L ILINES
- ------------------------
SENIOR CORPORATE MANAGER
<PAGE> 6
- -3-
I acknowledge receipt of the original of the above Letter of Variation, signed
for and on behalf of L K Global Healthcare Systems (UK) Plc, pursuant to a
Resolution of the Board of Directors.
/s/ 7th September 1995
- -------------------------------------- -------------------------------
Signed for and on behalf of Date
L K Global Healthcare Systems (UK) Plc
<PAGE> 7
MEDIUM TERM LOAN AGREEMENT (CORPORATE)
We are pleased to advise you that Barclays Bank PLC (the "Bank") has agreed to
provide a medium term loan (the "Loan") upon and subject to the terms and
conditions set out below and overleaf of the attached General Conditions, if
any, to:
NAME L K GLOBAL HEALTHCARE ADDRESS Coombelands House
SYSTEMS (UK) PLC Coombelands Lane
Addlestone
Full names of company as registered Weybridge (the "Borrower")
- --------------------------------------------------------------------------------
THE LOAN AND DRAWDOWN
Amount: $1,750,000 Term: 6 years
The Loan may be drawn following completion of acceptance formalities and of any
security formalities in each case as set out herein.
* In minimum amounts and multiples of 250,000 pounds sterling by 28/12/1995
after which date the Bank's commitment to provide any undrawn amount will lapse.
- --------------------------------------------------------------------------------
PURPOSE OF LOAN
To assist with the purchase of the share capital of Genisystems Limited.
================================================================================
REPAYMENT
The Loan will be repaid in the following instalments:
* 20 instalments of principal (*together with interest of 87,500 pounds
sterling payable *quarterly, commencing 12 months) after (*first drawdown).
- --------------------------------------------------------------------------------
PREPAYMENT
The Loan in full or in minimum amounts and multiples of 250,000 pounds sterling
together with accrued interest to the date of prepayment if required by the
Bank. A prepayment fee at the rate of 1% flat is payable at the time and on the
amount prepaid.
- --------------------------------------------------------------------------------
INTEREST
Rate: 3% p.a. over:
* the rate at which sterling deposits are offered to the Bank in the London
Inter-Bank Market on the first day of an Interest Period for a similar amount
and Interest Period ("LIBOR") (* plus any associated costs calculated in
accordance with the Bank's standard formula current from time to time,
resulting from requirements of the Bank of England or other Governmental
authorities or agencies, whether having the force of law or otherwise,
affecting the conduct of the Bank's business) by debit to the Borrowers cheque
account.
- --------------------------------------------------------------------------------
FEES
(a) A negotiation fee of 17,500 pounds sterling payable on acceptance of this
offer:
- --------------------------------------------------------------------------------
SECURITY/GUARANTEE(S)
The Loan is to be secured/guaranteed by:
A first Debenture by the Borrower to the Bank.
A first Legal Charge over the Intellectual Property Rights of the Borrower.
and any other security which is now held or hereafter may be held by the Bank,
all of which is to secure all money and liabilities which shall from time to
time be due, owing or incurred, whether actual or contingent, to the Bank by
the Borrower.
- --------------------------------------------------------------------------------
UNDERTAKINGS
(a) The undertaking set out under Condition 9(a) * will apply, with references
therein to Subsidiaries applying to * ALL Subsidiaries.
(b) The undertaking set out under Condition 9(b) * will not apply.
- --------------------------------------------------------------------------------
SPECIAL CONDITIONS
* The enclosed Special Conditions sheet(s) form(s) part of this Agreement.
- --------------------------------------------------------------------------------
THIS OFFER WILL LAPSE IF NOT ACCEPTED WITHIN ONE MONTH OF THE DATE SHOWN BELOW
- --------------------------------------------------------------------------------
SIGNATURES
for BARCLAYS BANK PLC This offer is accepted by the Borrower
For and on behalf of
By L K Global Healthcare Systems
(UK) PLC
[SIG] Corporate Manager [SIG]
- ------------------- --------------------------
CHAIRMAN
--------------------------
Date 6/10/94 Date 11/10/94
-------------- ---------------------
- --------------------------------------------------------------------------------
The Borrower should return the top copy together with a CERTIFIED true copy of
a Board Resolution (as designated) and the ??? ??? duplicate Special Conditions
(white), if any, and retain the ?? ?? copy of the ??? ??? and the copy, if any,
of the Special Conditions (violet). Blue copies to be retained by ???.
* Delete as appropriate __ Insert as appropriate
<PAGE> 8
This Agreement shall be subject to the following:--
FIXED RATE OPTION
- -----------------
a) on the day of drawdown or on an Interest Period maturity date, provided
that the Loan has been or will be fully drawn down at that time, the
Borrower may request the Bank to quote a fixed rate of interest for annual
periods of up to six years (the "Fixed Rate Period") but no Fixed Rate
Period may mature after the date upon which the Loan falls due for
repayment in full (the "Final Repayment Date");
b) when intending to exercise this option the Borrower must advise the Branch
Manager of this branch of the Bank by 12:00 noon at the latest on the
business day of a rollover or of drawdown;
c) upon acceptance of a fixed rate quotation interest on the Loan will be
payable quarterly in arrear by debit to the Borrower's current account at
this branch of the Bank;
d) throughout the Fixed Rate Period the conditions for Prepayment detailed in
Condition 4 shall not apply. The Loan may not be prepaid in part. If the
Borrower shall give the Bank such additional amount, as will be certified
in writing by the Bank to the Borrower to compensate the Bank for any loss
which it incurs by reason of such prepayment, together with a fee of $250,
then the Loan may be prepaid in whole. The Loan will not be available for
redrawing following such prepayment;
e) Where the Final Repayment Date falls after the maturity date of the Fixed
Rate Period, the Borrower must advise the Branch Manager of this branch of
the Bank by 12:00 noon at the latest on the maturity date of the Fixed
Rate Period of the Interest Period selected in accordance with Condition 3
of the Agreement. In the absence of such notification being received by the
Bank, the Interest Period shall be for three months and the Bank will roll
over the Loan accordingly;
f) in the event of demand for repayment being made by the Bank in accordance
with Condition 11 at any time during the Fixed Rate Period, the Bank will
break the Fixed Rate Period on the date of demand and will debit the Loan
with any additional amount as will be certified in writing by the Bank to
the Borrower to compensate the Bank for any loss it incurs by reason of
having made demand. From the date of demand interest will be calculated in
accordance with the provisions of Condition 11.
FEES
- ----
All fees payable in perfecting the Bank's security (as detailed within the
facility letter) will be payable by the Borrower.
<PAGE> 9
Additionally any legal fees or expenses incurred by the Bank in connection with
granting facilities will be reimbursed by the Borrower.
SECURITY
In addition to the security detailed previously the Borrower shall ensure the
overdraft and Medium Term Loan indebtedness incurred by the Borrower to the
Bank shall at all times be covered at least 150% by current assets.
CONDITIONS PRECEDENT
Prior to first drawdown of the loan the Bank will require:
1) A satisfactory business appraisal from the Bank's Technical Advisor,
commenting on present and future products and the company's standing in
the market place.
2) Documentary evidence of the 600,000 pounds sterling payable for the
purchase of the software product, ARIS.
3) The Bank to be provided with the Share Certificate effectively
confirming the investment in L K Global Healthcare Systems (OX) PLC.
4) Sight of the signed agreement which will include details of the various
warranties to safeguard the Borrower and details of the deferred
payment to Genisyst Ltd which must be satisfactory to the Bank.
5) Written confirmation from Pennell Kerr Forster that the transaction
between the Borrower and Genisyst Ltd does not contravene the Companies
Act of 1985.
CONDITIONS SUBSEQUENT
The Borrower is to provide the Bank within six weeks of first drawdown a
written report from PEF commenting on the contractual nature of the Borrower's
book debtors.
INFORMATION
In addition to clause 6. The Borrower is to provide the Bank with monthly
profit and loss accounts to include Balance Sheet together with quarterly
Debenture figures in the format prescribed by the Bank. This information is to
be provided within 23 days of the month end to which they relate.
<PAGE> 10
COVENANTS
The Borrower undertake that save with the prior written consent of the Bank:-
a) On any Balance sheet day the aggregate amount of financing costs paid,
payable of capitalised by the Borrower and it's subsidiaries in respect of
the period ended 31st December 1995 will not exceed % of profits, and as
at the 31st December 1996 and subsequent Balance Sheet dates will not
exceed 20% of profits of the Borrower and it's subsidiaries for that
period before the deduction of any amounts in respect of taxation and such
financing costs and ignoring any extraordinary items (whether profits or
losses).
For the purpose of this sub-clause "Financing Costs" shall be defined as all
continuing, regular or periodic costs, charges and expenses (including the
interest element in hire purchase and finance leasing as determined in
accordance with applicable accounting standards) incurred by the Borrower and
it's subsidiaries in affecting, servicing or maintaining their borrowings or
borrowing facilities, including discount, acceptance and commitment charges and
commissions.
b) On any balance sheet the aggregate amount of interest and loan
installments paid, payable or capitalised by the Borrower and its
Subsidiaries in respect of the period ended 31st December 1995 will not
exceed 20% of profits and as at 31st December 1996 and subsequent balance
sheet dates will not exceed 16.7% of profits of the Borrower and its
Subsidiaries for that period before the deduction of any amounts in
respect of taxation and such interest and loan installments and ignoring
any extraordinary items (whether profits or losses).
For the purpose of this sub-clause "interest and loan installments" shall
be defined as all continuing, regular or periodic costs charges and
expenses incurred by the Borrower and its subsidiaries in affecting,
servicing or maintaining their borrowings or borrowing facilities,
including discount, acceptance and commitment charges and commissions.
"Operational Cash Flow" means Total Operating profit plus depreciation and
amounts charged to depreciation in the Relevant Period capital receipts
from the disposals of assets and funds received from equity subscription
and capital issues minus corporation tax paid and capital expenditure of
the Borrower and its Subsidiaries plus or minus movements in the working
capital of the Borrower and its Subsidiaries (and so
<PAGE> 11
that all such items shall be calculated in an manner satisfactory to the Bank).
For BARCLAYS BANK PLC This offer is accepted by
the Borrower
For and Behalf of L K
Global Healthcare Systems
(UK) PLC
By /s/ [SIG]
-----------------------------
/s/ [SIG] MANAGER
- -----------------
CHAIRMAN
-----------------------------
-----------------------------
DATE November 10, 1994 DATE November 10, 1994
<PAGE> 12
MEDIUM TERM LOAN AGREEMENT (CORPORATE)
We are pleased to advise you that Barklays Bank PLC (the "Bank") has agreed to
provide a medium term loan (the "Loan") upon and subject to the terms and
conditions set out below and overleaf and of the attached ???? to:
NAME L K GLOBAL HEALTHCARE SYSTEMS (UK) ADDRESS Coombelands House
------------------------------------ ------------------------------
PLC Coombelands Lane
------------------------------------ ------------------------------
Addlestone
------------------------------------ Weybridge the "Borrower")
---------------
Full names of company as registered
- --------------------------------------------------------------------------------
THE LOAN AND DRAWDOWN
AMOUNT: 1,750,000 pounds TERM: 6 years
------------------------- ------
The Loan may be drawn following completion of acceptance formalities and of any
security formalities in each case as set out herein.
*In minimum amounts and multiples of 250,000 pounds by 28/12/1995 after which
date the Bank's commitment to provide any undrawn amount will lapse.
- --------------------------------------------------------------------------------
PURPOSE OF LOAN
To assist with the purchase of the shared capital of Genisyst Limited.
- --------------------------------------------------------------------------------
REPAYMENT
The Loan will be repaid in the following instalments:
* 20 instalments of principal (*together with interest) of 87,500 pounds payable
quarterly commencing 12 month(s) after (*first) drawdown.
OR
- --------------------------------------------------------------------------------
REPAYMENT
The Loan in full or in minimum amounts and multiples of 250,000 pounds together
with accrued interest to the date of prepayment if required by the Bank. A
prepayment fee at the rate of 1 % flat is payable at the time and on the amount
prepaid.
- --------------------------------------------------------------------------------
INTEREST
RATE: 3 % over:
*the rate at which sterling deposits are offered to the Bank in the London
Inter Bank Market on the first day of an Interest Period for a similar amount
and Interest Period ("LIBOR") (plus any associated costs calculated in
accordance with the Bank's standard formula current from time to time,
resulting from requirements of the Bank of England or other Governmental
authorities or agencies, whether having the force of law or otherwise,
affecting the conduct of the Bank's business by debit to the Borrowers cheque
account.
- --------------------------------------------------------------------------------
FEES
(a) A negotiation fee of 17,500 pounds payable on acceptance of this offer.
(b)
- --------------------------------------------------------------------------------
SECURITY/GUARANTEE(S)
The Loan is to be secured/guaranteed by:
A first Debenture by the Borrower to the Bank.
A first Legal Charge over the Intellectual Property Rights of the Borrower.
and any other security which is now held or hereafter may be held by the Bank,
all of which is to secure all money and liabilities which shall from time to
time be due, owing or incurred, whether actual or contingent, to the Bank by
the Borrower.
- --------------------------------------------------------------------------------
UNDERTAKINGS
(a) The undertaking set out under Condition 9(a)* will apply, with references
therein to Subsidiaries applying to *ALL Subsidiaries.
(b) The undertaking set out under Condition 9(b) * will not apply.
- --------------------------------------------------------------------------------
SPECIAL CONDITIONS
*The enclosed Special Conditions sheet(s) form(s) part of this Agreement.
- --------------------------------------------------------------------------------
THIS OFFER WILL LAPSE IF NOT ACCEPTED WITHIN ONE MONTH OF THE DATE SHOWN BELOW
- --------------------------------------------------------------------------------
SIGNATURES
for BARCKLAYS BANK PCL This offer is accepted by the Borrower
For and on behalf of
By L K Global Healthcare Systems (UK)
------------------------------------
[SIG] Senior Corporate Manager [SIG] PLC
- ----------------- -------------------------------------
CHAIRMAN
-------------------------------------
DATE 6/10/94 DATE 11/10/94
------------ ------------
- --------------------------------------------------------------------------------
The Borrower should return the top copy together with a CERTIFIED true copy of
a Board Resolution (as detailed over) and the attached unamended duplicate
Special conditions (white), if any, and retain the bottom copy of the offer
letter and the copy, if any, of the Special Conditions (pink). Blue copies to
be retained by branch.
<PAGE> 13
This Agreement shall be subject to the following:
FIXED RATE OPTION
a) on the day of drawdown or on an Interest Period maturity date, provided
that the Loan has been or will be fully drawn down at that time, the
Borrower may request the Bank to quote a fixed rate of interest for annual
periods of up to six years (the "Fixed Rate Period") but no Fixed Rate
Period may mature after the date upon which the Loan falls due for
repayment in full (the "Final Repayment Date");
b) when intending to exercise this option the Borrower must advise the Branch
Manager of this branch of the Bank by 12.00 noon at the latest on the
business day of a rollover or of drawdown;
c) upon acceptance of a fixed rate quotation interest on the Loan will be
payable quarterly in arrear by debit to the Borrower's current account at
this branch of the Bank;
d) throughout the Fixed Rate Period the conditions for Prepayment detailed in
Condition 4 shall not apply. The Loan may not be prepaid in part. If the
Borrower shall give the Bank such additional amount, as will be certified
in writing by the Bank to the Borrower to compensate the Bank for any loss
which it incurs by reason of such prepayment, together with a fee of 250
Pounds Sterling, then the Loan may be prepaid in whole. The Loan will not
be available for redrawing following such prepayment;
e) where the Final Repayment Date falls after the maturity date of the Fixed
Rate Period, the Borrower must advise the Branch Manager of this branch of
the Bank by 12.00 noon at the latest on the maturity date of the Fixed Rate
Period of the Interest Period selected in accordance with Condition 2 of
the Agreement. In the absence of such notification being received by the
Bank, the Interest Period shall be for three months and the Bank will roll
over the Loan accordingly;
f) in the event of demand for repayment being made by the Bank in accordance
with Condition 11 at any time during the Fixed Rate Period, the Bank will
break the Fixed Rate Period on the date of demand and will debit the Loan
with any additional amount as will be certified in writing by the Bank to
the Borrower to compensate the Bank for any loss it incurs by reason of
having made demand. From the date of demand interest will be calculated in
accordance with the provisions of Condition 11.
FEES
All fees payable in perfecting the Bank's security (as detailed within the
facility letter) will be payable by the Borrower.
<PAGE> 14
Additionally any legal fees or expenses incurred by the Bank in connection with
granting facilities will be reimbursed by the Borrower.
SECURITY
In addition to the security detailed previously the Borrower shall ensure the
overdraft and Medium Term Loan indebtedness incurred by the Borrower to the Bank
shall at all times be covered at least 150% by current assets.
CONDITIONS PRECEDENT
Prior to first drawdown of the loan the Bank will require:-
1) A satisfactory business appraisal from the Bank's Technical Advisor,
commenting on present and future products and the company's standing
in the market place.
2) Documentary evidence of the 600,000 Pound Sterling payable for the
purchase of the software product, ARIS.
3) The Bank to be provided with the Share Certificate effectively confirming
the investment in L K Global Healthcare Systems (UK) PLC.
4) Sight of the signed agreement which will include details of the various
warranties to safeguard the Borrower and details of the deferred payment
to Genisyst Ltd which must be satisfactory to the Bank.
5) Written confirmation from Pannell Kerr Forster that the transaction
between the borrower and Genisyst Ltd does not contravene the Companies
Act 1985.
CONDITIONS SUBSEQUENT
The Borrower is to provide the Bank within six weeks of first drawdown a
written report from PKF commenting on the contractual nature of the Borrower's
book debtors.
INFORMATION
In addition to clause 6. The Borrower is to provide the Bank with monthly
profit and loss accounts to include Balance Sheet together with quarterly
Debenture figures in the format prescribed by the Bank. This information is to
be provided within 31 days of the month end to which they relate.
<PAGE> 15
COVENANTS
The borrower undertakes that save with the prior written consent of the Bank:-
a) On any Balance Sheet day the aggregate amount of financing costs paid,
payable of capitalised by the Borrower and its subsidiaries in respect of
the period ended 31st December 1995 will not exceed 25% of profits, and as
at the 31st December 1996 and subsequent Balance Sheet dates will not
exceed 20% of profits of the Borrower and its subsidiaries for that period
before the deduction of any amounts in respect of taxation and such
financing costs and ignoring any extraordinary items (whether profits or
losses).
For the purpose of this sub-clause "Financing Costs" shall be defined as all
continuing, regular or periodic costs, charges and expenses (including the
interest element in hire purchase and finance leasing as determined in
accordance with applicable accounting standards) incurred by the Borrower and
its subsidiaries in effecting, servicing or maintaining their borrowings or
borrowing facilities, including discount, acceptance and commitment changes and
commissions.
b) On any balance sheet the aggregate amount of interest and loan instalments
paid, payable or capitalised by the Borrower and its Subsidiaries in
respect of the period ended 31st December 1995 will not exceed 20% of
profits and as of 31st December 1996 and subsequent balance sheet dates
will not exceed 16.7% of profits of the Borrower and its Subsidiaries for
that period before the deduction of any amounts in respect of taxation and
such interest and loan instalments and ignoring any extraordinary items
(whether profits or losses).
For the purpose of this sub-clause "interest and loan instalments" shall
be defined as all continuing, regular or periodic costs, charges and
expenses incurred by the Borrower and its Subsidiaries in effecting,
servicing or maintaining their borrowings or borrowing facilities,
including discount, acceptance and commitment charges and commissions.
"Operational Cash Flow" means Total Operating Profit plus depreciation and
amounts charged to depreciation in the Relevant Period, capital receipts
from the disposals of assets and funds received from equity subscription
and capital issues minus corporation tax paid and capital expenditure of
the Borrower and its Subsidiaries plus or minus movements in the working
capital of the Borrower and its Subsidiaries (and so
<PAGE> 16
that all such items shall be calculated in a manner satisfactory to the
Bank.)
For BARCLAYS BANK PLC This offer is accepted by the Borrower
For and Behalf of L K Global Healthcare
Systems (UK) PLC
[SIG] By [SIG]
- --------------------- MANAGER ------------------------------------
CHAIRMAN
--------------- -------------------
--------------- -------------------
DATE 11/10/94
Date 11/10/94
----------------------------------
<PAGE> 1
EXHIBIT 10.3
CONFORMED COPY
Dated 31st March 1995
LK GLOBAL INFORMATION SYSTEMS BV
AS BORROWER
BARCLAYS DE ZOETE WEDD LIMITED
AS ORIGINAL AGENT
BARCLAYS DE ZOETE WEDD LIMITED
AS ORIGINAL MEZZANINE SECURITY TRUSTEE
BARCLAYS DE ZOETE WEDD LIMITED
AS ORIGINAL MEZZANINE LENDER
------------------------
L.5,000,000
TERM LOAN FACILITY
------------------------
THIS FACILITY AGREEMENT IS ENTERED INTO WITH THE
BENEFIT OF AND SUBJECT TO THE TERMS
OF CERTAIN INTERCREDITOR DEEDS
Ashurst Morris Crisp
Broadwalk House
5 Appold Street
London EC2A 2HA
Ref: JOS/050B01318
Tel: (0171) 638 1111
Fax: (0171) 972 7990
<PAGE> 2
<TABLE>
<CAPTION>
CONTENTS
CLAUSE HEADING PAGE
<S> <C>
1. INTERPRETATION...............................................................1
2. THE FACILITY................................................................20
3. PARTICIPATION OF MEZZANINE LENDERS..........................................20
4. APPLICATION OF ADVANCES.....................................................22
5. CONDITIONS PRECEDENT........................................................22
6. DRAWDOWN PROCEDURES.........................................................23
7. INTEREST....................................................................24
8. SELECTION OF INTEREST PERIODS...............................................25
9. MARKET DISRUPTION...........................................................26
10. REPAYMENT AND PREPAYMENT....................................................27
11. PAYMENTS....................................................................31
12. TAXES.......................................................................32
13. CHANGE IN CIRCUMSTANCES.....................................................33
14. FEES, EXPENSES AND STAMP DUTIES.............................................35
15. REPRESENTATIONS AND WARRANTIES..............................................36
16. GENERAL UNDERTAKINGS........................................................44
17. INFORMATION, ACCOUNTING AND FINANCIAL UNDERTAKINGS..........................54
18. EVENT'S OF DEFAULT..........................................................61
20. EVIDENCE OF INDEBTEDNESS....................................................73
21. APPLICATION OF MONEYS.......................................................73
22. PRO RATA PAYMENTS...........................................................73
23. SET-OFF.....................................................................74
24. NOTICES.....................................................................75
25. NO IMPLIED WAIVERS..........................................................76
26. INVALIDITY OF ANY PROVISION.................................................76
27. CONFIDENTIALITY.............................................................76
28. CHANGES TO PARTIES..........................................................76
29. MEZZANINE LENDERS' DECISIONS................................................79
30. INDEMNITIES.................................................................80
31. CERTIFICATES CONCLUSIVE.....................................................81
32. GOVERNING LAW AND SUBMISSION TO JURISDICTION................................81
33. COUNTERPARTS................................................................82
SCHEDULES
1 The Original Mezzanine Leader ..............................................83
2 Conditions Precedent .......................................................84
3 Additional Cost ............................................................89
4 Form of Advance Request ....................................................91
5 Formalities Certificate ....................................................93
6 Transfer Certificate .......................................................96
7 Existing Security Interests and Guarantees
Part A - Existing Security Interests...................................100
Part B - Existing Guarantees...........................................102
8 Properties.................................................................104
9 Form of Mezzanine Lender Accession Notice..................................106
10 Dormant Subsidiaries.......................................................110
APPENDICES
Appendix 1 Combined Group Pro-forma Statements.......................................
Appendix 2 Pro-forma IP Licence......................................................
</TABLE>
<PAGE> 3
THIS FACILITY AGREEMENT is made on 31st March 1995.
BETWEEN:-
(1) LK GLOBAL INFORMATION SYSTEMS BV a company incorporated in The Netherlands
having its legal seat in Delft, whose registered office is situate at
Hoekenrode 6-8, 1102 BR Amsterdam Zuidoost, The Netherlands (the
"BORROWER");
(2) BARCLAYS DE ZOETE WEDD LIMITED (the "ORIGINAL MEZZANINE AGENT");
(3) BARCLAYS DE ZOETE WEDD LIMITED (the "ORIGINAL MEZZANINE SECURITY TRUSTEE");
and
(4) BARCLAYS DE ZOETE WEDD LIMITED (the "ORIGINAL MEZZANINE LENDER").
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires, the following
expressions have the following meanings:-
"ACCEDING MEZZANINE LENDER" means any financial institution which has
executed a Mezzanine Lender Accession Notice;
"ACCESSION DATE" means the Business Day falling on or after the Initial
Termination Date which is specified as such in the notice served by the
Mezzanine Agent pursuant to Clause 2.3, or such later date as the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders may agree in
writing with the Borrower;
"ACCOUNTANTS' FINANCIAL STATEMENTS" means those financial statements set
out on pages 6 and 8 of the second report mentioned in the definition of
Accountants' Reports and that financial statement set out on page 1 of the
third report mentioned in the definition of Accountants' Reports;
"ACCOUNTANTS' REPORTS" mean the reports on the Business entitled "Review of
the LK Global Manufacturing Systems (UK) PLC Business Plan dated 15th
February 1995", "Limited Review of BEC Group Limited on behalf of LK Global
Information Systems (UK) PLC February 1995" and "Limited Review of BEC
Group Limited on behalf of LK Global Information Systems (UK) PLC addendum
dated March 1995" prepared by Messrs Pannell Kerr and Forster addressed to,
inter alia, the Borrower, the Mezzanine Finance Parties and their
respective successors and assigns and any other report on the Business;
"ACCOUNTING COMPANIES" means the Borrower, each Principal Subsidiary, each
other Subsidiary of LKUK (other than Dormant Subsidiaries of LKUK) and each
other BV Holding Company and "ACCOUNTING COMPANY" means any of them;
"ACCOUNTING GROUPS" means the Indian Group, the Cypriot Group, the BV
Group, the Combined Group and each other BV Holding Company Group and
"ACCOUNTING GROUP" means any of the aforementioned groups of Companies and
"MEMBER OF AN ACCOUNTING GROUP" and "ACCOUNTING GROUP COMPANY" means any
member of any of the aforementioned groups of companies;
- 1 -
<PAGE> 4
"ACCOUNTING QUARTER" means each of the periods of three calendar months
ending on the last day of the third, sixth, ninth and twelfth Management
Accounting Periods in each Financial Year;
"ACQUISITION AGREEMENTS" means each of the following acquisition agreements
in the agreed terms:- (a) the agreement for the sale and purchase of all
the issued shares of GMTMS; and (b) the agreement for the sale and purchase
of certain assets between HMTMS and Bec and "ACQUISITION AGREEMENT" means
either of them;
"ACQUISITION COSTS" means all fees (including without limitation front end
arrangement, underwriting and participation fees payable to the Mezzanine
Finance Parties, the Senior Lenders or any of them), out-of-pocket costs
and expenses and stamp, registration, transfer and similar taxes incurred
by the Borrower or any Subsidiary thereof in connection with the
negotiation, preparation and execution of the Transaction Documents or in
the preparation of the Information Package or otherwise in connection with
the Acquisitions or a Proposed Acquisition;
"ACQUISITION DOCUMENTS" means the Acquisition Agreements and each agreement
certified in the agreed terms for each Proposed Acquisition and all other
documents, agreements and certificates executed in connection therewith;
"ACQUISITION PACKAGE DOCUMENTS" means, at any time, the Acquisition
Agreements, the Vendor Disclosure Letters, the Stock Transfer Form, the
Service Contracts and at any time after the date of this Agreement any
Acquisition Documents and any other documents certified in the agreed terms
as the Mezzanine Agent acting on the instructions of all the Mezzanine
Lenders shall specify in a Term Sheet in relation to any Subsequent Advance
shall constitute an Acquisition Package Document and in each cast any other
agreement, deed or other document or certificates executed in connection
therewith and "ACQUISITION PACKAGE DOCUMENT" means any of them;
"ACQUISITION STATEMENTS" means the Combined Pro-forma Statements, the LK
Hospitality Statements, the LK Healthcare Statements, the Genisyst
Statements, the Bec Statements, the Accountants' Financial Statements and
LK Engineering Statements and "ACQUISITION STATEMENT" means any of them;
"ACQUISITIONS" means the acquisition of all the issued shares of GMTMS by
LKUK and the acquisition of the First Business by HMTMS pursuant to the
Acquisition Agreements, as more particularly described in the Acquisition
Agreements and the acquisition of all the issued shares in HMTMS by LKUK
pursuant to the Stork Transfer Form and "ACQUISITION" means any of the
foregoing;
"ADDITIONAL COSTS RATE" means for any period for which an interest rate is
to be determined for an Advance or, as the cast may be, an unpaid sum (or
any part of such period), the rate determined by the Mezzanine Agent in
accordance with Schedule 3;
"ADVANCE" means the principal amount of each borrowing or advance made or
to be made by the Mezzanine Lenders under this Agreement and "ADVANCES"
means all the Advances together;
"ADVANCE REQUEST" means a notice requesting an Advance in the form set out
in Schedule 4;
"AFFECTED INTEREST PERIOD" has the meaning given to it in Clause 9.1;
- 2 -
<PAGE> 5
"AGGREGATE WARRANT RIGHTS" shall have the meaning ascribed thereto in the
Warrant Instrument;
"AGREED CURRENCY" has the meaning given to it in Clause 30.2;
"APPROPRIATE COMPANIES" means each Charging Company which is a private
limited company which has complied with the provisions set out in Sections
155 to 158 of the Companies Act 1985 in relation to any financial
assistance (including without limitation any Security Interest granted in
favour of the Mezzanine Security Trustee) given by it to any person in
connection with the acquisition by any person of shares in it or in any of
its Holding Companies or in connection with any reduction or discharge of
any liability so incurred and "APPROPRIATE COMPANY" means any of them;
"ARIS UNDERTAKING" means the undertaken dated the date of this Agreement in
form and substance satisfactory to the Mezzanine Agent between, LK Cyprus
and Dr L Kyprianou certified in the agreed terms;
"ARTICLES" means the constitutional documents of the Borrower certified in
the agreed terms and in force at the Completion Date;
"ASSIGNMENTS OF INTELLECTUAL PROPERTY" means the deeds of assignment in the
agreed terms whereby certain intellectual property rights of the Obligors
party thereto are to be assigned by way of security to the Mezzanine
Security Trustee and "ASSIGNMENT OF INTELLECTUAL PROPERTY" means any of
them;
"ASSIGNMENTS OF KEY-MAN POLICIES" means the deeds of assignment in the
agreed terms whereby the Key-man Policies are to be assigned by way of
security to the Mezzanine Security Trustee and "ASSIGNMENT OF KEY-MAN
POLICIES" means any of them;
"AUDITORS" means Messrs Pannell Kerr and Forster and/or such other firm of
accountants as the Borrower, or any other BV Group Company (as the case may
be) may appoint in compliance with the provisions of Clause 17.3;
"AVAILABLE AMOUNT" means at any time Total Commitments at that time less
the amount of the Loan at that time;
"AVAILABILITY DATE" means the date on which the Mezzanine Agent gives
notice to the Mezzanine Lenders and the Borrower confirming that the
initial conditions precedent have been satisfied in accordance with Clause
5.1(a);
"BANKING DISCLOSURE LETTERS" means, at any time, the letter from the
Borrower to the Mezzanine Agent in form and substance satisfactory to the
Mezzanine Agent dated the date of this Agreement disclosing certain matters
for the purposes of Clause 15 and at any time after the date of this
Agreement any other letter from the Borrower to the Mezzanine Agent in the
agreed terms that the Mezzanine Agent acting on the instruction of all the
Mezzanine Lenders shall designate shall constitute a Banking Disclosure
Letter and "BANKING DISCLOSURE LETTER" means any of them;
"BEC" means Bec Group Limited, a company incorporated in England and Wales
with registered No. 01402285;
"BEC GROUP" means Bec and all of its Subsidiaries immediately prior to the
Acquisitions and "MEMBER OF THE BEC GROUP" or "BEC GROUP COMPANY" means any
of them;
- 3 -
<PAGE> 6
"BEC STATEMENTS" means the audited consolidated financial statements of Bec
and its Subsidiaries (including the notes thereto), for the year ended
31st March 1993, the unaudited consolidated management accounts of Bec and
its Subsidiaries, (including the notes thereto (if any)), for the year
ended 31st March 1994 and the unaudited consolidated management accounts of
Bec and its Subsidiaries for-the period commencing 1st April 1994 and
ending 31st January 1995;
"BUDGET" has the meaning given to it in Clause 17.4(e);
"BUSINESS DAY" means a day (other than a Saturday or a Sunday) on which
banks and financial markets are open in London for the transaction of
business of the nature required by this Agreement;
"BUSINESS PLANS" means, At any time, the business plan entitled "LK GLOBAL
MANUFACTURING SYSTEMS (UK) PLC BUSINESS PLAN" dated 15 February 1995
prepared by Dr Lycourgos Kyprianou, Noel R Voice and Michael W Bennett and
at any time after the date of this Agreement any other business plan in the
agreed terms as the Mezzanine Agent acting on the instructions of all the
Mezzanine Lenders shall specify in a Term Sheet in relation to any
Subsequent Advance shall constitute a Business Plan and "BUSINESS PLAN"
means any of them;
"BUSINESSES" means the First Business and at any time after the date of
this Agreement any other business as the Mezzanine Agent on the
instructions of all the Mezzanine Lenders shall specify in a Term Sheet in
relation to any Subsequent Advance shall constitute all or part of the
Businesses and "BUSINESS" means any of them;
"BV GROUP" means the Borrower and all of its Subsidiaries and "MEMBER OF
THE BV GROUP" or "BV GROUP COMPANY" means any one of them;
"BV HOLDING COMPANIES" means each Holding Company of each BV Group Company
(other than LKNV) and "BV HOLDING COMPANY" means any of them;
"BV HOLDING COMPANY GROUPS" means each group of companies comprising a BV
Holding Company and all of that BV Holding Company's Subsidiaries (other
than its Dormant Subsidiaries save for the purpose of the definition of
Accounting Groups when used in Clause 15.15(a) when it shall include its
Dormant Subsidiaries) and "BV HOLDING COMPANY GROUP" means any one of those
group of companies;
"CAPITAL EXPENDITURE" means expenditure on buildings, freehold and
leasehold property and on plant, machinery and other similar types of
equipment which would be treated as a capital asset in accordance with UK
gaap;
"CASH COLLATERAL ACCOUNT" means any interest bearing account with the
Mezzanine Security Trustee or such other financial institution as the
Mezzanine Agent shall nominate by notice in writing to the Borrower opened
or to be opened in the name of the Borrower into which certain sums are to
be paid to be held as security by the Mezzanine Security Trustee for the
obligations of the Borrower under the Mezzanine Finance Documents;
"CASH COLLATERAL CHARGE" means a charge in a form required by the Mezzanine
Agent granted or to be granted by the Borrower to the Mezzanine Security
Trustee in relation to a Cash Collateral Account,
"CHARGING COMPANY" means any member of the UK Group which executes a fixed
and floating Security Interest in substantially similar terms to the
Guarantee and Debenture in favour of the Mezzanine Security Trustee;
- 4 -
<PAGE> 7
"COMBINED GROUP" means that group of entities (without double counting)
comprising each BV Group Company, each Indian Group Company and each
Cypriot Group Company and as if the Borrower was the Holding Company of the
BV Group, the Cypriot Group and the Indian Group and "MEMBER OF THE
COMBINED GROUP" or "COMBINED GROUP COMPANY" means any of them;
"COMBINED GROUP PRO-FORMA STATEMENTS" means the pro-forma statements of the
Combined Group set out in Appendix 1 hereto;
"COMMITMENT" means, in relation to the participation of any Mezzanine
Lender in the Facility, the amount stated opposite its name in Schedule 1
