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CREDIT AGREEMENT
between
HAGLER BAILLY CONSULTING, INC.
and
STATE STREET BANK AND TRUST COMPANY
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Dated as of May 17, 1995
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TABLE OF CONTENTS
Page No.
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Section 1. Amount and Terms of the Credit................................. 1
1.1 Recitals; Commitment............................................ 1
1.2 Term Loan....................................................... 1
1.3 Term Note....................................................... 1
1.4 Revolving Credit Loans.......................................... 2
1.5 Revolving Credit Note........................................... 3
1.6 Interest........................................................ 3
1.7 Transaction Fee................................................. 4
1.8 Commitment Fee.................................................. 4
1.9 Reduction or Termination of Revolving Commitment................ 4
1.10 Prepayment..................................................... 5
1.11 Security; Subordination, etc................................... 5
1.12 Overdue Payments............................................... 6
1.13 Notations...................................................... 6
1.14 Form and Terms of Payment...................................... 7
1.15 Capital Adequacy............................................... 7
1.16 Use of Proceeds................................................ 7
Section 2. LIBOR Provisions............................................... 8
2.1 LIBOR Option.................................................... 8
2.2 Certain Definitions............................................. 8
2.3 Conditions for Basing Interest on the LIBOR Rate................ 10
2.4 Indemnification for Funding and Other Losses.................... 11
2.5 Change in Applicable Laws, Regulations, etc..................... 11
2.6 Taxes........................................................... 11
Section 3. Representations and Warranties................................. 12
3.1 Organization, Standing, etc. of the Company..................... 12
3.2 Subsidiaries.................................................... 12
3.3 Qualification................................................... 12
3.4 Financial Information; Disclosure, etc.......................... 12
3.5 Licenses; Franchises, etc....................................... 13
3.6 Tax Returns and Payments........................................ 13
3.7 Indebtedness, Liens and Investments, etc........................ 13
3.8 Title to Properties; Liens...................................... 14
3.9 Litigation, etc................................................. 14
3.10 Authorization; Compliance with Other Instruments............... 14
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3.11 Governmental Consent........................................... 14
3.12 Regulation U, etc.............................................. 15
3.13 Employee Retirement Income Security Act of 1974................ 15
3.14 Ownership of Company and Parent Company........................ 15
3.15 Environmental Matters.......................................... 16
Section 4. Conditions of Lending.......................................... 16
4.1 The Notes....................................................... 16
4.2 Opinions and Certificates....................................... 17
4.3 No Default; Representations and Warranties, etc................. 17
4.4 Security Documents.............................................. 17
4.5 Equity Investment............................................... 17
4.6 Acquisition..................................................... 17
Section 5. Affirmative Covenants.......................................... 18
5.1 Financial Statements, etc....................................... 18
5.2 Legal Existence; Franchises; Compliance with Laws, etc.......... 19
5.3 Insurance....................................................... 20
5.4 Payment of Taxes................................................ 21
5.5 Payment of Other Indebtedness, etc.............................. 21
5.6 Further Assurances.............................................. 21
5.7 Depository Account.............................................. 21
5.8 Field Audits.................................................... 21
Section 6. Negative Covenants............................................. 22
6.1 Indebtedness.................................................... 22
6.2 Mortgages, Liens, etc........................................... 23
6.3 Loans, Guarantees and Investments............................... 23
6.4 Restricted Payments............................................. 24
6.5 Mergers and Consolidations...................................... 25
6.6 Sale of Assets.................................................. 25
6.7 Issuance of Additional Shares, etc.............................. 25
6.8 Compliance with ERISA........................................... 25
6.9 Transactions with Affiliates.................................... 25
6.10 Observance of Subordination Provisions, etc.................... 25
6.11 Environmental Liabilities...................................... 26
6.12 Officer Distributions; Compensation............................ 26
Section 7. Financial Covenants............................................ 27
7.1 Capital Base.................................................... 27
7.2 Current Ratio................................................... 27
7.3 Adjusted Net Operating Income................................... 27
7.4 Funded Debt; Net Operating Income............................... 28
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7.5 Debt Service Coverage........................................... 28
7.6 Senior Liabilities; Adjusted Capital Base....................... 29
7.7 Billability..................................................... 29
Section 8. Defaults; Remedies............................................. 29
8.1 Events of Default; Acceleration................................. 29
8.2 Remedies on Default, etc........................................ 32
Section 9. Definitions.................................................... 32
Section 10. Setoffs, etc.................................................. 41
Section 11. Expenses; Indemnification..................................... 41
Section 12. Waivers....................................................... 42
Section 13. Miscellaneous................................................. 43
13.1 Notices, etc................................................... 43
13.2 Calculations, etc. ............................................ 44
13.3 Survival of Agreements, etc.................................... 44
13.4 Counterparts, etc.............................................. 44
13.5 Entire Agreement, etc.......................................... 44
13.6 Governing Law; Jurisdiction; Waiver of Jury Trial.............. 45
EXHIBIT A Form of Term Note
EXHIBIT B Form of Revolving Credit Note
EXHIBIT C Compliance Certificate
EXHIBIT D Borrowing Base Certificate
SCHEDULE 3.2 Subsidiaries
SCHEDULE 3.4 Financial Statements and Reports
SCHEDULE 3.7 Indebtedness, Liens, etc.
SCHEDULE 3.9 Litigation, etc.
SCHEDULE 3.14 Ownership of Parent Company
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CREDIT AGREEMENT dated as of May 17, 1995, by and between Hagler Bailly
Consulting, Inc., a Delaware corporation (the "Company"), and State Street Bank
and Trust Company (the "Bank"). Certain other terms used herein are defined in
subsection 2.2 and section 9.
The Company and the Bank hereby agree as follows:
Section 1. Amount and Terms of the Credit.
1.1 Recitals; Commitment. The Company wishes to (i) borrow from the Bank the
principal amount of $7,000,000 in the form of a term loan, and (ii) establish a
revolving credit with the Bank in an aggregate principal amount at any one time
outstanding not in excess of $4,500,000 (the "Revolving Commitment") to expire
on the Expiration Date. The Bank is willing to make such term loan and to
establish such revolving credit on behalf of the Company, subject to the terms
and conditions hereafter set forth.
1.2 Term Loan.
(a) Subject to the terms and conditions hereof, and in reliance upon the
representations and warranties contained herein, the Company will borrow from
the Bank, and the Bank will lend to the Company, the principal amount of
$7,000,000 (such borrowing being herein referred to as the "Term Loan").
(b) The closing of the Term Loan hereunder (the "Closing") shall take
place at the offices of Choate, Hall & Stewart, Exchange Place, 53 State Street,
Boston, Massachusetts 02109 at 10:00 a.m., Boston time, on May 25, 1995 (or at
such other time and place as may be mutually agreed upon). The Bank shall make
the Term Loan hereunder on such date by crediting the amount thereof in
immediately available funds to the Company's regular deposit account with it.
1.3 Term Note. The Term Loan made by the Bank pursuant to subsection 1.2 shall
be evidenced by a promissory note in the form attached hereto as Exhibit A (the
"Term Note"), payable to the order of the Bank, duly executed on behalf of the
Company, dated the date of the Closing and in the principal amount of the Term
Loan. The Term Note shall be payable in twenty-two (22) consecutive quarterly
installments of principal as follows: two (2) installments each in the amount of
$250,000, payable on September 30 and December 31, 1995; four (4) installments
each in the amount of $295,000, payable on March 31, June 30, September 30 and
December 31, 1996; four (4) installments each in the amount of $322,250, payable
on March 31, June 30, September 30 and December 31, 1997; four (4) installments
each in the amount of $352,000, payable on March 31, June 30, September 30 and
December 31, 1998; four (4) installments each in the amount of $384,500, payable
on March 31, June 30, September 30 and December 31, 1999; and four (4)
installments each in the amount of $271,250, payable on March 31, June 30,
September 30 and December 31, 2000. The Term Note shall bear interest at the
rate or rates, and payable on the dates, specified in subsection 1.6.
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1.4 Revolving Credit Loans.
(a) Subject to the terms and conditions hereof, and in reliance upon the
representations and warranties contained herein, the Bank hereby establishes a
revolving credit in favor of the Company in the principal amount of the
Revolving Commitment. The Company may borrow on or after the date of the Closing
and prior to the Expiration Date from time to time an aggregate principal amount
(the "Available Commitment") at any time not in excess of the lesser of (i) the
Revolving Commitment or (ii) the Borrowing Base, subject to the limitation on
the amount of the Available Commitment set forth in subparagraph (d) of this
subsection 1.4. Each such borrowing pursuant to this subsection 1.4 is sometimes
herein referred to as a "Revolving Credit Loan", and collectively as the
"Revolving Credit Loans"; the Revolving Credit Loans and the Term Loan being
sometimes herein referred to collectively as the "Loans" and each individually
as a "Loan".
(b) Each Revolving Credit Loan shall be made by the Bank in such amount
(not in excess of the Available Commitment) as the Company shall request,
provided that each borrowing shall be in a minimum of $100,000 or such lesser
amount as may be equal to the then unused portion of the Available Commitment.
Revolving Credit Loans shall be effected at the principal banking office of the
Bank in Boston, Massachusetts. The Company will give the Bank notice in writing
(or by telephonic communication confirmed by telex, telecopy or other facsimile
transmission on the same day as the telephone notice) prior to 1:30 p.m., Boston
time, on the date of each Revolving Credit Loan (except as otherwise provided in
subsection 2.3(a) for LIBOR Requests) specifying the amount of the Revolving
Credit Loan requested. The Bank shall make each Revolving Credit Loan hereunder
by crediting the amount thereof in immediately available funds to the Company's
regular deposit account with it.
(c) During the period prior to the Expiration Date, the Company may, at
its option, from time to time prepay all or any portion of the Revolving Credit
Loans (other than a LIBOR Portion) made from time to time hereunder, subject to
the provisions of subsection 1.10, and the Company may reborrow from time to
time hereunder amounts so paid up to the amount of the Available Commitment in
effect at the time of reborrowing.
(d) Notwithstanding the foregoing provisions hereof, the Available
Commitment shall in no event exceed $3,500,000 unless and until the later of the
following shall occur: (i) the date on which the Bank shall have received the
financial statements, management letter (if any) and accountants' statement
required by subparagraphs (a) and (c) of subsection 5.1 hereof for the fiscal
year of the Company ending December 31, 1995, together with the compliance
certificate required by subsection 5.1(d) hereof for such fiscal year (A)
demonstrating compliance by the Company with the provisions of section 7 hereof,
and (B) certifying that no Event of Default has occurred; or (ii) the date on
which the Bank shall have received preliminary drafts of the financial
statements required by subsection 5.1(b) for the fiscal quarter of the Company
ending March 31, 1996, together with a preliminary copy of the compliance
certificate required by
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subsection 5.1(d) hereof for such fiscal quarter (A) demonstrating compliance by
the Company with the provisions of section 7 hereof, and (B) certifying that no
Event of Default has occurred. The Bank expressly acknowledges that the
financial statements and compliance certificate referred to in clause (ii) of
the preceding sentence may be preliminary in nature, and may be based upon the
Company's good faith calculation and estimates as to certain of the information
contained therein, to the extent necessary to permit the Company to present such
financial statements and compliance certificate to the Bank on or about March
31, 1996, provided that: (I) not later than April 15, 1996, the Company shall
furnish the Bank with the final copies of the financial statements required by
subsection 5.1(b) hereof for the fiscal quarter ending March 31, 1996, together
with the final compliance certificate required by subsection 5.1(d) hereof for
such fiscal quarter (1) demonstrating compliance by the Company with the
provisions of section 7 hereof, and (2) certifying that no Event of Default has
occurred; and (II) in the event the conditions of the foregoing clause (I) are
not satisfied on or prior to April 15, 1996, the Available Commitment shall not
thereafter exceed $3,500,000 and the provisions of subsection 1.10(b) hereof
shall be applicable to the extent that the then outstanding principal amount of
the Revolving Credit Loans exceeds the Available Commitment..
1.5 Revolving Credit Note. The Revolving Credit Loans made by the Bank pursuant
to subsection 1.4 shall be evidenced by a promissory note of the Company in a
principal amount equal to the Revolving Commitment, dated the date of the
Closing and in the form attached hereto as Exhibit B. There shall be one (1)
note payable to the order of the Bank (such note being herein called the
"Revolving Credit Note"; the Revolving Credit Note and the Term Note being
sometimes herein referred to collectively as the "Notes" and each individually
as a "Note"). The outstanding principal of the Revolving Credit Note shall be
payable on the Expiration Date. The Revolving Credit Note shall bear interest at
the rate or rates, and payable on the dates, specified in subsection 1.6.
1.6 Interest. The Loans shall bear interest on the unpaid principal amount
thereof until paid in full, as follows:
(a) Any portion of the outstanding principal balance of the Loans which is
not then subject to a LIBOR Option shall bear interest at the rate per annum
(determined on the basis of the actual number of days elapsed over a 365-day
year) equal to seven-eighths of one percent (7/8 of 1%) above the Prime Rate,
which interest shall be payable monthly in arrears on the first day of each
month, commencing on the first such date next succeeding the date of any such
Loan, and at maturity (whether by acceleration or otherwise). Each change in the
rate of interest payable on any portion of the outstanding principal balance of
the Loans which is not then subject to a LIBOR Option shall take effect
simultaneously with the corresponding change in the Prime Rate.
(b) Any LIBOR Portion shall bear interest at the rate per annum
(determined on the basis of the actual number of days elapsed over a 360-day
year) equal to two percent (2%) above the LIBOR Rate, which interest shall be
payable as follows: (i) in the case of any LIBOR Portion having a LIBOR Period
of 90 days or less, such interest shall be payable on the last day of the
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LIBOR Period applicable to such LIBOR Portion, and (ii) in the case of any LIBOR
Portion having a LIBOR Period in excess of 90 days, such interest shall be
payable in arrears at 90-day intervals, the first such payment to be made on the
last Banking Day of the 90-day period which begins on the first day of such
LIBOR Period, and shall also be payable on the last day of the LIBOR Period
applicable to such LIBOR Portion, and at maturity (whether by acceleration or
otherwise).
1.7 Transaction Fee. The Company shall pay the Lender a transaction fee (the
"Transaction Fee") in the amount of $86,250. The Lender acknowledges receipt
from the Company of $21,500 of such Transaction Fee. The balance of such
Transaction Fee (i.e., $64,750) shall be payable at the Closing. No portion of
the Transaction Fee shall be subject to refund or reduction.
1.8 Commitment Fee. The Company shall pay the Bank a commitment fee (the
"Commitment Fee") for the period commencing on the date of the Closing to and
including the Expiration Date, or the earlier date of the termination of the
Revolving Commitment hereunder, equal to threeeighths of one percent (3/8 of 1%)
per annum (computed on the basis of the actual number of days elapsed over a
365-day year) of the average daily unused portion of the Revolving Commitment.
