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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________________________
Commission File Number: 0-29292
HAGLER BAILLY, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 54-1759180
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(State or other jurisdiction of incorporation or organization)
I.R.S. Employer Identification Number
1530 Wilson Boulevard, Suite 900, Arlington, VA 22209
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(Address of principal executive offices) (Zip Code)
703-351-0300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
As of November 10, 1997, the Registrant had outstanding 7,982,516 shares
of its common stock.
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Part I - FINANCIAL INFORMATION............................................1
Item 1. Financial Statements..........................................1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................6
PART II - OTHER INFORMATION...............................................9
Item 2. Changes in Securities and Use of Proceeds.....................9
Item 5. Other Information............................................10
Item 6. Exhibits and Reports on Form 8-K.............................10
SIGNATURES...............................................................13
PART I - FINANCIAL INFORMATION
Hagler Bailly, Inc.
Consolidated Balance Sheets
September 30, December 31,
1997 1996
------------------ ----------------
(unaudited) (note)
Current assets
Cash and cash equivalents $ 1,996,983 $ 1,432,882
Investments $ 13,165,257 $ -
Accounts receivable, net 24,429,714 15,038,797
Prepaid 786,639 368,282
Other current assets 1,242,116 216,922
------------------ ----------------
Total current assets 41,620,709 17,056,883
Property and equipment, net 2,568,101 2,414,449
Goodwill, net 7,109,743 7,661,092
Other 937,722 614,694
------------------ ----------------
Total assets $ 52,236,276 $27,747,118
================== ================
Current liabilities
Bank line of credit $ - $ 1,750,000
Accounts payable and accrued expenses 1,322,990 2,417,510
Accrued compensation and benefits 5,676,127 4,227,524
Billings in excess of cost 1,564,902 2,029,636
Current portion of long-term debt - 1,289,000
Deferred income taxes 1,795,467 1,522,000
------------------ ----------------
Total current liabilities 10,359,486 13,235,670
Long-term debt - 7,273,333
------------------ ----------------
Total liabilities 10,359,486 20,509,003
Stockholders' equity
Preferred stock, $0.01 par value, 5,000,000
shares authorized; none issued and outstanding - -
Common stock, $0.01 par value, 20,000,000
authorized; 7,982,516 and 4,978,160 issued
and outstanding in 1997 and 1996 79,825 49,781
Additional paid-in capital 40,584,863 9,937,565
Retained earnings(deficit) 1,212,103 (2,749,231)
------------------ ----------------
Total stockholders' equity 41,876,791 7,238,115
------------------ ----------------
Total liabilities and stockholders' equity $ 52,236,276 $27,747,118
================== ================
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Operations
(unaudited)
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
-------------------------------- -----------------------------------
Consulting revenues $12,087,305 $10,090,418 $ 36,226,415 $ 29,198,418
Subcontractor and other revenues 9,315,383 5,514,000 21,581,106 16,718,000
-------------------------------- -----------------------------------
Total revenues 21,402,688 15,604,418 57,807,521 45,916,418
Cost of services 16,669,662 12,239,943 44,536,388 35,949,087
-------------------------------- -----------------------------------
Gross profit 4,733,026 3,364,475 13,271,133 9,967,331
Selling, general and administrative expenses 2,824,661 2,015,812 7,196,018 6,310,881
Stock and stock option compensation - - 64,869 -
-------------------------------- -----------------------------------
Income from operations 1,908,365 1,348,663 6,010,246 3,656,450
Other expense(income) (415,973) 228,675 (179,696) 679,782
-------------------------------- -----------------------------------
Income before income tax expense 2,324,338 1,119,988 6,189,942 2,976,668
Income tax expense 645,833 450,000 2,228,608 1,197,000
-------------------------------- -----------------------------------
Net income $ 1,678,505 $ 669,988 $ 3,961,334 $ 1,779,668
================================ ===================================
Net income per share $0.18 $0.11 $0.55 $0.28
================================ ===================================
Weighted average shares outstanding 8,989,381 6,282,779 7,153,747 6,282,779
================================ ===================================
See accompanying notes.
Hagler Bailly, Inc.
Consolidated Statements of Cash Flows
(unaudited)
Nine months ended
September 30,
1997 1996
----------------- --------------
Operating activities
Net income $ 3,961,334 $1,779,668
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,333,135 842,621
Provision for deferred taxes 273,467 1,197,000
Provision for possible losses 101,647 473,152
Amortization of deferred stock compensation 64,869 -
Changes in operating assets and liabilities:
Accounts receivable (9,492,564) (6,647,436)
Prepaid expenses (418,357) (23,192)
Other current assets (1,025,194) 92,832
Other assets (323,028) (575,591)
Accounts payable and accrued expenses (1,094,520) (1,336,903)
Accrued compensation and benefits 1,448,603 2,427,850
Billings in excess (464,734) 2,419,797
----------------- --------------
Net cash used by operating activities (5,635,342) 649,798
Investing activities
Investments ($13,165,257) -
Acquisition of property and equipment (935,438) (666,917)
----------------- --------------
Net cash used by investing activities (14,100,695) (666,917)
Financing activities
Issuance of common stock (IPO) 30,450,000 -
Issuance of common stock (Other) 162,473 258,522
Net borrowings from bank line of credit (1,750,000) 2,225,000
Principal payments on long-term debt (8,562,333) (2,292,667)
----------------- --------------
Net cash provided by financing activites 20,300,140 190,855
Net increase(decrease) in cash and cash equivalents 564,101 173,742
Cash and cash equivalents, beginning of period 1,432,882 671,281
----------------- --------------
Cash and cash equivalents, end of period $ 1,996,983 $ 845,023
================= ==============
Supplemental information:
Interest payments $ 722,000 $ 649,000
================= ==============
See accompanying notes.
HAGLER BAILLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
Hagler Bailly, Inc. have been prepared pursuant to the rules of the Securities
and Exchange Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally accepted
accounting principles. The information furnished herein reflects all
adjustments, of a normal recurring nature, which are, in the opinion of
management, necessary for a fair presentation of results for these interim
periods.
The interim results of operations are not necessarily indicative of the
results to be expected for the entire fiscal year ending December 31, 1997.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto for the
year ended December 31, 1996, included in the Registration Statement (No.
333-22207) on Form S-1.
Note 2. Summary of Significant Accounting Policies
Net income per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalents using the treasury
method. Pursuant to the requirements of the Securities and Exchange Commission
Staff Accounting Bulletin No. 83, common stock and options to purchase common
stock issued at prices below the initial public offering of the Company's Common
Stock price during the twelve months immediately preceding the initial public
offering have been included in the computation of net income per share as if
they were outstanding for all periods presented.
Pursuant to the requirements in the Statement on Financial Accounting
Standards Number 115, the Company operates its investment portfolio with the
intent and ability to hold all securities to maturity. The Company investment
portfolio as of September 30, 1997 consists of short-term instruments with a
maturity no greater than six months.
Security Type Aggregate Fair Value Amortized Cost Basis
- ------------- -------------------- --------------------
Tax exempt commercial paper $ 6,731,352 $ 6,731,352
Tax exempt federal agency securities $ 6,331,327 $ 6,331,564
Gross unrealized holding gains for the period ending September 30, 1997
were $237. There is an additional $102,578 held in securities classified as
trading.
4
Note 3. New Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards Number 128, "Earnings Per Share," which is required to be
adopted for the year ended December 31, 1997. Under the new requirements, the
dilutive effect of stock options will be excluded for the purposes of
calculating Basic Earnings Per Share. For the periods ended September 30, 1996
and 1997 Basic Earnings Per Share would have been $0.28 and $0.64, respectively,
while Diluted Earnings Per Share would have been $0.28 and $0.55, respectively.
Note 4. Other
Initial Public Offering
On July 3, 1997, the Company completed an initial public offering of its
common stock in which 2,500,000 shares were sold by the Company resulting in net
proceeds of approximately $31 million.
Line of Credit
On September 30, 1997 the Company entered into a new credit agreement
with State Street Bank increasing the Company's line of credit to $15 million.
Two of the Company's wholly-owned subsidiaries, Hagler Bailly Services, Inc. and
Hagler Bailly Consulting, Inc., are the borrowers under the credit agreement, a
three-year revolving line of credit, and the Company and another of its
wholly-owned subsidiaries, HB Capital, Inc., are guarantors of the borrowings,
which are secured by the receivables and other assets of the borrowers. The
credit agreement contains customary financial representations and covenants.
Escrow Release
On July 23, 1997, RCG International, Inc. ("RCG"), the former parent of
the Company and the guarantor of the monetary obligations under a lease of one
of the Company's subsidiaries covering a portion of the Company's headquarters
in Arlington, Virginia, was released from its guaranty. The release of RCG
eliminated the obligation of the Company to maintain and fund an increase in an
escrow balance required to secure the RCG for remaining a guarantor on such
lease. In connection with the release of RCG, the Company guaranteed two leases
of the Company's subsidiaries covering a portion of the Company's Arlington
headquarters.
Note 5. Subsequent Events
Intentionally left blank. Nothing to report.
5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Overview
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as "forward looking statements" for
the purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended by Public Law 104-67. Forward-looking
statements may be identified by words including "anticipate," "believe,"
"estimate," "expect" and similar expressions. The Company cautions readers that
forward-looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity, and
income are subject to certain risks and uncertainties that would cause actual
results to differ materially from those indicated in the forward-looking
statements, due to several important factors herein identified, among others,
and other risks and factors identified from time to time in the Company's
reports filed with the SEC, including the risk factors identified in the
Registration (No. 333-22207) on Form S-1.
Results of Operations
Revenues. Revenues increased 37.2% to $21.4 million in the quarter ended
September 30, 1997 from $15.6 million in the quarter ended September 30, 1996.
Revenues increased 25.9% to $57.8 million in the nine months ended September 30,
1997 from $45.9 million in the nine months ended September 30, 1996. Consulting
revenues increased 19.8% to $12.1 million in the quarter ended September 30,
1997 compared to $10.1 million in the comparable period in 1996. Consulting
revenues increased 24.1% to $36.2 million in the quarter ended September 30,
1997 compared to $29.2 million in the comparable period in 1996. These increases
are primarily the result of the Company's continued focus on the higher margin
private sector engagements and the acceleration in volume of several public
sector client contracts. The Company also realized increases in the average size
of the private sector client projects as well as the number of client projects
for the third quarter and the first nine months of 1997 compared to the
comparable 1996 periods.
