<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MAY & SPEH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2992650
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1501 OPUS PLACE
DOWNERS GROVE, ILLINOIS 60515
(630) 964-1501
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDY V. JONUSAITIS
MAY & SPEH, INC.
1501 OPUS PLACE
DOWNERS GROVE, ILLINOIS 60515
(630) 964-1501
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ROBERT A. MCWILLIAMS MARGUERITE M. ELIAS
FREEBORN & PETERS KATTEN MUCHIN & ZAVIS
311 SOUTH WACKER DRIVE, SUITE 3000 525 WEST MONROE STREET
CHICAGO, ILLINOIS 60606-6677 CHICAGO, ILLINOIS 60661
(312) 360-6000 (312) 902-5200
(312) 360-6570 (FACSIMILE) (312) 902-1061 (FACSIMILE)
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE AGGREGATE OFFERING OFFERING REGISTRATION
REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(3) FEE(3)
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<S> <C> <C> <C> <C>
Convertible Subordinated
Notes due 2003......... -- -- $115,000,000 $33,925
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Common Stock, par value
$0.01 per share(4)..... 4,600,000 $13.5625 $ 62,387,500 $18,405
</TABLE>
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(1) Includes $15,000,000 principal amount of Convertible Subordinated Notes
and 600,000 shares of Common Stock subject to the Underwriters' over-
allotment options.
(2) Calculated pursuant to Rule 457(c) based on the average high and low sales
prices of the Common Stock on February 12, 1998 as reported by The Nasdaq
Stock Market.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) with respect to the Convertible Subordinated Notes and Rule
457(c) with respect to the Common Stock.
(4) There are also registered hereunder such indeterminate number of shares of
Common Stock, par value $0.01 per share, of May & Speh, Inc. as may be
issuable upon conversion of the Convertible Subordinated Notes due 2003,
and certain stock purchase rights issued pursuant to a Rights Agreement.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 19, 1998
PROSPECTUS
, 1998
$100,000,000
LOGO
% CONVERTIBLE SUBORDINATED NOTES DUE 2003
The % Convertible Subordinated Notes due 2003 (the "Notes") will be
convertible at the option of the holder into shares of common stock, par value
$0.01 per share, of the Company (the "Common Stock"), at any time prior to
maturity, unless previously redeemed or repurchased, at a conversion price (the
"Conversion Price") of $ per share (equivalent to a conversion rate of
shares per $1,000 principal amount of Notes), subject to adjustment in certain
events. Interest on the Notes is payable semi-annually on and of
each year, commencing on , 1998. On February 13, 1998, the last
reported sale price of the Common Stock on the Nasdaq National Market (where it
trades under the symbol "SPEH") was $13 5/8 per share.
The Notes are redeemable, in whole or in part, at the option of the Company,
at any time on or after , 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. The Company
will be required to offer to purchase the Notes upon a Change in Control (as
defined), at 100% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase.
The Notes are general, unsecured obligations of the Company, subordinated in
right of payment to all current and future Senior Indebtedness (as defined) of
the Company. In addition, the Notes will be structurally subordinated to all
current and future liabilities (including trade payables) of the Company's
subsidiaries. At December 31, 1997, as adjusted to give effect to the issuance
and sale of the Notes and the application of the estimated net proceeds
therefrom, approximately $26.0 million of outstanding indebtedness of the
Company would have constituted Senior Indebtedness, and the Company's
subsidiary had no outstanding obligations. The Company's existing revolving
credit facility (the "Existing Credit Facility") provides for borrowings of up
to $2.0 million. No amounts were outstanding under the Existing Credit Facility
as of December 31, 1997. In addition, the Company is negotiating with a group
of banks for a new revolving credit facility (the "New Credit Facility") which
is expected to provide for borrowings of up to $100.0 million. Indebtedness
under the Existing Credit Facility and the New Credit Facility would be Senior
Indebtedness. The Indenture (as defined) will not restrict the incurrence of
Senior Indebtedness or other indebtedness by the Company and its subsidiaries.
See "Description of Notes."
Application has been made for quotation of the Notes on the Nasdaq SmallCap
Market under the symbol "SPEHG."
Concurrently with this offering of Notes (the "Note Offering"), certain
selling stockholders (the "Selling Stockholders") of the Company are offering
4,000,000 shares of Common Stock pursuant to a separate Prospectus (the "Common
Stock Offering"). The Company will not receive any of the net proceeds from the
sale of the Common Stock by the Selling Stockholders. In addition, the Company
will sell up to 600,000 shares of Common Stock in the Common Stock Offering if
and to the extent the underwriters' over-allotment option is exercised.
Consummation of the Note Offering is not a condition to consummation of the
Common Stock Offering, and consummation of the Common Stock Offering is not a
condition to consummation of the Note Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Note.................................... % % %
Total(4).................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $434,000.
(4) The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus to purchase up to an additional
$15,000,000 aggregate principal amount of Notes on the same terms as set
forth above, at the Price to the Public, less the Underwriting Discounts
and Commissions, solely for the purpose of covering over-allotments, if
any. If such option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ , and $ , respectively. See "Underwriting."
The Notes are being offered by the several Underwriters when, as and if
delivered to and accepted by them, subject to certain conditions, including
their rights to withdraw, cancel or reject orders in whole or in part. It is
expected that delivery of the Notes will be made in New York, New York, on or
about , 1998, in book-entry form through the facilities of The
Depository Trust Company against payment therefor in immediately available
funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
ABN AMRO INCORPORATED
PAINEWEBBER INCORPORATED
<PAGE>
The inside front cover contains a collage of five photographs depicting
various facilities and operations of the Company as follows:
Top left--a photograph of a May & Speh systems programmer
Top right--a photograph of a Company employee and telecommunications equipment
Bottom right--a photograph of two personal computers showing screens used in
the Company's direct marketing services operations
Bottom left--a photograph of the Company's computer operations command center
and employees
Middle left--a photograph of a computer circuit board
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES AND
THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN
CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE THE NOTES ON THE
NASDAQ SMALLCAP MARKET, OR SHARES OF COMMON STOCK ON THE NASDAQ NATIONAL
MARKET, OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the Selected Financial, Operating and Other Data and the
Company's Consolidated Financial Statements and Notes thereto, included or
incorporated by reference in this prospectus. Except as otherwise specified,
all information in this Prospectus has been adjusted to reflect a 12-for-1
split of the Common Stock effected in December 1995, assumes that the
Underwriters do not exercise the over-allotment option described under the
caption "Underwriting" and, to the extent the Common Stock Offering is
described herein, further assumes no exercise of the underwriters' over-
allotment option in the Common Stock Offering. Diluted earnings per share have
been presented for all periods, unless otherwise specified. The "Company" and
"May & Speh" refer to May & Speh, Inc. and its subsidiary, unless otherwise
indicated or the context requires otherwise.
THE COMPANY
May & Speh provides computer-based information management services with a
focus on direct marketing and information technology ("IT") outsourcing
services. The Company's direct marketing services help companies execute more
profitable direct marketing and customer management programs. Services include
strategic analysis and strategy management; systems consulting; custom data
warehouse and datamart design, build, implementation and management;
statistical (predictive) modeling and analysis; and list processing. May &
Speh's IT outsourcing services support multi-platform processing and network
management for clients seeking to outsource their IT operations. The Company's
direct marketing and IT outsourcing services are synergistic and allow the
Company to leverage its investment in technical personnel and its state-of-the-
art data processing facilities, as well as its core competencies in customized
software systems development, large database management, high speed data
processing and data center management. May & Speh's open architecture and
multiple platform data facilities provide its clients with superior processing
flexibility and speed.
Direct marketing enables the delivery of a customized message to a defined
audience and the measurement of the response to that message. The use of direct
marketing by businesses has increased significantly in recent years, as has
spending in support of direct marketing activities. Industry sources estimate
that United States expenditures for information and database services in
connection with direct marketing activities were approximately $17.0 billion in
1996, and that such expenditures are growing at an annual rate of 15% to 20%.
During the past few years, IT outsourcing has become increasingly recognized as
a valuable option for many enterprises. Originally seen as a way of controlling
costs, IT outsourcing is now viewed by many businesses as an integral component
of their growth strategy by allowing companies to focus on their core
competencies and strategic initiatives. According to G2 Research Inc., total
expenditures for IT outsourcing services in the United States were
approximately $32.7 billion in 1996, and such expenditures are projected to
grow at an average annual rate of approximately 25.2% through 2001.
Direct marketing services accounted for approximately 61.6% of the Company's
net revenues for fiscal 1997. Through customized applications and Company-
developed software tools, May & Speh transforms and enhances its clients'
customer and transactional data from a raw and often disparate form into
useful, actionable information. The Company is increasingly focused on
developing integrated database management solutions, including marketing
strategy development; prospect data and data enhancement services; database
design and maintenance; data modeling, profiling and analysis; and ongoing
strategic evaluation and planning. The Company's integrated solutions enable
clients to access and analyze information collected across multiple client
functions through decision support and campaign management tools. May & Speh
currently targets companies that utilize direct marketing in the financial
services, retail, consumer goods, insurance and high tech industries. The
Company currently provides direct marketing services for approximately 180
clients including Green Tree Financial Corporation, Intel Corporation, Phillips
Electronics North America Corporation, Sears, Roebuck and Co. ("Sears") and
Trans Union Corporation.
3
<PAGE>
IT outsourcing services accounted for approximately 38.4% of the Company's
net revenues for fiscal 1997. By outsourcing their IT infrastructure, May &
Speh's clients increase their flexibility, tap the expertise of scarce, skilled
IT professionals, liberate capital, and turn their fixed IT infrastructure
costs into variable costs. May & Speh's IT outsourcing services allow clients
to improve the speed of delivery and response while controlling their
information processing costs and reducing their exposure to rapid changes in
technology. Outsourcing contracts are typically multi-year arrangements, which
provide a recurring revenue stream that helps May & Speh achieve stable and
consistent growth. May & Speh continues to focus on the mid-sized IT
outsourcing market, which includes clients such as American National Can
Company ("American National Can"), CCC Information Services, Continental Grain
Company, Heller Financial, Inc. and Sanwa Business Credit Corporation.
Over the past five years, May & Speh has experienced significant growth in
revenues and earnings per share and expansion of its operating margins. For the
five fiscal years ended September 30, 1997, the Company's net revenues grew
from $41.8 million to $92.5 million and earnings per share increased from $0.15
to $0.45. During this period, operating margins expanded from 17.9% to 22.1%.
In 1997, the Company further strengthened its management team with the addition
of Peter I. Mason as Chairman, President and Chief Executive Officer, and other
senior management and Board members, each of whom has significant technology
experience.
MAY & SPEH'S COMPETITIVE STRENGTHS
The Company believes it has competitive strengths which have contributed to
its growth and profitability. These include:
Integrated Database Management Solutions. May & Speh offers integrated
database management solutions focused on targeted industries. These integrated
solutions include marketing strategy execution; prospect data and data
enhancement services; database design and maintenance; on-line access and
decision support tools; data modeling, profiling and analysis; and ongoing
strategic evaluation and management. The Company believes that this approach is
a competitive strength because it offers clients strategic direct marketing
tools rather than generic data processing services, resulting in the Company's
integrated database management solutions becoming integral to clients executing
their marketing strategies.
Focus on Targeted Industries. May & Speh's direct marketing services focus on
clients in targeted industries including financial services, retail, consumer
goods, insurance and high tech. The Company believes that as a result of its
focus and experience in specific industries, its sales and technical personnel
better understand the data processing needs, competitive dynamics and
regulatory issues of its clients.
Investment and Scale of its Client Service and Technical Infrastructure. May
& Speh's direct marketing and IT outsourcing services continue to benefit from
its investments in technical personnel and technology. The Company has a
current staff of over 500 skilled IT and direct marketing services personnel,
and maintains state-of-the-art data processing facilities. As a result of these
investments, the Company has developed its client service and technical
infrastructure to a significant scale, which enables the Company to develop and
support mainframe, mid-range and network applications and platforms,
accommodate growth and provide efficient and flexible services.
Long-Term Client Relationships with Recurring Revenues. May & Speh's long-
term client relationships provide the Company with recurring revenues. Over 50%
of the Company's fiscal 1997 revenues were derived from clients who have used
the Company's services for over three years. The Company's direct marketing
revenues are typically recurring because its direct marketing services become
an integral part of the clients' marketing programs and a portion of these
revenues are derived through multi-year contracts. The Company's IT outsourcing
revenues are typically recurring and generated through multi-year contracts.
4
<PAGE>
Significant Operating Flexibility. May & Speh's financial position provides
the Company with significant operating flexibility. The Company has generated
operating margins in excess of 20% in each of the last four fiscal years. These
operating margins have enabled the Company to reinvest the cash generated from
operations for strategic expenditures, including technology, skilled technical
personnel and capital investments relating to new clients.
GROWTH STRATEGY
May & Speh's strategy is to continue to grow its business by leveraging its
competitive strengths. The principal components of May & Speh's growth strategy
are:
Offer Integrated Database Management Solutions. May & Speh continues to
develop integrated database management solutions focused on targeted industries
which are expected to continue to attract new clients with significant direct
marketing budgets and increase revenues from existing clients. May & Speh's
approach offers integrated solutions rather than general, disparate services
and systems.
Increase Penetration of Existing Targeted Industries and Target New
Industries. Currently, May & Speh's direct marketing services target the
financial services, retail, consumer goods, insurance and high tech industries.
The Company believes these industries offer significant opportunity for direct
marketing services, and continues to focus on attracting additional clients
within these targeted industries. In addition, the Company believes that direct
marketing is increasingly prevalent in the utilities, telecommunications,
automotive and healthcare industries, and that such industries provide
attractive near term opportunities for potential penetration.
Extend IT Outsourcing Services. May & Speh continues to extend its IT
outsourcing service offerings. In order to build upon and complement its
traditional mainframe outsourcing services, the Company offers client/server
outsourcing and network management services. The Company's strengthened IT
outsourcing capabilities have resulted in the addition of new clients and
contracts such as May & Speh's $41 million, five-year contract with American
National Can. Under this agreement, American National Can is outsourcing its
entire IT infrastructure to the Company including client/server, mainframe and
network management services. The Company believes its broad range of IT
outsourcing services and expertise will continue to attract new clients and
expand relationships with current clients.
Expand Sales Efforts. The Company plans to increase the number of new clients
by expanding its sales efforts in both direct marketing and IT outsourcing. The
direct marketing sales force is focused on increasing penetration within
current targeted industries as well as penetrating new industries. In IT
outsourcing services, the Company intends to continue focusing on US-based
companies with mid-level processing requirements. In addition, the Company
plans to expand its sales presence in certain geographic areas for both direct
marketing and IT outsourcing services.
Pursue Strategic Acquisitions and Alliances. May & Speh will continue to
explore strategic acquisitions and alliances for additional growth
opportunities. The Company will seek to acquire or form alliances with
companies that have services, technologies, industry specialties or personnel
that would complement or extend those of the Company and facilitate the
addition of new clients. For example, the Company recently agreed to form
Energy Market Connect, LLC, a joint venture with Metzler & Associates, a
leading provider of management consulting services to the energy industry. The
Company believes this joint venture will provide a new sales channel and enable
the Company to incorporate utilities industry expertise in its integrated
database management solutions for the utilities industry. In May 1997, the
Company also formed a strategic alliance with Trans Union Corporation, the
nation's leading credit reporting company. The alliance will combine May &
Speh's expertise in creating custom and generic models with Trans Union
Corporation's data management capabilities.
The Company's executive offices are located at 1501 Opus Place, Downers
Grove, Illinois 60515, and its telephone number at that address is (630) 964-
1501.
5
<PAGE>
THE NOTE OFFERING
Securities Offered............ $100,000,000 principal amount of %
Convertible Subordinated Notes due 2003.
Maturity...................... , 2003, unless earlier redeemed,
repurchased or converted.
Interest Payment Dates........ and , commencing , 1998.
Conversion Rights............. The Notes are convertible at the option of the
holder into shares of Common Stock at any time
prior to maturity, unless previously redeemed
or repurchased, at a conversion price of $
per share, subject to adjustment under certain
circumstances as described herein. Accordingly,
each $1,000 principal amount of Notes is
convertible into shares of Common
Stock, subject to adjustment, initially for an
aggregate of shares.
Optional Redemption........... The Notes are redeemable, in whole or in part,
at the option of the Company at any time on or
after , 2001, at the redemption prices
set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption.
Change of Control............. Upon a Change of Control, the Company will be
required to offer to purchase the Notes at 100%
of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase.
Subordination................. The Notes will be general, unsecured
obligations of the Company subordinated in
right of payment to all existing and future
Senior Indebtedness of the Company and will be
structurally subordinated to all liabilities
(including trade payables) of the Company's
subsidiaries. At December 31, 1997, as adjusted
to give effect to the issuance and sale of the
Notes and the application of the estimated net
proceeds therefrom, approximately $26.0 million
of outstanding indebtedness of the Company
would have constituted Senior Indebtedness, and
the Company's subsidiary had no outstanding
obligations. The Existing Credit Facility
provides for borrowings of up to $2.0 million.
No amounts were outstanding under the Existing
Credit Facility as of December 31, 1997. In
addition, the Company is negotiating with a
group of banks for the New Credit Facility
which is expected to provide for borrowings of
up to $100.0 million. Indebtedness under the
Existing Credit Facility and the New Credit
Facility would be Senior Indebtedness. The
Indenture will not restrict the incurrence of
Senior Indebtedness or other indebtedness by
the Company and its subsidiaries.
Use of Proceeds............... The Company intends to use approximately $10.0
million of the estimated net proceeds to repay
the Company's entire indebtedness under a term
loan. The remainder of the estimated net
proceeds will be used for capital expenditures,
working capital and other general corporate
purposes. The Company also intends to use a
portion of the estimated net proceeds for
acquisitions. See "Use of Proceeds."
6
<PAGE>
Listing....................... Application has been made for the quotation of
the Notes on the Nasdaq SmallCap Market under
the symbol "SPEHG."
Common Stock Traded........... The Common Stock is traded on the Nasdaq
National Market under the symbol "SPEH."
Concurrent Offering........... Concurrently with the Note Offering, the
Selling Stockholders are offering, pursuant to
a separate Prospectus, 4,000,000 shares of
Common Stock. The Company will not receive any
of the net proceeds from the sale of the Common
Stock by the Selling Stockholders. In addition,
the Company will sell up to 600,000 shares of
Common Stock in the Common Stock Offering if
and to the extent the underwriters' over-
allotment option is exercised. Consummation of
the Note Offering is not a condition to
consummation of the Common Stock Offering, and
consummation of the Common Stock Offering is
not a condition to consummation of the Note
Offering.
For a description of the terms of the Notes, see "Description of Notes." For
a description of the Common Stock, see "Description of Capital Stock."
7
<PAGE>
SUMMARY FINANCIAL, OPERATING AND OTHER DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------- ---------------------
1993 1994 1995 1996 (1) 1997 (1) 1996 (1) 1997 (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $41,792 $51,667 $61,641 $77,223 $92,457 $ 21,229 $ 26,351
Restructuring costs
(2)................... -- -- -- -- -- -- 4,700
Operating income....... 7,479 11,024 13,872 17,025 20,463 4,090 1,592
Interest expense....... 1,974 1,693 1,543 1,843 2,618 577 756
Net income............. 3,406 5,838 7,861 10,224 11,716 2,367 656
Diluted net income per
share................. $ 0.15 $ 0.26 $ 0.38 $ 0.43 $ 0.45 $ 0.09 $ 0.02
Weighted average shares
outstanding, including
common equivalents.... 22,917 22,110 20,611 23,653 26,179 26,220 26,470
PRO FORMA DATA (3):
Interest expense....... $ 7,645 $ 1,827 $ 2,023
Income (loss) from
continuing operations
(4)................... 8,600 1,592 (132)
Diluted income (loss)
from continuing
operations per share
(4)................... $ 0.33 $ 0.06 $ (0.01)
OPERATING AND OTHER
DATA:
Operating margin (5)... 17.9% 21.3% 22.5% 22.0% 22.1% 19.3% 6.0%
Number of employees at
end of period......... 272 306 331 434 574 579
Ratio of earnings to
fixed charges (6)..... 2.6x 3.5x 3.8x 3.9x 3.9x 3.5x 1.6x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED (7) ADJUSTED (8)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities............ $15,920 $101,686 $101,686
Working capital........................... 46,736 133,606 134,370
Total assets.............................. 148,632 238,136 238,900
Current maturities of long-term debt...... 5,868 5,068 5,068
Long-term debt............................ 30,151 120,951 120,951
Total stockholders' equity................ 92,845 92,348 93,112
</TABLE>
- --------------------
(1) Includes the results of operations of GIS Information Systems, Inc.,
effective July 1, 1996.
(2) Represents the present value of payments under existing contracts with
prior members of management. Excluding this one-time charge, operating
income and net income for the three months ended December 31, 1997 would
have increased by $4,700,000 and $2,913,000, respectively.
(3) Pro forma information for the fiscal year ended September 30, 1997 gives
effect to the sale of the Notes and the use of the estimated net proceeds
therefrom as if these transactions had occurred on October 1, 1996. Pro
forma information for the three months ended December 31, 1996 and 1997
gives effect to the sale of the Notes and the use of the estimated net
proceeds therefrom as if these transactions had occurred on October 1, 1996
and 1997, respectively. See "Use of Proceeds."
(4) Does not include an assumed extraordinary loss of $0.5 million (after-tax)
relating to the early extinguishment of debt.
(5) Operating margin represents operating income expressed as a percentage of
net revenues.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and one-third
of rental expense, which represents an appropriate interest factor of
rental expense.
(7) Gives effect to the Note Offering and the use of the estimated net proceeds
therefrom as if such transactions had occurred on December 31, 1997.
(8) Gives effect to the Common Stock Offering and the exercise by a Selling
Stockholder of options to purchase 176,000 shares of Common Stock at a
weighted average exercise price of $2.08 per share, as if such transactions
had occurred on December 31, 1997.
8
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should consider carefully the
following factors relating to the business of the Company and the sale of the
Notes before acquiring any of the Notes offered hereby.
ABILITY TO CONTINUE GROWTH; MANAGEMENT OF GROWTH
The Company has experienced significant growth over the last several years.
For the five fiscal years ended September 30, 1997, the Company's net revenues
grew from $41.8 million to $92.5 million, operating margins increased from
17.9% to 22.1% and net income increased from $3.4 million to $11.7 million.
While the Company's strategy contemplates continued growth of its business,
there can be no assurances that the Company will be able to sustain its recent
growth. In addition, such growth has placed significant demands on the
Company's management, other employees, operations and physical resources.
There can be no assurances that, if the Company continues to grow, management
will be effective in attracting and retaining additional qualified personnel,
expanding the Company's physical facilities, integrating acquired businesses
and otherwise managing growth. Any failure to effectively manage growth could
have a material adverse effect on the Company's business, operating results or
financial condition. See "--Acquisitions and Alliances," "--Dependence on
Personnel; Scarcity of Trained Technical Personnel," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
INTENSE COMPETITION
The information management services industry is extremely competitive, and
the Company faces intense competition in all of its customer markets. The
Company may also encounter new entrants, including well-capitalized
information services companies and other companies, as the markets for May &
Speh's services develop. Many of the Company's competitors have more extensive
financial, technical, marketing and other resources than the Company and may
have a greater ability to obtain client contracts where sizable up-front asset
purchases or investments are required and to respond more quickly than the
Company to new or emerging technologies and other competitive pressures. There
can be no assurances that the Company will be able to compete successfully
against its present or future competitors or that competitive pressures will
not have a material adverse effect on the Company's business, operating
results or financial condition. See "--Rapid Technological Change,"
"Business--Market Overview" and "--Competition."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's net revenues, cash flows and operating results are subject to
significant variation between quarters. A significant portion of the Company's
quarterly revenues is derived from new projects for direct marketing services
and new contracts for IT outsourcing services, the timing of which is subject
to a variety of factors, such as client marketing budgets and modifications in
client strategies, outside the Company's control. The variability in revenues,
combined with the relatively fixed cost nature of the Company's business, can
have a substantial impact on the Company's quarterly results of operations.
Additionally, the Company periodically incurs cost increases due to both
hiring of new employees and computer capacity upgrades in anticipation of
future revenue growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Comparisons."
RISKS ASSOCIATED WITH LEVERAGE
At December 31, 1997, on a pro forma basis after giving effect to the Note
Offering and the use of the estimated net proceeds therefrom and the Common
Stock Offering (assuming the exercise by a Selling Stockholder of options to
purchase 176,000 shares of Common Stock with a weighted average exercise price
of $2.08 per share), the Company would have had (i) total long-term
indebtedness of $121.0 million, of which $100.0 million would be represented
by the Notes, (ii) stockholders' equity of $93.1 million and (iii) available
borrowing capacity of approximately $2.0 million (subject to customary
borrowing conditions) under the
9
<PAGE>
Existing Credit Facility. See "Capitalization." In addition, the Company is
negotiating with a group of banks for the New Credit Facility which is
expected to provide for borrowings of up to $100.0 million. Furthermore, the
Indenture will not restrict the incurrence of additional indebtedness by the
Company or its subsidiaries. The degree to which the Company is leveraged
could have important consequences to holders of the Notes, including: (i) the
ability of the Company to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements, acquisitions
or other purposes may be limited; (ii) a substantial portion of the Company's
cash flows from operations must be dedicated to the payment of the principal
of and interest on its indebtedness and will not be available for other
purposes; (iii) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its business or in
economic conditions; and (iv) the Company's level of indebtedness will make it
more vulnerable in the event of a downturn in its business.
The Company's ability to pay interest and principal on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its
control, as well as the availability of revolving credit borrowings under the
Company's credit facilities. The Company anticipates that net cash provided by
its operating activities, together with the balance of the estimated net
proceeds from the sale of the Notes and funds available under the Existing
Credit Facility, will be sufficient to meet its operating expenses, and
working capital, capital expenditures and debt service requirements, through
at least fiscal 1999. However, if the Company is unable to service its debt,
it will be forced to pursue one or more alternative strategies such as selling
assets, curtailing any expansion, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on terms satisfactory to the
Company, if at all.
ACQUISITIONS AND ALLIANCES
A key element of the Company's growth strategy is to pursue strategic
acquisitions of or alliances with companies that have services, products,
technologies, industry specializations or technical personnel that extend or
complement those of the Company. There is extensive competition for attractive
candidates for acquisitions or alliances and there can be no assurances that
the Company will be able to identify or reach mutually agreeable terms with
such candidates. In addition, the Company's management has had limited
experience in making acquisitions and entering into alliances, and there can
be no assurance that any acquired business will be effectively integrated or
that any acquired business or alliance will be profitable. A substantial
portion of the Company's capital resources, including a portion of the
estimated net proceeds of the Note Offering, could be used for acquisitions or
alliances. In addition, the Company may require additional debt or equity
financing for future acquisitions or alliances, which financing may not be
available on terms satisfactory to the Company. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Growth Strategy."
RISK OF DATA CENTER FAILURE
The Company's operations are dependent upon its ability to protect its data
center against damage from fire, power loss, telecommunications failure,
natural disaster or a similar event. A substantial portion of the Company's
computer equipment and operations are located at its headquarters in Downers
Grove, Illinois. While the Company maintains a disaster recovery plan with a
vendor to provide alternative data processing sites in the event the Company
experiences a natural disaster or other interruption at its data center, the
Company could nonetheless be materially adversely affected by damage or
failure that causes significant interruptions in the Company's operations. The
Company's property and business interruption insurance may not be adequate to
compensate the Company for all losses that may occur. See "Business--
Technological Resources and Facilities."
DEPENDENCE ON PERSONNEL; SCARCITY OF TRAINED TECHNICAL PERSONNEL
The Company is highly dependent on the collective skills and efforts of its
senior management team. Among these persons, the Company has employment
agreements with Peter I. Mason, Eric M. Loughmiller and Michael J. Loeffler
which include non-competition agreements with all of these individuals. The
Company does not have
10
<PAGE>
"key man" life insurance policies covering any of these individuals. As the
Company's business has grown, the Company has found it difficult to hire the
new employees needed, particularly trained technical personnel with database
management services knowledge. Because of the recent emergence of the
industry, only a limited number of such trained technical personnel are
available for hire. Competition for qualified technical and other personnel is
intense, and the Company periodically is required to pay premium wages to
attract and retain personnel. There can be no assurance that the Company will
be able to continue to hire and retain sufficient qualified management,
technical, sales and other personnel necessary to conduct its operations
successfully, particularly if the planned growth occurs. See "--Ability to
Continue Growth; Management of Growth," "Business--Employees" and
"Management."
RELIANCE ON SIGNIFICANT CLIENTS; ABSENCE OF LONG-TERM CONTRACTS
A significant portion of May & Speh's net revenues is derived from
relatively few clients. Sears accounted for 17.6% and 18.9% of the Company's
net revenues in fiscal 1996 and fiscal 1997, respectively. Collectively, the
Company's 20 largest clients accounted for 63.6% and 58.9% of such revenues in
such periods.
The Company's revenues from many of its direct marketing clients are not
derived from multi-year or long-term contracts. Continued revenues from such
clients require ongoing sales efforts, and there is no assurance that the
Company will continue to be successful in generating future sales. While the
Company does have multi-year contracts with most of its IT outsourcing
services clients and a growing number of direct marketing clients, such
contracts usually include provisions for early termination by the client. In
most cases, there are clauses that specify certain customer payments to the
Company upon early termination. However, there can be no assurance that the
Company will successfully collect such payments even when it is contractually
entitled to receive them. Further, in a competitive situation, the Company
may, as it has in the past, renegotiate prices and terms for an existing
contract. Such situations can occur at any time and such re-negotiations
generally result in an erosion of the Company's profitability. See "Business--
Clients."
GOVERNMENT REGULATION; PRIVACY ISSUES
The direct marketing industry has recently been subject to increased
legislative attention. In addition, consumers are growing increasingly aware
of privacy issues related to direct marketing. In 1996, the Fair Credit
Reporting Act ("FCRA") was amended to provide consumers with easier access to
their credit reports and to facilitate the correction of errors in such
reports. New regulations interpreting the amendments were issued by the
Federal Trade Commission ("FTC") in 1997. Among other issues, the amendment
and regulations also addressed the issue of "prescreening," a procedure
utilized by many bankcard issuers and insurance companies in their direct
marketing programs. This legislation regulates the use of credit reports in
the preparation and generation of lists used by companies in offering credit.
This law also provides for significant fines for misuse of credit reports.
Although the Company believes its list processing activities for credit
grantors are in compliance with the recent amendments to FCRA, due to its
recent adoption, there is uncertainty as to its interpretation and
application. Therefore, there can be no assurances that significant fines will
not be levied against the Company or that this portion of its list processing
services will not be adversely affected. In addition to the federal
legislation, numerous bills are pending in various state legislatures. Such
bills are intended to give consumers more control over how personal
information is utilized in the marketplace. There can be no assurance that
this legislation or additional federal or state consumer-oriented legislation
will not significantly limit, or increase the costs of, the direct marketing
activities of the Company's clients. Direct marketing services accounted for
approximately 61.6% of the Company's net revenues in fiscal 1997. See
"Business--Consumer Privacy and Legislative Issues."
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part upon its technological expertise and
proprietary technologies. The Company relies upon its trade secret program and
non-disclosure safeguards to protect its proprietary technologies. There can
be no assurance that these steps will be adequate to deter misappropriation or
11
<PAGE>
infringement of its proprietary technologies. Further, given the rapid
evolution of technology and uncertainties in intellectual property law, there
can be no assurance that the Company's current or future products will not be
determined to infringe proprietary rights of others. If such infringement
occurs, the Company may not be able to obtain the requisite licenses or rights
to use such technology upon reasonable terms, if at all. See "Business--
Intellectual Property Rights."
RAPID TECHNOLOGICAL CHANGE
The market for the Company's services and products is characterized by
rapidly changing technology and frequent new and enhanced service and product
introductions. The Company believes that its future success will be highly
dependent upon its ability to enhance existing products and services and to
develop and introduce new products and services to respond to changing client
needs. There can be no assurances that the Company can successfully identify,
develop and bring new and enhanced services and products to market in a timely
manner, that such services or products will be commercially successful or that
services, products or technologies developed by others will not render the
Company's services and products noncompetitive or obsolete. See "Business--
Services and Products" and "--Competition."
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness and will be structurally subordinated to all
liabilities (including trade payables) of the Company's subsidiaries. The
Indenture does not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company or its subsidiaries. By reason of such
subordination of the Notes, in the event of the insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of the business of the
Company or similar proceeding or upon a default in payment with respect to any
indebtedness of the Company or an event of default with respect to such
indebtedness resulting in the acceleration thereof, the assets of the Company
will be available to pay the amounts due on the Notes only after all Senior
Indebtedness has been paid in full. The Notes will rank pari passu with all
other unsecured, subordinated obligations of the Company. See "Description of
Notes--Subordination."
At December 31, 1997, as adjusted to give effect to the issuance and sale of
the Notes and the application of the estimated net proceeds therefrom,
approximately $26.0 million of outstanding indebtedness of the Company would
have constituted Senior Indebtedness, and the Company's subsidiary had no
outstanding obligations. The Existing Credit Facility provides for borrowing
of up to $2.0 million. No amounts were outstanding under the Existing Credit
Facility as of December 31, 1997. In addition, the Company is negotiating with
a group of banks for the New Credit Facility which is expected to provide for
borrowings of up to $100.0 million. Indebtedness under the Existing Credit
Facility and the New Credit Facility would be Senior Indebtedness. The
Indenture will not restrict the incurrence of Senior Indebtedness or other
indebtedness by the Company and its subsidiaries.
ABSENCE OF EXISTING MARKET FOR NOTES
The Notes will constitute a new issue of securities with no established
trading market. Application has been made for the quotation of the Notes on
the Nasdaq SmallCap Market. No assurance can be given that an active trading
market for the Notes will develop or, if such a market develops, as to the
liquidity or sustainability of such market. If a trading market does not
develop or is not maintained, holders of the Notes may experience difficulty
in reselling the Notes or may be unable to sell them at all. If a market for
the Notes develops, any such market may be discontinued at any time. If a
public trading market for the Notes develops, future trading prices of the
Notes will depend on many factors, including, among others things, prevailing
interest rates, the Company's results of operations and financial condition,
the market for similar securities and the price of the Common Stock. Depending
on such factors, the Notes may trade at a discount from their initial public
offering price.
12
<PAGE>
LIMITATIONS ON REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to purchase the Notes. If a Change of Control were to occur, there can
be no assurance that the Company would have sufficient financial resources, or
would be able to arrange financing, to pay the repurchase price for all Notes
tendered by holders thereof. In addition, the Company's repurchase of the
Notes as a result of a Change of Control may be prohibited or limited by, or
create an event of default under, the terms of the Existing Credit Facility
and other agreements related to borrowings which the Company may enter into
from time to time including, without limitation, the New Credit Facility.
Failure of the Company to purchase tendered Notes would constitute an Event of
Default under the Indenture. See "Description of Notes--Repurchase of Notes at
the Option of the Holder Upon a Change of Control."
CONTROLLING INTEREST OF CERTAIN PERSONS
The Company's executive officers and directors and their respective
affiliates beneficially own approximately 24.0% of the outstanding Common
Stock (14.4% if the Common Stock Offering is consummated), excluding shares
allocated to the accounts of such persons under the ESOP. In addition, the
ESOP owns approximately 31.6% of the outstanding Common Stock (25.6% if the
Common Stock Offering is consummated), and employee participants exercise
voting power over all of such shares. If such stockholders were to act in
concert in the future, they likely would be able to continue to elect all of
the Company's directors, determine the outcome of most corporate actions
requiring stockholder approval and otherwise control the business affairs of
the Company. Under the terms of an employment agreement with Peter I. Mason,
the Company has agreed to have Casey Cowell and Paul G. Yovovich serve as
directors of the Company. Under the terms of an employment agreement with
Lawrence J. Speh, the Company has agreed to nominate Mr. Speh as a director
for so long as Mr. Speh owns at least 500,000 shares of Common Stock, and for
so long as Mr. Speh is a director or nominee for director, Mr. Speh has agreed
to vote all shares of Common Stock owned by him in favor of the Company's
nominees. In addition, Mr. Mason has agreed to support the nomination and
election to the Board of Albert J. Speh, Jr. See "Management" and "Principal
Stockholders."
ABSENCE OF FINANCIAL COVENANTS
The Indenture will not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of indebtedness, including Senior
Indebtedness, by the Company or the issuance or repurchase of securities by
the Company. The Indenture will not contain any covenants or other provisions
to afford protection to holders of the Notes in the event of a highly
leveraged transaction, reorganization, restructuring, merger, spin-off or
similar transaction that may adversely affect holders of the Notes except to
the extent described under "Description of Notes--Repurchase at Option of
Holders Upon a Change of Control." The term "Change of Control" (as defined
under the Indenture) is limited to certain specified transactions and may not
include other events that may involve an actual change of control of the
Company.
ANTI-TAKEOVER PROVISIONS
The Company has a stockholder rights plan which may have the effect of
delaying or preventing a change of control of the Company. Further, certain
provisions of the Company's Certificate of Incorporation and By-laws, and
certain provisions of the Delaware General Corporation Law may make it
difficult to change control of the Company and replace incumbent management.
For example, the Company's Certificate of Incorporation provides for a
staggered Board of Directors and permits the Board of Directors, without
stockholder approval, to issue additional shares of Common Stock or establish
one or more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations that the Board of Directors establishes.
An employment agreement with the Company's chief executive officer provides
for substantial severance pay in the event of a "Change of Control" of the
Company as such term is defined in such agreement, and the Company's 1994
Executive Stock Option Plan and 1995 Key Employee Stock Option Plan provide
that unexercised options, whether vested or unvested, may be exercised in full
upon a "Change of Control" as defined in such plans. See "Description of
Capital Stock." Upon the occurrence of a Change of Control, the Company will
be required to offer to purchase the Notes. This purchase feature may in
certain circumstances have an anti-takeover effect. See "Description of
Notes--Repurchase of Notes at the Option of the Holder Upon a Change of
Control."
13
<PAGE>
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Information contained or incorporated by reference in this Prospectus
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), which can be
identified by the use of forward-looking terminology such as "believes,"
"contemplates," "expects," "may," "will," "should," "would" or "anticipates"
or the negative thereof or other variations thereon or comparable terminology,
or by discussions of strategy. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. Various
factors, including certain risks and uncertainties described herein under
"Risk Factors," could cause actual results to vary materially from the future
results covered in such forward-looking statements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes are estimated to
be $96.6 million ($111.1 million if the Underwriters' over-allotment option is
exercised in full), after deducting underwriting discounts and commissions and
estimated offering expenses. The Company intends to use approximately $10.0
million of the estimated net proceeds to repay the Company's entire
indebtedness under a term loan that bears interest at a rate of 8.5% per annum
and matures in 2005. The Company also will use a portion of the estimated net
proceeds for an assumed prepayment penalty of approximately $0.8 million ($0.5
million after-tax). The remainder of the estimated net proceeds will be used
for capital expenditures, including the acquisition of computer and related
equipment and expansion of facilities, working capital and other general
corporate purposes. During calendar year 1998, the Company anticipates that it
will use approximately $15.0 million of the estimated net proceeds for capital
expenditures. The Company also intends to use a portion of the estimated net
proceeds for acquisitions. From time to time, the Company evaluates potential
acquisitions. However, the Company currently has no understandings,
commitments or agreements with respect to such transactions. Pending such
uses, the proceeds will be invested in marketable, investment-grade debt
instruments of the U.S. Government or tax free municipal bonds.
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at December 31, 1997 (i) on an actual basis, (ii) as adjusted to
give effect to the Note Offering and the application of the estimated net
proceeds therefrom, and (iii) as further adjusted for the Common Stock
Offering (assuming the exercise by a Selling Stockholder of options to
purchase 176,000 shares of Common Stock at a weighted average exercise price
of $2.08 per share). See "Use of Proceeds." This table should be read in
conjunction with and is qualified by reference to the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and marketable securities............... $ 15,920 $101,686 $101,686
======== ======== ========
Current maturities of long-term debt......... 5,868 5,068 5,068
-------- -------- --------
Long-term debt:
Term loan.................................. 9,200 -- --
% Convertible Subordinated Notes due
2003...................................... -- 100,000 100,000
Other debt................................. 20,951 20,951 20,951
-------- -------- --------
Total long-term debt..................... 30,151 120,951 120,951
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000
shares authorized; no shares issued....... -- -- --
Common stock, $0.01 par value, 50,000,000
shares authorized; 25,219,854 shares
issued and outstanding actual and as
adjusted and 25,395,854 as further
adjusted.................................. 252 252 254
Additional paid-in capital................. 48,737 48,737 49,499
Retained earnings.......................... 46,231 45,735(1) 45,735
Unearned ESOP compensation................. (2,376) (2,376) (2,376)
-------- -------- --------
Total stockholders' equity............... 92,844 92,348 93,112
-------- -------- --------
Total capitalization................... $128,863 $218,367 $219,131
======== ======== ========
</TABLE>
- ---------------------
(1) Reflects a $0.5 million (after-tax) reduction in retained earnings due to
an assumed prepayment penalty resulting from the early extinguishment of
debt. See "Use of Proceeds."
15
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has traded on the Nasdaq National Market
under the symbol "SPEH" since March 26, 1996, the date of the Company's
initial public offering of Common Stock. The following table sets forth for
the fiscal periods indicated the range of high and low closing sales prices of
the Common Stock as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal year ended September 30, 1996:
Second Quarter.............................................. $12 $10 15/16
Third Quarter............................................... 16 1/2 10 7/8
Fourth Quarter.............................................. 21 1/2 13 3/4
Fiscal year ended September 30, 1997:
First Quarter............................................... $19 7/8 $11 1/2
Second Quarter.............................................. 14 7 1/2
Third Quarter............................................... 13 1/2 7 3/8
Fourth Quarter.............................................. 14 3/4 12
Fiscal year ending September 30, 1998:
First Quarter............................................... $15 7/8 $11 1/4
Second Quarter (through February 13)........................ 15 1/8 12 7/8
</TABLE>
On February 13, 1998, the last sale price of the Common Stock on the Nasdaq
National Market was $13 5/8 per share. As of that date, there were 25,554,054
shares of Common Stock issued and outstanding, held by 115 stockholders of
record.
DIVIDEND POLICY
The Company currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The Company's credit agreements prohibit the Company from paying
dividends and making other distributions on its Common Stock without the
consent of its lenders. Any future payment of dividends will depend upon the
Company's results of operations, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors.
16
<PAGE>
SELECTED FINANCIAL, OPERATING AND OTHER DATA
The following table sets forth selected financial, operating and other data
of the Company for the five fiscal years ended September 30, 1997 and for the
three months ended December 31, 1996 and 1997. The selected statement of
operations data for the fiscal years ended September 30, 1995, 1996 and 1997
and the selected balance sheet data as of September 30, 1996 and 1997 have
been derived from the Company's audited financial statements included
elsewhere herein. The selected statement of operations data for the fiscal
years ended September 30, 1993 and 1994 and the selected balance sheet data as
of September 30, 1993, 1994 and 1995 have been derived from audited financial
statements of the Company not included herein. The selected statement of
operations data for the three months ended December 31, 1996 and 1997 and the
selected balance sheet data as of December 31, 1997 have been derived from the
unaudited financial statements of the Company. In the opinion of management of
the Company, the unaudited financial statements have been prepared on the same
basis as the Company's audited financial statements and include all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended December 31, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year. This financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------- ----------------
1993 1994 1995(1) 1996(2) 1997(2) 1996(2) 1997(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING AND OTHER
DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $41,792 $51,667 $61,641 $77,223 $92,457 $21,229 $26,351
Operating expenses:
Wages and benefits..... 14,709 18,624 20,984 23,950 30,437 7,143 8,949
Services and supplies.. 3,240 3,650 4,160 6,839 6,192 2,039 1,371
Rents, leases and
maintenance........... 9,848 11,156 13,878 18,064 20,137 4,637 5,251
Depreciation and
amortization.......... 740 912 1,230 2,155 4,420 901 1,779
Other operating
expenses.............. 3,667 4,034 5,106 6,814 8,433 1,824 2,115
ESOP principal payments
(3)................... 2,109 2,267 2,411 2,376 2,376 594 594
Restructuring costs
(4)................... -- -- -- -- -- -- 4,700
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 34,313 40,643 47,769 60,198 71,995 17,138 24,759
------- ------- ------- ------- ------- ------- -------
Operating income........ 7,479 11,024 13,872 17,025 20,462 4,091 1,592
ESOP interest........... 1,208 1,022 864 611 403 124 69
Other (income) expense,
net.................... 662 474 482 (84) 1,161 149 468
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 5,609 9,528 12,526 16,498 18,898 3,818 1,055
Income taxes............ 2,203 3,690 4,665 6,274 7,182 1,451 399
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 3,406 $ 5,838 $ 7,861 $10,224 $11,716 $ 2,367 $ 656
======= ======= ======= ======= ======= ======= =======
Basic net income per
share (5).............. $ 0.15 $ 0.26 $ 0.38 $ 0.45 $ 0.47 $ 0.09 $ 0.03
Weighted average shares
outstanding (5)........ 22,917 22,110 20,426 22,634 25,029 24,953 25,172
Diluted net income per
share (5).............. $ 0.15 $ 0.26 $ 0.38 $ 0.43 $ 0.45 $ 0.09 $ 0.02
Weighted average shares,
including common
equivalents (5)........ 22,917 22,110 20,611 23,653 26,179 26,220 26,470
OPERATING AND OTHER
DATA:
Operating margin (6).... 17.9% 21.3% 22.5% 22.0% 22.1% 19.3% 6.0%
Number of employees at
end of period.......... 272 306 331 434 574 579
Processing capacity
(MIPS) at end of
period................. 168 198 500 1,329 5,995
Ratio of earnings to
fixed charges (7)...... 2.6x 3.5x 3.8x 3.9x 3.9x 3.5x 1.6x
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable
securities............. $ 4,881 $ 4,459 $ 8,602 $ 30,732 $ 22,305 $ 15,920
Working capital......... 10,840 12,091 16,519 46,149 47,040 46,736
Total assets............ 29,971 33,978 46,804 115,218 148,796 148,632
Current maturities of
long-term debt......... 2,724 3,035 3,359 5,330 5,811 5,868
Long-term debt.......... 17,697 15,051 16,860 22,251 31,546 30,151
Total stockholders'
equity................. 3,989 8,701 17,644 75,731 91,135 92,845
</TABLE>
- -------------------
(1) In fiscal 1995, the Company paid a special dividend of $2.5 million. The
principal purpose of the dividend was to permit the ESOP to prepay without
penalty a portion of its outstanding loan balance.
(2) Includes the results of operations of GIS Information Systems, Inc.,
effective July 1, 1996.
(3) Represents tax deductible contributions to the Company's ESOP which are
used to service principal payments on the related ESOP loan.
(4) Represents the present value of payments under existing contracts with
prior members of management. Excluding this one-time charge, operating
income and net income would have increased by $4,700,000 and $2,913,000,
respectively.
(5) Reflects 12-for-1 stock split in December 1995.
(6) Operating margin represents operating income expressed as a percentage of
net revenues.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness and one-
third of all rental expense which represents an appropriate interest
factor of rental expense.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
May & Speh celebrated its 50th anniversary as a provider of information
technology services in 1997. May & Speh provides computer-based information
management services with a focus on direct marketing and IT outsourcing
services. The Company's direct marketing services help companies execute more
profitable direct marketing and customer management programs. Services include
strategic analysis and strategy management; systems consulting; custom data
warehouse and datamart design, build, implementation and management;
statistical (predictive) modeling and analysis; and list processing. May &
Speh's IT outsourcing services support multi-platform processing and network
management for clients seeking to outsource their IT operations, thereby
liberating capital and redirecting their focus to more strategic IT
initiatives.
May & Speh has experienced strong growth in revenues and earnings per share
over the last five years. For the five fiscal years ended September 30, 1997,
the Company's net revenues grew from $41.8 million to $92.5 million and
earnings per share increased from $0.15 to $0.45. During this period,
operating margins increased from 17.9% to 22.1%, reflecting achievement of
certain economies of scale. The Company has invested in human resources,
facilities and technology at rates consistent with growth in revenues over
this period. The number of employees has increased from 272 at September 30,
1993 to 574 at September 30, 1997, reflecting the addition of new technical,
sales and marketing and administrative personnel to support the Company's
overall growth. In addition, the Company's ESOP principal payments, which have
remained relatively constant in dollar terms, have declined as a percentage of
net revenues to 2.6% for fiscal 1997 from 5.0% in fiscal 1993.
In fiscal 1997, approximately 61.6% of the Company's net revenues were from
direct marketing services. Revenues from the Company's existing direct
marketing clients are typically recurring in nature, although many of the
Company's direct marketing clients are not under long-term contracts. IT
outsourcing services provided approximately 38.4% of net revenues and are
typically performed under multi-year contracts. May & Speh's direct marketing
and IT outsourcing services are synergistic and leverage the Company's
investment in its technical personnel and state-of-the-art data facilities.
Investments required to provide services to new clients are typically spread
across multiple contracts. This approach reduces the Company's investment risk
and allows for economies of scale.
The Company regularly evaluates whether to lease or buy its computer
equipment. An environment of rapidly changing technology and cost efficient
financing arrangements has resulted in the Company leasing a significant
amount of its computer equipment under three to ten year leases. Generally,
the Company's computer leases with terms in excess of five years are
classified as capital leases.
As of December 31, 1997, the Company had more than 300 clients. The
Company's 20 largest clients accounted for approximately 58.9% of the
Company's net revenues in fiscal 1997. Sears represented 18.9% of the fiscal
1997 net revenues. The Company's net revenues for fiscal 1996 and 1997 were
concentrated in the following industries:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Direct Marketing:
Financial and banking......................................... 27% 23%
Retail........................................................ 19 18
Consumer goods................................................ 10 8
Insurance..................................................... 6 5
Agency........................................................ 5 5
High tech and other........................................... 7 3
--- ---
Total direct marketing........................................ 74% 62%
=== ===
Outsourcing (not industry specific)............................. 26% 38%
=== ===
</TABLE>
18
<PAGE>
In October 1988, the Company established an employee stock ownership plan to
facilitate employee ownership of the Company. At the time, the ESOP acquired
43.1% of the Company's Common Stock from certain stockholders and incurred a
loan obligation of $22.5 million. As of February 13, 1998, the ESOP owned
approximately 31.7% of the Company's outstanding Common Stock. The loan
obligation is being repaid by the Company through annual tax deductible
contributions and as of December 31, 1997, the loan obligation was $2.4
million. ESOP contributions are reflected in the Company's consolidated
statements of operations as "ESOP principal payments" as an operating expense
and as an interest expense.
The Company recorded a one-time, pre-tax restructuring charge of
approximately $4.7 million ($2.9 million after-tax) in the first quarter of
fiscal 1998. This charge represents the present value of payments under
existing contracts with prior members of management.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
derived from the Company's statements of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS
ENDED SEPTEMBER ENDED
30, DECEMBER 31,
-------------------- -----------------
1995 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Direct marketing services............ 78.6% 73.0% 61.6% 62.6% 58.6%
Information technology outsourcing
services............................ 21.4 27.0 38.4 37.4 41.4
------ ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
------ ----- ----- ----- -----
Operating expenses:
Wages and benefits................... 34.1 31.0 32.9 33.7 34.0
Services and supplies................ 6.7 8.9 6.7 9.6 5.2
Rents, leases and maintenance........ 22.5 23.4 21.8 21.8 19.9
Depreciation and amortization........ 2.0 2.8 4.8 4.2 6.8
Other operating expenses............. 8.3 8.8 9.1 8.6 8.0
ESOP principal payments.............. 3.9 3.1 2.6 2.8 2.3
Restructuring costs.................. -- -- -- -- 17.8
------ ----- ----- ----- -----
Total operating expenses........... 77.5 78.0 77.9 80.7 94.0
------ ----- ----- ----- -----
Operating income....................... 22.5 22.0 22.1 19.3 6.0
Interest and other expenses............ (2.2) (0.7) (1.7) (1.3) (2.0)
------ ----- ----- ----- -----
Income before income taxes............. 20.3 21.3 20.4 18.0 4.0
Income taxes........................... (7.6) (8.1) (7.8) (6.8) (1.5)
------ ----- ----- ----- -----
Net income............................. 12.7% 13.2% 12.6% 11.2% 2.5%
====== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net revenues increased to $26.4 million for the three months ended December
31, 1997 from $21.2 million for the three months ended December 31, 1996, an
increase of 24%. The Company's direct marketing services revenues increased to
$15.4 million for the three months ended December 31, 1997 compared to $13.3
million for the three months ended December 31, 1996, an increase of 16%. IT
outsourcing services revenues increased to $10.9 million for the three months
ended December 31, 1997 compared to $7.9 million for the three months ended
December 31, 1996, an increase of 38%.
Wages and benefits expenses increased to $8.9 million for the three months
ended December 31, 1997 from $7.1 million for the three months ended December
31, 1996, an increase of 25%. The increased expenses reflect additional
employees hired to continue the Company's expansion of business volume and the
strengthening of its infrastructure.
19
<PAGE>
Services and supplies expenses decreased to $1.4 million for the three
months ended December 31, 1997 from $2.0 million for the three months ended
December 31, 1996, a decrease of 33%. This decrease reflects the reduction in
cost for outside consultants as full-time employees were hired. Service and
supplies generally consist of outsourced data entry services, general
supplies, contract labor and costs related to the use of outside consultants.
Rents, leases and maintenance expenses increased to $5.3 million for the
three months ended December 31, 1997 from $4.6 million for the three months
ended December 31, 1996, an increase of 13%. The increase was primarily due to
leasing computers, computer peripheral hardware, additional software and
additional facility rent to accommodate overall growth. A portion of this
increase is due to the acquisition in fiscal 1997 of Credit Strategy
Management, Inc. ("CSM"), now known as Strategic Decision Services ("SDS"),
and its existing facility leases.
Depreciation and amortization expenses increased to $1.8 million for the
three months ended December 31, 1997 from $0.9 million for the three months
ended December 31, 1996, an increase of 97%. The increase was primarily
attributable to continued investment in technology including the purchase of
the Hitachi Data System Skyline 21 mainframe computer during the third quarter
of fiscal 1997. In addition, the Company recorded additional goodwill of $3.7
million in fiscal 1997 relating to the acquisition of CSM and incentive
payments and estimated costs to be incurred in consolidating the operations of
GIS Information Systems, Inc. ("GIS"), which the Company acquired during the
fourth quarter of fiscal 1996, resulting in increased goodwill amortization.
Other operating expenses increased to $2.1 million for the three months
ended December 31, 1997 from $1.8 million for the three months ended December
31, 1996, an increase of 16%. The increase was primarily attributable to
variable costs relating to several client contracts.
Research and development costs representing primarily wages and benefits for
information technology staff and reflected as such in the Company's financial
statements increased to $1.0 million for the three months ended December 31,
1997 from $0.8 million for the three months ended December 31, 1996, an
increase of 33%. The Company's research and development expenses relate
primarily to new product development activities.
Restructuring costs of $4.7 million ($2.9 million after-tax) for the three
months ended December 31, 1997 represent a one-time charge equal to the
present value of payments under existing contracts with prior members of
management. Excluding this one-time charge, operating income and net income
would have been approximately $6.3 million and $3.6 million, respectively.
Income taxes decreased to $0.4 million for the three months ended December
31, 1997 from $1.5 million for the three months ended December 31, 1996. The
Company's effective tax rate was 38% for the three months ended December 31,
1997 and 1996.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996
Net revenues increased to $92.5 million in fiscal 1997 from $77.2 million in
fiscal 1996, an increase of 20%. Of this net increase, $13.7 million was
attributable to new IT outsourcing services clients and $7.9 million to new
direct marketing services clients. These increases were offset by a reduction
in revenues of approximately $6.5 million from credit card issuing clients.
The Company's direct marketing services revenues increased to $57.0 million
for fiscal 1997 versus $56.4 million for fiscal 1996, an increase of 1%. The
Company's IT outsourcing services revenues increased to $35.5 million for
fiscal 1997 versus $20.8 million for fiscal 1996, an increase of 70%. Of this
increase, $9.7 million is attributable to revenues from GIS, which was
acquired effective July 1, 1996.
Wages and benefits increased to $30.4 million for fiscal 1997 from $24.0
million for fiscal 1996, an increase of 27%. The increased expenses reflect
the net addition of 140 employees as a result of the Company's continued
20
<PAGE>
expansion of business volume, the strengthening of its infrastructure, the
1996 acquisition of GIS, the 1997 acquisition of CSM, and the replacement of
temporary labor with full-time employees during 1997.
Services and supplies expenses decreased to $6.2 million for fiscal 1997
from $6.8 million for fiscal 1996, a decrease of 10%. This decrease reflects
the reduction in cost for outside consultants as full-time employees were
hired. Services and supplies generally consist of outsourced data entry
services, general supplies, contract labor and costs related to the use of
outside consultants.
Rents, leases and maintenance expenses increased to $20.1 million for fiscal
1997 from $18.1 million for fiscal 1996, an increase of 11%. The increase was
primarily due to leasing computers, computer peripheral hardware, additional
software, and additional facility rent to house print operations and new
employees. A portion of this increase was due to the acquisition of GIS and
its existing computer, computer peripheral hardware, software and facility
leases, and the acquisition of CSM and its existing facility leases.
Depreciation and amortization expenses increased to $4.4 million for fiscal
1997 from $2.2 million for fiscal 1996, an increase of 105%. The increase was
primarily attributable to continued investment in technology including the
upgrade of the Company's mainframe computer and the conversion of the lease
for the mainframe from an operating lease to a capital lease in the fourth
quarter of fiscal 1996. The Company also purchased the Hitachi Data System
Skyline 21 mainframe computer during the third quarter of fiscal 1997. In
addition, the acquisitions of GIS in the fourth quarter of fiscal 1996 and CSM
in the second quarter of fiscal 1997 created goodwill of approximately $21
million that is being amortized over 40 years.
Other operating expenses increased to $8.4 million for fiscal 1997 from $6.8
million for fiscal 1996, an increase of 24%. The increase was primarily
attributable to variable costs relating to several client contracts.
Research and development costs representing primarily wages and benefits for
information technology staff increased to $3.4 million for fiscal 1997 from
$2.5 million for fiscal 1996, an increase of 38%.
Income taxes increased to $7.2 million for fiscal 1997 from $6.3 million for
fiscal 1996. The Company's effective tax rate was 38% for fiscal 1997 and for
fiscal 1996.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1995
Net revenues increased to $77.2 million in fiscal 1996 from $61.6 million in
fiscal 1995, an increase of 25%. Of the increase, $12.6 million was
attributable to services provided to new clients and the remainder was
attributable to increased demand for services by existing clients. The
Company's direct marketing services revenues increased to $56.4 for fiscal
1996 versus $48.4 million for fiscal 1995, an increase of 16%. Of this
increase, $1.7 million is attributable to the establishment of SDS. The
Company's IT outsourcing services revenues increased to $20.8 million for
fiscal 1996 versus $13.2 million for fiscal 1995, an increase of 58%. Of this
increase, $3.4 million is attributable to revenues from GIS, which was
acquired effective July 1, 1996.
Wages and benefits increased to $24.0 million for fiscal 1996 from $21.0
million for fiscal 1995, an increase of 14%. The increased expenses reflect
the net addition of 103 employees as a result of the Company's continued
expansion of business volume and strengthening of its infrastructure. It also
reflects the addition of GIS' staff of 48 employees during the fourth quarter
of fiscal 1996.
Services and supplies expenses increased to $6.8 million for fiscal 1996
from $4.2 million for fiscal 1995, an increase of 64%. Services and supplies
generally consist of outsourced data entry services, general supplies,
contract labor and costs related to the use of outside consultants. This
increase resulted principally from outsourcing of technical support and data
entry services and the use of outside consultants to improve productivity and
to re-engineer certain work flow processes.
Rents, leases and maintenance expenses increased to $18.1 million for fiscal
1996 from $13.9 million for fiscal 1995, an increase of 30%. The increase was
primarily due to leasing computers, computer peripheral
21
<PAGE>
hardware, additional software, and additional facility rent to house print
operations and new employees. A portion of this increase was due to the
acquisition of GIS and its existing computer, computer peripheral hardware,
software and facility leases.
Depreciation and amortization expenses increased to $2.2 million for fiscal
1996 from $1.2 million for fiscal 1995, an increase of 75%. The increase was
primarily attributable to continued investment in technology including the
upgrade of the Company's mainframe computer and the conversion of the lease
for the mainframe from an operating lease to a capital lease.
Other operating expenses increased to $6.8 million for fiscal 1996 from $5.1
million for fiscal 1995, an increase of 33%. The increase was primarily
attributable to variable costs relating to several client contracts.
Research and development costs representing primarily wages and benefits for
information technology staff increased to $2.5 million for fiscal 1996 from
$1.9 million for fiscal 1995, an increase of 34%.
Income taxes increased to $6.3 million for fiscal 1996 from $4.7 million for
fiscal 1995. The Company's effective tax rate was 38% for fiscal 1996 and 37%
for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $46.7 million as of December 31, 1997
compared to $47.0 million as of September 30, 1997. Cash and marketable
securities decreased to $15.9 million at December 31, 1997 from $22.3 million
at September 30, 1997. The decrease in cash and marketable securities reflects
$2.0 million for capital expenditures and $3.5 million for general operating
expenses, including approximately $2.0 million for payments under existing
contracts with prior members of management. The Company's investment policy is
to invest in marketable, investment-grade debt instruments of the U.S.
Government or tax-free municipal bonds. These investments typically have
maturities of three years or less. The Company historically limits its
concentration of investments in individual municipalities to $500,000 or less.
These tax-free municipal bonds are backed by U.S. Treasuries or insured (as to
principal and interest) by a major municipal insurer. As of December 31, 1997,
the Company's net accounts receivable were $29.9 million, an increase of 5%
from September 30, 1997.
The Company has available borrowings of $2.0 million under the Existing
Credit Facility. At December 31, 1997, there were no outstanding borrowings
under this credit facility. Borrowings under a $12.0 million unsecured term
loan were $10.0 million at December 31, 1997, bear interest at 8.5% per annum
and mature in 2005. The Company will use a portion of the estimated net
proceeds from the Note Offering to repay this loan in full. Capital lease debt
aggregated $22.9 million at December 31, 1997. This debt primarily results
from a sale-leaseback of the Company's primary facility and related land
during fiscal 1997 and an upgrade of one of the Company's mainframe computers
in fiscal 1996. Interest on the capital lease debt approximates 8% per annum.
The Company entered into a loan at the time of the formation of the ESOP. This
loan currently has an outstanding balance of $2.4 million with a blended
interest rate of approximately 8.8% per annum. The Company currently is
negotiating with a group of banks for the New Credit Facility which is
expected to provide for borrowings of up to $100.0 million. No commitment has
been issued with respect to the New Credit Facility, and there can be no
assurances that it will be obtained.
In connection with the Company's acquisition of GIS, the Company is required
to pay $0.5 million of the purchase price on a deferred basis in the fourth
quarter of fiscal 1998. In addition, the Company paid $1.1 million to the
former GIS shareholder in fiscal 1997 based on the Company's earnings from
former GIS clients and expects to make a similar payment in fiscal 1998.
Effective April 1, 1997, the Company entered into a new license agreement
with a major software vendor for software used for IT outsourcing services
clients. This agreement permits the Company to increase its outsourcing client
base and mainframe capacity to double current levels without an increase in
the fixed license fee for seven years. This new arrangement increased rents,
leases and maintenance expenses for the three months ended December 31, 1997
compared to the three months ended December 31, 1996.
22
<PAGE>
Prior to fiscal 1997, the Company's capital expenditures ranged from
approximately $3.0 million to $7.0 million per year. During fiscal 1997, the
Company's capital expenditures of $19.3 million included expenditures for
mainframe and mid-range computers and related equipment, and equipment to
support the Company's network services agreement with American National Can
Company. The Company expects capital expenditures in calendar year 1998 to be
approximately $15.0 million.
Software development costs of $7.1 million were capitalized in fiscal 1997.
The Company does not expect research and development expenses to increase
materially as a percentage of revenues in the future.
The Company believes that cash flow from operations, together with the
estimated net proceeds from the sale of the Notes and funds available under
the Existing Credit Facility, will be sufficient to fund its operating
expenses, and working capital, capital expenditures and debt service
requirements through at least fiscal 1999.
QUARTERLY COMPARISONS
The following table sets forth certain quarterly financial information of
the Company for each quarter of fiscal 1996 and fiscal 1997 and for the first
quarter of fiscal 1998. The information has been derived from the quarterly
financial statements of the Company which are unaudited but which, in the
opinion of management, have been prepared on the same basis as the audited
financial statements included herein and include all adjustments (consisting
only of normal recurring items) necessary for a fair presentation of the
financial results for such periods. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
the other financial information appearing elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1996 1996 1996(1) 1996(1) 1997(1) 1997(1) 1997(1) 1997(1)(2)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $16,044 $19,133 $19,997 $22,050 $21,229 $21,693 $23,625 $25,910 $26,351
Operating income....... 3,070 4,154 4,855 4,947 4,090 4,347 5,348 6,677 1,592
Net income............. 1,661 2,369 3,067 3,126 2,367 2,419 3,087 3,842 656
PERCENTAGE OF NET
REVENUES:
Operating income....... 19.1% 21.7% 24.3% 22.4% 19.3% 20.0% 22.6% 25.8% 6.0%
Net income............. 10.4 12.4 15.3 14.2 11.1 11.2 13.1 14.8 2.5
</TABLE>
- ---------------------
(1) Includes the results of operations of GIS, effective July 1, 1996.
(2) Includes a one-time, pre-tax restructuring charge of $4.7 million ($2.9
million after-tax).
A significant portion of the Company's quarterly net revenues is derived
from new projects for clients, the timing of which are outside the Company's
control. Operating income and net income as a percent of net revenues have
fluctuated from quarter to quarter principally as a result of the hiring of
new employees and the expansion of computing capacity in response to increased
demand. This quarterly fluctuation is primarily due to the fixed nature of
these expenses and the time difference between such expenses and the
generation of revenues.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Accordingly, any
of the Company's computer programs that have date sensitive software may cause
system failures or miscalculations if data entry of "00" is recognized as 1900
rather than 2000.
Based on a recent assessment, the Company determined that it is required to
modify portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company believes that
23
<PAGE>
with upgrades or modifications to existing software and conversion to new
software, the impact of the Year 2000 Issue can be mitigated. However, if such
upgrades, modifications and conversions are not made, or are not made in a
timely manner, the Year 2000 Issue could have a material impact on the
Company's operations.
The Company will utilize both internal and external resources to reprogram,
or replace, and test software for Year 2000 compliance. The Company has a
full-time manager dedicated to addressing Year 2000 compliance for the
Company, clients and vendors. The Company expects to complete all material
aspects of the Year 2000 project not later than December 31, 1998. The total
Year 2000 project cost is estimated to be $1.0 million to $3.0 million.
Amounts incurred are expected to be expensed as incurred, unless new software
is purchased which will be capitalized. The Company has not incurred
significant costs prior to December 31, 1997 other than internal costs to
evaluate the extent of Year 2000 compliance and to develop a remediation plan.
The costs of the Year 2000 project and the schedule for completion of Year
2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
24
<PAGE>
BUSINESS
May & Speh provides computer-based information management services with a
focus on direct marketing and IT outsourcing services. The Company's direct
marketing services help companies execute more profitable direct marketing and
customer management programs. Services include strategic analysis and strategy
management; systems consulting; custom data warehouse and datamart design,
build, implementation and management; statistical (predictive) modeling and
analysis; and list processing. May & Speh's IT outsourcing services support
multi-platform processing and network management for clients seeking to
outsource their IT operations. The Company's direct marketing and IT
outsourcing services are synergistic and allow the Company to leverage its
investment in its technical personnel and state-of-the-art data processing
facilities, as well as its core competencies in customized software systems
development, large database management, high speed data processing and data
center management.
MARKET OVERVIEW
DIRECT MARKETING SERVICES
Direct marketing enables the delivery of a customized message to a defined
audience and the measurement of the response to that message. The marketing
program can then be evaluated, refined and continuously improved. Effective
direct marketing programs require a detailed understanding of customers' and
prospective customers' purchasing patterns to promote more relevant and timely
offers. The ability to measure the response to a specific marketing program
allows the financial return on marketing expenditures to be analyzed. The use
of direct marketing by businesses has increased significantly in recent years,
as has spending in support of direct marketing activities. Industry sources
estimate that United States expenditures for information and database services
in connection with direct marketing activities were approximately $17.0
billion in 1996, and that such expenditures are growing at an annual rate of
15% to 20%.
Demographic shifts and lifestyle changes, combined with a proliferation of
new products and services and the evolution of new marketing mediums
(including cable, telemarketing, direct mail, direct response, on-line
services and the Internet) have made marketing campaigns increasingly complex.
At the same time, marketing costs have been subjected to growing scrutiny by
marketing managers. Many marketers have responded to these pressures by
reallocating their expenditures from traditional mass marketing to direct
marketing.
Direct marketing programs depend upon the ability of a marketer to access
information about their customers and prospects. Historically, valuable sales
and customer data within large corporations was often inaccessible as it
resided in various incompatible systems. Through advances in computer and
software technology, it is now possible to compile very large databases using
disparate customer record files combined with data collected from compiled
lists owned by third parties. With the development of relational and
multidimensional databases, marketers can add new categories of data without
having to redesign or rebuild their databases, making it possible to use this
data in order to develop customer profiles based on many different attributes.
