Exhibit 10.11
FTI CONSULTING, INC.
Annapolis, Maryland
$13,000,000
INVESTMENT AND LOAN AGREEMENT
March 29, 1999
Financing provided by
ALLIED CAPITAL CORPORATION
ALLIED INVESTMENT CORPORATION
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TABLE OF CONTENTS
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PREAMBLE 1
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Parties 1
Recitals 1
ARTICLE 1 - LOAN 1
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Section 1.1 Funding 1
Section 1.2 Collateral 2
Section 1.3 Senior Debt 2
ARTICLE 2 - EQUITY 2
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Section 2.1 Stock Purchase Warrants 2
Section 2.2 Redemption Rights 3
Section 2.3 Valuation of Warrants 3
ARTICLE 3 - INVESTOR EXIT 3
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Section 3.1 Registration Rights 3
(a) Piggy-Back Rights 3
(b) Demand Registration 4
(c) Registration Procedures 4
(d) Expenses; Consent 4
(e) Allocation 5
(f) Certain Obligation of Holders 6
(g) Indemnification and Contribution 6
(h) Underwritten Offerings 8
(i) Suspension 9
(j) Termination 10
Section 3.2 "Put" Rights 10
(a) Price 10
(b) Financing of Put Price 10
ARTICLE 4 - UNDERTAKINGS BY THE PRINCIPALS 10
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Section 4.1 Commitment 11
Section 4.2 Non-Competition; ▇▇▇-▇▇▇▇▇▇▇▇▇▇ ▇▇
Section 4.3 Continued Control 11
Section 4.4 Access to Information 11
Section 4.5 Election of Director 11
Section 4.6 Termination of Undertakings by Each of the Principles 12
Section 4.7 Limitation of Remedies 12
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES 12
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Section 5.1 Due Organization; Authority; Binding 12
Obligation; Opinion of Counsel
Section 5.2 Principal Business; Title To Assets 13
Section 5.3 Litigation 13
Section 5.4 Taxes 13
(a) Generally 13
(b) No Open Returns 13
(c) Excess Parachute Payments 14
(d) Deferred Intercompany Transactions 14
(e) True Copies of Returns 14
Section 5.5 Financial Statements 14
Section 5.6 Leases; Status of Payables 14
Section 5.7 Disclosure 14
Section 5.8 Management History 15
Section 5.9 Subsidiaries 15
Section 5.10 Incumbency 15
Section 5.11 No Material Change 15
Section 5.12 No Side Agreements 15
Section 5.13 Non-Contravention 16
Section 5.14 Fees & Brokerage 16
Section 5.15 Other Debts; Subordination of Notes to Sellers; Sources and 16
Uses
Section 5.16 Capital Structure 16
Section 5.17 Solvency 16
Section 5.18 Investment Company 17
Act Representations
Section 5.19 Regulatory Compliance 17
Section 5.20 Employee Benefit Matters 17
Section 5.21 Collective Bargaining 17
Section 5.22 Employees 18
Section 5.23 No Competing Business Interests 18
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Section 5.24 No Conflicting Non-Competition 18
Agreements
Section 5.25 Year 2000 Compliance 18
Section 5.26 SBA Representations 19
ARTICLE 6 - AFFIRMATIVE COVENANTS 19
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Section 6.1 Monthly and Quarterly Financials 19
Section 6.2 Certification of Non-Default 20
Section 6.3 Year-end Financials; Annual Audit 20
Section 6.4 Projected Financials 20
Section 6.5 Regulatory Filings 20
Section 6.6 Notice of Litigation 20
Section 6.7 Notice of Defaults of Judgments 20
Section 6.8 Board Meetings and Representation 21
Section 6.9 Insurance 21
Section 6.10 Use of Proceeds; Certification 21
Section 6.11 First Refusal for Future Financings 21
Section 6.12 Access to Records 21
Section 6.13 Financial Covenants 22
Section 6.14 Payments and other Debts 22
Section 6.15 Maintain Copies; Financing Statements 23
Section 6.16 Information Requests 23
Section 6.17 Protect the Collateral 23
Section 6.18 Further Assurance 23
Section 6.19 Collateral Assignments of Certain Leases; Landlord Consents 23
ARTICLE 7 - NEGATIVE COVENANTS 24
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Section 7.1 Change in Organization 24
Section 7.2 Equity Issuance or Redemption 24
Section 7.3 Dividends 24
Section 7.4 Mergers, Etc. 24
Section 7.5 Capital Expenditures 24
Section 7.6 Employee Compensation 24
Section 7.7 Affiliate Transactions 25
Section 7.8 Change of Site 25
Section 7.9 Change in Company, etc. 25
Section 7.10 Judgments 25
Section 7.11 Cross-Defaults 25
Section 7.12 No Liens 25
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ARTICLE 8 - DEFAULT 25
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Section 8.1 Events of Default 25
(a) Principal and Interest Payments 25
(b) Representations and Warranties 26
(c) Covenants 26
(d) Loan Documents 26
(e) Involuntary Bankruptcy or 26
Receivership Proceedings
(f) Voluntary Petitions 26
(g) Assignments for Benefit of 26
Creditors
(h) Attachment 27
(i) Due on Sale 27
(j) Loss of Key Employees 27
Section 8.2 Remedies 27
ARTICLE 9 - FEES AND COSTS 28
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Section 9.1 Closing Costs 28
Section 9.2 Commitment Fee 28
Section 9.3 Exit Fee 28
Section 9.4 Reasonable Fees 28
Section 9.5 Expenses 28
Section 9.6 Costs and Fees 29
ARTICLE 10 - INDEMNIFICATION. ENVIRONMENTAL LIABILITY 29
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ARTICLE 11 - REMEDIES 30
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Section 11.1 Cumulation. Receivership 30
Section 11.2 No Implied Waiver 30
ARTICLE 12 - PARTIES 30
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ARTICLE 13 - NOTICE 31
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ARTICLE 14 - RELATIONSHIP OF THE PARTIES 32
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ARTICLE 15 - CONTROLLING LAW; VENUE AND JURISDICTION; SERVICE OF PROCESS 32
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ARTICLE 16 - WAIVER OF TRIAL BY JURY 33
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ARTICLE 17 - CAPTIONS; SEVERANCE 33
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ARTICLE 18 - COUNTERPARTS; ENTIRE AGREEMENT; POWER OF ATTORNEY 33
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ARTICLE 19 - DEFINITIONS AND RULES OF CONSTRUCTION 34
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Section 19.1 Definitions 34
Section 19.2 Rules of Construction 38
TABLE OF EXHIBITS
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THIS INVESTMENT AND LOAN AGREEMENT is made by and among (i) FTI CONSULTING,
INC., a Maryland corporation (collectively with successors and assigns, the
"Parent"), (ii) TEKLICON, INC., a California corporation ("Teklicon"), L.W.G.,
INC., an Illinois corporation ("L.W.G."), ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇, INC., a Virginia
corporation ("KK&A"), ▇▇▇▇ CONSULTING, INC., a New York corporation ("▇▇▇▇")
S.E.A, INC., AN OHIO CORPORATION ("SEA") and KCI MANAGEMENT CORP., a New York
corporation ("KCI") (Teklicon, L.W.G., KK&A, ▇▇▇▇, SEA and KCI, collectively
with successors and assigns the "Subsidiaries", and the Subsidiaries,
collectively with the Parent, the "Companies"; each, a "Company"); (iii) ▇▇▇▇ ▇.
▇▇▇▇ ▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, each an executive officer of the Parent, (
sometimes hereinafter being referred to collectively as the "Principals"), and
(iv) ALLIED CAPITAL CORPORATION and ALLIED INVESTMENT CORPORATION, each a
Maryland corporation (collectively with successors and assigns, the "Holders").
RECITALS
A. Under terms of a letter dated March 1, 1999, the Companies propose
to issue to Holders certain subordinated debentures and the Parent proposes to
issue certain warrants to purchase shares of the its common stock, in
consideration for a loan in the aggregate principal amount of Thirteen Million
Dollars ($13,000,000) (collectively with all modifications, renewals, extensions
and replacements thereof and therefor, the "Loan"), to be used to retire certain
existing debt of Parent and for working capital.
B. Under terms of a Credit Agreement dated this date, NationsBank,
N.A. is providing to the Parent a revolving line of credit, one or more term
loans and certain other credit facilities, in the maximum principal amount of
Twenty-seven Million Dollars ($ 27,000,000).
PROVISIONS
In consideration of the premises and the covenants herein, the Holders, the
Principals and the Companies agree as set forth below.
ARTICLE 1.
Loan
Section 1.1 Funding. At Closing (as such term is defined in the definition
section hereof in Article 19, below), the Holders will fund the Loan. The Loan
will be evidenced by, and repaid according to, the terms of two (2) Subordinated
Debentures (collectively, with all modifications, extensions,
renewals and replacements thereof and therefor, the "Debentures"), each of which
will be issued by the Companies to a Holder at Closing.
Section 1.2 Collateral. Subject to the prior liens described in Section 1.3
below, the Debentures and the Holders' rights herein shall be secured pari passu
against all of the Companies' realty and personality and other property of any
kind, all accessions thereto, substitutions for and all replacements, products
and proceeds thereof, including without limitation the collateral described
below. The Companies hereby grant to the Holders continuing security interests
in all of the foregoing. At Closing, to the extent parties thereto, the
Companies shall execute and deliver to the Holders each of the following
documents (collectively, with all modifications, extensions, renewals and
replacements thereof and therefor, the "Collateral Documents"):
(a) Security Agreement;
(b) UCC-1 Financing Statements in the form attached hereto as EXHIBIT
1.02(B);
(c) Collateral assignments of the Companies' leasehold interests in
the real property and any improvements thereon as identified in Section 6.19, in
the form of EXHIBIT 1.02(C) hereto; and
(d) Pledges of the capital stock of each of the Subsidiaries.
The Collateral Documents, this Agreement and the Debentures, collectively with
all modifications, extensions, renewals and replacements thereof and therefor,
are sometimes hereinafter referred to as the "Loan Documents".
Section 1.3 Senior Debt. The indebtedness under the Debentures and the Holders'
rights herein shall be subordinate in lien priority and right of payment, to
that certain revolving line of credit from NationsBank, N.A. in the amount of no
more than $27,000,000 as more particularly described in documents set out as
EXHIBIT 1.03(A) hereto; the financings set out in such exhibit (as amended from
time to time) are sometimes collectively called the "Senior Debt".
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ARTICLE 2.
Equity
Section 2.1 Stock Purchase Warrants.
(a) At Closing, the Parent will issue and sell to each Holder a Stock
Purchase Warrant (collectively with all modifications, extensions, renewals and
replacements thereof and therefor, the "Warrants") to acquire shares of the
Parent's $.01 par value common stock ("Shares") which will entitle the Holders
to receive that number of the Parent's authorized but unissued Shares that will
provide the Holders, in the aggregate, with Seven and one-half Percent (7 []%)
of the Parent's capital stock, calculated on a Fully Diluted Basis at Closing
or, if the Loan is repaid on or before June 30, 2000, Five Percent (5%) of such
capital stock, calculated on a Fully Diluted Basis at Closing. The aggregate
purchase price for such Warrants shall be One Hundred Dollars ($100), which the
Holders shall pay to the Parent at Closing.