Cost of Services. Cost of services increased 36.2 % to $16.7 million for
quarter ended September 30, 1997 from $12.2 million in the quarter ended
September 30, 1996. Cost of services increased 23.9% to $44.5 million for the
nine months ended September 30, 1997 compared to $35.9 million for the nine
months ended September 30, 1996. The increase in cost of services is
attributable increases in the number of in-house professional staff and bonus
compensation due to the increase in profitability.
Gross Profit. Gross profit increased 40.7% to $4.7 million for the
quarter ended September 30, 1997 from $3.4 million for the quarter ended
September 30, 1996. Gross profit increased 33.1% to $13.3 million for the nine
months ended September 30, 1997 from $10.0 million for the nine months ended
September 30, 1996. Gross profit margin as a percentage of revenues was 22.1%
for the third quarter of 1997 as compared to 21.6% in the third quarter of 1996.
Gross profit margins were 23.0% and 21.7% for the first nine months of 1997 and
1996, respectively. The improvement in the margins is the result of the increase
in the mix of higher gross margin private sector engagements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $2.8 million and $7.2 million for the
quarter and nine months ended September 30, 1997 compared to $2.0 million and
$6.3 million for the comparable 1996 periods.
6
The increase in selling, general and administrative expense is primarily
attributable to the relative increase in revenues. The net effect is a reduction
of selling, general and administrative expenses as a percentage of revenues of
12.4% and 13.7% for the first nine months of 1997 and 1996, respectively.
Income from Operations. Income from operations was $1.9 million for the
quarter ended September 30, 1997 compared to $1.3 million for the quarter ended
September 30, 1996. Income from operations was $6.0 million for the nine months
ended September 30, 1997 compared to $3.7 million for the nine months ended
September 30, 1996.
Other income(Expense). Other income(expense) was $0.4 million for the
quarter ended September 30, 1997 and ($0.2) million for the quarter ended
September 30, 1996. Other income (expense) was $0.2 million for the nine months
ended September 30, 1997 and ($0.7) million for the nine months ended September
30, 1996.
Income Tax Expense. Income tax expense was $0.6 million for the quarter
ended September 30, 1997 compared to $0.5 million for the quarter ended
September 30, 1996. Income tax expense was $2.2 million for the nine months
ended September 30, 1997 compared to $1.2 million for the nine months ended
September 30, 1996. For the nine months ended September 30, 1997 and 1996 income
tax expense as a percentage of income before income tax expense was 36.0% and
40.2% respectively.
Net income. As a result of the preceding, net income for the quarter
ended September 30, 1997 was $1.7 million compared to $0.7 million for the
quarter ended September 30, 1996. Net income for nine months ended September 30,
1997 was $4.0 million compared to $1.8 million for the nine months ended
September 30, 1996.
Liquidity and Capital Resources
On July 3, 1997 the Company completed an initial public offering of its
common stock which resulted in net proceeds to the Company of approximately $31
million. Upon the consummation of the initial public offering the Company was be
required to change to the accrual method of accounting for income tax reporting.
The Company believes the net proceeds from the initial public offering, together
with funds generated by operations, will provide adequate cash to fund its
anticipated cash needs, which may include future acquisitions of complementary
businesses, for at least the next 12 months. In addition, the Company, depending
on market conditions, is considering addition possible sources of financing.
Prior to the initial public offering, the Company's primary source of
liquidity has been cash flows from operations, periodically supplemented by
borrowings under a bank line of credit. The Company closed on a new three-year
$15 million revolving credit facility with State Street Bank which replaced and
expanded its previous $4.5 million line of credit. Two of the Company's
wholly-owned subsidiaries, Hagler Bailly Services, Inc. and Hagler Bailly
Consulting, Inc., are the borrowers under the credit agreement and the Company
and another of its wholly-owned subsidiaries, HB Capital, Inc., are guarantors
of the borrowings, which are secured by the receivables and other assets of the
borrowers. The credit agreement contains customary financial representations and
covenants.
On July 23, 1997 RCG International, Inc. ("RCG"), the former parent of
the Company and the guarantor of the monetary obligations under a lease of one
of the Company's subsidiaries covering a portion of the Company's headquarters
in Arlington, Virginia, was released from its guaranty. The release of RCG
eliminated the obligation of the Company to maintain and fund an increase in an
escrow balance required to secure RCG for remaining a guarantor on such lease.
In connection with the release of RCG, the Company guaranteed two leases of the
Company's subsidiaries covering a portion of the Company's Arlington
headquarters.
7
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds.
Use of Proceeds of Initial Public Offering
Effective Date of Company's Registration Statement: July 2, 1997
Commission File Number: 333-22207
Date the Offering Commenced: July 2, 1997
Names of Managing Underwriters: Donaldson, Lufkin & Jenrette
Montgomery Securities
The following table sets forth the amount and aggregate offering price
of securities registered and sold for the account of the Company and for the
accounts of the selling stockholders in the offering.
For the Account of the Company
Amount registered: 2,500,000 shares
Aggregate price of offering amount registered: $ 35,000,000
Amount sold: 2,500,000 shares
Aggregate offering price of amount sold: $ 35,000,000
For the Account of the Selling Stockholders
Amount registered: 1,122,500 shares
Aggregate price of offering amount registered: $ 15,715,000
Amount sold: 1,122,500 shares
Aggregate offering price of amount sold: $ 15,715,000
Expenses:
The expenses accrued for the Company's account in connection with the
offering are as follows:
Underwriting Discounts and Commissions $ 2,450,000
Finders Fees 0
Expenses Paid to or for Underwriters 0
Other Expenses 2,100,000
------------
Total Expenses $ 4,550,000
-----------
8
None of the expenses of the offering consisted of direct or indirect
payments to (i) directors or officers of the Company or their associates, (ii)
persons owning ten (10%) percent or more of any class of equity securities of
the Company or (iii) affiliates of the Company.
Net Proceeds: The net offering proceeds of the Company from the Offering
after deducting the total expenses described above was $ 30,450,000.
Use: From July 2, 1997 through September 30, 1997 approximately
$12,500,000 has been used for repayment of indebtedness, approximately
$4,900,000 for working capital needs and the remainder for temporary investments
(see note 2 to the financial statements). None of these payments were direct or
indirect payments to directors, officers or their associates.
Item 5. Other Information.
On October 23, 1997, the Board of Directors elected Alain M. Streicher
acting Senior Vice President and Chief Operating Officer of Hagler Bailly, Inc.
Mr. Streicher continues to serve as Chief Executive Officer of Hagler Bailly
Services, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No.
-----------
2 Sale Agreement between RCG International, Inc., and Hagler Bailly
Consulting, Inc. (1)
3.1 Amended and Restated Certificate of Incorporation of the Company
(1)
3.2 By-Laws of the Company (1)
4 Specimen Stock Certificates (2)
10.1 Hagler Bailly, Inc. Amended and Restated 1996 Employee Incentive
and Non-Qualified Stock Option and Restricted Stock Plan
(including forms of option agreements) (1)
10.2 Form of Non-Compete, Confidentiality and Registration Rights
Agreement between the Company and each stockholder (1)
10.3 Form of Amended and Restated Employment Agreement between the
Company and Henri-Claude A. Bailly (2)
9
10.4 Lease by and between Wilson Boulevard Venture and RCG/Hagler
Bailly, Inc., dated October 25, 1991 (1)
10.5 First Amendment to Lease by and between Wilson Boulevard Venture
and RCG/Hagler Bailly, Inc., dated February 26, 1993 (1)
10.6 Second Amendment to Lease by and between Wilson Boulevard Venture
and RCG/Hagler Bailly, Inc., dated December 12, 1994 (1)
10.7 Lease by and between Bresta Futura V.B.V. and Hagler Bailly
Consulting, Inc., dated May 8, 1996 (1)
10.8 Lease by and between L.C. Fulenwider, Inc., and RCG/Hagler
Bailly, Inc., dated December 14, 1994 (1)
10.9 Lease by and between University of Research Park Facilities Corp.
and RCG/Hagler Bailly, Inc., dated April 1, 1995 (2)
10.10 Credit Agreement by and between Hagler Bailly Consulting, Inc.
and State Street Bank and Trust Company, dated May 17, 1995 (1)
10.11 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc. and State Street Bank and Trust Company, dated
as of June 20, 1996 (1)
10.12 Extension Agreement by and between Hagler Bailly Consulting, Inc.
and State Street Bank and Trust Company, dated as of August 1,
1996 (1)
10.13 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc. and State Street Bank and Trust Company, dated
as of November 12, 1996 (1)
10.14 Term Note by and between Hagler Bailly Consulting, Inc., and
State Street Bank and Trust Company, dated May 26, 1995 (1)
10.15 Revolving Credit Note by and between Hagler Bailly Consulting,
Inc. and State Street Bank and Trust Company, dated May 26, 1995
(3)
10.16 Amendment to Credit Agreement by and between Hagler Bailly
Consulting, Inc., and State Street Bank and Trust Company, dated
as of June 12, 1997 (3)
10.17 Credit Agreement by and among Hagler Bailly Consulting, Inc.,
Hagler Bailly Services, Inc. and State Street Bank and Trust
Company, dated as of September 30, 1997.
10.18 Promissory Note by Hagler Bailly Consulting, Inc. and Hagler
Bailly Services, Inc. to State Street Bank and Trust Company,
dated September 30, 1997.
10
10.19 Security Agreement by and between Hagler Bailly Consulting, Inc.
and State Street Bank and Trust Company, dated as of September
30, 1997.
10.20 Security Agreement by and between Hagler Bailly Services, Inc.
and State Street Bank and Trust Company, dated as of September
30, 1997.
10.21 Guaranties by Hagler Bailly, Inc. to State Street Bank and Trust
Company, dated September 30, 1997.
10.22 Guaranties by HB Capital, Inc. to State Street Bank and Trust
Company, dated September 30, 1997.
10.23 Subordination Agreement and Negative Pledge/Sale Agreement by and
between Hagler Bailly, Inc. and State Street Bank and Trust
Company for Hagler Bailly Consulting, Inc., dated September 30,
1997.
10.24 Subordination Agreement and Negative Pledge/Sale Agreement by and
between Hagler Bailly, Inc. and State Street Bank and Trust
Company for Hagler Bailly Services, Inc., dated September 30,
1997.
10.25 Guaranty of Monetary Obligations to Bresta Futura V.B.V. by
Hagler Bailly, Inc., dated July 23, 1997.