Finally, the development of decision support software has allowed utilization
of database marketing at the decision maker level in a client/server
environment.
Direct marketing service providers require the technical resources to manage
exceptionally large relational and multidimensional databases and the software
capabilities to convert vast amounts of data into usable information. These
functions must be performed within tight time constraints making processing
speed critical. Many companies choose not to invest in the technological
resources necessary to build these capabilities and as a result, choose to
outsource database management and list processing services to a proven vendor
as a more effective means of accessing the latest technological resources and
expertise.
IT OUTSOURCING
IT outsourcing includes the provision and management of all or a portion of
a client's data processing and information systems functions. In essence, the
IT outsourcing services vendor assumes the client's data center
25
<PAGE>
functions and the client continues to retain direct access to their
information, although the hardware and software are no longer located on the
client's premises. Increasingly, companies are outsourcing their information
processing applications as part of an overall effort to focus internal
resources on their core competencies while improving operating efficiencies
and reducing costs. According to G2 Research Inc., total expenditures for IT
outsourcing services in the United States were approximately $32.7 billion in
1996, and such expenditures are projected to grow at an average annual rate of
approximately 25.2% through 2001.
Many companies' IT departments are burdened with increasing demands for
instant access and communication of large amounts of data to multiple
locations in real time, requiring high speed processing and telecommunications
capabilities. In addition, because computing technology is evolving rapidly,
companies are increasingly faced with the decision to either continually
invest a significant amount of capital in new technology or to outsource. The
increasing demands on IT departments coupled with the significant ongoing
investments required to remain technologically current are key factors in the
growing trend towards outsourcing. The advantages to organizations of
outsourcing their data processing activities include improved flexibility,
reduced capital investments, higher performance and service levels, improved
speed of delivery, capacity on demand and cost control.
The Company believes that the market in which it competes is best defined by
the scale of its clients' data processing requirements, not by such clients'
revenues. Typically, the scale of these requirements is large but not of a
size typically sought by the larger outsourcing service providers. The Company
believes that its data center processing capabilities, while not of a similar
scale, are similar to or better than the capabilities of its large competitors
in terms of throughput, turnaround capabilities and state-of-the-art equipment
utilized.
MAY & SPEH'S COMPETITIVE STRENGTHS
The Company believes it has competitive strengths which have contributed to
its growth and profitability. These include:
Integrated Database Management Solutions. May & Speh offers integrated
database management solutions focused on targeted industries. These integrated
solutions include marketing strategy execution; prospect data and data
enhancement services; database design and maintenance; on-line access and
decision support tools; data modeling, profiling and analysis; and ongoing
strategic evaluation and management. The Company believes that this approach
is a competitive strength because it offers clients strategic direct marketing
tools rather than generic data processing services, resulting in the Company's
integrated database management solutions becoming integral to clients
executing their marketing strategies.
Focus on Targeted Industries. May & Speh's direct marketing services focus
on clients in targeted industries including financial services, retail,
consumer goods, insurance and high tech. The Company believes that as a result
of its focus and experience in specific industries, its sales and technical
personnel better understand the data processing needs, competitive dynamics
and regulatory issues of its clients.
Investment and Scale of its Client Service and Technical Infrastructure. May
& Speh's direct marketing and IT outsourcing services continue to benefit from
its investments in technical personnel and technology. The Company has a
current staff of over 500 skilled IT and direct marketing services personnel,
and maintains state-of-the-art data processing facilities. As a result of
these investments, the Company has developed its client service and technical
infrastructure to a significant scale, which enables the Company to develop
and support mainframe, mid-range and network applications and platforms,
accommodate growth and provide efficient and flexible services.
Long-Term Client Relationships with Recurring Revenues. May & Speh's long-
term client relationships provide the Company with recurring revenues. Over
50% of the Company's fiscal 1997 revenues were derived from clients who have
used the Company's services for over three years. The Company's direct
marketing revenues are typically recurring because its direct marketing
services become an integral part of the clients' marketing programs and a
portion of these revenues are derived through multi-year contracts. The
Company's IT outsourcing revenues are typically recurring and generated
through multi-year contracts.
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<PAGE>
Significant Operating Flexibility. May & Speh's financial position provides
the Company with significant operating flexibility. The Company has generated
operating margins in excess of 20% in each of the last four fiscal years.
These operating margins have enabled the Company to reinvest the cash
generated from operations for strategic expenditures, including technology,
skilled technical personnel and capital investments relating to new clients.
GROWTH STRATEGY
May & Speh's strategy is to continue to grow its business by leveraging its
competitive strengths. The principal components of May & Speh's growth
strategy are:
Offer Integrated Database Management Solutions. May & Speh continues to
develop integrated database management solutions focused on targeted
industries which are expected to continue to attract new clients with
significant direct marketing budgets and increase revenues from existing
clients. May & Speh's approach offers integrated solutions rather than
general, disparate services and systems.
Increase Penetration of Existing Targeted Industries and Target New
Industries. Currently, May & Speh's direct marketing services target the
financial services, retail, consumer goods, insurance and high tech
industries. The Company believes these industries offer significant
opportunity for direct marketing services, and continues to focus on
attracting additional clients within these targeted industries. In addition,
the Company believes that direct marketing is increasingly prevalent in the
utilities, telecommunications, automotive and healthcare industries, and that
such industries provide attractive near term opportunities for potential
penetration.
Extend IT Outsourcing Services. May & Speh continues to extend its IT
outsourcing service offerings. In order to build upon and complement its
traditional mainframe outsourcing services, the Company offers client/server
outsourcing and network management services. The Company's strengthened IT
outsourcing capabilities have resulted in the addition of new clients and
contracts such as May & Speh's $41 million, five-year contract with American
National Can. Under this agreement, American National Can is outsourcing its
entire IT infrastructure to the Company including client/server, mainframe and
network management services. The Company believes its broad range of IT
outsourcing services and expertise will continue to attract new clients and
expand relationships with current clients.
Expand Sales Efforts. The Company plans to increase the number of new
clients by expanding its sales efforts in both direct marketing and IT
outsourcing. The direct marketing sales force is focused on increasing
penetration within current targeted industries as well as penetrating new
industries. In IT outsourcing services, the Company intends to continue
focusing on US-based companies with mid-level processing requirements. In
addition, the Company plans to expand its sales presence in certain geographic
areas for both direct marketing and IT outsourcing services.
Pursue Strategic Acquisitions and Alliances. May & Speh will continue to
explore strategic acquisitions and alliances for additional growth
opportunities. The Company will seek to acquire or form alliances with
companies that have services, technologies, industry specialties or personnel
that would complement or extend those of the Company and facilitate the
addition of new clients. For example, the Company recently agreed to form
Energy Market Connect, LLC, a joint venture with Metzler & Associates, a
leading provider of management consulting services to the energy industry. The
Company believes this joint venture will provide a new sales channel and
enable the Company to incorporate utilities industry expertise in its
integrated database management solutions for the utilities industry. In May
1997, the Company also formed a strategic alliance with Trans Union
Corporation, the nation's leading credit reporting company. The alliance will
combine May & Speh's expertise in creating custom and generic models with
Trans Union Corporation's data management capabilities.
27
<PAGE>
SERVICES AND PRODUCTS
DIRECT MARKETING SERVICES
May & Speh provides comprehensive direct marketing services, including
database creation, data warehousing, data enhancement, predictive behavioral
modeling and list processing. Rather than selling standard products and
services to its clients, the Company's approach has been to design and
implement creative custom database solutions around the specific needs of its
clients. The principal advantages of customized services include (i) the
ability of the database to expand and adapt to the client's changing business
needs, (ii) the ability to have these services developed on a platform of the
client's choosing, and (iii) the integration of database services with the
list processing services necessary to keep the database current.
Database Management Services. May & Speh's broad range of database
management services begins with the Company's proven approach to database
development which includes planning and analytical processes to determine the
client's needs. Typically, direct marketing databases originate with the
client's own files, both current and historical, which generally include name,
address and gender, as well as frequency and value of products purchased.
May & Speh analyzes all of the client's disparate operational files and
determines what data will add value and can be made actionable. Utilizing both
proprietary and commercial software, the Company consolidates all of the
disparate information and relationships across multiple files and converts the
client's raw information into a clean, consolidated format so that
relationships can be understood at both the customer and household levels.
Once the client's customer data is consolidated and the database created,
May & Speh enhances the data by utilizing a wide selection of demographic,
geographic, census (age, approximate income level, education level and
household composition) and lifestyle information for over 100 million
individuals and households. May & Speh licenses this information from leading
data compilers. The combination of each client's proprietary customer
information with these external data files provides a complete profile of a
client's customers, enabling the client, through the use of May & Speh's
behavior modeling and analysis services, to act on the data. Through the
development of a scoring model, the client can segment its database and
determine its best customers and prospects in each marketplace. The entire
process results in a marketing program that can be targeted to distinct
audiences with a high propensity to buy the client's products. These databases
typically reside at May & Speh's data center. Because of the dynamic nature
and complexity of these databases, May & Speh is routinely asked by its
clients as part of their ongoing direct marketing efforts to update the
databases with the results of recent marketing programs and to periodically
perform the list processing service described below.
List Processing Services. List processing includes the preparation and
generation of comprehensive name and address lists which are used in direct
marketing promotions. May & Speh's state-of-the-art data center and large
volume processing capabilities allow the Company to meet the direct marketing
needs of its clients, processing over seven billion records through its
advanced list processing software services in fiscal 1997. May & Speh
customizes a list processing solution by utilizing a variety of commercial and
proprietary software products, such as Address Conversion and Reformat,
Address Standardization and Enhanced Merge/Purge, as well as products which
are licensed through the United States Postal Service such as National Change
of Address, Delivery Sequence File and Locatable Address Conversion System.
Other licensed products are databases used for suppressions such as the Direct
Marketing Association's Mail Preference File, the American Correctional
Association Prison Suppress File and other files.
May & Speh's list processing services seek to reduce its clients' mailing
costs. For instance, because approximately 15% to 20% of the population moves
each year, mailings may be misaddressed or not delivered at all. Through the
utilization of May & Speh's Merge/Purge, Address Standardization software,
National Change of Address database, Delivery Sequence File and Locatable
Address Conversion Database, the Company can eliminate most duplicate names as
well as reduce the amount of undeliverable items by an average of 6%.
Quiddity(TM). In fiscal 1997, development activities were substantially
completed for Quiddity and this new product was introduced to clients and
prospects. Quiddity is an on-line relational and open database management
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<PAGE>
system designed specifically for marketing professionals. The product's user-
friendly format allows non-technical users to easily access and directly work
with marketing databases to create more targeted and profitable one-to-one
marketing programs. Quiddity integrates custom-developed and commercial
software that complement the Company's suite of direct marketing services. Key
features include open architecture, scaleable platforms and an object-oriented
application that is work-flow-oriented and intuitive.
IT OUTSOURCING
May & Speh's primary IT outsourcing service is to manage all or a portion of
a client's information processing needs on a cost effective basis from the
Company's data center. After migrating their workload to the Company's data
center, clients continue to retain direct access to their information from
their remote sites. The Company also provides, to a much lesser extent,
applications outsourcing services which include the replacement of a client's
in-house technical development staff.
The primary outsourcing services provided include migration (takeover and
turnover) support, on-line and batch processing capacity, technical support,
help desk access and support, back-up and recovery, disaster recovery
services, operations support, account management, media (tapes, documents,
high speed Direct Access Storage Devices subsystems ("DASD"), etc.) management
and handling, production control, telecommunications and network management
support. These services and support functions are available 24 hours a day,
seven days a week.
Historically, the Company's success in IT outsourcing has resulted in part
from its ability to provide its services with minimal disruption to the
client. The Company has established rigorous formal processes to ensure a
successful ongoing processing of a client's workload at the Company's data
centers.
MARKETING AND SALES
The Company markets its direct marketing and IT outsourcing services through
separate direct sales forces. Maintaining a separate sales force for each
service offering allows the Company's sales representatives to concentrate on
particular services, technology and customer demands, thereby staying abreast
of developments in these areas. Sales representatives are encouraged to
identify cross-selling opportunities. The Company's sales force compensation
system provides incentives to salespeople to focus on both attracting larger
clients and selling the Company's most profitable services.
Pricing for direct marketing services is dependent upon the complexity of
service required. In general, May & Speh establishes a price list for clients
detailing the prices for a broad range of service options. These prices are
based on the nature and complexity of the services, volume of records to be
processed and the level of customization required. Additionally, if the level
of up-front customization is high, the Company charges development fees based
on the level of customization required.
Pricing for IT outsourcing services is dependent upon the anticipated range
of resource consumption. Typically, clients are charged a flat or stepped rate
for IT outsourcing services provided under multi-year contracts. If the
processing time, data storage, retrieval requirements and output volume exceed
the budgeted amounts, the client is charged additional amounts. Minimum
charges and early termination charges are typically included in contracts.
CLIENTS
The Company has over 180 direct marketing clients, including Fortune 500
companies and other large and medium-sized companies that have significant
direct marketing requirements. These clients are primarily in the financial
services, retail, consumer goods, insurance and high tech industries. The 10
largest direct marketing clients represented approximately 62.8% of the
Company's direct marketing net revenues in fiscal 1997.
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<PAGE>
The Company has approximately 150 IT outsourcing clients. These clients are
located primarily in the mid-western United States. The 10 largest outsourcing
clients represented approximately 45.5% of the Company's IT outsourcing
services net revenues in fiscal 1997.
The Company seeks to maintain long-term relationships with its clients. In
fiscal 1997, over 50% of net revenues were derived from clients served by the
Company for more than three years including Sears, the Company's first client
in 1947. In fiscal 1997, Sears accounted for approximately 18.9% of the
Company's net revenues. Net revenues from the Company's 10 largest clients in
fiscal 1997 increased 31.8% from fiscal 1996. IT outsourcing clients typically
operate under contracts, usually three years in length. Direct marketing
clients have traditionally maintained multi-year relationships with May &
Speh, although many of the Company's direct marketing clients are not under
long-term contracts.
TECHNOLOGICAL RESOURCES AND FACILITIES
The Company maintains state-of-the-art data facilities with approximately
6,000 MIPS (million instructions per second) of mainframe and UNIX processing
power. The Company's processors include a Hitachi Skyline Series mainframe
computer, the world's fastest IBM-compatible processor, a Hitachi GX/8824
series mainframe computer capable of executing 390 MIPS, and four Hitachi
Pilot mainframe computers, which are the fastest CMOS, IBM-compatible
mainframe computers. The Company utilizes other state-of-the-art data center
components, such as robotic tape sub-systems, high-speed laser, LED and impact
printers and high speed DASD. The Company supports multiple platforms
including mainframe, UNIX and other mid-range computer systems.
The Company maintains a disaster recovery plan with a commercial disaster
recovery service to provide alternative data processing sites in the event the
Company experiences a natural disaster or other interruption at its data
center. The Company conducts recovery exercises several times per year and
encourages its clients to join in this process.
The Company's headquarters building was custom-designed to be a secure data
center environment. Building characteristics include 24-hour security
protection, television surveillance, fire and motion alarms and a fire
protection system backed up by a sprinkler system. The Company added a
generator system which allows it to be self-sufficient if there is a power
outage by operating continually until power is restored by the electric
utility provider.
COMPETITION
The markets in which the Company operates are highly competitive, with no
single dominant competitor. Although numerous smaller companies compete in the
direct marketing and IT outsourcing markets, the Company regularly competes
with companies that have more extensive financial, marketing and other
resources than the Company. Many of the Company's competitors have
substantially greater assets and thus, may have a greater ability to obtain
client contracts where sizable asset purchases or investments are required.
In the direct marketing services market, competition is based on the quality
and reliability of products and services, technological expertise, historical
experience, ability to develop customized solutions for clients, processing
capabilities and price. Management believes that the Company competes
favorably in this market based upon these competitive factors. The Company's
principal competitors include Acxiom Corporation, Database America Companies,
a subsidiary of American Business Information, Inc., Harte-Hanks
Communication, Inc. and Metromail Corporation.
In the IT outsourcing market, competition is based on the quality and
reliability of services, technical expertise, processing capabilities,
processing environment and price. Management believes that the Company
competes favorably in this market based upon these competitive factors.
Although there are many competitors within the IT outsourcing services
marketplace, the Company's principal competitors are Affiliated Computer
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Services, Inc., Lockheed Martin Corporation, PKS Information Services, Inc.
and other regional outsourcers. In addition, but on a less frequent basis, the
Company competes with International Business Machine Corporation's Global
Services division, Electronic Data Systems Corporation, Computer Sciences
Corporation, Perot Systems Corporation and MCI/Systemhouse, Inc., a subsidiary
of MCI Communications Corp.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon its trade secret protection program and
nondisclosure safeguards to protect its proprietary technologies. The Company
enters into license or other agreements with its clients in the ordinary
course of business which contain terms and conditions prohibiting unauthorized
reproduction of the Company's products. In addition, the Company generally
enters into confidentiality agreements with its employees, clients, potential
clients and suppliers with access to sensitive information and limits access
to and distribution of its software documentation and other proprietary
information. While there can be no assurance that the steps taken by the
Company will be adequate to deter misappropriation of its proprietary rights,
the Company believes that due to the rapid pace of technological change in the
Company's business, legal protections afforded through patent protection for
its products are less significant than the knowledge, ability and experience
of its employees, the frequency of product enhancements and the timeliness and
quality of support.
EMPLOYEES
As of December 31, 1997, the Company employed 579 persons and utilized 52
full-time equivalent contract personnel. None of the Company's employees are
represented by a labor union, and the Company believes that its relations with
employees are good.
PROPERTIES
The Company's executive offices and principal operations are located at 1501
Opus Place, Downers Grove, Illinois, in a 105,352 square foot building leased
from a third party for a term of 20 years. The facility is comprised of 67,352
square feet of office space, 25,000 square feet of raised floor facilities
which house the Company's data center and 13,000 square feet of tape library.
The Company currently occupies an additional 20,000 square feet in connection
with the Company's network services agreement with American National Can, and
leases 127,448 square feet of warehouse and office space in three separate
locations in the metropolitan Chicago area with lease terms expiring on
various dates through August 2002.
The Company has executed a 20 year lease for a 200,000 square foot office
building under construction on property adjacent to the Company's executive
offices. The lease commences upon completion of the building which is expected
in September 1998.
The Company believes that its existing facilities are adequate for its
present needs and that the additional facilities proposed for construction
will be sufficient to sustain the growth of the Company for the foreseeable
future. Notwithstanding, the Company believes that additional space will be
available for lease on commercially reasonable terms on an as needed basis.
CONSUMER PRIVACY AND LEGISLATIVE ISSUES
The direct marketing industry could be adversely affected by growing
consumer awareness of privacy issues. The Company has adopted several policies
to address these privacy concerns. The Company requires each employee to sign
an agreement not to disclose confidential information. The Company's data
center has a sophisticated data security system, which includes 24-hour
security protection, television surveillance and limited access to
confidential information. Periodically, the Company undergoes a detailed audit
of its security system. In addition, the Company subscribes to a Direct
Marketing Association ("DMA") service which allows consumers to request not to
receive unsolicited direct mail offers. At a client's request, the Company
will purge the client lists of all names appearing on the DMA list.
Furthermore, under the FCRA, the Company's clients
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are required to provide the Company with the names of consumers wishing to be
removed from certain lists. Management believes that the policies and
procedures that have been implemented, together with the Company's continuing
efforts to remain informed and responsive to privacy concerns, will prevent
the Company from being adversely affected by increased public concern over
privacy issues.
In 1996, FCRA was amended to provide consumers with easier access to their
credit reports and to facilitate the correction of errors in such reports. New
regulations interpreting the amendments were issued by the FTC in 1997. The
legislation also addresses the issue of "prescreening," a procedure utilized
by many bankcard issuers and insurance companies in their direct marketing
programs. This legislation regulates the use of credit reports in the
preparation and generation of lists used by companies in offering credit. This
law also provides for significant fines for misuse of credit reports. Although
the Company believes its list processing activities for credit grantors are in
compliance with the recent amendments to FCRA, due to its recent adoption,
there is uncertainty as to its interpretation and application. Therefore,
there can be no assurances that significant fines will not be levied against
the Company or that this portion of its list processing services will not be
adversely affected. While the Company provides list processing activities for
credit grantors as part of its direct marketing services, such activities
accounted for less than $5.0 million in net revenues in fiscal 1997.
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MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ---- --- --------------------------
<S> <C> <C>
Peter I. Mason.......... 45 Chairman, President and Chief Executive Officer
Terrance C. Cieslak..... 51 Executive Vice President and Chief Technology Officer
Robert C. Early......... 45 Executive Vice President, Corporate Development, and a Director
Michael J. Loeffler..... 40 Executive Vice President, Direct Marketing Services
Eric M. Loughmiller..... 38 Executive Vice President, Chief Financial Officer and Secretary
John G. Jazwiec......... 38 Senior Vice President and Chief Information Officer
Willard E. Engel, Jr.... 51 Vice President, Chief Accounting Officer and Treasurer
Albert J. Speh, Jr...... 78 Chairman Emeritus
Deborah A. Bricker...... 45 Director
Casey Cowell............ 45 Director
Lawrence J. Speh........ 48 Director
Paul G. Yovovich........ 44 Director
Jonathan Zakin.......... 48 Director
</TABLE>
Peter I. Mason has been a director of the Company since November 1994, and
has served as President and Chief Operating Officer of the Company since May
1997, as President and Chief Executive Officer since October 1997 and as
Chairman since November 1997. Prior to joining May & Speh, Mr. Mason was a
partner in the Chicago law firm of Freeborn & Peters, which he co-founded in
1983, and served as chairman of its operating committee from 1986 to 1996. He
served as a director of U.S. Robotics Corporation from 1983 to 1997, and
currently serves as a director of Mastering, Inc. and several privately held
businesses.
Terrance C. Cieslak has served as Executive Vice President and Chief
Technology Officer since October 1995 and is responsible for systems
management and integration for the Company. Since joining the Company in 1987,
Mr. Cieslak has served in a variety of senior management positions including
Technical Support Manager, Data Center Manager and Vice President of Services
and Solutions. Prior to joining the Company, Mr. Cieslak worked with
Electronic Data Systems Corporation and Official Airline Guide.
Robert C. Early has served as Executive Vice President, Corporate
Development since January 1997. Prior to that, Mr. Early served as Executive
Vice President, Chief Financial Officer and Treasurer of the Company from
October 1995 through January 1997 and Director of Corporate Growth for the
Company from 1993 through October 1995. Mr. Early also has served as a
director of the Company since November 1994. Prior to joining the Company, Mr.
Early worked as an independent contractor with business advisory firms,
including Ridge Capital Corp. and Ridge Advisors, Inc., which provide merger
and acquisitions, capital financing and strategic planning advisory services.
From 1990 through 1992 Mr. Early was also Vice Chairman of Consolidated
Convenience Systems, Inc., a holding company. Prior to 1990, Mr. Early spent
approximately 12 years at Grant Thornton LLP, and was the partner responsible
for the Chicago office Capital Markets Group from 1985 through 1990.
Michael J. Loeffler has served as Executive Vice President, Direct Marketing
Services since April 1996 and is responsible for the direct marketing services
group of the Company. Mr. Loeffler joined May & Speh in 1988 as an Account
Executive and has also served as Vice President of Sales and Sales Manager.
Prior to joining May & Speh, Mr. Loeffler had seven years of experience in the
direct marketing industry with UARCO, Inc. and Colorforms Division of Wallace
Press.
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Eric M. Loughmiller has served as Executive Vice President and Chief
Financial Officer of the Company since January 1997. Prior to joining May &
Speh, Mr. Loughmiller was an audit partner at Price Waterhouse LLP where he
had spent over 15 years in that firm's Accounting and Business Advisory
Services practice. Mr. Loughmiller is a Certified Public Accountant.
John G. Jazwiec has served as Senior Vice President and Chief Information
Officer of the Company since May 1997. He joined the Company with over 15
years experience in data processing services with a background in both
mainframe and client server platforms. From 1994 to 1997, Mr. Jazwiec served
as Vice President and CIO of Fiserv, a banking outsourcing firm. Prior to that
time, he served as Vice President and CIO of Siebe Environmentals, a
subsidiary of Siebe PLC.
Willard J. Engel, Jr. has served as Vice President and Chief Accounting
Officer of the Company since 1986 and in other financial and accounting
capacities since 1972. Effective January 1997, Mr. Engel became Treasurer and
Chief Accounting Officer.
Albert J. Speh, Jr. co-founded the Company and served as Chairman of the
Board of Directors from 1992 to November 1997. Prior to founding the Company,
Mr. Speh served in the Armed Forces during World War II. He was later employed
by Sears, General Finance, Inc. and Encyclopedia Britannica in the field of
data processing. Mr. Speh currently serves as a consultant to the Company and
on the board of Fenwick High School.
Deborah A. Bricker is the President of Bricker & Associates Inc., a
productivity consulting firm based in Chicago, Illinois which she founded in
1979. Ms. Bricker has served as a director of the Company since March 1996.
Casey Cowell has served as Vice Chairman of 3Com Corporation since June
1997. From January 1996 to May 1997, Mr. Cowell was Chairman and Chief
Executive Officer of U.S. Robotics Corporation. Prior to January 1996, he
served for approximately 12 years as Chairman, President and Chief Executive
Officer of U.S. Robotics Corporation. Mr. Cowell has served as a director of
the Company since May 1997. Mr. Cowell currently serves as a director of 3Com
Corporation, Mastering, Inc. and System Software Associates.
Lawrence J. Speh served as Chief Executive Officer of the Company from
January 1993 to September 1997, and as President from January 1993 to May
1997. Mr. Speh currently serves as a consultant to the Company. From 1977
until June 1988, Mr. Speh held various senior management positions with the
Company including President of Direct Marketing Services, Marketing Director
and Treasurer.
Paul G. Yovovich served, from 1993 to 1996, as President of Advance Ross
Corp., a public company until its 1996 merger with CUC International. He
served in various executive capacities at Centel Corporation from 1982 to
1992, including as President of Central Telephone Co., a subsidiary of Centel,
from 1990 to 1992. Mr. Yovovich has served as a director of the Company since
May 1997. Mr. Yovovich is a director of 3Com Corporation, APAC TeleServices,
Inc., Comarco, Inc. and Mastering, Inc.
Jonathan Zakin currently serves as President of Leeward Management/ Seaview
Holdings. From 1987 to 1997, Mr. Zakin served in various senior management
positions and was a director of U.S. Robotics Corporation. Mr. Zakin has
served as a director of the Company since November 1997.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 13, 1998, the number of
shares of Common Stock beneficially owned by all persons known by the Company
to beneficially own more than five percent of the outstanding Common Stock,
each director of the Company, certain executive officers and all directors and
executive officers as a group. Unless otherwise indicated, the persons named
below have sole voting and investment power with respect to all shares shown
as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
May & Speh, Inc. Employee Stock Ownership
Plan(1)................................... 8,086,849 31.6%
Lawrence J. Speh(2)........................ 3,973,517 15.4
Albert J. Speh, Jr.(3)..................... 1,672,503 6.5
Robert C. Early(4)......................... 185,130 *
Michael J. Loeffler(5)..................... 177,158 *
Terrance C. Cieslak(6)..................... 170,666 *
Casey Cowell............................... 100,004 *
Peter I. Mason(7).......................... 91,200 *
Jonathan Zakin(8).......................... 68,003 *
Deborah A. Bricker(9)...................... 14,400 *
Paul G. Yovovich........................... 5,000 *
All directors and executive officers as a
group (13 persons)(2)(3)(10).............. 6,563,377 25.2
</TABLE>
- ---------------------
*Less than one percent.
(1) The address of the May & Speh, Inc. Employee Stock Ownership Plan (the
"ESOP") is c/o Cole Taylor Bank, 850 W. Jackson Blvd., Chicago, Illinois
60607. Includes 6,899,180 shares that have been allocated or are
available for allocation to the accounts of certain employees or former
employees of the Company. ESOP participants have shared voting and
investment power with respect to the shares allocated to their individual
accounts. The ESOP has agreed to sell 1,503,790 shares in the Common
Stock Offering.
(2) Includes 176,000 shares issuable pursuant to currently exercisable
options, and 3,758 shares allocated to Mr. Speh's ESOP account. Also
includes 40,612 shares held by Mr. Speh's wife, as to which he disclaims
beneficial ownership. Mr. Speh's address is c/o May & Speh, Inc., 1501
Opus Place, Downers Grove, Illinois 60515. Mr. Speh has agreed to sell
1,883,989 shares in the Common Stock Offering.
(3) Includes 3,758 shares allocated to Mr. Speh's ESOP account. Mr. Speh's
address is c/o May & Speh, Inc., 1501 Opus Place, Downers Grove, Illinois
60515. Mr. Speh has agreed to sell 612,221 shares in the Common Stock
Offering.
(4) Includes 120,803 shares issuable pursuant to currently exercisable
options, and 43,015 shares allocated to Mr. Early's ESOP account.
(5) Includes 91,100 shares issuable pursuant to options that are currently
exercisable or that will become exercisable within 60 days, and 86,058
shares allocated to Mr. Loeffler's ESOP account.
(6) Includes 75,100 shares issuable pursuant to options that are currently
exercisable or that will become exercisable within 60 days, and 95,566
shares allocated to Mr. Cieslak's ESOP account.
(7) Includes 14,400 shares issuable pursuant to options that are currently
exercisable or will become exercisable within 60 days.
(8) Represents shares held by a family foundation with respect to which Mr.
Zakin has shared voting and investment power.
(9) Represents shares issuable pursuant to options that are currently
exercisable or will become exercisable within 60 days.
(10) Includes 441,803 shares issuable pursuant to options that are currently
exercisable or that will become exercisable within 60 days, and 321,575
shares allocated to the ESOP accounts of the executive officers.
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<PAGE>
DESCRIPTION OF NOTES
Set forth below is a summary of certain provisions of the Notes. The Notes
will be issued pursuant to an indenture (the "Indenture") to be dated as of
, 1998, by and between the Company and Harris Trust and Savings Bank
as trustee (the "Trustee"). The following summary of the Notes and the
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by, reference to all of the provisions of the Indenture,
including the definitions therein of certain terms. Capitalized terms used
herein without definition have the meanings ascribed to them in the Indenture,
as appropriate. As used in this section, the "Company" refers to May & Speh,
Inc. exclusive of its Subsidiaries. Wherever particular provisions or defined
terms of the Indenture (or the form of Note which is part thereof) are
referred to in this summary, such provisions or defined terms are incorporated
by reference as a part of the statements made and such statements are
qualified in their entirety by such reference. Certain definitions of terms
used in the following summary are set forth under "--Certain Definitions"
below.
GENERAL
The Notes are general, unsecured obligations of the Company, limited in
aggregate principal amount to $100,000,000 ($115,000,000 if the over-allotment
option is exercised in full). The Notes are subordinated in right of payment
to all Senior Indebtedness, as described under "--Subordination" below. The
Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
The Notes will mature on , 2003. The Notes bear interest at the
rate per annum stated on the cover page of this Prospectus from the date of
issuance, or from the most recent Interest Payment Date to which interest has
been paid or provided for, payable semi-annually in cash on and
of each year, commencing , 1998, to the persons in whose
names such Notes are registered at the close of business on the and
immediately preceding such Interest Payment Date. Principal of,
premium, if any, and interest on the Notes will be payable, the Notes will be
convertible and the Notes may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose,
which office or agency shall be maintained in the Borough of Manhattan, The
City of New York. Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
At the option of the Company, payment of interest may be made by check
mailed to the Holders of the Notes at the addresses set forth upon the
registry books of the Company. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by the Company,
the Company's office or agency will be the corporate trust office of the
Trustee presently located in Chicago, Illinois.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or
the incurrence of Indebtedness or Senior Indebtedness. The Indenture contains
no covenants or other provisions to afford protection to Holders of Notes in
the event of a highly leveraged transaction or a change of control of the
Company, except to the limited extent described under "--Repurchase of Notes
at the Option of the Holder Upon a Change of Control" below.
CONVERSION RIGHTS
Each Holder of Notes will have the right at any time prior to the close of
business on the Stated Maturity of the Notes, unless previously redeemed or
repurchased, at the Holder's option, to convert any portion of the principal
amount thereof that is $1,000 or an integral multiple thereof into shares of
Common Stock at the Conversion Price set forth on the cover page of this
Prospectus (subject to adjustment as described below). The right to convert a
Note called for redemption or delivered for repurchase and not withdrawn will
terminate at the close of business on the Business Day immediately prior to
the Redemption Date or Repurchase Date for such Note, unless the Company
subsequently fails to pay the applicable Redemption Price or Repurchase Price,
as the case may be.
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<PAGE>
In the case of any Note that has been converted into Common Stock after any
Record Date, but on or before the next Interest Payment Date, interest, the
stated due date of which is on such Interest Payment Date, shall be payable on
such Interest Payment Date notwithstanding such conversion, and such interest
shall be paid to the Holder of such Note who is a Holder on such Record Date.
Any Note converted after any Record Date but before the next Interest Payment
Date (other than Notes called for redemption) must be accompanied by payment
of an amount equal to the interest payable on such Interest Payment Date on
the principal amount of Notes being surrendered for conversion. No fractional
shares of Common Stock will be issued upon conversion but, in lieu thereof, an
appropriate amount will be paid in cash by the Company based on the market
price of Common Stock (determined in accordance with the Indenture) at the
close of business on the day of conversion. As a result of the foregoing
provisions, Holders that surrender Notes for conversion on a date that is not
an Interest Payment Date will not receive any interest for the period from the
Interest Payment Date next preceding the date of conversion to the date of
conversion or for any later period, except for Notes that are called for
redemption.
The Conversion Price will be subject to adjustment in certain events,
including (a) any payment of a dividend (or other distribution) payable in
Common Stock on any class of Capital Stock of the Company, (b) any issuance to
all or substantially all holders of Common Stock of rights, options or
warrants entitling them to subscribe for or purchase Common Stock at less than
the then current market price of Common Stock (determined in accordance with
the Indenture); provided, however, that if such rights, options or warrants
are only exercisable upon the occurrence of certain triggering events, then
the Conversion Price will not be adjusted until such triggering events occur,
(c) certain subdivisions, combinations or reclassifications of Common Stock,
(d) any distribution to all or substantially all holders of Common Stock of
evidences of indebtedness, shares of Capital Stock other than Common Stock,
cash or other assets (including securities, but excluding those dividends,
rights, options, warrants and distributions referred to above and excluding
dividends and distributions paid exclusively in cash and in mergers and
consolidations to which the third succeeding paragraph applies), (e) any
distribution consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above, or cash distributed upon a merger or
consolidation to which the second succeeding paragraph applies) to all or
substantially all holders of Common Stock in an aggregate amount that,
combined together with (i) all other such all-cash distributions made within
the then preceding 12 months in respect of which no adjustments have been made
and (ii) any cash and the fair market value of other consideration paid or
payable in respect of any tender or exchange offer by the Company or any of
its Subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 15% of the Company's
market capitalization (defined as being the product of the then current market
price of the Common Stock times the number of shares of Common Stock then
outstanding) on the record date of such distribution, and (f) the completion
of a tender or exchange offer made by the Company or any of its Subsidiaries
for Common Stock that involves an aggregate consideration that, together with
(i) any cash and other consideration payable in a tender or exchange offer by
the Company or any of its Subsidiaries for Common Stock expiring within the 12
months preceding the expiration of such tender or exchange offer in respect of
which no adjustment has been made and (ii) the aggregate amount of any such
all-cash distributions referred to in (e) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender or exchange offer
in respect of which no adjustments have been made, exceeds 15% of the
Company's market capitalization on the expiration of such tender or exchange
offer. No adjustment of the Conversion Price will be required to be made until
the cumulative adjustments amount to 1.0% or more of the Conversion Price as
last adjusted.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the Conversion Price, the
Holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend; in
certain other circumstances, the absence of such an adjustment may result in a
taxable dividend to the holders of Common Stock. The Company, from time to
time and to the extent permitted by law, may reduce the Conversion Price by
any amount for any period of at least 20 Business Days, in which case the
Company shall give at least 15 days notice of such reduction, if the Board of
Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the Conversion Price, in addition
to those set forth above, as the Board of Directors deems advisable to avoid
or diminish any income tax resulting from any dividend or distribution of
stock (or rights to
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acquire stock) or from any event treated as such for United States federal
income tax purposes. See "Certain United States Federal Income Tax
Consequences."
In case of any reclassification or change of outstanding shares of Common
Stock issuable upon conversion of the Notes (other than certain changes in par
value) or consolidation or merger of the Company with or into another Person
or any merger of another Person with or into the Company (with certain
exceptions), or in case of any sale, transfer or conveyance of all or
substantially all of the assets of the Company, each Note then outstanding
will, without the consent of any Holder of Notes, become convertible only into
the kind and amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, merger, sale, transfer or
conveyance by a holder of the number of shares of Common Stock into which such
Note was convertible immediately prior thereto, after giving effect to any
adjustment event; provided, that if the kind or amount of securities, cash and
other property is not the same for each share of Common Stock held immediately
prior to such reclassification, change, consolidation, merger, sale, transfer
or conveyance, any Holder who fails to exercise any right of election shall
receive per share the kind and amount of securities, cash or other property
received per share by a plurality of non-electing shares.
The Company will cause all registrations to be made with, and will obtain
any approvals by, any governmental authority under any Federal or state law of
the United States that may be required on the part of the Company in
connection with the conversion of the Notes into Common Stock.
SUBORDINATION
The Notes are general, unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Indebtedness. The Notes are
structurally subordinated in right of payment to all Indebtedness and other
liabilities (including trade payables) of the Company's Subsidiaries. At
December 31, 1997, on a pro forma basis after giving effect to the sale of the
Notes and the use of the estimated net proceeds therefrom, approximately $26.0
million of outstanding indebtedness of the Company would have constituted
Senior Indebtedness, and the Company's subsidiary had no outstanding
obligations. The Existing Credit Facility provides for borrowings of up to
$2.0 million. No amounts were outstanding under the Existing Credit Facility
as of December 31, 1997. In addition, the Company is negotiating with a group
of banks for the New Credit Facility which is expected to provide for
borrowings of up to $100.0 million. Indebtedness under the Existing Credit
Facility and the New Credit Facility would be Senior Indebtedness. The
Indenture will not restrict the incurrence of Senior Indebtedness or other
Indebtedness by the Company or its Subsidiaries or the ability of the Company
to transfer assets or business operations to its Subsidiaries, subject to the
provisions described under "--Repurchase of Notes at the Option of the Holder
Upon a Change of Control" and "--Limitation on Merger, Sale or Consolidation"
below.
The Indenture will provide that no payment (by setoff or otherwise) may be
made by the Company on account of the principal of, premium, if any, or
interest on the Notes, or to acquire any of the Notes (including repurchases
of Notes at the option of the Holder) for cash or property (other than Junior
Securities), or on account of the redemption provisions of the Notes, (i) upon
the maturity of any Senior Indebtedness, by lapse of time, acceleration
(unless waived) or otherwise, unless and until all principal of, premium, if
any, and interest on such Senior Indebtedness are first paid in full (or such
payment is duly provided for), or (ii) in the event of default in the payment
of any principal of, premium, if any, or interest on any Senior Indebtedness
when it becomes due and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise (collectively, a "Payment Default"),
unless and until such Payment Default has been cured or waived or otherwise
has ceased to exist. The payment of cash, property or securities (other than
Junior Securities) upon conversion of a Note will constitute payment on a Note
and therefore will be subject to the subordination provisions in the
Indenture.
Upon (i) the happening of an event of default (other than a Payment Default)
that permits, or would permit with (a) the passage of time, (b) the giving of
notice, (c) the making of any payment of the Notes then required to be made or
(d) any combination thereof (collectively, a "Non-Payment Default"), the
holders of Senior
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Indebtedness having a principal amount then outstanding in excess of $10.0
million (or with respect to which Senior Indebtedness the holders are
obligated to lend in excess of $10.0 million principal amount) or their
representative immediately to accelerate its maturity and (ii) written notice
of such Non-Payment Default given to the Company and the Trustee by the
holders of an aggregate of at least $10.0 million outstanding principal amount
(or commitments to lend up to at least $10.0 million in principal amount) of
such Senior Indebtedness or their representative (a "Payment Notice"), then,
unless and until such Non-Payment Default has been cured or waived or
otherwise has ceased to exist, no payment (by setoff or otherwise) may be made
by or on behalf of the Company on account of the principal of, premium, if
any, or interest on, the Notes, or to acquire or repurchase any of the Notes
for cash or property, or on account of the redemption provisions of the Notes,
in any such case other than payments made with Junior Securities.
Notwithstanding the foregoing, unless (i) the Senior Indebtedness in respect
of which such Non-Payment Default exists has been declared due and payable in
its entirety within 179 days after the Payment Notice is delivered as set
forth above (the "Payment Blockage Period"), and (ii) such declaration has not
been rescinded or waived, at the end of the Payment Blockage Period, the
Company shall be required to pay all sums not paid to the Holders of the Notes
during the Payment Blockage Period due to the foregoing prohibitions and to
resume all other payments as and when due on the Notes. Not more than one
Payment Notice may be given in any consecutive 365-day period, irrespective of
the number of defaults with respect to Senior Indebtedness during such period.
In no event, however, may the total number of days during which any Payment
Blockage Period is or Payment Blockage Periods are in effect exceed 179 days
in the aggregate during any consecutive 365-day period.
Upon any distribution of assets of the Company upon any dissolution, winding
up, total or partial liquidation or reorganization of the Company, whether
voluntary or involuntary, in bankruptcy, insolvency, receivership or a similar
proceeding or upon assignment for the benefit of creditors or any marshaling
of assets or liabilities (i) the holders of all Senior Indebtedness will first
be entitled to receive payment in full (or have such payment duly provided
for) before the Holders of the Notes are entitled to receive any payment on
account of the principal of, premium, if any, and interest on, the Notes
(other than Junior Securities) and (ii) any payment or distribution of assets
of the Company of any kind or character, whether in cash, property or
securities (other than Junior Securities) to which the Holders of the Notes or
the Trustee on behalf of the Holders would be entitled (by setoff or
otherwise), except for the subordination provisions contained in the
Indenture, will be paid by the liquidating trustee or agent or other person
making such a payment or distribution directly to the holders of Senior
Indebtedness or their representative to the extent necessary to make payment
in full of all such Senior Indebtedness remaining unpaid, after giving effect
to any concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company (other than Junior Securities) shall be
received by the Holders of the Notes or the Trustee on behalf of the Holders
or any Paying Agent at a time when such payment or distribution is prohibited
by the foregoing provisions, such payment or distribution shall be held in
trust for the benefit of the holders of Senior Indebtedness, and shall be paid
or delivered by such Holders or the Trustee or such Paying Agent, as the case
may be, to the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing
any of such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness held
or represented by each, for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay or to provide
for the payment of all such Senior Indebtedness in full after giving effect to
any concurrent payment or distribution, or provision therefor, to the holders
of such Senior Indebtedness.
No provision contained in the Indenture or the Notes will affect the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on, the Notes. The
subordination provisions of the Indenture and the Notes will not prevent the
occurrence of any Default or Event of Default under the Indenture or limit the
rights of the Trustee or any Holder of any Notes, subject to the preceding
paragraphs, to pursue any other rights or remedies with respect to the Notes.
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<PAGE>
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of the Company or
any of its Subsidiaries or a marshaling of assets or liabilities of the
Company and its Subsidiaries, Holders of Notes may receive ratably less than
other creditors.
REDEMPTION AT THE COMPANY'S OPTION
The Notes will not be subject to redemption prior to , 2001 and
will be redeemable on and after such date at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice to each
Holder, at the following Redemption Prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing
of the years indicated below, in each case (subject to the right of
Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest, if any, to, but excluding, the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001.......................... %
2002 and thereafter...........
</TABLE>
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first-class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption (the
"Redemption Date"), to the Holder of each Note to be redeemed to such Holder's
last address as then shown upon the registry books of the Registrar. The
notice of redemption must state the Redemption Date, the Redemption Price and
the amount of accrued interest, if any, to be paid. Any notice that relates to
a Note to be redeemed in part only must state the portion of the principal
amount to be redeemed and must state that on and after the Redemption Date,
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion thereof will be issued. On and after the Redemption
Date, interest will cease to accrue on the Notes or portions thereof called
for redemption, unless the Company defaults in its obligations with respect
thereto.
REPURCHASE OF NOTES AT THE OPTION OF THE HOLDER UPON A CHANGE OF CONTROL
The Indenture will provide that in the event that a Change of Control has
occurred, the Company is required to make an irrevocable and unconditional
(except as described below) offer (the "Repurchase Offer") to purchase all
Notes on the date (the "Repurchase Date") that is no later than 45 Business
Days (except as described below) after the occurrence of such Change of
Control at a cash price (the "Repurchase Price") equal to 100% of the
principal amount thereof, together with accrued and unpaid interest, to (but
excluding) the Repurchase Date. A Holder of Notes may accept the Repurchase
Offer with respect to all or a portion of its Notes (provided that the
principal amount of such Notes must be $1,000 or an integral multiple
thereof). The Repurchase Offer shall be made within 25 Business Days following
a Change of Control and shall remain open for 20 Business Days following its
commencement except to the extent that a longer period is required by
applicable law (the "Repurchase Offer Period"). Upon expiration of the
Repurchase Offer Period, the Company shall purchase all Notes tendered in
response to the Repurchase Offer. If required by applicable law, the
Repurchase Date and the Repurchase Offer Period may be extended as so
required; however, if so extended, it shall nevertheless constitute an Event
of Default if the Repurchase Date does not occur within 60 Business Days of
the Change of Control.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the
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Repurchase Price (together with accrued and unpaid interest of all Notes so
tendered) and (iii) deliver to the Trustee the Notes so accepted, together
with an officers' certificate listing the Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to the Holders
of Notes so accepted payment in an amount equal to the Repurchase Price
(together with accrued and unpaid interest) and the Trustee will promptly
authenticate and mail or deliver to such Holders a new Note or Notes equal in
principal amount to any unpurchased portion of the Notes surrendered. Any
Notes not so accepted will be promptly mailed or delivered by the Company to
the Holder thereof. The Company will publicly announce the results of the
Repurchase Offer on or as soon as practicable after the Repurchase Date.
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change of Control, is likely to be interpreted
by reference to applicable state law at the relevant time, and will be
dependent on the facts and circumstances existing at such time. As a result,
there may be a degree of uncertainty in ascertaining whether a sale or
transfer of "all or substantially all" of the assets of the Company has
occurred.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. The Change of Control purchase feature resulted from negotiations
between the Company and the Underwriters.
The provisions of the Indenture relating to a Change of Control may not
afford the Holders of the Notes protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger, spin-off or similar
transaction that may adversely affect Holders, if such transaction does not
constitute a Change of Control. Moreover, certain events with respect to the
Company which may involve an actual change of control of the Company may not
constitute a Change of Control for purposes of the Indenture.
The Company may not have sufficient financial resources available to fulfill
its obligation to repurchase the Notes upon a Change of Control or to
repurchase other debt securities of the Company or its Subsidiaries providing
similar rights to the holders thereof. Further, either the occurrence of a
Change of Control or the right to require the Company to repurchase Notes as a
result of the Change of Control, could create an event of default under Senior
Indebtedness. As a result, in each case, any repurchase of the Notes could,
absent a waiver, be blocked by the subordination provisions of the Notes.
Failure of the Company to repurchase the Notes when required would result in
an Event of Default with respect to the Notes whether or not such repurchase
is permitted by the subordination provisions. See "--Subordination" above.
Except as described herein, no modification of the Indenture regarding the
provisions on repurchase at the option of any Holder of a Note upon a Change
of Control that adversely affects a Holder is permissible without the consent
of the Holder of the Note so affected. In the event of a Change of Control, if
Holders of in excess of two-thirds of the outstanding aggregate principal
amount of the Notes so determine at any time following the occurrence of such
Change of Control and before the close of business on the Business Day
immediately preceding the Repurchase Date, such event shall not be treated as
a Change of Control for purposes of the Indenture. In such event, (i) the
Company shall not be required to make the Repurchase Offer, (ii) to the extent
the Repurchase Offer has already been made, such Repurchase Offer shall be
deemed revoked and (iii) to the extent any Notes have been tendered in
response to any such revoked Repurchase Offer, such tender shall be rescinded
and the Notes so tendered shall be promptly returned to the Holders thereof.
For purposes of any such determination by the Holders of the outstanding
Notes, Notes held by the Company or an Affiliate of the Company (including any
Person that would become an Affiliate of the Company (or its successor) as a
consequence of the event or series of events that otherwise would be treated
as a Change of Control for purposes of the Indenture) shall be disregarded.
To the extent applicable, the Company will comply with the provisions of
Rule 13e-4 or any other tender offer rules under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any offer by
the Company to repurchase Notes at the option of the Holders upon a Change of
Control.
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LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture will provide that the Company may not, directly or indirectly,
consolidate with or merge with or into, or sell, lease, convey or transfer all
or substantially all of its assets (on a consolidated basis), whether in a
single transaction or a series of related transactions, to another Person or
group of affiliated Persons (other than to its wholly owned Subsidiaries),
unless (i) either (a) in the case of a merger or consolidation the Company is
the surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof
or the District of Columbia and expressly assumes by supplemental indenture
all of the obligations of the Company in connection with the Notes and the
Indenture; and (ii) no Default or Event of Default shall exist immediately
before or immediately after giving effect to such transaction.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged
or to which such transfer is made, shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture
with the same effect as if such successor corporation had been named therein
as the Company, and the Company will be released from its obligations under
the Indenture and the Notes, except as to any obligations that arise from or
as a result of such transaction.
REPORTS
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee, within 15 days after it is or would have been required to file such
with the Commission, annual and quarterly consolidated financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the Company's
certified independent public accountants as such would be required in such
reports to the Commission and, in each case, together with a management's
discussion and analysis of financial condition and results of operations as
such would be so required.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will define an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Notes as and when due and
payable and the continuance of any such failure for 30 days, (ii) the failure
by the Company to pay all or any part of the principal of, or premium, if any,
on the Notes when and as the same become due and payable at maturity,
redemption, by acceleration or otherwise, including, without limitation,
pursuant to any Repurchase Offer, (iii) the failure of the Company to perform
any conversion of Notes required under the Indenture and the continuance of
any such failure for 30 days, (iv) the failure by the Company to observe or
perform any other covenant or agreement contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 60 days after written notice is given to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding, (v) certain events of
bankruptcy, insolvency or reorganization in respect of the Company or any of
its Significant Subsidiaries, (vi) failure of the Company or any Significant
Subsidiary to make any payment at maturity, including any applicable grace
period, in respect of Indebtedness (other than non-recourse obligations) in an
amount in excess of $15.0 million and continuance of such failure for 30 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount
of Notes outstanding, (vii) default by the Company or any Significant
Subsidiary with respect to any Indebtedness (other than non-recourse
obligations), which default results in the acceleration of Indebtedness in an
amount in excess of $15.0 million without such Indebtedness having been
discharged or such acceleration having been rescinded or annulled for 30 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount
of Notes outstanding and (viii) final unsatisfied judgments not covered by
insurance aggregating in excess of $20.0 million, at any one time rendered
against the Company or any of its Significant Subsidiaries and not stayed,
bonded or discharged within 60 days. The Indenture will provide that if a
Default occurs and is
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continuing, the Trustee must, within 90 days after the occurrence of such
Default, give to the Holders notice of such Default, but the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the best interest of the Holders, except in
the case of a Default in the payment of the principal of, premium, if any, or
interest on any of the Notes when due or in the payment of any redemption or
repurchase obligation.
The Indenture will provide that if an Event of Default occurs and is
continuing (other than an Event of Default specified in clause (v) above with
respect to the Company), then in every such case, unless the principal of all
of the Notes shall have already become due and payable, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (and to the Trustee if given
by Holders), may declare all principal, premium, if any, and accrued interest,
if any, on or with respect to the Notes to be due and payable immediately. If
an Event of Default specified in clause (v) above with respect to the Company
occurs, all principal, premium, if any, and accrued interest, if any, will be
immediately due and payable on all outstanding Notes without any declaration
or other act on the part of the Trustee or the Holders. The Holders of no less
than a majority in aggregate principal amount of Notes generally are
authorized to rescind such acceleration if all existing Events of Default,
other than the non-payment of the principal of, premium, if any, and interest
on the Notes that have become due solely by such acceleration, have been cured
or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a
default in the payment of principal of, premium, if any, or interest on any
Note not yet cured, or a default with respect to any covenant or provision
that cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the Holders, unless such Holders have offered to the
Trustee reasonable security or indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the Notes at the time outstanding will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee.
The Indenture provides that no Holder may pursue any remedy under the
Indenture, except for a default in the payment of principal, premium, if any,
or interest on the Notes, unless the Holder gives to the Trustee written
notice of a continuing Event of Default, the Holders of at least 25% in
principal amount of the outstanding Notes make a written request to the
Trustee to pursue the remedy, such Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense, the
Trustee does not comply with the request within 60 days after receipt of the
request and the offer of indemnity, and the Trustee shall not have received a
contrary direction from the Holders of a majority in principal amount of the
outstanding Notes.
AMENDMENTS AND SUPPLEMENTS
The Indenture will contain provisions permitting the Company and the Trustee
to enter into a supplemental indenture for certain limited purposes without
the consent of the Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding,
the Company and the Trustee are permitted to amend or supplement the Indenture
or any supplemental indenture or modify the rights of the Holders; provided,
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity of any Note or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest
thereon or any premium payable upon the redemption thereof, or change the
place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the conversion of any Note or the enforcement of any such payment on
or after the due date thereof (including, in the case of redemption, on or
after the Redemption Date), or reduce the Repurchase Price, or alter the
Repurchase Offer (other than as set forth herein) or redemption provisions in
a manner adverse to the Holders, or (ii) reduce the percentage in principal
amount of the outstanding Notes, the
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consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture or (iii) adversely affect
the right of such Holder to convert Notes. A supplemental indenture entered
into in compliance with the "Limitation on Merger, Sale or Consolidation"
covenant would not require the consent of the Holders of the Notes.
NO PERSONAL LIABILITY OF STOCKHOLDERS, OFFICERS, DIRECTORS AND EMPLOYEES
The Indenture will provide that no stockholder, employee, officer, director
or partner, as such, past, present or future, of the Company or any successor
corporation shall have any personal liability in respect of the obligations of
the Company under the Indenture or the Notes by reason of his, her or its
status as such stockholder, employee, officer, director or partner.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Notes in accordance with the
Indenture. The Company or Trustee may require a Holder, among other things, to
furnish appropriate endorsements, legal opinions and transfer documents, and
to pay any taxes and fees required by law or permitted by the Indenture. The
Company is not required to transfer or exchange any Notes selected for
redemption. Also, the Company is not required to transfer or exchange any
Notes for a period of 15 days before the mailing of a Repurchase Offer or
notice of redemption.
The registered holder of a Note may be treated as the owner of it for all
purposes.
BOOK ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form of
one or more registered Notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes
(the "Closing Date") with, or on behalf of, The Depository Trust Company
("DTC") and registered in the name of Cede & Co., as nominee of DTC.
DTC has advised the Company that it is a limited-purpose trust company that
was created to hold securities for its participants ("Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. DTC's Participants include securities brokers and dealers, banks
and trust companies, clearing corporations and certain other organizations.
Access to DTC's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, "Indirect Participants")
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly.
The Company expects that pursuant to procedures established by DTC, (i) upon
deposit of the Global Note, DTC will credit the accounts of Participants
designated by the Underwriters with an interest in the Global Note and (ii)
ownership of the Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the interests of Participants), the
Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own and that security interests in negotiable instruments can only
be perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer Notes evidenced by the Global Note will
be limited to such extent.
So long as DTC or its nominee is the registered owner of a Note, DTC or such
nominee, as the case may be, will be considered the sole owner or holder of
the Notes represented by the Global Note for all purposes under the Indenture.
Except as provided below, owners of beneficial interests in a Global Note will
not be entitled to have Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Certificated Notes, and will not be considered the owners or holders thereof
under the Indenture for any purpose, including with respect to the giving of
any directions, instructions or approvals to the Trustee thereunder. As a
result, the ability of a Person having a beneficial interest in Notes
represented by a
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Global Note to pledge such interest to Persons that do not participate in
DTC's system, or to otherwise take actions with respect to such interest, may
be affected by the lack of a physical certificates evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of Notes by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest on
any Note represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered Holder
of the Global Note representing such Notes under the Indenture. Under the
terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the Notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Notes (including, principal, premium, if any,
and interest with respect thereto), or to immediately credit the accounts of
the relevant Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Note as shown on the records of DTC. Payments by the Participants and the
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
Holders who desire to convert their Notes into Common Stock pursuant to the
terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes
in definitive form under the Indenture, then, upon surrender by DTC of the
Global Note, Certificated Notes will be issued to each person that DTC
identifies as the beneficial owner of the Notes represented by the Global
Note. In addition, subject to certain conditions, any Person having a
beneficial interest in a Global Note may, upon request to the Trustee,
exchange such beneficial interest for Notes in the form of Certificated Notes.
Upon any such issuance, the Trustee is required to register such Certificated
Notes in the name of such Person or Persons (or the nominee of any thereof),
and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by DTC or
any Participant or Indirect Participant in identifying the beneficial owners
of the Notes, and the Company and the Trustee may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Notes to be issued).
The information in this and the preceding section concerning DTC and DTC's
book-entry system has been obtained from sources that the Company believes to
be reliable. The Company will have no responsibility for the performance by
DTC or its Participants or Indirect Participants of their respective
obligations as described hereunder or under the rules and procedures governing
their respective operations.
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
Payments in respect of the Notes represented by a Global Note (including
principal, premium, if any, and interest) will be made by wire transfer of
immediately available funds to the accounts specified by DTC. With respect to
Notes represented by Certificated Notes, all payments (including principal,
premium, if any, and
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interest) will be made at the office or agency of the Company maintained for
such purpose, which office or agency shall be maintained in the City of New
York, except that, at the option of the Company, any payments of interest may
be made by mailing a check on or before the due date to the address of the
person entitled thereto as such address shall appear in the Register. The
Notes will trade in DTC's Same-Day Funds Settlement System until maturity, or
until the Notes are issued in certificated form, and secondary market trading
activity in the Notes will therefore be required by DTC to settle in
immediately available funds. No assurance can be given as to the effect, if
any, of settlement in immediately available funds on trading activity in the
Notes.
GOVERNING LAW
The Indenture and the Notes provide that they are to be governed in
accordance with the laws of the State of New York.
THE TRUSTEE
Harris Trust and Savings Bank will be the Trustee under the Indenture. A
successor Trustee may be appointed in accordance with the terms of the
Indenture.
The Indenture will contain certain limitations on the rights of the Trustee,
in the event it becomes a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; provided, however, that if it acquires any conflicting
interest (as defined), it must eliminate such conflict or resign.
In case an Event of Default shall occur (and shall not be cured), the
Trustee will be required to use the degree of care of a prudent person in the
conduct of his own affairs in the exercise of its powers. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders of
Notes, unless they shall have offered to the Trustee reasonable security or
indemnity.
CERTAIN DEFINITIONS
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is
a party that is required to be classified and accounted for as a capital lease
obligation under GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Change of Control" means (i) an event or series of events as a result of
which any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d) of the Exchange Act) (excluding the Company or any wholly owned
Subsidiary thereof) is or becomes, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, whether or
not applicable) of more than 50% of the combined voting power of the then
outstanding securities entitled to vote generally in elections of directors,
managers or trustees, as applicable, of the Company or any successor entity
("Voting Stock"), (ii) the completion of any consolidation or merger of the
Company with or into any other Person, or sale, conveyance, transfer or lease
by the Company of all or substantially all of its assets to any Person, or any
merger of any other Person into the Company in a single transaction or series
of related transactions, and, in the case of any such transaction or series
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of related transactions, the outstanding Common Stock is changed or exchanged
as a result, unless the stockholders of the Company immediately before such
transaction own, directly or indirectly, immediately following such
transaction, at least a majority of the combined voting power of the
outstanding voting securities of the Person resulting from such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, or (iii) such time as the Continuing
Directors do not constitute a majority of the Board of Directors (or, if
applicable, a successor corporation to the Company).
"Continuing Director" means at any date a member of the Board of Directors
(i) who was a member of such board on the date of initial issuance of the
Notes or (ii) who was nominated or elected by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election or whose election to the Board of Directors was recommended or
endorsed by at least a majority of the directors who were Continuing Directors
at the time of such nomination or election.
"Disqualified Capital Stock" means, with respect to the Company, Capital
Stock of the Company that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased (including at the option of the holder thereof) by the Company,
in whole or in part, on or prior to the Stated Maturity of the Notes, provided
that only the portion of such Capital Stock which is so convertible,
exercisable, exchangeable or redeemable or subject to repurchase prior to such
Stated Maturity shall be deemed to be Disqualified Stock.
"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such Person, (i) in respect
of borrowed money (whether or not the lender has recourse to all or any
portion of the assets of such person), (ii) evidenced by credit or loan
agreements, bonds, notes, debentures or similar instruments (including,
without limitation, notes or similar instruments given in connection with the
acquisition of any business, properties or assets of any kind), (iii)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks, (iv) for the payment of money relating to a Capitalized Lease
Obligation or (v) evidenced by a letter of credit or a reimbursement
obligation of such Person with respect to any letter of credit; (b) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business); (c) all net
obligations of such Person under Interest Swap and Hedging Obligations; (d)
all liabilities of others of the kind described in the preceding clauses (a),
(b) or (c) that such Person has guaranteed or that is otherwise its legal
liability, or which is secured by a lien on property of such Person, and all
obligations to purchase, redeem or acquire any Capital Stock; and (e) any and
all deferrals, renewals, extensions, modifications, replacements,
restatements, refinancings and refundings (whether direct or indirect) of, or
any indebtedness or obligation issued in exchange for, any liability of the
kind described in any of the preceding clauses (a), (b), (c) or (d), or this
clause (e), whether or not between or among the same parties.
"Interest Swap and Hedging Obligations" means the obligations of any Person
under any interest rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate
cap agreement or other interest rate hedge agreement, interest rate collar
agreement or other similar agreement or arrangement to which such Person is a
party or beneficiary.
"Junior Securities" means any Qualified Capital Stock and any Indebtedness
of the Company that is fully subordinated in right of payment to the Notes and
has no scheduled installment of principal due, by redemption, sinking fund
payment or otherwise, on or prior to the Stated Maturity of the Notes.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Senior Indebtedness" means all obligations of the Company to pay the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding,
whether or not a claim for post-petition interest is allowable as a claim in
any such proceeding) and rent payable on or in connection with, and all fees,
costs, expenses and other amounts accrued or due on or in connection with, any
Indebtedness of the Company, whether outstanding on the date of the Indenture
or
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thereafter created, incurred, assumed, guaranteed or in effect guaranteed by
the Company, unless the instrument creating or evidencing such Indebtedness
provides that such Indebtedness is not senior or superior in right of payment
to the Notes or is pari passu with, or subordinated to, the Notes; provided
that in no event shall Senior Indebtedness include (a) Indebtedness of the
Company owed or owing to any Subsidiary of the Company or any officer,
director or employee of the Company or any Subsidiary of the Company, (b)
Indebtedness representing or with respect to any account payable or other
accrued current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services or (c) any
liability for taxes owed or owing by the Company or any Subsidiary of the
Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-
X promulgated by the Commission as in effect as of the date of the Indenture.
"Stated Maturity" when used with respect to any Note, means , 2003.
"Subsidiary" with respect to any Person, means (i) a corporation a majority
of whose Capital Stock with voting power normally entitled to vote in the
election of directors is at the time, directly or indirectly, owned by such
Person, by such Person and one or more Subsidiaries of such Person or by one
or more Subsidiaries of such Person, (ii) a partnership in which such Person
or a Subsidiary of such Person is, at the time, a general partner and owns
alone or together with one or more Subsidiaries of such Person a majority of
the partnership interests, or (iii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries of such Person or
such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination thereof, has at least a majority
ownership interest.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $.01 par value per share and 2,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
As of February 13, 1998, there were 25,554,054 shares of Common Stock
outstanding held by approximately 115 stockholders of record. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." Holders of Common Stock are entitled to one vote per
share in all matters to be voted upon by stockholders. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities and the liquidation preferences of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive rights and no
rights to convert their Common Stock into any other securities, and there are
no redemption provisions with respect to such shares. All of the outstanding
shares of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may issue in the future.
Pursuant to a Rights Agreement adopted by the Company (the "Rights
Agreement"), the holders of Common Stock, including the shares of Common Stock
issuable upon conversion of the Notes and the shares offered in the Common
Stock Offering, have certain rights to purchase Series A Participating
Preferred Stock or Common Stock under certain circumstances, including in the
event of certain unsolicited attempts to acquire a controlling interest in the
Company. See "--Preferred Stock" and "--Rights Agreement."
PREFERRED STOCK
The Company's Board of Directors has authority, without any further vote or
action by the stockholders: to provide for the issuance of the shares of
Preferred Stock in series; to establish from time to time the number of shares
to be included in each such series; to fix the designations, preferences and
relative, participating, optional or other special rights, and qualifications
or restrictions of the shares of each such series; and to determine the voting
powers, if any, of such shares. The issuance of Preferred Stock, among other
things, could adversely affect the rights of holders of Common Stock. For
example, the issuance of Preferred Stock could decrease the amount of earnings
and assets available for distributions to holders of Common Stock. In
addition, any such issuance could have the effect of delaying or preventing a
change in control of the Company and could make the removal of the present
management of the Company more difficult.
In connection with the adoption of the Rights Agreement, the Company's Board
of Directors has created one series of Preferred Stock, consisting of 300,000
shares of Series A Participating Preferred Stock (the "Series A Preferred").
No shares of Series A Preferred have been issued as of the date of this
Prospectus. Each share of the Series A Preferred, when and if issued, would
entitle the holder thereof to receive quarterly dividends equal to the greater
of $1.00 per share or 100 times the dividends per share declared with respect
to the Common Stock. Dividends on the Series A Preferred are cumulative.
Holders of the Series A Preferred would be entitled to exercise 100 votes per
share on all matters submitted to a vote of stockholders and, except as
otherwise required by law, would vote together with the holders of Common
Stock as a single class. In the event of liquidation, such holders would
receive a preference of $1.00 per share over the Common Stock. In general,
each share of the Series A Preferred is intended to have a value and voting
rights equal to 100 shares of Common Stock, and appropriate anti-dilutive
adjustments will be made in accordance with the terms of such Series A
Preferred in the event of certain changes in Common Stock. Except as
contemplated in connection with the Rights Agreement described below, the
Company has no present plans to issue any of the Preferred Stock.
RIGHTS AGREEMENT
The Board of Directors of the Company has declared a dividend distribution
of one preferred share purchase right (a "Right") for each outstanding share
of Common Stock. The dividend was payable to stockholders of
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record on March 1, 1996 (the "Rights Record Date") and with respect to Common
Stock issued thereafter until the Distribution Date (as defined below). Except
as set forth below, each Right, when it becomes exercisable, entitles the
registered holder to purchase from the Company one one-hundredth of a share of
the Series A Preferred of the Company at a price equal to five times the
initial offering price (the "Purchase Price") per one one-hundredth of a
Series A Preferred share, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and Harris Trust and Savings Bank, as Rights Agent. A copy
of the Rights Agreement is available to stockholders free of charge from the
Company upon request directed to the Secretary of the Company.
Initially, the Rights will be attached to all certificates representing
shares of Common Stock then outstanding, and no separate Right Certificates
will be distributed. The Rights will separate from the Common Stock upon the
earliest to occur of (i) 10 days following public announcement that a person
or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding Common Stock;
or (ii) 15 business days (or such later date as the Board may determine)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in a
person or group becoming an Acquiring Person (the earliest of such dates being
called the "Distribution Date"). The definition of an Acquiring Person
excludes any employee benefit plan of the Company, including the ESOP. Albert
J. Speh, Jr., Chairman Emeritus of the Company, his extended family, family
trusts and certain other affiliates and associates will not be deemed to be an
Acquiring Person as long as such persons beneficially own less than 32.0% of
the outstanding Common Stock. The date that a person or group becomes an
Acquiring Person is the "Share Acquisition Date." Until a Right is exercised,
the holder thereof, as such, will not have any rights as a stockholder of the
Company, including the right to vote or receive dividends thereon.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new
Common Stock certificates issued after the Rights Record Date upon transfer or
new issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Rights Record Date, even without such
notation or a copy of the summary of rights attached thereto, will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date (and to each initial record
holder of certain Common Stock issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the effective date of the
plan, unless earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person, each holder of a
Right will thereafter have the right to receive upon payment of the Purchase
Price the number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value (immediately
prior to such triggering event) equal to two times the Purchase Price.
Notwithstanding the foregoing, following the occurrence of the event described
above or in the paragraph below (the "Triggering Events"), all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Share Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction, or
(ii) more than 50% of the Company's assets or earning power is sold or
transferred to any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have
the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the Right.
