<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, 1999
[ ] 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) 816-4600
(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 3, 1999, THE REGISTRANT HAD 21,549,000 OUTSTANDING SHARES OF
COMMON STOCK, $0.01 PAR VALUE.
<PAGE> 2
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I.
ITEM NO. PAGE(S)
- -------- -------
<S> <C>
1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - (Unaudited)
June 30, 1999 and December 31, 1998.....................................3
Consolidated Statements of Operations (Unaudited) -
Three and six months ended June 30, 1999 and 1998.......................4
Consolidated Statements of Cash Flows (Unaudited) -
Six months ended June 30, 1999 and 1998.................................5
Notes to Consolidated Financial Statements................................6-10
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................11-21
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................................21
PART II.
1. LEGAL PROCEEDINGS...........................................................22
2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................................22
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................23
6. EXHIBITS AND REPORTS ON FORM 8-K............................................24
Signatures..................................................................25
</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)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 514 $ 1,656
Accounts receivable, net of allowances
of $1,437 and $8,225, respectively................................. 37,870 42,771
Income taxes receivable................................................ 215 215
Deferred income taxes.................................................. 3,698 6,906
Prepaid expenses and other current assets.............................. 3,263 4,186
----------------- -----------------
Total current assets .......................................... 45,560 55,734
Property and equipment, net................................................ 78,352 71,414
Deferred income taxes...................................................... 6,684 5,516
Other assets............................................................... 2,364 782
----------------- -----------------
Total assets................................................... $ 132,960 $ 133,446
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............................ $ 2,187 $ 2,510
Accounts payable....................................................... 9,505 16,571
Restructuring accrual.................................................. 1,980 3,244
Accrued compensation expenses.......................................... 7,026 3,108
Other accrued expenses................................................. 7,621 7,174
Customer deposits...................................................... 1,614 1,108
----------------- -----------------
Total current liabilities...................................... 29,933 33,715
Long-term obligations, less current maturities............................. 18,033 16,916
Restructuring accrual...................................................... 2,674 3,456
----------------- -----------------
Total liabilities.............................................. 50,640 54,087
----------------- -----------------
Commitments and contingencies.............................................. -- --
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000 shares
authorized; 21,549,000 issued and outstanding...................... 215 215
Additional paid-in capital............................................. 97,665 97,179
Accumulated deficit.................................................... (15,101) (18,035)
Unearned compensation.................................................. (459) --
----------------- -----------------
Total shareholders' equity..................................... 82,320 79,359
----------------- -----------------
Total liabilities and shareholders' equity..................... $ 132,960 $ 133,446
================= =================
</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,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES.......................................... $ 50,090 $ 43,379 $ 96,338 $ 83,914
------------- ------------- -------------- -------------
OPERATING EXPENSES:
Cost of services.............................. 41,435 37,222 80,366 73,732
Selling, general and administrative
expenses................................... 5,671 4,430 10,541 7,750
------------- ------------- -------------- -------------
Total operating expenses.............. 47,106 41,652 90,907 81,482
------------- ------------- -------------- -------------
Operating income ..................... 2,984 1,727 5,431 2,432
OTHER INCOME (EXPENSE):
Interest income............................... 22 89 45 152
Interest expense.............................. (166) (479) (502) (646)
------------- ------------- -------------- -------------
INCOME BEFORE INCOME TAXES............ 2,840 1,337 4,974 1,938
Income tax provision.............................. 1,144 508 2,040 736
------------- ------------- -------------- -------------
NET INCOME ........................... $ 1,696 $ 829 $ 2,934 $ 1,202
============= ============= ============== =============
NET INCOME PER COMMON SHARE:
Basic......................................... $ 0.08 $ 0.04 $ 0.14 $ 0.06
============= ============= ============== =============
Diluted....................................... $ 0.08 $ 0.04 $ 0.14 $ 0.06
============= ============= ============== =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic......................................... 21,549 21,549 21,549 21,547
============= ============= ============== =============
Diluted....................................... 21,573 21,609 21,604 21,786
============= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Operating activities:
Net income.................................................................. $ 2,934 $ 1,202
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................... 6,945 6,352
Provision for bad debts and sales allowances............................ 871 6,204
Amortization of unearned compensation................................... 27 108
Deferred income taxes................................................... 2,040 513
Changes in operating assets and liabilities:
Accounts receivable..................................................... 4,030 (21,423)
Income taxes receivable................................................. -- 6,879
Prepaid expenses and other current assets............................... 923 742
Other assets............................................................ (82) 6
Accounts payable........................................................ (7,066) (3,987)
Restructuring accrual................................................... (2,046) (1,767)
Accrued compensation expenses........................................... 3,918 327
Other accrued expenses.................................................. 447 (201)
Customer deposits....................................................... 506 (2,493)
------------- -------------
Net cash provided by (used in) operating activities................. 13,447 (7,538)
------------- -------------
Investing activities:
Purchases of property and equipment......................................... (13,883) (11,124)
Investment in unconsolidated affiliate...................................... (1,500) --
------------- -------------
Net cash used in investing activities............................... (15,383) (11,124)
------------- -------------
Financing activities:
Net proceeds from revolving credit facility................................. 2,000 5,700
Proceeds from long-term obligations......................................... -- 4,000
Payments on long-term obligations........................................... (1,206) (1,534)
------------- -------------
Net cash provided by financing activities........................... 794 8,166
------------- -------------
Net decrease in cash and cash equivalents....................................... (1,142) (10,496)
Cash and cash equivalents at beginning of period................................ 1,656 11,080
============= =============
Cash and cash equivalents at end of period...................................... $ 514 $ 584
============= =============
</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 teleservices, Internet customer communications,
database marketing and management, and fulfillment services on an outsourced
and cosourced basis to large corporations and high-growth Internet-focused
companies.
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,
1998 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 three and six months ended June 30,
1999 and 1998 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, 1998 filed with the SEC on March
31, 1999 (the "1998 Form 10-K").
2. EARNINGS PER SHARE
The following reconciles the numerators and denominators of the basic
and diluted earnings per share ("EPS") computations (in thousands, except per
share data):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
-------------------------------------------------------------
1999 1998
------------------------------ ----------------------------
NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE
------------------------------ ----------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income available to common shareholders....... $1,696 21,549 $ 0.08 $829 21,549 $ 0.04
EFFECT OF DILUTIVE SECURITIES:
Stock options ................................ -- 24 -- -- 60 --
---------------------------- ----------------------------
DILUTED EPS:
Income available to common shareholders
and assumed exercises .................... $1,696 21,573 $ 0.08 $829 21,609 $ 0.04
============================ ============================
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE
----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income available to common shareholders.... $ 2,934 21,549 $ 0.14 $1,202 21,547 $ 0.06
EFFECT OF DILUTIVE SECURITIES:
Stock options.............................. -- 55 -- -- 239 --
----------------------------- ----------------------------
DILUTED EPS:
Income available to common shareholders
and assumed exercises.................. $ 2,934 21,604 $ 0.14 $1,202 21,786 $ 0.06
============================= ============================
</TABLE>
6
<PAGE> 7
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On June 15, 1999, the Company acquired 6,000,000 shares of common stock
of Global Reservation Systems, Inc. ("GRS"), representing approximately a 16%
ownership interest on a fully-diluted basis, for an aggregate purchase price of
$1.5 million. GRS, a California corporation, specializes in developing
Internet-based travel products and service systems. This investment in GRS has
been accounted for using the cost method and is included in Other assets in the
accompanying Consolidated Balance Sheet as of June 30, 1999.
In conjunction with this transaction, the Company was also issued a
warrant to purchase an aggregate of 3,000,000 shares of GRS common stock at an
exercise price equivalent to the lesser of (i) the lowest per share price of any
sales or issuances of GRS common stock (other than sales or issuances related to
outstanding GRS options to purchase 6,065,391 shares or an additional 2,900,000
shares reserved by GRS for future issuances of options) that take place up to
the time of exercise or (ii) $0.85 per share. The exercise price and/or number
of shares issuable upon exercising the warrant will be proportionately adjusted
if effected after any future stock dividends, stock splits, combinations of
stocks or issuance of stock in a reclassification. The right to exercise the
warrant, in whole or in part, expires on June 15, 2002. In addition, the
Company's decision to exercise this warrant currently would require the consent
of the lender on its revolving credit facility and existing mortgage loan (see
Note 6 herein below).
The Company also provided information services to GRS earning revenue
in the amount of $80,000 for the three and six months ended June 30, 1999.
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, 1999 DECEMBER 31, 1998
-------------------------------------- ----------------------------------------
OWNED LEASED TOTAL OWNED LEASED TOTAL
---------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Land............................. $ 1,057 -- $ 1,057 $ 1,057 -- $ 1,057
Buildings and improvements....... 5,040 -- 5,040 4,878 -- 4,878
Telecommunications equipment
and software................... 22,253 4,432 26,685 20,946 4,432 25,378
Computer equipment and software.. 40,299 5,523 45,822 33,768 5,523 39,291
Leasehold improvements........... 11,310 -- 11,310 11,167 -- 11,167
Furniture and fixtures........... 8,248 242 8,490 8,044 242 8,286
Vehicles......................... 111 -- 111 111 -- 111
---------- ---------- ---------- ----------- ---------- -----------
88,318 10,197 98,515 79,971 10,197 90,168
Development in process........... 16,944 -- 16,944 11,408 -- 11,408
---------- ---------- ---------- ----------- ---------- -----------
105,262 10,197 115,459 91,379 10,197 101,576
Less: accumulated depreciation
and amortization............... (32,036) (5,071) (37,107) (25,943) (4,219) (30,162)
---------- ---------- ---------- ----------- ---------- -----------
$ 73,226 $ 5,126 $ 78,352 $ 65,436 $ 5,978 $ 71,414
========== ========== ========== =========== ========== ===========
</TABLE>
In accordance with Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1"),
the Company capitalizes certain costs in connection with internal use software,
which includes InfiniteAccess and IMA Advantage/Edge, and business process
reengineering associated with its initiative to implement an Enterprise
Resource Planning solution, which the Company designated the PRISM Project.
Approximately $911,000 of software developed for internal use that was
7
<PAGE> 8
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
available for use, as well as $4.2 million related to the PRISM Project modules
that were operational, as of June 30, 1999, are included within Computer
equipment and software in the above table. Additionally, as of June 30, 1999,
$7.3 million related to the internal use software not yet available for use,
and $8.1 million related to the PRISM Project modules not yet operational, are
included within Development in process in the above table.
In accordance with Statement of Financial Accounting Standards No. 34,
Capitalization of Interest, the Company capitalizes interest costs that are
incurred as a result of borrowings under the Company's revolving credit
facility used to partially fund the Company's PRISM Project and the development
of internal use software. Total interest cost incurred during the six months
ended June 30, 1999 was $867,000, of which $365,000 was capitalized. As
internal use software is available for use and as each module of the PRISM
Project is implemented, all associated capitalized costs are amortized on a
straight-line basis over the software's or module's estimated useful life.
5. RESTRUCTURING AND OTHER NON-RECURRING SPECIAL CHARGES
During the third quarter of 1998, the Company performed an extensive
review of its operations and existing available workstation capacity. As a
result of this review, the Company initiated a restructuring and performance
enhancing initiatives plan, which centered on exiting the incentive-based
outbound teleservicing program, making adjustments to certain call centers'
workstation capacity, reducing overhead and administrative headcount and
replacing certain existing software programs utilized in its call center
operations with new customer interaction software reflective of advances in
customer care technology. In adopting this plan, the Company recorded
non-recurring restructuring and other special charges of approximately $22.1
million in the third quarter of 1998 with an after-tax impact of $13.8 million.
Of the total non-recurring restructuring and other special charges accrued in
connection with the plan, at June 30, 1999, approximately $4.5 million is
included in Restructuring accrual and $867,000 relating to other special
charges is included in Other accrued expenses in the accompanying Consolidated
Balance Sheets.
As of June 30, 1999, the Company had exited the incentive-based
outbound teleservices program and terminated designated employees. The Company
had also initiated the relocation and consolidation of teleservicing programs
to effectuate the closing of one call center and the reduction in size of
another call center and the implementation of new customer interaction software
reflective of advances in customer care technology, both of which are currently
expected to be completed during the third quarter of 1999.
During the third quarter of 1997, the Company initiated a
restructuring and cost savings plan. As a result, the Company recorded a
pre-tax non-recurring special charge to earnings of approximately $26.2 million
in the third quarter of 1997 with an after-tax impact of $15.7 million. A
portion of the non-recurring special charge was an accrual of costs related to
severance and lease obligations connected with the Company's plan to reduce
overhead and consolidate administrative facilities. At June 30, 1999,
approximately $200,000 of the total costs accrued is included in Restructuring
accrual in the accompanying Consolidated Balance Sheets, relating to facility
consolidation costs associated with the 1997 restructuring plan.
As of June 30, 1998, the Company had terminated designated employees
and reorganized its operational and administrative management structure in
connection with the 1997 restructuring and cost savings plan. The Company had
also initiated and completed the relocation and consolidation of administrative
office space into unused space at an existing facility. Additionally, the
Company also continued its attempts to divest unused facilities.
8
<PAGE> 9
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the details and the cumulative activity
in the restructuring accrual during the six months ended June 30, 1999 (in
thousands):
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
BALANCE AT BALANCE AT
DECEMBER 31, JUNE 30,
1998 EXPENDITURES 1999
---------------- --------------- -------------
<S> <C> <C> <C>
Severance and other employee costs............ $ 697 $ (656) $ 41
Closure and consolidation of facilities and
related exit costs........................... 6,003 (1,390) 4,613
---------------- --------------- -------------
Total restructuring accrual........ 6,700 $ (2,046) 4,654
===============
Less: current portion.............. (3,244) (1,980)
---------------- -------------
Total restructuring accrual, long-term $ 3,456 $ 2,674
================ =============
</TABLE>
6. CREDIT FACILITY AND LONG-TERM DEBT
On March 2, 1998, the Company entered into a three-year, $25.0 million
revolving credit facility, replacing its then existing $15.0 million revolving
credit facility. Effective June 30, 1999, the $25.0 million revolving credit
facility was amended (the "Credit Facility") to increase the amount available
under the Credit Facility to $35.0 million through January 31, 2000, subject to
certain limitations as described below. Effective as of February 1, 2000, the
amount available under the Credit Facility reverts back to $25.0 million.
The Credit Facility is collateralized by all of the Company's owned
and hereafter acquired assets. The Company may borrow up to 80% of eligible
accounts receivable. The Credit Facility accrues interest at the Company's
option at (i) the greater of the prime rate or the Federal funds rate plus
0.50% or (ii) the LIBOR rate plus a specified percentage (1.25% to 1.75%) based
upon the ratio of funded debt to earnings before interest, taxes, depreciation
and amortization ("EBITDA"). The Company pays a fee of between 0.1875% and
0.25% per annum on unused commitments under the Credit Facility based upon the
ratio of funded debt to EBITDA. The Company is required, under the terms of the
Credit Facility, to maintain certain financial covenants and ratios, including
minimum tangible net worth and funded debt to EBITDA and funded debt to
capitalization ratios, to limit capital expenditures and additional
indebtedness and is restricted, among other things, with respect to the
declaration and payment of dividends, redemptions, investments and
acquisitions. At June 30, 1999, the outstanding balance of the Credit Facility
was $13.0 million ($3.0 million at 7.75% per annum and $10.0 million at 6.25%
per annum) and is included in Long-term obligations, less current maturities in
the accompanying Consolidated Balance Sheets. At June 30, 1999, the available
balance under the terms of the Credit Facility was $22.0 million, for which the
applicable unused commitment fee was at the rate of 0.1875% per annum.
The Company also has secured a mortgage, as amended effective June 30,
1999, with the lender on its Credit Facility to acquire a property (land and
existing building) located in Sunrise, Florida. The mortgage loan is for $5.1
million, of which $4.0 million was advanced at closing in 1998. The remaining
$1.1 million available under the loan is subject to the Company's completion of
future interior improvements to the property by January 31, 2000. The amended
mortgage note accrues interest payable quarterly at the LIBOR rate plus 1.50%
per annum, of which the interest rate was 6.76% per annum at June 30, 1999.
Principal payments are due quarterly, commencing on January 31, 2000, based
9
<PAGE> 10
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
upon a 20-year amortization schedule, with a balloon payment due at maturity on
June 1, 2005. The amended mortgage loan is cross-defaulted with and has terms
substantially similar to the Credit Facility.
7. COMMITMENTS AND CONTINGENCIES
On or about August 26, 1998 a lawsuit, captioned Henry E. Freeman and
Freeman Industrial Enterprises Corporation v. Precision Response Corporation,
Mark J. Gordon, David L. Epstein and Richard D. Mondre (Case No.
398-CV-1895-AVC (D. Conn)), was filed in the Superior Court of the Judicial
District of Stamford/Norwalk in the state of Connecticut. The lawsuit has since
been removed by the Company to the United States District Court for the
District of Connecticut. This lawsuit alleges that the Company breached its
contracts with the plaintiffs by allegedly failing to pay all commissions
relating to certain clients whom the plaintiffs allegedly claim they procured
for the Company. The complaint also contains claims of breach of fiduciary
duty, breach of covenant of good faith and fair dealing, civil conspiracy,
fraud/fraud in the inducement, intentional infliction of emotional distress and
violations of the Connecticut Unfair Trade Practices Act. The plaintiffs seek
actual, compensatory and punitive damages, declaratory judgement that certain
contracts are invalid due to undue influence exercised upon plaintiffs,
recission of such contracts, an accounting and interest, costs and attorneys'
fees.
On January 6, 1999, the plaintiffs voluntarily dismissed with
prejudice this lawsuit against Richard Mondre, which dismissal has been
approved by the Court. On or about February 12, 1999, the plaintiffs filed an
Amended Complaint, asserting the same causes of action as in the original
complaint, as well as a claim for negligent misrepresentation. The Company has
filed a motion to dismiss the Amended Complaint for failure to state a cause of
action, which is currently pending before the Court.
The case is currently in the discovery stage. The Company believes
that the plaintiffs' allegations are totally without merit and intends to
defend the lawsuit vigorously. A provision for legal defense costs has been
accrued and is included in Other accrued expenses in the accompanying
Consolidated Balance Sheets which management believes is adequate based on
available information. No other provisions have been reflected since management
is unable, at this time, to predict the ultimate outcome of this matter.
10
<PAGE> 11
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, Internet communications, 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. Teleservicing
revenues are generally earned for providing services on a rate-per-hour basis.
However, beginning in the third quarter of 1997, the Company had also generated
teleservicing revenues under incentive-based outbound compensation agreements
whereby the amount of revenue earned correlates to the achievement of
established targets. At the end of the third quarter of 1998, the Company made
a strategic decision to exit the incentive-based outbound programs, which was
completed during the fourth quarter of 1998. The majority of teleservicing
revenues are derived from inbound calls, which represented approximately 92% of
teleservicing revenues and 81% of total revenues for the three months ended
June 30, 1999 as compared to approximately 85% of teleservicing revenues and
62% of total revenues for the three months ended June 30, 1998. For the six
months ended June 30, 1999, teleservicing revenues derived from inbound calls
represented approximately 92% of teleservicing revenues and 81% of total
revenues as compared to approximately 81% of teleservicing revenues and 59% of
total revenues for the same period of the prior year. Inbound teleservicing
consists mostly of longer-term customer care and customer service programs that
tend to be more predictable than other teleservicing revenues. Outbound
teleservicing and, in particular, incentive-based outbound teleservicing, is
driven by marketing programs which change frequently relative to inbound
programs. As such, outbound teleservicing is subject to greater variation in
operating results (see "Fluctuations in Quarterly Results" below).
Commencing in 1998 and during the six months ended June 30, 1999, the
Company began strategic initiatives to capitalize on the extraordinary growth
of Internet commerce by integrating Internet technologies with the Company's
current products and services to, in effect, create multimedia customer
interaction centers. In the first and second quarters of 1999, the Company
continued to make advances in the development and marketing of the
Internet-based and e-commerce services offered by prcnetcare.comSM, its
recently created Internet-based customer service subsidiary. During the three
months ended June 30, 1999, its second quarter of operation, prcnetcare.com
generated revenues of approximately $1.2 million primarily from InfiniteAccess,
the subsidiary's newest Internet-based customer care offering. During the six
months ended June 30, 1999, prcnetcare.com generated revenues of approximately
$1.5 million.