The Commitment Fee shall be payable quarterly in arrears on the last day of each
March, June, September and December of each year, commencing on the first such
date next succeeding the date hereof, and on the date of any termination of the
Revolving Commitment. If any change in any requirement imposed upon the Bank by
any law of the United States of America or by any regulation, order,
interpretation, ruling or official directive (whether or not having the force of
law) of the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation or any other governmental or administrative agency
or board of the United States of America shall impose, increase, modify or deem
applicable any reserve, special deposit, assessment or other requirement against
the Revolving Commitment of the Bank hereunder, and the result of the foregoing,
in the determination of the Bank, is to impose a cost on the Bank that is
directly attributable to the maintaining of the Revolving Commitment, then the
Commitment Fee payable to the Bank shall be increased, for so long as the
increased cost is imposed on the Bank, to the extent determined by the Bank to
be necessary to compensate the Bank for such increased cost. The determination
by the Bank of the amount of such cost, if done in good faith and on a basis
consistent with that applied to other customers of the Bank having similar
compensation arrangements, shall, in the absence of manifest error, be
conclusive.
1.9 Reduction or Termination of Revolving Commitment. At any time prior to the
Expiration Date, on at least one (1) Banking Day's prior written notice to the
Bank, the Company may in whole permanently terminate, or from time to time
permanently reduce, the Revolving Commitment. Any such reduction hereunder shall
be in an amount not less than $100,000. Simultaneously with any termination of
the Revolving Commitment hereunder, the Company shall pay to the Bank the
Commitment Fee accrued to the date of such termination.
1.10 Prepayment.
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(a) On at least one (1) Banking Day's prior written notice to the Bank,
the Company may, at its option, prepay any Loan in whole at any time or in part
from time to time without penalty or premium, provided that: (i) no voluntary
prepayment of any LIBOR Portion may be made hereunder; and (ii) any Company Sale
Prepayment or Refinancing Prepayment shall be made together with the applicable
Prepayment Premium. Any optional prepayment of the Loans in part shall be in a
principal amount not less than $100,000. Each prepayment of the Term Loan shall
be applied to installments of principal payable on the Term Loan in the inverse
order of maturity. Any prepayment in full of the Term Loan shall be made
together with accrued interest on the amount prepaid to the date of such
prepayment.
(b) If at any time the outstanding principal amount of the Revolving
Credit Loans exceeds the Available Commitment, the Company will immediately
prepay the Revolving Credit Loans in an amount necessary to cause the
outstanding principal amount of the Revolving Credit Loans not to exceed the
Available Commitment. Any mandatory prepayment of the Revolving Credit Loans
pursuant to this subparagraph (b) shall be applied: (i) first, to the prepayment
of Revolving Credit Loans which are not then subject to a LIBOR Option, which
prepayment will be made without penalty or premium; and (ii) the balance of such
prepayment, if any, shall be applied to the LIBOR Portion or Portions of the
Revolving Credit Loans, which prepayment shall be made together with the
applicable LIBOR Premium.
(c) Within 120 days after the end of each fiscal year of the Company, the
Company will prepay the Term Loan, without penalty or premium, in an amount
equal to seventy-five percent (75%) of Excess Cash Flow for such fiscal year.
Each such prepayment of the Term Loan shall be applied to installments of
principal payable on the Term Loan in the inverse order of maturity.
1.11 Security; Subordination, etc. The Loans and the other obligations of the
Company hereunder and under the Notes shall be secured by and entitled to the
benefits of the following (except to the extent that any thereof may be
expressly waived by the Bank):
(a) A first priority perfected security interest, satisfactory to the Bank
(but subject to the provisions of subsections 6.2(b) and (c) hereof), in all
presently owned and after-acquired tangible and intangible personal property and
fixtures of the Company and its Subsidiaries;
(b) A first mortgage on any real estate now or hereafter owned by the
Company or any of its Subsidiaries;
(c) A collateral assignment of life insurance policy insuring the life of
Henri-Claude Bailly as contemplated by subsection 5.3;
(d) [Reserved];
(e) An intercreditor and subordination agreement with the Seller;
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(f) A guaranty from the Parent Company;
(g) A negative pledge and sale agreement from the Parent Company with
respect to the shares of capital stock of the Company owned by it;
(h) A guaranty from HB Capital;
(i) A guaranty from each of the Subsidiaries; and
(j) A subordination agreement or agreements signed by the Parent Company
and by such other Affiliates as may be designated by the Bank.
All of the agreements and instruments described in this subsection,
together with any and all other agreements and instruments heretofore or
hereafter securing the Loans and the Company's other obligations hereunder and
under the Notes, are sometimes hereinafter referred to collectively as the
"Security Documents" and individually as a "Security Document". All of the
personal property, fixtures, real estate and life insurance described in the
foregoing clauses (a), (b) and (c) of this subsection, together with any
additions thereto or replacements or proceeds thereof, are sometimes hereinafter
referred to collectively as the "Collateral". The Company agrees to take such
actions as may be necessary from time to time to cause the Bank to be secured by
and entitled to the benefits of the Security Documents as described in this
subsection, including, without limitation, the obtaining of consents of any
third parties. The Security Documents shall be satisfactory in form to the Bank
and its counsel.
1.12 Overdue Payments. In the event that the Company shall fail to make any
payment of principal of or interest on any Loan when due (and after the
expiration of any grace period applicable thereto), whether at maturity or at a
date fixed for the payment of any installment or prepayment thereof or by
declaration, acceleration or otherwise, interest on such unpaid principal and
(to the extent permitted by law) on such unpaid interest shall thereafter be
payable on demand at a rate per annum equal to four percent (4%) above the rate
otherwise applicable to such Loan hereunder.
1.13 Notations. Prior to any sale or other disposition of any Note by the Bank,
the Bank shall make a notation on such Note (or on a paper annexed thereto) of
the unpaid principal amount thereof at the time outstanding, the last date to
which interest has been paid thereon and the amount of unpaid interest accrued
thereon to the date of such sale or disposition. Upon payment in full of the
principal of and interest on any Note, such Note shall be cancelled and returned
to the Company, provided that the Revolving Credit Note shall not be cancelled
or returned so long as the Bank shall be obligated to make Revolving Credit
Loans hereunder.
1.14 Form and Terms of Payment. All payments by the Company of principal of or
interest on the Loans and of any fee due hereunder shall be made at the address
of the Bank set forth in subsection 13.1 (or at such other address as the Bank
shall have furnished to the Company in
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writing) and shall be made in immediately available funds. The Company hereby
authorizes the Bank to charge the Company's deposit accounts for the purpose of
effecting scheduled payments of such principal, interest and fees. If any
payment of principal of or interest on the Loans shall become due on a day which
is not a Banking Day, such payment may be made on the next succeeding Banking
Day and such extension shall be included in computing interest in connection
with such payment.
1.15 Capital Adequacy. If after the date of this Agreement, the Bank shall have
determined that the adoption or implementation of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein (including, without limitation, any change according to a
prescribed schedule of increasing requirements, whether or not known on the date
of this Agreement), or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank
with any request or directive of such entity regarding capital adequacy (whether
or not having the force of law) has the effect of reducing the return on the
Bank's capital to a level below that which the Bank could have achieved (taking
into consideration the Bank's policies with respect to capital adequacy
immediately before such adoption, implementation, change or compliance and
assuming that the Bank's capital was fully utilized prior to such adoption,
implementation, change or compliance) but for such adoption, implementation,
change or compliance as a consequence of its agreement to make Loans hereunder
by any amount deemed by the Bank to be material, the Company shall pay to the
Bank as an additional fee from time to time such amount as the Bank shall have
determined to be necessary to compensate it for such reduction. Any such
additional fee shall be payable by the Company within 30 days after the same is
requested by the Bank. The determination by the Bank of such amount, if done on
the basis of any reasonable averaging and attribution methods and on a basis
consistent with that applied to other customers of the Bank having similar
compensation arrangements, shall in the absence of manifest error be conclusive.
1.16 Use of Proceeds. The Company will use the proceeds of the Term Loan to
finance the cost of the Acquisition. The Company will use the proceeds of the
Revolving Credit Loans for working capital purposes, including the opening or
acquisition of new offices (subject to the provisions of subsection 6.3(h)
hereof) and including the payment of closing costs for the Acquisition and the
financing hereunder. The Company will not: (a) use any part of the proceeds of
the Revolving Credit Loans for the purpose of making any payment of principal of
or interest on the Term Loan or any payment of principal of the Seller Note; or
(b) use any part of the proceeds of any Loans for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U (12 CFR Part 221)
of the Board of Governors of the Federal Reserve System, or for any other
purpose which would violate any provision of any other applicable statute,
regulation, order or restriction.
Section 2. LIBOR Provisions.
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2.1 LIBOR Option. Subject to the provisions of this section 2, the Company shall
have the right to have the interest on all or any portion of the principal
amount of the Loans based on a LIBOR Rate, provided that not more than five (5)
LIBOR Portions of the Revolving Credit Loans shall be outstanding at any one
time.
2.2 Certain Definitions. As used herein, the following terms have the following
respective meanings:
Banking Day: (i) when used with respect to the LIBOR Option, a day
on which dealings may be effected in deposits of U.S. dollars in the London
interbank foreign currency deposits market and on which banks may conduct
business in London, England, and Boston, Massachusetts, and (ii) when used with
respect to the other provisions of this Agreement, any day excluding Saturday
and Sunday and excluding any other day which shall be in Boston, Massachusetts,
a legal holiday or a day on which banking institutions are authorized by law to
close.
Board: the Board of Governors of the Federal Reserve System of the
United States.
Legal Requirement: any requirement imposed upon the Bank by any law
of the United States of America or the United Kingdom or by any regulation,
order, interpretation, ruling or official directive (whether or not having the
force of law) of the Board, the Bank of England or any other board, central bank
or governmental or administrative agency, institution or authority of the United
States of America, the United Kingdom or any political subdivision of either
thereof.
LIBOR Option: the option granted pursuant to this section 2 to have
the interest on all or any portion of the principal amount of the Loans based on
a LIBOR Rate.
LIBOR Period: any period, selected as provided below in this section
2, of 30, 60, 90 or 180 days or (in the case of a LIBOR Portion of the Term
Loan) of 360 days or longer periods if available and agreed to by the Bank,
commencing on any Banking Day; provided, however, that (i) no LIBOR Period with
respect to any LIBOR Portion of the Revolving Credit Loans shall extend beyond
the Expiration Date, and (ii) no LIBOR Period with respect to any LIBOR Portion
of the Term Loan shall extend beyond the final maturity date of the Term Note.
If any LIBOR Period so selected would otherwise end on a date which is not a
Banking Day, such LIBOR Period shall instead end on the next preceding or
succeeding Banking Day as determined by the Bank in accordance with its then
current banking practice. Each determination by the Bank of any LIBOR Period
shall, in the absence of manifest error, be conclusive.
LIBOR Portion: subject to the proviso to subsection 2.1 hereof, that
portion of the Loans specified in a LIBOR Request (including any portion of such
Loans which are being borrowed by the Company concurrently with such LIBOR
Request) which is not less than
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$100,000, which does not exceed the outstanding balance of the Loans not already
subject to a LIBOR Option and, in the case of the Term Loan, does not exceed
such balance reduced by the amount of all installments thereof scheduled to come
due within the related LIBOR Period and which, as of the date of the LIBOR
Request specifying such LIBOR Portion, has met the conditions for basing
interest on the LIBOR Rate in subsection 2.3 hereof and the LIBOR Period of
which has commenced and not terminated.
LIBOR Premium: with respect to the prepayment of any LIBOR Portion
of any Loans (other than a prepayment pursuant to subsection 1.10(c) hereof), an
amount equal to the product of (i) the excess, if any, of the rate of interest
on the principal amount so prepaid over the rate of interest on debt securities
issued by the Treasury of the United States of America on a date approximating
the date of payment of such principal amount and having a maturity date
approximating the last Banking Day of the applicable LIBOR Period, multiplied by
(ii) the principal amount so prepaid, multiplied by (iii) a fraction, the
numerator of which is the number of days remaining in the related LIBOR Period
and the denominator of which is 360. Each determination by the Bank of any LIBOR
Premium shall, in the absence of manifest error, be conclusive.
LIBOR Rate: with respect to any LIBOR Portion for the related LIBOR
Period, an interest rate per annum (rounded upwards, if necessary, to the next
higher 1/100 of 1%) equal to the product of (a) the Base LIBOR Rate (as
hereinafter defined) and (b) Statutory Reserves. For purposes of this
definition, the term "Base LIBOR Rate" shall mean the rate (rounded to the
nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%, the next higher
1/100 of 1%) at which deposits of U.S. dollars approximately equal in principal
amount to the LIBOR Portion and for a maturity equal to the applicable LIBOR
Period are offered to the Bank in the London interbank foreign currency deposits
market at approximately 11:00 a.m., London time, two (2) Banking Days prior to
the commencement of such LIBOR Period, for delivery on the first day of such
LIBOR Period. Each determination by the Bank of any LIBOR Rate shall, in the
absence of manifest error, be conclusive.
LIBOR Request: notice in writing (or by telephonic communication
confirmed by telex, telecopy or other facsimile transmission on the same day as
the telephone request) from the Company to the Bank (and received by the Bank
prior to 11:00 a.m., Boston time, two (2) Banking Days prior to the first day of
the LIBOR Period requested) requesting that interest on a LIBOR Portion be based
on the LIBOR Rate, specifying: (i) the first day of the LIBOR Period, (ii) the
length of the LIBOR Period consistent with the definition of that term, and
(iii) a dollar amount of the LIBOR Portion consistent with the definition of
that term.
Statutory Reserves: a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including, without
limitation, any marginal, special, emergency or supplemental reserves),
expressed as a decimal, established by the Board and any other banking authority
to which the Bank is subject for Eurocurrency Liabilities (as defined in
9
Regulation D of the Board). Such reserve percentages shall include, without
limitation, those imposed under such Regulation D. LIBOR Portions of the Loans
shall be deemed to constitute Eurocurrency Liabilities and as such shall be
deemed to be subject to such reserve requirements without benefit of or credit
for proration, exceptions or offsets which may be available from time to time to
the Bank under such Regulation D. Statutory Reserves shall be adjusted
automatically on and as of the effective date of any change in any reserve
percentage.
Tax: in relation to any LIBOR Portion and the applicable LIBOR Rate,
any tax, levy, impost, duty, deduction, withholding or other charges of whatever
nature required by any Legal Requirement (i) to be paid by the Bank and/or (ii)
to be withheld or deducted from any payment otherwise required hereby to be made
by the Company to the Bank, provided that the term "Tax" shall not include any
taxes imposed upon the net income of the Bank by the United States of America or
any political subdivision thereof.