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The Purchase Price and the number of shares of Preferred Stock or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to as a result of, among other things, a
subdivision, split (other than a stock dividend on the Common Stock payable in
shares of Common Stock), combination, consolidation or reclassification of the
Series A Preferred or the Common Stock, or a reverse split of the outstanding
shares of Series A Preferred or Common Stock.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Company may redeem the Rights in whole, but not in part, at
a price of $0.01 per Right which redemption shall be effective upon the action
of the Board of Directors. Additionally, at any time after a Triggering Event
and prior to the time that a person or group acquires 50% or more of the
outstanding Common Stock, the Company may exchange the Rights (other than
those that have become null and void), in whole or in part, for shares of
Common Stock at an exchange ratio of one share of Common Stock per Right
(subject to adjustment).
The provisions of the Rights Agreement may be amended by the Board of
Directors in order to cure any ambiguity, defect or inconsistency, provided
that after such time as any person becomes an Acquiring Person, the Rights
Agreement may not be amended in any manner that would adversely affect the
interests of the holders of the Rights.
DELAWARE LAW AND CERTAIN CORPORATE AND CONTRACTUAL PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging, under certain circumstances, in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) prior to the date at which the
person becomes an interested stockholder the Board of Directors approves such
transaction or business combination, (ii) the stockholder acquires more than
85% of the outstanding voting stock of the corporation (excluding shares held
by directors who are officers or held in certain employee stock plans) upon
consummation of such transaction or (iii) the business combination is approved
by the Board of Directors and by two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder) at a
meeting of stockholders (and not by written consent). An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or at any time within the prior three years did own) 15% or more of the
corporation's voting stock. Section 203 defines a "business combination" to
include, without limitation, mergers, consolidations, stock sales and asset-
based transactions and other transactions resulting in a financial benefit to
the interested stockholder.
The Company's Certificate of Incorporation (the "Certificate") and By-laws
contain a number of provisions relating to corporate governance and to the
rights of stockholders. Certain of these provisions may be deemed to have a
potential anti-takeover effect in that such provisions may delay or prevent a
change of control of the Company. These provisions include: (a) the
classification of the Board of Directors into three classes, each class
serving for staggered three year terms; (b) restrictions on the removal of
directors; (c) the authority of the Board to issue series of Preferred Stock
with such voting rights and other provisions as the Board of Directors may
determine; (d) a requirement that a vote of greater than 80% of the voting
power of shares entitled to vote generally for the election of directors is
required to amend provisions of the Certificate and By-laws relating to the
classification of the Board and removal of directors unless 75% of the Board
of Directors approve such action; (e) the requirement that stockholder action
can be taken only at an annual or special meeting of stockholders and
prohibiting stockholder action by written consent in lieu of a meeting; (f) an
advance notice procedure for stockholders to make nominations of candidates
for election as directors; and (g) the requirement that a special stockholders
meeting may only be called by the Chairman of the Board, the President or at
the direction of the majority of the Board of Directors.
These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of the Company to negotiate first with the
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Board of Directors. The Company believes that the benefits of these provisions
outweigh the potential disadvantages of discouraging such proposals, because,
among other things, negotiation of such proposals might result in an
improvement of their terms. The description set forth above is intended as a
summary only and is qualified in its entirety by reference to the Company's
Certificate and By-laws.
Under the terms of an employment agreement with Peter I. Mason, the Company
has agreed to have Casey Cowell and Paul G. Yovovich serve as directors of the
Company. Under the terms of an employment agreement with Lawrence J. Speh, the
Company has agreed to nominate Mr. Speh as a director for so long as Mr. Speh
owns at least 500,000 shares of Common Stock, and for so long as Mr. Speh is a
director or nominee for director. Mr. Speh has agreed to vote all shares of
Common Stock owned by him in favor of the Company's nominees. In addition, Mr.
Mason has agreed to support the nomination and election to the Board of Albert
J. Speh, Jr.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
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CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax considerations relating to the purchase, ownership and disposition of the
Notes and of the Common Stock into which Notes may be converted, but is not
intended and does not purport to be a complete analysis of all the potential
federal income or estate tax, or other tax considerations relating thereto.
This summary is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury Regulations promulgated or
proposed thereunder ("Treasury Regulations"), court decisions and current
administrative rulings and practice, all of which are subject to change,
possibly on a retroactive basis. This summary deals only with holders that
will hold Notes and the Common Stock into which Notes may be converted as
capital assets, and does not address tax considerations applicable to
investors that may be subject to special tax rules such as banks, tax-exempt
organizations, insurance companies, dealers in securities or enterprises,
persons that will hold Notes as a position in a hedging, straddle or
conversion transaction, or persons that have a functional currency other than
the U.S. dollar. This summary discusses the tax considerations applicable to
persons who purchase Notes upon their initial offering and does not discuss
the tax considerations applicable to subsequent purchasers of Notes. The
Company has not sought any ruling from the Internal Revenue Service (the
"IRS") with respect to the statements made and the conclusions reached in this
summary, and there can be no assurance that the IRS will agree with such
statements and conclusions. INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED
STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS
WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner of
a Note or Common Stock that for United States federal income tax purposes is
(i) a citizen or resident of the United States, (ii) a corporation created or
organized in the United States or under the law of the United States or of any
State or the District of Columbia, iii) an estate the income of which is
subject to United States federal income taxation regardless of source, or (iv)
a trust which is subject to the supervision of a court within the United
States and the control of a United States fiduciary.
PAYMENT OF INTEREST
Interest on a Note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United
States federal income tax purposes. The Notes will not have original issue
discount.
SALE, EXCHANGE, REDEMPTION OR RETIREMENT OF THE NOTES
Upon the sale, exchange, redemption or retirement at maturity of a Note, a
United States Holder generally will recognize capital gain or loss equal to
the difference between (i) the amount of cash proceeds and the fair market
value of any property received on the sale, exchange, redemption or retirement
(except to the extent such amount is attributable to accrued interest income,
which is taxable as ordinary income) and (ii) such Holder's adjusted tax basis
in the Note. A United States Holder's adjusted tax basis in a Note generally
will equal the cost of the Note to such Holder, less any principal payments
received by such Holder. Such capital gain or loss will be long-term capital
gain or loss if the United States Holder's holding period for the Note is more
than one year at the time of sale, exchange, redemption or retirement. In
1997, legislation was enacted which, among other things, reduces to 20% the
maximum rate of tax on long term capital gains on most capital assets held by
an individual for more than 18 months and under which gain on most capital
assets held by an individual more than one year and up to 18 months is subject
to tax at a maximum rate of 28%.
CONVERSION OF THE NOTES
A United States Holder generally will not reorganize any income, gain or
loss upon conversion of a Note into Common Stock, except with respect to cash
received in lieu of a fractional share of Common Stock or
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attributable to accrued interest on the converted Note. Such Holder's tax
basis in the Common Stock received on conversion of a Note will be the same as
such Holder's adjusted tax basis in the converted portion of the Note at the
time of conversion (reduced by any basis allocable to a fractional share
interest), and the holding period for the Common Stock received on conversion
will generally include the holding period of the portion of the Note
converted.
Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for the fractional share of Common
Stock and thus will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the United States
Holder's adjusted tax basis in the fractional share).
DIVIDENDS
Any amount distributed by the Company in respect of the Common Stock
generally will be treated as a dividend, subject to tax as ordinary income, to
the extent of the Company's current or accumulated earnings and profits, then
as a tax-free return of capital to the extent of the Holder's tax basis in the
Common Stock, and thereafter as gain from the sale or exchange of such stock.
A dividend distribution to a United States Holder which is a corporation
generally will qualify for the dividends received deduction (which is equal to
70% of the dividend amount if the Holder owns less than 20%, and 80% if the
Holder owns 20% or more, of the voting power and value of the Company's stock,
excluding any non-voting, non-convertible, non-participating preferred stock).
The dividends received deduction is subject to certain holding period, taxable
income and other limitations. Moreover, in the event of an "extraordinary
dividend" with respect to Common Stock, a corporate stockholder (i) is
required to reduce its basis in Common Stock by the non-taxed portion
(generally the portion eligible for the dividends received deduction described
above) of the extraordinary dividend under certain circumstances and (ii) is
treated as recognizing gain from sale of stock to the extent that the non-
taxed portion of the extraordinary dividend exceeds the basis in the Common
Stock.
If (i) the Company makes a distribution of cash or property to its
stockholders which is taxable to such stockholders as a dividend (e.g.,
distributions of evidences of indebtedness or assets of the Company, but
generally not stock dividends or rights to subscribe for Common Stock) and,
pursuant to the antidilution provisions of the Subordinated Indenture and the
Notes, the Conversion Price of the Notes is decreased, or (ii) the Conversion
Price of the Notes is decreased at the discretion of the Company, such
decrease in Conversion Price may be treated as the payment of a taxable
dividend to United States Holders of Notes. As a result, United States Holders
of Notes could recognize taxable income as a result of an event pursuant to
which they receive no cash or property.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a United States Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash and the fair market value of any property received upon the
sale or exchange and (ii) such Holder's adjusted tax basis in the Common
Stock. Such capital gain or loss will be long-term if the United States
Holder's holding period for the Common Stock is more than one year at the time
of the sale or exchange. In 1997, legislation was enacted which, among other
things, reduces to 20% the maximum rate of tax on long term capital gains on
most capital assets held by an individual for more than 18 months and under
which gain on most capital assets held by an individual more than one year and
up to 18 months is subject to tax at a maximum rate of 28%.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Information reporting generally will apply to payments of principal of and
premium, if any, and interest on a Note, payments of dividends on Common
Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock to certain noncorporate United States
Holders. The payor will be required to withhold backup withholding tax on
certain payments to noncorporate United States Holders at the
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rate of 31% if (i) the payee fails to furnish a taxpayer identification number
("TIN") to the payor or establish an exemption from backup withholding, (ii)
the IRS notifies the payor that the TIN furnished by the payee is incorrect,
(iii) there has been a notified payee underreporting with respect to interest,
dividends or original issue discount or (iv) there has been a failure of the
payee to certify under penalty of perjury that the payee is not subject to
backup withholding under the Code. Any amounts withheld under the backup
withholding rules from a payment to a United States Holder will be allowed as
a credit against such Holder's United States federal income tax and may
entitle the Holder to a refund, provided that the required information is
furnished to the IRS.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means any beneficial
owner of a Note or Common Stock that is not a United States Holder. The
following discussion is limited to the United States federal income tax
consequences relevant to a Non-United States Holder.
PAYMENT OF INTEREST
Generally, any interest paid to a Non-United States person that is not
effectively connected with a United States trade or business is subject to
United States withholding tax at a 30% rate (or a lower rate provided under an
applicable income tax treaty). However, interest paid on a Note by the Company
to a Non-United States Holder will qualify for the "portfolio interest
exemption" and therefore will not be subject to United States federal income
tax or withholding tax, provided that such interest income is not effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder and provided that (i) the Non-United States
Holder does not actually or constructively own (pursuant to the conversion
feature of the Notes or otherwise) 10% or more of the combined voting power of
all classes of stock of the Company entitled to vote, (ii) the Non-United
States Holder is not a controlled foreign corporation related to the Company
actually or constructively through stock ownership, (iii) the Non-United
States Holder is not a bank which acquired the Notes in consideration for an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of business, (iv) either (a) the Non-United States Holder
provides a Form W-8 (or a suitable substitute form) signed under penalty of
perjury that includes its name and address and certifies as to its Non-United
States status in compliance with applicable law and regulations, or (b) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
holds the Note and provides a statement to the Company or its agent under
penalty of perjury in which it certifies that such a Form W-8 (or a suitable
substitute) has been received by it from the Non-United States Holder or
qualifying intermediary and furnishes the Company or its agent with a copy
thereof and (v) the Notes are in registered form.
Except to the extent that an applicable treaty otherwise provides, a Non-
United States Holder generally will be taxed in the same manner as a United
States Holder with respect to interest income which is effectively connected
with the conduct of a trade or business within the United States by such Non-
United States Holder. Effectively connected interest received by a Non-United
States Holder which is a corporation may also, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate (or a lower rate
provided under an applicable income tax treaty). To claim the benefit of a tax
treaty or to claim exemption from withholding because the income is United
States trade or business income, the Non-United States Holder must provide a
properly executed Form 1001 or 4224 (or such successor forms as the IRS
designates), as applicable, prior to the payment of interest. These forms must
be periodically updated.
Under recently issued Treasury Regulations that will generally be effective
after December 31, 1998 (the "New Regulations"), the required Forms 1001 and
4224 will be replaced by a new Form W-8. Under the New Regulations, a Non-
United States Holder who is claiming the benefits of a treaty may be required
to obtain a United States taxpayer identification number and make certain
certifications to the Company. Special procedures are provided in the New
Regulations for payments through qualified intermediaries. Prospective
investors should consult their tax advisors regarding the effect, if any, of
the New Regulations.
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SALE, EXCHANGE, REDEMPTION OR RETIREMENT OF THE NOTES
A Non-United States Holder of a Note generally will not be subject to United
States federal income tax or withholding tax on any gain realized on the sale,
exchange, redemption or retirement at maturity of the Note unless (i) the gain
is effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder, (ii) in the case of a Non-
United States Holder who is an individual who holds the Note or Common Stock
as a capital asset, such Holder is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of the
disposition, (iii) the Non-United States Holder is subject to tax pursuant to
the provisions of the Code applicable to certain United States expatriates
(including certain former citizens or residents of the United States) or (iv)
in the case of the disposition of Common Stock, the Company is a United States
real property holding corporation. The Company does not believe that it is
currently a "United States real property holding corporation," or that it will
become one in the future.
CONVERSION OF THE NOTES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of a Note into Common Stock by a Non-United States
Holder, except as discussed under "Sale or Exchange of Common Stock" below
with respect to the receipt of cash in lieu of fractional shares by Non-United
States Holders upon conversion of a Note. Cash or Common Stock treated as
issued for accrued interest would be treated as interest under the rules
described above.
SALE OR EXCHANGE OF COMMON STOCK
A Non-United States Holder generally will not be subject to United States
federal income or withholding tax on the sale or exchange of Common Stock
(including the receipt of cash in lieu of fractional shares upon conversion of
a Note into Common Stock) unless any of conditions (i), (ii), (iii) or (iv)
described above under "Sale, Exchange, Redemption or Retirement of the Notes"
is satisfied.
DIVIDENDS
Distributions by the Company with respect to Common Stock that are treated
as dividends and paid to a Non-United States Holder (other than dividends that
are effectively connected with the conduct of a trade or business in the
United States by such Holder and are taxable as described below) will be
subject to United States withholding tax at a 30% rate (or lower rate provided
under an applicable income tax treaty). Except to the extent that an
applicable tax treaty otherwise provides, a Non-United States Holder generally
will be taxed in the same manner as a United States Holder on dividends that
are effectively connected with the conduct of a trade or business in the
United States by the Non-United States Holder. If such Non-United States
Holder is a foreign corporation, it may also be subject to a United States
branch profits tax on such effectively connected dividend income at a 30% rate
(or lower rate provided under an applicable income tax treaty). Such
effectively connected dividend income is not subject to withholding tax if the
Holder files the appropriate form with the payor as described above.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of Treasury Regulations,
for purposes of determining the applicability of a tax treaty rate. Under the
New Regulations, a Non-United States Holder claiming the benefits of a treaty
generally will be required to provide a Form W-8 (or suitable substitute form)
to the Company certifying such Non-United States Holder's entitlements to
treaty benefits. Other recently adopted Treasury Regulations that will be
effective with respect to payments made after December 31, 1997 provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, dividends paid to a Non-United States Holder
that is an entity should be treated as paid to the entity or those holding an
interest in that entity. Prospective investors should consult their tax
advisors regarding the effect, if any, of the New Regulations.
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A Non-United States Holder of Common Stock that is eligible for a reduced
rate of United States withholding tax pursuant to an income treaty may obtain
a refund of any amounts currently withheld by filing an appropriate claim for
a refund with the IRS.
DEATH OF A NON-UNITED STATES HOLDER
A Note owned by an individual who is a Non-United States Holder at the time
of death (or previously transferred subject to certain retained rights or
powers) will not be includable in the decedent's gross estate for United
States estate tax purposes, provided that such Holder did not at the time of
death actually or constructively own 10% or more of the combined voting power
of all classes of stock of the Company entitled to vote, and provided that, at
the time of death, payments with respect to such Note would not have been
effectively connected with the conduct by such Non-United States Holder of a
trade or business within the United States.
Common Stock owned by a Non-United States Holder at the time of death (or
previously transferred subject to certain retained rights or powers) will be
subject to United States federal estate tax unless otherwise provided by an
applicable estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-United States
Holder any interest or dividend that is subject to withholding, or that is
exempt from United States withholding tax pursuant to a tax treaty, or
interest that is exempt from United States tax under the portfolio interest
exception. Copies of these information returns may also be made available
under the provisions of a specific treaty or agreement to the tax authorities
of the country in which the Non-United States Holder resides.
Treasury Regulations provide that additional information reporting and
backup withholding tax will not apply to payments of interest on a Note to a
Non-United States Holder if the certification described in "Non-United States
Holders--Payment of Interest" is duly provided by such Holder, provided that
the payor does not have actual knowledge that the Holder is a United States
person.
The payment of the proceeds from the disposition of Notes or Common Stock to
or through the United States office of any broker, United States or foreign,
will be subject to information reporting and possible backup withholding
unless the owner certifies as to its Non-United States Holder status under
penalty of perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not, in fact,
satisfied. The payment of the proceeds from the disposition of a Note or
Common Stock to or through a non-United States office of a non-United States
broker that is not a United States related person will not be subject to
information reporting or backup withholding. For this purpose, a "United
States related person" is (i) a "controlled foreign corporation" for United
States federal income tax purposes, (ii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending with the close
of its taxable year preceding the payment (or for such part of the period that
the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a United States trade or business,
or (iii) with respect to payments made after December 31, 1998, a foreign
partnership that, at any time during its taxable year, is 50% or more (by
income or capital interest) owned by United States persons or is engaged in
the conduct of a United States trade or business.
In the case of the payment of proceeds from the disposition of Notes or
Common Stock to or through a non-United States office of a broker that is
either a United States person or a United States related person, information
reporting is required on the payment unless the broker has documentary
evidence in the files that the owner is a Non-United States Holder and the
broker has no knowledge to the contrary. Backup withholding will not apply to
payments made through foreign offices of a broker that is not a United States
person or a United States related person (absent actual knowledge that the
payee is a United States person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-United States Holder will be allowed as a refund or a credit against such
Non-United States Holder's United States federal income tax liability,
provided that the requisite procedures are followed.
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UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters") have severally agreed to purchase from the Company
the respective principal amount of Notes set forth opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITERS NOTES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
ABN AMRO Incorporated.......................................
PaineWebber Incorporated....................................
------------
Total................................................... $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the Notes offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to purchase and accept delivery of
all the Notes offered hereby (other than those covered by the over-allotment
option described below) if any are purchased.
The Underwriters initially propose to offer the Notes in part directly to
the public at the initial public offering price set forth on the cover page of
the Prospectus and in part to certain dealers (including the Underwriters) at
such price, less a concession not in excess of % of the principal amount
of the Notes. The Underwriters may allow, and such dealers may re-allow,
discounts not in excess of % of the principal amount of the Notes. After
the initial offering of the Notes, the public offering price and other selling
terms may be changed by the Underwriters at any time without notice.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an additional $15,000,000 aggregate principal amount
of the Notes, at the initial public offering price less underwriting discounts
and commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Note Offering. To the
extent that the Underwriters exercise such option, each Underwriter will
become obligated, subject to certain conditions, to purchase its pro rata
portion of such additional Notes based on such Underwriter's percentage
underwriting commitment as indicated in the preceding table.
The Company's executive officers and directors, other than the Selling
Stockholders, have agreed, subject to certain exceptions, with the
Underwriters not to, directly or indirectly, offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase or
acquire, Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any Common Stock, or
enter into any agreement to do any of the foregoing, for a period of 90 days
after the date of this Prospectus. The Selling Stockholders have agreed to the
foregoing lockup provisions for a period of 180 days after the date of this
Prospectus, except that the ESOP may (i) make distributions of shares of
Common Stock to ESOP participants and (ii) sell or otherwise dispose of shares
of Common Stock in order to make cash distributions to ESOP participants, in
each case in accordance with the terms of the ESOP. In addition, the Company
has agreed that for a period of 90 days after the date of this Prospectus it
will not, without the prior written consent of DLJ, directly or indirectly
offer, sell, contract to sell, grant any option to purchase, issue, distribute
or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for, or
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any warrants, options or rights to purchase or acquire, Common Stock, or enter
into any agreements to do any of the foregoing, except for (i) shares of
Common Stock issued pursuant to the exercise of options or warrants
outstanding on the date of this Prospectus and (ii) options granted after the
date of this Prospectus pursuant to the Company's 1994 Executive Stock Option
Plan and the 1995 Employee Stock Option Plan.
The Notes will constitute a new issue of securities with no established
trading market. Application has been made for quotation of the Notes on The
Nasdaq SmallCap Market. The Company has been advised by the Underwriters that
the Underwriters presently intend to make a market in the Notes; however, they
are not obligated to do so, and they may discontinue such market-making at any
time without notice. Therefore, no assurance can be given as to the liquidity
of the trading market for the Notes or that an active trading market will
develop.
DLJ and ABN AMRO Incorporated have in the past provided, and they and other
Underwriters may in the future provide, investment banking services for the
Company. Additionally, certain of the Underwriters are participating as
underwriters in the concurrent Common Stock Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the Notes in any
jurisdiction where action for that purpose is required. The Notes offered
hereby may not be offered or sold, directly or indirectly, nor may this
Prospectus or any other offering material or advertisements in connection with
the offer and sale of the Notes be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
applicable rules and regulations of such jurisdiction. Persons into whose
possession this Prospectus comes are advised to inform themselves about and to
observe any restrictions relating to the offering of the Notes and the
distribution of this Prospectus. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the Notes offered hereby
in any jurisdiction in which such an offer or solicitation is unlawful.
In connection with the Note Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes and Common Stock. Specifically, the Underwriters may overallot the Note
Offering, creating a syndicate short position. The Underwriters may bid for
and purchase the Notes and shares of Common Stock in the open market to cover
such syndicate short position or to stabilize the price of the Notes and
Common Stock. These activities may stabilize or maintain the market price of
the Notes and Common Stock above independent market levels. The Underwriters
are not required to engage in these activities, and may end any of these
activities at any time.
59
<PAGE>
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the Company
by Freeborn & Peters, Chicago, Illinois. As of the date of this Prospectus, a
total of 39,207 shares of Common Stock were owned by certain partners of
Freeborn & Peters. Certain legal matters will be passed upon for the
Underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
The financial statements of the Company as of September 30, 1996 and 1997
and for each of the three fiscal years in the period ended September 30, 1997,
included in this Prospectus, have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, registration statements, proxy statements and other information filed
by the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549 and at its regional offices at 7 World Trade Center,
New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2551. Copies of such materials can be obtained from
the Public Reference Section of the Commission at its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a website at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, including the Company.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act with respect to the Note Offering and the Common
Stock Offering. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete and reference is hereby made to the copy of the such contract,
agreement or document filed as an exhibit to the Registration Statement for a
complete statement of its provisions. For further information with respect to
the Company and the Notes offered hereby, reference is hereby made to the
Registration Statement, copies of which may be obtained at the locations
specified.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information filed by the Company with the
Commission are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997; (ii) the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1997; and (iii) the description of the Company's capital stock set forth
under the heading "Description of Capital Stock" in the Company's prospectus
that constitutes a part of the Company's Registration Statement on Form S-1
(Commission File No. 33-98302), which description is incorporated by reference
in the Company's Registration Statement on Form 8-A dated March 1, 1996 for
the registration of the Common Stock under the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this
60
<PAGE>
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated herein by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents that are incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to Andy V. Jonusaitis, Vice President and General Counsel, May &
Speh, Inc., 1501 Opus Place, Downers Grove, Illinois 60515 (telephone (630)
964-1501).
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December
31, 1997 (unaudited)...................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1995, 1996 and 1997, and for the three months ended December 31, 1996 and
1997 (unaudited).......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1995, 1996 and 1997, and for the three months ended December
31, 1997 (unaudited)...................................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1995, 1996 and 1997, and for the three months ended December 31, 1996 and
1997 (unaudited).......................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of May & Speh, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of May
& Speh, Inc. and its subsidiary at September 30, 1996 and 1997 and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
November 10, 1997, except as to the paragraph
of Note 1 entitled "Per share information" and Note 12, which are as of
February 12, 1998
F-2
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, 1997
-------------------------- -----------------
1996 1997 (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 10,397,858 $ 1,888,817 $ 3,024,013
Marketable securities.......... 20,334,278 20,415,793 12,896,200
Accounts receivable, net....... 21,003,095 28,569,372 29,947,488
Income taxes refundable........ 3,550,617 6,301,217 6,301,217
Prepaid software royalties..... 2,652,398 5,442,796 6,518,476
Deferred income taxes and other
current assets................ 1,991,794 2,445,829 5,594,995
------------ ------------ ------------
Total current assets......... 59,930,040 65,063,824 64,282,389
Property, plant and equipment,
net............................. 32,289,746 50,228,440 50,848,825
Goodwill......................... 16,863,811 20,099,245 19,978,514
Other assets..................... 6,134,473 13,404,419 13,522,314
------------ ------------ ------------
Total assets................. $115,218,070 $148,795,928 $148,632,042
============ ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of long-term
debt.......................... $ 5,329,670 $ 5,810,927 $ 5,867,996
Accounts payable............... 3,713,421 5,017,666 4,219,114
Accrued wages and benefits..... 3,006,991 4,324,814 2,397,632
Other accrued expenses......... 1,730,938 2,870,903 5,061,922
------------ ------------ ------------
Total current liabilities.... 13,781,020 18,024,310 17,546,664
Long-term debt................... 22,250,802 31,546,484 30,150,736
Deferred income taxes............ 3,455,000 8,090,000 8,090,000
------------ ------------ ------------
Total liabilities............ 39,486,822 57,660,794 55,787,400
------------ ------------ ------------
Commitments and contingencies
(Note 7)
Stockholders' equity (Note 8):
Preferred stock, no par value,
2,000,000 shares authorized;
no shares issued
Common stock, $.01 par value,
50,000,000 shares authorized;
24,934,154 shares, 25,147,354
shares and 25,219,854 shares
issued and outstanding at
September 30, 1996 and 1997
and December 31, 1997......... 249,342 251,474 252,199
Additional paid-in capital..... 46,967,691 48,277,867 48,737,056
Retained earnings.............. 33,860,039 45,575,694 46,231,309
------------ ------------ ------------
81,077,072 94,105,035 95,220,564
Unearned ESOP compensation..... (5,345,824) (2,969,901) (2,375,922)
------------ ------------ ------------
Total stockholders' equity... 75,731,248 91,135,134 92,844,642
------------ ------------ ------------
Total liabilities and
stockholders' equity........ $115,218,070 $148,795,928 $148,632,042
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------- ------------------------
1995 1996 1997 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $61,641,273 $77,222,960 $92,457,288 $21,228,730 $26,350,565
----------- ----------- ----------- ----------- -----------
Operating expenses:
Wages and benefits.... 20,983,636 23,950,392 30,436,956 7,143,274 8,948,912
Services and supplies. 4,160,441 6,839,200 6,191,501 2,039,016 1,370,602
Rents, leases and
maintenance.......... 13,878,290 18,064,271 20,137,243 4,637,094 5,251,101
Depreciation and
amortization......... 1,230,066 2,155,481 4,419,933 901,396 1,778,857
Other operating
expenses............. 5,106,579 6,812,536 8,433,104 1,823,590 2,115,297
ESOP principal
payments............. 2,410,539 2,375,923 2,375,923 593,980 593,979
Restructuring costs... -- -- -- -- 4,700,000
----------- ----------- ----------- ----------- -----------
47,769,551 60,197,803 71,994,660 17,138,350 24,758,748
----------- ----------- ----------- ----------- -----------
Operating income........ 13,871,722 17,025,157 20,462,628 4,090,380 1,591,817
----------- ----------- ----------- ----------- -----------
Interest and other
expense:
ESOP interest expense. 863,809 611,552 403,396 124,371 69,214
Other interest
expense.............. 678,843 1,231,263 2,214,705 452,471 686,449
Interest income....... (206,594) (1,147,345) (1,050,765) (293,581) (160,882)
Other, net............ 10,118 (167,896) (2,763) (10,484) (58,182)
----------- ----------- ----------- ----------- -----------
1,346,176 527,574 1,564,573 272,777 536,599
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 12,525,546 16,497,583 18,898,055 3,817,603 1,055,218
Income taxes............ 4,665,000 6,274,000 7,182,400 1,450,900 399,603
----------- ----------- ----------- ----------- -----------
Net income.............. $ 7,860,546 $10,223,583 $11,715,655 $ 2,366,703 $ 655,615
=========== =========== =========== =========== ===========
Basic earnings per
share.................. $ 0.38 $ 0.45 $ 0.47 $ 0.09 $ 0.03
Weighted average shares
outstanding............ 20,426,482 22,633,972 25,028,786 24,953,371 25,172,300
Diluted earnings per
share.................. $ 0.38 $ 0.43 $ 0.45 $ 0.09 $ 0.02
Weighted average shares
outstanding, including
common equivalents..... 20,610,517 23,652,901 26,178,963 26,220,184 26,469,818
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN UNEARNED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE--SEPTEMBER 30,
1994................... 20,465,737 $204,658 $ 1,525,927 $(11,362,877) $18,333,582 $ 8,701,290
Net income for the year
ended September 30,
1995.................. 7,860,546 7,860,546
ESOP compensation
earned during the year
ended September 30,
1995.................. 2,410,539 2,410,539
Dividends declared and
paid.................. 1,230,591 (2,545,332) (1,314,741)
Tax benefit of
dividends paid on
unallocated shares
held by the ESOP...... 247,000 247,000
Repurchases and
retirement of common
stock................. (103,080) (1,031) (259,340) (260,371)
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30,
1995................... 20,362,657 203,627 1,525,927 (7,721,747) 23,636,456 17,644,263
Net income for the year
ended September 30,
1996.................. 10,223,583 10,223,583
ESOP compensation
earned during the year
ended September 30,
1996 ................. 2,375,923 2,375,923
Issuance of common
stock warrants........ 1,300,000 1,300,000
Issuance of common
stock................. 4,355,000 43,550 43,005,144 43,048,694
Exercise of stock
options............... 216,497 2,165 1,136,620 1,138,785
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30,
1996................... 24,934,154 249,342 46,967,691 (5,345,824) 33,860,039 75,731,248
Net income for the year
ended September 30,
1997.................. 11,715,655 11,715,655
ESOP compensation
earned during the year
ended September 30,
1997 ................. 2,375,923 2,375,923
Exercise of stock
options............... 213,200 2,132 1,310,176 1,312,308
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30,
1997................... 25,147,354 251,474 48,277,867 (2,969,901) 45,575,694 91,135,134
Net income for three
months ended December
31, 1997 (unaudited).. 655,615 655,615
ESOP compensation
earned during the
three months ended
December 31, 1997
(unaudited)........... 593,979 593,979
Exercise of stock
options (unaudited)... 72,500 725 459,189 459,914
---------- -------- ----------- ------------ ----------- -----------
BALANCE--DECEMBER 31,
1997 (UNAUDITED)....... 25,219,854 $252,199 $48,737,056 $ (2,375,922) $46,231,309 $92,844,642
========== ======== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------- ------------------------
1995 1996 1997 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.............. $ 7,860,546 $10,223,583 $11,715,655 $ 2,366,703 $ 655,615
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 1,230,066 2,155,481 4,419,933 901,396 1,778,857
Deferred income taxes. 492,000 2,172,000 4,727,000 -- --
ESOP principal
payments............. 2,410,539 2,375,923 2,375,923 593,980 593,979
Changes in assets and
liabilities, net of
effect from purchase
of GIS Information
Systems, Inc. &
Credit Strategy
Management
Accounts receivable,
net................ (879,246) (3,130,272) (7,566,277) 3,245,691 (1,378,116)
Prepaid expenses and
other current
assets............. (196,743) (1,312,277) (3,336,433) 656,124 (4,224,846)
Income taxes
payable/refundable. (599,526) (2,330,001) (2,750,600) -- --
Accounts payable and
accrued expenses... 2,558,198 (1,672,404) 4,065,082 (1,113,982) (534,715)
Other............... 553,996 (125,673) (108,597) (148,372) (399,395)
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities........ 13,429,830 8,356,360 13,541,686 6,501,540 (3,508,621)
----------- ----------- ----------- ----------- -----------
Cash flows from investing
activities:
Proceeds from sale of
property............... -- -- 12,215,528 -- --
Purchases of property
and equipment.......... (6,918,157) (5,189,216) (19,292,880) (948,384) (1,978,511)
Purchases of marketable
securities............. (647,530) (31,365,521) (13,442,385) (6,861,098) --
Sales of marketable
securities............. 1,575,166 12,919,913 13,360,869 2,232,339 7,519,593
Software development
costs capitalized
including related
equipment.............. (1,227,969) (3,990,359) (7,087,047) (1,658,479) --
Acquisition of GIS
Information Systems,
Inc., and Credit
Strategy Management.... -- (16,148,513) (3,235,734) -- --
Other................... (106,114) (74,000) (74,000) (31,362) (18,500)
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities........ (7,324,604) (43,847,696) (17,555,649) (7,266,984) 5,522,582
----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Capital lease principal
payments............... -- (1,851,062) (1,890,175) (288,211) (544,699)
Proceeds from line of
credit................. (1,250,000) -- -- -- --
Proceeds from long-term
obligations............ 12,000,000 -- -- -- --
Repayments of long-term
obligations............ (10,266,987) (3,161,105) (3,917,211) (635,268) (793,980)
Dividends paid, net of
related ESOP
remittance............. (1,314,741) -- -- -- --
Issuance of common
stock.................. -- 43,048,995 -- -- --
Exercise of stock
options................ -- 1,138,785 1,312,308 141,667 459,914
Repurchases of common
stock.................. (202,478) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities........ (1,034,206) 39,175,613 (4,495,078) (781,812) (878,765)
----------- ----------- ----------- ----------- -----------
Net change in cash
and cash
equivalents....... 5,071,020 3,684,277 (8,509,041) (1,547,256) 1,135,196
Cash and cash
equivalents:
Beginning of period..... 1,642,561 6,713,581 10,397,858 10,397,858 1,888,817
----------- ----------- ----------- ----------- -----------
End of period........... $ 6,713,581 $10,397,858 $ 1,888,817 $ 8,850,602 $ 3,024,013
=========== =========== =========== =========== ===========
Supplemental cash flow
information:
Cash paid during the
period for:
Interest.............. $ 1,665,000 $ 1,843,000 $ 2,618,000 $ 495,712 $ 806,967
=========== =========== =========== =========== ===========
Income taxes.......... $ 5,155,000 $ 5,770,773 $ 5,250,000 $ -- $ --
=========== =========== =========== =========== ===========
Non-cash
financing/investing
activities:
Acquisition of
property and
equipment under
capital leases....... $ 342,000 $11,373,000 $15,321,000 $ 382,460 $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
May & Speh, Inc. ("May & Speh" or the "Company") is a provider of computer-
based information management services primarily for clients with significant
direct marketing requirements. The Company provides direct marketing services
including database creation, data warehousing, predictive behavioral modeling
list processing and data enhancement. The Company also provides information
technology outsourcing services.
In December 1995, the Company effected a 12-for-one stock split. The
accompanying financial statements and related notes thereto have been restated
to reflect the 12-for-one stock split for all periods presented.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity of
90 days or less as cash equivalents.
REVENUE RECOGNITION
Revenue is recognized as services are performed. Direct marketing services
revenues are generally determined based upon the number of records processed
and are recognized as such processes are completed. Information technology
outsourcing services revenues are recognized based upon the amount of computer
time used. Unbilled accounts receivable consist primarily of services
performed which are billable upon project completion or upon occurrence of
other specified events. Unbilled accounts receivable are generally billed
within 90 days of income recognition. Accounts receivable are unsecured.
MARKETABLE SECURITIES
Investments are stated at cost, which approximates fair market value; gains
and losses are recognized in the period realized. The Company has classified
its marketable securities as available for sale.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Betterments are
capitalized; repairs and maintenance are expensed as incurred. Depreciation is
computed using straight-line and accelerated methods over the estimated
economic lives of the related assets as follows:
<TABLE>
<S> <C>
Computers and related equipment.......................... 5 to 10 years
Building and improvements................................ 10 to 31.5 years
Office furniture and equipment........................... 12 years
Automobiles.............................................. 5 years
</TABLE>
CAPITALIZED SOFTWARE COSTS
Development costs for software to be sold or leased to third parties is
expensed as incurred until such time as technological feasibility is
established. Upon establishment of technological feasibility, future costs are
capitalized until the product is available for general release to clients.
Amortization of capitalized software costs is the greater of the amount
computed using (a) the ratio that current gross revenues for a product bear to
the total current and future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life of the product
of five to seven years. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic life of
the product or both will be reduced in the future. In addition, software costs
are generally subject to technological obsolescence in the future.
F-7
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs incurred until
technological feasibility is established. For the years ended September 30,
1995, 1996 and 1997, the Company expensed $1,860,055, $2,486,247 and
$3,425,750, respectively, as research and development costs. Research and
development costs are primarily wages and benefits for staff and are reflected
as such in the accompanying financial statements.
INCOME TAXES
The Company uses the asset and liability approach under which deferred
income taxes are provided for temporary differences between the financial
reporting and income tax bases of assets and liabilities based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 1, 1988, the Company established the May & Speh, Inc.
Employee Stock Ownership Plan (the ESOP) for the benefit of substantially all
of the Company's employees. The Company borrowed $22,500,000 from a bank (the
ESOP Loan) and loaned the proceeds to the ESOP for the purpose of providing
the ESOP sufficient funds to purchase 9,887,340 shares (then 43.11%) of the
Company's common stock at $2.28 per share.
The ESOP's obligation to the Company, which is evidenced by a note (the ESOP
Note), was initially recorded as unearned compensation (a direct reduction to
shareholders' equity) and is expensed ratably as the ESOP Note is repaid. The
ESOP Note, which contains provisions substantially similar to the Company's
obligation to the bank, is secured by the unallocated ESOP shares which are
released from suspense and allocated to participants as principal is repaid.
The terms of the ESOP agreement require the Company to make minimum
contributions sufficient to meet the ESOP's debt service obligations.
GOODWILL
In connection with its acquisition of GIS Information Systems, Inc. ("GIS")
in July 1996, the Company recorded goodwill of $16,970,000. An additional
$2,416,000 was recorded during the year ended September 30, 1997 related to
incentive payments and estimated costs to be incurred in consolidating GIS's
operations. The Company also recorded goodwill of $1,295,000 related to its
acquisition of Credit Strategy Management, Inc. ("CSM") in 1997. Total
goodwill aggregated $20,681,000 at September 30, 1997. Accumulated
amortization totaled $106,000 and $582,000 at September 30, 1996 and 1997,
respectively. Goodwill is amortized using the straight line method over a 40-
year period for financial reporting purposes.
The Company reviews the carrying value of goodwill and other long-lived
assets for impairment when events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. This review is
performed by comparing estimated undiscounted future cash flows from use of
the asset to the recorded value of the asset.
OTHER ASSETS
Other assets include cash surrender value of life insurance policies,
deposits and capitalized software costs. Capitalized software costs of
$5,218,000, and $12,305,000 are included in other assets as of September 30,
1996 and 1997, respectively. Amortization of such costs will commence when the
product is available for general release to clients.
F-8
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SIGNIFICANT CLIENTS
Sears, Roebuck and Co. accounted for 17.1%, 17.6% and 18.9%, of the
Company's net revenues in fiscal 1995, 1996, and 1997, respectively. Capital
One Bank accounted for 10.6% of the Company's revenue in fiscal 1995.
PER SHARE INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) during the first quarter of fiscal 1998. SFAS
128 requires presentation of both basic EPS and diluted EPS on the face of the
income statement. Basic EPS is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during a period. In computing diluted EPS,
the average stock price for the period is used in determining the number of
shares assumed to be purchased under the treasury stock method from exercise
of stock options. All per share information in the Company's financial
statements has been restated to conform to the provisions of SFAS 128.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheets for cash,
marketable securities, accounts receivable, prepaid expenses and other current
assets, accounts payable and accrued expenses approximates fair value because
of the immediate or short-term maturity of these financial instruments. The
recorded value of long-term debt is estimated to approximate fair value due to
the interest rates incurred by the Company on such debt.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments, certain minimum pension liabilities and
unrealized gains and losses on available-for-sale securities. This Statement
is effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
The Company expects to adopt this Statement beginning with its financial
statements for the year ending September 30, 1999. Adoption of this statement
is not expected to have a material impact on the Company's financial
statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major clients.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. Generally, financial information is required to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company
expects to adopt this Statement in its financial statements for the year
ending September 30, 1999.
F-9
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim information as of December 31, 1997 and for the
quarter then ended and for each of the fiscal quarters in the years ended
September 30, 1997 and 1996 has been prepared from the unaudited financial
records of the Company and, in the opinion of management, reflects all
adjustments necessary for a fair presentation of the financial position and
results of operations and of cash flows for the respective interim periods.
All adjustments were of a normal and recurring nature.
NOTE 2--MARKETABLE SECURITIES
The Company's marketable securities as of September 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
FAIR UNREALIZED
CLASS OF SECURITY COST BASIS MARKET VALUE GAIN (LOSS)
<S> <C> <C> <C>
Municipal bonds...................... $18,415,793 $18,700,051 $284,258
Equities and mutual funds............ 2,000,000 2,000,000 --
----------- ----------- --------
$20,415,793 $20,700,051 $284,258
=========== =========== ========
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------
FAIR UNREALIZED
CLASS OF SECURITY COST BASIS MARKET VALUE GAIN (LOSS)
<S> <C> <C> <C>
Municipal bonds...................... $18,740,278 $18,873,348 $133,070
Equities and mutual funds............ 1,594,000 1,594,000 --
----------- ----------- --------
$20,334,278 $20,467,348 $133,070
=========== =========== ========
</TABLE>
The Company determines the cost basis of its marketable securities using the
specific identification method. The net unrealized gain relating to marketable
securities is not significant and has not been reflected in the accompanying
financial statements. The Company's investments in municipal bonds generally
mature in one to three years.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
Trade accounts receivable:
Billed........................................ $19,289,683 $21,657,013
Unbilled...................................... 2,066,412 4,817,056
----------- -----------
21,356,095 26,474,069
Less--Allowance for doubtful accounts........... (353,000) (330,000)
----------- -----------
21,003,095 26,144,069
Other accounts receivable....................... -- 2,425,303
----------- -----------
$21,003,095 $28,569,372
=========== ===========
</TABLE>
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1997
<S> <C> <C>
Building and improvements...................... $11,297,039 $ 12,814,033
Computers and related equipment................ 20,584,392 36,476,595
Office furniture and equipment................. 3,361,864 5,488,584
Automobiles.................................... 190,452 168,789
----------- ------------
35,433,747 54,948,001
Less--Accumulated depreciation................. (9,347,242) (10,754,380)
----------- ------------
26,086,505 44,193,621
Land and land improvements..................... 6,203,241 6,034,819
----------- ------------
$32,289,746 $ 50,228,440
=========== ============
</TABLE>
F-10
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Assets under capital lease had an initial value of $11,716,000 and
$26,770,978, and accumulated amortization of $362,000 and $1,618,081, at
September 30, 1996 and 1997, respectively. As of September 30, 1996 all assets
under capital leases were computer and related equipment. As of September 30,
1997, $9,103,562 related to buildings and improvements, $5,835,060 related to
land and $11,832,356 related to computers and related equipment. The
amortization of these capitalized assets is included in depreciation expense
for the years ended September 30, 1995, 1996 and 1997.
NOTE 5--INCOME TAXES
The Company's provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal................................ $3,359,000 $3,125,000 $2,121,200
State.................................. 814,000 762,000 334,200
---------- ---------- ----------
4,173,000 3,887,000 2,455,400
---------- ---------- ----------
Deferred:
Federal................................ 399,000 2,081,000 4,143,000
State.................................. 93,000 306,000 584,000
---------- ---------- ----------
492,000 2,387,000 4,727,000
---------- ---------- ----------
$4,665,000 $6,274,000 $7,182,400
========== ========== ==========
</TABLE>
The Company's deferred income tax asset (liability) balances are summarized
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
ESOP expenses................................... $ 144,000 $ 128,000
Allowance for doubtful accounts................. 138,000 129,000
Accrued expenses................................ 433,000 643,000
Deferred charges................................ 155,000 --
Non-compete agreement........................... 263,000 242,000
Other........................................... -- 30,000
----------- -----------
Gross deferred tax assets................... 1,133,000 1,172,000
----------- -----------
Depreciation.................................... (1,104,000) (3,656,000)
Software development costs capitalized.......... (2,035,000) (4,799,000)
Capital lease payment........................... (545,000) --
Goodwill........................................ (69,000) (173,000)
Other........................................... (109,000) --
----------- -----------
Gross deferred tax liabilities.............. (3,862,000) (8,628,000)
----------- -----------
Net deferred taxes.............................. $(2,729,000) $(7,456,000)
=========== ===========
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
----------------
1995 1996 1997
<S> <C> <C> <C>
Income taxes at federal statutory rate.................. 34% 34% 34%
State taxes, net of federal benefit..................... 5 5 5
Dividends paid on allocated shares held by ESOP......... (2) -- --
Municipal bond interest income.......................... -- (1) (1)
--- --- ---
37% 38% 38%
=== === ===
</TABLE>
F-11
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LINE OF CREDIT AND LONG-TERM DEBT
Effective May 16, 1994, the Company entered into a line of credit agreement
with a bank under which the Company may borrow up to $2,000,000 with interest
payable at the bank's prime rate (8.5% at September 30, 1996 and 1997). This
loan is payable on demand and is secured by substantially all of the assets of
the Company. No amounts were outstanding under this agreement as of September
30, 1996 and 1997.
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
ESOP loan....................................... $ 5,345,823 $ 2,969,901
Term loan....................................... 11,200,000 10,200,000
Capital lease obligations....................... 9,975,431 23,687,510
Deferred acquisition payments................... 1,000,000 500,000
Other........................................... 59,218 --
----------- -----------
27,580,472 37,357,411
Less--Current maturities........................ (5,329,670) (5,810,927)
----------- -----------
$22,250,802 $31,546,484
=========== ===========
</TABLE>
ESOP LOAN
Effective November 10, 1988, the Company entered into a $22,500,000 term
loan agreement with a bank (the ESOP Loan). Under the terms of the agreement,
the Company must make quarterly payments of principal (in varying amounts as
summarized below) plus interest. This interest rate is subject to adjustments
based upon changes in federal and state tax rates or changes in the proportion
of the bank's income from this loan which is includable in gross income for
federal income tax purposes.
Amounts outstanding under the ESOP Loan are collateralized by the ESOP Note,
an assignment of the pledge agreement between the Company and the ESOP
(whereby the ESOP pledged the unallocated ESOP Shares as collateral for the
ESOP Note) and a security interest in all assets of the Company.
The ESOP Loan contains certain restrictive covenants that, among other
things, limit capital expenditures, additional indebtedness, certain
investments, the repurchase of common stock and the payment of dividends and
require the Company to maintain certain working capital and other financial
measures. The Company was in violation of certain of these restrictive
covenants as of September 30, 1996 and 1997 and waivers of such violations
were received from the bank.
On September 28, 1995, the Company's Board of Directors declared and paid a
$0.125 per share dividend. The portion of this dividend which was paid on
shares held by the ESOP (unallocated and allocated) was used to prepay
$1,231,000 of the ESOP Note and, accordingly, the Company prepaid, without
penalty, $1,231,000 of the variable rate portion of the ESOP Loan.
CAPITAL LEASE OBLIGATIONS
The Company entered into a sale-leaseback agreement with a third party
selling the existing building and land, including 10.4 acres located adjacent
to the existing building that will be used to build a new 200,000 square foot
building. The Company has entered into a 20-year lease with the third party on
the existing building, and it has also entered into a 20-year lease for the
new 200,000 square foot building currently under construction on the property
adjacent to the Company's executive offices. The lease commences upon
completion of the
F-12
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
building expected in September 1998, and is classified as a capital lease. The
existing building and land were sold at their book value of approximately
$12.2 million. The interest rate implicit in the Company's capital leases
approximates 8%.
TERM LOAN
During fiscal 1995, the Company entered into a $12,000,000 credit facility
to finance the expansion of the Company's facilities. The credit facility
requires quarterly principal payments of $200,000 plus interest at 8.5% (fixed
rate) with the balance to be paid in 2005. This credit facility contains
certain restrictive covenants that limit capital expenditures, limit
additional indebtedness, restrict certain investments, restrict the repurchase
of common stock and limit the payment of dividends. This debt agreement was
amended during fiscal 1996 to allow the acquisition of GIS Information
Systems, Inc. (see Note 10). The Company is also required to maintain working
capital and other financial measures. The Company was in violation of certain
of these restrictive covenants as of September 30, 1996 and 1997. Waivers of
such violations were received from the bank.
SUMMARY OF MATURITIES
A summary of principal maturities relating to long-term obligations is as
follows:
<TABLE>
<CAPTION>
DEFERRED
FISCAL YEAR ENDING CAPITAL ACQUISITION
SEPTEMBER 30, ESOP LOAN TERM LOAN LEASES PAYMENT TOTALS
<S> <C> <C> <C> <C> <C>
1998.................. $2,375,922 $ 800,000 $ 2,135,005 $500,000 $ 5,810,927
1999.................. 593,979 800,000 2,471,338 3,865,317
2000.................. 800,000 2,692,799 3,492,799
2001.................. 800,000 2,934,111 3,734,111
2002.................. 800,000 547,497 1,347,497
Thereafter............ 6,200,000 12,906,760 19,106,760
---------- ----------- ----------- -------- -----------
$2,969,901 $10,200,000 $23,687,510 $500,000 $37,357,411
========== =========== =========== ======== ===========
</TABLE>
NOTE 7--COMMITMENTS AND CONTINGENCIES
The Company currently leases warehouse and office space in the metropolitan
Chicago area under the terms of operating leases expiring on various dates
through August 2002. The Company also leases certain computer and other office
equipment under the terms of operating leases.
The aggregate future minimum lease commitments under these operating leases
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
SEPTEMBER 30,
<S> <C>
1998....................................................... $10,611,508
1999....................................................... 8,459,609
2000....................................................... 6,886,069
2001....................................................... 4,365,069
2002 and thereafter........................................ $ 1,269,069
</TABLE>
Total rental expense for the years ended September 30, 1995, 1996 and 1997,
under the operating leases approximated $8,644,000, $11,711,000 and
$11,511,000 respectively.
NOTE 8--STOCKHOLDERS' EQUITY
On March 29, 1996, the Company completed an initial public offering of
3,350,000 shares of its common stock, par value $.01 per share. Certain
stockholders of the Company sold an additional 3,350,000 shares of
F-13
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
common stock in the offering. In addition, on April 24, 1996, the Company
completed the offering of an additional 1,005,000 shares of common stock that
were subject to an over-allotment option granted to the underwriters of the
initial public offering. The net proceeds to the Company were approximately
$43,500,000 after deducting underwriting discounts and offering expenses.
A summary of share transactions within the ESOP is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1995 1996 1997
---------------------- ----------------------- ----------------------
UNALLOCATED ALLOCATED UNALLOCATED ALLOCATED UNALLOCATED ALLOCATED
<S> <C> <C> <C> <C> <C> <C>
Shares
Beginning of year..... 5,070,900 4,796,904 3,445,788 6,398,941 2,403,717 5,963,115
Released and
allocated............ (1,625,112) 1,625,112 (1,042,071) 1,042,071 (1,098,631) 1,098,631
Distributed to
participants......... (23,075) (1,188) (162,566)
Sold in Offering...... (1,476,709)
---------- --------- ---------- ---------- ---------- ---------
End of year........... 3,445,788 6,398,941 2,403,717 5,963,115 1,305,086 6,899,180
========== ========= ========== ========== ========== =========
</TABLE>
NOTE 9--STOCK OPTION PLANS
Effective September 30, 1994, the Company established the 1994 Executive
Stock Option Plan ("the 1994 plan"). The Company has established the 1995 Key
Employee Stock Option Plan ("the 1995 plan"), as amended and restated August
8, 1996. Under the terms of the 1994 plan, the Compensation Committee (the
Committee) of the Company's Board of Directors may grant options for the
purchase of up to 3,600,000 shares of the Company's common stock with exercise
prices and vesting requirements at the sole discretion of the Committee. The
Committee may grant options for the purchase of up to 2,000,000 shares of
common stock under the terms of the 1995 plan.
During fiscal 1995, 1996 and 1997, the Company granted options to purchase
2,202,000, 1,082,200, and 1,305,200 shares of common stock respectively, at
the estimated fair market value at the date of grant to certain employees. The
exercise price of these options ranged from $2.08 to $19.88 per share. Options
to purchase 600,000 shares and 72,000 shares were canceled by the Company in
fiscal 1995 and fiscal 1997, respectively. No options were canceled in fiscal
1996. There were no options which expired or were exercised during fiscal
1995. In fiscal 1996, 216,497 options were exercised at a weighted-average
exercise price of $2.08. In fiscal 1997, 213,200 options were exercised at a
weighted-average exercise price of $2.15.
As of September 30, 1997, options to purchase the Company's common stock
were outstanding as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE OPTION
UNDERLYING PER SHARE SHARES
DATE OF GRANT OPTIONS EXERCISE PRICE VESTED
<S> <C> <C> <C>
October 1, 1994-June 1, 1995....... 1,700,303 $2.13 1,249,200
February 1, 1996-September 23,
1996.............................. 1,082,200 7.78 216,400
December 24, 1996-August 4, 1997... 1,305,200 9.10 --
--------- ---------
4,087,703 1,465,600
========= =========
</TABLE>
Generally, these options vest and become exercisable in five equal annual
increments beginning one year after the issue date and expire 10 years after
the issue date.
The weighted-average fair value of options at date of grant was $5.86 in
fiscal 1997 and $6.03 in fiscal 1996. These values were determined by the
Black-Scholes model with the following weighted-average
F-14
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
assumptions for fiscal 1997 and 1996, respectively: interest rate of 6.63% and
6.08%; volatility of 46% and 45%; no annual dividends; and an expected life of
8 years for both fiscal years.
The Company generally recognizes no compensation expense with respect to
awards of stock options since the exercise price of the common stock options
awarded are equal to the fair market value of the underlying security on the
date of grant. If the Company adopted Statement of Financial Accounting
Standard Number 123 with respect to stock options, net income would have been
$10,433,192 in fiscal 1997 and $9,788,696 in fiscal 1996. Basic and diluted
earnings per share would have been $0.42 and $0.40 in fiscal 1997,
respectively, and $0.43 and $0.41 in fiscal 1996, respectively. The pro forma
effect on net income and earnings per share for fiscal 1997 and 1996 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to September 30, 1995.
NOTE 10--ACQUISITIONS
Effective February 3, 1997, the Company acquired the assets of Credit
Strategy Management, Inc. for $1.4 million cash. Credit Strategy Management,
Inc. provides modeling and analysis services and is located in Atlanta,
Georgia. Approximately $1.3 million of the purchase price was allocated to
goodwill, which is amortized using the straight line method over a 40-year
period. The acquisition has been accounted for under the purchase method of
accounting.
Effective July 1, 1996, the Company acquired all of the outstanding capital
stock of GIS Information Systems, Inc. ("GIS") for $16,148,000 in cash,
guaranteed deferred payments totaling $1,000,000, common stock warrants to
purchase 180,000 shares of the Company's common stock at $16.51 per share and
certain contingent payments. In connection with the acquisition, liabilities
were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired................................ $20,606,581
Issuance of common stock warrants............................ 1,300,000
Cash paid for common stock................................... 16,148,513
-----------
Liabilities assumed...................................... $ 3,158,068
===========
</TABLE>
GIS was a provider of data processing outsourcing services and was based in
Oak Brook, Illinois.
The fair value of the warrant to purchase 180,000 shares (which are fully
vested and expire on July 18, 2001) of the Company's common stock approximated
$1,300,000, and is included in part in capital as of September 30, 1996 and
1997. A payment of $1,050,000 was made based upon an earn-out provision for
the period July 1, 1996 through June 30, 1997. A similar additional payment is
expected based on an earn-out provision for the period July 1, 1997 through
June 30, 1998. Payments made under these earn-out provisions are reflected as
an increase in goodwill. The Company reserved $1,350,000 in the first quarter
of fiscal 1997 related to costs incurred in consolidating GIS operations.
These costs were paid during fiscal 1997 and primarily consisted of rental
commitments for property having no future economic value to the Company. The
amount reserved was also included as a component of goodwill.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the identifiable
assets acquired and liabilities assumed based on their estimated fair values.
The excess of the purchase price over the net assets acquired was allocated to
goodwill. This goodwill is amortized using the straight line method over a 40-
year period for financial reporting purposes.
The following unaudited pro forma financial information presents the results
of operations of the Company and the acquired business as if the acquisitions
had occurred at the beginning of fiscal 1996. The pro forma
F-15
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
information is based on historical results of operations and does not
necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations of the combined
enterprises:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Net Revenues..................................... $73,454,000 $86,696,000
Net Income....................................... 9,096,000 11,217,000
Basic earnings per share......................... $ 0.45 $ 0.50
Diluted earnings per share....................... 0.44 0.47
</TABLE>
NOTE 11--SUBSEQUENT EVENT--RESTRUCTURING CHARGE
In October 1997, the Company announced a one-time, pre-tax charge of
approximately $4.7 million ($2.9 million after-tax) in the first quarter of
fiscal 1998, which represents the present value of payments under existing
contracts with prior members of management.
NOTE 12--SUBSEQUENT EVENT--EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators for the
computations of basic and diluted EPS:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-----------------------------------
1995 1996 1997
<S> <C> <C> <C>
Basic EPS computation
Numerator.................................. $ 7,860,546 $10,223,583 $11,715,655
Denominator:
Weighted average shares outstanding...... 20,426,482 22,633,972 25,028,786
----------- ----------- -----------
Basic EPS.................................. $ 0.38 $ 0.45 $ 0.47
=========== =========== ===========
Diluted EPS computation
Numerator.................................. $7,860,546 $10,223,583 $11,715,655
Denominator:
Weighted average shares outstanding...... 20,426,482 22,633,972 25,028,786
Common stock equivalent of stock options. 184,035 1,018,929 1,150,177
----------- ----------- -----------
Total shares............................... 20,610,517 23,652,901 26,178,963
----------- ----------- -----------
Diluted EPS................................ $ 0.38 $ 0.43 $ 0.45
=========== =========== ===========
</TABLE>
The weighted-average of securities that could potentially dilute basic EPS
in the future that were not included in the fiscal 1996 and 1997 computations
of diluted EPS was 102,857 and 569,611 shares, respectively. These securities
were not included in the diluted EPS calculation because to do so would have
been antidilutive for the periods presented. No securities were excluded from
the 1995 calculation of diluted EPS.
F-16
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended September 30, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
Net Revenues.................. $16,043,616 $19,132,514 $19,997,045 $22,049,785
Operating Income.............. 3,070,007 4,153,782 4,854,828 4,946,540
Net Income.................... 1,661,403 2,368,722 3,067,002 3,126,456
Basic Earnings Per Share...... $ 0.08 $ 0.12 $ 0.12 $ 0.13
Diluted Earnings Per Share.... 0.08 0.11 0.12 0.12
1997
Net Revenue................... $21,228,730 $21,692,905 $23,625,454 $25,910,199
Operating Income.............. 4,090,380 4,347,052 5,347,905 6,677,291
Net Income.................... 2,366,703 2,419,205 3,087,366 3,842,381
Basic Earnings Per Share...... $ 0.09 $ 0.10 $ 0.12 $ 0.15
Diluted Earnings Per Share.... 0.09 0.09 0.12 0.15
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Safe Harbor for Forward-Looking Statements................................ 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 15
Price Range of Common Stock............................................... 16
Dividend Policy........................................................... 16
Selected Consolidated Financial Data...................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 25
Management................................................................ 33
Principal Stockholders.................................................... 35
Description of Notes...................................................... 36
Description of Capital Stock.............................................. 49
Certain United States Income Tax Considerations........................... 53
Underwriting.............................................................. 58
Legal Matters............................................................. 60
Experts................................................................... 60
Additional Information.................................................... 60
Incorporation of Certain Documents by Reference........................... 60
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$100,000,000
LOGO
% CONVERTIBLE SUBORDINATED NOTES DUE 2003
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
MERRILL LYNCH & CO.
ABN AMRO INCORPORATED
PAINEWEBBER INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 19, 1998
PROSPECTUS
, 1998
4,000,000 SHARES
LOGO
COMMON STOCK
All of the 4,000,000 shares of common stock, par value $0.01 per share, of
the Company (the "Common Stock") offered hereby are being sold by certain
stockholders of the Company (the "Selling Stockholders"). See "Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of the shares by the Selling Stockholders.
Concurrently with this offering of Common Stock (the "Common Stock
Offering"), the Company is offering (the "Note Offering"), pursuant to a
separate Prospectus, $100,000,000 principal amount (excluding the underwriters'
over-allotment option) of % Convertible Subordinated Notes due 2003 (the
"Notes"). The net proceeds of the Note Offering are expected to be used to
repay the Company's entire indebtedness under a term loan, with the balance to
be used for capital expenditures, working capital and other general corporate
purposes, including possible acquisitions. Consummation of the Common Stock
Offering is not a condition to consummation of the Note Offering, and
consummation of the Note Offering is not a condition to consummation of the
Common Stock Offering. See "Use of Proceeds."
The Common Stock is quoted on the Nasdaq National Market ("Nasdaq") under the
symbol "SPEH." On February 13, 1998, the last reported sale price of the Common
Stock was $13 5/8 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO THE DISCOUNTS AND THE SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(2)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus to purchase up to an additional
600,000 shares of Common Stock on the same terms as set forth above, at the
Price to the Public, less the Underwriting Discounts and Commissions,
solely for the purpose of covering over-allotments, if any. If such option
is exercised in full, the total Price to the Public and Underwriting
Discounts and Commissions will be $ and $ , respectively, and
the total proceeds to the Company will be $ before deducting
expenses payable by the Company estimated at $366,000. See "Underwriting."
The shares are being offered by the several Underwriters when, as and if
delivered to and accepted by them, subject to certain conditions, including
their rights to withdraw, cancel or reject orders in whole or in part. It is
expected that delivery of the shares will be made in New York, New York, on or
about , 1998.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
ABN AMRO INCORPORATED
PAINEWEBBER INCORPORATED
<PAGE>
The inside front cover contains a collage of five photographs depicting
various facilities and operations of the Company as follows:
Top left--a photograph of a May & Speh systems programmer
Top right--a photograph of a Company employee and telecommunications equipment
Bottom right--a photograph of two personal computers showing screens used in
the Company's direct marketing services operations
Bottom left--a photograph of the Company's computer operations command center
and employees
Middle left--a photograph of a computer circuit board
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH
THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK ON THE NASDAQ
NATIONAL MARKET, OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including the Selected Financial, Operating and Other Data and the
Company's Consolidated Financial Statements and Notes thereto, included or
incorporated by reference in this prospectus. Except as otherwise specified,
all information in this Prospectus has been adjusted to reflect a 12-for-1
split of the Common Stock effected in December 1995, assumes that the
Underwriters do not exercise the over-allotment option described under the
caption "Underwriting" and, to the extent the Note Offering is described
herein, further assumes no exercise of the underwriters' over-allotment option
in the Note Offering. Diluted earnings per share have been presented for all
periods, unless otherwise specified. The "Company" and "May & Speh" refer to
May & Speh, Inc. and its subsidiary, unless otherwise indicated or the context
requires otherwise.
THE COMPANY
May & Speh provides computer-based information management services with a
focus on direct marketing and information technology ("IT") outsourcing
services. The Company's direct marketing services help companies execute more
profitable direct marketing and customer management programs. Services include
strategic analysis and strategy management; systems consulting; custom data
warehouse and datamart design, build, implementation and management;
statistical (predictive) modeling and analysis; and list processing. May &
Speh's IT outsourcing services support multi-platform processing and network
management for clients seeking to outsource their IT operations. The Company's
direct marketing and IT outsourcing services are synergistic and allow the
Company to leverage its investment in technical personnel and its state-of-the-
art data processing facilities, as well as its core competencies in customized
software systems development, large database management, high speed data
processing and data center management. May & Speh's open architecture and
multiple platform data facilities provide its clients with superior processing
flexibility and speed.
Direct marketing enables the delivery of a customized message to a defined
audience and the measurement of the response to that message. The use of direct
marketing by businesses has increased significantly in recent years, as has
spending in support of direct marketing activities. Industry sources estimate
that United States expenditures for information and database services in
connection with direct marketing activities were approximately $17.0 billion in
1996, and that such expenditures are growing at an annual rate of 15% to 20%.
During the past few years, IT outsourcing has become increasingly recognized as
a valuable option for many enterprises. Originally seen as a way of controlling
costs, IT outsourcing is now viewed by many businesses as an integral component
of their growth strategy by allowing companies to focus on their core
competencies and strategic initiatives. According to G2 Research Inc., total
expenditures for IT outsourcing services in the United States were
approximately $32.7 billion in 1996, and such expenditures are projected to
grow at an average annual rate of approximately 25.2% through 2001.
Direct marketing services accounted for approximately 61.6% of the Company's
net revenues for fiscal 1997. Through customized applications and Company-
developed software tools, May & Speh transforms and enhances its clients'
customer and transactional data from a raw and often disparate form into
useful, actionable information. The Company is increasingly focused on
developing integrated database management solutions, including marketing
strategy development; prospect data and data enhancement services; database
design and maintenance; data modeling, profiling and analysis; and ongoing
strategic evaluation and planning. The Company's integrated solutions enable
clients to access and analyze information collected across multiple client
functions through decision support and campaign management tools. May & Speh
currently targets companies that utilize direct marketing in the financial
services, retail, consumer goods, insurance and high tech industries. The
Company currently provides direct marketing services for approximately 180
clients including Green Tree Financial Corporation, Intel Corporation, Phillips
Electronics North America Corporation, Sears, Roebuck and Co. ("Sears") and
Trans Union Corporation.
3
<PAGE>
IT outsourcing services accounted for approximately 38.4% of the Company's
net revenues for fiscal 1997. By outsourcing their IT infrastructure, May &
Speh's clients increase their flexibility, tap the expertise of scarce, skilled
IT professionals, liberate capital, and turn their fixed IT infrastructure
costs into variable costs. May & Speh's IT outsourcing services allow clients
to improve the speed of delivery and response while controlling their
information processing costs and reducing their exposure to rapid changes in
technology. Outsourcing contracts are typically multi-year arrangements, which
provide a recurring revenue stream that helps May & Speh achieve stable and
consistent growth. May & Speh continues to focus on the mid-sized IT
outsourcing market, which includes clients such as American National Can
Company ("American National Can"), CCC Information Services, Continental Grain
Company, Heller Financial, Inc. and Sanwa Business Credit Corporation.
Over the past five years, May & Speh has experienced significant growth in
revenues and earnings per share and expansion of its operating margins. For the
five fiscal years ended September 30, 1997, the Company's net revenues grew
from $41.8 million to $92.5 million and earnings per share increased from $0.15
to $0.45. During this period, operating margins expanded from 17.9% to 22.1%.
In 1997, the Company further strengthened its management team with the addition
of Peter I. Mason as Chairman, President and Chief Executive Officer, and other
senior management and Board members, each of whom has significant technology
experience.
MAY & SPEH'S COMPETITIVE STRENGTHS
The Company believes it has competitive strengths which have contributed to
its growth and profitability. These include:
Integrated Database Management Solutions. May & Speh offers integrated
database management solutions focused on targeted industries. These integrated
solutions include marketing strategy execution; prospect data and data
enhancement services; database design and maintenance; on-line access and
decision support tools; data modeling, profiling and analysis; and ongoing
strategic evaluation and management. The Company believes that this approach is
a competitive strength because it offers clients strategic direct marketing
tools rather than generic data processing services, resulting in the Company's
integrated database management solutions becoming integral to clients executing
their marketing strategies.
Focus on Targeted Industries. May & Speh's direct marketing services focus on
clients in targeted industries including financial services, retail, consumer
goods, insurance and high tech. The Company believes that as a result of its
focus and experience in specific industries, its sales and technical personnel
better understand the data processing needs, competitive dynamics and
regulatory issues of its clients.
Investment and Scale of its Client Service and Technical Infrastructure. May
& Speh's direct marketing and IT outsourcing services continue to benefit from
its investments in technical personnel and technology. The Company has a
current staff of over 500 skilled IT and direct marketing services personnel,
and maintains state-of-the-art data processing facilities. As a result of these
investments, the Company has developed its client service and technical
infrastructure to a significant scale, which enables the Company to develop and
support mainframe, mid-range and network applications and platforms,
accommodate growth and provide efficient and flexible services.
Long-Term Client Relationships with Recurring Revenues. May & Speh's long-
term client relationships provide the Company with recurring revenues. Over 50%
of the Company's fiscal 1997 revenues were derived from clients who have used
the Company's services for over three years. The Company's direct marketing
revenues are typically recurring because its direct marketing services become
an integral part of the clients' marketing programs and a portion of these
revenues are derived through multi-year contracts. The Company's IT outsourcing
revenues are typically recurring and generated through multi-year contracts.
Significant Operating Flexibility. May & Speh's financial position provides
the Company with significant operating flexibility. The Company has generated
operating margins in excess of 20% in each of the last four
4
<PAGE>
fiscal years. These operating margins have enabled the Company to reinvest the
cash generated from operations for strategic expenditures, including
technology, skilled technical personnel and capital investments relating to new
clients.
