<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to _____________
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 Identification No.)
incorporation or organization)
1505 N.W. 167TH STREET, MIAMI, FLORIDA 33169
(Address of principal executive offices)(Zip code)
(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 [ ]
ON AUGUST 12, 1997, THE REGISTRANT HAD 21,512,000 OUTSTANDING SHARES OF
COMMON STOCK, $0.01 PAR VALUE.
<PAGE> 2
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
ITEM NO. PAGE(S)
- -------- -------
<S> <C>
PART I.
1. FINANCIAL STATEMENTS
Consolidated Balance Sheets -
June 30, 1997 (Unaudited) and December 31, 1996................ 3
Consolidated Statements of Operations (Unaudited) -
Three and six months ended June 30, 1997 and 1996.............. 4
Consolidated Statements of Cash Flows (Unaudited) -
Six months ended June 30, 1997 and 1996........................ 5
Notes to Consolidated Financial Statements.......................... 6-8
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 9-14
PART II.
2. CHANGES IN SECURITIES............................................... 15
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 15
6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 16
Signatures.......................................................... 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1997 December 31,
(UNAUDITED) 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 13,985 $ 7,262
Accounts receivable, net of allowances
of $2,102 and $2,650, respectively.............................. 43,201 30,049
Income taxes receivable............................................. 3,848 -
Deferred income taxes............................................... 1,794 1,321
Prepaid expenses and other current assets........................... 4,937 2,999
--------------- ----------------
Total current assets ....................................... 67,765 41,631
Property and equipment, net............................................. 63,055 42,034
Other assets............................................................ 5,276 4,750
--------------- ----------------
Total assets................................................ $136,096 $88,415
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations......................... $ 2,456 2,624
Accounts payable.................................................... 8,989 17,294
Accrued compensation expenses....................................... 4,368 4,078
Income taxes payable................................................ - 1,645
Other accrued expenses.............................................. 3,505 1,721
Customer deposits................................................... 2,352 2,420
--------------- ----------------
Total current liabilities................................... 21,670 29,782
Long-term obligations, less current maturities.......................... 4,786 4,190
Deferred income taxes................................................... 3,761 1,493
--------------- ----------------
Total liabilities........................................... $ 30,217 $35,465
--------------- ----------------
Commitments and contingencies........................................... - -
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000
shares authorized; 21,512,000 and
20,000,000 issued and outstanding,
respectively.................................................... 215 200
Additional paid-in capital.......................................... 96,957 47,808
Retained earnings................................................... 8,987 5,394
Unearned compensation............................................... (280) (452)
--------------- ----------------
Total shareholders' equity.................................. 105,879 52,950
--------------- ----------------
Total liabilities and shareholders' equity.................. $136,096 $88,415
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUES....................................... $ 35,963 $ 21,919 $ 73,978 $ 33,545
------------ ------------ ------------- ------------
OPERATING EXPENSES:
Cost of services........................... 29,294 16,462 56,791 25,134
Selling, general and administrative
expenses................................ 6,070 3,037 11,273 5,101
------------ ------------ ------------- ------------
Total operating expenses........... 35,364 19,499 68,064 30,235
------------ ------------ ------------- ------------
Operating income................... 599 2,420 5,914 3,310
OTHER INCOME (EXPENSE):
Interest income............................ 352 - 697 -
Interest expense........................... (160) (264) (333) (400)
------------ ------------ ------------- ------------
INCOME BEFORE INCOME TAXES......... 791 2,156 6,278 2,910
Income tax provision........................... 316 - 2,511 -
------------ ------------ ------------- ------------
NET INCOME......................... $ 475 $ 2,156 $ 3,767 $ 2,910
============ ============ ============= ============
NET INCOME PER COMMON SHARE........ $ 0.02 $ 0.18
============ =============
PROFORMA DATA:
Income before proforma income taxes........ $ 2,156 $ 2,910
Proforma provision for income
taxes relating to S corporation........ 858 1,170
------------ ------------
PROFORMA NET INCOME................ $ 1,298 $ 1,740
============ ============
PROFORMA NET INCOME PER
COMMON SHARE................... $ 0.08 $ 0.11
============ ============
Weighted average number of common
shares outstanding..................... 21,512 16,527 21,269 16,527
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 3,767 $ 2,910
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization........................................ 4,932 760
Provision for bad debts and sales allowances......................... 2,171 -
Amortization of unearned compensation................................ 172 -
Deferred income tax expense.......................................... 1,795 -
Changes in operating assets and liabilities, excluding
effects of acquisition:
Accounts receivable.................................................. (15,323) (13,807)
Income taxes receivable.............................................. (3,848) -
Prepaid expenses and other current assets............................ (1,938) (268)
Other assets......................................................... 473 (81)
Accounts payable..................................................... (8,497) 5,193
Accrued compensation expenses........................................ 290 1,063
Income taxes payable................................................. (1,645) -
Other accrued expenses............................................... 1,784 918
Customer deposits.................................................... (68) 421
------------ ------------
Net cash used in operating activities............................ (15,935) (2,891)
------------ ------------
Cash flows from investing activities:
Cash acquired in acquisition, net of cash paid........................... 192 -
Purchases of property and equipment, net................................. (23,605) (2,838)
Software development costs............................................... (1,660) -
------------ ------------
Net cash used in investing activities............................ (25,073) (2,838)
------------ ------------
Cash flows from financing activities:
Proceeds from revolving credit loan...................................... - 6,581
Payments on long-term obligations........................................ (1,259) (661)
Net proceeds from issuance of common stock............................... 49,164 -
Dividends paid........................................................... (174) -
Prepaid IPO costs........................................................ - (242)
Net advances to shareholders............................................. - (216)
------------ ------------
Net cash provided by financing activities........................ 47,731 5,462
------------ ------------
Net increase (decrease) in cash and cash equivalents......................... 6,723 (267)
Cash and cash equivalents at beginning of period............................. 7,262 267
------------ ------------
Cash and cash equivalents at end of period................................... $ 13,985 $ -
============ ============
Supplemental schedule of non-cash investing and financing activities:
Installment loans and capital lease obligations...................... $ 1,687 $ 6,329
============ ============
Accrued IPO costs.................................................... $ - $ 386
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND BASIS OF PRESENTATION
Precision Response Corporation and subsidiaries (the "Company") is a
full-service provider of teleservicing, database marketing and management, and
fulfillment services on an outsourced and cosourced basis to large corporations.
During the second quarter of 1997, the Company acquired for $100 all of
the outstanding capital stock of the general contracting company whose sole
business was to manage and oversee the subcontractors who constructed the
leasehold improvements necessary to make the Company's new call centers
operational. At the date of acquisition, this entity had cash and accounts
payable of approximately $192,000. As such, this entity is now a wholly-owned
subsidiary of the Company. All material accounts and transactions between the
Company and such subsidiary have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules and regulations of the Securities and
Exchange Commission (the "SEC"). The unaudited consolidated interim financial
information reflects all normal recurring adjustments, which are, in the opinion
of management, necessary for a fair presentation of the interim unaudited
consolidated financial statements. The balance sheet at December 31, 1996
included herein has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These interim results of operations for the six months ended June 30, 1997 and
1996 are not necessarily indicative of results that may be expected for the full
fiscal years. The unaudited consolidated financial statements contained herein
should be read in conjunction with the audited financial statements and notes
thereto contained in the Company's annual report on Form 10-K for the fiscal
year ended December 31, 1996 filed with the SEC on March 31, 1997.
Certain amounts in the 1996 financial statements have been reclassified
to conform with the current year presentation.
2. PUBLIC OFFERING
Effective January 29, 1997 (the actual closing date was February 4,
1997), the Company and certain selling shareholders completed an equity offering
of 4,740,000 shares of the Company's common stock (the "Common Stock") at an
offering price of $35.125 per share (the "Second Equity Offering"). Of the
4,740,000 shares of Common Stock, 1,500,000 shares were sold by the Company. Net
proceeds to the Company from the Second Equity Offering in the amount of $49.2
million, after deducting $3.5 million in costs associated with the offering, are
being used for call center expansion, other capital expenditures necessary to
support the Company's growth, working capital and other general corporate
purposes.