2.3 Conditions for Basing Interest on the LIBOR Rate. Upon the condition that:
(a) The Bank shall have received a LIBOR Request from the Company prior to
11:00 a.m., Boston time, two (2) Banking Days prior to the first day of the
LIBOR Period requested;
(b) There shall have occurred no change in applicable law which would make
it unlawful for the Bank to obtain deposits of U.S. dollars in the London
interbank foreign currency deposits market;
(c) As of the date of the LIBOR Request and the first day of the LIBOR
Period, there shall exist no Event of Default, nor any event which, with the
giving of notice or expiration of any applicable grace period or both would
constitute an Event of Default, which is not waived by the Bank;
(d) After giving effect to such LIBOR Request, not more than five (5)
LIBOR Portions of the Revolving Credit Loans shall be outstanding; and
(e) The Bank shall not have determined in good faith that it is unable to
determine the LIBOR Rate in respect of the requested LIBOR Period or that it is
unable to obtain deposits of U.S. dollars in the London interbank foreign
currency deposits market in the applicable amounts and for the requested LIBOR
Period;
then interest on the LIBOR Portion requested during the LIBOR Period requested
will be based on the applicable LIBOR Rate.
2.4 Indemnification for Funding and Other Losses. Each LIBOR Request shall be
irrevocable and binding on the Company. The Company shall indemnify the Bank
against any loss or expense incurred by the Bank as a result of any failure on
the part of the Company to fulfill, on or before the date specified in any LIBOR
Request, the applicable conditions set forth in this
10
Agreement, including, without limitation, any loss (including loss of
anticipated profits) or expense incurred by reason of the liquidation of
redeployment of deposits or other funds acquired by the Bank to fund or maintain
the requested LIBOR Portion when interest on such LIBOR Portion, as a result of
such failure on the part of the Company, is not based on the applicable LIBOR
Rate for the requested LIBOR Period.
2.5 Change in Applicable Laws, Regulations, etc. If any Legal Requirement shall
make it unlawful for the Bank to fund through the obtaining of U.S. dollar
deposits any LIBOR Portion, or otherwise to give effect to its obligations as
contemplated hereby, or shall impose on the Bank any costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of the Bank which includes deposits by reference to which the
LIBOR Rate is determined as provided herein or a category of extensions of
credit or other assets of the Bank which includes any LIBOR Portion, or shall
impose on the Bank any restrictions on the amount of such a category of
liabilities or assets which the Bank may hold, (a) the Bank may by notice
thereof to the Company terminate the LIBOR Option, (b) any LIBOR Portion subject
thereto shall immediately bear interest thereafter at the rate provided for in
subsection 1.6(a), and (c) the Company shall indemnify the Bank against any
loss, penalty or expense incurred by the Bank by reason of the liquidation or
redeployment of deposits or other funds acquired by the Bank to fund or maintain
such LIBOR Portion (except to the extent the Bank shall have been compensated or
reimbursed for any such loss, penalty or expense by reason of any LIBOR Premium
or Premiums paid by the Company in connection therewith).
2.6 Taxes. It is the understanding of the Company and the Bank that the Bank
shall receive payments of amounts of principal of and interest on the Loans with
respect to the LIBOR Portions from time to time subject to a LIBOR Option free
and clear of, and without deduction for, any Taxes. If (a) the Bank shall be
subject to any such Tax in respect of any such LIBOR Portion or part thereof or
(b) the Company shall be required to withhold or deduct any such Tax from any
such amount, the LIBOR Rate applicable to such LIBOR Portion shall be adjusted
by the Bank to reflect all additional costs incurred by the Bank in connection
with the payment by the Bank or the withholding by the Company of such Tax and
the Company shall provide the Bank with a statement detailing the amount of any
such Tax actually paid by the Company. Determination by the Bank of the amount
of such costs shall, in the absence of manifest error, be conclusive, and at the
Company's request, the Bank shall demonstrate the basis of such determination.
If after any such adjustment, any part of any Tax paid by the Bank is
subsequently recovered by the Bank, the Bank shall reimburse the Company to the
extent of the amount so recovered. A certificate of an officer of the Bank
setting forth the amount of such recovery and the basis therefor shall, in the
absence of manifest error, be conclusive.
11
Section 3. Representations and Warranties.
In order to induce the Bank to enter into this Agreement and to make the
Loans provided for hereunder, the Company makes the following representations
and warranties, which shall survive the execution and delivery hereof and of the
Notes:
3.1 Organization, Standing, etc. of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own and
operate its properties, to carry on its business as now conducted and proposed
to be conducted, to enter into this Agreement, the Security Documents to which
it is a party and all other documents to be executed by it in connection with
the transactions contemplated hereby, to issue the Notes and to carry out the
terms hereof and thereof.
3.2 Subsidiaries. Schedule 3.2 attached hereto correctly sets forth as to each
Subsidiary, its name, the jurisdiction of its incorporation, the number of
shares of its capital stock of each class outstanding and the number of such
outstanding shares owned by the Company and its Subsidiaries. Each such
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and now proposed to be conducted and to
enter into such of the Security Documents, if any, as relate to it and all other
documents to be executed by it in connection with the transactions contemplated
hereby. All of the outstanding capital stock of each Subsidiary is validly
issued, fully-paid and nonassessable, and is owned by the Company or its
Subsidiaries as specified in Schedule 3.2, in each case free of any mortgage,
pledge, lien, security interest, charge, option or other encumbrance.
3.3 Qualification. The Company and its Subsidiaries are duly qualified or
licensed and in good standing as foreign corporations duly authorized to do
business in each jurisdiction in which the character of the properties owned or
the nature of the activities conducted makes such qualification or licensing
necessary, other than jurisdictions in which the failure to be so qualified or
licensed would not have any material adverse effect on the business or
operations of the Company or its Subsidiaries or on their financial or other
condition.
3.4 Financial Information; Disclosure, etc. As of the date hereof, the Company
has furnished the Bank with the financial statements and other reports listed in
Schedule 3.4 attached hereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and fairly present the financial position and results of operations of the
Persons to which they purport to relate as of the dates and for the periods
indicated. Between the end of the most recent fiscal period shown in such
financial statements and the date hereof, there has not been any material
adverse change in the business, operations,
12
properties or financial position of the Company (or of the Persons to which such
financial statements purport to relate). Neither this Agreement nor any
financial statements, reports or other documents or certificates furnished to
the Bank by the Company in connection with the transactions contemplated hereby
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements herein or therein contained not
misleading. None of the Loans will render the Company unable to pay its debts as
they become due; the Company is not contemplating either the filing of a
petition by it under any state or federal bankruptcy or insolvency laws or the
liquidation of all or a major portion of its property; and the Company has no
knowledge of any person contemplating the filing of any such petition against
it.
3.5 Licenses; Franchises, etc. The Company and its Subsidiaries have all
material authorizations, licenses, permits and franchises of any public or
governmental regulatory body which are necessary for the conduct of the business
of the Company and its Subsidiaries as now conducted and proposed to be
conducted (such authorizations, licenses, permits and franchises, together with
any extensions or renewals thereof, being herein sometimes referred to
collectively as the "Licenses"). All of such Licenses are validly issued and in
full force and effect and the Company and its Subsidiaries have fulfilled and
performed all of their obligations with respect thereto and have full power and
authority to operate thereunder.
3.6 Tax Returns and Payments.
(a) The Company and its Subsidiaries have filed all tax returns required
by law to be filed and have paid all taxes, assessments and other governmental
charges levied upon any of their respective properties, assets, income or
franchises, other than those not yet delinquent and those, not substantial in
aggregate amount, being or about to be contested as provided in subsection 5.4.
The charges, accruals and reserves on the books of the Company and its
Subsidiaries in respect of their respective taxes are adequate in the opinion of
the Company, and the Company knows of no unpaid assessment for additional taxes
or of any basis therefor.
(b) The Company has advised the Bank that the Company may join in an
election under section 338(h)(10) of the Code with respect to the Acquisition
under circumstances which may cause the Company to be obligated to the Seller in
an amount equal to the incremental federal income taxes to be paid by the Seller
as a result of such election. It is further contemplated that any such
obligation of the Company to the Seller as a result of the aforesaid election
(which the Seller presently estimates will be approximately $600,000) would be
evidenced by the promissory note of the Company to the Seller (the "Tax Note").
The Company acknowledges that it will not incur such obligation to the Seller
nor issue the Tax Note unless the Bank, in its sole discretion, shall consent
thereto in writing.
3.7 Indebtedness, Liens and Investments, etc. Schedule 3.7 attached hereto
correctly describes, as of the date or dates indicated therein, (a) all
outstanding Indebtedness of the Company and its Subsidiaries in respect of
borrowed money, Capital Leases and the deferred purchase price of
13
property; (b) all existing mortgages, liens and security interests in respect of
any property or assets of the Company or its Subsidiaries; (c) all outstanding
investments, loans and advances of the Company and its Subsidiaries; and (d) all
existing guarantees by the Company and its Subsidiaries.
3.8 Title to Properties; Liens. The Company and its Subsidiaries have good and
marketable title to all of their respective properties and assets, and none of
such properties or assets is subject to any mortgage, pledge, lien, security
interest, charge or encumbrance except the existing mortgages and security
interests referred to in Schedule 3.7 attached hereto and except minor liens and
encumbrances which in the aggregate are not substantial in amount, do not in any
case materially detract from the value of the property subject thereto or
materially impair the operations of the Company and its Subsidiaries and have
not arisen otherwise than in the ordinary course of business. The Company and
its Subsidiaries enjoy quiet possession under all leases to which they are
parties as lessees, and all of such leases are valid, subsisting and in full
force and effect. None of such leases contains any provision restricting the
incurrence of indebtedness by the lessee or any unusual or burdensome provision
materially adversely affecting the current and proposed operations of the
Company and its Subsidiaries.
3.9 Litigation, etc. Except as set forth in Schedule 3.9 attached hereto, as of
the date hereof, there is no action, proceeding or investigation pending or
threatened (or any basis therefor known to the Company) which questions the
validity of this Agreement, the Notes, the Security Documents or the other
documents executed in connection herewith, or any action taken or to be taken
pursuant hereto, or which might result, either in any case or in the aggregate,
in any material adverse change in the business operations, affairs or condition
of the Company or any Subsidiary or any of their respective properties or in any
material liability on the part of the Company or any Subsidiary.
3.10 Authorization; Compliance with Other Instruments. The execution, delivery
and performance of this Agreement, the Notes and the Security Documents have
been duly authorized by all necessary corporate action on the part of the
Company and its Subsidiaries, will not result in any violation of or be in
conflict with or constitute a default under any term of the charter or by-laws
of the Company or any Subsidiary, or of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to the
Company or any Subsidiary, or result in the creation of any mortgage, lien,
charge or encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to any such term (except pursuant to the Security
Documents). Neither the Company nor any Subsidiary is in violation of any term
of its charter or by-laws, or of any material term of any material agreement or
instrument to which it is a party, or, to the best of the Company's knowledge,
of any judgment, decree, order, statute, rule or governmental regulation
applicable to it.
3.11 Governmental Consent. Neither the Company nor any Subsidiary nor any of
their respective shareholders is required to obtain any order, consent, approval
or authorization of, or required to make any declaration or filing (other than
ordinary notice filings) with, any
14
governmental authority in connection with the execution and delivery of this
Agreement and the issuance and delivery of the Notes pursuant hereto, or in
connection with the execution and delivery of the Security Documents and the
granting of the security interests in the Collateral pursuant thereto, or in
connection with the Acquisition.
3.12 Regulation U, etc. Neither the Company nor any Subsidiary owns or has any
present intention of acquiring any "margin stock" within the meaning of
Regulation U (12 CFR Part 221) of the Board of Governors of the Federal Reserve
System (herein called "margin stock"). None of the proceeds of the Loans will be
used, directly or indirectly, by the Company or any Subsidiary for the purpose
of purchasing or carrying, or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry, any margin
stock or for any other purpose which might constitute the transactions
contemplated hereby a "purpose credit" within the meaning of said Regulation U,
or cause this Agreement to violate Regulation U, Regulation T, Regulation X, or
any other regulation of the Board of Governors of the Federal Reserve System or
the Securities Exchange Act of 1934. If requested by the Bank, the Company will
promptly furnish the Bank with a statement in conformity with the requirements
of Federal Reserve Form U-1 referred to in said Regulation U.
3.13 Employee Retirement Income Security Act of 1974. The terms used in this
subsection 3.13 and in subsection 6.8 of this Agreement shall have the meanings
assigned thereto in the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), and the term "Affiliated Company" shall mean the
Company and all corporations, partnerships, trades or businesses (whether or not
incorporated) which constitute a controlled group of corporations with the
Company, an affiliated service group or other affiliated group, within the
meaning of Section 414(b), Section 414(c), Section 414(m) or Section 414(o),
respectively, of the Code or Section 4001 of ERISA. Each employee benefit plan
sponsored by an Affiliated Company and, to the best of the Company's knowledge,
each multiemployer plan to which any Affiliated Company makes contributions, is
in material compliance with applicable provisions of ERISA and the Code. No
Affiliated Company has incurred any material liability to the Pension Benefit
Guaranty Corporation ("PBGC") or any employee benefit plan on account of any
failure to meet the contribution requirements of any such plan, minimum funding
requirements or prohibited transactions under ERISA or the Code, termination of
a single employer plan, partial or complete withdrawal from a multiemployer
plan, or the insolvency, reorganization or termination of any multiemployer
plan, and no event has occurred or conditions exist which present a material
risk that any Affiliated Company will incur any material liability on account of
any of the foregoing circumstances. The consummation of the transactions
contemplated by this Agreement will not result in any prohibited transaction
under ERISA or the Code for which an exemption is not available.
3.14 Ownership of Company and Parent Company. All of the outstanding shares of
capital stock of the Company are owned by the Parent Company, free of any
assignment, pledge, lien, security interest, charge, option or other
encumbrance. The Company is not obligated in any manner to
15
issue any additional shares of its capital stock. Schedule 3.14 attached hereto
correctly sets forth the number of shares of the Parent Company's capital stock
of each class authorized and the number thereof outstanding, the name of each of
the Parent Company's shareholders as of the date hereof, including Persons who
will become such shareholders upon payment of the Parent Company Subscriptions
(the "Parent Company Shareholders"), and the number of shares of each class of
such capital stock owned by the Parent Company Shareholders.
3.15 Environmental Matters. Neither the Company nor any Subsidiary nor, to the
Company's knowledge, any other Person has ever caused or permitted any Hazardous
Material to be disposed of on or under any real property owned, leased or
operated by the Company or any Subsidiary or in which the Company or any
Subsidiary has ever held, directly or indirectly, any legal or beneficial
interest or estate, and no such real property has ever been used (either by the
Company or any Subsidiary or, to the Company's knowledge, by any other Person)
as (i) a disposal site or permanent storage site for any Hazardous Material or
(ii) a temporary storage site for any Hazardous Material. The Company and each
of its Subsidiaries have been issued and are in compliance with all material
permits, certificates, licenses, approvals and other authorizations relating to
environmental matters and necessary or desirable for their respective
businesses, and have filed all notifications and reports relating to chemical
substances, air emissions, underground storage tanks, effluent discharges and
Hazardous Material waste storage, treatment and disposal required in connection
with the operation of their respective businesses, the failure to have or comply
with which would, individually or in the aggregate, have a material adverse
effect on the Company or any Subsidiary. All Hazardous Materials used or
generated by the Company or any Subsidiary or any business merged into or
otherwise acquired by the Company or any Subsidiary have been generated,
accumulated, stored, transported, treated, recycled and disposed of in
compliance with all applicable laws and regulations, the violation of which has
any reasonable likelihood of having a material adverse effect on the Company or
any Subsidiary. Neither the Company nor any Subsidiary has any liabilities with
respect to Hazardous Materials, and to the knowledge of the Company, no facts or
circumstances exist which could give rise to liabilities with respect to
Hazardous Materials, which could have any reasonable likelihood of having a
material adverse effect on the Company or any Subsidiary.