GROWTH STRATEGY
May & Speh's strategy is to continue to grow its business by leveraging its
competitive strengths. The principal components of May & Speh's growth strategy
are:
Offer Integrated Database Management Solutions. May & Speh continues to
develop integrated database management solutions focused on targeted industries
which are expected to continue to attract new clients with significant direct
marketing budgets and increase revenues from existing clients. May & Speh's
approach offers integrated solutions rather than general, disparate services
and systems.
Increase Penetration of Existing Targeted Industries and Target New
Industries. Currently, May & Speh's direct marketing services target the
financial services, retail, consumer goods, insurance and high tech industries.
The Company believes these industries offer significant opportunity for direct
marketing services, and continues to focus on attracting additional clients
within these targeted industries. In addition, the Company believes that direct
marketing is increasingly prevalent in the utilities, telecommunications,
automotive and healthcare industries, and that such industries provide
attractive near term opportunities for potential penetration.
Extend IT Outsourcing Services. May & Speh continues to extend its IT
outsourcing service offerings. In order to build upon and complement its
traditional mainframe outsourcing services, the Company offers client/server
outsourcing and network management services. The Company's strengthened IT
outsourcing capabilities have resulted in the addition of new clients and
contracts such as May & Speh's $41 million, five-year contract with American
National Can. Under this agreement, American National Can is outsourcing its
entire IT infrastructure to the Company including client/server, mainframe and
network management services. The Company believes its broad range of IT
outsourcing services and expertise will continue to attract new clients and
expand relationships with current clients.
Expand Sales Efforts. The Company plans to increase the number of new clients
by expanding its sales efforts in both direct marketing and IT outsourcing. The
direct marketing sales force is focused on increasing penetration within
current targeted industries as well as penetrating new industries. In IT
outsourcing services, the Company intends to continue focusing on US-based
companies with mid-level processing requirements. In addition, the Company
plans to expand its sales presence in certain geographic areas for both direct
marketing and IT outsourcing services.
Pursue Strategic Acquisitions and Alliances. May & Speh will continue to
explore strategic acquisitions and alliances for additional growth
opportunities. The Company will seek to acquire or form alliances with
companies that have services, technologies, industry specialties or personnel
that would complement or extend those of the Company and facilitate the
addition of new clients. For example, the Company recently agreed to form
Energy Market Connect, LLC, a joint venture with Metzler & Associates, a
leading provider of management consulting services to the energy industry. The
Company believes this joint venture will provide a new sales channel and enable
the Company to incorporate utilities industry expertise in its integrated
database management solutions for the utilities industry. In May 1997, the
Company also formed a strategic alliance with Trans Union Corporation, the
nation's leading credit reporting company. The alliance will combine May &
Speh's expertise in creating custom and generic models with Trans Union
Corporation's data management capabilities.
The Company's executive offices are located at 1501 Opus Place, Downers
Grove, Illinois 60515, and its telephone number at that address is (630) 964-
1501.
5
<PAGE>
THE COMMON STOCK OFFERING
Common Stock offered by
Selling Stockholders.........
4,000,000 shares
Common Stock to be
outstanding after the Common
Stock Offering............... 25,730,054 shares(1)
Use of Proceeds............... The Company will not receive any of the net
proceeds from the sale of the Common Stock by
the Selling Stockholders. See "Use of
Proceeds."
Nasdaq National Market SPEH
Symbol.......................
Concurrent Offering........... Concurrently with the Common Stock Offering,
the Company is offering $100,000,000 aggregate
principal amount of % Convertible
Subordinated Notes due 2003 ($115,000,000 if
the underwriters' over-allotment option is
exercised in full). The Notes are convertible
into Common Stock at a conversion price of
$ per share. The Company intends to use
approximately $10.0 million of the estimated
net proceeds of the Note Offering to repay the
entire indebtedness under a term loan. The
remainder of the estimated net proceeds of the
Note Offering will be used for capital
expenditures, working capital and other general
corporate purposes. The Company also intends to
use a portion of the estimated net proceeds of
the Note Offering for acquisitions.
Consummation of the Common Stock Offering is
not a condition to consummation of the Note
Offering and consummation of the Note Offering
is not a condition to consummation of the
Common Stock Offering.
- --------------------
(1) Includes 176,000 shares of Common Stock to be issued upon the exercise of
outstanding stock options prior to the consummation of the Common Stock
Offering with a weighted average exercise price of $2.08. Excludes (i)
4,290,103 shares of Common Stock issuable following the Common Stock
Offering upon the exercise of outstanding stock options with a weighted
average exercise price of $8.38 per share and 530,500 additional shares
reserved for issuance under the Company's stock option plans; (ii)
shares issuable upon conversion of the Notes at a conversion price of $
per share; and (iii) 180,000 shares issuable upon the exercise of
outstanding warrants at an exercise price of $16.51 per share. Outstanding
options to purchase 631,603 shares and all of the outstanding warrants are
exercisable as of the date of this Prospectus. The Company has proposed to
increase the number of shares reserved for issuance under the Company's
stock option plans by 2,400,000 shares, which will be voted upon by
stockholders in March 1998.
6
<PAGE>
SUMMARY FINANCIAL, OPERATING AND OTHER DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
--------------------------------------------- ---------------------
1993 1994 1995 1996 (1) 1997 (1) 1996 (1) 1997 (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $41,792 $51,667 $61,641 $77,223 $92,457 $ 21,229 $ 26,351
Restructuring costs
(2)................... -- -- -- -- -- -- 4,700
Operating income....... 7,479 11,024 13,872 17,025 20,463 4,090 1,592
Interest expense....... 1,974 1,693 1,543 1,843 2,618 577 756
Net income............. 3,406 5,838 7,861 10,224 11,716 2,367 656
Diluted net income per
share................. $ 0.15 $ 0.26 $ 0.38 $ 0.43 $ 0.45 $ 0.09 $ 0.02
Weighted average shares
outstanding, including
common equivalents.... 22,917 22,110 20,611 23,653 26,179 26,220 26,470
PRO FORMA DATA (3):
Interest expense....... $ 7,645 $ 1,827 $ 2,023
Income (loss) from
continuing operations
(4)................... 8,600 1,592 (132)
Diluted income (loss)
from continuing
operations per share
(4)................... $ 0.33 $ 0.06 $ (0.01)
OPERATING AND OTHER
DATA:
Operating margin (5)... 17.9% 21.3% 22.5% 22.0% 22.1% 19.3% 6.0%
Number of employees at
end of period......... 272 306 331 434 574 579
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
AS FURTHER
ACTUAL AS ADJUSTED (6) ADJUSTED (7)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities........... $ 15,920 $ 15,920 $101,686
Working capital.......................... 46,736 47,500 134,370
Total assets............................. 148,632 149,396 238,900
Current maturities of long-term debt..... 5,868 5,868 5,068
Long-term debt........................... 30,151 30,151 120,951
Total stockholders' equity............... 92,845 93,608 93,112
</TABLE>
- --------------------
(1) Includes the results of operations of GIS Information Systems, Inc.,
effective July 1, 1996.
(2) Represents the present value of payments under existing contracts with
prior members of management. Excluding this one-time charge, operating
income and net income for the three months ended December 31, 1997 would
have increased by $4,700,000 and $2,913,000, respectively.
(3) Pro forma information for the fiscal year ended September 30, 1997 gives
effect to the sale of the Notes and the use of the estimated net proceeds
therefrom as if these transactions had occurred on October 1, 1996. Pro
forma information for the three months ended December 31, 1996 and 1997
gives effect to the sale of the Notes and the use of the estimated net
proceeds therefrom as if these transactions had occurred on October 1, 1996
and 1997, respectively. See "Use of Proceeds."
(4) Does not include an assumed extraordinary loss of $0.5 million (after-tax)
relating to the early extinguishment of debt.
(5) Operating margin represents operating income expressed as a percentage of
net revenues.
(6) Gives effect to the Common Stock Offering and the exercise by a Selling
Stockholder of options to purchase 176,000 shares of Common Stock at a
weighted average exercise price of $2.08 per share, as if such transactions
had occurred on December 31, 1997.
(7) Gives effect to the Note Offering and the use of the estimated net proceeds
therefrom as if such transactions had occurred on December 31, 1997.
7
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should consider carefully the
following factors relating to the business of the Company and the sale of the
shares of Common Stock before acquiring any of the shares offered hereby.
ABILITY TO CONTINUE GROWTH; MANAGEMENT OF GROWTH
The Company has experienced significant growth over the last several years.
For the five fiscal years ended September 30, 1997, the Company's net revenues
grew from $41.8 million to $92.5 million, operating margins increased from
17.9% to 22.1% and net income increased from $3.4 million to $11.7 million.
While the Company's strategy contemplates continued growth of its business,
there can be no assurances that the Company will be able to sustain its recent
growth. In addition, such growth has placed significant demands on the
Company's management, other employees, operations and physical resources.
There can be no assurances that, if the Company continues to grow, management
will be effective in attracting and retaining additional qualified personnel,
expanding the Company's physical facilities, integrating acquired businesses
and otherwise managing growth. Any failure to effectively manage growth could
have a material adverse effect on the Company's business, operating results or
financial condition. See "--Acquisitions and Alliances," "--Dependence on
Personnel; Scarcity of Trained Technical Personnel," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
INTENSE COMPETITION
The information management services industry is extremely competitive, and
the Company faces intense competition in all of its customer markets. The
Company may also encounter new entrants, including well-capitalized
information services companies and other companies, as the markets for May &
Speh's services develop. Many of the Company's competitors have more extensive
financial, technical, marketing and other resources than the Company and may
have a greater ability to obtain client contracts where sizable up-front asset
purchases or investments are required and to respond more quickly than the
Company to new or emerging technologies and other competitive pressures. There
can be no assurances that the Company will be able to compete successfully
against its present or future competitors or that competitive pressures will
not have a material adverse effect on the Company's business, operating
results or financial condition. See "--Rapid Technological Change,"
"Business--Market Overview" and "--Competition."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's net revenues, cash flows and operating results are subject to
significant variation between quarters. A significant portion of the Company's
quarterly revenues is derived from new projects for direct marketing services
and new contracts for IT outsourcing services, the timing of which is subject
to a variety of factors, such as client marketing budgets and modifications in
client strategies, outside the Company's control. The variability in revenues,
combined with the relatively fixed cost nature of the Company's business, can
have a substantial impact on the Company's quarterly results of operations.
Additionally, the Company periodically incurs cost increases due to both
hiring of new employees and computer capacity upgrades in anticipation of
future revenue growth. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Comparisons."
RISKS ASSOCIATED WITH LEVERAGE
At December 31, 1997, on a pro forma basis after giving effect to the Note
Offering and the use of the estimated net proceeds therefrom and the Common
Stock Offering (assuming the exercise by a Selling Stockholder of options to
purchase 176,000 shares of Common Stock with a weighted average exercise price
of $2.08 per share), the Company would have had (i) total long-term
indebtedness of $121.0 million, of which $100.0 million would be represented
by the Notes, (ii) stockholders' equity of $93.1 million and (iii) available
borrowing capacity of approximately $2.0 million (subject to customary
borrowing conditions) under the
8
<PAGE>
Company's existing $2.0 million credit facility (the "Existing Credit
Facility"). See "Capitalization." In addition, the Company is negotiating with
a group of banks for a new credit facility (the "New Credit Facility") which
is expected to provide for borrowings of up to $100.0 million. The degree to
which the Company is leveraged could have important consequences to
stockholders, including: (i) the ability of the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements, acquisitions or other purposes may be limited; (ii)
a substantial portion of the Company's cash flows from operations must be
dedicated to the payment of the principal of and interest on its indebtedness
and will not be available for other purposes; (iii) the Company's level of
indebtedness could limit its flexibility in planning for, or reacting to,
changes in its business or in economic conditions; and (iv) the Company's
level of indebtedness will make it more vulnerable in the event of a downturn
in its business.
The Company's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under the Company's credit facilities. The Company anticipates that net cash
provided by its operating activities, together with the balance of the
estimated net proceeds from the sale of the Notes, if any, and funds available
under the Existing Credit Facility, will be sufficient to meet its operating
expenses, and working capital, capital expenditures and debt service
requirements, through at least fiscal 1999. However, if the Company is unable
to service its debt, it will be forced to pursue one or more alternative
strategies such as selling assets, curtailing any expansion, restructuring or
refinancing its indebtedness or seeking additional equity capital. There can
be no assurance that any of these strategies could be effected on terms
satisfactory to the Company, if at all.
ACQUISITIONS AND ALLIANCES
A key element of the Company's growth strategy is to pursue strategic
acquisitions of or alliances with companies that have services, products,
technologies, industry specializations or technical personnel that extend or
complement those of the Company. There is extensive competition for attractive
candidates for acquisitions or alliances and there can be no assurances that
the Company will be able to identify or reach mutually agreeable terms with
such candidates. In addition, the Company's management has had limited
experience in making acquisitions and entering into alliances, and there can
be no assurance that any acquired business will be effectively integrated or
that any acquired business or alliance will be profitable. A substantial
portion of the Company's capital resources, including a portion of the
estimated net proceeds of the Note Offering, could be used for acquisitions or
alliances. In addition, the Company may require additional debt or equity
financing for future acquisitions or alliances, which financing may not be
available on terms satisfactory to the Company. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Growth Strategy."
RISK OF DATA CENTER FAILURE
The Company's operations are dependent upon its ability to protect its data
center against damage from fire, power loss, telecommunications failure,
natural disaster or a similar event. A substantial portion of the Company's
computer equipment and operations are located at its headquarters in Downers
Grove, Illinois. While the Company maintains a disaster recovery plan with a
vendor to provide alternative data processing sites in the event the Company
experiences a natural disaster or other interruption at its data center, the
Company could nonetheless be materially adversely affected by damage or
failure that causes significant interruptions in the Company's operations. The
Company's property and business interruption insurance may not be adequate to
compensate the Company for all losses that may occur. See "Business--
Technological Resources and Facilities."
DEPENDENCE ON PERSONNEL; SCARCITY OF TRAINED TECHNICAL PERSONNEL
The Company is highly dependent on the collective skills and efforts of its
senior management team. Among these persons, the Company has employment
agreements with Peter I. Mason, Eric M. Loughmiller and Michael J. Loeffler
which include non-competition agreements with all of these individuals. The
Company does not have
9
<PAGE>
"key man" life insurance policies covering any of these individuals. As the
Company's business has grown, the Company has found it difficult to hire the
new employees needed, particularly trained technical personnel with database
management services knowledge. Because of the recent emergence of the
industry, only a limited number of such trained technical personnel are
available for hire. Competition for qualified technical and other personnel is
intense, and the Company periodically is required to pay premium wages to
attract and retain personnel. There can be no assurance that the Company will
be able to continue to hire and retain sufficient qualified management,
technical, sales and other personnel necessary to conduct its operations
successfully, particularly if the planned growth occurs. See "--Ability to
Continue Growth; Management of Growth," "Business--Employees" and
"Management."
RELIANCE ON SIGNIFICANT CLIENTS; ABSENCE OF LONG-TERM CONTRACTS
A significant portion of May & Speh's net revenues is derived from
relatively few clients. Sears accounted for 17.6% and 18.9% of the Company's
net revenues in fiscal 1996 and fiscal 1997, respectively. Collectively, the
Company's 20 largest clients accounted for 63.6% and 58.9% of such revenues in
such periods.
The Company's revenues from many of its direct marketing clients are not
derived from multi-year or long-term contracts. Continued revenues from such
clients require ongoing sales efforts, and there is no assurance that the
Company will continue to be successful in generating future sales. While the
Company does have multi-year contracts with most of its IT outsourcing
services clients and a growing number of direct marketing clients, such
contracts usually include provisions for early termination by the client. In
most cases, there are clauses that specify certain customer payments to the
Company upon early termination. However, there can be no assurance that the
Company will successfully collect such payments even when it is contractually
entitled to receive them. Further, in a competitive situation, the Company
may, as it has in the past, renegotiate prices and terms for an existing
contract. Such situations can occur at any time and such re-negotiations
generally result in an erosion of the Company's profitability. See "Business--
Clients."
GOVERNMENT REGULATION; PRIVACY ISSUES
The direct marketing industry has recently been subject to increased
legislative attention. In addition, consumers are growing increasingly aware
of privacy issues related to direct marketing. In 1996, the Fair Credit
Reporting Act ("FCRA") was amended to provide consumers with easier access to
their credit reports and to facilitate the correction of errors in such
reports. New regulations interpreting the amendments were issued by the
Federal Trade Commission ("FTC") in 1997. Among other issues, the amendment
and regulations also addressed the issue of "prescreening," a procedure
utilized by many bankcard issuers and insurance companies in their direct
marketing programs. This legislation regulates the use of credit reports in
the preparation and generation of lists used by companies in offering credit.
This law also provides for significant fines for misuse of credit reports.
Although the Company believes its list processing activities for credit
grantors are in compliance with the recent amendments to FCRA, due to its
recent adoption, there is uncertainty as to its interpretation and
application. Therefore, there can be no assurances that significant fines will
not be levied against the Company or that this portion of its list processing
services will not be adversely affected. In addition to the federal
legislation, numerous bills are pending in various state legislatures. Such
bills are intended to give consumers more control over how personal
information is utilized in the marketplace. There can be no assurance that
this legislation or additional federal or state consumer-oriented legislation
will not significantly limit, or increase the costs of, the direct marketing
activities of the Company's clients. Direct marketing services accounted for
approximately 61.6% of the Company's net revenues in fiscal 1997. See
"Business--Consumer Privacy and Legislative Issues."
INTELLECTUAL PROPERTY RIGHTS
The Company's success depends in part upon its technological expertise and
proprietary technologies. The Company relies upon its trade secret program and
non-disclosure safeguards to protect its proprietary technologies. There can
be no assurance that these steps will be adequate to deter misappropriation or
10
<PAGE>
infringement of its proprietary technologies. Further, given the rapid
evolution of technology and uncertainties in intellectual property law, there
can be no assurance that the Company's current or future products will not be
determined to infringe proprietary rights of others. If such infringement
occurs, the Company may not be able to obtain the requisite licenses or rights
to use such technology upon reasonable terms, if at all. See "Business--
Intellectual Property Rights."
RAPID TECHNOLOGICAL CHANGE
The market for the Company's services and products is characterized by
rapidly changing technology and frequent new and enhanced service and product
introductions. The Company believes that its future success will be highly
dependent upon its ability to enhance existing products and services and to
develop and introduce new products and services to respond to changing client
needs. There can be no assurances that the Company can successfully identify,
develop and bring new and enhanced services and products to market in a timely
manner, that such services or products will be commercially successful or that
services, products or technologies developed by others will not render the
Company's services and products noncompetitive or obsolete. See "Business--
Services and Products" and "--Competition."
CONTROLLING INTEREST OF CERTAIN PERSONS
Upon the closing of the Common Stock Offering, the Company's executive
officers and directors and their respective affiliates will beneficially own
approximately 14.4% of the outstanding Common Stock, excluding shares
allocated to the accounts of such persons under the ESOP. In addition, the
ESOP will own approximately 25.6% of the outstanding Common Stock, and
employee participants exercise voting power over all of such shares. If such
stockholders were to act in concert in the future, they likely would be able
to continue to elect all of the Company's directors, determine the outcome of
most corporate actions requiring stockholder approval and otherwise control
the business affairs of the Company. Under the terms of an employment
agreement with Peter I. Mason, the Company has agreed to have Casey Cowell and
Paul G. Yovovich serve as directors of the Company. Under the terms of an
employment agreement with Lawrence J. Speh, the Company has agreed to nominate
Mr. Speh as a director for so long as Mr. Speh owns at least 500,000 shares of
Common Stock, and for so long as Mr. Speh is a director or nominee for
director, Mr. Speh has agreed to vote all shares of Common Stock owned by him
in favor of the Company's nominees. In addition, Mr. Mason has agreed to
support the nomination and election to the Board of Albert J. Speh, Jr. See
"Management," and "Principal Stockholders" and "Description of Capital Stock."
ANTI-TAKEOVER PROVISIONS
The Company has a stockholder rights plan which may have the effect of
delaying or preventing a change of control of the Company. Further, certain
provisions of the Company's Certificate of Incorporation and By-laws, and
certain provisions of the Delaware General Corporation Law may make it
difficult to change control of the Company and replace incumbent management.
For example, the Company's Certificate of Incorporation provides for a
staggered Board of Directors and permits the Board of Directors, without
stockholder approval, to issue additional shares of Common Stock or establish
one or more classes or series of Preferred Stock having the number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations that the Board of Directors establishes.
An employment agreement with the Company's chief executive officer provides
for substantial severance pay in the event of a "Change of Control" of the
Company as such term is defined in such agreement, and the Company's 1994
Executive Stock Option Plan and 1995 Key Employee Stock Option Plan provide
that unexercised options, whether vested or unvested, may be exercised in full
upon a "Change of Control" as defined in such plans. See "Description of
Capital Stock."
In addition, the terms of the Notes provide that the Company will be
required, upon the occurrence of a Change of Control (as defined) of the
Company, to offer to purchase the Notes for a price equal to 100% of the
11
<PAGE>
principal amount thereof, plus accrued but unpaid interest to the date of
purchase. If the Note Offering is consummated, the Change of Control purchase
features of the Notes may in certain circumstances have an anti-takeover
effect. The definition of "Change of Control" for purposes of the Notes is set
forth in the indenture related to the Notes, which is an exhibit to the
Registration Statement of which this Prospectus is a part.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Information contained or incorporated by reference in this Prospectus
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), which can be
identified by the use of forward-looking terminology such as "believes,"
"contemplates," "expects," "may," "will," "should," "would" or "anticipates"
or the negative thereof or other variations thereon or comparable terminology,
or by discussions of strategy. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. Various
factors, including certain risks and uncertainties described herein under
"Risk Factors," could cause actual results to vary materially from the future
results covered in such forward-looking statements.
12
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the net proceeds from the sale of Common
Stock by the Selling Stockholders. In the event the underwriters' over-
allotment option is exercised in full, the net proceeds to the Company (after
deducting underwriting discounts and commissions and approximately $ of
estimated offering expenses payable by the Company) are estimated to be
approximately $366,000. In the event the underwriters' over-allotment option
is exercised, the Company intends to use the estimated net proceeds for
working capital and general corporate purposes.
Concurrently with the Common Stock Offering, the Company is offering
$100,000,000 aggregate principal amount of Notes ($115,000,000 if the
underwriters' over-allotment option is exercised in full). The net proceeds
from the Note Offering are estimated to be $96.6 million ($111.1 million if
the underwriters' over-allotment option is exercised in full). The Company
intends to use approximately $10.0 million of such proceeds to repay the
entire indebtedness under a term loan and approximately $0.8 million to pay an
assumed prepayment penalty. The remainder of the estimated net proceeds of the
Note Offering will be used for capital expenditures, working capital and other
general corporate purposes, including possible acquisitions. Consummation of
the Common Stock Offering is not a condition to consummation of the Note
Offering and consummation of the Note Offering is not a condition to
consummation of the Common Stock Offering.
CAPITALIZATION
The following table sets forth the historical consolidated capitalization of
the Company at December 31, 1997 (i) on an actual basis, (ii) as adjusted to
give effect to the Common Stock Offering (assuming the exercise by a Selling
Stockholder of options to purchase 176,000 shares of Common Stock at a
weighted average exercise price of $2.08 per share), and (iii) as further
adjusted to give effect to the Note Offering and the application of the
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with and is qualified by reference to the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------
AS FURTHER
ACTUAL AS ADJUSTED ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and marketable securities............. $ 15,920 $ 15,920 $101,686
======== ======== ========
Current maturities of long-term debt....... 5,868 5,868 5,068
-------- -------- --------
Long-term debt:
Term loan................................ 9,200 9,200 --
% Convertible Subordinated Notes due
2003.................................... -- -- 100,000
Other debt............................... 20,951 20,951 20,951
-------- -------- --------
Total long-term debt................... 30,151 30,151 120,951
-------- -------- --------
Stockholders' equity:
Preferred stock, $0.01 par value,
2,000,000 shares authorized; no shares
issued.................................. -- -- --
Common stock, $0.01 par value, 50,000,000
shares authorized; 25,219,854 shares
issued and outstanding actual and
25,395,854 shares as adjusted and as
further adjusted........................ 252 254 254
Additional paid-in capital............... 48,737 49,499 49,499
Retained earnings........................ 46,231 46,231 45,735(1)
Unearned ESOP compensation............... (2,376) (2,376) (2,376)
-------- -------- --------
Total stockholders' equity............. 92,844 93,608 93,112
-------- -------- --------
Total capitalization................. $128,863 $129,627 $219,131
======== ======== ========
</TABLE>
- ---------------------
(1) Reflects a $0.5 million (after-tax) reduction in retained earnings due to
an assumed prepayment penalty resulting from the early extinguishment of
debt. See "Use of Proceeds."
13
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has traded on the Nasdaq National Market
under the symbol "SPEH" since March 26, 1996, the date of the Company's
initial public offering of Common Stock. The following table sets forth for
the fiscal periods indicated the range of high and low closing sales prices of
the Common Stock as reported by The Nasdaq Stock Market.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal year ended September 30, 1996:
Second Quarter.............................................. $12 $10 15/16
Third Quarter............................................... 16 1/2 10 7/8
Fourth Quarter.............................................. 21 1/2 13 3/4
Fiscal year ended September 30, 1997:
First Quarter............................................... $19 7/8 $11 1/2
Second Quarter.............................................. 14 7 1/2
Third Quarter............................................... 13 1/2 7 3/8
Fourth Quarter.............................................. 14 3/4 12
Fiscal year ending September 30, 1998:
First Quarter............................................... $15 7/8 $11 1/4
Second Quarter (through February 13)........................ 15 1/8 12 7/8
</TABLE>
On February 13, 1998, the last sale price of the Common Stock on the Nasdaq
National Market was $13 5/8 per share. As of that date, there were 25,554,054
shares of Common Stock issued and outstanding, held by 115 stockholders of
record.
DIVIDEND POLICY
The Company currently intends to retain its earnings for future growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The Company's credit agreements prohibit the Company from paying
dividends and making other distributions on its Common Stock without the
consent of its lenders. Any future payment of dividends will depend upon the
Company's results of operations, financial condition, cash requirements and
other factors deemed relevant by the Board of Directors.
14
<PAGE>
SELECTED FINANCIAL, OPERATING AND OTHER DATA
The following table sets forth selected financial, operating and other data
of the Company for the five fiscal years ended September 30, 1997 and for the
three months ended December 31, 1996 and 1997. The selected statement of
operations data for the fiscal years ended September 30, 1995, 1996 and 1997
and the selected balance sheet data as of September 30, 1996 and 1997 have
been derived from the Company's audited financial statements included
elsewhere herein. The selected statement of operations data for the fiscal
years ended September 30, 1993 and 1994 and the selected balance sheet data as
of September 30, 1993, 1994 and 1995 have been derived from audited financial
statements of the Company not included herein. The selected statement of
operations data for the three months ended December 31, 1996 and 1997 and the
selected balance sheet data as of December 31, 1997 have been derived from the
unaudited financial statements of the Company. In the opinion of management of
the Company, the unaudited financial statements have been prepared on the same
basis as the Company's audited financial statements and include all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended December 31, 1997 are
not necessarily indicative of the results to be expected for the entire fiscal
year. This financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------- ----------------
1993 1994 1995(1) 1996(2) 1997(2) 1996(2) 1997(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING AND OTHER
DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues............ $41,792 $51,667 $61,641 $77,223 $92,457 $21,229 $26,351
Operating expenses:
Wages and benefits..... 14,709 18,624 20,984 23,950 30,437 7,143 8,949
Services and supplies.. 3,240 3,650 4,160 6,839 6,192 2,039 1,371
Rents, leases and
maintenance........... 9,848 11,156 13,878 18,064 20,137 4,637 5,251
Depreciation and
amortization.......... 740 912 1,230 2,155 4,420 901 1,779
Other operating
expenses.............. 3,667 4,034 5,106 6,814 8,433 1,824 2,115
ESOP principal payments
(3)................... 2,109 2,267 2,411 2,376 2,376 594 594
Restructuring costs
(4)................... -- -- -- -- -- -- 4,700
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 34,313 40,643 47,769 60,198 71,995 17,138 24,759
------- ------- ------- ------- ------- ------- -------
Operating income........ 7,479 11,024 13,872 17,025 20,462 4,091 1,592
ESOP interest........... 1,208 1,022 864 611 403 124 69
Other (income) expense,
net.................... 662 474 482 (84) 1,161 149 468
------- ------- ------- ------- ------- ------- -------
Income before income
taxes.................. 5,609 9,528 12,526 16,498 18,898 3,818 1,055
Income taxes............ 2,203 3,690 4,665 6,274 7,182 1,451 399
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 3,406 $ 5,838 $ 7,861 $10,224 $11,716 $ 2,367 $ 656
======= ======= ======= ======= ======= ======= =======
Basic net income per
share (5).............. $ 0.15 $ 0.26 $ 0.38 $ 0.45 $ 0.47 $ 0.09 $ 0.03
Weighted average shares
outstanding (5)........ 22,917 22,110 20,426 22,634 25,029 24,953 25,172
Diluted net income per
share (5).............. $ 0.15 $ 0.26 $ 0.38 $ 0.43 $ 0.45 $ 0.09 $ 0.02
Weighted average shares,
including common
equivalents (5)........ 22,917 22,110 20,611 23,653 26,179 26,220 26,470
OPERATING AND OTHER
DATA:
Operating margin (6).... 17.9% 21.3% 22.5% 22.0% 22.1% 19.3% 6.0%
Number of employees at
end of period.......... 272 306 331 434 574 579
Processing capacity
(MIPS) at end of
period................. 168 198 500 1,329 5,995
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------- DECEMBER 31,
1993 1994 1995 1996 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable
securities............. $ 4,881 $ 4,459 $ 8,602 $ 30,732 $ 22,305 $ 15,920
Working capital......... 10,840 12,091 16,519 46,149 47,040 46,736
Total assets............ 29,971 33,978 46,804 115,218 148,796 148,632
Current maturities of
long-term debt......... 2,724 3,035 3,359 5,330 5,811 5,868
Long-term debt.......... 17,697 15,051 16,860 22,251 31,546 30,151
Total stockholders'
equity................. 3,989 8,701 17,644 75,731 91,135 92,845
</TABLE>
- -------------------
(1) In fiscal 1995, the Company paid a special dividend of $2.5 million. The
principal purpose of the dividend was to permit the ESOP to prepay without
penalty a portion of its outstanding loan balance.
(2) Includes the results of operations of GIS Information Systems, Inc.,
effective July 1, 1996.
(3) Represents tax deductible contributions to the Company's ESOP which are
used to service principal payments on the related ESOP loan.
(4) Represents the present value of payments under existing contracts with
prior members of management. Excluding this one-time charge, operating
income and net income would have increased by $4,700,000 and $2,913,000,
respectively.
(5) Reflects 12-for-1 stock split in December 1995.
(6) Operating margin represents operating income expressed as a percentage of
net revenues.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
May & Speh celebrated its 50th anniversary as a provider of information
technology services in 1997. May & Speh provides computer-based information
management services with a focus on direct marketing and IT outsourcing
services. The Company's direct marketing services help companies execute more
profitable direct marketing and customer management programs. Services include
strategic analysis and strategy management; systems consulting; custom data
warehouse and datamart design, build, implementation and management;
statistical (predictive) modeling and analysis; and list processing. May &
Speh IT outsourcing services support multi-platform processing and network
management for clients seeking to outsource their IT operations, thereby
liberating capital and redirecting their focus to more strategic IT
initiatives.
May & Speh has experienced strong growth in revenues and earnings per share
over the last five years. For the five fiscal years ended September 30, 1997,
the Company's net revenues grew from $41.8 million to $92.5 million and
earnings per share increased from $0.15 to $0.45. During this period,
operating margins increased from 17.9% to 22.1%, reflecting achievement of
certain economies of scale. The Company has invested in human resources,
facilities and technology at rates consistent with growth in revenues over
this period. The number of employees has increased from 272 at September 30,
1993 to 574 at September 30, 1997, reflecting the addition of new technical,
sales and marketing and administrative personnel to support the Company's
overall growth. In addition, the Company's ESOP principal payments, which have
remained relatively constant in dollar terms, have declined as a percentage of
net revenues to 2.6% for fiscal 1997 from 5.0% in fiscal 1993.
In fiscal 1997, approximately 61.6% of the Company's net revenues were from
direct marketing services. Revenues from the Company's existing direct
marketing clients are typically recurring in nature, although many of the
Company's direct marketing clients are not under long-term contracts. IT
outsourcing services provided approximately 38.4% of net revenues and are
typically performed under multi-year contracts. May & Speh's direct marketing
and IT outsourcing services are synergistic and leverage the Company's
investment in its technical personnel and state-of-the-art data facilities.
Investments required to provide services to new clients are typically spread
across multiple contracts. This approach reduces the Company's investment risk
and allows for economies of scale.
The Company regularly evaluates whether to lease or buy its computer
equipment. An environment of rapidly changing technology and cost efficient
financing arrangements has resulted in the Company leasing a significant
amount of its computer equipment under three to ten year leases. Generally,
the Company's computer leases with terms in excess of five years are
classified as capital leases.
As of December 31, 1997, the Company had more than 300 clients. The
Company's 20 largest clients accounted for approximately 58.9% of the
Company's net revenues in fiscal 1997. Sears represented 18.9% of the fiscal
1997 net revenues. The Company's net revenues for fiscal 1996 and 1997 were
concentrated in the following industries:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Direct Marketing:
Financial and banking......................................... 27% 23%
Retail........................................................ 19 18
Consumer goods................................................ 10 8
Insurance..................................................... 6 5
Agency........................................................ 5 5
High tech and other........................................... 7 3
--- ---
Total direct marketing........................................ 74% 62%
=== ===
Outsourcing (not industry specific)............................. 26% 38%
=== ===
</TABLE>
16
<PAGE>
In October 1988, the Company established an employee stock ownership plan to
facilitate employee ownership of the Company. At the time, the ESOP acquired
43.1% of the Company's Common Stock from certain stockholders and incurred a
loan obligation of $22.5 million. As of February 13, 1998, the ESOP owned
approximately 31.7% of the Company's outstanding Common Stock. The loan
obligation is being repaid by the Company through annual tax deductible
contributions and as of December 31, 1997, the loan obligation was $2.4
million. ESOP contributions are reflected in the Company's consolidated
statements of operations as "ESOP principal payments" as an operating expense
and as an interest expense.
The Company recorded a one-time, pre-tax restructuring charge of
approximately $4.7 million ($2.9 million after-tax) in the first quarter of
fiscal 1998. This charge represents the present value of payments under
existing contracts with prior members of management.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
derived from the Company's statements of operations as a percentage of
revenues:
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS
ENDED SEPTEMBER ENDED
30, DECEMBER 31,
-------------------- -----------------
1995 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Direct marketing services............ 78.6% 73.0% 61.6% 62.6% 58.6%
Information technology outsourcing
services............................ 21.4 27.0 38.4 37.4 41.4
------ ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
------ ----- ----- ----- -----
Operating expenses:
Wages and benefits................... 34.1 31.0 32.9 33.7 34.0
Services and supplies................ 6.7 8.9 6.7 9.6 5.2
Rents, leases and maintenance........ 22.5 23.4 21.8 21.8 19.9
Depreciation and amortization........ 2.0 2.8 4.8 4.2 6.8
Other operating expenses............. 8.3 8.8 9.1 8.6 8.0
ESOP principal payments.............. 3.9 3.1 2.6 2.8 2.3
Restructuring costs.................. -- -- -- -- 17.8
------ ----- ----- ----- -----
Total operating expenses........... 77.5 78.0 77.9 80.7 94.0
------ ----- ----- ----- -----
Operating income....................... 22.5 22.0 22.1 19.3 6.0
Interest and other expenses............ (2.2) (0.7) (1.7) (1.3) (2.0)
------ ----- ----- ----- -----
Income before income taxes............. 20.3 21.3 20.4 18.0 4.0
Income taxes........................... (7.6) (8.1) (7.8) (6.8) (1.5)
------ ----- ----- ----- -----
Net income............................. 12.7% 13.2% 12.6% 11.2% 2.5%
====== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net revenues increased to $26.4 million for the three months ended December
31, 1997 from $21.2 million for the three months ended December 31, 1996, an
increase of 24%. The Company's direct marketing services revenues increased to
$15.4 million for the three months ended December 31, 1997 compared to $13.3
million for the three months ended December 31, 1996, an increase of 16%. IT
outsourcing services revenues increased to $10.9 million for the three months
ended December 31, 1997 compared to $7.9 million for the three months ended
December 31, 1996, an increase of 38%.
Wages and benefits expenses increased to $8.9 million for the three months
ended December 31, 1997 from $7.1 million for the three months ended December
31, 1996, an increase of 25%. The increased expenses reflect additional
employees hired to continue the Company's expansion of business volume and the
strengthening of its infrastructure.
17
<PAGE>
Services and supplies expenses decreased to $1.4 million for the three
months ended December 31, 1997 from $2.0 million for the three months ended
December 31, 1996, a decrease of 33%. This decrease reflects the reduction in
cost for outside consultants as full-time employees were hired. Service and
supplies generally consist of outsourced data entry services, general
supplies, contract labor and costs related to the use of outside consultants.
Rents, leases and maintenance expenses increased to $5.3 million for the
three months ended December 31, 1997 from $4.6 million for the three months
ended December 31, 1996, an increase of 13%. The increase was primarily due to
leasing computers, computer peripheral hardware, additional software and
additional facility rent to accommodate overall growth. A portion of this
increase is due to the acquisition in fiscal 1997 of Credit Strategy
Management, Inc. ("CSM"), now known as Strategic Decision Services ("SDS"),
and its existing facility leases.
Depreciation and amortization expenses increased to $1.8 million for the
three months ended December 31, 1997 from $0.9 million for the three months
ended December 31, 1996, an increase of 97%. The increase was primarily
attributable to continued investment in technology including the purchase of
the Hitachi Data System Skyline 21 mainframe computer during the third quarter
of fiscal 1997. In addition, the Company recorded additional goodwill of $3.7
million in fiscal 1997 relating to the acquisition of CSM and incentive
payments and estimated costs to be incurred in consolidating the operations of
GIS Information Systems, Inc. ("GIS"), which the Company acquired during the
fourth quarter of fiscal 1996, resulting in increased goodwill amortization.
Other operating expenses increased to $2.1 million for the three months
ended December 31, 1997 from $1.8 million for the three months ended December
31, 1996, an increase of 16%. The increase was primarily attributable to
variable costs relating to several client contracts.
Research and development costs representing primarily wages and benefits for
information technology staff and reflected as such in the Company's financial
statements increased to $1.0 million for the three months ended December 31,
1997 from $0.8 million for the three months ended December 31, 1996, an
increase of 33%. The Company's research and development expenses relate
primarily to new product development activities.
Restructuring costs of $4.7 million ($2.9 million after-tax) for the three
months ended December 31, 1997 represent a one-time charge equal to the
present value of payments under existing contracts with prior members of
management. Excluding this one-time charge, operating income and net income
would have been approximately $6.3 million and $3.6 million, respectively.
Income taxes decreased to $0.4 million for the three months ended December
31, 1997 from $1.5 million for the three months ended December 31, 1996. The
Company's effective tax rate was 38% for the three months ended December 31,
1997 and 1996.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1996
Net revenues increased to $92.5 million in fiscal 1997 from $77.2 million in
fiscal 1996, an increase of 20%. Of this net increase, $13.7 million was
attributable to new IT outsourcing services clients and $7.9 million to new
direct marketing services clients. These increases were offset by a reduction
in revenues of approximately $6.5 million from credit card issuing clients.
The Company's direct marketing services revenues increased to $57.0 million
for fiscal 1997 versus $56.4 million for fiscal 1996, an increase of 1%. The
Company's IT outsourcing services revenues increased to $35.5 million for
fiscal 1997 versus $20.8 million for fiscal 1996, an increase of 70%. Of this
increase, $9.7 million is attributable to revenues from GIS, which was
acquired effective July 1, 1996.
Wages and benefits increased to $30.4 million for fiscal 1997 from $24.0
million for fiscal 1996, an increase of 27%. The increased expenses reflect
the net addition of 140 employees as a result of the Company's continued
18
<PAGE>
expansion of business volume, the strengthening of its infrastructure, the
1996 acquisition of GIS, the 1997 acquisition of CSM, and the replacement of
temporary labor with full-time employees during 1997.
Services and supplies expenses decreased to $6.2 million for fiscal 1997
from $6.8 million for fiscal 1996, a decrease of 10%. This decrease reflects
the reduction in cost for outside consultants as full-time employees were
hired. Services and supplies generally consist of outsourced data entry
services, general supplies, contract labor and costs related to the use of
outside consultants.
Rents, leases and maintenance expenses increased to $20.1 million for fiscal
1997 from $18.1 million for fiscal 1996, an increase of 11%. The increase was
primarily due to leasing computers, computer peripheral hardware, additional
software, and additional facility rent to house print operations and new
employees. A portion of this increase was due to the acquisition of GIS and
its existing computer, computer peripheral hardware, software and facility
leases, and the acquisition of CSM and its existing facility leases.
Depreciation and amortization expenses increased to $4.4 million for fiscal
1997 from $2.2 million for fiscal 1996, an increase of 105%. The increase was
primarily attributable to continued investment in technology including the
upgrade of the Company's mainframe computer and the conversion of the lease
for the mainframe from an operating lease to a capital lease in the fourth
quarter of fiscal 1996. The Company also purchased the Hitachi Data System
Skyline 21 mainframe computer during the third quarter of fiscal 1997. In
addition, the acquisitions of GIS in the fourth quarter of fiscal 1996 and CSM
in the second quarter of fiscal 1997 created goodwill of approximately $21
million that is being amortized over 40 years.
Other operating expenses increased to $8.4 million for fiscal 1997 from $6.8
million for fiscal 1996, an increase of 24%. The increase was primarily
attributable to variable costs relating to several client contracts.
Research and development costs representing primarily wages and benefits for
information technology staff increased to $3.4 million for fiscal 1997 from
$2.5 million for fiscal 1996, an increase of 38%.
Income taxes increased to $7.2 million for fiscal 1997 from $6.3 million for
fiscal 1996. The Company's effective tax rate was 38% for fiscal 1997 and for
fiscal 1996.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1995
Net revenues increased to $77.2 million in fiscal 1996 from $61.6 million in
fiscal 1995, an increase of 25%. Of the increase, $12.6 million was
attributable to services provided to new clients and the remainder was
attributable to increased demand for services by existing clients. The
Company's direct marketing services revenues increased to $56.4 for fiscal
1996 versus $48.4 million for fiscal 1995, an increase of 16%. Of this
increase, $1.7 million is attributable to the establishment of SDS. The
Company's IT outsourcing services revenues increased to $20.8 million for
fiscal 1996 versus $13.2 million for fiscal 1995, an increase of 58%. Of this
increase, $3.4 million is attributable to revenues from GIS, which was
acquired effective July 1, 1996.
Wages and benefits increased to $24.0 million for fiscal 1996 from $21.0
million for fiscal 1995, an increase of 14%. The increased expenses reflect
the net addition of 103 employees as a result of the Company's continued
expansion of business volume and strengthening of its infrastructure. It also
reflects the addition of GIS' staff of 48 employees during the fourth quarter
of fiscal 1996.
Services and supplies expenses increased to $6.8 million for fiscal 1996
from $4.2 million for fiscal 1995, an increase of 64%. Services and supplies
generally consist of outsourced data entry services, general supplies,
contract labor and costs related to the use of outside consultants. This
increase resulted principally from outsourcing of technical support and data
entry services and the use of outside consultants to improve productivity and
to re-engineer certain work flow processes.
Rents, leases and maintenance expenses increased to $18.1 million for fiscal
1996 from $13.9 million for fiscal 1995, an increase of 30%. The increase was
primarily due to leasing computers, computer peripheral
19
<PAGE>
hardware, additional software, and additional facility rent to house print
operations and new employees. A portion of this increase was due to the
acquisition of GIS and its existing computer, computer peripheral hardware,
software and facility leases.
Depreciation and amortization expenses increased to $2.2 million for fiscal
1996 from $1.2 million for fiscal 1995, an increase of 75%. The increase was
primarily attributable to continued investment in technology including the
upgrade of the Company's mainframe computer and the conversion of the lease
for the mainframe from an operating lease to a capital lease.
Other operating expenses increased to $6.8 million for fiscal 1996 from $5.1
million for fiscal 1995, an increase of 33%. The increase was primarily
attributable to variable costs relating to several client contracts.
Research and development costs representing primarily wages and benefits for
information technology staff increased to $2.5 million for fiscal 1996 from
$1.9 million for fiscal 1995, an increase of 34%.
Income taxes increased to $6.3 million for fiscal 1996 from $4.7 million for
fiscal 1995. The Company's effective tax rate was 38% for fiscal 1996 and 37%
for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $46.7 million as of December 31, 1997
compared to $47.0 million as of September 30, 1997. Cash and marketable
securities decreased to $15.9 million at December 31, 1997 from $22.3 million
at September 30, 1997. The decrease in cash and marketable securities reflects
$2.0 million for capital expenditures and $3.5 million for general operating
expenses, including approximately $2.0 million for payments under existing
contracts with prior members of management. The Company's investment policy is
to invest in marketable, investment-grade debt instruments of the U.S.
Government or tax-free municipal bonds. These investments typically have
maturities of three years or less. The Company historically limits its
concentration of investments in individual municipalities to $500,000 or less.
These tax-free municipal bonds are backed by U.S. Treasuries or insured (as to
principal and interest) by a major municipal insurer. As of December 31, 1997,
the Company's net accounts receivable were $29.9 million, an increase of 5%
from September 30, 1997.
The Company has available borrowings of $2.0 million under the Existing
Credit Facility. At December 31, 1997, there were no outstanding borrowings
under this credit facility. Borrowings under a $12.0 million unsecured term
loan were $10.0 million at December 31, 1997, bear interest at 8.5% per annum
and mature in 2005. The Company will use a portion of the estimated net
proceeds from the Note Offering to repay this loan in full. Capital lease debt
aggregated $22.9 million at December 31, 1997. This debt primarily results
from a sale-leaseback of the Company's primary facility and related land
during fiscal 1997 and an upgrade of one of the Company's mainframe computers
in fiscal 1996. Interest on the capital lease debt approximates 8% per annum.
The Company entered into a loan at the time of the formation of the ESOP. This
loan currently has an outstanding balance of $2.4 million with a blended
interest rate of approximately 8.8% per annum. The Company currently is
negotiating with a group of banks for the New Credit Facility which is
expected to provide for borrowings of up to $100.0 million. No commitment has
been issued with respect to the New Credit Facility, and there can be no
assurances that it will be obtained.
In connection with the Company's acquisition of GIS, the Company is required
to pay $0.5 million of the purchase price on a deferred basis in the fourth
quarter of fiscal 1998. In addition, the Company paid $1.1 million to the
former GIS shareholder in fiscal 1997 based on the Company's earnings from
former GIS clients and expects to make a similar payment in fiscal 1998.
Effective April 1, 1997, the Company entered into a new license agreement
with a major software vendor for software used for IT outsourcing services
clients. This agreement permits the Company to increase its outsourcing client
base and mainframe capacity to double current levels without an increase in
the fixed license fee for seven years. This new arrangement increased rents,
leases and maintenance expenses for the three months ended December 31, 1997
compared to the three months ended December 31, 1996.
20
<PAGE>
Prior to fiscal 1997, the Company's capital expenditures ranged from
approximately $3.0 million to $7.0 million per year. During fiscal 1997, the
Company's capital expenditures of $19.3 million included expenditures for
mainframe and mid-range computers and related equipment, and equipment to
support the Company's network services agreement with American National Can.
The Company expects capital expenditures in calendar year 1998 to be
approximately $15.0 million.
Software development costs of $7.1 million were capitalized in fiscal 1997.
The Company does not expect research and development expenses to increase
materially as a percentage of revenues in the future.
The Company believes that cash flow from operations, together with the
estimated net proceeds from the sale of the Notes and funds available under
the Existing Credit Facility, will be sufficient to fund its operating
expenses, and working capital, capital expenditures and debt service
requirements through at least fiscal 1999.
QUARTERLY COMPARISONS
The following table sets forth certain quarterly financial information of
the Company for each quarter of fiscal 1996 and fiscal 1997 and for the first
quarter of fiscal 1998. The information has been derived from the quarterly
financial statements of the Company which are unaudited but which, in the
opinion of management, have been prepared on the same basis as the audited
financial statements included herein and include all adjustments (consisting
only of normal recurring items) necessary for a fair presentation of the
financial results for such periods. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
the other financial information appearing elsewhere in this Prospectus. The
operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1996 1996 1996(1) 1996(1) 1997(1) 1997(1) 1997(1) 1997(1)(2)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $16,044 $19,133 $19,997 $22,050 $21,229 $21,693 $23,625 $25,910 $26,351
Operating income....... 3,070 4,154 4,855 4,947 4,090 4,347 5,348 6,677 1,592
Net income............. 1,661 2,369 3,067 3,126 2,367 2,419 3,087 3,842 656
PERCENTAGE OF NET
REVENUES:
Operating income....... 19.1% 21.7% 24.3% 22.4% 19.3% 20.0% 22.6% 25.8% 6.0%
Net income............. 10.4 12.4 15.3 14.2 11.1 11.2 13.1 14.8 2.5
</TABLE>
- ---------------------
(1) Includes the results of operations of GIS, effective July 1, 1996.
(2) Includes a one-time, pre-tax restructuring charge of $4.7 million ($2.9
million after-tax).
A significant portion of the Company's quarterly net revenues is derived
from new projects for clients, the timing of which are outside the Company's
control. Operating income and net income as a percent of net revenues have
fluctuated from quarter to quarter principally as a result of the hiring of
new employees and the expansion of computing capacity in response to increased
demand. This quarterly fluctuation is primarily due to the fixed nature of
these expenses and the time difference between such expenses and the
generation of revenues.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits, rather than four, to define the applicable year. Accordingly, any
of the Company's computer programs that have date sensitive software may cause
system failures or miscalculations if data entry of "00" is recognized as 1900
rather than 2000.
Based on a recent assessment, the Company determined that it is required to
modify portions of its software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company believes that
21
<PAGE>
with upgrades or modifications to existing software and conversion to new
software, the impact of the Year 2000 Issue can be mitigated. However, if such
upgrades, modifications and conversions are not made, or are not made in a
timely manner, the Year 2000 Issue could have a material impact on the
Company's operations.
The Company will utilize both internal and external resources to reprogram,
or replace, and test software for Year 2000 compliance. The Company has a
full-time manager dedicated to addressing Year 2000 compliance for the
Company, clients and vendors. The Company expects to complete all material
aspects of the Year 2000 project not later than December 31, 1998. The total
Year 2000 project cost is estimated to be $1.0 million to $3.0 million.
Amounts incurred are expected to be expensed as incurred, unless new software
is purchased which will be capitalized. The Company has not incurred
significant costs prior to December 31, 1997 other than internal costs to
evaluate the extent of Year 2000 compliance and to develop a remediation plan.
The costs of the Year 2000 project and the schedule for completion of Year
2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates
will be achieved and actual results could differ materially from those plans.
22
<PAGE>
BUSINESS
May & Speh provides computer-based information management services with a
focus on direct marketing and IT outsourcing services. The Company's direct
marketing services help companies execute more profitable direct marketing and
customer management programs. Services include strategic analysis and strategy
management; systems consulting; custom data warehouse and datamart design,
build, implementation and management; statistical (predictive) modeling and
analysis; and list processing. May & Speh's IT outsourcing services support
multi-platform processing and network management for clients seeking to
outsource their IT operations. The Company's direct marketing and IT
outsourcing services are synergistic and allow the Company to leverage its
investment in its technical personnel and state-of-the-art data processing
facilities, as well as its core competencies in customized software systems
development, large database management, high speed data processing and data
center management.
MARKET OVERVIEW
DIRECT MARKETING SERVICES
Direct marketing enables the delivery of a customized message to a defined
audience and the measurement of the response to that message. The marketing
program can then be evaluated, refined and continuously improved. Effective
direct marketing programs require a detailed understanding of customers' and
prospective customers' purchasing patterns to promote more relevant and timely
offers. The ability to measure the response to a specific marketing program
allows the financial return on marketing expenditures to be analyzed. The use
of direct marketing by businesses has increased significantly in recent years,
as has spending in support of direct marketing activities. Industry sources
estimate that United States expenditures for information and database services
in connection with direct marketing activities were approximately $17.0
billion in 1996, and that such expenditures are growing at an annual rate of
15% to 20%.
Demographic shifts and lifestyle changes, combined with a proliferation of
new products and services and the evolution of new marketing mediums
(including cable, telemarketing, direct mail, direct response, on-line
services and the Internet) have made marketing campaigns increasingly complex.
At the same time, marketing costs have been subjected to growing scrutiny by
marketing managers. Many marketers have responded to these pressures by
reallocating their expenditures from traditional mass marketing to direct
marketing.
Direct marketing programs depend upon the ability of a marketer to access
information about their customers and prospects. Historically, valuable sales
and customer data within large corporations was often inaccessible as it
resided in various incompatible systems. Through advances in computer and
software technology, it is now possible to compile very large databases using
disparate customer record files combined with data collected from compiled
lists owned by third parties. With the development of relational and
multidimensional databases, marketers can add new categories of data without
having to redesign or rebuild their databases, making it possible to use this
data in order to develop customer profiles based on many different attributes.
Finally, the development of decision support software has allowed utilization
of database marketing at the decision maker level in a client/server
environment.
Direct marketing service providers require the technical resources to manage
exceptionally large relational and multidimensional databases and the software
capabilities to convert vast amounts of data into usable information. These
functions must be performed within tight time constraints making processing
speed critical. Many companies choose not to invest in the technological
resources necessary to build these capabilities and as a result, choose to
outsource database management and list processing services to a proven vendor
as a more effective means of accessing the latest technological resources and
expertise.
IT OUTSOURCING
IT outsourcing includes the provision and management of all or a portion of
a client's data processing and information systems functions. In essence, the
IT outsourcing services vendor assumes the client's data center
23
<PAGE>
functions and the client continues to retain direct access to their
information, although the hardware and software are no longer located on the
client's premises. Increasingly, companies are outsourcing their information
processing applications as part of an overall effort to focus internal
resources on their core competencies while improving operating efficiencies
and reducing costs. According to G2 Research Inc., total expenditures for IT
outsourcing services in the United States were approximately $32.7 billion in
1996, and such expenditures are projected to grow at an average annual rate of
approximately 25.2% through 2001.
Many companies' IT departments are burdened with increasing demands for
instant access and communication of large amounts of data to multiple
locations in real time, requiring high speed processing and telecommunications
capabilities. In addition, because computing technology is evolving rapidly,
companies are increasingly faced with the decision to either continually
invest a significant amount of capital in new technology or to outsource. The
increasing demands on IT departments coupled with the significant ongoing
investments required to remain technologically current are key factors in the
growing trend towards outsourcing. The advantages to organizations of
outsourcing their data processing activities include improved flexibility,
reduced capital investments, higher performance and service levels, improved
speed of delivery, capacity on demand and cost control.
The Company believes that the market in which it competes is best defined by
the scale of its clients' data processing requirements, not by such clients'
revenues. Typically, the scale of these requirements is large but not of a
size typically sought by the larger outsourcing service providers. The Company
believes that its data center processing capabilities, while not of a similar
scale, are similar to or better than the capabilities of its large competitors
in terms of throughput, turnaround capabilities and state-of-the-art equipment
utilized.
MAY & SPEH'S COMPETITIVE STRENGTHS
The Company believes it has competitive strengths which have contributed to
its growth and profitability. These include:
Integrated Database Management Solutions. May & Speh offers integrated
database management solutions focused on targeted industries. These integrated
solutions include marketing strategy execution; prospect data and data
enhancement services; database design and maintenance; on-line access and
decision support tools; data modeling, profiling and analysis; and ongoing
strategic evaluation and management. The Company believes that this approach
is a competitive strength because it offers clients strategic direct marketing
tools rather than generic data processing services, resulting in the Company's
integrated database management solutions becoming integral to clients
executing their marketing strategies.
Focus on Targeted Industries. May & Speh's direct marketing services focus
on clients in targeted industries including financial services, retail,
consumer goods, insurance and high tech. The Company believes that as a result
of its focus and experience in specific industries, its sales and technical
personnel better understand the data processing needs, competitive dynamics
and regulatory issues of its clients.
Investment and Scale of its Client Service and Technical Infrastructure. May
& Speh's direct marketing and IT outsourcing services continue to benefit from
its investments in technical personnel and technology. The Company has a
current staff of over 500 skilled IT and direct marketing services personnel,
and maintains state-of-the-art data processing facilities. As a result of
these investments, the Company has developed its client service and technical
infrastructure to a significant scale, which enables the Company to develop
and support mainframe, mid-range and network applications and platforms,
accommodate growth and provide efficient and flexible services.
Long-Term Client Relationships with Recurring Revenues. May & Speh's long-
term client relationships provide the Company with recurring revenues. Over
50% of the Company's fiscal 1997 revenues were derived from clients who have
used the Company's services for over three years. The Company's direct
marketing revenues are typically recurring because its direct marketing
services become an integral part of the clients' marketing programs and a
portion of these revenues are derived through multi-year contracts. The
Company's IT outsourcing revenues are typically recurring and generated
through multi-year contracts.
24
<PAGE>
Significant Operating Flexibility. May & Speh's financial position provides
the Company with significant operating flexibility. The Company has generated
operating margins in excess of 20% in each of the last four fiscal years.
These operating margins have enabled the Company to reinvest the cash
generated from operations for strategic expenditures, including technology,
skilled technical personnel and capital investments relating to new clients.
GROWTH STRATEGY
May & Speh's strategy is to continue to grow its business by leveraging its
competitive strengths. The principal components of May & Speh's growth
strategy are:
Offer Integrated Database Management Solutions. May & Speh continues to
develop integrated database management solutions focused on targeted
industries which are expected to continue to attract new clients with
significant direct marketing budgets and increase revenues from existing
clients. May & Speh's approach offers integrated solutions rather than
general, disparate services and systems.
Increase Penetration of Existing Targeted Industries and Target New
Industries. Currently, May & Speh's direct marketing services target the
financial services, retail, consumer goods, insurance and high tech
industries. The Company believes these industries offer significant
opportunity for direct marketing services, and continues to focus on
attracting additional clients within these targeted industries. In addition,
the Company believes that direct marketing is increasingly prevalent in the
utilities, telecommunications, automotive and healthcare industries, and that
such industries provide attractive near term opportunities for potential
penetration.
Extend IT Outsourcing Services. May & Speh continues to extend its IT
outsourcing service offerings. In order to build upon and complement its
traditional mainframe outsourcing services, the Company offers client/server
outsourcing and network management services. The Company's strengthened IT
outsourcing capabilities have resulted in the addition of new clients and
contracts such as May & Speh's $41 million, five-year contract with American
National Can. Under this agreement, American National Can is outsourcing its
entire IT infrastructure to the Company including client/server, mainframe and
network management services. The Company believes its broad range of IT
outsourcing services and expertise will continue to attract new clients and
expand relationships with current clients.
Expand Sales Efforts. The Company plans to increase the number of new
clients by expanding its sales efforts in both direct marketing and IT
outsourcing. The direct marketing sales force is focused on increasing
penetration within current targeted industries as well as penetrating new
industries. In IT outsourcing services, the Company intends to continue
focusing on US-based companies with mid-level processing requirements. In
addition, the Company plans to expand its sales presence in certain geographic
areas for both direct marketing and IT outsourcing services.
Pursue Strategic Acquisitions and Alliances. May & Speh will continue to
explore strategic acquisitions and alliances for additional growth
opportunities. The Company will seek to acquire or form alliances with
companies that have services, technologies, industry specialties or personnel
that would complement or extend those of the Company and facilitate the
addition of new clients. For example, the Company recently agreed to form
Energy Market Connect, LLC, a joint venture with Metzler & Associates, a
leading provider of management consulting services to the energy industry. The
Company believes this joint venture will provide a new sales channel and
enable the Company to incorporate utilities industry expertise in its
integrated database management solutions for the utilities industry. In May
1997, the Company also formed a strategic alliance with Trans Union
Corporation, the nation's leading credit reporting company. The alliance will
combine May & Speh's expertise in creating custom and generic models with
Trans Union Corporation's data management capabilities.
25
<PAGE>
SERVICES AND PRODUCTS
DIRECT MARKETING SERVICES
May & Speh provides comprehensive direct marketing services, including
database creation, data warehousing, data enhancement, predictive behavioral
modeling and list processing. Rather than selling standard products and
services to its clients, the Company's approach has been to design and
implement creative custom database solutions around the specific needs of its
clients. The principal advantages of customized services include (i) the
ability of the database to expand and adapt to the client's changing business
needs, (ii) the ability to have these services developed on a platform of the
client's choosing, and (iii) the integration of database services with the
list processing services necessary to keep the database current.
Database Management Services. May & Speh's broad range of database
management services begins with the Company's proven approach to database
development which includes planning and analytical processes to determine the
client's needs. Typically, direct marketing databases originate with the
client's own files, both current and historical, which generally include name,
address and gender, as well as frequency and value of products purchased.
May & Speh analyzes all of the client's disparate operational files and
determines what data will add value and can be made actionable. Utilizing both
proprietary and commercial software, the Company consolidates all of the
disparate information and relationships across multiple files and converts the
client's raw information into a clean, consolidated format so that
relationships can be understood at both the customer and household levels.
Once the client's customer data is consolidated and the database created,
May & Speh enhances the data by utilizing a wide selection of demographic,
geographic, census (age, approximate income level, education level and
household composition) and lifestyle information for over 100 million
individuals and households. May & Speh licenses this information from leading
data compilers. The combination of each client's proprietary customer
information with these external data files provides a complete profile of a
client's customers, enabling the client, through the use of May & Speh's
behavior modeling and analysis services, to act on the data. Through the
development of a scoring model, the client can segment its database and
determine its best customers and prospects in each marketplace. The entire
process results in a marketing program that can be targeted to distinct
audiences with a high propensity to buy the client's products. These databases
typically reside at May & Speh's data center. Because of the dynamic nature
and complexity of these databases, May & Speh is routinely asked by its
clients as part of their ongoing direct marketing efforts to update the
databases with the results of recent marketing programs and to periodically
perform the list processing service described below.
List Processing Services. List processing includes the preparation and
generation of comprehensive name and address lists which are used in direct
marketing promotions. May & Speh's state-of-the-art data center and large
volume processing capabilities allow the Company to meet the direct marketing
needs of its clients, processing over seven billion records through its
advanced list processing software services in fiscal 1997. May & Speh
customizes a list processing solution by utilizing a variety of commercial and
proprietary software products, such as Address Conversion and Reformat,
Address Standardization and Enhanced Merge/Purge, as well as products which
are licensed through the United States Postal Service such as National Change
of Address, Delivery Sequence File and Locatable Address Conversion System.
Other licensed products are databases used for suppressions such as the Direct
Marketing Association's Mail Preference File, the American Correctional
Association Prison Suppress File and other files.
May & Speh's list processing services seek to reduce its clients' mailing
costs. For instance, because approximately 15% to 20% of the population moves
each year, mailings may be misaddressed or not delivered at all. Through the
utilization of May & Speh's Merge/Purge, Address Standardization software,
National Change of Address database, Delivery Sequence File and Locatable
Address Conversion Database, the Company can eliminate most duplicate names as
well as reduce the amount of undeliverable items by an average of 6%.
Quiddity(TM). In fiscal 1997, development activities were substantially
completed for Quiddity and this new product was introduced to clients and
prospects. Quiddity is an on-line relational and open database management
26
<PAGE>
system designed specifically for marketing professionals. The product's user-
friendly format allows non-technical users to easily access and directly work
with marketing databases to create more targeted and profitable one-to-one
marketing programs. Quiddity integrates custom-developed and commercial
software that complement the Company's suite of direct marketing services. Key
features include open architecture, scaleable platforms and an object-oriented
application that is work-flow-oriented and intuitive.
IT OUTSOURCING
May & Speh's primary IT outsourcing service is to manage all or a portion of
a client's information processing needs on a cost effective basis from the
Company's data center. After migrating their workload to the Company's data
center, clients continue to retain direct access to their information from
their remote sites. The Company also provides, to a much lesser extent,
applications outsourcing services which include the replacement of a client's
in-house technical development staff.
The primary outsourcing services provided include migration (takeover and
turnover) support, on-line and batch processing capacity, technical support,
help desk access and support, back-up and recovery, disaster recovery
services, operations support, account management, media (tapes, documents,
high speed Direct Access Storage Devices subsystems ("DASD"), etc.) management
and handling, production control, telecommunications and network management
support. These services and support functions are available 24 hours a day,
seven days a week.
Historically, the Company's success in IT outsourcing has resulted in part
from its ability to provide its services with minimal disruption to the
client. The Company has established rigorous formal processes to ensure a
successful ongoing processing of a client's workload at the Company's data
centers.
MARKETING AND SALES
The Company markets its direct marketing and IT outsourcing services through
separate direct sales forces. Maintaining a separate sales force for each
service offering allows the Company's sales representatives to concentrate on
particular services, technology and customer demands, thereby staying abreast
of developments in these areas. Sales representatives are encouraged to
identify cross-selling opportunities. The Company's sales force compensation
system provides incentives to salespeople to focus on both attracting larger
clients and selling the Company's most profitable services.
Pricing for direct marketing services is dependent upon the complexity of
service required. In general, May & Speh establishes a price list for clients
detailing the prices for a broad range of service options. These prices are
based on the nature and complexity of the services, volume of records to be
processed and the level of customization required. Additionally, if the level
of up-front customization is high, the Company charges development fees based
on the level of customization required.
Pricing for IT outsourcing services is dependent upon the anticipated range
of resource consumption. Typically, clients are charged a flat or stepped rate
for IT outsourcing services provided under multi-year contracts. If the
processing time, data storage, retrieval requirements and output volume exceed
the budgeted amounts, the client is charged additional amounts. Minimum
charges and early termination charges are typically included in contracts.
CLIENTS
The Company has over 180 direct marketing clients, including Fortune 500
companies and other large and medium-sized companies that have significant
direct marketing requirements. These clients are primarily in the financial
services, retail, consumer goods, insurance and high tech industries. The 10
largest direct marketing clients represented approximately 62.8% of the
Company's direct marketing net revenues in fiscal 1997.
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<PAGE>
The Company has approximately 150 IT outsourcing clients. These clients are
located primarily in the mid-western United States. The 10 largest outsourcing
clients represented approximately 45.5% of the Company's IT outsourcing
services net revenues in fiscal 1997.
The Company seeks to maintain long-term relationships with its clients. In
fiscal 1997, over 50% of net revenues were derived from clients served by the
Company for more than three years including Sears, the Company's first client
in 1947. In fiscal 1997, Sears accounted for approximately 18.9% of the
Company's net revenues. Net revenues from the Company's 10 largest clients in
fiscal 1997 increased 31.8% from fiscal 1996. IT outsourcing clients typically
operate under contracts, usually three years in length. Direct marketing
clients have traditionally maintained multi-year relationships with May &
Speh, although many of the Company's direct marketing clients are not under
long-term contracts.
TECHNOLOGICAL RESOURCES AND FACILITIES
The Company maintains state-of-the-art data facilities with approximately
6,000 MIPS (million instructions per second) of mainframe and UNIX processing
power. The Company's processors include a Hitachi Skyline Series mainframe
computer, the world's fastest IBM-compatible processor, a Hitachi GX/8824
series mainframe computer capable of executing 390 MIPS, and four Hitachi
Pilot mainframe computers, which are the fastest CMOS, IBM-compatible
mainframe computers. The Company utilizes other state-of-the-art data center
components, such as robotic tape sub-systems, high-speed laser, LED and impact
printers and high speed DASD. The Company supports multiple platforms
including mainframe, UNIX and other mid-range computer systems.
The Company maintains a disaster recovery plan with a commercial disaster
recovery service to provide alternative data processing sites in the event the
Company experiences a natural disaster or other interruption at its data
center. The Company conducts recovery exercises several times per year and
encourages its clients to join in this process.
The Company's headquarters building was custom-designed to be a secure data
center environment. Building characteristics include 24-hour security
protection, television surveillance, fire and motion alarms and a fire
protection system backed up by a sprinkler system. The Company added a
generator system which allows it to be self-sufficient if there is a power
outage by operating continually until power is restored by the electric
utility provider.
COMPETITION
The markets in which the Company operates are highly competitive, with no
single dominant competitor. Although numerous smaller companies compete in the
direct marketing and IT outsourcing markets, the Company regularly competes
with companies that have more extensive financial, marketing and other
resources than the Company. Many of the Company's competitors have
substantially greater assets and thus, may have a greater ability to obtain
client contracts where sizable asset purchases or investments are required.
In the direct marketing services market, competition is based on the quality
and reliability of products and services, technological expertise, historical
experience, ability to develop customized solutions for clients, processing
capabilities and price. Management believes that the Company competes
favorably in this market based upon these competitive factors. The Company's
principal competitors include Acxiom Corporation, Database America Companies,
a subsidiary of American Business Information, Inc., Harte-Hanks
Communication, Inc. and Metromail Corporation.
In the IT outsourcing market, competition is based on the quality and
reliability of services, technical expertise, processing capabilities,
processing environment and price. Management believes that the Company
competes favorably in this market based upon these competitive factors.