11 Earnings Per Share Calculation.
24 Powers of Attorney (included on Signature Pages). (1)
27 Financial Data Schedule for September 30, 1997.
- -------------------------------------------
(1) Included in Amendment No.1 to the Company's Registration Statement as
Form S-1 (No. 333-22207) filed with Securities and Exchange Commission
on May 21, 1997.
(2) Included in Amendment No.2 to the Company's Registration Statement Form
S-1 (No. 333-22207) filed with the Securities and Exchange Commission on
June 12, 1997.
(3) Included in Amendment No. 3 to the Company's Registration Statement on
Form S-1 (No. 333-22207) filed with the Securities and Exchange
Commission on July 1, 1997.
- ---------------------------------------------
(b) No reports on Form 8-K were filed by the Company during the quarter
ended September 30, 1997.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
HAGLER BAILLY, INC.
/s/ Henri-Claude Bailly
11/13/96
- ----------------------------- ----------------------------------
Date Henri-Claude Bailly
President, Chief Executive Officer
and Chairman of the Board
11/13/97 /s/ Daniel M. Rouse
- ----------------------------- ----------------------------------------
Date Daniel M. Rouse
Vice President, Chief Financial Officer,
and Treasurer
12
1
[GRAPHIC OMITTED]
Item 6.
Exhibit 10.17
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CREDIT AGREEMENT
among
HAGLER BAILLY CONSULTING, INC.
HAGLER BAILLY SERVICES, INC.
and
STATE STREET BANK AND TRUST COMPANY
--------------------------------------
Dated as of September 30, 1997
--------------------------------------
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TABLE OF CONTENTS
Page No.
--------
Section 1. Amount and Terms of the Credit...................................1
1.1 Recitals; Commitment.................................................1
1.2 The Loans............................................................1
1.3 The Note.............................................................2
1.4 Interest.............................................................2
1.5 Transaction Fee......................................................2
1.6 Commitment Fee.......................................................2
1.7 Reduction or Termination of Commitment...............................3
1.8 Prepayment...........................................................3
1.9 Security; Subordination, etc.........................................4
1.10 Overdue Payments....................................................4
1.11 Notations...........................................................5
1.12 Form and Terms of Payment...........................................5
1.13 Capital Adequacy....................................................5
1.14 Use of Proceeds.....................................................6
1.15 Letters of Credit...................................................6
Section 2. Fixed Rate Provisions............................................7
2.1 Fixed Rate Options...................................................7
2.2 Certain Definitions..................................................7
2.3 Conditions for Basing Interest on the LIBOR Rate....................10
2.4 Conditions for Basing Interest on the Market Rate...................10
2.5 Indemnification for Funding and Other Losses........................11
2.6 Change in Applicable Laws, Regulations, etc.........................11
2.7 Taxes...............................................................12
Section 3. Representations and Warranties..................................12
3.1 Organization, Standing, etc. of the Borrowers.......................12
3.2 Subsidiaries........................................................12
3.3 Qualification.......................................................13
3.4 Financial Information; Disclosure, etc..............................13
3.5 Licenses; Franchises, etc...........................................13
3.6 Tax Returns and Payments............................................13
3.7 Indebtedness, Liens and Investments, etc............................14
3.8 Title to Properties; Liens..........................................14
3.9 Litigation, etc.....................................................14
3.10 Authorization; Compliance with Other Instruments...................14
3.11 Governmental Consent...............................................15
3.12 Regulation U, etc..................................................15
3.13 Employee Retirement Income Security Act of 1974....................15
ii
3.14 Ownership of Borrowers and Parent Company..........................16
3.15 Environmental Matters..............................................16
Section 4. Conditions of Lending...........................................16
4.1 The Note............................................................16
4.2 Opinions and Certificates...........................................17
4.3 No Default; Representations and Warranties, etc.....................17
4.4 Security Documents..................................................17
4.5 Certain Financial Transactions......................................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....................................................20
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...............................................22
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..............................................26
Section 7. Financial Covenants.............................................26
7.1 Capital Base........................................................26
7.2 Current Ratio.......................................................26
7.3 Funded Debt; Net Operating Income...................................26
7.4 Fixed Charge Coverage...............................................27
7.5 Senior Liabilities; Adjusted Capital Base...........................27
7.6 Billability.........................................................27
iii
Section 8. Defaults; Remedies..............................................27
8.1 Events of Default; Acceleration.....................................27
8.2 Remedies on Default, etc............................................29
Section 9. Definitions.....................................................30
Section 10. Setoffs, etc...................................................39
Section 11. Expenses; Indemnification......................................39
Section 12. Waivers........................................................40
Section 13. Miscellaneous..................................................41
13.1 Notices, etc.......................................................41
13.2 Calculations, etc..................................................42
13.3 Survival of Agreements, etc........................................42
13.4 Counterparts, etc..................................................42
13.5 Entire Agreement, etc..............................................43
13.6 Obligations Joint and Several......................................43
13.7 Governing Law; Jurisdiction; Waiver of Jury Trial..................43
13.8 Termination of Prior Credit Agreement..............................43
EXHIBIT A......Form of Revolving Credit Note
EXHIBIT B......Compliance Certificate
EXHIBIT C......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 Parent Company Management Shareholders
iv
CREDIT AGREEMENT dated as of September 30, 1997, by and among Hagler
Bailly Consulting, Inc., a Delaware corporation ("Consulting"), Hagler Bailly
Services, Inc., a Delaware corporation ("Services"), and State Street Bank and
Trust Company (the "Bank"). Consulting and Services are sometimes herein
referred to collectively as the "Borrowers" and each individually as a
"Borrower". Certain other terms used herein are defined in subsection 2.2 and
section 9.
The Borrowers and the Bank hereby agree as follows:
Section 1. Amount and Terms of the Credit.
1.1 Recitals; Commitment. The Borrowers wish to establish a revolving credit
with the Bank in an aggregate principal amount at any one time outstanding not
in excess of $15,000,000 (the "Commitment") to expire on the Expiration Date.
The Bank is willing to establish such revolving credit on behalf of the
Borrowers, subject to the terms and conditions hereafter set forth.
1.2 The 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 Borrowers in the principal amount of the
Commitment. The Borrowers may borrow 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 Commitment or (ii) the Borrowing Base. Each
such borrowing pursuant to this subsection 1.2 is herein referred to as a
"Loan", and collectively as the "Loans". The Commitment shall be available for
borrowings by both Consulting and Services, acting singly or jointly, provided
that (i) the aggregate amount of Loans thereunder shall not exceed the Available
Commitment, and (ii) all Loans shall be the joint and several obligations of
Consulting and Services.
(b) Each Loan shall be made by the Bank in such amount (not in excess of
the Available Commitment) as either or both of the Borrowers 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.
Loans shall be effected at the principal banking office of the Bank in Boston,
Massachusetts. The Borrowers 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 Loan (except as otherwise provided in subsections
2.3(a) and 2.4(a) for Fixed Rate Requests) specifying the amount of the Loan
requested. The Bank shall make each Loan hereunder by crediting the amount
thereof in immediately available funds to the Borrower's regular deposit account
with it.
(c) During the period prior to the Expiration Date, the Borrowers may,
at their option, from time to time prepay all or any portion of the Loans (other
than a Fixed Rate Portion) made from time to time hereunder, subject to the
provisions of subsection 1.8, and the Borrowers 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.
1.3 The Note. The Loans shall be evidenced by the joint and several promissory
note of the Borrowers in a principal amount equal to the Commitment and in the
form attached hereto as Exhibit A. There shall be one (1) note payable to the
order of the Bank (such note being herein called the "Note"). The outstanding
principal of the Note shall be payable on the Expiration Date. The Note shall
bear interest at the rate or rates, and payable on the dates, specified in
subsection 1.4.
1.4 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 Fixed Rate 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 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 Fixed Rate 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 one and one-half percent (12%) 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 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).
(c) Any Market Rate 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 the Market Rate, which interest shall be payable on the last day
of the Market Rate Period applicable to such Market Rate Portion and at maturity
(whether by acceleration or otherwise).
2
1.5 Transaction Fee. The Borrowers shall pay the Bank a transaction fee (the
"Transaction Fee") in the amount of $26,000, payable at the time of the first
Loan hereunder. No portion of the Transaction Fee shall be subject to refund or
reduction.
1.6 Commitment Fee. The Borrowers shall pay the Bank a commitment fee (the
"Commitment Fee") for the period commencing on the date hereof to and including
the Expiration Date, or the earlier date of the termination of the Commitment
hereunder, equal to one-quarter of one percent (1/4 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 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 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 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 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.
1.7 Reduction or Termination of Commitment. At any time prior to the Expiration
Date, on at least one (1) Banking Day's prior written notice to the Bank, the
Borrowers may in whole permanently terminate, or from time to time permanently
reduce, the Commitment. Any such reduction hereunder shall be in an amount not
less than $100,000. Simultaneously with any termination of the Commitment
hereunder, the Borrowers shall pay to the Bank the Commitment Fee accrued to the
date of such termination.
1.8 Prepayment.
(a) On at least one (1) Banking Day's prior written notice to the Bank,
the Borrowers may, at their option, prepay the Loans in whole at any time or in
part from time to time without penalty or premium, provided that no voluntary
prepayment of any Fixed Rate Portion may be made hereunder. Any optional
prepayment of the Loans in part shall be in a principal amount not less than
$100,000.
3
(b) If at any time the outstanding principal amount of the Loans exceeds
the Available Commitment, the Borrowers will immediately prepay the Loans in an
amount necessary to cause the outstanding principal amount of the Loans not to
exceed the Available Commitment. Any mandatory prepayment of the Loans pursuant
to this subparagraph (b) shall be applied: (i) first, to the prepayment of Loans
which are not then subject to a Fixed Rate Option, which prepayment will be made
without penalty or premium; and (ii) the balance of such prepayment, if any,
shall be applied to the Fixed Rate Portion or Portions of the Loans, which
prepayment shall be made together with the applicable Fixed Rate Premium.