3. REVENUES
Revenues for the three and six months ended June 30, 1997 included
$31.4 million and $64.2 million, respectively, of the Company's traditional
teleservicing, database marketing and management and fulfillment services.
Additional revenues of $4.6 million and $9.8 million were generated during the
6
<PAGE> 7
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
three and six months ended June 30, 1997, respectively, from the transfer of
teleservicing-based software applications. Such transfers of existing
teleservicing-based software applications were made in lieu of developing new
but functionally similar applications over time for these customers. These
transfers produced substantially higher margins than would have been the case
had the Company developed unique applications for these customers, thereby
generating all of the Company's operating income for the three and six months
ended June 30, 1997.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of both owned property and property
under capital leases, the details of which are set forth below (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
--------------------------------------- --------------------------------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Telecommunications
equipment............. $ 17,137 $ 4,947 $ 22,084 $ 9,312 $ 4,940 $ 14,252
Computer equipment........ 25,178 5,105 30,283 16,601 4,933 21,534
Leasehold improvements.... 14,817 - 14,817 8,289 - 8,289
Furniture and fixtures.... 6,575 - 6,575 2,741 973 3,714
Other..................... 248 70 318 995 - 995
---------- ---------- ----------- ---------- ---------- -----------
63,955 10,122 74,077 37,938 10,846 48,784
Accumulated depreciation
and amortization...... (9,247) (1,775) (11,022) (4,736) (2,014) (6,750)
---------- ---------- ----------- ---------- ---------- -----------
$ 54,708 $ 8,347 $ 63,055 $ 33,202 $ 8,832 $ 42,034
========== ========== =========== ========== ========== ===========
</TABLE>
5. PROFORMA DISCLOSURES AND DIVIDENDS PAID
On July 16, 1996, the Company converted from an S corporation to a C
corporation and adopted the asset and liability method of accounting for income
taxes. Proforma net income for the three and six months ended June 30, 1996
include a proforma provision for Federal and state income taxes as if the
Company were subject to such taxes as a C corporation for the entire period.
This proforma provision is computed using a combined Federal and state tax rate
of 37.6%.
During the three months ended June 30, 1997, the Company's final tax
filing as an S corporation was completed and filed. As a result, a $174,000
dividend was paid to the Company's existing shareholders prior to the Company's
initial public offering of its Common Stock completed in July 1996 (the "Initial
Public Offering"), pursuant to the S corporation tax allocation and
indemnification agreement, as a final distribution of the Company's accumulated
taxable income prior to conversion to C corporation status.
6. EARNINGS PER SHARE
During the first quarter of 1997, the Financial Accounting Standards
Board issued Statement No. 128, EARNINGS PER SHARE ("SFAS No. 128"), which
supersedes Accounting Principles Board Opinion No. 15, EARNINGS PER SHARE. SFAS
No. 128 is effective for financial statements for both interim and annual
periods after December 15, 1997. Early application is prohibited; however, the
Company believes that had the provisions of SFAS No. 128 been applicable to the
accompanying consolidated financial
7
<PAGE> 8
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements, earnings per share amounts would not be materially different than
the amounts reported herein.
7. RELATED PARTY TRANSACTIONS
During the three and six months ended June 30, 1997, the Company paid
approximately $200,000 in fees to charter an aircraft in connection with
business travel for the Company's personnel. The aircraft is owned by an entity
of which the Company's chairman and chief executive officer is the sole
shareholder.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this report.
OVERVIEW AND BASIS OF PRESENTATION
The Company currently offers its customers single source, integrated
solutions for their teleservicing, database marketing and management and
fulfillment needs. The Company's primary source of revenue is teleservicing
activities which are comprised of both inbound (customer-initiated) and outbound
(Company-initiated) calls. The majority of teleservicing revenues, excluding
account services, are derived from inbound calls, which represented
approximately 75% of teleservicing revenues and 52% of total revenues for the
three months ended June 30, 1997 as compared to approximately 67% of
teleservicing revenues and 49% of total revenues for the three months ended June
30, 1996. For the six months ended June 30, 1997, teleservicing revenues,
excluding account services, derived from inbound calls represented approximately
83% of teleservicing revenues and 59% of total revenues as compared to
approximately 73% of teleservicing revenues and 53% of total revenues for the
same period of the prior year.
Information services provided by the database marketing and management
group typically 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. Additionally, although the
Company's core business is providing teleservices on an outsourced basis to its
clients, certain clients prefer to "cosource" certain programs whereby the
Company and the client will jointly manage programs, with the Company making
available to the client certain software, systems and services.
Fulfillment services include high-speed laser and electronic document
printing, lettershop and mechanical inserting, sorting, packaging and mailing
capabilities. While fulfillment services represent a relatively small portion of
the Company's total revenues, they are an important element in the Company's
overall marketing strategy of providing its customers with a "one-stop" solution
to their telephone-based customer service and direct marketing needs.
Costs associated with servicing the Company's clients, consisting
primarily of certain costs incurred in the operations of call centers and the
fulfillment facility, such as rent for real property and leased equipment,
insurance, property taxes and certain departmental overhead directly related to
revenue-producing departments, were reclassified from selling, general and
administrative expenses to cost of services beginning in the fourth quarter of
1996, with all previously reported periods restated accordingly.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data,
as a percentage of revenues, for the periods indicated:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
SELECTED OPERATING RESULTS:
Revenues.................................. 100.0% 100.0% 100.0% 100.0%
Cost of services.......................... 81.5 75.1 76.8 74.9
----------- ----------- ---------- -----------
Gross margin.............................. 18.5 24.9 23.2 25.1
Selling, general and administrative
expenses............................... 16.8 13.9 15.2 15.2
----------- ----------- ---------- -----------
Operating income.................. 1.7% 11.0% 8.0% 9.9%
=========== =========== ========== ===========
</TABLE>
REVENUES
Revenues for the three and six months ended June 30, 1997 were $36.0
million and $74.0 million, respectively, an increase of $14.0 million (64.1%)
and $40.4 million (120.5%) over the comparable periods in the prior year. The
principal components of revenues are teleservicing activities, which include
account services (representing approximately 73.0% of revenues for both the
three and six months ended June 30, 1997 and 76.0% of revenues for both the
three and six months ended June 30, 1996), and information services
(representing approximately 23.5% of revenues for both the three and six months
ended June 30, 1997 and 22.0% of revenues for both the three and six months
ended June 30, 1996), with the balance primarily represented by fulfillment
services.
The number of call centers in operation increased from six as of June
30, 1996 to nine as of June 30, 1997, including the opening of one new call
center in both the first and second quarters of 1997 and the conversion of one
small call center into administrative offices in the first quarter of 1997.
Correspondingly, workstation capacity increased from approximately 2,090
workstations as of June 30, 1996 to approximately 4,500 workstations as of June
30, 1997. For the three months ended June 30, 1997, the Company's workstation
capacity exceeded its requirements for the level of business the Company
experienced. As of June 30, 1997, approximately 1,600 workstations were not
being utilized to generate revenues. The Company is attempting to accelerate the
award of additional work from existing clients in order to expedite the
utilization of these workstations.
Teleservicing activities, principally inbound services, accounted for
the majority of the revenue growth during both the three and six months ended
June 30, 1997. Revenues from teleservicing activities for the three and six
months ended June 30, 1997 were $26.3 million and $54.2 million, respectively,
an increase of $9.6 million (57.5%) and $28.4 million (110.5%) over the
comparable periods in the prior year. Major factors contributing to the increase
in teleservicing revenues were the addition of several new programs for existing
clients as well as the addition of new clients, principally in the direct
broadcasting and telecommunications equipment industries.
Revenues from information services for the three and six months ended
June 30, 1997 were $8.3 million and $17.7 million, respectively, an increase of
$3.2 million (62.7%) and $10.5 million (145.8%) over the comparable periods in
the prior year. These increases were primarily attributable to the transfers of
teleservicing-based application software. The transfers of teleservicing-based
application software amounted to $4.6 million and $9.8 million for the three and
six months ended June 30, 1997.