The InfiniteAccess suite of products and services enables the Company
to integrate clients' Internet-based customer care and e-commerce activities
with the Company's existing teleservices, database marketing and management,
and fulfillment services. InfiniteAccess's current base of offerings includes:
PRC SmartMail, an automated electronic messaging response service; PRC Web
On-Line, a Web collaborative service enabling the Company's customer care
associates to interact with clients' customers live over the telephone and the
Internet; PRC Internet Fulfillment Service, an e-mail and Web-based fulfillment
11
<PAGE> 12
process that supports e-commerce transactions; and PRC Host, a Web application
hosting and information service that enables clients to conduct e-commerce
activities while limiting their technology investments.
The Company is currently committed to investing in and expanding its
Internet-based and e-commerce services and continues to make strategic
infrastructure and software investments as it seeks to leverage its existing
technological capabilities into a leading position in the emerging market for
interactive customer care services. The Company's commitment was reinforced
through an approximate 16% investment (on a fully diluted basis) in Global
Reservation Systems, Inc. ("GRS"), a West Coast firm specializing in
Internet-based travel products and service systems. (See Note 3 - Investment in
Unconsolidated Affiliate of the Notes to Consolidated Financial Statements). GRS
will use prcnetcare.com's InfiniteAccess product to enhance its globeres.net
system, which helps travel agents compete more effectively using e-commerce.
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.
Fulfillment services include high-speed laser and electronic document
printing, lettershop and mechanical inserting, sorting, packaging and mailing
capabilities. While fulfillment services represents a relatively small portion
of the Company's total revenues, it is an important element in the Company's
overall marketing strategy of providing its customers with a "one-stop"
solution to their telephone-based and interactive customer service and
marketing needs.
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,
--------------------------- --------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
SELECTED OPERATING RESULTS:
Revenues.......................................... 100.0% 100.0% 100.0% 100.0%
Cost of services.................................. 82.7 85.8 83.4 87.9
----------- ------------ ----------- -----------
Gross margin.............................. 17.3 14.2 16.6 12.1
Selling, general and administrative expenses...... 11.3 10.2 10.9 9.2
----------- ------------ ----------- -----------
Operating income.......................... 6.0% 4.0% 5.7% 2.9%
=========== ============ =========== ===========
</TABLE>
REVENUES
Revenues for the three and six months ended June 30, 1999 were $50.1
million and $96.3 million, respectively, an increase of $6.7 million, or 15.5%,
and $12.4 million, or 14.8%, over the comparable periods in the prior year. The
principal components of revenues are teleservicing activities (representing
88.8% and 88.5% of revenues for the three and six months ended June 30, 1999,
respectively, and 74.4% and 73.5% of revenues for the three and six months ended
June 30, 1998, respectively), information services (representing 8.1% and 8.3%
of revenues for the three and six months ended June 30, 1999, respectively, and
11.4% and 10.2% of revenues for the three and six months ended June 30, 1998,
respectively) and fulfillment services (representing 3.1% and 3.2% of revenues
for the three and six months ended June 30, 1999, respectively, and 14.2% and
16.3% of revenues for the three and six months ended June 30, 1998,
respectively).
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<PAGE> 13
The Company had eight call centers and approximately 4,500
workstations in operation as of June 30, 1999 and 1998. In connection with its
1998 restructuring and performance-enhancing initiatives plan, the Company
continued its efforts that were initiated during the first quarter of 1999 to
eliminate 800 workstations in two specific call centers. This elimination was
offset by the expansion of workstations in existing call centers. As of June
30, 1999, the Company's workstation utilization rate was approximately 82%.
This compares to a utilization rate of approximately 68% at June 30, 1998.
Although utilization automatically increases with the reduction of
workstations, the Company continues to attempt to seek the award of additional
work from existing clients and pursue new client opportunities in order to
improve the utilization of its workstations. Absent the award of any
significant new business, the Company has no immediate plans for new call
centers. Alternatively, the Company is expanding workstation capacity in its
existing sites to meet current capacity needs.
Teleservicing activities accounted for the majority of the revenue
growth during both the three and six months ended June 30, 1999. Revenues from
teleservicing activities for the three and six months ended June 30, 1999 were
$44.4 million and $85.2 million, respectively, an increase of $12.1 million, or
37.7%, and $23.5 million, or 38.2%, 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, including a major national wireless service provider, a
leader in the deployment of enhanced telecommunications and interactive
information systems and a company that specializes in developing Internet-based
travel products and service systems. Revenues from the Company's largest client
accounted for 42.5% and 44.9% of total revenues for the three and six months
ended June 30, 1999, compared to 46.7% and 41.1% for the three and six months
ended June 30, 1998. Besides the Company's largest client, no other client
accounted for 10% or more of total revenues for the three or six months ended
June 30, 1999. Generally, teleservicing revenues are earned on a rate-per-hour
basis. However, during the three and six months ended June 30, 1998,
approximately 12.1% and 14.7% of total revenues were earned under
incentive-based compensation agreements, respectively. As discussed above, the
Company ceased earning revenues under incentive-based compensation agreements
during the fourth quarter of 1998.
Revenues from information services for the three and six months ended
June 30, 1999 were $4.1 million and $8.0 million, respectively, a decrease of
$0.8 million, or 17.6%, and $0.5 million, or 6.2%, compared to the same periods
of the prior year, primarily attributable to information services provided to a
certain client during the three months ended June 30, 1998, compared to no such
services provided to this client for the comparable periods of 1999. These
decreases were partially offset by information services provided during the
three and six months ended June 30, 1999, as a result of the addition of new
clients and growth in the Company's relationships with existing clients.
Revenues from Internet-based customer care services for the three and
six months ended June 30, 1999, in connection with prcnetcare.com's second
quarter of operations, were approximately $1.2 million and $1.5 million,
respectively, and are included in revenues from teleservicing and information
services noted above.
Revenues from fulfillment services for the three and six months ended
June 30, 1999 were $1.6 million and $3.1 million, respectively, a decrease of
$4.6 million, or 74.6%, and $10.6 million, or 77.6%, compared to the same
period of the prior year. Revenues from fulfillment services for both the three
and six months ended June 30, 1998 included fulfillment services provided in
connection with the incentive-based outbound teleservices program. As described
above under "Overview and Basis of Presentation," the Company exited the
incentive-based outbound teleservices program in the fourth quarter of 1998.
13
<PAGE> 14
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 for
the three and six months ended June 30, 1999 were $41.4 million and $80.4
million, respectively, an increase of $4.2 million, or 11.3%, and $6.6 million,
or 9.0%, over the comparable periods in the prior year. The increases are
principally as a result of the growth in operations. In addition, included in
these amounts are the cost of services related to prcnetcare.com, which were
approximately $1.2 million and $1.8 million for the three and six months ended
June 30, 1999, respectively.
The decrease in cost of services, as a percentage of revenues, from
85.8% for the three months ended June 30, 1998 to 82.7% for the three months
ended June 30, 1999 and from 87.9% for the six months ended June 30, 1998 to
83.4% for the six months ended June 30, 1999, was primarily attributable to the
Company's less than satisfactory operating results generated by the
incentive-based outbound teleservices program for the three and six months
ended June 30, 1998. As described above under "Overview and Basis of
Presentation," the Company exited the incentive-based outbound teleservices
program in the fourth quarter of 1998. The decrease is also attributable to the
Company's continued improvement in the utilization of workstation 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, finance and management information systems functions. SG&A for the
three and six months ended June 30, 1999 were $5.7 million and $10.5 million,
respectively, an increase of $1.2 million, or 28.0%, and $2.8 million, or
36.0%, over the comparable periods in the prior year. A portion of this
increase is due to the Company's continued advances in the development and
marketing of prcnetcare.com, resulting in SG&A of approximately $700,000 and
$1.1 million during the three and six months ended June 30, 1999, respectively.
The remainder of the increase is principally due to the Company's growth in
operations, the addition of certain management positions during the first half
of 1999 and annual salary increases.
As a percentage of revenues, SG&A increased from 10.2% for the three
months ended June 30, 1998 to 11.3% for the three months ended June 30, 1999
and from 9.2% for the six months ended June 30, 1998 to 10.9% for the six
months ended June 30, 1999. This increase is a result of the development and
marketing of prcnetcare.com, as well as the addition of certain management
positions during the first half of 1999 and annual salary increases.
INTEREST, NET
Interest expense, net of interest income and capitalized interest, was
$144,000 and $457,000 for the three and six months ended June 30, 1999,
respectively, compared to net interest expense of $390,000 and $494,000 for the
comparable periods of the prior year. The decrease in net interest expense is
due to the capitalization of certain interest costs during the three and six
months ended June 30, 1999 that were incurred as a result of borrowings under
14
<PAGE> 15
the Company's revolving credit facility used to partially fund the Company's
PRISM Project and the development of internal use software. (See Note 4 -
Property and Equipment of the Notes to Consolidated Financial Statements.)
INCOME TAXES
The Company had a deferred tax asset of $10.4 million at June 30, 1999
and $12.4 million at December 31, 1998. The net deferred tax asset in the
amount of $10.4 million at June 30, 1999 is based upon expected utilization of
net operating loss carryforwards and reversal of certain temporary differences.
Although realization is not assured, the Company believes it is more likely
than not that all of the net deferred tax asset will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced. The Company will continue to review the assumptions used on a
quarterly basis and make adjustments as appropriate.
NET INCOME AND NET INCOME PER SHARE
For the three months ended June 30, 1999, net income was $1.7 million
compared to net income of $829,000 for the comparable period of 1998. Net
income per common share for the three months ended June 30, 1999 and 1998, was
$0.08 and $0.04, respectively.
For the six months ended June 30, 1999, net income was $2.9 million
compared to net income of $1.2 million for the comparable period of 1998. Net
income per common share for the six months ended June 30, 1999 and 1998 was
$0.14 and $0.06, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1999, the Company funded its operations
and capital expenditures primarily through cash flows from operations and, to a
lesser extent, bank borrowings.
On March 2, 1998, the Company entered into a three-year, $25.0 million
revolving credit facility, replacing its then existing $15.0 million revolving
credit facility. Effective June 30, 1999, the $25.0 million revolving credit
facility was amended (the "Credit Facility") to increase the amount available
under the Credit Facility to $35.0 million through January 31, 2000, subject to
certain limitations. Effective as of February 1, 2000, the amount available
under the Credit Facility reverts back to $25.0 million. For a further
discussion of the terms of the Credit Facility, see Note 6 - Credit Facility and
Long-Term Debt of the Notes to Consolidated Financial Statements.
The Company also has secured a mortgage, as amended effective June 30,
1999, with the lender on its Credit Facility to acquire a property (land and
existing building) located in Sunrise, Florida. The mortgage loan is for $5.1
million, of which $4.0 million was advanced at closing in 1998. The remaining
$1.1 million available under the loan is subject to the Company's completion of
future interior improvements to the property by January 31, 2000. For a further
discussion of the terms of the amended mortgage loan, see Note 6 - Credit
Facility and Long-Term Debt of the Notes to Consolidated Financial Statements.
At June 30, 1999, the Company had cash and cash equivalents of
$514,000 and total long-term obligations (including current maturities thereof)
of $20.2 million. Net cash provided by operating activities was $13.4 million
for the six months ended June 30, 1999 and net cash used in operating
activities was $7.5 million for the same period in the prior year. The decrease
15
<PAGE> 16
in cash used in operating activities from the first six months of 1999 compared
to the same period in 1998 was primarily attributable to the reduction in
accounts receivable due to increased collection efforts offset in part by a
decrease in accounts payable.
Net cash used in investing activities was $15.4 million and $11.1
million for the six months ended June 30, 1999 and 1998, respectively. Investing
activities for the six months ended June 30, 1999 were principally for capital
expenditures as well as a $1.5 million investment in GRS, which is described in
further detail above. (Also see Note 3 - Investment in Unconsolidated Affiliate
of the Notes to Consolidated Financial Statements). All investing activities for
the six months ended June 30, 1998 were for capital expenditures.
Capital expenditures increased from $11.1 million for the six months
ended June 30, 1998 to $13.9 million for the same period of the current year.
Capital expenditures for the six months ended June 30, 1998 were primarily for
the completion of the relocation and consolidation of administrative office
space into unused space in an existing facility, costs incurred for the
Company's internal financial and operating system enhancements (the PRISM
Project) and the purchase of land and a building located in Sunrise, Florida.
Capital expenditures for the six months ended June 30, 1999 relate primarily to
costs incurred for the expansion of workstations in existing facilities and the
PRISM Project, prcnetcare.com product and service offerings, and IMA
Advantage/Edge, as discussed below.
During the first quarter of 1998, the Company began its implementation
of an Enterprise Resource Planning ("ERP") solution, which will allow for all
internal systems (including those related to billing, payroll, client
profitability management, human resource management and general ledger) to be
fully integrated into a common platform. The Company has designated its ERP
implementation as the PRISM Project. The PRISM Project is utilizing both
internal resources as well as outside consultants to allow for a quick and
efficient implementation. Full implementation, including software, hardware,
consulting fees, training and internal resources, will cost approximately $13.0
million and will take place by the end of the third quarter of 1999. The first
modules of the PRISM Project, human resources/payroll, general ledger, accounts
receivable and accounts payable, were placed in service during the fourth
quarter of 1998. Additionally, the purchasing and inventory and order entry
modules of the PRISM Project were placed in service during the second quarter
of 1999. Costs of the PRISM Project have been capitalized or charged to
earnings based upon SOP 98-1. See Note 4- Property and Equipment of the Notes
to Consolidated Financial Statements.
In connection with prcnetcare.com, beginning in 1998 and through the
end of 1999, the Company currently expects to invest in excess of $6.0 million
in developing and enhancing software products and technology infrastructure to
accommodate Internet-based interactive customer communications. In addition, the
Company is in the process of implementing IMA Advantage/Edge, a third-party
software product. The full implementation of IMA Advantage/Edge is currently
expected to cost approximately $7.0 to $8.0 million and will take place during
the third quarter of 1999. See Note 4- Property and Equipment of the Notes to
Consolidated Financial Statements.
Net cash provided by financing activities was $794,000 and $8.2
million for the six months ended June 30, 1999 and 1998, respectively.
Financing activities for the first half of 1999 and 1998 are principally
comprised of net borrowings under the Company's revolving credit facility. In
addition, during the first half of 1998 included in net cash provided by
financing activities are the proceeds from the mortgage loan for the land and
building located in Sunrise, Florida.
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<PAGE> 17
The Company believes that funds generated from operations, available
borrowings under the revolving credit facility and capital lease financings
will be sufficient to finance its planned capital expenditures for 1999. 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 and the level of future capital expenditures required to develop
and/or enhance software products and technology infrastructure to accommodate
Internet-based interactive customer communications. 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.
YEAR 2000 ISSUE
The Year 2000 issue affects the Company's installed computer systems,
network elements, software applications and other business systems that have
time-sensitive programs, including those with embedded microprocessors, that
may not properly reflect or recognize the year 2000 and years thereafter.
Because many computers and computer applications define dates by the last two
digits of the year, "00" or other two-digit dates after the year 2000 may not
be properly identified as the year 2000 or the appropriate later year, but
rather the year 1900 or a year between 1901 and 1999 (as the case may be). This
error could result in system and equipment failures or malfunctions causing
disruption of operations, including among others, a temporary inability to
process calls, transactions and information, or engage in similar normal
business activities.
The Company has evaluated its installed computer systems, network
elements, software applications and other business systems that have
time-sensitive programs and has developed a plan to ensure their Year 2000
compliance. The Company has established a Year 2000 Compliance Team that meets
generally on a weekly basis to monitor the progress and status of the Company's
Year 2000 plan. The Company's Year 2000 plan is divided into seven major
sections: Internal Systems and Equipment (business applications for accounting,
administration, human resources and other Company-wide applications and office
equipment, including non-information technology infrastructure in which
non-compliant software or embedded microprocessors might exist); Hardware
(Company-wide information technology architecture); Software Packages (standard
personal computer and individual software packages, such as electronic
spreadsheet and word processing software); Application Tools and Products
(products utilized by information technology development organizations to
develop and implement automated business applications); Client Applications;
Client Interfaces; and Third Party Suppliers. In order to address the Year 2000
issue and the seven major sections stated above, the Company's Year 2000 plan
involves five phases: Planning and Awareness Phase (developing a budget and
project plan); Inventory and Assessment Phase (identify systems and
applications, assess risks and prioritize efforts); Remediation Phase (repair,
replace or retire non-compliant systems or processes); Validation Phase
(perform testing of systems and processes); and Implementation Phase.
17
<PAGE> 18
The following chart outlines, by major section, the phases of the
Company's Year 2000 plan that have been completed or, if not yet completed, the
current estimated date of completion:
<TABLE>
<CAPTION>
PHASES
-----------------------------------------------------------------------------------------
PLANNING INVENTORY
AND AND
MAJOR SECTION AWARENESS ASSESSMENT REMEDIATION VALIDATION IMPLEMENTATION
- ----------------------------- ------------- ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Internal Systems and
Equipment................ Completed Completed Completed Completed Completed
Hardware................... Completed Completed 9/99 9/99 9/99
Software Packages.......... Completed Completed Completed Completed 8/99
Application Tools and
Products................. Completed Completed Completed Completed Completed
Client Applications........ Completed Completed Completed 9/99 9/99
Client Interfaces.......... Completed Completed Completed 9/99 9/99
Third Party Suppliers...... Completed Completed Completed Completed Completed
</TABLE>
The Company, pursuant to the PRISM Project, which was undertaken by
the Company for reasons unrelated to any Year 2000 issues, has expended
approximately $12.3 million of the estimated $13.0 million required to upgrade
and enhance its internal financial and administrative systems. An ancillary
benefit of the PRISM Project is that the resulting systems will be Year 2000
compliant with full implementation of all aspects of the PRISM Project taking
place by the end of the third quarter of 1999. Based upon its most recent
assessment, the Company has determined that the incremental cost of insuring
that its remaining computer systems and processes are Year 2000 compliant is
expected to be approximately $1.5 million. This amount will be funded as part
of the Company's budgeted expenditures during 1999. Through June 30, 1999, the
Company, exclusive of the PRISM Project, has spent approximately $900,000 on
the Year 2000 issue. These amounts do not include any costs associated with the
implementation of contingency plans, if required, which are described in more
detail below. All incremental costs associated with the Year 2000 issue are
being expensed as incurred.
Since the Year 2000 issue may also affect the systems and applications
of the Company's customers or suppliers, the Company has initiated formal
communications with its customers and suppliers to determine their overall Year
2000 readiness and the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. As part of its overall communication process, the Company has mailed
letters to all of its customers and suppliers in an effort to receive the
appropriate warranties and assurances that those parties are, or will be, Year
2000 compliant. For those responses that have not been received from customers
or suppliers or for those customers or suppliers that have not published a
statement or disclosure concerning their Year 2000 readiness, the Company has
developed contingency plans, which are described in further detail below.
Although the Company currently does not anticipate any material adverse impact
on its operations as a result of Year 2000 issues of its customers or
suppliers, no assurance can be given that the failure by one or more of its
major suppliers or customers to become Year 2000 compliant will not have a
material adverse impact on its operations.
The extent of the Company's Year 2000 exposure, the costs of achieving
Year 2000 compliance and the time period within which the Company believes it
will achieve its Year 2000 compliance are based on management's knowledge to
date and its best estimates to date. Although the Company expects its critical
systems and applications to be Year 2000 compliant prior to any anticipated
impact on its operations, there is no guarantee that these results will be
achieved. Specific factors that give rise to this uncertainty, as well as the
18
<PAGE> 19
timing and cost of achieving Year 2000 compliance (if at all), include, but are
not limited to, availability and cost of personnel, failure to identify and
correct all Year 2000 susceptible systems and applications, noncompliance by
customers, suppliers and other third parties whose systems and operations
impact the Company, and other similar uncertainties. A reasonably possible
worst case scenario might include the failure of third parties to provide
services, such as power and telecommunication services, or the loss of the
Company's automated call distributors or dialers which could, depending on its
duration, result in a material disruption to the Company's operations and its
ability to generate revenue.
