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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
---------
FORM 10-Q
---------
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
- -- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended SEPTEMBER 30, 1996
OR
- ---- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-20941
PRECISION RESPONSE CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-2194806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1505 N.W. 167TH STREET
MIAMI, FLORIDA 33169
(Address of principal executive offices)
(305) 626-4600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
As of November 14, 1996, there were 20,000,000 shares of the Registrant's
Common Stock outstanding.
This Form 10-Q consists of 66 pages, including exhibits.
The Exhibit Index is on page 18.
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PRECISION RESPONSE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31, 1995 and September 30, 1996 (Unaudited)............ 3
Condensed Statements of Operations (Unaudited)
For the Three and Nine Months Ended September 30, 1995 and 1996 4
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1995 and 1996........... 5
Notes to Condensed Financial Statements............................. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 16
SIGNATURES.......................................................... 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED FINANCIAL STATEMENTS
PRECISION RESPONSE CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 266,794 $10,945,621
Accounts receivable, net of allowance of $60,000
and $1,104,000, respectively..................... 6,616,844 33,760,896
Prepaid expenses and other current assets............ 454,867 2,506,311
Deferred income taxes................................ -- 399,247
----------- -----------
Total current assets............................. 7,338,505 47,612,075
Property and equipment, net.......................... 5,283,832 26,379,509
Other assets......................................... 90,925 2,342,478
----------- -----------
Total assets..................................... $12,713,262 $76,334,062
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations......... $ 1,181,846 $ 1,643,565
Accounts payable.................................... 2,130,808 12,002,592
Accrued compensation expenses....................... 1,326,960 1,987,203
Income taxes payable................................ -- 498,643
Other accrued expenses.............................. 777,104 1,929,694
Customer deposits and other......................... 556,388 1,062,649
----------- -----------
Total current liabilities........................ 5,973,106 19,124,346
Revolving credit loan................................ 2,995,593 --
Long-term obligations, less current maturities....... 928,542 5,749,468
Deferred income taxes................................ -- 1,107,167
----------- -----------
Total liabilities................................ 9,897,241 25,980,981
----------- -----------
Shareholders' equity:
Common stock, $0.01 par value;
100,000,000 shares authorized,
20,000,000 shares issued and outstanding......... 164,000 200,000
Additional paid-in capital........................... 72,095 47,715,314
Retained earnings.................................... 2,786,996 2,681,196
Unearned compensation................................ -- (243,429)
Due from shareholders, net........................... (207,070) --
----------- -----------
Total shareholders' equity....................... 2,816,021 50,353,081
----------- -----------
Total liabilities and shareholders' equity....... $12,713,262 $76,334,062
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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PRECISION RESPONSE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $6,416,466 $29,984,793 $20,438,673 $63,591,807
---------- ----------- ----------- -----------
Operating expenses:
Cost of services.............................. 4,310,771 20,249,874 12,619,733 41,020,866
Preoperating costs............................ 75,683 187,539 75,683 1,047,428
Selling, general and administrative expenses.. 2,231,771 5,954,115 6,487,593 14,619,400
---------- ----------- ----------- -----------
Total operating expenses.................... 6,618,225 26,391,528 19,183,009 56,687,694
---------- ----------- ----------- -----------
Operating income (loss)..................... (201,759) 3,593,265 1,255,664 6,904,113
Interest income................................ 5,704 222,940 19,650 222,940
Interest expense............................... (98,221) (382,871) (287,102) (783,437)
---------- ----------- ----------- -----------
Income (loss) before income taxes........... (294,276) 3,433,334 988,212 6,343,616
Income taxes................................... -- 1,206,563 -- 1,206,563
---------- ----------- ----------- -----------
Net income (loss)........................... $ (294,276) 2,226,771 988,212 5,137,053
Pro Forma Data ========== =========== =========== ==========
(Note 4):
Income (loss) before pro forma income taxes.... $ (294,276) $ 3,433,334 $ 988,212 $ 6,343,616
Pro forma provision (benefit) for income taxes
relating to S Corporation.................... (125,067) 1,373,333 420,223 2,543,266
---------- ----------- ----------- -----------
Pro forma net income (loss).................... $ (169,209) $ 2,060,001 $ 567,989 $ 3,800,350
========== =========== =========== ===========
Pro forma net income per common share.......... $ 0.11 $ 0.22
=========== ===========
Weighted average number of common
shares outstanding........................... 19,245,013 17,439,658
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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PRECISION RESPONSE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 988,212 $ 5,137,053
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization............................. 831,043 1,829,701
Provision for bad debt and sales allowance................ 228,000 875,000
Deferred income tax expense............................... -- 707,920
Amortization of unearned compensation..................... -- 60,861
Changes in operating assets and liabilities:
Accounts receivable....................................... (2,385,749) (28,019,052)
Prepaid expenses and other current assets................. 88,137 (2,051,444)
Other assets.............................................. (6,048) (514,934)
Accounts payable.......................................... 208,857 9,871,784
Accrued compensation expenses............................ 443,752 660,243
Income taxes payable...................................... -- 498,643
Other accrued expenses.................................... 61,287 1,152,588
Customer deposits and other............................... 342,137 506,263
---------- ------------
Net cash provided by (used in) operating activities..... 799,628 (9,285,374)
---------- ------------
Cash flows from investing activities:
Purchase of property and equipment......................... (1,024,229) (15,145,494)
Software development costs................................. -- (1,736,619)
---------- ------------
Net cash used in investing activities................... (1,024,229) (16,882,113)
---------- ------------
Cash flows from financing activities:
Proceeds from revolving credit loan........................ 2,575,593 25,595,424
Payments on revolving credit loan.......................... (1,500,000) (28,591,017)
Payments on long-term obligations.......................... (782,057) (2,497,239)
Proceeds from issuance of common stock..................... -- 47,374,929
Dividends paid............................................. -- (5,242,853)
Net payments from (advances to) shareholders............... (83,955) 207,070
---------- ------------
Net cash provided by financing activities............... 209,581 36,846,314
---------- ------------
Net increase (decrease) in cash and cash equivalents........ (15,020) 10,678,827
Cash and cash equivalents at beginning of period............ 787,609 266,794
---------- ------------
Cash and cash equivalents at end of period.................. $ 772,589 $ 10,945,621
========== ============
Supplemental cash flow information:
Cash paid for interest..................................... $ 253,900 $ 783,437
========== ============
Supplemental schedule of noncash investing
and financing activities:
Installment loans and capital lease obligations............ $ 851,940 $ 7,779,884
========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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PRECISION RESPONSE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. OPERATIONS AND ORGANIZATION
Precision Response Corporation (the "Company" or "PRC") is a full-service
provider of telephone-based marketing and customer service solutions on an
outsourced basis to large corporations.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The condensed balance sheet at December 31,
1995 has been derived from the audited financial statements of the Company at
that date. Operating results for the three and nine month periods ended
September 30, 1996, are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1996. For additional
information, refer to financial statements and footnotes thereto included in
Amendment No. 4 to the Company's Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on July 16, 1996, which financial
statements and footnotes should be read in conjunction with this report.
3. INITIAL PUBLIC OFFERING
On July 22, 1996, the Company completed an initial public offering of its
common stock. The Company sold 3,600,000 shares of common stock at an offering
price $14.50 per share. Total proceeds after deducting $4,825,000 in estimated
costs associated with the offering were $47,375,000.
4. PRO FORMA DISCLOSURES
Pro Forma Income Taxes. Prior to the initial public offering, the Company
had elected to be treated for Federal and Florida income tax purposes as an S
corporation under provisions of the Internal Revenue Code. As a result,
earnings of the Company were taxed for Federal and Florida income tax purposes
directly to the shareholders of the Company, rather than to the Company. The
pro forma data in the statements of operations for all periods includes a
provision for Federal and state income taxes as if the Company were subject to
Federal and Florida corporate income taxes as a C Corporation for all periods.
This pro forma provision is computed using a combined Federal and state tax
rate of 37.6%.
In connection with the initial public offering the Company converted from
an S corporation to a C Corporation and adopted the asset and liability method
of accounting for income taxes. Under this method, deferred tax assets and
liabilities are established based on the differences between financial
statement and income tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Upon termination of the S corporation election, deferred income taxes, in the
amount of $90,000, reflecting the tax effect of temporary differences between
the Company's financial statements and the tax bases of certain assets and
liabilities, became a net liability of the Company with a corresponding
nonrecurring expense in the statement of operations for the quarter ended
September 30, 1996 (see Note 8). Deferred taxes relate primarily to accounts
receivable, accrued expenses and property and equipment.
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Prior to consummation of the initial public offering, the Company's Board
of Directors declared a cash dividend payable to the then current shareholders
of the Company (the "Dividend") of approximately $5,243,000. The Dividend was
equal to the Company's estimate of its cumulative taxable income prior to the
conversion to a C corporation to the extent such taxable income had not
previously been distributed. The Dividend is subject to adjustment based upon
actual cumulative taxable income as finally determined.
Pro Forma Net Income Per Share. Pro forma net income per share amounts
have been computed based upon the weighted average number of common shares
outstanding during each period after retroactive adjustment for a 127,350-for-1
stock split effected on May 31, 1996, and a 1.287789556-for-1 stock split
effected on June 20, 1996, each effected by way of a share dividend, and gives
effect through July 22, 1996 (completion date of the initial public offering)
as required by generally accepted accounting principles, to the increase in the
number of shares which, when multiplied by the initial public offering price of
$14.50 per share, would have been sufficient to replace the amount of the
Dividend in excess of earnings for the twelve months ended June 30, 1996.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------- -------------
1995 1996
------------- -------------
<S> <C> <C>
Telecommunications equipment $ 2,187,254 $ 9,310,179
Production equipment 707,014 739,432
Computer equipment 3,076,808 14,438,159
Leasehold improvements 1,463,913 4,002,886
Furniture and fixtures 985,778 2,876,260
Automobiles 140,126 175,318
----------- -----------
8,560,893 31,542,234
Accumulated depreciation and amortization (3,277,061) (5,162,725)
----------- -----------
$ 5,283,832 $26,379,509
=========== ===========
</TABLE>
6. SOFTWARE DEVELOPMENT COSTS
Certain software development costs are capitalized when incurred in
accordance with Statement of Financial Accounting Standards No. 86 (SFAS 86).
Capitalization of these software development costs begins when technological
feasibility has been established and ends when the product is available for
general use in the Company's teleservicing programs. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not
limited to, anticipated future revenues, estimated economic life and changes in
software and hardware technologies.
As of September 30, 1996, capitalized software development costs was
approximately $1,736,000, all of which was incurred during the third quarter of
1996. Amortization is computed on an individual product basis using the
straight-line method over the estimated economic life of the product.
Currently, the Company is using an estimated economic life of three years for
these capitalized software costs. Amortization of these costs will commence in
the fourth quarter of 1996.
7
<PAGE> 8
7. REVOLVING CREDIT LOAN AGREEMENT
On September 30, 1996, the Company's loan and security agreement was
amended to increase capital expenditure limitations to $45 million for the year
ending December 31, 1996, and $23 million for each year thereafter.
8. INCOME TAXES
The income tax provision for the Company for the three and nine months
ended September 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Current:
Federal $ 425,773
State 72,870
----------
498,643
----------
Deferred:
Federal 604,450
State 103,470
----------
707,920
----------
Provision for income taxes $1,206,563
==========
</TABLE>
The significant components of the net deferred tax liability at September
30, 1996 were as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued options $ 23,700
Allowance for doubtful accounts 46,813
Sales allowance and reserves 328,734
----------
399,247
Deferred tax liability:
Property and equipment (1,107,167)
----------
Net deferred tax liability $ (707,920)
==========
</TABLE>
8
<PAGE> 9
The reconciliation between the statutory provision for income taxes and
the actual provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income tax at federal statutory rate $(102,997) $1,201,667 $345,874 $2,220,266
State income taxes net of federal benefit 114,946 114,946
Nondeductible expenses 37,958 37,958
Deferred income taxes recorded due to
change in tax status 90,000 90,000
Income not subject to federal and state
tax at the corporate level 102,997 (238,008) (345,874) (1,256,607)
--------- ---------- -------- ----------
Provision for income taxes $ 0 $1,206,563 $ 0 $1,206,563
========= ========== ======== ==========
</TABLE>
9. STOCK OPTIONS
On July 16, 1996, an executive of the Company was granted an option to
purchase 21,000 shares of Common Stock at an exercise price of $0.01 per share.
The difference between the fair market value of the common stock and the
exercise price, which amounted to $304,290, has been reflected as unearned
compensation and is shown as a separate component of shareholders' equity.
Amortization of unearned compensation expense is being recognized over a
three-year vesting period and amounted to $60,861 for the quarter ended
September 30, 1996.