Section 4. Conditions of Lending.
The obligation of the Bank to make any Loan hereunder is subject to the
following conditions:
4.1 The Notes. On or prior to the date of the Closing, the Bank shall have
received the Revolving Credit Note (in the amount of the Revolving Commitment)
and the Term Note (in the amount of the Term Loan), duly completed, executed and
delivered, as provided in section 1.
4.2 Opinions and Certificates. On and as of the date of the Closing, the Bank
shall have received:
16
(a) The favorable opinion of counsel for the Company, dated as of such
date and in form and substance satisfactory to the Bank and its counsel.
(b) A certificate, dated as of such date, signed by a principal officer of
the Company, certifying that the conditions specified in subsection 4.3 have
been fulfilled.
(c) All other information and documents which the Bank or its counsel may
reasonably have requested in connection with the transactions contemplated by
this Agreement, such information and documents where appropriate to be certified
by the proper Company officers or governmental authorities.
4.3 No Default; Representations and Warranties, etc. On the date of the Closing
and on the date of each Loan hereunder: (a) the representations and warranties
of the Company contained in section 3 of this Agreement shall be true on and as
of such dates as if they had been made on such dates (except to the extent that
such representations and warranties expressly relate to an earlier date or are
affected by the consummation of transactions permitted under this Agreement);
(b) the Company shall be in compliance in all material respects with all of the
terms and provisions set forth herein on its part to be observed or performed on
or prior to such dates; (c) after giving effect to the Loans to be made on such
dates, no Event of Default specified in section 8 hereof, nor any event which
with the giving of notice or expiration of any applicable grace period or both
would constitute such an Event of Default, shall have occurred and be
continuing; and (d) since the date of this Agreement, there shall have been no
material adverse change in the assets or liabilities or in the financial or
other condition of the Company or any Subsidiary. Each request for a Loan
hereunder shall constitute a representation and warranty by the Company to the
Bank that all of the conditions specified in this subsection 4.3 have been
satisfied in all material respects as of the date of each such Loan.
4.4 Security Documents. On or prior to the date of the Closing, the Bank shall
have received the Security Documents, together with any other documents required
or contemplated by the terms thereof, including Uniform Commercial Code
financing statements.
4.5 Equity Investment. On or prior to the date of the Closing, the Parent
Company shall have made an equity investment in the Company of not less than
$3,000,000 (including Company Subscriptions of $431,280 which shall be paid not
later than June 30, 1995) in a manner satisfactory to the Bank.
4.6 Acquisition. Contemporaneously with the Closing: (a) the Company shall have
completed the Acquisition in a manner satisfactory to the Bank and its counsel;
(b) the obligations of the Company to the Seller pursuant to the Seller Note
and/or the Purchase Agreement shall have been subordinated to the Loans and to
the other obligations of the Company to the Bank hereunder and under the Notes
in a manner satisfactory to the Bank and its counsel; and (c) the Bridge Note
and the transactions contemplated thereby, including the security therefor and
the arrangements for the distribution of funds to certain Parent Company
Shareholders and the
17
application of such funds to the payment of the Parent Company Subscriptions,
the Company Subscriptions and the Bridge Note, shall be satisfactory in form and
substance to the Bank and its counsel.
Section 5. Affirmative Covenants.
So long as any of the Loans shall remain available to the Company, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Company agrees that:
5.1 Financial Statements, etc. The Company will furnish or cause to be furnished
to the Bank:
(a) Within 90 days after the end of each fiscal year of the Company, (i)
the consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such year, and (ii) the related consolidated and
consolidating statements of income and surplus and cash flows for such year,
setting forth in comparative form with respect to such consolidated financial
statements figures for the previous fiscal year, all in reasonable detail,
together with the opinion thereon of Ernst & Young or other independent public
accountants selected by the Company and satisfactory to the Bank, which opinion
shall be in a form generally recognized as unqualified and shall state that such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the preceding
fiscal year (except for changes, if any, which shall be specified and approved
in such opinion) and that the audit by such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards related to reporting, provided that such accountants'
certification may be limited to the consolidated financial statements in which
case the consolidating financial statements shall be signed by the chief
financial officer of the Company;
(b) Within 15 days after the end of each month, (i) the unaudited
consolidated and consolidating balance sheets of the Company and its
Subsidiaries as at the end of such month, and (ii) the related unaudited
consolidated and consolidating statements of income and surplus and cash flows
for such month and for the period from the beginning of the current fiscal year
to the end of such month, all in reasonable detail and signed by the chief
financial officer of the Company;
(c) Together with the financial statements delivered pursuant to
subparagraph (a) above, (i) a copy of the management letter, if any,
accompanying such financial statements, and (ii) a statement signed by the
accountants who have reported on such financial statements to the effect that in
connection with their examination of such financial statements they have
reviewed the provisions of this Agreement and have no knowledge of any event or
condition which constitutes an Event of Default or which, after notice or
expiration of any applicable grace period or both, would constitute such an
Event of Default or, if they have such knowledge, specifying
18
the nature and period of existence thereof, provided, however, that in issuing
such statement, such independent accountants shall not be required to go beyond
normal auditing procedures conducted in connection with their opinion referred
to above;
(d) Together with the financial statements delivered pursuant to
subparagraph (a) above, and together with the financial statements delivered
pursuant to subparagraph (b) above for the last months of each of the first
three quarterly accounting periods in each fiscal year of the Company, a
compliance certificate substantially in the form of Exhibit C attached hereto
signed by the chief financial officer of the Company;
(e) Within seven days after the end of each month, a borrowing base
certificate substantially in the form of Exhibit D attached hereto (the
"Borrowing Base Certificate"), together with an aging of accounts receivable
report, in each case signed by the chief financial officer of the Company;
(f) Within seven days after the end of each month, a backlog report
prepared by the Company's management setting forth in reasonable detail the
amount of the Company's authorized and obligated backlog;
(g) Within 30 days after the end of each fiscal year of the Company, a
budget prepared by the Company's management setting forth in reasonable detail,
and on a monthly basis, the Company's budget for the ensuing fiscal year; and
(h) Forthwith upon any officer of the Company obtaining knowledge of any
condition or event which constitutes an Event of Default or which, after notice
or lapse of time or both, would constitute an Event of Default, a certificate
signed by the chief financial officer of the Company specifying in reasonable
detail the nature and period of existence thereof and what action the Company
has taken or proposes to take with respect thereto.
The Company will also furnish or cause to be furnished to the Bank such
other information regarding the business, affairs and condition of the Company
and its Subsidiaries as the Bank may from time to time reasonably request. The
Company will permit the Bank to inspect the books and any of the properties or
assets of the Company and its Subsidiaries at such reasonable times as the Bank
may from time to time request.
5.2 Legal Existence; Franchises; Compliance with Laws, etc. The Company will,
and will cause each Subsidiary to: maintain its corporate existence and
business; maintain all properties which are reasonably necessary for the conduct
of such business, now or hereafter owned, in good repair, working order and
condition; take all actions necessary to maintain and keep in full force and
effect its rights and franchises, including the Licenses; and, except as
otherwise provided herein, comply with all applicable statutes, rules,
regulations and orders of, and all applicable restrictions imposed by, all
governmental authorities in respect of the conduct of its business and the
ownership of its properties; provided that neither the Company nor any
Subsidiary shall be
19
required by reason of this subsection to comply therewith at any time while the
Company or such Subsidiary shall be contesting its obligations to do so in good
faith by appropriate proceedings promptly initiated and diligently conducted,
and if it shall have set aside on its books such reserves, if any, with respect
thereto as are required by generally accepted accounting principles and deemed
adequate by the Company and its independent public accountants. Neither the
Company nor any Subsidiary will, without the prior written consent of the Bank,
engage in any business other than the management consulting business and
activities incidental thereto.
5.3 Insurance. The Company will maintain or cause to be maintained on all
insurable properties now or hereafter owned by the Company or any Subsidiary
insurance against loss or damage by fire or other casualty to the extent
customary with respect to like properties of companies conducting similar
businesses and will maintain or cause to be maintained public liability and
workmen's compensation insurance insuring the Company and its Subsidiaries to
the extent customary with respect to companies conducting similar businesses
and, upon request, will furnish to the Bank satisfactory evidence of the same.
Each insurance policy pertaining to any of the Collateral shall: (i) name the
Bank as an insured pursuant to a so-called "standard mortgagee clause"; (ii)
provide that no action of the Company or any tenant or subtenant shall void such
policy as to the Bank; and (iii) provide that the Bank shall be notified of any
proposed cancellation of such policy at least thirty (30) days in advance of
such proposed cancellation and will have sufficient time to correct any
deficiencies justifying such proposed cancellation. All such policies shall be
delivered to the Bank upon request. In the event of a casualty loss, the Company
may apply the proceeds of any insurance to the restoration or replacement of the
property or asset which was the subject of such loss, provided that (A) the
Company shall have demonstrated to the reasonable satisfaction of the Bank that
such property or asset will be restored to substantially its previous condition
or will be replaced by a substantially identical property or asset, and (B) the
Bank shall have received, if requested by it, a favorable opinion from counsel
for the Company, satisfactory in scope and form to the Bank, as to the Bank's
having a prior security interest in and valid first lien on such restored or
replaced property or asset (subject to the provisions of subsection 6.2(c)
hereof). In addition to the foregoing, the Company will maintain a life
insurance policy or policies in the amount of $2,000,000 insuring the life of
Henri-Claude Bailly and shall cause its rights under such policy or policies to
be assigned to the Bank as security for the Loans and the Company's other
obligations to the Bank hereunder and under the Notes (such assignment to
constitute a Security Document and such life insurance to constitute Collateral
for all purposes of this Agreement). In the event the Bank shall receive payment
in respect of such life insurance policy, it shall permit a portion thereof to
be paid over to the estate of the insured to the extent necessary to satisfy
then outstanding obligations of the Parent Company or the Company under its
employment contract with the insured, provided that (a) the Company shall have
furnished the Bank with reasonably detailed information demonstrating the amount
and nature of such obligation, and (b) at the time of such payment, no Event of
Default shall have occurred and be continuing hereunder.
5.4 Payment of Taxes. The Company will, and will cause each Subsidiary to, pay
and discharge promptly as they become due and payable all taxes, assessments and
other governmental charges
20
or levies imposed upon it or its income or upon any of its properties or assets,
or upon any part thereof, as well as all lawful claims of any kind (including
claims for labor, materials and supplies) which, if unpaid, might by law become
a lien or a charge upon its property; provided that neither the Company nor any
Subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if the Company or such Subsidiary, as the case may be,
shall have set aside on its books such reserves, if any, with respect thereto as
are required by generally accepted accounting principles and deemed appropriate
by the Company and its independent public accountants.
5.5 Payment of Other Indebtedness, etc. Except as to matters being contested in
good faith and by appropriate proceedings, and subject to the provisions of
subsection 6.10 hereof, the Company will, and will cause each Subsidiary to, pay
promptly when due, or in conformance with customary trade terms, all other
Indebtedness and obligations incident to the conduct of its business.
5.6 Further Assurances. From time to time hereafter, the Company will execute
and deliver, or will cause to be executed and delivered, such additional
instruments, certificates or documents, and will take all such actions, as the
Bank may reasonably request, for the purposes of implementing or effectuating
the provisions of this Agreement, the Security Documents or the Notes, or of
more fully perfecting or renewing the Bank's rights with respect to the
Collateral pursuant hereto or thereto. Upon the exercise by the Bank of any
power, right, privilege or remedy pursuant to this Agreement or the Security
Documents which requires any consent, approval, registration, qualification or
authorization of, or any filing with, any governmental authority or
instrumentality (including, without limitation, the giving of any notices
pursuant to the federal Assignment of Claims Act), the Company will execute and
deliver, or will cause the execution and delivery of, all applications,
certifications, instruments and other documents and papers that the Bank may be
required to obtain for such governmental consent, approval, registration,
qualification, authorization or filing. In the event the Company or any
Subsidiary shall at any time or from time to time acquire or own any real
property, the Company will, if requested by the Bank, promptly execute and
deliver, or cause to be executed and delivered, to the Bank a mortgage or deed
of trust, satisfactory in form and substance to the Bank and its counsel,
granting a valid first lien on such real property as security for the Loans and
the other obligations of the Company hereunder and under the Notes.
5.7 Depository Account. The Company will, and will cause each Subsidiary to,
maintain its principal depository account with the Bank.
5.8 Field Audits. Without limiting the provisions of subsection 5.1 hereof, the
Company will permit the Bank to audit the books and records and other assets of
the Company and its Subsidiaries at such times (during normal business hours)
and in such manner and detail as the Bank deems advisable in the Bank's sole
discretion. It is presently contemplated that, so long as no Event of Default
has occurred and is continuing hereunder, such audits will be conducted at
21
approximately six-month intervals. In connection with any such audit or audits,
the Bank shall be allowed to verify the receivables of the Company and to
confirm with account debtors the validity and amount of all of the Company's
accounts receivable. The Company shall promptly pay the Bank's standard audit
fee in connection with any such audit (such fee is presently $750 per audit, but
the Company acknowledges that such fee may be subject to adjustment from time to
time in accordance with the Bank's standard practice). So long as no Event of
Default has occurred and is continuing hereunder, the Company shall be obligated
to pay such audit fees only in respect of the audits conducted at approximately
six-month intervals as hereinabove contemplated.
Section 6. Negative Covenants.
So long as any of the Loans shall remain available to the Company, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Company agrees that:
6.1 Indebtedness. The Company will not, and will not permit any Subsidiary to,
create, incur, assume or become or remain liable in respect of any Indebtedness,
except:
(a) Indebtedness to the Bank;
(b) Subordinated Debt owing to the Parent Company;
(c) Current liabilities of the Company or any Subsidiary (other than for
borrowed money) incurred in the ordinary course of its business and in
accordance with customary trade practices;
(d) Existing Indebtedness, if any, of the Company or any Subsidiary
referred to in Schedule 3.7 attached hereto, in not more than the respective
unpaid principal amounts thereof specified in such Schedule;
(e) Indebtedness of the Company or any Subsidiary secured as permitted by,
and subject to the proviso to, subparagraph (c) of subsection 6.2;
(f) Indebtedness of the Company or any Subsidiary in respect of guarantees
to the extent permitted under subsection 6.3;
(g) Subordinated Debt (in addition to the Subordinated Debt permitted
under subparagraph (b) of this subsection 6.1), including Indebtedness in
respect of the Seller Note;
(h) Indebtedness in respect of the Bridge Note; and
22
(i) Indebtedness in respect of the Tax Note, provided that the Bank, in
its sole discretion, shall have consented thereto as contemplated by subsection
3.6(b) hereof.