The Company has developed contingency plans in the unlikely event that
the uncertainties or worst case scenario described above do in fact occur. The
Company's contingency plans, which were created based on the probability of an
event and the magnitude of its impact on operations, are as follows:
Suppliers - The Company's providers of basic resources, such as
electric, telephone service, water, etc., have been contacted and/or
the Company has reviewed statements or disclosures published by its
suppliers concerning their Year 2000 readiness. Substantially all of
the Company's suppliers are addressing the Year 2000 issue and
planning to achieve compliance prior to any impact on their respective
business. In the unlikely event a critical supplier fails to achieve
Year 2000 compliance, with the exception of the Company's local and
long distance telecommunications carriers which are addressed below,
contingency plans have been developed by the Company to mitigate
minor, short-term disruptions, such as in-house generation for the
loss of electric power. Long-term, widespread disruptions, for which
there is no viable contingency, would cause operations to be
discontinued and call centers to be shut down, which would result in a
material disruption to the Company's operations and its ability to
generate revenue.
The Company's local and long distance telecommunications carriers will
have the greatest impact on the Company's operations should they not
achieve Year 2000 compliance. The Company addressed the issue on
several levels and assessed the feasibility of developing and
implementing a contingency plan, including the use of back-up or
replacement telecommunication lines. The Company determined that there
is no feasible contingency for a failure of its local and/or long
distance telecommunications carriers to achieve Year 2000 compliance,
based upon the following:
o There would be no guarantee that the replacement networks
would continue without disruption, as the alternate
carriers offer no greater guarantees than the Company's
current telecommunication providers.
o Transition from one network to another has the potential
to create the same types of disruptions that the Company
would be attempting to avoid.
o The Company's local and long distance telecommunications
providers have declared themselves to be Year 2000
compliant and the risk of massive network outages are
remote based on their assurances, as well as the critical
nature of their services to businesses and consumers
nationwide.
o The high cost of establishing replacement networks would
not be justified in light of the issues described above.
Customers - The Company's customers have been contacted and/or the
Company has reviewed statements or disclosures published by its
customers concerning their Year 2000 readiness. Substantially all of
the Company's customers are addressing the Year 2000 issue and
planning to achieve compliance prior to any impact on their respective
19
<PAGE> 20
business. For those customers that have not yet directly responded to
the Company with respect to their Year 2000 compliance or for those
customers that have not published a statement or disclosure concerning
their Year 2000 readiness, the Company has determined that any impact
on its operations resulting from those customers' noncompliance will
be minor. Nonetheless, contingency plans have been developed as
necessary on a client-by-client basis.
Internal Systems and Applications - Due to the Company's adherence to
its plan for achieving Year 2000 compliance, the Company expects its
critical systems and applications to be Year 2000 compliant. The
Company currently anticipates that the impact of Year 2000, if any, on
its systems and applications would be minor disruptions of short-term
duration to be remedied in the normal course of business. The Company
has developed contingency plans, such as taking steps to ensure that
adequate personnel will be available to provide maximum support of the
Company's systems and infrastructure prior and subsequent to the turn
of the century.
The Company will continue to assess the need for further or modified
contingency plans based on the progress of the Year 2000 efforts by the Company
and third parties throughout the remainder of 1999.
FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences quarterly variations in revenues, operating
margins 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, including the percentage (if any) of services provided
under incentive-based compensation agreements, and the timing of additional
operating and capital expenses to acquire and support new business and/or in
connection with new products and services. In addition, the completion or
termination of a large customer service program or the loss or delay in the
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.
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," "feels," "estimates," "plans,"
"expects," "intends," "projects," "anticipates," "sees," 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 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 effective completion of the implementation
of the Company's restructuring plan and performance-enhancing initiatives, the
achievement of satisfactory levels of both gross and operating margins, the
opening of new customer interaction centers in accordance with strategic plans
and in a timely and economic manner consistent with existing capacity
requirements, the ability of the Company to hire, train and retain a sufficient
labor force of qualified personnel at competitive wage rates, the development
and continued enhancement of telecommunication, Internet, computer and
20
<PAGE> 21
information technologies and infrastructures and operational and financial
systems (including the successful and timely completion of the implementation
and installation of the PRISM Project), the effective and timely marketing to,
and level of acceptance and increased utilization by, existing and new clients
of the Company of Precision Resolution, InfiniteAccess and other Internet
products and services, technical difficulties or errors, problems or excessive
costs incurred by the Company in connection with the completion of the
development, implementation and/or future enhancement of InfiniteAccess,
Precision Resolution, and/or IMA Advantage/Edge, and/or the integration of
Internet technologies with the Company's current products and services to
create customer interaction centers and the success and acceptance by the
Company's clients thereof, the failure of the Company to cost-effectively
develop new Internet services and products or to maintain or enter into new
strategic or key business relationships in connection with the development
and/or enhancement of its Internet offerings, the over-estimation by the
Company of the level of need and demand for customer support and service
through the use of the Internet, the ability of the Company to hire, train and
retain qualified technology and other personnel in connection with its
development, implementation and/or enhancement efforts and the operations of
prcnetcare.com, the compatibility of InfiniteAccess, Precision Resolution and
other Internet products and services with existing systems of the Company's
clients and the extent of the technical problems arising with respect to
obtaining such compatibility, the realization by the Company of the expected
direct and indirect benefits and returns (including operational and marketing
benefits) from its investment in GRS, the introduction of new competitive
Internet and other products and services in the Company's industry by other
companies and, in connection therewith, the ability of the Company to maintain
a leadership role in both traditional and Internet-based customer care products
and services, the achievement by the Company and its suppliers and customers of
Year 2000 compliance in a timely and cost efficient manner, the anticipated
growth in industry trends towards outsourcing and cosourcing of telephone and
Internet based marketing and customer service operations (particularly in the
telecommunications services and equipment, transportation, financial services,
utility, consumer products, food and beverage, and travel 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 level of costs associated with the development and then
expansion of prcnetcare.com's business and operations, the achievement of
satisfactory levels of both gross and operating profits, the adequacy of cash
flows from operations and available financing to fund capital needs and future
growth, changes in and additions to governmental rules and regulations
applicable to the Company, the realization of the Company's net deferred tax
asset and other risks set forth in this report, in the Company's other filings
with the SEC and in the Company's press releases. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the quarter ended June 30, 1999, there have been no material
changes in the information about the Company's market risk as of December 31,
1998 as set forth in Item 7A. of the 1998 Form 10-K.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of the lawsuit captioned HENRY E. FREEMAN AND FREEMAN
INDUSTRIAL ENTERPRISES CORPORATION V. PRECISION RESPONSE CORPORATION, MARK J.
GORDON, DAVID L. EPSTEIN AND RICHARD D. MONDRE (Case No. 398-CV-1895-AVC (D.
Conn)), see Note 7 - Commitments and Contingencies of the Notes to Consolidated
Financial Statements in Item 1 of Part I of this report, which Note 7 is
incorporated by reference into this Item 1 of Part II.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities
The Company did not issue or sell any unregistered securities during
the quarter ended June 30, 1999, although the Company granted the
stock options described below pursuant to the Company's Amended and
Restated 1996 Incentive Stock Plan, as amended (the "Incentive Stock
Plan"):
(i) The Company granted options to purchase 60,000 shares of
Common Stock to an executive officer of the Company at an
exercise price of $4.38 per share. These options have a term
of seven years and vest at the rate of 33 1/3% on each of the
first three anniversaries from the date of grant (April 26,
1999).
(ii) The Company granted options to purchase 37,500 shares of
Common Stock to 24 employees at an exercise price of $4.06
per share. These options have a term of seven years and vest
at the rate of 20% on each of the first five anniversaries
from the date of grant (May 3, 1999).
(iii) The Company granted options to purchase 250,000 shares of
Common Stock to each of two employees at an exercise price of
$5.1875 per share. These options have a term of seven years
and vest at the rate of 15% following the first six months,
an additional 18% following the first year, an additional 33%
following the second year and an additional 34% following the
third year from the date of grant (June 22, 1999).
The Company also granted an option to purchase 15,000 shares of Common
Stock to each of three nonemployee directors pursuant to the terms of
the Company's Amended and Restated 1996 Nonemployee Director Stock
Option Plan. Each option has an exercise price of $5.53 per share, a
term of ten years and vests 100% on the first anniversary from the
date of grant (June 21, 1999).
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.
22
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On June 21, 1999, the Company held its 1999 Annual Meeting of
Shareholders (the "Annual Meeting").
(b) One matter voted on at the Annual Meeting was the election of all
seven directors of the Company. The seven 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:
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTORS FOR ELECTION ABSTENTIONS
------------------------------- ------------------------ ----------------------
<S> <C> <C>
Mark J. Gordon 17,573,434 (92.6%) 1,411,181 (7.4%)
David L. Epstein 17,573,434 (92.6%) 1,411,181 (7.4%)
Richard D. Mondre 17,573,434 (92.6%) 1,411,181 (7.4%)
Bernard J. Kosar, Jr. 17,573,434 (92.6%) 1,411,181 (7.4%)
Christian Mustad 17,573,434 (92.6%) 1,411,181 (7.4%)
Neil A. Natkow 17,573,434 (92.6%) 1,411,181 (7.4%)
Richard N. Krinzman 17,573,434 (92.6%) 1,411,181 (7.4%)
</TABLE>
(c) The only other matters voted upon at the Annual Meeting were the
following:
(i) A proposal to approve an amendment to the Incentive Stock
Plan increasing the number of shares of the Company's Common
Stock reserved for issuance under the Incentive Stock Plan to
4,750,000 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 16,032,988 84.4%
Against 2,939,452 15.5%
Abstain 12,175 0.1%
(ii) A proposal to approve the amendment and restatement in its
entirety of the Company's 1996 Nonemployee Director Stock
Option Plan. 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 17,939,271 94.5%
Against 1,035,619 5.4%
Abstain 9,725 0.1%
(d) Not applicable.
23
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------- ------------------------------------------------------------
10.1 Precision Response Corporation Amended and Restated 1996
Incentive Stock Plan (as amended through June 21, 1999)*+
10.2 Precision Response Corporation Amended and Restated 1996
Non-employee Director Stock Option Plan (incorporated by
reference to Exhibit "A" to the Company's Proxy Statement
dated April 30, 1999, File No. 0-20941)+
10.3 Third Amendment to Revolving Credit Agreement effective as of
June 30, 1999, between the Company and Bank of America, N.A.,
d/b/a NationsBank, N.A., successor to NationsBank, N.A.
("NationsBank")*
10.4 Third Amendment to Mortgage Loan Agreement effective as of
June 30, 1999, between the Company and NationsBank*
10.5 First Amendment to Consolidated Renewal Promissory Note
effective as of June 30, 1999, between the Company and
NationsBank*
10.6 Securities Purchase Agreement dated as of June 15, 1999,
between the Company and Global Reservation Systems, Inc.
("GRS") (without exhibits or schedules)*
10.7 Common Stock Purchase Warrant dated June 15, 1999, from GRS
in favor of the Company*
10.8 Shareholders' Rights Agreement dated as of June 15, 1999,
among the Company, GRS and certain shareholders of GRS*
10.9 Registration Rights Agreement dated as of June 15, 1999,
between the Company and GRS*
27.1 Financial Data Schedule (for SEC use only)*
- ---------------
* Filed herewith.
+ Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999.
24
<PAGE> 25
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
Executive 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 9, 1999
25
<PAGE> 26
PRECISION RESPONSE CORPORATION
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------- -----------------------------------------------------------
10.1 Precision Response Corporation Amended and Restated 1996
Incentive Stock Plan (as amended through June 21, 1999)*
10.2 Precision Response Corporation Amended and Restated 1996
Non-employee Director Stock Option Plan (incorporated by
reference to Exhibit "A" to the Company's Proxy Statement
dated April 30, 1999, File No. 0-20941)
10.3 Third Amendment to Revolving Credit Agreement effective as of
June 30, 1999, between the Company and Bank of America, N.A.,
d/b/a NationsBank, N.A., successor to NationsBank, N.A.
("NationsBank")*
10.4 Third Amendment to Mortgage Loan Agreement effective as of
June 30, 1999, between the Company and NationsBank*
10.5 First Amendment to Consolidated Renewal Promissory Note
effective as of June 30, 1999, between the Company and
NationsBank*
10.6 Securities Purchase Agreement dated as of June 15, 1999,
between the Company and Global Reservation Systems, Inc.
("GRS") (without exhibits or schedules)*
10.7 Common Stock Purchase Warrant dated June 15, 1999, from GRS
in favor of the Company*
10.8 Shareholders' Rights Agreement dated as of June 15, 1999,
among the Company, GRS and certain shareholders of GRS*
10.9 Registration Rights Agreement dated as of June 15, 1999,
between the Company and GRS*
27.1 Financial Data Schedule*
- ---------------
* Filed herewith.
<PAGE> 1
Exhibit 10.1
PRECISION RESPONSE CORPORATION
AMENDED AND RESTATED 1996 INCENTIVE STOCK PLAN1
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.
- --------
1 As amended through June 21, 1999
<PAGE> 2
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 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 4,750,000 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
2
<PAGE> 3
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.
(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.
3
<PAGE> 4
(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 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
4
<PAGE> 5
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 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
5
<PAGE> 6
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 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,
6
<PAGE> 7
cash or other property, or any combination thereof (an "Acquisition"), subject
to the provisions of this Plan and any limitation applicable to the Award:
(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.
7
<PAGE> 8
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
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
8
<PAGE> 9
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.
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
9
<PAGE> 10
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 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 AMENDMENTS. Section 5 of the Plan was amended to
increase the number of Common Shares reserved for issuance under the Plan (a) 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, (b) to 4,000,000 Common
Shares by action taken by the Board on March 12, 1998, which amendment was
approved by the shareholders of the Company at the Company's annual meeting of
shareholders held on June 12, 1998, and (c) to 4,750,000 Common Shares by action
taken by the Board on April 26, 1999, which amendment was approved by the
shareholders of the Company at the Company's annual meeting of shareholders held
on June 21, 1999.
10
<PAGE> 1
EXHIBIT 10.3
THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Third
Amendment") is entered into effective as of June 30, 1999 by PRECISION RESPONSE
CORPORATION (as "Borrower"), and BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A.,
successor to NATIONSBANK, N.A., as a Bank and as an Agent under that certain
Credit Agreement dated March 2, 1998 ("NationsBank").
W I T N E S S E T H:
WHEREAS, that certain Revolving Credit Agreement (the "Credit
Agreement") was executed as of March 2, 1998 by Borrower and NationsBank; and
WHEREAS, the Credit Agreement was modified by First Amendment dated as
of June 30, 1998 and by Second Amendment dated as of September 30, 1998; and
WHEREAS, the parties desire to further modify the Credit Agreement as
set forth herein.
NOW THEREFORE, for good and valuable considerations, the receipt of
which is hereby acknowledged, the parties do hereby modify the Credit Agreement
as follows:
1. COMMITMENT AMOUNT. The Amount of Commitment by NationsBank is hereby
increased from $25,000,000.00 to $35,000,000.00 for the period of time between
the date of this Third Amendment and January 31, 2000, subject to compliance by
Borrower with all terms and conditions of the Credit Agreement and subject to
the Borrowing Base limitations as to available advances under the Loan.
Effective as of February 1, 2000, the Amount of Commitment by NationsBank shall
revert to $25,000,000.
2. DEFINITIONS.
a. Commencing as of October 1, 1999, and at all times
thereafter, the definitions of "EBIT" and "EBITDA" in Section 1.01 are hereby
modified in their entirety to read as follows:
"EBIT" means, for any Four-Quarter Period ending on the date
of computation thereof, the sum of, without duplication, (i)
net income, (ii) interest expense, (iii) taxes on income of
the Borrower, and (iv) any extraordinary loss in such period
minus (v) any extraordinary gain in such period, all
determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a
Consistent Basis.
"EBITDA" means, for any Four-Quarter Period ending on the date
of computation thereof, the sum of, without duplication, (i)
net income, (ii) interest expense, (iii) income tax expense of
the Borrower, (iv) amortization expense of the Borrower, (v)
depreciation of the Borrower and its Subsidiaries, and (vi)
any extraordinary loss in such period minus
<PAGE> 2
(vii) any extraordinary gain in such period, all determined on
a consolidated basis in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis.
b. The definition of "Material Subsidiaries" in Section 1.01
is hereby modified in its entirety to read as follows:
"MATERIAL SUBSIDIARIES" means, collectively, Precision Relay
Services, Inc., a Florida corporation, Precision Response of
Colorado, Inc., a Delaware corporation, Precision Response of
North America, Inc., a Delaware corporation, PRCNETCARE.COM,
Inc., a Delaware corporation, and any other Subsidiary
acquired or created after the Agreement Date.
3. NEGATIVE COVENANTS. Sections 6.03 and 6.04 are hereby modified in
their entirety to read as follows:
6.03 FIXED CHARGE COVERAGE RATIO. Permit the ratio of (a) the
sum of EBITDA for any Four-Quarter Period plus Rents Expense
for such Four- Quarter Period to (b) the sum of interest
expense for such Four-Quarter Period plus Rents Expense for
such Four-Quarter Period plus income tax expense for such
Four-Quarter Period plus 20% of Funded Debt (but excluding the
Harland Debt) outstanding as of the last day of the applicable
Four-Quarter Period plus the current maturities of the Harland
Debt to be less than 1.80 to 1.00 as of the last day of each
Four-Quarter Period.
6.04 CAPITAL EXPENDITURES. Make or become committed to make
Capital Expenditures which exceed in the aggregate (on a
noncumulative basis, with the effect that amounts not expended
in any Fiscal Year may not be carried forward to a subsequent
period) Thirty Million Dollars ($30,000,000) in any Fiscal
Year.
4. VISITS AND INSPECTIONS. The following provision is hereby added at
the end of Section 7.03(b):
The inspections by Agent provided for in this Section 7.03(b)
shall include an annual field audit to be performed by Agent
at Borrower's expense at such time(s) as Agent shall select.
5. REAFFIRMATION. Except as expressly modified herein, the Credit
Agreement, as previously amended, is hereby reaffirmed in its entirety.
-2-
<PAGE> 3
PRECISION RESPONSE CORPORATION,
as the Borrower
By: /s/ Joseph E. Gillis
-----------------------------
Name: JOSEPH E. GILLIS
----------------------------------
Title: V.P. AND TREASURER
----------------------------------
BANK OF AMERICA, N.A., d/b/a NATIONSBANK,
N.A., successor to NATIONSBANK, N.A., as Agent
and as a Bank under the Credit Agreement
By: /s/ Hans E. Starks
-------------------------------------
Name: HANS E. STARKS
-----------------------------------
Title: OFFICER
----------------------------------
-3-
<PAGE> 4
STATE OF NORTH CAROLINA )
) SS.
COUNTY OF COLDWELL )
The foregoing instrument was acknowledged before me this 30th day of
July, 1999 by JOSEPH E. GILLIS, as VICE PRESIDENT + TREASURER of PRECISION
RESPONSE CORPORATION, a Florida corporation, who [ ] is personally known to me
or [x] has produced D.R. LIC. #G420-485-57-098-0 (FLORIDA) as identification.
(Seal)
/s/ DONNA H. PERRY
-----------------------------------------
Notary Public
Print Name: Donna H. Perry
-----------------------------
My commission expires: 3/16/2004
STATE OF NORTH CAROLINA )
) SS.
COUNTY OF COLDWELL )
The foregoing instrument was acknowledged before me this 30th day of
July, 1999 by HANS E. STARKS, as OFFICER of BANK OF AMERICA, N.A., d/b/a
NATIONSBANK, N.A., successor to NATIONSBANK, N.A., who [ ] is personally known
to me or [x] has produced N.C. D.L. # 23817436
as identification.
(Seal)
/s/ DONNA H. PERRY
-----------------------------------------
Notary Public
Print Name: Donna H. Perry
-----------------------------
My commission expires: 3/16/2004
-4-
<PAGE> 1
EXHIBIT 10.4
THIRD AMENDMENT TO MORTGAGE LOAN AGREEMENT
THIS THIRD AMENDMENT TO MORTGAGE LOAN AGREEMENT (the "Third Amendment")
is entered into effective as of June 30, 1999 by PRECISION RESPONSE CORPORATION
(as "Borrower"), and BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A., successor
to NATIONSBANK, N.A., as Bank under that certain Mortgage Loan Agreement dated
May 29, 1998 ("NationsBank").