10
<PAGE> 11
Such transfers produce substantially higher margins than other information
services (which involve the development of unique, individual customer-based
applications) and generated all of the Company's operating income in both the
three and six months ended June 30, 1997. During the three months ended June 30,
1997, the Company did not complete the number of transfers that it had
anticipated which, if completed, would have increased revenues and net income
for the period. The Company intends to continue to market the transfer of
teleservicing-based application software. Due to the substantially higher
margins on these transfers, the Company's operating results could be
significantly impacted based upon the success of the Company in effecting these
transactions in any future period.
COST OF SERVICES
Cost of services generally include all direct and some indirect costs
incurred in connection with the Company's revenue-producing departments,
including, but not limited to, labor, telephone expenses directly related to
revenue-generating activities, equipment under operating leases used in the call
centers and fulfillment facility, direct overhead for all such operational
facilities, such as rent, security and insurance, and depreciation and
amortization of property and equipment used in operations. Cost of services
increased by $12.8 million (77.9%), and $31.7 million (126.0%), for the
three and six months ended June 30, 1997, respectively, as compared to the same
period of the prior year, principally as a result of the growth in operations.
The increase in cost of services, as a percentage of revenues, from
75.1% for the three months ended June 30, 1996 to 81.5% for the three months
ended June 30, 1997 and from 74.9% for the six months ended June 30, 1996 to
76.8% for the six months ended June 30, 1997 was primarily attributable to the
Company's expansion of its infrastructure. This included increasing the number
of call centers and related workstations in anticipation of providing increased
services to the Company's largest customer. That increase in services did not
materialize leaving the Company with excess capacity and a higher than desired
cost structure for the second quarter of 1997 and for at least the remainder of
1997. Additionally, during the three month period ended June 30, 1997, costs
were incurred in connection with systems development work which the Company
elected not to bill as incentives to accelerate the award of additional work
from existing clients in order to expedite the utilization of the Company's
unused capacity.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") generally include
the costs of central services the Company provides to support and manage its
operations, including senior management, sales and marketing, human resources,
as well as finance and accounting functions. The increase of $3.0 million
(99.9%) and $6.2 million (121.0%) in SG&A for the three and six months ended
June 30, 1997, respectively, as compared to the same period of the prior year,
was primarily due to increases in sales commissions and administrative salaries
and benefits to support the Company's growth along with increases in the
provision for the allowance for doubtful accounts and general liability
reserves.
The increase in SG&A as a percentage of revenues, from 13.9% for the
three months ended June 30, 1996 to 16.8% for the three months ended June 30,
1997 (SG&A remained the same as a percentage of sales for the six months ended
June 30, 1997 and 1996) was primarily attributable to the addition of management
personnel during the second quarter of 1997 to support the continuing growth of
the Company.
11
<PAGE> 12
INTEREST, NET
Interest income, net of interest expense, was $192,000 and $364,000 for
the three and six months ended June 30, 1997, respectively, as compared to
interest expense of $264,000 and $400,000 for the three and six months ended
June 30, 1996, respectively. This improvement reflects the ability of the
Company to generate interest income during the first half of 1997 from the
investment of a portion of the net proceeds from the Second Equity Offering and
the absence of borrowings from the Company's existing credit facility. See Note
2-Public Offering of the notes to the consolidated financial statements. The
proceeds from borrowings during the six months ended June 30, 1996 were
primarily obtained from the then existing revolving loan and capital lease
financing.
INCOME TAXES
Prior to the Initial Public Offering, the Company was an S corporation
and, accordingly, was not subject to Federal and state income taxes. Therefore,
both the three and six month periods ended June 30, 1996 do not include a
provision for Federal and state income taxes.
NET INCOME AND NET INCOME PER SHARE
For the three months ended June 30, 1997, net income was $0.5 million
compared to proforma net income of $1.3 million for the comparable period of
1996. Net income per share for the three months ended June 30, 1997 was $.02,
compared to proforma net income per share of $.08 in 1996. The earnings per
share calculation for the quarter ended June 30, 1997 is based on approximately
30% more shares outstanding relative to the comparable period of 1996.
For the six months ended June 30, 1997, net income was $3.8 million
compared to proforma net income of $1.7 million for the comparable period of
1996. Net income per share for the six months ended June 30, 1997 increased to
$0.18 from proforma net income per share of $0.11 in 1996. The earnings per
share calculation for the six months ended June 30, 1997 is based on
approximately 29% more shares outstanding relative to the comparable period of
1996.
Proforma net income for both the three and six months ended June 30,
1996 includes a proforma provision for Federal and state income taxes as if the
Company were subject to such taxes as a C corporation for that period. The
Company was a C corporation throughout the six months ended June 30, 1997;
therefore, net income for the three and six months ended June 30, 1997 includes
the appropriate provision under such income tax status.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Initial Public Offering, the Company funded its operations
and capital expenditures primarily through cash flows from operations, bank
borrowings and capital lease financing. During the first quarter of 1997, the
Company obtained additional liquidity from the net proceeds of the Second Equity
Offering.
Effective January 29, 1997 (the actual closing date was February 4,
1997), the Company and certain selling shareholders completed the Second Equity
Offering at an offering price of $35.125 per share. Of the 4,740,000 shares of
Common Stock, 1,500,000 shares were sold by the Company. Net proceeds to the
Company from the Second Equity Offering in the amount of $49.2 million, after
deducting $3.5 million in costs associated with the offering, are being used for
call center expansion,
12
<PAGE> 13
other capital expenditures necessary to support the Company's growth, working
capital and other general corporate purposes.
The Company has a revolving credit facility (the "Senior Revolving
Facility") which provides for revolving loans in an aggregate principal amount
not to exceed $15.0 million and matures in May 1999. The Company may borrow up
to 85% of eligible accounts receivable. The Senior Revolving Facility is
primarily collateralized by accounts receivable. Based upon eligible accounts
receivable and no outstanding borrowings under the Senior Revolving Facility as
of June 30, 1997, availability thereunder was $15.0 million as of June 30, 1997.
The Senior Revolving Facility accrues interest at the Company's option at the
prime rate plus 0.5% or the LIBOR rate plus 3.0%. The Company pays a fee of
0.25% per annum on unused commitments under the Senior Revolving Facility. The
Company is required, under the terms of the Senior Revolving Facility, to
maintain certain financial covenants, including minimum tangible net worth and
earnings. The agreement also contains certain restrictions on additional
indebtedness, capital expenditures and the declaration and payment of dividends.
At June 30, 1997, the Company had cash and cash equivalents of $14.0
million and total debt of $7.2 million. Net cash used in operating activities
was $15.9 million and $2.9 million for the six months ended June 30, 1997 and
1996, respectively. The $13.0 million increase in net cash used in operating
activities during the first half of 1997 was primarily due to the use of
proceeds from the Second Equity Offering to strengthen the Company's working
capital position and the payment of estimated income taxes as a result of the
Company's C corporation income tax status offset by the growth in income before
non-cash charges.
Capital spending totaled $25.1 million for the six months ended June
30, 1997 compared to $2.8 million for the same period of the prior year.
Workstation capacity increased from approximately 3,220 as of December 31, 1996
to approximately 4,500 as of June 30, 1997. The major increases in capital
expenditures for the first half of 1997 were telecommunications and computer
equipment principally attributable to the increase in the Company's total
workstation capacity and, to a lesser extent, leasehold improvements for the new
call centers (one in the first quarter and one in the second quarter of 1997) to
house the additional workstations. In addition, the Company expended $1.6
million during the first half of 1997 for the internal development of software
which is being used as part of the Company's teleservicing programs or otherwise
marketed to clients.
Net cash provided by financing activities was $47.7 million and $5.5
million for the six months ended June 30, 1997 and 1996, respectively. During
the six months ended June 30, 1997, the Company raised additional capital from
the Second Equity Offering and used a portion of the net proceeds provided by
such offering principally to fund anticipated workstation capacity growth.