6.2 Mortgages, Liens, etc. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist,
any mortgage, lien, charge or encumbrance on, or security interest in, or pledge
of, or conditional sale or other title retention agreement (including any
Capital Lease) with respect to, any property or asset now owned or hereafter
acquired by the Company or any Subsidiary, except:
(a) Any lien securing Indebtedness to the Bank;
(b) The existing mortgages and security interests referred to in Schedule
3.7 attached hereto, or any renewal, extension or refunding of any such mortgage
or security interest in an amount not exceeding the amount thereof remaining
unpaid immediately prior to such renewal, extension or refunding;
(c) Purchase money mortgages, liens and other security interests,
including Capital Leases, created in respect of property acquired by the Company
or any Subsidiary after the date hereof or existing in respect of property so
acquired at the time of acquisition thereof, provided that (i) each such lien
shall at all times be confined solely to the item or items of property so
acquired, and (ii) the aggregate principal amount of Indebtedness secured by all
such liens shall at no time exceed $500,000;
(d) Liens for taxes not yet delinquent or being contested in good faith as
provided in subsection 5.4; liens in connection with workmen's compensation,
unemployment insurance or other social security obligations; liens securing the
performance of bids, tenders, contracts, surety and appeal bonds, liens to
secure progress or partial payments and other liens of like nature arising in
the ordinary course of business; mechanics', workmen's, materialmen's or other
like liens arising in the ordinary course of business in respect of obligations
which are not yet due or which are being contested in good faith; and other
liens or encumbrances incidental to the conduct of the business of the Company
or any Subsidiary or to the ownership of their respective properties or assets,
which were not incurred in connection with the borrowing of money or the
obtaining of credit and which do not materially detract from the value of the
properties or assets of the Company and its Subsidiaries or materially affect
the use thereof in the operation of their business; and
(e) Security interests in the Parent Company Subscriptions and the Company
Subscriptions, including the proceeds thereof, securing the Indebtedness
evidenced by the Bridge Note.
6.3 Loans, Guarantees and Investments. The Company will not, and will not permit
any Subsidiary to, make or permit to remain outstanding any loan or advance to,
or guarantee or endorse (except as a result of endorsing negotiable instruments
for deposit or collection in the
23
ordinary course of business) or otherwise assume or remain liable with respect
to any obligation of, or make or own any investment in, or acquire (except in
the ordinary course of business) the properties or assets of, any Person,
except:
(a) Extensions of credit by the Company or any Subsidiary in the ordinary
course of business in accordance with customary trade practices;
(b) The presently outstanding investments, loans and advances, if any, and
the presently existing guarantees, if any, referred to in Schedule 3.7 attached
hereto;
(c) Marketable direct obligations of the United States of America or any
department or agency thereof maturing not more than one year from the date of
issuance thereof;
(d) Certificates of deposit, repurchase agreements, money market deposits
or other similar types of investments maturing not more than one year from the
date of acquisition thereof and evidencing direct obligations of any bank within
the United States of America the long-term debt of which is rated "Baa" or
better by Moody's Investor Services, Inc. or "BBB" or better by Standard &
Poor's Corporation;
(e) Commercial paper issued by any corporation organized under the laws of
the United States of America or any state thereof, rated "A-1" or better by
Standard & Poor's Corporation or "P-1" or better by Moody's Investors Services,
Inc., and maturing not more than nine (9) months from the date of acquisition
thereof;
(f) Loans and advances, not exceeding $200,000 in aggregate principal
amount outstanding at any time, to officers and employees of the Company;
(g) Loans and advances, not exceeding $600,000 in aggregate principal
amount outstanding at any time, to HB Capital, subject to the provisions of
subsection 1.11(h) hereof; and
(h) Investments and advances made by the Company in the ordinary course of
business for the purpose of opening or acquiring new offices for the conduct of
its business, provided that, at the time thereof and immediately after giving
effect thereto, no condition or event shall exist which constitutes, or which
after notice or lapse of time or both would constitute, an Event of Default.
6.4 Restricted Payments. The Company will not directly or indirectly declare,
order, pay or make any Restricted Payment or set aside any sum or property
therefor if, at the time of such proposed action or immediately after giving
effect thereto, any condition or event shall exist which constitutes, or which
after notice or lapse of time or both would constitute, an Event of Default.
24
6.5 Mergers and Consolidations. The Company will not, and will not permit any
Subsidiary to, enter into any merger or consolidation (other than the merger of
RCG/Hagler Bailly, Inc. into the Company pursuant to the Acquisition) without
the prior written consent of the Bank.
6.6 Sale of Assets. The Company will not, and will not permit any Subsidiary to,
sell, lease or otherwise dispose of all or any substantial part of its
properties or assets without the prior written consent of the Bank.
6.7 Issuance of Additional Shares, etc. The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(a) Issue any additional shares of its capital stock or reissue any
treasury shares (or options to acquire any such shares), whether now or
hereafter authorized, unless (i) in the case of shares of capital stock of the
Company, such shares are issued to the Parent Company, and (ii) in the case of
shares of capital stock of any Subsidiary, such shares are issued to the Company
or to another Subsidiary; or
(b) Sell, assign, pledge or otherwise encumber or dispose of any shares of
capital stock of any Subsidiary (or options to acquire any such shares).
6.8 Compliance with ERISA. The Company will make, and will cause all Affiliated
Companies to make, all payments or contributions to employee benefit plans
required under the terms thereof and in accordance with applicable minimum
funding requirements of ERISA and the Code and applicable collective bargaining
agreements. The Company will cause all employee benefit plans sponsored by any
Affiliated Company to be maintained in material compliance with ERISA and the
Code. The Company will not engage, and will not permit or suffer any Affiliated
Company or any Person entitled to indemnification or reimbursement from the
Company or any Affiliated Company to engage, in any prohibited transaction for
which an exemption is not available. No Affiliated Company will terminate, or
permit the PBGC to terminate, any employee benefit plan or withdraw from any
multiemployer plan, in any manner which could result in material liability of
any Affiliated Company.
6.9 Transactions with Affiliates. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into any lease or other transaction
with any shareholder or with any Affiliate of the Company or such shareholder,
on terms that are less favorable to the Company or such Subsidiary than those
which might be obtained at the time from Persons who are not such a shareholder
or Affiliate.
6.10 Observance of Subordination Provisions, etc. The Company will not make, or
cause or permit to be made, any payments in respect of any Subordinated Debt, in
contravention of the subordination provisions contained in the evidence of such
Subordinated Debt or in contravention of any written agreement pertaining
thereto, nor will the Company (a) amend, modify or change in any manner any of
such subordination provisions without the prior written
25
consent of the Bank or (b) amend, modify or change in any manner adverse to the
interests of the Bank any of the other provisions set forth in the agreements
under which such Subordinated Debt is outstanding or contained in the evidence
of such Subordinated Debt. The Company will not, without the prior written
consent of the Bank, amend, modify or change, or waive or consent to the waiver
of any provision of: (i) the Bridge Note or the provisions of the Purchase
Agreement pertaining thereto; (ii) the Parent Company Subscriptions or the
Company Subscriptions; or (iii) any other document or instrument pertaining to
the matters contemplated by subsection 4.6(c) hereof.
6.11 Environmental Liabilities. The Company will not, and will not permit any
Subsidiary to, violate any requirement of law, rule or regulation regarding
Hazardous Materials; and, without limiting the foregoing, the Company will not
and will not permit any Subsidiary or any other Person to, dispose of any
Hazardous Material into or onto, or (except in accordance with applicable law)
from, any real property owned, leased or operated by the Company or any
Subsidiary or in which the Company or any Subsidiary holds, directly or
indirectly, any legal or beneficial interest or estate, nor allow any lien
imposed pursuant to any law, regulation or order relating to Hazardous Materials
or the disposal thereof to be imposed or to remain on such real property, except
for liens being contested in good faith by appropriate proceedings and for which
adequate reserves have been established and are being maintained on the books of
the Company and its Subsidiaries.
6.12 Officer Distributions; Compensation. The Company will not, directly or
indirectly:
(a) Make or pay any Officer Distributions in respect of any fiscal year
prior to the applicable Officer Distribution Date (and in no event prior to
March 31, 1996);
(b) Make or pay any Officer Distributions if, at the time thereof or
immediately after giving effect thereto (i) the Company shall fail to be in
compliance with any of the provisions of section 7 hereof, or (ii) any other
condition or event shall exist which constitutes, or which after notice or lapse
of time or both would constitute, an Event of Default;
(c) Make or pay any Permitted Officer Distributions in respect of the
fiscal year ending December 31, 1995 unless prior to the payment of any such
Permitted Officer Distributions, the Company shall have deposited not less than
$500,000 (from any source) with the Bank pursuant to escrow arrangements
satisfactory to the Bank and its counsel, any amount so deposited (together with
interest, if any, thereon) to be held by the Bank as cash collateral for the
Loans (and to constitute "Collateral" for all purposes of this Agreement and the
applicable Security Documents) unless and until the later of the following shall
occur (whereupon such deposit and interest thereon shall be returned to the
Company): (i) the date on which the Bank shall have received the financial
statements, management letter (if any) and accountants' statement required by
subparagraphs (a) and (c) of subsection 5.1 hereof for the fiscal year ending
December 31, 1996; or (ii) the date on which the Bank shall have received the
compliance certificate required by subsection 5.1(d) hereof for such fiscal year
(A) demonstrating compliance
26
by the Company with the provisions of section 7 hereof, and (B) certifying that
no Event of Default has occurred; or
(d) Permit or otherwise consent to any amendment, modification or waiver
of the provisions of sections 7 or 8 of the Stockholders Agreement dated May 15,
1995 among the Parent Company and the Parent Company Shareholders.
Section 7. Financial Covenants.
So long as any of the Loans shall remain available to the Company, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Company agrees that:
7.1 Capital Base. The Company will not at any time permit: (a) Company Capital
Base to be less than $3,000,000; or (b) Capital Base to be less than $3,000,000,
which minimum Capital Base amount shall increase by $200,000 at the end of each
fiscal quarter of the Company through and including the fiscal quarter ending
December 31, 1999, and which minimum amount shall further increase by an amount
equal to 75% of the net proceeds of any issue of equity securities by the
Company or the Parent Company (other than equity securities issued to then
existing shareholders of the Company or the Parent Company) occurring prior to
the payment in full of the Term Loan, such increase in the minimum amount
hereunder to be effective as of the date of any such issue of equity securities.
7.2 Current Ratio. The Company will not permit Current Assets to be less than:
(a) 100% of Current Liabilities at any time from the date hereof through
December 31, 1996; (b) 110% of Current Liabilities at any time from January 1,
1997 through December 31, 1998; or (c) 125% of Current Liabilities at any time
after December 31, 1998.
7.3 Adjusted Net Operating Income. The Company will not permit Adjusted Net
Operating Income for any twelve-month period ending on the last day of any
fiscal quarter of the Company occurring during the fiscal years set forth below
to be less than the respective amounts indicated:
27
================================================================================
During Fiscal Year Minimum Amount of Adjusted
Ending December 31, Net Operating Income
------------------- --------------------
1995 $4,500,000
1996 4,750,000
1997 5,000,000
1998 5,250,000
1999 5,500,000
2000 5,750,000
================================================================================
7.4 Funded Debt; Net Operating Income. The Company will not permit the aggregate
principal amount of Funded Debt outstanding at any time during any fiscal
quarter of the Company occurring in the fiscal years set forth below to be
greater than the respective percentages indicated of Net Operating Income for
any twelve-month period ending on the last day of such fiscal quarter:
================================================================================
Funded Debt as a Maximum
During Fiscal Year Percentage of Net
Ending December 31, Operating Income
------------------- ----------------
1995 450%
1996 350%
1997 275%
1998 200%
1999 200%
2000 200%
================================================================================
7.5 Debt Service Coverage. The Company will not permit Net Operating Income for
any twelve-month period ending on the last day of any fiscal quarter occurring
in the fiscal years set forth below to be less than the respective percentages
of Pro Forma Debt Service indicated:
28
================================================================================
Net Operating Income as a
During Fiscal Year Minimum Percentage of Pro
Ending December 31, Forma Debt Service
------------------- ------------------
1995 125%
1996 125%
1997 125%
1998 150%
1999 150%
2000 150%
================================================================================
7.6 Senior Liabilities; Adjusted Capital Base. The Company will not permit the
aggregate amount of Senior Liabilities outstanding at any time during the fiscal
years of the Company set forth below to exceed the respective percentages of
Adjusted Capital Base indicated:
================================================================================
Senior Liabilities as a Maximum
Fiscal Year Percentage of Adjusted
Ending December 31, Capital Base
------------------- ------------
1995 180%
1996 170%
1997 150%
1998 130%
1999 120%
2000 120%
================================================================================
7.7 Billability. The Company will not permit Billability to be less than 55% at
any time.
29
Section 8. Defaults; Remedies.