or as specified in any Mezzanine Lender Accession Notice delivered pursuant
to Clause 2.3 (or, in the case of a Transferee, the amount stated in the
Schedule to the relevant Transfer Certificate as being transferred to that
Transferee) in relation to the Facility (collectively the "TOTAL
COMMITMENTS") as the same may be transferred (in whole or in part),
cancelled, reduced, varied or terminated in accordance with the terms of
this Agreement;
"COMMISSIONED SOFTWARE AGREEMENT" means the agreement in the agreed terms
entered into or to be entered into between HMTMS and LK India in relation
to, inter alia, the Programs (as defined therein);
"COMPLETIONS" means the completion of the sale and purchase of the shares
in GMTMS and the assets of Bec (as the case may be) pursuant to the
Acquisition Agreements and the completion of the transfer of all the issued
shares in the capital of HMTMS from GMTMS to LKUK and "COMPLETION" means
any of the foregoing completions;
"COMPLETION ACCOUNTS" means the accounts delivered to the Mezzanine Agent
under Clause 17.4(c);
"COMPLETION DATE" means the date the last Completion takes place;
"CONSOLIDATION PERIOD" means the date commencing on the drawdown of the
First Advance and ending on 31st October 1995;
"CONTROL" means either (a) the acquisition of 30 percent or more of the
equity share capital of the Borrower or any Principal Subsidiary (as the
case may be) or (b) the acquisition of shares in the Borrower or any
Principal Subsidiary (as the case may be) having the right to cast 30 per
cent or more of the votes capable of being cut in general meetings of the
Borrower or any Principal Subsidiary (as the case may be) or (c) control as
defined in Section 840 Income and Corporation Taxes Act 1988;
"CYPRIOT GROUP" means LK Cyprus and all its Subsidiaries and "MEMBER OF THE
CYPRIOT GROUP" or "CYPRIOT GROUP COMPANY" means any of them;
"DEED OF ADHERENCE" shall have the meaning ascribed to that term in the
Intercreditor Deed; "DEFAULT INTEREST PERIOD" has the meaning given to it
in Clause 7.6(b);
"DEFAULT RATE" has the meaning given to it in Clause 7.6;
"DORMANT SUBSIDIARY" means a Subsidiary of the Borrower which has not
traded or has ceased trading and which the Borrower demonstrates to the
Mezzanine Agent's satisfaction only owns gross assets which have an
aggregate market value of less than L.500,000;
- 5 -
<PAGE> 8
"DRAWDOWN DATE" means, in relation to an Advance, the date for the making
of such Advance as specified by the Borrower in the relevant Advance
Request;
"EBIT" has the meaning given to it in Clause 17.9(b);
"EMPLOYEE OPTIONS" means the options to be granted by the Borrower to
certain directors and/or employees of certain of its Subsidiaries from time
to time to subscribe for ordinary shares in the capital of the Borrower but
which in any event do not in aggregate comprise any greater than 5% of the
ordinary issued share capital of the Borrower from time to time;
"ENVIRONMENT" means all gases, air, vapours, liquids, water, land, surface
and sub-surface soils, rock, flora, fauna, wetlands and all other natural
resources or part thereof including artificial or man-made buildings,
structures or enclosures;
"ENVIRONMENTAL APPROVAL" means any permit, licence, authorisation, consent
or other approval required under or in relation to Environmental Law;
"ENVIRONMENTAL LAW" means all European Union, national or local statutes,
orders, regulations, or other law or subordinate legislation or common law
or codes of practice concerning the Environment or workplace health and
safety which are or have been in existence and binding upon any Obligor or
any other member of the BV Group in the relevant jurisdiction in which it
has been or is operating (including by the export of its products thereto);
"EVENT OF DEFAULT" means any of the events specified in Clause 18. 1;
"FACILITY" means the loan facility more particularly described in Clause
2.1 granted by the Mezzanine Lenders in accordance with the terms of this
Agreement;
"FACILITY PERIOD" means the period from and including the date of this
Agreement to and including the Final Repayment Date;
"FEES LETTERS" means, at any time, the letter from the Mezzanine Agent to
the Borrower dated the date of this Agreement setting out the details of
certain fees payable by the Borrower in connection with the Facility and at
any time after the date of this Agreement any other letter from the
Mezzanine Agent certified in the agreed terms that the Mezzanine Agent
shall designate shall constitute a fees letter and "FEES LETTER" means any
of them;
"FINAL REPAYMENT DATE" means 28th of February in the calendar year in which
the seventh anniversary of the Drawdown Date of the last Advance made under
this Agreement occurs;
"FINANCE DOCUMENTS" means, at any time:
(a) when designated "SENIOR", the Senior Facility Agreements, the Senior
Security Documents and the Intercreditor Deeds and at any time after
the date of this Agreement any other documents in the agreed terms as
the Mezzanine Agent acting on the instructions of all the Mezzanine
Lenders shall designate shall constitute a Senior Finance Document;
(b) when designated "MEZZANINE", this Agreement, the Fees Letters, a
Backing Disclosure Letter, the Mezzanine Security Documents, the
Intercreditor Deeds and the Hedging Agreements and at any time after
the date of this Agreement such other documents certified in the
agreed terms as the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders shall specify in a Term Sheet in relation to any
Subsequent Advance shall constitute a Mezzanine Finance Document and
in
- 6 -
<PAGE> 9
each case any other document expressed to be made supplemental to and/or
modifying any of the foregoing or entered into pursuant hereto or
thereto;
(c) without any such designation, the Senior Finance Documents and/or the
Mezzanine Finance Documents as the context requires; and
"FINANCE DOCUMENT" means any of them;
"FINANCIAL INDEBTEDNESS" mean any indebtedness in respect of or arising
under or in connection with:-
(a) moneys borrowed (including overdrafts); or
(b) any debenture, bond, note or loan stock or other similar instrument;
or
(c) any acceptance or documentary credit; or
(d) receivables sold or discounted (otherwise than on a non-recourse
basis); or
(e) the purchase price of any asset to the extent payable by any member of
the Relevant Group after the time of sale or delivery to a member of
the Relevant Group where the deferred payment is arranged primarily as
a method of raising finance or financing or refinancing the purchase
of the asset acquired; or
(f) the sale price of any asset to the extent paid before the time of sale
or delivery by any member of the Relevant Group liable to effect such
sale or delivery where the advance payment is arranged primarily as a
method of raising finance or financing or refinancing the manufacture,
assembly, acquisition or holding of the asset to be sold; or
(g) finance leases, credit sale or conditional sale agreements (whether in
respect of land, buildings, plant, machinery, equipment or otherwise)
entered into primarily as a method of raising finance or financing or
refinancing the acquisition of the relevant asset (but not including
liabilities under operating leases); or
(h) the Hedging Agreements; or
(i) the amount payable by any member of the Relevant Group in respect of
the redemption of any share capital or other securities issued by it
or any other member of the Relevant Group; or
(j) any guarantee, indemnity or similar assurance against financial loss
of any person; or
(k) amounts raised under any other transaction having as a primary and not
an incidental effect the commercial effect of a borrowing;
and so that where the amount of Financial Indebtedness falls to be
calculated:-
(i) Financial Indebtedness owed by one member of the Relevant Group
to another wholly owned member of the Relevant Group shall
be excluded;
(ii) no amount shall be taken into account more than once in the same
calculation; and
- 7 -
<PAGE> 10
(iii) when any amount required to be taken into account on any
particular day is denominated or payable in a currency other than
Sterling, that amount shall be converted into Sterling at the
Mezzanine Agent's spot rate of exchange on that day for the
purchase of such other currency;
"FINANCIAL YEAR" means the period of twelve months ending on 31st December
in each year;
"FIRST ADVANCE" means an Advance made for the purposes set out in Clause
4.1(a);
"FIRST BUSINESS" means the business of Bec to be acquired by HMTMS pursuant
to the agreement referred to in sub-paragraph (b) of the definition of
Acquisition Agreements;
"FLOTATION" means either of (a) the inclusion of any part of the share
capital of the Borrower or any Principal Subsidiary in the Official List of
The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited or the grant of permission to deal in the same in the
Unlisted Securities Market or any recognized investment exchange (as the
term is used in the Financial Services Act 1986) or in or on any exchange
or market replacing the same or (b) the listing or quotation of any part of
the share capital of the Borrower or any Principal Subsidiary on any other
recognized stock exchange, over-the-counter market or any other regular
published list of share prices for the purpose of offering such share
capital to the public (other than the "grey" market);
"GENISYST" means Genisyst Systems Limited, a company incorporated in
England and Wales with registered No. 02838619;
"GENISYST STATEMENTS" means the audited consolidated financial statements
of Genisyst and its Subsidiaries, (including the notes thereto), for the
year ended 31st July 1994;
"GMTMS" means GMTMS Limited a company incorporated in England and Wales
with registered No. 3027934;
"GUARANTEE" means any guarantee, indemnity or other assurance against
financial loss given by any Obligor in respect of the obligations of
another person;
"GUARANTEES AND DEBENTURES" means the guarantees and debentures executed or
to be executed by each UK Group Company (other than any Dormant Subsidiary
of LKUK) on the Completion Date (including for the avoidance of doubt
HMTMS) in favour of the Mezzanine Security Trustee substantially in the
agreed terms;
"HEDGING AGREEMENTS" means agreements entered into between (the Hedging
Bank and the Borrower for the purpose of managing or hedging currency
and/or interest rate risk whether by way of forward exchange, cap, collar,
swap, forward rate agreement or otherwise approved by the Mezzanine Agent;
"HEDGING BANK" means Barclays de Zoete Wedd Limited;
"HMTMS" means HMTMS Limited a company incorporated in England and Wales
with registered No. 03027845;
"HOLDING COMPANY" means, in relation to a body corporate, any other body
corporate of which it is a Subsidiary;
"INDIAN GROUP" means LK India and all its Subsidiaries and "MEMBER OF THE
INDIAN GROUP" or "INDIAN GROUP COMPANY" means any of them;
- 8 -
<PAGE> 11
"INFORMATION PACKAGE" means, at any time, the Accountants' Reports, the
Business Plans, the Budget for the Financial Year of the Borrower ending
31st December 1995 and at any time prior to and including the date the
First Advance is made hereunder the Product and Market Report and at any
time after the date of this Agreement each other report or document which
the Mezzanine Agent acting on the instructions of all of the Mezzanine
Lenders shall specify in the Term Sheet in relation to any Subsequent
Advance shall constitute part of the Information Package each of which
shall be certified if so required by the Mezzanine Agent;
"INITIAL PERIOD" means the period commencing on the Availability Date and
ending on but excluding the day on which the Mezzanine Agent receives any
duly executed Mezzanine Lender Accession Notice;
"INITIAL PREPAYMENTS" means each of those prepayments (if any) of the First
Advance made prior to and including 31st December 1995 starting with the
first such prepayment and ending with that prepayment which when added to
each other preceding prepayment does not exceed L.500,000 and "INITIAL
PREPAYMENT" means any of them;
"INITIAL TERMINATION DATE" means the earlier of (a) the day on which the
aggregate of the Original Mezzanine Lenders' Original Commitment is zero
and (b) the 30th September 1995 or such later date as agreed in writing
between the Mezzanine Agent acting on the instructions of all the Mezzanine
Lenders and the Borrower;
"INSURANCES" means the insurance effected by each Combined Group Company in
relation to its respective assets and business in accordance with Clause
16.8;
"INTELLECTUAL PROPERTY" means all know how, patents and patent
applications, trade and/or service marks and trade and/or service mark
applications (and all goodwill associated with such applications), all
brand and trade names, all business names, topographical or similar rights,
all copyrights and rights in the nature of copyright, all design rights,
all registered designs and applications for registered designs, all trade
secrets, know-how and all other intellectual property rights now or in the
future owned by each Combined Group Company throughout the world or the
interests of any Combined Group Company in any of the foregoing now or in
the future, or which are material to the business of any Combined Group
Company together with the benefit of all present and future agreements
entered into or the benefit of which is enjoyed by any Combined Group
Company relating to the use or exploitation of any of the aforementioned
rights;
"INTERCREDITOR DEEDS" means, at any time, the intercreditor deed of the
same date as this Agreement between the Borrower, the Mezzanine Agent, the
Mezzanine Security Trustee, the Mezzanine Lenders, the Hedging Bank and the
Senior Lender and at any time after the date of this Agreement any
intercreditor deed certified in the agreed terms as the Mezzanine Agent
acting on the instructions of all the Mezzanine Lenders shall designate
and shall constitute an InterCreditor Deed and "INTERCREDITOR DEED" means
any of them;
"INTEREST PERIOD" means a period by reference to which interest is
calculated and payable on an Advance or overdue sum;
"KEY MANAGERS" means Dr Lycourgos Kyprianou, Michael Gadbury, Clive
Webster, David Horrell and Robert Burgess and at any time after the date of
this Agreement any other person as the Mezzanine Agent acting on the
instructions of all of the Mezzanine Lenders shall specify in a Term Sheet
in relation to any Subsequent Advance shall constitute a Key Manager:
- 9 -
<PAGE> 12
"KEY-MAN POLICIES" means, at any time, the key-man life assurance
policies (in form and substance satisfactory to the Mezzanine Agent
with such insurer as the Mezzanine Agent has approved) in respect of
in the case of the Key Managers listed under Part I and II below
death, in the case of the Key Managers listed in Part III below in
respect of the death and disability and in respect of the Key
Managers listed in Part IV below disability, in each case maintained
by the persons for the amounts (net, in each case, of any Taxes) and
the periods set opposite the relevant Key Manager's name under the
columns headed "Person", "Amount" and "Period" below:
<TABLE>
<CAPTION>
PART I
Name Person Amount Period
<S> <C> <C> <C>
1. Dr L Kyprianou LK Hospitality L. 200,000 the Facility Period
2. Dr L Kyprianou Dr L Kyprianou L.1,000,000 the Facility Period
3. Mr M Gadbury LK Hospitality L. 200,000 the Facility Period
PART II
4. Dr L Kyprianou Dr L Kyprianou L.1,000,000 the period
commencing on the
day falling 10
Business Days after the
date of this Agreement and
ending on the last day of the
Facility Period
PART III
5. Mr M Gadbury LK Hospitality L. 300,000 ) the period
6. Mr C Webster LK Hospitality L. 500,000 ) commencing on the
7. Mr D Horrell LK Healthcare L. 500,000 ) day falling one month
8. Mr R Burgess LK Healthcare L. 500,000 ) after the date of this
Agreement and
ending on the last day
of the Facility Period
PART IV
9. Dr L Kyprianou LK Hospitality L. 200.000 ) the period
10. Dr L Kyprianou Dr Kyprianou L.2,000,000 ) commencing on the
11. Mr M Gadbury LK Hospitality L. 200,000 ) day falling one month
) after the date of
) this Agreement and
) ending on the last day
) of the Facility Period
</TABLE>
and at any time after the date of this Agreement any other policies
certified in the agreed terms as the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders shall specify in a Term Sheet in
relation to any Subsequent Advance shall constitute any of the Key-Man
Policies and "KEY-MAN POLICY" means any of them;
"LENDING OFFICE" means, in relation to a Mezzanine Lender, the office in
the United Kingdom through which it is acting for the purpose of this
Agreement;
- 10 -
<PAGE> 13
"LIBOR" means, in relation to any Advance, of any overdue sum, the
arithmetic mean (rounded upwards, if necessary, to the nearest four decimal
places) of the respective rates, as supplied to the Mezzanine Agent at its
request, quoted by the Reference Banks to prime banks in the London
Interbank Market at or about 11.00 a.m. on the Rate Fixing Day for the
offering of Sterling deposits in an amount comparable to the amount of, and
for a period equal to the relevant Interest Period relating to that Advance
(or overdue sum) for delivery on the first day of that Interest Period;
"LK CYPRUS" means LK Computer Systems Consultants Limited a company
incorporated in Cyprus with registered No. E. 12420;
"LK ENGINEERING" means LK Global Field Engineering (UK) PLC a company
incorporated in England and Wales with registered No. 02968507;
"LK ENGINEERING STATEMENTS" means the unaudited management accounts for LK
Engineering for the calendar month ending 31st January 1995;
"LK HEALTHCARE" means LK Global Healthcare Systems (UK) PLC a company
incorporated in England and Wales with registered No. 2968436;
"LK HEALTHCARE STATEMENTS" means the unaudited consolidated management
accounts of LK Healthcare and its Subsidiaries, (including the notes
thereto (if any)), for the year ended 31st December 1994 and the unaudited
consolidated management accounts of LK Healthcare and its Subsidiaries for
the calendar month ending 31st January 1995;
"LK HOSPITALITY" means LK Global Hospitality Systems (UK) PLC a company
incorporated in England and Wales with registered No. 2777492;
"LK HOSPITALITY STATEMENTS" means the audited consolidated financial
statements of LK Hospitality and its Subsidiaries (including the notes
thereto) for the year ended 31st December 1993 and the unaudited
consolidated management accounts of LK Hospitality and its Subsidiaries,
(including the notes thereto (if any)), for the year ended 31st December
1994 and the consolidated management accounts of LK Hospitality and its
Subsidiaries for the calendar month ending 31st January 1995;
"LK INDIA" means LK Software Engineering (India) Private Limited a company
incorporated in India;
"LK IRELAND" means LK Group International Corporation Limited a company
incorporated in the Republic of Ireland with registered No. 158751;
"LKNV" means LK Global (Holdings) NV a company incorporated in The
Netherlands Antilles with registered No. 67771 in the Caracao Chamber of
Commerce and Industry;
"LKUK" means LK Global Information Systems (UK) PLC a company incorporated
in England and Wales with registered No. 02968497;
"LOAN" means the aggregate principal amount of all Advances for the time
being outstanding under this Agreement;
"MAJORITY MEZZANINE LENDERS" means:
(i) before any Advances have been made under this Agreement, a Mezzanine
Lender or group of Mezzanine Lenders whose Commitments amount in
aggregate to more than 66 2/3 per cent of the Total Commitments of the
Mezzanine Lenders; and
- 11 -
<PAGE> 14
(ii) thereafter, a Mezzanine Lender or group of Mezzanine Lenders to whom
in aggregate more than 66 2/3 per cent of the Loan is owed (or,
immediately prior to its repayment, was then owed);
"MANAGEMENT ACCOUNTING PERIODS" means, in relation to the Borrower, the
period adopted by it for the purpose of its management accounts being each
calendar month in any Financial Year;
"MARGIN" means 4 per cent per annum;
"MATERIAL ADVERSE EFFECT" is to be construed as a reference to an event or
matter having a material adverse effect on:-
(a) the financial condition, assets, profits or prospects of any of (i)
the BV Group taken as a whole; (ii) the Combined Group taken as a
whole; (iii) the Borrower; or (iv) an Obligor; or
(b) the ability of the Borrower or any Obligor to perform in a timely
manner all or any of its obligations (including, without limitation,
its payment obligations) under any of the Mezzanine Finance Documents;
"MAXIMUM FACILITY AMOUNT" means:-
(i) an amount being the sum of L.5,000,000 and the aggregate amount of the
proposed Commitments of the financial institutions, nominated by the
Mezzanine Agent in accordance with Clause 2.3 and, who have on or
before the Accession Date delivered to the Mezzanine Agent a Mezzanine
Lender Accession Notice complying with the terms of this Agreement and
the Intercreditor Deed; or
(ii) the amount agreed following the termination of the negotiations
between the Borrower and the Mezzanine Agent to determine the maximum
amount of the Facility,
but unless and until such financial institutions referred to in (i) above
become a party hereto or if applicable the Mezzanine Agent and the Borrower
agree an amount in accordance with (ii) above, the amount shall be
L.5,000,000;
"MEMORANDA OF DEPOSIT" means each memorandum of deposit of shares in LK
India and LK Cyprus executed by Dr L Kyprianou, Mrs E Kyprianou and LK
Ireland respectively in favour of the Mezzanine Security Trustee;
"MEZZANINE AGENT" means the Original Mezzanine Agent or such substitute
agent for the Mezzanine Lenders as shall be appointed pursuant to Clause
19.9;
"MEZZANINE FINANCE PARTIES" means the Mezzanine Agent, the Mezzanine
Security Trustee, the Mezzanine Lenders and "MEZZANINE FINANCE PARTY" means
any of them;
"MEZZANINE INTEREST" means the gross amount of interest payable in respect
of the Facility;
"MEZZANINE LENDER ACCESSION NOTICE" means a notice to be delivered by any
Acceding Mezzanine Lender to the Mezzanine Agent substantially in the form
set out in Schedule 9;
"MEZZANINE LENDERS" means, subject as hereinafter provided, the Original
Mezzanine Lender (and any Transferee or Acceding Mezzanine Lender which
becomes a party hereto
- 12 -
<PAGE> 15
pursuant to a Transfer Certificate or, as the case may be, Mezzanine Lender
Accession Notice) and Mezzanine Leader means any of them;
"MEZZANINE SECURITY DOCUMENTS" means, at any time, the Guarantees and
Debentures, the Assignments of Key-man Policies, the Memoranda of Deposit
and the Assignments of Intellectual Property and all other documents
creating, evidencing or granting or the subject of security for the
obligations of the Borrower or any other Obligor under the Mezzanine
Finance Documents in particular but without limitation any such documents
certified in the agreed terms as the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders shall specify in a Term Sheet in
relation to any Subsequent Advance shall constitute a Mezzanine Security
Document;
"MEZZANINE SECURITY TRUSTEE" means the Original Mezzanine Security Trustee
as trustee for the Mezzanine Finance Parties under the Mezzanine Security
Documents or such other person as may from time to time hold the whole or
any part of the security created thereby;
"OBLIGOR" means a person and/or any member of the Combined Group which has
undertaken (or in the future undertakes) obligations to any of the
Mezzanine Finance Parties pursuant to one or more Mezzanine Finance
Documents and "OBLIGORS" means any two or more of the foregoing;
"ORIGINAL COMMITMENT" means, in relation to the Original Mezzanine Lender
and subject as hereinafter provided, the amount set opposite its name in
the column headed "Commitment" in Schedule 1;
"ORIGINAL SENIOR LENDER" means Barclays Bank PLC;
"PARTICIPATION means in relation to a Mezzanine Lender and the Facility,
its right, title, interest and obligations in relation to the Facility,
namely:-
(a) its right to receive its Participation Proportion of principal and
interest in respect of outstanding Advances under the Facility; and
(b) its obligation to participate in its Participation Proportion in
future Advances up to the Maximum Facility Amount;
"PARTICIPATION PROPORTION" means, in relation to a Mezzanine Lender and the
Facility, the proportion in which that Mezzanine Lender has agreed to
participate in the Facility pursuant to Clause 3.1;
"PAYMENT CURRENCY" has the meaning given to it in Clause 30.2(a);
"PERIOD A" means each period in any calendar year during the Facility
Period commencing on 1st March and ending on 31st July (both days
inclusive);
"PERIOD B" means each period in any calendar year during the Facility
Period commencing on 1st August and ending on 28th (or, in a leap year,
29th) February (both days inclusive);
"PERMITTED GUARANTEE" means any Guarantee falling within the provisions of
sub-clauses 16.13(a) to 16.13(c);
"PERMITTED SECURITY INTEREST" means any Security Interest falling within
the provisions of sub-clauses 16.12(a) to 16.12(c);
- 13 -
<PAGE> 16
"POTENTIAL EVENT OF DEFAULT" means any event which with the giving of
notice or the lapse of time or the making of any determination or the
fulfilment of any condition will, or could reasonably be expected to,
constitute an Event of Default.
"PRINCIPAL SUBSIDIARY" means HMTMS and any other member of the Combined
Group whose gross assets exceed 10% of the total gross assets of the
Combined Group or whose gross profit exceeds 10% of the gross profits of
the Combined Group (gross assets and gross profits being determined in
accordance with UK gaap);
"PRODUCT AND MARKET REPORT" means the report referred to in paragraph 26 of
Schedule 2;
"PRO-FORMA IP LICENCE" means the licence attached as Appendix 2 to this
Agreement;
"PROJECT DOCUMENTS" means, at any time, the Mezzanine Finance Documents,
the Warrant Instrument, the Warrants, the Shareholders Agreement, the
Articles, the ARIS Undertaking, the Commissioned Software Agreement, and at
any time after the date of this Agreement any other document certified in
the agreed terms as the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders shall specify in a Term Sheet in relation to any
Subsequent Advance shall constitute a Project Document and, in each case,
each and any agreement, deed or other document or certificate executed in
connection therewith and "PROJECT DOCUMENT" means any of them;
"PROPERTIES" means, at any time, each of the properties listed in Schedule
8 and at any time after the date of this Agreement any other properties as
the Mezzanine Agent acting on the instructions of all the Mezzanine
Lenders shall specify in a Term Sheet in relation to any Subsequent Advance
shall constitute one of the Properties;
"PROPOSED ACQUISITION" means a proposed purchase of all or substantially
all of the shares or the business and assets of any person by the Borrower
or any Appropriate Company or any Charging Company (as the case may be)
which has beta approved by the Mezzanine Agent acting on the instructions
of all the Mezzanine Lenders;
"PROPOSED ACQUISITION AGREEMENT" means the acquisition agreement certified
in the agreed terms relating to a Proposed Acquisition and all other
documents, agreements and certificates executed in connection therewith;
"PROPOSED COMPLETION" means the completion of a Proposed Acquisition
pursuant to the Proposed Acquisition Agreement for that Proposed
Acquisition;
"QUALIFYING LENDER" means at any time a person which is at that time
recognised by the Inland Revenue as carrying on a bona fide banking
business in the United Kingdom for the purposes of Section 349 of the
Income and Corporation Taxes Act 1988 and bringing into account amounts
paid and payable under this Agreement as trading receipts in the ordinary
course of its banking business;
"RATE FIXING DAY" means, in relation to an Advance, its Drawdown Date and
in relation to any Interest Period, the first day of that Interest Period;
"REFERENCE BANKS" means Barclays de Zoete Wedd Limited acting for this
purpose through its principal office in London, or such other banks or
financial institutions which the Borrower and the Majority Mezzanine
Lenders may agree from time to time; -
"RELEVANT GROUP" means at any time prior to but excluding 31st December
1995 the Combined Group and at all times thereafter the BV Group;
- 14 -
<PAGE> 17
"RELEVANT SECURITIES" shall have the meaning ascribed to that term by
Section 80(2) of the Companies Act 1985;
"REPAYMENT DATA" means in relation to any Advance with a Drawdown Date
which falls during any Period A the 28th of February in each calendar year
commencing with the calendar year falling three calendar years after the
Drawdown Date of that Advance and ending with the calendar year falling
seven calendar years after the Drawdown Date of that Advance and in
relation to any Advance which falls during any Period B the 28th of
February in each calendar year commencing with the calendar year falling
four calendar years after the Drawdown Date of that Advance and ending with
the calendar year falling seven calendar years after the Drawdown Date of
that Advance and "Repayment Date" means any of them;
"RESERVATIONS" means the principle that equitable remedies are remedies
which may be granted or refused at the discretion of the court, the
limitation of enforcement by laws relating to bankruptcy, insolvency,
liquidation, reorganization, court schemes, moratoria, administration and
other similar laws generally affecting the rights of creditors, the time
barring of claims under the Limitation Acts, the possibility that an
undertaking to assume liability for or to indemnify a person against
non-payment of United Kingdom stamp duty may be void, defences of set-off
or counterclaim and similar principles and similar matters arising under
the laws of any foreign jurisdictions in which the relevant obligations may
have to be performed;
"SALE" means a sale of all or substantially all of the shares or business
and assets of the Borrower or any Principal Subsidiary;
"SECURITY INTEREST" means any mortgage, charge (fixed or floating), pledge,
lien, hypothecation, right of set-off, trust, assignment by way of
security, reservation of title, or any other security interest whatsoever,
howsoever created or arising or any other agreement or arrangement
(including, without limitation, a sale and repurchase arrangement) having
the commercial effect of conferring security and any agreement to enter
into, create or establish any of the foregoing;
"SENIOR FACILITY AGREEMENTS" means at any time, each of the following
facility agreements:-
(a) a facility agreement dated 9th June 1994 between the Original Senior
Leader and LK Hospitality (as, amended by an amending agreement dated
13th July 1994) pursuant to which the Original Senior Lender made
available to LK Hospitality a loan facility of up to a maximum
aggregate principal amount of L.450,000;
(b) a facility letter agreement dated 9th June 1994 between the Original
Senior Lender and LK Hospitality pursuant to which the Original Senior
Lender made available to LK Hospitality an overdraft facility of up to
a maximum aggregate principal amount of L.300,000 and certain other
ancillary facilities as set out therein,
(c) a facility agreement dated 11th October 1994 between the Original
Senior Lender and LK Healthcare (as amended by an amending agreement
dated 11th October 1994) pursuant to which the Original Senior Leader
made available to LK Healthcare a loan facility of up to a maximum
aggregate principal amount of L.1,759,000;
(d) a facility agreement dated 11th October 1994 between the Original
Senior Lender and LK Healthcare (as amended by an amending agreement
dated 11th October 1994) pursuant to which the Original Senior Lender
made available to LK Healthcare an overdraft facility of up to a
maximum aggregate principal amount of L.350,000;
- 15 -
<PAGE> 18
(e) a facility agreement dated the same date of this Agreement between the
Original Senior Lender and HMTMS pursuant to which the Original Senior
Lender has agreed to make available to HMTMS certain credit facilities
of up to a maximum aggregate principal amount of L.1,500,000; and
(f) a facility agreement dated the same date of this Agreement between the
Original Senior Lender and HMTMS pursuant to which the Original Senior
Lender has agreed to make available to HMTMS certain credit facilities
of up to a maximum aggregate principal amount of L.500,000,
and at any time after the date of this Agreement any facility agreement
certified in the agreed terms as the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders shall designate a Senior Facility
Agreement and "SENIOR FACILITY AGREEMENT" means any of them;
"SENIOR INTEREST" means the gross amount of interest payable by any BV
Group Company in respect of the Senior Loans;
"SENIOR LENDERS" means the Original Senior Lender and at any time after the
date of this Agreement any other bank and financial institution as the
Mezzanine Agent shall designate shall constitute a Senior Lender and
"SENIOR LENDER" means any of them;
"SENIOR LOANS" means the principal amount of all drawings made under each
of the Senior Facility Agreements as in force on the date hereof or on the
date of approval of the terms thereof by the Mezzanine Agent or such other
amount as approved by the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders from time to time,
"SENIOR SECURITY TRUSTEE" shall have the meaning ascribed to that term in
the Intercreditor Deed;
"SERVICE CONTRACTS" means, at any time, the service contracts between Dr
Lycourgos Kyprianou and the Borrower dated on or about 30th March 1995, LK
Hospitality and Mr Michael Gadbury and Clive Webster dated 26th March 1993
and 16th January 1990 respectively, and LK Healthcare and Mr David Horrell
and Mr Robert Burgess dated 11th October 1994 and LKUK and Mr Noel Voice
and Mr Michael Bennett each dated 26th March 1995 and LK Engineering and Mr
Denis Badman dated 10th December 1994 respectively and at any time after
the date of this Agreement the service contract referred to in Clause 16.44
upon the sum being duly executed by the parties thereto and any other
service contract certified in the agreed terms as the Mezzanine Agent
acting on the instructions of all the Mezzanine Lenders shall specify in a
Term Sheet in relation to any Subsequent Advance shall constitute one of
the Service Contracts and "SERVICE CONTRACT" means any of them;
"SHAREHOLDERS AGREEMENT" means the agreement entered into or to be entered
into between, inter alia, Barclays de Zoete Wedd Limited, all the other
shareholders of the Borrower at the date thereof and the Borrower, in the
agreed terms;
"SIGEN" means Sigen Limited a company incorporated in the Republic of
Ireland with registered No 215474;
"SSAP" means any statement of standard accounting practice issued by the
Institute of Chartered Accountants for application in England and Wales and
where referred by a number means that particular statement;
"STERLING" or "L." means the lawful currency for the time being of the
United Kingdom;
- 16 -
<PAGE> 19
"STOCK TRANSFER FORM" means the duly stamped stock transfer form duly
executed or to be duly executed by GMTMS pursuant to which it will transfer
the two ordinary shares issued in the capital of HMTMS to LKUK;
"SUBSEQUENT ADVANCE" means an Advance made for the purposes set out in
Clause 4.1(b);
"SUBSEQUENT COMPLETION ACCOUNTS" means each of the accounts delivered to
the Mezzanine Agent under Clause 17.4(d);
"SUBSEQUENT VENDOR" means any vendor party to a Proposed Acquisition
Agreement;
"SUBSIDIARY" means in relation to any person, any entity which is
controlled directly or indirectly by that person and any entity (whether or
not so controlled) treated as a subsidiary in the latest financial
statements of that person from time to time, and "CONTROL" for this purpose
means the direct or indirect ownership of the majority of the voting share
capital of such entity or the right or ability to direct management to
comply with the type of material restrictions and obligations contemplated
in the Mezzanine Finance Documents or to determine the composition of a
majority of the board of directors (or like board) of such entity, in each
case whether by virtue of ownership of share capital, contract or
otherwise;
"SUSPENSION NOTICE" has the meaning given to it in Clause 9.1;
"TARGET" means HMTMS and at any time after the date of this Agreement any
other person as the Mezzanine Agent acting on the instructions of all the
Mezzanine Lenders shall specify in a Term Sheet in relation to any
Subsequent Advance shall constitute a Target;
"TARGET GROUPS" means each group of companies comprising a Target and all
of that Target's Subsidiaries and "TARGET GROUP" means any one of those
groups of companies and "MEMBER OF THE TARGET GROUP" or "TARGET GROUP
COMPANY" means any company in any of the Target Groups;
"TARGET GROUP PRO-FORMA STATEMENTS" means the Bec Statements and at any
time after the date of this Agreement the pro-forma financial statements of
any Target Group and any member of that Target Group in the agreed terms
identified as such by the Mezzanine Agent (acting on the instructions of
all the Mezzanine Lenders) in a Term Sheet in relation to any Subsequent
Advance made in relation to that Target Group and required to be delivered
by the Borrower to the Mezzanine Agent prior to the Mezzanine Lenders
making any Subsequent Advance;
"TAXES" means and includes all present and future income and other taxes,
levies, assessments, imposts, deductions, charges, duties, compulsory loans
and withholdings whatsoever and wheresoever imposed and any charges in the
nature of taxation together with interest thereon and penalties and fines
with respect thereto, if any, and any payments made on or in respect
thereof and "TAX" and "TAXATION" shall be construed accordingly;
"TERM SHEET" means a term sheet, in the agreed terms, issued by the
Mezzanine Agent acting on the instructions of all the Mezzanine Lenders to
the Borrower in relation to each Subsequent Advance and a Proposed
Acquisition and "TERM SHEETS" shall mean any of them;
"TERMINATION DATE" means 30th September 1995 or such later date as agreed
in writing between the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders and the Borrower;
"TOTAL OUTSTANDINGS" means, at any time, the aggregate amount of principal,
interest and other sums outstanding hereunder;
-17-
<PAGE> 20
"TRANSACTION DOCUMENTS" means the Acquisition Package Documents, the
Project Documents and the Finance Documents;
"TRANSFER CERTIFICATE" means a certificate in the form set out in Schedule
6;
"TRANSFEREE" has the meaning given to it in Clause 28.2;
"TRANSFEROR" has the meaning given to it in Clause 28.2; "UK GAAP" means
accounting principles, standards and practices generally accepted in the
United Kingdom;
"UK GROUP" means LKUK and all of its Subsidiaries and "MEMBER OF THE UK
GROUP" or "UK GROUP COMPANY" means any of them;
"VENDORS" means Cygnus Ventures Limited a company incorporated in Guernsey
with registered No. G14142, Bec and any Subsequent Vendor and "Vendor"
means any of them;
"VENDOR DISCLOSURE LETTER" means the disclosure letters to be addressed by
or on behalf of the relevant Vendors to LKUK and HMTMS respectively
pursuant to the Acquisition Agreements, certified in the agreed terms;
"WARRANTS" shall, at any time, have the meaning ascribed to that term in
the Warrant Instrument and at any time after the date of this Agreement any
other warrant certified in the agreed terms as the Mezzanine Agent acting
on the instructions of all the Mezzanine Lenders shall specify in a Term
Sheet in relation to any Subsequent Advance shall constitute a Warrant and
"WARRANT" means any of them;
"WARRANT CERTIFICATE" shall have the meaning ascribed thereto in the
Warrant Instrument; and
"WARRANT INSTRUMENTS" means, at any time, the deed poll catered into or to
be entered into by the Borrower in respect of certain shares in the capital
of the Borrower in the agreed terms and at any time after the date of this
Agreement any other Warrant Instrument certified in the agreed terms as the
Mezzanine Agent acting on the instructions of all the Mezzanine Lenders
shall specify in a Term Sheet in relation to any Subsequent Advance shall
construe a Warrant Instrument and "WARRANT INSTRUMENT" means any of them.