(b) The exercise price of the Warrants is based on the lesser of the
trailing seven (7) day average mid-market price of the Shares on (i) March 1,
1999 and (ii) the date hereof, and such averages are as set forth on EXHIBIT
2.01(B) hereto. In the event that the averages as set forth on EXHIBIT 2.01(B)
prove to be incorrect, the parties mutually agree to amend EXHIBIT 2.01(B) and
to take all steps necessary to amend the Warrants to reflect the correct
exercise price.
Section 2.2 Redemption Rights. The Holders shall be entitled to share ratably in
any redemption of stock by the Parent. If the Parent shall redeem or otherwise
purchase for value any of its Shares prior to full exercise of any of the
Warrants, each of the relevant Holders, at its option, may receive, at the time
of such redemption or purchase, the same proceeds it would have been entitled to
receive if its Warrants had been exercised in full prior to such redemption or
purchase.
Section 2.3 Valuation of Warrants. The Holders and the Parent hereby agree that
as of the Closing, the fair market value of the Warrants is One Hundred Dollars
($100), and that they shall prepare and maintain their books of account,
financial statements and tax returns in a manner consistent therewith.
ARTICLE 3.
Investor Exit
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Section 3.1 Registration Rights.
(a) Piggy-Back Rights. If the Parent shall at any time prepare and
file a registration statement under the Securities Act with respect to the
public offering of any class of equity or debt security of the Parent, any
Subsidiary or of any other commonly-controlled entity, the Parent shall give
thirty (30) days prior written notice thereof to each Holder and shall, upon the
written request of a Holder and subject to Section 3.1(c), include in the
registration statement such number of the said Holder's Shares as such Holder
may request. In the event the Parent fails to receive a written inclusion
request from a Holder within ten (10) business days after the mailing of its
written notice, then the Parent shall have no obligation to include any of such
Holders' Shares in the offering. Any offer pursuant to this Section 3.1(a) shall
be in accordance with the terms and procedures of Section 3.1(c)-(j) below.
(b) Demand Registration. A Holder may request that the Parent effect a
registration under the Securities Act of all or part of its Shares. The Parent
shall not be required to register Shares pursuant to this Section 3.1(b) on more
than two (2) occasions. A request for registration pursuant to this Section
3.1(b) shall specify the approximate number of Shares requested to be registered
and the anticipated per share price range for such offering. If the Holder
intends to distribute the Shares by means of an underwriting, it shall so advise
the Parent in its request. In the event such registration is underwritten, the
right of the other persons who have "piggyback" registration rights may include
all or a portion of such securities in such registration. Thereupon, the Parent
shall: (i) file a registration statement and related documents with the
Securities and Exchange Commission, and all other applicable securities agencies
or exchanges, for the public offering and sale of all or a portion of the
Holders' Shares; and (ii) use its best efforts to cause such registration
statements to be declared effective as soon as practicable and in any event
within ninety (90) days after the written request is received from any Holder.
Any offer pursuant to this Section 3.1(b) shall be in accordance with the terms
and procedures of Section 3.1(c)-(j) below.
(c) Registration Procedures. The Parent will keep such registration
statement effective and current under the Securities Act permitting the sale of
the said Holder's Shares included therein for the same period that the
registration is maintained effective in respect of Shares of other persons
(including the Parent). In any underwritten offering of Shares the Holders'
Shares to be included will be sold at the same time and the same per-share price
as the Parent's Shares. In connection with any registration statement or
subsequent amendment or similar document filed and subject hereto, the Parent
shall take all reasonable steps to make the Holders' securities covered thereby
eligible for public offering and sale under the securities or blue sky laws of
such jurisdictions as may be specified by the relevant Holders by the
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effective date of such registration statement; provided that in no event shall
the Parent be obligated to qualify to do business in any jurisdiction where it
is not so qualified at the time of filing such documents, or to take any action
which would subject it to unlimited service of process in any jurisdiction where
it is not so subject at such time. The Parent shall keep such blue-sky filings
current for the length of time it must keep any registration statement,
post-effective amendment, prospectus or offering circular effective pursuant
hereto.
(d) Expenses; Consent. In connection with any registration statement
or other filing described herein, and in connection with making and keeping such
filings effective as provided herein, the Parent shall bear all the expenses and
professional fees of the Parent and the reasonable fees and expenses of one
counsel for both of the Holders (except that the Parent shall not be responsible
for a Holder's pro rata share of any underwriter's discount or selling
commission). The Parent shall also provide the Holders with a reasonable number
of printed copies of the prospectus, offering circulars and/or supplemental or
amended prospectuses in final and preliminary form. The Parent consents to the
use of each such prospectus or offering circular in connection with the sale of
the Holders' Shares.
(e) Allocation.
(i) If any registration under Section 3.1(a) involves an
underwritten offering and the managing underwriter of such offering shall advise
the Parent by letter that, in its view, the number of securities requested to be
included in such registration exceeds the largest number (the "Maximum Amount")
that can be sold in an orderly manner in such offering and would materially and
adversely effect such offering, then the Parent shall notify the Holders of such
fact and give the Holders the reasonable opportunity to negotiate with the
managing underwriter regarding the inclusion in such registration of all of the
shares requested by the Holders to be included therein. If the managing
underwriter does not agree to include more than eighty (80) percent (or such
lesser percentage as the Holders shall, in their sole discretion, agree to) of
the number of shares initially requested by the Holders to be included in such
registration, then the Parent shall include in such registration, to the extent
of the number and type of which the Parent is so advised can be sold in (or
during the time of) such offering: (1) first, all Shares that the Parent
proposes to register for its own account (the "Company Securities"); and (2)
second, to the extent that the number of Company Securities is less than the
Maximum Amount, the remaining Shares to be included in such registration shall
be allocated on a pro rata basis among the selling Holders requesting that
Shares be included in such registration, based on the number of Shares then
owned by each Holder requesting inclusion in relation to the number of Shares
then owned by both selling Holders requesting inclusion.
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(ii) If any registration under Section 3.1(b) involves an
underwritten offering and the managing underwriter of such offering shall advise
the selling Holders by letter that, in its view, the number of securities
requested to be included in such registration exceeds the largest number (the
"Maximum Amount") that can be sold in an orderly manner in such offering by
holders of securities of the Parent other than the Holders to be included in
such registration and would materially and adversely affect the underwritten
offering, then the Parent shall include in such registration, to the extent the
number and type of securities which the Parent is so advised can be sold in (or
during the time of) such offering: (1) first, all Shares requested to be
included in such registration by the selling Holders; and (2) second, to the
extent that the number of Shares to be included by all selling Holders is less
than the Maximum Amount, securities that the Parent proposes to register.
(f) Certain Obligations of Holders.
(i) It shall be a condition precedent to the obligations of the
Parent to take any action under this Agreement with respect to the Shares of any
selling Holder that such Holder shall furnish to the Parent such information
regarding itself, the Shares held by it, and the intended method of disposition
of such securities as shall be reasonably required to effect the registration of
such Holder's Shares.
(ii) Each Holder of Shares covered by a registration statement
agrees that, upon receipt of any notice from the Parent that the registration
materials must be supplemented or amended, such Holder will forthwith
discontinue disposition of Shares pursuant to such registration statement until
such Holder's receipt of copies of a supplemented or amended prospectus covering
such Shares, and, if so directed by the Parent, such Holder will deliver to the
Parent (at the Parent's expense) all copies, other than permanent file copies
then in such Holder's possession, of the prospectus covering such Shares current
at the time of its receipt of such notice.
(g) Indemnification and Contribution.
(i) In the event of any registration of any of the Shares under
the Securities Act pursuant to this Agreement, the Parent will indemnify and
hold harmless the selling Holder of such Shares, each underwriter of such
Shares, and each other person, if any, who controls such selling Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities, joint or several, to which
such selling Holder, underwriter, or controlling person may become subject under
the Securities Act, the Exchange Act, state securities or Blue Sky laws, or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
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alleged untrue statement of any material fact contained in any registration
statement under which such Shares were registered under the Securities Act, any
preliminary prospectus, or final prospectus contained in the registration
statement, or any amendment or supplement to such registration statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Parent will reimburse such selling Holder,
underwriter, and each such controlling person in connection with investigation
or defending any such loss, claim, damage, liability, or action; provided,
however, that the Parent will not be liable in any such case to the extent that
any such loss, claim, damage, or liability arises out of or is based upon any
untrue statement or omission made in such registration statement, preliminary
prospectus, or final prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Parent, in a
written instrument, duly executed, by or on behalf of such selling Holder,
underwriter, or controlling person specifically stating that it is for use in
the preparation thereof.
(ii) In the event of any registration of any of the Shares under
the Securities Act pursuant to this Agreement, each selling Holder of Shares,
severally and not jointly, will indemnify and hold harmless the Parent, each of
its directors and officers and each underwriters (if any) and each person, if
any, who controls the Parent or any such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities, joint or several, to which the Parent, such directors and officers,
underwriter, or controlling person may become subject under the Securities Act,
Exchange Act, state securities or Blue Sky laws, or otherwise, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the registration statement, or any amendment or
supplement to the registration statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with written
information furnished to the Parent through an instrument duly executed by a
Selling Holder specifically stating that it is for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that the obligations of
each selling Holder hereunder shall be limited to an amount equal to the
proceeds to such selling Holder of Shares sold in connection with such
registration.
(iii) Each party entitled to indemnification under this Section
3.1(g) (the "Indemnified Party") shall give notice to the party required to
provide
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indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), unless in such Indemnified Party's reasonable judgment a conflict of
interest between such Indemnified and Indemnifying Parties may exist in respect
of such claim; and, provided, further, that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 3.1(g). The Indemnified Party may participate
in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party, in the defense of any such claim or litigation, shall except with the
prior written consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party.
(iv) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 3.1(g) but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 3.1(g)
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling Holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 3.1(g); then, in each such case, the Parent and such selling
Holder will contribute to the aggregate losses, claims, damages, or liabilities
to which they may be subject (after contribution from others) in such
proportions so that such holder is responsible for the portion represented by
the percentage that the public offering price of its Shares offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Parent is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the proceeds to it of all
Shares sold by it pursuant to such registration statement, and (B) no person or
entity guilty of
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fraudulent misrepresentation, within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any person or entity who
is not guilty of such fraudulent misrepresentation. In addition, no person shall
be obligated to contribute hereinunder any amounts in payment for any settlement
of any action or claim, effected without such person's prior written consent,
which consent shall not be unreasonably withheld.
(h) Underwritten Offerings.