During the third quarter of 1996, the Company also granted options to
purchase 540,500 shares of Common Stock of the 1,931,684 shares reserved for
under the 1996 Incentive Stock Plan. These options were granted at the fair
market value of the stock at the date of grant at prices ranging from $14.50 to
$27.25 per share. No options were exercised during the third quarter of 1996
and, of such options granted, options covering 12,250 shares were canceled.
Options to purchase 5,000 shares are currently exercisable, and outstanding
options to purchase the remaining 523,250 shares become exercisable at varying
times beginning in 1997.
The Company measures compensation expense for its stock plans using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Under this method,
compensation expense is measured as the difference between the quoted market
price of the stock and the amount to be paid for the stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") which became effective January 1, 1996. Under the
provisions of FAS 123, companies can elect to account for stock-based
compensation plans using a fair-value-based method or continue measuring
compensation expense for those plans using the intrinsic value method
prescribed in APB 25. FAS 123 requires that companies electing to continue
using the intrinsic value method must make pro forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting had
been applied.
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<PAGE> 10
As the Company expects to account for stock-based compensation using the
intrinsic value method, FAS 123 will not have an impact on the Company's
results of operations or financial position. The Company adopted FAS 123
during the third quarter of 1996.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Quarterly Report on Form 10-Q (this "Report") contains
forward-looking statements about the business, financial condition and
prospects of the Company. The actual results of the Company could differ
materially from those indicated by the forward-looking statements because of
various risks and uncertainties including, without limitation, the effective
and timely initiation and development of new client relationships, the
maintaining of existing client relationships and programs (in particular, AT&T
Corp.), the opening of new call centers in accordance with plans, the
recruitment and retention of qualified personnel, the continued enhancement of
telecommunications, computer and information technologies and operational and
financial systems, the continued industry trends towards outsourcing of
telephone-based marketing and customer service operations (particularly in the
telecommunications, transportation, consumer products and food and beverage
industries), changes in competition and the forms of direct sales and marketing
techniques, general economic conditions, costs of telephone services, financing
and leasing of equipment, changes in governmental rules and regulations
applicable to the Company and other risks indicated in the Company's filings
with the Securities and Exchange Commission. These risks and uncertainties are
beyond the ability of the Company to control and, in many cases, the Company
cannot predict the risks and uncertainties that could cause its actual results
to differ materially from those indicated by the forward-looking statements.
When used in this Report, the words "believes," "estimates," "plans,"
"expects," "intends," "anticipates," and similar expressions as they relate to
the Company or its management are intended to identify forward-looking
statements.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------
1995 1996 1995 1996
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................................ 100.0% 100.0% 100.0% 100.0%
Cost of services.................................... 67.2 67.5 61.7 64.5
Preoperating costs.................................. 1.2 0.6 0.4 1.6
Selling, general and administrative expenses....... 34.8 19.9 31.7 23.0
----- ----- ----- -----
Operating income (loss)........................... (3.2) 12.0 6.2 10.9
Interest income..................................... 0.1 0.7 0.1 0.3
Interest expense.................................... (1.5) (1.2) (1.4) (1.2)
----- ----- ----- -----
Income (loss) before income taxes................. (4.6) 11.5 4.9 10.0
Income taxes........................................ -- 4.0 -- 1.9
----- ----- ----- -----
Net income (loss) (1)............................. (4.6)% 7.5% 4.9% 8.1%
===== ===== ===== =====
Pro Forma Data:
Income (loss) before pro forma income taxes........ (4.6)% 11.5% 4.9% 10.0%
Pro forma provision (benefit) for income taxes (1). (1.9) 4.6 2.1 4.0
----- ----- ----- -----
Pro forma net income (loss) (1)................... (2.7)% 6.9% 2.8% 6.0%
===== ===== ===== =====
</TABLE>
- -----------------
(1) Prior to the initial public offering, the Company was an S corporation
and not subject to Federal and Florida corporate income taxes. The
statement of operations data reflects a pro forma provision for
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<PAGE> 12
income taxes as if the Company were subject to Federal and Florida corporate
income taxes for all periods. This pro forma provision for income taxes is
computed using a combined Federal and state tax rate of 37.6%. See Note 4
of Notes to Condensed Financial Statements.
Revenues. Revenues increased $23.6 million, or 367.3%, to $30.0 million
for the three months ended September 30, 1996 from $6.4 million for the
comparable period of 1995. Teleservicing activities, principally inbound
services, accounted for the majority of the change with an increase in revenues
of $15.5 million, or 385.9% to $19.5 million for the three months ended
September 30, 1996 from $4.0 million for the comparable period of 1995. For
the nine months ended September 30, 1996, revenues increased $43.2 million, or
211.1%, to $63.6 million from $20.4 million for the comparable period of 1995.
Teleservicing activities, principally inbound services, accounted for the
majority of the change with an increase in revenues of $29.2 million, or 210.1%
to $43.1 million for the nine months ended September 30, 1996 from $13.9
million for the comparable period of 1995. The teleservicing growth resulted
primarily from the addition of several new programs for existing clients in the
telecommunications industry, as well as the addition of new clients in the
telecommunications equipment and transportation industries. Revenues for
information services in conjunction with teleservicing activities increased
$7.3 million, or 531.6%, to $8.6 million for the three months ended September
30, 1996 from $1.3 million for the comparable period of 1995. For the nine
months ended September 30, 1996, revenues for information services in
conjunction with teleservicing activities increased $11.7 million, or 310.0%,
to $15.5 million from $3.8 million for the comparable period of 1995.
Information services include the design, development and implementation of
software applications for use in a particular client program and the
integration of the Company's systems with those of its clients. The large
increase in information services revenues resulted primarily from increased
development of systems for use in client programs. Included in information
services revenue was $5.4 million for the three months and $8.0 million for the
nine months ended September 30, 1996 related to a special client project. This
project was much larger in scope than the traditional services performed in
connection with teleservicing activity and is not expected to recur.
Cost of Services. Cost of services represents labor and telephone
expenses directly related to revenue generating activities as well as each
department's management salaries and equipment depreciation and amortization of
capitalized software development costs. Cost of services increased to $20.2
million for the three months ended September 30, 1996 from $4.3 million for the
comparable period of 1995, an increase of $15.9 million, or 369.8%. For the
nine months ended September 30, 1996, cost of services increased to $41.0
million from $12.6 million for the comparable period of 1995, an increase of
$28.4 million, or 225.1%. The increase in cost of services resulted primarily
from the addition of new employees to staff expanded operations and increased
telecommunications costs related to new teleservicing programs. As a
percentage of revenues, cost of services increased to 67.5% for the three
months ended September 30, 1996 from 67.2% for the comparable period of 1995.
Cost of services increased to 64.5% of revenues for the nine months ended
September 30, 1996 from 61.7% for the comparable period of 1995. The increase
in cost of services as a percentage of revenues was attributable primarily to
volume pricing for large teleservicing programs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses represent the cost of central services the Company
provides to support and manage its departmental activities, including senior
management, facilities expenses (including operating leases), and other support
functions such as sales and marketing, human resources and accounting.
Selling, general and administrative expenses increased $3.7 million, or 166.8%,
to $5.9 million for the three months ended September 30, 1996 from $2.2 million
for the comparable period of 1995. For the nine months ended September 30,
1996, selling, general and administrative expenses increased $8.1 million, or
125.3%, to $14.6 million from $6.5 million for the comparable period of 1995.
The increase in selling, general and administrative expenses resulted primarily
from costs associated with additional personnel and operating leases necessary
to support the Company's growth, as well as increased commission expenses
related to the increase in revenues. As a percentage of
12
<PAGE> 13
revenues, selling, general and administrative expenses decreased to 19.9% for
the third quarter of 1996 from 34.8% for the comparable period of 1995.
These expenses decreased to 23.0% of revenues for the nine months ended
September 30, 1996 from 31.7% for the comparable period of 1995. The
percentage decrease in selling, general and administrative expenses was
directly attributable to the Company's overhead burden being absorbed by an
increased base of revenues.
Preoperating Costs. Preoperating costs include certain incremental costs
incurred at a facility prior to the commencement of operations, including rent,
new-hire salaries and expenses for utilities, equipment leases and security.
Preoperating costs increased to $188,000, or 0.6% of revenues, for the third
quarter of 1996 from $76,000, or 1.2% of revenues, for the comparable period of
1995. Preoperating costs increased to $1,047,000, or 1.6% of revenues, for the
nine months ended September 30, 1996 from $76,000, or 0.4% of revenues, for the
comparable period of 1995. For the three month period ended September 30, 1996,
these costs primarily relate to the opening of a 501 workstation call center at
the end of September 1996. For the nine month period ended September 30, 1996,
these costs primarily relate to the opening of five call centers totaling
approximately 2,100 workstations.
Interest Income. Interest income increased to $223,000, or 0.7% of
revenues, for the third quarter of 1996 from $6,000, or 0.1% of revenues, for
the comparable period of 1995. Interest income increased to $223,000, or 0.3%
of revenues, for the nine months ended September 30, 1996 from $20,000, or 0.1%
of revenues, for the comparable period of 1995. This increase resulted from
the investment of a portion of the proceeds from the Company's initial public
offering.
Interest Expense. Interest expense increased to $383,000, or 1.2% of
revenues, for the third quarter of 1996 from $98,000, or 1.5% of revenues, for
the comparable period of 1995. Interest expense increased to $783,000, or 1.2%
of revenues, for the nine months ended September 30, 1996 from $287,000, or
1.4% of revenues, for the comparable period of 1995. This increase reflected
higher average outstanding borrowings, which were used to finance working
capital needs, to open new facilities and to purchase related equipment,
partially offset by lower interest rates on credit facility borrowings.
Income Taxes. Prior to the initial public offering of the Company's
common stock, the Company included its income and expenses with those of its
shareholders for Federal and State income tax purposes (an S Corporation
election). Accordingly, the statements of operations for the nine months ended
September 30, 1995, and the period from January 1, 1996 through July 16, 1996
(included in the nine month period ended September 30, 1996) do not include a
provision for Federal income taxes.
Pro Forma Net Income. Pro forma net income increased to $2.1 million, or
6.9% of revenues, for the three months ended September 30, 1996 compared to pro
forma net loss of $169,000 for the comparable period of 1995. Pro forma net
income increased 569.1% to $3.8 million, or 6.0% of revenues, for the nine
months ended September 30, 1996 compared to pro forma net income of $568,000,
or 2.8% of revenues, for the comparable period of 1995. Pro forma net income
includes a pro forma provision for Federal and state income taxes. See Note 4
of Notes to Condensed Financial Statements.
QUARTERLY RESULTS
The Company has experienced and expects to continue to experience
quarterly variations in revenues and operating income principally as a result
of the timing of clients' marketing campaigns and customer service programs,
the commencement of new contracts, changes in the Company's revenue mix among
its various service offerings, construction and start-up of new call centers
and the timing of additional selling, general and administrative expenses to
acquire and support such new business. While the effects of seasonality on
PRC's business often are obscured by the addition of new clients and growing
revenues, the
13
<PAGE> 14
Company's business tends to be slower in the first and third quarters of its
fiscal year because client marketing and customer service programs are
typically slower in the post-holiday and summer months.
LIQUIDITY AND CAPITAL RESOURCES
In May 1996, the Company entered into a new three-year, $15 million
revolving credit facility under which the Company may borrow up to 85% of
eligible accounts receivable. The credit facility is primarily collateralized
by accounts receivable. The Company is required to maintain certain financial
covenants, including minimum tangible net worth and earnings, to limit capital
expenditures to no more than $45 million for 1996 and $23 million for 1997 and
years thereafter and to limit additional indebtedness. The Company has
requested, and expects to obtain, less restrictive covenants. The Company is
also restricted from paying dividends except for tax distributions to its
shareholders in connection with S corporation earnings and distributions in
connection with the termination of its S corporation status. All amounts
outstanding under the revolving credit facility were repaid with a portion of
the proceeds received by the Company in the initial public offering.
In connection with the initial public offering, the Company received net
proceeds of approximately $47.4 million, $13.4 million of which was used to
purchase and install machinery and equipment, $13.8 million to repay
indebtedness, $5.2 million to pay the Dividend (see Note 4 of Notes to
Condensed Financial Statements), and $4.3 million for working capital. The
balance of $10.7 million of the proceeds will be used to support the Company's
growth.
Capital expenditures, including capital lease financings and capitalized
software development costs (see Note 6 of Notes to Condensed Financial
Statements), were $24.7 million for the nine months ended September 30, 1996,
primarily related to the addition of five call centers totaling 2,100
workstations. Historically, capital expenditures have been, and future
expenditures are anticipated to be, primarily for facilities and equipment to
support expansion of PRC's operations.