In this Agreement, unless the context otherwise requires, a reference to:-
(a) "ASSETS" includes property and rights of every kind, present, future
and contingent (including uncalled share capital) and every kind of
interest in an asset;
(b) an "ANNIVERSARY" of any day shall mean the day falling twelve months
after such day;
(c) "INDEBTEDNESS" includes any obligation (whether incurred as principal
or as surety) for the payment or repayment of money, whether present
or future, actual or contingent;
(d) a "PERSON" includes any person, individual, firm, company,
corporation, government, state or agency of a state or any undertaking
(within the meaning of Section 259(l) of the Companies Act 1985) or
other association (whether or not having separate legal personality)
or any two or more of the foregoing;
-18-
<PAGE> 21
(e) "WINDING UP" of any person includes its dissolution and/or termination
and/or any equivalent or analogous proceedings under the law of any
jurisdiction in which the person concerned is incorporated,
registered, established or carries on business or to which that person
is subject.
(f) "REPAYMENT" includes "PREPAYMENT" and its grammatical variations and
cognate expressions shall be construed accordingly;
(g) a document being in "THE AGREED TERMS" means in a form agreed between
the Borrower and the Mezzanine Agent and initialled by them or on
their behalf for the purposes of identification;
(h) a "MONTH" means a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next calendar month
provided that if:
(i) any such period would otherwise end on a day which is not
a Business Day, it shall end on the next Business Day in
the same calendar month or, if none, on the preceding
Business Day; and
(ii) a period starts on the last Business Day in a calendar
month or if there is no numerically corresponding day in
the month in which that period ends, that period shall
end on the last Business Day in that later month;
(and references to "MONTHS" shall be construed accordingly);
(i) a document being "CERTIFIED" means a document certified by a director
or secretary of the party providing the document as being genuine and
in full force and effect and, if a copy, a true and complete copy of
the original; and
(j) "IT" includes "HIS" and "HER" and their grammatical variations and
cognate expressions shall be construed accordingly.
1.3 Save where a contrary intention appears, in this Agreement:
(a) a reference to the Borrower, the Mezzanine Agent, the Mezzanine
Security Trustee, the Mezzanine Lenders, the Mezzanine Finance
Parties, a Reference Bank or an Obligor is, where relevant, deemed to
be a reference to or to include, as appropriate, their respective
successors or assigns;
(b) references to Clauses and Schedules are references to, respectively,
Clauses of and schedules to this Agreement and references to this
Agreement include its Schedules;
(c) a reference to (or to any specified provision of) any agreement, deed
or other instrument (including the Mezzanine Finance Documents and the
other Transaction Documents) is to be construed as a reference to that
agreement, deed or other instrument or that provision as it may have
been or hereafter be, from time to time, amended, varied,
supplemented, modified restated or novated but excluding for this
purpose any amendment, variation, supplement, modification,
restatement or novation which is contrary to any provision of any of
the Mezzanine Finance Documents;
(d) a reference to a statute or statutory instrument or any provision
thereof is to be construed as a reference to that statute or statutory
instrument or such provision thereof as the same may have been, or may
from time to time hereafter be, amended or re-enacted;
-19-
<PAGE> 22
(e) a time of day is a reference to London time;
(f) the index to and the headings in this Agreement are inserted for
convenience only and are to be ignored construing this Agreement;
and
(g) words importing the plural shall include the singular and vice
versa.
1.4 RELATIONSHIP WITH INTERCREDITOR DEEDS: This Agreement is entered into
subject to, and with the benefit of, the terms of the Intercreditor Deeds.
Notwithstanding anything to the contrary herein, the terms of the
Intercreditor Deeds shall prevail in the event of there being a conflict
between the terms of this Agreement and the terms of the Intercreditor
Deeds. The fact that a provision of this Agreement is expressed to be
subject to the terms of any Intercreditor Deed does not mean, and shall
not be taken to mean, that any other provision of this Agreement is not
so subject.
2. THE FACILITY
2.1 NATURE AND AMOUNT: The Mezzanine Lenders grant to the Borrower a term loan
facility upon and subject to the terms and conditions of this Agreement in
an amount equal to the Total Commitments whereby the Mezzanine Lenders
will, at the request of the Borrower, make Advances to the Borrower in
Sterling.
2.2 FACILITY LIMIT: The Total Commitments, shall not, on the Accession Date,
exceed the Maximum Facility Amount on such date. There shall not be more
than one Accession Date and such date shall not fall on any day during the
period beginning on the date on which a Drawdown Request is made and
ending on the date on which the relevant Advance is made.
2.3 ACCEDING MEZZANINE LENDERS: Subject to Clause 2.2 above, the Mezzanine
Agent may at any time after the Initial Termination Date give notice in
writing to the Borrower and the other Mezzanine Lenders of the identity of
and nominating any one or more financial institutions which are to become
Acceding Mezzanine Lenders on the Accession Date specified therein each
with a Commitment of an integral multiple of L500,000 in which event:
(i) the Mezzanine Agent shall procure the delivery to it, on or before
the Accesion Date, of a Mezzanine Lenders Accession Notice from each
such financial institution agreeing to be bound by the provisions of
this Agreement and the Intercreditor Deed and specifying the amount
of such financial institution's Commitment for the purposes of this
Agreement; and
(ii) upon the Accession Date, each such financial institution shall
become an Acceding Mezzanine Lender for the purposes hereof, and the
Mezzanine Agent, each such Acceding Mezzanine Lender and the other
parties to this Agreement and the Intercreditor Deed shall acquire
the same rights and assume the same obligations between themselves
as they would have acquired and assumed had each such financial
institution been an original party to this Agreement and the
Intercreditor Deed with a Commitment equal to the relevant amounts
expressed in its Mezzanine Lender Accession Notice.
3. PARTICIPATING OF MEZZANINE LENDERS
3.1 BASIS OF PARTICIPATION: Subject to the provisions of this Agreement, each
Mezzanine Lender will participate in each Advance in the proportion which
its Commitment (as at the Drawdown Date) bears to the undrawn portion of
the Total Commitments (as at such date).
-20-
<PAGE> 23
3.2 LENDING OFFICE:
(a) Each Mezzanine Lender will participate in each Advantage through its
Lending Office.
(b) If any Mezzanine Leader changes its Lending Office, that Mezzanine
Lender will notify the Mezzanine Agent and the Borrower promptly of
such change and, until it does so, the Mezzanine Agent and the
Borrower will be entitled to assume that no such change has taken
place.
3.3 RIGHTS AND OBLIGATIONS OF MEZZANINE FINANCE PARTIES:
(a) The rights and obligations of each of the Mezzanine Finance Parties
under the Mezzanine Finance Documents are several. Failure of a
Mezzanine Finance Party to observe and perform its respective
obligations under any Mezzanine Finance Document shall neither:
(i) result in any other Mezzanine Finance Party incurring any
liability whatsoever; nor
(ii) relieve the Borrower or any other Obligor or any other
Mezzanine Finance Party from their respective obligations
under the Mezzanine finance Documents.
(b) Notwithstanding any other provision of any Mezzanine Finance
Document, the interests of each Mezzanine Finance Party are several
and the total amounts outstanding at any time under the Mezzanine
Finance Documents and due to each Mezzanine Finance Party constitute
separate and independent debts. Accordingly, as regards each
Mezzanine Lender and its participation in an Advance, the amount of
principal advanced by that Mezzanine Lender will constitute a
separate and independent debt owed to it.
3.4 ENFORCEMENT OF RIGHTS: Each Mezzanine Finance Party has the right to
protect and enforce its rights arising out of the Mezzanine Finance
Documents and it will not be necessary for any other Mezzanine Finance
Party to be joined as an additional party in any proceedings brought for
the purpose of protecting or enforcing such rights.
3.5 SYNDICATION:
(a) The parties confirm that at the date hereof the Facility is being
made available by the Original Mezzanine Lender with the intention
(but not the obligation) that the Mezzanine Agent should co-ordinate
syndication of the Facility ("Syndication") and, accordingly,
references to the "Mezzanine Lenders" and "Majority Mezzanine
Lenders" shall, until the first date on which any assignment,
transfer or novation in connection with Syndication or in respect of
all or part of the rights and obligations of the Mezzanine Lenders
hereunder in accordance with Clauses 28.2 or 28.3 takes effect (the
"First Syndication Date"), be construed as a reference solely to the
Original Mezzanine Lender.
(b) The Mezzanine Agent shall notify the Borrower promptly after
commencing Syndication.
(c) The Borrower acknowledges that Syndication will take place and
undertakes to assist and co-operate with the Mezzanine Agent in
Syndication in such manner and to such extent as the Mezzanine Agent
may from time to time request including, without limitation, by:-
-21-
<PAGE> 24
(i) the preparation of an information memorandum in relation to the
Combined Group and the business, trading, prospects, financial
condition, assets and liabilities of the Combined Group as a
whole and of the Borrower and each Combined Group Company;
and/or
(ii) participating in presentations to potential Mezzanine Lenders
concerning the activities of the Combined Group as a whole and
of the Borrower and each Combined Group Company; and/or
(iii) selecting Interest Periods having a duration of not more than
one month in respect of all Advances made on or within two
months of the date the Mezzanine Agent notifies the Borrower
pursuant to Clause 3.5(b) that it has commenced Syndication.
4. APPLICATION OF ADVANCES
4.1 The Borrower shall apply the proceeds of the Facility in or towards:
(a) (in the case of the First Advance) financing a loan to LKUK to be
applied by LKUK in or towards financing the Acquisitions and the
Acquisition Costs relating to the Acquisitions up to a maximum amount
of L.2,500,000; and
(b) (in the case of any Subsequent Advance) financing a Proposed
Acquisition and any Acquisition Costs related to that Proposed
Acquisition or financing a loan to and/or subscribing for shares in
any Appropriate Company to enable it to finance the forgoing or
finance a loan and/or subscribing for shares in any other Appropriate
Company to enable that Appropriate Company to finance the relevant
Proposed Acquisition but in any case up to a maximum amount to be
approved by the Mezzanine Agent acting on the instructions of all the
Mezzanine Lenders at the time of that Advance and in any event not
exceeding the Available Amount at that time.
4.2 No Mezzanine Finance Party shall be concerned or obliged to enquire as to
the use of application of any such proceeds.
5. CONDITIONS PRECEDENT
5.1 INITIAL CONDITIONS PRECEDENT: The obligations of the Mezzanine Lenders to
participate in and make any Advance available to the Borrower under this
Agreement:
(a) in the case of the First Advance, are subject to the conditions
precedent set out in Schedule 2; and
(b) in the case of any Subsequent Advance, are subject to all the
conditions set out under the heading "conditions subsequent" in the
Term Sheet relating to that Advance,
being fulfilled to the satisfaction of the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders and its legal advisers by 12:00 noon
on the second Business Day prior to the proposed Drawdown Date (or such later
time as the Mezzanine Agent may agree).
5.2 NOTIFICATION: When the Mezzanine Agent is satisfied that such conditions
have been fulfilled, the Mezzanine Agent will give notice to that effect to the
Borrower and each of the Mezzanine Lenders. If the conditions referred to in
Clause 5.1(a) have not been fulfilled by the date falling 14 days after the
date of this Agreement the Mezzanine Lenders will cease to have any obligation
to make any Advance to the Borrower.
-22-
<PAGE> 25
5.3 ADDITIONAL CONDITIONS PRECEDENT: The obligation of the Mezzanine Lenders
to make any Advance to the Borrower is subject to the following further
conditions precedent that on both the date of the relevant Advance Request
and the relevant Drawdown Date:
(a) no Event of Default or Potential Event of Default has occurred and
continues unremedied;
(b) the representations and warranties set out in Clause 15
(Representations and Warranties) (other than contained in Clauses
15.9(a) and 15.15(a) in the case of any Subsequent Advance) are true
and accurate and will remain true and accurate immediately after the
Advance is made as if made with reference to the facts and
circumstances existing on each such day except that the references
to (a) Combined Group Pro-forma Statements in Clause 15.12(b); (b)
Target Group Pro-forma Statements in Clause 15.12(c); and (c) Budget
in the definition of Information Package; shall be construed as
references to respectively: (i) the then latest consolidated
management accounts of the Combined Group delivered to the Mezzanine
Agent pursuant to Clause 17.4(b) at any time prior to but excluding
31st December 1995 and at any time thereafter the then latest
audited consolidated accounts of the BV Group delivered to the
Mezzanine Agent pursuant to Clause 17.4(a); (ii) following the
Completion Date or a Proposed Completion (as the case may be)
related to the relevant Target Group, the Completion Accounts or
Subsequent Completion Accounts related to that Proposed Completion
(as the case may be) on delivery of those respective accounts to the
Mezzanine Agent pursuant to Clause 17.4(c) and (d) and thereafter
the then latest consolidated or unconsolidated (as the case may be)
accounts of that Target Group; (iii) the then latest Budget
delivered to the Mezzanine Agent pursuant to Clause 17.4(e);
(c) none of the circumstances specified in Clause 9 (Market Disruption)
has occurred and is continuing; and
(d) the Mezzanine Agent and its legal advisers have received, and found
to be satisfactory in all respects, such further opinions, consents,
agreements and documents in connection with this Agreement as the
Mezzanine Agent may reasonably request by notice to the Borrower
prior to the relevant Drawdown Date.
6. DRAWDOWN PROCEDURES
6.1 Whenever the Borrower wishes to borrow an Advance, it must deliver to the
Mezzanine Agent a duly completed Advance Request not later than 10:00 a.m.
one Business Day prior to the proposed Drawdown Date.
6.2 An Advance Requests delivered to the Mezzanine Agent must be in the form
set out in Schedule 4 and must specify each of the following:
(a) the proposed Drawdown Date for the Advance (which during the Initial
Period must be a Business Day on or after the Availability Date
which is or precedes the Initial Termination Date and at any time
thereafter shall be a Business Day which is or precedes the
Termination Date);
(b) the amount of the Advance, which must (i) be a minimum of L.500,000
and an integral multiple of L.50,000 and (ii) comply with Clause
6.3;
(c) the duration of the first Interest Period applicable to the Advance,
which must comply with Clause 8 (Selection of Interest Periods); and
-23-
<PAGE> 26
(d) details of the payee and the account which must be in the United
Kingdom to which the proceeds of the Advance are to be paid.
6.3 In no event may the amount specified in an Advance Request be such that
the Loan would thereby exceed the then Total Commitments.
6.4 An Advance Request once given may not be withdrawn or revoked.
6.5 Not more than one Advance may be requested by the Borrower in any period
of ten consecutive Business Days.
6.6 Subject to the provisions of this Agreement, each Mezzanine Lender will
make available to the Mezzanine Agent its Participation Proportion of the
relevant Advance on the relevant Drawdown Date in accordance with Clause
11.1 (Payments).
6.7 If prior to an Advance being made a Mezzanine Lender's Commitment has or
will be wholly cancelled or terminated pursuant to this Agreement, that
Mezzanine Lender will not participate in the Advance concerned.
6.8 The Mezzanine Agent may at its discretion round, upwards or downwards, a
Mezzanine Lender's participation in an Advance to such extent as the
Mezzanine Agent considers appropriate to ensure that the participation
concerned is not less than L.250,000 and an integral multiple of L.25,000
or such other amount and integral multiple as the Mezzanine Agent shall
in its absolute discretion select from time to time.
6.9 Whenever the Mezzanine Agent receives an Advance Request which complies
with the requirements of Clause 6.1, the Mezzanine Agent will promptly
give notice to each of the Mezzanine Lenders specifying:
(a) the proposed Drawdown Date;
(b) the amount of the Advance;
(c) the length of the Interest Period; and
(d) the amount of such Mezzanine Lender's participation in the relevant
Advance.
6.10 Any part of the Facility undrawn and uncancelled after the Termination
Date shall thereupon be automatically cancelled.
7. INTEREST
7.1 Each Advance will bear interest for each of its Interest Periods at the
rate per annum determined by the Mezzanine Agent to be the aggregate of
the applicable:
(a) Margin; and
(b) LIBOR; and
(c) Additional Costs Rate.
7.2 The Agent will notify the Borrower and the Mezzanine Lenders of each rate
of interest as soon as it is determined under this Agreement.
-24-
<PAGE> 27
7.3 Interest will be calculated on the basis of actual days elapsed
and a 365 day year and will accrue from day to day from, and
including, the first day of each Interest Period.
7.4 The Borrower will pay interest accrued on each Advance to the
Mezzanine Agent for the account of the Mezzanine Lenders in
arrear on the last day of each Interest Period applicable to
that Advance.
7.5 If requested to do so, each Reference Bank shall use its
reasonable endeavours to supply a quotation to the Mezzanine
Agent for the purposes of determining LIBOR for a particular
Interest Period. If any Reference Bank does not do so, the
relevant arithmetic mean shall be determined on the basis of
the quotation supplied by the remaining Reference Banks. If no
Reference Bank supplies a quotation, Clause 9 shall apply.
7.6 If the Borrower fails to pay any sum (including, without
limitation, any sum payable pursuant to this Clause 7.6) under
this Agreement or any other Mezzanine Finance Document on its
due date (an "UNPAID SUM"), the Borrower will pay default
interest on such unpaid sum from its due date to the date of
actual payment (as well after as before judgement) at a rate
(the "DEFAULT RATE") determined by the Mezzanine Agent to be 2
per cent per annum above:
(a) where the unpaid sum is principal which has fallen due
prior to the expiry of the relevant Interest Period,
the rate applicable to such principal immediately prior
to the date it so fell due (but only for the period
from such due date to the end of the relevant Interest
Period); or
(b) in any other case (including principal falling within
Clause 7.6(a) above once the relevant Interest Period
has expired), the rate which would be payable if the
unpaid sum was an Advance made for a period equal to
the period of non-payment divided into successive
Interest Periods of such duration as shall be selected
by the Mezzanine Agent (a "DEFAULT INTEREST PERIOD").
7.7 Default interest will be payable on demand by the Mezzanine
Agent and will be compounded at the end of each Default Interest
Period.
7.8 The Mezzanine Agent will promptly notify the Borrower and the
Mezzanine Lenders of each determination of the Default Rate and
each selection of a Default Interest Period.
8. SELECTION OF INTEREST PERIODS
8.1 Subject as provided herein and to Clause 3.5(e)(iii) (interest
periods during Syndication), the duration of each Interest
Period will be a period of three or six months as notified by
the Borrower to the Mezzanine Agent not later than 10:00 a.m.
one Business Day prior to the commencement of such Interest
Period provided that:
(a) the first Interest Period in relation to an Advance
will commence on the Drawdown Date relating thereto and
each subsequent Interest Period relating to such
Advance will commence on the expiry of the preceding
Interest Period relating thereto;
(b) if the Borrower fails to select an Interest Period,
then, subject as provided in this Clause 8 and Clause
3.5(c)(iii), the Borrower will be deemed to have
selected an Interest Period of three months;
(c) if all or part of an Advance is required to be repaid
on a Repayment Date to ensure that the Borrower
complies with its obligations under Clauses 10.1 or
10.2 (Repayment) and if an Interest Period relative to
that Advance would, but for the
-25-
<PAGE> 28
operation of this sub-clause (c), extend beyond such Repayment
Date, then such Interest Period shall commence upon the expiry
of the immediately preceding Interest Period and expire on the
relevant Repayment Date;
(d) any Interest Period which begins during or at the same time as
any other Interest Period during the Consolidation Period shall
end at the same time as that other Interest Period during the
Consolidation Period; and
(e) at any time after 31st October 1996 any Interest Period which
begins during or at the same time as any other Interest Period
shall end at the same time as that other Interest Period.
8.2 If any Interest Period would, but for this Clause 8.2, 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
and/or beyond a Repayment Date, in which event such Interest Period
shall end on the last preceding Business Day.
8.3 If two or more Interest Periods end at the same time, then, on the last
day of those interest Periods, the Advances to which they relate shall
be consolidated into (and thereafter, save as otherwise provided
herein, be treated in all respects as) a single Advance.
8.4 No Interest Period in the Initial Period shall expire after the Initial
Termination Date.
8.5 No Interest Period shall expire after the Final Repayment Date.
8.6 The Agent will notify the Mezzanine Lenders of each Interest Period
applicable to each Advance promptly upon the same being determined.
9. MARKET DISRUPTION
9.1 If prior to the commencement of an Interest Period (an "AFFECTED
INTEREST PERIOD"):
(a) the Agent, after consultation with the Mezzanine Lenders
determines that, by reason of circumstances affecting the
London Interbank Market generally, adequate and fair means do
not or will not exist for ascertaining the interest rate
applicable to the Affected Interest Period; or
(b) the Majority Mezzanine Lenders notify the Mezzanine Agent that
LIBOR would not accurately reflect the cost to such Majority
Mezzanine Lenders of making or maintaining their respective
participants in the relevant Advance during the Affected
Interest Period; or
(c) no Reference Bank notifies a rate to the Mezzanine Agent for
the purposes of determining LIBOR for the Affected Interest
Period; or
(d) by reason of circumstances affecting the London Interbank
Market generally, Sterling is not available to a Mezzanine
Lender in order to fund its participation during the Affected
Interest Period,
the Mezzanine Agent will give notice of such event to the Borrower and
the Mezzanine Lenders (a "SUSPENSION NOTICE"). If the Suspension Notice
is given prior to the receipt by the Mezzanine Agent of an Advance
Request, the Borrower's right to borrow and issue an Advance Request
hereunder will be suspended for so long as the circumstances giving
rise to the Suspension Notice continue.
-26-
<PAGE> 29
9.2 If at the time of the Suspension Notice an Advance Request has been
given pursuant to Clause 6.1 (Drawdown Procedures), such Advance
Request shall be deemed to have been cancelled and the Advance
concerned shall not be made unless the Borrower and the Mezzanine
Agent agree otherwise.
9.3 Subject to Clause 9.2, during the 21 days following the giving of the
Suspension Notice, the Mezzanine Agent and the Mezzanine Lenders and
the Borrower will negotiate in good faith in order to arrive at a
mutually acceptable substitute basis for calculating the alternative
interest rate or (as the case may be) an alternative basis for the
relevant Mezzanine Lender to fund or continue to fund the affected
Advance during the Affected Interest Period. If within such 21 day
period the parties agree in writing upon a substitute basis, such
substitute basis shall apply in accordance with its terms. If the
parties fail to agree on a substitute basis within such 21 day period,
the Mezzanine Agent will certify to the Borrower (such certificate to
be conclusive in the absence of manifest error) the basis upon which
interest in relation to the Affected Interest Period is to be fixed or
(as the case may be) the basis upon which the relevant Mezzanine Lender
will fund or continue to fund its participation in the Advance during
the Affected Interest Period. Such basis (in relation to the said rate
of interest) may include the substitution of the cost of funds to the
Mezzanine Lenders from other sources and for different funding periods,
plus the Margin and, where appropriate, the Additional Costs Rate, and
may be retroactive to the beginning of the Affected Interest Period.
Such interest will be calculated at the rate specified in the Mezzanine
Agent's certificate.
9.4 Notwithstanding the foregoing, the Borrower may, at any time after the
Mezzanine Agent has set a substitute funding procedure or interest rate
or rates pursuant to Clause 9.3 and for so long as such funding
procedure or interest rate or rates continue(s) to be applicable, give
to the Mezzanine Agent not less than 5 Business Days' notice (which
shall be irrevocable) of its intention to prepay the whole (but not
part only) of the Advance affected, in which event the Borrower will
pay to the Mezzanine Agent:
(a) for the account of the Mezzanine Lenders on the date specified
in such notice the principal amount of the Advance affected
without payment of the prepayment premium referred to in Clause
10.5 together with interest accrued thereon down to the date of
actual prepayment; and
(b) on demand for the account of each Mezzanine Lender such amount
(if any) as such Mezzanine Lender may certify should be paid to
it pursuant to Clause 30.1 (General Indemnity and Breakage
Costs).
10. REPAYMENT AND PREPAYMENT
10.1 FIRST ADVANCE REPAYMENT: The First Advance drawn down hereunder is
repayable by the Borrower in equal annual instalments on each Repayment
Date in respect of that Advance.
10.2 SUBSEQUENT ADVANCES REPAYMENT: Each Subsequent Advance drawn down
hereunder is repayable by the Borrower in equal annual instalments on
each Repayment Date in respect of that Advance.
10.3 FINAL REPAYMENT DATE: On the Final Repayment Date, the Borrower
additionally will pay to the Mezzanine Agent for the account of the
Mezzanine Lenders all other sums then outstanding or payable hereunder.
10.4 VOLUNTARY PREPAYMENT: The Borrower may prepay the whole or any part of
an Advance on the last day of an Interest Period relating thereto
provided that the Mezzanine Agent has received not less than 10 Business
Days' notice from the Borrower of the proposed date and amount of the
prepayment. If an Advance is to be prepaid in part, the amount of the
partial
-27-
<PAGE> 30
prepayment must in the case of any Initial Prepayment be a minimum
amount of L.200,000 and an integral multiple of L.50,000 and in all
other cases be a minimum of L.500,000 and an integral multiple of
L.500,000. A notice of intended prepayment will be irrevocable and the
Borrower will pay to the Mezzanine Agent for the account of the
Mezzanine Lenders the principal amount concerned together with interest
accrued thereon.
10.5 PREPAYMENT FEE: A prepayment fee of 2% on the amount of any Advance
prepaid (other than any Initial Prepayment) shall be payable by the
Borrower to the Mezzanine Agent for the account of the Mezzanine
Lenders on the date of prepayment in relation to any prepayment made on
or before the third anniversary of the Drawdown Date of that Advance.
For the avoidance of doubt each amount prepaid other than any Initial
Prepayment shall be applied in or towards the reduction of scheduled
repayments in respect of the last Advance made under this Agreement
prior to that prepayment in inverse order of maturity.
10.6 INITIAL PREPAYMENTS: For the avoidance of doubt each Initial Prepayment
shall (a) be applied pro rata against each of the scheduled repayments
of the First Advance set out in Clause 10.1; (b) reduce pro tanto the
obligations of the Borrower under Clause 10.1; (c) prior to the
Termination Date be available for redrawing.
10.7 PREPAYMENT ON CHANGE OF CONTROL AND LISTING:
(a) If any of the events listed in Clause 10.7(b) occur then:
(i) the Borrower will prepay all Advances, accrued interest
thereon and all other sums payable under this Agreement
and the other Mezzanine Finance Documents;
(ii) the unborrowed amount of the Facility will be cancelled
and the Commitment of each Mezzanine Lender in respect
of the Facility shall be reduced to zero; and
(iii) save as otherwise agreed with the relevant counterparty
to the Hedging Agreements, the Borrower will terminate
or sell the Hedging Agreements and pay all amounts due
under the Hedging Agreements to the said counterparty
as a result of any such termination.
(b) The events referred to in Clause 10.7(a) are the following:
(i) a Sale;
(ii) a Flotation; or
(iii) any change in the legal or beneficial ownership of the
shares of the Borrower or any Principal Subsidiary
after the date of this Agreement which results in any
single person or group of persons acting in concert (as
defined in the City Code on Takeovers and Mergers)
acquiring Control of the Borrower or, as the case may
be, any Principal Subsidiary or if there shall be such
a change of Control by virtue of any contract or
arrangement made in either case without the prior
written consent of the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders.
10.98 MANDATORY PREPAYMENTS ON ASSET DISPOSALS: Where the Borrower or any
member of the Combined Group disposes of an asset (other than a
disposal permitted by Clause 16.10) the proceeds of the disposal (net
of reasonable provision for tax and reasonable disposal costs)
-28-
<PAGE> 31
shall be applied in or towards prepayment of the outstandings under this
Agreement in accordance with Clause 10.9.
10.9 PREPAYMENTS: ORDER OF APPLICATION: Prepayments made pursuant to Clauses
10.4, 10.7 and 10.8 (other than any Initial Prepayments) shall be
applied against the scheduled repayments set out in Clauses 10.1 and
10.2 in inverse order of maturity and thereafter in payment of all other
sums payable to the Mezzanine Finance Parties under the Mezzanine
Finance Documents. Each Initial Prepayment shall be applied pro rata
against each of the scheduled repayments set out in Clause 10.1.
10.10 PREPAYMENTS DURING INTEREST PERIODS:
(a) Where any amount required to be prepaid under Clause 10.8 is
received by the Mezzanine Agent for the account of the Mezzanine
Lenders during an Interest Period the Mezzanine Agent will retain
such amount until the end of such Interest Period and will apply
the same against the relevant Advance or Advances hereunder on the
expiry of the relevant Interest Period.
(b) Pending application against the relevant Advance the sums held by
the Mezzanine Agent under Clause 10.10(a) will be placed in a Cash
Collateral Account and the interest earned on such account will be
applied by the Mezzanine Agent towards the interest due by the
Borrower in respect of the relevant Advance at the time the amount
is applied in repayment of the relevant Advance.
(c) The Borrower may, by notice to the Mezzanine Agent, require that
any Interest Period be broken and that the proceeds arising under
Clause 10.8 be applied immediately towards repayment of the next
Advance to mature subject to payment of any breakage costs thereby
incurred by the Mezzanine Lenders in accordance with Clause 30.1.
10.11 CASH COLLATERAL ACCOUNTS:
(a) Amounts standing in the credit of any Cash Collateral Account shall
bear interest at a commercial rate determined by the Mezzanine
Agent.
(b) Whenever a Cash Collateral Account is established or further monies
placed in a Cash Collateral Account, the Borrower shall, if so
required by the Mezzanine Agent, forthwith either:
(i) enter into a Cash Collateral Charge in respect of such Cash
Collateral Account; and/or
(ii) enter into a letter of agreement in relation to such Cash
Collateral Account conferring set-off and similar rights in
favour of the Mezzanine Finance Parties. Without prejudice to
the provisions of this Clause 10.11 if a Cash Collateral
Account is established with the Mezzanine Security Trustee or
any other Mezzanine Finance Party then:
(A) following the occurrence of an Event of Default the
relevant Mezzanine Finance Party shall be entitled to
set-off the credit balance on the Cash Collateral Account
against the Borrower's obligations to that Mezzanine
Finance Party or in the case of the Mezzanine Security
Trustee all the Mezzanine Finance Parties under the
Mezzanine Finance Documents;
-29-
<PAGE> 32
(B) the amounts standing to the credit of the Cash Collateral
Account shall not be repayable to the Borrower (save as
otherwise provided herein or in any of the other Mezzanine
Finance Documents) unless and until all outstandings under
this Agreement have been repaid and discharged in full; and
(C) the Borrower shall not be entitled to assign, charge or
otherwise deal with the Cash Collateral Account or any credit
balances thereon or its equity of redemption thereto except to
the extent necessary to comply with this Clause 10.11.
10.12 CANCELLATION: The Borrower may cancel the undrawn amount of the Facility
in whole or in part (but if in part in a minimum of either the balance
of the undrawn Facility or L.500,000 and an integral multiple of
L.500,000) at any time on or prior to the Termination Date by giving not
less than 10 days' notice to that effect to the Mezzanine Agent
(effective only on actual receipt). A notice of cancellation will be
irrevocable.
10.13 CANCELLATION FEE: A cancellation fee of 2% on the amount cancelled shall
be payable by the Borrower to the Mezzanine Agent for the account of the
Mezzanine Lenders on the date of any such cancellation made by the
Borrower on or before the third anniversary of the Drawdown Date of the
First Advance made hereunder.
10.14 INDIVIDUAL CANCELLATION: If the amount of any payment to be made to or
for the account of any Mezzanine Lender is increased under Clause 12.1
(Gross up) or any Mezzanine Lender claims compensation under Clause 13.1
(Increased Costs), then the Borrower may, at any time thereafter and by
not less than 10 days' prior notice to the Mezzanine Agent, cancel
without payment of any cancellation fee the Commitment of that Mezzanine
Lender whereupon that Mezzanine Lender shall cease to be obliged to
participate in making Advances hereunder and its Commitment shall be
reduced to zero.
10.15 RELATIONSHIP WITH INTERCREDITOR DEEDS: To the extent that any amount
prepaid or required to be prepaid under this Agreement is, by the terms
of this Agreement, required to be applied against any Advance or other
sum outstanding under the Mezzanine Finance Documents, such amount shall
only be so applied, and shall only be required to be so applied
(notwithstanding the relevant provision of this Agreement), if and to
the extent that such application is not required to be applied in making
payments to the Senior Lenders under the Senior Facility Agreements and
is in any event permitted under the relevant Intercreditor Deed.
10.16 GENERAL:
(a) No prepayment or cancellation may be made except at the times and
in the manner expressly provided by this Agreement.
(b) No amount prepaid (other than the amount of any Initial Prepayment)
may be subsequently re-drawn.
(c) Each Initial Prepayment may be re-drawn.
(d) All prepayments will be made together with interest accrued thereon
up to the date of prepayment.
(e) The Mezzanine Agent shall notify the Mezzanine Lenders promptly
upon receipt by it of a notice of prepayment or cancellation.
-30-
<PAGE> 33
11. PAYMENTS
11.1 Payments to Mezzanine Agent: All payments to be made by the Borrower
and/or by any Obligor and/or any Mezzanine Lender under the Mezzanine
Finance Documents are to be made to the Mezzanine Agent in Sterling in
immediately available funds not later than 11.00 a.m. on the date in
question to such account in the United Kingdom as the Mezzanine Agent
specifies for that purpose.
11.2 Payments by Agent: Subject to Clause 11.3, each payment received by the
Mezzanine Agent for the account of another person will be made available
by the Mezzanine Agent to that person in immediately available funds for
value on the same day by transfer to such bank account in the United
Kingdom as that person has previously notified to the Mezzanine Agent by
not less than three Business Days' prior notice in writing.
11.3 Netting of Payments: If on any Drawdown Date:
(a) the Mezzanine Lenders are required to make their Participation
Proportions of an Advance; and
(b) a payment is due to be paid by the Borrower to the Mezzanine Agent
for the account of the Mezzanine Lenders,
the Mezzanine Agent may (without prejudice to the obligation of the
Borrower to make the payment in question) apply any amount payable by the
Mezzanine Lenders to the Borrower on that Drawdown Date in respect of the
relevant Advance in or towards satisfaction of the amounts payable by the
Borrower to the Mezzanine Lenders on such Drawdown Date.
11.4 Assumed Receipt: Where a sum is to be paid under any Mezzanine Finance
Document for the account of another person, the Mezzanine Agent will not
be obliged to make any such sum available to that person until it has been
able to establish to its satisfaction that it has actually received such
sum, but if it does so and it proves to be the case that it had not
actually received the sum it paid out, then such person will on request
ensure that the amount so made available is refunded to the Mezzanine
Agent and such person will be liable (1) to pay to the Mezzanine Agent
interest on the amount in question at the rate determined by the Mezzanine
Agent to be equal to the cost to the Mezzanine Agent of funding such
amount for the period from payment out by the Mezzanine Agent until refund
to the Mezzanine Agent thereof and (2) to indemnify the Mezzanine Agent
against any additional cost or loss it may have suffered or incurred by
reason of it having paid out such sum prior to it having received the
same.
11.5 No Set-Off or Deductions: All payments made by the Borrower or any other
Obligor under the Mezzanine Finance Documents (whether of principal,
interest, fees or otherwise) must be paid in full without set-off or
counterclaim and not subject to any condition and free and clear of and
without any deduction or withholding for or on account of any Taxes
(except as provided in Clause 12 (Taxes)).