Although there are many competitors within the IT outsourcing services
marketplace, the Company's principal competitors are Affiliated Computer
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<PAGE>
Services, Inc., Lockheed Martin Corporation, PKS Information Services, Inc.
and other regional outsourcers. In addition, but on a less frequent basis, the
Company competes with International Business Machine Corporation's Global
Services division, Electronic Data Systems Corporation, Computer Sciences
Corporation, Perot Systems Corporation and MCI/Systemhouse, Inc., a subsidiary
of MCI Communications Corp.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon its trade secret protection program and
nondisclosure safeguards to protect its proprietary technologies. The Company
enters into license or other agreements with its clients in the ordinary
course of business which contain terms and conditions prohibiting unauthorized
reproduction of the Company's products. In addition, the Company generally
enters into confidentiality agreements with its employees, clients, potential
clients and suppliers with access to sensitive information and limits access
to and distribution of its software documentation and other proprietary
information. While there can be no assurance that the steps taken by the
Company will be adequate to deter misappropriation of its proprietary rights,
the Company believes that due to the rapid pace of technological change in the
Company's business, legal protections afforded through patent protection for
its products are less significant than the knowledge, ability and experience
of its employees, the frequency of product enhancements and the timeliness and
quality of support.
EMPLOYEES
As of December 31, 1997, the Company employed 579 persons and utilized 52
full-time equivalent contract personnel. None of the Company's employees are
represented by a labor union, and the Company believes that its relations with
employees are good.
PROPERTIES
The Company's executive offices and principal operations are located at 1501
Opus Place, Downers Grove, Illinois, in a 105,352 square foot building leased
from a third party for a term of 20 years. The facility is comprised of 67,352
square feet of office space, 25,000 square feet of raised floor facilities
which house the Company's data center and 13,000 square feet of tape library.
The Company currently occupies an additional 20,000 square feet in connection
with the Company's network services agreement with American National Can, and
leases 127,448 square feet of warehouse and office space in three separate
locations in the metropolitan Chicago area with lease terms expiring on
various dates through August 2002.
The Company has executed a 20 year lease for a 200,000 square foot office
building under construction on property adjacent to the Company's executive
offices. The lease commences upon completion of the building which is expected
in September 1998.
The Company believes that its existing facilities are adequate for its
present needs and that the additional facilities proposed for construction
will be sufficient to sustain the growth of the Company for the foreseeable
future. Notwithstanding, the Company believes that additional space will be
available for lease on commercially reasonable terms on an as needed basis.
CONSUMER PRIVACY AND LEGISLATIVE ISSUES
The direct marketing industry could be adversely affected by growing
consumer awareness of privacy issues. The Company has adopted several policies
to address these privacy concerns. The Company requires each employee to sign
an agreement not to disclose confidential information. The Company's data
center has a sophisticated data security system, which includes 24-hour
security protection, television surveillance and limited access to
confidential information. Periodically, the Company undergoes a detailed audit
of its security system. In addition, the Company subscribes to a Direct
Marketing Association ("DMA") service which allows consumers to request not to
receive unsolicited direct mail offers. At a client's request, the Company
will purge the client lists of all names appearing on the DMA list.
Furthermore, under FCRA, the Company's clients are
29
<PAGE>
required to provide the Company with the names of consumers wishing to be
removed from certain lists. Management believes that the policies and
procedures that have been implemented, together with the Company's continuing
efforts to remain informed and responsive to privacy concerns, will prevent
the Company from being adversely affected by increased public concern over
privacy issues.
In 1996 FCRA was amended to provide consumers with easier access to their
credit reports and to facilitate the correction of errors in such reports. New
regulations interpreting the amendments were issued by the FTC in 1997. The
legislation also addresses the issue of "prescreening," a procedure utilized
by many bankcard issuers and insurance companies in their direct marketing
programs. This legislation regulates the use of credit reports in the
preparation and generation of lists used by companies in offering credit. This
law also provides for significant fines for misusing credit reports. Although
the Company believes its list processing activities for credit grantors are in
compliance with the recent amendments to FCRA, due to its recent adoption,
there is uncertainty as to its interpretation and application. Therefore,
there can be no assurances that significant fines will not be levied against
the Company or that this portion of its list processing services will not be
adversely affected. While the Company provides list processing activities for
credit grantors as part of its direct marketing services, such activities
accounted for less than $5.0 million in net revenues in fiscal 1997.
30
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES HELD
- ---- --- --------------------------
<S> <C> <C>
Peter I. Mason.......... 45 Chairman, President and Chief Executive Officer
Terrance C. Cieslak..... 51 Executive Vice President and Chief Technology Officer
Robert C. Early......... 45 Executive Vice President, Corporate Development, and a Director
Michael J. Loeffler..... 40 Executive Vice President, Direct Marketing Services
Eric M. Loughmiller..... 38 Executive Vice President, Chief Financial Officer and Secretary
John G. Jazwiec......... 38 Senior Vice President and Chief Information Officer
Willard E. Engel, Jr.... 51 Vice President, Chief Accounting Officer and Treasurer
Albert J. Speh, Jr...... 78 Chairman Emeritus
Deborah A. Bricker...... 45 Director
Casey Cowell............ 45 Director
Lawrence J. Speh........ 48 Director
Paul G. Yovovich........ 44 Director
Jonathan Zakin.......... 48 Director
</TABLE>
Peter I. Mason has been a director of the Company since November 1994, and
has served as President and Chief Operating Officer of the Company since May
1997, as President and Chief Executive Officer since October 1997 and as
Chairman since November 1997. Prior to joining May & Speh, Mr. Mason was a
partner in the Chicago law firm of Freeborn & Peters, which he co-founded in
1983, and served as chairman of its operating committee from 1986 to 1996. He
served as a director of U.S. Robotics Corporation from 1983 to 1997, and
currently serves as a director of Mastering, Inc. and several privately held
businesses.
Terrance C. Cieslak has served as Executive Vice President and Chief
Technology Officer since October 1995 and is responsible for systems
management and integration for the Company. Since joining the Company in 1987,
Mr. Cieslak has served in a variety of senior management positions including
Technical Support Manager, Data Center Manager and Vice President of Services
and Solutions. Prior to joining the Company, Mr. Cieslak worked with
Electronic Data Systems Corporation and Official Airline Guide.
Robert C. Early has served as Executive Vice President, Corporate
Development since January 1997. Prior to that, Mr. Early served as Executive
Vice President, Chief Financial Officer and Treasurer of the Company from
October 1995 through January 1997 and Director of Corporate Growth for the
Company from 1993 through October 1995. Mr. Early also has served as a
director of the Company since November 1994. Prior to joining the Company, Mr.
Early worked as an independent contractor with business advisory firms,
including Ridge Capital Corp. and Ridge Advisors, Inc., which provide merger
and acquisitions, capital financing and strategic planning advisory services.
From 1990 through 1992 Mr. Early was also Vice Chairman of Consolidated
Convenience Systems, Inc., a holding company. Prior to 1990, Mr. Early spent
approximately 12 years at Grant Thornton LLP, and was the partner responsible
for the Chicago office Capital Markets Group from 1985 through 1990.
Michael J. Loeffler has served as Executive Vice President, Direct Marketing
Services since April 1996 and is responsible for the direct marketing services
group of the Company. Mr. Loeffler joined May & Speh in 1988 as an Account
Executive and has also served as Vice President of Sales and Sales Manager.
Prior to joining May & Speh, Mr. Loeffler had seven years of experience in the
direct marketing industry with UARCO, Inc. and Colorforms Division of Wallace
Press.
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<PAGE>
Eric M. Loughmiller has served as Executive Vice President and Chief
Financial Officer of the Company since January 1997. Prior to joining May &
Speh, Mr. Loughmiller was an audit partner at Price Waterhouse LLP where he
had spent over 15 years in that firm's Accounting and Business Advisory
Services practice. Mr. Loughmiller is a Certified Public Accountant.
John G. Jazwiec has served as Senior Vice President and Chief Information
Officer of the Company since May 1997. He joined the Company with over 15
years experience in data processing services with a background in both
mainframe and client server platforms. From 1994 to 1997, Mr. Jazwiec served
as Vice President and CIO of Fiserv, a banking outsourcing firm. Prior to that
time, he served as Vice President and CIO of Siebe Environmentals, a
subsidiary of Siebe PLC.
Willard J. Engel, Jr. has served as Vice President and Chief Accounting
Officer of the Company since 1986 and in other financial and accounting
capacities since 1972. Effective January 1997, Mr. Engel became Treasurer and
Chief Accounting Officer.
Albert J. Speh, Jr. co-founded the Company and served as Chairman of the
Board of Directors from 1992 to November 1997. Prior to founding the Company,
Mr. Speh served in the Armed Forces during World War II. He was later employed
by Sears, General Finance, Inc. and Encyclopedia Britannica in the field of
data processing. Mr. Speh currently serves as a consultant to the Company and
on the board of Fenwick High School.
Deborah A. Bricker is the President of Bricker & Associates Inc., a
productivity consulting firm based in Chicago, Illinois which she founded in
1979. Ms. Bricker has served as a director of the Company since March 1996.
Casey Cowell has served as Vice Chairman of 3Com Corporation since June
1997. From January 1996 to May 1997, Mr. Cowell was Chairman and Chief
Executive Officer of U.S. Robotics Corporation. Prior to January 1996, he
served for approximately 12 years as Chairman, President and Chief Executive
Officer of U.S. Robotics Corporation. Mr. Cowell has served as a director of
the Company since May 1997. Mr. Cowell currently serves as a director of 3Com
Corporation, Mastering, Inc. and System Software Associates.
Lawrence J. Speh served as Chief Executive Officer of the Company from
January 1993 to September 1997, and as President from January 1993 to May
1997. Mr. Speh currently serves as a consultant to the Company. From 1977
until June 1988, Mr. Speh held various senior management positions with the
Company including President of Direct Marketing Services, Marketing Director
and Treasurer.
Paul G. Yovovich served, from 1993 to 1996, as President of Advance Ross
Corp., a public company until its 1996 merger with CUC International. He
served in various executive capacities at Centel Corporation from 1982 to
1992, including as President of Central Telephone Co., a subsidiary of Centel,
from 1990 to 1992. Mr. Yovovich has served as a director of the Company since
May 1997. Mr. Yovovich is a director of 3Com Corporation, APAC TeleServices,
Inc., Comarco, Inc. and Mastering, Inc.
Jonathan Zakin currently serves as President of Leeward Management/ Seaview
Holdings. From 1987 to 1997, Mr. Zakin served in various senior management
positions and was a director of U.S. Robotics Corporation. Mr. Zakin has
served as a director of the Company since November 1997.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of February 13, 1998, the number of
shares of Common Stock beneficially owned by all persons known by the Company
to beneficially own more than five percent of the outstanding Common Stock,
each director of the Company, certain executive officers and all directors and
executive officers as a group. Unless otherwise indicated, the persons named
below have sole voting and investment power with respect to all shares shown
as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
May & Speh, Inc. Employee Stock Ownership
Plan(1)................................... 8,086,849 31.6%
Lawrence J. Speh(2)........................ 3,973,517 15.4
Albert J. Speh, Jr.(3)..................... 1,672,503 6.5
Robert C. Early(4)......................... 185,130 *
Michael J. Loeffler(5)..................... 177,158 *
Terrance C. Cieslak(6)..................... 170,666 *
Casey Cowell............................... 100,004 *
Peter I. Mason(7).......................... 91,200 *
Jonathan Zakin(8).......................... 68,003 *
Deborah A. Bricker(9)...................... 14,400 *
Paul G. Yovovich........................... 5,000 *
All directors and executive officers as a
group (13 persons)(2)(3)(10).............. 6,563,377 25.2
</TABLE>
- ---------------------
*Less than one percent.
(1) The address of the May & Speh, Inc. Employee Stock Ownership Plan (the
"ESOP") is c/o Cole Taylor Bank, 850 W. Jackson Blvd., Chicago, Illinois
60607. Includes 6,899,180 shares that have been allocated or are
available for allocation to the accounts of certain employees or former
employees of the Company. ESOP participants have shared voting and
investment power with respect to the shares allocated to their individual
accounts. The ESOP has agreed to sell 1,503,790 shares in the Common
Stock Offering.
(2) Includes 176,000 shares issuable pursuant to currently exercisable
options, and 3,758 shares allocated to Mr. Speh's ESOP account. Also
includes 40,612 shares held by Mr. Speh's wife, as to which he disclaims
beneficial ownership. Mr. Speh's address is c/o May & Speh, Inc., 1501
Opus Place, Downers Grove, Illinois 60515. Mr. Speh has agreed to sell
1,883,989 shares in the Common Stock Offering.
(3) Includes 3,758 shares allocated to Mr. Speh's ESOP account. Mr. Speh's
address is c/o May & Speh, Inc., 1501 Opus Place, Downers Grove, Illinois
60515. Mr. Speh has agreed to sell 612,221 shares in the Common Stock
Offering.
(4) Includes 120,803 shares issuable pursuant to currently exercisable
options, and 43,015 shares allocated to Mr. Early's ESOP account.
(5) Includes 91,100 shares issuable pursuant to options that are currently
exercisable or that will become exercisable within 60 days, and 86,058
shares allocated to Mr. Loeffler's ESOP account.
(6) Includes 75,100 shares issuable pursuant to options that are currently
exercisable or that will become exercisable within 60 days, and 95,566
shares allocated to Mr. Cieslak's ESOP account.
(7) Includes 14,400 shares issuable pursuant to options that are currently
exercisable or will become exercisable within 60 days.
(8) Represents shares held by a family foundation with respect to which Mr.
Zakin has shared voting and investment power.
(9) Represents shares issuable pursuant to options that are currently
exercisable or will become exercisable within 60 days.
(10) Includes 441,803 shares issuable pursuant to options that are currently
exercisable or that will become exercisable within 60 days, and 321,575
shares allocated to the ESOP accounts of the executive officers.
33
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth, as of February 13, 1998, certain information
regarding beneficial ownership of shares of Common Stock by the Selling
Stockholders and as adjusted to reflect the sale of shares of Common Stock
offered hereby by such Selling Stockholders. See also "Management" and
"Principal Stockholders" for additional information regarding the Selling
Stockholders.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED NUMBER OF SHARES OWNED
SELLING STOCKHOLDERS: PRIOR TO THE OFFERING OFFERED AFTER THE OFFERING
- --------------------- ----------------------------------------- -----------------------
NUMBER PERCENT NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
May & Speh, Inc.
Employee Stock
Ownership Trust (1).... 8,086,849 31.6 1,503,790 6,583,059 25.6
Lawrence J. Speh (2).... 3,973,517 15.4 1,883,989 2,089,528 8.1
Albert J. Speh, Jr. (3). 1,672,503 6.5 612,221 1,060,282 4.1
</TABLE>
- ---------------------
(1) Includes 6,899,180 shares that have been allocated or are available for
allocation to the accounts of certain employees or former employees of the
Company, of which 1,503,790 shares are being offered in the Common Stock
Offering. ESOP participants have shared voting and investment power with
respect to the shares allocated to their individual accounts.
(2) Includes 176,000 shares issuable pursuant to currently exercisable
options, all of which will be exercised prior to the Common Stock
Offering. Shares owned prior to the Common Stock Offering include shares
held in trust for the benefit of Mr. Lawrence J. Speh, Kathleen M.
Malinger (Albert J. Speh, Jr.'s daughter, Mr. Lawrence J. Speh's sister
and a former executive officer and director of the Company), Albert J.
Speh, III (Albert J. Speh, Jr.'s son and Mr. Lawrence J. Speh's brother)
and twelve other trusts for the benefit of grandchildren and great
grandchildren of Albert J. Speh, Jr. Lawrence J. Speh serves as sole
trustee of each of these trusts and has sole voting and investment power
with respect to the shares held by the trusts. 1,707,989 of the shares
being offered in the Common Stock Offering are offered by such trusts. Of
such shares, 1,011,793 are offered by trusts other than for the direct
benefit of Mr. Lawrence J. Speh and 696,196 are for his direct benefit.
Mr. Speh is currently a director of the Company and was formerly its Chief
Executive Officer.
(3) Includes 200,000 shares held by The Albert J. Speh, Jr. Foundation for
which Mr. Speh serves as sole trustee. Also includes 11,127 shares held in
trust for the benefit of a grandchild. Mr. Speh serves as sole trustee of
the trust and has sole voting and investment power with respect to the
shares held by the trust. Mr. Speh is currently a director and Chairman
Emeritus of the Company and was formerly its Chairman.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, $.01 par value per share and 2,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
As of February 13, 1998, there were 25,554,054 shares of Common Stock
outstanding held by approximately 115 stockholders of record. Subject to
preferences that may be applicable to any outstanding Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." Holders of Common Stock are entitled to one vote per
share in all matters to be voted upon by stockholders. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of the
Company's liabilities and the liquidation preferences of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive rights and no
rights to convert their Common Stock into any other securities, and there are
no redemption provisions with respect to such shares. All of the outstanding
shares of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may issue in the future.
Pursuant to a Rights Agreement adopted by the Company (the "Rights
Agreement"), the holders of Common Stock, including the shares of Common Stock
issuable upon conversion of the Notes and the shares offered in the Common
Stock Offering, have certain rights to purchase Series A Participating
Preferred Stock or Common Stock under certain circumstances, including in the
event of certain unsolicited attempts to acquire a controlling interest in the
Company. See "--Preferred Stock" and "--Rights Agreement."
PREFERRED STOCK
The Company's Board of Directors has authority, without any further vote or
action by the stockholders: to provide for the issuance of the shares of
Preferred Stock in series; to establish from time to time the number of shares
to be included in each such series; to fix the designations, preferences and
relative, participating, optional or other special rights, and qualifications
or restrictions of the shares of each such series; and to determine the voting
powers, if any, of such shares. The issuance of Preferred Stock, among other
things, could adversely affect the rights of holders of Common Stock. For
example, the issuance of Preferred Stock could decrease the amount of earnings
and assets available for distributions to holders of Common Stock. In
addition, any such issuance could have the effect of delaying or preventing a
change in control of the Company and could make the removal of the present
management of the Company more difficult.
In connection with the adoption of the Rights Agreement, the Company's Board
of Directors has created one series of Preferred Stock, consisting of 300,000
shares of Series A Participating Preferred Stock (the "Series A Preferred").
No shares of Series A Preferred have been issued as of the date of this
Prospectus. Each share of the Series A Preferred, when and if issued, would
entitle the holder thereof to receive quarterly dividends equal to the greater
of $1.00 per share or 100 times the dividends per share declared with respect
to the Common Stock. Dividends on the Series A Preferred are cumulative.
Holders of the Series A Preferred would be entitled to exercise 100 votes per
share on all matters submitted to a vote of stockholders and, except as
otherwise required by law, would vote together with the holders of Common
Stock as a single class. In the event of liquidation, such holders would
receive a preference of $1.00 per share over the Common Stock. In general,
each share of the Series A Preferred is intended to have a value and voting
rights equal to 100 shares of Common Stock, and appropriate anti-dilutive
adjustments will be made in accordance with the terms of such Series A
Preferred in the event of certain changes in Common Stock. Except as
contemplated in connection with the Rights Agreement described below, the
Company has no present plans to issue any of the Preferred Stock.
RIGHTS AGREEMENT
The Board of Directors of the Company has declared a dividend distribution
of one preferred share purchase right (a "Right") for each outstanding share
of Common Stock. The dividend was payable to stockholders of
35
<PAGE>
record on March 1, 1996 (the "Rights Record Date") and with respect to Common
Stock issued thereafter until the Distribution Date (as defined below). Except
as set forth below, each Right, when it becomes exercisable, entitles the
registered holder to purchase from the Company one one-hundredth of a share of
the Series A Preferred of the Company at a price equal to five times the
initial offering price (the "Purchase Price") per one one-hundredth of a
Series A Preferred share, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and Harris Trust and Savings Bank, as Rights Agent. A copy
of the Rights Agreement is available to stockholders free of charge from the
Company upon request directed to the Secretary of the Company.
Initially, the Rights will be attached to all certificates representing
shares of Common Stock then outstanding, and no separate Right Certificates
will be distributed. The Rights will separate from the Common Stock upon the
earliest to occur of (i) 10 days following public announcement that a person
or group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding Common Stock;
or (ii) 15 business days (or such later date as the Board may determine)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in a
person or group becoming an Acquiring Person (the earliest of such dates being
called the "Distribution Date"). The definition of an Acquiring Person
excludes any employee benefit plan of the Company, including the ESOP. Albert
J. Speh, Jr., Chairman Emeritus of the Company, his extended family, family
trusts and certain other affiliates and associates will not be deemed to be an
Acquiring Person as long as such persons beneficially own less than 32.0% of
the outstanding Common Stock. The date that a person or group becomes an
Acquiring Person is the "Share Acquisition Date." Until a Right is exercised,
the holder thereof, as such, will not have any rights as a stockholder of the
Company, including the right to vote or receive dividends thereon.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the
Distribution Date (or earlier redemption or expiration of the Rights) new
Common Stock certificates issued after the Rights Record Date upon transfer or
new issuance of Common Stock will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Rights Record Date, even without such
notation or a copy of the summary of rights attached thereto, will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date (and to each initial record
holder of certain Common Stock issued after the Distribution Date), and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on the tenth anniversary of the effective date of the
plan, unless earlier redeemed by the Company as described below.
In the event that any person becomes an Acquiring Person, each holder of a
Right will thereafter have the right to receive upon payment of the Purchase
Price the number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value (immediately
prior to such triggering event) equal to two times the Purchase Price.
Notwithstanding the foregoing, following the occurrence of the event described
above or in the paragraph below (the "Triggering Events"), all Rights that
are, or (under certain circumstances specified in the Rights Agreement) were,
beneficially owned by any Acquiring Person or any affiliate or associate
thereof will be null and void.
In the event that, at any time following the Share Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction, or
(ii) more than 50% of the Company's assets or earning power is sold or
transferred to any other person, then each holder of a Right (except Rights
which previously have been voided as set forth above) shall thereafter have
the right to receive, upon exercise, common stock of the acquiring company
having a value equal to two times the exercise price of the Right.
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<PAGE>
The Purchase Price and the number of shares of Preferred Stock or other
securities or property issuable upon exercise of the Rights are subject to
adjustment from time to time to as a result of, among other things, a
subdivision, split (other than a stock dividend on the Common Stock payable in
shares of Common Stock), combination, consolidation or reclassification of the
Series A Preferred or the Common Stock, or a reverse split of the outstanding
shares of Series A Preferred or Common Stock.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances, the Company may redeem the Rights in whole, but not in part, at
a price of $0.01 per Right which redemption shall be effective upon the action
of the Board of Directors. Additionally, at any time after a Triggering Event
and prior to the time that a person or group acquires 50% or more of the
outstanding Common Stock, the Company may exchange the Rights (other than
those that have become null and void), in whole or in part, for shares of
Common Stock at an exchange ratio of one share of Common Stock per Right
(subject to adjustment).
The provisions of the Rights Agreement may be amended by the Board of
Directors in order to cure any ambiguity, defect or inconsistency, provided
that after such time as any person becomes an Acquiring Person, the Rights
Agreement may not be amended in any manner that would adversely affect the
interests of the holders of the Rights.
DELAWARE LAW AND CERTAIN CORPORATE AND CONTRACTUAL PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging, under certain circumstances, in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) prior to the date at which the
person becomes an interested stockholder the Board of Directors approves such
transaction or business combination, (ii) the stockholder acquires more than
85% of the outstanding voting stock of the corporation (excluding shares held
by directors who are officers or held in certain employee stock plans) upon
consummation of such transaction or (iii) the business combination is approved
by the Board of Directors and by two-thirds of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder) at a
meeting of stockholders (and not by written consent). An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or at any time within the prior three years did own) 15% or more of the
corporation's voting stock. Section 203 defines a "business combination" to
include, without limitation, mergers, consolidations, stock sales and asset-
based transactions and other transactions resulting in a financial benefit to
the interested stockholder.
The Company's Certificate of Incorporation (the "Certificate") and By-laws
contain a number of provisions relating to corporate governance and to the
rights of stockholders. Certain of these provisions may be deemed to have a
potential anti-takeover effect in that such provisions may delay or prevent a
change of control of the Company. These provisions include: (a) the
classification of the Board of Directors into three classes, each class
serving for staggered three year terms; (b) restrictions on the removal of
directors; (c) the authority of the Board to issue series of Preferred Stock
with such voting rights and other provisions as the Board of Directors may
determine; (d) a requirement that a vote of greater than 80% of the voting
power of shares entitled to vote generally for the election of directors is
required to amend provisions of the Certificate and By-laws relating to the
classification of the Board and removal of directors unless 75% of the Board
of Directors approve such action; (e) the requirement that stockholder action
can be taken only at an annual or special meeting of stockholders and
prohibiting stockholder action by written consent in lieu of a meeting; (f) an
advance notice procedure for stockholders to make nominations of candidates
for election as directors; and (g) the requirement that a special stockholders
meeting may only be called by the Chairman of the Board, the President or at
the direction of the majority of the Board of Directors.
These provisions are expected to discourage certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of the Company to negotiate first with the
37
<PAGE>
Board of Directors. The Company believes that the benefits of these provisions
outweigh the potential disadvantages of discouraging such proposals, because,
among other things, negotiation of such proposals might result in an
improvement of their terms. The description set forth above is intended as a
summary only and is qualified in its entirety by reference to the Company's
Certificate and By-laws.
Under the terms of an employment agreement with Peter I. Mason, the Company
has agreed to have Casey Cowell and Paul G. Yovovich serve as directors of the
Company. Under the terms of an employment agreement with Lawrence J. Speh, the
Company has agreed to nominate Mr. Speh as a director for so long as Mr. Speh
owns at least 500,000 shares of Common Stock, and for so long as Mr. Speh is a
director or nominee for director. Mr. Speh has agreed to vote all shares of
Common Stock owned by him in favor of the Company's nominees. In addition, Mr.
Mason has agreed to support the nomination and election to the Board of Albert
J. Speh, Jr.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
38
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an Underwriting Agreement
dated , 1998 (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters") have severally agreed to purchase from the Selling
Stockholders the respective number of shares of Common Stock set forth
opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
ABN AMRO Incorporated..........................................
PaineWebber Incorporated.......................................
---------
Total...................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of the Prospectus and in part to certain dealers (including the
Underwriters) at such price, less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow a concession
not in excess of $ per share. After the initial offering of the Common
Stock, the public offering price and other selling terms may be changed by the
Underwriters at any time without notice.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has granted to the Underwriters an option exercisable within 30
days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 600,000 additional shares of Common
Stock at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the Common Stock Offering. To
the extent that the Underwriters exercise such option, each Underwriter will
become obligated, subject to certain conditions, to purchase its pro rata
portion of such additional shares based on such Underwriter's percentage
underwriting commitment as indicated in the preceding table.
The Company's executive officers and directors, other than the Selling
Stockholders, have agreed, subject to certain exceptions, with the
Underwriters not to, directly or indirectly, offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of, without the prior
written consent of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or warrants, options or rights to purchase or
acquire, Common Stock or in any other manner transfer all or a portion of the
economic consequences associated with the ownership of any Common Stock, or
enter into any agreement to do any of the foregoing, for a period of 90 days
after the date of this Prospectus. The Selling Stockholders have agreed to the
foregoing lockup provisions for a period of 180 days after the date of this
Prospectus, except that the ESOP may (i) make distributions of shares of
Common Stock to ESOP participants and (ii) sell or otherwise dispose of shares
of Common Stock in order to make cash distributions to ESOP participants, in
each case in accordance with the terms of the ESOP. In addition, the Company
has agreed
39
<PAGE>
that for a period of 90 days after the date of this Prospectus it will not,
without the prior written consent of DLJ, directly or indirectly offer, sell,
contract to sell, grant any option to purchase, issue, distribute or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for, or any warrants, options or rights to
purchase or acquire, Common Stock, or enter into any agreements to do any of
the foregoing, except for (i) shares of Common Stock issued pursuant to the
exercise of options or warrants outstanding on the date of this Prospectus,
and (ii) options granted after the date of this Prospectus pursuant to the
Company's 1994 Executive Stock Option Plan and the 1995 Employee Stock Option
Plan.
DLJ and ABN AMRO Incorporated have in the past provided, and they and other
Underwriters may in the future provide, investment banking services for the
Company. Additionally, certain of the Underwriters are participating as
underwriters in the concurrent Note Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the Common Stock in
any jurisdiction where action for that purpose is required. The Common Stock
offered hereby may not be offered or sold, directly or indirectly, nor may
this Prospectus or any other offering material or advertisements in connection
with the offer and sale of the Common Stock be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
applicable rules and regulations of such jurisdiction. Persons into whose
possession this Prospectus comes are advised to inform themselves about and to
observe any restrictions relating to the offering of the Common Stock and the
distribution of this Prospectus. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the Common Stock offered
hereby in any jurisdiction in which such an offer or solicitation is unlawful.
In connection with the Common Stock Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Common Stock
Offering, creating a syndicate short position. The Underwriters may bid for
and purchase the Common Stock and in the open market to cover such syndicate
short position or to stabilize the price of the Common Stock. These activities
may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
40
<PAGE>
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Freeborn & Peters, Chicago, Illinois. As of the date
of this Prospectus, a total of 39,207 shares of Common Stock were owned by
certain partners of Freeborn & Peters. Certain legal matters will be passed
upon for the Underwriters by Katten Muchin & Zavis, Chicago, Illinois.
EXPERTS
The financial statements of the Company as of September 30, 1996 and 1997
and for each of the three fiscal years in the period ended September 30, 1997,
included in this Prospectus, have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of
such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, registration statements, proxy statements and other information filed
by the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549 and at its regional offices at 7 World Trade Center,
New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2551. Copies of such materials can be obtained from
the Public Reference Section of the Commission at its principal office at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a website at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission, including the Company.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act with respect to the Common Stock Offering and the
Note Offering. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete and reference is hereby made to the copy of the such contract,
agreement or document filed as an exhibit to the Registration Statement for a
complete statement of its provisions. For further information with respect to
the Company and the Notes offered hereby, reference is hereby made to the
Registration Statement, copies of which may be obtained at the locations
specified.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information filed by the Company with the
Commission are incorporated herein by reference: (i) the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997; (ii) the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1997; and (iii) the description of the Company's capital stock set forth
under the heading "Description of Capital Stock" in the Company's prospectus
that constitutes a part of the Company's Registration Statement on Form S-1
(Commission File No. 33-98302), which description is incorporated by reference
in the Company's Registration Statement on Form 8-A dated March 1, 1996 for
the registration of the Common Stock under the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this
41
<PAGE>
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated herein by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents that are incorporated herein by
reference, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to Andy V. Jonusaitis, Vice President and General Counsel, May &
Speh, Inc., 1501 Opus Place, Downers Grove, Illinois 60515 (telephone (630)
964-1501).
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets as of September 30, 1996 and 1997 and December
31, 1997 (unaudited)...................................................... F-3
Consolidated Statements of Operations for the years ended September 30,
1995, 1996 and 1997, and for the three months ended December 31, 1996 and
1997 (unaudited).......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1995, 1996 and 1997, and for the three months ended December
31, 1997 (unaudited)...................................................... F-5
Consolidated Statements of Cash Flows for the years ended September 30,
1995, 1996 and 1997, and for the three months ended December 31, 1996 and
1997 (unaudited).......................................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of May & Speh, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of May
& Speh, Inc. and its subsidiary at September 30, 1996 and 1997 and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Chicago, Illinois
November 10, 1997, except as to the paragraph
of Note 1 entitled "Per share information" and Note 12, which are as of
February 12, 1998
F-2
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, 1997
-------------------------- -----------------
1996 1997 (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 10,397,858 $ 1,888,817 $ 3,024,013
Marketable securities.......... 20,334,278 20,415,793 12,896,200
Accounts receivable, net....... 21,003,095 28,569,372 29,947,488
Income taxes refundable........ 3,550,617 6,301,217 6,301,217
Prepaid software royalties..... 2,652,398 5,442,796 6,518,476
Deferred income taxes and other
current assets................ 1,991,794 2,445,829 5,594,995
------------ ------------ ------------
Total current assets......... 59,930,040 65,063,824 64,282,389
Property, plant and equipment,
net............................. 32,289,746 50,228,440 50,848,825
Goodwill......................... 16,863,811 20,099,245 19,978,514
Other assets..................... 6,134,473 13,404,419 13,522,314
------------ ------------ ------------
Total assets................. $115,218,070 $148,795,928 $148,632,042
============ ============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of long-term
debt.......................... $ 5,329,670 $ 5,810,927 $ 5,867,996
Accounts payable............... 3,713,421 5,017,666 4,219,114
Accrued wages and benefits..... 3,006,991 4,324,814 2,397,632
Other accrued expenses......... 1,730,938 2,870,903 5,061,922
------------ ------------ ------------
Total current liabilities.... 13,781,020 18,024,310 17,546,664
Long-term debt................... 22,250,802 31,546,484 30,150,736
Deferred income taxes............ 3,455,000 8,090,000 8,090,000
------------ ------------ ------------
Total liabilities............ 39,486,822 57,660,794 55,787,400
------------ ------------ ------------
Commitments and contingencies
(Note 7)
Stockholders' equity (Note 8):
Preferred stock, no par value,
2,000,000 shares authorized;
no shares issued
Common stock, $.01 par value,
50,000,000 shares authorized;
24,934,154 shares, 25,147,354
shares and 25,219,854 shares
issued and outstanding at
September 30, 1996 and 1997
and December 31, 1997......... 249,342 251,474 252,199
Additional paid-in capital..... 46,967,691 48,277,867 48,737,056
Retained earnings.............. 33,860,039 45,575,694 46,231,309
------------ ------------ ------------
81,077,072 94,105,035 95,220,564
Unearned ESOP compensation..... (5,345,824) (2,969,901) (2,375,922)
------------ ------------ ------------
Total stockholders' equity... 75,731,248 91,135,134 92,844,642
------------ ------------ ------------
Total liabilities and
stockholders' equity........ $115,218,070 $148,795,928 $148,632,042
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------- ------------------------
1995 1996 1997 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $61,641,273 $77,222,960 $92,457,288 $21,228,730 $26,350,565
----------- ----------- ----------- ----------- -----------
Operating expenses:
Wages and benefits.... 20,983,636 23,950,392 30,436,956 7,143,274 8,948,912
Services and supplies. 4,160,441 6,839,200 6,191,501 2,039,016 1,370,602
Rents, leases and
maintenance.......... 13,878,290 18,064,271 20,137,243 4,637,094 5,251,101
Depreciation and
amortization......... 1,230,066 2,155,481 4,419,933 901,396 1,778,857
Other operating
expenses............. 5,106,579 6,812,536 8,433,104 1,823,590 2,115,297
ESOP principal
payments............. 2,410,539 2,375,923 2,375,923 593,980 593,979
Restructuring costs... -- -- -- -- 4,700,000
----------- ----------- ----------- ----------- -----------
47,769,551 60,197,803 71,994,660 17,138,350 24,758,748
----------- ----------- ----------- ----------- -----------
Operating income........ 13,871,722 17,025,157 20,462,628 4,090,380 1,591,817
----------- ----------- ----------- ----------- -----------
Interest and other
expense:
ESOP interest expense. 863,809 611,552 403,396 124,371 69,214
Other interest
expense.............. 678,843 1,231,263 2,214,705 452,471 686,449
Interest income....... (206,594) (1,147,345) (1,050,765) (293,581) (160,882)
Other, net............ 10,118 (167,896) (2,763) (10,484) (58,182)
----------- ----------- ----------- ----------- -----------
1,346,176 527,574 1,564,573 272,777 536,599
----------- ----------- ----------- ----------- -----------
Income before income
taxes.................. 12,525,546 16,497,583 18,898,055 3,817,603 1,055,218
Income taxes............ 4,665,000 6,274,000 7,182,400 1,450,900 399,603
----------- ----------- ----------- ----------- -----------
Net income.............. $ 7,860,546 $10,223,583 $11,715,655 $ 2,366,703 $ 655,615
=========== =========== =========== =========== ===========
Basic earnings per
share.................. $ 0.38 $ 0.45 $ 0.47 $ 0.09 $ 0.03
Weighted average shares
outstanding............ 20,426,482 22,633,972 25,028,786 24,953,371 25,172,300
Diluted earnings per
share.................. $ 0.38 $ 0.43 $ 0.45 $ 0.09 $ 0.02
Weighted average shares
outstanding, including
common equivalents..... 20,610,517 23,652,901 26,178,963 26,220,184 26,469,818
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN UNEARNED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE--SEPTEMBER 30,
1994................... 20,465,737 $204,658 $ 1,525,927 $(11,362,877) $18,333,582 $ 8,701,290
Net income for the year
ended September 30,
1995.................. 7,860,546 7,860,546
ESOP compensation
earned during the year
ended September 30,
1995.................. 2,410,539 2,410,539
Dividends declared and
paid.................. 1,230,591 (2,545,332) (1,314,741)
Tax benefit of
dividends paid on
unallocated shares
held by the ESOP...... 247,000 247,000
Repurchases and
retirement of common
stock................. (103,080) (1,031) (259,340) (260,371)
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30,
1995................... 20,362,657 203,627 1,525,927 (7,721,747) 23,636,456 17,644,263
Net income for the year
ended September 30,
1996.................. 10,223,583 10,223,583
ESOP compensation
earned during the year
ended September 30,
1996 ................. 2,375,923 2,375,923
Issuance of common
stock warrants........ 1,300,000 1,300,000
Issuance of common
stock................. 4,355,000 43,550 43,005,144 43,048,694
Exercise of stock
options............... 216,497 2,165 1,136,620 1,138,785
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30,
1996................... 24,934,154 249,342 46,967,691 (5,345,824) 33,860,039 75,731,248
Net income for the year
ended September 30,
1997.................. 11,715,655 11,715,655
ESOP compensation
earned during the year
ended September 30,
1997 ................. 2,375,923 2,375,923
Exercise of stock
options............... 213,200 2,132 1,310,176 1,312,308
---------- -------- ----------- ------------ ----------- -----------
BALANCE--SEPTEMBER 30,
1997................... 25,147,354 251,474 48,277,867 (2,969,901) 45,575,694 91,135,134
Net income for three
months ended December
31, 1997 (unaudited).. 655,615 655,615
ESOP compensation
earned during the
three months ended
December 31, 1997
(unaudited)........... 593,979 593,979
Exercise of stock
options (unaudited)... 72,500 725 459,189 459,914
---------- -------- ----------- ------------ ----------- -----------
BALANCE--DECEMBER 31,
1997 (UNAUDITED)....... 25,219,854 $252,199 $48,737,056 $ (2,375,922) $46,231,309 $92,844,642
========== ======== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MAY & SPEH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------- ------------------------
1995 1996 1997 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.............. $ 7,860,546 $10,223,583 $11,715,655 $ 2,366,703 $ 655,615
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 1,230,066 2,155,481 4,419,933 901,396 1,778,857
Deferred income taxes. 492,000 2,172,000 4,727,000 -- --
ESOP principal
payments............. 2,410,539 2,375,923 2,375,923 593,980 593,979
Changes in assets and
liabilities, net of
effect from purchase
of GIS Information
Systems, Inc. &
Credit Strategy
Management
Accounts receivable,
net................ (879,246) (3,130,272) (7,566,277) 3,245,691 (1,378,116)
Prepaid expenses and
other current
assets............. (196,743) (1,312,277) (3,336,433) 656,124 (4,224,846)
Income taxes
payable/refundable. (599,526) (2,330,001) (2,750,600) -- --
Accounts payable and
accrued expenses... 2,558,198 (1,672,404) 4,065,082 (1,113,982) (534,715)
Other............... 553,996 (125,673) (108,597) (148,372) (399,395)
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
operating
activities........ 13,429,830 8,356,360 13,541,686 6,501,540 (3,508,621)
----------- ----------- ----------- ----------- -----------
Cash flows from investing
activities:
Proceeds from sale of
property............... 12,215,528 -- --
Purchases of property
and equipment.......... (6,918,157) (5,189,216) (19,292,880) (948,384) (1,978,511)
Purchases of marketable
securities............. (647,530) (31,365,521) (13,442,385) (6,861,098) --
Sales of marketable
securities............. 1,575,166 12,919,913 13,360,869 2,232,339 7,519,593
Software development
costs capitalized
including related
equipment.............. (1,227,969) (3,990,359) (7,087,047) (1,658,479) --
Acquisition of GIS
Information Systems,
Inc., and Credit
Strategy Management.... -- (16,148,513) (3,235,734) -- --
Other................... (106,114) (74,000) (74,000) (31,362) (18,500)
----------- ----------- ----------- ----------- -----------
Net cash (used in)
provided by
investing
activities........ (7,324,604) (43,847,696) (17,555,649) (7,266,984) 5,522,582
----------- ----------- ----------- ----------- -----------
Cash flows from financing
activities:
Capital lease principal
payments............... -- (1,851,062) (1,890,175) (288,211) (544,699)
Proceeds from line of
credit................. (1,250,000) -- -- -- --
Proceeds from long-term
obligations............ 12,000,000 -- -- -- --
Repayments of long-term
obligations............ (10,266,987) (3,161,105) (3,917,211) (635,268) (793,980)
Dividends paid, net of
related ESOP
remittance............. (1,314,741) -- -- -- --
Issuance of common
stock.................. -- 43,048,995 -- -- --
Exercise of stock
options................ -- 1,138,785 1,312,308 141,667 459,914
Repurchases of common
stock.................. (202,478) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities........ (1,034,206) 39,175,613 (4,495,078) (781,812) (878,765)
----------- ----------- ----------- ----------- -----------
Net change in cash
and cash
equivalents....... 5,071,020 3,684,277 (8,509,041) (1,547,256) 1,135,196
Cash and cash
equivalents:
Beginning of period..... 1,642,561 6,713,581 10,397,858 10,397,858 1,888,817
----------- ----------- ----------- ----------- -----------
End of period........... $ 6,713,581 $10,397,858 $ 1,888,817 $ 8,850,602 $ 3,024,013
=========== =========== =========== =========== ===========
Supplemental cash flow
information:
Cash paid during the
period for:
Interest.............. $ 1,665,000 $ 1,843,000 $ 2,618,000 $ 495,712 $ 806,967
=========== =========== =========== =========== ===========
Income taxes.......... $ 5,155,000 $ 5,770,773 $ 5,250,000 $ -- $ --
=========== =========== =========== =========== ===========
Non-cash
financing/investing
activities:
Acquisition of
property and
equipment under
capital leases....... $ 342,000 $11,373,000 $15,321,000 $ 382,460 $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
May & Speh, Inc. ("May & Speh" or the "Company") is a provider of computer-
based information management services primarily for clients with significant
direct marketing requirements. The Company provides direct marketing services
including database creation, data warehousing, predictive behavioral modeling
list processing and data enhancement. The Company also provides information
technology outsourcing services.
In December 1995, the Company effected a 12-for-one stock split. The
accompanying financial statements and related notes thereto have been restated
to reflect the 12-for-one stock split for all periods presented.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity of
90 days or less as cash equivalents.
REVENUE RECOGNITION
Revenue is recognized as services are performed. Direct marketing services
revenues are generally determined based upon the number of records processed
and are recognized as such processes are completed. Information technology
outsourcing services revenues are recognized based upon the amount of computer
time used. Unbilled accounts receivable consist primarily of services
performed which are billable upon project completion or upon occurrence of
other specified events. Unbilled accounts receivable are generally billed
within 90 days of income recognition. Accounts receivable are unsecured.
MARKETABLE SECURITIES
Investments are stated at cost, which approximates fair market value; gains
and losses are recognized in the period realized. The Company has classified
its marketable securities as available for sale.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Betterments are
capitalized; repairs and maintenance are expensed as incurred. Depreciation is
computed using straight-line and accelerated methods over the estimated
economic lives of the related assets as follows:
<TABLE>
<S> <C>
Computers and related equipment.......................... 5 to 10 years
Building and improvements................................ 10 to 31.5 years
Office furniture and equipment........................... 12 years
Automobiles.............................................. 5 years
</TABLE>
CAPITALIZED SOFTWARE COSTS
Development costs for software to be sold or leased to third parties is
expensed as incurred until such time as technological feasibility is
established. Upon establishment of technological feasibility, future costs are
capitalized until the product is available for general release to clients.
Amortization of capitalized software costs is the greater of the amount
computed using (a) the ratio that current gross revenues for a product bear to
the total current and future gross revenues for that product or (b) the
straight-line method over the remaining estimated economic life of the product
of five to seven years. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic life of
the product or both will be reduced in the future. In addition, software costs
are generally subject to technological obsolescence in the future.
F-7
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs incurred until
technological feasibility is established. For the years ended September 30,
1995, 1996 and 1997, the Company expensed $1,860,055, $2,486,247 and
$3,425,750, respectively, as research and development costs. Research and
development costs are primarily wages and benefits for staff and are reflected
as such in the accompanying financial statements.
INCOME TAXES
The Company uses the asset and liability approach under which deferred
income taxes are provided for temporary differences between the financial
reporting and income tax bases of assets and liabilities based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective October 1, 1988, the Company established the May & Speh, Inc.
Employee Stock Ownership Plan (the ESOP) for the benefit of substantially all
of the Company's employees. The Company borrowed $22,500,000 from a bank (the
ESOP Loan) and loaned the proceeds to the ESOP for the purpose of providing
the ESOP sufficient funds to purchase 9,887,340 shares (then 43.11%) of the
Company's common stock at $2.28 per share.
The ESOP's obligation to the Company, which is evidenced by a note (the ESOP
Note), was initially recorded as unearned compensation (a direct reduction to
shareholders' equity) and is expensed ratably as the ESOP Note is repaid. The
ESOP Note, which contains provisions substantially similar to the Company's
obligation to the bank, is secured by the unallocated ESOP shares which are
released from suspense and allocated to participants as principal is repaid.
The terms of the ESOP agreement require the Company to make minimum
contributions sufficient to meet the ESOP's debt service obligations.
GOODWILL
In connection with its acquisition of GIS Information Systems, Inc. ("GIS")
in July 1996, the Company recorded goodwill of $16,970,000. An additional
$2,416,000 was recorded during the year ended September 30, 1997 related to
incentive payments and estimated costs to be incurred in consolidating GIS's
operations. The Company also recorded goodwill of $1,295,000 related to its
acquisition of Credit Strategy Management, Inc. ("CSM") in 1997. Total
goodwill aggregated $20,681,000 at September 30, 1997. Accumulated
amortization totaled $106,000 and $582,000 at September 30, 1996 and 1997,
respectively. Goodwill is amortized using the straight line method over a 40-
year period for financial reporting purposes.
The Company reviews the carrying value of goodwill and other long-lived
assets for impairment when events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. This review is
performed by comparing estimated undiscounted future cash flows from use of
the asset to the recorded value of the asset.
OTHER ASSETS
Other assets include cash surrender value of life insurance policies,
deposits and capitalized software costs. Capitalized software costs of
$5,218,000, and $12,305,000 are included in other assets as of September 30,
1996 and 1997, respectively. Amortization of such costs will commence when the
product is available for general release to clients.
F-8
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SIGNIFICANT CLIENTS
Sears, Roebuck and Co. accounted for 17.1%, 17.6% and 18.9%, of the
Company's net revenues in fiscal 1995, 1996, and 1997, respectively. Capital
One Bank accounted for 10.6% of the Company's revenue in fiscal 1995.
PER SHARE INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128) during the first quarter of fiscal 1998. SFAS
128 requires presentation of both basic EPS and diluted EPS on the face of the
income statement. Basic EPS is computed by dividing net income available to
common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS gives effect to all dilutive
potential common shares outstanding during a period. In computing diluted EPS,
the average stock price for the period is used in determining the number of
shares assumed to be purchased under the treasury stock method from exercise
of stock options. All per share information in the Company's financial
statements has been restated to conform to the provisions of SFAS 128.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheets for cash,
marketable securities, accounts receivable, prepaid expenses and other current
assets, accounts payable and accrued expenses approximates fair value because
of the immediate or short-term maturity of these financial instruments. The
recorded value of long-term debt is estimated to approximate fair value due to
the interest rates incurred by the Company on such debt.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments, certain minimum pension liabilities and
unrealized gains and losses on available-for-sale securities. This Statement
is effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
The Company expects to adopt this Statement beginning with its financial
statements for the year ending September 30, 1999. Adoption of this statement
is not expected to have a material impact on the Company's financial
statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major clients.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. Generally, financial information is required to be
reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company
expects to adopt this Statement in its financial statements for the year
ending September 30, 1999.
F-9
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited interim information as of December 31, 1997 and for the
quarter then ended and for each of the fiscal quarters in the years ended
September 30, 1997 and 1996 has been prepared from the unaudited financial
records of the Company and, in the opinion of management, reflects all
adjustments necessary for a fair presentation of the financial position and
results of operations and of cash flows for the respective interim periods.
All adjustments were of a normal and recurring nature.
NOTE 2--MARKETABLE SECURITIES
The Company's marketable securities as of September 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
FAIR UNREALIZED
CLASS OF SECURITY COST BASIS MARKET VALUE GAIN (LOSS)
<S> <C> <C> <C>
Municipal bonds...................... $18,415,793 $18,700,051 $284,258
Equities and mutual funds............ 2,000,000 2,000,000 --
----------- ----------- --------
$20,415,793 $20,700,051 $284,258
=========== =========== ========
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------
FAIR UNREALIZED
CLASS OF SECURITY COST BASIS MARKET VALUE GAIN (LOSS)
<S> <C> <C> <C>
Municipal bonds...................... $18,740,278 $18,873,348 $133,070
Equities and mutual funds............ 1,594,000 1,594,000 --
----------- ----------- --------
$20,334,278 $20,467,348 $133,070
=========== =========== ========
</TABLE>
The Company determines the cost basis of its marketable securities using the
specific identification method. The net unrealized gain relating to marketable
securities is not significant and has not been reflected in the accompanying
financial statements. The Company's investments in municipal bonds generally
mature in one to three years.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
Trade accounts receivable:
Billed........................................ $19,289,683 $21,657,013
Unbilled...................................... 2,066,412 4,817,056
----------- -----------
21,356,095 26,474,069
Less--Allowance for doubtful accounts........... (353,000) (330,000)
----------- -----------
21,003,095 26,144,069
Other accounts receivable....................... -- 2,425,303
----------- -----------
$21,003,095 $28,569,372
=========== ===========
</TABLE>
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1997
<S> <C> <C>
Building and improvements...................... $11,297,039 $ 12,814,033
Computers and related equipment................ 20,584,392 36,476,595
Office furniture and equipment................. 3,361,864 5,488,584
Automobiles.................................... 190,452 168,789
----------- ------------
35,433,747 54,948,001
Less--Accumulated depreciation................. (9,347,242) (10,754,380)
----------- ------------
26,086,505 44,193,621
Land and land improvements..................... 6,203,241 6,034,819
----------- ------------
$32,289,746 $ 50,228,440
=========== ============
</TABLE>
F-10
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Assets under capital lease had an initial value of $11,716,000 and
$26,770,978, and accumulated amortization of $362,000 and $1,618,081, at
September 30, 1996 and 1997, respectively. As of September 30, 1996 all assets
under capital leases were computer and related equipment. As of September 30,
1997, $9,103,562 related to buildings and improvements, $5,835,060 related to
land and $11,832,356 related to computers and related equipment. The
amortization of these capitalized assets is included in depreciation expense
for the years ended September 30, 1995, 1996 and 1997.
NOTE 5--INCOME TAXES
The Company's provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
--------------------------------
1995 1996 1997
<S> <C> <C> <C>
Current:
Federal................................ $3,359,000 $3,125,000 $2,121,200
State.................................. 814,000 762,000 334,200
---------- ---------- ----------
4,173,000 3,887,000 2,455,400
---------- ---------- ----------
Deferred:
Federal................................ 399,000 2,081,000 4,143,000
State.................................. 93,000 306,000 584,000
---------- ---------- ----------
492,000 2,387,000 4,727,000
---------- ---------- ----------
$4,665,000 $6,274,000 $7,182,400
========== ========== ==========
</TABLE>
The Company's deferred income tax asset (liability) balances are summarized
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
ESOP expenses................................... $ 144,000 $ 128,000
Allowance for doubtful accounts................. 138,000 129,000
Accrued expenses................................ 433,000 643,000
Deferred charges................................ 155,000 --
Non-compete agreement........................... 263,000 242,000
Other........................................... -- 30,000
----------- -----------
Gross deferred tax assets................... 1,133,000 1,172,000
----------- -----------
Depreciation.................................... (1,104,000) (3,656,000)
Software development costs capitalized.......... (2,035,000) (4,799,000)
Capital lease payment........................... (545,000) --
Goodwill........................................ (69,000) (173,000)
Other........................................... (109,000) --
----------- -----------
Gross deferred tax liabilities.............. (3,862,000) (8,628,000)
----------- -----------
Net deferred taxes.............................. $(2,729,000) $(7,456,000)
=========== ===========
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
SEPTEMBER 30,
----------------
1995 1996 1997
<S> <C> <C> <C>
Income taxes at federal statutory rate.................. 34% 34% 34%
State taxes, net of federal benefit..................... 5 5 5
Dividends paid on allocated shares held by ESOP......... (2) -- --
Municipal bond interest income.......................... -- (1) (1)
--- --- ---
37% 38% 38%
=== === ===
</TABLE>
F-11
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--LINE OF CREDIT AND LONG-TERM DEBT
Effective May 16, 1994, the Company entered into a line of credit agreement
with a bank under which the Company may borrow up to $2,000,000 with interest
payable at the bank's prime rate (8.5% at September 30, 1996 and 1997). This
loan is payable on demand and is secured by substantially all of the assets of
the Company. No amounts were outstanding under this agreement as of September
30, 1996 and 1997.
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1996 1997
<S> <C> <C>
ESOP loan....................................... $ 5,345,823 $ 2,969,901
Term loan....................................... 11,200,000 10,200,000
Capital lease obligations....................... 9,975,431 23,687,510
Deferred acquisition payments................... 1,000,000 500,000
Other........................................... 59,218 --
----------- -----------
27,580,472 37,357,411
Less--Current maturities........................ (5,329,670) (5,810,927)
----------- -----------
$22,250,802 $31,546,484
=========== ===========
</TABLE>
ESOP LOAN
Effective November 10, 1988, the Company entered into a $22,500,000 term
loan agreement with a bank (the ESOP Loan). Under the terms of the agreement,
the Company must make quarterly payments of principal (in varying amounts as
summarized below) plus interest. This interest rate is subject to adjustments
based upon changes in federal and state tax rates or changes in the proportion
of the bank's income from this loan which is includable in gross income for
federal income tax purposes.
Amounts outstanding under the ESOP Loan are collateralized by the ESOP Note,
an assignment of the pledge agreement between the Company and the ESOP
(whereby the ESOP pledged the unallocated ESOP Shares as collateral for the
ESOP Note) and a security interest in all assets of the Company.
The ESOP Loan contains certain restrictive covenants that, among other
things, limit capital expenditures, additional indebtedness, certain
investments, the repurchase of common stock and the payment of dividends and
require the Company to maintain certain working capital and other financial
measures. The Company was in violation of certain of these restrictive
covenants as of September 30, 1996 and 1997 and waivers of such violations
were received from the bank.
On September 28, 1995, the Company's Board of Directors declared and paid a
$0.125 per share dividend. The portion of this dividend which was paid on
shares held by the ESOP (unallocated and allocated) was used to prepay
$1,231,000 of the ESOP Note and, accordingly, the Company prepaid, without
penalty, $1,231,000 of the variable rate portion of the ESOP Loan.
CAPITAL LEASE OBLIGATIONS
The Company entered into a sale-leaseback agreement with a third party
selling the existing building and land, including 10.4 acres located adjacent
to the existing building that will be used to build a new 200,000 square foot
building. The Company has entered into a 20-year lease with the third party on
the existing building, and it has also entered into a 20-year lease for the
new 200,000 square foot building currently under construction on the property
adjacent to the Company's executive offices. The lease commences upon
completion of the
F-12
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
building expected in September 1998, and is classified as a capital lease. The
existing building and land were sold at their book value of approximately
$12.2 million. The interest rate implicit in the Company's capital leases
approximates 8%.
TERM LOAN
During fiscal 1995, the Company entered into a $12,000,000 credit facility
to finance the expansion of the Company's facilities. The credit facility
requires quarterly principal payments of $200,000 plus interest at 8.5% (fixed
rate) with the balance to be paid in 2005. This credit facility contains
certain restrictive covenants that limit capital expenditures, limit
additional indebtedness, restrict certain investments, restrict the repurchase
of common stock and limit the payment of dividends. This debt agreement was
amended during fiscal 1996 to allow the acquisition of GIS Information
Systems, Inc. (see Note 10). The Company is also required to maintain working
capital and other financial measures. The Company was in violation of certain
of these restrictive covenants as of September 30, 1996 and 1997. Waivers of
such violations were received from the bank.
SUMMARY OF MATURITIES
A summary of principal maturities relating to long-term obligations is as
follows:
<TABLE>
<CAPTION>
DEFERRED
FISCAL YEAR ENDING CAPITAL ACQUISITION
SEPTEMBER 30, ESOP LOAN TERM LOAN LEASES PAYMENT TOTALS
<S> <C> <C> <C> <C> <C>
1998.................. $2,375,922 $ 800,000 $ 2,135,005 $500,000 $ 5,810,927
1999.................. 593,979 800,000 2,471,338 3,865,317
2000.................. 800,000 2,692,799 3,492,799
2001.................. 800,000 2,934,111 3,734,111
2002.................. 800,000 547,497 1,347,497
Thereafter............ 6,200,000 12,906,760 19,106,760
---------- ----------- ----------- -------- -----------
$2,969,901 $10,200,000 $23,687,510 $500,000 $37,357,411
========== =========== =========== ======== ===========
</TABLE>
NOTE 7--COMMITMENTS AND CONTINGENCIES
The Company currently leases warehouse and office space in the metropolitan
Chicago area under the terms of operating leases expiring on various dates
through August 2002. The Company also leases certain computer and other office
equipment under the terms of operating leases.
The aggregate future minimum lease commitments under these operating leases
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
SEPTEMBER 30,
<S> <C>
1998....................................................... $10,611,508
1999....................................................... 8,459,609
2000....................................................... 6,886,069
2001....................................................... 4,365,069
2002 and thereafter........................................ $ 1,269,069
</TABLE>
Total rental expense for the years ended September 30, 1995, 1996 and 1997,
under the operating leases approximated $8,644,000, $11,711,000 and
$11,511,000 respectively.
NOTE 8--STOCKHOLDERS' EQUITY
On March 29, 1996, the Company completed an initial public offering of
3,350,000 shares of its common stock, par value $.01 per share. Certain
stockholders of the Company sold an additional 3,350,000 shares of
F-13
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
common stock in the offering. In addition, on April 24, 1996, the Company
completed the offering of an additional 1,005,000 shares of common stock that
were subject to an over-allotment option granted to the underwriters of the
initial public offering. The net proceeds to the Company were approximately
$43,500,000 after deducting underwriting discounts and offering expenses.
A summary of share transactions within the ESOP is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1995 1996 1997
---------------------- ----------------------- ----------------------
UNALLOCATED ALLOCATED UNALLOCATED ALLOCATED UNALLOCATED ALLOCATED
<S> <C> <C> <C> <C> <C> <C>
Shares
Beginning of year..... 5,070,900 4,796,904 3,445,788 6,398,941 2,403,717 5,963,115
Released and
allocated............ (1,625,112) 1,625,112 (1,042,071) 1,042,071 (1,098,631) 1,098,631
Distributed to
participants......... (23,075) (1,188) (162,566)
Sold in Offering...... (1,476,709)
---------- --------- ---------- ---------- ---------- ---------
End of year........... 3,445,788 6,398,941 2,403,717 5,963,115 1,305,086 6,899,180
========== ========= ========== ========== ========== =========
</TABLE>
NOTE 9--STOCK OPTION PLANS
Effective September 30, 1994, the Company established the 1994 Executive
Stock Option Plan ("the 1994 plan"). The Company has established the 1995 Key
Employee Stock Option Plan ("the 1995 plan"), as amended and restated August
8, 1996. Under the terms of the 1994 plan, the Compensation Committee (the
Committee) of the Company's Board of Directors may grant options for the
purchase of up to 3,600,000 shares of the Company's common stock with exercise
prices and vesting requirements at the sole discretion of the Committee. The
Committee may grant options for the purchase of up to 2,000,000 shares of
common stock under the terms of the 1995 plan.
During fiscal 1995, 1996 and 1997, the Company granted options to purchase
2,202,000, 1,082,200, and 1,305,200 shares of common stock respectively, at
the estimated fair market value at the date of grant to certain employees. The
exercise price of these options ranged from $2.08 to $19.88 per share. Options
to purchase 600,000 shares and 72,000 shares were canceled by the Company in
fiscal 1995 and fiscal 1997, respectively. No options were canceled in fiscal
1996. There were no options which expired or were exercised during fiscal
1995. In fiscal 1996, 216,497 options were exercised at a weighted-average
exercise price of $2.08. In fiscal 1997, 213,200 options were exercised at a
weighted-average exercise price of $2.15.
As of September 30, 1997, options to purchase the Company's common stock
were outstanding as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-AVERAGE OPTION
UNDERLYING PER SHARE SHARES
DATE OF GRANT OPTIONS EXERCISE PRICE VESTED
<S> <C> <C> <C>
October 1, 1994-June 1, 1995....... 1,700,303 $2.13 1,249,200
February 1, 1996-September 23,
1996.............................. 1,082,200 7.78 216,400
December 24, 1996-August 4, 1997... 1,305,200 9.10 --
--------- ---------
4,087,703 1,465,600
========= =========
</TABLE>
Generally, these options vest and become exercisable in five equal annual
increments beginning one year after the issue date and expire 10 years after
the issue date.
The weighted-average fair value of options at date of grant was $5.86 in
fiscal 1997 and $6.03 in fiscal 1996. These values were determined by the
Black-Scholes model with the following weighted-average
F-14
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
assumptions for fiscal 1997 and 1996, respectively: interest rate of 6.63% and
6.08%; volatility of 46% and 45%; no annual dividends; and an expected life of
8 years for both fiscal years.
The Company generally recognizes no compensation expense with respect to
awards of stock options since the exercise price of the common stock options
awarded are equal to the fair market value of the underlying security on the
date of grant. If the Company adopted Statement of Financial Accounting
Standard Number 123 with respect to stock options, net income would have been
$10,433,192 in fiscal 1997 and $9,788,696 in fiscal 1996. Basic and diluted
earnings per share would have been $0.42 and $0.40 in fiscal 1997,
respectively, and $0.43 and $0.41 in fiscal 1996, respectively. The pro forma
effect on net income and earnings per share for fiscal 1997 and 1996 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to September 30, 1995.
NOTE 10--ACQUISITIONS
Effective February 3, 1997, the Company acquired the assets of Credit
Strategy Management, Inc. for $1.4 million cash. Credit Strategy Management,
Inc. provides modeling and analysis services and is located in Atlanta,
Georgia. Approximately $1.3 million of the purchase price was allocated to
goodwill, which is amortized using the straight line method over a 40-year
period. The acquisition has been accounted for under the purchase method of
accounting.
Effective July 1, 1996, the Company acquired all of the outstanding capital
stock of GIS Information Systems, Inc. ("GIS") for $16,148,000 in cash,
guaranteed deferred payments totaling $1,000,000, common stock warrants to
purchase 180,000 shares of the Company's common stock at $16.51 per share and
certain contingent payments. In connection with the acquisition, liabilities
were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired................................ $20,606,581
Issuance of common stock warrants............................ 1,300,000
Cash paid for common stock................................... 16,148,513
-----------
Liabilities assumed...................................... $ 3,158,068
===========
</TABLE>
GIS was a provider of data processing outsourcing services and was based in
Oak Brook, Illinois.
The fair value of the warrant to purchase 180,000 shares (which are fully
vested and expire on July 18, 2001) of the Company's common stock approximated
$1,300,000, and is included in part in capital as of September 30, 1996 and
1997. A payment of $1,050,000 was made based upon an earn-out provision for
the period July 1, 1996 through June 30, 1997. A similar additional payment is
expected based on an earn-out provision for the period July 1, 1997 through
June 30, 1998. Payments made under these earn-out provisions are reflected as
an increase in goodwill. The Company reserved $1,350,000 in the first quarter
of fiscal 1997 related to costs incurred in consolidating GIS operations.
These costs were paid during fiscal 1997 and primarily consisted of rental
commitments for property having no future economic value to the Company. The
amount reserved was also included as a component of goodwill.
The acquisition has been accounted for under the purchase method of
accounting. Accordingly, the purchase price was allocated to the identifiable
assets acquired and liabilities assumed based on their estimated fair values.
The excess of the purchase price over the net assets acquired was allocated to
goodwill. This goodwill is amortized using the straight line method over a 40-
year period for financial reporting purposes.
The following unaudited pro forma financial information presents the results
of operations of the Company and the acquired business as if the acquisitions
had occurred at the beginning of fiscal 1996. The pro forma
F-15
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
information is based on historical results of operations and does not
necessarily reflect the actual results that would have occurred, nor is it
necessarily indicative of future results of operations of the combined
enterprises:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Net Revenues..................................... $73,454,000 $86,696,000
Net Income....................................... 9,096,000 11,217,000
Basic earnings per share......................... $ 0.45 $ 0.50
Diluted earnings per share....................... 0.44 0.47
</TABLE>
NOTE 11--SUBSEQUENT EVENT--RESTRUCTURING CHARGE
In October 1997, the Company announced a one-time, pre-tax charge of
approximately $4.7 million ($2.9 million after-tax) in the first quarter of
fiscal 1998, which represents the present value of payments under existing
contracts with prior members of management.
NOTE 12--SUBSEQUENT EVENT--EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators for the
computations of basic and diluted EPS:
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
-----------------------------------
1995 1996 1997
<S> <C> <C> <C>
Basic EPS computation
Numerator.................................. $ 7,860,546 $10,223,583 $11,715,655
Denominator:
Weighted average shares outstanding...... 20,426,482 22,633,972 25,028,786
----------- ----------- -----------
Basic EPS.................................. $ 0.38 $ 0.45 $ 0.47
=========== =========== ===========
Diluted EPS computation
Numerator.................................. $7,860,546 $10,223,583 $11,715,655
Denominator:
Weighted average shares outstanding...... 20,426,482 22,633,972 25,028,786
Common stock equivalent of stock options. 184,035 1,018,929 1,150,177
----------- ----------- -----------
Total shares............................... 20,610,517 23,652,901 26,178,963
----------- ----------- -----------
Diluted EPS................................ $ 0.38 $ 0.43 $ 0.45
=========== =========== ===========
</TABLE>
The weighted-average of securities that could potentially dilute basic EPS
in the future that were not included in the fiscal 1996 and 1997 computations
of diluted EPS was 102,857 and 569,611 shares, respectively. These securities
were not included in the diluted EPS calculation because to do so would have
been antidilutive for the periods presented. No securities were excluded from
the 1995 calculation of diluted EPS.
F-16
<PAGE>
MAY & SPEH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly data for the years ended September 30, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
Net Revenues.................. $16,043,616 $19,132,514 $19,997,045 $22,049,785
Operating Income.............. 3,070,007 4,153,782 4,854,828 4,946,540
Net Income.................... 1,661,403 2,368,722 3,067,002 3,126,456
Basic Earnings Per Share...... $ 0.08 $ 0.12 $ 0.12 $ 0.13
Diluted Earnings Per Share.... 0.08 0.11 0.12 0.12
1997
Net Revenue................... $21,228,730 $21,692,905 $23,625,454 $25,910,199
Operating Income.............. 4,090,380 4,347,052 5,347,905 6,677,291
Net Income.................... 2,366,703 2,419,205 3,087,366 3,842,381
Basic Earnings Per Share...... $ 0.09 $ 0.10 $ 0.12 $ 0.15
Diluted Earnings Per Share.... 0.09 0.09 0.12 0.15
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAK-
ING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Safe Harbor for Forward-Looking Statements................................ 12
Use of Proceeds........................................................... 13
Capitalization............................................................ 13
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business.................................................................. 23
Management................................................................ 33
Principal Stockholders.................................................... 33
Selling Stockholders...................................................... 34
Description of Capital Stock.............................................. 35
Underwriting.............................................................. 39
Legal Matters............................................................. 41
Experts................................................................... 41
Additional Information.................................................... 41
Incorporation of Certain Documents by Reference........................... 41
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
LOGO
COMMON STOCK
--------------
PROSPECTUS
--------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
MERRILL LYNCH & CO.
ABN AMRO INCORPORATED
PAINEWEBBER INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be paid by the Registrant in connection with the
Note Offering and the Common Stock Offering are as follows:
<TABLE>
<S> <C>
Registration Fee................................................ $ 52,330
NASD Filing Fee................................................. 18,739
Nasdaq Listing Fees............................................. 18,000
Blue Sky Fees and Expenses...................................... 5,000
Printing and Engraving.......................................... 150,000
Accounting Fees and Expenses.................................... 75,000
Legal Fees and Expenses......................................... 150,000
Trustee Fees.................................................... 10,000
Miscellaneous................................................... 320,931
--------
Total....................................................... $800,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Nine of the Registrant's Certificate of Incorporation ("Article
Nine") is consistent with Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL"), which generally permits a company to include a
provision limiting the personal liability of a director in the company's
certificate of incorporation. With limitations, Article Nine eliminates the
personal liability of the Registrant's directors to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
However, Article Nine does not eliminate director liability (i) for breaches
of the duty of loyalty to the Registrant and its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for transactions from which a director derives
improper personal benefit and (iv) under Section 174 of the DGCL ("Section
174"). Section 174 makes directors personally liable for unlawful dividends
and stock repurchases or redemptions and expressly sets forth a negligence
standard with respect to such liability. Article Nine provides further that a
director shall not be personally liable to the Registrant or its stockholders
to such further extent as permitted by any law subsequently enacted, including
any subsequent amendment to the DGCL. While Article Nine protects the
directors from awards for monetary damages for breaches of their duty of care,
it does not eliminate their duty of care.