As a result of greater than anticipated growth, the Company is currently
evaluating and expects to obtain additional equity and/or debt financing which
it believes will be sufficient to finance its current and future operations and
planned capital expenditures through 1997. The Company's long term capital
requirements beyond 1997 will depend on many factors, including, but not
limited to, the rate at which the Company expands its business.
The following table sets forth certain information from the Company's
statement of cash flows for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
(IN THOUSANDS)
1995 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities. 800 (9,285)
Net cash used in investing activities............... (1,024) (16,882)
Net cash provided by (used in) financing activities. 210 36,846
</TABLE>
Cash used in operating activities was $9.3 million for the nine months
ended September 30, 1996. Cash provided by operating activities was $800,000
in the comparable period of 1995. The decrease in cash from operations was
principally related to the use of cash to finance accounts receivable relating
to the significant growth in revenue.
14
<PAGE> 15
Cash used in investing activities for the nine months ended September 30,
1996 was $16.9 million, compared to $1.0 million in the comparable period of
1995. The increase in investing activities primarily relates to the purchase
of telecommunications equipment, computers and leasehold improvements in
connection with call center expansion. See Note 5 of Notes to Condensed
Financial Statements.
Cash provided by financing activities for the nine months ended September
30, 1996 was $36.8 million compared to $210,000 for the comparable period of
1995. The increase in cash provided by financing activities relates primarily
to the net proceeds from the initial public offering which was used to fund
working capital and capital expenditure requirements, to repay indebtedness and
to pay the Dividend.
15
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -------------------------------------------------------------
<S> <C>
10.1 First and Second Amendments to Loan and Security Agreement
dated May 1, 1996, between Heller Financial, Inc. and the
Company
10.2 Employment Agreement with Paul M. O'Hara
10.3 Independent Contractor Agreement, dated July 26, 1996, between
Bernie Kosar, Jr. and the Company
11.1 Statement Regarding Computation of Pro Forma Per Share Earnings
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter ended
September 30, 1996.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: November 14, 1996
PRECISION RESPONSE CORPORATION
(Registrant)
By: /s/ Paul M. O'Hara
--------------------------------
Paul M. O'Hara
Senior Vice President and Chief
Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Numbered Page
- -------------- -------------
<S> <C> <C>
10.1 First and Second Amendments to Loan and Security Agreement
dated May 1, 1996, between Heller Financial, Inc. and the
Company 19
10.2 Employment Agreement with Paul M. O'Hara 25
10.3 Independent Contractor Agreement, dated July 26, 1996, between
Bernie Kosar, Jr. and the Company 48
11.1 Statement Regarding Computation of Pro Forma Per Share Earnings 65
27.1 Financial Data Schedule (for SEC use only) 66
</TABLE>
18
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement ("Amendment") is
made and entered into this 5th day of September, 1996, by and between PRECISION
RESPONSE CORPORATION ("Borrower"), and HELLER FINANCIAL, INC. ("Lender").
W I T N E S S E T H:
WHEREAS, Lender and Borrower are parties to a certain Loan and
Security Agreement dated May 1, 1996 (the "Loan Agreement") pursuant to which
Lender has made revolving and certain other financial accommodations available
to Borrower; and
WHEREAS, the parties desire to amend the Loan Agreement as hereinafter
set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. All capitalized terms used in this Amendment,
unless otherwise defined herein, shall have the meaning ascribed to such terms
in the Loan Agreement.
2. AMENDMENTS. (a) Subsection 6.5 of the Loan Agreement is
amended by deleting said subsection in its entirety and inserting the following
in lieu thereof;
Section 6.5 Capital Expenditure Limits.
The aggregate amount of all Capital Expenditures of Borrower
and its Subsidiaries (excluding trade-ins and excluding
Capital Expenditures in respect of replacement assets to the
extent funded with casualty insurance proceeds) will not
exceed the amount set forth below for each period set forth
below. In the event that Borrower or any of its Subsidiaries
enters into a Capital Lease or other contract with respect to
fixed assets, for purposes of calculating Capital Expenditures
under this subsection only, the amount of the Capital Lease or
contract initially capitalized on Borrower's or any
Subsidiary's balance sheet prepared in accordance with GAAP
shall be considered expended in full on the date that Borrower
or any of its Subsidiaries enters into such Capital Lease or
contract.
<PAGE> 2
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal Year ending December 31, $23,000,000
1996 and each Fiscal Year
thereafter.
</TABLE>
(b) Subsection 6.6 of the Loan Agreement is
amended by deleting said subsection in its entirety and inserting the following
in lieu thereof:
Section 6.6 Fixed Charge Coverage.
Borrower shall not permit its Fixed Charge Coverage for the
periods set forth below to be less than the amount set forth below for such
periods:
<TABLE>
<CAPTION>
Period Ratio for Period
------ ----------------
<S> <C>
May 1, 1996 through June 30, 1996 .90:1.0
October 1, through October 31, 1996 1.0:1.0
October 1, through November 30, 1996 1.0:1.0
October 1, through December 31, 1996 1.0:1.0
October 1, through January 31, 1997 1.0:1.0
October 1, through February 28, 1997 1.0:1.0
October 1, through March 31, 1997 1.0:1.0
October 1, through April 30, 1997 1.0:1.0
October 1, through May 31, 1997 1.0:1.0
Twelve month period ending June 30, 1997 1.0:1.0
and for each twelve month period ending on
the last day of each calendar month thereafter
</TABLE>
2
<PAGE> 3
3. RATIFICATION AND REAFFIRMATION. Borrower hereby ratifies and
reaffirms each of the Loan Documents and all of Borrower's covenants, duties,
and liabilities thereunder.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender, to induce Lender to enter into this Amendment, that, except
as set forth herein, no Default or Event of Default exists on the date hereof;
the execution, delivery, and performance of this Amendment has been duly
authorized by all requisite corporate action on the part of Borrower, and this
Amendment has been duly executed and delivered by Borrower; and except as may
have been disclosed in writing by Borrower to Lender prior to the date hereof,
all of the representations and warranties made by Borrower in the Loan
Agreement are true and correct on and as of the date hereof.
5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws of the State of Illinois.
6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
7. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
taken together shall be one and the same instrument.
8. EFFECTIVE DATE. Notwithstanding the date of execution hereof,
this Amendment shall be effective as of June 28, 1996.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed under seal and delivered by their respective duly authorized
officers on the date first written.
HELLER FINANCIAL, INC.
as Lender
By: /s/ Jerome P. Sepich
-----------------------------
Title: Vice President
--------------------------
PRECISION RESPONSE CORPORATION,
as Borrower
By: /s/ Richard D. Mondre
------------------------------
Title: Executive Vice President
---------------------------
3
<PAGE> 4
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement ("Amendment") is
made and entered into this 30th day of September, 1996, by and between
PRECISION RESPONSE CORPORATION ("Borrower"), and HELLER FINANCIAL, INC.
("Lender").
W I T N E S S E T H:
WHEREAS, Lender and Borrower are parties to a certain Loan and
Security Agreement dated May 1, 1996 (as amended, the "Loan Agreement")
pursuant to which Lender has made revolving and certain other financial
accommodations available to Borrower; and
WHEREAS, the parties desire to amend the Loan Agreement as hereinafter
set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. All capitalized terms used in this Amendment,
unless otherwise defined herein, shall have the meaning ascribed to such terms
in the Loan Agreement.
2. AMENDMENTS. (a) Subsection 6.5 of the Loan Agreement
is amended by deleting said subsection in its entirety and inserting the
following in lieu thereof;
Section 6.5 Capital Expenditure Limits.
The aggregate amount of all Capital Expenditures of Borrower
and its Subsidiaries (excluding trade-ins and excluding
Capital Expenditures in respect of replacement assets to the
extent funded with casualty insurance proceeds) will not
exceed the amount set forth below for each period set forth
below. In the event that Borrower or any of its Subsidiaries
enters into a Capital Lease or other contract with respect to
fixed assets, for purposes of calculating Capital Expenditures
under this subsection only, the amount of the Capital Lease or
contract initially capitalized on Borrower's or any
Subsidiary's balance sheet prepared in accordance with GAAP
shall be considered expended in full on the date that Borrower
or any of its Subsidiaries enters into such Capital Lease or
contract.
<PAGE> 5
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Fiscal Year ending December 31, $45,000,000
1996
Each Fiscal Year thereafter $23,000,000
</TABLE>
(b) Subsection 6.6 of the Loan Agreement is
amended by deleting said subsection in its entirety and inserting the
following in lieu thereof.
Section 6.6 Fixed Charge Coverage.
Borrower shall not permit its Fixed Charge Coverage for the
periods set forth below to be less than the amount set forth below for such
periods:
<TABLE>
<CAPTION>
Period Ratio for Period
------ ----------------
<S> <C>
May 1, 1996 through June 30, 1996 .90:1.0
October 1, through April 30, 1997 1.0:1.0
October 1, through May 31, 1997 1.0:1.0
Twelve month period ending June 30, 1.0:1.0
1997 and for each twelve month period
ending on the last day of each calendar
month thereafter
</TABLE>
3. RATIFICATION AND REAFFIRMATION. Borrower hereby ratifies and
reaffirms each of the Loan Documents and all of Borrower's covenants, duties,
and liabilities thereunder.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender, to induce Lender to enter into this Amendment, that, except
as set forth herein, no Default or Event of Default exists on the date hereof,
the execution, delivery, and performance of this Amendment has been duly
authorized by all requisite corporate action on the part of Borrower, and this
Amendment has been duly executed and delivered by Borrower; and except as may
have been disclosed in writing by Borrower to Lender prior to the date hereof
all of the representations and warranties made by Borrower in the Loan
Agreement are true and correct on and as of the date hereof.
2
<PAGE> 6
5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws of the State of Illinois.
6. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
7. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which
taken together shall be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed under seal and delivered by their respective duly authorized
officers on the date first written.
HELLER FINANCIAL, INC.,
as Lender
By: /s/ Jerome P. Sepich
------------------------------
Title: Vice President
----------------------------
PRECISION RESPONSE CORPORATION
as Borrower
By: /s/ Joseph Gillis
------------------------------
Title: VP Controller
----------------------------
3
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of August 9th, 1996 (the "Effective
Date"), by and between PRECISION RESPONSE CORPORATION, a corporation organized
and existing under the laws of the State of Florida (hereinafter referred to as
"Employer"), and PAUL M. O'HARA (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is a Florida corporation engaged in the
teleservicing, database management and marketing and fulfillment business;
WHEREAS, Employer desires to employ Employee upon the terms and
conditions set forth below and Employee desires to accept employment upon such
terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the
terms and conditions of their agreements and understandings with respect to
Employee's employment by Employer.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon the terms and conditions set forth in this
Employment Agreement.
2. TERM
Subject to the provisions for earlier termination set forth
in Section 9 hereof, this Employment Agreement shall commence on the Effective
Date and shall continue until 5:00, p.m. of the day immediately preceding the
third anniversary of the Effective Date (the "Employment Term").
<PAGE> 2
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
Employee represents and warrants to Employer that Employee
is free to accept employment with Employer as contemplated herein and has no
written or oral obligations or commitments of any kind or nature which would in
any way interfere with Employee's acceptance of employment pursuant to the
terms hereof or the full performance of Employee's obligations hereunder or the
exercise of Employee's best efforts in Employee's employment hereunder or which
would otherwise pose any conflict of interest.
4. DUTIES AND EXTENT OF SERVICES
A. Duties. Employee's duties and responsibilities
hereunder shall be those reasonably assigned to Employee from time to time by
Employer, consistent with the following: Employee shall, unless and until
otherwise determined by Employer, serve (subject to and upon his appointment by
the Board of Directors) as Employer's Senior Vice President-Finance and Chief
Financial Officer, and shall, subject to the direction of Employer's Chief
Executive Officer and President, have overall responsibility to supervise and
conduct all financial, financial management and accounting functions of
Employer as well as all other functions and activities customarily supervised
or conducted by a Senior Vice President-Finance and Chief Financial Officer of
a publicly-traded company. Employee shall report directly to Employer's
President, or as otherwise directed from time to time by Employer's Chief
Executive Officer or President. Employee agrees to devote Employee's full and
exclusive time, skill, attention and energy diligently and competently to
perform the duties and responsibilities properly assigned to Employee
hereunder, or pursuant hereto.
B. Rules and Regulations. Employee agrees to abide by
the rules and regulations of Employer promulgated by Employer from time to time
with respect and applicable to Employer's similarly-situated employees
generally, which are all hereby incorporated by reference and made a part of
this Employment Agreement.
2
<PAGE> 3
5. COMPENSATION
A. Base Compensation. Subject to the provisions of
Section 9 of this Employment Agreement, Employer shall pay salary to Employee
("Salary") based upon the rate of $250,000 per annum for the Employment Term.