11.6 Business Days: Subject to Clause 8.2, if any sum would otherwise become
due for payment pursuant to any of the Mezzanine Finance Documents on a
day which is not a Business Day, such sum shall become due on the next
succeeding Business Day and all sums payable under any of the Mezzanine
Finance Documents calculated by reference to any period of time shall be
recalculated on the basis of such extension in time.
11.7 Mezzanine Lenders' Records: Each Mezzanine Lender will maintain an account
or accounts recording the amounts from time to time lent by, owing to and
paid to such Mezzanine Lender, pursuant to this Agreement.
-31-
<PAGE> 34
12. TAXES
12.1 Gross Up: If any deduction or withholding for or on account of Taxes or
any other deduction from any payments made or to be made by an Obligor or
by the Mezzanine Agent to any other Mezzanine Finance Party under any of
the Mezzanine Finance Documents is required by law, then that Obligor and
failing which the Borrower (in the event it is not that Obligor) will:
(a) ensure that the deduction or withholding does not exceed the minimum
amount legally required;
(b) pay to the relevant Taxation or other authorities within the period
for payment permitted by the applicable law such amount as is
required to be paid in consequence of the deduction (including, but
without prejudice to the generality of the foregoing, the full
amount of any deduction from any additional amount paid pursuant to
this Clause 12.1);
(c) indemnify each of the Mezzanine Finance Parties on demand against
any losses or costs incurred by it by reason of (i) any failure on
the part of the relevant Obligor to make any deduction or
withholding or (ii) any such additional amount not being paid on the
due date for payment thereof; and
(d) promptly pay to the Mezzanine Agent for the account of the Mezzanine
Finance Party concerned an additional amount being the amount
required to procure that the aggregate net amount received by such
Mezzanine Finance Party will equal the full amount which would have
been received by it had no such deduction or withholding or other
deduction been made.
12.2 Exemption from Gross Up: No additional amount will be payable to a
Mezzanine Lender under Clause 12.1 in respect of United Kingdom Taxes to
the extent that such additional amount would not be payable to such
Mezzanine lender:
(a) had been a Qualifying Lender at the time the payment concerned falls
due (unless the reason it is not a Qualifying Lender is a change
after the date of this Agreement (or, in the case of a Mezzanine
Lender which became a Mezzanine Lender after the date of this
Agreement the date on which it became a Mezzanine Lender) in any law
or regulation, or in the interpretation or application thereof or in
any practice or concession of the Inland Revenue); and
(b) had at that time been bringing into account amounts paid and payable
hereunder as a trading receipt in the ordinary course of its bona
fide banking business carried on in the United Kingdom.
12.3 Tax Credits: If an Obligor pays to any Mezzanine Finance Party any
additional amount under Clause 12.1 (Gross up) by reason of a deduction
or withholding for or on account of Taxes and that Mezzanine Finance Party
actually obtains a refund of Tax, or credit against Tax, by reason of the
payment of that additional amount and that Mezzanine Finance Party is able
to identify such refund or credit as being attributable to that payment,
then that Mezzanine Finance Party will reimburse to that Obligor such
amount as that Mezzanine Finance Party determines to be the proportion of
the credit or refund in question as will leave that Mezzanine Finance
Party (after that reimbursement) in no better or worse position than that
in which it would have been had the payment of the additional amount
concerned not been required, but none of the Mezzanine Finance Parties nor
any of them need make any reimbursement if it believes the making of the
reimbursement will cause it to lose the benefit of the credit or refund or
any other relief or allowance which may be available to it. Each
-32-
<PAGE> 35
Mezzanine Finance Party will have an absolute discretion as to whether to
claim any credit for or refund of Taxes and, if it does claim, the extent,
order and manner in which it does so. No Mezzanine Finance Party will be
obliged to disclose any information regarding its tax affairs or
computations to any Obligor.
12.4 A Mezzanine Finance Party intending to make a claim pursuant to this
Clause 12 shall deliver to the Borrower through the Mezzanine Agent a
certificate to that effect specifying the amount of compensation payable
under this Clause 12 which will, in the absence of manifest error, be
conclusive but that Mezzanine Finance Party will not be required to
disclose in such certificate or otherwise any information which is in its
opinion confidential or price-sensitive.
13. CHANGE IN CIRCUMSTANCES
13.1 INCREASED COSTS:
(1) If the effect of any change in or introduction or making after the
date of this Agreement of any law, regulation, treaty or official
directive or official request applicable to any Mezzanine Finance
Party (an "AFFECTED MEZZANINE FINANCE PARTY") (whether or not having
the force of law but, if not, being of a type with which the
Affected Mezzanine Finance Party is accustomed, expected or required
to comply) or any change in the interpretation or application
thereof or compliance by the Affected Mezzanine Finance Party with
the same (including without limitation those relating to Taxation,
reserve asset, special deposit, cash ratio, liquidity or capital
adequacy requirements or any other form of banking or monetary
controls) is to:
(i) impose an additional cost on the Affected Mezzanine Finance
Party as a result of it having entered into any of the
Mezzanine Finance Documents or assuming or maintaining its
Commitment during this Agreement or making or maintaining its
participation in any Advance or of it performing its
obligations under the Mezzanine Finance Documents; or
(ii) reduce any amount payable to the Affected Mezzanine Finance
Party hereunder or reduce the effective return on its capital
or any class thereof; or
(iii) Result in the Affected Mezzanine Finance Party making any
payment or foregoing any interest or other return on or
calculated by reference to any amount received or receivable
by the Affected Mezzanine Finance Party from any other party
under any of the Mezzanine Finance Documents,
(each such increased cost, reduction, payment, foregone interest or
other return being hereafter referred to in this Clause 13 as an
"INCREASED COST"), then:
(1) the Affected Mezzanine Finance Party will notify the Borrower
and the Mezzanine Agent of such event promptly upon its
becoming aware of the same; and
(2) upon demand from time to time by the Mezzanine Agent on behalf
of the Affected Mezzanine Finance Party, the Borrower will pay
to the Mezzanine Agent for the account of the Affected
Mezzanine Finance Party such amount as the Affected Mezzanine
Finance Party determines to be necessary to compensate the
Affected Mezzanine Finance Party for such increased cost (or
the portion of such increased cost as is in the opinion of the
Affected
-33-
<PAGE> 36
Mezzanine Finance Party attributable to its entering into the
Mezzanine Finance Documents or of making or maintaining its
participation in any Advance or of maintaining its
Commitment).
(b) An Affected Mezzanine Finance Party intending to make a claim
pursuant to this Clause 13 shall, reasonably promptly after it
becomes aware of the circumstances giving rise to such claim deliver
to the Borrower through the Mezzanine Agent a certificate specifying
the amount of compensation payable under Clause 13.1(a) which will,
in the absence of manifest error, be conclusive but the Affected
Mezzanine Finance Party will not be required to disclose in such
certificate or otherwise any information which is, in its opinion,
confidential or price-sensitive.
(c) The Borrower will not be obliged to compensate any Mezzanine Finance
Party pursuant to Clause 13.1(a) in respect of any increased cost:
(i) compensated for by payment of the Additional Costs Rate; or
(ii) attributable to a change in the rate of Tax on the overall net
income of that Mezzanine Finance Party imposed in the
jurisdiction in which it is incorporated or in which its
principal office or lending office for the time being is
located; or
(iii) compensated for by the operation of Clause 12(Taxes) or would
have been so compensated for but for the operation of Clause
12.2; or
(iv) incurred in consequence of the implementation in whole or in
part of the International Convergence of Capital Measurements
and Capital Standards dated July 1988 published by the Basle
Committee on Banking Regulations and Supervisory Practices
(the "GUIDANCE") except where a higher level of capital
adequacy is imposed than that stipulated in the Guidance as at
the date of this Agreement.
13.2 ILLEGALITY: If it is or becomes contrary to any law, regulation, treaty,
or official directive or official request applicable to any Mezzanine
Lender (whether or not having the force of law but, if not, being of a
type with which that Mezzanine Lender is accustomed, or expected or
required to comply) in any jurisdiction applicable to that Mezzanine
Lender for it to make available the Facility or to maintain its Commitment
under this Agreement or to maintain its participation in any Advance then
that Mezzanine Lender may give written notice to that effect to the
Mezzanine Agent and the Borrower whereupon:
(a) the Borrower will forthwith prepay that Mezzanine Lender's
participation in all the Advances then outstanding together with all
interest accrued thereon and all other amounts due to that Mezzanine
Lender under this Agreement (including pursuant to Clause 30.1
(General Indemnity and Breakage Costs)); and
(b) that Mezzanine Lender's undrawn Commitment (if any) will be
cancelled forthwith.
13.3 MITIGATION: If circumstances arise in relation to a particular Mezzanine
Finance Party which would, or may, result in:
(a) an obligation to pay an additional amount under Clause 12.1
(Gross-up); or
(b) a demand for compensation pursuant to Clause 13.1 (Increased Costs);
or
(c) an obligation to repay under Clause 13.2 (Illegality),
-34-
<PAGE> 37
then, without in any way limiting, reducing or otherwise qualifying the
obligations of the Borrower under any of the Clauses referred to above,
that Mezzanine Finance Party will promptly notify the Mezzanine Agent
and Borrower thereof and, in consultation with the Mezzanine Agent and
Borrower, take such reasonable steps as may be reasonably open to it to
mitigate the effects of such circumstances including (but without
limitation):
(1) changing its Lending Office for the purposes of this Agreement;
or
(2) (in the case of a Mezzanine Lender) transferring its rights and
obligations hereunder pursuant to Clauses 28.2 or 28.3,
but that Mezzanine Finance Party will not be obliged to take any action
if to do so would or might (in its opinion) have a material adverse
effect upon its business, operations or financial condition or cause it
to incur liabilities or obligations (including Taxation) which (in its
opinion) are material or would reduce its return in providing the
Facility.
14. FEES, EXPENSES AND STAMP DUTIES
14.1 COMMITMENT FEE: The Borrower will pay to the Mezzanine Agent for the
account of the Mezzanine Lenders a commitment fee from the date hereof
which will:
(a) be computed at the rate of 2 per cent. per annum on the daily,
undrawn, uncancelled amount of the Total Commitments;
(b) accrue from day to day and will be calculated on the basis of a
365 day year and the actual number of days elapsed; and
(c) be payable quarterly in arrears on 31st March, 30th June, 30th
September and 31st December in each year and on the Termination
Date, the first such payment being made on 30th June 1995 in
respect of the period from and including the date of this
Agreement to 30th June 1995.
14.2 OTHER FEES: The Borrower will also pay to the Mezzanine Agent for the
account of the Mezzanine Lenders certain fees and to the Mezzanine
Agent for its own account certain other fees in each case in the
amounts, on the dates and at the times specified in and otherwise in
accordance with the Fees Letters.
14.3 VAT: All fees payable under the Mezzanine Finance Documents are
exclusive of any value added tax or other similar tax chargeable upon
or in connection with such fees. If any value added tax or other
similar tax is or becomes so chargeable, such tax will be added to the
fee concerned at the appropriate rate and will be paid by the Borrower
at the same time as the relevant fee itself is paid.
14.4 PRE-ENFORCEMENT EXPENSES: The Borrower will on demand pay and reimburse
to each Mezzanine Finance Party on the basis of a full indemnity, all
reasonable costs and expenses (including legal fees and other
out-of-pocket expenses and any value added tax or other similar tax
thereon) incurred by that Mezzanine Finance Party in connection with:
(a) the negotiation, preparation, execution and completion of each
of the Mezzanine Finance Documents and each Mezzanine Lender
Accession Notice, and all documents, matters and things
referred to in the Mezzanine Finance Documents or Mezzanine
Lender Accession Notice (as the case may be) or incidental to
any of the Mezzanine Finance Documents or Mezzanine Lender
Accession Notice (as the case may be);
-35-
<PAGE> 38
(b) any variation, amendment, restatement, waiver, consent or
suspension of rights (or any proposal for any of the same)
relating to any of the Mezzanine Finance Documents or Mezzanine
Lender Accession Notice (as the case may be) (and documents,
matters or things referred to therein); and
(c) the investigation of any Event of Default or Potential Event of
Default.
14.5 ENFORCEMENT EXPENSES: The Borrower will on demand pay and reimburse to
each Mezzanine Finance Party on the basis of a full indemnity, all
costs and expenses (including legal fees and other out of pocket
expenses and any value added tax or other similar tax thereon) incurred
by that Mezzanine Finance Party in connection with the preservation,
enforcement or the attempted preservation or enforcement of any of that
Mezzanine Lender's rights under any of the Mezzanine Finance Documents
(and documents referred to therein).
14.6 STAMP DUTIES, ETC: The Borrower will pay and on demand indemnify each
Mezzanine Finance Party from and against any liability for any stamp
duty, documentary, registration and other duties and Taxes (if any)
which are or may hereafter become payable in connection with the entry
into, performance, execution or enforcement of any of the Mezzanine
Finance Documents or to which any of the Mezzanine Finance Documents or
any Mezzanine Lender Accession Notice (as the case may be) may
otherwise be or become subject or give rise.
14.7 DELAY IN PAYMENT: The Borrower will pay and on demand indemnify each
Mezzanine Finance Party from and against any losses or liabilities
which it may incur as a result of any delay or omission by the Borrower
to pay any such duties or Taxes mentioned in Clause 14.6.
15. REPRESENTATIONS AND WARRANTIES
15.1 RELIANCE: The Borrower acknowledges that each Mezzanine Finance Party
has entered into this Agreement and the other Mezzanine Finance
Documents, and each Mezzanine Finance Party has agreed to provide the
Facility, in full reliance on representations by the Borrower in the
terms set out in the following provisions of this Clause 15 and the
Borrower represents and warrants (in relation to itself and, in the
case of Clauses 15.3 to 15.7, each other Obligor and each other member
of the Combined Group) to each Mezzanine Finance Party in those terms.
15.2 REPETITION: The representations and warranties in this Clause 15 (other
than those contained in Clauses 15.9(a) and 15.15(a)) will be deemed to
be repeated by the Borrower on and as of each date on which an Advance
is requested, the date on which an Advance is made and the first day of
each Interest Period as if made with reference to the facts and
circumstances existing on each such day except that the references to
(a) Combined Group Pro-forma Statements in Clause 15.12(b); (b) Target
Group Pro-forma Statements in Clause 15.12(c); and (c) Budget in the
definition of Information Package, shall be construed as references to
respectively; (i) the then latest consolidated management accounts of
the Combined Group delivered to the Mezzanine Agent pursuant to Clause
17.4(b) at any time prior to but excluding 31st December 1995 and at
any time thereafter the then latest audited consolidated accounts of
the BV Group delivered to the Mezzanine Agent pursuant to Clause
17.4(a); (ii) following the Completion Date or a Proposed Completion
(as the case may be) related to the relevant Target Group, the
Completion Accounts or Subsequent Completion Accounts related to that
Proposed Completion (as the case may be) on delivery of those
respective accounts to the Mezzanine Agent pursuant to Clause 17.4(c)
and (d) and thereafter the then latest consolidated or unconsolidated
(as the case may be) accounts of that Target Group; (iii) the then
latest Budget delivered to the Mezzanine Agent pursuant to Clause
17.4(e). The representations and warranties contained in 15.15(a) will
be deemed to be repeated by the
-36-
<PAGE> 39
Borrower on and as of the date on which the First Advance is requested and
the date on which the First Advance is made.
15.3 INCORPORATION: it is duly incorporated and validly existing with limited
liability under (in the case of each Obligor at the date of this Agreement
(other than the Borrower LK Ireland, Dr Kyprianou and Mrs Kyprianou)) the
laws of England and Wales (in the case of each other Combined Group
Company) the laws of the jurisdiction in which it is incorporated (in the
case of the Borrower being The Netherlands, in the case of LK Cyprus being
Cyprus, in the case of LK India being India and in the case of LK Ireland
being the Republic of Ireland) has the power to own its property and
assets and to carry on its business as it is being conducted.
15.4 POWER AND AUTHORITY: Its memorandum and articles of association or other
constitutional documents incorporate provisions which respectively ensure,
all necessary corporate, shareholder and other action has been taken to
ensure, that:-
(a) it is authorised to sign or execute under seal or as a deed (as
appropriate) and deliver each of the Mezzanine Finance Documents and
the other Transaction Documents to which it is a party and perform
the transactions contemplated thereby and to borrow the Facility (as
the case may be);
(b) its payment obligations under each of the Mezzanine Finance
Documents rank and will at all times rank in accordance with Clause
15.7 (Pari Passu);
(c) each of the Mezzanine Finance Documents and the other Transaction
Documents to which it is a party is admissible in evidence in the
courts having jurisdiction in the place of incorporation of each
Combined Group Company, and, if different, the jurisdiction to which
it submits under this Agreement or under the relevant Mezzanine
Finance Document or Transaction Document;
(d) each of the Mezzanine Finance Documents and the other Transaction
Documents to which it is a party has been validly entered into by it
and creates valid and binding obligations upon it which are subject
to the Reservations enforceable in accordance with its terms; and
(e) the security constituted by the Mezzanine Security Documents to
which it is a party is created and ranks in the order specified
therein unless otherwise provided in any Intercreditor Deed.
15.5 AUTHORISATIONS AND CONSENTS: All consents, licenses, approvals and
authorisations (whether corporate, official or otherwise) required by it
in connection with the entry into, performance, validity, enforceability
and admissibility in evidence of each of the Mezzanine Finance Documents
and the other Transaction Documents to which it is a party and the
transactions contemplated thereby have been unconditionally obtained and
are in full force and effect.
15.6 NO CONTRAVENTION: Neither the execution and delivery of any of the
Mezzanine Finance Documents, the other Transaction Documents, the
performance of any of the transactions contemplated therein or of any of
its obligations thereunder nor the creation of the security thereby
constituted do now or will:-
(a) conflict with its memorandum or articles of association or other
constitutional documents; or
-37-
<PAGE> 40
(b) contravene or constitute a default under or otherwise conflict
with any provision contained in any agreement, instrument, law, judgment, order,
licence, permit, consent or directive by which any Obligor or any other Combined
Group Company or any of the assets of any Obligor or any other Combined Group
Company is bound or affected; or
(c) cause any borrowing, prohibition on the grant of any Security
Interest or other limitation on any Obligor or any other Combined Group Company
or the powers of the directors or other officers of any Obligor or any other
Combined Group Company to be exceeded, whether such limitation is imposed by or
contained in any document which contains or established its constitution or in
any law, order, directive or judgment to which any Obligor or any other
Combined Group Company is subject or any agreement or instrument by which any
Obligor or any other Combined Group Company or any of the assets of any Obligor
or any other Combined Group Company is bound or affected.
15.7 PARI PASSU: Its payment obligations under each of the Mezzanine
Finance Documents rank at least pari passu in right and priority of payment
with all its other unsecured and unsubordinated indebtedness (actual or
contingent) except only as mentioned in Clause 16.7 (Pari Passu Ranking).
15.8 NO DEFAULTS: No Event of Default or Potential Event of Default has
occurred and is continuing and no event has occurred (which has not been
remedied or waived) which constitutes a default under or in respect of any
agreement, instrument, deed or document to which any Obligor or any other
Combined Group Company is a party or by which any of them or any of their
assets may be bound or affected and no event has occurred (which has not been
remedied or waived) which, with the giving of notice and/or the passage of time
and/or giving of any certificate or statement and/or making of any
determination and/or fulfilment of any other condition, might constitute any
such default.
15.9 LITIGATION:
(a) Save as fully and fairly disclosed in the Banking Disclosure
Letter, no litigation, arbitration or administrative proceeding or claim is
current or pending or threatened against the Borrower or any other Obligor or
any other Combined Group Company or any of the assets of any Obligor or any
other Combined Group Company; and
(b) Save as fully and fairly disclosed in the Banking Disclosure
Letter, no litigation, arbitration or administrative proceeding or claim
(together "CLAIMS") is current or pending or threatened against the Borrower or
any other Obligor or any other Combined Group Company or any of the assets of
any Obligor or any other Combined Group Company which could reasonably be
expected to have a Material Adverse Effect.
15.10 NO SECURITY INTERESTS: Each Obligor and each Combined Group Company has
good and marketable title to all its assets and none of the assets of any
Obligor or any other Combined Group Company is affected by any Security
Interest other than a Permitted Security Interest and no Obligor nor any other
Combined Group Company is a party to, nor is it or any of its assets bound or
affected by, any order, licence, permit, consent, agreement or instrument under
which an Obligor or any other Combined Group Company is, or in certain events
(including the entry into any of the Mezzanine Finance Documents and/or
performance by each Obligor of its obligations thereunder) may be, required to
create, assume or permit to arise any Security Interest other than a Permitted
Security Interest.
15.11 NO GUARANTEES: No Obligor nor any other Combined Group Company has given
or entered into any Guarantee other than a Permitted Guarantee and no Obligor
nor any other Combined
-38-
<PAGE> 41
Group Company is a party to, nor is it or any of its assets bound or
affected by, any order, license, permit, consent, agreement or
instrument under which any Obligor or any other Combined Group Company
is, or in certain events (including the entry into of any of the
Transaction Documents and/or performance by each Obligor and/or each
Combined Group Company (as the case may be) of its obligations
thereunder) may be, required to give or enter into any Guarantee other
than a Permitted Guarantee.
15.12 MATERIAL DISCLOSURES:
(a) It has fully disclosed in writing to the Mezzanine Finance
Parties all facts relating to, the Acquisitions and each
Proposed Acquisition, the Obligors and each other Combined
Group Company which the Borrower knows or should reasonably
know and which might reasonably be expected adversely to affect
the decision of the Mezzanine Lenders to make the Facility
available to the Borrower.
(b) Since the date to and as at which the Combined Group Pro-forma
Statements were made up, there has been no material adverse
change in the business, assets, financial condition, prospects
or operations of the Combined Group as a whole, the BV Group as
a whole or of the Borrower.
(c) Since the date to and as at which any Target Group Pro-forma
Statements were made up, there has been no material adverse
change in the business, assets, financial condition, prospects
or operations of the Business to which those Target Group
Pro-forma Statements relate or that Target Group or that Target
Group Company (as the case may be).
15.13 INFORMATION:
(a) Save as fully and fairly disclosed in a Banking Disclosure
Letter, the Information Package and any other written
information furnished by the Borrower or Dr Kyprianou (as the
case may be) to the Mezzanine Finance Parties in connection with
the Facility does not contain any factual statements which are
incorrect or misleading in any material respect or omit to
state any fact the omission of which makes the statements
therein, in the light of the circumstances under which they
were made, misleading in any material respect and:-
(i) all opinions expressed therein were fair and formed on
reasonable grounds after due and careful enquiry by the
Borrower and were at that time and remain the honestly
held opinions of the Borrower; and
(ii) all expressions of intention and details of strategy
contained therein were at that time and remain the
intentions and strategies of the Borrower; and
(iii) the financial projections contained therein were
prepared on the basis of the assumptions set out
therein (and on no other material assumptions) and
genuinely represent the views of the board of directors
of the Borrower as to the likely future performance of
the Borrower, the BV Group, the Combined Group and the
relevant Business and (if appropriate) the relevant
Target Group or Target Group Company (as the case may
be); and
(iv) the assumptions referred to in (iii) were at that time
and remain reasonable and appropriate assumptions on
which to base the forecasts of the likely future
performance of the Borrower, the BV Group, the Combined
Group and the relevant Business and (if appropriate)
the relevant Target Group or Target Group Company (as
the case may be).
-39-
<PAGE> 42
(b) Save as fully and fairly disclosed in a Banking Disclosure
Letter (or to the extent that this representation is repeated
on or after the Completion Date as otherwise fully and fairly
disclosed in writing to the Mezzanine Agent on or prior to such
repetition), to the best of the Borrower's knowledge,
information and belief after due and careful review and enquiry
the forecasts, projections and conclusions contained in each of
the documents comprising the Information Package in relation
to any material matter, are fair and reasonable in all material
respects, in each case in the circumstances and in the context
of the Combined Group (as a whole) or the BV Group (as a
whole), the relevant Business or (if appropriate) the relevant
Target Group or Target Group Company (as the case may be) and
the transactions contemplated hereby.
(c) Save as fully and fairly disclosed in a Banking Disclosure
Letter (or to the extent that this representation is repeated on
or after the Completion Date as otherwise fully and fairly
disclosed in writing to the Mezzanine Agent on or prior to such
repetition) to the best of the knowledge and belief of the
Borrower all material factual information furnished by or on
behalf of any Combined Group Company (or, as the case may be,
Bec, any Target Group Company or any other person) to each of
the firms which prepared any of the Information Package and
contained or referred to therein was true in all material
respects at the date (if any) ascribed thereto, all expressions
of opinion or intention given by or on behalf of any Combined
Group Company (or, as the case may be, Bec, any Target Group
Company or any other person) and all forecasts and projections
furnished by any Combined Group Company (or, as the case may
be, Bec, any Target Group Company or any other person) to such
accountants or experts and contained or referred to in any of
the documents comprising the Information Package were arrived at
after careful consideration, were fair and were based on
reasonable grounds.
(d) Save as fully and fairly disclosed in a Banking Disclosure
Letter (or to the extent that this representation is repeated
on or after the Completion Date as otherwise fully and fairly
disclosed in writing to the Mezzanine Agent on or prior to such
repetition), so far as the Borrower is aware reasonable enquiry
having been made, since the date of the material contained in
the Information Package nothing has occurred or come to light
which renders any of the material information, expressions of
opinion or intention, forecasts, projections or conclusions
warranted to in (a), (b) and (c) above and contained in the
Information package inaccurate or misleading (or in the case
of expressions of opinion, conclusions, forecasts or
projection, other than fair and reasonable) in any material
respect in the context of the Combined Group, the BV Group, the
relevant Business, the relevant Target Group Company or (if
appropriate) the relevant Target Group or, as the case may be,
any company or assets the subject of the Acquisitions or a
Proposed Acquisition (as the case may be) and the transactions
contemplated hereby.
15.14 INSURANCE: It and each other member of the Combined Group has in place
insurances complying with the requirements of Clause 16.8 (Insurance)
and no act, omission, event or default has occurred which has rendered
or might render any policies of insurance taken out by it void or
voidable and, so far as the Borrower is aware after due and careful
review, there are no circumstances which would or might give rise to
any claim under any such policies of insurance involving an amount in
excess of L.50,000.
15.15 ACCOUNTS:
(a) Each of the Acquisition Statements (other than the Bec
statements) and to the best of the Borrower's knowledge,
information and belief after due and careful review and enquiry
the Bec statements were prepared in accordance with UK gaap and
give a true and fair view of the results of the operations of
each Accounting Group as a
-40-
<PAGE> 43
whole to which the relevant Acquisition Statements relate
and/or (as appropriate) each Accounting Company to which the
relevant Acquisition Statements relate (as the case may be) for
the period to which they relate and the state of the affairs of
each Accounting Group as a whole to which the relevant
Acquisition Statements relate and/or (as appropriate) each
Accounting Company to which the relevant Acquisition Statements
relate (as the case may be) at the end of such period and, in
particular, disclose or reserve against all liabilities (actual
or contingent) of each Accounting Group as a whole to which
the relevant Acquisition Statements relate and/or (as
appropriate) each Accounting Company to which the relevant
Acquisitions Statements relate (as the case may be) and all
material unrealized or anticipated losses from any commitment
entered into by each Accounting Group as a whole to which the
relevant Acquisition Statements relate and/or (as appropriate)
each Accounting Company to which the relevant Acquisition
Statements relate (as the case may be).
(b) To the best of the Borrower's knowledge, information and belief
after due and careful review and enquiry, each Target Group
Pro-forma Statements (other than the Bec statements) were
prepared in accordance with the provisions of UK gaap and give
a true and fair view of the results of the operations of the
relevant Target Group as a whole and/or (as appropriate) each
member of the relevant Target Group for the period to which
they relate and the state of the affairs of the relevant Target
Group as a whole and/or (as appropriate) each member of the
relevant Target Group at the end of such period and, in
particular, disclose or reserve against all liabilities
(actual or contingent) of the relevant Target Group as a whole
all material unrealised or anticipated losses from any
commitment entered into by the relevant Target Group and/or (as
appropriate) each member of the relevant Target Group.
15.16 NO OTHER SUBSIDIARIES: The Borrower has no Subsidiaries and LK Cyprus
and LK India each have no Subsidiaries other than in each case those
disclosed in the diagrams referred to in Clause 15.18 or permitted by
the Mezzanine Agent acting on the instructions of all the Mezzanine
Lenders in writing after the date of this Agreement.
15.17 ENVIRONMENTAL MATTERS:
(a) Each Obligor and each other member of the Combined Group is,
and has at all times been, in full compliance with all
Environmental Law and all Environmental Approvals necessary in
connection with the ownership and operation of its business
which are in full force and effect. To the best of the
knowledge and belief of the Borrower having made due and
careful enquiry, there are no circumstances which may
reasonably be expected to prevent or interfere with any Obligor
and/or each other Combined Group Company being in full
compliance with any Environmental Law including obtaining or
being in full compliance with any Environmental Approvals in
the future and no material investment is necessary to obtain
or renew any Environmental Approval.
(b) There are no past or present acts, omissions, events, state of
facts or circumstances which have resulted in (or could result
in) any third party (including a regulatory authority) taking
any action or making any claim against any Obligor or any other
Combined Group Company under any Environmental Laws including
remedial action (in particular in relation to contaminated
land) or the revocation, suspension, variation or non-renewal
of any Environmental Approval and no Obligor nor any other
Combined Group Company has notice of any complaints, demands,
civil claims, enforcement proceedings or of any action required
by any regulatory authority and there are no investigations
pending or threatened in relation to the failure of any Obligor
(or any other Combined Group Company) to obtain or comply with
Environmental Law.
-41-
<PAGE> 44
15.18 GROUP STRUCTURE: The diagrams attached as an annexure to the formalities
certificate delivered pursuant to the paragraph 1 of Schedule 2 accurately
record respectively the structure of the BV Group, the Cypriot Group, the
Indian Group as at the date hereof.
15.19 DEDUCTIONS: Under the laws of The Netherlands in force at the date
hereof, the Borrower will not be required to make any deduction or
withholding from any payment it may make under any Mezzanine Finance
Document to which it is a party.
15.20 FILINGS: Under the laws of The Netherlands, Cyprus and India in force at
the date hereof, it is not necessary that any Transaction Document be
filed, recorded or enrolled with any court or other authority in The
Netherlands, Cyprus and India or that any stamp, registration or similar
tax be paid on or in relation to any Transaction Document.
15.21 NO MATERIAL ADVERSE CHANGE: There has been no material adverse change in
financial condition or operations of the business of any Accounting Group
each taken as a whole since 31st December 1994.
15.22 PROPERTIES: All information in relation to the Properties provided by the
Borrower to the Mezzanine Agent and all information contained in the
certificate of title or reports on title (as the case may be) to the
Properties to be given pursuant to this Agreement was and remains at the
date of this Agreement true and accurate in all material respects.
15.23 ASSETS:
(a) All of the assets and rights to be acquired by each Appropriate
Company under the relevant Transaction Documents will on Completion
or Proposed Completion (as the case may be), be beneficially owned
by it and each will be entitled to and will forthwith become the
legal registered owner of all such assets and all such rights and
assets are capable of assignment, transfer or charge to a third
party as provided by the terms of the relevant Transaction
Documents.
(b) Each Appropriate Company will on Completion or Proposed Completion
(as the case may be) have good and marketable title to or valid
leases or licences of or are otherwise entitled to use all material
assets necessary to conduct its business as it is now being and
will be conducted, LKUK or the relevant Appropriate Company (as the
case may be) will have good and marketable title to all the issued
share capital of HMTMS and all the issued share capital or assets
(as the case may be) the subject of the Acquisition Agreements or
the Stock Transfer Form or a Proposed Acquisition Agreement (as the
case may be).
(c) It and each Combined Group Company has good and marketable title to
all its assets other than:-
(i) leased assets (excluding for this purpose any of the
Properties which are leasehold), assets on hire purchase or
other rental terms or assets the subject of retention of
title clauses in favour of third party suppliers in respect
of supplies in the ordinary course of trading as now being
conducted by it; and
(ii) assets not vital to the operations of its business; and
(iii) assets having a total value not exceeding L.50,000.
-42-
<PAGE> 45
15.24 INTELLECTUAL PROPERTY: The Intellectual Property:-
(a) is and will continue to be beneficially owned by a Charging Company
free from any licences to third parties (other than licences
granted in the ordinary course of trading as now being conducted by
that Charging Company substantially in the form of the Pro-forma IP
Licence) and Security Interests (other than a Permitted Security
Interest) and will not, so far as it is aware after due and careful
consideration, be adversely affected by the transactions
contemplated by the Transaction Documents;
(b) which is registered is not, so far as it is aware after due and
careful enquiry, subject to cancellation proceedings and all
registration and renewal fees have been paid in respect thereof;
(c) does not, so far as it is aware after due and careful enquiry,
infringe any intellectual property rights of any third party;
(d) comprises, together with any other intellectual property rights
licensed to it, all intellectual property rights owned by or
licensed or otherwise made available to Bec and used immediately
prior to Completion in relation to the First Business or, as the
case may be, any Subsequent Vendor and used immediately prior to
the Proposed Completion in relation to the Business the subject of
that Proposed Acquisition Agreement; and
(e) comprises, together with all other intellectual property rights
licensed to it, all intellectual property rights owned by or
licensed or otherwise made available to any Obligor or any other
Combined Group Company and used in the Business of that Obligor or
any other Combined Group Company (as the case may be).
15.25 GUARANTEES: Other than a Permitted Guarantee, no Obligor has given or
entered into any Guarantee (or agreement to create the same).
15.26 TRANSACTION DOCUMENTS: No Obligor nor any Combined Group Company is in
breach of any of the terms, conditions and/or arrangements nor has there
been any amendment, waiver or change to any of the Transaction Documents.
15.27 HOLDING COMPANY: The Borrower carries on no financial or commercial
activity other than that of the Holding Company of the BV Group (which
includes administrative functions and the supply of services for the
other members of the Combined Group or other BV Group (as the case may
be)) and it has no material liabilities or commitments (actual,
contingent, present or future) other than under the Transaction
Documents.
15.28 TRANSLATIONS: The English translation of all documents, instruments and
agreements provided to the Mezzanine Finance Parties by any Obligor, any
other Combined Group Company and any other BV Group Company are true,
correct and accurately reflect the contents thereof.
15.29 ENTIRE AGREEMENT: Other than the Transaction Documents, there are no
other agreements or arrangements (whether documented or not):-
(a) entered into between any of Bec, the Vendors, GMTMS, any Subsequent
Vendor, any Senior Lender, any Obligor, any other Combined Group
Company and any other BV Group Company; or
(b) relating to the transfer of all the issued share capital of HMTMS
to LKUK by GMTMS or the Acquisitions or any Proposed Acquisition.