8.1 Events of Default; Acceleration. If any of the following events (each an
"Event of Default") shall occur:
(a) The Company shall default in the payment of principal of or interest
on any Loan or any other fee due hereunder for more than five (5) days after the
same becomes due and payable, whether at maturity or at a date fixed for the
payment of any installment or prepayment thereof or otherwise; or
(b) The Company shall default in the performance of or compliance with any
term contained in sections 6 or 7; or
(c) The Company shall default in the performance of or compliance with any
term contained herein other than those referred to above in this section 8 and
such default shall not have been remedied within 30 days after written notice
thereof shall have been given to the Company by the Bank; or
(d) The Company, any Subsidiary or any shareholder of the Company which is
a party to any of the Security Documents shall default in the performance of or
compliance with any term contained in the Security Documents or in the
performance of or compliance with any term contained in any other written
agreement with the Bank, and such default shall continue for more than the
period of grace, if any, specified therein and shall not have been waived
pursuant thereto; or
(e) Any material representation or warranty made by the Company herein or
pursuant hereto shall prove to have been false or incorrect in any material
respect when made; or
(f) The Company or any Subsidiary shall default in any payment due on any
Indebtedness in respect of borrowed money, any Capital Lease or the deferred
purchase price of property (if the aggregate outstanding principal amount of all
such Indebtedness in default shall exceed $100,000) and such default shall
continue for more than the period of grace, if any, applicable thereto, or in
the performance of or compliance with any term of any evidence of such
Indebtedness or of any mortgage, indenture or other agreement relating thereto,
and any such default shall continue for more than the period of grace, if any,
specified therein and shall not have been waived pursuant thereto; or
(g) The Company or any Subsidiary shall discontinue its business or shall
make an assignment for the benefit of creditors, or shall fail generally to pay
its debts as such debts become due, or shall apply for or consent to the
appointment of or taking possession by a trustee, receiver or liquidator (or
other similar official) of the Company or such Subsidiary or any
30
substantial part of the property of the Company or such Subsidiary, or shall
commence a case or have an order for relief entered against it under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, or if the Company
or any Subsidiary shall take any action to dissolve or liquidate the Company or
such Subsidiary; or
(h) If, within 30 days after the commencement against the Company or any
Subsidiary of a case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy, insolvency or
other similar law, such case shall have been consented to or shall not have been
dismissed or all orders or proceedings thereunder affecting the operations or
the business of the Company and such Subsidiary stayed, or if the stay of any
such order or proceeding shall thereafter be set aside, or if within 30 days
after the entry of a decree appointing a trustee, receiver or liquidator (or
other similar official) of the Company or any Subsidiary or any substantial part
of the property of the Company or such Subsidiary, such appointment shall not
have been vacated; or
(i) A final judgment which, with other outstanding final judgments against
the Company and its Subsidiaries, exceeds an aggregate of $100,000 shall be
rendered against the Company or any Subsidiary and if, within 60 days after
entry thereof, such judgment shall not have been discharged or execution thereof
stayed pending appeal, or if, within 60 days after the expiration of any such
stay, such judgment shall not have been discharged, or if any such judgment
shall not be discharged forthwith upon the commencement of proceedings to
foreclose any lien, attachment or charge which may attach as security therefor
and before any of the property or assets of the Company or any Subsidiary shall
have been seized in satisfaction thereof; or
(j) If the Parent Company Shareholders shall, during any calendar year,
sell or otherwise dispose of 20% of more of the outstanding shares of capital
stock of the Parent Company owned by them in the aggregate at the beginning of
such calendar year (other than the repurchase of shares by the Parent Company
from the estates of deceased shareholders pursuant to repurchase agreements in
effect from time to time between the Parent Company and its shareholders); or
(k) If Henri-Claude Bailly shall for any reason, including death or
disability, cease to be, or cease to perform on a full-time basis the duties of,
the chief executive officer of the Company, and within 90 days thereafter a
successor chief executive officer reasonably acceptable to the Bank (the name of
any such successor executive officer to be substituted in this subparagraph (k)
in place of the name of said Henri-Claude Bailly) shall not have been appointed
and assumed his or her duties as chief executive officer of the Company; or
(l) If the Parent Company shall cease to own all of the outstanding shares
of capital stock of the Company; or
31
(m) If the Parent Company Subscriptions, the Company Subscriptions and the
Bridge Note are not paid in full by June 30, 1995;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, any of the following actions may be taken. The Bank
may by written notice to the Company, (i) declare the principal of and accrued
interest in respect of the Notes to be forthwith due and payable, whereupon the
principal of and accrued interest in respect of the Notes (together with any
LIBOR Premium applicable thereto) shall become forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Company, and/or (ii) terminate the Revolving
Commitment to make any or all of the Revolving Credit Loans hereunder, whereupon
said Revolving Commitment of the Bank hereunder shall forthwith terminate
without any other notice of any kind. If any Event of Default of the character
described in subparagraphs (g) or (h) of this subsection 8.1 with respect to the
Company shall occur, the principal of and accrued interest in respect of the
Notes (together with any LIBOR Premium applicable thereto) shall forthwith
become due and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Company, and (ii) the
Revolving Commitment of the Bank to make Revolving Credit Loans hereunder shall
forthwith terminate without notice of any kind.
8.2 Remedies on Default, etc. In case any one or more Events of Default shall
occur and be continuing, the Bank may proceed to protect and enforce its rights
by an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Note or
Security Document, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law. In case of a default in the payment of any principal of or
interest on any Note, or in the payment of any fee due hereunder, the Company
will pay to the Bank such further amount as shall be sufficient to cover the
cost and expense of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements. No course of dealing and no delay
on the part of the Bank in exercising any right shall operate as a waiver
thereof or otherwise prejudice the Bank's rights. No right conferred hereby or
by any Note or Security Document upon the Bank shall be exclusive of any other
right referred to herein or therein or now or hereafter available at law, in
equity, by statute or otherwise.
Section 9. Definitions. As used herein the following terms have the following
respective meanings:
Acquisition: the acquisition by the Company of the business and all
of the properties and assets of RCG/Hagler Bailly, Inc. by way of the purchase
from the Seller of all of the outstanding shares of capital stock of RCG/Hagler
Bailly, Inc. pursuant to the Purchase Agreement and the concurrent merger of
RCG/Hagler Bailly, Inc. into the Company.
32
Adjusted Capital Base: at any time, the sum of (a) Capital Base and
(b) the aggregate principal amount of all Subordinated Debt of the Company then
outstanding, all as determined on an Adjusted Consolidated Basis.
Adjusted Consolidated Basis: as applied to any calculation
hereunder, a calculation based on a consolidation which includes the Parent
Company, HB Capital (so long as HB Capital is a wholly-owned subsidiary of the
Parent Company and the guaranty referred to in subsection 1.11(h) hereof
continues in full force and effect), the Company and the Subsidiaries, but which
excludes any other subsidiary or Affiliate of the Parent Company or HB Capital,
and which is otherwise in accordance with generally accepted accounting
principles.
Adjusted Net Operating Income: for any period, Net Operating Income
for such period, after restoring thereto amounts deducted for Discretionary
Payments (without double counting Bonus Recapture, if any, included in Net
Operating Income) in respect of such period, all as determined on an Adjusted
Consolidated Basis.
Affiliate: as applied to any Person, a spouse or relative of such
Person, any member, director or officer of such Person, any corporation,
association, firm or other entity of which such Person is a member, director or
officer, and any other Person directly or indirectly controlling, controlled by
or under direct or indirect common control with such Person.
Affiliated Company: the meaning specified in subsection 3.13.
Available Commitment: the meaning specified in subsection 1.4(a).
Bank: the meaning specified at the beginning of this Agreement.
Banking Day: the meaning specified in subsection 2.2.
Billability: at any time, the quotient (expressed as a percentage)
of (a) Total Billable Hours for the most recently ended fiscal quarter of the
Company, divided by (b) Theoretical Billing Capacity for such period.
Bonus Recapture: as of the end of each fiscal year of the Company,
the amount, if any, by which (a) Bonus Reserves exceeds (b) Permitted Officer
Distributions.
Bonus Reserves: as applied to any fiscal year of the Company, the
amount deducted in the computation of Net Income for such fiscal year in respect
of reserves established on the books of the Company for Officer Distributions.
Borrowing Base: an amount equal to 80% of Eligible Receivables,
provided that prior to March 31, 1997, the Borrowing Base shall be equal to 70%
of Eligible Receivables
33
during any period in which the Available Commitment is permitted to exceed
$3,500,000 in accordance with subsection 1.4(d) hereof.
Borrowing Base Certificate: the meaning specified in subsection
5.1(e).
Bridge Note: the promissory note of the Company issued to the Seller
in the principal amount of $431,280 pursuant to the terms of the Purchase
Agreement which promissory note is due and payable not later than June 30, 1995,
subject to the distribution for the account of certain of the Parent Company
Shareholders of not less than $431,280 from certain profit sharing plans
maintained by the Seller or its Affiliates, all in accordance with the
provisions of the Purchase Agreement.
Capital Base: the sum of the following (determined on an Adjusted
Consolidated Basis): (a) shareholders' equity of the Parent Company and its
subsidiaries; (b) prior to June 30, 1995 (but not thereafter), the amount of the
Parent Company Subscriptions; and (c) amounts reserved on the books of the
Parent Company and its subsidiaries for the payment of bonuses and profit
sharing to professionals and employees who are shareholders of the Parent
Company.
Capital Expenditure: any payment made directly or indirectly for the
purpose of acquiring or constructing fixed assets, real property or equipment
which in accordance with generally accepted accounting principles would be added
as a debit to the fixed asset account of the Person making such expenditure,
including, without limitation, amounts paid or payable under any conditional
sale or other title retention agreement or under any lease or other periodic
payment arrangement which is of such a nature that payment obligations of the
lessee or obligor thereunder would be required by generally accepted accounting
principles to be capitalized and shown as liabilities on the balance sheet of
such lessee or obligor.
Capital Lease: any lease of property (real, personal or mixed)
which, in accordance with generally accepted accounting principles, should be
capitalized on the lessee's balance sheet or for which the amount of the asset
and liability thereunder as if so capitalized should be disclosed in a note to
such balance sheet.
Closing: the meaning specified in subsection 1.2(b).
Code: the meaning specified in subsection 3.13.
Collateral: the meaning specified in subsection 1.11.
Commitment Fee: the meaning specified in subsection 1.8.
Company: the meaning specified at the beginning of this Agreement.
34
Company Capital Base: the sum of (a) the shareholders' equity of the
Company, determined in accordance with generally accepted accounting principles;
and (b) prior to June 30, 1995 (but not thereafter), the amount of the Company
Subscriptions.
Company Sale Prepayment: any prepayment of the Loans, in whole or in
part, made concurrently with and/or from the proceeds of any sale of all or any
substantial part of the business and properties and assets of the Company or the
Parent Company or the sale of all or any substantial part of the shares of
capital stock of the Company or the Parent Company.
Company Subscriptions: the irrevocable subscription or subscriptions
of the Parent Company to purchase shares of common stock of the Company for an
aggregate purchase price of $431,280, the proceeds of which are to be applied by
the Company promptly upon receipt thereof to the payment in full of the Bridge
Note.
Current Assets: all assets of the Parent Company and its
subsidiaries which may be properly classified as current assets in accordance
with generally accepted accounting principles, determined on an Adjusted
Consolidated Basis, provided that Current Assets shall not include any amounts
attributable to services or other work in process which has not been billed to
clients.
Current Liabilities: all liabilities of the Parent Company and its
subsidiaries which may be properly classified as current liabilities in
accordance with generally accepted accounting principles, determined on an
Adjusted Consolidated Basis, provided that Current Liabilities shall include the
unpaid principal of the Revolving Credit Loans (whether or not due within 12
months).
Discretionary Payments: for any period, the aggregate amount of all
bonuses and other discretionary payments, including profit sharing, incentive
compensation or similar arrangements, reimbursement of expenses and the like,
accrued or payable by the Parent Company and its subsidiaries, determined on an
Adjusted Consolidated Basis, to officers and management employees in respect of
such period (whether or not the actual payment thereof is made during such
period or during a subsequent period).
Eligible Foreign Clients: clients of the Company whose place of
business is outside of the United States of America, but whose obligations to
the Company are payable in U.S. dollars and are funded, underwritten or
otherwise supported by an international financial development or investment
institution which is included in the international listing of Thompson Bank
Directory and whose long term debt is rated "AAA" by Thompson Bank Watch and
whose short term debt is rated "TBW-1" by Thompson Bank Watch (where such rating
may apply).
Eligible Receivables: the gross amount, as reflected on the
Company's books in accordance with generally accepted accounting principles
consistently applied, of outstanding accounts receivable of the Company with
respect to amounts due in the ordinary course of the
35
Company's business from account debtors whose principal place of business is
within the United States of America and from Eligible Foreign Clients, which
amounts have been invoiced to account debtors and are not outstanding more than
90 days past the invoice date (it being acknowledged by the Company that a
reinvoiced amount to the same account debtor shall be deemed outstanding from
the date of the original invoice therefor), as to which the Bank has a valid and
perfected first priority security interest under all applicable law and as to
which the Company has furnished reasonably detailed information to the Bank in a
Borrowing Base Certificate, determined after deducting from the aggregate amount
thereof (i) all payments, adjustments and credits of all kinds against such
accounts receivable, and (ii) all amounts due thereon considered by and in the
reasonable discretion of the Bank to be uncollectible by reason of rejection or
other disputes, insolvency of the account debtor (however evidenced), or any
other legitimate reason and further excluding any accounts receivable arising
out of transactions with Affiliates of the Company or with respect to which
there shall exist any deposits, liens (including liens securing any bonds),
payables, discounts, retentions, aged credit balances or other similar offsets
or reductions, all as determined by the Lender in its reasonable discretion.
Without limiting the foregoing, it is expressly agreed that in the event fifty
percent (50%) or more of the accounts receivable owed by any account debtor
(including Affiliates of such account debtor) are more than 120 days past the
invoice date, then none of the accounts receivable owing by such account debtor
or by any Affiliate of such account debtor shall constitute Eligible
Receivables.
ERISA: the meaning specified in subsection 3.13.
Event of Default: the meaning specified in section 8.
Excess Cash Flow: for any fiscal year of the Company, Net Operating
Income for such fiscal year, minus (without duplication of deductions) the sum
of (a) all Capital Expenditures made during such fiscal year (except for Capital
Expenditures made from the proceeds of Total Debt, other than the Loans); (b)
all payments made during such fiscal year in respect of the principal of or
interest on Total Debt; and (c) the amount of all taxes in respect of income and
profits paid during such fiscal year, all as determined on an Adjusted
Consolidated Basis.
Expiration Date: May 31, 1997, or such later date or dates as may be
established by mutual agreement of the Company and the Bank as hereinafter
provided. Not earlier than 90 days, nor later than 60 days, prior to the
Extension Agreement Date (as hereinafter defined), the Company may by written
notice to the Bank request that the Expiration Date then in effect hereunder be
extended for an additional period of one (1) year. Upon the receipt of any such
request, the Bank shall notify the Company in writing not later than 15 days
prior to the Extension Agreement Date whether or not the Bank is willing to
extend the Expiration Date as so requested. If the Bank so notifies the Company
that it is willing to extend the Expiration Date as requested, the parties shall
enter into a written agreement extending the Expiration Date for an additional
period of one (1) year. If the Bank is unwilling to extend the Expiration Date
as so requested, or if the Bank shall fail to respond to the Company's request
as aforesaid, the
36
Revolving Commitment shall expire on the Expiration Date then in effect and the
entire unpaid principal of and interest on the Revolving Credit Loans shall be
due and payable on such Expiration Date. Nothing herein shall be deemed to
constitute an obligation or commitment on the part of the Company or the Bank to
agree to any such extension of the Expiration Date, the entering into of any
such agreement to be within the respective discretion of each of them. For
purposes of this definition, the term "Extension Agreement Date" shall mean, at
any time, the date which is one year prior to the Expiration Date then in effect
hereunder.
Funded Debt: at any time, the aggregate principal amount of all
outstanding Indebtedness, (without duplication) of the Parent Company and its
subsidiaries (including Subordinated Debt of the Company), determined in
accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis, which Indebtedness matures twelve months or more from the
date of creation thereof, which is directly or indirectly renewable or
extendable at the option of the debtor, by its terms or by the terms of any
instrument or agreement relating thereto, to a date twelve months or more from
the date of creation thereof, or which is incurred under a revolving credit,
line of credit or similar agreement obligating the lender or lenders to extend
credit over a period of twelve months or more, provided that, for purposes of
this definition, "Funded Debt" shall include an amount equal to the outstanding
principal of the Revolving Credit Loans (whether or not due within twelve
months) minus the amount of all net collected cash balances maintained by the
Company on deposit in demand deposit accounts with the Bank at such time.