Employer may decide, in its sole discretion, to increase (but not to decrease)
the Salary at any time during the Employment Term. Salary shall be payable in
accordance with Employer's normal payroll practices for its employees and shall
be subject to payroll deductions and tax withholdings in accordance with
Employer's usual practices and as required by law.
B. Bonus Compensation.
(i) Employee shall receive a bonus of $25,000 in
respect of services performed by him during the 1996 calendar year, payable to
Employee on or before January 31, 1997 (the "1996 Bonus"). Thereafter, with
respect to each calendar-quarterly period during the Employment Term,
commencing with the calendar-quarterly period ending March 31, 1997, Employee
shall be entitled to receive a bonus of $25,000 if, but only if, the Quarterly
Performance Goal (as defined below) for such calendar quarter has been
achieved. The 1996 Bonus and each such calendar-quarterly bonus is referred
to as a "Bonus Amount." Each calendar-quarterly Bonus Amount shall be paid on
or before the 45th day following the end of the calendar quarter to which it
relates, except that the Bonus Amount for the fourth calendar-quarter of each
year shall be payable on or before March 31 of the next succeeding year. Each
Bonus Amount shall be subject to payroll deductions and tax withholdings in
accordance with Employer's usual payroll practices and as required by law.
(ii) No later than November 1, 1996, Employee
shall prepare or cause to be prepared a financial projection of Employer's
operations covering the period commencing January 1, 1997 and ending December
31, 1997, and, no later than November 1, 1997, Employee shall prepare or cause
to be prepared a financial projection of Employer's operations covering the
period commencing January 1, 1998 and ending on December 31, 1998 (as the case
may be, the "Financial Projection"). The Financial Projection shall be in such
format and contain such information, assumptions and detail, and shall cover
such periods within such annual period
3
<PAGE> 4
(i.e., calendar-monthly, calendar-quarterly, semi-annual, etc.), as Employer
shall direct, but shall in all events include calendar-quarterly projected
results ("Quarterly Projections"). The Financial Projection, as to the
Quarterly Projections and other time segments covered, shall be revised on a
periodic basis as determined by Employer, and shall be revised on a
non-periodic basis from time to time as directed by Employer in order to take
into account material events or changes which may occur from time to time
concerning (generally or specifically) Employer's operations, business or
industry. The Financial Projection shall also be extended on a periodic or
rolling basis and from time to time on a non-periodic basis as directed by
Employer to cover calendar-quarterly and other time periods beyond December 31,
1997 and/or December 31, 1998. In addition, whether or not Employer so directs
a non-periodic revision or extension to the Financial Projection, Employee
shall, as part of his obligations, propose to Employer, when appropriate, that
a non-periodic revision or extension be made, explaining the reasons therefor,
and prepare such revision or extension if Employer agrees that such revision or
extension is warranted. Employer and Employee shall use their respective best
efforts to cause the Financial Projection to be complete and final on or before
November 30 of the year in question and to cause any required non-periodic
revision or extension thereto to be complete and final within a reasonable
time, but in all events promptly, following Employer's decision to make such
non-periodic revision or extension. Scheduled periodic revisions and
extensions to the Financial Projection shall be completed by such times as
Employer shall reasonably determine. In the event of any disagreement between
Employer and Employee concerning the Financial Projection, or any revision
thereto or extension thereof, Employer's judgment shall be conclusive and
binding on the parties.
(iii) For each calendar-quarterly period during the
Employment Term, commencing with the calendar-quarterly period ending March 31,
1997, if Employer's earnings per share on a fully-diluted basis, as set forth
in Employer's published financial statements covering such calendar-quarterly
period, equals or exceeds the Quarterly Projection of earnings per share on a
fully-diluted basis (the "Quarterly Performance Goal"), Employee shall be
entitled to receive the Bonus Amount for such calendar-quarterly period. The
Quarterly Performance Goal for the calendar quarter in question which is in
effect on the first day of the calendar-quarterly period which is two calendar
quarters preceding the
4
<PAGE> 5
calendar quarter in question (or which is contained in the initial Financial
Projection with respect to the calendar quarters ending March 31, 1997 and June
30, 1997, respectively) shall be used to determine whether the Bonus Amount is
earned (the "Base Projection"); PROVIDED, HOWEVER, if, at any time subsequent
to the date of the Base Projection and prior to or during the
calendar-quarterly period being measured the Quarterly Performance Goal is
increased, such higher Quarterly Performance Goal shall be used to determine
whether the Bonus Amount has been earned. If the Quarterly Performance Goal is
decreased subsequent to the date of the Base Projection and prior to or during
the calendar quarter being measured, the Quarterly Performance Goal in the Base
Projection (and not the lower revised Quarterly Performance Goal) shall be used
to determine whether the Bonus Amount has been earned. If Employee's
employment terminates prior to the end of a calendar quarter, and the Quarterly
Performance Goal is achieved for such calendar quarter, except as otherwise
specifically set forth in this Employment Agreement, the Bonus Amount for such
calendar-quarter shall be a prorated amount equal to $25,000 multiplied by a
fraction, the numerator of which is the number of days Employee was employed
during such calendar quarter and the denominator of which is 91 (a "Prorated
Bonus Amount"). The term Prorated Bonus Amount as used in this Agreement also
refers, as the context requires, to any portion of a calendar quarter for which
a partial, prorated Bonus Amount would be payable as severance pay pursuant to
Section 9.E, which, if payable, shall be calculated in a manner consistent with
the previous sentence. Except as otherwise specifically set forth in this
Agreement, if Employee's employment terminates prior to December 31, 1996,
Employee shall not be entitled to receive the 1996 Bonus.
6. FRINGE BENEFITS AND EXPENSES
A. Employee Benefits. Employee shall be entitled to
such benefits and fringe benefits (such as individual and family health,
dental, life and disability insurance) as are made available by Employer from
time to time, in Employer's sole discretion, to all other similarly-situated
executive employees generally.
B. Expenses. Employer shall reimburse Employee for
Employee's reasonable out-of-pocket costs and expenses incurred in connection
with the performance of Employee's duties and
5
<PAGE> 6
responsibilities hereunder, subject to Employee's presentation of appropriate
documentation and, if requested, justification therefor, and provided that the
types and amounts of expenses incurred are consistent with, in Employer's
judgment, Employer's policies and practices.
C. Auto. Employer shall provide to Employee an
automobile allowance of $850.00 per month during the Employment Term in order
to defray Employee's automobile expenses incurred in the performance of
Employee's duties, but shall not be obligated to provide Employee with an
automobile.
D. Fair Market Value Stock Options. Employer has, in
further consideration of Employee's agreement to accept employment with
Employer and, in particular, Employee's agreements not to compete with Employer
later herein set forth, granted to Employee options to acquire an aggregate of
up to 200,000 shares of Employer's common stock pursuant to the Precision
Response Corporation 1996 Incentive Stock Plan and a Stock Option Agreement
between Employer and Employee, a copy of which is attached hereto.
7. VACATIONS
Employee shall be entitled to four (4) weeks vacation during
the first year of the Employment Term, four (4) weeks vacation during the
second year of the Employment Term and five (5) weeks vacation during the third
year of the Employment Term, with full compensation (provided, however, that
Employee shall not be entitled to be compensated for any unused vacation days
upon termination of employment). The periods during which Employee will be
absent from work for vacation shall be at the reasonable discretion of
Employer.
8. FACILITIES
Employer shall provide and maintain (or cause to be provided
and maintained) such facilities, equipment, supplies and personnel as it
reasonably deems necessary for Employee's performance of Employee's duties and
responsibilities under this Employment Agreement.
6
<PAGE> 7
9. TERMINATION OF EMPLOYMENT
A. Termination Events. Employee's employment under this
Employment Agreement may be terminated by Employer only as follows: with or
without Cause (as hereinafter defined), effective upon the delivery of written
notice to Employee; upon Employee's death; or upon Employee becoming Disabled
(as later defined) and receiving written notice of termination from Employer to
that effect. Employee may terminate Employee's employment under this
Employment Agreement without being in breach hereunder by giving written
notification of Employee's resignation to Employer which shall specify a
resignation date no earlier than ninety (90) days following the date of
delivery of such notice of resignation.
B. Definitions of Cause and Disabled. For purposes of
this Employment Agreement, "Cause" shall mean and include: (i) commission of
a felony, or commission of acts of fraud, dishonesty, or the like; (ii)
habitual drunkenness during business hours or at Employer's premises; (iii)
illicit use of drugs during business hours or at Employer's premises; (iv)
abandonment of employment duties; (v) negligence in the performance of
employment duties; (vi) an act or omission on the part of Employee not directed
by Employer which results in or contributes to Employer being sanctioned or
penalized by any governmental or quasi-governmental authority or body, or any
stock exchange or body regulating or governing publicly-traded companies
(including the NASD); (vii) insubordination; or (viii) breach by Employee of
this Employment Agreement which, if curable, is not cured by Employee within
ten (10) days following Employee's receipt of written notice thereof. Employee
shall be deemed "Disabled" for purposes of this Agreement (a) if, in the
reasonable judgment of Employer, Employee is unable, due to physical, mental or
emotional illness or injury, to perform substantially all of Employee's duties
and responsibilities for Employer for a continuous period of ninety (90) days,
or (b) if Employee is adjudicated as an incompetent or has a guardian appointed
to handle Employee's affairs.
C. Effect of Termination For Cause or Employee's
Resignation. In the event that Employee's employment under this Employment
Agreement is terminated by Employer with Cause, or because Employee resigns
from or quits Employee's employment, Employer shall pay to Employee, within
thirty (30) days following the date of such termination or resignation, subject
to Employer's
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<PAGE> 8
right to set off any damages resulting from Employee's termination with Cause
or, if applicable, a resignation effected without giving the required notice,
the Salary, if any, accrued and unpaid through the date of termination, and
shall pay and provide to Employee the amounts and items payable and to be
provided under Section 6.A., B. and C. through the date of such termination;
and Employee shall not be entitled to any other compensation, remuneration or
other sums provided for in this Employment Agreement or to which Employee might
otherwise be entitled hereunder or at law or in equity, including, without
limitation, any accrued or unpaid Bonus Amount or Prorated Bonus Amount. If
Employee gives a notice of resignation, Employer may terminate Employee's
employment prior to the 90th day following the notice of resignation, by
written notice to Employee to that effect, specifying the termination date, in
which event Employee shall continue to receive, as and when it would have been
paid, Salary and the items set forth in Section 6.A and C through such 90th
day.
D. Compensation Upon Death or Disability. Upon the
death of Employee, or termination of employment because Employee is Disabled,
Employer shall pay to Employee, Employee's legal guardian or the legal
representative of Employee's estate (or heir as designated by the legal
representative of Employee's estate at such time), (i) within thirty (30) days
following the date of Employee's death or termination, the Salary, if any,
accrued and unpaid through the date of termination, and shall pay and provide
the amounts and items payable and to be provided under Section 6.A., B. and C.
through the date of termination, and (ii) at the time or times usually payable,
any unpaid Bonus Amount and/or Prorated Bonus Amount earned through the date of
termination of employment; and Employee (or such legal guardian, legal
representative and heirs) shall not be entitled to any other compensation,
remuneration or other sums provided for in this Employment Agreement or to
which Employee might otherwise be entitled hereunder or at law or in equity.
E. Compensation Upon Termination Without Cause. In the
event that Employer terminates Employee's employment under this Employment
Agreement without Cause, Employee's sole and exclusive compensation and remedy
hereunder shall be to receive from Employer, and Employer shall pay and
provide, (i) the amount of Salary, if any, accrued and unpaid through the date
of termination, and the amounts and items payable and to be provided under
Section
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<PAGE> 9
6.A., B. and C. through the date of termination, payable within thirty (30)
days following termination of employment, (ii) at the time or times usually
payable, any unpaid Bonus Amount and/or Prorated Bonus Amount earned through
the date of termination of employment, and (iii) the sum of $350,000, payable
in twelve (12) equal monthly installments, and the amounts and items payable
and to be provided under Section 6.A. (to the extent permitted under the
subject plans or policies and by law) and C. that Employee would have received
during the 365-day period following termination of Employee's employment, as
and when it would have been payable or provided if Employee had remained an
employee of Employer for such additional 365-day period; PROVIDED, HOWEVER, if
Employee's employment is terminated after the second anniversary of the
Effective Date, Employee shall receive, in lieu of the foregoing amounts set
forth in this subparagraph (iii), the Salary, Bonus Amounts and Prorated Bonus
Amounts which, if earned, would have been received from the date of termination
of employment to the natural expiration of the Employment Term, in equal
monthly installments over such period, and the amounts and items payable and to
be provided under Section 6.A. (to the extent permitted under the subject plans
or policies and by law) and C. that Employee would have received over such
period, as and when it would have been payable or provided if Employee had
remained an employee of Employer during such period.