(i) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by the Holders pursuant to a
registration requested under Section 3.1(b), the Parent will enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Parent, the Holders
and the underwriters, and to contain such representations and warranties by the
Parent and the Holders and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in Section 3.1(g). The Holders will cooperate
with the Parent in the negotiation of the underwriting agreement and will give
consideration to the reasonable suggestions of the Parent regarding the form and
substance thereof. The Holders shall each be a party to such underwriting
agreement. The Holders shall not be required to make any representations or
warranties to or agreements with the Parent or the underwriters other than
representations, warranties or agreements regarding the Holders, their shares,
their intended method of distribution and any other representations or
warranties required by law or customarily given by selling shareholders in an
underwritten public offering.
(ii) Piggyback Underwritten Offerings. If the Parent proposes to
register any of its securities under the Securities Act as contemplated by
Section 3.1(a) and such securities are to be distributed by or through one or
more underwriters, subject to the provisions of Section 3.1(e)(i) the Parent
will, if requested by the Holders, arrange for such underwriters to include all
of the Shares to be offered and sold by the Holders among the securities of the
Company to be distributed by such underwriters. The Holders shall each become a
party to the underwriting agreement negotiated between the Company and such
underwriters. The Holders shall not be required to make any representations or
warranties to or agreements with the Parent or the underwriters other than
representations, warranties or agreements regarding the Holders, their shares
and their intended method of distribution or any other representations or
warranties required by law or customarily given by selling shareholders in an
underwritten public offering.
(i) Suspension.
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(i) Prior to its effective date, the Board of Directors of the
Parent may postpone or terminate any registration under Section 3.1(a) in its
sole discretion; provided, however, that (A) such election shall not relieve the
Parent of its obligations to pay expenses pursuant to Section 3.1(d) and (B) the
Holders may request that such registration be effected as a registration under
Section 3.1(b). No registration effected under Section 3.1(a) or postponed or
terminated pursuant to this Section 3.1(i)(i) shall relieve the Parent of its
obligations under Section 3.1(b).
(ii) If the Board of Directors of the Parent, in its good faith
judgment, determines that any registration of Shares should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization, merger, or other material transaction
involving the Parent or any of the Subsidiaries, taken as a whole, (a "Valid
Business Reason") (i) the Parent may postpone filing a registration statement
relating to a registration under Section 3.1(b) until such Valid Business Reason
no longer exists, but in no event for more than 90 days and (ii) in case a
registration statement has been filed relating to a registration under Section
3.1(b), the Parent may cause such registration statement to be withdrawn and its
effectiveness terminated or may postpone amending or supplementing such
registration statement until such Valid Business Reason no longer exists, but in
no event for more than 90 days, provided, that (A) the Parent may not exercise
this deferral right more than once during any twelve (12) month period and (B)
nothing contained in this Section 3.1(ii) shall relieve the Parent of its
obligations under Section 3.1(a) or (d).
(j) Termination. As to any particular Shares, such securities shall
cease to be subject to registration under this Agreement when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
transferred in accordance with such Registration Statement, (b) they shall have
been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act, or provided that at the time such securities are proposed to be
sold, they may be sold under Rule 144 without any limitation on the amount of
such securities which may be sold or (c) they shall have ceased to be
outstanding.
Section 3.2 "Put" Rights.
(a) Price. At any time beginning five (5) years after the Closing, if
the number of Shares traded on a national or regional stock exchange or in the
National Association of Securities Dealers, Inc. National Market System has been
less than 50,000 per day for a period of 20 consecutive trading days, the
Holders, on one occasion, by written notice may require the Parent to
re-purchase its Warrants or the Shares issued thereunder. A redemption of any of
the Holders' Shares pursuant to Section 2.2 shall not be deemed a re-
10
purchase under this Section 3.2(a). In the case of Shares issued upon the
exercise of the Warrants, the repurchase price shall be the product of the
average of the closing bid and ask prices for the five (5) trading days prior to
such notice (the "Per-Share Value"), times the number of Shares being
repurchased. In the case of an unexercised Warrant, the price shall be the
difference between the Per-Share Value and the per-share exercise price of the
Warrant, multiplied by number of Shares for which the Warrant is exerciseable.
(b) Financing of Put Price. If upon exercise by a Holder of the Put
right above, the Parent is unable after diligent effort to draw funds from its
Senior Debt loan facility to pay the above-referenced re-purchase prices without
occasioning a breach under the relevant loan agreements, the Companies may
require the Holders to extend them a loan for such purpose on the terms and
conditions set out herein for the Loan.
ARTICLE 4.
Undertakings by the Principals
Section 4.1 Commitment. Each of the Principals will devote his full time and
attention to the Companies' businesses unless (i) prevented from doing so by his
death or disability (ii) the Board of Directors terminates such Principal's
employment with the Companies; or (iii) his employment agreement (listed on
EXHIBIT 5.22) expires pursuant to its existing provisions contained in Section
3.01 thereof.
Section 4.2 Non-Competition; Non-Disclosure. The Non-Competition and
Non-Disclosure Agreements between the Companies, and each of the Principals, in
the form of EXHIBIT 4.02, are in full force and effect.
Section 4.3 Continued Equity Ownership. Except for Exempt Transfers (as defined
below), neither of the Principals shall sell, assign or transfer any Shares or
other equity interest in the Parent which they own, or otherwise divest
themselves of any voting rights which they may hold in regard to stock in the
Parent. "Exempt Transfer" means any of the following sales, assignments or
transfers by either Principal of the capital stock or equity interests of the
Parent or any interest therein (each, a "transfer"):
(a) any transfer pursuant to the laws of descent and distribution upon
the death of such Principal;
(b) any sale of Shares wherein the proceeds are used solely to pay the
exercise price of options to purchase other Shares, issued pursuant to an
11
incentive stock option plan described in EXHIBIT 4.03(B) hereof and, in the case
of ▇▇. ▇▇▇▇ only, the sale of up to 10,000 Shares, per fiscal quarter of the
Parent, acquired pursuant to the incentive stock option plan listed on EXHIBIT
4.03(B);
(c) any sale of Shares where the proceeds are used solely to remedy a
bona fide crisis involving members of the Principal's immediate family and which
is made with the prior consent of the Holders, such consent not to be
unreasonably withheld (such consent being deemed to have been irrevocably given
upon receipt of a written request by the Principal to the Holders and is not
responded to within ten (10) days of the Holders' receipt thereof);
(d) any transfer to a bona fide trust in which the trust beneficiary
is the Principal or a member of his immediate family, provided, that the
Principal retains the right to direct the vote of such shares; and
(e) any transfer pursuant to the prior written consent of the Holders.
Section 4.4 Access to Information. Each of the Principals hereby authorizes the
Holders or their authorized representatives to obtain credit and other
background information on each such Principal in connection herewith.
Section 4.5 Election of Director. Each of the Principals will use his best
efforts (provided, that such efforts shall not require expenses to be incurred
by the Principals) in good faith to cause any one person whom Holders request to
be elected as their designee to the Companies' Boards of Directors pursuant to
Section 6.8, below, to be so elected.
Section 4.6 Termination of Undertakings by Each of the Principals. This Article
4 shall remain in full force and effect, as to each Principal, until the
earliest of: (i) the Debentures are indefeasibly repaid in full; (ii) a Holder
has transferred or disposed of more than ninety (90) percent of the voting or
economic interests represented by the Warrants sold to it pursuant to Section
2.1 (for purposes of this clause, the exercise of Warrants in exchange for
Shares shall not be deemed a disposition of the voting or economic interests
represented by the Warrants, but the disposition of shares issued as a result of
the exercise of the Warrants shall be deemed a disposition of a proportionate
interest in the Warrants); or (iii) that Principal's employment is terminated in
a manner described in Section 4.1.
Section 4.7 Limitation of Remedies. The Holders' sole remedy against either of
the Principals for a violation of the agreements contained in this Article 4
shall be to apply to a court of competent jurisdiction for an injunction
restraining
12
such principal from committing or continuing any violation of this Article 4,
and a Principal shall not object to such application except to litigate whether,
in fact, such Principal has violated this Article 4, provided, however, that
this Section 4.7 shall not apply in the case of a fraudulent or intentional
misrepresentation by such Principal, and will not in any case limit the Holders'
remedies against the Companies for such a violation.
ARTICLE 5.
Representations and Warranties
To induce the Holders to enter the transactions contemplated herein and
purchase the Debentures and the Warrants, the Companies, jointly and severally,
represent and warrant as set out below. All representations and warranties in
this Article shall refer to facts as they exist at Closing (unless a
representation is made as of a specific date) and shall survive the Closing.
Section 5.1 Due Organization; Authority; Binding Obligation; Opinion of Counsel.
Each of the Companies is duly incorporated, validly existing and in good
standing under the laws of its state of incorporation having Articles of
Incorporation, as amended (including any certificates of designation), and
By-Laws, as amended, (all terms of which are in full force and effect) as
previously furnished to the Holders, and true copies of which are attached
hereto as part of EXHIBIT 5.01A; each of the Companies is duly qualified to
conduct its business as proposed and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its business or location
of its properties require such qualification and except where the failure to so
qualify would not have a material adverse effect, evidence of which
qualification and good standing is attached hereto as EXHIBIT 5.01B; each of the
Companies has full power and authority to enter into each of the Loan Documents,
to borrow money as contemplated hereby and thereby, and to carry out the
provisions hereof and thereof; each of the Companies has taken all corporate
action necessary for the execution and performance of each of the Loan Documents
to which it is a party as evidenced by the resolutions set forth in EXHIBIT
5.01A; the Loan Documents and each document to be executed by the Companies
therewith will constitute a valid and binding obligation of each such Company,
enforceable in accordance with their respective terms when executed and
delivered; and the Companies have caused their counsel to deliver a letter
opining as to such authority and related matters in the form set forth in
EXHIBIT 5.01C.
Section 5.2 Principal Business; Title to Assets. Each of the Companies is
primarily engaged in the businesses described on Exhibit 5.02; each of the
Companies has good and marketable title to and ownership of all real and
13
personal property it purports to own, free and clear of all liens, claims,
security interests and encumbrances except for Permitted Liens.
Section 5.3 Litigation. None of the Companies is a party to or, to any of the
Companies' knowledge, threatened by any suits, actions, claims, investigations
by governmental bodies or legal, administrative or arbitrational proceedings,
except as set out in the litigation schedule attached hereto as EXHIBIT 5.03
(hereinafter "Litigation Schedule"); there are no outstanding orders, judgments,
writs, injunctions or decrees of any court, government agency or arbitrational
tribunal against or affecting any of the Companies or their properties, assets
or businesses.
Section 5.4 Taxes.
(a) Generally. The Companies have filed all tax returns, federal,
state and local, which are required to be filed, and have duly paid or fully
reserved for all taxes or installments thereof (including any interest or
penalties), which have or may become due pursuant thereto or pursuant to any
assessment received by any of the Companies.