Hazardous Material: (a) any asbestos or insulation or other material
composed of or containing asbestos and (b) any petroleum product and any
hazardous, toxic or dangerous waste, substance or material defined as such in
(or for purposes of) the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, or any other
applicable federal, state, local or other statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic or dangerous waste,
substance or material, as now or at any time hereafter in effect.
HB Capital: HB Capital, Inc., a Delaware corporation.
Indebtedness: as applied to any Person, (i) all items (except items
of capital or surplus or of retained earnings) which in accordance with
generally accepted accounting principles would be included in determining total
liabilities as shown on the liability side of the balance sheet of such Person
as of the date of which Indebtedness is to be determined, including any Capital
Lease, (ii) all indebtedness secured by any mortgage, pledge, lien or
conditional sale or other title retention agreement to which any property or
asset owned or held by such Person is subject, whether or not the indebtedness
secured thereby shall have been assumed, and (iii) all indebtedness of others
which such Person has directly or indirectly guaranteed, endorsed (otherwise
than for collection or deposit in the ordinary course of business), discounted
or sold with recourse or agreed (contingently or otherwise) to purchase or
repurchase or otherwise
37
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock purchase, capital contributions or
otherwise) or otherwise to become directly or indirectly liable.
Interest Expense: for any period, the aggregate amount (determined
in accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis) of interest paid or payable during such period by the Parent
Company and its subsidiaries in respect of all Indebtedness for borrowed money,
Capital Leases and the deferred purchase price of property.
Licenses: the meaning specified in subsection 3.5.
Loan or Loans: the meanings specified in subsection 1.4(a).
Net Income: net income (or loss), excluding extraordinary items, of
the Parent Company and its subsidiaries for the period in question, determined
in accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis.
Net Operating Income: for any period, Net Income for such period
(after giving effect to the deduction of any Discretionary Payments in the
computation of Net Income for such period), after restoring thereto amounts
deducted for (a) depreciation and amortization; (b) Interest Expense (less any
interest income included in the calculation of Net Income for such period); and
(c) taxes in respect of income and profits paid during such period, all as
determined on an Adjusted Consolidated Basis. As applied to any fiscal year of
the Company, Net Operating Income shall also include the amount of any Bonus
Recapture attributable to such fiscal year.
Note or Notes: the meanings specified in subsection 1.5.
Officer Distribution Date: as applied to any fiscal year of the
Company, the later to occur of the following: (a) the date on which the Bank
shall have received the financial statements, management letter (if any) and
accountants' statement required by subparagraphs (a) and (c) of subsection 5.1
hereof for such fiscal year; or (b) the date on which the Bank shall have
received the compliance certificate required by subsection 5.1(d) hereof for
such fiscal year (i) demonstrating compliance by the Company with the provisions
of section 7 hereof, (ii) certifying that no Event of Default has occurred, and
(iii) setting forth the amount of any Bonus Recapture for such fiscal year.
Officer Distributions: cash payments to officers of the Company in
respect of bonuses, incentive compensation or similar arrangements.
Parent Company: Hagler Bailly, Inc., a Delaware corporation.
Parent Company Shareholders: the meaning specified in subsection
3.14.
38
Parent Company Subscriptions: the irrevocable subscriptions of
certain of the Parent Company Shareholders to purchase shares of common stock of
the Parent Company for an aggregate purchase price of $431,280, the proceeds of
which are to be applied by the Parent Company promptly upon receipt thereof to
the payment in full of the Company Subscriptions.
PBGC: the meaning specified in subsection 3.13.
Permitted Officer Distributions: as applied to any fiscal year of
the Company, the amount of Officer Distributions which may be made by the
Company in respect of such fiscal year in compliance with the provisions of
subsection 6.12(b) hereof.
Person: a corporation, an association, a partnership, a joint
venture, an organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
Prepayment Premium: as applied to any Company Sale Prepayment or
Refinancing Prepayment, an amount equal to the product of (i) the principal
amount of the Loans so prepaid, multiplied by (ii) a percentage applicable in
accordance with the following table, depending upon the twelve-month period in
which such prepayment occurs:
================================================================================
During Fiscal Year
Ending December 31, Premium
------------------- -------
1995 1.5%
1996 1.0%
1997 0.5%
1998 and thereafter None
================================================================================
Prime Rate: the per annum rate of interest announced from time to
time by the Bank as its "prime rate".
Pro Forma Debt Service: the maximum aggregate amount (determined in
accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis) of principal, premium, if any, and interest payable or
guaranteed by the Parent Company and its subsidiaries for the period of four (4)
consecutive fiscal quarters immediately following the date as of which Pro Forma
Debt Service is to be determined in respect of all Total Debt outstanding on
such date, adjusted to give effect to any immediately proposed incurrence or
retirement of Total Debt. For purposes of this definition, interest on any
Indebtedness which is payable at a floating or variable rate shall be determined
on the basis of the interest rate in effect on the date as of which Pro Forma
Debt Service is to be determined.
39
Purchase Agreement: the Sale Agreement dated as of May 25, 1995
between the Company and the Seller, providing for the Acquisition.
Restricted Payment: (a) any dividend or other distribution, direct
or indirect, on or on account of any shares of any class of stock of the Company
now or hereafter outstanding (other than a dividend consisting of the shares of
capital stock of Capital to the Parent Company pursuant to the Acquisition), and
(b) any redemption, purchase or other acquisition, direct or indirect, of any
shares of any class of stock of the Company now or hereafter outstanding or of
any warrants or rights to purchase any such stock (including without limitation
the repurchase of any such stock or warrant or any refund of the purchase price
thereof in connection with the exercise by the holder thereof of any right of
rescission or similar remedies with respect thereto).
Revolving Commitment: the meaning specified in subsection 1.1.
Revolving Credit Loan or Loans: the meanings specified in subsection
1.4(a).
Revolving Credit Note: the meaning specified in subsection 1.5.
Security Documents: the meaning specified in subsection 1.11.
Seller: RCG International, Inc.
Seller Note: the 9.5% subordinated note due May 15, 2001 of the
Company issued to the Seller in the principal amount of $4,650,000 pursuant to
the terms of the Purchase Agreement.
Senior Liabilities: all liabilities of the Parent Company and its
subsidiaries, determined in accordance with generally accepted accounting
principles on an Adjusted Consolidated Basis, other than Subordinated Debt of
the Company.
Subordinated Debt: (a) the existing Indebtedness of the Company
which is designated as "Subordinated Debt" in Schedule 3.7 attached hereto, (b)
Indebtedness in respect of the Seller Note and (c) any other Indebtedness of the
Company consented to in writing by the Bank which matures in its entirety later
than the Term Loan and by its terms (or by the terms of the instrument under
which it is outstanding and to which appropriate reference is made in the
instrument evidencing such Subordinated Debt) is made subordinate and junior in
right of payment to the Loans and to the Company's other obligations to the Bank
hereunder and under the Notes by provisions satisfactory in form and substance
to the Bank and its counsel. As used in the Agreement, the term "Subordinated
Debt" shall not be deemed to include any Indebtedness (whether or not
subordinated) of the Parent Company, HB Capital or any subsidiary of either of
them, other than the Company.
40
Subsidiary: any corporation of which more than 50% of the
outstanding Voting Stock (other than director's qualifying shares) is at the
time owned by the Company or by one or more Subsidiaries or by the Company and
one or more Subsidiaries.
Tax Note: the meaning specified in subsection 3.6(b).
Term Loan: the meaning specified in subsection 1.2(a).
Term Note: the meaning specified in subsection 1.3.
Theoretical Billing Capacity: for any fiscal quarter of the Company,
the amount accrued on the Company's books for payroll expense for such period in
respect of all employees of the Company.
Total Billable Hours: for any fiscal quarter of the Company, the
amount accrued on the Company's books for billable services rendered to clients
by professionals and employees of the Company during such period.
Total Debt: all Indebtedness of the Parent Company and its
subsidiaries (without duplication) in respect of borrowed money, Capital Leases
and the deferred purchase price of property, including Subordinated Debt of the
Company, all as determined on an Adjusted Consolidated Basis.
Transaction Fee: the meaning specified in subsection 1.7.
Voting Stock: stock having ordinary voting power to elect a majority
of the board of directors of the corporation in question, irrespective of
whether or not at the time stock of any class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency.
Section 10. Setoffs, etc. If the Company becomes insolvent, howsoever evidenced,
or any Event of Default occurs, any Indebtedness from the Bank to the Company or
any Subsidiary may, without regard to the value of the Collateral, be offset and
applied toward the payment of any Indebtedness from the Company to the Bank,
whether or not such Indebtedness, or any part thereof shall then be due.
Section 11. Expenses; Indemnification.
(a) Whether or not the transactions contemplated hereby shall be
consummated, the Company agrees (i) to pay all reasonable expenses, including
reasonable fees and disbursements of counsel for the Bank, which the Bank has
incurred or may hereafter incur in connection with
41
the preparation of this Agreement, the Security Documents, the Notes and all
other documents related hereto (including any amendment, consent or waiver
hereafter requested by the Company hereunder or thereunder) and the transactions
contemplated hereby or the enforcement of the rights of the Bank hereunder or
under the Notes or the Security Documents in the event of a default hereunder or
thereunder, (ii) to pay all taxes and fees (including interest and penalties,
but excluding taxes on the net income of the Bank), including, without
limitation, all recording and filing fees, transfer and documentary stamp and
similar taxes, which may be payable in respect of the execution and delivery of
this Agreement, the Security Documents, the Notes and all other documents
related hereto (including any amendment, consent or waiver hereafter requested
by the Company hereunder or thereunder) and to indemnify the Bank and hold the
Bank harmless against any loss or liability resulting from non-payment or delay
in payment of any such tax, and (iii) to pay the Bank's audit fee in the amount
of $750 for the field audit conducted by the Bank in connection with the
Company's application for credit hereunder.
(b) The Company will indemnify the Bank, its directors, officers and
employees and each other Person, if any, who controls the Bank, and will hold
the Bank and such other Persons harmless from and against any and all claims,
damages, losses, liabilities, judgments and expenses (including without
limitation all reasonable fees and expenses of counsel and all expenses of
litigation or preparation therefor) which the Bank or such other Persons may
incur or which may be asserted against the Bank or such other Persons in
connection with or arising out of any investigation, litigation or proceeding
involving the Company or any shareholder or any Affiliate of the Company or any
such shareholder (including compliance with or contesting of any subpoenas or
other process issued against the Bank, or any director, officer or employee of
the Bank, or any Person, if any, who controls the Bank in any proceeding
involving the Company or any shareholder or any Affiliate of the Company or any
such shareholder), whether or not the Bank is party thereto, other than claims,
damages, losses, liabilities or judgments with respect to any matter as to which
the Bank or such other Person seeking indemnity shall have been finally
adjudicated not to have acted in good faith. Promptly upon receipt by any
indemnified party hereunder of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
Company hereunder, notify the Company in writing of the commencement thereof.
Section 12. Waivers. The Bank's failure to insist upon the strict performance of
any term, condition or other provision of this Agreement, the Security Documents
or the Notes or to exercise any right or remedy hereunder or thereunder shall
not constitute a waiver by the Bank of any such term, condition or other
provision or default or Event of Default in connection therewith; and any waiver
of any such term, condition or other provision or of any such default or Event
of Default shall not affect or alter this Agreement, the Security Documents or
the Notes, and each and every term, condition and other provision of this
Agreement, the Security Documents and the Notes shall, in such event, continue
in full force and effect and shall be operative with respect to any other then
existing or subsequent default or Event of Default in connection therewith.
42
Section 13. Miscellaneous.
13.1 Notices, etc.
(a) All notices (other than notices in respect of borrowings and
prepayments, but including requests for extension of the Expiration Date) and
other communications hereunder shall be in writing and shall be personally
delivered or sent by telecopier or by first class mail, postage prepaid, as
follows:
(i) If to the Bank:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Linda A. Moulton
Vice President
Telecopier no.: 617-654-4176
with a copy to:
Allen M. Bornheimer, Esquire
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Telecopier no.: 617-248-4000
(ii) If to the Company:
Hagler Bailly Consulting, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, Virginia 22209-2406
Attention: Daniel M. Rouse
Vice President and
Chief Financial Officer
Telecopier no.: 703-351-0342
with a copy to:
Pepper, Hamilton & Scheetz
300 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103-2799
Attention: Cary S. Levinson, Esq.
43
Telecopier no.: 215-981-4750
or to such other address or addresses as the party to whom such notice is
directed may have designated in writing to the other party hereto. A notice
shall be deemed to have been given upon the earlier to occur of (i) three (3)
days after the date on which it is deposited in the U.S. mails or (ii) receipt
by the party to whom such notice is directed.
(b) Notices to the Bank in respect of borrowings and prepayments of the
Loans shall be delivered in accordance with the applicable provisions hereof,
addressed to the Bank at:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Sheila Metcalf
Telephone no.: 617-654-3661
Telecopier no.: 617-654-3178
Telex: 200139
Call Back: STATE UR
or to such other address as the Bank may designate in writing to the Company.
13.2 Calculations, etc. Calculations hereunder shall be made and financial data
required hereby shall be prepared, both as to classification of items and as to
amounts, in accordance with generally accepted accounting principles and
practices which principles and practices shall be consistently applied and in
conformity with those used in the preparation of the financial statements
referred to herein.
13.3 Survival of Agreements, etc. This Agreement shall inure to the benefit of
the Bank and its successors and assigns including any subsequent holder or
holders of the Notes, and the term "Bank" shall include any such holder or
holders whenever the context permits. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and the making of the Loans hereunder.
13.4 Counterparts, etc. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument.
13.5 Entire Agreement, etc. This Agreement constitutes the entire contract
between the parties hereto and shall supersede and take the place of any other
instrument purporting to be an agreement of the parties hereto relating to the
transactions contemplated hereby. This Agreement may not be changed orally but
only by an agreement in writing signed by the party against whom any waiver,
change, modification or discharge is sought.
44
13.6 Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement and the
Notes, including the validity thereof and the rights and obligations of the
parties hereunder and thereunder, shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The Company, to the
extent that it may lawfully do so, hereby consents to service of process, and to
be sued, in the Commonwealth of Massachusetts and consents to the jurisdiction
of the courts of the Commonwealth of Massachusetts and the United States
District Court for the District of Massachusetts, as well as to the jurisdiction
of all courts to which an appeal may be taken from such courts, for the purpose
of any suit, action or other proceeding arising out of any of its obligations
hereunder or under the Notes or with respect to the transactions contemplated
hereby or thereby, and expressly waives any and all objections it may have as to
venue in any such courts. The Company further agrees that a summons and
complaint commencing an action or proceeding in any of such courts shall be
properly served and shall confer personal jurisdiction if served personally or
by certified mail to it at its address provided in subsection 13.1 or as
otherwise provided under the laws of the Commonwealth of Massachusetts. The
Company irrevocably waives all right to a trial by jury in any proceeding
hereafter instituted by or against the Company in respect of this Agreement, the
Notes, the Security Documents, or any other documents executed in connection
herewith or therewith.