F. Key-Man Insurance. In the event that Employer
obtains a key-man insurance policy (the "Policy") on the life of Employee,
Employer shall be the sole owner thereof and all proceeds payable in respect
thereof shall be the property solely of Employer. In the event that Employee's
employment terminates for any reason other than Employee's death, Employee may
request that the Policy be assigned to Employee by giving written notice to
Employer to that effect. Subject to obtaining any requisite consent from the
insurer, Employer shall, if Employee has so requested, assign the Policy to
Employee subject to Employee's reimbursement to Employer of any premiums paid
by Employer which relate to any period following the date of termination of
Employee's employment, and the cash value, if any, of the Policy. In the event
that Employer desires to obtain any such Policy, Employee shall fully cooperate
in Employer's efforts, including submitting to medical exams and tests and
executing and delivering applications and information statements.
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<PAGE> 10
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. Confidential Information. Employee acknowledges that
Employee has been informed by Employer of Employer's policy to maintain as
secret and confidential all information and materials relating to (i) the
financial condition, operations, business and interests of Employer, (ii) the
systems, know-how, records, products, services, cost information, inventions,
computer software programs, marketing and sales techniques and/or programs,
methods, methodologies, manuals, lists and other trade secrets from time to
time acquired, sold, developed, maintained and/or used by Employer, and (iii)
the nature and terms of Employer's relationships with its clients, suppliers,
lenders, underwriters, vendors, consultants, independent contractors,
attorneys, accountants and employees (all such information and materials being
hereinafter collectively referred to as "Confidential Information"). Employee
further acknowledges that such Confidential Information is of great value to
Employer and has been developed by Employer as a result of substantial effort
and expense. Therefore, Employee understands that it is reasonably necessary
to protect Employer's good will, trade secrets and legitimate business
interests that Employee agree and, accordingly, Employee does hereby agree,
that Employee will not directly or indirectly (except where authorized by the
Board of Directors, Chairman of the Board, Chief Executive Officer or President
of Employer for the benefit of Employer and/or as required in the course of
employment) at any time hereafter divulge or disclose for any purpose to any
persons, firms, corporations or other entities (hereinafter referred to
collectively as "Third Parties"), or use or cause or authorize any Third
Parties to use, any such Confidential Information, except as otherwise required
by law.
B. Employer's Materials. In accordance with the
foregoing, Employee furthermore agrees that (i) Employee will at no time retain
or remove from the premises of Employer any products, prototypes, drawings,
notebooks, software programs or discs, tapes or similar containers of software,
manuals, data, books, records, materials or documents of any kind or
description for any purpose unconnected with the strict performance of
Employee's duties with Employer and (ii) upon the cessation or termination of
Employee's employment with Employer for any reason, Employee shall forthwith
deliver or cause to be delivered to Employer any and all drawings, notebooks,
software programs or discs, tapes or similar containers
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<PAGE> 11
of software, manuals, data, books, records, materials and other documents and
materials in Employee's possession or under Employee's control relating to any
Confidential Information or any other material or thing which is the property
of Employer.
11. COVENANT-NOT-TO-COMPETE
In view of (a) the Confidential Information known to and to be
obtained by or disclosed to Employee, and (b) the consideration paid and
payable to Employee under this Employment Agreement, and as a material
inducement to Employer to enter into this Employment Agreement, and to grant to
Employee stock options, Employee covenants and agrees that, for as long as
Employee is employed by Employer and for a period of two (2) years after the
date Employee ceases for any reason to be employed by Employer, Employee shall
not, directly or indirectly, (A) sell any products or services sold or offered
by Employer to any person or entity for or to whom Employer is performing
services or selling products or for or to whom Employer has performed services
or sold products at any time during the one-year period ending on Employee's
termination of employment, (B) solicit the services of, or hire, directly or
indirectly, whether on Employee's own behalf or on behalf of others, any
managerial or executive employee or account manager or information services
personnel (including, without limitation, programmers) of Employer or who was
employed by Employer at any time during the one-year period ending on the date
of termination of Employee's employment, or (C) in any capacity engage in any
venture, enterprise, activity or business, passively or actively, as an owner,
consultant, adviser, participant, officer, director, employee or agent,
competitive with the business of Employer in the areas of teleservicing,
database management and marketing or fulfillment services anywhere within the
continental United States (other than passive ownership of less than 1% of the
outstanding equity of a publicly-traded competitor). Employee acknowledges
that the business of Employer is national in scope, that one can effectively
compete with such business from anywhere in the continental United States, and
that, therefore, such geographical area of restriction is reasonable in the
circumstances to protect Employer's trade secrets and other legitimate business
interests.
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<PAGE> 12
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11
Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Section 10
or 11 hereof, Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations and benefits which Employee
directly or indirectly has realized and realizes as a result of, growing out of
or in connection with any such violation or breach. In addition, in the event
of a breach or violation or threatened or imminent breach or violation of any
provisions of Section 10 or 11 hereof, Employer shall be entitled to a
temporary and permanent injunction or any other appropriate decree of specific
performance or equitable relief (without being required to post bond or other
security) from a court of competent jurisdiction in order to prevent, prohibit
or restrain any such breach or violation or threatened or imminent breach or
violation by Employee, by Employee's partners, agents, representatives,
servants, employers or employees and/or by any Third Parties. Employer shall
be entitled to such injunctive or other equitable relief in addition to any
ascertainable damages which are suffered, together with reasonable attorneys'
and paralegals' fees and costs and other costs incurred in connection with any
such litigation, both before and at trial and at all tribunal levels. It is
understood that resort by Employer to such injunctive or other equitable relief
shall not be deemed to waive or to limit in any respect any other rights or
remedies which Employer may have with respect to such breach or violation.
13. REASONABLENESS OF RESTRICTIONS
A. Reasonableness. Employee acknowledges that any
breach or violation of Section 10 or 11 hereof will cause irreparable injury
and damage and incalculable harm to Employer and that it would be very
difficult or impossible to measure all of the damages resulting from any such
breach or violation. Employee further acknowledges that Employee has carefully
read and considered the provisions of Sections 10, 11 and 12 hereof and, having
done so, agrees that the restrictions and remedies set forth in such Sections
(including, but not limited to, the time period, geographical and types of
restrictions imposed) are fair and reasonable and are reasonably required for
the protection of the business, trade secrets, interests and good will of
Employer.
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<PAGE> 13
B. Severability. Employee understands and intends that
each provision and restriction agreed to by Employee in Sections 10, 11 and 12
hereof shall be construed as separate and divisible from every other provision
and restriction. In the event that any one of the provisions of, or
restrictions in, Sections 10, 11 and/or 12 hereof shall be held to be invalid
or unenforceable, and is not reformed by a court of competent jurisdiction
(which a court, in lieu of striking a provision entirely, is urged by the
parties to do), the remaining provisions thereof and restrictions therein shall
nevertheless continue to be valid and enforceable as though the invalid or
unenforceable provisions or restrictions had not been included. In the event
that any such provision relating to time period, geographical and/or type of
restriction shall be declared by a court of competent jurisdiction to exceed
the maximum or permissible time period, geographical or type of restriction
such court deems reasonable and enforceable, said time period, geographical
and/or type of restriction shall be deemed to become and shall thereafter be
the maximum time period or geographical area and/or type of restriction which
such court deems reasonable and enforceable.
C. Survivability. The restrictions, acknowledgments,
covenants and agreements of Employee set forth in Sections 10, 11, 12 and 13 of
this Employment Agreement shall survive any termination of this Employment
Agreement or of Employee's employment (for any reason, including expiration of
the Employment Term).
14. LAW APPLICABLE
This Employment Agreement shall be governed by and construed
pursuant to the laws of the State of Florida.
15. NOTICES
Any notices required or permitted to be given pursuant to this
Employment Agreement shall be sufficient if in writing, and delivered
personally, by commercial courier service or sent by certified mail, return
receipt requested, and sent to Employer's executive offices, to the attention
of the President, if mailed to Employer, and to Employee's then current
residence, if mailed to Employee.
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<PAGE> 14
16. SUCCESSION
This Employment Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective legal representatives,
heirs, assignees and/or successors in interest of any kind whatever; PROVIDED,
HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or
delegate any of Employee's rights, duties, responsibilities or obligations
hereunder to any other person or entity. Employer shall have the right to
assign its rights and delegate its duties under this Employment Agreement,
provided that, in the event of any such assignment, Employer shall remain
liable for all of its obligations hereunder.
17. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire final
agreement between the parties with respect to, and supersedes any and all prior
and contemporaneous agreements between the parties hereto both oral and written
concerning, the subject matter hereof and may not be amended, modified or
terminated except by a writing signed by the parties hereto.
18. SEVERABILITY
If any provision of this Employment Agreement shall be held to
be invalid or unenforceable, and is not reformed by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision and shall not in any way affect or render invalid or unenforceable
any other provision of this Employment Agreement, and this Employment Agreement
shall be carried out as if such invalid or unenforceable provision were not
herein contained.
19. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant herein contained shall not be deemed a continuing waiver or a waiver
of any future or past breach or violation. No oral waiver shall be binding.
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<PAGE> 15
20. ATTORNEYS' FEES
In the event that either of the parties to this Employment
Agreement institutes suit against the other party to this Employment Agreement
to enforce or declare any of their respective rights hereunder, the prevailing
party in such action shall be entitled to recover from the other party all
reasonable costs thereof, including reasonable attorneys' and paralegals' fees
and costs incurred before and at trial and at all tribunal levels, and whether
or not suit or any other proceeding is instituted.
21. COUNTERPARTS
This Employment Agreement may be executed in counterparts,
each of which shall be an original, but both of which together shall constitute
one and the same instrument.
22. INDEPENDENT COUNSEL
EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN
INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT
AGREEMENT BEFORE EMPLOYEE SIGNS IT.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the day and year first above written.
EMPLOYER:
PRECISION RESPONSE CORPORATION, a
Florida corporation
By: /s/ Mark J. Gordon
--------------------------------
Mark J. Gordon, Chief Executive
Officer
EMPLOYEE:
/s/ Paul M. O'Hara
------------------------------------
PAUL M. O'HARA
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<PAGE> 16
EXHIBIT "A"
STOCK OPTION AGREEMENT
<PAGE> 17
EXHIBIT "A"
PRECISION RESPONSE CORPORATION
STOCK OPTION AGREEMENT
Agreement dated as of the 9th day of August, 1996 (the "Date of
Grant") between Precision Response Corporation, a Florida corporation (and,
collectively with its subsidiaries, if any, the "Company") with its principal
office at 1505 N.W. 167th Street, Miami, Florida 33169, and Paul M. O'Hara, at
the address set forth beneath such person's signature on the signature page of
this Agreement ("Optionee").
1. Grant of Options
The Company grants to Optionee, on the terms and conditions
set forth below, options (the "Options") to purchase up to 200,000 shares
(individually a "Share" and collectively the "Shares") of Precision Response
Corporation common stock (the "Common Stock"), par value $.01 per share, for a
price of $23.88 per Share (the "Option Price"), subject to adjustment as
provided in Paragraph 3 below. Subject to the limitation set forth in the
Precision Response Corporation 1996 Incentive Stock Plan (the "Plan"), a copy
of which is attached hereto and incorporated herein by reference, that the
aggregate Fair Market Value (as defined in the Plan and as determined as of the
time the option is granted) of the shares of Common Stock with respect to which
Incentive Stock Options (as defined in and pursuant to the Plan) are
exercisable for the first time by a participant during any calendar year (under
all option plans of the Company) shall not exceed $100,000, the Options shall
be designated as Incentive Stock Options to the maximum extent permitted by law
and under the Plan. To the extent that the number of Options which vest in any
calendar year pursuant to the vesting schedule set forth below exceeds the
number which may properly be designated as Incentive Stock Options pursuant to
applicable law or under the Plan, such excess number of Options shall, pursuant
to the provisions of Section 6(e) of the Plan, be designated as Nonqualified
Stock Options (as defined in and pursuant to the Plan).
2. Terms and Conditions of Options
(a) Option Price
Subject to paragraph 3 hereof, the Option Price shall
be the Fair Market Value per share of Common Stock on the Date of Grant, but in
no event less than the par value per Share.
<PAGE> 18
(b) Vesting of Options
Subject to such further limitations as are provided
for herein, the Options shall vest, if at all (and be exercisable once vested)
in the following amounts:
(i) Options to purchase 20,000 of the Shares
shall vest on the first anniversary date of the Date of Grant;
(ii) Options to purchase an additional 30,000 of
the Shares shall vest on the second anniversary date of the Date of Grant;
(iii) Options to purchase an additional 42,500 of
the Shares shall vest on each of the third, fourth and fifth anniversary dates
of the Date of Grant; and
(iv) Options to purchase the remaining 22,500
Shares shall vest on the sixth anniversary date of the Date of Grant.