W I T N E S S E T H:
WHEREAS, that certain Mortgage Loan Agreement (the "Mortgage Loan
Agreement") was executed as of May 29, 1998 by Borrower and NationsBank; and
WHEREAS, the Mortgage Loan Agreement was modified by First Amendment
dated as of June 30, 1998 and by Second Amendment dated September 30, 1998; and
WHEREAS, the parties desire to further modify the Mortgage Loan
Agreement as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties do hereby modify the Mortgage Loan
Agreement as follows:
1. LOAN HOLDBACK. Section 2.02 is hereby modified in its entirety to
read as follows:
2.02 LOAN HOLDBACK. The amount of One Million One Hundred
Twenty Thousand Dollars ($1,120,000.00) shall not be disbursed
to Borrower at Closing, and shall constitute the "Interior
Improvement Holdback". The Interior Improvement Holdback shall
be disbursed to Borrower upon the substantial completion by
Borrower of the interior improvements to the Mortgaged
Property in a lien free manner to the satisfaction of Bank.
The Borrower agrees to substantially complete the interior
improvements not later than January 31, 2000. The interior
improvements shall be deemed to be substantially completed at
such time as (a) Borrower has obtained a Certificate of
Occupancy or Completion for the premises and improvements, and
(b) Borrower has obtained a contractor's final lien release
from all contractors who have worked on the interior
improvements, and (c) Bank's inspector (I.E., an inspector
designated by Bank) has inspected the interior improvements
and has verified to Bank that the interior improvements have
been substantially completed and (d) Borrower has furnished to
Bank an updated endorsement to the title policy insuring the
Mortgage confirming the absence of liens on the Mortgaged
Property. In the event that Borrower fails to substantially
complete the interior improvements in accordance with this
Section 2.02 on or before January 31, 2000, then Bank shall
not be obligated to advance the Interior Improvement
<PAGE> 2
Holdback and at the option of Bank the amount of the Loan
shall be deemed reduced by the amount of the Interior
Improvement Holdback. The failure of Borrower to substantially
complete the interior improvements on or before January 31,
2000 in accordance with this Section 2.02 shall not be deemed
to constitute a Default under this Agreement and the only
consequence of such failure shall be a reduction in the amount
of the Loan, but the foregoing shall not be deemed to permit
any construction liens to attach to the Mortgaged Property.
The Interior Construction Holdback shall not be deemed an
advance of funds to the Borrower and shall not bear interest
unless and until such funds are advanced to Borrower.
2. DEFINITIONS.
(a) Commencing as of October 1, 1999, and at all times
thereafter, The definitions of "EBIT" and "EBITDA" in Section 1.01 are hereby
modified in their entirety to read as follows:
"EBIT" means, for any Four-Quarter Period ending on the date
of computation thereof, the sum of, without duplication, (i)
net income, (ii) interest expense, (iii) taxes on income of
the Borrower, and (iv) any extraordinary loss in such period
minus (v) any extraordinary gain in such period, all
determined on a consolidated basis in accordance with
Generally Accepted Accounting Principles applied on a
Consistent Basis.
"EBITDA" means, for any Four-Quarter Period ending on the date
of computation thereof, the sum of, without duplication, (i)
net income, (ii) interest expense, (iii) income tax expense of
the Borrower, (iv) amortization expense of the Borrower, (v)
depreciation of the Borrower and its Subsidiaries, and (vi)
any extraordinary loss in such period minus (vii) any
extraordinary gain in such period, all determined on a
consolidated basis in accordance with Generally Accepted
Accounting Principles applied on a Consistent Basis.
(b) The definition of "Note" in Section 1.01 is hereby
modified in its entirety to read as follows:
"Note" means the $5,120,000.00 Consolidated Renewal Promissory
Note of the Borrower payable to the order of Bank dated as of
May 29, 1998, as amended by First Amendment of even date
herewith.
3. NEGATIVE COVENANTS. Sections 5.03 and 5.04 are hereby modified in
their entirety to read as follows:
5.03 FIXED CHARGE COVERAGE RATIO. Permit the ratio of (a) the
sum of EBITDA for any Four-Quarter Period plus Rents Expense
for such Four-Quarter Period to (b) the sum of interest
expense for such Four-
-2-
<PAGE> 3
Quarter Period plus Rents Expense for such Four-Quarter Period
plus income tax expense for such Four-Quarter Period plus 20%
of Funded Debt (but excluding the indebtedness evidenced by
the Note) outstanding as of the last day of the applicable
Four-Quarter Period plus the current maturities of the Harland
Debt to be less than 1.80 to 1.00 as of the last day of each
Four-Quarter Period.
5.04 CAPITAL EXPENDITURES. Make or become committed to make
Capital Expenditures which exceed in the aggregate (on a
noncumulative basis, with the effect that amounts not expended
in any Fiscal Year may not be carried forward to a subsequent
period) Thirty Million Dollars ($30,000,000) in any Fiscal
Year.
4. REAFFIRMATION. Except as expressly modified herein, the Mortgage
Loan Agreement, as previously amended, is hereby reaffirmed in its entirety.
PRECISION RESPONSE CORPORATION,
as the Borrower
By: /s/ Joseph E. Gillis
--------------------------------------
Name: JOSEPH E. GILLIS
Title: VP AND TREASURER
BANK OF AMERICA, N.A., d/b/a NATIONSBANK,
N.A., successor to NATIONSBANK, N.A., as
Agent and as a Bank under the Credit
Agreement
By: /s/ Gregory Viejo
--------------------------------------
Name: GREGORY VIEJO
Title: VICE PRESIDENT
-3-
<PAGE> 4
STATE OF FLORIDA )
------------------------- ) SS.
COUNTY OF DADE )
-------------------------
The foregoing instrument was acknowledged before me this 30th day of
July, 1999 by JOSPEH E. GILLIS, as VP AND TREASURER of PRECISION RESPONSE
CORPORATION, a Florida corporation, who [x] is personally known to me or [ ] has
produced _________________________________ as identification.
(Seal)
/s/ Soraya Cadavieco
---------------------------------
Notary Public
Print Name: SORAYA CADAVIECO
My commission expires: 4/25/2003
STATE OF FLORIDA )
------------------------- ) SS.
COUNTY OF DADE )
-------------------------
The foregoing instrument was acknowledged before me this 30 day of
July, 1999 by GREGORY VIEJO, as VICE PRESIDENT of BANK OF AMERICA, N.A.,
d/b/a NATIONSBANK, N.A., successor to NATIONSBANK, N.A., who [ ] is personally
known to me or [ ] has produced _______________________________________ as
identification.
(Seal)
/s/ Margarita Aguirre
--------------------------------
Notary Public
Print Name: Margarita Aguirre
--------------------
My commission expires:
-4-
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO CONSOLIDATED RENEWAL PROMISSORY NOTE
This First Amendment to Consolidated Renewal Promissory Note (the
"Amendment") is entered into as of June 30, 1999 by PRECISION RESPONSE
CORPORATION, a Florida corporation, as "Borrower", and BANK OF AMERICA, N.A.,
d/b/a NATIONSBANK, N.A., successor to NATIONSBANK, N.A., as "Bank."
A. Section 2 of the $5,120,000.00 Consolidated Renewal Promissory Note
dated May 29, 1998 executed by Precision Response Corporation, as "Borrower", in
favor of NationsBank, N.A., as "Bank", is hereby modified to read as follows:
2. PAYMENTS:
(a) INTEREST. Borrower shall remit to Bank payments
of all accrued interest on the first day of September, 1998
and continuing on the first day of each December, March, June
and September to and including December 1, 1999. Thereafter,
Borrower shall remit to Bank payments of all accrued interest
on January 31, 2000 and continuing on the last day of each
April, July, October and January thereafter until the Maturity
Date (the "Payment Dates").
(b) PRINCIPAL. Principal payments shall be due on
each Payment Date commencing on January 31, 2000, and on the
last day of each April, July, October and January thereafter
until the Maturity Date. The amount of the principal payment
due on each Payment Date shall be in an amount as determined
by Bank such that constant quarterly payments of that amount
would fully amortize and pay-off the outstanding principal
balance by January 31, 2020.
B. Except as expressly modified herein, the Promissory Note is
unchanged and is reaffirmed by Borrower in its entirety.
BORROWER:
PRECISION RESPONSE CORPORATION
By: /s/ Joseph E. Gillis
----------------------------------------
Name: JOSPEH E. GILLIS
Title: VP AND TREASURER
ACCEPTED BY BANK:
BANK OF AMERICA, N.A., d/b/a NATIONSBANK,
N.A., successor to NATIONSBANK, N.A.
By: /s/ Gregory Viejo
---------------------------------------
Name: GREGORY VIEJO
Title: VICE PRESIDENT
<PAGE> 1
EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
AMONG
GLOBAL RESERVATION SYSTEMS, INC.
AND
PRECISION RESPONSE CORPORATION
DATED: AS OF JUNE 15, 1999
<PAGE> 2
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "AGREEMENT") is made
as of the 15th day of June, 1999, by and between PRECISION RESPONSE CORPORATION,
a Florida corporation (the "INVESTOR") and GLOBAL RESERVATION SYSTEMS, INC., a
California corporation (the "COMPANY").
W I T N E S S E T H
WHEREAS, the Investor desires to acquire from the Company, and
the Company desires to issue to the Investor, in the aggregate, 6,000,000 Shares
(as defined herein) for an aggregate purchase price equal to $1,500,000 (the
"PURCHASE PRICE") (which Purchase Price includes the $400,000 (the "INITIAL
PAYMENT") previously paid to the Company by the Investor) (the "SHARE
PURCHASE");
WHEREAS, the Investor desires to acquire from the Company, and
the Company desires to issue to the Investor, a warrant (the "WARRANT"), as
provided in the Common Stock Purchase Warrant annexed hereto as EXHIBIT A, to
purchase 3,000,000 Shares on the terms provided herein and in the Common Stock
Purchase Warrant (the "WARRANT PURCHASE" and, together with the Share Purchase,
the "TRANSACTION");
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE I
DEFINITIONS
The following terms, as used herein, have the following
meanings:
"AFFILIATE" shall mean, with respect to any Person, any of (a)
a director or executive officer of such Person, (b) a spouse parent, sibling or
descendant of such Person (or spouse, parent, sibling or descendant of any
director or executive officer of such Person) and (c) any other Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person, including, without
<PAGE> 3
limitation, investment partnerships or funds that are sponsored, managed or
controlled, directly or indirectly, by such Person or its Affiliates.
"AGREEMENT" has the meaning set forth in the initial paragraph
hereof.
"BROKER" has the meaning set forth in Section 6.1 hereof.
"CLAIM" has the meaning set forth in Section 5.3(b) hereof.
"CLAIM NOTICE" has the meaning set forth in Section 5.3(b)
hereof.
"CLOSING" has the meaning set forth in Section 2.2 hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANY" has the meaning set forth in the initial paragraph
hereof.
"COMPANY GROUP" has the meaning set forth in Section 5.2(c)
hereof.
"CONSENT" has the meaning set forth in Section 4.5 hereof.
"DAMAGES" has the meaning set forth in Section 5.2(a) hereof.
"DEFAULT" has the meaning set forth in Section 4.5 hereof.
"FINANCIAL STATEMENTS" has the meaning set forth in Section
4.8 hereof.
"GAAP" has the meaning set forth in Section 4.8 hereof.
"GOVERNING DOCUMENTS" means such corporation's articles or
certificate of incorporation, by-laws and any applicable authorizing
resolutions, and any amendments or modifications of any of the foregoing.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or
foreign court, tribunal, governmental department, agency, board or commission,
regulatory authority, or other governmental body, subdivision or
instrumentality.
"INDEMNIFIED PARTY" or "INDEMNIFIED PARTIES" have the meanings
set forth in Section 5.3(a) hereof.
2
<PAGE> 4
"INDEMNIFYING PARTY" has the meaning set forth in Section
5.3(b) hereof.
"INDEMNITY PERIOD" has the meaning set forth in Section 5.1
hereof.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section
4.16(a) hereof.
"INVESTOR" has the meaning set forth in the initial paragraph
hereof.
"INVESTOR GROUP" has the meaning set forth in Section 5.2(a)
hereof.
"LAW" means any law, statute, regulation, code or order of any
federal, state or local governmental authority or agency.
"LICENSE AGREEMENTS" has the meaning set forth in Section
4.16(c) hereof.
"LIENS" has the meaning set forth in Section 2.1 hereof.
"LOSSES" means any and all assessments, liabilities, losses,
fines, penalties, costs, damages and expenses (including, without limitation,
reasonable attorneys' and accountants' fees and expenses).
"MATERIAL ADVERSE EFFECT" has the meaning set forth in Section
4.1 hereof.
"NOTICE PERIOD" has the meaning set forth in Section 5.3(b)
hereof.
"PERSON" means and includes any individual, corporation,
partnership (limited or general), limited liability company, joint venture,
association, trust, Governmental Authority and any other unincorporated
organization or entity.
"PROPRIETARY SOFTWARE" has the meaning set forth in Section
4.16(c) hereof.
"PURCHASE PRICE" has the meaning set forth in the recitals
hereto.
3
<PAGE> 5
"REGISTRATION RIGHTS AGREEMENT" means the agreement relating
to the registration under the Securities Act of the securities acquired by the
Investor hereunder.
"REPRESENTATIVES" has the meaning set forth in Section 5.2(a)
hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARE PURCHASE" has the meaning set forth in the recitals
hereto.
"SHARES" means the Company's shares of Common Stock, no par
value per share.
"SOFTWARE" has the meaning set forth in Section 4.16(a)
hereof.
"TAXES" shall mean all federal, state, local or foreign taxes,
assessments or other charges payable to or imposed by any Governmental
Authority, including, without limitation, income, estimated income, business,
occupation, franchise, gross receipts, profits, real property, personal
property, sales, use, transfer, gains, registration, value-added, alternative or
add-on minimum, commercial rent or withholding taxes, including any interest,
penalty or addition thereto, whether disputed or not.
"TAX RETURN" shall mean all federal, state, local and foreign
Tax returns, declarations, statements, reports, schedules, forms and information
returns and any amendments thereto.
"TRADE SECRETS" has the meaning set forth in Section 4.16(a)
hereof.
"TRANSACTION" has the meaning set forth in the recitals
hereto.
"TRANSACTION DOCUMENTS" means this Agreement, the Shareholders
Agreement, the Registration Rights Agreement [and the Master Services
Agreement].
"WARRANT PURCHASE" has the meaning set forth in the recitals
hereto.
"WARRANT" has the meaning set forth in the recitals hereto.
4
<PAGE> 6
"YEAR 2000 COMPLIANT" has the meaning set forth in Section
4.15 hereof.
ARTICLE II
PURCHASE AND SALE
Section 2.1 PURCHASE AND SALE OF SHARES AND WARRANT. Upon the terms and
conditions set forth herein, the Investor hereby agrees to purchase, and the
Company hereby agrees to issue 6,000,000 Shares and the Warrant, free and clear
of all liens, charges and encumbrances of any nature whatsoever ("LIENS") for an
aggregate purchase price equal to $1,500,000 (which Purchase Price includes the
Initial Payment). Pursuant to this Section, and as provided in the Common Stock
Purchase Warrant, the initial exercise price of the Warrant per Share shall
equal $0.85 (which price shall be subject to adjustment as specified in the
Common Stock Purchase Warrant).
Section 2.2 CLOSING. The Closing of the purchase and sale of the Shares
and Warrant (the "CLOSING") shall occur simultaneously with the execution and
delivery of this Agreement at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, 919 Third Avenue, New York, New York.
Section 2.3 DELIVERIES AND PAYMENT. (a) At the Closing, the Company
shall deliver or cause to be delivered to the Investor the following documents,
in a form reasonably acceptable to the Investor:
(i) share certificates evidencing the Shares and a warrant
certificate evidencing the Warrant issued in the name of the Investor;
(ii) a receipt evidencing receipt of payment of the Purchase
Price from the Investor;
(iii) an executed counterpart of the Shareholders Agreement;
(iv) an executed counterpart of the Registration Rights
Agreement;
(v) the amendment to the By-laws of the Company attached
hereto as Exhibit A; and
(vi) such other documents as the Investor shall reasonably
request.
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(b) At the Closing, the Investor shall deliver or cause to be delivered
to the Company:
(i) the excess of the Purchase Price over the Initial Payment,
by wire transfer of immediately available funds to an account to be designated
by the Company in writing not later than one business day prior to the Closing;
(ii) an executed counterpart of the Shareholders Agreement;
(iii) an executed counterpart of the Registration Rights
Agreement; and
(iv) such other documents as the Company shall reasonably
request.
ARTICLE III
REPRESENTATIONS & WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants to the Company
that:
Section 3.1 AUTHORIZATION BY THE INVESTOR. The Investor has all
requisite power and authority and has full legal capacity and is competent to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly authorized,
executed and delivered by the Investor and, assuming the due authorization,
execution and delivery by the Company, is a valid and binding obligation of the
Investor, enforceable in accordance with its terms, except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws relating to or affecting the rights
and remedies of creditors or by general equitable principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
Section 3.2 GOVERNMENTAL CONSENTS. Assuming the accuracy of Section
4.13, no consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any Governmental
Authority is required on the part of the Investor in connection with the
execution and delivery of this Agreement or the transactions contemplated
hereby, except for filings, if any, required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as
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amended (the "HSR ACT") and such filings as shall have been made prior to and
shall be effective on and as of the Closing.
Section 3.3 INVESTMENT. The Shares and Warrant to be received by the
Investor hereunder shall be held by the Investor for investment purposes only,
for its own account and not with a view to or for sale in connection with any
distribution of the Shares or Warrant, and the Investor has no present intention
of selling, transferring or otherwise distributing the Shares or Warrant. The
Investor agrees that it will not offer, sell, transfer or assign its Shares or
Warrant or any interest therein in contravention of the Securities Act or any
state or federal law. The Investor has no contract, understanding, agreement or
arrangement with any Person or entity to sell, transfer or dispose of any or all
of the Shares or Warrant it will receive in accordance with the provisions
hereof.
Section 3.4 ACCREDITED INVESTOR. The Investor is an "accredited
investor" within the meaning of Regulation D under the Securities Act and has
knowledge and experience in financial and business matters such that it is
capable of evaluating the merits and risks of receiving and owning the Shares
and Warrant and the Investor is able to bear the economic risk of such
ownership. The Investor, by reason of the Investor's business or financial
experience, has the capacity to protect its own interests in connection with the
transaction. The Investor understands that the Shares and the Warrant have not
been registered under the Securities Act by reason of reliance upon certain
exemptions therefrom and that the reliance of the Company on such exemptions is
predicated upon among other things, the bona fide nature of the Investor's
investment intent as expressed herein.
Section 3.5 INVESTMENT RISK. The Investor (a) understands that the
purchase of the Shares and the Warrant represents a speculative and high risk
investment and that there are no assurances that the Company will be profitable
or have revenues in the future, (b) is aware of and has investigated the
Company's business, management and financial condition, and (c) has had access
to such other information about the Company as the Investor has deemed necessary
or desirable to reach an informed and knowledgeable decision to acquire the
Shares and the Warrant.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants, except as
otherwise set forth in the Company Disclosure Schedule attached hereto, that:
Section 4.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified and in good
standing to do business as a foreign corporation in each jurisdiction where the
failure to be so qualified would have a material adverse effect on the business,
prospects, assets or condition (financial or otherwise) of the Company (a
"MATERIAL ADVERSE EFFECT"). The Company has furnished to the Investor true and
complete copies of its Articles of Incorporation and Bylaws, each as amended to
date and currently in effect.
Section 4.2 ISSUANCE, SALE AND DELIVERY OF SHARES AND WARRANT. The
Shares and Warrant to be purchased by the Investor from the Company have been
duly authorized for issuance and sale and, when the Shares are issued and
delivered by the Company and paid for by the Investor, and when Shares are
issued and delivered upon exercise of the Warrant, all such Shares, will be
validly issued and fully paid and nonassessable, free and clear of all Liens and
not issued in violation of any preemptive rights.