(b) No Open Returns. No Federal, state, local, foreign or other return
of any of the Companies for tax years that remain open under any applicable
statute of limitations, has been examined by the Internal Revenue Service or
other tax authorities; or if so examined no deficiencies have been asserted or
assessments made as a result of such examinations (including all penalties and
interest); there are no waivers, agreements or other arrangements providing for
any extension of time with respect to the assessment or collection of any unpaid
tax, interest or penalties relating to any of the Companies; no issues have been
raised by (or are currently pending before) the Internal Revenue Service or any
other taxing authority in connection with any return of any of the Companies,
which could reasonably be expected to have a material adverse effect on the
financial condition of any of the Companies if decided adversely against any of
the Companies, nor are there any such issues which have not been so raised but
if so raised by the Internal Revenue Service, or any other taxing authority,
could, in the aggregate, reasonably be expected to have such a material adverse
effect.
(c) Excess Parachute Payments. None of the Companies has made, has
become obligated to make, or will, as a result of the transactions contemplated
by the Loan Documents, make or become obligated to make, any "excess parachute
payment" as defined in Internal Revenue Code Section 280G.
14
(d) Deferred Intercompany Transactions. None of the Companies or their
affiliates has engaged in any "deferred intercompany transactions" within the
meaning of Section 1.1502-13 of the regulations promulgated under the Internal
Revenue Code.
(e) True Copies of Returns. The Companies have delivered to the
Holders true, correct and complete copies of all Federal, state and local tax
returns for each of the Companies' most recent three (3) full taxable years as
of Closing, and all information set forth on such returns is true, complete and
accurate.
Section 5.5 Financial Statements. The audited financial statements of the Parent
prepared by ▇▇▇▇▇▇ & Young, L.L.P. for the twelve (12) months ending December
31, 1998, attached as EXHIBIT 5.05 are prepared in accordance with GAAP, are
true and correct in all material respects, and fairly state the results of the
Companies' operations and their financial position at such dates and for the
periods stated.
Section 5.6 Leases; Status of Payables. True copies of all real property leases
to which any of the Companies is a party have been provided to the Holders, and
a list of all such leases is set forth on EXHIBIT 5.06; the Companies'
possession of their leased property has not been disturbed, and no claim has
been asserted against any of the Companies adverse to its leasehold interests.
All lease obligations, accounts payable and other debts of the Companies are
current in all material respects.
Section 5.7 Disclosure. All representations made by any of the Companies, their
officers or directors regarding the Companies or their businesses, in the
Perfection Certificates previously provided to the Holders, and in any other
document described herein or previously supplied to either Holder in regard to
this financing, are true and correct in all material respects as of this date,
and all projections, including the estimated quarterly summary report for the
first fiscal quarter of 1999 dated March 16, 1999, provided to the Holders (in
connection with this financing) in such documents were prepared in good faith
and are based on reasonable assumptions; no representation or warranty made by
any of the Companies or either of the Principles herein or in any such document
statement or writing furnished to any Holder in connection with the transactions
contemplated herein contains or will contain any untrue statement of material
fact, or omits to state a material fact necessary to make a statement therein
not misleading.
Section 5.8 Management History. During the past ten (10) years neither of the
Principals, nor any other officer or director of any of the Companies, has been
arrested for or convicted of any criminal offense, petitioned or been granted
any relief in bankruptcy, or (except in the capacity as a trustee in bankruptcy)
15
served as an officer or director of any company or other entity which has
petitioned or been granted such relief (except in a professional capacity).
Section 5.9 Subsidiaries. Except for Parent's ownership of the Subsidiaries, the
Companies have no subsidiaries, partners, commonly controlled or related
entities or (except for their officers and directors) other affiliates. Each of
the Subsidiaries is wholly-owned by the Parent and no other person has any
options, warrants or other rights to acquire capital stock of any Subsidiary.
Section 5.10 Incumbency. Attached hereto as EXHIBIT 5.10 is a true and complete
list of officers, directors and holders of five percent (5%) or more of the
equity securities of each of the Companies.
Section 5.11 No Material Change. Since December 31, 1998, none of the Companies
has suffered any material adverse change in its condition (financial or
otherwise) or, to its knowledge, its overall business prospects, nor entered
into any material transactions, or incurred any material debt, obligation or
liability, absolute or contingent, nor sustained any material loss or damage to
its property, real or personal, whether or not insured except as proposed
herein, nor suffered any material interference with its business or operations,
present or proposed; and there has been no sale, lease, abandonment or other
disposition by any of the Companies of any of their property, real or personal,
or any interest therein or relating thereto, that is material to the financial
position of any of the Companies.
Section 5.12 No Side Agreements. None of the Companies or any of their officers
or directors or any shareholders owning five percent (5%) or more of the equity
securities in the Parent are party to any agreement with either Holder except
for the Loan Documents and the other documents mentioned herein or listed as
exhibits hereto; except for the Loan Documents and agreements with respect to
their acquisition of other consulting businesses, the Companies are not party to
any agreement calling for any action by any of the Companies outside the
ordinary course of their businesses; there exists no agreement or understanding
calling for any payment or consideration from a customer or supplier of any of
the Companies to an officer or director of any of the Companies or shareholder
owning more than five percent (5%) of the equity securities of the Parent in
respect of any transaction between any such Company and such supplier or
customer; no affiliate of any of the Companies, directly or through any business
concern affiliated with such affiliate, transacts any business with any of the
Companies other than employment complying with the terms of Section 7.7 below.
Section 5.13 Non-Contravention. Except for matters set out in the Litigation
Schedule, none of the Companies is in breach of, default under, or in violation
of any applicable law, decree, order, rule or regulation which may
16
materially and adversely affect it, or any indenture, contract, agreement, deed,
lease, loan agreement, commitment, bond, note, deed of trust, restrictive
covenant, license or other instrument or obligation to which it is a party, or
by which it is bound, or to which any of its assets are subject and which could
have a material adverse effect on such Company; the execution, delivery and
performance of the Loan Documents and the other documents mentioned herein will
not constitute any such breach, default or violation, or require consent or
approval of any court, governmental agency or body, except as expressly provided
herein.
Section 5.14 Fees & Brokerage. Except as provided in the Commitment Letter or as
set forth on EXHIBIT 5.14, no brokerage or similar fees are due to any party in
respect to the transactions contemplated by any of the Loan Documents.
Section 5.15 Other Debts; Subordination of Notes to Sellers; Sources and Uses.
Except for the Senior Debt described in Section 1.3 above, the matters set out
in the Litigation Schedule, other debts of the types and in the amounts
described in the financial statements included herein as EXHIBIT 5.05; none of
the Companies has debts, liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, arising out of any transaction
entered into or any state of facts existing prior hereto, including without
limitation, liabilities or obligations on account of taxes or government
charges, penalties, interest or fines thereon or in respect thereof; none of the
Companies knows of any basis for any claim against them as of the date of this
Agreement, or of any debt, liability or obligation other than those mentioned
herein; the notes and other indebtedness owed by the Companies to sellers of
previously-acquired businesses have been expressly subordinated to the Loan in
lien priority and in right of payment; EXHIBIT 5.15 hereto correctly states the
sources and uses of the Loan.
Section 5.16 Capital Structure. The authorized capital stock of each of the
Companies is as set forth on EXHIBIT 5.16, and all such stock has been duly
issued in accordance with applicable laws including federal and state securities
laws and is fully paid and nonassessable; except as set forth on EXHIBIT 5.16,
there are no options, warrants or other securities which are convertible or
exchangeable for capital stock of any of the Companies, and there are no
preemptive rights in respect to capital stock of any of the Companies.
Section 5.17 Solvency. As of the date hereof, and after giving effect to the
transactions contemplated by the Loan Documents, the present fair saleable value
of each of the Companies' assets is greater than the amount required to pay each
such Company's total indebtedness (contingent or otherwise), and is greater than
the amount that will be required to pay such indebtedness as it
17
matures and as it becomes absolute and matured; the transactions contemplated by
the Loan Documents are being effectuated without intent to hinder, delay or
defraud present or future creditors of any of the Companies; it is each of the
Companies' intention that it will maintain the above-referenced solvent
financial condition, giving effect to the debt incurred hereunder, as long as
each of the Companies is obligated to the Holders under any of the Loan
Documents or in any other manner whatsoever; each of the Companies has
sufficient capital to carry on its previous operations and its business as it is
now conducted, and to consummate the transactions contemplated herein.
Section 5.18 Investment Company Act Representations. None of the Companies
intends to become an Investment Company and none of the Companies nor any of
their officers, directors, partners or controlling persons is an Affiliated
Person of any Holder.
Section 5.19 Regulatory Compliance. Each of the Companies has complied in all
material respects with all laws, ordinances and regulations applicable to it and
to its business, including without limitation laws, ordinances and regulations
relating to securities, zoning, labor, food and drug, the Securities Act of
1933, the Securities Exchange Act of 1934, the Occupational Safety & Health Act
and all federal and state environmental laws and regulations.
Section 5.20 Employee Benefit Matters. There is no existing single-employer plan
defined in Section 4021(a) of ERISA in respect of which any of the Companies is
an "employer" or a "substantial employer" as defined in Sections 3(5) and
4001(a)(2) of ERISA, respectively; the Companies have delivered to the Holders
copies, as listed on EXHIBIT 5.20 attached hereto, of each plan described in
Section 4021(a) of ERISA, in respect of which any of the Companies will be
liable to make contributions or pay benefits; to the Companies knowledge there
have been no reportable events as set forth in Section 4043(b) of ERISA in
respect of any such plan, and no termination of any such plan since the
effective date of ERISA, which could result in any tax, penalty or liability
being imposed any of upon any of the Companies; to the best of the Companies'
knowledge, the purchase of the Debentures or the Warrants by the Holders do not
involve, any "prohibited transaction" (as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended) that could subject any of the
Companies or either Holder to any tax or penalty imposed by said Section 4975;
since the effective date of ERISA, none of the Companies has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA, to which any of the Companies could be subject or for which any such
Company might be liable; none of the Companies is a party to, and none of the
operations of any of the Companies is covered by, a multi-employer plan as
defined in Section 3(37) of ERISA.
18
Section 5.21 Collective Bargaining. None of the Companies is a party to or
subject to any collective bargaining agreements or union contracts. There are no
labor disputes pending or, to any of the Companies' knowledge, threatened
against any of the Companies, which could, materially and adversely, affect the
business or the condition of any of the Companies.
Section 5.22 Employees. Each of the Companies has delivered to the Holders
copies of all employment and compensation contracts, including all individual
retirement benefit agreements and union contracts not disclosed on EXHIBIT 5.20,
between any of the Companies and officers and directors of each of the
Companies, and all such contracts are listed on EXHIBIT 5.22; except as set
forth on EXHIBIT 5.22: (i) no employee of any of the Companies is currently on
short-term or long-term disability, (ii) no officer or key employee of any of
the Companies has terminated his or her employment since January 1, 1999, (iii)
no officer or key employee of any of the Companies has advised any such Company
(orally or in writing) that he or she intends to terminate employment with such
Company and (iv) no written notice of termination has been given to any officer
or key employee.