-43-
<PAGE> 46
(ii) thereafter, a Mezzanine Lender or group of Mezzanine Lenders to
whom in aggregate more than 66 2/3 per cent of the Loan is owed
(or, immediately prior to its repayment, was then owed);
"MANAGEMENT ACCOUNTING PERIODS" means, in relation to the Borrower, the period
adopted by it for the purpose of its management accounts being each calendar
month in any Financial Year;
"MARGIN" means 4 per cent, per annum;
"MATERIAL ADVERSE EFFECT" is to be construed as a reference to an event or
matter have a material adverse effect on:-
(a) the financial condition, assets, profits or prospects of any of (i) the
BV Group taken as a whole; (ii) the Combined Group taken as a whole;
(iii) the Borrower; or (iv) an Obligor; or
(b) the ability of the Borrower or any Obligor to perform in a timely manner
all or any of its obligations (including, without limitation, its
payment obligations) under any of the Mezzanine Finance Documents;
"MAXIMUM FACILITY AMOUNT" MEANS:-
(i) an amount being the sum of L.5,000,000 and the aggregate amount of
the proposed Commitments of the financial institutions, nominated by the
Mezzanine Agent in accordance with Clause 2.3 and, who have on or before
the Accession Date delivered to the Mezzanine Agent a Mezzanine Lender
Accession Notice complying with the terms of this Agreement and the
Intercreditor Deed; or
(ii) the amount agreed following the termination of the negotiations between
the Borrower and the Mezzanine Agent to determine the maximum amount of
the Facility,
but unless and until such financial institutions referred to in (i)
above become a party hereto or if applicable the Mezzanine Agent and the
Borrower agree an amount in accordance with (ii) above, the amount shall
be L.5,000,000;
"MEMORANDA OF DEPOSIT" means each memorandum of deposit of shares in LK India
and LK Cyprus executed by Dr L Kyprianou, Mrs E Kyprianou and LK Ireland
respectively in favour of the Mezzanine Security Trustee;
"MEZZANINE AGENT" means the Original Mezzanine Agent or such substitute agent
for the Mezzanine Lenders as shall be appointed pursuant to Clause 19.9;
"MEZZANINE FINANCE PARTIES" means the Mezzanine Agent, the Mezzanine Security
Trustee, the Mezzanine Lenders and "MEZZANINE FINANCE PARTY" means any of them;
"MEZZANINE INTEREST" means the gross amount of interest payable in respect of
the Facility;
"MEZZANINE LENDER ACCESSION NOTICE" means a notice to be delivered by any
acceding Mezzanine Lender to the Mezzanine Agent substantially in the form set
out in Schedule 9;
"MEZZANINE LENDERS" means, subject as hereinafter provided, the Original
Mezzanine Lender (and any Transferee or Acceding Mezzanine Lender which becomes
a party hereto
-12-
<PAGE> 47
16.11 NO FACTORING: Without prejudice to Clause 16.12, it will not and it will
procure that no other Obligor nor any other Combined Group Company will
save with the prior written consent of the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders:-
(a) sell or otherwise dispose of any asset on terms whereby such asset
is or may be leased to or re-acquired or acquired by it or any
other member of the Combined Group or any of their respective
related entities; or
(b) sell or otherwise dispose of any receivable.
16.12 NEGATIVE PLEDGE: It will not and it will procure that no other Obligor
(other than Dr Kyprianou and Mrs Kyprianou) nor any other Combined
Group Company will, save with the prior written consent of the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders, create or
agree or attempt to create or permit to subsist (in favour of any person
other than the Mezzanine Security Trustee) any Security Interest over
the whole or any part of its undertaking or assets (including, without
limitation, revenues) present or future or agree to do so except that
this restriction will not apply to:-
(a) liens securing obligations not more than 30 days overdue, arising
by operation of law in the ordinary course of trading;
(b) Security Interests arising out of title retention provisions in a
supplier's standard conditions of supply of goods where the goods
in question are supplied on credit and are acquired by the relevant
Obligor or any other Combined Group Company (as the case may be) in
the ordinary course of trading; and
(c) the Security Interests listed in Part A of Schedule 7 where the
principal amount secured by each such Security Interest is not
increased after the date of this Agreement above the respective
amounts mentioned in Part A of that Schedule.
16.13 NO GUARANTEES: It will not and it will procure that no other Obligor nor
any Combined Group Company will save with the prior written consent of
the Mezzanine Agent acting on the instructions of all the Mezzanine
Lenders give or enter into or permit to subsist or agree to give or
enter into any Guarantee except for:-
(a) Guarantees in any of the Mezzanine Finance Documents;
(b) Guarantees listed in Part B of Schedule 7 where the principal
amount secured by each such Guarantee is not increased after the
date of this Agreement above the respective amounts mentioned in
Part B of that Schedule; and
(c) Guarantees not exceeding an aggregate maximum actual and
contingent amount of L.500,000 granted by the Borrower in favour of
trade creditors of any of its Subsidiaries and/or any other
Combined Group Company.
16.14 FINANCIAL INDEBTEDNESS: It will not and will procure that no other
Obligor nor any other Combined Group Company will, save with the prior
written consent of the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders, incur any Financial Indebtedness other than in
the case of the Borrower to the Mezzanine Finance Parties pursuant to
the terms of the Mezzanine Finance Documents and in the case of any
other Obligor or any other Combined Group Company, Permitted
Indebtedness. For this purpose, "PERMITTED INDEBTEDNESS" means:-
-46-
<PAGE> 48
(i) sums due in respect of the Senior Loans; and
(ii) Financial Indebtedness permitted by Clauses 16.13 (No Guarantees)
and 16.17 (Leasing Arrangements).
16.15 LOANS: It will not, and will procure that no other Obligor nor any other
Combined Group Company will, save with the prior written consent of the
Mezzanine Agent acting on the instructions of all the Mezzanine Lenders,
make any loans or grant any credit other than normal trade credit given
in the ordinary course of its trading activities and loans or credit
given by any Combined Group Company to any of its directors or employees
up to maximum aggregate amount for Combined Group Companies of L.100,000.
16.16 LEASING ARRANGEMENTS: It will not, and will procure that no other
Obligor nor any other Combined Group Company will, save with the prior
written consent of the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders, enter into or permit to subsist any lease, hire
purchase, conditional sale agreement or other agreement for the
acquisition of any asset upon deferred payment terms provided that any
Combined Group Company other than the Borrower may enter into finance
leases (as defined in SSAP No. 21) in the ordinary course of its trading
activities as being conducted by it on the date of this Agreement,
provided that the aggregate capitalisation value of all such finance
leases does not exceed a maximum aggregate amount of L.500,000.
16.17 ACQUISITIONS AND CAPITAL EXPENDITURE: It will not and will procure that
no other Obligor nor any other Combined Group Company will, save with
the prior written consent of the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders:-
(i) make any Capital Expenditure in excess of the amounts approved by
the Mezzanine Agent acting on the instructions of all the
Mezzanine Lenders under the most recent capital expenditure budget
forming part of the Budget submitted to the Mezzanine Agent in
accordance with Clause 17.4(e); or
(ii) make any other acquisition or investment, including, without
limitation, the acquisition of the whole or substantially the
whole of the assets of any person or the acquisition of any
business or enter into any agreement to do so, other than an
acquisition which has been approved by the Mezzanine Agent under
the Budget, without the prior written consent of the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders.
16.18 NO INVESTMENTS: It will not and will procure that no other Obligor nor
any other Combined Group Company will, save with the prior written
consent of the Mezzanine Agent acting on the instructions of all the
Mezzanine Lenders, own any interest in any share, equity related
investment or investment security other than shares in wholly owned
Subsidiaries of any Combined Group Company at the date hereof or the
subject of a Proposed Acquisition or Sigen.
16.19 RESTRICTION ON SHARE REDEMPTIONS AND DISTRIBUTIONS: It will not and it
will procure that no other Obligor nor any other Combined Group Company
will:
(a) redeem, purchase, defease, retire or otherwise acquire any of its
shares or warrants or options issued by it or set apart any sum
for any such purpose or otherwise reduce, return or repay its
capital or resolve to restructure its capital save with the prior
written consent of the Mezzanine Agent acting on the instructions
of all the Mezzanine Lenders; or
-47-
<PAGE> 49
(b) permit any capitalisation of its distributable reserves save with
the prior written consent of the Mezzanine Agent acting on the
instructions of all the Mezzanine Lenders;
(c) (except in favour of a wholly owned Subsidiary of the Borrower or
the Borrower) declare or pay any dividend or make any other
distribution or pay any interest or other amounts whether in cash or
otherwise on any class of its shares or Relevant Securities or set
apart any sum for any such purpose, save with the prior written
consent of the Mezzanine Agent acting on the instructions of all
the Mezzanine Lenders such consent not to be unreasonably withheld
in respect of dividends payable on the ordinary shares of the
Borrower in accordance with its constitutional documents if each of
the following conditions is satisfied:-
(i) no sum is due and unpaid under any of the Finance Documents;
(ii) no other Event of Default or Potential Event of Default has
occurred and is continuing or would occur as a result of
such payment; and
(iii) the Mezzanine Agent has not notified the Borrower before the
date on which the payment is proposed to be made (on the
basis of the latest financial information delivered to the
Mezzanine Agent under Clause 17.4) an Event of Default or a
Potential Event of Default ("NOTIFIED DEFAULT") would occur
directly or indirectly as a result of such payment at any
time within the six months' period following the proposed
date for the payment PROVIDED THAT any payment deferred as a
result of the operation of this paragraph (iii) may be paid
on the earlier of (aa) the Mezzanine Agent's confirmation
that all the Mezzanine Lenders are satisfied that any
Notified Default will not occur in that six months' period
and (bb) the expiration of that six months' period if in
either case no Event of Default or Potential Event of
Default is continuing on the date on which the payment is
subsequently proposed to be made.
16.20 PAYMENT SOURCE: It will ensure that any payment made to or for the
account of the Mezzanine Finance Parties under the Mezzanine Finance
Documents (whether of principal, interest or any other sum due) will be
made out of its working capital, from profits or out of moneys received
by it by way of lawful dividend from any of its Subsidiaries or, to the
extent that it is intended that any payment shall not be so made, it
shall have satisfied the Mezzanine Finance Parties that all applicable
laws, rules and regulations relating to the payment of such moneys to
the Borrower and/or the Mezzanine Finance Parties (as the case may be)
have been duly complied with (including, where applicable, but not
limited to, any statutory declarations and/or special resolutions
required under Sections 155 and 156 of the Companies Act 1985).
16.21 HEDGING ARRANGEMENTS: It will, within 30 days of the making of the First
Advance, and from time to time during the term of the Facility, enter
into such Hedging Agreements (in form and substance and with a
counterparty satisfactory to the Mezzanine Agent acting on the
instructions of all the Mezzanine Finance Parties) as the Mezzanine
Agent so acting may from time to time require so as to ensure that the
Borrower has at all times hedged not less than an amount equal to the
Mezzanine Interest from time to time.
16.22 RESTRICTION ON SHARE CAPITAL: It will not, and will procure that no
other Obligor nor any other Combined Group Company will, except in the
case of the Borrower with the prior written consent of the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders, allot or
issue and Relevant Securities or grant any options over or warrants in
respect of any shares to any person after the date of this Agreement or
restructure its share
-48-
<PAGE> 50
capital in any manner save that the Borrower may issue share capital
pursuant to the Warrants and the Employee Options.
16.23 NO VARIATION OF TRANSACTION DOCUMENTS: Except with the prior written
consent of the Mezzanine Agent acting on the instructions of the all the
Mezzanine Lenders, it will not, and will procure that no Obligor nor any
other Combined Group Company will, agree to any amendment or variation
to the terms of the Transaction Documents or save as required by law,
amend or seek or agree to amend the memorandum or articles of
association or other constitutional documents or by-laws of any Obligor
or any other Combined Group Company provided that if such undertaking
would not be enforceable (having regard to the rule in Russell v.
Northern Bank Development Corporation Limited and Others or any similar
rule in the jurisdiction of incorporation of the relevant Combined Group
Company) against the Borrower or any other Combined Group Company it
shall not be given by that Combined Group Company.
16.24 WARRANTY AND RELATED CLAIMS: It will and will procure that each other
Obligor and each other Combined Group Company will, unless the Mezzanine
Agent acting on the instructions of all Mezzanine Lenders otherwise
consents, take all action to enforce its rights in relation to the
warranties given to it under the Acquisition Documents in relation to
the Acquisitions and/or any Proposed Acquisition and in relation to all
other rights and entitlements it may have under the Acquisition
Documents or the Stock Transfer Form pursuant to which it acquired HMTMS
(as the case may be).
16.25 EXERCISE OF DISCRETION UNDER ANCILLARY DOCUMENTS: It will and will
procure that each other Obligor and each other Combined Group Company
will, where any Obligor or Combined Group Company (as the case may be)
has a right or option exercisable at its discretion (including, without
limitation, the right to give or withhold consent) under a Transaction
Document or any document ancillary thereto, exercise such discretion in
such a way as to ensure that no Material Adverse Effect arises or may
arise from the exercise or non-exercise of that right or option.
16.26 KEY-MAN INSURANCE: It will and will procure that each other relevant
Obligor or Dr Kyprianou (as the case may be) will:
(a) maintain the Key-man Policies in full force and effect at all
times during the periods specified in the definition of Key-man
Policies:
(b) take out and maintain a Key-man Policy on substantially the same
terms as the Key-man Policies in respect of any replacement for
any Key Manager; and
(c) deliver to the Mezzanine Agent promptly after effecting any
Key-man Policy and in respect of the Key-man Policy numbered 4
in the definition of Key-man Policies no later than 10 Business
Days after the date of this Agreement and in respect of the
Key-man Policies numbered 5-10 in the definition of Key-man
Policies no later than one month after the date of this
Agreement:
(i) the original policy documents of each such Key-man
Policy together with the policy number thereof;
(ii) an assignment of each Key-man Policy duly executed by
the beneficiary thereof in favour of the Mezzanine
Security Trustee or the Senior Security Trustee;
-49-
<PAGE> 51
(iii) if the beneficiary of that Keyman Policy is a company a
certified copy of the board resolutions of that
beneficiary authorising the execution of the relevant
Assignment of Key-man Policies; and
(iv) confirmation that the first premiums have been paid and
that the underwriters are on risk.
16.27 INTELLECTUAL PROPERTY: It will and will procure that each other Obligor
and each other Combined Group Company will:-
(a) observe and comply with all obligations and laws to which it in
the capacity as registered proprietor, beneficial owner, user,
licensor or licensee of the Intellectual Property or any part
thereof is subject;
(b) do all acts as are reasonably practicable to maintain, protect
and safeguard the Intellectual Property and continue the use of
the trade marks, copyrights, registered designs and patents (if
any) comprised in the Intellectual Property and ensure that
such trade marks and/or registered designs are not used in such
a way that they are put at risk by becoming generic or falling
in the public domain;
(c) duly register in such register(s) or with such authorities as
may be available for the purpose in the jurisdiction in which
any Obligor and/or any Combined Group Company is incorporated,
resident, carries on business or suffers or permits any other
person to carry on business for it and in such name(s) as may
be required by the law and practice of the place of
registration such of the Intellectual Property and all
assignments, licenses, mortgages and other security granted
pursuant to the Mezzanine Finance Documents in respect thereof
as may be capable of registration in such place(s) at the cost
of the relevant Obligor or Combined Group Company (as the case
may be);
(d) pay all fees necessary to maintain, protect and safeguard the
Intellectual Property and the registrations required to be made
under sub-clause (c) before the latest time provided for
payment thereof;
(e) take all such reasonable steps, including the commencement of
legal proceedings, as may be necessary to safeguard and
maintain the validity, reputation, integrity, registration or
subsistence of the Intellectual Property;
(f) not change the specification referred to in any registration of
any Intellectual Property or permit any disclaimer, condition,
restriction, memorandum or other thing to be entered on the
registration of any Intellectual Property the effect of which
will be to materially adversely affect the value of any such
Intellectual Property;
(g) not assign, sever dispose of or otherwise part with control of
the Intellectual Property, create or permit to subsist any
Security Interest therein (other than under a Mezzanine
Security Document or any Permitted Security Interest or grant
any license to any person to use the same in any manner which
will materially adversely affect the value of such Intellectual
Property;
(h) compile within a reasonable period following Completion or a
Proposed Completion (as the case may be) and maintain a
comprehensive, detailed and up-to-date centralised record of
all registered Intellectual Property (including details of
agents engaged in relation to registrations thereof) and all
material Intellectual Property; and
-50-
<PAGE> 52
(i) as and when reasonably requested by the Mezzanine Agent, promptly
provide the Mezzanine Agent with a copy of the record described
in sub-clause (h) above and/or a written summary (together with
sufficient copies thereof for distribution to all the Mezzanine
Lenders) of all Intellectual Property created or acquired since
the date of this Agreement or the date of the last notification,
as the Mezzanine Agent may request.
16.28 PENSIONS: Each Obligor and each other Combined Group Company will if
requested by the Mezzanine Agent deliver to the Mezzanine Agent together
with sufficient copies thereof for distribution to all the Mezzanine
Lenders: (a) at such time as those reports are prepared in order to
comply with the then current statutory or auditing requirements; and (b)
if the Mezzanine Agent reasonably believes that the requirements of this
Clause 16.28 are not being complied with, actuarial reports in relation
to the pension schemes for the time being operated by each Obligor and
each other Combined Group Company, and will ensure that all such pension
schemes are fully funded based on reasonable actuarial assumptions
applicable in the jurisdiction in which the relevant pension scheme is
maintained.
16.29 REPORTS ON TITLE AND VALUATIONS: It will, at the expense of the
Borrower, procure for the Mezzanine Agent such reports on title and/or
certificates of title and/or valuations of any property (together in
each case with sufficient copies thereof for each Mezzanine Lender)
secured under the Mezzanine Security Documents as the Mezzanine Agent
acting on the instructions of all the Mezzanine Lenders shall reasonably
request.
16.30 JOINT VENTURES: It will not, and will procure that no other Obligor nor
any other Combined Group Company will, except with the consent of the
Mezzanine Agent acting on the instructions of the Mezzanine Lenders,
enter into any joint venture, partnership or similar arrangement with
any person other than Sima Computer Systems (Ireland) Limited in respect
of Sigen.
16.31 NO NEW SUBSIDIARIES: It will not, and will procure that no other Obligor
nor any other Combined Group Company will, without the prior written
consent of the Mezzanine Agent acting on the instructions of all the
Mezzanine Lenders form or acquire any Subsidiary or subscribe in any
company intended to be a joint venture other than with Sima Computer
Systems (Ireland) Limited in respect of Sigen or merge or consolidate
with any other person.
16.32 MANAGEMENT ACCOUNTING PERIODS/FINANCIAL YEAR: It will not alter its
Management Accounting Periods or its accounting reference period being
the Financial Year without the prior written consent of the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders (in which
event the Mezzanine Agent may require such change in financial covenants
contained in this Agreement as will fairly reflect the change notified
to it) and the Borrower shall procure that the accounting reference
period of each other Combined Group Company (including for the avoidance
of doubt GMTMS, HMTMS and each other Target Group Company) shall be the
same as its own.
16.33 AUDITORS' INVESTIGATIONS:
(a) It will, if so required by the Mezzanine Agent who believes in
good faith that either (i) any financial statements or
calculations provided by the Borrower are inaccurate or
incomplete in any material respect; or (ii) the financial
performance of any other Accounting Group as a whole and/or any
other Accounting Company may give rise (or has given rise) to a
breach of one or more of the financial covenants in Clause 17.9),
at the expense of the Borrower instruct the Auditors or other
firm of accountants selected by the Mezzanine Agent to discuss
the financial position of the relevant Accounting Group and/or
the relevant Accounting Company with the Borrower and to disclose
to the Mezzanine Agent such information as the Mezzanine
-51-
<PAGE> 53
Agent may reasonably request regarding the financial condition and
operations of the relevant Accounting Group and/or the relevant
Accounting Company. The Borrower shall not be obliged to pay for
any such exercise more than once in any Financial Year unless a
previous exercise illustrated that the financial information
provided by the Borrower pursuant to this Agreement was materially
incorrect.
(b) If, having taken the steps in (a) above, the Mezzanine Agent
continues to have bona fide concerns in relation to the financial
performance of any Accounting Group and/or any Accounting Company,
the accuracy of information provided by any Accounting Group and/or
any Accounting Company or compliance with the covenants in the
Mezzanine Finance Documents or any other legitimate concern
relating to the affairs of any Accounting Group and/or any
Accounting Company, the Mezzanine Agent may instruct the Auditors
or other firm of accountants selected by the Mezzanine Agent to
carry out an investigation into the affairs of the relevant
Accounting Group and/or the relevant Accounting Company and/or the
financial performance of the relevant Accounting Group and/or the
relevant Accounting Company and/or the accounting and other
reporting procedures and standards of the relevant Accounting Group
and/or the relevant Accounting Company. The first such
investigation in any Financial Year will be at the Borrower's
expense and the Borrower will fully co-operate in relation to all
investigations undertaken.
16.34 BOARD NOTICES: It undertakes and agrees that not more than one
representative of the Mezzanine Agent shall be entitled to attend
meetings ("Meetings") of the board of directors of the Borrower (the
"BOARD") in the capacity described below and, in this regard, the
Borrower will ensure and procure that:
(a) the Mezzanine Agent is given at least as much notice of the date,
time and place of, and agenda for, all Meetings as is given to
every member of the Board and, in any event, no less notice than is
required to be given under its constitutional documents; and
(b) the Mezzanine Agent is supplied with copies of all such notices,
reports, written presentations, board papers and other written
information (collectively, "BOARD PAPERS") which are supplied or
distributed to other members of the Board at the same time as such
Board Papers are supplied to such other members.
16.35 BOARD REPRESENTATION: The Mezzanine Agent shall be entitled to attend
Meetings as an observer only (in this capacity, an "OBSERVER"), and shall
have no rights or liabilities with regard to the direction and/or conduct
of the management of the Borrower by virtue of its being entitled to
attend, and attending, Meetings as an Observer. In its capacity as
Observer, the Mezzanine Agent will, however, be entitled to speak at, and
to be heard at, Meetings but will not have a vote at Meetings, and will
not be, or be entitled to be, counted in the quorum for any Meetings. The
reasonable expenses of the Mezzanine Agent in attending Meetings as
Observer shall be for the account of the Borrower and shall be discharged
by the Borrower promptly upon demand being made therefor.
16.36 BOARD MEETINGS: The Board shall duly call, convene and hold at least four
Meetings in each Financial Year one of which shall be held during each
Accounting Quarter of that Financial Year.
16.37 PRESS ANNOUNCEMENTS: It will not, and will procure that no Obligor nor
any other Combined Group Company will, make any public announcement or
release of information in relation to any of the Mezzanine Finance
Documents and the transactions contemplated thereby without the prior
written consent of the Mezzanine Agent.
-52-
<PAGE> 54
16.38 TAX RESIDENCY: It will procure that no UK Group Company will cease to be
resident for tax purposes within the United Kingdom.
16.39 ENVIRONMENTAL PROTECTION: It will and it will procure that each other
Obligor and each other Combined Group Company will:
(a) comply in all material respects with the terms and conditions of
all Environmental Approvals and all Environmental Law applicable
to it and for this purpose will implement procedures to monitor
compliance and contain liability under any Environmental Law;
(b) promptly upon receipt of the same notify the Mezzanine Agent of
any claim, notice or other communication served on it in respect
of, or if it becomes aware of:-
(i) any suspension, revocation or material variation of any
Environmental Approval applicable to it (save where such
suspension or revocation arises by reason of and is
immediately followed by the issue of an Environmental
Approval in substantially the same terms); or
(ii) any breach of any Environmental Law which is or may be
material; or
(iii) any material investment by any such Obligor and/or any other
Combined Group Company required to maintain, acquire or
renew any Environmental Approval; or
(iv) the issue of any enforcement or prohibition or similar
notice by a regulatory authority or receipt by any such
Obligor and/or any other Combined Group Company of any
complaint, demand, civil claim or enforcement proceeding;
and
(c) use all reasonable endeavours (by employing the best available
techniques not involving excessive cost) to prevent any acts,
omissions, events, state of facts or circumstances occurring or
being exacerbated which could result in any third party taking any
action or making any claim against any Obligor or any other
Combined Group Company under any Environmental Law.
16.40 SIGEN: It will procure that on or before 60 days after the date of this
Agreement either (a) Sigen becomes a wholly owned Subsidiary of the
Borrower and in the event it is not a Dormant Subsidiary complies with
the requirements of Clause 16.41 or (b) no member of the Combined Group
retains any shares or other interest in Sigen.
16.41 ADDITIONAL SECURITY: It will procure that each of its Subsidiaries shall
immediately upon becoming a Subsidiary or ceasing to be a Dormant
Subsidiary (as the case may be) provided it is legally permissible and
acceptable to any relevant regulatory authority(ies), enter into
security in the same terms mutatis mutandis as the Guarantee and
Debenture or enter into such other security arrangements as the
Mezzanine Lender acting on the instructions of all the Mezzanine Lenders
may reasonably require at the time to secure amounts outstanding under
the Mezzanine Finance Documents and take all necessary and appropriate
corporate and/or other action in relation thereto.
16.42 CHANGES TO BORROWERS ARTICLES: It will procure that as soon as
practicable and in any event on or prior to 30th June, 1995 the Articles
shall be amended in form and substance satisfactory to the Mezzanine
Agent.
-53-
<PAGE> 55
16.43 MR LORD SERVICE CONTRACT: The Borrower will procure that on or prior to
30 days after the date of this Agreement a UK Group Company will enter
into a Service Contract with Mr Stephen Lord in form and substance
satisfactory to the Mezzanine Agent and that a copy thereof is
delivered to the Mezzanine Agent promptly following the due execution
thereof by the parties thereto and in any event no later than 2 days
after such execution.
16.44 CYPRIOT EXISTING SECURITY: The Borrower will procure that on or prior to
5 days after the date of this Agreement that LK Cyprus will deliver to
the Mezzanine Agent a certified copy of each of the Security Interests
opposite its name in Schedule 7.
17. INFORMATION, ACCOUNTING AND FINANCIAL UNDERTAKINGS
17.1 DURATION OF UNDERTAKINGS: The Borrower undertakes to the Mezzanine
Agent and each of the other Mezzanine Finance Parties in the terms of
the following provisions of this Clause 17, such undertakings to
commence on the date of this Agreement and to continue until all
liabilities and obligations of the Borrower under each of the Mezzanine
Finance Documents have been discharged and the Mezzanine Finance
Parties have no further obligations to lend hereunder.
17.2 DEFAULTS: It will notify the Mezzanine Agent forthwith upon becoming
aware of the occurrence of an Event of Default or Potential Event of
Default and will from time to time on request supply the Mezzanine
Agent with a certificate signed by any two of its directors certifying
that no Event of Default and no Potential Event of Default has occurred
and is continuing or, if such is not the case, specifying the Event of
Default or Potential Event of Default which has occurred and the action
taken or proposed to be taken to remedy it.
17.3 BOOKS OF ACCOUNT AND AUDITORS: It will and will procure that:
(a) each other Obligor, each other BV Group Company, each other
Indian Group Company and each other Cypriot Group Company will,
keep or cause to be kept proper books of account relating to
its business; and
(b) each other Obligor and each other BV Group Company will
maintain as its auditors the Auditors or such other firm of
accountants as the Mezzanine Agent shall approve in writing
from time to time.
17.4 FINANCIAL STATEMENTS: It will deliver to the Mezzanine Agent (with
sufficient copies for all of the Mezzanine Lenders):-
(a) as soon as practicable, and in any event within 120 days from
the end of each Financial Year commencing with the Financial
Year ending 31st December 1995, copies of (i) the audited
consolidated accounts for that year of each Accounting Company;
and (ii) the audited consolidated accounts of each Accounting
Group (other than the Combined Group) in each case as a whole
for that year;
(b) as soon as practicable, and in any event within 30 days from
the end of each Financial Year, copies of the unaudited
consolidated management accounts of the Combined Group as a
whole for that year;
(c) as soon as practicable and in any event within 60 days of
Completion copies of the completion accounts of HMTMS in form
and substance satisfactory to the Mezzanine Agent, acting on
the instructions of all the Mezzanine Lenders;
(d) as soon as practicable and in any event within 60 days of any
Proposed Completion copies of the audited completion accounts
in form and substance satisfactory to the
-54-
<PAGE> 56
Mezzanine Agent, acting on the instructions of all the
Mezzanine Lenders, which the Mezzanine Agent, so acting has
specified are required in the Term Sheet in relation to the
Subsequent Advance to be made available to enable, inter alia,
that Proposed Completion to occur;
(e) not later than 30 days prior to the end of the Borrower's then
current Financial Year, a budget and forecast in respect of
each Accounting Group as a whole and each Accounting Company for
the following Financial Year in such form, containing such
information and in such detail as the Mezzanine Agent shall
reasonably require (including, without limitation the amount of
anticipated profits and the maximum aggregate amount of capital
expenditure to be incurred by each Accounting Group as a whole
and each Accounting Company during the succeeding Financial Year
and the class or classes of assets to be thereby acquired
(including, without limitation, an identification of the extent
to which it is envisaged that the source of funds to be applied
in such proposed capital expenditure is internally generated
funds, the proceeds of equity subscriptions or other external
sources) and any planned material disposal of assets (including,
without limitation, an identification of the purposes for which
any proceeds of disposals are to be utilised) and cashflow
forecasts and covering such Financial Year and each Management
Accounting Period during such Financial Year and a brief
reconciliation of major divergencies (if any) from the forecasts
for such Financial Year and each Management Accounting Period in
such Financial Year and those contained in the relevant Business
Plan, (the "BUDGET"); and the approval or non-approval of any
such Budget shall be in the discretion of the Mezzanine Agent
acting on the instructions of all the Mezzanine Lenders and, in
particular but without limitation, such approval may be withheld
on the basis of the non-approval by the Mezzanine Agent acting
on the instructions of all the Mezzanine Lenders of the proposed
source of funds for any proposed capital expenditure save that
in the case of (i) the Financial Year of the Borrower ending
31st December 1995 the Borrower shall deliver a Budget for the
remainder of that Financial Year to the Mezzanine Agent within
60 days of the Completion Date and (ii) any Financial Year of
the Borrower in which a Proposed Acquisition takes place the
Borrower shall deliver a Budget for the remainder of that
Financial Year to the Mezzanine Agent within 60 days of the
Proposed Completion for that Proposed Acquisition;
(f) as soon as practicable and in any event within 30 days from the
end of each calendar month, the unaudited management accounts of
each Accounting Company and the unaudited consolidated
management accounts of each Accounting Group for such month in
each case in form and substance satisfactory to the Mezzanine
Agent, such management accounts to include, without limitation,
the following items prepared on unconsolidated and on a
consolidated basis as appropriate:-
(i) a profit and loss account;
(ii) a balance sheet;
(iii) a statement of source and application of funds/cashflow
statement; and
(iv) a comparison of the figures included under items (i) to
(iii) above to the figures included in the Budget
relating to the Financial Year which includes that
calendar month; and
(g) as soon as practicable and in any event within 30 days after
the end of each Accounting Quarter (commencing on 30th June
1995) a certificate (in form and detail reasonably satisfactory
to the Mezzanine Agent) signed by the finance director and one
other director of the Borrower approved by a quorate meeting of
the board of
-55-
<PAGE> 57
directors of the Borrower demonstrating compliance (or lack of
compliance as the case may be) by the Borrower with the
financial undertakings set out in Clause 17.9 (such certificate
to contain detailed calculations acceptable to the Mezzanine
Agent demonstrating such compliance) and also confirming that
at the date of such certificate no Event of Default or
Potential Event of Default had occurred, or if it had occurred,
a description thereof and the action taken or proposed to be
taken to remedy it and, in the case of the last Accounting
Quarter of the Borrower in any Financial Year, a certificate
from the Auditors (in such form and with such content as the
Mezzanine Agent may reasonably require) demonstrating whether
or not the Borrower is in compliance with the covenants
contained in Clause 17.9.
17.5 NOTIFICATION OF PROPOSED DISPOSALS OF SHARES: It will notify the
Mezzanine Agent immediately of any proposal for the disposition of any
shares or other Relevant Securities or grant of any options or warrants
in respect of, any shares or other Relevant Securities in each case in
or in respect of (as the case may be) any Combined Group Company.
17.6 OTHER INFORMATION: It will promptly deliver to the Mezzanine Agent:-
(a) details of any litigation, arbitration or administrative
proceedings against the Borrower or any other Obligor or any
Combined Group Company which could result in the Borrower or
Combined Group suffering a loss in excess of L.100,000 or
could give rise to a Material Adverse Effect;
(b) at the same time as sent to its and/or any Combined Group
Companies shareholders or its and/or any Combined Group
Companies creditors, any other document or information sent to
any class of its and/or any Combined Group Company shareholders
or creditors; and
(c) such other information relating to its financial condition,
operations or assets or those of any other Obligor or any other
Combined Group Company as the Mezzanine Agent may from time to
time reasonably request.
17.7 PREPARATION OF FINANCIAL STATEMENTS: It will ensure that all financial
statements delivered under Clause 17.4:-
(a) are prepared in accordance with UK gaap and in the case of
audited financial statements in compliance with the Companies
Act of 1985;
(b) give a true and fair view of the financial condition and results
of the operations of in each case each Accounting Group as a
whole and each Accounting Company (as the case may be) in each
case for the period for which and on the date at which such
financial statements are prepared and made up and in particular,
disclose or reserve against all liabilities (actual or
contingent) of each Accounting Group as a whole and each
Accounting Company (as the case may be) and all material
unrealised or anticipated losses from any commitment entered
into by each Accounting Group as a whole and each Accounting
Company (as the case may be);
(c) subject to the requirements of Clauses 17.7(a) and 17.7(b) are
prepared in the case of the Combined Group's accounts in a
manner which is consistent with and in the same format and with
the same headings and other characterisations as in the
Combined Group Pro-forma Accounts; and
(d) subject to the requirements of Clauses 17.7(a) and 17.7(b) are
prepared (save in the case of the Combined Group's accounts) in
a manner which is consistent with and in the same format and
with the same headings and other characterisations as in the
-56-
<PAGE> 58
first set of such financial statements delivered to the
Mezzanine Agent pursuant to Clause 17.4.
If as a result of a change in law or a change in UK gaap such
statements are required to be prepared on a different basis:-
(1) it shall promptly so advise the Mezzanine Agent;
(2) on request of the Mezzanine Agent, the Borrower and the
Mezzanine Agent shall negotiate in good faith with a view to
agreeing such amendments to Clause 17.9 and/or the definitions
of any or all of the terms used therein as are necessary to
give the Mezzanine Agent comparable protection to that
contemplated at the date of this Agreement;
(3) if amendments satisfactory to the Mezzanine Agent are agreed by
the Borrower and the Mezzanine Agent in writing within 30 days
of such notifications to the Mezzanine Agent, those amendments
shall take effect in accordance with the terms of that
agreement; and
(4) if such amendments are not so agreed within 30 days, within 15
days after the end of that 30 day period, the Borrower shall
either:-
(i) deliver to the Mezzanine Agent, in reasonable detail
and in a form satisfactory to the Mezzanine Agent,
details of all such adjustments as need to be made to
the relevant financial statements in order to bring
them into line with the Companies Act 1985 (as in
effect on the date of this Agreement) and/or UK gaap
(as the case may be); or
(ii) ensure that the relevant financial statements are
prepared in accordance with the Companies Act 1985 (as
in effect on the date of this Agreement) and/or UK gaap
(as the case may be).
17.8 FINANCIAL YEAR: It will not change its accounting reference period from
the twelve months' period ending 31st December in any year except with
the consent of the Mezzanine Agent and it will procure that each
Combined Group Company's and each Target Group Company's accounting
reference period is and remains the same as its accounting reference
period.
17.9 FINANCIAL COVENANTS
(a) The Borrower undertakes that:-
(i) ADJUSTED NET WORTH
Its Adjusted Net Worth shall not at any time during the
periods specified below fall below the amounts
specified for Adjusted Net Worth in respect of such
periods:-
<TABLE>
<CAPTION>
Period Adjusted Net Worth
------ ------------------
<S> <C>
1. from the Completion Date to,
but excluding 31st December
1995; and L.5,000,000
2. from 31st December 1995 and
at all times thereafter; Target Net Worth
</TABLE>
-57-
<PAGE> 59
(ii) INTEREST COVER
The ratio of EBIT to Total Interest shall not at any
time be less than 3:1;
(iii) CASHFLOW COVER
The ratio of Relevant Cashflow to Debt Service shall
not at any time be less than 1.5:1; and
(iv) GEARING
The ratio of Total Borrowings to Adjusted Net Worth
shall not at any time be greater than 3:1.