Notwithstanding the vesting schedule set forth above, the Optionee
shall become immediately 100% vested in all outstanding Options and may
immediately exercise such Options subject to the time frames set forth in
subparagraph (e) below, (A) upon termination of Optionee's employment by the
Company other than by reason of death, disability, breach of an employment
agreement with the Company or for cause, or (B) upon a Change in Control (as
hereinafter defined) of the Company. For purposes of this Agreement, a "Change
in Control" means (1) neither Mark Gordon (for these purposes, counting all
common stock owned by Mark Gordon's Affiliates) nor David Epstein (for these
purposes, counting all common stock owned by David Epstein's Affiliates) owns
at least 10% of the issued and outstanding common stock of the Company, (2)
neither Mark Gordon (for these purposes, counting all common stock owned by
Mark Gordon's Affiliates) nor David Epstein (for these purposes, counting all
common stock owned by David Epstein's Affiliates) is the stockholder of the
Company owning the highest number of issued and outstanding shares of common
stock of the Company, or (3) neither Mark Gordon nor David Epstein occupies the
position of Chairman of the Board, Chief Executive Officer or President of the
Company. "Affiliate" means, for these purposes, with respect to Mark Gordon or
David Epstein, an immediate family member of his, a trust principally for his
benefit and/or the benefit of his family members and/or lineal descendants, or
a family limited partnership or other entity the beneficial owners of which
are, principally, him and/or his immediate family members. Other than the
accelerated vesting provided for herein due to termination of Optionee's
employment by the Company other than by reason of death, disability, breach of
an employment agreement with the Company or for cause, Optionee shall not
become vested in any Options subsequent to the termination of his employment
regardless of any exercise period provided in subparagraph (e) below.
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(c) Term of Options
The Options may be exercised by the Optionee in whole
or in part from time to time, but only during the period beginning on the date
of this Agreement and ending August 8, 2004, subject in all cases, however, to
subparagraphs (b) and (e) of this paragraph 2, paragraph 3 and the other
provisions of this Agreement and the Plan. In no event shall any of the
Options granted under this Agreement be exercisable after the expiration of 10
years from the Date of Grant of such Options.
(d) Non-transferability of Options
Options shall not be transferable by Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code") or Title I of the Employment Retirement Income
Security Act, or the rules thereunder, and, except with respect to a qualified
domestic relations order as aforesaid, may be exercised during Optionee's
lifetime only by Optionee. If any Options are exercised after Optionee's
death, the Company may require evidence reasonably satisfactory to it of the
appointment and qualification of Optionee's personal representatives and their
authority and of the right of any heir or distributee to exercise such Options.
(e) Termination of Employment
If Optionee's employment with the Company terminates
the unexercised portion of any of the Options granted under this Agreement
shall automatically and without notice terminate and become null and void at
the time of the earliest to occur of the following:
(1) The expiration of eight (8) years from the
Date of Grant;
(2) The expiration of three months from the date
of termination of the Optionee's employment by the Company (other than a
termination described in subparagraph (3), (4) or (5) below); PROVIDED, THAT,
if the Optionee shall die during such three-month period, the time of
termination of the unexpired portion of any such Option shall be determined
under the provision of subparagraph (4) below;
(3) The expiration of one year from the date of
termination of the employment of an Optionee due to permanent and total
disability (other than a termination described in subparagraph (5) below);
(4) The expiration of eighteen (18) months
following the issuance of letters testamentary or letters of administration to
the personal representative, executor or administrator of a deceased Optionee,
if the Optionee's death occurs either during his employment by the Company or
during the three-month period following the date of termination of such
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<PAGE> 20
employment (other than a termination described in subparagraph (5) below), but
in no event later than two years after the Optionee's death;
(5) The date of termination of the Optionee's
employment by the Company if such termination constitutes or is attributable to
a breach by the Optionee of an employment agreement with the Company, or its
parent, if any, or if the Optionee has been discharged for cause. The
Committee (as defined in the Plan) shall have the right to determine whether
the Optionee has been discharged for cause and the date of such discharge, and
such determination of the Committee shall be final and conclusive.
Neither this Agreement nor any Option granted hereunder shall confer
on Optionee any right to continue in the Company's employ, or limit in any
respect the Company's right (in the absence of a specific written agreement to
the contrary) to terminate Optionee's employment at any time with or without
cause.
(f) Exercise of Options
Subject to the limitations set forth herein and the
provisions hereof, the Options may be exercised only by written notice to the
Company, at its principal business office or such other office as the Committee
may from time to time direct, which shall contain provisions consistent with
the provisions of the Plan as the Committee may from time to time prescribe and
shall specify the number of optioned Shares being purchased. Not less than one
hundred (100) Shares may be purchased at any one time upon exercise of the
Options unless the number purchased is the total number then purchasable under
this Agreement. Subsequent to the grant of any Options which are not
immediately exercisable in full, the Committee, at any time before complete
termination of such Options, may accelerate the time or times at which such
Options may be exercised in whole or in part. Any notice of exercise of
Options shall be accompanied by payment of the full purchase price for the
Shares being purchased: (i) by check payable to the Company; or (ii) with the
prior consent of the Committee, by tendering previously acquired shares of
Common Stock having a fair market value (determined as of the date such
Options are exercised and in the same manner as the Fair Market Value of the
Option Price is determined under the Plan) equal to all of the purchase price
or (iii) by any combination of (i) and (ii). The Company shall have no
obligation to deliver the Shares being purchased pursuant to the exercise of
any Options, in whole or in part, until the aforesaid payment in full of the
purchase price therefor is received by the Company.
(g) Issuance of Shares
The exercise of Options granted hereunder is subject
to the condition that if at any time the listing, registration or qualification
of the Shares covered by the Options upon any securities exchange or under any
state or federal law is necessary as a condition of or in connection with the
purchase or delivery of Shares, the delivery of any or all Shares pursuant to
exercise of the Options may be withheld unless and until such listing,
registration or qualification
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<PAGE> 21
shall have been effected. Optionee agrees to comply with any and all legal
requirements relating to Optionee's resale or other disposition of any Shares
acquired under this Agreement. The Committee may require, as a condition of
exercise of any Options, that the Optionee represent, in writing that the
Shares received upon exercise of the Options are being acquired for investment
and not with a view to distribution and agree that the Shares will not be
disposed of except pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and only after any required qualifications
under applicable state securities laws, unless the Company shall have received
an opinion of counsel satisfactory to the Company that such disposition is
exempt from such registration and qualification. There may be endorsed on
certificates representing Shares issued upon the exercise of Options such
legends referring to the foregoing representations or any applicable
restrictions on resale as the Committee, in its discretion, shall deem
reasonably appropriate, as well as place such stop transfer orders with its
registrar and transfer agent as it deems reasonably appropriate.
(h) Rights as a Shareholder
Optionee shall acquire none of the rights of a
shareholder of the Company under this Agreement unless and until certificates
for such Shares are issued to Optionee upon the exercise of Options.
(i) Six-Month Holding Period
Optionee acknowledges that in no event may any Shares
acquired upon exercise of any Options be sold or otherwise disposed of until
after six (6) months have elapsed from the Date of Grant except, in the event
of Optionee's death during such period, for a sale by the executors or
administrators of Optionee's estate relying on Rule 16a-2(d)(1)(i) of the
Securities Exchange Act of 1934, as amended.
3. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, stock dividend,
reclassification or recapitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of any Options
theretofore granted pursuant to this Agreement are outstanding but unexercised,
the Committee shall make such adjustments in the character and number of
Shares subject to such Options and in the Option Price as shall be equitable
and appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change; PROVIDED, however,
that no such adjustment shall give any Optionee any additional benefits under
this Agreement; and PROVIDED FURTHER, that, if any such adjustment is made by
reason of a transaction described in section 424(a) of the Code, it shall be
made so as to conform to the requirements of that section and the regulations
thereunder.
If any transaction (other than a change specified in the
preceding paragraph) described in section 424(a) of the Code affects the
Company's Common Stock subject to any
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<PAGE> 22
unexercised Option theretofore granted hereunder (hereinafter for purposes of
this paragraph 3 referred to as the "old option"), the Committee or any
surviving or acquiring corporation may take such action as it deems
appropriate, and in conformity with the requirements of that section and the
regulations thereunder, to substitute a new option for the old option, in order
to make the new option, as nearly as may be practicable, equivalent to the old
option, or to assume the old option.
If any such change or transaction shall occur, the number and
kind of Shares to be issued upon the exercise of any Options shall be adjusted
to give effect thereto.
4. Optionee Bound by Plan
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by the terms and provisions thereof, regardless of
whether such provisions have been set forth in this Agreement. In the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
5. Application of Funds
The proceeds received by the Company from the sale of Shares
subject to Options may be commingled with any other corporate funds and used
for any corporate purpose.
6. General
(a) Any communication in connection with this Agreement
shall be deemed duly given when delivered in person or mailed by certified or
registered mail, return receipt requested, to Optionee at his or her address
listed on the signature page hereof or such other address of which Optionee
shall have advised by similar notice, or to the Company or Committee at the
Company's then executive offices.
(b) This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter, may not be changed or
terminated orally and shall be governed by and construed in accordance with the
internal law of the State of Florida. This Agreement shall bind and inure to
the benefit of Optionee, and his heirs, distributees and personal and legal
representatives, and the Company and its successors and assigns.
(c) As a condition of the granting of the Options
hereunder, Optionee agrees, for himself and his heirs, distributees and his
personal and legal representatives, that any dispute or disagreement which may
arise under or as a result of or pursuant to this Agreement shall be determined
and resolved by the Committee in its sole discretion, and any interpretation by
the Committee of the terms of this Agreement or the Plan shall be final,
binding and conclusive.
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<PAGE> 23
(d) Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in the masculine, the feminine or
the neuter gender shall include the masculine, feminine and neuter.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Optionee: PRECISION RESPONSE CORPORATION,
a Florida corporation
______________________________ By:_______________________________
Paul M. O'Hara David Epstein, President
430 Coral Way
Fort Lauderdale, Florida 33301
7
<PAGE> 1
EXHIBIT 10.3
INDEPENDENT CONTRACTOR AGREEMENT
INDEPENDENT CONTRACTOR AGREEMENT, dated as of July 26, 1996
("Agreement"), by and between PRECISION RESPONSE CORPORATION, a Florida
corporation ("PRC"), and BERNIE KOSAR, JR. ("Contractor").
W I T N E S S E T H :
WHEREAS, PRC is in the business of providing outsourced integrated
information services, including telemarketing and other teleservices, database
management and marketing services, fulfillment services, and other marketing and
related services (collectively, the "Services");
WHEREAS, PRC desires to engage Contractor, and Contractor desires to be
engaged by PRC, as an independent contractor and not as an employee, to market
and promote the Services to appropriate businesses and industries, and to
consult with PRC with respect to business development, client relations matters
and corporate development matters generally.
NOW, THEREFORE, in consideration of the premises and respective
undertakings of each of the parties below, the parties covenant and agree, each
with the other (but not in regard to any third person) to enter into this
Agreement upon the following terms and conditions:
ARTICLE 1
DEFINED TERMS
1.1 DEFINITIONS. Unless the context otherwise requires, the
defined terms used in this Agreement shall have the respective meanings
specified in this Article 1.
"Agreement" means this Independent Contractor Agreement between
PRC and Contractor.
"Confidential Information" means all information relating to
(i) the financial condition, business and interests of PRC, and
<PAGE> 2
its affiliates (ii) the systems, know-how, trade secrets, products, services,
costs, inventions, computer software programs, marketing and sales techniques
and/or programs, methods, methodologies, manuals, lists and other trade secrets
heretofore or hereafter owned, acquired, sold, developed and/or used by PRC and
its affiliates, and (iii) the nature and terms of PRC's and its affiliates'
relationships with their respective clients, customers, suppliers, lenders,
underwriters, vendors, consultants, independent contractors, attorneys,
accountants and employees.
"Contractor" means Bernie Kosar.
"Expenses" means all reasonable expenses incurred by
Contractor directly in connection with the performance by Contractor of his
obligations under this Agreement, including, but not limited to, first-class
air travel, meals, entertainment, hotel accommodations, car rentals, and
taxi-cab fare.
"Plan" means the Precision Response Corporation 1996 Incentive
Stock Plan. Capitalized terms used herein which are not defined herein shall
have the respective meanings ascribed to them in the Plan (a copy of which is
attached as an exhibit to the Stock Option Agreement which is attached as
Exhibit "A" to this Agreement).
"PRC" means Precision Response Corporation, a Florida
corporation.
"Stock Options" means Non-Qualified Stock Options to be
granted by the Committee to Contractor pursuant to the Stock Option Agreement
attached as Exhibit "A" hereto to acquire up to 60,000 shares of the common
stock of PRC at the Fair Market Value thereof on the date of grant.