With certain limitations, Article Eight of the Registrant's By-Laws
("Article Eight") provides for indemnification of any of the Registrant's
past, present and future officers and directors against liabilities and
reasonable expenses incurred in any criminal or civil action by reason of such
person's being or having been an officer or director of the Registrant or of
any other corporation which such person serves as such at the request of the
Registrant. Indemnification under Article Eight is limited to officers and
directors who have acted in good faith and in a manner they reasonably
believed to be in the best interests of the Registrant. Any questions
regarding whether the officer or director has met the required standards of
conduct are to be answered by (i) a majority of disinterested directors, (ii)
a written opinion of a reputable disinterested legal counsel selected by the
Board or (iii) the stockholders. Indemnification rights under Article Eight
are non-exclusive. In the event of an officer's or director's death, such
person's indemnification rights shall extend to his or her heirs and legal
representatives. Rights under Article Eight are separable, and if any part of
that section is determined to be invalid for any reason, all other parts
remain in effect.
Under section 145 of the DGCL, directors and officers, as well as other
employees and individuals, may be indemnified against expenses (including
attorneys' fees), judgments, fines, amounts paid in settlement in connection
with specified actions, suits, or proceedings, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation--a "derivative action") if they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with
II-1
<PAGE>
respect to criminal actions or proceedings, had no reasonable cause to believe
their conduct was unlawful. A similar standard of care is applicable in the
case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense
or settlement of such an action, and the DGCL requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. Article Ten of the Registrant's
Certificate of Incorporation ("Article Ten") provides that the Registrant
shall indemnify its directors and officers (and, in the discretion of the
Board, employees of the Registrant or persons serving at the request of the
Registrant in any other capacity for or on behalf of the Registrant) to the
full extent permitted by law against any liability or expense actually and
reasonably incurred. Article Ten provides further that the Registrant shall
advance expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding upon receipt of an undertaking by or on
behalf of such officer or director to repay such amount if it shall ultimately
be determined that such officer or director is not entitled to be indemnified.
With the approval of the Registrant's stockholders, the Registrant has
entered into Directorship Agreements with its directors. These Directorship
Agreements provide that the directors will be indemnified to the fullest
extent permitted by law against all expenses (including attorneys' fees),
judgments, fines, amounts paid or incurred by them for settlement in any
action or proceeding, including any derivative action, on account of their
service as directors of the Registrant or of any subsidiary of the Registrant
or of any other company or enterprise in which they are serving at the request
of the Registrant. No indemnity will be provided to any director under these
agreements on account of liability for any breach of the director's duty of
loyalty to the Registrant, such subsidiaries, stockholders or enterprises, any
act or omission not in good faith or which involved intentional misconduct or
a knowing violation of laws, or any transaction from which the director
derived an improper personal benefit. In addition, no indemnification will be
provided for which payment is made to or on behalf of the director under any
insurance policy, except with respect to any excess amount to which the
director is entitled under the Directorship Agreement beyond the amount of
payment under such insurance policy, if a court having jurisdiction in the
matter finally determines that such indemnification is not lawful under any
applicable statute or public policy, or in connection with any proceeding
initiated by the director, or any proceeding by the director against the
Registrant or its directors, officers, employees or other persons entitled to
be indemnified by the Registrant, unless (i) the Registrant is expressly
required by law to make the indemnification, (ii) the proceeding was
authorized by the Board of Directors of the Registrant or (iii) the director
initiated the proceeding pursuant to the Directorship Agreement and the
director is successful in whole or in part in the proceeding.
In connection with the Note Offering and the Common Stock Offering, the
Registrant has purchased an insurance policy which provides coverage for the
Registrant and its directors and officers against loss, liability, cost or
expense incurred under the federal securities laws.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement for Notes
1.2 Form of Underwriting Agreement for Common Stock
4.1 Form of Indenture for Notes
4.2 Form of Notes (included as Exhibit A to the Form of Indenture for
Notes included
as Exhibit 4.1 hereto)
4.3 Specimen Certificate for Common Stock (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
(File No. 33-98302))
5.1 Opinion of Freeborn & Peters
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Freeborn & Peters (contained in Exhibit 5.1)
24.1 Power of Attorney (included on Signature Page of this Registration
Statement)
25.1 Statement of Eligibility of Trustee
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
1. For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 19th day of
February, 1998.
May & Speh, Inc.
/s/ Peter I. Mason
By: _________________________________
Peter I. Mason
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person who signature appears below
constitutes and appoints Peter I. Mason and Eric M. Loughmiller, and each of
them singly, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities (including his capacity as a director and officer of
May & Speh, Inc.), to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto each said attorney-in-fact
and agent, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities described below on February 19, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Peter I. Mason Chairman, President and Chief Executive
___________________________________________ Officer (principal executive officer)
Peter I. Mason
/s/ Eric M. Loughmiller Executive Vice President, Chief Financial
___________________________________________ Officer and Secretary (principal
Eric M. Loughmiller financial officer)
/s/ Willard E. Engel, Jr. Vice President, Chief Accounting Officer
___________________________________________ and Treasurer (principal accounting
Willard E. Engel, Jr. officer)
/s/ Robert C. Early Executive Vice President, Corporate
___________________________________________ Development and a Director
Robert C. Early
/s/ Albert J. Speh, Jr. Chairman Emeritus
___________________________________________
Albert J. Speh, Jr.
/s/ Deborah A. Bricker Director
___________________________________________
Deborah A. Bricker
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Casey Cowell Director
___________________________________________
Casey Cowell
/s/ Lawrence J. Speh Director
___________________________________________
Lawrence J. Speh
/s/ Paul G. Yovovich Director
___________________________________________
Paul G. Yovovich
/s/ Jonathan Zakin Director
___________________________________________
Jonathan Zakin
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement for Notes
1.2 Form of Underwriting Agreement for Common Stock
4.1 Form of Indenture for Notes
4.2 Form of Notes (included as Exhibit A to the Form of
Indenture for Notes included as Exhibit 4.1 hereto)
4.3 Specimen Certificate for Common Stock (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-98302))
5.1 Opinion of Freeborn & Peters
12.1 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Freeborn & Peters (contained in Exhibit 5.1)
24.1 Power of Attorney (included on Signature Page of this
Registration Statement)
25.1 Statement of Eligibility of Trustee
</TABLE>
<PAGE>
Exhibit 1.1
$100,000,000
MAY & SPEH
% Convertible Subordinated Notes Due 2003
UNDERWRITING AGREEMENT
----------------------
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
[NAMES OF OTHER CO-MANAGERS]
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
MAY & SPEH, INC., a Delaware corporation (the "Company"), proposes to issue
and sell $100,000,000 in aggregate principal amount of its % Convertible
Subordinated Notes Due 2003 (the "Firm Securities") to the several underwriters
named in Schedule I hereto (the "Underwriters"). The Company also proposes to
issue and sell to the several Underwriters not more than $15,000,000 in
aggregate principal amount of % Convertible Subordinated Notes Due 2003 (the
"Additional Securities"), if requested by the Underwriters as provided in
Section 2 hereof. The Firm Securities and the Additional Securities are herein
collectively called the Securities. The Securities are to be issued pursuant to
the provisions of an Indenture to be dated as of __________ __, 1998 (the
"Indenture") between the Company and ______________, as Trustee (the "Trustee").
1
<PAGE>
Section 1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3, including a prospectus, relating
to the Securities. The registration statement, as amended at the time it became
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A or
Rule 434 under the Act, is hereinafter referred to as the "Registration
Statement"; and the prospectus, including any the prospectus subject to
completion and the term sheet, taken together, as described in Rule 434(a)(1)
under the Act, in the form first used to confirm sales of Securities is
hereinafter referred to as the "Prospectus" (including, in the case of all
references to the Registration Statement or the Prospectus, documents
incorporated therein by reference). If the Company has filed or is required
pursuant to the terms hereof to file a registration statement pursuant to Rule
462(b) under the Act registering additional % Convertible Subordinated Notes
Due 2003 (a "Rule 462(b) Registration Statement"), then, unless otherwise
specified, any reference herein to the term "Registration Statement" shall be
deemed to include such Rule 462(b) Registration Statement. The terms
"supplement" and "amendment" or "amend" as used in this Agreement with respect
to the Registration Statement or the Prospectus shall include all documents
subsequently filed by the Company with the Commission pursuant to the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Exchange Act") that are deemed to be
incorporated by reference in the Prospectus.
Section 2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company the principal
amount of Securities set forth opposite the name of such Underwriter in Schedule
I hereto at ____% of the principal amount thereof (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell up to all of the Additional Securities and (ii) the Underwriters
shall have the right to purchase, severally and not jointly, up to all of the
Additional Securities from the Company at the Purchase Price. Additional
Securities may be purchased (in integral multiples of $1,000), as provided for
in Section 4 hereof, solely for the purpose of covering over-allotments made in
connection with the offering of the Firm Securities. The Underwriters may
exercise their right to purchase Additional Securities in whole or in part from
time to time by giving written notice thereof to the Company within 30 days
2
<PAGE>
after the date of this Agreement. The Representatives shall give any such notice
on behalf of the Underwriters and such notice shall specify the aggregate amount
of Additional Securities to be purchased pursuant to such exercise and the date
for payment and delivery thereof. The date specified in any such notice shall be
a business day (i) no earlier than the Closing Date (as hereinafter defined),
(ii) no later than ten business days after such notice has been given and (iii)
no earlier than two business days after such notice has been given. If any
Additional Securities are to be purchased, each Underwriter, severally and not
jointly, agrees to purchase the number of Additional Securities which bears the
same proportion to the total amount of Additional Securities to be purchased as
the amount of Firm Securities set forth opposite the name of such Underwriter in
Schedule I bears to the total amount of Firm Securities.
The Company hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 90 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's stock option and stock ownership plans existing on the
date hereof, (ii) the Company may issue shares of Common Stock upon the exercise
of an option outstanding on the date hereof, (iii) the May & Speh, Inc. Employee
Stock Ownership Plan (the "ESOP") may distribute shares of Common Stock to
participants or beneficiaries of the ESOP, and/or may sell, contract to sell or
otherwise dispose of any shares of Common Stock in order to make cash
distributions to participants or beneficiaries of the ESOP, in accordance with
the terms of the plan and trust documents governing the ESOP, and (iv) Selling
Stockholders who are individuals may transfer shares of Common Stock to members
of their immediate family or to trusts for the benefit of such Selling
Stockholders or trusts for the benefit of members of their immediate family,
provided such transferees agree in writing to be bound by the transfer
restrictions set forth herein.
The Company also agrees not to file any registration statement with respect
to any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock for a period of 90 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. The Company shall, prior to or concurrently
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with the execution of this Agreement, deliver an agreement executed by (i) each
Selling Stockholder and (ii) each of the directors and officers of the Company
who is not a Selling Stockholder to the effect that such person will not, during
the period commencing on the date such person signs such agreement and ending
180 days after the date of the Prospectus (with respect to the Selling
Stockholders) and ending 90 days after the date of the Prospectus (with respect
to each of the directors and officers who is not a Selling Stockholder), without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
Section 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Securities as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Securities upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. A global certificate for the Securities
(the "Global Certificate") shall be registered in the name of Cede & Co.,
nominee of the Depository Trust Company ("DTC"), and issued not later than two
full business days prior to the Closing Date (as defined below) or, if
applicable, each Option Closing Date (as defined below). The Global Certificate
shall be made available to you for inspection not later than 9:30 A.M., New York
City time, on the business day prior to the Closing Date or, if applicable, each
Option Closing Date, at the office of DTC or its designated custodian (the
"Designated Office"). The Global Certificate, or other form agreed to in the
alternative, evidencing the Securities, shall be delivered to Donaldson, Lufkin
& Jenrette Securities Corporation through the facilities of DTC or the
Designated Office on the Closing Date or, if applicable, each Option Closing
Date, with any transfer taxes thereon duly paid by the Company, for the
respective accounts of the several Underwriters, against payment to the Company
of the Purchase Price therefore by wire transfer of Federal or other funds
immediately available in New York City. The time and date of delivery and
payment for the Firm Securities shall be 9:00 A.M., New York City time, on
________, 1998 or such other time on the same or such other date as Donaldson,
Lufkin & Jenrette Securities Corporation and the Company shall agree in writing.
The time and date of such delivery and payment are hereinafter referred to as
the "Closing Date". The time and date of delivery and payment for the Additional
Securities shall be 9:00 A.M., New York City time, on such date or dates (each,
an "Option Closing Date"), which may be the same as the Closing Date, but shall
in no event be earlier than the Closing Date, as shall be specified in the
applicable exercise notice given by you pursuant to Section 2. Any such Option
Closing Date and the location of delivery of and
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the form of payment for such Additional Securities may be varied by agreement
between you and the Company.
The documents to be delivered on the Closing Date on behalf of the parties
hereto pursuant to Section 8 of this Agreement shall be delivered at the offices
of Freeborn & Peters, 311 South Wacker Drive, Suite 3000, Chicago, Illinois
60606 and the Securities shall be delivered at the Designated Office, all on the
Closing Date or, if applicable, the Option Closing Date.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Securities for offering or sale in any jurisdiction, or
the initiation of any proceeding for such purposes, (iii) when any amendment to
the Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish you up to four signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits and documents incorporated therein by reference, and to furnish to you
and each Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without exhibits
but including documents incorporated therein by reference, as you may reasonably
request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement (including,
without limitation, the issuance or filing of any term sheet within the meaning
of Rule 434 under the Act) to the Prospectus of which
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you shall not previously have been advised or to which you shall reasonably
object after being so advised; and, during such period, to prepare and file with
the Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or amendment or supplement (including, without
limitation, the issuance or filing of any term sheet within the meaning of Rule
434 under the Act) to the Prospectus which may be necessary or advisable in
connection with the distribution of the Securities by you, and to use its best
efforts to cause any such amendment to the Registration Statement to become
promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
and any documents incorporated herein by reference as such Underwriter or dealer
may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Securities, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Securities for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such jurisdictions
as you may request, to continue such registration or qualification in effect so
long as required for distribution of the Securities and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement,
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any preliminary prospectus or the offering or sale of the Securities, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its security holders as soon
as practicable an earnings statement covering the twelve-month period ending
March 31, 1998 that shall satisfy the provisions of Section 11(a) of the Act,
and to advise you in writing when such statement has been so made available.
(h) So long as the Securities are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Securities a financial report of the Company and its
subsidiaries on a consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to include a
consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholders equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
independent public accountants and (ii) to mail and make generally available as
soon as practicable after the end of each quarterly period (except for the last
quarterly period of each fiscal year) to such holders, a consolidated balance
sheet, a consolidated statement of operations and a consolidated statement of
cash flows (and similar financial reports of all unconsolidated subsidiaries, if
any) as of the end of and for such period, and for the period from the beginning
of such year to the close of such quarterly period, together with comparable
information for the corresponding periods of the preceding year.
(i) So long as the Securities are outstanding, to furnish to you as soon
as available copies of all reports or other communications furnished to its
security holders or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company is listed
and such other publicly available information concerning the Company and its
subsidiaries as you may reasonably request.
(j) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Companys counsel and
the Companys accountants in connection with the registration and delivery of the
Securities under the Act and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary prospectus, the
Prospectus and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and
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expenses related to the transfer and delivery of the Securities to the
Underwriters, including any transfer or other taxes payable thereon, (iii) all
costs of printing or producing this Agreement and any other agreements or
documents in connection with the offering, purchase, sale or delivery of the
Securities, (iv) all expenses in connection with the registration or
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states and all costs of printing or producing any
Preliminary and Supplemental Blue Sky Memoranda in connection therewith
(including the filing fees and fees and disbursements of counsel for the
Underwriters in connection with such registration or qualification and memoranda
relating thereto), (v) the filing fees and disbursements of counsel for the
Underwriters in connection with the review and clearance of the offering of the
Securities by the National Association of Securities Dealers, Inc., (vi) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Securities and all costs and
expenses incident to the listing of the Securities on the Nasdaq SmallCap
Market, (vii) the cost of printing certificates representing the Securities,
(viii) the costs and charges of any transfer agent, registrar and/or depositary
(including the Depository Trust Company), (ix) any fees charged by rating
agencies for the rating of the Securities, (x) the fees and expenses of the
Trustee and the Trustees counsel in connection with the Indenture and the
Securities and (xi) all other costs and expenses incident to the performance of
the obligations of the Company hereunder for which provision is not otherwise
made in this Section.
(k) To use its best efforts to list for quotation the Securities on the
Nasdaq SmallCap Market and to maintain the listing of the Securities on the
Nasdaq SmallCap Market for so long as the Securities are outstanding.
(l) During the period beginning on the date hereof and continuing to and
including the Closing Date, not to offer, sell, contract to sell or otherwise
transfer or dispose of any debt securities of the Company or any warrants,
rights or options to purchase or otherwise acquire debt securities of the
Company substantially similar to the Securities (other than (i) the Securities
and (ii) commercial paper issued in the ordinary course of business), without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
(m) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of the Securities.
(n) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date and to satisfy all conditions precedent to the delivery of the
Securities.
(o) If the Registration Statement at the time of the effectiveness of
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this Agreement does not cover all of the Securities, to file a Rule 462(b)
Registration Statement with the Commission registering the Securities not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the
date of this Agreement and to pay to the Commission the filing fee for such Rule
462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b)(i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or will
comply when so filed in all material respects with the Exchange Act; (ii) The
Registration Statement (other than any Rule 462(b) Registration Statement to be
filed by the Company after the effectiveness of this Agreement), when it became
effective, did not contain and, as amended, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(iii) the Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement)
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Act, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, such Rule 462(b) Registration Statement and any amendments thereto,
when they become effective (A) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (B) will comply in
all material respects with the Act and (v) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this
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paragraph do not apply to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you expressly for use
therein.
(c) The Prospectus is not materially different from the prospectus
included in the Registration Statement at the time of its effectiveness
(including the information (if any) deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A under the Act); and
the term sheet, if any, that is included in the Prospectus sets forth all
information material to investors with respect to the offering of the Shares
that is not disclosed in the prospectus subject to completion that is included
in the Prospectus.
(d) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(e) Each of the Company and its subsidiary has been duly incorporated, is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiary, taken as a whole.
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights.
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(g) All of the outstanding shares of capital stock of the Company's
subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature (each, a
"Lien").
(h) The Indenture has been duly qualified under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), and has been duly authorized,
executed and delivered by the Company and is a valid and binding agreement of
the Company, enforceable in accordance with its terms except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (B) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(i) The Securities have been duly authorized and, on the Closing Date,
will have been validly executed and delivered by the Company. When the
Securities have been executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the Underwriters in
accordance with the terms of this Agreement, the Securities will be entitled to
the benefits of the Indenture and will be valid and binding obligations of the
Company, enforceable in accordance with their terms except as (A) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors rights generally and (B) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(j) The Securities conform as to legal matters to the description thereof
contained in the Prospectus.
(k) Neither the Company nor its subsidiary is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiary, taken as a whole, to which the Company or its
subsidiary is a party or by which the Company or its subsidiary or their
respective property is bound.
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(l) The execution, delivery and performance of this Agreement, the
Indenture and the Securities by the Company, the compliance by the Company with
all the provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the charter or
by-laws of the Company or its subsidiary or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the Company
and its subsidiary, taken as a whole, to which the Company or its subsidiary is
a party or by which the Company or its subsidiary or their respective property
is bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, its subsidiary or their respective
property, (iv) result in the imposition or creation of (or the obligation to
create or impose) a Lien under any agreement or instrument to which the Company
or its subsidiary is a party or by which the Company or its subsidiary or their
respective property is bound or (v) result in the suspension, termination or
revocation of any Authorization (as defined below) of the Company or its
subsidiary or any other impairment of the rights of the holder of any such
Authorization.
(m) There are no legal or governmental proceedings pending or threatened
to which the Company or its subsidiary is or could be a party or to which any of
their respective property is or could be subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(n) Neither the Company nor its subsidiary has violated any foreign,
federal, state or local law or regulation relating to the protection of human
health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), laws or regulations relating
to discrimination in the hiring, promotion or pay of employees (including
federal or state wages and hours laws) any provisions of the Employee Retirement
Income Security Act of 1974, as amended, or any provisions of the Foreign
Corrupt Practices Act or the rules and regulations promulgated thereunder,
except for such violations which, singly or in the aggregate, would not have a
material adverse effect on the business, prospects,
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financial condition or results of operation of the Company and its subsidiary,
taken as a whole.
(o) Each of the Company and its subsidiary has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiary, taken as a whole. Each such Authorization is valid and in full force
and effect and each of the Company and its subsidiary is in compliance with all
the terms and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto; and
no event has occurred (including, without limitation, the receipt of any notice
from any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would result
in any other impairment of the rights of the holder of any such Authorization;
and such Authorizations contain no restrictions that are burdensome to the
Company or its subsidiary; except where such failure to be valid and in full
force and effect or to be in compliance, the occurrence of any such event or the
presence of any such restriction would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiary, taken as a whole.
(p) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiary, taken as a whole.
(q) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of operation
of the Company, the Company has good and marketable title, free and clear of all
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liens, claims, encumbrances and restrictions except liens for taxes not yet due
and payable, to all property and assets described in the Registration Statement
as being owned by it. All leases to which the Company is a party are valid and
binding and no default has occurred or is continuing thereunder, which would
reasonably be expected to result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company, and the
Company enjoys peaceful and undisturbed possession under all such leases to
which it is a party as lessee with such exceptions as do not materially
interfere with the use made by the Company.
(r) The Company maintains reasonably adequate insurance.
(s) This Agreement has been duly authorized, executed and delivered by the
Company.
(t) Price Waterhouse LLP are independent public accountants with respect
to the Company and its subsidiary as required by the Act.
(u) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiary on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(v) The Company is not and, after giving effect to the offering and sale
of the Securities and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
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the Investment Company Act of 1940, as amended.
(w) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the
Securities registered pursuant to the Registration Statement.
(x) No "nationally recognized statistical rating organization" as such
term is defined for purposes of Rule 436(g)(2) under the Act has indicated to
the Company that it is considering (i) the downgrading, suspension or withdrawal
of, or any review for a possible change that does not indicate the direction of
the possible change in, any rating assigned to the Company or any securities of
the Company or (ii) any change in the outlook for any rating of the Company or
any securities of the Company.
(y) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiary, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or its subsidiary and
(iii) neither the Company nor its subsidiary has incurred any material liability
or obligation, direct or contingent.
(z) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(aa) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens related to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company except as
otherwise disclosed in the Registration Statement.
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(bb) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with managements general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with managements general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(cc) All material tax returns required to be filed by the Company and its
subsidiary in any jurisdiction have been filed, other than those filings being
contested in good faith, and all material taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due pursuant to such
returns or pursuant to any assessment received by the Company or its subsidiary
have been paid, other than those being contested in good faith and for which
adequate reserves have been provided.
(dd) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock, has filed an application
to list the Securities on The Nasdaq SmallCap Market and has received
notification that the listing has been approved, subject to notice of issuance
of the Securities.
(ee) The Company and its subsidiary own and possess all right, title and
interest in and to, or has duly licensed from third parties, all patents,
rights, trademarks, trade names, service marks, copyrights, inventions, know-how
(including trade secrets and other unprotected and/or unpatentable proprietary
or confidential information systems, procedures, processes, techniques and
substances) and other proprietary rights which are necessary for the conduct of
the business now operated by them as described in the Prospectus (collectively,
"Trade Rights"); no such Trade Rights as are material to the business of the
Company and its subsidiary expire or are subject to termination at the election
of another party without their consent at a time or under circumstances which
would reasonably be expected to have a material adverse effect upon the
business, prospects, financial condition or results of operations of the Company
and its subsidiary, taken as a whole, and the Company and its subsidiary have
not granted any lien or encumbrance on, or granted any right of license (other
than in the ordinary course of its business) with respect to, any such Trade
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Rights. The Company and its subsidiary have not received any notice of
infringement, misappropriation or conflict from any third party as to Trade
Rights that has not been resolved or disposed of and the Company and its
subsidiary have not infringed, misappropriated or otherwise conflicted with
Trade Rights of any third parties, which infringement, misappropriation or
conflict, singly or in the aggregate, would reasonably be expected to have a
material adverse effect upon the business, prospects, financial condition or
results of operations of the Company and its subsidiary, taken as a whole.
(ff) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
Section 7. Indemnification. (a) The Company agrees to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with investigating or defending any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus, as then
amended or supplemented, (so long as the Prospectus and any amendment or
supplemented thereto was provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgements caused by any untrue statement or alleged untrue
statement of a material fact contained in the preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or
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alleged material misstatement or omission was cured in the Prospectus, as so
amended or supplemented, and such Prospectus was required by law to be delivered
at or prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of
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more than one separate firm of attorneys (in addition to any local counsel) for
all indemnified parties and all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Donaldson, Lufkin
& Jenrette Securities Corporation, in the case of parties indemnified pursuant
to Section 7(a), and by the Company, in the case of parties indemnified pursuant
to Section 7(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Securities or (ii) if the allocation provided by clause 7(d)(i) above is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions but before deducting expenses)
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<PAGE>
received by the Company, and the total underwriting discounts and commissions
received by the Underwriters, bear to the total price to the public of the
Securities, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective
principal amount of Securities purchased by each of the Underwriters hereunder
and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
Section 8. Conditions of Underwriters Obligations. The several
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obligations of the Underwriters to purchase the Securities under this Agreement
are subject to the satisfaction of each of the following conditions on the
Closing Date and, as applicable, each Option Closing Date:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date and each Option
Closing Date, if applicable, with the same force and effect as if made on and as
of the Closing Date or Option Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and at the Closing Date or Option Closing
Date, if applicable, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or contemplated by
the Commission.
(c) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any potential or intended downgrading, suspension or withdrawal of, or of any
review (or of any potential or intended review) for a possible change that does
not indicate the direction of the possible change in, any rating of the Company
or any securities of the Company (including, without limitation, the placing of
any of the foregoing ratings on credit watch with negative or developing
implications or under review with an uncertain direction) by any "nationally
recognized statistical rating organization" as such term is defined for purposes
of Rule 436(g)(2) under the Act, (ii) there shall not have occurred any change,
nor shall any notice have been given of any potential or intended change, in the
outlook for any rating of the Company or any securities of the Company by any
such rating organization and (iii) no such rating organization shall have given
notice that it has assigned (or is considering assigning) a lower rating to the
Securities than that on which the Securities were marketed.
(d) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Peter Mason and Eric Loughmiller, in their capacities as
the Chief Executive Officer and Chief Financial Officer of the Company,
confirming the matters set forth in Sections 6(y), 8(a), 8(b) and 8(c)
21
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and that the Company has complied with all of the agreements and satisfied all
of the conditions herein contained and required to be complied with or satisfied
by the Company on or prior to the Closing Date or Option Closing Date, if
applicable.
(e) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations, whether or not arising in the ordinary
course of business, of the Company and its subsidiary, taken as a whole, (ii)
there shall not have been any change or any development involving a prospective
change in the capital stock or in the long-term debt of the Company or its
subsidiary and (iii) neither the Company nor its subsidiary shall have incurred
any liability or obligation, direct or contingent, the effect of which, in any
such case described in clause 8(e)(i), 8(e)(ii) or 8(e)(iii), in your judgment,
is material and adverse and, in your judgment, makes it impracticable to market
the Securities on the terms and in the manner contemplated in the Prospectus.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Freeborn &
Peters, counsel for the Company, to the effect that:
(i) each of the Company and its subsidiary has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole;
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(iii) all the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-
assessable and not subject to any preemptive or similar rights;
(iv) all of the outstanding shares of capital stock of the Companys
subsidiary have been duly authorized and validly issued and are fully paid
and non-assessable, and are owned by the Company, directly or indirectly
through one or more subsidiaries, free and clear of any Lien;
(v) the Securities have been duly authorized and, when executed
and authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms
of this Agreement, will be entitled to the benefits of the Indenture and
will be valid and binding obligations of the Company, enforceable in
accordance with their terms except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (B) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability;
(vi) the Indenture has been duly qualified under the Trust
Indenture Act and has been duly authorized, executed and delivered by the
Company and is a valid and binding agreement of the Company, enforceable in
accordance with its terms except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (B) rights of acceleration and the availability of
equitable remedies may be limited by equitable principles of general
applicability;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the
Company enforceable in accordance with its terms (except as rights to
indemnity and contribution hereunder may be limited by applicable law);
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no
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proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "_______________",
"_______________", "_______________", "_______________", "_______________",
"_______________", "Description of the Notes" and "Underwriting" in the
Prospectus and Item 15 of Part II of the Registration Statement, insofar as
such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(x) such counsel is of the opinion ascribed to it in the Prospectus
under the caption "Taxation";
(xi) neither the Company nor its subsidiary is in violation of its
respective charter or by-laws and, to the best of such counsel's knowledge
after due inquiry, neither the Company nor its subsidiary is in default in
the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiary,
taken as a whole, to which the Company or its subsidiary is a party or by
which the Company or its subsidiary or their respective property is bound;
(xii) the execution, delivery and performance of this Agreement, the
Indenture and the Securities by the Company, the compliance by the Company
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or its subsidiary or
any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or its subsidiary is a party or by which the
Company or its subsidiary or
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their respective property is bound, (C) violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company, its subsidiary or their respective property, (D) result in the
imposition or creation of (or the obligation to create or impose) a Lien
under any agreement or instrument to which the Company or its subsidiary is
a party or by which the Company or its subsidiary or their respective
property is bound or (E) result in the suspension, termination or
revocation of any Authorization of the Company or its subsidiary or any
other impairment of the rights of the holder of any such Authorization;
(xiii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or its
subsidiary is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or of
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so described
or filed as required;
(xiv) to the best of such counsel's knowledge, after due inquiry,
neither the Company nor its subsidiary has violated any Environmental Law,
any provisions of the Employee Retirement Income Security Act of 1974, as
amended, any federal or state law relating to discrimination in the hiring,
promotion or pay of employees or any federal or state wages and hours laws,
or any provisions of the Foreign Corrupt Practices Act or the rules and
regulations promulgated thereunder, except for such violations which,
singly or in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiary, taken as a whole;
(xv) each of the Company and its subsidiary has such Authorizations
of, and has made all filings with and notices to, all governmental or
regulatory authorities and self-regulatory organizations and all courts and
other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure
to have any such Authorization or to make any
25
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such filing or notice would not, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiary, taken as a whole;
each such Authorization is valid and in full force and effect and each of
the Company and its subsidiary is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; and no event
has occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse of
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of any
such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or its subsidiary; except where such failure
to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would
not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole;
(xvi) the Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xvii) to the best of such counsel's knowledge after due inquiry,
there are no contracts, agreements or understandings between the Company
and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities
of the Company or to require the Company to include such securities with
the Securities registered pursuant to the Registration Statement; and
(xviii) (A) Each document, if any, filed or to be filed pursuant to
the Exchange Act and incorporated by reference in the Prospectus complied
or will comply when so filed in all material respects with the Exchange
Act; (B) the Registration Statement and the Prospectus and any supplement
or amendment thereto (except for the financial statements and other
financial data included therein as to which no opinion need be
26
<PAGE>
expressed) comply as to form with the Act, (C) such counsel has no reason
to believe that at the time the Registration Statement became effective or
on the date of this Agreement, the Registration Statement and the
prospectus included therein (except for the financial statements and other
financial data as to which such counsel need not express any belief and
except for that part of the Registration Statement that constitutes the
Statement of Eligibility (Form T-1) under the Trust Indenture Act)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (D) such counsel has no reason to
believe that the Prospectus, as amended or supplemented, if applicable
(except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
and the Prospectus is not materially different from the prospectus included
in the Registration Statement at the time of its effectiveness (including
the information (if any) deemed to be part of the Registration Statement at
the time of effectiveness pursuant to Rule 430A under the Act).
The opinion of Freeborn & Peters, described in Section 8(f) above shall be
rendered to you at the request of the Company and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Katten Muchin & Zavis, counsel for the Underwriters, as to the
matters referred to in Sections 8(f)(v), 8(f)(vi), 8(f)(vii) and 8(f)(ix) (but
only with respect to the statements under the caption "Description of the Notes"
and "Underwriting") and clauses 8(f)(xviii)(C) and 8(f)(xviii)(D).
In giving such opinions with respect to the matters covered by Section
8(f)(xviii), Freeborn & Peters may state that their opinion and belief are based
upon their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and documents incorporated
therein by reference and review and discussion of the contents thereof, but is
without independent check or verification except as specified. In giving such
opinions with respect to the matters covered by clauses 8(f)(xviii)(C) and
8(f)(xviii)(D) above, Katten Muchin & Zavis may state that their opinion and
belief are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements
27
<PAGE>
thereto (other than the documents incorporated therein by reference) and review
and discussion of the contents thereof (including the documents incorporated
therein by reference), but are without independent check or verification except
as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Price Waterhouse LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in or incorporated by reference into the Registration Statement and the
Prospectus.
(i) The Securities shall have been duly listed for quotation on the Nasdaq
SmallCap Market.
(j) The Securities shall have been rated " " by [Standard & Poor's
Corporation] and " " by [Moody's Investors Service, Inc.]
(k) The Underwriters shall have received a counterpart, conformed as
executed, of the Indenture which shall have been entered into by the Company and
the Trustee.
(l) The Company shall not have failed on or prior to the Closing Date of,
if applicable, the Option Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied with by the
Company on or prior to the Closing Date or Option Closing Date.
Section 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
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Date by you by written notice to the Company if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or its subsidiary or the earnings, affairs, or business prospects
of the Company or its subsidiary, whether or not arising in the ordinary course
of business, which would, in your judgment, make it impracticable to market the
Securities on the terms and in the manner contemplated in the Prospectus, (ii)
any outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in your judgment, is material and
adverse and, in your judgment, makes it impracticable to market the Securities
on the terms and in the manner contemplated in the Prospectus, (iii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iv) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (v) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiary, taken as a whole, (vi) the declaration of a banking moratorium by
either federal or New York State authorities or (vii) the taking of any action
by any federal, state or local government or agency in respect of its monetary
or fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or any Option Closing Date, if applicable, any one
or more of the Underwriters shall fail or refuse to purchase the Securities
which it or they have agreed to purchase hereunder on such date and the
aggregate principal amount of Securities which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate principal amount of Securities to be purchased on such date by
all Underwriters, each non-defaulting Underwriter shall be obligated severally,
in the proportion which the principal amount of Firm Securities set forth
opposite its name in Schedule I bears to the aggregate principal amount of
Securities which all the non-defaulting Underwriters have agreed to purchase, or
in such other proportion as you may specify, to purchase the Securities which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; provided that in no event shall the aggregate principal
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amount of Securities which any Underwriter has agreed to purchase pursuant to
Section 2 hereof be increased pursuant to this Section 9 by an amount in excess
of one-ninth of such principal amount of Securities without the written consent
of such Underwriter. If on the Closing Date or an Option Closing Date, as the
case may be, any Underwriter or Underwriters shall fail or refuse to purchase
Securities and the aggregate principal amount of Securities with respect to
which such default occurs is more than one-tenth of the aggregate principal
amount of Securities to be purchased by all Underwriters and arrangements
satisfactory to you and the Company for purchase of such Securities are not made
within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date or an Option
Closing Date, if applicable, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
Section 10. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company, to May & Speh,
Inc., 1501 Opus Place, Downers Grove, Illinois 60515, Attention: Robert C. Early
and (ii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Securities,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Securities and payment for them hereunder and (iii)
termination of this Agreement.
If for any reason the Securities are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
30
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Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(j) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers and any persons controlling
any of the Underwriters for any and all fees and expenses (including, without
limitation, the fees disbursements of counsel) incurred by them in connection
with enforcing their rights hereunder (including, without limitation, pursuant
to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Securities from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
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Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
MAY & SPEH, INC.
By:___________________________
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
[NAMES OF OTHER CO-MANAGERS]
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By_____________________________________
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SCHEDULE I
----------
SCHEDULE I
Underwriters Principal Amount
of
Securities
to be Purchased
Donaldson, Lufkin & Jenrette
Securities Corporation
[Names of other Underwriters]
Total
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<PAGE>
Exhibit 1.2
_________ Shares
MAY & SPEH, INC.
(a Delaware corporation)
Common Stock
UNDERWRITING AGREEMENT
----------------------
________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
[NAMES OF OTHER CO-MANAGERS]
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
The stockholders of May & Speh, Inc., a Delaware corporation ("the
Company"), named in Schedule II hereto (collectively, the "Selling
Stockholders"), severally propose to sell an aggregate of _________ shares of
Common Stock, par value $.01 per share, of the Company (the "Firm Shares"), to
the several underwriters named in Schedule I hereto (the "Underwriters"). The
Company also proposes to issue and sell to the several Underwriters not more
than _______ additional shares of Common Stock, par value $.01 per share, of the
Company (the "Additional Shares"), if requested by the Underwriters as provided
in Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the Shares. The shares of Common Stock of the Company to be
outstanding after giving effect to the sales contemplated hereby are hereinafter
referred to as the "Common Stock." The Company and the Selling Stockholders are
hereinafter sometimes referred to collectively as the "Sellers."
1. Registration Statement and Prospectus. The Company has prepared and
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3, including a prospectus,
<PAGE>
relating to the Shares. The registration statement, as amended at the time it
became effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A or
Rule 434 under the Act, is hereinafter referred to as the "Registration
Statement"; and the prospectus, including any the prospectus subject to
completion and the term sheet, taken together, as described in Rule 434(a)(1)
under the Act, in the form first used to confirm sales of Shares is hereinafter
referred to as the "Prospectus" (including, in the case of all references to the
Registration Statement or the Prospectus, documents incorporated therein by
reference). If the Company has filed or is required pursuant to the terms hereof
to file a registration statement pursuant to Rule 462(b) under the Act
registering additional shares of Common Stock (a "Rule 462(b) Registration
Statement"), then, unless otherwise specified, any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462(b)
Registration Statement. The terms "supplement" and "amendment" or "amend" as
used in this Agreement with respect to the Registration Statement or the
Prospectus shall include all documents subsequently filed by the Company with
the Commission pursuant to the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Exchange Act") that are deemed to be incorporated by reference in the
Prospectus.
2. Agreements to Sell and Purchase. On the basis of the representations
and warranties contained in this Agreement, and subject to its terms and
conditions, (i) each Selling Stockholder agrees, severally and not jointly, to
sell the number of Firm Shares set forth opposite such Selling Stockholder's
name in Schedule II hereto and (ii) each Underwriter agrees, severally and not
jointly, to purchase from each Selling Stockholder at a price per share of
$______ (the "Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The Underwriters may exercise their right to purchase Additional
Shares in whole or in part from time to time by giving written notice thereof to
the Company within 30 days after the date of this Agreement. You shall give any
such notice on behalf of the Underwriters and such notice shall specify the
aggregate number of Additional Shares to be purchased pursuant to such exercise
and the date for payment and delivery thereof. The date specified in any such
notice shall be a business day (i) no earlier than the Closing Date (as
hereinafter defined), (ii) no later than ten business days after such notice has
been given and (iii) no earlier than two business days after such notice has
been given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the
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number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I bears to the total number of Firm Shares.
The Selling Stockholders hereby agree, severally and not jointly, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise),
except to the Underwriters pursuant to this Agreement, for a period of 180 days
after the date of the Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. The Company hereby agrees not to
engage in the transactions described in clause (i) and (ii) above, except to the
Underwriters pursuant to this Agreement, for a period of 90 days after the date
of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation. Notwithstanding the foregoing, during such
period (i) the Company may grant stock options pursuant to the Company's stock
option and stock ownership plans existing on the date hereof, (ii) the Company
may issue shares of Common Stock upon the exercise of an option outstanding on
the date hereof, (iii) the May & Speh, Inc. Employee Stock Ownership Plan (the
"ESOP") may distribute shares of Common Stock to participants or beneficiaries
of the ESOP, and/or may sell, contract to sell or otherwise dispose of any
shares of Common Stock in order to make cash distributions to participants or
beneficiaries of the ESOP, in accordance with the terms of the plan and trust
documents governing the ESOP, and (iv) Selling Stockholders who are individuals
may transfer shares of Common Stock to members of their immediate family or to
trusts for the benefit of such Selling Stockholders or trusts for the benefit of
members of their immediate family, provided such transferees agree in writing to
be bound by the transfer restrictions set forth herein.
The Company also agrees not to file any registration statement with respect
to any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock for a period of 90 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. In addition, each Selling Stockholder agrees that, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, it will not make
any demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock. The Company shall, prior to or concurrently with
the execution of this Agreement, deliver an agreement executed by (i) each
Selling Stockholder and (ii) each of the directors and officers of the Company
who is not a Selling Stockholder to the effect that such person will not, during
the period commencing on the date such person signs such agreement and ending
180 days after the date of the Prospectus (with respect to the Selling
Stockholders) and ending 90 days after the date of the Prospectus (with respect
to each of the directors and officers who is not a Selling Stockholder), without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, (A) engage in any of the
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transactions described in the first sentence of this paragraph or (B) make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
3. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose (i) to make a public offering of their respective portions
of the Shares as soon after the execution and delivery of this Agreement as in
your judgment is advisable and (ii) initially to offer the Shares upon the terms
set forth in the Prospectus.
4. Delivery and Payment. The Shares shall be represented by definitive
certificates and shall be issued in such authorized denominations and registered
in such names as Donaldson, Lufkin & Jenrette Securities Corporation shall
request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities Corporation through the facilities of The Depository Trust
Company ("DTC"), for the respective accounts of the several Underwriters,
against payment to the Sellers of the Purchase Price therefore by wire transfer
of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "Designated Office"). The time
and date of delivery and payment for the Firm Shares shall be made at 9:00 A.M.,
New York City time, on ________, 1998, or such other time on the same or such
other date as Donaldson, Lufkin & Jenrette Securities Corporation and the
Company shall agree in writing. The time and date of delivery and payment for
the Firm Shares are hereinafter referred to as the "Closing Date". The time and
date of delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be made at 9:00 A.M., New York City time, on the date
specified in the applicable exercise notice given by you pursuant to Section 2,
or such other time on the same or such other date as Donaldson, Lufkin &
Jenrette Securities Corporation and the Company shall agree in writing. The time
and date of delivery and payment for any Additional Shares are hereinafter
referred to as the "Option Closing Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Freeborn & Peters, 311 South Wacker Drive,
Chicago, Illinois 60606, and the Shares shall be delivered at the Designated
Office, all on the Closing Date or such Option Closing Date, as the case may be.
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<PAGE>
5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to
the Registration Statement or amendments or supplements to the Prospectus
or for additional information, (ii) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Shares for offering or sale in
any jurisdiction, or the initiation of any proceeding for such purposes,
(iii) when any amendment to the Registration Statement becomes effective,
(iv) if the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, when the Rule 462(b)
Registration Statement has become effective and (v) of the happening of any
event during the period referred to in Section 5(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.
(b) To furnish you up to four signed copies of the Registration
Statement as first filed with the Commission and of each amendment to it,
including all exhibits and documents incorporated therein by reference, and
to furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits but including documents incorporated
therein by reference, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall
be satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the
Act; during the period specified in Section 5(d) below, not to file any
further amendment to the Registration Statement and not to make any
amendment or supplement (including, without limitation, the issuance or
filing of any term sheet within the meaning of Rule 434 under the Act) to
the Prospectus of which you shall not previously have been advised or to
which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your
reasonable request, any amendment to the Registration Statement or
amendment or supplement (including, without limitation, the issuance or
filing of any term sheet within the meaning of Rule 434 under the Act) to
the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any
such amendment to the Registration Statement to become promptly effective.
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<PAGE>
(d) Prior to 10:00 A.M., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for
such period as in the opinion of counsel for the Underwriters a prospectus
is required by law to be delivered in connection with sales by an
Underwriter or a dealer, to furnish in New York City to each Underwriter
and any dealer as many copies of the Prospectus (and of any amendment or
supplement to the Prospectus) and any documents incorporated therein by
reference as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of
counsel for the Underwriters, it becomes necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with applicable
law, forthwith to prepare and file with the Commission an appropriate
amendment or supplement to the Prospectus so that the statements in the
Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the
Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such registration or
qualification in effect so long as required for distribution of the Shares
and to file such consents to service of process or other documents as may
be necessary in order to effect such registration or qualification;
provided, however, that the Company shall not be required in connection
therewith to qualify as a foreign corporation in any jurisdiction in which
it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters
and transactions relating to the Prospectus, the Registration Statement,
any preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon
as practicable an earnings statement covering the twelve-month period
ending March 31, 1998 that shall satisfy the provisions of Section 11(a) of
the Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal
year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries, if any, on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all
such financial reports to include a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of cash
flows and a consolidated statement of
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shareholders' equity as of the end of and for such fiscal year, together
with comparable information as of the end of and for the preceding year,
certified by independent certified public accountants, and (ii) to make
generally available as soon as practicable after the end of each quarterly
period (except for the last quarterly period of each fiscal year) to such
holders, summary financial statements as of the end of and for such period,
and for the period from the beginning of such year to the close of such
quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(i) During the period referred to in paragraph (h), to furnish to you
as soon as available copies of all reports or other communications
furnished to the record holders of Common Stock or furnished to or filed
with the Commission or any national securities exchange on which any class
of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may
reasonably request.
(j) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of the Sellers' obligations under
this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel, the Company's accountants and any Selling Stockholder's
counsel (in addition to the Company's counsel) in connection with the
registration and delivery of the Shares under the Act and all other fees
and expenses in connection with the preparation, printing, filing and
distribution of the Registration Statement (including financial statements
and exhibits), any preliminary prospectus, the Prospectus and all
amendments and supplements to any of the foregoing, including the mailing
and delivering of copies thereof to the Underwriters and dealers in the
quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares,
(iv) all expenses in connection with the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any Preliminary and
Supplemental Blue Sky Memoranda in connection therewith (including the
filing fees and fees and disbursements of counsel for the Underwriters in
connection with such registration or qualification and memoranda relating
thereto), (v) the filing fees and disbursements of counsel for the
Underwriters in connection with the review and clearance of the offering of
the Shares by the National Association of Securities Dealers, Inc., (vi)
all costs and expenses incident to the listing of the Shares on the Nasdaq
National Market, (vii) the cost of printing certificates representing the
Shares, (viii) the costs and charges of any transfer agent, registrar
and/or depositary, and (ix) all other costs and expenses incident to the
performance of the obligations of the Company and the Selling Stockholders
hereunder for which provision is not otherwise made in this Section.
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(k) To use its best efforts to maintain the inclusion of the Common
Stock on The Nasdaq National Market (or on a national securities exchange)
for a period of five years after the effective date of the Registration
Statement.
(l) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company
prior to the Closing Date or any Option Closing Date, as the case may be,
and to satisfy all conditions precedent to the delivery of the Shares.
(m) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time,
on the date of this Agreement and to pay to the Commission the filing fee
for such Rule 462(b) Registration Statement at the time of the filing
thereof or to give irrevocable instructions for the payment of such fee
pursuant to Rule 111(b) under the Act.
6. Representations and Warranties of the Company. The Company represents
and warrants to each Underwriter that:
(a) the Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement); any Rule 462(b) Registration Statement
filed after the effectiveness of this Agreement will become effective no
later than 10:00 P.M., New York City time, on the date of this Agreement;
and no stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for such purpose are pending
before or threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or
will comply when so filed in all material respects with the Exchange Act;
(ii) each document, if any, filed or to be filed pursuant to the Exchange
Act and incorporated by reference in the Prospectus complied or will comply
when so filed in all material respects with the Exchange Act; (iii) The
Registration Statement (other than any Rule 462(b) Registration Statement
to be filed by the Company after the effectiveness of this Agreement), when
it became effective, did not contain and, as amended, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (iv) the Registration Statement (other
than any Rule 462(b) Registration Statement to be filed by the Company
after the effectiveness of this Agreement) and the Prospectus comply and,
as amended or supplemented, if applicable, will comply in all material
respects with the Act, (v) if the Company is required to file a Rule 462(b)
Registration Statement after the effectiveness of this Agreement, such Rule
462(b) Registration Statement and any amendments thereto, when they become
effective (A) will not contain any untrue statement of a material fact or
omit to state a material fact
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required to be stated therein or necessary to make the statements therein
not misleading and (B) will comply in all material respects with the Act
and (v) the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph
do not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you expressly for use
therein.
(c) The Prospectus is not materially different from the prospectus
included in the Registration Statement at the time of its effectiveness
(including the information (if any) deemed to be part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A under the
Act); and the term sheet, if any, that is included in the Prospectus sets
forth all information material to investors with respect to the offering of
the Shares that is not disclosed in the prospectus subject to completion
that is included in the Prospectus.
(d) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in any preliminary prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(e) Each of the Company and its subsidiary has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority to carry on its business as described in the Prospectus and
to own, lease and operate its properties, and each is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole.
(f) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
granted or issued by the Company or any of its subsidiaries relating to or
entitling any person to purchase or otherwise to acquire any shares of the
capital stock of the Company or any of its subsidiaries, except as
otherwise disclosed in the Registration Statement.
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(g) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights; and the Shares to be
issued and sold by the Company have been duly authorized and, when issued
and delivered to the Underwriters against payment therefor as provided by
this Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or
similar rights.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor its subsidiary is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture,
loan agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiary, taken as a whole, to which the
Company or its subsidiary is a party or by which the Company or its
subsidiary or their respective property is bound.
(j) The execution, delivery and performance of this Agreement, the
compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby and thereby will not
(i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
its subsidiary or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiary,
taken as a whole, to which the Company or its subsidiary is a party or by
which the Company or its subsidiary or their respective property is bound,
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, its subsidiary or their respective
property, (iv) result in the imposition or creation of (or the obligation
to create or impose) a Lien under any agreement or instrument to which the
Company or its subsidiary is a party or by which the Company or its
subsidiary or their respective property is bound or (v) result in the
suspension, termination or revocation of any Authorization (as defined
below) of the Company or its subsidiary or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or its subsidiary is or could be a party or
to which any of their respective property is or could be subject that are
required to be described in the Registration Statement or the Prospectus
and are not so described; nor are there any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed as required.
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(l) Neither the Company nor its subsidiary has violated any foreign,
federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("Environmental Laws"), laws or
regulations relating to discrimination in the hiring, promotion or pay of
employees (including federal or state wages and hours laws) any provisions
of the Employee Retirement Income Security Act of 1974, as amended, or any
provisions of the Foreign Corrupt Practices Act or the rules and
regulations promulgated thereunder, except for such violations which,
singly or in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiary, taken as a whole.
(m) Each of the Company and its subsidiary has such permits,
licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "Authorization") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including, without
limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct
its business, except where the failure to have any such Authorization or to
make any such filing or notice would not, singly or in the aggregate, have
a material adverse effect on the business, prospects, financial condition
or results of operations of the Company and its subsidiary, taken as a
whole. Each such Authorization is valid and in full force and effect and
each of the Company and its subsidiary is in compliance with all the terms
and conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of
any notice from any authority or governing body) which allows or, after
notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse
of time or both, would result in any other impairment of the rights of the
holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or its subsidiary; except
where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiary, taken as a whole.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on
operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole.
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(o) Except as otherwise set forth in the Prospectus or such as are
not material to the business, prospects, financial condition or results of
operation of the Company, the Company has good and marketable title, free
and clear of all liens, claims, encumbrances and restrictions except liens
for taxes not yet due and payable, to all property and assets described in
the Registration Statement as being owned by it. All leases to which the
Company is a party are valid and binding and no default has occurred or is
continuing thereunder, which would reasonably be expected to result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company, and the Company enjoys peaceful and
undisturbed possession under all such leases to which it is a party as
lessee with such exceptions as do not materially interfere with the use
made by the Company.
(p) The Company maintains reasonably adequate insurance.
(q) This Agreement has been duly authorized, executed and delivered
by the Company.
(r) Price Waterhouse LLP are independent public accountants with
respect to the Company and its subsidiary as required by the Act.
(s) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in
financial position of the Company and its subsidiary on the basis stated
therein at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved, except as disclosed therein; the
supporting schedules, if any, included in the Registration Statement
present fairly in accordance with generally accepted accounting principles
the information required to be stated therein; and the other financial and
statistical information and data set forth in the Registration Statement
and the Prospectus (and any amendment or supplement thereto) are, in all
material respects, accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company.
(t) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(u) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to any
securities of the Company or to require the
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Company to include such securities with the Shares registered pursuant to
the Registration Statement.
(v) Since the respective dates as of which information is given in
the Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), (i) there has not occurred any material adverse change or any
development involving a prospective material adverse change in the
condition, financial or otherwise, or the earnings, business, management or
operations of the Company and its subsidiary, taken as a whole, (ii) there
has not been any material adverse change or any development involving a
prospective material adverse change in the capital stock or in the long-
term debt of the Company or its subsidiary and (iii) neither the Company
nor its subsidiary has incurred any material liability or obligation,
direct or contingent.
(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with managements general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (iii) access to assets is
permitted only in accordance with managements general or specific
authorization; and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(y) All material tax returns required to be filed by the Company and
its subsidiary in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment received
by the Company or its subsidiary have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(z) The Company and its subsidiary own and possess all right, title
and interest in and to, or has duly licensed from third parties, all
patents, rights, trademarks, trade names, service marks, copyrights,
inventions, know-how (including trade secrets and other unprotected and/or
unpatentable proprietary or confidential information systems, procedures,
processes, techniques and substances) and other proprietary rights which
are necessary for the conduct of the business now operated by them as
described in the Prospectus (collectively, "Trade Rights"); no such Trade
Rights as are material to the business of the Company and its subsidiary
expire or are subject to termination at the election of another party
without their consent at a time or under circumstances which would
reasonably be expected to have a material adverse effect upon the business,
prospects, financial condition or results of operations of the Company and
its subsidiary,
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taken as a whole, and the Company and its subsidiary have not granted any
lien or encumbrance on, or granted any right of license (other than in the
ordinary course of its business) with respect to, any such Trade Rights.
The Company and its subsidiary have not received any notice of
infringement, misappropriation or conflict from any third party as to Trade
Rights that has not been resolved or disposed of and the Company and its
subsidiary have not infringed, misappropriated or otherwise conflicted with
Trade Rights of any third parties, which infringement, misappropriation or
conflict, singly or in the aggregate, would reasonably be expected to have
a material adverse effect upon the business, prospects, financial condition
or results of operations of the Company and its subsidiary, taken as a
whole.
(aa) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
7. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder severally represents and warrants (except with respect to
7(c) and 7(d) below, which shall not be made by the ESOP) to each Underwriter
that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on
the Closing Date will have, good and clear title to such Shares, free of
all restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement signed
by such Selling Stockholder and _______________________, as Custodian,
relating to the deposit of the Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and the Power of Attorney of such
Selling Stockholder appointing certain individuals as such Selling
Stockholder's attorneys-in-fact (the "Attorneys") to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement and the Custody Agreement (the "Power of Attorney")
and to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder in the manner provided herein and therein.
(d) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such
Selling Stockholder has, among other things, authorized the Attorneys, or
any one of them, to execute and deliver on such Selling Stockholder's
behalf
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this Agreement and any other document that they, or any one of them, may
deem necessary or desirable in connection with the transactions
contemplated hereby and thereby and to deliver the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
(e) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder.
(f) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by applicable law.
(g) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Shares pursuant to the distribution contemplated by this Agreement, and
other than as permitted by the Act, the Selling Stockholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Shares.
(h) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to
such Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever.
(i) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or
on behalf of such Selling Stockholder, the compliance by such Selling
Stockholder with all the provisions hereof and thereof and the consummation
of the transactions contemplated hereby and thereby will not (i) require
any consent, approval, authorization or other order of, or qualification
with, any court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various states), (ii)
conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the organizational documents of such Selling
Stockholder, if such Selling Stockholder is not an individual, or any
indenture, loan agreement, mortgage, lease or other agreement or instrument
to which such Selling Stockholder is a party or by which such Selling
Stockholder or any property of such Selling Stockholder is bound or (iii)
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder.
(j) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to such
Selling Stockholder does not,
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<PAGE>
and will not on the Closing Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) At any time during the period described in paragraph 5(d) hereof,
if there is any change in the information referred to in paragraph 7(j)
above, such Selling Stockholders will immediately notify you of such
change.
8. Indemnification.
(a) The Sellers, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation,
any legal or other expenses incurred in connection with investigating or
defending any matter, including any action, that could give rise to any
such losses, claims, damages, liabilities or judgments) caused by any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), the Prospectus
(or any amendment or supplement thereto) or any preliminary prospectus, or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, except insofar as such losses, claims, damages, liabilities
or judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to any
Underwriter furnished in writing to the Company by such Underwriter through
you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not
inure to the benefit of any Underwriter who failed to deliver a Prospectus,
as then amended or supplemented, (so long as the Prospectus and any
amendment or supplement thereto was provided by the Company to the several
Underwriters in the requisite quantity and on a timely basis to permit
proper delivery on or prior to the Closing Date) to the person asserting
any losses, claims, damages, liabilities or judgments caused by any untrue
statement or alleged untrue statement of a material fact contained in such
preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such material misstatement
or omission or alleged material misstatement or omission was cured in the
Prospectus, as so amended or supplemented, and such Prospectus was required
by law to be delivered at or prior to the written confirmation of sale to
such person. Notwithstanding the foregoing, the aggregate liability of any
Selling Stockholder pursuant to this Section 8(a) shall be limited to an
amount equal to the total proceeds (before deducting underwriting discounts
and commissions and expenses) received by such Selling Stockholder from the
Underwriters for the sale of the Shares sold by such Selling Stockholder
hereunder.
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<PAGE>
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, each Selling Stockholder and each person, if any, who controls such
Selling Stockholder within the meaning of Section 15 of the Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from
the Sellers to such Underwriter but only with reference to information
relating to such Underwriter furnished in writing to the Company by such
Underwriter through you expressly for use in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "Indemnified Party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "Indemnifying Party")
in writing and the indemnifying party shall assume the defense of such
action, including the employment of counsel reasonably satisfactory to the
indemnified party and the payment of all fees and expenses of such counsel,
as incurred (except that in the case of any action in respect of which
indemnity may be sought pursuant to both Sections 8(a) and 8(b), the
Underwriter shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and
participate in the defense thereof, but the fees and expenses of such
counsel, except as provided below, shall be at the expense of such
Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action
or employ counsel reasonably satisfactory to the indemnified party or (iii)
the named parties to any such action (including any impleaded parties)
include both the indemnified party and the indemnifying party, and the
indemnified party shall have been advised by such counsel that there may be
one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such
action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate
but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for
(i) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act,
(ii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for the Company, its directors, its officers
who sign the Registration Statement and all persons, if any, who control
the Company within the meaning of either such Section and (iii) the fees
and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all Selling Stockholders and all
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persons, if any, who control any Selling Stockholder within the meaning of
either such Section, and all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the
Underwriters, their officers and directors and such control persons of any
Underwriters, such firm shall be designated in writing by Donaldson, Lufkin
& Jenrette Securities Corporation. In the case of any such separate firm
for the Company and such directors, officers and control persons of the
Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the Selling Stockholders and such
control persons of any Selling Stockholders, such firm shall be designated
in writing by the Attorneys. The indemnifying party shall indemnify and
hold harmless the indemnified party from and against any and all losses,
claims, damages, liabilities and judgments by reason of any settlement of
any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request
from the indemnified party for reimbursement for the fees and expenses of
counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement
request. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement or compromise of, or consent
to the entry of judgment with respect to, any pending or threatened action
in respect of which the indemnified party is or could have been a party and
indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of
fault, culpability or a failure to act, by or on behalf of the indemnified
party.
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as
a result of such losses, claims, damages, liabilities and judgments (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Sellers on the one hand and the Underwriters on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause
8(d)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Sellers on the one hand
and the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative benefits received by the Sellers on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion
as the total net proceeds from the offering (after deducting underwriting
discounts and commissions, but before deducting expenses) received by the
Sellers, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in
each case as set forth in
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the table on the cover page of the Prospectus. The relative fault of the
Sellers on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or the Underwriters on
the other hand and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities or judgments referred
to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to
such losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 8(d) are several in proportion to the
respective number of Shares purchased by each of the Underwriters hereunder
and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates __________________, as
its authorized agent, upon which process may be served in any action which
may be instituted in any state or federal court in the State of New York by
any Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Selling
Stockholder will accept the jurisdiction of such court in such action, and
waives, to the fullest extent permitted by applicable law, any defense
based upon lack of personal jurisdiction or venue. A copy of any such
process shall be sent or given to such Selling Stockholder, at the address
for notices specified in Section 12 hereof.
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9. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Shares under this Agreement are subject to the
satisfaction of each of the following conditions on each Closing Date and, as
applicable, on each Option Closing Date:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date and on each
Option Closing Date, if applicable, with the same force and effect as if
made on and as of the Closing Date or Option Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York
City time, on the date of this Agreement; and at the Closing Date or Option
Closing Date, if applicable, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for
that purpose shall have been commenced or shall be pending before or
contemplated by the Commission.
(c) You shall have received on the Closing Date and on each Option
Closing Date, if applicable, a certificate dated the Closing Date or Option
Closing Date, signed by Peter Mason and Eric Loughmiller, in their
capacities as the Chief Executive Officer and Chief Financial Officer of
the Company, confirming the matters set forth in Sections 6(v), 8(a) and
8(b) and that the Company has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be
complied with or satisfied by the Company on or prior to the Closing Date
or Option Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement), (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or
the earnings, business, management or operations, whether or not arising in
the ordinary course of business, of the Company and its subsidiary, taken
as a whole, (ii) there shall not have been any change or any development
involving a prospective change in the capital stock or in the long-term
debt of the Company or its subsidiary and (iii) neither the Company nor its
subsidiary shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause
8(e)(i), 8(e)(ii) or 8(e)(iii), in your judgment, is material and adverse
and, in your judgment, makes it impracticable to market the Securities on
the terms and in the manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date
with the same force and effect as if made on and as of the Closing Date and
you shall have received on the Closing Date a certificate dated the Closing
Date from each Selling Stockholder to such effect and
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to the effect that such Selling Stockholder has complied with all of the
agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by such Selling Stockholder on or
prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of Freeborn & Peters counsel for the Company, to the effect that:
(i) each of the Company and its subsidiary has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to
carry on its business as described in the Prospectus and to own, lease and
operate its properties;
(ii) each of the Company and its subsidiary is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of the Company's
subsidiary have been duly authorized and validly issued and are fully paid
and non-assessable, and are owned by the Company, directly or indirectly
through one or more subsidiaries, free and clear of any security interest,
claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered
by the Company and by or on behalf of each Selling Stockholder and is a
valid and binding agreement of the Company and each Selling Stockholder
enforceable in accordance with its terms (except as rights to indemnity and
contribution hereunder may be limited by applicable law);
(vii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
-21-
<PAGE>
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to the best of such counsel's knowledge
after due inquiry, pending before or contemplated by the Commission;
(ix) the statements under the captions "____________", "____________",
"_____________", "_____________", "_____________", "_____________",
"Description of Capital Stock" and "Underwriting" in the Prospectus and
Item 15 of Part II of the Registration Statement, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(x) neither the Company nor its subsidiary is in violation of its
respective charter or by-laws and, to the best of such counsel's knowledge
after due inquiry, neither the Company nor its subsidiary is in default in
the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiary,
taken as a whole, to which the Company or its subsidiary is a party or by
which the Company or its subsidiary or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and
thereof and the consummation of the transactions contemplated hereby and
thereby will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or agency
(except such as may be required under the securities or Blue Sky laws of
the various states), (B) conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or by-laws of the
Company or its subsidiary or any indenture, loan agreement, mortgage, lease
or other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or its subsidiary is a
party or by which the Company or its subsidiary or their respective
property is bound, (C) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, its
subsidiary or their respective property, (D) result in the imposition or
creation of (or the obligation to create or impose) a Lien under any
agreement or instrument to which the Company or its subsidiary is a party
or by which the Company or its subsidiary or their respective property is
bound or (E) result in the suspension, termination or revocation of any
Authorization of the Company or its subsidiary or any other impairment of
the rights of the holder of any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or its
subsidiary is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or of
-22-
<PAGE>
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so described
or filed as required;
(xiii) to the best of such counsel's knowledge, after due inquiry,
neither the Company nor its subsidiary has violated any Environmental Law,
any provisions of the Employee Retirement Income Security Act of 1974, as
amended, any federal or state law relating to discrimination in the hiring,
promotion or pay of employees or any federal or state wages and hours laws,
or any provisions of the Foreign Corrupt Practices Act or the rules and
regulations promulgated thereunder, except for such violations which,
singly or in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiary, taken as a whole;
(xiv) each of the Company and its subsidiary has such Authorizations
of, and has made all filings with and notices to, all governmental or
regulatory authorities and self-regulatory organizations and all courts and
other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure
to have any such Authorization or to make any such filing or notice would
not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole; each such Authorization is
valid and in full force and effect and each of the Company and its
subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies
having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time
or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or its subsidiary; except where such failure to
be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would
not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the
Company and its subsidiary, taken as a whole;
(xv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with
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<PAGE>
respect to any securities of the Company or to require the Company to
include such securities with the Securities registered pursuant to the
Registration Statement; and
(xvii) (A) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or
will comply when so filed in all material respects with the Exchange Act;
(B) the Registration Statement and the Prospectus and any supplement or
amendment thereto (except for the financial statements and other financial
data included therein as to which no opinion need be expressed) comply as
to form with the Act, (C) such counsel has no reason to believe that at the
time the Registration Statement became effective or on the date of this
Agreement, the Registration Statement and the prospectus included therein
(except for the financial statements and other financial data as to which
such counsel need not express any belief) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and (D)
such counsel has no reason to believe that the Prospectus, as amended or
supplemented, if applicable (except for the financial statements and other
financial data, as aforesaid) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and the Prospectus is not materially different from
the prospectus included in the Registration Statement at the time of its
effectiveness (including the information (if any) deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A
under the Act).
(xviii) each Selling Stockholder is the lawful owner of the Shares to
be sold by such Selling Stockholder pursuant to this Agreement and has good
and clear title to such Shares, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever;
(xix) each Selling Stockholder has full legal right, power and
authority, and all authorization and approval required by law, to enter
into this Agreement and the Custody Agreement and the Power of Attorney of
such Selling Stockholder and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder in the manner provided herein
and therein;
(xx) the Custody Agreement of each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms;
(xxi) the Power of Attorney of each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, and, pursuant to such Power of Attorney, such
Selling Stockholder has, among other things, authorized the Attorneys, or
any one of them, to execute and deliver on such Selling Stockholder's
behalf this Agreement and any other document they, or any one of them, may
deem necessary or
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<PAGE>
desirable in connection with the transactions contemplated hereby and
thereby and to deliver the Shares to be sold by such Selling Stockholder
pursuant to this Agreement;
(xxii) upon delivery of and payment for the Shares to be sold by each
Selling Stockholder pursuant to this Agreement, good and clear title to
such Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever; and
(xxiii) the execution, delivery and performance of this Agreement and
the Custody Agreement and Power of Attorney of each Selling Stockholder by
such Selling Stockholder, the compliance by such Selling Stockholder with
all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if
such Selling Stockholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which any property of such Selling
Stockholder is bound or (C) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
The opinion of Freeborn & Peters described in paragraph (f) above shall be
rendered to you at the request of the Company and the Selling Stockholders and
shall so state therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing
Date, of ____________________, counsel for the ESOP, as to the matters
referred to in clauses (vi), (xix), (xxii) and (xxiii) of the foregoing
paragraph (f).
(h) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Katten Muchin & Zavis, counsel for the Underwriters, as to
the matters referred to in Sections 9(f)(iv), 9(f)(vi) (but only with
respect to the Company), 9(f)(ix) (but only with respect to the statements
under the caption "Description of Capital Stock" and "Underwriting") and
9(f)(xvii)(C) and (D).
In giving such opinions with respect to the matters covered by Section
9(f)(xvii), counsel for the Company and the Selling Stockholders and counsel for
the Underwriters may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
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<PAGE>
(i) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, in form and substance satisfactory to you, from Price
Waterhouse LLP, independent public accountants, containing the information
and statements of the type ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus.
(j) The Company shall have delivered to you the agreements specified
in Section 2 hereof which agreements shall be in full force and effect on
the Closing Date.
(k) The Company and the Selling Stockholders shall not have failed on
or prior to the Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied with
by the Company or the Selling Stockholders, as the case may be, on or prior
to the Closing Date.