(b) For the purposes of this Clause 17.9 the following words and
expressions shall bear the following meanings:-
"ACCOUNTING DATE" means the date falling at the end of each
Accounting Quarter of the Borrower;
"ADJUSTED NET WORTH" means, at any time, the aggregate amount
of:-
(a) the issued and paid up share capital of the Borrower
including amounts standing to the credit of the share
premium account;
(b) the aggregate amount standing to the credit of the
capital and revenue reserves of the Relevant Group; and
(c) the amounts of any balance standing to the credit or
the debit, of the consolidated profit and loss account
of the Relevant Group;
as derived from the then latest management accounts delivered to
the Mezzanine Agent pursuant to Clause 5.1 and Schedule 2 or
Clause 17.4 (as the case may be) for the Combined Group or at
any time after but including 31st December 1995 the BV Group and
in the latter case when the latest audited consolidated accounts
of the BV Group are delivered to the Mezzanine Agent pursuant to
Clause 17.4 as derived from those audited consolidated accounts
for the purpose of testing any ratio for the period for which
those consolidated accounts relate but after deducting, or
excluding (as the case may be):-
(d) any amounts shown in respect of goodwill (but not
intellectual property rights) acquired after 31st
December 1994 of the Relevant Group and minority
interests in Subsidiaries;
(e) any capital accounts or reserves derived from any
writing up of the book value of any assets of any member
of the Relevant Group above historic cost less
accumulated depreciation at any time after the
Completion Date or any Proposed Completion Date (as the
case may be);
(f) exchange gains arising on consolidation accounted for
through reserves in accordance with SSAP No. 20; and
(g) at any time prior to but excluding 31st December 1995
any Future Product Development Costs;
-58-
<PAGE> 60
"CASHFLOW" means, in respect of the relevant testing period, the aggregate of:-
(a) EBIT;
(b) the amount of any movement in the Working Capital (as defined below) of
the Combined Group during the relevant period at any time prior to and
including 31st December 1995 and at all times thereafter the BV Group;
(c) depreciation on all fixed assets and amortisation of goodwill and
intellectual property rights to the extent deducted from EBIT;
(d) Tax paid during the relevant period;
(e) Capital Expenditure during the relevant period;
(f) any grants repaid during that period (to the extent not deducted in
arriving at EBIT); and
(g) amortisation of Product Development Costs, to the extent deducted in
arriving at EBIT;
"DEBT SERVICE" means in respect of any testing period, the aggregate of the
gross amount of interest, commitment, commission, other commissions fees and
repayments of principal scheduled to be repaid by the Borrower in respect of
Total Borrowings during that period;
"EBIT" means, in respect of the relevant testing period, the profits of the
Combined Group at any time prior to and including 31st December 1995 and at all
times thereafter the BV Group for that period, determined on a consolidated
basis where appropriate, in accordance with UK gaap before any deduction for or
on account of:-
(a) Total Interest;
(b) Tax on overall income and profit;
(c) amortisation of Future Product Development Costs;
but after deducting:-
(d) amortisation of goodwill and intellectual property rights (other than
intellectual property rights acquired after 31st December 1994);
(e) amortisation of Product Development Costs; and
(f) credit items which would be regarded as Extraordinary Items or
Exceptional Items; and
(g) any Future Product Development Costs to the extent treated as revenue by
any Combined Group Company;
"EXTRAORDINARY ITEMS" are as defined in FRS3, but in addition shall include
those items listed in paragraph 20 of such standard;
"EXCEPTIONAL ITEMS" are as defined in FRS3 but in addition shall exclude those
items listed in paragraph 20 of such standard;
-59-
<PAGE> 61
"FRS" means a financial reporting standard issued by the Accounting
Standards Board for application in England and Wales and where
referenced by a number means that particular financial reporting
standard;
"FUTURE PRODUCT DEVELOPMENT COSTS" means in respect of any relevant
testing period,any amount appearing in the balance sheet for the
Combined Group, delivered pursuant to Clause 17.4(b) as part of the
management accounts for the Combined Group, as product development costs
less Product Development Costs;
"PRODUCT DEVELOPMENT COSTS" means, in respect of any relevant testing
period, the amount shown in respect of product development costs in the
balance sheet comprising part of the Combined Pro-forma Accounts as at
31st December 1994;
"RELEVANT CASHFLOW" means Cashflow for the twelve months immediately
preceding the relevant Accounting Date;
"TARGETED NET WORTH" means an amount equal to the greater of L.5,000,000
and the amount of Adjusted Net Worth shown in the most recent
consolidated management accounts of the BV Group delivered to the
Mezzanine Agent pursuant to Clause 17.4 and when the latest audited
consolidated accounts of the BV Group are delivered to the Mezzanine
agent pursuant to Clause 17.4 those consolidated accounts for the
purpose of testing any ratio for the period for which the accounts
relate;
"TOTAL BORROWINGS" means, at any particular time, the aggregate
outstanding amount of all Financial Indebtedness of the Relevant Group;
"TOTAL INTEREST" means, in respect of the relevant testing period, the
aggregate of all interest and similar financing charges incurred by the
Combined Group at any time prior to and including 31st December 1995 and
at all times thereafter the BV Group on its Total Borrowings during such
period (including, but not limited to, interest, the interest finance
charge element of hire-purchase, credit sale and conditional sale (as
defined in the Consumer Credit Act 1974) agreements and of lease rentals
under leases treated as finance leases pursuant to SSAP No. 21; and
"WORKING CAPITAL" means trade and other debtors in respect of operating
items plus prepayments and stock reasonably expected to be realized,
consumed or sold in the ordinary course of trading within one year less
trade and other creditors in respect of operating items and less accrued
expenses and accrued costs repayable within one year.
17.10 CALCULATION
(a) On 30th June 1995 and on each subsequent Accounting Date on which
the covenants contained in Clause 17.9 shall be tested, the
covenants contained in that Clause will be tested on a rolling
aggregate basis of the immediately preceding four consecutive
quarterly periods ending on the relevant Accounting Date.
(b) The covenants contained in Clause 17.9 will be tested by reference
to the monthly management accounts, delivered to the Mezzanine
Agent pursuant to Clause 17.4, for the relevant period unless the
audited accounts required to be delivered to the Mezzanine Agent
pursuant to Clause 17.4 for the relevant period or any part
thereof are available on the relevant date on which any such
covenant is tested, in which case such audited accounts shall be
used instead. If the audited accounts are not available when the
covenant is tested but when such audited accounts become available
they demonstrate that the figures in any relevant monthly
management accounts utilised
-60-
<PAGE> 62
for any such calculation cannot have been substantially accurate
then the Mezzanine Agent shall require such adjustment to the
calculations made or to be made as it, in its sole discretion,
considers appropriate to rectify such inaccuracy and compliance
with the covenants in Clause 17.9 will be determined by reference
to such adjusted figures.
(c) The components of each definition contained in Clause 17.9 will be
calculated in accordance with the UK gaap. In the case of any
component calculated by reference to management accounts UK gaap
will be applied within the reasonable parameters which may be
expected of management accounts not the subject of audit procedures.
18. EVENTS OF DEFAULT
18.1 LIST OF EVENTS: Subject to Clause 18.3 each of the events set out in this
Clause 18.1 constitutes an Event of Default whether or not the occurrence
of the event concerned is outside the control of the Borrower or any other
BV Group Company or any other Combined Group Company: -
(a) PAYMENT DEFAULT: the Borrower or any other Obligor fails to pay on
the due date any amount payable by it under any of the Finance
Documents at the place and in the currency at or in which it is
expressed to be payable unless the Borrower satisfies the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders that
non-payment is due solely to administrative error (by a bank
involved in transferring funds) and payment is made within one
Business Day of its due date; or
(b) BREACH OF OTHER OBLIGATIONS: the Borrower or any other Obligor
fails to observe or perform any of its obligations or undertakings
under any of the Mezzanine Finance Documents and/or any of the
other Project Documents; or
(c) MISREPRESENTATION: any representation, warranty or statement which
is made by the Borrower or any Obligor in any of the Mezzanine
Finance Documents and/or any of the other Project Documents or is
contained in any certificate, statement or notice provided under or
pursuant to any of the Mezzanine Finance Documents and/or any other
Project Documents proves to be incorrect in any material respect
when made (or deemed to be made or repeated); or
(d) INVALIDITY AND UNLAWFULNESS:
(i) any provision of any Mezzanine Finance Document and/or any
other Project Document is or becomes invalid or unenforceable
for any reason or shall be repudiated or the validity or
enforceability of any provision of any Mezzanine Finance
Document and/or any other Project Document shall at any time
be contested by any party thereto (other than a Mezzanine
Finance Party) or any party thereto (other than a Mezzanine
Finance Party) shall deny the existence of any liability or
obligation on its part thereunder; or
(ii) at any time it is or becomes unlawful under any applicable
jurisdiction for any Obligor or Combined Group Company (as
the case may be) to perform any of its obligations under any
of the Mezzanine Finance Documents and/or any of the other
Project Documents; or
(iii) at any time any act, condition or thing required to be done,
fulfilled or performed in order (i) to enable any Obligor or
Combined Group Company (as the case may be) lawfully to enter
into, exercise its rights under or perform the obligations
expressed to be assumed by it in any of the
-61-
<PAGE> 63
Mezzanine Finance Documents and/or any of the other Project
Documents, (ii) to ensure that the obligations expressed to
be assumed by any Obligor or Combined Group Company (as the
case may be) in any Mezzanine Finance Document and/or any of
the other Project Documents are legal, valid and binding or
(iii) to make each Mezzanine Finance Document and/or each
other Project Document admissible in evidence in the English
courts or any court in the jurisdiction in which such
Obligor or Combined Group Company (as the case may be) is
incorporated, carries on business or is resident, is not
done, fulfilled or performed; or
(e) INSOLVENCY: the Borrower or any other Obligor or any other Combined
Group Company stops or suspends or threatens or announces an intention
to stop or suspend payment of its debts or shall for the purpose of
Section 123 of the Insolvency Act 1986 (on the basis that the words
"proved to the satisfaction of the court" are deemed omitted from
Section 123(2)) or any other applicable law be deemed to be unable or
shall admit its inability to pay its debts as they fall due or shall
become insolvent or a moratorium is declared in respect of any of its
indebtedness; or
(f) RECEIVERSHIP AND ADMINISTRATION: any encumbrancer takes possession of,
or a receiver or administrator or similar officer is appointed over or
in respect of, all or any part of the business or assets of the
Borrower or any other Obligor or any other Combined Group Company or a
distress or any form of execution is levied or enforced upon or sued
out against any such assets (and is not discharged to the Mezzanine
Agent's (acting on the instructions of all the Mezzanine Lenders)
reasonable satisfaction within five days) or a petition is presented
or meeting convened or application made or other step taken for the
purpose of appointing an administrator or receiver or other similar
officer of, or for the making of an administration order in respect
of, the Borrower or any other Obligor or any other Combined Group
Company; or
(g) COMPOSITIONS AND ARRANGEMENTS:
(i) the Borrower or any other Obligor or any other Combined Group
Company convenes a meeting of its creditors or proposes or makes
any arrangement or composition with, or any assignment for the
benefit of, its creditors generally; or
(ii) the Borrower or any other Obligor or any other Combined Group
Company proposes or enters into any negotiations for or in
connection with the re-scheduling, restructuring or re-adjustment
of any indebtedness with a view to avoiding the occurrence of any
of the circumstances described in Clauses 18.1(e) (Insolvency),
18.1(f) (Receivership and Administration), paragraph (i) of this
Clause 18.1(g) (Compositions and Arrangements), 18.1(h) (Winding
up) or 18.1(i) (Suspension of Payments) or as a result of the
Borrower or any other relevant Obligor or other relevant Combined
Group Company being unable to meet its payment obligations in
respect of such indebtedness on their due dates or being unable
to meet financial covenants or targets set out in the agreement
recording the terms of such indebtedness; or
(h) WINDING UP: any meeting of the Borrower or any other Obligor or any
other Combined Group Company is convened for the purpose of
considering any resolution for (or to petition for) its winding up or
bankruptcy (as the case may be) or the Borrower or any other Obligor
or any other combined Group Company passes such a resolution or a
petition is presented for the winding up or bankruptcy (as the case
-62-
<PAGE> 64
may be) of the Borrower or any other Obligor or any other Combined
Group Company (other than a petition which is contested on bona fide
grounds and discharged within 30 days of being presented and in any
event before it is advertised) or any order is made for the winding up
or bankruptcy (as the case may be) of the Borrower or any other
Obligor or any other Combined Group Company; or
(i) SUSPENSION OF PAYMENTS: any order is made or resolution passed or
other action taken for the suspension of payments, protection from
creditors or bankruptcy of the Borrower or any other Obligor or any
other Combined Group Company; or
(j) SIMILAR EVENTS ELSEWHERE: there occurs in relation to the Borrower or
any other Obligor or any other Combined Group Company or any of their
property or assets in any country or territory in which it is
incorporated or carries on business or is resident or in the
jurisdiction in whose courts it or any of its property or assets is
subject any event which appears to the Mezzanine Agent to correspond
in that country or territory with any of those mentioned in Clauses
18.1(e) to 18.1(i) (inclusive) or the Borrower or any other Obligor or
any other Combined Group Company otherwise becomes subject in any such
country or territory to any law relating to insolvency, bankruptcy or
liquidation; or
(k) CESSATION OF BUSINESS: the Borrower or any other Obligor or any other
Combined Group Company ceases, or threatens or proposes to cease, to
carry on all or a substantial part of their business and, in the case
of a cessation of the business, or any part thereof, of any Combined
Group Company (other than an Obligor), such cessation of business is
material in relation to the business of the Combined Group taken as a
whole; or
(l) COMPULSORY ACQUISITION: all or any part of the property or assets of
the Borrower or any other Obligor or any other Combined Group Company
is seized, nationalised, expropriated or compulsorily acquired by, or
by the order of, any central or local governmental authority and as a
result the business of the Borrower or of the Combined Group as a
whole is materially and adversely affected or curtailed; or
(m) SECURITY INTERESTS: any Security Interest affecting the business,
undertaking or any of the assets of the Borrower or any other Obligor
or any other Combined Group Company becomes enforceable; or
(n) CROSS DEFAULT: any other Financial Indebtedness of the Borrower or any
other Obligor or any other Combined Group Company:-
1. is not paid when due or within any applicable grace period in any
agreement relating to that Financial Indebtedness; or
2. becomes due and payable (or capable of being declared due and
payable) before its normal maturity or is placed upon demand (or
any commitment for any such indebtedness is suspended) by reason
of a default or event of default however described; or
3. any agreement to make Financial Indebtedness available to, or
underwrite Financial Indebtedness of any Obligor and/or any other
Combined Group Company is terminated by reason of default
(howsoever described) and whether or not within the control of
that Obligor or Combined Group Company (as the case may be); or
-63-
<PAGE> 65
(o) LITIGATION: any litigation, arbitration or administrative
proceeding or claim (together "LITIGATION PROCEEDINGS") is
commenced by or against the Borrower or any other Obligor or
any other Combined Group Company which could reasonably be
expected to have a Material Adverse Effect; or
(p) CHANGE OF CONTROL: the Borrower ceases to be a wholly owned
subsidiary of LKNV other than as a result of the exercise of
the Warrants and/or the Employee Options; or
(q) AUDITOR'S QUALIFICATION: the auditors of the Borrower or any
other Obligor or Combined Group Company qualify their report on
the audited consolidated (if appropriate) accounts of the
Borrower or any other such Obligor or Combined Group Company
(as the case may be) in any manner whatsoever; or
(r) VARIATION OF MEMORANDUM & ARTICLES: any of the provisions of
the Articles or the memorandum and articles of association or
other constitutional documents of any other Primary Obligor or
any other Combined Group Company are amended, modified or
replaced without the prior written approval of the Mezzanine
Agent acting on the instructions of all the Mezzanine Lenders
save as required pursuant to Clause 16.42; or
(s) MANAGEMENT OF BORROWER: Dr L Kyprianou ceases to be a full
time employee and director of the Borrower or ceases to devote
the time and attention to the business, trade and offices
required by his Service Contract or dies or otherwise becomes
unable adequately to carry out his functions in such capacity;
or
(t) NON PERFORMANCE WITH BUDGET: there is any material divergence
or deviation between the actual performance by any Accounting
Group as a whole or any Accounting Company in any Financial
Year or any Management Accounting Period and the performance
projected for that Financial Year or Management Accounting
Period for such Accounting Group as a whole or that Accounting
Company (as the case may be) in the Budget delivered to the
Mezzanine Agent pursuant to Clause 17.4(e) for that Financial
Year which could reasonably be expected to have a material
adverse effect on the financial condition, assets, profits or
prospects of the BV Group as a whole or the Combined Group as a
whole; or
(u) VENDOR WARRANTIES: any warranty made by a Vendor or a
Subsequent Vendor in any of the Acquisition Documents is
incorrect in a material respect or any breach by a Vendor or
GMTMS or a Subsequent Vendor of its obligations under any of
the Acquisition Documents or the Stock Transfer Form (as the
case may be) occurs or any other claim is made by any Obligor
and/or any other Combined Group Company against a Vendor or
GMTMS or a Subsequent Vendor under the Acquisition Documents or
the Stock Transfer Form (as the case may be) where an Obligor
and/or any other Combined Group Company is not entitled to
claim (the "UNCOVERED CLAIM") for the full amount of any
resulting loss to that Obligor or any Combined Group Company
(as the case may be) against the Vendor or GMTMS or Subsequent
Vendor under the Acquisition Documents or the Stock Transfer
Form (as the case may be) and the Uncovered Claim or the fact
or matter or breach which gave rise to the Uncovered Claim will
have a Material Adverse Effect; or
(v) MATERIAL ADVERSE CHANGE: at any time there occurs a material
adverse change in the financial condition, assets, profits or
prospects of any Accounting Group, the Combined Group in each
case taken as a whole, the Borrower, any other Obligor or any
Accounting Company such that, in the opinion of the Mezzanine
Agent, it
-64-
<PAGE> 66
appears that any Obligor may be unable to perform and comply with
any one or more of its obligations under any of the Finance
Documents; or
(w) ATTACHMENT OR PROCESS: a creditor attaches or takes possession
of, or a distress, execution, sequestration or other process is
levied or enforced upon or sued out against any of the
undertaking, assets, rights or revenues of the Borrower or any
other Obligor or any other Combined Group Company and is not
discharged within seven days; or
(X) LK CYPRUS AND LK INDIA: the Borrower fails to acquire the whole
of the issued share capital of LK Cyprus and LK India on or
before 31st December 1995.
18.2 CANCELLATION AND REPAYMENT: At any time after the occurrence of an
Event of Default and while the same is continuing the Mezzanine Agent
may, and if so directed by the Majority Mezzanine Lenders, by written
notice to the Borrower do all or any of the following in addition and
without prejudice to any other rights or remedies which it or any other
Mezzanine Finance Party may have under this Agreement or any of the
other Mezzanine Finance Documents:
(a) cancel all of the Commitments whereupon the same shall be
cancelled forthwith and reduced to zero and the Mezzanine Lenders
will have no further obligations hereunder; and/or
(b) declare all outstanding Advances to be immediately due and
payable, whereupon the same shall become immediately due and
payable by the Borrower, together with interest accrued thereon
and all other sums due, owing or payable under each of the
Mezzanine Finance Documents (including such amount (if any) as
any Mezzanine Lender may certify pursuant to Clause 30.1 (General
Indemnity and Breakage Costs)) or declare the same to be due and
payable on demand in which case the Borrower shall make payment
thereof on demand by the Mezzanine Agent made at any time
thereafter; and/or
(c) take any other action, exercise any other right or pursue any
other remedy conferred upon the Mezzanine Agent and/or a
Mezzanine Lender by any Mezzanine Finance Document or by any
applicable law or regulation or otherwise as a consequence of
such Event of Default.
18.3 EXCLUDED EVENTS: None of the events specified in Clause 18.1(h)
(Winding up) or 18.1(k) (Cessation of Business) shall constitute an
Event of Default if it occurs in relation to a member of the Combined
Group (other than Borrower, any Obligor or any Principal Subsidiary)
whilst solvent and for the purposes and as part of a reconstruction or
amalgamation the terms of which have previously been approved in writing
by the Mezzanine Agent acting on the instructions of the Majority
Mezzanine Lenders.
19. THE MEZZANINE AGENT AND THE OTHER MEZZANINE FINANCE PARTIES
19.1 APPOINTMENT AND DUTIES OF THE MEZZANINE AGENT:
(a) Each Mezzanine Lender hereby appoints Barclays de Zoete Wedd
Limited as Mezzanine Agent and Mezzanine Security Trustee to act
(a) as its agent under and in connection with the Mezzanine
Finance Documents and (b) as security trustee for the purpose of
the Mezzanine Security Documents and irrevocably authorises
Barclays de Zoete Wedd Limited for and on its behalf to exercise
such rights, powers and discretions as are specifically delegated
to it by the terms of the Mezzanine Finance Documents together
with all such rights, powers and discretions as are
-65-
<PAGE> 67
language or accompanied by a translation thereof into English certified
(by an officer of the person making or delivering the same) as being a
true and accurate translation thereof.
25. NO IMPLIED WAIVERS
25.1 No failure or delay by the Mezzanine Agent or any other Mezzanine
Finance Party in exercising any right, power or privilege under any of
the Mezzanine Finance Documents will operate as a waiver thereof nor
will any singe or partial exercise of any right, power or privilege
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
25.2 The rights and remedies provided in the Mezzanine Finance Documents are
cumulative and not exclusive of any rights and remedies provided by law
and all such rights and remedies howsoever arising will, save where
expressly provided to the contrary herein, be available to the
Mezzanine Finance Parties severally and any Mezzanine Finance Party
shall be entitled to commence proceedings in connection therewith in
its own name.
25.3 A waiver given or consent granted by the Mezzanine Agent or any
Mezzanine Finance Party under this Agreement will be effective only if
given in writing and then only in the instance and for the purpose for
which it is given.
26. INVALIDITY OF ANY PROVISION
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions will not be affected or
impaired in any way.
27. CONFIDENTIALITY
Subject to the provisions of Clause 28.5 the parities will keep the
Mezzanine Finance Documents and the other Transaction Documents and the
subject matter thereof confidential save to the extent that they are
required by law or regulation to disclose the same. Each of the
Mezzanine Finance Parties agrees with the Borrower to hold confidential
all information which it acquires under or in connection with the
Mezzanine Finance Documents and the other Transaction Documents save
to the extent it is required by law or regulation to disclose the same
or the same comes into the public domain (otherwise than as a result of
a breach of this Clause 27). A Mezzanine Finance Party may, however,
disclose such information to its auditors, legal advisers or other
professional advisers (the "ADVISERS") for purposes connected with the
Mezzanine Finance Documents or the other Transaction Documents (as the
case may be).
28. CHANGES TO PARTIES
28.1 ASSIGNMENT BY THE BORROWER: The Borrower may not assign or transfer all
or any part of its rights, benefits or obligations under this
Agreement or any of the other Mezzanine Finance Documents.
28.2 ASSIGNMENTS AND TRANSFERS BY THE MEZZANINE LENDERS:
(a) A Mezzanine Lender, or any successor or assign of such Mezzanine
Lender, (in this capacity the "TRANSFEROR") may at any time
assign, novate or otherwise transfer all or any part of its
rights or obligations under the Mezzanine Finance Documents (or
any of them) to any person (a "TRANSFEREE") provided that it has
consulted the Borrower prior to doing so and provided further
that the Transferee is a Qualifying Lender.
-76-
<PAGE> 68
(b) A transfer of obligations will only be effective if made in accordance
with Clause 28.3 (Substitution Provisions) or if the Transferee has,
prior to the transfer taking effect, confirmed in writing to the
Mezzanine Agent (acting on behalf of all the other Mezzanine Finance
Parties (and the other parties to the Intercreditor Deed)) and the
Borrower that it undertakes to be bound by the terms of each of the
Mezzanine Finance Documents as a Mezzanine Lender in form and
substance satisfactory to the Mezzanine Agent and approved by the
Borrower, such approval not to be unreasonably withheld or delayed.
On any such transfer being made, the Transferor will be relieved of
its obligations to the extent that they are transferred to the
Transferee.
(c) The Borrower will execute such documents and agreements as are
necessary to effect a transfer of rights or obligations to a
Transferee hereunder.
(d) Nothing in this Agreement will restrict the ability of a Mezzanine
Lender to sub-contract any or all of its obligations under the
Mezzanine Finance Documents (or any of them) if such Mezzanine Lender
remains liable under this Agreement in relation to those obligations.
28.3 SUBSTITUTION PROVISIONS:
(a) A Transferor may transfer all or any of its rights and obligations
under the Finance Documents including for the avoidance of doubt the
InterCreditor Deed to a Transferee by means of a novation effected by
the Mezzanine Agent executing a Transfer Certificate duly completed
and signed on behalf of both the Transferee and the Transferor.
(b) On the later of (1) the date specified in the Transfer Certificate as
being the date on or as from which the substitution under this Clause
28.3 is to take effect and (2) the date on which the Mezzanine Agent
executes the Transfer Certificate (for itself, the other Mezzanine
Finance Parties and each party to the Intercreditor Deeds), the
following shall occur:-
(i) to the extent that in the Transfer Certificate the Transferor
seeks to transfer its rights and obligations under the Mezzanine
Finance Documents, the Borrower and the Transferor shall each be
released from further obligations to each other under the
Mezzanine Finance Documents (and the appropriate reduction will
be made to the Commitment of the Transferor) and their
respective rights against each other will be cancelled (such
rights and obligations being referred to in this Clause 28.3 as
"DISCHARGED RIGHTS AND OBLIGATIONS");
(ii) the Borrower and the Transferee will each assume obligations
towards each other and acquire rights against each other which
differ from the Discharged Rights and Obligations only insofar
as the Borrower and such Transferee have assumed and acquired
the same in place of the Borrower and the Transferor;
(iii) the Mezzanine Agent, the Mezzanine Security Trustee, the
Borrower, the Transferee, the other Mezzanine Lenders and the
other parties to the Intercreditor Deed will acquire the same
rights and assume the same obligations between themselves as
they would have acquired and assumed had the Transferee been an
original party to this Agreement and the Intercreditor Deed as a
"Mezzanine Lender" and each other Mezzanine
-77-
<PAGE> 69
Finance Documents to which the Transferor is a party as such,
with the rights and obligations acquired or assumed by it as a
result of the novation;
(iv) a proportion of the Transferor's rights and/or obligations under
the other Mezzanine Finance Documents equal to the proportion of
the Transferor's rights and/or obligations under the Agreement
being transferred, shall automatically be transferred to the
Transferee; and
(v) on the date on which such transfer takes effect, the Transferee
will pay to the Mezzanine Agent for its own account a transfer
fee of L.500.
(c) Nothing in this Agreement or any other Mezzanine Finance Document will
oblige a Transferor or cause a Transferor to be liable:-
(i) to accept a re-assignment or re-transfer from a Transferee of
any of the rights or obligations assigned, transferred or
novated pursuant to this Clause 28; or
(ii) to support any losses incurred by a Transferee by reason of the
non-performance by the Borrower of its obligations under any of
the Mezzanine Finance Documents.
(d) Each of the Parties to this Agreement (other than the Transferor and
the Transferee) hereby irrevocably authorises the Mezzanine Agent to
execute on its behalf any Transfer Certificate which has been duly
completed in accordance with this Clause 28.3 and executed on behalf
of each of the Transferor and the Transferee.
(e) The Mezzanine Agent will promptly notify the other parties to this
Agreement and the other Mezzanine Finance Documents of the receipt and
execution by it on their behalf of any Transfer Certificate.
28.4 BENEFIT OF AGREEMENT: This Agreement will be binding upon, and enure for
the benefit of, each party hereto and its or any subsequent successors or
assigns.
28.5 DISCLOSURE OF INFORMATION: Each Mezzanine Finance Party may disclose to:-
(a) a proposed assignee or transferee or any sub-participant, risk
participant or other participant proposing to enter or having entered
into a contract with that Mezzanine Finance Party regarding the
Mezzanine Finance Documents; and
(b) the Senior Lender and any shareholder of any Combined Group Company
together in each case with their respective successors transferee's
and assigns,
any information in the possession of that Mezzanine Finance Party
relating to the Borrower (or any Obligor or any other Combined Group
Company) as it sees fit provided that in the case of Clause 28.4(a)
such person has first agreed to be bound by the provisions of Clause
27 (Confidentiality) by executing and delivering to the Borrower a
confidentiality undertaking in terms acceptable to both of them.
28.6 INCREASED COSTS: If any assignment, transfer or novation of all or any part
of the rights or obligations of a Mezzanine Lender pursuant to Clause 28.2
(Assignments and Transfers by the Mezzanine Lenders) would result (due to
any law, regulation, treaty, official directive in existence or the subject
of a formal and public proposal by any competent authority at that time) on
the occasion of the next payment to the Transferee hereunder in any
additional amount or compensation being required to be paid by the Borrower
in accordance with this
-78-
<PAGE> 70
Agreement, then the Transferee shall be entitled to receive those
amounts only to the extent that the Transferee would have been so
entitled had there been no such assignment, transfer or novation.
28.7 THE MEZZANINE AGENT AND THE REFERENCE BANKS:
(a) Changes to the Mezzanine Agent and the office through which the
Mezzanine Agent acts may be effected pursuant to Clauses 19.9
(Termination and Resignation of Agency) and 19.15 (Change of
Office of Mezzanine Agent) respectively.
(b) If a Reference Bank ceases to be one of the Mezzanine Lenders
then:-
(i) that Mezzanine Lender shall cease to be a Reference Bank;
and
(ii) the Mezzanine Agent shall in consultation with the
Borrower appoint another Mezzanine Lender or an Affiliated
Bank of another Mezzanine Lender to be a Reference Bank.
29. MEZZANINE LENDERS' DECISIONS
29.1 Subject to Clauses 29.2 and 29.3 below, any provision of this Agreement
or any of the other Mezzanine Finance Documents may be amended, waived,
varied or modified (each a "MODIFICATION") with the agreement of the
Majority Mezzanine Lenders. A Modification so agreed may be effected by
the Mezzanine Agent executing such documents as may be required for such
purpose on behalf of all the Mezzanine Lenders. The Mezzanine Agent will
promptly notify the other parties to this Agreement and the other
Mezzanine Finance Documents of the Modification so effected. Such
Modification will take effect from the date upon which such notification
is given (or such later date as the Mezzanine Agent may specify therein)
and will be binding on all parties to the Mezzanine Finance Documents.
29.2 The following matters will require the unanimous agreement of all of the
Mezzanine Lenders:-
(a) any increase in the amount of the Commitment of any Mezzanine
Lender;
(b) any increase in the Maximum Facilities Amount;
(c) any reduction in the Margin;
(d) any extension to the Initial Termination Date, the Termination
Date or the Initial Period or any other date for payment of any
sum due, owing or payable to any Mezzanine Lender;
(e) any change in the amount or currency of any sum due, owing or
payable to any Mezzanine Lender;
(f) any reduction in the amount of any payment of principal,
interest, guarantee fee or commissions payable hereunder by any
party;
(g) any amendment, variation or modification of Clause 22 (Pro Rata
Payments), Clause 23 (Set-off), Clause 28.1 (Assignment by the
Borrower), this Clause 29 (Mezzanine Lenders' Decisions) or to
the definition of "Majority Mezzanine Lenders"; and
(h) any release of security.
-79-
<PAGE> 71
29.3 Any waiver or any consent, approval or other matter which by the
express terms of this Agreement or any other Mezzanine Finance Document
is to be given by all of the Mezzanine Lenders will not be effective
unless all of the Mezzanine Lenders have agreed thereto but, subject
thereto, may be given by the Mezzanine Agent on behalf of all of the
Mezzanine Lenders.
30. INDEMNITIES
30.1 GENERAL INDEMNITY AND BREAKAGE COSTS: The Borrower will fully indemnify
each of the Mezzanine Finance Parties on demand from and against any
expense (including legal fees), loss, damage or liability which any of
them may incur as a consequence of any sum not being paid when due
pursuant to the Mezzanine Finance Documents, any failure to borrow when
obliged to do so in accordance with this Agreement, any Advance being
repaid or prepaid otherwise than on the last day of an Interest Period,
the occurrence of any Event of Default or otherwise in connection with
a breach by the Borrower of this Agreement or a breach by any Obligor
of any Mezzanine Finance Document. Without prejudice to its
generality, the foregoing indemnity:-
(a) extends to any interest, fees or other sums whatsoever paid or
payable on account of any funds borrowed in order to carry any
amount which the Borrower fails to pay in breach of this
Agreement and to any loss (including loss of profit), premium,
penalty or expenses which may be incurred in liquidating or
employing deposits from third parties acquired to make,
maintain or fund outstanding Advances or any other amount due
or to become due under this Agreement; and
(b) will entitle the relevant Mezzanine Finance Party to recover
breakage costs from the Borrower in the event of an Advance or
other sum being repaid or pre-paid prior to the last day of an
Interest Period even though the relevant Mezzanine Finance
Party has financed such Advance or other sum from its own
resources, the costs it thereby incurs being calculated on the
assumption it had borrowed an amount equal to the Advance or
other sum in question in the London Interbank Market for the
duration of the relevant Interest Period.
30.2 CURRENCY INDEMNITY: Without prejudice to Clause 30.1, if:-
(a) any amount payable by the Borrower or any Obligor under or in
connection with any Mezzanine Finance Document is received by
any Mezzanine Finance Party (or by the Mezzanine Agent on
behalf of any Mezzanine Fiance Party) in a currency (the
"PAYMENT CURRENCY") other than that agreed in the relevant
Mezzanine Finance Document (the "AGREED CURRENCY"), whether as
a result of any judgement or order or the enforcement thereof,
the liquidation of the Borrower or relevant Obligor or
otherwise; and the amount produced by converting the Payment
Currency so received into the Agreed Currency is less than the
relevant amount of the Agreed Currency; or
(b) any amount payable by the Borrower or any Obligor under or in
connection with any Mezzanine Finance Document has to be
converted from the Agreed Currency into another currency for the
purpose of (i) making or filing a claim or proof against the
Borrower or any Obligor, (ii) obtaining an order or judgment in
any court or other tribunal or (iii) enforcing any order or
judgment given or made in relation to any Mezzanine Finance
Document,
then the Borrower will, as an independent obligation, indemnify the
relevant Mezzanine Finance Party for the deficiency and any loss
sustained as a result. Any conversion required will be made at such
prevailing rate of exchange on such date and in such market as is
-80-
<PAGE> 72
determined by the relevant Mezzanine Finance Party as being most
appropriate for the conversion. The Borrower will in addition pay the
costs of the conversion.
30.3 WAIVER: The Borrower waives any right it may have in any jurisdiction
to pay any amount under any Mezzanine Finance Document in a currency
other than that in which it is expressed to be payable in the relevant
Mezzanine Finance Document.
31. CERTIFICATES CONCLUSIVE
A certificate, determination, notification or opinion of the Mezzanine
Finance Party or the Majority Mezzanine Lenders stipulated for in any
Mezzanine Finance Document or as to any rate of interest or any other
amount payable under any Mezzanine Finance Document will be conclusive
and binding on the Borrower and the Obligors except in the case of a
manifest error.
32. GOVERNING LAW AND SUBMISSION TO JURISDICTION
32.1 GOVERNING LAW: This Agreement shall be governed by and construed in all
respects in accordance with English law.
32.2 JURISDICTION:
(a) For the benefit of each of the Mezzanine Finance Parties, the
Borrower irrevocably agrees that the courts of England shall
have jurisdiction to hear and determine any disputes which may
arise out of or in connection with this Agreement and the other
Mezzanine Finance Documents to which it is a party and that
accordingly any suit, action or proceedings arising out of or
in connection with this Agreement ("PROCEEDINGS") may be
brought in such courts and the Borrower irrevocably submits to
such jurisdiction, but without prejudice to the right of the
Mezzanine Finance Parties to bring Proceedings against the
Borrower in the courts of any country in which the Borrower has
assets or in any other appropriate jurisdiction or to bring
Proceedings in more than one jurisdiction (whether concurrently
or not).