Section 5.23 No Competing Business Interests. Neither the Principals nor any of
the Companies' other officers, directors, or principal employees has any direct
or indirect interest, including, but not limited to, the ownership of stock in
any corporation, in any business, that competes with any of the Companies.
Section 5.24 No Conflicting Non-Competition Agreements. Neither the Companies
nor the Principals are subject to any contract or agreement purporting to limit
their rights to compete in any market in which any of the Companies presently
provides, or proposes to provide, goods or services; or purporting to restrict
their rights to disclose information in respect to such competition.
Section 5.25 Year 2000 Compliance.
(a) Except as set forth on EXHIBIT 5.25, the Information Technology
(as defined below) is Year 2000 Compliant (as defined below) and will not cause
an interruption in the ongoing operations of any of the Companies or give rise
to any material liability due to a problem arising from a failure of the
information Technology relating to Year 2000 Compliance (as defined below);
EXHIBIT 5.25 contains a correct and complete list of all of the hardware,
software, firmware, network systems, embedded systems, telecommunications
systems, and other Information Technology which, to the knowledge of the Parent,
will not be Year 2000 Compliant by the Closing.
19
(b) Each of the Companies has been and is in compliance in all
respects with all applicable laws requiring disclosure of the Year 2000
Compliance status of the Information Technology of each such Company, the Year
2000 Compliance efforts of each such Company, and other Year 2000 related
disclosures.
(c) As used in this Agreement, "Year 2000 Compliant" and "Year 2000
Compliance" mean, with respect to Information Technology, that the Information
Technology accurately processes date/time data (including but not limited to,
calculating, comparing, and sequencing) from, into, and between the twentieth
and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations properly exchanges date/time data with it, and the Information
Technology has been tested to verify these capabilities. As used in this
Agreement, "Information Technology" means all software, hardware, firmware,
telecommunications systems, network systems, embedded systems, and other systems
or components that utilize microprocessor technology of any of the Companies.
Section 5.26 SBA Representations. The statements set forth in the Size Status
Declaration (SBA Form 480), Assurance of Compliance for Non-Discrimination (SBA
Form 652-D) and Portfolio Financing Report (SBA Form 1031), as previously
provided and set forth as EXHIBITS 5.26A, 5.26B and 5.26C, respectively, are
complete and accurate.
ARTICLE 6.
Affirmative Covenants
Until the Debentures are indefeasibly repaid in full, and, with respect to
Section 6.8 only, until a Holder has transferred or disposed of more than ninety
(90) percent of the voting or economic interests represented by the Warrants
sold to it pursuant to Section 2.1 (for purposes of this clause, the exercise of
Warrants in exchange for Shares shall not be deemed a disposition of the voting
or economic interests represented by the Warrants, but the disposition of shares
issued as a result of the exercise of the Warrants shall be deemed a disposition
of a proportionate interest in the Warrants)each of the Companies shall:
Section 6.1 Monthly and Quarterly Financials. Maintain a standard modern system
of accounting in accordance with GAAP; make full, true and correct entries in
such system of all dealings and transactions in relation to its business and
affairs; forward, or cause to be forwarded to the Holders a one-page monthly
management information statement and summary description of operations at the
same time as provided to the Parent's executive officers but in
20
no event later than thirty (30) days after the end of each calendar month; and
forward, or cause to be forwarded to the Holders a copy of the Parent's Form 10Q
within 45 days of the end of each calendar quarter with such information
required to be disclosed in a Quarterly Report on Form 10Q pursuant to the
Securities Exchange Act of 1934, as amended, and with such financial information
prepared in accordance with any applicable accounting rules relating thereto;
such quarterly information shall be delivered to the Holders irrespective of
whether (a) the Parent has failed to make such filing with the Securities and
Exchange Commission (the "SEC") or (b) the Parent is required to make such
filing with the SEC;
Section 6.2 Certification of Non-Default. Provide to the Holders in writing each
quarter a written certification by the President of the Parent, that no default
has occurred under any Loan Document, or any debt or obligation senior to the
debt hereunder; or if any such default exists, stating the nature of such
default;
Section 6.3 Year-end Financials; Annual Audit. Within ninety (90) days of each
fiscal year-end, provide to the Holders with such information required to be
disclosed in an Annual Report on Form 10K pursuant to the Securities Exchange
Act of 1934, as amended, and with such financial information prepared in
accordance with any applicable accounting rules relating thereto; such annual
information shall be delivered to the Holders irrespective of whether (a) the
Parent has failed to make such filing with the SEC or (b) the Parent is required
to make such filing with the SEC; the Annual Report on Form 10-K shall include
an unqualified written opinion of the Parent's outside independent accountants;
Section 6.4 Projected Financials. Prior to each accounting year-end, provide the
Holders with projected financial statements for the coming three (3) years and
monthly projections for the coming year, in the same format as used for Section
6.1;
Section 6.5 Regulatory Filings. Within thirty (30) days of filing, provide the
Holders with copies of all material returns and documents filed with federal,
state or local government agencies, including without limitation the Internal
Revenue Service, the Environmental Protection Agency, the Occupational Safety &
Health Administration and the Securities & Exchange Commission;
Section 6.6 Notice of Litigation. Notify the Holders of any material litigation
to which any of the Companies is a party by mailing to the Holders, by
registered mail, within thirty (30) days of receipt thereof, a copy of the
Complaint, Motion for Judgment or other such pleadings served on or by any of
the Companies; and any material litigation known to any Company to which any of
the Companies is not a party but which could substantially affect operation of
such
21
Company's business or the collateral pledged under the Loan Documents, by
mailing to Holders, by registered mail, a copy of all pleadings obtained by such
Company in regard to such litigation, or if no pleadings are obtained, a letter
setting out the facts known about the litigation within thirty (30) days of
receipt thereof; the Companies shall not be obliged by this paragraph to give
notice of suits wherein a Company is a creditor seeking collection of account
debts or where the amount sought is less than $50,000;
Section 6.7 Notice of Defaults or Judgments. Give the Holders notice of default
declared in regard to any loan or lease of any of the Companies or any judgment
entered against any of the Companies by mailing a copy to the Holders within ten
(10) days of receipt thereof.
Section 6.8 Board Meetings and Representation. Hold meetings of its Board of
Directors at least quarterly; allow one designee of the Holders to attend such
meeting and all meetings of committees of such Board at the Parent's expense
(such expenses shall not include hourly rates of the person attending such
meetings); provide the Holders the same prior notice of such meetings and
written materials as given to the directors (notice to the Holders by facsimile
or voice mail shall be sufficient); notwithstanding the foregoing, if any of the
Companies' Boards desires to act by unanimous written consent in lieu of a
meeting, it may do so provided that the Holders receive, prior to their
adoption, a copy of the resolutions to be adopted in the same manner and at the
same time as provided to the directors; at the Holders' written request, each of
the Companies will use its best efforts to cause such designee to be elected to
its Board of Directors at the annual shareholder's meeting following such
request;
Section 6.9 Insurance. Maintain all-risk hazard insurance on its assets listed
on EXHIBIT 6.09 in full force and effect (or such equivalent replacement
insurance as the Parent shall reasonably determine), with a mortgagee clause in
favor of the Holders; this shall include federal flood insurance if any assets
are in a designated flood plain; and supply the Holders annually with a
certification of such insurance from the relevant insurers in the form set forth
as EXHIBIT 6.09;
Section 6.10 Use of Proceeds; Certification. Use the proceeds of the Loan only
to retire existing seller take-back notes, copies of which are attached hereto
as EXHIBIT 6.10, in an aggregate amount not to exceed Ten Million Dollars
($10,000,000) and for working capital; and allow Holders to conduct a review of
its books and records to confirm such use; within ten (10) days of such use
provide a written certification of such to the Holders;
Section 6.11 First Refusal for Future Financings. Offer to issue to the Holders
all subordinated debt, equity, or convertible securities proposed to be issued
by any of the Companies, on the most favorable terms to be offered to
22
any other party; such offer may be accepted in whole but not in part by either
of the Holders who must respond to such offer within ten (10) days of receipt
thereof; failure to respond within such time shall be construed as a decline of
the offer by the relevant Holder; this Section shall not be construed to limit
or qualify any covenant against such issuance;
Section 6.12 Access to Records. Permit from time-to-time any authorized agent of
any Holder to obtain credit and other background information on any of the
Companies and their management, and to inspect, examine and make copies and
abstracts of the books of account and records of such Companies at reasonable
times during normal business hours; allow the Holders' agents to interview the
Companies outside accountants who are by this covenant irrevocably instructed to
respond to such inquiries as fully as if the inquiries were made by the
Companies themselves;
Section 6.13 Financial Covenants.
(a) Fixed Charge Coverage Ratio. Maintain for the trailing twelve (12)
months, a Fixed Charge Ratio of not less than the following amounts as of the
following dates:
Fixed Charge Coverage Ratio: Fiscal Quarter Ending:
Not less than 1.15 to 1.0 Closing Date through September 30, 2000;
Not less than 1.20 to 1.0 December 31, 2000 through March 31,
2001; and
Not less than 1.30 to 1.0 June 30, 2001 and at all times
thereafter.
(b) Funded Debt to EBITDA. Maintain, a ratio of Funded Debt to EBITDA
not greater than the following amounts at the following times, tested as of the
last day of each of the Parent's fiscal quarters for the four (4) quarter period
ending on that date:
Funded Debt to EBITDA Fiscal Quarter Ending:
4.25 to 1.0 Closing Date through September 30, 1999;
4.00 to 1.0 December 31, 1999 through March 31,
2000; and
3.50 to 1.0 June 30, 2000 and at all times
thereafter.
(c) Current Ratio. Maintain a Current Ratio of not less than 1.30 to
1.0, tested as of the last day of each of the Parent's fiscal quarters.
23
(d) Minimum EBITDA. Maintain at all times a minimum EBITDA of not less
than the following amounts at the following times:
Minimum EBITDA: Fiscal Quarter Ending:
$11,000,000 Closing Date through June 30, 1999;
$12,500,000 September 30, 1999;
$13,000,000 December 31, 1999; and
$14,500,000 March 31, 2000 and at all times thereafter.