Borrowings during the six months ended June 30, 1996 were primarily from the
Company's then existing revolving credit loan and were principally used for
working capital needs.
The Company believes that funds generated from operations, the net
proceeds from the Second Equity Offering, available borrowings under the Senior
Revolving Facility and lease financing will be sufficient to finance its planned
capital expenditures and anticipated growth through 1997. Additionally, the
Company is currently negotiating the terms of a new credit facility for funding
of future growth. The Company's long-term capital requirements will depend on
many factors, including, but not limited to, the rate at which the Company
expands its business. To the extent that the funds generated from the sources
described above are insufficient to fund the Company's activities in the short
or long term, the Company would need to raise additional funds through public or
private financings. No assurance can be given that additional financing will be
available or that, if available, it will be available on terms favorable to the
Company.
13
<PAGE> 14
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences 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 services offered to clients and the
timing of additional operating expenses to acquire and support new business. In
addition, the termination or completion of a large customer service program or
the loss or delay in implementation of a large customer service program or in a
transfer of teleservicing-based application software could cause the Company to
experience such quarterly variations.
Relative to revenue mix, due to the significantly higher margins
generated from revenue earned from the transfers of teleservicing-based
application software, fluctuations in gross and operating margins may occur
whenever such revenue mix fluctuates from quarter to quarter.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements (within the meaning of
Section 21E. of the Securities Exchange Act of 1934, as amended), representing
the Company's current expectations and beliefs concerning future events. When
used in this report, the words "believes," "estimates," "plans," "expects,"
"intends," "anticipates," "may" and similar expressions as they relate to the
Company or its management are intended to identify forward-looking statements.
The actual results of the Company could differ materially from those indicated
by the forward-looking statements because of various risks, factors and
uncertainties related to and including, without limitation, the Company's
effective and timely initiation and development of new client relationships and
programs, the maintenance of existing client relationships and programs
(particularly since the Company's agreements with its clients generally do not
assure the Company will generate a specific level of revenue, do not designate
the Company as the exclusive service provider and are terminable on short
notice), the successful marketing of the Company's information services and
teleservicing-based application software, the opening of new call centers in
accordance with strategic plans and in a timely and economic manner consistent
with existing capacity requirements, the recruitment and retention of qualified
personnel, the continued enhancement of telecommunications, computer and
information technologies and operational and financial systems, the continued
and anticipated growth in industry trends towards outsourcing and cosourcing 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, consumer interest in, and use of, the Company's clients' products
and services, general economic conditions, costs of telephone services,
financing and leasing of equipment, the adequacy of cash flows from operations
and available financings to fund capital needs and future growth, changes in
governmental rules and regulations applicable to the Company and other risks set
forth in this report and in the Company's other filings with the Securities and
Exchange Commission. These risks and uncertainties are beyond the ability of the
Company to control; in many cases, the Company cannot predict the risks and
uncertainties that could cause actual results to differ materially from those
indicated by the forward-looking statements.
14
<PAGE> 15
PART II.
ITEM 2. CHANGES IN SECURITIES
(c) Sales of Unregistered Securities
The Company did not issue or sell any unregistered securities during
the quarter ended June 30, 1997, except as follows:
(i) The Company granted options to purchase 861,000 shares of Common
Stock to 104 employees pursuant to the Company's Amended and
Restated 1996 Incentive Stock Plan (the "Incentive Stock Plan").
Of these options, 230,000 were granted at an exercise price of
$16.00 per share, 100,000 were granted at an exercise price of
$17.625 per share, 480,000 were granted at an exercise price of
$21.125 per share and 51,000 were granted at an exercise price of
$21.9375 per share. These options have a term of seven years and
vest at the rate of 20% per year, except for (1) an option to
purchase 100,000 shares which vested in full on the date of grant
and has a ten year term, (2) an option to purchase 150,000
shares, 40,000 of which shares vest at the rate of 33 1/3% per
year and 110,000 of which shares vest at the rate of 20% per year
and (3) an option to purchase 60,000 shares, 10,000 of which
shares vested on date of grant and 50,000 of which shares vest at
the rate of 20% per year.
(ii) The Company also granted an option to purchase 2,500 shares of
Common Stock to each of two non-employee directors pursuant to
the 1996 Non-employee Director Stock Option Plan. Each option has
an exercise price of $21.125 per share, a term of ten years and
vests in equal installments over three years.
The foregoing stock options were granted by the Company in reliance
upon the exemption from registration available under Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 15, 1997, the Company held its 1997 annual meeting of
shareholders (the "Annual Meeting").
(b) One matter voted on at the Annual Meeting was the election of
all eight directors of the Company. The eight nominees, who were all
existing directors of the Company and nominees of the Company's Board
of Directors, were re-elected at the Annual Meeting as directors of the
Company, receiving the number and percentage of votes for election and
abstentions as set forth next to their respective names below:
NOMINEES FOR DIRECTORS FOR ELECTION ABSTENTIONS
- -------------------------- --------------------- ----------------
Mark J. Gordon 17,180,543 (99.96%) 6,585 (.04%)
David L. Epstein 17,180,878 (99.96%) 6,250 (.04%)
Richard D. Mondre 17,180,878 (99.96%) 6,250 (.04%)
James F. Murray 17,180,878 (99.96%) 6,250 (.04%)
Bernard J. Kosar, Jr. 17,180,878 (99.96%) 6,250 (.04%)
Christian Mustad 17,180,878 (99.96%) 6,250 (.04%)
Neil A. Natkow 17,180,878 (99.96%) 6,250 (.04%)
Richard N. Krinzman 17,180,878 (99.96%) 6,250 (.04%)
15
<PAGE> 16
(c) The only other matter voted upon at the Annual Meeting was a
proposal to approve an amendment to the Incentive Stock Plan increasing
the number of shares of Common Stock reserved for issuance under the
Incentive Stock Plan to 3,000,000 shares. The proposal, which was
approved, received the votes of the holders of the number of shares of
Common Stock voted in person or by proxy at the Annual Meeting and the
percentage of total votes cast as indicated below:
VOTES PERCENTAGE
----------------- ----------------
For 15,736,829 91.56%
Against 1,445,799 8.41%
Abstain 4,500 0.03%
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------ --------------------------------------------------------------------------------
<S> <C>
10.1 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan
(as amended through May 15, 1997)
10.2 Employment Agreement dated as of April 15, 1997 between the Company and
Thomas C. Teper
10.3 Employment Agreement dated as of April 15, 1997 between the Company and
Colleen Williams
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
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.
PRECISION RESPONSE CORPORATION
(Registrant)
By: /s/ PAUL M. O'HARA
--------------------------------
Paul M. O'Hara
Senior Vice President - Finance
and Chief Financial Officer
By: /s/ THOMAS F. JENNINGS, JR.
--------------------------------
Thomas F. Jennings, Jr.
Vice President and Controller
(Principal Accounting Officer)
Dated: August 14, 1997
17
<PAGE> 1
Exhibit 10.1
PRECISION RESPONSE CORPORATION
AMENDED AND RESTATED 1996 INCENTIVE STOCK PLAN
1. PURPOSE. The PRECISION RESPONSE CORPORATION Amended and Restated
1996 Incentive Stock Plan (the "Plan") is intended to provide incentives which
will attract and retain highly competent persons as officers and key employees
of PRECISION RESPONSE CORPORATION and its subsidiaries (the "Company"), as well
as independent contractors providing consulting or advisory services to the
Company, by providing them opportunities to acquire the Company's common stock,
$.01 value per share ("Common Shares") or to receive monetary payments based on
the value of such shares pursuant to the Awards described in Paragraph 4 below.
2. ADMINISTRATION. Prior to the date, if any, upon which the Company
becomes subject to the Securities Exchange Act of 1934 (the "Act"), the Plan
shall be administered by the Board of Directors of the Company (the "Board") or
a committee appointed by the Board. After the date, if any, upon which the
Company becomes subject to the Act, the Plan will be administered by the
Compensation Committee (the administrator of the Plan, initially the Board and
thereafter the Compensation Committee, if and when the Company becomes subject
to the Act, shall be referred to hereinafter as the "Committee") appointed by
the Board from among its members PROVIDED, HOWEVER, that, on and after November
1, 1996 (the "Effective Date") as long as Common Shares are registered under the
Act, members of the Committee must each qualify as a "non-employee director"
within the meaning of Securities and Exchange Commission Regulation ss.