"Third Parties" means any persons, firms, corporations or
entities other than PRC, its affiliates, and Contractor.
2
<PAGE> 3
ARTICLE 2
RECITALS
2.1 RECITALS TRUE. The parties agree that the recitals above are
true and correct and constitute a part of this Agreement.
ARTICLE 3
ENGAGEMENT AND SERVICES
3.1 ENGAGEMENT. PRC hereby engages Contractor, and Contractor
hereby agrees to be engaged by PRC, as an independent contractor and not as an
employee, to perform the services described below. PRC shall not be restricted
from engaging any other person or entity to perform services similar to the
type to be performed by Contractor pursuant to this Agreement.
3.2 SERVICES. Contractor shall consult with PRC's Board of
Directors and executive officers as requested by PRC from time to time during
the term of this Agreement with respect to general corporate and business
development matters. Contractor shall, as part of his duties, use his best
efforts on a continuous basis during the term of this Agreement to promote the
Services to appropriate businesses and industries in the United States and
abroad, in accordance with guidelines and standards determined by PRC.
Contractor's services shall also include the active solicitation by him of
potential clients for PRC in accordance with guidelines and standards
determined by PRC. Further, Contractor shall, as requested by PRC from time to
time during the term of this Agreement, participate and engage in corporate and
business development, public relations, marketing and client relations
meetings, activities and events, and perform specific services with respect to
client relations with particular clients as requested from time to time by PRC.
Contractor acknowledges that PRC has established itself in its industry as a
highly-reputable company known for high quality service and professional and
ethical operations and management. In performing his obligations, Contractor
shall use his best efforts at all times to do, and to refrain from doing,
whatever is necessary to ensure that his conduct in performing such obligations
preserves and enhances PRC's business reputation. PRC shall have no obligation
to accept the
3
<PAGE> 4
business of any prospective client introduced or proposed by Contractor, or
agree to perform any particular service for any potential client proposed by
Contractor.
3.3 CONTRACTOR'S AUTHORITY. Contractor shall have no authority to
bind PRC to a contract or commitment of any kind. Any contract to be executed
between PRC and any potential client of PRC introduced by Contractor must be in
form and content prepared by or agreed to by PRC or its attorneys and must be
executed by an officer of PRC. Contractor shall not make any oral or written
representations, warranties or guaranties of any kind or nature on behalf of
PRC to any client or potential client of PRC.
ARTICLE 4
COMPENSATION AND REIMBURSEMENT
4.1 MONTHLY FEE. Contractor shall receive a monthly fee (the
"Monthly Fee") of $5,833.33 during the term of his engagement, payable on or
before the last day of each month during the engagement. With respect to any
partial month during the term of Contractor's engagement, such fee will be
appropriately prorated.
4.2 STOCK OPTIONS. PRC shall cause the Committee to grant to
Contractor the Stock Options on the date of this Agreement pursuant to the
Stock Option Agreement attached as Exhibit "A" hereto.
4.3 REIMBURSEMENT. PRC shall reimburse Contractor for all
reasonable Expenses of Contractor, provided such Expenses are documented by
receipts, credit card statements, or other written verification.
ARTICLE 5
CONTRACTOR STATUS
5.1 CONTRACTOR STATUS. Contractor acknowledges and agrees that as
an independent contractor of PRC he shall not receive any salary or benefits of
any kind, nor shall any amounts for payroll taxes be withheld from his fees.
Contractor shall be solely responsible to pay all self-employment taxes,
including social
4
<PAGE> 5
security and medicare, and all estimated federal, state or local income taxes
applicable to Contractor as a self-employed person. PRC shall provide to
Contractor and the Internal Revenue Service such appropriate forms, including
appropriate Forms 1099, as may be required by law. PRC shall not be providing
to Contractor any facilities, tools or materials which may be necessary or
appropriate in order for Contractor to perform his obligations under this
Agreement, although PRC shall make available to Contractor such administrative
support services as may be reasonably necessary at such times, if any, as
Contractor performs services at PRC's premises.
ARTICLE 6
TERM AND TERMINATION
6.1 TERM. The term of this Agreement shall be for a period of one
(1) year from the date hereof, unless sooner terminated pursuant to Section 6.2
hereof.
6.2 EARLY TERMINATION. Notwithstanding anything to the contrary
contained in this Agreement, Contractor's engagement hereunder shall terminate
(a) upon his death, (b) upon Contractor being unable, in the reasonable
judgment of PRC, due to physical, mental or emotional illness or injury, to
perform substantially all of his duties hereunder for at least 45 days of any
60-consecutive-day period during the term of this Agreement, or (c) upon
written notice from PRC terminating the engagement for "cause" (which means,
for purposes of this Agreement, commission of a crime by Contractor, dishonest
or fraudulent conduct on the part of Contractor, negligence by Contractor in
the performance of his duties, refusal of Contractor to perform services
reasonably requested by PRC, acts or omissions of Contractor contrary to, or in
breach of, any term of this Agreement, or conduct on the part of Contractor
(whether or not related to performance of his services) contrary to the
business interests, or injurious to the business reputation, of PRC). Upon any
such termination, Contractor (or his estate or legal representative, if
applicable) shall receive, within 30 days following the date of termination,
any Monthly Fees accrued and unpaid through the date of termination.
5
<PAGE> 6
ARTICLE 7
CONFIDENTIALITY AND COVENANT-NOT-TO-COMPETE
7.1 CONFIDENTIAL INFORMATION. Contractor acknowledges that
Contractor has been informed by PRC of PRC's policy to maintain as secret and
confidential all Confidential Information, including any Confidential
Information developed or compiled by Contractor during the term of his
engagement by PRC, all of which shall be the property of PRC. Contractor
acknowledges that such Confidential Information is of great value to PRC and
its affiliates. Contractor further acknowledges that, as a result of
Contractor's relationship with PRC, Contractor will be making use of, acquiring
and/or adding to such Confidential Information. Therefore, Contractor
understands that it is reasonably necessary to protect PRC's and its
affiliates' good will, trade secrets and legitimate business interests, that
Contractor agree and, accordingly, Contractor does hereby agree, that
Contractor will not directly or indirectly (except where authorized by the
President of PRC for the benefit of PRC and/or its affiliate(s) and/or as
required in the course of performing his obligations under this Agreement) at
any time hereafter divulge or disclose for any purpose whatsoever to any Third
Parties, or use or cause or authorize any Third Parties to use, any such
Confidential Information, except as otherwise required by law.
7.2 PRC'S MATERIALS. In accordance with the foregoing, Contractor
furthermore agrees that (i) Contractor will at no time retain or remove from
the premises of PRC or its affiliates any products, prototypes, drawings,
notebooks, software programs or discs or similar containers of software,
manuals, data, books, records, materials or documents of any kind or
description for any purpose unconnected with the strict performance of
Contractor's obligations under this Agreement and (ii) upon the cessation or
termination of Contractor's engagement for any reason, Contractor shall
forthwith deliver or cause to be delivered to PRC any and all drawings,
notebooks, software programs or discs or similar containers of software,
manuals, data, books, records, materials and other documents and materials in
Contractor's possession or under Contractor's control relating to any
Confidential Information or any other material or thing which is the property
of PRC or its affiliates.
6
<PAGE> 7
7.3 COVENANT-NOT-TO-COMPETE. In view of the Confidential
Information to be obtained by or disclosed to Contractor, because of the
know-how acquired and to be acquired by Contractor, and as a material
inducement to PRC to enter into this Agreement and to pay to Contractor the
fees Contractor will be receiving and to grant the Stock Options, Contractor
covenants and agrees that, so long as Contractor is engaged by or is receiving
any payments or fees from PRC and for a period of one (1) year after Contractor
ceases for any reason to be engaged by or receive payments or fees from PRC,
Contractor shall not, directly or indirectly, on his own behalf or on behalf of
others, directly or indirectly, as a partner, owner, agent, consultant,
independent contractor, employee, stockholder, director, officer or otherwise,
in any manner participate in, or promote, any business similar to, or
competitive with, PRC's business anywhere within the continental United States.
7.4 PRC'S REMEDIES FOR BREACH. Contractor covenants and agrees
that if Contractor shall violate or breach any of Contractor's covenants or
agreements provided for in this Article 7, PRC and/or its affiliates shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remunerations or benefits which Contractor directly or indirectly
has realized or realizes as a result of, growing out of or in connection with
any such violation or breach. In addition, in the event of a breach or
violation or threatened or imminent breach or violation of any provisions this
Article 7, PRC and/or its affiliates shall be entitled to a temporary and
permanent injunction or any other appropriate decree of specific performance or
equitable relief (without being required to post any bond or other security)
from a court of competent jurisdiction in order to prevent, prohibit or
restrain any such breach or violation or threatened or imminent breach or
violation by Contractor, by Contractor's partners, agents, representatives,
servants, employers or employees and/or by any Third Parties. PRC shall be
entitled to such injunctive or other equitable relief in addition to any
damages which are suffered, together with reasonable attorneys' and paralegals'
fees and costs, and other costs incurred in connection with any such
litigation, both before and at trial and at all tribunal levels. It is
understood that resort by PRC
7
<PAGE> 8
and/or its affiliates to such injunctive or other equitable relief shall not be
deemed to waive or to limit in any respect any other rights or remedies which
PRC or its affiliates may have with respect to such breach or violation.
7.5 REASONABLENESS. Contractor acknowledges that any breach or
violation of this Article 7 will cause irreparable injury and damage and
incalculable harm to PRC and its affiliates and that it would be very difficult
or impossible to measure all of the damages resulting from any such breach or
violation. Contractor further acknowledges that Contractor has carefully read
and considered the provisions of this Article 7 and, having done so, agrees
that the restrictions and remedies set forth in this Article 7 (including, but
not limited to, the time period and geographical restrictions imposed) are fair
and reasonable and are reasonably required for the protection of the business,
trade secrets, interests and good will of PRC and its affiliates. Contractor
further acknowledges that Contractor's covenants in this Article 7 have been
made to induce PRC to enter into this Agreement.
7.6 SEVERABILITY. Contractor understands and intends that each
provision and restriction agreed to by Contractor in this Article 7 shall be
construed as separate and divisible from every other provision and restriction.
In the event that any one of the provisions of, or restrictions in this Article
7, shall be held to be invalid or unenforceable, and is not reformed by a court
of competent jurisdiction, the remaining provisions thereof and restrictions
therein shall nevertheless continue to be valid and enforceable as though the
invalid or unenforceable provisions or restrictions had not been included.
7.7 SURVIVABILITY. The restrictions, acknowledgments, covenants
and agreements of Contractor set forth in this Article 7 shall survive any
termination of this Agreement or of Contractor's engagement.
ARTICLE 8
MISCELLANEOUS
8.1 INDEPENDENT COUNSEL. PRC and Contractor agree that each of
them has been, or were advised and fully understand that they are entitled to
be, represented by independent legal counsel with
8
<PAGE> 9
respect to all matters contemplated herein, from the commencement of
negotiations at all times through the execution hereof.
8.2 LAW APPLICABLE. This Agreement shall be governed by and
construed pursuant to the laws of the State of Florida, without giving effect
to conflicts of laws principles. Each party consents to personal jurisdiction
in Florida and agrees that venue of any dispute hereunder shall lie only in any
court of competent subject-matter jurisdiction located in Miami, Dade County,
Florida.
8.3 NOTICES. Any notices required or permitted to be given
pursuant to this Agreement shall be sufficient, if in writing and hand
delivered (in person or by courier) or sent by certified or registered mail,
return receipt requested, to his residence, in the case of Contractor, or to
PRC's executive offices, in the case of PRC.
8.4 SUCCESSION. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective legal representatives,
heirs, assignees and/or successors in interest of any kind whatsoever;
provided, however, that Contractor acknowledges and agrees that he cannot
assign or delegate any of his rights, duties, responsibilities or obligations
hereunder to any other person or entity except as specifically permitted by
this Agreement.
8.5 ENTIRE AGREEMENT. This Agreement constitutes the entire final
agreement between the parties with respect to, and supersedes any and all prior
agreements between the parties hereto both oral and written concerning, the
subject matter hereof and may not be amended, modified or terminated except by
a writing signed by the parties hereto.
8.6 SEVERABILITY. If any provision of this Agreement shall be
held to be invalid or unenforceable, and is not reformed by a court of
competent jurisdiction, such invalidity or unenforceability shall attach only
to such provision and shall not in any way affect or render invalid or
unenforceable any other provision of this Agreement, and this Agreement shall
be carried out as if such invalid or unenforceable provision were not contained
herein.
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<PAGE> 10
8.7 NO WAIVER. A waiver of any breach or violation of any term,
provision or covenant contained herein shall not be deemed a continuing waiver
or a waiver of any future or past breach or violation. No oral waiver shall be
binding.