1.9 Security; Subordination, etc. The Loans and the other obligations of the
Borrowers hereunder and under the Note 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 Borrowers and their Subsidiaries (other than Foreign
Subsidiaries);
(b) A first mortgage on any real estate now or hereafter owned by the
Borrowers or any of their Subsidiaries (other than Foreign Subsidiaries);
(c) A collateral assignment of life insurance policy insuring the life
of Henri-Claude Bailly as contemplated by subsection 5.3;
(d) A guaranty from the Parent Company;
(e) A negative pledge and sale agreement from the Parent Company with
respect to the shares of capital stock of the Borrowers owned by it;
(f) A guaranty from HB Capital;
(g) A guaranty from each of the Subsidiaries (other than Foreign
Subsidiaries); and
(h) 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 Borrowers' other obligations hereunder and
under the Note, are sometimes hereinafter referred to collectively as the
"Security Documents" and each 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
4
proceeds thereof, are sometimes hereinafter referred to collectively as the
"Collateral". The Borrowers agree 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.
1.10 Overdue Payments. In the event that the Borrowers 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.
1.11 Notations. Prior to any sale or other disposition of the Note by the Bank,
the Bank shall make a notation on the 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 the Note, the Note shall be canceled and returned
to the Borrowers and the Bank's security interest in the Collateral shall be
terminated pursuant to the Security Documents, provided that the Note shall not
be canceled or returned and the Bank's security interest in the Collateral shall
not be terminated so long as the Bank shall be obligated to make Loans
hereunder.
1.12 Form and Terms of Payment. All payments by the Borrowers 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 Borrowers in writing) and shall be made in
immediately available funds. The Borrowers hereby authorize the Bank to charge
each of their deposit accounts (whether individual or joint) 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.
1.13 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
5
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
Borrowers 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 Borrowers 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.
1.14 Use of Proceeds. The Borrowers will use the proceeds of the Loans: (a) to
repay Indebtedness, if any, of Services owing to the Bank in respect of the
Prior Credit Agreement; (b) for working capital purposes, including the opening
or acquisition of offices (subject to the provisions of subsection 6.3(i)
hereof) and including the payment of closing costs for the financing hereunder;
and (c) for Permitted Acquisitions. The Borrowers will not 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.
1.15 Letters of Credit
(a) Subject to the terms and conditions hereof, the Borrowers may
request the Bank to issue, from time to time, standby letters of credit (the
"Letters of Credit" and each individually a "Letter of Credit") in an aggregate
stated amount at any one time not exceeding the lesser of $1,000,000 or the then
unused portion of the Available Commitment. Each request for a Letter of Credit
shall be made by either or both of the Borrowers by application on the Bank's
standard form or in such other manner as the Bank may approve and shall be made
such reasonable time in advance as the Bank may require. The Letters of Credit
shall be issued pursuant to a duly executed letter of credit agreement on the
Bank's standard form and shall be accompanied by such other instruments and
agreements as the Bank may require. No Letter of Credit shall have an expiration
date later than the earlier of three hundred sixty-five (365) days following the
date of issuance or the Expiration Date. Until each Letter of Credit shall have
expired without being drawn, the stated amount of such Letter of Credit shall be
deemed an outstanding Loan for purposes of calculating the unused portion of the
Available Commitment and for purposes of calculating the Commitment Fee pursuant
to subsection 1.6. Once drawn, a Letter of Credit shall be funded from the
Available Commitment by the Bank advancing the stated amount thereof to the
Borrowers, and any amount so advanced shall be a Loan and shall accrue interest
as such from the date so advanced.
6
(b) For each Letter of Credit issued hereunder, the Borrowers shall pay
the Bank a fee (the "Letter of Credit Fee") equal to two percent (2%) per annum
(computed on the basis of the actual number of days elapsed over a 360-day year)
on the stated amount thereof, payable quarterly in arrears on the day of each
third calendar month which corresponds with the date of issuance of such Letter
of Credit, until the expiration of such Letter of Credit. The Letter of Credit
Fee shall be in addition to such other transactions fees and similar charges as
the Bank imposes on its customers generally from time to time with respect to
letter of credit transactions.
(c) If, upon the occurrence of any Event of Default, there shall be
outstanding any Letters of Credit or any drafts accepted for payment by the Bank
under any Letters of Credit, the Borrowers will, on demand by the Bank, deposit
and at all times maintain with the Bank an amount of cash (the "Cash
Collateral") equal to the aggregate stated amount of all outstanding Letters of
Credit. The Cash Collateral so deposited shall be held by the Bank as part of
the Collateral. Such Cash Collateral shall be returned by the Bank to the
Borrowers only when there is no longer any Event of Default continuing
hereunder.
Section 2. Fixed Rate Provisions.
2.1 Fixed Rate Options. Subject to the provisions of this section 2, the
Borrowers shall have the right to have the interest on all or any portion or
portions of the principal amount of the Loans based on a Fixed Rate, provided
that not more than six (6) Fixed Rate Portions of the 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.
Fixed Rate: either a LIBOR Rate or a Market Rate, as the context
so requires.
7
Fixed Rate Option: either a LIBOR Option or a Market Rate Option,
as the context so requires.
Fixed Rate Period: either a LIBOR Period or a Market Rate Period,
as the context so requires.
Fixed Rate Portion: either a LIBOR Portion or a Fixed Rate
Portion, as the context so requires.
Fixed Rate Premium: with respect to the prepayment of any Fixed
Rate Portion of any Loans, 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
Fixed Rate 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 Fixed Rate Period and the denominator of which is 360.
Each determination by the Bank of any Fixed Rate Premium shall, in the absence
of manifest error, be conclusive.
Fixed Rate Request: either a LIBOR Request or a Market Rate
Request, as the context so requires.
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 longer periods if available and agreed
to by the Bank, commencing on any Banking Day; provided, however, that no LIBOR
Period shall extend beyond the Expiration Date. 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
8
borrowed by the Borrowers concurrently with such LIBOR Request) which is not
less than $100,000, which does not exceed the outstanding balance of the Loans
not already subject to Fixed Rate Options 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 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 either or both of the Borrowers 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.
Market Rate: with respect to any Market Rate Portion for the
related Market Rate Period, an interest rate per annum equal to the Base Market
Rate (as hereinafter defined) plus one and one-half percent (12%). For purposes
of this definition, the term ABase Market Rate@ shall mean the fixed rate of
interest quoted from time to time by the Bank in response to a Market Rate
Request, which rate shall be determined by the Bank based upon then prevailing
money market conditions.
Market Rate Period: any period, selected as provided below in
this section 2 of one, two or three weeks or longer periods if available and
agreed to by the Bank, commencing on any Banking Day; provided, however, that no
Market Rate Period shall extend beyond the Expiration Date. If any Market Rate
Period so selected would otherwise end on a date which is not a Banking Day,
such Market Rate 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 Market Rate Period
shall, in the absence of manifest error, be conclusive.
9
Market Rate Portion: subject to the proviso to subsection 2.1
hereof, that portion of the Loans specified in a Market Rate Request (including
any portion of such Loans which are being borrowed by the Borrowers concurrently
with such Market Rate Request) which is not less than $100,000, which does not
exceed the outstanding balance of the Loans not already subject to Fixed Rate
Options and which, as of the date of the Market Rate Request specifying such
Market Rate Portion, has met the conditions for basing interest on the Market
Rate in subsection 2.4 hereof and the Market Rate Period of which has commenced
and not terminated.
Market Rate Request: notice in writing (or by telephonic
communication conferred by telex, telecopy or other facsimile transmission on
the same day as the telephone request) from either or both of the Borrowers to
the Bank (and received by the Bank at least one (1) Banking Day prior to the
first day of the Market Rate Period requested) requesting that interest on a
Market Rate Portion be based on the Market Rate, specifying: (i) the first day
of the Market Rate Period, (ii) the length of the Market Rate Period consistent
with the definition of that term, and (iii) a dollar amount of the Market Rate
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
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 Fixed Rate Portion and the applicable
Fixed 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 Borrowers 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 either or both of
the Borrowers prior to 11:00 a.m., Boston time, two (2) Banking Days prior to
the first day of the LIBOR Period requested;
10
(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 six (6)
Fixed Rate Portions of the 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 Conditions for Basing Interest on the Market Rate. Upon the condition that:
11
(a) The Bank shall have received a Market Rate Request at least one (1)
Banking Day prior to the first day of the Market Rate Period requested;
(b) As of the date of the Market Rate Request and the first day of the
Market Rate 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;
(c) After giving effect to such Market Rate Request, not more than six
(6) Fixed Rate Portions of the Loans shall be outstanding; and
(d) The Bank shall not have determined in good faith that it is unable
to determine the Market Rate in respect of the requested Market Rate Period;
then interest on the Market Rate Portion requested during the Market Rate Period
requested will be based on the applicable Market Rate.
2.5 Indemnification for Funding and Other Losses. Each Fixed Rate Request shall
be irrevocable and binding on the Borrowers. The Borrowers will jointly and
severally indemnify the Bank against any loss or expense incurred by the Bank as
a result of any failure on the part of either Borrower to fulfill, on or before
the date specified in any Fixed Rate Request, the applicable conditions set
forth in this 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 Fixed Rate Portion when interest on such Fixed Rate Portion, as a
result of such failure on the part of a Borrower, is not based on the applicable
Fixed Rate for the requested Fixed Rate Period.
2.6 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 Fixed Rate 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 Fixed Rate is determined as provided herein or a category of
extensions of credit or other assets of the Bank which includes any Fixed Rate
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 Borrowers terminate the Fixed Rate Option, (b) any Fixed
Rate Portion subject thereto shall immediately bear interest thereafter at the
rate provided for in subsection 1.4(a), and (c) the Borrowers will jointly and
severally 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 Fixed Rate Portion (except to the
extent the Bank shall have been compensated or reimbursed for any such loss,
penalty or expense by reason of any Fixed Rate Premium or Premiums paid by the
Borrowers in connection therewith).
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2.7 Taxes. It is the understanding of the Borrowers and the Bank that the Bank
shall receive payments of amounts of principal of and interest on the Loans with
respect to the Fixed Rate Portions from time to time subject to a Fixed Rate
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 Fixed Rate Portion or
part thereof or (b) the Borrowers shall be required to withhold or deduct any
such Tax from any such amount, the Fixed Rate applicable to such Fixed Rate
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
Borrowers of such Tax and the Borrowers shall provide the Bank with a statement
detailing the amount of any such Tax actually paid by the Borrowers.
Determination by the Bank of the amount of such costs shall, in the absence of
manifest error, be conclusive, and at the Borrowers 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 Borrowers 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.
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 Borrowers make the following representations
and warranties, which shall survive the execution and delivery hereof and of the
Note:
3.1 Organization, Standing, etc. of the Borrowers. Each of the Borrowers 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 Note 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 Borrowers and their 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 Borrowers or their
Subsidiaries as specified in Schedule 3.2, in each case free of any mortgage,
pledge, lien, security interest, charge, option or other encumbrance.