240.16b-3. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, and fill
vacancies however caused; provided, however, that at no time shall a Committee
of less than two members of the Board administer the Plan, and provided further,
that all members of the Committee on and after the Effective Date must be
"non-employee directors." The Committee is authorized, subject to the provisions
of the Plan, to establish such rules and regulations as it deems necessary for
the proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Awards (as hereinafter defined) granted hereunder as it deems necessary or
advisable. All determinations and interpretations made by the Board and
Committee shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act hereunder,
by any other member or employee or by any agent to whom duties in connection
with the administration of this Plan have been delegated or, except in
circumstances involving such person's bad faith, gross negligence or fraud, for
any act or failure to act by the member or employee.
3. PARTICIPANTS. Participants will consist of such officers and key
employees or prospective key employees (conditioned upon, and effective not
earlier than his becoming an
<PAGE> 2
employee) of the Company, and independent contractors providing consulting or
advisory services to the Company, as the Committee in its sole discretion
determines to be significantly responsible for the success and future growth and
profitability of the Company and whom the Committee may designate from time to
time to receive Awards under the Plan. Designation of a participant in any year
shall not require the Committee to designate such person to receive an Award in
any other year or, once designated, to receive the same type or amount of Awards
as granted to the participant in any year. The Committee shall consider such
factors as it deems pertinent in selecting participants and in determining the
type and amount of their respective Awards.
4. TYPES OF AWARDS. Awards under the Plan may be granted in any one or
a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Shares, and (e) Performance Units, all as described
below (collectively "Awards").
5. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for
issuance under the Plan an aggregate of 3,000,000 Common Shares, which may be
authorized but unissued shares. Any shares subject to Stock Options or Stock
Appreciation Rights or issued under such options or rights or as Stock Awards
may thereafter be subject to new options, rights or awards under this Plan if
there is a lapse, expiration or termination of any such options or rights prior
to issuance of the shares or the payment of the equivalent or if shares are
issued under such options or rights or as such awards and thereafter are
reacquired by the Company pursuant to rights reserved by the Company upon
issuance thereof.
6. STOCK OPTIONS. Stock Options will consist of awards from the
Company, in the form of agreements, which will enable the holder to purchase a
specific number of Common Shares, at set terms and at a fixed purchase price.
Stock Options may be "incentive stock options" ("Incentive Stock Options")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") or Stock Options which do not constitute Incentive Stock
Options ("Nonqualified Stock Options"). The Committee will have the authority to
grant to any participant one or more Incentive Stock Options, Nonqualified Stock
Options, or both types of Stock Options (in each case with or without Stock
Appreciation Rights). Each Stock Option shall be subject to such terms and
conditions consistent with the Plan as the Committee may impose from time to
time, subject to the following limitations:
(a) EXERCISE PRICE. Each Stock Option granted hereunder shall
have such per-share exercise price as the Committee may determine at the date of
grant provided, however, that the per-share exercise price for Incentive Stock
Options shall not be less than 100% of the Fair Market Value (as hereinafter
defined) of the Common Shares on the date the option is granted and provided
further that the per-share exercise price for Nonqualified Stock Options shall
not be less than 85% of the Fair Market Value of the Common Shares on the date
the option is granted. Notwithstanding the foregoing, the Committee may grant
Nonqualified Stock Options for up to 50,000 Common Shares for a per-share
exercise price equal to and/or in excess of $.01 per share.
2
<PAGE> 3
(b) PAYMENT OF EXERCISE PRICE. The option exercise price may
be paid by check or, in the discretion of the Committee, by the delivery of
Common Shares of the Company then owned by the participant or a combination of
methods of payment; provided, however, that option agreements may provide that
payment of the exercise price by delivery of Common Shares of the Company then
owned by the participant may be made only if such payment does not result in a
charge to earnings for financial accounting purposes as determined by the
Committee. In the discretion of the Committee, if Common Shares are readily
tradeable on a national securities exchange or other market system at the time
of option exercise, payment may also be made by delivering a properly executed
exercise notice to the Company together with a copy of irrevocable instructions
to a broker to deliver promptly to the Company the amount of sale or loan
proceeds to pay the exercise price. To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage
firms.
(c) EXERCISE PERIOD. Stock Options granted under the Plan will
be exercisable at such times and subject to such terms and conditions as shall
be determined by the Committee. In addition, Nonqualified Stock Options shall
not be exercisable later than fifteen years after the date they are granted and
Incentive Stock Options shall not be exercisable later than ten years after the
date they are granted. All Stock Options shall terminate at such earlier times
and upon such conditions or circumstances as the Committee shall in its
discretion set forth in such option at the date of grant.
(d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock
Options may be granted only to participants who are employees of the Company or
one of its subsidiaries (within the meaning of Section 424(f) of the Code) at
the date of grant. The aggregate Fair Market Value (determined as of the time
the option is granted) of the Common Shares with respect to which Incentive
Stock Options 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.
Incentive Stock Options may not be granted to any participant who, at the time
of grant, owns stock possessing (after the application of the attribution rules
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company, unless the option price is fixed at not
less than 110% of the Fair Market Value of the Common Shares on the date of
grant and the exercise of such option is prohibited by its terms after the
expiration of five years from the date of grant of such option.
(e) REDESIGNATION AS NONQUALIFIED STOCK OPTIONS. Options
designated as Incentive Stock Options that fail to continue to meet the
requirements of Section 422 of the Code shall be redesignated as Nonqualified
Stock Options for Federal income tax purposes automatically without further
action by the Committee on the date of such failure to continue to meet the
requirements of Section 422 of the Code.
(f) LIMITATION OF RIGHTS IN SHARES. The recipient of a Stock
Option shall not be deemed for any purpose to be a shareholder of the Company
with respect to any of the shares
3
<PAGE> 4
subject thereto except to the extent that the Stock Option shall have been
exercised and, in addition, a certificate shall have been issued and delivered
to the participant.
7. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion,
grant Stock Appreciation Rights to the holders of any Stock Options granted
hereunder. In addition, Stock Appreciation Rights may be granted independently
of and without relation to Stock Options. Each Stock Appreciation Right shall be
subject to such terms and conditions consistent with the Plan as the Committee
shall impose from time to time, including the following:
(a) A Stock Appreciation Right relating to a Nonqualified
Stock Option may be made part of such option at the time of its grant or at any
time thereafter up to six months prior to its expiration, and a Stock
Appreciation Right relating to an Incentive Stock Option may be made part of
such option only at the time of its grant.
(b) Each Stock Appreciation Right will entitle the holder to
elect in lieu of exercising the Stock Option to receive the appreciation in the
Fair Market Value of the shares subject thereto up to the date the right is
exercised. In the case of a right issued in relation to a Stock Option, such
appreciation shall be measured from not less than the option price and in the
case of a right issued independently of any Stock Option, such appreciation
shall be measured from not less than 85% of the Fair Market Value of the Common
Shares on the date the right is granted. Payment of such appreciation shall be
made in cash or in Common Shares, or a combination thereof, as set forth in the
Award, but no Stock Appreciation Right shall entitle the holder to receive, upon
exercise thereof, more than the number of Common Shares (or cash of equal value)
with respect to which the right is granted.
(c) Each Stock Appreciation Right will be exercisable at the
times and to the extent set forth therein, but no Stock Appreciation Right may
be exercisable earlier than six months after the date it was granted or later
than the earlier of (i) the term of the related Stock Option, if any, or (ii)
fifteen years after it was granted. Exercise of a Stock Appreciation Right shall
reduce the number of shares issuable under the Plan (and the related Stock
Option, if any) by the number of shares with respect to which the right is
exercised.