(b) The Borrower irrevocably agrees that a judgement in any
Proceedings brought in the English courts shall be conclusive
and binding (subject to any appeal it may bring) upon it and
may be enforced in the courts of any other jurisdiction. The
Borrower irrevocably waives any objection it may now or
hereafter have to the laying or venue of any Proceedings brought
in the English Courts and any claim it may now or hereafter have
that any such Proceedings have been brought in an inconvenient
or inappropriate forum.
(c) The Borrower consents generally in respect of any Proceedings
to the giving of any relief or the issue of any process in
connection with such Proceedings including, without limitation,
the making, enforcement or execution against any of its
property whatsoever (irrespective of its use or intended use)
of any order or judgement which may be made or given in such
Proceedings.
32.3 SERVICE OF PROCESS:
(a) The Borrower hereby irrevocably consents to the service of
process out of the courts of England in any such suit, action
or proceeding by the mailing of copies thereof by registered or
certified airmail, postage prepaid, to the Borrower at its
registered office or place of business. Nothing herein shall
affect the right to serve process in any other manner permitted
by law.
-81-
<PAGE> 73
(b) The Borrower undertakes that it will at all times until it can
no longer utilise the Facility and all liabilities of the
Borrower under the Mezzanine Finance Documents have been
discharged in full maintain the appointment on terms
satisfactory to the Mezzanine Agent of some person in England
as its agent for the service of process and irrevocably agrees
that service of any writ, notice or other document for the
purpose of any suit, action or proceeding in the courts of
England shall be duly served upon it if delivered or sent by
registered post to the address of such appointee (or to such
other address in England as the Borrower may notify to the
Mezzanine Agent). For this purpose the Borrower nominates as its
agent for service of process:-
Name: M C Bennett
Position: Group Financial Controller
Company: LK Global Information Systems (UK) PLC
Address: Coombelands House, Coombelands Lane,
Addlestone, Weybridge, Surrey KT15 1HY
Fax: 01932 821 493
(c) If for any reason such agent ceases to act on behalf of the
Borrower, the Borrower will immediately appoint a replacement
agent and forthwith notify the Mezzanine Agent of such
replacement and failing such appointment within 14 days, the
Agent will be entitled to appoint such an agent by notice to
the Borrower.
33. COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of
such counterparts taken together shall be deemed to constitute one and
the same instrument.
IN WITNESS whereof the parties hereto have caused this Agreement to be duly
executed on the date first written above.
-82-
<PAGE> 74
SCHEDULE 1
THE ORIGINAL MEZZANINE LENDER
ORIGINAL MEZZANINE LENDER COMMITMENT
Barclays de Zoete Wedd Limited L.5,000,000
St. Mary's Court
100 Lower Thames Street
London EC3R 6RN
Facsimile: 0171 775 8833
Attention: Account Director/Account Executive
-83-
<PAGE> 75
SCHEDULE 2
Conditions Precedent
1. FORMALITIES CERTIFICATE: A certificate being delivered to the Mezzanine
Agent in respect of each Obligor in the form set out in Schedule 5 which
certificate: -
(a) shall have been duly completed in all respects;
(b) shall be signed by the Finance Director and the Secretary of the
relevant Obligor; and
(c) shall have attached to it (duly initialled by the signatories to
the certificate) the documents referred to in the certificate
including the requisite Memorandum and Articles of Association or
other constitutional documents, the board and other resolutions
approving the Mezzanine Finance Documents and in the case of the
Borrower the Group structure diagram.
2. SUBSCRIPTION DOCUMENTS: The document listed at paragraph (a) below in the
agreed terms duly executed by each of the parties thereto and conditional
only upon the change to the Articles required by the Mezzanine Agent
pursuant to Clause 16.42 becoming effective and certified copies in the
agreed terms of each of the other documents listed below in each case
being delivered to the Mezzanine Agent: -
(a) the Warrant Instrument;
(b) the Stock Transfer Form;
(c) the Shareholders Agreement; and
(d) all other material agreements and contracts, in the agreed terms,
entered into pursuant to or in connection with the Warrant
Instrument as may be requested by the Mezzanine Agent on or prior
to the date of this Agreement.
3. ACQUISITION DOCUMENTS: Certified copies being delivered to the Mezzanine
Agent of: -
(a) the Acquisition Agreements;
(b) the Vendor Disclosure Letters;
(c) the Service Contracts; and
(d) all other material agreements an contracts, in the agreed terms,
entered into pursuant to or in connection with the Acquisition
Agreements as may be requested by the Mezzanine Agent on or prior
to the date of this Agreement.
4. MEZZANINE FINANCE DOCUMENTS: Each of the following documents in the agreed
terms duly executed and delivered unconditionally to the Mezzanine Agent:-
(a) the Guarantees and Debentures;
(b) the Assignment of the Key-man Policies in respect of the Key-man
Policies to be effected on or prior to the date of this Agreement;
(c) the Assignment of Intellectual Property;
(d) the Memoranda of Deposit;
(e) each other Mezzanine Security Document;
(f) the Intercreditor Deed;
(g) the Fees Letter;
(h) the Banking Disclosure Letter; and
-84-
<PAGE> 76
in each case, all documents deliverable therewith including without
limitation: -
(a) such original notices of assignment or charge in relation to any
property and assets assigned or charged or intended to be assigned
or charged by the relevant Obligor pursuant to any Mezzanine
Security Documents as the Mezzanine Agent may require, duly signed
on behalf of the relevant Obligor including a request to each
recipient thereof that they be returned to the Mezzanine Agent's
solicitors; and
(b) share certificates in respect of HMTMS, LK Cyprus and LK India
together with the other documents required by the Mezzanine
Security Documents including without limitation executed blank
stock transfers together with certified extracts of the register of
members of HMTMS, LK Cyprus and LK India.
5. SENIOR FINANCE DOCUMENTS: Certified copies being delivered to the
Mezzanine Agent of each Senior Finance Document together with all
documents (other than any letters dealing only with the Senior Lenders
fees) deliverable therewith.
6. SENIOR LOANS: Evidence being delivered to the Mezzanine Agent that
L.1,500,000 of the Senior Loans to be made available at Completion have
been advanced to HMTMS or to its order or, simultaneously with the first
drawdown hereunder, will be advanced to HMTMS or to its order.
7. HEDGING ARRANGEMENTS: Evidence being delivered to the Mezzanine Agent as
to the proposed strategy of the Borrower with regard to the interest rate
management agreements to be entered into pursuant to Clause 16.21
(Hedging Arrangements).
8. KEY-MAN POLICIES: Confirmation being made to the Mezzanine Agent that
Key-Man Policies in respect of the Key Managers which are to be effected
at Completion have been effected, all premiums have been paid and that
the underwriters are on risk, together with the policy numbers of the
Key-Man Policies and a certified copy of the Key-Man Policies.
9. CAPITAL STRUCTURE: Evidence being delivered to the Mezzanine Agent, in
form and substance satisfactory to the Mezzanine Agent, relating to the
capital structure of the Borrower and each of its Subsidiaries, GMTMS and
HMTMS.
10. ACQUISITION CERTIFICATE: A certificate being delivered to the Mezzanine
Agent signed by Messrs Steggles Palmer addressed to the Mezzanine Agent
for itself and each of the other Mezzanine Finance Parties and their
successor and assigns confirming that the Acquisition Agreements have been
or, subject to drawdown of the First Advance hereunder for the sum of
L.2,500,000 and the sum of L.1,500,000 under the Senior Facility
Agreement referred to in sub-paragraph (e) of the definition of Senior
Facility Agreements, will be completed in accordance with their
respective terms, that the conditions precedent thereto have been or
will, simultaneously with such drawdown, be satisfied.
11. AUDITORS APPOINTMENT: Confirmation being delivered to the Mezzanine Agent
that Messrs Pannell Kerr and Forster have duly accepted the terms of
appointment as auditors of the Borrower and each other member of the BV
Group.
12. ACQUISITION STATEMENTS: Certified copies of each of the Acquisition
Statements having been delivered to the Mezzanine Agent.
13. BUSINESS PLAN: A certified copy having been delivered to the Mezzanine
Agent of the Business Plan.
85
<PAGE> 77
14. PENSIONS: Evidence being delivered to the Mezzanine Agent in form and
substance satisfactory to the Agent of the pension arrangements in
respect of the employees and officers of each Obligor, each Combined
Group Company, HMTMS and GMTMS maintained by that Obligor or Combined
Group Company or HMTMS or GMTMS (as the case may be).
15. RELEASE OF SECURITY: Confirmation being delivered to the Mezzanine
Agent that all security in favour of third parties in respect of the
assets to be acquired by the Borrower pursuant to the Acquisition
Agreements will be discharged and released on the Completion Date
including without limitation those over Bec's assets being:
(a) a mortgage debenture dated 31st December 1991 in favour of Coutts
& Co;
(b) a fixed and floating charge dated 2nd December 1993 in favour of
Cygnus Ventures Ltd; and
(c) a fixed charge over certain intellectual property dated 17 May
1994 in favour of Cygnus Ventures Ltd as Security Agent.
16. COMPANY SEARCHES: A search being delivered to the Mezzanine Agent of
each Obligor's register of mortgages and charges at the Companies
Registry or the equivalent thereof in the country of its incorporation
showing, inter alia, no charges over any of its assets or only such
charges as will be satisfied in full simultaneously upon the making of
the first Advance hereunder.
17. INSURANCE: A letter being delivered to the Mezzanine Agent from the
Borrower's insurance brokers addressed to the Mezzanine Agent for itself
and for each of the Mezzanine Finance Parties, their respective
successors and assigns confirming the insurance arrangements of the
Borrower which will apply on and after Completion.
18. PROPERTIES VALUATION: Evidence being delivered to the Mezzanine Agent
in form and substance satisfactory for the Mezzanine Agent in relation
to the valuation of the Properties.
19. PROPERTY CERTIFICATES: A certificate or report being delivered to the
Mezzanine Agent in relation to the title of each of the Properties from
Messrs. Steggles Palmer addressed to the Mezzanine Agent for itself and
for each of the Mezzanine Finance Parties, their respective successors
and assigns.
20. PROPERTY SEARCHES: Official priority searches being delivered to the
Mezzanine Agent relating to the Properties in favour of the Mezzanine
Agent for itself and for each of the Mezzanine Finance Parties, their
respective successors and assigns in respect of any registered titles
giving a sufficient period of priority and official priority searches in
favour of the Mezzanine Agent for itself and for each of the Mezzanine
Finance Parties, their respective successors and assigns in respect of
any unregistered land relating to the Properties in respect of each of
the land charges registers against all relevant estate owners which each
confer a sufficient period of priority.
21. UNDERTAKING: An undertaking being delivered to the Mezzanine Agent from
Messrs Steggles Palmer to the Mezzanine Agent for itself and for each of
the Mezzanine Finance Parties, their respective successors and assigns
to deal with the registration of the Mezzanine Finance Parties' legal
charges over such of the Properties which are registerable at HM Land
Registry or the Central Land Charges Registry (as the case may be) and
situate in England and Wales.
22. APPROVALS: Evidence being delivered to the Mezzanine Agent that all
approvals, authorisations, consents, licences, exemptions, filings,
notarisations and registrations
-86-
<PAGE> 78
necessary for any of the transactions contemplated by the Mezzanine
Finance Documents and their validity and/or enforceability have been
obtained and are in full force and effect.
23. CONSENTS: Confirmation being delivered to the Mezzanine Agent that all
third party consents which the Mezzanine Agent requires to the creating
of any Security Interest contained in the Mezzanine Security Documents.
24. PAYMENTS: An irrevocable payment instruction being delivered to the
Mezzanine Agent to deduct an amount equal to fees payable at Completion
pursuant to Clause 14 to the Mezzanine Agent from the First Advance.
25. FINANCIAL ASSISTANCE: Evidence being delivered to the Mezzanine Agent
in form and substance satisfactory to the Mezzanine Lender that the
requirements of Chapter VI of the Companies Act 1985 and any similar
enactments in any other jurisdiction have been complied with so far as
they relate to any Mezzanine Finance Documents and the Acquisition
together with a letter from the Auditors addressed to the Mezzanine
Agent for itself and the other Mezzanine Finance Parties and their
respective successors and assigns in substantially the form set out in
Technical Release FRAG 26/94 issued in September 1994 on behalf of the
Council of the Institute of Chartered Accountants in England and Wales.
26. PRODUCT AND MARKET REPORT: A report being delivered to the Mezzanine
Agent addressed to the Mezzanine Agent for itself and for each of the
Mezzanine Finance Parties, and their respective successors and assigns
from Kendrick Technology in form and substance satisfactory to the
Mezzanine Agent, relating to Bec's computer software products and
markets.
27. PROCESS AGENT: Written confirmation being delivered to the Mezzanine
Agent from the person appointed by the Borrower pursuant to Clause 32 of
the Agreement as its agent for the acceptance of process to the effect
that such person accepts such employment.
28. OBSERVER STATUS: Evidence being delivered to the Mezzanine Agent in
form and substance satisfactory to the Mezzanine Agent that the
Mezzanine Agent has been granted observer status at all board meetings
of the Borrower.
29. LEGAL OPINION: Each of the following legal opinions being delivered to
the Mezzanine Agent:
(a) an opinion of Ashurst Morris Crisp, solicitors to the Mezzanine
Agent, as regards English law in a form acceptable to the
Mezzanine Agent; and
(b) an opinion of Stibbe Simont Monahan Duhot as regards the laws
of the Netherlands in a form acceptable to the Mezzanine Agent.
30. CUSTOMERS: A survey delivered to the Mezzanine Agent in form and
substance satisfactory to the Mezzanine Agent relating to the Bec's
customers' attitudes.
31. REFERENCES: References delivered to the Mezzanine Agent in form and
substance satisfactory to the Mezzanine Agent in relation to Dr
Kyprianou.
32. ARIS UNDERTAKING: A certified copy delivered to the Mezzanine Agent of
the ARIS Undertaking.
33. CHANGE OF CONTROL LETTER: A letter signed by each of the beneficiaries
or (if appropriate) their legal guardians and ABN Amro Trust Company
(Curacao) NV being the trustee of that trust which owns all the issued
share capital of LKNV and from that person and/or group of persons
which have control, directly or indirectly of LKNV confirming that the
trustee
-87-
<PAGE> 79
will, and is irrevocably authorised to, notify the Mezzanine Agent of
any change in the legal or beneficial ownership or control of LKNV and
for this purpose "control" shall have the meaning given to it by
Section 416 of the Income and Corporation Taxes Act 1988.
34. ACCOUNTANTS' REPORTS: The Accountants' Reports being delivered to the
Mezzanine Agent.
35. COMMISSIONED SOFTWARE AGREEMENT: A certified copy being delivered to
the Mezzanine Agent of the Commissioned Software Agreement duly
executed by the parties thereto.
36. GENERAL: Any other documents and/or conditions as the Mezzanine Agent
shall have specified to the Borrower on or prior to the proposed
Drawdown Date being delivered to the Mezzanine Agent.
-88-
<PAGE> 80
SCHEDULE 3
ADDITIONAL COST
The Additional Cost Rate to compensate the Mezzanine Lenders for the cost
attributable to an Advance or other sum denominated in Sterling for any period
for which such cost is to be computed under this Agreement resulting from the
imposition from time to time by the Bank of England (or other governmental
authorities or agencies) of a requirement or request to place non-interest-
bearing deposits with the Bank of England, for the payment of special deposits
and the maintenance of secured money with certain financial institutions
(recognized for this purpose by the Bank of England) will be the rate
determined by the Mezzanine Agent (rounded upwards, if necessary, to the
nearest four decimal places) on the first day of the relevant period and for
the duration of such period (or, if for a period longer than three months, on a
three monthly basis during such period) in accordance with the following
formula:-
XL + B(L-C) = S(L-D)
rate = --------------------
100 - (X + S)
Where:
"X" is the amount required to be maintained by the Mezzanine Agent as
non-interest-bearing balances with the Bank of England expressed as a
percentage of eligible liabilities fixed by the Bank of England (or
other governmental authorities or agencies).
"L" is the average of the offered quotations by the Reference Banks for
Sterling deposits for the period for which the formula is being
applied in the London Interbank Market at or about 11:00 a.m. on the
first day of that period.
"B" is the average level of secured deposits expressed as a percentage of
eligible liabilities which the Mezzanine Agent is required by the Bank
of England to maintain with certain financial institutions
(recognised for this purpose by the Bank of England).
"C" is the average of the rats at which certain financial institutions
(recognised for this purpose by the Bank of England) bid for
Sterling deposits for the period for which the formula is being
applied from the Reference Banks at or about 11:00 a.m. on the first
day of that period.
"S" is the amount of special deposits required to be maintained by the
Mezzanine Agent expressed as a percentage of eligible liabilities
fixed by the Bank of England (or other governmental authorities or
agencies).
"D" is the rate of interest paid by the Bank of England on special
deposits.
In the application of the above formula, X, L, B, C, S and D will be
expressed as a number and not as a percentage rate per annum.
In the event of any change in the circumstances (including the imposition
of alternative or additional official requirements) which renders the
above formula inapplicable, the Mezzanine Agent shall notify the Borrower
and other Mezzanine Finance Parties in reasonable detail of the manner
(including the basis and computation) in which the Additional Cost Rate
shall be determined thereafter and, if appropriate, substitute a new
formula for that set out above.
-89-
<PAGE> 81
If the above formula does not represent the cost to any Mezzanine Lender
of such compliance as aforesaid, the Borrower will on demand by the
Mezzanine Agent indemnify that Mezzanine Lender for any such cost of
compliance demonstrated by that Mezzanine Lender to the Borrower in
reasonable detail and certified by such Mezzanine Lender as not being
otherwise covered by such formula. A certificate as to such further cost
signed on behalf of such Mezzanine Lender shall be conclusive in the
absence of manifest error.
-90-
<PAGE> 82
SCHEDULE 4
Form of Advance Request
To: [name of Mezzanine Agent]
Attention: [ ] [ ], 19[ ]
From: LK Global Information Systems BV
Dear Sirs,
Re: L.[ ] Loan Facility dated [ ] (the "Facility Agreement")
We request drawdown of the following Advance:
(a) Drawdown Date: [ ];
(b) Amount: L.[ ];
(c) First Interest Period: [ ];
(d) Payment should be made to: [ ];
We confirm that:
(i) the representations and warranties in Clause 15 *[(other than those
contained in Clauses 15.9 and 15.15(a))] are true and accurate on the
date hereof as if made with reference to the facts and circumstances
existing on each such date except that the references to (a) Combined
Group Pro-forma Statements in Clause 15.12(b); (b) Target Group
Pro-forma Statements in Clause 15.12(c); and (c) Budget in the
definition of Information Package, shall be construed as references to
respectively; (i) the then latest consolidated management accounts of
the Combined Group delivered to the Mezzanine Agent pursuant to Clause
17.4(b) at any time prior to but excluding 31st December 1995 and at
any time thereafter the then latest audited consolidated accounts of
the BV Group delivered to the Mezzanine Agent pursuant to Clause
17.4(a); (ii) following the Completion Date or a Proposed Completion
(as the cas may be) related to the relevant Target Group, the
Completion Accounts or Subsequent Completion Accounts related to that
Proposed Completion (as the case may be) on delivery of those respective
accounts to the Mezzanine Agent pursuant to Clause 17.4(c) and (d) and
thereafter the then latest consolidated or unconsolidated (as the case
may be) accounts of that Target Group; (iii) the then latest Budget
delivered to the Mezzanine Agent pursuant to Clause 17.4(e);
(ii) we are in full compliance with the undertakings contained in Clauses 16
and 17 of the Facility Agreement; and
<PAGE> 83
(iii) no Event of Default (or Potential Event of Default) has occurred and is
continuing or would result from the proposed Advance.
Terms defined in the Facility Agreement shall have the same meanings when used
in this request.
--------------------
[Authorized Signatory]
for and on behalf of
LK Global Information Systems BV
* insert in all requests for a Subsequent Advance
<PAGE> 84
SCHEDULE 5
[INSERT NAME OF BORROWER/OBLIGOR]
(THE "COMPANY")
FORMALITIES CERTIFICATE
FACILITY AGREEMENT DATED [ ] 19[ ]
(THE "FACILITY AGREEMENT")
To: [INSERT NAME OF LENDER] (the "MEZZANINE AGENT" for itself and each of
the other Mezzanine Finance Parties and their respective successors and
assigns).
We [ ] and [ ] being respectively the [Finance]
Director and Secretary of the company being duly authorised by the Company to
deliver this Certificate hereby make the following certifications and
confirmations. Terms defined in the Facility Agreement shall have the same
meaning when used herein.
1. CONSTITUTIONAL DOCUMENTS
Attached hereto marked A are true, complete and up-to-date copies of the
constitutional documents of the Company.
2. BOARD RESOLUTIONS
Attached hereto marked B is an extract from the minutes of a Meeting of
the Board of Directors of the Company and marked C is an extract from the
minutes of a meeting of the shareholders of the company in each case duly
convened and held (during which a quorum was present throughout)
recording resolutions passed at such meeting (which resolutions are in
full force and effect and have not been rescinded or varied and which
resolutions are in a form previously approved by your legal advisers) and
which approve the Mezzanine Finance Documents to which it is a party and
all transactions contemplated thereby* [and which, inter alia, change the
articles of association of the Company to remove all restrictions on the
transfer of shares in the capital of the Company].
3. AUTHORISED SIGNATORIES
The following signatures are the specimen signatures of the persons
authorised by resolution of the board of Directors of the Company to
execute all Mezzanine Finance Documents to which it is a party, drawdown
notices under the Facility Agreement and all other documents and notices
required in connection therewith:-
* insert or delete as appropriate
Name Position Signature
---- -------- ---------
- 93 -
<PAGE> 85
*4. GROUP STRUCTURE
Attached hereto marked D is a diagram which records the structure of the
BV Group, the Cypriot Group, the Indian Group which is true and accurate
as at the date hereof.
5. NO BREACH OF BORROWINGS LIMIT
We have examined the terms of all loan agreements, trust deeds and similar
borrowing instruments together with our Memorandum and Articles of
Association or, as the case may be, other constitutional documents and all
other relevant instruments and agreements to which any member of the
Combined Group is a party ("RELEVANT DOCUMENTS") and we can confirm to you
that the drawing by the Borrower of all sums capable of being drawn under
the Facility Agreement (the "MAXIMUM DRAWINGS") does not infringe the
terms of the Relevant Documents and that the borrowing of the Maximum
Drawings when aggregated with any other Financial Indebtedness of the
Company and the Combined Group:-
(a) will be within the corporate powers of the Company; and
(b) does not or will not cause to be exceeded any limit or restriction
on any of the powers of any member of the Combined Group (whether
contained in any Relevant Documents or otherwise) or the right or
ability of the Directors of the Company to exercise such powers.
6. NO EVENTS OF DEFAULT
We have carefully studied the provisions of Clause 16 (General
Undertakings) and Clause 18 (Events of Default) and, having made all due
enquiries throughout the Combined Group, can confirm to you that as at the
date of this certificate no Event of Default exists and the Company and
all other Obligors are in full compliance with their obligations under the
Mezzanine Finance Documents.
7. FINANCIAL UNDERTAKINGS
The Board of Directors of the Company has carefully studied the provisions
of Clause 17 (Information, Accounting and Financial Undertakings) and on
the basis of the reasonable expectations of the Board as to the Company's
and the Borrower's financial performance over the period of the Facility
Agreement considers that the Borrower will be able to comply with its
obligations under Clause 17.9 (Financial Covenants).
* Borrower only
-94-
<PAGE> 86
Words and expressions defined in the Facility Agreement shall bear the same
meanings when used herein.
*Signed .....................
Managing Director
*Signed .....................
Secretary
Date:
**Signed .....................
Finance Director
*Signed .....................
Secretary
Date:
* in the case of the Borrower
** in the case of any Obligor (other than the Borrower)
-95-
<PAGE> 87
SCHEDULE 6
TRANSFER CERTIFICATE
[(referred to in Clause 28.3 Substitution Provisions)]
To: [NAME OF MEZZANINE AGENT]
for and on behalf of the Borrower and other Mezzanine Finance Parties
and all other Parties to the Intercreditor Deed
(each as defined in the Facility Agreement referred to below).
This transfer certificate (this "CERTIFICATE") relates to a Facility Agreement
dated [ ] 19[ ] and made between [NAMES OF PARTIES] (the "FACILITY
AGREEMENT" which expression includes any amendments or supplements
thereto or restatements thereof). Terms defined in the Facility
Agreement shall, unless otherwise defined in this Certificate, have the
same meanings when used in this Certificate.
1. TRANSFEROR CONFIRMATION AND REQUEST: [NAME OF TRANSFEROR] (the
"TRANSFEROR") by its execution of this Certificate:-
(a) requests [NAME OF TRANSFEREE] (the "TRANSFEREE") to accept and
procure, in accordance with Clause 28.3 of the Facility
Agreement (Substitution Provisions), and Clause 15 of the
Intercreditor Deed transfer to the Transferree of the portion of
Transferor's participation in the Facility (and in the Advances
made) as specified in the First Schedule of this Certificate
(the "TRANSFER RIGHTS") by counter-signing this Certificate and
delivering it to the Mezzanine Agent at its address for the
giving of notices under the Facility Agreement so as to take
effect on the date specified in the Second Schedule of this
Certificate (the "TRANSFER DATE"); and
(b) confirms that the details which appear in the First Schedule of
this Certificate accurately record respectively, the amount of
the Transferor's Commitment and the principal amount of the
Transfer Rights at the date of this Certificate.
2. TRANSFEREE REQUEST: The Transferee by its execution of this Certificate
requests the Mezzanine Agent (on behalf of itself, the Borrower, the
Mezzanine Lenders, the Mezzanine Security Trustee and all other parties
to the Intercreditor Deed) to accept this Certificate as being
delivered under and for the purposes of Clause 28.3 of the Facility
Agreement and Clause 15 of the Intercreditor Deed so as to take effect
in accordance with the terms of those Clauses on the Transfer Date.
3. TRANSFER FEE: The Transferee undertakes to pay to the Mezzanine Agent
for the Mezzanine Agent's own account a transfer fee of L.500 as
provided in Clause 28.3(b)(v) of the Facility Agreement.
4. TRANSFEREE REPRESENTATIONS: The Transferee hereby:-
(a) represents and warrants to the Borrower, the Mezzanine Agent and
the Mezzanine Security Trustee that it is a [Qualifying Lender]
at the date hereof;
(b) confirms that it has received from the Transferor a copy of the
Facility Agreement and each of the other Mezzanine Finance
Documents together with such other documents and information as
it has requested in connection with this transaction;
<PAGE> 88
(c) confirms that it has not relied, and will not hereafter rely, on the
Transferor or any other party to the Facility Agreement or any of the
other Mezzanine Finance Documents to check or enquire on its behalf
into the legality, validity, effectiveness, adequacy, accuracy or
completeness of any such documents or information;
(d) agrees that it has not relied, and will not hereafter rely, on the
Transferor or any other party to the Facility Agreement or any of the
other Mezzanine Finance Documents to assess or keep under review on
its behalf the financial condition, creditworthiness, condition,
affairs, status or nature of the Borrower or any other party to the
Facility Agreement or any of the other Mezzanine Finance Documents;
and
(e) represents and warrants to the Transferor and all other parties to the
Facility Agreement and each of the other Mezzanine Finance Documents
that it has power to become a party to the Facility Agreement as a
"Mezzanine Lender" on the terms herein and therein set out, has taken
all necessary steps to authorise execution and delivery of this
Certificate and is acting through an office in the United Kingdom
(being that stated in the Second Schedule to this Certificate) and
that the circumstances described in Clause 28.6 (Increased Costs) do
not apply to it as Transferee.
5. TRANSFEREE COVENANTS: The Transferee hereby undertakes with the Transferor
and all other parties to the Facility Agreement and each of the other
Mezzanine Finance Documents (including for the avoidance of doubt the
Intercreditor Deed) that it will perform in accordance with its terms all
those obligations which, by the terms of the Facility Agreement and/or any
of the other Finance Documents, will be assumed by it following delivery of
this Certificate to the Mezzanine Agent.
6. EXCLUSION OF TRANSFEROR'S LIABILITIES: Neither the Transferor nor any other
party to the Facility Agreement or any of the other Mezzanine Finance
Documents makes any representation or warranty nor assumes any
responsibility with respect to the legality, validity, effectiveness,
adequacy or enforceability of the Mezzanine Finance Documents and assumes
no responsibility for the financial condition of the Borrower or any other
party to the Mezzanine Finance Documents or for the performance and
observance by the Borrower or any Obligor of any of their respective
obligations under the Mezzanine Finance Documents and any and all such
conditions and warranties, whether express or implied by law or otherwise,
are hereby excluded.
7. NOVATION: On execution of this Certificate by the Mezzanine Agent (on
behalf of itself, the Borrower, and each of the Mezzanine Finance Parties
and all the other parties to the Intercreditor Deed (other than the
Transferor and the Transferee)) the Mezzanine Agent accepts the Transferee
on and with effect from the Transfer Date as a party to the Facility
Agreement and the Intercreditor Deed in substitution for the Transferor,
with respect to all those rights and obligations which by the terms of the
Facility Agreement and any of the other Mezzanine Finance Documents
(including for the avoidance of doubt the Intercreditor Deed) and this
Certificate are assumed by the Transferee.
8. LAW: This Certificate and the rights and obligations of the parties hereto
shall be governed by and construed in accordance with English Law.
AS WITNESS the hands of authorised signatories for and on behalf of the
Transferor, the Transferee and the Mezzanine Agent on the respective dates
appearing below.
-97-
<PAGE> 89
FIRST SCHEDULE TO THE TRANSFER CERTIFICATE
TRANSFEROR'S EXISTING COMMITMENT: L.[ ]
PORTION OF TRANSFEROR'S EXISTING COMMITMENT TO BE TRANSFERRED: L.[ ]
PARTICIPATION IN ADVANCE(S) TO BE TRANSFERRED
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Advance Participation: L.[ ], Term: [ ] months, Maturity Date: [ ] 19 [ ], Margin: [ ]%
1:
Advance Participation: L.[ ], Term: [ ] months, Maturity Date: [ ] 19 [ ], Margin: [ ]%
2:
Advance Participation: L.[ ], Term: [ ] months, Maturity Date: [ ] 19 [ ], Margin: [ ]%
[ ]:
</TABLE>
-98-
<PAGE> 90
SECOND SCHEDULE TO THE TRANSFER CERTIFICATE
PARTICULARS RELATING TO THE TRANSFEREE
Transfer Date:
Lending Office in London:
Contact Name:
Account for Payments:
Address for Notices:
Telephone:
Facsimile:
SIGNATORIES TO TRANSFER CERTIFICATE
[TRANSFEROR] [TRANSFEREE]
By: ____________________ By: ____________________
Date: [ ] 19[ ] Date: [ ] 19[ ]
[MEZZANINE AGENT]
By: ____________________
on its own behalf and on behalf of
the Borrower, the Mezzanine Lenders
(other than the Transferor), the
Mezzanine Security Trustee and all
other parties to the Intercreditor
Deed.
Date: [ ] 19[ ]
- 99 -
<PAGE> 91
SCHEDULE 7
EXISTING SECURITY INTERESTS AND GUARANTEES
PART A -- EXISTING SECURITY INTERESTS
<TABLE>
<CAPTION>
COMBINED GROUP COMPANY NAME DATE DETAILS
- --------------------------- ---- -------
<S> <C> <C>
IGS LEISURE TECHNOLOGY LIMITED 26.3.93 Legal charge over software
products and copyrights in
favour of Michael Gadbury.
19.8.93 Guarantee and Debenture in
favour of the Original Senior
Lender.
GENISYST 11.10.94 Guarantee and debenture in
favour of the Original Senior
Lender.
31.10.94 Assignment and Charge in favour
of the Original Senior Lender.
31.03.95 Assignment and Charge in favour
of the Original Senior Lender.
LK HEALTHCARE 11.10.94 Guarantee and Debenture in
favour of the Original Senior
Lender.
31.10.94 Assignment and Charge in favour
of the Original Senior Lender.
LK HOSPITALITY 19.8.93 Guarantee and debenture in
favour of the Original Senior
Lender.
9.6.94 Assignment and Charge in favour
of the Original Senior Lender.
8.11.93 Mortgage of life policy in
favour of the Original Senior
Lender.
26.4.94 Mortgage of life policy in
favour of the Original Senior
Lender.
LK COMPUTER SYSTEMS 4.5.92 Floating Charge in favour of
CONSULTANTS LIMITED the Bank of Cyprus Limited.
20.7.92 Fixed Charge in favour of The
Popular Bank of Cyprus Limited.
29.8.87 Fixed Charge in favour of the
Cyprus Development Bank.
07.2.86 Fixed Charge in favour of The
Popular Bank of Cyprus Limited.
26.7.88 Fixed Charge in favour of Arab
Bank Limited.
16.12.88 Fixed Charge in favour of Arab
Bank Limited.
</TABLE>
- 100 -
<PAGE> 92
<TABLE>
<CAPTION>
COMBINED GROUP COMPANY NAME DATE DETAILS
- --------------------------- ---- -------
<S> <C> <C>
HMTMS 31.3.95 Assignment and Charge in
favour of the Original Senior
Lender.
31.3.95 Charge in favour of the Senior
Lender over L.500,000 on an
account with the Senior
Lender.
</TABLE>
- 101 -
<PAGE> 93
PART B - EXISTING GUARANTEES
<TABLE>
<CAPTION>
COMBINED GROUP COMPANY NAME Date Details
<S> <C> <C>
IGS LEISURE TECHNOLOGY LIMITED [06.09.93] Guarantee contained in a Guarantee and
Debenture in favour of the Original
Senior Lender in respect of all monies
due or to become due from LK
Hospitality to the Original Senior Lender
on any account whatsoever.
GENISYST [18.10.94] Guarantee contained in a Guarantee and
Debenture in favour of the Original
Senior Lender securing all monies due
or to become due from LK Healthcare to
the Original Senior Lender.
LK HEALTHCARE [18.10.94] Guarantee contained in a Guarantee and
Debenture in favour of the Original
Senior Lender in respect of the payment
of all monies due or to become due from
Genisyst to the Original Senior Lender
on any account whatsoever.
LK HOSPITALITY [06.09.93] Guarantee contained in a Guarantee and
Debenture in favour of the Original
Senior Lender in respect of the payment
of all monies due or to become due from
IGS Leisure Technology Limited to the
Original Senior Lender on any account
whatsoever.
LKUK March Guarantee contained in a letter from
1995 LKUK in favour of Omnilogic CPU PLC
in respect of all monies due or to
become due (to a maximum of
L.100,000.00) from LK Engineering (?)
in respect of goods supplied and credit
extended by Omnilogic CPU PLC.
February A guarantee given in a Guarantee and
1995 Indemnity in favour of AT & T in respect
of all sums due and obligations owed by
LK Engineering.
L.K. KYPRIANOU 11.10.94 Two guarantee given in Unsecured
Guaranteed Loan Note Deeds in favour
of D.J. Horsell and A.M. Cubitt each in
respect of the principal sum (L.187,500)
and default interest thereon owed by LK
Healthcare to D.J. Horsell and A.M. Cubitt.
</TABLE>
-102-
<PAGE> 94
<TABLE>
<CAPTION>
Combined Group Company Name Date Details
<S> <C> <C>
11.10.94 A guarantee in favour of the Original
Senior Lender securing liabilities of LK
Healthcare in a maximum sum of
L.400,000 plus costs and charges.
09.06.94 A guarantee in favour of the Original
Senior Lender securing liabilities of LK
Hospitality in a maximum sum of
L.755,000 plus costs and charges.
26.03.93 Guarantee executed pursuant to a loan
note instrument between LK Hospitality
(1) and Dr. Lycourgos Kyprianou (2) and
Mr. M. Gadbury (3) guaranteeing certain
loan notes issued by LK Hospitality the
principal amounts now outstanding being
L.137,262.98 together with interest and
costs thereon.
11.10.94 Two Guarantees in favour of D.J.
Horrell and A.M. Cubitt guaranteeing
the payment of bonuses due under
service agreements with LK Healthcare
each in the sum of L.187,500.