Section 6.14 Payments and Other Debts. Make all payments of principal, interest
and expenses as and when due under the Debentures, without setoff and regardless
of any claim any of the Companies may have against the Holders; and comply in
all respects with all terms, conditions and covenants relating to other debt
obligations of the Companies;
Section 6.15 Maintain Copies; Financing Statements. Maintain an original or a
true copy of each of the Loan Documents and any modifications thereof, which
shall be available for inspection as called for herein or in the Debentures; and
pay the taxes and costs of, or incidental to, any recording or filing of any
financing statements concerning any collateral for the Debentures;
Section 6.16 Information Requests. Furnish from time to time to any Holder at
the Parent's expense all information a Holder may reasonably request to enable
such Holder to prepare and file any report or form required of such Holder by
the Securities and Exchange Commission or any other regulatory authority;
Section 6.17 Protect the Collateral. Take all necessary steps to administer,
supervise, preserve and protect the collateral for the Debentures and to perfect
and maintain the Holders' security interest in such collateral; regardless of
any action taken by the Holders, there shall be no duty upon the Holders in this
respect;
Section 6.18 Further Assurance. From time to time promptly execute and deliver
to the Holders such additional documents, and take such other reasonable steps,
as the Holders may reasonably require to carry out the purposes hereof and of
the other Loan Documents, or to protect the Holders' rights hereunder or
thereunder, including (without limiting the generality of the foregoing) the
execution of recordable documents to reflect the Holders' interests in any
collateral for the Loan, and the recording thereof at the Parent's expense in
the relevant public records; and
24
Section 6.19 Collateral Assignments of Certain Leases; Landlord Consents. The
Companies shall (i) promptly (but not more than fifteen (15) days) after
Closing, execute and deliver to the Holders collateral assignments of the
Companies' leasehold interests in real property and any improvements thereon at
the following locations: (A) ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇.▇▇▇▇▇, (B)
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (C) ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (D) ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, and (E) ▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇; and (ii)
use their best efforts in good faith to obtain, within forty-five (45) days of
Closing, lessor consents as may be reasonably required for the collateral
assignments described in Section 6.19(i) above. The collateral assignments of
leases and lessor consents shall be in a form satisfactory to the Holders.
ARTICLE 7.
Negative Covenants
Until the Debentures are indefeasibly repaid in full, no Company shall
without the prior written consent of the Holders, and with respect to Sections
7.2, 7.4 and 7.8 only, such consent not to be unreasonably withheld:
Section 7.1 Change in Organization. Make or suffer any material change in their
organizational documents; engage in any business other than the businesses of
the type engaged in by the Companies prior to the date hereof and as more
particularly described in EXHIBIT 5.02; or establish, create or acquire any
parent or subsidiary;
Section 7.2 Equity Issuance or Redemption. Sell, authorize, issue or redeem any
capital stock of any class or any convertible debt or other equity security of
any of the Companies except as required by the Warrants or the incentive stock
option plan previously approved by the Parent's Board of Directors and listed in
EXHIBIT 5.22 hereof;
Section 7.3 Dividends. Declare or pay any dividend or make any other
distribution of any type on any class of its equity securities;
Section 7.4 Mergers, Etc. Become a party to, or permit any of the Companies to
become party to, any agreement by which such entity or entities merge or
consolidate into or with any other person or convey, sell, lease or otherwise
dispose of all or substantially all of its assets to another person, or permit
any person to merge or consolidate into or with any of the Companies or convey,
sell, lease or otherwise dispose of all or substantially all of its assets to
the Parent or any subsidiary; provided that any subsidiary may merge into, or
25
convey, sell, lease or dispose of its assets to the Parent or a wholly-owned
subsidiary of Parent;
Section 7.5 Capital Expenditures. Make Capital Expenditures in any fiscal year
in excess of a capital improvements budget approved by the Board of Directors of
the Parent and the Holders; or prepay any debt except for that incurred or
contemplated hereunder; provided, however, that the limit on capital
expenditures hereunder may be increased by the Board of Directors without the
consent of the Holders at the beginning of each fiscal year on January 1, 2000,
commensurate with the percentage of the Parent's annual increase of gross
profits during the prior fiscal year;
Section 7.6 Employee Compensation. Pay salaries or other compensation, or make
advances or loans to any employee in excess of Six Hundred Thousand Dollars
($600,000) per annum except pursuant to existing compensation plans listed in
EXHIBIT 5.22, copies of which have been previously provided to the Holders; pay
salaries or other compensation, or make advances or loans to any employee in
excess of Five Hundred Thousand Dollars ($500,000) in the aggregate if (i) an
uncured Event of Default exists or the Senior Debt is in default or (ii) the
Companies are not profitable for any two (2) consecutive quarters;
Section 7.7 Affiliate Transactions. Purchase or sell any property or services or
borrow or lend money or property from or to, or co-invest in any transaction
with, any officer, director, employee or other affiliate of any of the
Companies, or any affiliate of any such officer, director, employee or
affiliate, except for (i) employment complying with Section 7.6 above and
transactions wherein the terms are no less favorable to the Company than the
best terms available from an unaffiliated person and (ii) intercompany loans
among the Companies;
Section 7.8 Change of Site. Change the physical location of its principal
office;
Section 7.9 Change in Company, Etc. Change the current business entities,
establish any subsidiaries or invest in any affiliates or other entities,
provided, that this Section 7.9 shall not preclude intercompany loans among the
Companies;
Section 7.10 Judgments. Permit any judgment obtained against any of the
Companies to remain unpaid for over twenty (20) days without obtaining a stay of
execution or bond; or
Section 7.11 Cross-Default. Incur any declared default under any material lease,
loan or other agreement pertaining to another debt or material obligation of the
Company.
26
Section 7.12 No Liens. None of the Companies will, directly or indirectly
create, incur, assume or permit to exist any Lien on or with respect to any
property (including any document or instrument with respect to goods or accounts
receivable) of any of the Companies, whether now owned or hereafter acquired, or
any income or profits therefrom except for Permitted Liens.
ARTICLE 8.
Default
Section 8.1 Events of Default. Any of the following events shall be an "Event of
Default" as that term is used herein:
(a) Principal and Interest Payments. The Companies fail to make
payment when due of any principal or interest under the Debentures within three
(3) business days of the due date thereof;
(b) Representations and Warranties. Any representation or warranty
made by any of the Companies proves to have been incorrect in any material
respect; or any representation, statement (including financial statements),
certificate or data furnished or made by any of the Companies (or any officer,
accountant or attorney of any of the Companies) under the Loan Documents proves
to have been untrue in any material respect as of the date as of which the facts
therein set forth were stated or certified;
(c) Covenants. The Companies or Principals default in the observance
or performance of any of the covenants or agreements contained in this Agreement
(other than a default under any other subsections of this Section 8.1), and, in
the case of the affirmative and negative covenants of the Companies, such
default continues unremedied for a period of ten (10) days after the earlier of
(i) notice thereof being given by the Holders to any of the Companies, or (ii)
such default otherwise becoming known to the officers or chief financial officer
of any of the Companies.
(d) Loan Documents. Any of the Companies or either of the Principals
defaults in the observance or performance of any of the covenants or agreements
contained in any Loan Document to which it is a party which continues beyond the
expiration of any notice and cure period pertaining thereto;
(e) Involuntary Bankruptcy or Receivership Proceedings. A receiver,
conservator, liquidator or trustee of any of the Companies or of their property
is appointed by order or decree of any court or agency or supervisory authority
having jurisdiction; or an order for relief is entered against any of the
27
Companies under the U.S. Bankruptcy Code; or any of the Companies is adjudicated
bankrupt or insolvent; or any material portion of the properties of any of the
Companies is sequestered by court order, provided, that if an order is entered
pursuant to an ex parte proceeding such Company shall have thirty (30) days to
have such order vacated; or a petition is filed against the any of Companies
under any state, reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or receivership law of any jurisdiction, whether now or
hereafter in effect, and such petition is not dismissed within sixty (60) days;
(f) Voluntary Petitions. Any of the Companies files a petition under
the U.S. Bankruptcy Code or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any case or petition against it under any such law;
(g) Assignments for Benefit of Creditors. Any of the Companies makes a
general assignment for the benefit of its creditors, or admits in writing its
inability to pay its debts generally as they become due, or consents to the
appointment of a receiver, trustee or liquidator of all or any part of its
property;
(h) Attachment. A writ or warrant of attachment, seizure or any
similar process shall be issued by any court against all or any material portion
of the property of any of the Companies, and such writ or warrant of attachment
or any similar process is not released or bonded within twenty (20) days after
its entry;
(i) Due on Sale. Substantially all of any Company's assets, are sold,
exchanged or transferred; any Subsidiary ceases to be wholly-owned by the
Parent; a change in control of a Company occurs of a nature that would be
required to be reported in response to Item 1 of Form 8-K promulgated under the
Securities Exchange Act of 1934, as amended, ("Exchange Act"); any "person" (as
such term is used in Section 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Parent representing more than fifty percent (50%) of the combined voting power
of the Parent's then outstanding voting securities; or during any period of two
(2) consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Parent cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Parent's shareholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such two (2) year period; and
28
(j) Loss of Key Employees. For any reason except his death or
disability, either Principal fails to renew his Employment Agreement with the
Company, is otherwise no longer employed by the Companies and engaged in their
operations and management in substantially his present capacity, or fails to
give his full time and attention to the Companies business; unless the Board of
Directors of the Parent engages, within 90 days of such event, a replacement for
the relevant individual approved in writing by the Holders, which approval shall
not be unreasonably withheld.
Section 8.2 Remedies. Upon the occurrence of any Event of Default, either Holder
may:
(a) by written notice to the Parent, declare the entire principal
amount of the Loan then outstanding, including interest accrued thereon,
together with all other fees and charges payable in connection with the Loan, to
be immediately due and payable without presentment, demand, protest, notice of
protest or dishonor or other notice of default of any kind, all of which are
hereby expressly waived by each of the Companies; and
(b) exercise any of the rights or remedies provided in the Collateral
Documents or avail themselves of any other rights or remedies provided by
applicable law; and
(c) set-off any funds of any of the Companies in the possession of the
Holders against any amounts then due by the Companies to the Holders pursuant to
this Agreement.
Section 8.3 Time Limit on Acceleration After Certain Events. Upon receipt of
written notice in accordance with Article 13 by the Holders from the Company of
an Event of Default occasioned by a "person" (as such term is used in Section
13(d) and 14(d)(2) of the Exchange Act) being or becoming the beneficial owner,
directly or indirectly, of securities of the Parent representing more than fifty
percent (50%) of the combined voting power of the Parent's than outstanding
voting securities (as described in Section 8(i)), if the Holders fail to
exercise their rights to accelerate the maturity of the Loan pursuant to Section
8.2(a) or a corresponding section of another Loan Document within ninety (90)
days of such notice, such event shall no longer constitute an Event of Default.
29
ARTICLE 9.
Fees and Costs
The Parent shall pay:
Section 9.1 All closing costs, brokerage commissions, due diligence costs and
other fees and expenses incurred by any of the Companies or the Holders in
connection with the transactions contemplated by the Loan Documents;
Section 9.2 A commitment fee to Holders of Two Hundred Sixty Thousand Dollars
($260,000) at Closing;
Section 9.3 An exit fee of $130,000 if the Loan is repaid, voluntarily or by
acceleration of the maturity of the Debentures, and the Holders' Warrants and
any Common Stock issued thereunder have been sold or otherwise disposed of by
Holders for cash consideration, on or before June 30, 2000; provided, however,
that such exit fee shall not be payable to the extent payment thereof would
cause the Holders' aggregate annual average return on investment, taking into
account the Loan and all other funds paid to the Companies by Holders hereunder,
and all fees, interest, returns and gains (ordinary and capital) realized
hereunder and under the Debentures, the Warrants, and any Common Stock issued
thereunder, to exceed 20% per annum.