8. STOCK AWARDS. Stock Awards will consist of Common Shares transferred
to participants without other payment therefor or payment at less than Fair
Market Value as additional compensation for services to the Company. Stock
Awards shall be subject to such terms and conditions as the Committee determines
appropriate, including, without limitation, restrictions on the sale or other
disposition of such shares and rights of the Company to reacquire such shares
for no consideration upon termination of the participant's employment within
specified periods. The Committee may require the participant to deliver a duly
signed stock power, endorsed in blank, relating to the Common Shares covered by
such an Award. The Committee may also require that the stock certificates
evidencing such shares be held in custody until the restrictions thereon shall
have lapsed. The participant shall have, with respect to the Common Shares
subject to a Stock
4
<PAGE> 5
Award, all of the rights of a holder of Common Shares of the Company, including
the right to receive dividends and to vote the shares.
9. PERFORMANCE SHARES.
(a) Performance Shares may be awarded either alone or in
addition to other Awards granted under this Plan and shall consist of the right
to receive Common Shares or cash of an equivalent value at the end of a
specified Performance Period (defined below). The Committee shall determine the
participants to whom and the time or times at which Performance Shares shall be
awarded, the number of Performance Shares to be awarded to any person, the
duration of the period (the "Performance Period") during which, and the
conditions under which, receipt of the Common Shares will be deferred, and the
other terms and conditions of the Award in addition to those set forth in this
Section 9. The Committee may condition the grant of Performance Shares upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine.
(b) Performance Shares awarded pursuant to this Section 9
shall be subject to the following terms and conditions:
(i) Unless otherwise determined by the Committee at
the time of the grant of the Award, amounts equal to any dividends
declared during the Performance Period with respect to the number of
Common Shares covered by a Performance Share Award will not be paid to
the participant.
(ii) Subject to the provisions of the Performance
Share Award and this Plan, at the expiration of the Performance Period,
share certificates and/or cash of an equivalent value (as the Committee
may determine) shall be delivered to the participant, or his or her
legal representative, in a number equal to the vested shares covered by
the Performance Share Award.
(iii) Subject to the applicable provisions of the
Performance Share Award and this Plan, upon termination of a
participant's employment with the Company for any reason during the
Performance Period for a given Performance Share Award, the Performance
Shares in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee.
10. PERFORMANCE UNITS.
(a) Performance Units may be awarded either alone or in
addition to other Awards granted under this Plan and shall consist of the right
to receive a fixed dollar amount, payable in cash or Common Shares or a
combination of both. The Committee shall determine the participants to whom and
the time or times at which Performance Units shall be awarded, the duration of
5
<PAGE> 6
Performance Units to be awarded to any person, the duration of the period (the
"Performance Cycle") during which, and the conditions under which, a
participant's right to Performance Units will be vested, the ability of
participants to defer the receipt of payment of such Performance Units, and the
other terms and conditions of the Award in addition to those set forth in this
Section 10. The Committee may condition the vesting of Performance Units upon
the attainment of specified performance goals or such other factors or criteria
as the Committee shall determine.
(b) The Performance Units awarded pursuant to this Section 10
shall be subject to the following terms and conditions:
(i) At the expiration of the Performance Cycle, the
Committee shall determine the extent to which the performance goals
have been achieved, and the percentage of the Performance Units of each
participant that have vested.
(ii) Subject to the applicable provisions of the
Performance Unit Award and this Plan, at the expiration of the
Performance Cycle, cash and/or share certificates of an equivalent
value (as the Committee may determine) shall be delivered to the
participant, or his or her legal representative, in payment of the
vested Performance Units covered by the Performance Unit Award.
(iii) Subject to the applicable provisions of the
Performance Unit Award and this Plan, upon termination of a
participant's employment with the Company for any reason during the
Performance Cycle for a given Performance Unit Award, the Performance
Units in question will vest or be forfeited in accordance with the
terms and conditions established by the Committee.
11. ADJUSTMENT PROVISIONS.
(a) If the Company shall at any time change the number of
issued Common Shares without new consideration to the Company (such as by stock
dividend, stock split, recapitalization, reorganization, exchange of shares,
liquidation, combination or other change in corporate structure affecting the
Common Shares) or make a distribution of cash or property which has a
substantial impact on the value of issued Common Shares, the total number of
shares available for Awards under this Plan shall be appropriately adjusted and
the number of shares covered by each outstanding Award and the reference price
or Fair Market Value for each outstanding Award shall be adjusted so that the
net value of such Award shall not be changed.
(b) In the case of any sale of assets, merger, consolidation,
combination or other corporate reorganization or restructuring of the Company
with or into another corporation which results in the outstanding Common Shares
being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "Acquisition"), subject to the
provisions of this Plan and any limitation applicable to the Award:
6
<PAGE> 7
(i) any participant to whom a Stock Option has been
granted shall have the right thereafter and during the term of the
Stock Option to receive upon exercise thereof the Acquisition
Consideration (as defined below) receivable upon the Acquisition by a
holder of the number of Common Shares which might have been obtained
upon exercise of the Stock Option or portion thereof, as the case may
be, immediately prior to the Acquisition;
(ii) any participant to whom a Stock Appreciation
Right has been granted shall have the right thereafter and during the
term of such right to receive upon exercise thereof the difference on
the exercise date between the aggregate Fair Market Value of the
Acquisition Consideration receivable upon such acquisition by a holder
of the number of Common Shares which are covered by such right and the
aggregate reference price of such right; and
(iii) any participant to whom Performance Shares or
Performance Units have been awarded shall have the right thereafter and
during the term of the Award, upon fulfillment of the terms of the
Award, to receive on the date or dates set forth in the Award, the
Acquisition Consideration receivable upon the Acquisition by a holder
of the number of Common Shares which are covered by the Award.
The term "Acquisition Consideration" shall mean the kind and amount of
securities, cash or other property or any combination thereof
receivable in respect of one Common Share upon consummation of an
Acquisition.
(c) Notwithstanding any other provision of this Plan, the
Committee may authorize the issuance, continuation or assumption of Awards or
provide for other equitable adjustments after changes in the Common Shares
resulting from any other merger, consolidation, sale of assets, acquisition of
property or stock, recapitalization, reorganization or similar occurrence upon
such terms and conditions as it may deem equitable and appropriate.
(d) In the event that another corporation or business entity
is being acquired by the Company, and the Company assumes outstanding employee
stock options and/or stock appreciation rights and/or the obligation to make
future grants of options or rights to employees of the acquired entity, the
aggregate number of Common Shares available for Awards under this Plan shall be
increased accordingly.
12. NONTRANSFERABILITY.
(a) Each Award granted under the Plan to a participant shall
not be transferable by him otherwise than required by law or by will or the laws
of descent and distribution, and shall be exercisable, during his lifetime, only
by him. In the event of the death of a participant while the participant is
rendering services to the Company, each Stock Option or Stock Appreciation Right
7
<PAGE> 8
theretofore granted to him shall be exercisable during such period after his
death as the Committee shall in its discretion set forth in such option or right
at the date of grant (but not beyond the stated duration of the option or right)
and then only:
(i) By the executor or administrator of the estate of
the deceased participant or the person or persons to whom the deceased
participant's rights under the Stock Option or Stock Appreciation Right
shall pass by will or the laws of descent and distribution; and
(ii) To the extent that the deceased participant was
entitled to do so at the date of his death.
(b) Notwithstanding Section 12(a), in the discretion of the
Committee, Awards granted hereunder may be transferred to members of the
participant's immediate family (which for purposes of this Plan shall be limited
to the participant's children, grandchildren and spouse), or to one or more
trusts for the benefit of such immediate family members or partnerships in which
such immediate family members and/or trusts are the only partners, but only if
the Award expressly so provides.