Section 4.3 AUTHORIZATION. Each of the Transaction Documents has been
duly authorized, executed and delivered by, and, assuming due authorization,
execution and delivery by the Investor, is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as the enforcement
hereof may be limited by bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws relating to or affecting the rights
and remedies of creditors or by general equitable principles (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
Section 4.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 50,000,000 shares of Common Stock, no par value per share and
25,000,000 shares of preferred stock, no par value per share (the "Preferred
Stock"). As of the date of this Agreement, there were (i) 25,733,250 shares of
Common Stock
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issued and outstanding, (ii) 6,065,391 outstanding options to purchase shares of
Common Stock pursuant to the Company's 1999 Equity Incentive Plan and (iii)
2,900,000 shares of Common Stock reserved for future issuances of options by the
Company (the shares issuable pursuant to (ii) and (iii), the "RESERVED
SECURITIES"). All of the outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable and are not now in
violation of or subject to any preemptive rights. Except as set forth above or
in Schedule 4.4, and except for the transactions contemplated hereby, (i) there
are not authorized, issued, reserved for issuance or outstanding (A) any shares
of capital stock or other voting securities of the Company, (B) any securities
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities of the Company or any obligation of the Company to issue
any capital stock, partnership interests or other voting securities, or (C) any
warrants, calls, options or other rights to acquire from the Company, or any
obligation of the Company to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of the Company, (ii) there are no outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any such securities or to
issue, deliver or sell, or cause to be issued, delivered or sold, any such
securities, (iii) the consummation of the transactions contemplated hereby will
not result in any anti-dilution type adjustment to any such securities and (iv)
the Company has not granted to any Person any registration rights with respect
to any shares of capital stock or other voting securities of the Company.
Schedule 4.4 sets forth the complete and accurate share register of the Company
as of the date hereof.
Section 4.5 SUBSIDIARIES, ETC. The Company has no Subsidiaries and does
not own or control, directly or indirectly, any shares of capital stock of any
other corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.
Section 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS. (a) Except as set
forth in Schedule 4.6(a), neither the execution and delivery of this Agreement
nor the performance by the Company of its obligations hereunder will (i)
conflict with or result in any breach of an provision of the Articles of
Incorporation or Bylaws of the Company, (ii) result in a violation or breach of,
or default (or give rise to any right of termination, cancellation or
acceleration) or result in the creation of any Lien or require any consent of
another party under any of the terms, conditions or provisions of any note,
mortgage, letter of credit, other evidence of indebtedness, guarantee, license,
lease or agreement or similar instrument or obligation to which the Company is a
party or by which it or any of its assets may be bound or (iii) assuming that
the filings, registrations, notifications, authorizations, consents and
approvals referred to
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in subsection (b) below have been obtained or made, as the case may be, violate
any order, injunction, decree, statute, rule or regulation of any Governmental
Authority to which the Company is subject, excluding from the foregoing clauses
(ii) and (iii) such requirements, defaults, breaches, rights or violations that
would not individually, or in the aggregate, have a Material Adverse Effect on
the Company.
(b) No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, or
notification to, any Governmental Authority is required on the part of the
Company in connection with the execution and delivery of this Agreement or the
transactions contemplated hereby, except for filings, if any, required under the
HSR Act and such filings as shall have been made prior to and shall be effective
on and as of the Closing.
Section 4.7 LITIGATION. There is no action, suit or administrative
proceeding, or governmental inquiry or investigation pending or, to the
knowledge of the Company, threatened against or involving the Company (or any of
its stockholders, officers or directors in connection with the business or
affairs of the Company), before any court, arbitrator or administrative or
governmental body, United States or foreign which (i) are criminal in nature or
(ii) are of any other nature and which, if adversely determined, present a
reasonable risk of having a Material Adverse Effect on the Company. As of the
date of this Agreement, there are no such actions, suits or administrative
proceedings, or governmental inquiries or investigations pending or, to the
knowledge of the Company, threatened challenging the validity or propriety of
the transactions contemplated by this Agreement. The Company is not subject to
any judgments, decrees, injunctions, or order of any court which have had or
present a reasonable risk of having a Material Adverse Effect on the Company.
Section 4.8 PERMITS. The Company possesses such valid and current
certificates, authorizations or permits issued by the appropriate state, federal
or foreign regulatory agencies or bodies necessary to conduct its business, and
the Company has not received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such certificate,
authorization or permit which, individually or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, could reasonably be expected to
result in a Material Adverse Effect.
Section 4.9 FINANCIAL STATEMENTS. The Company has previously furnished
to the Investor the unaudited consolidated balance sheet of the Company and the
related statement of operations and cash flow as of April 30, 1999 (the
"Financial Statements"). The Financial Statements have been prepared from the
books and
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records of the Company and fairly present, in all material respects, the
financial position of the Company as of the respective dates thereof and the
results of operations of the Company for the fiscal years then ended and have
been prepared (including the notes thereto) in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis, except as
otherwise noted therein.
Section 4.10 TAXES. (a) The Company has duly and timely filed all Tax
Returns required to be filed by it (except for the Tax Return for the year ended
1998 for which the Company has been granted an extension to file), and all such
Tax Returns are true, complete and correct. Except to the extent adequately
reserved for in accordance with generally accepted accounting principles and
reflected on the Company's Financial Statements, all Taxes due and payable by
the Company have been timely paid in full except where failure to so pay could
not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect. The Financial Statements reflect an adequate accrual or
reserve for all Taxes payable by the Company for all taxable periods and
portions thereof through the date of such Financial Statements.
(b) The Company has complied in all material respects with all
applicable Laws relating to the payment and withholding of Taxes (including,
without limitation, the withholding of Taxes pursuant to Sections 1441 and 1442
of the Code or similar provisions under any applicable foreign Laws) and have,
within the time and in the manner prescribed by applicable Laws, withheld from
employee wages all amounts required to be so withheld under all applicable Laws
other than those amounts that are not material, and have, within the time and
manner prescribed by applicable Laws, paid over to the proper Governmental
Authority all amounts so withheld.
(c) Except as set forth on Schedule 4.10, (i) no deficiencies
for any Taxes have been proposed, asserted or assessed (either in writing or
orally) against the Company, (ii) no Governmental Authority is conducting or
proposing to conduct an audit with respect to Taxes or any Tax Returns of the
Company, (iii) no extension or waiver of the statute of limitations with respect
to Taxes or any Tax Return has been granted by the Company, which remains in
effect, other than an extension resulting from the filing of a Tax Return after
its original due date in the ordinary course of business, (iv) the Company is
not a party to any agreement or arrangement to allocate, share or indemnify
another party for Taxes other than those agreements entered into in the ordinary
course of business, (v) there are no Liens for material Taxes upon the assets of
the Company, except for Liens for Taxes not yet due , (vi) no jurisdiction where
the Company does not file a Tax Return has asserted or
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otherwise made a claim that the Company is required to file a Tax Return for
such jurisdiction, (vii) no power of attorney has been granted by or with
respect to the Company with respect to any matter relating to Taxes, and (viii)
neither the Company nor any of its shareholders has ever filed (a) an election
pursuant to Section 1362 of the Code that the Company be treated as an S
corporation or (b) a consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
Section 4.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in Schedule 4.11, or as a result of the transactions contemplated by this
Agreement, since April 30, 1999, there have been no changes, events or
circumstances, which individually or in the aggregate has had or could
reasonably be expected to have a Material Adverse Effect.
Section 4.12 NO UNDISCLOSED LIABILITIES. Except as set forth in
Schedule 4.12, and except as to matters which, individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect, the Company
does not have, directly or indirectly, any liabilities or obligations, whether
accrued, absolute or contingent, other than (i) liabilities and obligations that
are reflected, accrued or reserved for or disclosed in the balance sheet of the
Company as of April 30, 1999 (or the notes thereto) and (ii) obligations
incurred in the ordinary course of business and consistent with past practice
since April 30, 1999.
Section 4.13 SECURITIES ACT COMPLIANCE. Assuming the accuracy of and
compliance with the representations, warranties and agreements of the Investor
set forth herein, it is not necessary in connection with the offer, sale and
delivery of the Shares or Warrant to the Investor in the manner contemplated by
this Agreement to register the Shares or Warrant under the Securities Act.
Section 4.14 FULL DISCLOSURE. The Company knows of no information or
facts that, individually or in the aggregate, have had or could reasonably be
expected to have a Material Adverse Effect which has not been disclosed to the
Investor in this Agreement, the exhibits hereto, or other written materials
furnished to the Investor. No representation or warranty by the Company in this
Agreement and no statement contained in any exhibit, disclosure schedule, or
certificate contemplated by this Agreement, when read together, contains or will
contain any materially untrue statement of material fact or omits or will omit
to state any material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein or therein not misleading.
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Section 4.15 YEAR 2000 COMPLIANCE. All software, whether embedded or
otherwise, owned, used, held for use or licensed for use by the Company is Year
2000 Compliant or is reasonably expected to be Year 2000 Compliant. As used in
this Agreement, "YEAR 2000 COMPLIANT" shall mean that software has the ability
to consistently and accurately handle date and time information before, on and
after January 1, 2000, without a material loss of functionality, including but
not limited to accepting date and time input, providing date and time output,
performing calculations on dates or portions of dates and comparing, sequencing,
storing and displaying dates (including all leap year considerations). The
"off-the-shelf" and "shrink-wrapped" software used by the Company states that
the software (x) provides data of any type that includes date information or
which is otherwise derived from, dependent on or related to date information
("Date Data") to the Company, (y) processes in any way Date Data for the
Company or (z) otherwise provides any material product or service to the Company
that is dependent on Year 2000 Compliance, that all of such entity's Date Data
and related software and systems that are used for, or on behalf of, the Company
are Year 2000 Compliant.
Section 4.16 INTELLECTUAL PROPERTY.
(a) As used herein, the term "Intellectual Property" means all
trademarks, service marks, trade names, Internet domain names, designs, logos,
slogans and general intangibles of like nature, together with goodwill,
registrations and applications relating to the foregoing; registered and
unregistered patents, copyrights (including registrations and applications for
any of the foregoing); computer programs, including any and all software
implementations of algorithms, models and methodologies whether in source code
or object code form, databases and compilations, including any and all data and
collections of data, all documentation, including user manuals and training
materials, related to any of the foregoing and the content and information
contained on any Web site (collectively, "Software"); confidential information,
technology, know-how, inventions, processes, formulae, algorithms, models and
methodologies (such confidential items, collectively "Trade Secrets") held for
use or used in the business of the Company as conducted as of Closing or as
presently contemplated to be conducted and any licenses to use any of the
foregoing.
(b) Schedule 4.16 (b) sets forth, for all Intellectual
Property owned by the Company, a complete and accurate list, of all U.S., state
and foreign: (i) patents and patent applications; (ii) trademark and service
mark registrations
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(including Internet domain name registrations), trademark and service mark
applications and material unregistered trademarks and service marks; and (iii)
copyright registrations, copyright applications and material unregistered
copyrights. The Company currently is listed in the records of the appropriate
U.S., state or foreign agency as the sole owner of record for each application
and registration listed on Schedule 4.16(b).
(c) Schedule 4.16(c) lists all Software which is owned by the
Company ("Proprietary Software"), and all agreements granting or obtaining any
right to use or practice any rights under any Intellectual Property, excluding
"shrink-wrapped" or "off-the-shelf" software, to which the Company is a party
or otherwise bound, as licensee or licensor thereunder, including, without
limitation, license agreements, settlement agreements and covenants not to sue
(collectively, the "License Agreements").
(d) Except as set forth in Schedule 4.16(d):
(i) the Company owns or possesses adequate licenses
or other legal rights to all Intellectual Property, free and clear of all liens
or other encumbrances;
(ii) to the extent any Intellectual Property is
capable of registration, all Intellectual Property owned or to the best of the
Company's knowledge used by the Company has been duly maintained, is valid and
subsisting, in full force and effect and has not been cancelled, expired or
abandoned;
(iii) the Company has not received written notice
from any third party regarding any actual or potential infringement by the
Company of any intellectual property of such third party, and the Company has no
knowledge of any reasonable basis for such a claim against the Company;
(iv) the Company has not received written notice from
any third party regarding any assertion or claim challenging the validity of any
Intellectual Property owned or used by the Company and the Company has no
knowledge of any reasonable basis for such a claim;
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(v) the Company has not licensed or sublicensed its
rights in any Intellectual Property, or received or been granted any such
rights, other than pursuant to the License Agreements;
(vi) to the best of the Company's knowledge no third
party is misappropriating, infringing, diluting or violating any Intellectual
Property owned by the Company;
(vii) the License Agreements contain binding
obligations of the Company, enforceable in accordance with their terms, and to
the best of the Company's knowledge there exists no event or condition which
will result in a violation or breach of, or constitute a default by the Company
or the other party thereto, under any such License Agreement;
(viii) the Company takes all reasonable measures to
protect the confidentiality of its Trade Secrets including requesting third
parties having access thereto to execute written nondisclosure agreements. To
the best of the Company's knowledge, no Trade Secret of the Company has been
disclosed or authorized to be disclosed to any third party other than pursuant
to a written nondisclosure agreement that adequately protects the Company's
proprietary interests in and to such Trade Secrets;
(ix) the consummation of the transactions
contemplated hereby will not result in the loss or impairment of the Company
rights to own or use any of the Intellectual Property, nor will such
consummation require the consent of any third party in respect of any
Intellectual Property; and
(x) all Proprietary Software set forth in Schedule
4.16(c), was either developed (a) by employees of the Company within the scope
of their employment; (b) by independent contractors as "works-made-for-hire," as
that term is defined under Section 101 of the United States Copyright Act, 17
U.S.C. ss. 101, pursuant to written agreement; or (c) by third parties who have
assigned all of their rights therein to the Company pursuant to written
agreement. No former or present employees, officers or directors of the Company
retain any rights of ownership or use of the Proprietary Software, and no
employees or third parties who have developed or participated in the development
of the Proprietary Software have any claims to any moral rights therein.
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Section 4.17 KOSAR AGREEMENT. The Company has entered into a letter
agreement with Brian J. Kosar dated as of March 5, 1999, as amended on May 20,
1999, which provides that Mr. Kosar is entitled to receive an option for 750,000
shares of Common Stock at an exercise price of $0.25 per share and an additional
option for 100,000 shares of Common Stock at an exercise price of $0.25 per
share in the event that the Investor exercises the Warrant. Except for the
options referred to in the preceding sentence, no warrants, options or other
securities convertible into shares of common stock have been issued, or are
issuable, to Mr. Kosar in connection with such letter agreement, as amended.
ARTICLE V
SURVIVAL; INDEMNIFICATION
Section 5.1 SURVIVAL PERIODS. All representations, warranties and
agreements of the parties contained in this Agreement shall survive the Closing
and shall apply with respect to claims asserted in writing prior to the first
anniversary of the date of this Agreement; PROVIDED, HOWEVER, that the
representations contained in Section 4.10 shall survive until the expiration of
the applicable statute of limitations and the representations contained in
Section 4.2 and 4.4 shall survive indefinitely. The agreements contained in this
Article V shall survive the Closing in accordance with their respective terms
and the agreements contained in Article VI shall survive the Closing
indefinitely.
Section 5.2 INDEMNIFICATION. Subject to the other provisions of this
Article V, from and after the Closing:
(a) The Company shall indemnify and hold harmless the Investor
and each of the Investor's Affiliates and their respective partners, directors,
officers, employees, representatives and agents and their respective successors
and assigns ("REPRESENTATIVES" and, together with the Investor, the "INVESTOR
GROUP") from and against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, losses, claims and damages (collectively, "DAMAGES")
incurred or suffered by the members of the Investor Group which arise out of or
are the result of any breach of any representation or warranty made by the
Company under this Agreement.
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(b) The Company's obligations to indemnify the Investor Group
pursuant to Section 5.2(a) hereof with respect to a breach of a representation
or warranty made by the Company under this Agreement, are subject to the
following additional limitations:
(i) No Claim shall be made against the Company hereunder
unless the aggregate amount of Investor Group Damages claimed under Section
5.2(a) hereof exceeds $50,000 on a cumulative basis, it being understood that if
such threshold is met, then all Investor Group Damages may be claimed.
(ii) The aggregate indemnification obligations of the Company
under Section 5.2(a) hereof will not exceed the Purchase Price.
(iii) The Company shall be obligated to indemnify the Investor
Group only for those claims giving rise to Investor Group Damages as to which
the Investor Group has given the Company written notice thereof prior to the end
of the relevant indemnity period specified in Section 5.1. Any written notice
delivered by the Investor Group to the Company with respect to Investor Group
Damages shall set forth with as much specificity as is reasonably practicable
the basis of the claim for Investor Group Damages and, to the extent reasonably
practicable, a reasonable estimate of the amount thereof.
(iv) The Company's indemnity obligations hereunder with
respect to Investor Group Damages shall be calculated net of (i.e. after
deducting) any federal, state, and/or local income tax benefits, any insurance
proceeds and any third party payments by virtue of indemnification or
subrogation actually received by the Investor Group with respect to the subject
matter of a claim.
(c) The Investor shall indemnify and hold harmless the
Company, each of its Representatives and their respective successors and assigns
of any of the foregoing (collectively, the "COMPANY GROUP") from and against any
Damages incurred by the members of the Company Group which arise out of or are
the result of any breach of any representation or warranty made by the Investor
under this Agreement.
(d) The Investor's obligations to indemnify the Company Group
pursuant to Section 5.2(c) hereof with respect to a breach of a representation
or warranty made by the Investor under this Agreement, are subject to the
following additional limitations:
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(i) The Investor shall be obligated to indemnify the Company
Group only for those claims giving rise to Company Group Damages as to which the
Company Group has given the Investor written notice thereof prior to the end of
the relevant indemnity period. Any written notice delivered by the Company Group
to the Investor with respect to Company Group Damages shall set forth with as
much specificity as is reasonably practicable the basis of the claim for Company
Group Damages and, to the extent reasonably practicable, a reasonable estimate
of the amount thereof.
(ii) The Investor's indemnity obligations hereunder with
respect to Company Group Damages shall be calculated net of (i.e. after
deducting) any federal, state and/or local income tax benefits, any insurance
proceeds or third party payments by virtue of indemnification or subrogation
actually received by the Company Group with respect to the subject matter of a
claim.
(e) Subject to the limitations set forth in Section 5.2(b)
hereof, the Company hereby agrees, to indemnify, defend and hold harmless the
Investor Group, on an after-tax basis, from and against all claims, demands,
actions, causes of actions and Losses suffered or incurred by, or asserted
against, the Investor Group relating to or arising from any Taxes in respect of,
or measured by the income or gross receipts of any such entities for any period
prior to the Closing Date, including any penalties or interest with respect to
such Taxes.
The indemnity under this Section 5.2(e) shall survive
the Closing and continue in full force and effect until the expiration of the
applicable statutes of limitations.
Section 5.3 GENERAL PROCEDURES; THIRD PARTY CLAIMS.
(a) The members of the Investor Group, on the one hand, and
the members of Company Group, on the other hand, as the case may be, are
sometimes referred to herein individually as an "INDEMNIFIED PARTY" and
collectively as the "INDEMNIFIED PARTIES." All claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 5.3.
(b) In the event that any claim or demand by a Third Party for
which the Investor or the Company, as the case may be (an "INDEMNIFYING PARTY"),
may be
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liable to any Indemnified Party hereunder (a "CLAIM") is asserted against or
sought to be collected from any Indemnified Party by a Third Party, such
Indemnified Party shall as promptly as practicable notify the Indemnifying Party
in writing of such Claim and the amount or the estimated amount thereof to the
extent then feasible (which estimate shall not be conclusive of the final amount
of such Claim) (the "CLAIM NOTICE"); provided that failure to so notify an
Indemnifying Party shall not relieve it from liability except to the extent that
the Indemnifying Party is actually prejudiced by such failure to give notice.