Section 9.4 The reasonable fees and expenses of the Holders' attorneys for work
done in connection with the transactions contemplated by this Agreement;
Section 9.5 All of the Holders' expenses of any nature which may be reasonably
necessary, either before or after a default hereunder, for the enforcement or
preservation of the Holders' rights under this Agreement, the Debentures or the
Warrants, or any other agreement of any of the Companies mentioned herein,
including but not limited to reasonable attorneys' fees, appellate costs and
fees, and costs incurred by any Holder as a participant in any bankruptcy
proceeding, workout, debt restructuring, extension of maturity or document
amendment, involving any of the Companies or any other obligor under the
Debentures;
Section 9.6 All costs and fees, including reasonable attorneys' fees and
expenses, incurred by any of the Holders or their affiliates in connection with
any suit, action, claim or other liability asserted against either of the
Holders or their affiliates by any of the Companies or the Principals, in either
case, in which such parties do not prevail with respect to substantially all of
their claims.
30
ARTICLE 10.
Indemnification. Environmental Liability
Each of the Companies will indemnify the Holders and their directors,
officers, employees, agents and controlling persons (hereinafter "Indemnitees")
against, and hold the Holders and each such Indemnitee harmless from, any and
all third party claims, damages, liabilities and related expenses (including
attorneys' fees and expenses) incurred by or asserted against the Holders or any
such Indemnitee arising out of, in any way connected with, or resulting from the
following:
(a) this Agreement, the other documents contemplated hereby, the
performance by the parties hereto and thereto of their respective obligations
hereunder and thereunder, or consummation of the transactions contemplated
hereby and thereby;
(b) any and all liability and loss with respect to or resulting from
any and all claims for or on account of any broker's finder's fees or
commissions with respect to this transaction as may have been created by any of
the Companies or their officers, partners, employees or agents, together with
any stamp or excise taxes which may become payable in connection with this
transaction or the issuance of stock hereunder;
(c) the spilling, leaking, pumping, pouring, unsettling, discharging,
leaching or releasing of hazardous substances on property owned by any of the
Companies or any violations by the Company of CERCLA, the Federal Clean Water
Act or any other Federal, state or local environmental law, regulation or
ordinance; and
(d) any claim, litigation investigation or proceeding relating to any
of the foregoing, whether or not the Holders or any such person is a party
thereto;
PROVIDED, HOWEVER, that any such indemnity shall not apply to any such
losses, claims, damages, liabilities or related expenses arising from the
Holders' gross negligence or willful misconduct.
The provisions of this Section shall remain operative and in full force and
effect for the term provided in Article 6 for the effectiveness of Section 6.8,
plus two (2) years, regardless of any repayment of the Debentures, invalidity or
unenforceability of any term or provision of this Agreement, the Debentures or
any Collateral Documents, or any investigation made by or on behalf of the
31
Holders. All amounts due under this Article shall be payable on written demand
therefor.
ARTICLE 11.
Remedies
Section 11.1 Cumulation. Receivership. None of the rights or remedies of the
Holders provided herein shall be exclusive, but each shall be cumulative with
and in addition to every other right or remedy of the Holders, now or hereafter
existing, at law or in equity, by statute, agreement or otherwise. In any action
pursuant to an Event of Default under this Agreement, the Debentures or, the
Warrants, as the case may be, the Holders shall be entitled to appointment of a
receiver to administer the Companies, or all or any portion of their assets as
may be subject to the Holders' claims.
Section 11.2 No Implied Waver. No course of dealing between a Holder and any
other party hereto, or any failure or delay on the part of a Holder in
exercising any rights or remedies hereunder, shall operate as a waiver of any
rights or remedies of any Holder under this or any other applicable agreement.
No single or partial exercise of any rights or remedies hereunder shall operate
as a waiver or preclude the exercise of any other rights or remedies hereunder.
ARTICLE 12.
Parties
This Agreement will bind and accrue to the benefit of the Companies, the
Principals, the Holders, any holders of the Warrants or the Debentures, and
their successors and assigns. Any purchaser, assignee, transferee or pledgee of
the Warrants or Debentures, or any document arising in connection with the
transaction subject to this Agreement (or any of them), sold, assigned,
transferred, pledged or repledged by a Holder shall forthwith become vested with
and entitled to exercise all rights and remedies provided herein to the Holders,
as if said purchaser, assignee, transferee or pledgee were originally named in
this Agreement in place of the Holders.
ARTICLE 13.
Notice
32
All notices or communications under this Agreement, the Warrants or the
Debentures shall be in writing and mailed, postage prepaid, or delivered by
facsimile or courier as follows:
To Holders: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Principal
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
To the
Companies: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇ ▇▇, Chairman & CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇, Esquire
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or, to such subsequent addresses as may hereafter be specified by the parties.
Rejection or other refusal to accept, or the inability to deliver because of a
changed address of which no notice was given, shall not affect the date of such
notice sent in accordance with the foregoing provisions. Each such notice,
request or other communication shall be deemed sufficiently given, served, sent
and received for all purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, the affidavit of the messenger
or the answer back being deemed conclusive but not exclusive evidence of such
delivery), or at such time as delivery is refused by addressee upon
presentation.
33
ARTICLE 14.
Relationship of the Parties
This Agreement provides, among other things, for the making, of loans by
the Holders, in their capacity as lenders, to the Companies, in their capacity
as a borrowers, and for the payment of interest and repayment of principal by
the Companies to the Holders. The provisions herein for compliance with
financial covenants and delivery of financial statements are intended solely for
the benefit of the Holders to protect their interests as lenders in assuring,
payments of interest and repayment of principal, and as warrant or stock holders
in preserving their equity stake in the Parent. Nothing contained in this
Agreement shall be construed as permitting or obligating the Holders to act as
financial or business advisors or consultants to the Companies, as permitting or
obligating the Holders to control any of the Companies or to conduct the
Companies' operations, as creating any fiduciary obligation on the part of the
Holders to the Companies, or as creating any joint venture, agency or other
relationship between the parties, other than as explicitly and specifically
stated in this Agreement. A Holder is not, and shall not be construed as, a
partner, joint venturer, alter-ego, manager, controlling person, operator or
other business participant of any kind of the Companies; neither the Holders nor
the Companies intend the Holders to assume such status, and, accordingly, the
Holders shall not be deemed responsible for or a participant in any acts or
omissions of the Companies. The Companies and each of the Principals represent
that they have had the advice of experienced counsel of their own choosing in
connection with the negotiation and execution of this Agreement and with respect
to all matters contained herein.
ARTICLE 15.
Controlling Law; Venue and Jurisdiction; Service of Process
This Agreement shall be interpreted, and the rights and liabilities of the
parties hereto determined, in accordance with the laws of the District of
Columbia, without regard to its principles of conflicts of law. Venue for any
adjudication hereof shall be only in the courts of the District of Columbia or
the Federal courts in such District, to the jurisdiction of which courts all
undersigned parties hereby submit as the agreement of such parties, as not
inconvenient, and as not subject to review by any court other than such courts
in the District of Columbia. All parties intend and agree that the courts of
jurisdictions in which the Companies are incorporated and conducts their
businesses shall afford full faith and credit to any judgment rendered by a
court of the District of Columbia against any of the Companies or other obligees
hereunder, and that such District of Columbia and federal courts shall have in
personam jurisdiction to enter a valid judgment against any of the
34
Companies or other obligees hereunder. Service of any summons and/or complaint
and any other process which may be served on any of the Companies in any action
in respect hereto, may be made by mailing via registered mail, or delivering a
copy of such process to the Parent at its address specified above. The parties
hereto agree that this submission to jurisdiction and consent to service of
process are reasonable and made for the express benefit of the Holders.
ARTICLE 16.
Waiver of Trial by Jury
EACH PARTY TO THIS AGREEMENT WAIVES ALL RIGHT TO TRIAL BY JURY OF ALL
CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS OF ANY KIND DIRECTLY OR INDIRECTLY
ARISING FROM OR RELATING TO THIS AGREEMENT, THE LOAN, THE LOAN DOCUMENTS OR THE
DEALINGS OF THE PARTIES IN RESPECT THERETO. THE PARTIES HERETO ACKNOWLEDGE AND
AGREE THAT THIS ARTICLE IS A MATERIAL TERM OF THIS AGREEMENT AND THAT THE
HOLDERS WOULD NOT EXTEND ANY FUNDS HEREUNDER IF THIS WAIVER OF JURY TRIAL WERE
NOT A PART OF THIS AGREEMENT. EACH PARTY HERETO ACKNOWLEDGES THAT THIS IS A
WAIVER OF A LEGAL RIGHT AND THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY
AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS
CHOICE. EACH PARTY HERETO AGREES THAT ALL SUCH CLAIMS, DEFENSES, COUNTERCLAIMS
AND SUITS SHALL BE TRIED BEFORE A JUDGE OF COMPETENT JURISDICTION, WITHOUT A
JURY.
ARTICLE 17.
Captions; Severance
The captions in this Agreement, the Warrants and the Debentures are
inserted for convenience of reference only and shall be construed neither to
limit nor amplify the meaning of the other text of such documents. To the extent
any provision herein violates any applicable law, such provision shall be void
and the balance of this Agreement shall remain unchanged.
ARTICLE 18.
Counterparts; Entire Agreement; Power of Attorney
(a) This Agreement may be executed in as many counterpart copies and
with as many counterpart signature pages as may be convenient. It
35
shall not be necessary that the signature of, or on behalf of, each party appear
on each counterpart, but it shall be sufficient that the signature of, or on
behalf of, each party appear on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement; it shall not be
necessary in any proof of this Agreement to produce or account for more than a
number of counterparts containing the respective signatures of, or on behalf of,
all of the parties. This Agreement, the Warrants, the Debentures, the exhibits
hereto and the documents entered into in connection herewith set forth the
entire agreements and understandings of the parties hereto in respect of this
transaction. Any verbal agreements in respect of this transaction are hereby
terminated. The terms herein may not be changed verbally but only by a writing
signed by the party against which enforcement of the change is sought.
(b) Allied Investment Corporation hereby appoints Allied Capital
Corporation, and each of its authorized officers to serve as its agents and
attorneys-in-fact (the "Representatives"), with full power and authority
(including power of substitution), in the name of and for and on behalf of it,
to take all actions required or permitted with respect to the Loan Documents, to
sign all certificates, notices, instructions and other documents and to make all
determinations hereunder and thereunder. Any other Person may rely on any
notice, consent, election or other communication received from the
Representatives as if such notice, consent, election or other communication had
been received from Allied Investment Corporation.