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable
U.S. federal tax legislation) to the effect that such Selling Stockholder
is not a U.S. Person, which certificate may be in the form of a properly
completed and executed United States Treasury Department Form W-8 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
10. Effectiveness of Agreement and Termination. This Agreement shall become
effective upon the execution and delivery of this Agreement by the parties
hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
of the Company or its subsidiary or the earnings, affairs, or business prospects
of the Company or its subsidiary, whether or not arising in the ordinary course
of business, which would, in your judgment, make it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) any
outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in your judgment, is material and
adverse and, in your judgment, makes it impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus,
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<PAGE>
(iii) the suspension or material limitation of trading in securities or other
instruments on the New York Stock Exchange, the American Stock Exchange, the
Chicago Board of Options Exchange, the Chicago Mercantile Exchange, the Chicago
Board of Trade or the Nasdaq National Market or limitation on prices for
securities or other instruments on any such exchange or the Nasdaq National
Market, (iv) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (v) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, (vi) the declaration of a banking
moratorium by either federal or New York State authorities or (vii) the taking
of any action by any federal, state or local government or agency in respect of
its monetary or fiscal affairs which in your opinion has a material adverse
effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you,
the Company and the Selling Stockholders for purchase of such Firm Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in termination
of this Agreement, either you or the Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. If, on an Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased on such date, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
such Additional Shares or (ii)
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purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
11. Agreements of the Selling Stockholders. Each Selling Stockholder
--------------------------------------
agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold
by such Selling Stockholder pursuant to this Agreement.
12. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, to May & Speh,
Inc., 1501 Opus Place, Downers Grove, Illinois 60515, Attention: Robert C.
Early, (b) if to the Selling Stockholders (other than the ESOP), to Robert A.
McWilliams, c/o Freeborn & Peters, 311 South Wacker Drive, Suite 3000, Chicago,
Illinois 60606, (c) if to the ESOP, to Cole Taylor Bank, 850 West Jackson
Boulevard, Chicago, Illinois 60607, Attention: ___________, and (d) if to any
Underwriter or to you, to you c/o Donaldson, Lufkin & Jenrette Securities
Corporation, 277 Park Avenue, New York, New York 10172, Attention: Syndicate
Department, or in any case to such other address as the person to be notified
may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this
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Agreement, the Company shall be liable for all expenses which it has agreed to
pay pursuant to Section 5(i) hereof. The Sellers also agree, jointly and
severally, to reimburse the several Underwriters, their directors and officers
and any persons controlling any of the Underwriters for any and all fees and
expenses (including, without limitation, the fees disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder (including,
without limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
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Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
MAY & SPEH, INC.
By _____________________________
Title:
THE SELLING STOCKHOLDERS NAMED
IN ANNEX I HERETO
By _____________________________
Attorney-in-fact
COLE TAYLOR BANK,
as Trustee for the May & Speh, Inc.
Employee Stock Ownership Plan
By _____________________________
Title:
- -------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
[CO-MANAGERS]
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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By _____________________________
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SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
- -------------------------------- ---------------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
---------------------------
Total
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SCHEDULE II
-----------
Selling Stockholders
--------------------
Number of Firm
Name Shares Being Sold
- ---------------------------------------------- ------------------------
------------------------
Total
========================
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ANNEX I
-------
Selling Stockholders on behalf
of whom the Attorney-in-fact is
executing the Underwriting Agreement:
-------------------------------------
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Exhibit 4.1
================================================================================
DRAFT
2/12/98
MAY & SPEH, INC.,
Issuer,
and
____________________________________
Trustee
______________________________
INDENTURE
Dated as of ________________, 1998
______________________________
$115,000,000
% Convertible Subordinated Notes due 2003
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
<TABLE>
<CAPTION>
<S> <C> <C>
DEFINITIONS AND INCORPORATION BY REFERENCE...................... 1
SECTION 1.1. Definitions................................ 1
SECTION 1.2. Incorporation by Reference of TIA.......... 9
SECTION 1.3. Rules of Construction...................... 9
ARTICLE II
THE SECURITIES.................................................. 10
SECTION 2.1. Form and Dating........................... 10
SECTION 2.2. Execution and Authentication.............. 10
SECTION 2.3. Registrar and Paying Agent................ 11
SECTION 2.4. Paying Agent to Hold Assets in Trust...... 11
SECTION 2.5. Securityholder Lists...................... 12
SECTION 2.6. Transfer and Exchange..................... 12
SECTION 2.7. Replacement Securities.................... 15
SECTION 2.8. Outstanding Securities.................... 15
SECTION 2.9. Treasury Securities....................... 16
SECTION 2.10. Temporary Securities...................... 16
SECTION 2.11. Cancellation.............................. 16
SECTION 2.12. Defaulted Interest........................ 17
ARTICLE III
REDEMPTION...................................................... 18
SECTION 3.1. Right of Redemption........................ 18
SECTION 3.2. Notices to Trustee......................... 18
SECTION 3.3. Selection of Securities to Be Redeemed..... 19
SECTION 3.4. Notice of Redemption....................... 19
SECTION 3.5. Effect of Notice of Redemption............. 20
SECTION 3.6. Deposit of Redemption Price................ 20
SECTION 3.7. Securities Redeemed in Part................ 21
ARTICLE IV
COVENANTS....................................................... 21
SECTION 4.1. Payment of Securities...................... 21
SECTION 4.2. Maintenance of Office or Agency............ 21
SECTION 4.3. Corporate Existence........................ 22
SECTION 4.4. Payment of Taxes and Other Claims.......... 22
SECTION 4.5. Maintenance of Properties and Insurance.... 22
SECTION 4.6. Compliance Certificate; Notice of Default.. 23
SECTION 4.7. Reports.................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.8. Limitation on Status as Investment Company................... 24
SECTION 4.9. Waiver of Stay, Extension or Usury Laws...................... 24
ARTICLE V
SUCCESSOR CORPORATION............................................................. 24
SECTION 5.1. Limitation on Merger, Sale or Consolidation.................. 24
SECTION 5.2. Successor Corporation Substituted............................ 25
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES.................................................... 25
SECTION 6.1. Events of Default............................................ 25
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment...... 28
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
Trustee...................................................... 29
SECTION 6.4. Trustee May File Proofs of Claim............................. 29
SECTION 6.5. Trustee May Enforce Claims Without Possession of
Securities................................................... 30
SECTION 6.6. Priorities................................................... 30
SECTION 6.7. Limitation on Suits.......................................... 31
SECTION 6.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest... 32
SECTION 6.9. Rights and Remedies Cumulative............................... 32
SECTION 6.10. Delay or Omission Not Waiver................................. 32
SECTION 6.11. Control by Holders........................................... 32
SECTION 6.12. Waiver of Past Default....................................... 33
SECTION 6.13. Undertaking for Costs........................................ 33
SECTION 6.14. Restoration of Rights and Remedies........................... 33
ARTICLE VII
TRUSTEE........................................................................... 34
SECTION 7.1. Duties of Trustee............................................ 34
SECTION 7.2. Rights of Trustee............................................ 35
SECTION 7.3. Individual Rights of Trustee................................. 36
SECTION 7.4. Trustee's Disclaimer......................................... 36
SECTION 7.5. Notice of Default............................................ 37
SECTION 7.6. Reports by Trustee to Holders................................ 37
SECTION 7.7. Compensation and Indemnity................................... 37
SECTION 7.8. Replacement of Trustee....................................... 38
SECTION 7.9. Successor Trustee by Merger, Etc............................. 39
SECTION 7.10. Eligibility; Disqualification................................ 39
SECTION 7.11. Preferential Collection of Claims Against Company............ 40
SECTION 7.12. Other Capacities............................................. 40
</TABLE>
ii
<PAGE>
ARTICLE VIII
<TABLE>
<S> <C> <C>
SATISFACTION AND DISCHARGE..................................................... 40
SECTION 8.1. Satisfaction and Discharge of Indenture................... 40
SECTION 8.2. Repayment to the Company.................................. 40
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS............................................ 41
SECTION 9.1. Supplemental Indentures Without Consent of Holders........ 41
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
Consent of Holders........................................ 41
SECTION 9.3. Compliance with TIA....................................... 42
SECTION 9.4. Revocation and Effect of Consents......................... 43
SECTION 9.5. Notation on or Exchange of Securities..................... 43
SECTION 9.6. Trustee to Sign Amendments, Etc........................... 44
ARTICLE X
MEETINGS OF SECURITYHOLDERS.................................................... 44
SECTION 10.1. Purposes for Which Meetings May Be Called................. 44
SECTION 10.2. Manner of Calling Meetings................................ 44
SECTION 10.3. Calling of Meetings by the Company or Holders............. 45
SECTION 10.4. Who May Attend and Vote at Meetings....................... 45
SECTION 10.5. Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment....................... 45
SECTION 10.6. Voting at the Meeting and Record to Be Kept............... 46
SECTION 10.7. Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting.................... 47
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL........................... 47
SECTION 11.1. Repurchase of Securities at Option of the Holder Upon a
Change of Control......................................... 47
SECTION 11.2. Rescission of Change of Control Determination............. 49
ARTICLE XII
SUBORDINATION.................................................................. 50
SECTION 12.1. Securities Subordinated to Senior Indebtedness............ 50
SECTION 12.2. No Payment on Securities in Certain Circumstances......... 50
SECTION 12.3. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization............................................ 52
SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders of
Senior Indebtedness....................................... 53
SECTION 12.5. Obligations of the Company Unconditional.................. 53
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 12.6. Trustee and Other Agents Entitled to Assume Payments Not
Prohibited in Absence of Notice...................................... 54
SECTION 12.7. Application by Trustee of Assets Deposited with It................... 54
SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness........................ 54
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities.......................................... 55
SECTION 12.10. Right of Trustee to Hold Senior Indebtedness......................... 55
SECTION 12.11. Article XII Not to Prevent Events of Default......................... 55
SECTION 12.12. No Duty of Trustee and Other Agents to Holders of Senior
Indebtedness......................................................... 56
</TABLE>
ARTICLE XIII
<TABLE>
<CAPTION>
<S> <C> <C>
CONVERSION OF SECURITIES.................................................................... 56
SECTION 13.1. Conversion Privilege................................................. 56
SECTION 13.2. Exercise of Conversion Privilege..................................... 56
SECTION 13.3. Fractional Interests................................................. 57
SECTION 13.4. Conversion Price..................................................... 58
SECTION 13.5. Adjustment of Conversion Price....................................... 58
SECTION 13.6. Continuation of Conversion Privilege in Case of
Reclassification, Change, Merger, Consolidation or Sale of
Assets............................................................... 63
SECTION 13.7. Notice of Certain Events............................................. 64
SECTION 13.8. Taxes on Conversion.................................................. 65
SECTION 13.9. Company to Provide Stock............................................. 65
SECTION 13.10. Disclaimer of Responsibility for Certain Matters..................... 66
SECTION 13.11. Return of Funds Deposited for Redemption
of Converted Securities.............................................. 66
</TABLE>
ARTICLE XIV
<TABLE>
<CAPTION>
<S> <C> <C>
MISCELLANEOUS............................................................................... 67
SECTION 14.1. TIA Controls......................................................... 67
SECTION 14.2. Notices.............................................................. 67
SECTION 14.3. Communications by Holders with Other Holders......................... 68
SECTION 14.4. Certificate and Opinion as to Conditions Precedent................... 68
SECTION 14.5. Statements Required in Certificate or Opinion........................ 68
SECTION 14.6. Rules by Trustee, Paying Agent, Registrar............................ 69
SECTION 14.7. Legal Holidays....................................................... 69
SECTION 14.8. Governing Law........................................................ 69
SECTION 14.9. No Adverse Interpretation of Other Agreements........................ 70
SECTION 14.10. No Recourse Against Others........................................... 70
SECTION 14.11. Successors........................................................... 70
SECTION 14.12. Duplicate Originals.................................................. 70
SECTION 14.13. Severability......................................................... 70
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 14.14. Table of Contents, Headings, Etc.................... 70
SECTION 14.15. Qualification of Indenture.......................... 71
</TABLE>
EXHIBIT A - Form of Security A-1
EXHIBIT B - Form of Conversion Notice B-1
v
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(a)(5) 7.10
(b) 7.8;
7.10;
14.2
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.5
(b) 14.3
(c) 14.3
313(a) 7.6
(b)(1) N.A.
(b)(2) 7.6
(c) 7.6;
14.2
(d) 7.6
314(a) 4.6;
13.2
(b) N.A.
(c)(1) 2.2;
7.2;
14.4
(c)(2) 7.2;
14.4
(c)(3) N.A.
(d) N.A.
(e) 14.5
(f) N.A.
315(a) 7.1(b)
(b) 7.5;
7.6;
14.2
(c) 7.1(a)
(d) 2.8;
</TABLE>
vi
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6.11;
7.1(b)(c)
(e) 6.13
316(a)(last sentence) 2.9
(a)(1)(A) 6.11
(a)(1)(B) 6.12
(a)(2) N.A.
(b) 6.12;
6.7
317(a)(1) 6.3
(a)(2) 6.4
(b) 2.4
318(a) 14.1
</TABLE>
- ----------------------
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed a part
of the Indenture.
vii
<PAGE>
INDENTURE, dated as of ______________, 1998, between MAY & SPEH, INC., a
Delaware corporation (the "Company"), and ________________________, a national
banking association formed under the laws of the United States of America, as
Trustee.
Each party hereto agrees as follows for the benefit of each other party and
for the equal and ratable benefit of the Holders of the Company's % Convertible
Subordinated Notes due 2003:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Acceleration Notice" shall have the meaning specified in Section 6.2.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the terms "control," "controlling" and "controlled"
mean the power to direct the management and policies of a person, directly or
through one or more intermediaries, whether through the ownership of voting
securities, by contract, or otherwise.
"Agent" means the Trustee and any Registrar, Paying Agent, co-Registrar,
authenticating agent or Securities Custodian.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar federal, state
or foreign law for the relief of debtors.
"Beneficial owner" for purposes of the definition of Change of Control has
the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange Act (as
in effect on the Issue Date), whether or not applicable, except that a "person"
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time or upon the occurrence of certain events.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York, New York or Dallas,
Texas are authorized or obligated by law or executive order to close.
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<PAGE>
"Capitalized Lease Obligation" means, as to any Person, the obligation of
such Person to pay rent or other amounts under a lease to which such Person is a
party that is required to be classified and accounted for as a capital lease
obligation under GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
"Cash" means such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and private
debts.
"Change of Control" means (i) an event or series of events as a result of
which any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d) of the Exchange Act) (excluding the Company or any wholly-owned subsidiary
thereof) is or becomes, directly or indirectly, the Beneficial Owner of more
than 50% of the Voting Stock, (ii) the completion of any consolidation with or
merger of the Company into any other Person, or sale, conveyance, transfer or
lease by the Company of all or substantially all of its assets to any Person, or
any merger of any other Person into the Company in a single transaction or
series of related transactions, and, in the case of any such transaction or
series of related transactions, the outstanding Common Stock of the Company is
changed or exchanged as a result, unless the stockholders of the Company
immediately before such transaction own, directly or indirectly, immediately
following such transaction, at least a majority of the combined voting power of
the outstanding voting securities of the Person resulting from such transaction
in substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, or (iii) such time as the Continuing
Directors do not constitute a majority of the Board of Directors of the Company
(or, if applicable, a successor corporation to the Company).
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Company's common stock, par value $.01 per share,
or as such stock may be reconstituted from time to time.
"Company" means the party named as such in this Indenture until a successor
replaces it pursuant to the Indenture, and thereafter means such successor.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on the Issue Date or (ii) who was
nominated or elected by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the
Company's Board of Directors was recommended or endorsed by at least a majority
of the directors who were Continuing Directors at the time of such nomination or
election.
"Conversion Price" shall have the meaning specified in Section 13.4.
2
<PAGE>
"Conversion Shares" shall have the meaning specified in Section 13.5(l).
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Date of Conversion" shall have the meaning specified in Section 13.2.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in Section 2.12.
"Definitive Securities" means Securities that are in the form of Security
attached hereto as Exhibit A that do not include the information called for by
footnotes 1 and 2 thereof.
"Depositary" means, with respect to the Securities issuable or issued in
whole or in part in global form, the person specified in Section 2.3 as the
Depositary with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Capital Stock" means, with respect to the Company, Capital
Stock of the Company that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by the Company, in
whole or in part, on or prior to the Stated Maturity of the Notes, provided that
only the portion of such Capital Stock which is so convertible, exercisable,
exchangeable or redeemable or subject to repurchase prior to such Stated
Maturity shall be deemed to be Disqualified Capital Stock.
"Distribution Date" shall have the meaning specified in Section 13.5(l).
"DTC" shall have the meaning specified in Section 2.3.
"Event of Default" shall have the meaning specified in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Expiration Time" shall have the meaning specified in Section 13.5(f).
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession which are in effect in the United States; provided,
3
<PAGE>
however, that for purposes of determining compliance with covenants in the
Indenture, "GAAP" means such generally accepted accounting principles which are
in effect as of the Issue Date.
"Global Security" means a Security held by the Depositary for the benefit
of beneficial owners, and which contains the paragraph referred to in footnote 1
and the additional schedule referred to in footnote 2 to the form of Security
attached hereto as Exhibit A.
"Holder" or "Securityholder" means the person in whose name a Security is
registered on the Registrar's books.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such Person, (i) in
respect of borrowed money (whether or not the lender has recourse to all or any
portion of the assets of such Person), (ii) evidenced by credit or loan
agreements, bonds, notes, debentures or similar instruments (including, without
limitation, notes or similar instruments given in connection with the
acquisition of any business, properties or assets of any kind), (iii) evidenced
by bankers' acceptances or similar instruments issued or accepted by banks, (iv)
for the payment of money relating to a Capitalized Lease Obligation or (v)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (b) all obligations of such Person issued
or assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (c) all net obligations of such person under Interest Swap and
Hedging Obligations; (d) all liabilities of others of the kind described in the
preceding clauses (a), (b) or (c) that such Person has guaranteed or that is
otherwise its legal liability, or which is secured by a lien on property of such
Person, and all obligations to purchase, redeem or acquire any Capital Stock;
and (e) any and all deferrals, renewals, extensions, modifications,
replacements, restatements, refinancings and refundings (whether direct or
indirect) of, or any indebtedness or obligation issued in exchange for, any
liability of the kind described in any of the preceding clauses (a), (b), (c) or
(d), or this clause (e), whether or not between or among the same parties.
"Indenture" means this Indenture, as amended or supplemented from time to
time in accordance with the terms hereof.
"Interest Payment Date" means the stated due date of an installment of
interest on the Securities.
"Interest Swap and Hedging Obligation" means the obligations of any Person
under any interest rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement, interest rate cap
agreement or other interest rate hedge agreement, interest rate collar agreement
or other similar agreement or arrangement to which such Person is a party or
beneficiary.
"Issue Date" means the date of first issuance of the Securities under this
Indenture.
4
<PAGE>
"Junior Securities" means any Qualified Capital Stock and any Indebtedness
of the Company that is fully subordinated in right of payment to the Securities
and has no scheduled installment of principal due, by redemption, sinking fund
payment or otherwise, on or prior to the Stated Maturity of the Securities.
"Last Sale Price" shall have the meaning specified in Section 13.3.
"Legal Holiday" shall have the meaning specified in Section 14.7.
"Lien" means any mortgage, lien, pledge, charge, security interest or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"non-electing share" shall have the meaning specified in Section 13.6.
"Non-Payment Default" shall have the meaning specified in Section 12.2(b).
"Notice of Default" shall have the meaning specified in Section 6.1(3), (4)
or (5).
"Offer" shall have the meaning specified in Section 13.5(f).
"Officer" means, with respect to the Company, the Chief Executive Officer,
the President, any Vice President, the Chief Financial Officer, the Treasurer,
the Controller, or the Secretary or the Assistant Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a certificate
signed by two Officers of the Company and otherwise complying with the
requirements of Section 2.2, if applicable, and Sections 14.4 and 14.5.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee and which complies with the requirements of
Sections 14.4 and 14.5.
"Paying Agent" shall have the meaning specified in Section 2.3.
"Payment Blockage Period" shall have the meaning specified in Section
12.2(b).
"Payment Default" shall have the meaning specified in Section 12.2(a).
"Payment Notice" shall have the meaning specified in Section 12.2(b).
"Person" or "person" means any corporation, individual, limited liability
company, joint stock company, joint venture, partnership, unincorporated
association, governmental regulatory entity, country, state or political
subdivision thereof, trust, municipality or other entity.
5
<PAGE>
"principal" of any Indebtedness means the principal of such Indebtedness
plus, without duplication, any applicable premium, if any, on such Indebtedness.
"property" means any right or interest in or to property or assets of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchased Shares" shall have the meaning specified in Section 13.5(f).
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Record Date" means a Record Date specified in the Securities whether or
not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be redeemed,
means the date fixed for such redemption pursuant to Article III of this
Indenture and Paragraph 5 in the form of Security attached hereto as Exhibit A.
"Redemption Price," when used with respect to any Security to be redeemed,
means the redemption price for such redemption pursuant to Paragraph 5 in the
form of Security attached hereto as Exhibit A, which shall include, without
duplication, in each case, accrued and unpaid interest to and including the
Redemption Date.
"Registrar" shall have the meaning specified in Section 2.3.
"Repurchase Date" shall have the meaning specified in Section 11.1(a).
"Repurchase Offer" shall have the meaning specified in Section 11.1(b).
"Repurchase Offer Period" shall have the meaning specified in Section
11.1(b).
"Repurchase Price" shall have the meaning specified in Section 11.1(a).
"Repurchase Put Date" shall have the meaning specified in Section 11.1(b).
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the % Convertible Subordinated Notes due
2003, as supplemented from time to time in accordance with the terms hereof,
issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to the
Securities in global form, or any successor entity thereto.
6
<PAGE>
"Senior Indebtedness" means all obligations of the Company to pay the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable as a claim in any such
proceeding) and rent payable on or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, any
Indebtedness of the Company, whether outstanding on the date of the Indenture or
thereafter created, incurred, assumed, guaranteed or in effect guaranteed by the
Company, unless the instrument creating or evidencing such Indebtedness provides
that such Indebtedness is not senior or superior in right of payment to the
Securities or is pari passu with, or subordinated to, the Securities; provided
that in no event shall Senior Indebtedness include (a) Indebtedness of the
Company owed or owing to any Subsidiary of the Company or any officer, director
or employee of the Company or any Subsidiary of the Company, (b) Indebtedness
representing or with respect to any account payable or other accrued current
liability or obligation incurred in the ordinary course of business in
connection with the obtaining of materials or services or (c) any liability for
taxes owed or owing by the Company or any Subsidiary of the Company.
"Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" of the Company within the meaning of Rule 1.02(w) of Regulation S-X
promulgated by the Commission as in effect as of the date of the Indenture.
"Special Record Date" for payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means
_______________, 2003.
"Subsidiary" with respect to any Person, means (i) a corporation a majority
of whose Capital Stock with voting power normally entitled to vote in the
election of directors is at the time, directly or indirectly, owned by such
Person, by such Person and one or more Subsidiaries of such Person or by one or
more Subsidiaries of such Person, (ii) a partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner and owns alone or
together with one or more Subsidiaries of such Person a majority of the
partnership interests, or (iii) any other Person (other than a corporation) in
which such Person, one or more Subsidiaries of such Person, or such Person and
one or more Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
77bbbb) as in effect on the date of the execution of this Indenture.
"Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday,
other than any day on which securities are not traded on the Nasdaq National
Market (or, if the Common Stock is not listed thereon, on the principal national
securities exchange or the principal automated quotation system on which the
Common Stock is listed or admitted to trading).
7
<PAGE>
"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the provisions of this Indenture and thereafter
means such successor.
"Trust Officer" means any officer within the corporate trust division (or
any successor group) of the Trustee or any other officer of the Trustee
customarily performing functions similar to those performed by the Persons who
at that time shall be such officers, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of his knowledge of and familiarity with the
particular subject.
"Underwriters" means Donaldson Lufkin & Jenrette Securities Corporation,
Merrill Lynch & Co. and ABN AMRO Inc.
"Underwriting Agreement" means that certain Underwriting Agreement,
dated as of _______________, 1998, by and between the Company and the
Underwriters, as such agreement may be amended, modified or supplemented from
time to time in accordance with the terms thereof.
"U.S. Government Obligations" means direct noncallable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"Voting Stock" means the combined voting power of the then outstanding
securities entitled to vote generally in elections of directors, managers or
trustees, as applicable, of the Company or any successor entity.
SECTION 1.2. Incorporation by Reference of TIA.
----------------------------------
Whenever this Indenture refers to a provision of the TIA, such provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"Indenture securities" means the Securities.
"Indenture securityholder" means a Holder or a Securityholder.
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the Trustee.
"Obligor" on the indenture securities means the Company and any other
obligor on the Securities.
8
<PAGE>
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3. Rules of Construction.
----------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
----------------
The Securities and the Trustee's certificate of authentication, in respect
thereof, shall be substantially in the form of Exhibit A hereto, which Exhibit
is part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company shall
approve the form of the Securities and any notation, legend or endorsement on
them. Any such notations, legends or endorsements not contained in the form of
Security attached as Exhibit A hereto shall be delivered in writing to the
Trustee. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to the
extent applicable, the Company and the Trustee, by their execution and delivery
of this Indenture, expressly agree to such terms and provisions and to be bound
thereby. If any term or provision of a Security limits, qualifies, or conflicts
with the terms of this Indenture, the terms of this Indenture shall control.
9
<PAGE>
SECTION 2.2. Execution and Authentication.
-----------------------------
Two Officers shall sign, or one Officer shall sign and one Officer shall
attest to, the Security for the Company by manual or facsimile signature. The
Company's seal may be, but is not required to be, impressed, affixed, imprinted
or reproduced on the Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the time
of such execution but no longer holds that or any office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the Trustee
manually signs the certificate of authentication on the Security but such
signature shall be conclusive evidence that the Security has been authenticated
pursuant to the terms of this Indenture.
The Trustee shall authenticate the Securities for original issue in the
aggregate principal amount of up to $115,000,000 upon a written order of the
Company in the form of an Officers' Certificate. The Officers' Certificate shall
specify (i) the amount of Securities to be authenticated and (ii) the date on
which the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $115,000,000 except as
provided in Section 2.7; provided, that Securities in excess of $100,000,000
shall not be issued other than pursuant to the over-allotment option granted by
the Company to the Underwriters as provided in the Underwriting Agreement. Upon
the written order of the Company in the form of an Officers' Certificate, the
Trustee shall authenticate Securities in substitution of Securities originally
issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. Unless otherwise provided in the appointment, an
authenticating agent may authenticate Securities whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company, any Affiliate of the Company, or any of their
respective Subsidiaries, and has the same protections under the Indenture.
Securities shall be issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.
SECTION 2.3. Registrar and Paying Agent.
---------------------------
The Company shall maintain an office or agency in _____ _________________,
where Securities may be presented for registration of transfer or for exchange
("Registrar") and an office or agency where Securities may be presented for
payment ("Paying Agent") and where notices and demands to or upon the Company in
respect of the Securities may be served. The Company may act as Registrar or
Paying Agent, except that, for the purposes of Articles III, VIII and XI and as
otherwise specified in the Indenture, neither the Company nor any Affiliate of
the Company shall act as Paying Agent. The Registrar shall keep a register of
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the Securities and of their transfer and exchange. The Company may have one or
more co-Registrars and one or more additional Paying Agents. The term "Paying
Agent" includes any additional Paying Agent. The Company hereby initially
appoints the Trustee as Registrar and Paying Agent, and the Trustee hereby
initially agrees so to act.
The Company shall enter into an appropriate written agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
promptly notify the Trustee in writing of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, the Trustee
shall act as such.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities Custodian
with respect to the Global Securities.
SECTION 2.4. Paying Agent to Hold Assets in Trust.
-------------------------------------
The Company shall require each Paying Agent other than the Trustee to agree
in writing that each Paying Agent shall hold in trust for the benefit of Holders
or the Trustee all assets held by the Paying Agent for the payment of principal
of, premium, if any, or interest on the Securities (whether such assets have
been distributed to it by the Company or any other obligor on the Securities),
and shall notify the Trustee in writing of any Default in making any such
payment. If either of the Company or a Subsidiary of the Company acts as Paying
Agent, it shall segregate such assets and hold them as a separate trust fund for
the benefit of the Holders or the Trustee. The Company at any time may require a
Paying Agent to distribute all assets held by it to the Trustee and account for
any assets disbursed and the Trustee may at any time during the continuance of
any Payment Default, upon written request to a Paying Agent, require such Paying
Agent to distribute all assets held by it to the Trustee and to account for any
assets distributed. Upon distribution to the Trustee of all assets that shall
have been delivered by the Company to the Paying Agent, the Paying Agent (if
other than the Company or an Affiliate of the Company) shall have no further
liability for such assets.
SECTION 2.5. Securityholder Lists.
---------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before the third Business Day preceding each Interest Payment Date
and at such other times as the Trustee may request in writing a list in such
form and as of such date as the Trustee reasonably may require of the names and
addresses of Holders.
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SECTION 2.6. Transfer and Exchange.
----------------------
(a) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented to the Registrar or a co-Registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized denominations;
the Registrar or co-Registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar or co-
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer in form reasonably satisfactory to the Company and the Registrar or
Co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing, together with written instructions directing the Trustee
to make, or to direct the Securities Custodian to make, an endorsement on the
Global Security to reflect an increase in the aggregate principal amount of the
Securities represented by the applicable Global Security, then the Trustee shall
cancel such Definitive Security and cause, or direct the Securities Custodian to
cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Securities Custodian, the aggregate principal
amount of Securities represented by the appropriate Global Security to be
increased accordingly. If no Global Securities are then outstanding, the Company
shall issue and the Trustee shall authenticate an appropriate new Global
Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depositary, in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depositary
therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
Definitive Security.
(i) Upon receipt by the Trustee of written instructions or such other
form of instructions as is customary for the Depositary from the Depositary
or its nominee on behalf of any Person having a beneficial interest in a
Global Security (all of which may be submitted by facsimile) and if such
beneficial interest is being transferred to the Person designated by the
Depositary as being the beneficial owner, a certification by such Person to
that effect (in substantially the form set forth on the reverse of the
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Security), the Trustee or the Securities Custodian, at the direction of the
Trustee, will cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian,
the aggregate principal amount of the applicable Global Security to be
reduced and, following such reduction, the Company will execute and, upon
receipt of an authentication order in the form of an Officers' Certificate,
the Trustee will authenticate and deliver to the transferee a Definitive
Security.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.6(d) shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
make such Definitive Securities available for delivery to the persons in
whose names such Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global Security
may not be transferred as a whole except (i) by the Depositary to a nominee of
the Depositary, (ii) by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or (iii) by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of Depositary.
If at any time:
(i) the Depositary for the Securities notifies the Company and the
Company notifies the Trustee in writing that the Depositary is no longer
willing or able to continue as Depositary for the Global Securities and a
successor Depositary for the Global Securities is not appointed by the
Company within 90 days after delivery of such notice; or
(ii) the Company, in its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Securities under
this Indenture;
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and make available for delivery Definitive Securities, in an
aggregate principal amount equal to the principal amount of the Global
Securities, in exchange for such Global Securities.
(g) Cancellation and/or Adjustment of Global Security. At such time
as all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to or retained and canceled by the Trustee. At any time prior
to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or canceled, the
principal amount of Securities represented by such Global Security shall be
reduced and an
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endorsement shall be made on such Global Security, by the Trustee or the
Securities Custodian, at the written direction of the Trustee, to reflect such
reduction.
(h) Obligations with respect to Transfers and Exchanges of Definitive
Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive Securities and
Global Securities at the Registrar's or co-Registrar's written request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer taxes,
assessments, or similar governmental charge payable upon exchanges or
transfers pursuant to Section 2.2 (fourth paragraph), 2.10, 3.7, 9.5, or
11.1 (final paragraph)).
(iii) The Registrar or co-Registrar shall not be required to register
the transfer of or exchange of (a) any Definitive Security selected for
redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 days before the mailing of a
notice of an offer to repurchase pursuant to Article XI hereof or the
mailing of a notice of redemption of Securities pursuant to Article III
hereof and ending at the close of business on the day of such mailing.
SECTION 2.7. Replacement Securities.
-----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder of a
Security claims and submits an affidavit or other evidence, satisfactory to the
Trustee, to the Trustee to the effect that the Security has been lost, destroyed
or wrongfully taken, the Company shall issue and the Trustee shall authenticate
a replacement Security if the Trustee's requirements are met. If required by
the Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for
its reasonable, out-of-pocket expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion, but
subject to any conversion rights, may, instead of issuing a new Security, pay
such Security, upon satisfaction of the conditions set forth in the preceding
paragraph.
Every new Security issued pursuant to this Section 2.7 in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any
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time enforceable by anyone, and such new Security shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Securities duly issued hereunder.
The provisions of this Section 2.7 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies of any Holder with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.8. Outstanding Securities.
-----------------------
Securities outstanding at any time are all the Securities that have been
authenticated by the Trustee (including any Security represented by a Global
Security) except those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Security effected by the Trustee
hereunder and those described in this Section 2.8 as not outstanding. A
Security does not cease to be outstanding because the Company or an Affiliate of
the Company holds the Security, except as provided in Section 2.9.
If a Security is replaced pursuant to Section 2.7 (other than a mutilated
Security surrendered for replacement), the replaced Security ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser. A mutilated Security ceases
to be outstanding upon surrender of such Security and replacement thereof
pursuant to Section 2.7.
If on a Redemption Date the Paying Agent (other than the Company or an
Affiliate of the Company) holds Cash or U.S. Government Obligations sufficient
to pay all of the principal and interest due on the Securities payable on that
date in accordance with Section 3.6 hereof and payment of the Securities called
for redemption is not otherwise prohibited pursuant to Article XII hereof or
otherwise, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
SECTION 2.9. Treasury Securities.
--------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or an Affiliate of the Company shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, amendment, supplement,
waiver or consent, only Securities that the Trustee knows are so owned shall be
disregarded.
SECTION 2.10. Temporary Securities.
---------------------
Until Definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of Definitive Securities but may have
variations that the Company reasonably and in good faith considers appropriate
for temporary Securities. Without unreasonable delay, the Company shall prepare
and the Trustee shall authenticate Definitive Securities in exchange for
temporary Securities. Until so exchanged, the temporary Securities shall in all
respects be
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entitled to the same benefits under this Indenture as permanent Securities
authenticated and delivered hereunder.
SECTION 2.11. Cancellation.
-------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or an Affiliate of the Company), and no one else, shall
cancel and return all Securities surrendered for transfer, exchange, payment or
cancellation to the Company. Subject to Section 2.7, the Company may not issue
new Securities to replace Securities that have been paid or delivered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section 2.11, except as
expressly permitted in the form of Securities and as permitted by this
Indenture.
SECTION 2.12. Defaulted Interest.
-------------------
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Security (or one or more predecessor Securities) is registered at the
close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date plus, to the extent lawful,
any interest payable on the defaulted interest (collectively, herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
holder on the relevant Record Date, and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest
to the persons in whose names the Securities (or their respective
predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which shall
be fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Security and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of Cash equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such Cash when deposited to be
held in trust for the benefit of the persons entitled to such Defaulted
Interest as provided in this clause (1). Thereupon the Trustee shall fix a
special record date for the payment of such Defaulted Interest which shall
be not more than 15 Business Days and not less than 10 Business Days prior
to the date of the proposed payment and not less than 10 Business Days
after the receipt by the Trustee of the notice of the proposed payment
("Special Record Date"). The Trustee shall promptly notify the Company in
writing of such Special Record Date and, in the name
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and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each Holder at his address as it
appears in the Security register not less than 10 Business Days prior to
such Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the persons in whose
names the Securities (or their respective predecessor Securities) are
registered on such Special Record Date and shall no longer be payable
pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after written notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu of
any other Security shall carry the rights to interest accrued and unpaid, and to
accrue, which were carried by such other Security.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
--------------------
Redemption of Securities, as permitted by any provision of this Indenture,
shall be made in accordance with Paragraph 5 of the Securities and this Article
III. The Company will not have the right to redeem any Securities prior to
___________, 2001. On or after ___________, 2001, the Company will have the
right to redeem all or any part of the Securities at the Redemption Prices
specified in Paragraph 5 therein under the caption "Redemption," in each case
including accrued and unpaid interest to, but excluding, the Redemption Date.
SECTION 3.2. Notices to Trustee.
-------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of the
Securities, it shall notify the Trustee in writing of the Redemption Date, the
principal amount of Securities to be redeemed, the Redemption Price and whether
it wants the Trustee to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of Securities to be
redeemed pursuant to Paragraph 5 of the Securities by crediting against any such
redemption Securities it
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has not previously delivered to the Trustee for cancellation, it shall so notify
the Trustee in writing of the amount of the reduction and deliver such
Securities with such notice.
The Company shall give each notice to the Trustee provided for in this
Section 3.2 at least 45 days but not more than 60 days before the Redemption
Date (unless a shorter notice period shall be satisfactory to the Trustee). Any
such notice may be canceled at any time prior to notice of such redemption being
mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
---------------------------------------
If less than all of the Securities are to be redeemed pursuant to Paragraph
5 thereof, the Trustee shall select the Securities to be redeemed on a pro rata
basis, by lot or by such other method as the Trustee shall determine to be fair
and appropriate and in such manner as complies with any applicable depositary,
legal and stock exchange or automated quotation system requirements.
The Trustee shall make the selection from the Securities outstanding and
not previously called for redemption and shall promptly notify the Company in
writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in whole.
The Trustee may select for redemption portions (equal to $1,000 or any integral
multiple thereof) of the principal of Securities that have denominations larger
than $1,000. Provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
SECTION 3.4. Notice of Redemption.
---------------------
At least 30 days but not more than 60 days before a Redemption Date, the
Company shall mail a notice of redemption by first-class mail, postage prepaid,
to the Trustee and each Holder whose Securities are to be redeemed at such
Holder's address as it appears on the security register maintained by the
Registrar. At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. Each notice of
redemption shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date, and that the Securities called for
redemption may not be converted after the Business Day immediately prior to
the Redemption Date;
(2) the Redemption Price, including the amount of accrued and unpaid
interest to be paid upon such redemption;
(3) the name, address and telephone number of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the
Redemption Price;
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(5) that, unless (a) the Company defaults in its obligation to
deposit Cash with the Paying Agent in accordance with Section 3.6 hereof or
(b) such redemption payment is prohibited pursuant to Article XII hereof or
otherwise, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price, including
accrued and unpaid interest to, but excluding the Redemption Date, upon
surrender to the Paying Agent of the Securities called for redemption and
to be redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount, equal to $1,000 or any integral multiple thereof, of such
Security to be redeemed and that, on or after the Redemption Date, upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) that the notice is being sent pursuant to this Section 3.4 and
pursuant to the redemption provisions of Paragraph 5 of the Securities.
SECTION 3.5. Effect of Notice of Redemption.
-------------------------------
Once notice of redemption is mailed in accordance with Section 3.4,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price, including accrued and unpaid interest to the
Redemption Date. Upon surrender to the Trustee or Paying Agent, such Securities
called for redemption shall be paid at the Redemption Price, including accrued
and unpaid interest to the Redemption Date; provided that if the Redemption Date
is after a regular Record Date and on or prior to the corresponding Interest
Payment Date, the accrued interest shall be payable to the Holder of the
redeemed Securities registered on the relevant Record Date; and provided,
further, that if a Redemption Date is a Legal Holiday, payment shall be made on
the next succeeding Business Day and no interest shall accrue for the period
from such Redemption Date to such succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price.
----------------------------
On or prior to the Redemption Date, the Company shall deposit with the
Paying Agent (other than the Company or an Affiliate of the Company) Cash
sufficient to pay the Redemption Price of, including accrued and unpaid interest
with respect to, all Securities to be redeemed on such Redemption Date (other
than Securities or portions thereof called for redemption on that date that have
been delivered by the Company to the Trustee for
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cancellation). The Paying Agent shall promptly return to the Company any Cash so
deposited which is not required for that purpose upon the written request of the
Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited under Article XII or otherwise, interest on the
Securities to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
Notwithstanding anything herein to the contrary, if any Security surrendered for
redemption in the manner provided in the Securities shall not be so paid upon
surrender for redemption because of the failure of the Company to comply with
the preceding paragraph, interest shall continue to accrue and be paid from the
Redemption Date until such payment is made on the unpaid principal, and, to the
extent lawful, on any interest not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the Security.
SECTION 3.7. Securities Redeemed in Part.
----------------------------
Upon surrender of a Security that is to be redeemed in part, the Company
shall execute and the Trustee shall thereafter authenticate and make available
for delivery to the Holder, without service charge to the Holder, a new Security
or Securities equal in principal amount to the unredeemed portion of the
Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities
---------------------
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities. An installment of
principal of and interest on the Securities shall be considered paid on the date
it is due if the Trustee or Paying Agent (other than the Company or an Affiliate
of the Company) holds for the benefit of the Holders, on or before 10:00 a.m.
New York City time on that date, Cash deposited and designated for and
sufficient to pay the installment.
The Company shall pay interest on overdue principal and on overdue
installments of interest at the rate specified in the Securities compounded
semi-annually, to the extent lawful.
SECTION 4.2. Maintenance of Office or Agency
-------------------------------
The Company shall maintain in ________________________________, an office
or agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and for
conversion and where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to
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maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 14.2.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in _________________
______________, for such purposes. The Company shall give prior written notice
to the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency. The Company hereby initially
designates _______________________________, as such office.
SECTION 4.3. Corporate Existence.
--------------------
Subject to Article V, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate or other existence of each of its Subsidiaries in accordance
with the respective organizational documents of each of them and the rights
(charter and statutory) and corporate franchises of the Company and each of its
Subsidiaries; provided, however, that the Company shall not be required to
preserve, with respect to itself, any right or franchise, and with respect to
any of its Subsidiaries, any such existence, right or franchise, if (a) the
Company shall, in good faith, reasonably determine that the preservation thereof
is no longer desirable in the conduct of the business of such entity and (b) the
loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.4. Payment of Taxes and Other Claims.
----------------------------------
Except with respect to immaterial items, the Company shall, and shall cause
each of its Subsidiaries to, pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon the Company or any of its
Subsidiaries or any of their respective properties and assets and (ii) all
lawful claims, whether for labor, materials, supplies, services or anything
else, which have become due and payable and which by law have or may become a
Lien upon the property and assets of the Company or any of its Subsidiaries;
provided, however, that neither the Company nor any Subsidiary shall be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed amounts adequate
reserves have been established in accordance with GAAP.
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SECTION 4.5. Maintenance of Properties and Insurance.
----------------------------------------
The Company shall cause all material properties used or useful to the
conduct of its business and the business of each of its Subsidiaries to be
maintained and kept in good condition, repair and working order (reasonable wear
and tear excepted) and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in its reasonable judgment may be necessary, so
that the business carried on in connection therewith may be properly conducted
at all times; provided, however, that nothing in this Section 4.5 shall prevent
the Company or any Subsidiary from discontinuing any operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance or
disposal is (a), in the judgment of the Company, desirable in the conduct of the
business of such entity and (b) not disadvantageous in any material respect to
the Holders.
The Company shall provide, or cause to be provided, for itself and each of
its Subsidiaries, insurance (including appropriate self-insurance) against loss
or damage of the kinds that, in the reasonable, good faith opinion of the
Company is adequate and appropriate for the conduct of the business of the
Company and such Subsidiaries in a prudent manner, with (except for self-
insurance) reputable insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the reasonable, good
faith opinion of the Company and adequate and appropriate for the conduct of the
business of the Company and such Subsidiaries in a prudent manner for entities
similarly situated in the industry, unless failure to provide such insurance
(together with all other such failures) would not have a material adverse effect
on the financial condition or results of operations of the Company or such
Subsidiary.
SECTION 4.6. Compliance Certificate; Notice of Default.
------------------------------------------
(a) The Company shall deliver to the Trustee within 120 days after
the end of its fiscal year an Officers' Certificate complying with Section
314(a)(4) of the TIA and stating that a review of its activities and the
activities of its Subsidiaries during the preceding fiscal year has been made
under the supervision of the signing Officers with a view to determining whether
the Company has kept, observed, performed and fulfilled its obligations under
this Indenture and further stating, as to each such Officer signing such
certificate, whether or not the signer knows of any failure by the Company or
any Subsidiary of the Company to comply with any conditions or covenants in this
Indenture and, if such signor does know of such a failure to comply, the
certificate shall describe such failure with particularity. The Officers'
Certificate shall also notify the Trustee should the relevant fiscal year end on
any date other than the current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default, Event of Default or fact which would prohibit the making of any payment
to or by the Trustee in respect of the Securities, an Officers' Certificate
specifying such Default, Event of Default or fact and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not
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be deemed to have knowledge of any Default, any Event of Default or any such
fact unless one of its Trust Officers receives notice thereof from the Company
or any of the Holders.
SECTION 4.7. Reports.
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Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder and to prospective purchasers of Securities
identified to the Company by an Initial Purchaser, within 15 days after it is or
would have been required to file such with the SEC, annual and quarterly
consolidated financial statements substantially equivalent to financial
statements that would have been included in reports filed with the SEC if the
Company were subject to the requirements of Section 13 or 15(d) of the Exchange
Act, including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the SEC and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required.
SECTION 4.8. Limitation on Status as Investment Company.
-------------------------------------------
Neither the Company nor any of its Subsidiaries shall become an "investment
company" (as that term is defined in the Investment Company Act of 1940, as
amended), or otherwise become subject to regulation under the Investment Company
Act.
SECTION 4.9. Waiver of Stay, Extension or Usury Laws.
----------------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law which would prohibit or forgive the Company from paying all or any
portion of the principal of, premium of, or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
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ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
--------------------------------------------
(a) The Company shall not, directly or indirectly, consolidate with
or merge with or into another Person or sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether in a
single transaction or a series of related transactions, to another Person or
group of affiliated Persons (other than to its wholly owned Subsidiaries),
unless (i) either (a) in the case of a merger or consolidation, the Company is
the surviving entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Securities and the
Indenture; (ii) no Default or Event of Default shall exist or shall occur
immediately before or after giving effect to such transaction; and (iii) the
Company has delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and, if a
supplemental indenture is required, such supplemental indenture comply with the
Indenture and that all conditions precedent relating to such transactions have
been satisfied.
(b) For purposes of clause (a) of this Section 5.1 and Section 13.6,
the sale, lease, conveyance, assignment, transfer, or other disposition of all
or substantially all of the properties and assets of one or more Subsidiaries of
the Company, which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2. Successor Corporation Substituted.
----------------------------------
Upon any permitted consolidation or merger or any permitted sale, lease,
conveyance or transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such sale, lease,
conveyance or transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture with the
same effect as if such successor corporation had been named therein as the
Company, and when a successor corporation duly assumes all of the obligations of
the Company pursuant hereto and pursuant to the Securities, the predecessor
shall be released from such obligations (except with respect to any obligations
that arise from or as a result of such transaction).
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ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure to pay any installment of interest on the Securities as
and when the same becomes due and payable, or to perform any conversion of
the Securities required under this Indenture, and the continuance of such
failure for a period of 30 days, whether or not such payment is prohibited
by Article XII;
(2) failure to pay all or any part of the principal of, or premium,
if any on the Securities when and as the same become due and payable at
maturity, redemption, by acceleration or otherwise, including, without
limitation, failure to pay all or any part of the Repurchase Price on the
Repurchase Date in accordance with Article XI, whether or not such payment
is prohibited by Article XII;
(3) failure by the Company to observe or perform any covenant or
agreement contained in the Securities or this Indenture (other than a
default in the performance of any covenant or agreement which is
specifically dealt with elsewhere in this Section 6.1), and continuance of
such failure for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee, or to the
Company and the Trustee by Holders of at least 25% in aggregate principal
amount of the then outstanding Securities, a written notice specifying such
failure, requesting it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
(4) failure by the Company or any Significant Subsidiary to pay
principal, premium or interest when due (after giving effect to any
applicable period of grace) at maturity of any Indebtedness (other than
non-recourse obligations), in an amount in excess of $______________ and
the continuance of such failure for 30 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate
principal amount of the then outstanding Securities, a written notice
specifying such default, requesting that it be remedied and stating that
such notice is a "Notice of Default" hereunder;
(5) default by the Company or any Significant Subsidiary with respect
to any Indebtedness (other than non-recourse obligations), which default
results in the acceleration of Indebtedness having a principal amount in
excess of $_______________ without such Indebtedness having been discharged
or such acceleration having been rescinded or annulled for 30 days after
there has been given, by registered or certified
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mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the then
outstanding Securities, a written notice specifying such default,
requesting that it be remedied and stating that such notice is a "Notice of
Default" hereunder;
(6) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudging the Company or any of its Significant
Subsidiaries as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization of the Company or any of its Significant
Subsidiaries under any bankruptcy or similar law, and such decree or order
shall have continued undischarged and unstayed for a period of 60 days; or
a decree or order of a court of competent jurisdiction over the appointment
of a receiver, liquidator, trustee, or assignee in bankruptcy or insolvency
of the Company, any of its Significant Subsidiaries, or of the property of
any such Person, or for the winding up or liquidation of the affairs of any
such Person, shall have been entered, and such decree, judgment, or order
shall have remained in force undischarged and unstayed for a period of 60
days;
(7) the Company or any of its Significant Subsidiaries shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file
a petition or answer or consent seeking reorganization under any bankruptcy
or similar law or similar statute, or shall consent to the filing of any
such petition, or shall consent to the appointment of a Custodian,
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency of
it or any of its assets or property, or shall make a general assignment for
the benefit of creditors, or shall admit in writing its inability to pay
its debts generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fail generally to pay its debts as they
become due, or take any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(8) final unsatisfied judgments not covered by insurance, or the
issuance of any warrant of attachment against any portion of the property
or assets of the Company or any of its Significant Subsidiaries,
aggregating in excess of $_________________ at any one time shall have been
rendered against the Company or any of its Significant Subsidiaries and not
have been stayed, bonded or discharged for a period (during which execution
shall not be effectively stayed) of 60 days (or, in the case of any such
final judgment which provides for payment over time, which shall so remain
unstayed, unbonded or undischarged beyond any applicable payment date
provided therein).
Notwithstanding the 60-day period and notice requirement contained in
Section 6.1(3) above, with respect to a default under Article XI the 60-day
period referred to in Section 6.1(3) shall be deemed to have begun as of the
date the Change of Control notice is required to be sent in the event that the
Company has not complied with the provisions of Section 11.1 and the Trustee or
Holders of at least 25% in principal amount of the outstanding Securities
thereafter give the Notice of Default referred to in Section 6.1(3) to the
Company and, if applicable, the Trustee; provided, however, that if the breach
or default is a result of a default in the payment when due of the Repurchase
Price on the Repurchase Date, such Event of
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Default shall be deemed, for purposes of this Section 6.1, to arise no later
than on the final Repurchase Date.
If a Default occurs and is continuing, the Trustee shall, within 90 days
after the occurrence of such default, give to the Holders notice of such
default.
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in Section
6.1(6) or (7) relating to the Company) occurs and is continuing, then in every
such case, unless the principal of all of the Securities shall have already
become due and payable, either the Trustee or the Holders of not less than 25%
in aggregate principal amount of then outstanding Securities, by a notice in
writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all of the principal of the Securities (or
the Repurchase Price if the Event of Default includes failure to pay the
Repurchase Price, determined as set forth below), including in each case
premium, if any, and accrued interest to be due and payable immediately. If an
Event of Default specified in Section 6.1(6) or (7) relating to the Company
occurs, all principal, premium, if any, and accrued interest will be immediately
due and payable on all outstanding Securities without any declaration or other
act on the part of Trustee or the Holders.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of no less
than a majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, applicable to) any
Securities which would then be due otherwise than by such declaration
of acceleration, and interest thereon at the rate borne by the
Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
(D) all sums paid or advanced by the Trustee hereunder and the
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and
(2) all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest on the Securities that have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 6.12,
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including, if applicable, any Event of Default relating to the covenants
contained in Section 11.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event. No such waiver shall cure or waive any subsequent Default or Event of
Default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if an Event of Default in payment of principal,
premium or interest specified in clause (1) or (2) of Section 6.1 occurs and is
continuing, the Company shall, upon demand of the Trustee, pay to it, for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal, premium (if any), interest and to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any), and on any overdue interest, at the
rate borne by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs, fees and expenses of collection,
including compensation to, and expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums so
due and unpaid, may prosecute such proceeding to judgment or final decree and
may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (which term as used in this Section shall include any
predecessor Trustee) (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue
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principal or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise to take any and all actions under the TIA, including
(1) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim under
Section 7.7 for the compensation, fees, expenses, disbursements and
advances of the Trustee, its agent and counsel) and of the Holders allowed
in such judicial proceeding, and
(2) To collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same in accordance
with Section 6.6;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the compensation, expenses, fees,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment, or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust in favor of the Holders, and any recovery of
judgment shall, after provision for the payment of compensation to, and
expenses, fees, disbursements and advances of the Trustee, its agents and
counsel, be for the ratable benefit of the Holders of the Securities in respect
of which such judgment has been recovered.
SECTION 6.6. Priorities.
Any money collected by the Trustee pursuant to this Article VI shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, premium (if
any) or interest upon presentation of the Securities and the notation thereon of
the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the Trustee (including any predecessor Trustee) in payment of
all amounts due pursuant to Section 7.7;
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SECOND: To the holders of Senior Indebtedness of the Company to the extent
provided in Article XII;
THIRD: To the Holders in payment of the amounts then due and unpaid for
principal of, premium (if any) and interest on the Securities in respect or for
the benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Securities for principal, premium (if any) and interest, respectively; and
FOURTH: To whomsoever may be lawfully entitled thereto, the remainder, if
any.
SECTION 6.7. Limitation on Suits.
No Holder of any Security shall have any right to order or direct the
Trustee to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
(A) such Holder has previously given written notice to the Trustee of a
continuing Event of Default;
(B) the Holders of not less than 25% in principal amount of then
outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities to be incurred or
reasonably probable to be incurred in compliance with such request;
(D) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(E) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of then outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
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SECTION 6.8. Unconditional Right of Holders to Receive Principal, Premium and
----------------------------------------------------------------
Interest.
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Notwithstanding any other provision of this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of, and premium (if any), and interest on such Security
when due (including, in the case of redemption, the Redemption Price on the
applicable Redemption Date, and in the case of the Repurchase Price, on the
applicable Repurchase Date), to convert such Security in accordance with Article
XIII, and to institute suit for the enforcement of any such payment and right to
convert after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9. Rights and Remedies Cumulative.
-------------------------------
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in Section 2.7, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.10. Delay or Omission Not Waiver.
-----------------------------
No delay or omission by the Trustee or by any Holder of any Security to
exercise any right or remedy arising upon any Event of Default shall impair the
exercise of any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Article VI or by law to the
Trustee or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 6.11. Control by Holders.
-------------------
The Holder or Holders of no less than a majority in aggregate principal
amount of then outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred upon the Trustee, provided,
that
(1) such direction shall be made in writing to the Trustee and shall
not be in conflict with any rule of law or with this Indenture,
(2) the Trustee shall not determine that the action so directed would
be unjustly prejudicial to the Holders not taking part in such direction,
and
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(3) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12. Waiver of Past Default.
-----------------------
Subject to Section 6.8, the Holder or Holders of not less than a majority
in aggregate principal amount of then outstanding Securities may, on behalf of
all Holders, prior to the declaration of acceleration of the maturity of the
Securities, waive any past default hereunder and its consequences, except a
default
(A) in the payment of the principal of, premium, if any, or
interest on any Security not yet cured as specified in clauses (1) and
(2) of Section 6.1, or
(B) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the
Holder of each outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair the exercise of any right arising therefrom.
SECTION 6.13. Undertaking for Costs.
----------------------
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted to be taken by it as Trustee, the filing by any party
litigant in such suit of an undertaking to pay the costs of such suit, and that
such court may in its discretion assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 6.13 shall not apply to any suit instituted
by the Company, to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of then outstanding Securities, or to any suit
instituted by any Holder for enforcement of the payment of principal of, premium
(if any), or interest on any Security on or after the respective Stated Maturity
of such Security (including, in the case of redemption, on or after the
Redemption Date).
SECTION 6.14. Restoration of Rights and Remedies.
-----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former
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positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture and
covenants and agrees to perform the same, as herein expressed.
SECTION 7.1. Duties of Trustee.
------------------
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent Person would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no others, and no covenants or obligations
shall be implied in or read into this Indenture which are adverse to the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they substantially conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a written direction
received by it pursuant to Section 6.11.
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(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or at the request, order or direction of the Holders or in
the exercise of any of its rights or powers if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not provided.
(e) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c), (d) and (f) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
SECTION 7.2. Rights of Trustee.
------------------
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and if the Trustee shall determine to make such
further inquiry or investigation it shall be entitled to examine the books,
records and premises of the Company, personally or by agent or attorney.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel of its selection and may require an Officers' Certificate or an
Opinion of Counsel, which shall conform to Sections 14.4 and 14.5. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or agent
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
discretion, rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, notice, request, direction, consent, order, bond, debenture, or other
paper or document, but the Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders,
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pursuant to the provisions of this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to the performance
of the Company's covenants in Article IV hereof. In addition, the Trustee shall
not be deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 6.1(1), 6.1(2) or 5. 1, or
(ii) any Default or Event of Default of which the Trustee shall have received
written notification or obtained actual knowledge.
(i) No permissive right of the Trustee to act hereunder shall be
construed as a duty.
(j) Whenever in the administration of this Indenture the Trustee
deems it desirable that a matter be proved or established prior to taking,
suffering or omitting to take any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate, an Opinion of Counsel, or both.
(k) The Trustee shall not be deemed to have notice or knowledge
(including actual knowledge) of any matter unless a Trust Officer has actual
knowledge thereof or unless written notice thereof is received by the Trustee at
the office specified in Section 14.2 and such notice references the Securities
generally, the Company or this Indenture.
SECTION 7.3. Individual Rights of Trustee.
-----------------------------
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company, any of its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer.
---------------------
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities and it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities, other than the Trustee's certificate of
authentication, or the use or application of any funds received by a Paying
Agent other than the Trustee.
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SECTION 7.5. Notice of Default.
------------------
If a Default or an Event of Default occurs and is continuing and if it is
actually known to the Trustee, the Trustee shall mail to each Securityholder
notice of the uncured Default or Event of Default within 90 days after the later
to occur of (i) the occurrence of such Default or Event of Default or (ii) the
date the Trustee becomes aware of such Default or Event of Default. Except in
the case of a Default or an Event of Default in payment of principal (or
premium, if any) of, or interest on any Security (including the payment of the
Repurchase Price on the Repurchase Date and the payment of the Redemption Price
on the Redemption Date), the Trustee may withhold the notice if and so long as a
Trust Officer in good faith determines that withholding the notice is in the
interest of the Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
------------------------------
Within 60 days after each _____________ beginning with the __________
following the date of this Indenture, the Trustee shall, if required by law,
mail to each Securityholder a brief report dated as of such ____________ that
complies with TIA (S) 313(a). The Trustee also shall comply with TIA (S)(S)
313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if the Securities
become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders shall
be mailed to the Company and, if required, filed with the SEC and each stock
exchange, if any, on which the Securities are listed.
SECTION 7.7. Compensation and Indemnity.
---------------------------
The Company agrees to pay to the Trustee from time to time such
compensation for its services as the parties shall agree from time to time and,
in the absence of such agreement, reasonable compensation for its acceptance of
this Indenture and services hereunder. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses, fees and advances incurred or made by it. Such
expenses shall include the reasonable compensation, disbursements, fees and
expenses of the Trustee's agents, accountants, experts and counsel.
The Company agrees to indemnify the Trustee (in its capacity as Trustee)
and each of its officers, directors, attorneys-in-fact and agents for, and hold
them harmless against, any claim, demand, expense (including but not limited to
reasonable compensation, fees, disbursements and expenses of the Trustee's
agents and counsel), loss or liability incurred by it without negligence, bad
faith or willful misconduct on its part, arising out of, related to, or in
connection with the administration of this trust and its rights or duties
hereunder including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
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indemnity. The Company shall defend the claim and the Trustee shall provide
reasonable cooperation at the Company's expense in the defense. The Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel; provided, that the Company will not be required to pay such
fees and expenses if it assumes the Trustee's defense and there is no conflict
of interest between the Company and the Trustee in connection with such defense.
The Company need not pay for any settlement made without its written consent.
The Company need not reimburse any expense or indemnify against any loss or
liability to the extent incurred by the Trustee through its negligence, bad
faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee and each predecessor Trustee shall have a perfected lien prior to the
Securities on all assets held or collected by the Trustee, in its capacity as
Trustee, except assets held in trust to pay principal and premium, if any, or of
interest on particular Securities. Any lien in favor of a predecessor Trustee
shall be senior to any lien in favor of the current Trustee.
When the Trustee incurs expenses or fees or renders services after an Event
of Default specified in Section 6.1(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien arising
hereunder shall survive indefinitely, including upon the resignation or removal
of the Trustee, the discharge of the Company's obligations pursuant to Article
VIII of this Indenture and any rejection or termination of this Indenture under
any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
-----------------------
The Trustee may resign by so notifying the Company in writing. The Holder
or Holders of a majority in principal amount of then outstanding Securities may
remove the Trustee by so notifying the Company and the Trustee in writing. The
Company, by Board of Directors resolution, may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of this Section 7.8.
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If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder or
Holders of a majority in principal amount of then outstanding Securities may,
with the Company's consent, appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately upon delivery of such
notice and provided that all sums owing to the retiring Trustee provided for in
Section 7.7 have been paid, the retiring Trustee shall transfer all property
held by it as trustee to the successor Trustee, subject to the lien provided in
Section 7.7, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holder or Holders of at least 10% in principal amount of then outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any bona fide Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
the Company's obligations under Section 7.7 shall continue indefinitely for the
benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
---------------------------------
If the Trustee consolidates with, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the resulting, surviving or transferee corporation without any further act
shall, if such resulting, surviving or transferee corporation is otherwise
eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
------------------------------
The Trustee shall at all times satisfy the requirements of TIA (S)
310(a)(1), (2) and (5). The Trustee and its direct parent or, in the case of a
corporation included in a bank holding company system, the related bank holding
company, shall have a combined capital and surplus of at least $100,000,000 as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA (S) 310(b).
SECTION 7.11. Preferential Collection of Claims Against Company.
--------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated.
38
<PAGE>
SECTION 7.12. Other Capacities.
-----------------
All references in this Indenture to the Trustee shall be deemed to refer to
the Trustee in its capacity as Trustee and in its capacities as any Agent, to
the extent acting in such capacities, and every provision of this Indenture
relating to the conduct or affecting the liability or offering protection,
immunity or indemnity to the Trustee shall be deemed to apply with the same
force and effect to the Trustee acting in its capacity as any Agent.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION 8.1. Satisfaction and Discharge of Indenture.
----------------------------------------
The Company may terminate its obligations under this Indenture (subject to
the provisions of this Article VIII and Section 7.7) when it shall have
delivered to the Trustee for cancellation all Securities theretofore
authenticated (other than any Securities which shall have been destroyed, lost
or stolen and which shall have been replaced or paid as provided in Article II
hereof) and the following conditions shall be satisfied:
(1) The Company has paid all sums payable under the Indenture; and
(2) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating that
all conditions precedent have been complied with as contemplated by this Section
8.1.
SECTION 8.2. Repayment to the Company.
-------------------------
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, for the payment of the principal of, premium, if any, or interest
on any Security and remaining unclaimed for two years after such principal,
premium, if any, or interest or has become due and payable shall be paid to the
Company on its written request; and the Holder of such Security shall thereafter
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such trust money shall thereupon cease.
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<PAGE>
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of Holders.
---------------------------------------------------
Without the consent of any Holder, the Company, when authorized by
Board Resolutions, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or to make any
other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided, that such action pursuant to this clause (1) does not adversely affect
the interests of any Holder in any respect;
(2) to create additional covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon the
Company or to make any other change that does not adversely affect the rights of
any Holder, provided, that the Company has delivered to the Trustee an Opinion
of Counsel stating that such change pursuant to this clause (2) does not
adversely affect the rights of any Holder;
(3) to provide for collateral for or guarantors of the Securities;
(4) to evidence the succession of another Person to the Company and
the assumption by any such successor of the obligations of the Company herein
and in the Securities in accordance with Article V; or
(5) to comply with the TIA.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with Consent of
---------------------------------------------------------------
Holders.
--------
Subject to Section 6.8 and the last sentence of this paragraph, with
the consent of the Holders of not less than a majority in aggregate principal
amount of then outstanding Securities, by written act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by Board
Resolutions, and the Trustee may amend or supplement this Indenture or the
Securities or enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or the Securities or of modifying in any
manner the rights of the Holders under this Indenture or the Securities. Subject
to Section 6.8 and the last sentence of this paragraph, the Holder or Holders of
not less than a majority in aggregate principal amount of then outstanding
Securities may, in writing, waive compliance by the Company with any provision
of this Indenture or the Securities. Notwithstanding any of the above, however,
no such amendment, supplemental indenture or waiver shall, without the consent
of the Holder of each outstanding Security affected thereby:
40
<PAGE>
(1) change the Stated Maturity of any Security or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or any premium or
the interest thereon is payable, or impair the right to institute suit for the
conversion of any Security or the enforcement of any such payment on or after
the due date thereof (including, in the case of redemption, on or after the
Redemption Date), or reduce the Repurchase Price, or alter the Repurchase Offer
or redemption provisions in a manner adverse to the Holders;
(2) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture;
(3) adversely affect the right of such Holder to convert Securities;
or
(4) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the Holder of each
outstanding Security affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver.
After an amendment, supplement or waiver under this Section 9.2 or
Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or (at the option of the
Company) to all Holders, consideration for consent to such amendment, supplement
or waiver.
SECTION 9.3. Compliance with TIA.
--------------------
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
----------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or
41
<PAGE>
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security. However,
any such Holder or subsequent Holder may revoke the consent as to his Security
or portion of his Security by written notice to the Company, the Trustee or the
Person designated by the Company as the Person to whom consents should be sent
if such revocation is received by the Company or such Person before the date on
which the Trustee receives an Officers' Certificate certifying that the Holders
of the requisite principal amount of Securities have consented (and not
theretofore revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (4) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
waiver shall not impair or affect the right of any Holder to receive payment of
principal and premium of and interest on a Security, on or after the respective
dates set for such amounts to become due and payable as then expressed in such
Security, or to bring suit for the enforcement of any such payment on or after
such respective dates.
SECTION 9.5. Notation on or Exchange of Securities.
--------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee
or require the Holder to put an appropriate notation on the Security. The
Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Security shall not
affect the validity of such amendment, supplement or waiver.
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<PAGE>
SECTION 9.6. Trustee to Sign Amendments, Etc.
--------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
MEETINGS OF SECURITYHOLDERS
SECTION 10.1. Purposes for Which Meetings May Be Called.
------------------------------------------
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article X for any of the following
purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to waive or to consent to the waiving of
any Default or Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by Securityholders pursuant to any of the
provisions of Article VI;
(b) to remove the Trustee or appoint a successor Trustee pursuant
to the provisions of Article VII;
(c) to consent to an amendment, supplement or waiver pursuant to
provisions of Section 9.2; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holder or Holders of any specified aggregate principal amount of
the Securities under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the Trustee deems necessary or appropriate in
connection with the administration of this Indenture.
SECTION 10.2. Manner of Calling Meetings.
---------------------------
The Trustee may at any time call a meeting of Securityholders to take
any action specified in Section 10.1, to be held at such time and at such place
in ____________, or elsewhere as the Trustee shall determine. Notice of every
meeting of Securityholders, setting forth the time and place of such meeting and
in general terms the action proposed to be taken at such meeting, shall be
mailed at the Company's expense by the Trustee, first-class postage prepaid, to
the Company and to the Holders at their last addresses as they shall appear on
the registration books of the Registrar, not less than 10 nor more than 60 days
prior to the date fixed for a meeting.
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<PAGE>
Any meeting of Securityholders shall be valid without notice if the Holders
of all Securities then outstanding are present in Person or by proxy, or if
notice is waived before or after the meeting by the Holders of all Securities
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
SECTION 10.3. Calling of Meetings by the Company or Holders.
----------------------------------------------
In case at any time the Company or the Holders of not less than 10% in
aggregate principal amount of the Securities then outstanding, shall have
requested the Trustee to call a meeting of Securityholders to take any action
specified in Section 10.1, by written request setting forth in reasonable detail
the action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within 20 days after receipt of such written
request, then the Company or the Holders of Securities in the amount above
specified may determine the time and place in _________________________ or
elsewhere for such meeting and may call such meeting for the purpose of taking
such action, by mailing or causing to be mailed notice thereof as provided in
Section 10.2, or by causing notice thereof to be published at least once in each
of two successive calendar weeks (on any Business Day during such week) in a
newspaper or newspapers printed in the English language, customarily published
at least five days a week of a general circulation in _________________________,
the first such publication to be not less than 10 nor more than 60 days prior to
the date fixed for the meeting.
SECTION 10.4. Who May Attend and Vote at Meetings.
------------------------------------
To be entitled to vote at any meeting of Securityholders, a Person shall
(a) be a registered Holder of one or more Securities, or (b) be a Person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Securities. The only Persons who shall be entitled to be present or
to speak at any meeting of Securityholders shall be the Persons entitled to vote
at such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company, and its counsel.
SECTION 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting;
-----------------------------------------------------------
Voting Rights; Adjournment.