The Indemnifying Party shall have thirty days from the personal delivery or
mailing of the Claim Notice (the "NOTICE PERIOD") to notify the Indemnified
Party (a) whether or not the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such Claim
and (b) whether or not it desires to defend the Indemnified Party against such
Claim. All costs and expenses incurred by the Indemnifying Party in defending
such Claim and all costs incurred by the Indemnified Party during the Notice
Period shall be a liability of, and shall be paid by, the Indemnifying Party.
Except as hereinafter provided, in the event that the Indemnifying Party
notifies the Indemnified Party in writing within the Notice Period that it
acknowledges its indemnification obligation and desires to defend the
Indemnified Party against such Claim, the Indemnifying Party shall, at its sole
cost and expense, have the right to defend the Indemnified Party by appropriate
proceedings and shall have the sole power to direct and control such defense;
provided, that if the settlement or compromise of a claim does not include an
unconditional release of the Indemnified Party, then the Indemnifying Party
shall not settle or compromise any claim without the written consent of the
Indemnified Party. If any Indemnified Party desires to participate in any such
defense it may do so at its sole cost and expense unless, in the reasonable
judgment of the Indemnified Party, it is advisable to be represented by separate
counsel because a conflict or potential conflict exists between the Indemnifying
Party and the Indemnified Party which makes representation of both parties
inappropriate, in which case the reasonable fees of counsel for the Indemnified
Party shall be paid by the Indemnifying Party. The Indemnifying Party may, with
the consent of the Indemnified Party (which consent shall not be unreasonably
withheld), settle or compromise any action or consent to the entry of any
judgment that includes as a term thereof the delivery by the claimant or
plaintiff to the Indemnified Party of a duly executed written unconditional
release of the Indemnified Party from all liability in respect of such action.
Notwithstanding the foregoing, the Indemnified Party shall have the sole right
to defend, settle, or compromise any Claim with respect to which it has agreed
in writing to waive its right to indemnification pursuant to this Agreement.
Notwithstanding the foregoing, the Indemnified Party, during the period the
Indemnifying Party is determining
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whether to elect to assume the defense of a matter covered by this Section 5.3,
may take such reasonable actions as it deems necessary to preserve any and all
rights with respect to the matter, without such actions being construed as a
waiver of the Indemnified Party's rights to defense and indemnification pursuant
to this Agreement. If the Indemnifying Party elects not to defend the
Indemnified Party against such Claim, then the amount of any such Claim, or, if
the same be contested by the Indemnified Party, then that portion thereof as to
which such defense is unsuccessful (and the reasonable costs and expenses
pertaining to such defense) shall be the liability of the Indemnifying Party
hereunder. To the extent the Indemnifying Party shall direct, control, or
participate in the defense or settlement of any third-party claim or demand, the
Indemnified Party will give the Indemnifying Party and its counsel access to,
during normal business hours, the relevant business records and other documents,
and shall permit them to consult with the employees and counsel of the
Indemnified Party. The parties hereto shall each render to each other such
assistance as may reasonably be requested in order to ensure the proper and
adequate defense of any such claim or proceeding.
ARTICLE VI
MISCELLANEOUS
Section 6.1 BROKERS. Except as set forth on Schedule 6.1, each party
represents and warrants to the other that it has dealt with no broker, finder or
other Person (collectively, "BROKER") with respect to this Agreement or the
transactions contemplated hereby and that no Broker is entitled to a commission
as a result of this transaction.
Section 6.2 COMPLETE AGREEMENT. This Agreement (including the documents
and instruments referred to herein or executed concurrently herewith) represents
the entire agreement between the Investor and the Company covering everything
agreed upon or understood in this transaction and all other prior agreements,
written or oral, including any prior subscription agreements or letters, are
merged into this Agreement. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof or in effect between the
parties.
Section 6.3 PARTIAL INVALIDITY. If any term, covenant or condition of
this Agreement is held to be invalid or unenforceable in any respect, such
invalidity or
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unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
Section 6.4 MISCELLANEOUS. (a) All headings and sections of this
Agreement are inserted for convenience only and do not form part of this
Agreement or limit, expand or otherwise alter the meaning of any provisions
hereof.
(b) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement. Facsimile signatures shall be
deemed effective execution of this Agreement and may be relied upon as such by
the other party.
(c) The provisions of this Agreement are intended to be for
the sole benefit of the parties hereto and their respective successors and
permitted assigns, and none of the provisions of this Agreement are intended to
be, nor shall they be construed to be, for the benefit of any Third Party.
Section 6.5 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF NEW YORK (REGARDLESS OF THE LAWS THAT MIGHT BE
APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING
BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE.
Each of the parties hereto irrevocably and unconditionally submits to the
non-exclusive jurisdiction of The United States District Court for the Southern
District of New York or, if such court will not accept jurisdiction, the Supreme
Court of the State of New York or any court of competent civil jurisdiction
sitting in New York County, New York. In any action, suit or other proceeding,
each of the parties hereto irrevocably and unconditionally waives and agrees not
to assert by way of motion, as a defense or otherwise any claims that it is not
subject to the jurisdiction of the above courts, that such action or suit is
brought in an inconvenient forum or that the venue of such action, suit or other
proceeding is improper. Each of the parties hereto also agrees that any final
and unappealable judgment against a party hereto in connection with any action,
suit or other proceeding shall be conclusive and binding on such party and that
such award or judgment may be enforced in any court of competent jurisdiction,
either within or outside of the United States. A certified or exemplified copy
of such award or judgment shall be conclusive evidence of the fact and amount of
such award or judgment. THE PARTIES HERETO, HAVING CAREFULLY
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CONSIDERED THE ISSUE, AND HAVING SOUGHT AND OBTAINED THE ADVICE OF COUNSEL,
KNOWINGLY, INTENTIONALLY AND IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT
AND ANY OTHER AGREEMENT DELIVERED IN CONNECTION HEREWITH.
Section 6.6 EXPENSES. Each of the parties hereto shall bear its own
expenses (including fees and disbursements of its counsel, accountants and other
experts); PROVIDED, HOWEVER, THAT, if the transactions contemplated by this
Agreement are consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
Company, including reasonable documented out-of-pocket expenses of the Investor.
Section 6.7 NOTICES. All notices and other communications required or
permitted to be given hereunder shall be in writing and shall be given by
personal delivery, by telegram, by United States registered or certified mail
(postage prepaid, return receipt requested) addressed as hereinafter provided or
via telephonic facsimile transmission. Notice shall be sent and deemed given
when (a) if personally delivered, then upon receipt by the receiving party, or
(b) if mailed, then three (3) days after being postmarked, or (c) if delivered
to a telegraph company office, then upon receipt by the receiving party of the
telegraph notice, or (d) if sent via telephonic facsimile transmission, then
upon receipt by a designated facsimile receiving device in the office of the
receiving party.
Any party listed below may change its address hereunder by notice to
the other party listed below. Until further notice, notice and other
communications hereunder shall be addressed to the parties listed below as
follows:
If to the Investor: Precision Response Corporation
1505 NW 167th Street
Miami, FL 33169
Attention: General Counsel
Fax: (305) 626-4742
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With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Lou R. Kling, Esq.
Fax: (212) 735-2000
If to the Company to: Global Reservation Systems, Inc.
2320 Marinship Way
Sausalito, CA 94965
Attention: Tony Wicks
Fax: (415) 289-4299
With a copy to: Preston Gates & Ellis
One Maritime Plaza
Suite 2400
San Francisco, CA 94111
Attention: Alisa Won, Esq.
Fax: (415) 788-8819
Section 6.8 ASSIGNMENT. Neither this Agreement nor any rights which may
accrue to the Investor hereunder may be transferred or assigned without the
prior written consent of the Company.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day first written above.
GLOBAL RESERVATION SYSTEMS, INC.
By: /s/ Tony D. Wicks
---------------------------------
Name: Tony D. Wicks
Title: President
PRECISION RESPONSE CORPORATION
By: /s/ Paul M. O'Hara
---------------------------------
Name: Paul M. O'Hara
Title: Executive Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.7
This Warrant and any shares of Common Stock acquired upon the exercise of this
Warrant have not been registered under the Securities Act of 1933, as amended,
and may not be transferred, sold or otherwise disposed of except while such a
registration is in effect or pursuant to an exemption from registration under
such Act.
GLOBAL RESERVATION SYSTEMS, INC.
Common Stock Purchase Warrant
June 15, 1999
GLOBAL RESERVATION SYSTEMS, INC. (the "Company"), a California
corporation, for value received, hereby certifies that PRECISION RESPONSE
CORPORATION, or registered assigns, is entitled to purchase from the Company
3,000,000 duly authorized, validly issued, fully paid and nonassessable shares
of Common Stock, no par value per share (the "Common Stock") of the Company (the
"Warrant Shares") at the purchase price per share of $0.85 (the "Exercise
Price"), at any time or from time to time prior to 5:00 P.M., New York City
time, on the third anniversary of the date hereof, all subject to the terms,
conditions and adjustments set forth below in this Warrant.
This Warrant is issued in connection with the issue and sale
by the Company of 6,000,000 shares of Common Stock pursuant to the Securities
Purchase Agreement (the "Purchase Agreement"), dated as of June 15, 1999,
between the Company and Precision Response Corporation (the "Investor"). The
Warrant originally so issued evidences the right to purchase an aggregate of
3,000,000 shares of Common Stock subject to adjustment as provided herein.
Certain capitalized terms used in this Warrant are defined in Section 10.
1. EXERCISE OF WARRANT. 1.1. MANNER OF EXERCISE. This Warrant
may be exercised by the holder hereof, in whole or in part, during normal
business hours
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on any Business Day, by surrender of this Warrant to the Company at its office,
accompanied by a subscription in substantially the form attached to this Warrant
(or a reasonable facsimile thereof) duly executed by such holder and accompanied
by payment, in cash, by certified or official bank check payable to the order of
the Company, in the amount obtained by multiplying (a) the number of shares of
Common Stock (without giving effect to any adjustment thereof, except as
otherwise noted therein) designated in such subscription by (b) the Exercise
Price, and such holder shall thereupon be entitled to receive the number of duly
authorized, validly issued, fully paid and nonassessable Warrant Shares
determined at such time as provided in Section 2.
1.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1, and at such time the Person or Persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such exercise as provided in Section 1.3 shall be deemed
to have become the holder or holders of record thereof.
1.3. DELIVERY OF STOCK CERTIFICATES, ETC. As soon as
practicable after each exercise of this Warrant, in whole or in part, and in any
event within five Business Days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof or, subject to Section
6, as such holder (upon payment by such holder of any applicable transfer taxes)
may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of
Common Stock to which such holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash in an amount equal to the same fraction of
the Market Price per share on the Business Day next preceding the date
of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment thereof) to the number of such shares called
for on the face of this Warrant minus the number of such shares of
Common Stock designated by the holder upon such exercise as provided in
Section 1.1.
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<PAGE> 3
2. ADJUSTMENTS. 2.1. ADJUSTMENT OF EXERCISE PRICE AND NUMBER
OF SHARES PURCHASABLE OR NUMBER OF WARRANTS. (a) In case the Company shall at
any time after the date of this Agreement (i) declare a dividend on the Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, (iii) combine the outstanding Common Stock into a smaller number of
shares, or (iv) issue any shares of its capital stock in a reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation), the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and/or
the number and kind of shares of capital stock issuable on such date shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Warrant had been exercised immediately prior to
such date, he or she would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue shares of Common Stock (or
rights, options or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock) at a price per share of Common Stock (or
having a conversion price per share of Common Stock, if a security is
convertible into Common Stock) less than the Exercise Price on the record date
mentioned below, the Exercise Price to be in effect after such record date shall
be immediately reduced to be the price per share of Common Stock (or conversion
price per share of Common Stock, if a security is convertible into Common Stock)
of such issuance; PROVIDED THAT such adjustment shall not be required as a
result of the issuance of any of the Reserved Securities (as defined in the
Purchase Agreement). In case such subscription price may be paid in
consideration part or all of which shall be in form other than cash, the value
of such consideration shall be determined by the Board of Directors of the
Company. Such adjustment shall be made successively whenever such a record date
is fixed; and in the event that such rights or warrants are not so issued, the
Exercise Price shall again be adjusted to be the Exercise Price which would then
be in effect if such record date had not been fixed, but such subsequent
adjustment shall not effect the number of Shares issued upon any exercise of
Warrants prior to the date such adjustment is made.
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<PAGE> 4
2.2. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE OF ASSETS.
(a) In case of any reorganization or reclassification of the
outstanding Common Stock (other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination
provided for in Section 2.1), or in case of any consolidation of the
Company with, or merger of the Company with, another Person, or in case
of any sale, lease or conveyance to another Person of the property of
the Company as an entirety or substantially as an entirety, the holder
of each Warrant then outstanding shall thereafter have the right to
purchase the same kind and number of shares of Common Stock and other
securities, cash or other property (and upon the same terms and with
the same rights) as would be receivable by a holder of the number of
Warrant Shares the holder would then be entitled to purchase; such
adjust ments shall apply with respect to all such changes occurring
between the date of this Agreement and the date of exercise of such
Warrant.
(b) If at any time, as a result of an adjustment made pursuant
to clause (a) above, the holders shall become entitled to purchase any
securities other than shares of Common Stock, thereafter the number of
such securities so purchasable upon exercise of each Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in this Section 2.
2.3. CERTAIN OTHER DISTRIBUTIONS. Subject to the provisions of
this Section 2, in case the Company shall, at any time prior to the exercise of
the Warrants, make any distribution of its assets to holders of its Common
Stock as a liquidating or a partial liquidating dividend, then each holder who
exercises his Warrants after the record date for the determination of those
holders of Common Stock entitled to such distribution of assets as a liquidating
or partial liquidating dividend, shall be entitled to receive, in addition to
each Warrant Share, the amount of such distribution (or, at the option of the
Company, a sum equal to the value of any such assets at the time of such
distribution as determined in good faith by the Board of Directors of the
Company), which would have been payable to such holder had such holder been the
holder of record of the Warrant Shares receivable upon exercise of such holder's
Warrant on the record date for the determination of those entitled to such
distribution.
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<PAGE> 5
2.4. DISSOLUTION, LIQUIDATION OR WINDING UP. In case of the
dissolution, liquidation or winding up of the Company, all rights under the
Warrants shall terminate on a date fixed by the Company, such date to be no
earlier than ten (10) days prior to the effectiveness of such dissolution,
liquidation or winding up and not later than five (5) days prior to such
effectiveness. Notice of such termination of purchase rights shall be given to
the last holder of Warrants, as the same shall appear on the books of the
Company, by registered mail at least thirty (30) days prior to such termination
date.
2.5. WHEN ADJUSTMENTS ARE NOT REQUIRED. If the Company shall
take a record of the holders of the Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution or subscription rights,
then thereafter no adjustment shall be required by reason of the taking of such
record and any such adjustment previously made in respect thereof shall be
rescinded and annulled.
2.6. BASIS OF ADJUSTMENTS. Upon each adjustment of the
Exercise Price as a result of the calculations made in Sections 2.1(a) and (b)
hereof, each Warrant outstanding immediately prior to the making of such
adjustment shall thereafter evidence the right to purchase, at the adjusted
Exercise Price, that number of Warrant Shares (calculated to the nearest
hundredth) obtained by (a) multiplying the number of Warrant Shares purchasable
upon exercise of a Warrant immediately prior to such adjustment of the number of
Warrant Shares by the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price and (b) dividing the product so obtained by the
Exercise Price in effect immediately after such adjustment of the Exercise
Price.
3. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock issuable upon the
exercise of this Warrant or the Exercise Price, the Company shall retain
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company) to make any computation required
under this Warrant (other than any computation of the fair value of property as
determined in good faith by the Board of Directors of the Company), and any
certificate setting forth such adjustment or readjustment signed by such firm
shall be conclusive evidence of the correctness of any computation made under
this Warrant. The Company will also keep copies of all such certificates at its
office and will cause the same to be available for inspection at such office
during normal business hours by
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<PAGE> 6
any holder of a Warrant or any prospective purchaser of a Warrant designated by
the holder thereof.
4. NOTICES OF CORPORATE ACTION. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a regular
periodic dividend payable in cash out of earned surplus in an amount
not exceeding the amount of the immediately preceding cash dividend for
such period) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and any
other Person or any transfer of all or substantially all the assets of
the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 45
days prior to the date therein specified.
5. REGISTRATION OF COMMON STOCK. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause
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<PAGE> 7
such shares to be duly registered or approved, as the case may be. At any such
time as Common Stock is listed on any national securities exchange, the Company
will, at its expense, obtain promptly and maintain the approval for listing on
each such exchange, upon official notice of issuance, the shares of Common Stock
issuable upon exercise of the then outstanding Warrants and maintain the listing
of such shares after their issuance; and the Company will also list on such
national securities exchange, will register under the Exchange Act and will
maintain such listing of, any other securities that at any time are issuable
upon exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange by the Company.
6. RESTRICTIONS ON TRANSFER. 6.1. RESTRICTIVE LEGENDS. Except
as otherwise permitted by this Section 6, each Warrant (including each Warrant
issued upon the transfer of any Warrant) shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"This Warrant and any shares of Common Stock, acquired upon
the exercise of this Warrant have not been registered under the
Securities Act of 1933 and may not be transferred in the absence of
such registration or an exemption therefrom under such Act. This
Warrant and such shares may be transferred only in compliance with the
conditions specified in this Warrant."
Except as otherwise permitted by this Section 6, each certificate for Common
Stock issued upon the exercise of any Warrant, and each certificate issued upon
the transfer of any such Common Stock, shall be stamped or otherwise imprinted
with a legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be transferred
in the absence of such registration or an exemption therefrom under
such Act. A complete and correct copy of the form of such Warrant is
available for inspection at the principal office of Global Reservation
Systems, Inc. or at the office or agency maintained by Global
Reservation Systems, Inc. as provided in such Warrants and will be
furnished to the holder of such shares upon written request and without
charge."
6.2. TERMINATION OF RESTRICTIONS. The restrictions imposed by
this Section 6 upon the transferability of Restricted Securities shall cease and
terminate as
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<PAGE> 8
to any particular Restricted Securities (a) when such securities shall have been
effectively registered under the Securities Act, or (b) when, in the opinion of
counsel for the holder thereof, such restrictions are no longer required in
order to insure compliance with the Securities Act (including Rule 144).
Whenever such restrictions shall cease and terminate as to any Restricted
Securities, the holder thereof shall be entitled to receive from the Company,
without expense (other than applicable transfer taxes, if any), new securities
of like tenor not bearing the applicable legends required by Section 6.1.
7. AVAILABILITY OF INFORMATION. If the Company shall have
filed a registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company will comply with the reporting requirements of
Sections 13 and 15(d) of the Exchange Act and will comply with all other public
information reporting requirements of the Commission (including Rule 144
promulgated by the Commission under the Securities Act) from time to time in
effect and relating to the availability of an exemption from the Securities Act
for the sale of any Restricted Securities. The Company will also cooperate with
each holder of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any Warrants,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with any
securities exchange or with the Commission.
8. RESERVATION OF STOCK, ETC. The Company will at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock from time to time issuable
upon exercise of all Warrants at the time outstanding. All shares of Common
Stock issuable upon exercise of any Warrants shall be duly authorized and, when
issued upon such exercise, shall be validly issued and, in the case of shares,
fully paid and nonassessable with no liability on the part of the holders
thereof.
9. OWNERSHIP, TRANSFER AND SUBSTITUTION OF WARRANTS. 9.1.
OWNERSHIP OF WARRANTS. The Company may treat the person in whose name any
Warrant is registered on the register kept at the office of the Company as the
owner and holder
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<PAGE> 9
thereof for all purposes, notwithstanding any notice to the contrary, except
that, if and when any Warrant is properly assigned in blank, the Company may
(but shall not be obligated to) treat the bearer thereof as the owner of such
Warrant for all purposes, notwithstanding any notice to the contrary. Subject to
Section 6, a Warrant, if properly assigned, may be exercised by a new holder
without a new Warrant first having been issued.
9.2. TRANSFER AND EXCHANGE OF WARRANTS. Upon the surrender of
any Warrant, properly endorsed, for registration of transfer or for exchange at
the office of the Company, the Company at its expense will (subject to
compliance with Section 6, if applicable) execute and deliver to or upon the
order of the holder thereof a new Warrant or Warrants of like tenor, in the name
of such holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant or Warrants so surrendered.