13. OTHER PROVISIONS. Awards under the Plan may also be subject to such
other provisions (whether or not applicable to any other Awards under the Plan)
as the Committee determines appropriate, including without limitation,
provisions for the installment purchase of Common Shares under Stock Options,
provisions for the installment exercise of Stock Appreciation Rights, provisions
to assist the participant in financing the acquisition of Common Shares,
provisions for the forfeiture of, or restrictions on resale or other disposition
of, Shares acquired under any form of Award, provisions for the acceleration of
exercisability or vesting of Awards in the event of a change of control of the
Company or other reasons, provisions for the payment of the value of Awards to
participants in the event of a change of control of the Company or other
reasons, or provisions to comply with Federal and state securities laws, or
setting forth understandings or conditions as to the participant's employment in
addition to those specifically provided for under the Plan.
14. FAIR MARKET VALUE. For purposes of this Plan and any Awards
hereunder, Fair Market value of Common Shares shall be the mean between the
highest and lowest sale prices for the Company's Common Shares as reported on
the NASDAQ National Market (or such other consolidated transaction reporting
system on which such Common Shares are primarily traded) on the date immediately
preceding the date of grant (or on the next preceding trading date if Common
Shares were not traded on the date immediately preceding the date of grant),
provided, however, that if the Company's Common Shares are not at any time
readily tradeable on a national securities exchange or other market system, Fair
Market Value shall mean the amount determined in good faith by the Committee as
the fair market value of the Common Shares of the Company.
8
<PAGE> 9
15. WITHHOLDING. All payments or distributions made pursuant to the
Plan shall be net of any amounts required to be withheld pursuant to applicable
federal, state and local tax withholding requirements. If the Company proposes
or is required to distribute Common Shares pursuant to the Plan, it may require
the recipient to remit to it an amount sufficient to satisfy such tax
withholding requirements prior to the delivery of any certificates for such
Common Shares. The Committee may, in its discretion and subject to such rules as
it may adopt, permit an optionee or Award or right holder to pay all or a
portion of the federal, state and local withholding taxes arising in connection
with (a) the exercise of a Nonqualified Stock Option or a Stock Appreciation
Right, (b) the receipt or vesting of Stock Awards, or (c) the receipt of Common
Shares upon the expiration of the Performance Period or the Performance Cycle,
respectively, with respect to any Performance Shares or Performance Units, by
electing to have the Company withhold Common Shares having a Fair Market Value
equal to the amount to be withheld.
16. TENURE. A participant's right, if any, to continue to serve the
Company as an officer, employee, independent contractor, or otherwise, shall not
be enlarged or otherwise affected by such individual's designation as a
participant under the Plan, nor shall this Plan in any way interfere with the
right of the Company, subject to the terms of any separate employment agreement
to the contrary, at any time to terminate such employment or to increase or
decrease the compensation of the participant from the rate in existence at the
time of the grant of an Award.
17. DURATION, AMENDMENT AND TERMINATION. No Award shall be granted
after May 30, 2006 (the "Expiration Date"); provided, however, that the terms
and conditions applicable to any Award granted prior to such date may thereafter
be amended or modified by mutual agreement between the Company and the
participant or such other persons as may then have an interest therein. Also, by
mutual agreement between the Company and a participant hereunder, under this
Plan or under any other present or future plan of the Company, Awards may be
granted to such participant in substitution and exchange for, and in
cancellation of, any Awards previously granted such participant under this Plan,
or any other present or future plan of the Company. The Board may amend the Plan
from time to time or terminate the Plan at any time. However, no action
authorized by this Section 17 shall reduce the amount of any existing Award or
change the terms and conditions thereof without the participant's consent. The
approval of the Company's shareholders will be required for any amendment to the
Plan which would (i) change the class of persons eligible for the grant of Stock
Options, as specified in Section 3 or otherwise materially modify the
requirements as to eligibility for participation in the Plan, (ii) increase the
maximum number of shares subject to Stock Options, as specified in Section 5
(unless made pursuant to the provisions of Section 11) or (iii) materially
increase the benefits accruing to participants under the Plan, within the
meaning of Rule 16b-3 promulgated under Act. With respect to persons subject to
Section 16 of the Act, transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 or its successors under the Act. To the
extent any provision of the Plan or action by the Committee fails to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not include a
provision required by Rule 16b-3 to be stated therein, such provision (other
than one relating to eligibility requirements, or the
9
<PAGE> 10
price and amount of Awards) shall be deemed automatically to be incorporated by
reference into the Plan insofar as participants subject to Section 16 of the Act
are concerned.
18. GOVERNING LAW. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws of the State of
Florida (regardless of the law that might otherwise govern under applicable
Florida principles of conflict of laws).
19. SHAREHOLDER APPROVAL. The Plan was adopted by the Board of the
Company and approved by the Company's shareholders on May 31, 1996.
20. BOARD AMENDMENT. Section 2 of the Plan was amended by action taken
by the Board of the Company on February 19, 1997, which amendment did not
require approval of the shareholders of the Company.
21. SHAREHOLDERS AMENDMENT. Section 5 of the Plan was amended to
increase the number of Common Shares reserved for issuance under the Plan to
3,000,000 Common Shares by action taken by the Board on February 19, 1997, which
amendment was approved by the shareholders of the Company at the Company's
annual meeting of shareholders held on May 15, 1997.
10
<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of April 15, 1997, 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 THOMAS
C. TEPER (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, Employee's term of employment under this Employment Agreement
shall commence on the date hereof and shall expire on the third anniversary of
the date hereof (the "Employment Term").
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 other
written or oral obligations or commitments which would interfere with Employee's
acceptance of employment pursuant to the terms hereof or the full performance of
Employee's obligations hereunder.
<PAGE> 2
4. DUTIES AND EXTENT OF SERVICES
Employee's duties and responsibilities hereunder shall be those
reasonably assigned to Employee from time to time by Employer. Employee shall,
unless and until otherwise determined by Employer, and upon appointment by the
Company's Board of Directors, serve as Employer's Senior Vice
President-Facilities Acquisition and Development, and shall on an active,
full-time basis, subject to the direction of Employer's Chief Executive Officer,
President, Chief Operating Officer and Executive Vice President, attend to
matters in the areas of site acquisition and development and general corporate
planning. Employee shall report directly to Employer's Chief Executive Officer,
President, Chief Operating Officer and Executive Vice President, or as otherwise
directed from time to time by Employer's Chief Executive Officer, President,
Chief Operating Officer or Executive Vice President. Employee shall be given
responsibility and assignments commensurate with the position of Senior Vice
President-Facilities Acquisition and Development or commensurate with such other
executive or managerial position he may hold from time to time during the
Employment Term. Employee shall be based at offices of Employer located in Dade,
Broward or Palm Beach County, Florida, provided that Employee understands that
he will or may be required to travel extensively during the Employment Term in
connection with his duties.
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 $150,000 per annum, $175,000 per annum and $200,000 per annum
for the first, second and third years of the Employment Term, respectively.
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. Employee shall receive an annual bonus for
each year of the Employment Term the amount of which shall be determined by
Employer in its discretion (the "Bonus Amount"), but shall not be less than
$25,000 for any of the three years of the Employment Term. The Bonus Amount
shall be paid on or before March 31 of the year following the year to which it
relates.
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<PAGE> 3
The Bonus Amount shall be subject to payroll deductions and tax withholdings in
accordance with Employer's usual payroll practices and as required by law.
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, group and
life insurance) as are made available by Employer from time to time, in
Employer's sole discretion, to all other employees generally (without limitation
of the foregoing, Employer shall continue to pay the premiums on Employee's
group disability insurance policy for as long as such policy remains in effect
during the Employment Term).
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 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 ALLOWANCE. In order to defray Employee's auto expenses
incurred in connection with the performance of his duties, Employer shall pay to
Employee a monthly auto allowance of $500.
7. VACATIONS
Employee shall be entitled to three (3) weeks vacation each full
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 shall be
absent from work for vacation shall be at the reasonable discretion of Employer.
After Employee has attained nine years of service with Employer, Employee shall
be entitled to one additional week of vacation in accordance with the foregoing
provisions.