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3.3 Qualification. The Borrowers and their 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 Borrowers or their Subsidiaries or on their financial or other
condition.
3.4 Financial Information; Disclosure, etc. As of the date hereof, the Borrowers
have 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, properties or financial position of
the Borrowers (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 Borrowers 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 either of the Borrowers unable to pay its debts as they become due;
neither of the Borrowers is 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 neither of the Borrowers has
knowledge of any person contemplating the filing of any such petition against
it.
3.5 Licenses; Franchises, etc. The Borrowers and their 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 Borrowers and their 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 Borrowers and their Subsidiaries have fulfilled
and performed all of their obligations with respect thereto in all material
respects and have full power and authority to operate thereunder.
3.6 Tax Returns and Payments. The Borrowers and their 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 Borrowers
and their Subsidiaries in respect of their respective taxes are adequate in the
opinion of the Borrowers, and the Borrowers know of no unpaid assessment for
additional taxes or of any basis therefor.
14
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 Borrowers and their Subsidiaries in respect of
borrowed money, Capital Leases and the deferred purchase price of property; (b)
all existing mortgages, liens and security interests in respect of any property
or assets of the Borrowers or their Subsidiaries; (c) all outstanding
investments, loans and advances of the Borrowers and their Subsidiaries; and (d)
all existing guarantees by the Borrowers and their Subsidiaries.
3.8 Title to Properties; Liens. The Borrowers and their 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 Borrowers and their Subsidiaries and
have not arisen otherwise than in the ordinary course of business. The Borrowers
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
Borrowers 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, to
the Borrowers' knowledge, threatened (or any basis therefor known to the
Borrowers) which questions the validity of this Agreement, the Note, 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 Borrowers or any Subsidiary or any of
their respective properties or in any material liability on the part of the
Borrowers or any Subsidiary.
3.10 Authorization; Compliance with Other Instruments. The execution, delivery
and performance of this Agreement, the Note and the Security Documents have been
duly authorized by all necessary corporate action on the part of the Borrowers
and their 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
Borrowers or any Subsidiary, or of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to the Borrowers or
any Subsidiary, or result in the creation of any mortgage, lien, charge or
encumbrance upon any of the properties or assets of the Borrowers or any
Subsidiary pursuant to any such term (except pursuant to the Security
Documents). Neither the Borrowers 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 Borrowers' knowledge,
of any judgment, decree, order, statute, rule or governmental regulation
applicable to it.
15
3.11 Governmental Consent. Neither the Borrowers 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 governmental authority in connection with the
execution and delivery of this Agreement and the issuance and delivery of the
Note 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.
3.12 Regulation U, etc. Neither the Borrowers 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 Borrowers 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 Borrowers
will promptly furnish the Bank with a statement or statements 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
Borrowers and all corporations, partnerships, trades or businesses (whether or
not incorporated) which constitute a controlled group of corporations with the
Borrowers, 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 Borrower'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.
16
3.14 Ownership of Borrowers and Parent Company. All of the outstanding shares of
capital stock of the Borrowers are owned by the Parent Company, free of any
assignment, pledge, lien, security interest, charge, option or other
encumbrance. The Borrowers are not obligated in any manner to issue any
additional shares of their capital stock. Schedule 3.14 attached hereto lists
certain officers and directors of the Parent Company (the AParent Company
Management Shareholders@) and specifies the minimum number of shares which are
required to be owned by such Parent Company Management Shareholders for purposes
of subsection 8.1(j) hereof.
3.15 Environmental Matters. Neither the Borrowers nor any Subsidiary nor, to the
Borrowers' 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 Borrowers or any Subsidiary or in which the Borrowers or any
Subsidiary have ever held, directly or indirectly, any legal or beneficial
interest or estate, and no such real property has ever been used (either by the
Borrowers or any Subsidiary or, to the Borrowers' 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
Borrowers and each of their Subsidiaries have been issued and are in compliance
in all material respects with all material permits, certificates, licenses,
approvals and other authorizations relating to environmental matters and
necessary 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 Borrowers or any
Subsidiary. All Hazardous Materials used or generated by the Borrowers or any
Subsidiary or any business merged into or otherwise acquired by the Borrowers 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 Borrowers or any Subsidiary. Neither the Borrowers nor any
Subsidiary have any liabilities with respect to Hazardous Materials, and to the
knowledge of the Borrowers, 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 Borrowers 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 Note. Concurrently with the execution and delivery of this Agreement,
the Bank shall have received the Note (in the amount of the Commitment) duly
completed, executed and delivered, as provided in section 1.
17
4.2 Opinions and Certificates. Concurrently with the execution and delivery of
this Agreement, the Bank shall have received:
(a) The favorable opinion of counsel for the Borrowers, in form and
substance satisfactory to the Bank and its counsel.
(b) A certificate signed by a principal officer of each of the
Borrowers, 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 corporate officers or governmental authorities.
4.3 No Default; Representations and Warranties, etc. On the date of each Loan
hereunder: (a) the representations and warranties of the Borrowers 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 Borrowers
shall be in compliance in all material respects with all of the terms and
provisions set forth herein on their 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 Borrowers or their Subsidiaries, taken as a whole. Each
request for a Loan hereunder shall constitute a representation and warranty by
the Borrowers 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. Concurrently with the execution and delivery of this
Agreement, 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 Certain Financial Transactions. Prior to or concurrently with the execution
and delivery of this Agreement and the making of the first Loan hereunder:
(a) The 9.5% subordinated note due May 15, 2001 of Services originally
issued to RCG International, Inc. pursuant to that certain Sale Agreement dated
as of May 25, 1995 between Consulting and RCG International, Inc. shall have
been fully paid and discharged in full;
(b) The Parent Company shall have completed an initial public offering
of its capital stock (the AParent Company Offering@); and
18
(c) The Indebtedness of Consulting to the Bank in respect of the Prior
Credit Agreement and all loans thereunder shall have been fully paid and
discharged in full.
Section 5. Affirmative Covenants.
So long as any of the Loans shall remain available to the Borrowers, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Borrowers agree that:
5.1 Financial Statements, etc. The Borrowers will furnish or cause to be
furnished to the Bank:
(a) Within 90 days after the end of each fiscal year of the Borrowers,
(i) the consolidated and consolidating balance sheets of the Borrowers and their
Subsidiaries as at the end of such year, and (ii) the related consolidated and
consolidating statements of income and cash flows and consolidated statement of
shareholders= equity 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 Borrowers
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 a Responsible Officer of each of the Borrowers;
(b) Within 30 days after the end of each month, (i) the unaudited
consolidated and consolidating balance sheets of the Borrowers and their
Subsidiaries as at the end of such month, and (ii) the related unaudited
consolidated and consolidating statements of income and cash flows and
consolidated statement of shareholders= equity 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 a Responsible Officer of each of the Borrowers;
19
(c) Together with the financial statements delivered pursuant to
subparagraph (a) above, or as soon thereafter as reasonably available, (i) a
copy of the management letter or letters, 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 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 Borrowers, a
compliance certificate substantially in the form of Exhibit B attached hereto
signed by a Responsible Officer of each of the Borrowers;
(e) Within 20 days after the end of each month, a borrowing base
certificate substantially in the form of Exhibit C attached hereto (the
"Borrowing Base Certificate"), together with an aging of accounts receivable
report, in each case signed by a Responsible Officer of each of the Borrowers;
(f) Within 20 days after the end of each month, a backlog report
prepared by the Borrowers= management setting forth in reasonable detail the
amount of the Borrowers= authorized and obligated backlog;
(g) Within 45 days after the end of each fiscal year of the Borrowers, a
budget prepared by the Borrowers= management setting forth in reasonable detail,
and on a monthly basis, the Borrowers= budget or budgets for the ensuing fiscal
year; and
(h) Forthwith upon any officer of either of the Borrowers 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 a Responsible Officer of each of the Borrowers
specifying in reasonable detail the nature and period of existence thereof and
what action the Borrowers have taken or proposes to take with respect thereto.
The Borrowers will also furnish or cause to be furnished to the Bank
such other information regarding the business, affairs and condition of the
Borrowers and their Subsidiaries as the Bank may from time to time reasonably
request. The Borrowers will permit the Bank to inspect the books and any of the
properties or assets of the Borrowers and their Subsidiaries at such reasonable
times as the Bank may from time to time request.
20
5.2 Legal Existence; Franchises; Compliance with Laws, etc. Each of the
Borrowers 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 in all material respects 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
Borrowers nor any Subsidiary shall be required by reason of this subsection to
comply therewith at any time while either of the Borrowers 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
Borrowers and their independent public accountants. Neither the Borrowers 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 Borrowers will maintain or cause to be maintained on all
insurable properties now or hereafter owned by the Borrowers 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 Borrowers and their 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 Borrowers 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
Borrowers 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 Borrowers 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 Borrowers, 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
Borrowers will maintain a life insurance policy or policies in the amount of at
least $2,000,000 insuring the life of Henri-Claude Bailly and shall cause their
rights under such policy or policies to be assigned to the Bank as security for
the Loans and the Borrowers= other obligations to the Bank hereunder and under
the Note (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 either of the Borrowers under its employment contract with the
insured, provided that (a) the Borrowers 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.
21
5.4 Payment of Taxes. Each of the Borrowers will, and will cause each Subsidiary
to, pay and discharge promptly as they become due and payable all taxes,
assessments and other governmental charges 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 Borrowers 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
Borrowers or such Subsidiary, as the case may be, shall have set aside on their
books such reserves, if any, with respect thereto as are required by generally
accepted accounting principles and deemed appropriate by the Borrowers and their
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, each of the Borrowers 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 Borrowers 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 Note, 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 Borrowers 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 Borrowers or any Subsidiary shall at any time or from
time to time acquire or own any real property, the Borrowers 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 Borrowers
hereunder and under the Note.
5.7 Depository Account. Each of the Borrowers will, and will cause each
Subsidiary (other than the Foreign Subsidiaries) to, maintain its principal
depository account with the Bank.