HMTMS 31.03.95 Guarantee contained in a Guarantee and
Debenture in favour of the Original
Senior Lender in respect of all monies
due or to become due from [ ]
to the Original Senior Lender on any
account whatsoever.
</TABLE>
-103-
<PAGE> 95
SCHEDULE 8
PROPERTIES
<TABLE>
<CAPTION>
Existing or Proposed
Property Term Term Rent or license fee
- -------- -------------------- ---- -------------------
<S> <C> <C> <C>
THEOBALD BUSINESS
CENTRE, HITCHIN
Ground Floor, Genisyst Expired L.2080 + VAT p.a.
Section 3 non-exclusive license 25/12/94 + L.101.61 Service
Charge p.a.
Ground Floor, Genisyst 9 years from 30.3.90 L.5500p.n. subject
Section 4 to review 29.3.96.
First Floor, Genisyst 9 years from 30.3.90 L.12.500p.a. subject
Section 9 to review 29.3.96
plus right to park
cars.
First Floor, Genisyst Expires 29.03.99 L.10,500p.a. subject
Section 10 to review 24.6.97
plus right to park
cars.
First Floor, Genisyst Expires 29.03.99 L.12,080p.a. subject
Sections 8 & 11 to review 24.6.97.
UNIT 12 THE HMTMS to be 24 years from L.31,250p.a. subject
COURTYARD ROMAN assigned subject to 1.12.89 to 4 year review.
WAY, COLESHILL landlord's license
GROUND AND FIRST LK Hospitality 3 years from 14.3.94 L.63,000p.a.
FLOOR OFFICES excluded from LTA
COOMBELANDS 1954
HOUSE,
COOMBELANDS LANE,
ADDLESTONE, SURREY
KT15 1HY plus
option to acquire
1010 sq ft at L.7000
</TABLE>
-104-
<PAGE> 96
<TABLE>
<S> <C> <C> <C>
12 WEDGEWOOD LK Engineering to be 01.3.95 to 1.4.97 L.32,000p.a.
COURT, WEDGEWOOD granted by an excluded from LTA
WAY, PIN GREEN, underlease (subject to 1954.
STEVENAGE Landlord's licence)
UNITS 405 TO 409 HMTMS 15 years from 1/4/95 L.77,100p.a. 5 yearly
GLENFIELD PARK, lease to be granted with right to upward only reviews.
BLAKEWATER ROAD, subject to guarantees surrender one half of
BLACKBURN, premises on 1.1.96
LANCASHIRE BB1 with option to break
5HQ @ each review
</TABLE>
-105-
<PAGE> 97
SCHEDULE 9
FORM OF MEZZANINE LENDER ACCESSION NOTICE
[(referred to in Clause 2.3 Acceding Mezzanine Lenders Provisions)]
To: [NAME OF MEZZANINE AGENT]
for and on behalf of the Borrower and the other Finance Parties and all
other parties in the Inter-Creditor Deed (each defined in the Facility
Agreement referred to below).
This accession notice (this "NOTICE") relates to a Facility Agreement dated [ ]
19[ ] and made between [NAMES OF PARTIES] (the "FACILITY AGREEMENT" which
expression includes any amendments or supplements thereto or restatements
thereof). Terms defined in the Facility Agreement shall, unless otherwise
defined in this Notice, have the SAME MEANINGS when used in this Notice.
1. ACCEDING MEZZANINE LENDER CONFIRMATION: [NAME OF ACCEDING MEZZANINE
LENDER](the ""ACCEDING MEZZANINE LENDER") by its execution of this Notice
confirms that the figure appearing in the First Schedule hereto under the
heading ""Acceding Mezzanine Lender Commitment" accurately states its
intended Commitment in its capacity as an Acceding Mezzanine Lender.
2. ACCEDING MEZZANINE LENDER REQUEST: The Acceding Mezzanine Lender by its
execution of this Notice requests the Mezzanine Agent (on behalf of
itself, the Borrower, the Mezzanine Lenders, the Mezzanine Security
Trustee and all other parties to the Intercreditor Deed) to accept this
Notice as being delivered under and for the purposes of Clause 2.3 of the
Facility Agreement and Clause 15 of the Intercreditor Deed so as to take
effect in accordance with the terms of those Clauses on the date specified
in the Second Schedule of this Notice ("TRANSFER DATE").
3. ACCEDING MEZZANINE LENDER REPRESENTATIONS: The Acceding Mezzanine Lender
hereby:-
[(a) represents and warrants to the Borrower, the Mezzanine Agent and the
Mezzanine Security Trustee that it is a Qualifying Lender at the date
hereof;]
(b) confirms that it has received from the Mezzanine Agent a copy of the
Facility Agreement and each of the other Mezzanine Finance Documents
together with such other documents and information as it has
requested in connection with this transaction;
(c) confirms that it has not relied, and will not hereafter rely, on the
Mezzanine Agent or any other party to the Facility Agreement or any
of the other Mezzanine Finance Documents to check or enquire on its
behalf into the legality, validity, effectiveness, adequacy, accuracy
or completeness of any such documents or information;
(d) agrees that it has not relied, and will not hereafter rely, on the
Mezzanine Agent or any other party to the Facility Agreement or any
of the other Mezzanine Finance Documents to assess or keep under
review on its behalf the financial condition, creditworthiness,
condition, affairs, status or nature of the Borrower or any other
Obligor or any other party to the Facility Agreement or any of the
other Mezzanine Finance Documents; and
-106-
<PAGE> 98
(e) represents and warrants to the Mezzanine Agent and all other parties
to the Facility Agreement and each of the other Mezzanine Finance
Documents that it has power to become a party to the Facility
Agreement as a "Mezzanine Lender" on the terms herein and therein
set out, has taken all necessary steps to authorise execution and
delivery of this Notice and is acting through an office in the
United Kingdom (being that stated in the Second Schedule to this
Notice) and that the circumstances described in Clause 28.6
(Increased Costs) do not apply to it as an Acceding Mezzanine
Lender.
4. ACCEDING MEZZANINE LENDER COVENANTS: The Acceding Mezzanine Lender hereby
undertakes with the Mezzanine Agent and all other parties to the Facility
Agreement and each of the other Mezzanine Finance Documents (including for
the avoidance of doubt the Intercreditor Deed) that it will perform in
accordance with its terms all those obligations which, by the terms of
the Facility Agreement and/or any of the other Finance Documents, will be
assumed by it following delivery of this Notice to the Mezzanine Agent.
5. EXCLUSION OF LIABILITIES: Neither the Mezzanine Agent nor any other party
to the Facility Agreement or any of the other Mezzanine Finance Documents
makes any representation or warranty nor assumes any responsibility with
respect to the legality, validity, effectiveness, adequacy or
enforceability of the Mezzanine Finance Documents and assumes no
responsibility for the financial condition of the Borrower or any other
party to the Mezzanine Finance Documents or for the performance and
observance by the Borrower or any Obligor of any of their respective
obligations under the Mezzanine Finance Documents and any and all such
conditions and warranties, whether express or implied by law or
otherwise, are hereby excluded.
6. ASSUMPTION: On execution of this Notice by the Mezzanine Agent (on behalf
of itself, the Borrower, and each of the Finance Parties and all the
other parties to the Intercreditor Deed (other than the Acceding
Mezzanine Lender the Mezzanine Agent)) accepts the Acceding Mezzanine
Lender on and with effect from the Accession Date as a party to the
Facility Agreement and the Intercreditor Deed, with respect to all those
rights and obligations which by the terms of the Facility Agreement and
any of the other Mezzanine Finance Documents (including for the avoidance
of doubt the Intercreditor Deed) and this Notice are assumed by the
Transferee.
7. LAW: This Notice and the rights and obligations of the parties hereto
shall be governed by and construed in accordance with English Law.
AS WITNESS the hands of authorised signatories for an on behalf of the Acceding
Mezzanine Lender and the Mezzanine Agent on the respective dates appearing
below.
<PAGE> 99
FIRST SCHEDULE TO THE MEZZANINE LENDER ACCESSION NOTICE
ACCEDING MEZZANINE LENDER COMMITMENT
L.[ ]
<PAGE> 100
SECOND SCHEDULE TO THE MEZZANINE LENDER ACCESSION NOTICE
PARTICULARS RELATING TO THE ACCEDING MEZZANINE LENDER
Accession Date:
Lending Office in London:
Contact Name:
Account for Payments:
Address for Notices:
Telephone:
Facsimile:
SIGNATORIES TO MEZZANINE LENDER ACCESSION NOTICE
[ACCEDING MEZZANINE LENDER]
By:
-------------------------------------------
Date: [ ] 19[ ]
[MEZZANINE AGENT]
By:
-------------------------------------------
on its own behalf and on behalf of the
Borrower, the Mezzanine Lenders
(other than the Acceding Mezzanine
Agent), the Mezzanine Security
Trustee and all other parties to the
Intercreditor Deed.
Date: [ ] 19[ ]
-109-
<PAGE> 101
SCHEDULE 10
DORMANT SUBSIDIARIES
LK Global Manufacturing Systems (UK) PLC, Company No. 2968733
Genisyst Fund Holding Limited, Company No. 2840023
Genisyst Primary Care Limited, Company No. 2840046
Genisyst Systems Limited, Company No. 2838619
GMTMS Limited, Company No. 03037934
-110-
<PAGE> 102
SIGNATURE CLAUSES TO FACILITY AGREEMENT
SIGNED by ) M. BENNETT
) Managing Director
for and on behalf of )
LK GROUP INFORMATION )
SYSTEMS BV )
NOTICE DETAILS
Address: Coombelands House
Coombelands Lane
Addlestone
Weybridge Surrey
KT15 1HY
Facsimile: 01932 821493
Attention: Mr Bennett/Group Financial Controller
SIGNED by )
) R. O'GORMAN
for and on behalf of )
BARCLAYS DE ZOETE WEDD )
LIMITED )
NOTICE DETAILS
Address: St. Mary's Court
100 Lower Thames Street
London
EC3R 6RN
Facsimile: 0171 775 8833
Attention: Account Director/Account Executive
-116-
<PAGE> 1
EXHIBIT 10.4
[BARCLAYS BANK PLC LETTERHEAD]
PRIVATE & CONFIDENTIAL Your Ref:
The Directors Our Ref:
L K Global Information Systems (UK) Plc Direct Dial: (0171) 445 2581
Dukes Court, Dukes Street Facsimile: (0171) 445 2576
1st Floor, Block D
WOKING
Surrey GU21 5BH
25th November 1997
Dear Sirs
Barclays Bank PLC (the "Bank") is pleased to offer an overdraft facility (the
"Facility") up to a gross limit of L.2,500,000 (two million, five hundred
thousand pounds sterling) and a net limit of L.2,500,000 (two million, five
hundred thousand pounds sterling) to L K Global Information Systems (UK) Plc
(the "Parent") and its subsidiaries named below and L K Global Information
Systems BV. The Parent and each such subsidiary and L K Global Information
Systems BV named below (including any additional subsidiary admitted under
paragraph 8 below) are referred to individually as a "Borrower" and collectively
as the "Borrowers". The gross and net limits include an excess facility of
L.500,000 (five hundred thousand pounds) which expires on the 31st January 1998
when the limit reduces to L.2,000,000 (two million pounds sterling) gross and
net.
After completion of the acceptance formalities specified in paragraph 15 below,
the Facility will be available for drawing by the Borrowers, subject to the
terms and conditions stated below.
The Bank is also prepared to provide the Borrowers with ancillary facilities as
detailed in Schedule A attached.
1. The Facility
The Facility will be available under the Composite Accounting System
("CAS") in accordance with a Composite Accounting Agreement made between
the Borrowers and the Bank. Interest will be chargeable at a margin of 2
l/2% per annum over the Bank's Base Rate current from time to time.
Interest will be calculated on the net indebtedness
Regulated by IMRO and the Personal Investment Authority.
Barclays Bank PLC represents only the Barclays marketing Group for life
assurance, pensions and unit trust business
<PAGE> 2
2
for the time being owing by the Borrowers under the Facility (after
deduction of any credit balances on the CAS Accounts).
Accrued interest will be debited to the relevant CAS Accounts quarterly in
arrears on the Bank's normal quarterly charging dates in March, June,
September and December of each year, or at such other times as may be
determined by the Bank. Interest will accrue from day to day (after as
well as before judgement) and be calculated on the basis of actual days
elapsed over a 365 day year.
Any unauthorised excesses will attract an interest rate of 5% above
Barclays Bank PLC Base Rate current from time to time.
2. Facility Limits
The gross indebtedness owing by the Borrowers under the Facility (before
deduction of any credit balances on the CAS Accounts) shall not at any
time exceed the gross facility limit stated above and the net indebtedness
owing by the Borrowers under the Facility (after deduction of any such
credit balances) shall not at any time exceed the net facility limit
stated above.
Name of Borrower:
L K Global Information Systems (UK) Plc
L K Global Information Systems BV
L K Global Healthcare Systems (UK) Plc
L K Global Manufacturing Systems (UK) Ltd
L K Global Hospitality Systems (UK) Plc
L K Global Construction Systems (UK) Ltd
L K Global Financial Systems (UK) Ltd
L K Global Field Engineering (UK) Plc
L K Global Commercial Systems (UK) Ltd
L K Global Human Resources (UK) Ltd
L K Global Software Engineering (UK) Ltd
3. Availability
All money owing by each Borrower under the Facility is repayable upon
written demand by the Bank at any time. Any undrawn amount of the Facility
may be cancelled by the Bank at any time. After such demand or
cancellation, no further drawing may be made by any Borrower under the
Facility.
Any money not paid following a demand under this paragraph shall continue
to carry interest as calculated in accordance with paragraph 1. Interest
shall, if unpaid, be compounded on the Bank's normal quarterly charging
dates. Interest will continue to be charged and compounded on this basis
after as well as before judgement.
The Borrowers jointly and severally agree to indemnify the Bank on demand
against any loss or expense which the Bank may sustain or incur as a
consequence of any such
<PAGE> 3
3
cancellation or demand or any default or delay by a Borrower in the
payment of any amount when due under this facility letter.
In the absence of demand or cancellation by the Bank, the Facility is
available for utilisation until 31st January 1998 (the "Review Date"), The
Bank will be pleased to discuss the Borrower's future requirements shortly
before the Review Date and the Facility may continue for a further period
if expressly agreed in writing by the Bank, (in its entire discretion
without any obligation to do so).
The rights of set-off conferred on the Bank by each Borrower under the CAS
Agreement and the CAS Guarantee to which it is a party may be exercised by
the Bank without the Bank first making a demand for payment of any
liability represented by the debit balance which is to be satisfied by the
exercise of such right. The amount for the time being standing to the
debit or credit of each CAS Account will be treated, for all purposes of
such CAS Agreement and each such CAS Guarantee, as immediately due and
payable.
4. CAS Accounts
Each Borrower represents and warrants to the Bank that it is and will
remain the beneficial owner of all amounts for the time being standing to
the credit of its CAS Account with the Bank. Each Borrower also undertakes
that it will not at any time assign, charge or otherwise alienate or
encumber any of its rights to such amounts (except in favour of the Bank)
or permit any charge or other encumbrance to subsist over such rights.
5. Information
The Borrowers undertake to provide the Bank with:
(1) copies of their audited consolidated profit and loss account and
balance sheet as soon as they are available and not later than 180
days from the end of each accounting reference period, together with
any other information which the Bank may request from time to time.
(2) Management accounts on a monthly basis, to be received by the Bank
within 21 days of the end of the relevant period. These are to
include detailed Profit and Loss Account with Budget Comparison,
Balance Sheet and cash flow statements in a form acceptable to the
Bank,
(3) Debenture monitoring figures on a monthly basis to be provided on
the Bank's standard form, and received within 21 days of the end of
the relevant period.
The Borrower shall, within 21 days of the last day of the month under review,
provide to the Bank such information as the Bank may require to enable it to
monitor compliance.
<PAGE> 4
4
Notwithstanding this provision, the facilities offered under this Letter shall
remain repayable on demand by the Bank at any time, whether or not the Borrower
has complied with the above formulae.
6. Change of Circumstances
In the event of any change in applicable law or regulation or in the
existing requirements of, or any new requirements being imposed by, the
Bank of England or other regulatory authority (whether or not having the
force of law) the result of which, in the sole opinion of the Bank, is to
increase the cost to it of funding, maintaining or making available
amounts drawn under the Facility (or any undrawn amount of the Facility)
or to reduce the effective return to the Bank, then each Borrower shall
pay to the Bank such sum as may be certified by the Bank to such Borrower
as being necessary to compensate the Bank for such increased cost or such
reduction.
7. Authority of Parent to agree changes to the composition of the
Borrowers and to extend, renew and/or vary the Facility
By countersigning this facility letter, each Borrower (other than the
Parent) irrevocably authorises the Parent (which is hereby appointed the
agent of each Borrower for such purposes) from time to time (i) to agree
with the Bank in writing to add any further subsidiary or subsidiaries as
a Borrower or Borrowers, and/or (ii) to remove any subsidiary as a
Borrower, and/or (iii) to extend or renew the Facility, or increase or
reduce the limit and (if applicable) sub-limits and the interest margin
applicable to the Facility and/or to vary the other terms applicable to
the Facility as the Parent may determine, and or (iv) to sign any document
and perform any act on behalf of the Borrowers (or any of them) required
to effect or implement any of the foregoing or to record or restate the
terms for the time being applicable to the Facility (as extended or
renewed if applicable). Each change so agreed by the Parent shall be
binding on each Borrower and the Bank may assume that all requisite
approvals (if any) have been obtained by the Parent from the other
Borrowers. The authority hereby conferred on the Parent shall continue
after the Review Date. The terms applicable to the Facility will continue
in full force and effect, save as expressly amended thereby.
Any demand for payment or any other demand or notice to a Borrower may be
sufficiently made or given by the Bank to such Borrower by posting it to
or leaving it at the Parent's last known place of business or (at the
Bank's option) at the Parent's registered office.
8. Admission of a New Participating Subsidiary
The admission of a new subsidiary (a "New Participating Subsidiary") shall
take effect at the commencement of the fifth business day after the
delivery to the Bank of the following documents in form and substance
satisfactory to the Bank:
(a) an agreement supplemental to this facility letter signed by the
Parent and the New Participating Subsidiary;
<PAGE> 5
5
(b) an agreement supplemental to the CAS Agreement signed by the Parent
and the New Participating Subsidiary, together with a CAS Guarantee
signed by the New Participating Subsidiary and a CAS Guarantee
signed by the Parent
(c) a certified true copy of a resolution of the New Participating
Subsidiary's Board of Directors:
(i) accepting the Facility on the terms and conditions stated
herein, approving the terms of the documents referred to in
sub-paragraphs (a) and (b) above to which the New
Participating Subsidiary is a party and authorising a
specified person, or persons, to sign and return to the Bank
each such document on its behalf,
(ii) authorising the Bank to accept instructions and confirmations
in connection with the operation of the Facility signed in
accordance with the Bank's mandate current from time to time.
(iii) appointing the Parent to act as agent of the New Participating
Subsidiary for the purposes contemplated in paragraph 7 above
and paragraph 12 below
(d) a certified true copy of a resolution of the Parent's Board of
Directors, approving the admission of the new Participating
Subsidiary and approving the terms of the documents referred to in
sub-paragraphs (a) and (b) above to which the Parent is a party and
authorising a specified person, or persons, to sign and return to
the Bank each such document on its behalf
The Bank shall not be bound to admit a new subsidiary under the above
procedure if the Bank considers that its admission might result in a
breach of Section 151 of the Companies Act 1985 (prohibition of financial
assistance by a company for acquisition of its own shares).
9. Security
In addition to the CAS agreement and CAS Guarantees, the Borrowers
obligations hereunder will be secured by:
1) Debentures on the Bank's standard form given by:
L K Global Information Systems (UK) PLC dated 13/9/96
L K Global Commercial Systems (UK) Ltd dated 13/9/96
L K Global Human Resources (UK) Ltd dated 13/9/96 &
L K Global Software Engineering (UK) Ltd dated 13/9/96
2) A first legal assignment and charge of copyright and design right by
way of security (to include Aremis) by L K Global Information
Systems BV.
<PAGE> 6
6
3) A charge over an approved life policy on the life of Brian Rogers
with a minimum face value of L.250,000.
4) Existing guarantees by Dr. L.K. Kyprianou details as follows, all of
which are supported by a first legal charge over Flat 11, 45 Lowndes
Square, London SW 1 by way of side letter dated 13th March 1996.
L.500,000 guarantee in favour of L.K. Global Construction
Systems (UK) Ltd by deed dated 3rd October 1995.
L.50,000 guarantee in favour of L.K. Global Financial Systems
(UK) Ltd., by deed dated 31st August 1995.
L.500,000 guarantee in favour of L.K. Global Healthcare
Systems (UK) PLC by deed dated 11th October 1994.
L.350,000 guarantee in favour of L.K. Global Healthcare
Systems (UK) PLC by deed dated 31st August 1995.
L.250,000 guarantee in favour of L.K. Global Healthcare
Systems (UK) PLC by deed dated 16th October 1995.
L.500,000 guarantee in favour of L.K. Global Healthcare
Systems (UK) PLC by deed dated 14th February 1996.
L.755,000 guarantee in favour of L.K. Global Hospitality
Systems (UK) PLC by deed dated 9th June 1994.
L.1,000,000 guarantee in favour of L.K. Global Manufacturing
Systems (UK) Ltd by deed dated 29th March 1995,
5) A charge over Barclays Life Assurance Co. Ltd., policy number
016146091Z on the life of Dr. L.K. Kyprianou by deed dated 9th
August 1996.
6) A charge over Hill Samuel Life Assurance Policy Nos, 04058952Z/001 &
04058951P/001 on the life of Dr. L.K. Kyprianou by deeds dated
31st March 1995.
7) A Cross Guarantee and Debenture on the Bank's standard form dated
11th September 1995. between:
L K Global Healthcare Systems (UK) PLC
L K Global Hospitality Systems (UK) PLC
L K Global Manufacturing Systems (UK) Ltd
L K Global Insurance Systems (UK) Ltd
L K Global Financial Systems (UK) Ltd
L K Global Field Engineering (UK) PLC
IGS Leisure Technology Ltd
Sennen Computers PLC & Genisyst Ltd
<PAGE> 7
7
8) Cross Guarantees between L K Global Healthcare Systems (UK) PLC and
Timemaster Systems Ltd., by deeds dated 12th September 1995.
9) A Debenture on Bank's standard form by Timemaster Systems Ltd by
deed dated 12th September 1995.
10) Cross Guarantees between L K Global Healthcare Systems (UK) PLC and
L K Global Construction Systems (UK) Ltd., by deeds dated 3rd
October 1995.
11) A Debenture on Bank's standard form by L K Global Construction
Systems (UK) Ltd by deed dated 3rd October 1995.
12) Cross Guarantees between L K Global Healthcare Systems (UK) PLC and
Advanced Medical Computer Systems Ltd., by deeds dated 16th October
1995.
13) A Debenture on Bank's standard form by Advanced Medical Computer
Systems Ltd., by deed dated 16th October 1995.
14) Cross Guarantees between L K Global Healthcare Systems (UK) PLC and
Briter Computer Systems Ltd., by deeds dated 3rd October 1995.
15) A Debenture on Bank's standard form by Briter Computer Systems Ltd.,
by deed dated 3rd October 1995.
16) An Assignment and Charge of Copyright and Design Right by way of
security in the name of L.K. Global Construction Systems (UK) Ltd.,
by deed dated 3rd October 1995,
17) An Assignment and Charge of Copyright and Design Right by way of
security in the name of Briter Computer Systems Ltd., by deed dated
3rd October 1995.
18) An Assignment and Charge of Copyright and Design Right by way of
security in the name of L K Global Healthcare Systems (UK) PLC by
deed dated 31st October 1994.
19) An Assignment and Charge of Copyright and Design Right by way of
security in the name of Genisyst Ltd., by deed dated 31st October
1994.
20) An Assignment and Charge of Copyright and Design Right by way of
security in the name of Timemaster Systems Ltd., by deed dated 12th
September 1995.
21) An Assignment and Charge of Copyright and Design Right by way of
security in the name of Advanced Medical Computer Systems Ltd., by
deed dated 16th October 1995.
22) An Assignment of Charge of Copyright and Design Right by way of
security in the name of L K Global Hospitality Systems (UK) PLC by
deed dated 9th June 1994.
<PAGE> 8
8
23) An Assignment and Charge of Copyright and Design Right by way of
security in the name of L K Global Manufacturing Systems (UK) Ltd.,
by deed dated 31st March 1995.
and any other security which is now held or hereafter may be held by
the Bank all of which security is to be available as cover for all
liabilities of the Borrower, whether actual or contingent to the
Bank at any time.
10. Fees and Expenses
The Borrowers jointly and severally undertake to reimburse to the Bank on
demand on a full indemnity basis (whether or not the Facility is utilised)
all valuation and legal fees and other out-of-pocket expenses (including
VAT), if any, incurred or chargeable by the Bank in connection with the
valuation or revaluation of any security held by the Bank or the
enforcement and preservation by the Bank of its rights under this facility
letter (and the documents referred to herein) and the Bank may debit such
fees and expenses to such accounts of the Borrowers with the Bank as the
Bank may determine without further authority from the Borrowers.
All time spent by the Relationship Manager and/or their clerical support
staff in the necessary monitoring and control of this facility will be
assessed at the prevailing rate and will be applied to the account at the
time of quarterly commission charge or ancillary costs will be charged at
the time they are incurred. Prevailing rates are available on request.
The Borrowers jointly and severally undertake to reimburse to the Bank on
demand on a full indemnity basis all legal fees and other out of pocket
expenses (including VAT), if any, in connection with the security to be
taken to secure this facility.
11. Interpretation
In this facility letter:
(a) "business day" excludes Saturdays, Sundays, bank and public
holidays;
(b) "CAS Account" means an account of a Borrower with the Bank within a
CAS arrangement for the time being in force between them;
(c) "indebtedness" includes any obligation for the payment or repayment
of money, whether present or future, actual or contingent;
(d) "subsidiary" has the meaning attributed to the expression
"subsidiary undertaking" in Section 258 of the Companies Act 1985.
Reference to any statutory provision includes any amended, extended or
re-enacted version of it with effect from the date on which it comes into
force. Reference to this facility letter or any other document includes
this facility letter or such document as amended, extended, supplemented
or restated in any manner from time to time and/or
<PAGE> 9
9
any document which amends, extends, supplements or restates this facility
letter or such document.
12. Governing Law and Jurisdiction
This Agreement shall be governed by and construed in accordance with
English Law.
The English court is to have jurisdiction to settle any disputes which may
arise in connection with this facility letter (and the documents referred
to herein) and each Borrower hereby irrevocably submits, for the Bank's
exclusive benefit, to the jurisdiction of the English court (but without
prejudice to the Bank's right to commence proceedings against any Borrower
in any other jurisdiction) and irrevocably waives any objections on the
ground of venue or forum non conveniens or any similar grounds.
Any writ, judgement or notice of legal process shall be sufficiently
served on a Borrower which is a company registered outside England and
Wales if delivered to the Parent at its registered office or its existing
or last known place of business in England and each such Borrower
irrevocably appoints the Parent to act as its agent for service of such
process.
13. Conditions Precedent
1) The overdraft facility is subject to any future Company acquisitions
being taken into the Bank's security net by those companies giving
the Bank a first Debenture and entering into the CAS documentation.
14. Period for Acceptance of this Offer
This offer will remain available for a period of one month from the date
of this facility letter after which it will lapse if not accepted by the
Borrowers.
15. Acceptance
Before the Facility may be utilised, the Parent shall provide the Bank
with the following in form and substance satisfactory to the Bank:
(a) the enclosed duplicate of this facility letter, together with a CAS
Agreement and a CAS Guarantee, duly signed on each Borrower's
behalf;
(b) a certified true copy of a resolution of the Board of Directors of
the Parent:
(i) accepting the Facility on the terms and conditions stated
above and approving the terms of the CAS Agreement and the CAS
Guarantee to be given by it;
(ii) authorising a specified person or persons to sign and return
to the Bank the duplicate of this facility letter.
<PAGE> 10
10
(iii) authorising the Bank to accept instructions in connection with
the operation of the Facility signed in accordance with the
Bank's signing mandate current from time to time;
(iv) accepting the appointment of the Parent as agent of the
Borrowers for the purposes set out in paragraph 7 and
paragraph 12 above; and
(c) a certified true copy of a resolution of the Board of Directors of
each Borrower (except the Parent):
(i) accepting the Facility on the terms and conditions stated
herein and approving the terms of the CAS Agreement and the
CAS Guarantee to be given by it;
(ii) authorising a specified person, or persons, to sign and return
to the Bank the duplicate of this facility letter;
(iii) authorising the Bank to accept instructions in connection with
the operation of the Facility signed in accordance with the
Bank's signing mandate current from time to time;
(iv) appointing the Parent to act as agent of the Borrower for the
purposes contemplated in paragraph 7 and paragraph 12 above.
Yours faithfully
for and on behalf of
BARCLAYS BANK PLC
/S/ D.L. ILINES
D.L. INES
SENIOR CORPORATE MANAGER
<PAGE> 11
Page 1 of 2
SCHEDULE "A"
ANCILLARY FACILITIES
FACILITY
L K GLOBAL HEALTHCARE SYSTEMS (UK) PLC
(1) A Company Barclaycard limit of L.7,000 (seven thousand pounds).
(2) A Branch Originated Bankers Automated Clearing System (BOBS) limit
of L.200,000 (two hundred thousand pounds).
L K GLOBAL INFORMATION SYSTEMS (UK) PLC
(1) A Company Barclaycard limit of L.8,000 (eight thousand pounds).
(2) A Branch Originated Bankers Automated Clearing System (BOBS) limit
of L.40,000 (forty thousand pounds).
L K GLOBAL HOSPITALITY SYSTEMS (UK) PLC
(1) A Company Barclaycard limit of L.5,000 (five thousand pounds).
(2) A Branch Originated Bankers Automated Clearing System (BOBS) limit
of L.150,000 (one hundred and fifty thousand pounds).
(3) The Bank will undertake the negotiation of currency cheques and
similar items to a maximum of L.20,000 (twenty thousand pounds)
outstanding at any one time, with full recourse to the company.
L K GLOBAL FIELD ENGINEERING (UK) PLC
(1) A Branch Originated Bankers Automated Clearing System (BOBS) limit
of L.50,000 (fifty thousand pounds).
L K GLOBAL CONSTRUCTION SYSTEMS (UK) LTD
(1) A Company Barclaycard limit of L.5,000 (five thousand pounds).
(2) A Branch Originated Bankers Automated Clearing System (BOBS) limit
of 60,000 (sixty thousand pounds).
L K GLOBAL MANUFACTURING SYSTEMS (UK) LTD
(1) A Company Barclaycard limit of L.7,500 (seven thousand five hundred
pounds).
(2) A Branch Originated Bankers Automated Clearing System (BOBS) limit
of L.120,000 (one hundred and twenty thousand pounds).
<PAGE> 12
Page 2 of 2
(3) The Bank will undertake the negotiation of currency cheques and
similar items to a maximum of L.30,000 (thirty thousand pounds)
outstanding at any one time, with full recourse to the Company.
PURPOSE/AVAILABILITY
NEGOTIATION OF STERLING/FOREIGN CURRENCY CHEQUES AND BILLS OF EXCHANGE PAYABLE
ABROAD
The Bank will purchase, with recourse, suitable foreign currency and sterling
cheques payable abroad and/or approved foreign currency or sterling bills of
exchange payable abroad. The suitability of those cheques and bills of exchange
which the Bank is prepared to purchase is entirely at the discretion of the
Bank, and is subject to the latest revision of the Uniform Rules for the
Collection of Commercial Paper. Pricing will be decided on a case by case basis.
The negotiation facility may be withdrawn by the Bank at any time, subject to
the clearance of any outstanding items, and the Bank's right of recourse to the
Company.
COMPANY BARCLAYCARD
Company Barclaycards may be used to provide a means of credit to assist with the
payment of expenses incurred by representatives and for other costs. Company
Barclaycards are repayable in line with the terms and conditions relating to the
card.
BRANCH ORIGINATED BANKERS AUTOMATED CLEARING SYSTEM (BOBS) LIMITS
To facilitate the payment of wages, salaries and purchase ledger payments. The
facility may be withdrawn by the Bank at any time.
<PAGE> 13
L K GLOBAL INFORMATION SYSTEMS (UK) PLC
Minutes of a meeting of the Board of Directors held on Sunday, 7th December 1997
at Lowndes Square, London, SW19JT
Present: DR. LYCOURGOS KYDRIANOU
NOEL REGINALD VOICE
There was produced to the meeting a Facility Letter dated 25th November 1997
from Barclays Bank Plc (the "Bank") Hanover Square Corporate Banking Centre to
the Company setting out the terms and conditions upon which the Bank is prepared
to lend to the Company an Overdraft of L.2,500,000.(two million five hundred
thousand pounds sterling) gross L.2,500,000 (two million, five hundred thousand
pounds) net.
IT WAS RESOLVED
1. The terms and conditions stated of the Facility stated therein and, the
terms of the CAS Agreement and CAS Guarantees to be given the subsidiaries
are hereby approved and accepted.
2. That Dr. Kydrianou be and is hereby authorised to sign on behalf of the
Company the copy of the said Facility Letter to indicate acceptance of the
terms and conditions stated therein.
3. The Bank is hereby authorised to accept instructions in connection with
the operation of the Facility signed in accordance with the Bank's signing
mandate current from time to time.
4. The Board of Directors hereby accept its appointment as Parent as agent of
the Borrowers for the purposes set out in paragraph 7 and paragraph 12.
I hereby certify the above to be a true extract from the minutes of a meeting of
the Board of Directors held on the date shown above.
/S/ [SIG] SECRETARY
<PAGE> 1
EXHIBIT 21.1
Subsidiaries
<TABLE>
<CAPTION>
Name of Company Country or State of Organization
--------------- --------------------------------
<S> <C>
LK Global Information Systems BV Netherlands corporation
LK Global Information Systems (UK) Plc United Kingdom corporation
LK Global Healthcare Systems (UK) Ltd United Kingdom corporation
LK Global Hospitality Systems (UK) Ltd United Kingdom corporation
LK Global Field Engineering Systems (UK) Ltd United Kingdom corporation
LK Global Manufacturing Systems (UK) Ltd United Kingdom corporation
LK Global Construction Systems (UK) Ltd United Kingdom corporation
Briter Computer Systems Limited United Kingdom corporation
LK Global Financial Systems (UK) Limited United Kingdom corporation
LK Global Software Engineering (UK) Limited United Kingdom corporation
LK Global Human Resources (UK) Limited United Kingdom corporation
LK Global Software Engineering (India) Private Limited Indian corporation
LK Global Information Systems (Cyprus) Limited Cyprus corporation
LK Global Hospitality Systems (Cyprus) Limited Cyprus corporation
LK Global Software Engineering (Cyprus) Limited Cyprus corporation
LK Global Systems Integration (Cyprus) Limited Cyprus corporation
LK Global Commercial Systems (Cyprus) Limited Cyprus corporation
LK Global Manufacturing Systems (US) Inc Delaware corporation
Online Applications Inc. Delaware corporation
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE FORM S-1 FILED BY AREMISSOFT CORPORATION,
A DELAWARE CORPORATION, WITH THE COMMISSION JULY 1, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 9,458
<ALLOWANCES> 0
<INVENTORY> 1,070
<CURRENT-ASSETS> 13,606
<PP&E> 2,040
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,242
<CURRENT-LIABILITIES> 26,577
<BONDS> 0
0
2
<COMMON> 13
<OTHER-SE> (19,549)
<TOTAL-LIABILITY-AND-EQUITY> 17,242
<SALES> 23,384
<TOTAL-REVENUES> 42,374
<CGS> 7,226
<TOTAL-COSTS> 12,073
<OTHER-EXPENSES> 6,330
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,901)
<INCOME-PRETAX> (1,585)
<INCOME-TAX> 35
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,620)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