8. ENFORCEMENT COSTS
If any legal action or other proceeding is brought for the
enforcement of this Employment Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection
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<PAGE> 4
with any provision of this Employment Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees, (including, without limitation,
all such fees, costs and expenses incident to arbitration, appellate, bankruptcy
and post-judgment proceedings), incurred in that action or proceeding in
addition to any other relief to which such party may be entitled. Attorneys'
fees shall include, without limitation, paralegal fees, investigative fees,
administration costs, and all other charges billed by the attorney to the
prevailing party.
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 or dishonesty; (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 and the employment duties are not resumed within five (5) days following
Employee's receipt of written notice thereof; (v) negligence in the performance
of employment duties (other than isolated or occasional negligent conduct); (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) repeated instances or acts of insubordination without reasonable
justification therefor; 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
4
<PAGE> 5
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, the Salary, if any, accrued and
unpaid through the date of 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.
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), 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, in the sole discretion of Employer, the portion of
the minimum Bonus Amount accrued through the date of termination; and Employee
(or such legal guardian, legal representative or any 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, or Employee resigns as a result of a breach by Employer of this
Employment Agreement which is not cured within 30 days following written notice
thereof by Employee to Employer or as a result of Employer requiring Employee to
be based in a location other than Dade, Broward or Palm Beach County, Florida,
Employee's sole and exclusive compensation and remedy hereunder shall be to
receive from Employer, and Employer shall pay, (i) the amount of Salary, if any,
accrued and unpaid through the date of termination, and the minimum Bonus Amount
for the year in which termination of employment occurs, appropriately prorated
5
<PAGE> 6
for such year, (ii) the Salary that Employee would have received during the
period following termination through the expiration of the Employment Term, or
for one year after the date of termination, whichever period is shorter (as the
case may be, the "Severance Period"), as and when it would have been payable if
Employee had remained an employee of Employer, and (iii) the minimum Bonus
Amount for the Severance Period (appropriately prorated if the Severance Period
is shorter than one year), payable within thirty (30) days following the end of
the Severance Period.
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,
technology, 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.
Any software, technology, know-how, trade secrets or intellectual property
rights of any kind developed by Employee during the period of his employment
with Employer which in any way relate or have
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<PAGE> 7
application or value to Employer's business shall be the property, as between
Employee and Employer, solely of Employer.
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 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 substantial consideration paid
and payable to Employee under this Employment Agreement, and as a material
inducement to Employer to enter into this Employment Agreement, 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) 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 programmer or other information services personnel of Employer who is
employed by Employer as of or following the date of termination of Employee's
employment, or (B) engage in any venture, enterprise, activity or business,
passively or actively, as an owner, or as a consultant, adviser, independent
contractor, participant, employee or agent in a capacity relating to corporate
management, site acquisition or development, corporate planning or contracts
administration, competitive with the business of Employer anywhere within the
continental United States (other than passive ownership of less than five
percent of a publicly-traded company). 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
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<PAGE> 8
geographical area of restriction is reasonable in the circumstances to protect
Employer's trade secrets and other legitimate business interests.
12. LAW APPLICABLE
This Employment Agreement shall be governed by and construed
pursuant to the laws of the State of Florida.
13. 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.
14. 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.
15. 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.
16. 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> 9
17. 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.
18. INDEPENDENT COUNSEL
Employer has been represented by Rubin Baum Levin Constant Friedman
& Bilzin in connection with the preparation, negotiation, execution and delivery
of this Agreement. Employee has been represented by Zack, Sparber, Koznitzky,
Spratt & Brooks in connection with the preparation, negotiation, execution and
delivery of this Agreement.
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/ DAVID EPSTEIN
-------------------------------------------
David Epstein, President
EMPLOYEE:
/s/ THOMAS C. TEPER
-----------------------------------------------
THOMAS C. TEPER
9
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated and effective as of April 15, 1997, 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 COLLEEN WILLIAMS (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 date hereof
and shall continue until 5:00, p.m., April 14, 2000 (the "Employment Term").
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 other
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.
<PAGE> 2
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 as Employer's Director of Account Services, and shall, subject
to the direction of Employer's Chief Operating Officer, have responsibility to
oversee and conduct the operations and activities of Employer's account services
group, which includes the handling of all activities relating to the affairs of
Employer's clients for which Employer is responsible, including teleservices,
information services and fulfillment services. Employee shall report directly to
Employer's President and Chief Operating Officer, or as otherwise directed from
time to time by Employer's 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.
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 $200,000, per annum for each year of 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. Employee shall receive an annual bonus the
amount of which shall be determined by Employer in its sole and absolute
discretion (the "Bonus Amount"). It is anticipated that in no event shall the
Bonus Amount exceed an amount equal to 40% of the aggregate Salary paid during
the year of employment to which the Bonus Amount relates, unless Employer, in
its sole and absolute discretion, determines that a greater Bonus Amount is
warranted. Each annual Bonus Amount shall be paid on or before March 31 of each
year of the Employment Term. The Bonus Amount payable on or before each March 31
shall be based upon Employee's performance during the entire calendar year
immediately preceding such March 31. Each Bonus Amount shall be subject to
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<PAGE> 3
payroll deductions and tax withholdings in accordance with Employer's usual
payroll practices and as required by law.
6. FRINGE BENEFITS AND EXPENSES
A. EMPLOYEE BENEFITS. Employee shall be entitled to such benefits
and fringe benefits (such as 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 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 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.
7. VACATIONS
Employee shall be entitled to four (4) weeks vacation each full year
of the Employment Term, with full compensation (and Employee shall 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.
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.
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<PAGE> 4
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 thirty (30) 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 right to set
off any damages resulting from Employee's termination with Cause or 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 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.
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), 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 Employee (or such legal guardian, legal
representative or any heirs) shall not be entitled to any other compensation,
remuneration or other sums provided for
4
<PAGE> 5
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 6 through the
date of termination, payable within thirty (30) days following termination of
employment, and (ii) the Salary that Employee would have received during the
period following termination through the expiration of the period ending on the
first anniversary of the date of termination of Employee's employment (even if
beyond the expiration date of the Employment Term), as and when it would have
been payable or provided if Employee had remained an employee of Employer for
such period. Employee shall not be entitled to the foregoing severance to the
extent that Employee receives or is entitled to receive compensation from new
employment with respect to employment services rendered during such period.
F. KEY-MAN INSURANCE. In the event that Employer has obtained or
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.
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
5
<PAGE> 6
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 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 up to Employer any and all drawings, notebooks, software programs or
discs, tapes or similar containers 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 payable to
Employee under this Employment Agreement, and as a material inducement to
Employer to enter into this Employment Agreement, Employee covenants and agrees
that, for as long as Employee is employed by Employer and for a period of 24
months 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 who is or was a client of
Employer at any time during Employee's employment with Employer and for or to
whom Employer is
6
<PAGE> 7
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, account manager or programmer or
information services employee of Employer or who was or is employed by Employer
at any time during the two-year period ending on the date of termination of
Employee's employment or the two-year period commencing 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, employee or agent, competitive with the
business of Employer anywhere within the continental United States. 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.
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 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.
7
<PAGE> 8
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.
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.
8
<PAGE> 9
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.
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.
9
<PAGE> 10
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/ DAVID EPSTEIN
---------------------------------
David Epstein, President
EMPLOYEE:
/s/ COLLEEN WILLIAMS
------------------------------------
COLLEEN WILLIAMS
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,985
<SECURITIES> 0
<RECEIVABLES> 45,303
<ALLOWANCES> 2,102
<INVENTORY> 0
<CURRENT-ASSETS> 67,765
<PP&E> 74,077
<DEPRECIATION> 11,022
<TOTAL-ASSETS> 136,096
<CURRENT-LIABILITIES> 21,670
<BONDS> 4,786
0
0
<COMMON> 215
<OTHER-SE> 105,664
<TOTAL-LIABILITY-AND-EQUITY> 136,096
<SALES> 0
<TOTAL-REVENUES> 73,978
<CGS> 0
<TOTAL-COSTS> 56,791
<OTHER-EXPENSES> 9,102
<LOSS-PROVISION> 2,171
<INTEREST-EXPENSE> 333
<INCOME-PRETAX> 6,278
<INCOME-TAX> 2,511
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,767
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