22
5.8 Field Audits. Without limiting the provisions of subsection 5.1 hereof, the
Borrowers will permit the Bank to audit the books and records and other assets
of the Borrowers and their 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 approximately six-month intervals. In connection with any such audit or
audits, the Bank shall be allowed to verify the receivables of the Borrowers and
to confirm with account debtors the validity and amount of all of the Borrowers=
accounts receivable. The Borrowers shall promptly pay the Bank's standard audit
fee in connection with any such audit (such fee is presently based upon a charge
of $500 per person per day plus out-of-pocket expenses, but the Borrowers
acknowledge 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 Borrowers 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 Borrowers, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Borrowers agree that:
6.1 Indebtedness. The Borrowers 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 Borrowers or any Subsidiary (other than
for borrowed money) incurred in the ordinary course of business and in
accordance with customary trade practices;
(d) Existing Indebtedness, if any, of the Borrowers 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 Borrowers or any Subsidiary secured as permitted
by, and subject to the proviso to, subparagraph (c) of subsection 6.2;
(f) Indebtedness of the Borrowers or any Subsidiary in respect of
guarantees to the extent permitted under subsection 6.3; and
(g) Subordinated Debt (in addition to the Subordinated Debt permitted
under subparagraph (b) of this subsection 6.1).
23
6.2 Mortgages, Liens, etc. The Borrowers 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 Borrowers 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
Borrowers or any Subsidiary after the date hereof or existing in respect of
property so acquired at the time 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; and
(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 Borrowers
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 Borrowers and their Subsidiaries or materially
affect the use thereof in the operation of their business.
6.3 Loans, Guarantees and Investments. The Borrowers 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 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 Borrowers 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;
24
(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 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 thereof;
(f) Advances to officers and employees in the ordinary course of
business for travel and similar expenses;
(g) Loans and advances (in addition to advances permitted under
subparagraph (f) of this subsection 6.3), not exceeding $500,000 in aggregate
principal amount outstanding at any time, to officers and employees of the
Borrowers;
(h) Loans and advances, not exceeding $5,000,000 in aggregate principal
amount outstanding at any time, to HB Capital, subject to the provisions of
subsection 1.9(f) hereof , provided that no such loans or advances shall be made
if at the time thereof, or after giving effect thereto, any Event of Default
shall have occurred and be continuing;
(i) Investments and advances made by the Borrowers in the ordinary
course of business for the purpose of opening or acquiring offices for the
conduct of their business, including offices located outside of the United
States of America and investments in joint ventures and other legal entities in
connection therewith, but exclusive of investments and advances made in
connection with a Permitted Acquisition, provided that: (A) 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; (B) the aggregate amount of all such
investments and advances shall not exceed $5,000,000 during the twelve-month
period ending September 30, 1998; and (C) the aggregate amount of all such
investments and advances shall not exceed $3,000,000 during the twelve-month
period ending September 30, 1999 or during the twelve-month period ending on
September 30 of any year thereafter; and
(j) Permitted Acquisitions.
25
6.4 Restricted Payments. The Borrowers 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.
6.5 Mergers and Consolidations. The Borrowers will not, and will not permit any
Subsidiary to, enter into any merger or consolidation without the prior written
consent of the Bank, except for a merger in connection with a Permitted
Acquisition by either of the Borrowers or any Subsidiary.
6.6 Sale of Assets. The Borrowers will not, and will not permit any Subsidiary
to, sell, lease or otherwise dispose of all or any substantial part of their
respective properties or assets without the prior written consent of the Bank.
6.7 Issuance of Additional Shares, etc. The Borrowers will not, and will not
permit any Subsidiary to, directly or indirectly:
(a) Issue any additional shares of capital stock or reissue any treasury
shares, or options to acquire any such shares (other than directors= qualifying
shares), whether now or hereafter authorized, unless (i) in the case of shares
of capital stock of the Borrowers, 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 either or both of the Borrowers 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 Borrowers 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 Borrowers will cause all employee benefit plans sponsored by any
Affiliated Company to be maintained in material compliance with ERISA and the
Code. The Borrowers will not engage, and will not permit or suffer any
Affiliated Company or any Person entitled to indemnification or reimbursement
from the Borrowers 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 Borrowers 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 Borrowers or such
shareholder, on terms that are less favorable to the Borrowers or such
Subsidiary than those which might be obtained at the time from Persons who are
not such a shareholder or Affiliate.
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6.10 Observance of Subordination Provisions, etc. The Borrowers 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 Borrowers (a) amend, modify or change in any manner any of
such subordination provisions without the prior written 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.
6.11 Environmental Liabilities. The Borrowers 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 Borrowers 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 Borrowers or any
Subsidiary or in which the Borrowers 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 Borrowers and their Subsidiaries.
6.12 Officer Distributions. The Borrowers will not, directly or indirectly make
or pay any Officer Distributions if, at the time thereof or immediately after
giving effect thereto (i) the Borrowers 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.
Section 7. Financial Covenants.
So long as any of the Loans shall remain available to the Borrowers, and
until the principal of and interest on the Loans and all fees due hereunder
shall have been paid in full, the Borrowers agree that:
7.1 Capital Base. The Borrowers will not at any time permit Capital Base to be
less than $11,000,000, which minimum Capital Base amount shall increase at the
end of each fiscal quarter of the Borrowers, commencing with the fiscal quarter
ending September 30, 1997, by the greater of: (a) $250,000; or (b) by an amount
equal to 25% of Adjusted Net Operating Income for such fiscal quarter.
7.2 Current Ratio. The Borrowers will not permit Current Assets to be less than
100% of Current Liabilities at any time.
7.3 Funded Debt; Net Operating Income. The Borrowers will not permit the
aggregate principal amount of Funded Debt outstanding at any time during any
fiscal quarter of the Borrowers to be greater than 250% of Net Operating Income
for the twelve-month period ending on the last day of such fiscal quarter.
27
7.4 Fixed Charge Coverage. The Borrowers will not permit Net Operating Income
for any twelve-month period ending on the last day of any fiscal quarter of the
Borrowers (after restoring thereto amounts, if any, deducted in the calculation
of Net Income for such period in respect of Rental Obligations) to be less than
320% of Pro Forma Fixed Charges.
7.5 Senior Liabilities; Adjusted Capital Base. The Borrowers will not permit the
aggregate amount of Senior Liabilities outstanding at any time during the fiscal
years of the Borrowers 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
1997 150%
1998 130%
1999 120%
2000 120%
7.6 Billability. The Borrowers will not permit Billability to be less than 55%
at any time.
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 Borrowers 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 Borrowers shall default in the performance of or compliance with
any term contained in sections 6 or 7; or
(c) The Borrowers 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 Borrowers by the Bank; or
28
(d) The Borrowers, any Subsidiary or any shareholder of the Borrowers
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 Borrowers herein
or pursuant hereto shall prove to have been false or incorrect in any material
respect when made; or
(f) The Borrowers 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) Either of the Borrowers 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 such Borrower or such Subsidiary or
any substantial part of the property of such Borrower 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
either of the Borrowers or any Subsidiary shall take any action to dissolve or
liquidate such Borrower or such Subsidiary; or
(h) If, within 60 days after the commencement against either of the
Borrowers 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 such Borrower and such Subsidiary stayed, or if
the stay of any such order or proceeding shall thereafter be set aside, or if
within 60 days after the entry of a decree appointing a trustee, receiver or
liquidator (or other similar official) of either of the Borrowers or any
Subsidiary or any substantial part of the property of such Borrower or such
Subsidiary, such appointment shall not have been vacated; or
29
(i) A final judgment which, with other outstanding final judgments
against the Borrowers and their Subsidiaries, exceeds an aggregate of $100,000
shall be rendered against either of the Borrowers 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 either of the
Borrowers or any Subsidiary shall have been seized in satisfaction thereof; or
(j) If any Parent Company Management Shareholder shall cease to own,
directly or indirectly, at least the minimum number of shares of capital stock
of the Parent Company specified for such Parent Company Management Shareholder,
in Schedule 3.14 hereto (other than a Parent Company Management Shareholder who
ceases to be an officer or employee of the Parent Company after the date hereof,
whether by death, resignation or otherwise); 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 Parent Company, and within 120 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 Parent Company; or
(l) If the Parent Company shall cease to own all of the outstanding
shares of capital stock of the Borrowers;
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 Borrowers, (i) declare the principal of and accrued
interest in respect of the Note to be forthwith due and payable, whereupon the
principal of and accrued interest in respect of the Note (together with any
Fixed Rate 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 Borrowers, (ii) demand Cash Collateral in
accordance with subsection 1.15(c) hereof, and/or (iii) terminate the
Commitment, whereupon the Commitment of the Bank to make Loans and the
undertaking of the Bank to issue Letters of Credit hereunder shall forthwith
terminate without any other notice of any kind. If any Event of Default referred
to in subparagraphs (g) or (h) of this subsection 8.1 shall occur, (i) the
principal of and accrued interest in respect of the Note (together with any
Fixed Rate 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 Borrowers, (ii) the Cash Collateral shall
forthwith become due and payable in accordance with subsection 1.15(c) hereof,
without any notice of any kind; and (iii) the Commitment of the Bank to make
Loans and the undertaking of the Bank to issue Letters of Credit hereunder shall
forthwith terminate without any other notice of any kind.
30
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 the Note or any
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 the Note, or in the payment of any fee due hereunder, the Borrowers
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 the Note or any 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:
Adjusted Capital Base: at any time, the sum of (a) Capital Base
and (b) the aggregate principal amount of all Subordinated Debt of the Borrowers
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 1.9(f) hereof
continues in full force and effect), the Borrowers 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 1.2(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 Borrowers, divided by (b) Theoretical Billing Capacity for such
period.
31
Bonus Recapture: as of the end of each fiscal year of the
Borrowers, the amount, if any, by which (a) Bonus Reserves exceeds (b) Permitted
Officer Distributions.
Bonus Reserves: as applied to any fiscal year of the Borrowers,
the amount deducted in the computation of Net Income for such fiscal year in
respect of reserves established on the books of the Borrowers for Officer
Distributions.
Borrower or Borrowers: the meanings specified at the beginning of
this Agreement.
Borrowing Base: an amount equal to 85% of Eligible Receivables.
Borrowing Base Certificate: the meaning specified in subsection
5.1(e).
Capital Base: the sum of the following (determined on an Adjusted
Consolidated Basis): (a) shareholders' equity of the Parent Company and its
subsidiaries, including without limitation the net proceeds to the Parent
Company of the Parent Company Offering; and (b) amounts reserved on the books of
the Parent Company and its subsidiaries for the payment of bonuses and profit
sharing to officers 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.
Cash Collateral: the meaning specified in subsection 1.15(c).
Code: the meaning specified in subsection 3.13.