ARTICLE 19.
Definitions and Rules of Construction
Section 19.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms shall have the meanings as
follow:
(a) "Accumulated Funding Deficiency" shall have the definition for
such term in Section 302 of the Employee Retirement Income Security Act of 1974;
(b) "Acquisition" means the purchase by the Parent of all of the
outstanding stock of each of the following companies: (i) SEA; (ii) ▇▇▇▇; and
(iii) KCI.
(c) "Affiliated Person" shall have the definition for such term set
out in section 2(a)(3) of the Investment Company Act of 1940, as amended;
36
(d) "Agreement" is defined as this Investment and Loan Agreement and
the exhibits and schedules hereto, as the same may be amended, supplemented,
extended, modified or replaced in accordance with the terms hereof;
(e) "Capital Expenditures" is defined as expenditures for capital
improvements or acquisitions;
(f) "Closing" is defined as the consummation of this Agreement;
(g) "Collateral Documents" shall have the definition set out in
Section 1.2 hereof;
(h) "Commitment Letter" is defined as the letter dated March 1, 1999
from ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to the Company;
(i) "Companies" shall have the definition set out in the preamble
hereof;
(j) "Current Assets" means at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "total current
assets" (or any like caption) on a consolidated balance sheet of the Parent and
its Subsidiaries.
(k) "Current Liabilities" means at any date, the amount which, in
conformity with GAAP, would be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the Parent
and its Subsidiaries, excluding all amounts outstanding under the Senior Debt.
(l) "Current Ratio" means the ratio of (a) Current Assets to (b)
Current Liabilities.
(m) "Debentures" shall have the definition set out in Section 1.1
hereof;
(n) "EBITDA" means as to the Company and its Subsidiaries for any
period of determination thereof, the sum of (a) the net profit (or loss)
determined in accordance with GAAP consistently applied, plus (b) interest
expense and tax expense for such period, plus (c) depreciation and amortization
of assets for such period. EBITDA shall be calculated on a trailing twelve (12)
month basis, taking into account any Person acquired in an Acquisition during
such twelve (12) months period and adjusting for officer compensation which was
eliminated from the Person so acquired, provided the
37
Holders has received evidence satisfactory to the Holders with respect to
changes and compensation.
(o) "EBITDAR" means as to the Company and its Subsidiaries for any
period of determination thereof, the sum of (a) EBITDA, plus (b) rent expense
for such period.
(p) "Employer" and "Substantial Employer" shall have the definitions
set out therefor in Sections 3(5) and 4001(a)(2) of ERISA, respectively;
(q) "ERISA" is defined as the Employee Retirement Income Security Act
of 1974;
(r) "Exempt Transfer" shall have the definition set out in Section 4.3
hereof;
(s) "Fixed Charge Ratio" means the ratio of (i) EBITDAR, less cash
dividends paid and capital expenditures, to (ii) (a) the sum of interest
expense, plus (b) required principal on Indebtedness (other than prepayments on
the Senior Debt) and capitalized leases scheduled and/or paid in the prior
twelve (12) months period, plus (c) any payments required to be made under any
noncompete or earnout agreements scheduled and/or paid in the prior twelve (12)
month period, plus (d) rent expense, plus (e) income tax expense for such
period, less (f) up to Ten Million Dollars ($10,000,000) scheduled to be paid to
▇▇▇▇ in September of 1999.
(t) "Fully Diluted Basis" shall mean, in respect to a corporation or
other legal entity, the condition wherein all outstanding options, warrants and
other securities of such entity which are exercisable or exchangeable for
capital stock or other equity interests in the entity, are, for the purpose of
calculating relative ownership rights, presumed to have been exercised or
exchanged in full;
(u) "Funded Debt" means for any period of determination thereof an
amount equal to the sum of all Indebtedness for Borrowed Money (including, but
not limited to senior debt, stockholder debt, subordinated debt, the value of
all capitalized leases, all Seller Notes, all letters of credit issued on the
account of the Parent other than letters of credit which secure Seller Notes,
and estimated liabilities under existing earnout and or noncompete agreements)
all as determined on a consolidated basis.
38
(v) "GAAP" is defined as generally accepted accounting principles as
established from time-to-time by the Financial Accounting Standards Board,
consistently applied and maintained throughout the period indicated;
(w) "Holders" shall have the definition set out in the preamble
hereof;
(x) "Indebtedness" is defined as all obligations for borrowed money,
obligations arising from installment purchases of property or services,
capitalized lease obligations, and the face amount of letters of credit and
without duplication all drafts drawn thereunder.
(y) "Indebtedness for Borrowed Money" of a Person, at any time shall
mean the sum at such time of (a) indebtedness of such Person for borrowed money
or for the deferred purchase price of property or services, (b) any obligations
of such Person in respect of letters of credit, banker's or other acceptances or
similar obligations issued or created for the account of such Person, (c) lease
obligations of such Person which have been or should be, in accordance with
GAAP, capitalized on the books of such Person, (d) all liabilities secured by
any Lien on any property owned by such Person, to the extent attached to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (e) any obligations of such Person or
a commonly controlled entity to a multiemployer plan (as those terms are used
under applicable ERISA statutes and regulations), but excluding trade and other
accounts payable in the ordinary course of business in accordance with customary
trade terms and which are not overdue or which are being disputed in good faith
by such Person and for which adequate reserves are being provided on the books
of such Person in accordance with GAAP.
(z) "Indemnitees" is defined as Holders and their directors, officers,
employees, agents and controlling persons;
(aa) "Independent Third Parties" shall have the meaning set forth in
Section 3.2(b) hereof;
(bb) "Investment Company" shall have the definition for such term set
out in the Investment Company Act of 1940, as amended;
(cc) "Liens" is defined as any interest in property securing an
obligation owed to, or a claim by, a person other than the owner of such
property, whether such interest is based on common law, statute or contract, and
including, but not limited to, the security interest, security title or lien
arising from a security agreement, mortgage, deed of trust, deed to secure debt,
38
encumbrance, pledge, conditional sale or trust receipt or a lease, consignment
or bailment for security purposes;
(dd) "Litigation Schedule" shall have the meaning set forth in Section
5.3 hereof;
(ee) "Loan" shall have the definition set out in Recital A hereof;
(ff) "Loan Documents" shall have the definition set out in Section 1.2
hereof;
(gg) "Offeree" shall have the definition set out in Section 3.2(a)
hereof;
(hh) "Parent" shall have the definition set out in the preamble
hereof;
(ii) "Permitted Liens" is defined as (i) Liens at any time granted in
favor of the Holders or the holders of the Senior Debt; (ii) Liens for taxes
(excluding any Lien imposed pursuant to any of the provisions of ERISA) which
not yet due or are being contested in good faith and by appropriate proceedings
with adequate reserves maintained in accordance with GAAP; (iii) Liens securing
the claims or demands of materialmen, mechanics, carriers, warehousemen,
landlords and other like persons for labor, materials, supplies or rentals
incurred in the ordinary course of the Companies businesses, but only if the
payment thereof is not at the time required or is being contested in good faith
and by appropriate proceedings with adequate reserves maintained in accordance
with GAAP; (iv) and Liens resulting from deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment insurance,
social security and other like laws; and (v) reservations, exceptions,
easements, rights of way, and other similar encumbrances affecting real
property, provided that, they do not in the aggregate detract from the
marketability of said properties or materially interfere with their use in the
ordinary course of any of the Companies' businesses.
(jj) "Principals" shall have the definition set out in the preamble
hereof;
(kk) "Prohibited Transaction" shall have the definition for such term
set out in Section 4975 of the Internal Revenue Code of 1986, as amended;
40
(ll) "Securities Act" is defined as the Securities Act of 1933, as
amended;
(mm) "Senior Debt" shall have the definition set out in Section 1.3
hereof;
(nn) "Shares" shall have the meaning set forth in Section 2.1 hereof;
(oo) "Subsidiaries" shall have the definition set forth in the
preamble hereof;
(pp) "Warrants" shall have the meaning set forth in Section 2.1
hereof.
Section 19.2 Rules of Construction. The rule of ejusdem generis shall not be
applicable herein to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned. Unless the context otherwise requires:
(a) A term has the meaning assigned to it;
(b) "Or" is not exclusive;
(c) Provisions apply to successive events and transactions;
(d) "Herein", "Hereof", "Hereto", "Hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision unless otherwise so provided;
(e) The word "person" shall mean any natural person, partnership,
corporation, nation, state, government, union, association, agency, tribunal,
board, bureau and any other form of business or legal entity;
(f) All words or terms used in this Agreement, regardless of the
number or gender in which they are used, shall be deemed to include any other
number and any other gender; and
(g) All financial terms used herein and not capitalized shall have the
meaning accorded them under GAAP.
41
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42
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written
Company: FTI CONSULTING INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: TEKLICON, INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: L.W.G., INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇, INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: ▇▇▇▇ CONSULTING, INC.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: S.E.A., INC.,
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Company: KCI MANAGEMENT CORP.
[Seal]
Attest: By:
------------------------------ --------------------------------
Name: Name:
Title: Title:
Holders: ALLIED CAPITAL CORPORATION
[Seal]
By:
--------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Principal
ALLIED INVESTMENT CORPORATION
[Seal]
By:
--------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Principal
EACH OF THE PRINCIPALS ARE SIGNING ONLY WITH RESPECT TO THE PROVISIONS CONTAINED
IN ARTICLES 4, 11, 12, 13, 14, 17, 18 AND 19.
Principals:
Witness:
------------------------ -----------------------------------
▇▇▇▇ ▇. ▇▇▇▇ ▇▇, individually
Witness:
------------------------ -----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇, individually
EXHIBITS
Document Number
-------- ------
UCC-1 Financing Statements 1.02(b)
Form of Collateral Assignment of Lease 1.02(c)
NationsBank Amended and Restated Financing Security Agreement 1.03(a)
Warrants Exercise Price Calculation 2.01(b)
Non-Competition and Non-Disclosure Agreements 4.02
General Certificate with Exhibits 5.01A
Good Standing Certificates and Certificates of Authority as Foreign
Corporation 5.01B
Opinion of Company's Counsel 5.01C
Descriptions of Businesses 5.02
Litigation Schedule 5.03
Audited 1998 and Stub Period Financial Statements 5.05
Schedule of Leases 5.06
Incumbency and Schedule of Securityholders 5.10
Brokerage Fees 5.14
Statement of Funding Sources and Uses 5.15
Capital Structure 5.16
Schedule of Employee Benefit Plans 5.20
Schedule of Employee Contracts 5.22
Year 2000 Compliance 5.25
Size Status Declaration (SBA Form 480) 5.27A
Assurance of Compliance (SBA Form 652-D) 5.27B
Portfolio Financing Report (SBA Form 1031) 5.27C
Hazard and Liability Insurance Certificate 6.09
Seller Notes 6.10