45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a
sealed instrument as of the date first above written.
HAGLER BAILLY CONSULTING, INC.
By /s/ Henri-Claude A. Bailly President
------------------------------------------
(Title)
STATE STREET BANK AND TRUST COMPANY
By /s/ Linda M. Moulton Vice President
------------------------------------------
(Title)
46
EXHIBIT A
[Form of Term Note]
HAGLER BAILLY CONSULTING, INC.
Term Note
$7,000,000
Boston, Massachusetts
____________, 1995
HAGLER BAILLY CONSULTING, INC., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to STATE STREET BANK AND
TRUST COMPANY (the "Bank"), or order, the principal amount of Seven Million
Dollars ($7,000,000), payable in twenty-two (22) consecutive quarterly
installments of principal as follows: two (2) installments each in the amount of
$250,000, payable on September 30 and December 31, 1995; four (4) installments
each in the amount of $295,000, payable on March 31, June 30, September 30 and
December 31, 1996; four (4) installments each in the amount of $322,250, payable
on March 31, June 30, September 30 and December 31, 1997; four (4) installments
each in the amount of $352,000, payable on March 31, June 30, September 30 and
December 31, 1998; four (4) installments each in the amount of $384,500, payable
on March 31, June 30, September 30 and December 31, 1999; and four (4)
installments each in the amount of $271,250, payable on March 31, June 30,
September 30 and December 31, 2000; with interest on the unpaid principal amount
hereof at the rate or rates specified in the Credit Agreement referred to below,
payable on the dates specified in the Credit Agreement and at maturity (whether
by acceleration or otherwise); provided that, if the Company shall fail to make
any payment of principal of or interest on this Note, when due, whether at
maturity or at a date fixed for the payment of any installment or prepayment
thereof or by
47
declaration, acceleration or otherwise, the Company shall pay to the holder of
this Note on demand by such holder, interest on such unpaid principal and (to
the extent permitted by law) on such unpaid interest from the date due until
paid in full at a rate per annum equal to four percent (4%) above the rate
otherwise applicable hereunder; provided, further that in no event shall the
amount contracted for and agreed to be paid by the Company as interest on this
Note exceed the highest lawful rate permissible under any law applicable hereto.
This Note evidences a term loan under and is subject to the
provisions of a certain Credit Agreement dated as of May 17, 1995 (as amended
from time to time, the "Credit Agreement") by and between the Company and the
Bank. The holder of this Note is entitled to the benefits of the Credit
Agreement and to the benefits of the Security Documents referred to therein.
Neither this reference to such Credit Agreement nor any provision thereof shall
affect or impair the absolute and unconditional obligation of the Company to pay
the principal of and interest on this Note as provided herein. All payments of
principal of and interest on this Note shall be payable in immediately available
funds at the address of the Bank set forth in the Credit Agreement. Capitalized
terms used herein without definition which are defined in the Credit Agreement
shall have the meanings ascribed to them in the Credit Agreement.
This Note is subject to prepayment in whole or in part, in certain
circumstances with a premium and in other circumstances without a premium, and
to acceleration on default at the times and in the manner specified in the
Credit Agreement. The maker and all endorsers of this Note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Note.
This Note is governed by the laws of the Commonwealth of
Massachusetts and is executed as a sealed instrument as of the date first above
written.
HAGLER BAILLY CONSULTING, INC.
By_________________________________
(Title)
48
EXHIBIT B
[Form of Revolving Credit Note]
HAGLER BAILLY CONSULTING, INC.
Revolving Credit Note
$4,500,000 Boston, Massachusetts
_____________, 1995
HAGLER BAILLY CONSULTING, INC. , a Delaware corporation (the
"Company"), for value received, hereby promises to pay to STATE STREET BANK AND
TRUST COMPANY (the "Bank"), or order, on or before the Expiration Date (as
defined in the Credit Agreement referred to below), the principal amount of Four
Million Five Hundred Thousand Dollars ($4,500,000) or such lesser amount as may
at the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all revolving credit loans made by the Bank to the
Company pursuant to the Credit Agreement, with interest on the unpaid principal
amount hereof at the rate or rates specified in the Credit Agreement, payable on
the dates specified in the Credit Agreement and at maturity (whether by
acceleration or otherwise); provided that, if the Company shall fail to make any
payment of principal of or interest on this Note, when due, whether at maturity
or at a date fixed for the payment of any installment or prepayment thereof or
by declaration, acceleration or otherwise, the Company shall pay to the holder
of this Note on demand by such holder, interest on such unpaid principal and (to
the extent permitted by law) on such unpaid interest from the date due until
paid in full at a rate per annum equal to four percent (4%) above the rate
otherwise applicable hereunder; provided, further that in no event shall the
amount contracted for and agreed to be paid by the Company as interest on this
Note exceed the highest lawful rate permissible under any law applicable hereto.
This Note evidences a revolving credit loan or loans under, and is
subject to the provisions of, a certain Credit Agreement dated as of May 17,
1995 (as amended from time to time, the "Credit Agreement") by and between the
Company and the Bank. The holder of this Note is entitled to the benefits of the
Credit Agreement and to the benefits of the Security Documents referred to
therein. Neither this reference to such Credit Agreement nor any provision
thereof shall affect or impair the absolute and unconditional obligation of the
Company to pay the principal of and interest on this Note as provided herein.
All payments of principal of and interest on this Note shall be payable in
immediately available funds at the address of the Bank set forth in the Credit
Agreement. Capitalized terms used herein
1
without definition which are defined in the Credit Agreement shall have the
meanings ascribed to them in the Credit Agreement.
This Note is subject to prepayment in whole or in part, in certain
circumstances with a premium and in other circumstances without a premium, and
to acceleration on default at the times and in the manner specified in the
Credit Agreement. The maker and all endorsers of this Note hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance or enforcement of this
Note.
This Note is governed by the laws of the Commonwealth of
Massachusetts and is executed as a sealed instrument as of the date first above
written.
HAGLER BAILLY CONSULTING, INC.
By_________________________________
(Title)
2
EXHIBIT D
HAGLER BAILLY CONSULTING, INC
Borrowing Base Certificate
To:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention:
Linda A. Moulton
Vice President
Ladies and Gentlemen:
Pursuant to subsection 5.1(e) of the Credit Agreement dated as of
May 17, 1995 (the "Credit Agreement"), by and between State Street Bank and
Trust Company (the "Bank") and Hagler Bailly Consulting, Inc. (the "Company"),
set forth below is a computation of the Borrowing Base for the month of
__________, of 19__ (the "Borrowing Base Month"). (Other capitalized terms used
herein without definition which are defined in the Credit Agreement shall have
the respective meanings ascribed to them in the Credit Agreement.)
I certify to you that the figures set forth below have been
calculated in accordance with the applicable provisions of the Credit Agreement.
(a)
Total accounts receivable
(including ineligibles):
$___________________________
Less ineligible receivables:
1
(______________________)
= Eligible Receivables
$________________________
(b)
Borrowing Base: Eligible
Receivables (as shown
above) x 80% [70%, if applicable
under "Borrowing Base" definition] =
$________________________
[not to exceed $3,500,000 or
$4,500,000, as applicable]
Attached hereto is an accounts receivable aging report as of the last day of the
Borrowing Base Month.
Certified as of the ___ day of ________________, ____.
By:__________________________________________________
Title:_______________________________________________
2
SCHEDULE 3.2
NONE
1
SCHEDULE 3.4
FINANCIAL STATEMENTS AND FINANCIAL REPORTS
BALANCE SHEETS AND INCOME STATEMENTS PAST THREE CALENDAR YEARS AND FOUR MONTHS
ENDED APRIL 30, 1995
FORECASTS (DIFFERING SCENARIOS) THROUGH THE YEAR (CALENDAR) 2001
SCHEDULES OF INVESTOR CONTRIBUTIONS, SOURCES OF EQUITY AND INITIAL SHARES
BACKLOGS, BY MONTH, FROM AUGUST, 1994 THROUGH MARCH 31, 1995
PIPELINE ANALYSES (INCLUDING BIDS/PROPOSALS), AS OF MARCH, 1995 AND APRIL, 1995
SUMMARY OF CONTRACT COSTS AND REVENUE (CSR) REPORTS DETAILED GENERAL LEDGERS,
CUMULATIVE, FOR PAST 3 CALENDAR YEARS AND FOR THE FOUR MONTHS ENDED APRIL 30,
1995
SUB-LEDGER SUMMARY OF FIXED ASSETS AND RESERVES
SCHEDULES OF ACCOUNTS RECEIVABLE, PERIODIC, OVER THE PAST THREE YEARS AND
SEMI-MONTHLY FROM DECEMBER 31, 1994
ANALYSIS OF TRENDS IN A/R AND BORROWING BASE COMPUTATIONS (PRO FORMA)
FINANCIAL TRENDS, HIGHLIGHTS AND OTHER STATISTICAL DATA FOR THE PAST TEN YEARS
HISTORICAL PURCHASE, ACQUISITION DATA AND ROI CALCULATIONS
ALL WORKPAPERS, AND ANALYSIS FOR THE PAST THREE CALENDAR YEARS AND THE THREE
MONTHS ENDED MARCH 31, 1995, AS A PART OF THE NORMAL RECORDS AND WORKPAPERS
MAINTAINED BY THE COMPANY
CASH FLOW FORECASTS BY MONTH THROUGH 2001
HBRS ACQUISITION DOCUMENTS INCLUDING FINANCIALS AND LISTED ASSUMED ASSETS AND
LIABILITIES
LETTER DATED MAY 11, 1995 FROM HENRI-CLAUDE BAILLY TO LINDA A. MOULTON AND
LOWELL C. FREIBERG REGARDING THE U.S. AGENCY FOR INTERNATIONAL DEVELOP
1
SCHEDULE 3.7
THERE IS NO INDEBTEDNESS FOR BORROWED MONEY, LIENS (OTHER THAN $36K JUDGMENT IN
FAVOR OF R. VOEGTLE), MORTGAGES, GUARANTIES EXCEPT THE INTERCOMPANY DEBT, AND
o XEROX II CAPITAL LEASE PAYABLE $23K
o INVESTMENTS - KFX, INC. STOCK (TRADED OTC) VALUE STATED AT COST OR MARKET,
WHICHEVER IS LOWER
(SEE B/S ATTACHED)
1
BALANCE SHEET
ASSETS
BALANCE SHEET
[THIS PAGE ILLEGIBLE]
1
LIABILITIES & EQUITY
[THIS PAGE ILLEGIBLE]
2
SCHEDULE 3.9
PENDING LITIGATION
o R. VOEGTLE V. RCG/HAGLER BAILLY
o N. GRAY V. RCG/HAGLER BAILLY
o RCG/HAGLER BAILLY V. CALDERON ENERGY COMPANY AND ALBERT CALDERON (AND
COUNTERSUIT BY CALDERON INCLUDING PRINCIPALS)
The foregoing are described on the schedule attached.
1
RISK MANAGEMENT
LITIGATION SCHEDULE
o R. Voegtle v. RCG/Hagler Bailly
Claim: $35,000
Counsel: Mastbaum & Archer, Boulder, Colorado (David
Mastbaum)
Status: Active
Next Action: Appeal follow-up
R. Voegtle, an employee of RCG/Hagler Bailly, Inc., was converted in employee
status from full-time to "zero-minimum" (a status that eliminates benefits and
pays the employee solely for pre-approved hours worked/billed). After a period
of not being provided with billable/pre-approved work to do and therefore be
paid for, Voegtle sued alleging that since he had signed an employment agreement
to work as a full-time employee and did not sign a new employment agreement
officially changing his status, the company was compelled to treat him as a
full-time employee and pay him a full-time salary. He also alleged that, if the
company had, in fact if not in writing, terminated him, he was also owed
separation compensation (severance pay).
The court agreed with his position and he was awarded $35,000 plus court costs.
The case has been appealed to the Colorado Court of Appeals and has been bonded
accordingly through the auspices of Reliance's risk management group.
o N. Gray v. RCG/Hagler Bailly, Inc. (administrative complaint with the Virginia
Department of Equal Employment Opportunity)
Claim: None Specified
Counsel: Epstein, Becker, Washington, D.C. (Tom Bagby)
Status: Active
Next Action: Offer in Settlement being finalized
N. Gray, a black clerical administrative employee, was terminated for
non-performance and attitude. He refused to participate in an exit interview and
left the premises immediately though he was not asked to. Subsequently, Gray
filed a racial discrimination complaint with the EEOC which referred the
complaint to the Virginia Department of Equal Employment Opportunity. An
investigation by Linda Dennett (an investigator for the State of Virginia)
determined that no "discrimination" had occurred. The prospect, however, of a
civil case was raised and we have offered a Gray a with prejudice settlement of
$5,000 in exchange for waivers and, through his counsel, has accepted. The
details are being currently worked out through our attorneys.
1
o RCG/Hagler Bailly, Inc. v. Calderon Energy Company and Albert Calderon
(complaint) Calderon Energy Company v. RCG/Hagler Bailly, Inc. and Michael
Yokell (cross-complaint)
Claim: $126,000 (Cross-Complaint only)
Counsel: Connelly, Jackson & Souther, Toledo, Ohio
(Steven Smith)
Status: Active
Next Action: Depositions/Interrogatories
Calderon Energy Company, a client of RCG/Hagler Bailly, owed the company
approximately $18k for more than a year when the company sued to collect this
remaining outstanding debt. Calderon had paid the company approximately $107k
relative this assignment.
After the complaint was filed in Bowling Green, Virginia, Calderon counter-sued
the company for performing unnecessary consulting services, in the amount of
$143,000.
The company and Calderon are involved currently in depositions and
interrogatories.
The case is scheduled to be heard in August of 1995.
The company doesn't view the counter-complaint as having any merit and does not
believe that any outcome will have a material or adverse effect on the company.
2
SCHEDULE 3.14
Shares Of Class A
Stockholder Investment Common Stock
- ----------- ---------- ------------
John Armstrong $175,000 35,000
Henri-Claude Bailly 500,000 100,000
Robin Calhoun 100,000 20,000
Robert Ciliano 175,000 35,000
Niels de Terra 75,000 15,000
James Hogan 75,000 15,000
David Keith 100,000 20,000
Joshua Lipton 40,000 8,000
Steve Mitnick 75,000 15,000
Jean-Louis Poirier 225,000 45,000
Robert Raucher 75,000 15,000
Ronald Reilly 25,000 5,000
Daniel Rouse 75,000 15,000
Robert Rowe 275,000 55,000
Fred M. Schriever 60,000 12,000
Alex Steinbergh 50,000 10,000
Alan Streicher 350,000 70,000
Van Liere 50,000 10,000
Michael Yokell 500,000 100,000
---------- -------
TOTAL $3,000,000 600,000
1