Collateral: the meaning specified in subsection 1.9.
Commitment: the meaning specified in subsection 1.1.
Commitment Fee: the meaning specified in subsection 1.6.
32
Consulting: the meaning specified at the beginning of this
Agreement. Consulting was formerly known as AHagler Bailly Pro Forma, Inc.@
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 not include
any liabilities to third parties who are not officers, employees or Affiliates
of the Parent Company and its subsidiaries to the extent such liabilities are
attributable to services or other work in process which have not been billed to
clients and which have been excluded from the computation of Current Assets in
accordance with the definition of that term, and provided, further that Current
Liabilities shall include up to $6,000,000 of the unpaid principal of the Loans
(whether or not due within twelve 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 Borrowers whose place of
business is outside of the United States of America, but whose obligations to
the Borrowers 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).
33
Eligible Receivables: the gross amount, as reflected on the
Borrowers= books in accordance with generally accepted accounting principles
consistently applied, of outstanding accounts receivable of the Borrowers with
respect to amounts due in the ordinary course of the Borrowers= businesses 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 Borrowers 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 Borrowers have
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 Borrowers 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. Without limiting the foregoing, the term AEligible Receivables@
shall not include accounts receivable owned by any Foreign Subsidiary.
ERISA: the meaning specified in subsection 3.13.
Event of Default: the meaning specified in section 8.
Expiration Date: September 30, 2000, or such later date or dates
as may be established by mutual agreement of the Borrowers 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 Borrowers 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 Borrowers 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 Borrowers 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
Borrowers request as aforesaid, the Commitment shall expire on the Expiration
Date then in effect and the entire unpaid principal of and interest on the 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 Borrowers 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.
Foreign Subsidiary: any Subsidiary organized under the laws of
any jurisdiction other than the United States of America or a political
subdivision thereof.
34
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 Borrowers), 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 Loans (whether or not due within twelve months) minus the
amount of all net collected cash balances maintained by the Borrowers 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 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.
Letter or Letters of Credit: the meanings specified in subsection
1.15(a).
Letter of Credit Fee: the meaning specified in subsection 1.5(b).
35
Licenses: the meaning specified in subsection 3.5.
Loan or Loans: the meanings specified in subsection 1.2(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); (c)
taxes in respect of income and profits paid during such period; and (d) the
Non-Recurring Expense, all as determined on an Adjusted Consolidated Basis. As
applied to any fiscal year of the Borrowers, Net Operating Income shall also
include the amount of any Bonus Recapture attributable to such fiscal year.
Non-Recurring Expense: the non-recurring, non-cash compensation
expense of approximately $6,200,000 incurred by the Parent Company for the
fiscal year ending December 31, 1996, as set forth in the financial statements
delivered to the Bank for such period pursuant to subsection 5.1(a) hereof.
Note: the meaning specified in subsection 1.3.
Officer Distributions: cash payments to officers of the Borrowers
in respect of bonuses, incentive compensation or similar arrangements (but
exclusive of payments of salary in the ordinary course of business).
Parent Company: Hagler Bailly, Inc., a Delaware corporation.
Parent Company Management Shareholders: the meaning specified in
subsection 3.14.
Parent Company Offering: the meaning specified in subsection
4.5(b).
PBGC: the meaning specified in subsection 3.13.
Permitted Acquisition: either a Regular Permitted Acquisition or
a Special Permitted Acquisition.
Permitted Officer Distributions: as applied to any fiscal year of
the Borrowers, the amount of Officer Distributions which may be made by the
Borrowers in respect of such fiscal year in compliance with the provisions of
subsection 6.12 hereof.
36
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.
Prime Rate: the per annum rate of interest announced from time to
time by the Bank as its "prime rate".
Prior Credit Agreement: that certain Credit Agreement dated as of
May 17, 1995, as amended, between Hagler Bailly Services, Inc. (formerly known
as Hagler Bailly Consulting, Inc.) and the Bank.
Pro Forma Fixed Charges: the maximum aggregate amount (determined
in accordance with generally accepted accounting principles on an Adjusted
Consolidated Basis) 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 Fixed Charges is to be determined on
account of: (a) Interest Expense; and (b) Rental Obligations.
Regular Permitted Acquisition: any investment by a Borrower or
any Subsidiary (other than a Foreign Subsidiary) in the form of an acquisition
of the entire ownership interest (whether by the acquisition of capital stock or
other ownership interest) or all or substantially all of the assets, or any
combination thereof, of any other Person if such acquisition meets all of the
following requirements:
(a) The Person to be acquired shall be engaged in the same line
of business as the Borrowers and their Subsidiaries;
(b) A Borrower or a Subsidiary (other than a Foreign Subsidiary)
shall be the surviving Person;
(c) Any additional Security Documents, or amendments to existing
Security Documents, required by subsection 1.9 or 5.6 hereof (including, without
limitation, Uniform Commercial Code financing statements) shall have been duly
executed and delivered to the Bank and the same shall be satisfactory in form to
the Bank and its counsel;
(d) At the time of such acquisition 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, and
concurrently with such acquisition, the Bank shall have been furnished with a
certificate of a Responsible Officer of each of the Borrowers as to the matters
stated in this subparagraph (d); and
(e) The aggregate amount of all such investments by the Borrowers
and their Subsidiaries during any fiscal year of the Borrowers shall not exceed
$3,000,000.
37
Rental Obligations: the maximum fixed rentals paid or payable by
a lessee under any lease during a specified period, excluding amounts paid or
payable on account of maintenance, ordinary repairs, insurance, taxes,
assessments and other similar charges, whether or not designated as rental or
additional rental.
Responsible Officer: as applied to any Borrower, the chief
executive officer, chief financial officer or corporate controller of such
Borrower.
Restricted Payment: (a) any dividend or other distribution,
direct or indirect, on or on account of any shares of any class of stock of
either of the Borrowers now or hereafter outstanding, and (b) any redemption,
purchase or other acquisition, direct or indirect, of any shares of any class of
stock of either of the Borrowers 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).
Security Documents: the meaning specified in subsection 1.9.
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 Borrowers.
Services: the meaning specified at the beginning of this
Agreement. Services was formerly known as AHagler Bailly Consulting, Inc.@
Special Permitted Acquisition: any investment by a Borrower or
any Subsidiary (other than a Foreign Subsidiary) in the form of an acquisition
(other than a Regular Permitted Acquisition) of the entire ownership interest
(whether by the acquisition of capital stock or other ownership interest) or all
or substantially all of the assets, or any combination thereof, of any other
Person if such acquisition meets all of the following requirements:
(a) The Person to be acquired shall be engaged in the same line
of business as the Borrowers and their Subsidiaries;
(b) A description of the acquisition (including, without
limitation, a description of the Person or assets to be acquired, the purchase
price, the manner of acquisition, the payment structure and any other terms and
conditions reasonably required by the Bank) shall have been delivered to the
Bank not less than 15 days prior to the consummation of the acquisition;
(c) A Borrower or a Subsidiary (other than a Foreign Subsidiary)
shall be the surviving Person;
38
(d) Any additional Security Documents, or amendments to existing
Security Documents, required by subsection 1.9 or 5.6 hereof (including, without
limitation, Uniform Commercial Code financing statements) shall have been duly
executed and delivered to the Bank and the same shall be satisfactory in form to
the Bank and its counsel;
(e) The historical financial statements of the Person to be
acquired, if applicable, for the most recent fiscal year of such Person, in form
and substance satisfactory to the Bank, shall have been delivered to the Bank
not less than 15 days prior to the consummation of the acquisition;
(f) The Borrowers shall have delivered to the Bank not less than
15 days prior to the consummation of the acquisition, in form and substance
satisfactory to the Bank, a projected balance sheet and projected statements of
income and shareholders= equity and cash flows of the Borrowers and their
Subsidiaries giving effect to such acquisition (including, without limitation, a
summary of assumptions and pro forma adjustments made in connection therewith)
for the ensuing fiscal year;
(g) The Borrowers shall have delivered to the Bank not less than
15 days prior to the consummation of the acquisition a compliance certificate
substantially in the form of Exhibit B attached hereto signed by a Responsible
Officer of each of the Borrowers and demonstrating, on a pro forma basis,
compliance with the provisions of this Agreement indicated therein; and
(h) At the time of such acquisition 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, and
concurrently with such acquisition, the Bank shall have been furnished with a
certificate of a Responsible Officer of each of the Borrowers as to the matters
stated in this subparagraph (h).
Subordinated Debt: (a) the existing Indebtedness of the
Borrowers, if any, which is designated as "Subordinated Debt" in Schedule 3.7
attached hereto, and (b) any other Indebtedness of the Borrowers consented to in
writing by the Bank which matures in its entirety later than the Expiration Date
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 Borrowers= other obligations to the Bank
hereunder and under the Note 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 Borrowers.
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 either of the Borrowers or by one or more Subsidiaries or by
either of the Borrowers and one or more Subsidiaries.
39
Theoretical Billing Capacity: for any fiscal quarter of the
Borrowers, the amount accrued on the Borrowers= books for payroll expense for
such period in respect of all employees of the Borrowers.
Total Billable Hours: for any fiscal quarter of the Borrowers,
the amount accrued on the Borrowers= books for billable services rendered to
clients by professionals and employees of the Borrowers 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
Borrowers, all as determined on an Adjusted Consolidated Basis.
Transaction Fee: the meaning specified in subsection 1.5.
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 either of the Borrowers becomes insolvent,
howsoever evidenced, or any Event of Default occurs, any Indebtedness from the
Bank to the Borrowers or any Subsidiary may, without regard to the value of the
Collateral, be offset and applied toward the payment of any Indebtedness from
the Borrowers to the Bank, whether or not such Indebtedness, or any part thereof
shall then be due.
Section 11. Expenses; Indemnification.
40
(a) Whether or not the transactions contemplated hereby shall be
consummated, the Borrowers jointly and severally agree (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 the
preparation of this Agreement, the Security Documents, the Note and all other
documents related hereto (including any amendment, consent or waiver hereafter
requested by either of the Borrowers hereunder or thereunder) and the
transactions contemplated hereby or the enforcement of the rights of the Bank
hereunder or under the Note 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 Note and all other
documents related hereto (including any amendment, consent or waiver hereafter
requested by either of the Borrowers 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 Borrowers application for credit hereunder.