8.8 ATTORNEYS' FEES. In the event that either of the parties to
this Agreement institutes suit against the other party to this Agreement to
enforce or declare any of his or its rights hereunder, the prevailing party in
such action shall be entitled to recover from the other party all reasonable
costs thereof, including reasonable attorneys' and paralegals' fees and costs
incurred before and at trial and at all tribunal levels.
8.9 TITLES OR CAPTIONS. Title or captions in this Agreement are
inserted only as a matter of convenience and are for reference only. Such
titles and captions shall not be construed to define, limit, extend or describe
the scope of this Agreement nor the intent of any provision.
8.10 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original, but both of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
PRECISION RESPONSE CORPORATION
By: /s/ David Epstein
------------------------
Name: D. Epstein
-----------------------
Title: Pres.
-----------------------
/s/ Bernie Kosar, Jr.
----------------------------
BERNIE KOSAR, JR.
10
<PAGE> 11
EXHIBIT "A"
STOCK OPTION AGREEMENT
<PAGE> 12
PRECISION RESPONSE CORPORATION
STOCK OPTION AGREEMENT
Agreement dated as of the 26th day of July, 1996 (the "Date of
Grant") between Precision Response Corporation, a Florida corporation (and,
collectively with its subsidiaries, if any, the "Company") with its principal
office at 1505 N.W. 167th Street, Miami, Florida 33169, and Bernie Kosar, Jr.,
at the address set forth beneath such person's signature on the signature page
of this Agreement ("Optionee").
1. Grant of Options
The Company grants to Optionee, on the terms and conditions
set forth below, options (the "Options") to purchase up to 60,000 shares
(individually a "Share" and collectively the "Shares") of Precision Response
Corporation common stock (the "Common Stock"), par value $.01 per share, for a
price per Share equal to the Fair Market Value on the Date of Grant (the
"Option Price"), subject to adjustment as provided in Paragraph 3 below. Each
of the Options are granted as Nonqualified Stock Options as defined in and
pursuant to the Precision Response Corporation 1996 Incentive Stock Plan (the
"Plan"), a copy of which is attached hereto and incorporated herein by
reference, and are subject to the provisions of the Plan. Capitalized terms
used herein which are not defined herein shall have the respective meanings
ascribed to them in the Plan.
2. Terms and Conditions of Options
(a) Option Price
The Option Price per Share shall be the Fair Market
Value thereof on the Date of Grant, but in no event less than the par value per
Share.
(b) Vesting of Options
Subject to such further limitations as are provided
for herein, all of the Options shall vest, if at all (and be exercisable once
vested) on January 1, 1997.
<PAGE> 13
In the event Optionee dies or becomes disabled prior to January 1,
1997, Optionee shall nevertheless become vested in all outstanding Options on
January 1, 1997, and Optionee or his estate or beneficiaries (in the case of
death) may then exercise such Options at any time or from time to time prior to
the expiration of the term of the Options set forth in subparagraph (c) below.
In the event Optionee dies or becomes disabled on or after January 1, 1997,
Optionee or his estate or beneficiaries (in the case of death) may exercise
such Options at any time or from time to time prior to the expiration of the
term of the Options set forth in subparagraph (c) below.
(c) Term of Options
The Options may be exercised by the Optionee in whole
or in part from time to time, but only during the period beginning January 1,
1997 and ending at 5:00, p.m. of the last business day of December 1999,
subject in all cases, however, to subparagraph (e) of this paragraph 2 and the
other provisions of this Agreement and the Plan.
(d) Non-transferability of Options
Options shall not be transferable by Optionee other
than by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code") or Title I of the Employment Retirement Income
Security Act, or the rules thereunder, and, except with respect to a qualified
domestic relations order as aforesaid, may be exercised during Optionee's
lifetime only by Optionee. If any Options are exercised after Optionee's
death, the Company may require evidence reasonably satisfactory to it of the
appointment and qualification of Optionee's personal representatives and their
authority and of the right of any heir or distributee to exercise such Options.
(e) Termination of Independent Contractor Agreement for "Cause"
The Options are being granted to Optionee in
connection with that certain Independent Contractor Agreement, of even date
herewith, between Company and Optionee (the "Independent
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<PAGE> 14
Contractor Agreement"). If Optionee's engagement with the Company under the
Independent Contractor Agreement is terminated by the Company for "cause", as
defined in the Independent Contractor Agreement, or by Optionee resigning from
his engagement prior to the expiration of the term thereof, the unexercised
portion of any of the Options granted under this Agreement shall automatically
and without notice terminate and become null and void upon such termination for
"cause" or resignation, notwithstanding any other provision of this Agreement
to the contrary.
(f) Exercise of Options
Subject to the limitations set forth herein and the
provisions hereof, the Options may be exercised only by written notice to the
Company, at its principal business office or such other office as the Committee
may from time to time direct, which shall contain provisions consistent with
the provisions of the Plan as the Committee may from time to time prescribe and
shall specify the number of optioned Shares being purchased. Not less than one
thousand (1000) shares may be purchased at any one time upon exercise of the
Options unless the number purchased is the total number then purchasable under
this Agreement. Any notice of exercise of Options shall be accompanied by
payment of the full purchase price for the Shares being purchased: (i) by check
payable to the Company; or (ii) with the prior consent of the Committee, by
tendering previously acquired shares of Common Stock having a fair market value
(determined as of the date such Options are exercised and in the same manner as
the Fair Market Value of the Option Price is determined under the Plan) equal
to the purchase price or (iii) by any combination of (i) and (ii). The Company
shall have no obligation to deliver the Shares being purchased pursuant to the
exercise of any Options, in whole or in part, until the aforesaid payment in
full of the purchase price therefor is received by the Company.
(g) Issuance of Shares
The exercise of Options granted hereunder is subject
to the condition that if at any time the listing, registration or qualification
of the Shares covered by the Options upon any securities exchange or under any
state or federal law is necessary as a condition of or in connection with the
purchase or delivery of
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<PAGE> 15
Shares, the delivery of any or all Shares pursuant to exercise of the Options
may be withheld unless and until such listing, registration or qualification
shall have been effected. Optionee agrees to comply with any and all legal
requirements relating to Optionee's resale or other disposition of any Shares
acquired under this Agreement. The Committee may require, as a condition of
exercise of any Options, that the Optionee represent, in writing, that the
Shares received upon exercise of the Options are being acquired for investment
and not with a view to distribution and agree that the Shares will not be
disposed of except pursuant to an effective registration statement under the
Securities Act of 1933, as amended, and only after any required qualifications
under applicable state securities laws, unless the Company shall have received
an opinion of counsel satisfactory to the Company that such disposition is
exempt from such registration and qualification. There may be endorsed on
certificates representing Shares issued upon the exercise of Options such
legends referring to the foregoing representations or any applicable
restrictions on resale as the Committee, in its discretion, shall deem
reasonably appropriate, as well as placement of such stop transfer orders with
the Company's registrar and transfer agent as the Committee deems reasonably
appropriate.
(h) Rights as a Shareholder
Optionee shall acquire none of the rights of a
shareholder of the Company under this Agreement unless and until certificates
for such Shares are issued to Optionee upon the exercise of Options.
3. Adjustment Upon Changes in Capitalization, etc.
In the event of any stock split, stock dividend,
reclassification or recapitalization which changes the character or amount of
the Company's outstanding Common Stock while any portion of any Options
theretofore granted pursuant to this Agreement are outstanding but unexercised,
the Committee shall make such adjustments in the character and number of Shares
subject to such Options and in the Option Price as shall be equitable and
appropriate in order to make such Options, as nearly as may be practicable,
equivalent to such Options immediately prior to such change; PROVIDED, HOWEVER,
that no such adjustment shall give any
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<PAGE> 16
Optionee any additional benefits under this Agreement; and PROVIDED FURTHER
that, if any such adjustment is made by reason of a transaction described in
section 424(a) of the Code, it shall be made so as to conform to the
requirements of that section and the regulations thereunder.
If any transaction (other than a change specified in the
preceding paragraph) described in section 424(a) of the Code affects the
Company's Common Stock subject to any unexercised Option theretofore granted
hereunder (hereinafter for purposes of this paragraph 3 referred to as the "old
option"), the Committee or any surviving or acquiring corporation may take such
action as it deems appropriate, and in conformity with the requirements of that
section and the regulations thereunder, to substitute a new option for the old
option, in order to make the new option, as nearly as may be practicable,
equivalent to the old option, or to assume the old option.
If any such change or transaction shall occur, the number and
kind of Shares to be issued upon the exercise of any Options shall be adjusted
to give effect thereto.
4. Optionee Bound by Plan
The Optionee hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by the terms and provisions thereof, regardless of
whether such provisions have been set forth in this Agreement. In the event of
any conflict between this Agreement and the Plan, the Plan shall govern.
5. Application of Funds
The proceeds received by the Company from the sale of Shares
subject to Options may be commingled with any other corporate funds and used
for any corporate purpose.
6. General
(a) Any communication in connection with this Agreement
shall be deemed duly given when delivered in person or mailed by certified or
registered mail, return receipt requested, to Optionee at his or her address
listed on the signature page hereof or such
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other address of which Optionee shall have advised by similar notice, or to the
Company or Committee at the Company's then executive offices.
(b) This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter, may not be changed or
terminated orally and shall be governed by and construed in accordance with the
internal law of the State of Florida. This Agreement shall bind and inure to
the benefit of Optionee, and his heirs, distributees and personal and legal
representatives, and the Company and its successors and assigns.
(c) As a condition of the granting of the Options
hereunder, Optionee agrees for himself and his heirs, distributees and his
personal and legal representatives, that any dispute or disagreement which may
arise under or as a result of or pursuant to this Agreement shall be determined
and resolved by the Committee in its sole discretion, and any interpretation by
the Committee of the terms of this Agreement or the Plan shall be final,
binding and conclusive.
(d) Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in the masculine, the feminine or
the neuter gender shall include the masculine, feminine and neuter.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
Optionee: PRECISION RESPONSE CORPORATION,
a Florida Corporation
/s/ Bernie Kosar, Jr. By:/s/ David Epstein
______________________________ __________________________
Bernie Kosar, Jr. David Epstein, President
2968 Westbrook
Ft. Lauderdale, Florida 33332
6
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PRO FORMA PER SHARE EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
------------------- -------------------------
DECEMBER 31, SEPTEMBER 30,
------------ -------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pro forma net income
(loss).............. $ (200,403) $ (286,282) $ 836,756 $ 567,989 $ 3,800,350
----------- ----------- ----------- ----------- -----------
Weighted average
number of
shares of Common
Stock outstanding:
Actual shares...... 16,400,000 16,400,000 16,400,000 16,400,000 17,345,983
Additional shares
required to
replace the
distribution to
shareholders in
excess of pro forma
earnings for the
twelve months ended
June 30, 1996....... 0 0 127,061 0 93,675
----------- ----------- ----------- ----------- -----------
16,400,000 16,400,000 16,527,061 16,400,000 17,439,658
----------- ----------- ----------- ----------- -----------
Pro forma net income
(loss)
per share of Common
Stock $ (0.01) $ (0.02) $ 0.05 $ 0.03 $ 0.22
=========== =========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,945,621
<SECURITIES> 0
<RECEIVABLES> 34,864,883
<ALLOWANCES> 1,103,987
<INVENTORY> 0
<CURRENT-ASSETS> 47,612,075
<PP&E> 31,542,234
<DEPRECIATION> 5,162,725
<TOTAL-ASSETS> 76,334,062
<CURRENT-LIABILITIES> 19,124,346
<BONDS> 5,749,468
0
0
<COMMON> 200,000
<OTHER-SE> 50,153,081
<TOTAL-LIABILITY-AND-EQUITY> 76,334,062
<SALES> 0
<TOTAL-REVENUES> 63,591,807
<CGS> 0
<TOTAL-COSTS> 41,020,866
<OTHER-EXPENSES> 14,791,828
<LOSS-PROVISION> 875,000
<INTEREST-EXPENSE> 783,437
<INCOME-PRETAX> 6,343,616
<INCOME-TAX> 2,543,266 <F1>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,800,350 <F2>
<EPS-PRIMARY> .22 <F2>
<EPS-DILUTED> .22 <F2>
<FN>
<F1> - REPRESENTS PRO FORMA PROVISION FOR INCOME TAXES RELATING TO S
CORPORATION. SEE NOTE 4 OF NOTES TO CONDENSED FINANCIAL STATEMENTS.
<F2> - AMOUNTS ARE PRESENTED ON A PRO FORMA BASIS ASSUMING CONVERSION FROM
AN S CORPORATION. SEE NOTE 4 OF NOTES TO CONDENSED FINANCIAL STATEMENTS.
</FN>
</TABLE>