---------------------------
Notwithstanding any other provision of this Indenture, the Trustee may make
such reasonable regulations as it may deem advisable for any action by or any
meeting of Securityholders, in regard to proof of the holding of Securities and
of the appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, and submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think appropriate. Such regulations may fix a
record date and time for determining the Holders of record of Securities
entitled to vote at such meeting, in which case those and only those Persons who
are Holders of Securities at the record date and time so fixed, or their
proxies, shall be entitled to vote at such meeting whether or not they shall be
such Holders at the time of the meeting.
44
<PAGE>
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 10.3, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Holders of a majority
in principal amount of the Securities represented at the meeting and entitled to
vote.
At any meeting each Securityholder or proxy shall be entitled to one vote
for each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairman of the meeting to be not then outstanding. The chairman of the meeting
shall have no right to vote other than by virtue of Securities held by him or
instruments in writing as aforesaid duly designating him as the proxy to vote on
behalf of other Securityholders. Any meeting of Securityholders duly called
pursuant to the provisions of Section 10.2 or Section 10.3 may be adjourned from
time to time by vote of the Holder or Holders of a majority in aggregate
principal amount of the Securities represented at the meeting and entitled to
vote, and the meeting may be held as so adjourned without further notice.
SECTION 10.6. Voting at the Meeting and Record to Be Kept.
--------------------------------------------
The vote upon any resolution submitted to any meeting of Securityholders
shall be by written ballots on which shall be subscribed the signatures of the
Holders of Securities or of their representatives by proxy and the principal
amount of the Securities voted by the ballot. The permanent chairman of the
meeting shall appoint two inspectors of votes, who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Securityholders shall be prepared by the secretary of the meeting and
there shall be attached to such record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more Persons
having knowledge of the facts, setting forth a copy of the notice of the meeting
and showing that such notice was mailed as provided in Section 10.2 or published
as provided in Section 10.3. The record shall be signed and verified by the
affidavits of the permanent chairman and the secretary of the meeting and one of
the duplicates shall be delivered to the Company and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
SECTION 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or
---------------------------------------------------------------
Delayed by Call of Meeting.
---------------------------
Nothing contained in this Article X shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Securityholders or
any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any
45
<PAGE>
right or rights conferred upon or reserved to the Trustee or to the
Securityholders under any of the provisions of this Indenture or of the
Securities.
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE UPON A CHANGE OF CONTROL
SECTION 11.1. Repurchase of Securities at Option of the Holder Upon a Change of
-----------------------------------------------------------------
Control.
-------
(a) Subject to Section 11.2, in the event that a Change of Control
occurs, the Company shall offer, subject to the terms and conditions of this
Indenture, to purchase all or any part of each Holder's Securities (provided,
that the principal amount of such Securities must be $1,000 or an integral
multiple thereof) on the date (the "Repurchase Date") that is no later than 45
Business Days (except as hereinafter provided) after the occurrence of such
Change of Control, at a cash price (the "Repurchase Price") equal to 100% of the
principal amount thereof, together with accrued and unpaid interest to (but
excluding) the Repurchase Date.
(b) In the event that, pursuant to this Section 11.1, the Company
shall be required to commence an offer to purchase Securities (a "Repurchase
Offer"), the Company shall follow the procedures set forth in this Section 11.1
as follows:
(1) the Repurchase Offer shall commence within 25 Business Days
following a Change of Control;
(2) the Repurchase Offer shall remain open for 20 Business Days
following its commencement, except to the extent that a longer period is
required by applicable law, but in any case not more than 60 Business Days
following the Change of Control (the "Repurchase Offer Period");
(3) upon the expiration of a Repurchase Offer, the Company shall
purchase all Securities tendered in response to the Repurchase Offer;
(4) if the Repurchase Date is on or after an interest payment
record date and on or before the related Interest Payment Date, any accrued
interest will be paid to the Person in whose name a Security is registered at
the close of business on such record date, and no additional interest will be
payable to Securityholders who tender Securities pursuant to the Repurchase
Offer;
(5) the Company shall provide the Trustee with written notice of
the Repurchase Offer at least 5 Business Days before the commencement of any
Repurchase Offer (or such shorter period that is satisfactory to the Trustee);
and
46
<PAGE>
(6) on or before the commencement of any Repurchase Offer, the
Company or the Trustee (upon the request and at the expense of the Company)
shall send, by first-class mail, a notice to each of the Securityholders, which
(to the extent consistent with this Indenture) shall govern the terms of the
Repurchase Offer and shall state:
(i) that the Repurchase Offer is being made pursuant to such notice
and this Section 11.1 and that all Securities, or portions thereof,
tendered will be accepted for payment;
(ii) the Repurchase Price (including the amount of accrued and
unpaid interest, if any), the Repurchase Date and the Repurchase Put Date;
(iii) that any Security, or portion thereof, not tendered and
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in depositing Cash with the
Paying Agent in accordance with the last paragraph of this clause (b) or
such payment is prevented pursuant to Article XII, any Security, or portion
thereof, accepted for payment pursuant to the Repurchase Offer shall cease
to accrue interest after the Repurchase Date;
(v) that Holders electing to have a Security, or portion thereof,
purchased pursuant to a Repurchase Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent (which may not
for purposes of this Section 11.1, notwithstanding anything in this
Indenture to the contrary, be the Company or any Affiliate of the Company)
at the address specified in the notice prior to the close of business on
the earlier of (a) the third Business Day prior to the Repurchase Date and
(b) the third Business Day following the expiration of the Repurchase Offer
(such earlier date being the "Repurchase Put Date");
(vi) that Holders will be entitled to withdraw their election, in
whole or in part, if the Paying Agent (which may not for purposes of this
Section 11.1, notwithstanding anything in this Indenture to the contrary,
be the Company or any Affiliate of the Company) receives, up to the close
of business on the Repurchase Put Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Securities the Holder is withdrawing and a statement that
such Holder is withdrawing his election to have such principal amount of
Securities purchased; and
(vii) a brief description of the events resulting in such Change of
Control.
Any such Repurchase Offer shall comply with all applicable provisions of
federal and state laws, including those regulating tender offers, if applicable,
and any provisions of this Indenture which conflict with such laws shall be
deemed to be superseded by the provisions of such laws.
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On or before the Repurchase Date, the Company shall (i) accept for payment
Securities or portions thereof properly tendered pursuant to the Repurchase
Offer on or before the Repurchase Put Date, (ii) deposit with the Paying Agent
Cash sufficient to pay the Repurchase Price (together with accrued and unpaid
interest) of all Securities or portions thereof so tendered and (iii) deliver to
the Trustee Securities so accepted together with an Officers' Certificate
listing the Securities or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to Holders of Securities so accepted payment in
an amount equal to the Repurchase Price (together with accrued and unpaid
interest), and the Trustee shall promptly authenticate and mail or deliver to
such Holders a new Security or Securities equal in principal amount to any
unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Repurchase Offer
on or as soon as practicable after the Repurchase Date.
SECTION 11.2. Rescission of Change of Control Determination.
----------------------------------------------
At any time prior to the close of business on the Business Day immediately
preceding the Repurchase Date, the Holders of more than 66-2/3% in aggregate
principal amount of the then outstanding Securities, by written act of said
Holders delivered to the Company and the Trustee, may determine that the event
giving rise to the Change of Control shall not be treated as a Change of Control
for purposes of Section 11.1, in which event:
(1) the provisions of Section 11.1(a) shall not apply;
(2) if a Repurchase Offer has been made by the Company pursuant to Section
11.1(b), such Repurchase Offer shall be deemed revoked; and
(3) if any Securities have been tendered in response to the revoked
Repurchase Offer, such tenders shall be deemed rescinded and the Securities
promptly returned to the Holders thereof.
Following a determination by the Holders pursuant to this Section 11.2, the
Company shall mail to all Holders a notice briefly describing such
determination. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such determination. An effective determination under this Section 11.2 shall be
binding on all holders.
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ARTICLE XII
SUBORDINATION
SECTION 12.1. Securities Subordinated to Senior Indebtedness.
-----------------------------------------------
The Company and each Holder, by its acceptance of Securities, agree
that (a) the payment of the principal of and interest on the Securities and (b)
any other payment in respect of the Securities, including on account of the
acquisition or redemption of the Securities by the Company and any premium
(including, without limitation, pursuant to Article XI but specifically
excluding payments to the Trustee for its own benefit), is subordinated, to the
extent and in the manner provided in this Article XII, to the prior payment in
full of all Senior Indebtedness of the Company, whether outstanding at the date
of this Indenture or thereafter created, incurred, assumed or guaranteed, and
that these subordination provisions are for the benefit of the holders of Senior
Indebtedness.
This Article XII shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 12.2. No Payment on Securities in Certain Circumstances.
--------------------------------------------------
(a) No payment may be made by the Company on account of the principal
of, premium, if any, or interest on, the Securities, or to acquire any of the
Securities (including repurchases of Securities at the option of the Holder
pursuant to a Repurchase Offer) for cash or property (other than Junior
Securities), or on account of the redemption provisions of the Securities, (i)
upon the maturity of any Senior Indebtedness by lapse of time, acceleration
(unless waived) or otherwise, unless and until all principal of, premium, if
any, and interest on such Senior Indebtedness are first paid in full (or the
prompt payment thereof is duly provided for in cash), or (ii) in the event of
default in the payment of any principal of, premium, if any, or interest on any
Senior Indebtedness when it becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise (collectively, a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
(b) Upon (i) the happening of an event of default (other than a
Payment Default) that permits, or would permit, with (w) the passage of time,
(x) the giving of notice, (y) the making of any payment of the Securities then
required to be made, or (z) any combination thereof (collectively, a "Non-
Payment Default"), the holders of Senior Indebtedness having a principal amount
then outstanding in excess of $__________ (or with respect to which Senior
Indebtedness the holders are obligated to lend the Company in excess of
$___________ principal amount) or their representative immediately to accelerate
its maturity and (ii) written notice of such Non-Payment Default given to the
Company and the Trustee by the holders of an aggregate of at least
$______________ principal amount outstanding of such Senior Indebtedness (or
holders of commitments to lend an aggregate of at
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least $_______________ principal amount of Senior Indebtedness) or their
representative (a "Payment Notice"), then, unless and until such Non-Payment
Default has been cured or waived or otherwise has ceased to exist, no payment
(by set-off or otherwise) may be made by or on behalf of the Company on account
of the principal of, premium, if any, or interest on the Securities, or to
acquire or repurchase any of the Securities for cash or property, or on account
of the redemption provisions of the Securities, in any such case other than
payments made with Junior Securities. Notwithstanding the foregoing, unless (i)
the Senior Indebtedness in respect of which such Non-Payment Default exists has
been declared due and payable in its entirety within 179 days after the Payment
Notice is delivered as set forth above (the "Payment Blockage Period"), and (ii)
such declaration has not been rescinded or waived, at the end of the Payment
Blockage Period, the Company shall be required to pay all sums not paid to the
Holders of the Securities during the Payment Blockage Period due to the
foregoing prohibitions and to resume all other payments as and when due on the
Securities. Not more than one Payment Notice may be given in any consecutive
365-day period, irrespective of the number of defaults with respect to Senior
Indebtedness during such period. In no event, however, may the total number of
days during which any Payment Blockage Period is or Payment Blockage Periods are
in effect exceed 179 days in the aggregate during any consecutive 365-day
period.
(c) In furtherance of the provisions of Section 12.1, in the event
that, notwithstanding the foregoing provisions of this Section 12.2, any payment
or distribution of assets of the Company (other than Junior Securities) shall be
received by the Trustee for the benefit of the Holders or the Holders or any
Paying Agent for the benefit of the Holders at a time when such payment or
distribution is prohibited by the provisions of this Section 12.2, then such
payment or distribution (subject to the provisions of Article VII and Sections
12.6, 12.7 and 12.12) shall be received and held in trust by the Trustee or such
Holder or Paying Agent for the benefit of the holders of Senior Indebtedness of
the Company, and shall be paid or delivered by the Trustee or such Holders or
such Paying Agent, as the case may be, to the holders of Senior Indebtedness of
the Company remaining unpaid or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any of such Senior Indebtedness of the Company may have been issued,
ratably according to the aggregate amounts remaining unpaid on account of the
Senior Indebtedness of the Company held or represented by each, for application
to the payment of all Senior Indebtedness of the Company in full after giving
effect to any concurrent payment and distribution to the holders of such Senior
Indebtedness.
SECTION 12.3. Securities Subordinated to Prior Payment of All Senior
------------------------------------------------------
Indebtedness on Dissolution, Liquidation or Reorganization.
-----------------------------------------------------------
Upon any distribution of assets of the Company upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or a
similar proceeding or upon assignment for the benefit of creditors or any
marshaling of assets or liabilities:
(a) the holders of all Senior Indebtedness of the Company shall first
be entitled to receive payments in full (or have the prompt payment thereof duly
provided for in
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cash) before the Holders are entitled to receive any payment on account of the
principal of, premium, if any, and interest on the Securities (other than Junior
Securities);
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (other than Junior
Securities) to which the Holders or the Trustee on behalf of the Holders would
be entitled (by setoff or otherwise), except for the provisions of this Article
XII, shall be paid by the liquidating trustee or agent or other Person making
such a payment or distribution directly to the holders of Senior Indebtedness or
their representative to the extent necessary to make payment in full of all such
Senior Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution to the holders of such Senior Indebtedness (but this
Section 12.3(b) shall not apply to payments or distributions to the Trustee for
its own benefit); and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than Junior Securities), shall be received by the
Trustee for the benefit of the Holders or the Holders or any Paying Agent for
the benefit of the Holders (or, if the Company or any Affiliate of the Company
is acting as its own Paying Agent, money for any such payment or distribution
shall be segregated or held in trust) on account of the principal of, premium,
if any, or interest on the Securities before all Senior Indebtedness is paid in
full, such payment or distribution (subject to the provisions of Article VII and
Sections 12.6, 12.7 and 12.12) shall be received and held in trust by the
Trustee or such Holder or Paying Agent for the benefit of the holders of such
Senior Indebtedness, or their respective representative, ratably according to
the respective amounts of such Senior Indebtedness held or represented by each,
to the extent necessary to make payment as provided herein of all such Senior
Indebtedness remaining unpaid after giving effect to all concurrent payments and
distributions to or for the holders of such Senior Indebtedness, but only to the
extent that as to any holder of such Senior Indebtedness, as promptly as
practical following notice from the Trustee to the holders of such Senior
Indebtedness that such prohibited payment has been received by the Trustee,
Holder(s) or Paying Agent (or has been segregated as provided above), such
holder (or a representative therefor) notifies the Trustee of the amounts then
due and owing on such Senior Indebtedness, if any, held by such holder and only
the amounts specified in such notices to the Trustee shall be paid to the
holders of such Senior Indebtedness.
SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders of Senior
---------------------------------------------------------------
Indebtedness.
-------------
Subject to the payment in full of all Senior Indebtedness of the Company as
provided herein, the Holders of Securities shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments or distributions of
assets of the Company applicable to the Senior Indebtedness until all amounts
owing on the Securities shall be paid in full, and for the purpose of such
subrogation no such payments or distributions to the holders of such Senior
Indebtedness by the Company, or by or on behalf of the Holders by virtue of this
Article XII, which otherwise would have been made to the Holders shall, as
between the Company and the Holders, be deemed to be payment by the Company or
on account of such Senior Indebtedness, it being understood that the provisions
of this Article XII are and are intended
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solely for the purpose of defining the relative rights of the Holders, on the
one hand, and the holders of such Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article XII shall have been
applied, pursuant to the provisions of this Article XII, to the payment of
amounts payable under Senior Indebtedness of the Company, then the Holders shall
be entitled to receive from the holders of such Senior Indebtedness any payments
or distributions received by such holders of Senior Indebtedness in excess of
the amount sufficient to pay all amounts payable under or in respect of such
Senior Indebtedness in full.
SECTION 12.5. Obligations of the Company Unconditional.
-----------------------------------------
Nothing contained in this Article XII or elsewhere in this Indenture or in
the Securities is intended to or shall impair as between the Company and the
Holders, the obligation of each such Person, which is absolute and
unconditional, to pay to the Holders the principal of, premium, if any, and
interest on, the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or
any Holder from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XII, of the holders of Senior Indebtedness in respect of cash, property
or securities of the Company received upon the exercise of any such remedy.
Notwithstanding anything to the contrary in this Article XII or elsewhere in
this Indenture or in the Securities, upon any distribution of assets of the
Company referred to in this Article XII, the Trustee, subject to the provisions
of Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding up, liquidation or reorganization proceedings are pending,
or a certificate of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article XII so long as such court has been
apprised of the provisions of, or the order, decree or certificate makes
reference to, the provisions of this Article XII. Nothing in this Section 12.5
shall apply to the claims of, or payments to, the Trustee under or pursuant to
Section 7.7 or otherwise for its own benefit.
SECTION 12.6. Trustee and Other Agents Entitled to Assume Payments Not
--------------------------------------------------------
Prohibited in Absence of Notice.
--------------------------------
The Trustee and all other Agents shall not at any time be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment to or by the Trustee unless and until a Trust Officer of the Trustee or
any Paying Agent shall have actually received, no later than one Business Day
prior to such payment, written notice thereof in compliance with Section 14.2
from the Company or from one or more holders of Senior Indebtedness or from any
representative therefor and, prior to the receipt of any such written
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<PAGE>
notice, the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be
entitled in all respects conclusively to assume that no such fact exists.
SECTION 12.7. Application by Trustee of Assets Deposited with It.
---------------------------------------------------
Amounts deposited in trust with the Trustee pursuant to and in accordance
with this Indenture shall be, subject to Section 7.7, for the sole benefit of
Securityholders and, to the extent allocated for the payment of Securities,
shall not be subject to the subordination provisions of this Article XII.
Otherwise, any deposit of assets with the Trustee or any other Agent (whether or
not in trust) for the payment of principal of or interest on any Securities
shall be subject to the provisions of Sections 12.1, 12.2, 12.3 and 12.4;
provided that, if prior to one Business Day preceding the date on which by the
terms of this Indenture any such assets may become distributable for any purpose
(including, without limitation, the payment of either principal of or interest
on any Security) the Trustee or such Paying Agent shall not have received with
respect to such assets the written notice provided for in Section 12.6, then the
Trustee or such Paying Agent shall have full power and authority to receive such
assets and to apply the same to the purpose for which they were received,
without liability, and shall not be affected by any notice to the contrary which
may be received by it on or after such date.
SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions of the
-------------------------------------------------------------
Company or Holders of Senior Indebtedness.
------------------------------------------
No right of any present or future holders of any Senior Indebtedness to
enforce subordination provisions contained in this Article XII shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with the
Company, all without affecting the liabilities and obligations of the parties to
this Indenture or the Holders.
SECTION 12.9. Securityholders Authorize Trustee to Effectuate Subordination of
----------------------------------------------------------------
Securities.
-----------
Each Holder of the Securities by his acceptance thereof authorizes the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provisions contained in this Article XII and to
protect the rights of the Holders pursuant to this Indenture, and appoints the
Trustee his attorney-in-fact for such purpose, including, in the event of any
dissolution, winding up, liquidation or reorganization of the Company (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors of the Company), the immediate filing of a claim for
the unpaid balance of his Securities in the form required in said proceedings
and cause said claim to be approved. If the Trustee does not file a proper claim
or proof of debt in the form required in such proceeding prior to 30 days before
the expiration of the time to file such claim or claims, then the holders of the
Senior Indebtedness or their representative are or is hereby authorized to have
the right
53
<PAGE>
to file and are or is hereby authorized to file an appropriate claim for and on
behalf of the Holders of said Securities. Nothing herein contained shall be
deemed to authorize the Trustee or the holders of Senior Indebtedness or their
representative to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Senior Indebtedness or their
representative to vote in respect of the claim of any Securityholder in any such
proceeding.
SECTION 12.10. Right of Trustee to Hold Senior Indebtedness.
---------------------------------------------
The Trustee shall be entitled to all of the rights set forth in this
Article XII in respect of any Senior Indebtedness at any time held by it to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 12.11. Article XII Not to Prevent Events of Default.
---------------------------------------------
The failure to make a payment on account of principal of, premium, if any,
or interest on the Securities by reason of any provision of this Article XII
shall not be construed as preventing the occurrence of a Default or an Event of
Default under Section 6.1 or in any way prevent the Holders from exercising any
right hereunder other than the right to receive payment on the Securities.
SECTION 12.12. No Duty of Trustee and Other Agents to Holders of Senior
--------------------------------------------------------
Indebtedness.
-------------
The Trustee and the other Agents shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness, and shall not be liable to any such
holders (other than for its willful misconduct or negligence) if it shall in
good faith mistakenly pay over or distribute to the Holders of Securities or the
Company or any other Person, cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article XII or
otherwise. Nothing in this Section 12.12 shall affect the obligation of any
other such Person receiving such payment or distribution from the Trustee or any
other Agent to hold such payment for the benefit of, and to pay such payment
over to, the holders of Senior Indebtedness or their representative.
ARTICLE XIII
CONVERSION OF SECURITIES
SECTION 13.1. Conversion Privilege.
---------------------
Subject to and upon compliance with the provisions of this Article XIII, at
the option of the Holder thereof, any Security may at any time, be converted, in
whole, or in part in multiples of $1,000 principal amount, into fully paid and
non-assessable shares of Common Stock issuable upon conversion of the
Securities, at the conversion price in effect at the Date
54
<PAGE>
of Conversion, until and including, but not after the close of business on the
Stated Maturity, unless such Security or some portion thereof shall have been
called for redemption or delivered for repurchase prior to such date and no
default is made in making due provision for the payment of the Redemption Price
in accordance with the terms of this Indenture, in which case, with respect to
such Security or portion thereof as has been so called for redemption or
delivered for repurchase, such Security or portion thereof may be so converted
until and including, but not after, the close of business on the Business Day
immediately prior to the Redemption Date or Repurchase Date, as applicable, for
such Security, unless the Company subsequently fails to pay the applicable
Redemption Price or Repurchase Price, as the case may be.
SECTION 13.2. Exercise of Conversion Privilege.
---------------------------------
In order to exercise the conversion privilege, the Holder of any Security
to be converted shall surrender such Security to the Company at any time during
usual business hours at its office or agency maintained for the purpose as
provided in this Indenture, accompanied by a fully executed written notice, in
substantially the form set forth on the reverse of the Security, that the Holder
elects to convert such Security or a stated portion thereof constituting a
multiple of $1,000 principal amount, and, if such Security is surrendered for
conversion during the period between the close of business on any Record Date
and the opening of business on the next following Interest Payment Date and has
not been called for redemption on a Redemption Date which occurs within such
period, accompanied (except in the case of the Interest Payment Date occurring
on __________________________) also by payment of an amount equal to the
interest payable on such Interest Payment Date on the principal amount of the
Security being surrendered for conversion, notwithstanding such conversion.
Such notice of conversion shall also state the name or names (with address) in
which the certificate or certificates for shares of Common Stock shall be
issued. Securities surrendered for conversion shall (if reasonably required by
the Company or the Trustee) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company duly
executed by, the Holder or his attorney duly authorized in writing. As promptly
as practicable after the receipt of such notice and the surrender of such
Security as aforesaid, the Company shall, subject to the provisions of Section
13.8 hereof, issue and deliver at such office or agency to such Holder, or on
his written order, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion of Securities in accordance with the
provisions of this Article XIII and Cash, as provided in Section 13.3 hereof, in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date (herein called the "Date of
Conversion") on which such Security shall have been surrendered as aforesaid,
and the person or persons in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become on the Date of Conversion the holder or holders of record
of the shares represented thereby; provided, however, that any such surrender on
any date when the stock transfer books of the Company shall be closed shall
cause the person or persons in whose name or names the certificate or
certificates for such shares are to be issued to be deemed to have become the
record holder or holders thereof for all purposes at the opening of business on
the next succeeding day on which such stock
55
<PAGE>
transfer books are open but such conversion shall nevertheless be at the
conversion price in effect at the close of business on the date when such
Security shall have been so surrendered with the conversion notice. In the case
of conversion of a portion, but less than all, of a Security, the Company shall
as promptly as practicable execute, and the Trustee shall thereafter
authenticate and deliver to the Holder thereof, at the expense of the Company, a
Security or Securities in the aggregate principal amount of the unconverted
portion of the Security surrendered. Except as otherwise expressly provided in
this Indenture, no payment or adjustment shall be made for interest accrued on
any Security (or portion thereof) converted or for dividends or distributions on
any Common Stock issued upon conversion of any Security.
SECTION 13.3. Fractional Interests.
---------------------
No fractions of shares or scrip representing fractions of shares shall be
issued upon conversion of Securities. If more than one Security shall be
surrendered for conversion at one time by the same holder, the number of full
shares which shall be issuable upon conversion thereof shall be computed on the
basis of the aggregate principal amount of the Securities so surrendered. If
any fraction of a share of Common Stock would, except for the foregoing
provisions of this Section 13.3, be issuable on the conversion of any Security
or Securities, the Company shall make payment in lieu thereof in an amount of
Cash equal to the value of such fraction computed on the basis of the last sale
price of the Common Stock as reported on the Nasdaq National Market (or if not
listed for trading thereon, then on the principal national securities exchange
or on the principal automated quotation system on which the Common Stock is
listed or admitted to trading) at the close of business on the Date of
Conversion or if no such sale takes place on such day, the last sale price for
such day shall be the average of the closing bid and asked prices regular way on
the Nasdaq National Market (or if not listed for trading thereon, on the
principal national securities exchange or on the principal automated quotation
system on which the Common Stock is listed or admitted to trading) for such day
(any such last sale price being hereinafter referred to as the "Last Sale
Price"). If on such Trading Day the Common Stock is not quoted by any such
organization, the fair value of such Common Stock on such day, as reasonably
determined in good faith by the Board of Directors of the Company, shall be
used.
SECTION 13.4. Conversion Price.
-----------------
The conversion price per share of Common Stock issuable upon conversion of
the Securities (as such price may be adjusted, herein called the "Conversion
Price") shall initially be $______ (which reflects a conversion rate of ________
shares of Common Stock per $1,000 in principal amount of Securities).
SECTION 13.5. Adjustment of Conversion Price.
-------------------------------
The Conversion Price shall be subject to adjustment from time to time as
follows:
(a) In case the Company shall make or pay a dividend or make a
distribution in shares of Common Stock on any class of Capital Stock of the
Company, the Conversion Price in effect immediately following the record date
fixed for the determination of
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<PAGE>
stockholders entitled to receive such dividend or other distribution shall be
reduced by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on such date and the denominator shall be the sum of such number of
shares and the total number of shares constituting such dividend or other
distribution. An adjustment made pursuant to this subsection (a) shall become
effective immediately, except as provided in subsections (i) and (j) below,
after such record date.
(b) In case the Company shall (1) subdivide its outstanding shares of
Common Stock into a greater number of shares or (2) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately following the effectiveness of such
action shall be adjusted by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
immediately prior to such subdivision or combination and the denominator shall
be the number of shares outstanding immediately after giving effect to such
subdivision or combination. An adjustment made pursuant to this subsection (b)
shall become effective immediately, except as provided in subsections (i) and
(j) below, after the effective date of a subdivision or combination.
(c) In case the Company shall issue rights, options or warrants to all
or substantially all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the then current
market price per share of the Common Stock (as determined pursuant to subsection
(g) below) on the record date fixed for determination of the stockholders
entitled to receive such rights, option or warrants, the Conversion Price in
effect immediately following such record date shall be adjusted to a price,
computed to the nearest cent, so that the same shall equal the price determined
by multiplying:
(i) such Conversion Price by a fraction, of which
(ii) the numerator shall be (A) the number of shares of Common Stock
outstanding on such record date plus (B) the number of shares which the
aggregate offering price of the total number of shares so offered for
subscription or purchase would purchase at such current market price
(determined by multiplying such total number of shares by the exercise
price of such rights, options or warrants and dividing the product so
obtained by such current market price), and of which
(iii) the denominator shall be (A) the number of shares of Common
Stock outstanding on such record date plus (B) the number of additional
shares of Common Stock which are so offered for subscription or purchase.
Such adjustment shall become effective immediately, except as provided in
subsection (i) and (j) below, after the record date for the determination of
holders entitled to receive such rights, options or warrants; provided, however,
that if any such rights, options or warrants issued by the Company as described
in this subsection (c) are only exercisable upon the occurrence of certain
triggering events, then the Conversion Price will not be adjusted as provided in
this subsection (c) until such triggering events occur. Upon the expiration or
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termination of any rights, options or warrants without the exercise of such
rights, options or warrants, the Conversion Price then in effect shall be
adjusted immediately to the Conversion Price which would have been in effect at
the time of such expiration or termination had such rights, options or warrants,
to the extent outstanding immediately prior to such expiration or termination,
never been issued.
(d) In case the Company or any Subsidiary of the Company shall
distribute to all or substantially all holders of Common Stock, any of its
assets, evidences of indebtedness, cash or securities (other than (x) dividends
or distributions exclusively in cash, (y) any dividend or distribution for which
an adjustment is required to be made in accordance with subsection (a) or (c)
above and in mergers and consolidations to which Section 13.6 applies, or (z)
any distribution of rights or warrants subject to subsection (l) below) then in
each such case the Conversion Price in effect immediately following the record
date fixed for the determination of the stockholders entitled to such
distribution shall be adjusted so that the same shall equal the price determined
by multiplying such Conversion Price by a fraction of which the numerator shall
be the then current market price per share of the Common Stock (determined as
provided in subsection (g) below) on such record date less the then fair market
value (as reasonably determined in good faith by the Board of Directors of the
Company) of the portion of the assets so distributed applicable to one share of
Common Stock, and of which the denominator shall be such current market price
per share of the Common Stock. Such adjustment shall become effective
immediately, except as provided in subsection (i) and (j) below, after the
record date for the determination of stockholders entitled to receive such
distribution.
(e) In case the Company or any Subsidiary of the Company shall make
any distribution consisting exclusively of cash (excluding any cash portion of
distributions for which an adjustment is required to be made in accordance with
subsection (d) above, or cash distributed upon a merger or consolidation to
which Section 13.6 applies) to all or substantially all holders of Common Stock
in an aggregate amount that, combined together with (i) all other such all-cash
distributions made within the then preceding 12 months in respect of which no
adjustment pursuant to this subsection (e) has been made and (ii) any cash and
the fair market value of other consideration paid or payable in respect of any
tender or exchange offer by the Company or any of its Subsidiaries for Common
Stock concluded within the preceding 12 months in respect of which no adjustment
has been made, exceeds ___% of the Company's market capitalization (defined as
being the product of the then current market price of the Common Stock
(determined as provided in subsection (g) below) times the number of shares of
Common Stock then outstanding) on the record date fixed for the determination of
the stockholders entitled to such distribution, in each such case the Conversion
Price immediately following such record date shall be adjusted so that the same
shall equal the price determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the then current market price per share
of the Common Stock on such record date less the amount of the cash and/or fair
market value (as reasonably determined in good faith by the Board of Directors
of the Company) of other consideration so distributed applicable to one share of
Common Stock, and of which the denominator shall be such current market price
per share of the Common Stock. Such adjustment shall become effective
immediately, except as provided
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in subsection (i) and (j) below, after the record date for the determination of
stockholders entitled to receive such distribution.
(f) In case the Company or any Subsidiary of the Company shall
complete a tender or exchange offer for all or any portion of the Common Stock
(any such tender or exchange offer being referred to as an "Offer") that
involves an aggregate consideration having a fair market value as of the
expiration of such Offer (the "Expiration Time") that, together with (i) any
cash and the fair market value of any other consideration payable in respect of
any other tender or exchange offer, as of the expiration of such other tender or
exchange offer, expiring within the 12 months preceding the expiration of such
Offer and in respect of which no Conversion Price adjustment pursuant to this
subsection (f) has been made and (ii) the aggregate amount of any all-cash
distributions referred to in subsection (e) of this Section 13.5 to all holders
of Common Stock within the 12 months preceding the expiration of such Offer for
which no conversion price adjustment pursuant to such subsection (e) has been
made, exceeds ___% of the product of the then current market price per share
(determined as provided in subsection (g) below) of the Common Stock on the
Expiration Time times the number of shares of Common Stock outstanding
(including any tendered shares) on the Expiration Time, the Conversion Price in
effect immediately following such Expiration Time shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator shall be
(i) the product of the then current market price per share (determined as
provided in subsection (g) below) of the Common Stock on the Expiration Time
times the number of shares of Common Stock outstanding (including any tendered
shares) on the Expiration Time minus (ii) the fair market value of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the Offer) of all shares validly tendered and not
withdrawn as of the Expiration Time (the shares deemed so accepted being
referred to as the "Purchased Shares") and the denominator shall be the product
of (i) such current market price per share on the Expiration Time times (ii)
such number of outstanding shares on the Expiration Time less the number of
Purchased Shares, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
For purposes of this subsection (f), the fair market value of any
consideration with respect to an Offer shall be reasonably determined in good
faith by the Board of Directors of the Company and described in a Board
Resolution.
(g) For the purpose of any computation under subsections (c), (d),
(e) and (f) above, the current market price per share of Common Stock on any
date shall be deemed to be the average of the Last Sale Prices of a share of
Common Stock for the five consecutive Trading Days selected by the Company
commencing not more than 20 Trading Days before, and ending not later than, the
earlier of the date in question and the date before the "'ex' date," with
respect to the issuance, distribution or Offer requiring such computation. If on
any such Trading Day the Common Stock is not quoted by any organization referred
to in the definition of Last Sale Price in Section 13.3 hereof, the fair value
of the Common Stock on such day, as reasonably determined in good faith by the
Board of Directors of the Company, shall be used. For purposes of this
paragraph, the term "'ex' date," when used with respect to any issuance,
distribution or payments with respect to an Offer, means the first date on which
the Common
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Stock trades regular way on the Nasdaq National Market (or if not listed or
admitted to trading thereon, then on the principal national securities exchange
or on the principal automated quotation system on which the Common Stock is
listed or admitted to trading) without the right to receive such issuance,
distribution or Offer.
(h) In addition to the foregoing adjustments in subsections (a), (b),
(c), (d), (e) and (f) above, the Company, from time to time and to the extent
permitted by law, may reduce the Conversion Price by any amount for at least 20
Business Days, if the Board of Directors has made a determination, which
determination shall be conclusive, that such reduction would be in the best
interests of the Company. The Company shall cause notice of such reduction to
be mailed to each Holder of Securities, in the manner specified in Section 13.7,
at least 15 days prior to the date on which such reduction commences. The
Company may, at its option, also make such reductions in the Conversion Price in
addition to those set forth above, as the Board of Directors deems advisable to
avoid or diminish any income tax to holders of shares of Common Stock resulting
from any dividend or distribution of stock (or rights to acquire stock) or from
any event treated as such for United States federal income tax purposes.
(i) In any case in which this Section 13.5 shall require that an
adjustment be made immediately following a record date, the Company may elect to
defer the effectiveness of such adjustment (but in no event until a date later
than the effective time of the event giving rise to such adjustment), in which
case the Company shall, with respect to any Security converted after such record
date and on and before such adjustment shall have become effective (i) defer
paying any Cash payment pursuant to Section 13.3 hereof or issuing to the Holder
of such Security the number of shares of Common Stock and other capital stock of
the Company (or other assets or securities) issuable upon such conversion in
excess of the number of shares of Common Stock and other Capital Stock of the
Company issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (ii) not later than five Business Days after such adjustment
shall have become effective, pay to such Holder the appropriate Cash payment
pursuant to Section 13.3 hereof and issue to such Holder the additional shares
of Common Stock and other Capital Stock of the Company issuable on such
conversion.
(j) No adjustment in the Conversion Price shall be required unless
such adjustment would require an increase or decrease of at least 1.0% of the
Conversion Price; provided, that any adjustments which by reason of this
subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article
XIII shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(k) Whenever the Conversion Price is adjusted as herein provided, the
Company shall promptly (i) file with the Trustee and each conversion agent an
Officers' Certificate setting forth the Conversion Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment,
which certificate shall be conclusive evidence of the correctness of such
adjustment, and (ii) mail or cause to be mailed a notice of such adjustment to
each holder of Securities at his address as the same appears on the registry
books of the Company.
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(l) In the event that the Company distributes rights or warrants
(other than those referred to in subsection (c) above) pro rata to holders of
Common Stock, so long as any such rights or warrants have not expired or been
redeemed by the Company, the Company shall make proper provision so that the
Holder of any Note surrendered for conversion will be entitled to receive upon
such conversion, in addition to the shares of Common Stock issuable upon such
conversion (the "Conversion Shares"), a number of rights or warrants to be
determined as follows: (i) if such conversion occurs on or prior to the date for
the distribution to the holders of rights or warrants of separate certificates
evidencing such rights or warrants (the "Distribution Date"), the same number of
rights or warrants to which a holder of a number of shares of Common Stock equal
to the number of Conversion Shares is entitled at the time of such conversion in
accordance with the terms and provisions of and applicable to the rights or
warrants, and (ii) if such conversion occurs after such Distribution Date, the
same number of rights or warrants to which a holder of the number of shares of
Common Stock into which the principal amount of such Note so converted was
convertible immediately prior to such Distribution Date would have been entitled
on such Distribution Date in accordance with the terms and provisions of and
applicable to the rights or warrants.
SECTION 13.6. Continuation of Conversion Privilege in Case of Reclassification,
Change, Merger, Consolidation or Sale of Assets.
If any of the following shall occur, namely: (a) any reclassification or
change of outstanding shares of Common Stock issuable upon conversion of the
Securities (other than a change in par value, or from par value to no par value,
or from no par value, to par value, or as a result of a subdivision or
combination), (b) any consolidation or merger of the Company with or into any
other Person, or the merger of any other Person with or into the Company (other
than a merger which does not result in any reclassification, change, conversion,
exchange or cancellation of outstanding shares of Common Stock) or (c) any sale,
transfer or conveyance of all or substantially all of the assets of the Company
(computed on a consolidated basis), then the Company, or such successor or
purchasing entity, as the case may be, shall, as a condition precedent to such
reclassification, change, consolidation, merger, sale or conveyance, execute and
deliver to the Trustee a supplemental indenture providing that the Holder of
each Security then outstanding shall have the right to convert such Security
only into the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, change,
consolidation, merger, sale, transfer or conveyance by a holder of the number of
shares of Common Stock issuable upon conversion of such Security immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance assuming such holder of Common Stock of the Company failed to
exercise his rights of an election, if any, as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
change, consolidation, merger, sale, transfer or conveyance (provided that if
the kind or amount of securities, cash, and other property receivable upon such
reclassification, change, consolidation, merger, sale, transfer or conveyance is
not the same for each share of Common Stock of the Company held immediately
prior to such reclassification, change, consolidation, merger, sale, transfer or
conveyance in respect of which such rights of election shall not have been
exercised ("non-electing share"), then for the purpose of this Section 13.6 the
kind and amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger,
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sale, transfer or conveyance by each non-electing share shall be deemed to be
the kind and amount so receivable per share by a plurality of the non-electing
shares). Such supplemental indenture shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
this Article III. If, in the case of any such consolidation, merger, sale or
conveyance, the stock or other securities and property (including cash)
receivable thereupon by a holder of shares of Common Stock includes shares of
stock or other securities and property (including cash) of a corporation other
than the successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or conveyance, then such supplemental indenture
shall also be executed by such other corporation and shall contain such
additional provisions to protect the interests of the Holders of the Securities
as the Board of Directors of the Company shall reasonably consider necessary by
reason of the foregoing. The provisions of this Section 13.6 shall similarly
apply to successive consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture shall be mailed
to each Holder of Securities at his address as the same appears on the registry
books of the Company.
Neither the Trustee nor any conversion agent shall be under any
responsibility to determine the correctness of any provisions contained in any
such supplemental indenture relating either to the kind or amount of shares of
stock or securities or property (including cash) receivable by Holders of
Securities upon the conversion of their Securities after any such
reclassification, change, consolidation, merger, sale or conveyance or to any
adjustment to be made with respect thereto, but, subject to the provisions of
Article VIII hereof, may accept as conclusive evidence of the correctness of any
such provisions, and shall be protected in relying upon, the Officers'
Certificate (which the Company shall be obligated to file with the Trustee prior
to the execution of any such supplemental indenture) with respect thereto.
SECTION 13.7. Notice of Certain Events.
In case:
(a) the Company shall declare a dividend (or any other distribution)
payable to the holders of Common Stock (other than cash dividends);
(b) the Company shall authorize the granting to the holders of Common
Stock of rights, warrants or options to subscribe for or purchase any shares of
stock of any class or of any other rights;
(c) the Company shall authorize any reclassification or change of the
Common Stock (including a subdivision or combination of its outstanding shares
of Common Stock), or any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or the
sale or conveyance of all or substantially all the property or business of the
Company;
(d) there shall be proposed any voluntary or involuntary dissolution,
liquidation or winding-up of the Company; or
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(e) the Company or any of its Subsidiaries shall complete an Offer;
then, the Company shall cause to be filed at the office or agency maintained for
the purpose of conversion of the Securities as provided in Section 13.2 hereof,
and shall cause to be mailed to each Holder of Securities, at his address as it
shall appear on the registry books of the Company, at least 20 days before the
date hereinafter specified (or the earlier of the dates hereinafter specified,
in the event that more than one date is specified), a notice stating the date on
which (1) a record is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options or Offer, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights, warrants or options or to participate in
such Offer are to be determined, or (2) such reclassification, change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up
is expected to become effective and the date, if any is to be fixed, as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, change, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding-up.
SECTION 13.8. Taxes on Conversion.
The Company will pay any and all documentary, stamp or similar taxes
payable to the United States of America or any political subdivision or taxing
authority thereof or therein in respect of the issue or delivery of shares of
Common Stock on conversion of Securities pursuant thereto; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the Holder of the Securities to be converted
and no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid. The Company extends no protection with respect to any other taxes
imposed in connection with conversion of Securities.
SECTION 13.9. Company to Provide Stock.
The Company shall reserve, free from pre-emptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion, provided, that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Common Stock which
are held in the treasury of the Company.
If any shares of Common Stock to be reserved for the purpose of conversion
of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible use its best efforts to
secure such registration or approval, as the case may be, provided, however,
that nothing in this Section 13.9 shall be deemed to limit in any way the
obligations of the Company provided in this Article XIII.
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Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Common Stock, the
Company will take all corporate action which may, in the Opinion of Counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be issued
upon conversion of Securities will upon issue be fully paid and non-assessable
by the Company and free of preemptive rights.
SECTION 13.10. Disclaimer of Responsibility for Certain Matters.
Neither the Trustee nor any agent of the Trustee shall at any time be under
any duty or responsibility to any Holder of Securities to determine whether any
facts exist which may require any adjustment of the Conversion Price, or with
respect to the Officers' Certificate referred to in Section 13.5 hereof, or with
respect to the nature or extent of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. Neither the Trustee nor any agent
of the Trustee shall be accountable with respect to the validity or value (or
the kind or amount) of any shares of Common Stock, or of any securities or
property (including cash), which may at any time be issued or delivered upon the
conversion of any Security; and neither the Trustee nor any conversion agent
makes any representation with respect thereto. Neither the Trustee nor any
agent of the Trustee shall be responsible for any failure of the Company to
issue, register the transfer of or deliver any shares of Common Stock or stock
certificates or other securities or property (including cash) upon the surrender
of any Security for the purpose of conversion or, subject to Article VIII
hereof, to comply with any of the covenants of the Company contained in this
Article XIII.
SECTION 13.11. Return of Funds Deposited for Redemption of Converted Securities.
Any funds which at any time shall have been deposited by the Company or on
its behalf with the Trustee or any other Paying Agent for the purpose of paying
the principal of and interest on any of the Securities and which shall not be
required for such purposes because of the conversion of such Securities, as
provided in this Article XIII, shall after such conversion be repaid to the
Company by the Trustee or such other Paying Agent.
ARTICLE XIV
MISCELLANEOUS
SECTION 14.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with the
duties imposed by operation of the TIA, the imposed duties, whether or not this
Indenture has been qualified under the TIA, shall control.
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SECTION 14.2. Notices.
--------
Any notices or other communications to the Company or the Trustee required
or permitted hereunder shall be in writing, and shall be sufficiently given if
made by hand delivery, by telex, by telecopier or registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:
if to the Company:
May & Speh, Inc.
1501 Opus Place
Downers Grove, Illinois 60515
Attention: ________________
Telecopy: ________________
if to the Trustee:
________________________
________________________
________________________
Attention: ____________
Telecopy: ____________
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; when answered back, if telexed;
when receipt is acknowledged, if telecopied; and five Business Days after
mailing if sent by registered or certified mail, postage prepaid (except that a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed to
him by first class mail or other equivalent means at his address as it appears
on the registration books of the Registrar and shall be sufficiently given to
him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it except for notices and
communications to the Trustee which shall be effective only upon actual receipt
thereof.
SECTION 14.3. Communications by Holders with Other Holders.
---------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
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SECTION 14.4. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(1) An Officers' Certificate (in form and substance reasonably satisfactory
to the Trustee) stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel (in form and substance reasonably satisfactory to
the Trustee) stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.
SECTION 14.5. Statements Required in Certificate or Opinion.
----------------------------------------------
Each certificate or Opinion of Counsel with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 14.6. Rules by Trustee, Paying Agent, Registrar.
------------------------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 14.7. Legal Holidays.
---------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in New York, New York or Dallas, Texas are authorized or obligated
by law or executive order to close. If a payment date is a Legal Holiday at
such place, payment may be made at such place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
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SECTION 14.8. Governing Law.
--------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH
OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE SECURITIES, AND
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY
SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER
JURISDICTION.
SECTION 14.9. No Adverse Interpretation of Other Agreements.
----------------------------------------------
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
SECTION 14.10. No Recourse Against Others.
---------------------------
No direct or indirect partner, employee, stockholder, director or officer,
as such, past, present or future of the Company or any successor corporation,
shall have any personal liability in respect of the obligations of the Company
under the Securities or this Indenture by reason of his, her or its status as
such partner, stockholder, employee, director or officer. Each Securityholder
by accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 14.11. Successors.
-----------
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
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SECTION 14.12. Duplicate Originals.
--------------------
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 14.13. Severability.
-------------
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 14.14. Table of Contents, Headings, Etc.
---------------------------------
The Table of Contents, Cross-Reference Table and headings of the Articles
and the Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
SECTION 14.15. Qualification of Indenture.
---------------------------
The Company shall qualify this Indenture under the TIA and shall pay all
costs, fees and expenses (including attorneys' fees for the Company and the
Trustee) incurred in connection therewith, including, but not limited to, costs,
fees and expenses of qualification of the Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
MAY & SPEH, INC, a Delaware corporation
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
----------------------------, as Trustee
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
69
<PAGE>
EXHIBIT A
---------
[FORM OF SECURITY]
MAY & SPEH, INC.
% CONVERTIBLE SUBORDINATED NOTE
DUE 2003
No. __ CUSIP No. ______________
$_____________
May & Speh, Inc., a Delaware corporation (hereinafter called the "Company,"
which term includes any successors under the Indenture hereinafter referred to),
for value received, hereby promises to pay to __________________________________
_________________, or registered assigns, the principal sum of ___________
Dollars, on ________________, 2003.
Interest Payment Dates: ____________ and _____________; commencing ________
____, 1998.
Record Dates: ________________ and ________________.
Reference is made to the further provisions of this Security hereinafter
set forth, which will, for all purposes, have the same effect as if set forth at
this place.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be duly
executed under its corporate seal.
MAY & SPEH, INC., a Delaware corporation
[Seal]
By: _________________________________________
Name: ___________________________________
Title: __________________________________
Attest: ______________________
Assistant Secretary
A-2
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned Indenture.
_______________________________, as Trustee
By: ___________________________________________
Authorized Signatory
Dated: _______________________________
A-3
<PAGE>
MAY & SPEH, INC.
% Convertible Subordinated Note
due 2003
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by The
Depository Trust Company, a New York Corporation ("Depositary"), to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. Unless this
certificate is presented by an authorized representative of the Depository to
the Company or its agent for registration of transfer, exchange or payment, and
any certificate issued is registered in the name of Cede & Co. or in such other
name as is requested by an authorized representative of the Depositary (and any
payment is made to Cede & Co. or to such other entity as is requested by an
authorized representative of the Depositary), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein./1/
1. Interest.
--------
May & Speh, Inc., a Delaware corporation (hereinafter called the "Company,"
which term includes any successors under the Indenture hereinafter referred to),
promises to pay interest on the principal amount of this Security at the rate of
__% per annum. To the extent it is lawful, the Company promises to pay interest
on any interest payment due but unpaid on such principal amount at a rate of __%
per annum compounded semi-annually.
The Company will pay interest semi-annually in cash on ______________ and
_______________ of each year (each, an "Interest Payment Date"), commencing
_____________. 1998. Interest on the Securities will accrue from the most
recent date to which interest has been paid or, if no interest has been paid on
the Securities, from _________________, 1998. Interest will be computed on the
basis of a 360-day year consisting of twelve 30-day months.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date. Holders
must surrender Securities to a Paying Agent to collect principal payments. Any
such interest not so punctually paid, and defaulted interest relating thereto,
may be paid to the Persons who are registered Holders at the close of business
on a Special Record Date for the payment of such defaulted interest, as more
fully provided in the Indenture referred to below. Except as provided below,
the Company
- ------------------
/1/ This paragraph should only be added if the Security is issued in global
form.
A-4
<PAGE>
shall pay principal and interest in such coin or currency of the United States
of America as at the time of payment shall be legal tender for payment of public
and private debts ("U.S. Legal Tender"). The Securities will be payable as to
principal, premium and interest at the office or agency of the Company
maintained for such purpose within or without the City of _____________________
and State of _________________, or at the option of the Company, payment of
principal, premium and interest may be made by check mailed to the Holders at
their addresses set forth in the registry of Holders, and provided that, upon
the request of The Depository Trust Company, a New York corporation (the
"Depositary"), payment by wire transfer of immediately available funds will be
required with respect to principal of, premium and interest on Global Securities
and all other Securities held of record by the Depositary, or its nominee, if
the Depositary shall have provided wire transfer instructions to the Company or
the Paying Agent.
3. Paying Agent and Registrar.
--------------------------
___________________ (the "Trustee") will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar or co-Registrar without
notice to the Holders. The Company or any of its Subsidiaries may, subject to
certain exceptions, act as Paying Agent, Registrar or co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of _______,
1998 (as amended or supplemented from time to time the "Indenture"), between the
Company and the Trustee. Capitalized terms herein are used as defined in the
Indenture unless otherwise defined herein. The terms of the Securities include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act, as in effect on the date of the Indenture. The
Securities are subject to all such terms, and Holders of Securities are referred
to the Indenture and said Act for a statement of them. The Securities are
general unsecured obligations of the Company limited in aggregate principal
amount to $115,000,000.
5. Redemption.
----------
The Securities may be redeemed in whole or from time to time in part at any
time on and after ____________, 2001 at the option of the Company, at the
Redemption Price (expressed as a percentage of principal amount) set forth below
with respect to the indicated Redemption Date, in each case, plus any accrued
but unpaid interest to the Redemption Date. The Securities may not be so
redeemed prior to ____________, 2001.
A-5
<PAGE>
If redeemed during
the 12-month period
beginning on Redemption Price
------------ ----------------
____________, 2001
____________, 2002 and
thereafter
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
--------------------
Notice of redemption will be sent by first class mail, at least 30 days and
not more than 60 days prior to the Redemption Date to the Holder of each
Security to be redeemed at such Holder's last address as then shown upon the
registry books of the Registrar. Securities may be redeemed in part in
multiples of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption Date,
if monies for the redemption of the Securities called for redemption shall have
been deposited with the Paying Agent on such Redemption Date and payment of the
Securities called for redemption is not prohibited under Article XII of the
Indenture, the Securities called for redemption will cease to bear interest and
the only right of the Holders of such Securities will be to receive payment of
the Redemption Price, plus any accrued and unpaid interest to the Redemption
Date.
7. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in denominations of
$1,000 and integral multiples of $1,000. A Holder may register the transfer of,
or exchange Securities in accordance with, the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer of or exchange any
Securities selected for redemption.
8. Persons Deemed Owners.
---------------------
The registered Holder of a Security may be treated as the owner of it for
all purposes.
9. Unclaimed Money.
---------------
If money for the payment of principal, or interest remains unclaimed for
two years, the Trustee and the Paying Agent(s) will pay the money back to the
Company at its written request. After that, all liability of the Trustee and
such Paying Agent(s) with respect to such money shall cease.
A-6
<PAGE>
10. Amendment; Supplement; Waiver.
-----------------------------
Subject to specified exceptions, the Indenture or the Securities may be
amended or supplemented, and any existing Default or Event of Default or
compliance with any provision may be waived, with the written consent of the
Holders of a majority in aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto
may amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect or inconsistency, or make any other change that does
not adversely affect the rights of any Holder of a Security.
11. Conversion Rights.
-----------------
Subject to the provisions of the Indenture, the Holders have the right to
convert the principal amount of the Securities into fully paid and nonassessable
shares of Common Stock of the Company at the initial conversion price per share
of Common Stock of $_____ (which reflects a conversion rate of ________ shares
of Common Stock per $1,000 in principal amount of Securities), or at the
adjusted conversion price then in effect, if adjustment has been made as
provided in the Indenture, upon surrender of the Security to the Company,
together with a fully executed notice in substantially the form attached hereto
and, if required by the Indenture, an amount equal to accrued interest payable
on such Security.
12. Ranking.
-------
Payment of principal, premium, if any, and interest on the Securities is
subordinated, in the manner and to the extent set forth in the Indenture, to the
prior payment in full of all Senior Indebtedness.
13. Repurchase at Option of Holder Upon a Change of Control.
-------------------------------------------------------
If there is a Change of Control, the Company shall be required, subject to
the provisions of the Indenture, to offer to purchase on the Repurchase Date all
outstanding Securities at a purchase price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest to the Repurchase Date. Holders of
Securities will receive a Repurchase Offer from the Company prior to any related
Repurchase Date and may elect to have such Securities purchased by completing
the form entitled "Option of Holder to Elect Purchase" appearing below.
14. Successors.
----------
When a successor assumes all the obligations of its predecessor under the
Securities and the Indenture, the predecessor will be released from those
obligations.
15. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing (other than as Event of
Default relating to certain events of bankruptcy, insolvency or reorganization),
then in every such case, unless
A-7
<PAGE>
the principal of all of the securities shall have already become due and
payable, either the Trustee or the Holders of 25% in aggregate principal amount
of Securities then outstanding may declare all the Securities to be due and
payable immediately in the manner and with the effect provided in the Indenture.
Holders of Securities may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the
Securities then outstanding may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of any
continuing Default or Event of Default (except a Default in payment of principal
or interest), if it determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other capacity,
may make loans to, accept deposits from, and perform services for the Company or
its Affiliates, and may otherwise deal with the Company or its Affiliates as if
it were not the Trustee.
17. No Recourse Against Others.
--------------------------
No stockholder, director, officer or employee, as such, past, present or
future, of the Company or any successor corporation shall have any personal
liability in respect of the obligations of the Company under the Securities or
the Indenture by reason of his, her or its status as such stockholder, director,
officer or employee. Each Holder of a Security by accepting a Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities.
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
A-8
<PAGE>
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Request may be made to:
May & Speh, Inc.
1501 Opus Place
Downers Grove, Illinois 60515
Attention: Secretary
A-9
<PAGE>
[FORM OF ASSIGNMENT]
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
_____________________________
and irrevocably appoint _______________ agent to transfer this Security on the
books of the Company. The agent may substitute another to act for him.
Dated: _______________________ Signed: ____________________________
(Sign exactly as your name appears on the
other side of this Security)
Signature Guaranty: ______________________________
Signatures must be guarantied by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guaranty program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Article XI of the Indenture, check the box:
If you want to elect to have only part of this Security purchased by the
Company pursuant to Article XI of the Indenture, state the amount you want to be
purchased: $__________
Date: _____________________ Signature: _________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guaranty: ______________________________
Signatures must be guarantied by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guaranty program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-11
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES/2/
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global authorized officer
Principal Amount Principal Amount Security following of Trustee or
Date of of this Global of this Global such decrease (or Securities
Exchange Security Security increase) Custodian
- ---------------------------------------------------------------------------------------------
</TABLE>
- ------------------
/2/ This schedule should only be added if the Security is issued in global form.
A-12
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: __% CONVERTIBLE SUBORDINATED NOTES DUE 2003 OF MAY & SPEH, INC.
This Certificate relates to $______ principal amount of Securities held in
*_______ book-entry or * __________ definitive form by _________ (the
"Transferor").
1. The Transferor:/*/
[ ] (a) has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
[ ] (b) has requested the Trustee by written order to exchange or register
the transfer of a Security or Securities.
[INSERT NAME OF TRANSFEROR]
By: _______________________________
Date: ___________________________
2. Affiliation with the Company [check if applicable]
[ ] (a) The undersigned represents and warrants that it is, or at some
time during which it held this Security was, an Affiliate of the
Company.
(b) If 2(a) above is checked and if the undersigned was not an
Affiliate of the Company at all times during which it held this
Security, indicate the periods during which the undersigned was
an Affiliate of the Company:
---------------------------------.
- --------------------------
Check applicable box.
A-13
<PAGE>
(c) If 2(a) above is checked and if the Transferee will not pay the
full purchase price for the transfer of this Security on or prior
to the date of transfer indicate when such purchase price will be
paid:
-----------------------------------------------------------------
If any of the above representations required to be made by the Transferee is not
made, the Registrar shall not be obligated to register this Security in the name
of any person other than the Holder hereof.
THE UNDERSIGNED HEREBY AGREES THAT, UNLESS THE BOX ABOVE UNDER ITEM 2(a) IS
CHECKED, THE UNDERSIGNED SHALL BE DEEMED TO HAVE REPRESENTED THAT IT IS NOT NOR
HAS IT BEEN AT ANY TIME DURING WHICH IT HELD THIS SECURITY AN AFFILIATE, AS
DEFINED IN RULE 144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OF THE
COMPANY.
Dated:___________________________ __________________________________
NOTICE: The signature of the Holder
to this assignment must correspond
with the name as written upon the
face of this Security particular,
without alteration or enlargement
or any change whatsoever.
A-14
<PAGE>
EXHIBIT B
---------
FORM OF CONVERSION NOTICE
-------------------------
TO: May & Speh, Inc.
The undersigned owner of this Security hereby: (i) irrevocably
exercises the option to convert this Security, or the portion hereof below
designated, for shares of Common Stock of May & Speh, Inc. in accordance with
the terms of this Indenture referred to in this Security and (ii) directs that
such shares of Common Stock deliverable upon the conversion, together with any
check in payment for fractional shares and any Security(ies) representing any
unconverted principal amount hereof, be issued and delivered to the registered
holder hereof unless a different name has been indicated below. If shares are
to be delivered registered in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto. Any
amount required to be paid by the undersigned on account of interest accompanies
this Security.
Dated: _______________________
______________________________________
Signature
Fill in for registration of shares if to be delivered, and of
Securities if to be issued, otherwise than to and in the name of the registered
holder.
______________________________________
Social Security or other
Taxpayer Identifying Number
___________________________
(Name)
___________________________
(Street Address)
___________________________
(City, State and Zip Code)
(Please print name and address)
Principal amount to be converted:
(if less than all)
$ ____________________________________
B-1
<PAGE>
EXHIBIT 5.1
February 18, 1998
May & Speh, Inc.
1501 Opus Place
Downers Grove, Illinois 60515
Ladies and Gentlemen;
We have acted as counsel to May & Speh, Inc., a Delaware corporation ("May
& Speh"), in connection with the preparation of the Registration Statement on
Form S-3 (the "Registration Statement") filed on February 18, 1998, with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to May & Speh's (i)
subordinated unsecured debt securities ("Debt Securities") which may be
convertible or exchangeable into common stock, par value $.01 per share, of May
& Speh ("Common Stock") which Debt Securities may be issued under the Securities
Act for an aggregate initial offering price not to exceed $115,000,000
(including Debt Securities issued in an over-allotment option), and (ii) up to
4,600,000 shares of Common Stock (including shares issued in an over-allotment
option) (such Debt Securities and Common Stock are collectively referred to
herein as the "Securities").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of (i) the Certificate of Incorporation and Bylaws of May &
Speh, each as amended to the date hereof, (ii) the Indenture (the "Indenture")
to be entered into between May & Speh and Harris Trust & Savings Bank, as
trustee ("Harris"), in the form including as an exhibit to the Registration
Statement, and (iii) such other certificates, statutes and other instruments and
documents as we considered appropriate for purposes of the opinions and
hereafter expressed.
<PAGE>
In connection with this opinion, we have assumed that (i) the Registration
Statement, and any amendments thereto (including post-effective amendments),
will have become effective; (ii) a final Prospectus will have been prepared and
filed with the Commission describing the Securities offered thereby; (iii) all
Securities will be issued and sold in compliance with applicable federal and
state securities laws and in the manner described in the Registration Statement
and the applicable Prospectus; (iv) the Indenture will be duly authorized,
executed and delivered by May & Speh and a trustee qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in substantially the form
reviewed by us; (v) a definitive purchase, underwriting or similar agreement
with respect to any Securities offered will have been duly authorized and
validly executed and delivered by May & Speh and the other parties thereto; and
(vi) and Securities issuable upon conversion, exchange or exercise of any
Security being offered will have been duly authorized, created and, if
appropriate, reserved for issuance upon such conversion, exchange or exercise.
Based on the foregoing, we are of the opinion that:
1. May & Speh has been duly incorporated and is validly existing and in
good standing under the laws of the State of Delaware.
2. With respect to Debt Securities to be issued under the Indenture, when
(i) the Indenture has been duly qualified under the TIA; (ii) the Board has
taken all necessary corporate action to approve the issuance and terms of such
Debt Securities, the terms of the offering thereof and related matters; (iii)
the terms of such Debt Securities and of their issuance and sale have been
established so as not to violate any applicable law or result in a default under
or breach of any
<PAGE>
agreement or instrument binding upon May & Speh and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over May & Speh; (iv) such Debt Securities have been duly executed,
authenticated, issued and delivered in accordance with the provisions of the
Indenture and in accordance with the applicable definitive purchase,
underwriting or similar agreement approved by the Board upon payment of the
consideration provided for therein, such Debt Securities will be legally issued
and will constitute valid and binding obligations of May & Speh, enforceable
against May & Speh in accordance with their terms, except as such enforcement is
subject to any applicable bankruptcy, insolvency, reorganization or other law
relating to or affecting creditors' rights generally and general principles of
equity and will be entitled to the benefits of the Indenture.
3. With respect to shares of Common Stock, when (i) the Board has taken
all necessary corporate action to approve the issuance and terms of the offering
thereof and related matters; and (ii) certificates representing the shares of
Common Stock have been duly executed, countersigned, registered and delivered
either (a) in accordance with the applicable definitive purchase, underwriting
or similar agreement approved by the Board upon payment of the consideration
therefor (not less than the par value of the Common Stock) provided for therein,
and (b) upon conversion, exchange or exercise of any other Security in
accordance with the terms of such Security or the instrument governing such
Security providing for such conversion, exchange or exercise as approved by the
Board, for the consideration approved by the Board (not less than the par value
of the Common Stock and, in the case of shares of Common Stock issued upon the
conversion, exchange or exercise of another security, the consideration
specified in Section 153 of the DGCL), the shares of Common Stock will be duly
authorized, validly issued, fully paid and non-assessable.
<PAGE>
The foregoing opinions are limited in all respects to the laws of the State
of Illinois, the General Corporation Law of the State of Delaware and federal
laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. By giving such consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the commission issued thereunder.
Very truly yours,
/s/ FREEBORN & PETERS
<PAGE>
Exhibit 12.1
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
EXHIBIT 12.1
- ----------------------------------------------------------------------------------------
MAY & SPEH, INC.
- ----------------------------------------------------------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
- ----------------------------------------------------------------------------------------
(Amounts in thousands of dollars)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 12/31/96 12/31/97 (A)
---- ---- ---- ---- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Pretax income $5,609 $ 9,528 $12,526 $16,498 $18,898 $3,818 $ 1,055
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Fixed charges:
- ----------------------------------------------------------------------------------------
Interest expense 1,974 1,693 1,543 1,843 2,618 577 756
- ----------------------------------------------------------------------------------------
Rental expense - 33% 1,607 2,113 2,881 3,904 3,837 939 913
------ ------- ------- ------- ------- ------ ------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Total fixed charges 3,581 3,806 4,424 5,747 6,455 1,516 1,669
------ ------- ------- ------- ------- ------ ------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Earnings before income
- ----------------------------------------------------------------------------------------
taxes and fixed charges $9,190 $13,334 $16,950 $22,245 $25,353 $5,334 $2,724
====== ======= ======= ======= ======= ====== ======
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Ratio of earnings to fixed
- ----------------------------------------------------------------------------------------
charges 2.6 3.5 3.8 3.9 3.9 3.5 1.6
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
(A) Included in earnings for the three months ended December 31, 1997, was a one-time
- ----------------------------------------------------------------------------------------
restructuring charge of $4,700 before income taxes ($2,900 after taxes) relating to
- ----------------------------------------------------------------------------------------
payments made under existing contracts to prior members of management as disclosed
- ----------------------------------------------------------------------------------------
in Note 11 to the Company's consolidated financial statements. Excluding this
- ----------------------------------------------------------------------------------------
charge, the ratio of earnings to fixed charges would have been 4.8.
- ----------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated November 10, 1997, except
as to the paragraph of Note 1 entitled "Per share information" and Note 12,
which are as of February 12, 1998, relating to the financial statements of May &
Speh, Inc. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
February 18, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as
Trustee
Check if an Application to Determine
Eligibility of a Trustee Pursuant to Section
305(b)(2)_______________
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 23-1614034
(I.R.S Employer
(State of Incorporation) Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Daniel G. Donovan, Harris Trust and Savings Bank,
111 West Monroe Street, Chicago, Illinois, 60603
312-461-2908
(Name, address and telephone number for agent for service)
MAY & SPEH, INC.
(Name of Obligor)
Delaware 36-2992650
(I.R.S. Employer)
(State of Incorporation) Identification No.)
1501 Opus Place
Downers Grove, Illinois 60515
(Address of principal executive offices)
Convertible Subordinated Notes due 2003
(Title of indenture securities)
<PAGE>
1. GENERAL INFORMATION. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164 West
Jackson Boulevard, Chicago, Illinois; Federal Deposit Insurance
Corporation, Washington, D.C.; The Board of Governors of the Federal
Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise corporate
trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the Trustee,
describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as now in effect
which includes the authority of the trustee to commence business and to
exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between Harris
Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc. which
constitutes the articles of association of the Trustee as now in effect
and includes the authority of the Trustee to commence business and to
exercise corporate trust powers was filed in connection with the
Registration Statement of Louisville Gas and Electric Company, File No.
2-44295, and is incorporated herein by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in connection
with the Registration Statement of Commercial Federal Corporation, File
No. 333-20711, and is incorporated herein by reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
(included as Exhibit B on page 3 of this statement)
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 17th day of February 1998.
Harris Trust and Savings Bank
/s/ DGDonovan
By:__________________________
D. G. Donovan
Assistant Vice President
EXHIBIT A
The consents of the Trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
Harris Trust and Savings Bank
/s/ DGDonovan
By:__________________________
D. G. Donovan
Assistant Vice President
2
<PAGE>
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of September 30, 1997, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[LOGO OF HARRIS BANK]
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on September 30, 1997, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin................. $1,188,709
Interest bearing balances........................................... $550,173
Securities..................................................................
a. Held-to-maturity securities $0
b. Available-for-sale securities $3,685,983
Federal funds sold and securities purchased under agreements to resell $396,400
Loans and lease financing receivables:
Loans and leases, net of unearned income............................ $8,401,048
LESS: Allowances for loan and lease losses.......................... $107,180
----------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b)................................................ $8,293,868
Assets held in trading accounts............................................. $98,368
Premises and fixed assets (including capitalized leases).................... $213,612
Other real estate owned..................................................... $778
Investments in unconsolidated subsidiaries and associated companies......... $86
Customer's liability to this bank on acceptances outstanding................ $41,205
Intangible assets........................................................... $283,839
Other assets................................................................ $603,886
-----------------------------------
TOTAL ASSETS $15,356,907
===================================
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices................................ $8,374,055
Non-interest bearing........................ $2,770,029
Interest bearing............................ $5,604,026
In foreign offices, Edge and Agreement
subsidiaries, and IBF's............................ $1,991,659
Non-interest bearing........................ $ 27,364
Interest bearing............................ $1,964,295
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds purchased & securities sold under
agreements to purchase............................. $2,549,328
Trading Liabilities................................... 62,186
Other borrowed money
a. With remaining maturity of one year or less........ $630,911
b. With remaining maturity of more than one year....... $0
Bank's liability on acceptances executed and
outstanding........................................... $41,205
Subordinated notes and debentures..................... $325,000
Other liabilities..................................... $132,188
---------- -----------
TOTAL LIABILITIES..................................... $14,106,532
========== ===========
EQUITY CAPITAL
Common stock.......................................... $100,000
Surplus............................................... $600,853
a. Undivided profits and capital reserves............. $553,257
b. Net unrealized holding gains (losses) on
available-for-sale securities...................... ($3,735)
---------- -----------
TOTAL EQUITY CAPITAL.................................. $1,250,375
========== ===========
Total liabilities, limited-life preferred stock, and
equity capital........................................ $15,356,907
========== ===========
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
10/29/97
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and, to the best
of our knowledge and belief, has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
the Commissioner of Banks and Trust Companies of the State of Illinois and is
true and correct.
EDWARD W. LYMAN,
ALAN G McNALLY,
JAMES J. GLASSER
Directors.
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