9.3. REPLACEMENT OF WARRANTS. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant held by a Person other than the Purchaser or any
institutional investor, upon delivery of indemnity reasonably satisfactory to
the Company in form and amount or, in the case of any such mutilation, upon
surrender of such Warrant for cancellation at the office of the Company, the
Company at its expense will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
10. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
BUSINESS DAY: Any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
COMMISSION: The Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
COMMON STOCK: As defined in the introduction to this Warrant,
such term to include any stock into which such Common Stock shall have been
changed or any stock resulting from any reclassification of such Common Stock,
and all other stock
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of any class or classes (however designated) of the Company the holders of which
have the right, without limitation as to amount, either to all or to a share of
the balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference.
COMPANY: As defined in the introduction to this Warrant, such
term to include any corporation which shall succeed to or assume the obligations
of the Company hereunder in compliance with Section 2.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
MARKET PRICE: On any date specified herein, the amount per
share of the Common Stock, equal to (a) the closing sale price of such Common
Stock on such date or, if no such closing price is available on such date, the
average of the closing bid and asked prices thereof on such date, in each case
as officially reported on the principal national securities exchange on which
such Common Stock is then listed or admitted to trading, or (b) if such Common
Stock is not then listed or admitted to trading on any national securities
exchange but is designated as a national market system security by the NASD, the
closing sale price of the Common Stock on such date, or (c) if there shall have
been no trading on such date or if the Common Stock is not so designated, the
average of the closing bid and asked prices of the Common Stock on such date as
shown by the NASD automated quotation system, or (d) if such Common Stock is not
then listed or admitted to trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the book value thereof as determined
by any firm of independent public accountants of recognized standing selected by
the Board of Directors of the Company as of the last day of any month ending
within 60 days preceding the date as of which the determination is to be made or
(y) the fair market value thereof determined in good faith by the Board of
Directors of the Company as of a date which is within 10 Business Days of the
date as of which the determination is to be made PROVIDED, that if the Investor
or its transferee objects in writing to such valuation within five Business
Days, then the Company and the Investor will renegotiate in good faith a
mutually agreeable Market Price. If the parties cannot agree to a Market Price
within ten Business Days of the notice of objection, then the Market Price shall
be determined by a nationally recognized accounting firm or valuation firm
acceptable to both parties or, in the absence of agreement on such firm, a firm
jointly designated by a firm nominated by each party.
10
<PAGE> 11
NASD: The National Association of Securities Dealers, Inc.
PERSON: A corporation, an association, a partnership, a
limited liability company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
PURCHASE AGREEMENT: As defined in the introduction to this
Warrant.
RESTRICTED SECURITIES: All of the following: (a) any Warrants
bearing the applicable legend or legends referred to in Section 6.1, (b) any
shares of Common Stock which have been issued upon the exercise of Warrants and
which are evidenced by a certificate or certificates bearing the applicable
legend or legends referred to in such Section and (c) unless the context
otherwise requires, any shares of Common Stock which are at the time issuable
upon the exercise of Warrants and which, when so issued, will be evidenced by a
certificate or certificates bearing the applicable legend or legends referred to
in such Section.
SECURITIES ACT: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
TRANSFER: Any sale, assignment, pledge or other disposition of
any security, or of any interest therein, which could constitute a "sale" as
that term is defined in Section 2(3) of the Securities Act.
WARRANT SHARES: As defined in the introduction to this
Warrant.
WARRANTS: As defined in the introduction to this Warrant.
11. REMEDIES. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained
in this Warrant shall be construed as conferring upon the holder hereof any
rights as a
11
<PAGE> 12
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
13. NOTICES. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified mail,
return receipt requested, addressed (a) if to any holder of any Warrant, at the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if to the Company, to the attention of
its President at its office, PROVIDED that the exercise of any Warrant shall be
effective in the manner provided in Section 1.
14. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of New York. The section
headings in this Warrant are for purposes of convenience only and shall not
constitute a part hereof.
15. EXPIRATION. The Company will give the holder of this
Warrant not less than 30 days nor more than nine months notice of the expiration
of the right to exercise this Warrant. The right to exercise this Warrant shall
expire at 5:00 p.m., New York City time, on June 15, 2002, unless the Company
shall fail to give such notice as aforesaid, in which event the right to
exercise this Warrant shall not expire until a date thirty days after the date
on which the Company shall give the holder hereof notice of the expiration of
the right to exercise this Warrant.
12
<PAGE> 13
IN WITNESS WHEREOF the Company has caused this Warrant to be
executed as of the date just above written by their respective officer thereunto
duly authorized.
GLOBAL RESERVATION SYSTEMS, INC.
By: /s/ Tony D. Wicks
--------------------------------
Name: Tony D. Wicks
Title: President
<PAGE> 14
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To Global Reservation Systems, Inc.
The undersigned registered holder of the within Warrant hereby
irrevocably exercises such Warrant for, and purchases thereunder, ______* shares
of Common Stock of Global Reservation Systems, Inc. and herewith makes payment
of $___________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ______________, whose address is
_______________.
Dated:
--------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
- -------------
* Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any
adjustment for Additional Shares of Common Stock or any other stock or
other securities or property or cash which, pursuant to the adjustment
provisions of this Warrant, may be delivered upon exercise. in the case
of a partial exercise, a new Warrant or Warrants will be issued and
delivered, representing the unexercised portion of the Warrant, to the
holder surrendering the Warrant.
14
<PAGE> 15
FORM OF ASSIGNMENT
[To be executed only upon transfer of Warrant]
For value received, the undersigned registered holder of the
within Warrant hereby sells, assigns and transfers unto _________________ the
right represented by such Warrant to purchase ________ shares of Common Stock of
Global Reservation Systems, Inc. to which such Warrant relates, and appoints
________________ Attorney to make such transfer on the books of Global
Reservation Systems, Inc. maintained for such purpose, with full power of
substitution in the premises.
Dated:
--------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of Warrant)
--------------------------------
(Street Address)
--------------------------------
(City) (State) (Zip Code)
Signed in the presence of:
- --------------------------
15
<PAGE> 1
EXHIBIT 10.8
GLOBAL RESERVATION SYSTEMS, INC.
SHAREHOLDERS' RIGHTS AGREEMENT
JUNE 15,1999
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<PAGE> 2
SHAREHOLDERS' RIGHTS AGREEMENT
THIS SHAREHOLDERS' RIGHTS AGREEMENT (the "Agreement") is entered into
as of this 15th day of June, 1999 by and among Global Reservation Systems, Inc.,
a California corporation (the "Company"), Precision Response Corporation, a
Florida corporation (the "Investor") and those holders of the Company's common
stock, no par value per share (the "Common Stock") listed on EXHIBIT A attached
hereto (together with the Investor, the "Shareholders").
RECITALS
WHEREAS, in connection with the Company's issuance of Common Stock
pursuant to the Securities Purchase Agreement, dated of even date herewith (the
"Securities Purchase Agreement"), the Company and the Investor have agreed to
enter into this Shareholders' Rights Agreement;
NOW THEREFORE, in consideration of the mutual agreements, covenants and
conditions contained herein, the Company and each of the Shareholders hereby
agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY
1.1 CERTAIN DEFINITIONS. All capitalized terms used herein and not
defined below shall have the meanings set forth in the Securities Purchase
Agreement. The following terms shall have the following respective meanings:
"AFFILIATE" shall mean, with respect to any Person, any of (a)
a director or executive officer of such Person, (b) a spouse, parent, sibling or
descendant of such Person (or spouse, parent, sibling or descendant of any
director or executive officer of such Person) and (c) any other Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person, including, without limitation, investment partnerships or
funds that are sponsored, managed or controlled, directly or indirectly, by such
Person or its Affiliates. For the purpose of
<PAGE> 3
this definition, "control" (including with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
agency or otherwise.
"COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"CONVERSION SHARES" shall mean the Common Stock issued or
issuable upon conversion of the Warrants. The Conversion Shares shall not be
deemed to be Shares (as defined below) for purposes of this Agreement.
"ENHANCEMENT" means any addition or modification to the
Proprietary Software that adds new features or functionality or improves the
performance of the Proprietary Software.
"ESCROW DEPOSIT" has the meaning set forth in Section 5.4
hereof.
"ESCROW AGENT" has the meaning set forth in Section 5.4
hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"PERSON" means an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
"PROPRIETARY SOFTWARE" has the meaning set forth in the
Securities Purchase Agreement.
"RESTRICTED SECURITIES" shall mean the securities of the
Company required to bear the legend referred to by the Securities Act as set
forth in Section 1.3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
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<PAGE> 4
"SHARES" shall mean the shares of Common Stock sold pursuant
to the Stock Purchase Agreement.
"SOURCE CODE" means a human-readable, non-executable set of
instructions for a computer program which can be compiled into object or
run-time code, from which it may be possible, together with related source
materials and documentation, to discern the logic, algorithms, internal
structure and operating feature design characteristics of such computer program
and which when compiled or otherwise processed will run on its designated
platform.
"UPGRADE" means any modification, revision or addition to the
Proprietary Software that supports new versions or releases of the operating
systems, platforms or applications with which the Proprietary Software is
designed to operate or, in the case of later developed operating systems,
platforms or applications, with which the Proprietary Software may reasonably be
expected to operate.
"WARRANT" shall mean the warrant issued to the Investor
pursuant to the Common Stock Purchase Warrant to purchase 3,000,000 shares of
Common Stock.
1.2 RESTRICTIONS. The Shares and the Conversion Shares shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Shareholder will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares and the Conversion
Shares to agree to take and hold such securities subject to the provisions and
upon the conditions specified in this Agreement.
1.3 RESTRICTIVE LEGEND. Each certificate representing (i) the Shares,
(ii) the Conversion Shares, and (iii) any other securities issued in respect of
the securities referenced in clauses (i) and (ii) upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.4 below) be stamped
or otherwise imprinted with legends in the following form (in addition to any
legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
3
<PAGE> 5
SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL (WHICH MAY BE COUNSEL FOR THE COMPANY) REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDERS, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY."
Each Shareholder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a written opinion of legal
counsel who shall be, and whose legal opinion shall be, reasonably satisfactory
to the Company, addressed to the Company, to the effect that the proposed
transfer of the Restricted Securities may be effected without registration under
the Securities Act, or (ii) a "no action" letter from the Commission to the
effect that the transfer of such securities without registration will not result
in a recommendation by the staff of the Commission that action be taken with
respect thereto, or (iii) any other evidence reasonably satisfactory to counsel
to the Company, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. The Company will not require
such a legal opinion or "no action" letter (a) in any transaction in compliance
with Rule 144, (b) in any transaction in which a Shareholder which is a
corporation distributes Restricted Securities to
4
<PAGE> 6
its majority-owned subsidiaries or affiliates, or (c) in any transaction in
which a Shareholder which is a partnership distributes Restricted Securities to
partners; provided that each transferee in the case of clauses (b) or (c) agrees
in writing to be subject to the terms of this Section 1.4. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legends referring to the Securities Act set forth in Section 1.3
above, except that such certificate shall not bear such restrictive legend if,
in the opinion of counsel for such holder and the Company, such legend is not
required in order to establish compliance with any provisions of the Securities
Act.
SECTION 2
RIGHT OF FIRST OFFER
2.1 INVESTORS' RIGHT OF FIRST OFFER.
(a) RIGHT OF FIRST OFFER. Subject to the terms and conditions
contained in this Section 2.1, the Company hereby grants to the Investor the
right of first offer to purchase its Pro Rata Portion of any New Securities (as
defined in subsection 2.1 (b)) which the Company may, from time to time, propose
to sell and issue. An Investor's "Pro Rata Portion" for purposes of this Section
2.1 is the ratio that (x) the sum of the number of shares of the Company's
Common Stock then held by such Investor and the number of shares of the
Company's Common Stock issuable upon exercise of the Warrants then held by such
Investor bears to (y) the sum of (i) the total number of shares of Company's
Common Stock then outstanding, (ii) the number of shares of the Company's Common
Stock issuable upon exercise of the Warrants then held by such Investor and
(iii) the number of shares of the Company's Common Stock issuable as Reserved
Securities (as defined in 2.1(b) below).
(b) DEFINITION OF NEW SECURITIES. Except as set forth below,
"New Securities" shall mean any shares of capital stock of the Company,
including Common Stock and preferred stock, whether authorized or not, and
rights, options or warrants to purchase said shares of Common Stock or preferred
stock, and securities of any type whatsoever that are, or may become,
convertible into said shares of Common Stock or preferred stock. Notwithstanding
the foregoing, "New Securities" does not include (i) the Shares or the
Conversion Shares, (ii) shares of Common Stock issuable pursuant to the
currently outstanding options issued pursuant to the
5
<PAGE> 7
Company's 1999 Equity Incentive Plan or (iii) the 2,900,000 shares of Common
Stock currently reserved by the Company in connection with the issuance of
options (the "Future Options") (the shares issuable pursuant to (ii) or (iii),
the "Reserved Securities").
(c) NOTICE OF RIGHT. In the event the Company proposes to
undertake an issuance of New Securities, it shall give the Investor written
notice of its intention, describing the type of New Securities and the price and
terms upon which the Company proposes to issue the same. The Investor shall have
fifteen (15) days from the date of receipt of any such notice to agree to
purchase shares of such New Securities (up to the amount referred to in
subsection 2.1(a)), for the price and upon the terms specified in the notice, by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(d) EXERCISE OF RIGHT. If the Investor exercises its right of
first offer hereunder, the closing of the purchase of the New Securities with
respect to which such right has been exercised shall take place within ninety
(90) calendar days after the Investor gives notice of such exercise, which
period of time shall be extended in order to comply with applicable laws and
regulations. Upon exercise of such right of first offer, the Company and the
Investor shall be legally obligated to consummate the purchase contemplated
thereby and shall use their reasonable best efforts to secure any approvals
required in connection therewith.
(e) LAPSE AND REINSTATEMENT OF RIGHT. In the event the
Investor fails to exercise the right of first offer provided in this Section 2.1
within said fifteen (15) day period, the Company shall have ninety (90) days
thereafter to sell or enter into an agreement (pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within sixty (60) days
from the date of said agreement) to sell the New Securities not elected to be
purchased by the Investor at the price and upon the terms no more favorable to
the purchasers of such securities than specified in the Company's notice. In the
event the Company has not sold the New Securities or entered into an agreement
to sell the New Securities within said ninety (90) day period (or sold and
issued New Securities in accordance with the foregoing within sixty (60) days
from the date of said agreement), the Company shall not thereafter issue or sell
any New Securities without first offering such securities to the Investor in the
manner provided above. Notwithstanding anything to the contrary herein, in no
event shall the Investor lose its right of first offer under this Article II for
any issuances of New Securities as a result of failing to exercise such right at
any previous time.
6
<PAGE> 8
(f) ASSIGNMENT. The right of the Investor to purchase any part
of the New Securities may only be assigned in whole or in part to any Affiliate
of the Investor.
SECTION 3
VOTING PROVISIONS
3.1 COMPOSITION OF THE BOARD OF DIRECTORS. From and after the date
hereof, the Company will take all necessary or desirable action within its
control in order to cause the authorized number of directors on the Company's
Board of Directors to be established at five (5) directors. From and after the
date hereof, each of the Shareholders agrees to vote all of its voting stock of
the Company, and will take, and will cause any Persons controlled by it to take,
all other necessary or desirable actions within its control (in its capacity as
a stockholder of the Company) and the Company will take all necessary or
desirable action within its control, in order to (A) cause the Investor (i) to
initially be entitled to designate one (1) representative to the Board of
Directors of the Company, who shall initially be Paul M. O'Hara and (ii) to
continue to be entitled to designate a number of members to the Board of
Directors of the Company equal to the percentage obtained by dividing (x) the
sum of the number of shares of the Company's Common Stock then held by such
Investor and the number of shares of the Company's Common Stock issuable upon
exercise of the Warrants then held by such Investor by (y) the sum, without
duplication, of (i) the total number of shares of Company's Common Stock then
outstanding, (ii) the number of shares of the Company's Common Stock issuable
upon exercise of the Warrants then held by such Investor and (iii) the number of
shares of the Company's Common Stock issuable as Reserved Securities, rounding
up to the closest whole number any fractional board membership and (B) to cause
such representatives designated by the Investor to be elected to the Board of
Directors of the Company; PROVIDED THAT so long as Investor shall continue to be
a holder of shares of Common Stock or shares of Common Stock issuable upon
exercise of the Warrants, the Investor shall be entitled to designate and have
elected at least one member to the Board of Directors of the Company.
7
<PAGE> 9
3.2 VACANCIES. In the event of any vacancy in the Board of Directors,
each of the Shareholders agrees to vote all shares of voting stock owned or
controlled by it and to otherwise use its best efforts, and the Company shall
use its best efforts, to fill such vacancy so that the Board of Directors of the
Company will include directors as provided for in Section 3.1 hereof.
3.3 REMOVAL. At the written request of the Investor, each Shareholder
agrees to vote all shares of voting stock owned or controlled by it and to
otherwise use its best efforts, and the Company shall use its best efforts, in
order to cause any director designated by the Investor pursuant to Section 3.1
to be removed from the Board of Directors of the Company (with or without
cause), but only upon such written request and under no other circumstances.
3.4 EXPENSES. The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending the meeting of
the Board of Directors of the Company and any committee thereof.
3.5 DIRECTOR ACTIONS. To the extent enforceable under applicable law,
each Shareholder who is a director agrees to take such actions, in its capacity
as a director, to cause the election and or removal of designees of the Investor
as provided in Sections 3.1 and 3.3, respectively.
SECTION 4
TAG-ALONG RIGHT
4.1 TAG-ALONG RIGHT. (a) If at any time Tony Wicks, Greg Lykiardopoulus
or any Affiliate of any such parties proposes to sell, transfer, assign,
exchange or otherwise dispose of any or all of its Common Stock to any person
other than an Affiliate thereof (a "Disposition"), then Tony Wicks, Greg
Lykiardopoulus or its Affiliates, as the case may be (the "Disposing
Stockholder"), shall, at least 30 days prior to the consummation of the
Disposition, give notice (a "Disposition Notice") to the Investor describing the
terms and conditions of the Disposition in reasonable detail, including the
proposed price per share, the method of payment, the anticipated closing date
and the identity of the proposed purchaser, and stating that the Investor may
elect to participate in such Disposition, at a price per share and on other
terms identical with those of the Disposing Stockholder, except as to number of
shares transferred in such Disposition.
8
<PAGE> 10
(b) The election pursuant to subsection (a) shall be exercised by
notice to the Disposing Stockholder, which notice shall specify the number of
shares of Common Stock requested to be included in such Disposition by the
Investor, given within the time period specified in the Disposition Notice,
which time period shall not be less than 10 business days after such Disposition
Notice is given.
(c) If the purchaser pursuant to the Disposition has a specified
limited number of shares of Common Stock which it is willing to purchase in the
aggregate, the Investor shall have the right to sell to the purchaser a number
of shares of Common Stock equal to the product of (x) the number of shares of
Common Stock the purchaser is willing to purchase in the aggregate multiplied by
(y) the quotient of (1) the number of shares of Common Stock requested to be
included in such Disposition by the Investor divided by (2) the sum of (A) the
number of shares of Common Stock requested to be included by the Investor and
(B) the number of shares of Common Stock the Disposing Stockholders propose to
transfer.
SECTION 5
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
5.1 FINANCIAL INFORMATION. So long as the Investor is a holder of any
shares of Common Stock, the Company will furnish to such Investor, as soon as
practicable after the end of each fiscal year, a consolidated balance sheet of
the Company and consolidated statements of income, shareholders' equity and cash
flows for such year. Additionally, the Company will deliver to the Investor, as
soon as practicable after the end of each calendar quarter, and calendar month,
consolidated balance sheets of the Company and consolidated statements of income
and cash flow for such calendar quarter or calendar month and for the current
fiscal year to date and the Company will deliver to the Investor such
information as is delivered at any time to any lender or potential lender. The
Company also agrees that it will furnish audited consolidated balance sheets and
the related statements of operations and cash flow for the fiscal year ended
December 31, 1999, audited by a public accounting firm reasonably acceptable to
the Investor (which accounting firm shall be engaged by the Company by September
30, 1999).