(b) The Borrowers, jointly and severally, 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 Borrowers or any shareholder or any Affiliate of the
Borrowers 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 Borrowers or any shareholder or any Affiliate of the
Borrowers 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 Borrowers hereunder, notify the Borrowers 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 Note 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
Note, and each and every term, condition and other provision of this Agreement,
the Security Documents and the Note 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.
41
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.: 617-664-4176
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 Borrowers:
Hagler Bailly Consulting, Inc.
Hagler Bailly Services, 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
42
with a copy to:
Stephen V.R. Whitman, Esq.
Vice President and General Counsel
Hagler Bailly, Inc.
1530 Wilson Boulevard
Suite 900
Arlington, VA 22209-2406
Telecopier No.: 703-351-0342
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.: 617-664-3661
Telecopier no.: 617-664-3178
Telex: 200139
Call Back: STATE UR
or to such other address as the Bank may designate in writing to the Borrowers.
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 Note, 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.
43
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.
13.6 Obligations Joint and Several. Consulting and Services shall be jointly and
severally liable for the obligations of the Borrowers under this Agreement, the
Note and the Security Documents to which either of them is a party, howsoever
such obligations may be incurred. Unless the context shall otherwise clearly
indicate, references herein and in the Note and the Security Documents to the
ABorrowers@ or to any ABorrower@ with respect to any of the aforesaid
obligations shall mean each of Consulting and Services on a joint and several
basis.
13.7 Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement and the
Note, 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. Each of the
Borrowers, 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 Note 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. Each of the Borrowers 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.
Each of the Borrowers irrevocably waives all right to a trial by jury in any
proceeding hereafter instituted by or against the Borrowers in respect of this
Agreement, the Note, the Security Documents, or any other documents executed in
connection herewith or therewith.
13.8 Termination of Prior Credit Agreement. This Agreement supersedes and
replaces the Prior Credit Agreement. Upon execution and delivery of this
Agreement, the Prior Credit Agreement shall be terminated and of no further
force or effect except for: (a) the payment and discharge by Services of its
then existing obligations thereunder; and (b) provisions of the Prior Credit
Agreement which are stated to survive its termination.
44
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/ Daniel M. Rouse
--------------------------
Senior Vice President, CFO,
Treasurer and Secretary
------------------------------------------------------
(Title)
HAGLER BAILLY SERVICES, INC.
By: /s/ Daniel M. Rouse
---------------------------
Senior Vice President,
CFO, Treasurer and Secretary
------------------------------------------------------
(Title)
STATE STREET BANK AND TRUST COMPANY
By: /s/ Linda Moulton
---------------------------
Vice President
------------------------------------------------------
(Title)
43
PROMISSORY NOTE
- --------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
- --------------------------------------------------------------------------------------------
$900,000.00 08-21-1997 08-21-1999 9008949 208 9008949 gs196
- --------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability
of this document to any particular loan or item.
- --------------------------------------------------------------------------------------------
Borrower: Colonial Downs Holdings, Inc. Lender: Citizens and Farmers Bank
3610 North Court House Road Administratlon
Providence Forge, VA 23140 P. O. Box 391
802 Main Street
West Point, VA 23181
================================================================================
IMPORTANT NOTICE
THIS INSTRUMENT CONTAINS A CONFESSION OF JUDGEMENT PROVISION WHICH CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGEMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
================================================================================
Principal Amount: $900,000.00 Date of Note: August 21, 1997
PROMISE TO PAY. Colonial Downs Holdings, Inc. ("Borrower") promises to pay to
Citizens and Farmers Bank ("Lender"), or order, in lawful money ot the Untted
States ot America, the principal amount ot Ntne Hundred Thousand & 00/100
Dollars (S900,000.00), together with interest on the unpaid principal balance
from August 21, 1997, until paid in full.
PAYMENT. SubJect to any payment changes resulting trom changes in the Index,
Borrower will pay this loan in accordance with the following payment schedule:
23 consecutive monthly principal payments ol S15,000.00 each, beginning
September 21, 1997, with Interest calculated on the unpaid principal balances at
an Interest rate ot 1.000 percenbge points over the Index described below; 23
consecutive monthly Interest payments, beginning September 21, 1997, with
Interest calculated on the unpaid prtacipal balances at an interest rate ot
1.000 percentage points over the Index described below, and 1 prlocipal and
Interest payment In the Initlal amount ot S559,540.21 on August 21, 1999, with
Interest calculated on the unpaid prlacipal balances at an Interest rate ot
1.000 percentage polots over the Index described below. This estimated final
payment Is based on the assumption thst all payments will be made exactly as
scheduled and that the Index does not change; the actual flnal payment will be
tor all principal and accrued Interest not yet paid, together with any other
unpaid amounts under this Note.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
wnting. Uniess otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collechon costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Pnme rate as
published in the Wall Street Journal (the ~Indexn). The Index is not necessanly
the lowest rate charged by Lender on its loans. If the Index becomes unavailable
dunog the term of this loan, Lender may designate a substitute index after
notice to Bonrower. Lender will tell 8Onrower the current Index rate upon
Bonrower's request. Borrower understands that Lender may make loans based on
other rates as weli. The interest rate change will not occur more often than
each time Wall Street Journal Pnme Rate changes. The Index currently Is 8.500%
per annum. The Interest rate or rstes to be applied to the unpaid prtncipal
balance ot tints Note will be the rate or rates set forth above in the "Payment"
section. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. Whenever increases occur
in the interest rate, Lender, at its option, may do one or more of the
following: (a) increase Bonrower's payments to ensure Borrower's loan will pay
off by its onginal final matunty date, (b) increase Bonrower's payments to cover
accruing interest, (c) increase the number of Bonrower's payments, and (d)
continue Bonrower's payments at the same amount and increase Bonrower's final
payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Bonower agrees that all loan fees and other
prepaid finance charges are earned fully as of the date of the loan and will not
be subject to refund upon early payment (whether voluntary or as a result of
default), except as otherwise required by law. In any event, even upon full
prepayment of this Note, Bonower understands that Lender is entiHed to a mintmum
interest charge ot S25.00. Cther than Bonower's obligation to pay any minimum
interest charge, Bonower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by Lender
in wndng, relieve Bonower of Bonower's obligation to continue to make payments
under the payment schedule. Rather, they will reduce the pnncipal balance due
and may result in Bonower making fewer payments.
LATE CHARGE. If a payment is 7 days or more late, Bonower will be charged 5.000%
ot the unpaid portton of the regularly scheduled payment or S1.00, whtchever is
greater.
DEFAULT. Bonower will be in default if any of the following happens: (a) Bonower
fails to make any payment when due. (b) Bonower breaks any promise Bonower has
made to Lender, or Bonower fails to comply with or to perform when due any other
term, obligation, covenant, or condihon contained in this Note or any agreement
related to this Note, or in any other agreement or loan Bonower has with Lender.
(c) Borrower defaults under any loan, extension of credit, secunty agreement,
purchase or sales agreement, or any other agreement, in favor of any other
creditor or person that may matenally affect any of Bonower's property or
Bonower's ability to repay this Note or perform Bonower's obligahons under this
Note or any of the Related Documents. (d) Any representation or statement made
or furnished to Lender by Bonower or on Bonower's behalf is false or misleading
in any matenal respect either now or at the hme made or furnished. (e) Bonower
becomes insolvent, a receiver is appointed for any part of Bonower's property,
Bonower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Bonower or against Bonower under any bankruptcy or
insolvency laws. (f) Any creditor tnes to take any of Bonower's property on or
in which Lender has a lien or secunty interest. This ir~cludes a garnishment of
any of Bonower's accounts with Lender. (9) Any guarantor dies or any of the
other events descnbed in this default sechon - -.curs with respect to any
guarantor of this Note. (h) A material adverse change occurs in Bonower's
financial conditiorl, or Lender believes the ~spect of payment or performance of
the Indebtedness is impaired.
RIDER'S RlGHTS. Upon default, Lender may declare the entire unpaid pnocipal
balance on this Note and all accrued unpaid interest, together with !her
applicable fees, costs and charges, if any, immediately due and payable, without
notice, and then Bonower will pay that amount. Upon
.It, including failure to pay upon final matunty, Lender, at its option,
may also, if permitted under applicable law, increase the variable interest rate
o,. - Note by 4.000 percentage points. The interest rate will not exceed the
maximum rate permitted by applicable law. Furthermore, subject to any limit~
~der applicable law, upon default, Bonower also agrees to pay Lender's
attorneys, fees, and all of Lender's other collechon expenses, whether
r not . -? is a lawsuit and including without limitation legal expenses for
bankruptcy proceedings. This Note shall be governed by, construed and forcea
accordance with the laws of the Commonweaith of Virginia. Lender and Bonower
hereby waive the nght to any jury tnal in any achon, ~eea~- ar counterclaim
brought by either party against the other.
08-21-1997 PROMISSORY NOTE Page 2
Loan No 9008949 (Continued)
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CONFESSION OF JUDGMENT. Upon a default in payment of the Indebtedness at
maturity, whether by acceleration or otherwise, Bonrower hereby irrevocably
authorizes and empowers James H. Hudson, lil as Bonower's attorney-in-fact to
appear in the King William County clerk's offlce and to confess judgment against
Borrower for the unpaid amount of this Note as evidenced by an affidavit signed
by an offlcer of Lender setting forth the amount then due, plus attorneys'fees
as provided in this Note, plus costs of suit, and to release all errors, and
waive all rights of appeal. If a copy of this Note, verified by an affidav~t,
shall have been filed in the proceeding, it will not be necessary to file the
original as a warrant of attorney. Bonower waives the right to any stay of
execution and the benefit of all exemption laws now or hereafter in effect. No
single exercise of the foregoing wanant and power to confess judgment will be
deemed to exhaust the power, whether or not any such exercise shall be held by
any court to be invalid, voidable, or void; but the power will continue
undiminished and may be exercised from time to time as Lender may elect until
all amounts owing on this Note have been paid in full.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of 525.00 if Bonower
makes a payment on Borrower's loan and the check or preauthonzed charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Bonower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's nght, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a secunty interest would be
prohibited by law. Bonower authonzes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by a Secunty Agreement from Colonial Downs
Holdings, Inc. and Colonial Downs, L.P. to Lender dated August 21, 1997 on a
lighting system which is more fully described in the Security Agreement.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. Ail such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the mod)fication is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Colonial Downs Holdings, Inc.
By: BORROWER:
Colonial Downs Holdings, Inc.
By: /s/ O. James Peterson, III [SEAL]
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O. James Peterson, III, President