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<PAGE> 11
5.2 INSPECTION. The Company shall permit the Investor to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor.
5.3 ANTI-DILUTION PROTECTION. Other than the Reserved Securities, the
Company will not issue any capital stock or options, warrants or other
securities convertible or exchangeable into capital stock of the Company at a
price, or having an exercise price, less than $0.85 per share without the prior
written consent of the Investor. In the event that the Company at any time or
from time to time shall declare or pay and dividend on the Common Stock payable
in Common Stock or in any right to acquire Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise), or in
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, concurrently with the effectiveness of such event appropriate
adjustments shall be made, including without limitation adjustment to the $0.85
price referred to in the preceding sentence.
5.4 SOURCE CODE ESCROW. Within five (5) business days after the date
hereof, the Company will deliver the Escrow Deposit, as defined herein, relating
to all Proprietary Software into escrow with a nationally recognized escrow
agent in the United States reasonably acceptable to both parties (the "Escrow
Agent") pursuant to an escrow agreement between the Company and the Escrow
Agent. A copy of the fully executed escrow agreement shall be sent to the
Investor promptly thereafter. The Company will be responsible for the expenses
of the Escrow Agent.
The "Escrow Deposit" shall include the Source Code (including from time
to time each Upgrade, Enhancement or other modification made thereto), together
with, to the extent in existence, (i) any pertinent commentary or explanation
that may be necessary to render such Source Code understandable and usable by a
trained computer-programming expert, (ii) such system documentation, statements
of principles of operation and schematics as are necessary or useful for the
effective understanding of such Source Code and (iii) all devices, programming
or documentation (including compilers, workbenches, tools and higher-level or
proprietary languages) employed by the Company (to the extent that the Company
is permitted to do so) for the development, maintenance and implementation of
such Source Code.
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<PAGE> 12
SECTION 6
MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California without reference to conflict of laws of
principles.
6.2 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
6.3 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Investor and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or exhibit delivered by or on behalf of the Company
pursuant hereto shall be deemed to be the representations and warranties of the
Company hereunder as of such date of such certificate or exhibit.
6.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.5 ENTIRE AGREEMENT: AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
6.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
the earlier of (a) when received, (b) upon personal delivery to the party to be
notified, (c) one business day after delivery via facsimile, (d) one day after
being deposited with an overnight courier service or (e) three days after
deposit with the United States Post Office, by registered or certified mail,
postage prepaid, return receipt requested, and addressed (i) if to a
Shareholder, at such Shareholder's address set forth on EXHIBIT A, or at such
address as such Shareholder shall have furnished to the Company in writing, or
(ii) if to any other holder of any Shares, at such address as such
11
<PAGE> 13
holder shall have furnished the Company in writing, or, until any such holder so
furnishes an address to the Company, then to and at the address of the last
holder of such Shares who has so furnished an address to the Company, or (iii)
if to the Company, at 2320 Marinship Way, Sausalito, California 94965, to the
attention of the Corporate Secretary, or at such other address as the Company
shall have furnished to the Shareholders. If notice is provided by mail, notice
shall be deemed to be given upon proper deposit with the United States mail.
6.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any holder of any Shares upon any breach or default
of the Company under this Agreement shall impair any such right, power or remedy
of such holder, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any holder of any breach or default under this Agreement, or any
waiver on the part of any holder of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing or as provided in this Agreement. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
6.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.9 SEVERABILITY OF THIS AGREEMENT. In the event that any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement will continue in full force and
effect without said provision and the parties agree to replace such provision
with a valid and enforceable provision that will achieve, to the extent
possible, the economic, business and other purposes of such provisions; provided
that no such severability will be effective against a party if it materially and
adversely changes the economic benefits of this Agreement to such party.
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<PAGE> 14
6.10 TERMINATION. This Agreement shall terminate in its entirety upon
the occurrence of any of the following events:
(a) a sale of all or substantially all of the assets or equity
interests in the Company to a Person other than the Company or an Affiliate of
the Company (whether by merger, consolidation, sale of assets or securities or
otherwise);
(b) the dissolution or bankruptcy of the Company other than a
reorganization of the Company under Chapter 11 of the Bankruptcy Code or any
such similar laws; or
(c) upon the effectiveness of a registration statement for the
initial public offering of the Company's Common Stock; PROVIDED THAT in such
event the Shareholders who are parties to this Agreement shall agree to enter
into a voting trust, voting agreement or similar arrangement pursuant to which
such Shareholders shall agree to vote the shares of Common Stock then owned by
such Shareholders and to take all other necessary or desirable actions within
their control in order to cause the election and removal, as the case may be, of
the Investor's designees to the Board of Directors of the Company as specified
in Article III hereof.
(This space intentionally left blank.)
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Shareholders' Rights
Agreement as of the date first above written.
GLOBAL RESERVATION SYSTEMS, INC.
By: /s/ Tony D. Wicks
-------------------------------
Name: Tony D. Wicks
Title: President
PRECISION RESPONSE CORPORATION
By: /s/ Paul M. O'Hara
------------------------------
Name: Paul M. O'Hara
Title: Executive Vice President
and Chief Financial Officer
SHAREHOLDERS:
/s/ Gregory Lykiardopoulos
---------------------------------------
Gregory Lykiardopoulos
/s/ Tony Wicks
---------------------------------------
Tony Wicks
/s/ Richard Markowitz
---------------------------------------
Richard Markowitz
/s/ Brian Kosar
---------------------------------------
BJK Investments, Inc.
By: Brian Kosar
<PAGE> 16
EXHIBIT A
SHAREHOLDERS SCHEDULE
NO. OF SHARES OF
NAME COMMON STOCK
- ------------------------------------------------ -----------------------------
Gregory Lykiardopoulos 5,598,996
Tony Wicks 5,779,623
BJK Investments Inc. 3,502,858
Richard Markowitz 1,486,189
TOTAL: 16,367,666
15
<PAGE> 1
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
Dated as of June 15, 1999
by and between
GLOBAL RESERVATION SYSTEMS, INC.
and
PRECISION RESPONSE CORPORATION
This Registration Rights Agreement is made and entered into as of June
15, 1999, by and between Global Reservation Systems, Inc., a California
corporation (the "COMPANY"), and Precision Response Corporation, a Florida
corporation (the "INVESTOR").
This Agreement is entered into pursuant to the Securities Purchase
Agreement dated as of June [ ], 1999 between the Investor and the Company (the
"Securities Purchase Agreement").
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
AFFILIATE: As to any specified person shall mean any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this definition,
"control," when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
AGREEMENT: This Registration Rights Agreement, as the same may be
amended, supplemented or modified from time to time in accordance with the terms
hereof.
BUSINESS DAY: With respect to any act to be performed hereunder, each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in New York, New York or other applicable place where such
act is to occur are authorized or obligated by applicable law, regulation or
executive order to close.
COMMISSION: The United States Securities and Exchange Commission.
<PAGE> 2
COMMON STOCK: Common stock, no par value per share, of the Company.
COMPANY: Global Reservation Systems, Inc., a California corporation,
and any successor corporation thereto.
CONTROLLING PERSON: As defined in Section 7(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission thereunder.
HOLDER: The Investor and each other holder of the Registrable Shares
from time to time, including their transferees.
INVESTOR: As defined in the preamble.
NASD: National Association of Securities Dealers, Inc.
PERSON: An individual, partnership, corporation, limited liability
company, trust, or unincorporated organization, or government and agency or
political subdivision thereof.
PROCEEDING: An action, claim, suit or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or, to the knowledge of the person subject thereto,
threatened.
PROSPECTUS: The prospectus included in any Registration Statement,
including any preliminary Prospectus, and all other amendments and supplements
to any such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.
REGISTER, REGISTERED and REGISTRATION: Such terms shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
REGISTRABLE SHARES: The shares of Common Stock of the Company held by
the Investor on the date hereof and any shares of Common Stock issuable upon
exercise of the warrants issued to the Investor pursuant to the Securities
Purchase Agreement until, in the case of any such share, the earliest to occur
of (i) the date on which it has been registered effectively pursuant to the
Securities Act and disposed of in accordance with the Registration Statement
relating to it, (ii) the date on which it is transferred in compliance with Rule
144 (or any similar provisions then in effect) or (iii) the date on which it is
sold to the Company.
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<PAGE> 3
REGISTRATION EXPENSES: Any and all expenses incident to performance of
or compliance with this Agreement, including without limitation: (i) all
Commission, stock exchange, NASD registration, listing and filing fees, (ii) all
fees and expenses incurred in connection with compliance with federal or state
securities or blue sky laws (including any registration, listing and filing fees
and reasonable fees and disbursements of counsel in connection with blue sky
qualification of any of the Registrable Shares and the preparation of a Blue Sky
Memorandum and compliance with the rules of the NASD), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, duplicating,
printing, delivering and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements, certificates and other documents relating to the
performance of and compliance with this Agreement, (iv) all fees and expenses
incurred in connection with the listing of any of the Registrable Shares on any
securities exchange or The Nasdaq Stock Market, (v) the fees and disbursements
of counsel for the Company and any counsel to the Holders and of the independent
public accountants (including without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance) of
the Company and (vi) any fees and disbursements customarily paid by issuers or
sellers of securities (including the fees and expenses of any experts retained
by the Company in connection with any Registration Statement), but excluding
brokers' commission and transfer taxes, if any, relating to the sale or
disposition of Registrable Shares by a Holder.
REGISTRATION STATEMENT: Any registration statement (including a shelf
registration statement pursuant to Rule 415) of the Company that covers the
resale of any shares of Common Stock, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference, if any, in such
registration statement.
RULE 144: Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
RULE 144A: Rule 144A promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
RULE 158: Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
RULE 415: Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
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<PAGE> 4
RULE 424: Rule 424 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission as a replacement thereto
having substantially the same effect as such rule.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the Commission thereunder.
SECURITIES PURCHASE AGREEMENT: As defined in the preamble.
UNDERWRITTEN OFFERING: A sale of securities of the Company to an
underwriter or underwriters for reoffering to the public.
2. PIGGY-BACK REGISTRATION.
(a) If at any time the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of any of the holders of any class of its
Common Stock (other than (i) a Registration Statement on Form S-4, Form S-8 or
any substitute form that may be adopted by the Commission, or (ii) a
Registration Statement filed in connection with an exchange offer) and the
registration form to be used may be used for any registration of Registrable
Shares, then the Company shall give written notice of such proposed filing to
the Holders as soon as practicable (but in no event fewer than 10 days before
the anticipated filing date), and such notice shall offer such Holders the
opportunity to register such number of Registrable Shares as each such Holder
may request in writing within 20 days after receipt of such written notice from
the Company (which request shall specify the Registrable Shares intended to be
disposed of by such selling Holder) (a "PIGGY-BACK REGISTRATION"). No Holder
shall be considered to be a selling Holder until such Holder has provided notice
to the Company of its intent to sell Registrable Shares, and the Company shall
not be prevented from filing a Registration Statement or taking any action
(other than going effective) prior to the expiration of the 20-day period in
which Holders are entitled to respond to the Company's notice pursuant to this
SECTION 2(a). Upon the written request of any such Holder made within 20 days
after the receipt of any such notice (which request shall specify the number of
Registrable Shares intended to be disposed of by such Holder and the intended
method of disposition thereof), the Company will, subject to the terms of this
Agreement, effect the registration under the Securities Act of all Registrable
Shares which the Company has been so requested to register by the Holders
thereof, to the extent required to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of the Registrable Shares so to be
registered, by inclusion of such Registrable Shares in the registration
statement that covers the securities which the Company proposes to register,
PROVIDED that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason either not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Shares in connection with such registration (but not from its obligation to pay
the Registration Expenses in connection therewith) and (ii) in the case of a
determination to delay registering, shall be
4
<PAGE> 5
permitted to delay registering any Registrable Shares, for the same period as
the delay in registering such other securities.
(b) The Company shall use its reasonable best efforts to cause the
managing underwriter or underwriters of such proposed offering, if any, to
permit the Registrable Shares requested to be included in a Piggy-Back
Registration to be included on the same terms and conditions as any similar
securities of the Company or any other security holder included therein and to
permit the sale or other disposition of such Registrable Shares in accordance
with the intended method of distribution thereof. Any selling Holder shall have
the right to withdraw its request for inclusion of its Registrable Shares in any
Registration Statement pursuant to these provisions by giving written notice to
the Company of its request to withdraw prior to the effective date of such
registration statement.
(c) The Company will pay all Registration Expenses in connection with
each registration of Registrable Shares requested pursuant to this SECTION 2.
The selling Holders shall pay the underwriting discounts, commissions, and
transfer taxes, if any, relating to the sale of such selling Holders'
Registrable Shares pursuant to this SECTION 2, such costs being allocated PRO
RATA among all selling Holders on whose behalf Registrable Shares of the Company
are included in such registration on the basis of the respective amounts of
Registrable Shares then being registered on their behalf.
(d) PRIORITY IN PIGGY-BACK REGISTRATIONS. If a registration pursuant to
this SECTION 2 involves an underwritten offering of the securities so being
registered, whether or not for sale for the account of the Company, the Company
will, if requested by any Holder and subject to the provisions of this SECTION
2, use its reasonable best efforts to arrange for such underwriters to include
all the Registrable Shares to be offered and sold by such Holder among the
securities to be distributed by such underwriters. Notwithstanding anything to
the contrary, if the managing underwriter or underwriters of such underwritten
offering shall, in writing, inform the Holders requesting such registration and
the holders of any of the Company's other securities which shall have exercised
registration rights in respect of such underwritten offering of its belief that
the number of securities requested to be included in such registration exceeds
the number which can be sold in (or during the time of) such offering, then the
Company will be required to include in such registration statement only the
amount of securities that it is so advised should be included in such
registration. In such event securities shall be registered in such offering in
the following order of priority: (i) first, the securities that the Company
proposes to register and the securities that have been requested to be included
in such registration by such Holders (PRO RATA on the amount of securities
sought to be registered by the Company and such Holders) and (ii) second, the
securities that have been requested to be included in such registration by
Persons (other than Holders) entitled to exercise "piggy-back" registration
rights pursuant to contractual commitments of the Company (PRO RATA on the
amount of securities sought to be registered by such other Persons). The Company
hereby agrees that it will not grant any registration rights to any other Person
which would give such Person priority senior to, or on parity with, the priority
of the Holders set forth above.
3. EXPENSES. As between the Company and the Holders, the Company shall pay all
Registration Expenses in connection with the registration of the shares pursuant
to this Agreement. The Holder
5
<PAGE> 6
or Holders shall pay all broker's commissions and transfer taxes, if any, and
any other expense not specifically allocated to the Company pursuant to this
Agreement relating to the sale or disposition of such Holder's Registrable
Shares pursuant to any Registration Statement.
4. RULES 144 AND 144A. The Company shall file the reports required to be filed
by it under the Securities Act and the Exchange Act in a timely manner in
accordance with Rule 144, and, prior to the effectiveness of the Registration
Statement, if it is not required to file such reports, will make available other
information as required by, and so long as necessary to permit sales of the
Registrable Shares pursuant to, Rule 144A.
5. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect to any
registration pursuant to this Agreement, the Company shall use its best efforts
to effect or cause to be effected the registration of the Registrable Shares
under the Securities Act to permit the sale of such Registrable Shares by the
Holder or Holders in accordance with customary methods of sale or distribution,
including through brokers' transactions and block trades, as well as any other
intended method or methods of distribution reasonably requested by any Investor
or any other Holder by notice to the Company prior to the filing of the
Registration Statement, and the Company shall:
(a) cause each such Prospectus contained therein to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 or any similar rule that may be adopted under the Securities Act and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by each Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
selling Holder thereof;
(b) furnish to any Holder named in any Prospectus without charge, as
many copies of such Prospectus, and any amendment or supplement thereto and such
other documents as such Holder may reasonably request, in order to facilitate
the public sale or other disposition of the Registrable Shares; the Company
consents to the use of any such Prospectus by such Holder in connection with the
offering and sale of the Registrable Shares covered by any such Prospectus;
(c) use its best efforts to register or qualify, or obtain exemption
from registration or qualification for, all Registrable Shares by the time the
applicable Registration Statement is declared effective by the Commission under
all applicable state securities or "blue sky" laws of such jurisdictions as any
Investor or any other Holder shall reasonably request in writing, keep each such
registration or qualification or exemption effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts and things which may be reasonably necessary or advisable to enable each
Holder to consummate the disposition in each such jurisdiction of such
Registrable Shares owned by such Holder; PROVIDED, HOWEVER, that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not be otherwise be required to qualify or register but for
6
<PAGE> 7
this SECTION 5(c), (ii) subject itself to taxation in any such jurisdiction, or
(iii) submit to the general service of process in any such jurisdiction;
(d) notify the Investor and each other Holder promptly and, if
requested by the Investor or any other Holder, confirm such advice in writing
(i) when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto become effective, (ii) of the
issuance by the Commission or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, and (iii) of the happening of any event during
the period a Registration Statement is effective as a result of which such
Registration Statement or the related Prospectus contains any untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading (which advice
shall be accompanied by an instruction to suspend the use of the Prospectus
until the requisite changes have been made);
(e) during the effectiveness of any Registration Statement, use its
reasonable efforts to avoid the issuance of, or, if issued, obtain the
withdrawal of any enjoining order suspending the use or effectiveness of such
Registration Statement or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Registrable Shares for sale in any
jurisdiction, at the earliest possible moment;
(f) upon request, furnish to each requesting Holder, without charge, at
least one conformed copy of each Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(g) except as provided in SECTION 6 hereof, upon the occurrence of any
event contemplated by SECTION 5(d)(iii) hereof, use its best efforts to promptly
prepare a supplement or post-effective amendment to a Registration Statement or
the related Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Shares, such Prospectus will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(h) if requested by the representative underwriters, if any, or any
Holders of Registrable Shares being sold in connection with an Underwritten
Offering, (i) promptly incorporate in a prospectus supplement or post-effective
amendment such information as the representative of the underwriters, if any, or
such Holders indicate relates to them or otherwise reasonably request be
included therein, and (ii) make all required filings of such prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
prospectus supplement or post-effective amendment;
(i) in connection with an Underwritten Offering of Registrable Shares,
make available to inspection by representatives of the Holders and the
representative of any underwriters participating in any disposition pursuant to
a Registration Statement and any special counsel or accountant retained by such
Holders or underwriters, all financial and other records, pertinent
7
<PAGE> 8
corporate documents and properties of the Company and cause the respective
officers, directors and employees of the Company to supply all information
reasonably requested by any such representatives, the representative of the
underwriters, the special counsel or accountants in connection with a
Registration Statement; PROVIDED, HOWEVER, that such records, documents or
information which the Company determines, in good faith, to be confidential and
notifies such representatives, representative of the underwriters, special
counsel or accountants are confidential shall be kept confidential and shall not
be disclosed by the representatives, representative of the underwriters, special
counsel or accountants unless (i) subject to the provisions of SECTION 6 hereof,
the disclosure of such records, documents or information is necessary to avoid
or correct a misstatement or omission in a Registration Statement or Prospectus,
(ii) the release of such records, documents or information is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction, or is
otherwise required by law or legal process or a regulatory body, or (iii) such
records, documents or information have been generally made available to the
public and provided, that the foregoing inspection and information gathering
shall, to the greatest extent possible, be coordinated on behalf of the Holders
and the other parties entitled thereto by one counsel designated by and on
behalf of such Holders and other parties reasonably acceptable to the Company;
(j) if the Company has listed its Common Stock on an exchange or
market, use its best efforts (including, without limitation, seeking to cure any
deficiencies (within the Company's control) cited by the exchange or market in
the Company's listing application) to list all Registrable Shares on such
exchange or market;
(k) prepare and file in a timely manner all documents and reports
pursuant to the Exchange Act which are incorporated by reference into any
Registration Statement;
(l) provide a CUSIP number for all Registrable Shares, not later than
the effective date of the Registration Statement;
(m) use its best efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its
securityholders, as soon as reasonably practicable, earnings statements covering
at least 12 months which satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 (or any similar rule promulgated under the
Securities Act) thereunder;
(n) provide and cause to be maintained a transfer agent for all
Registrable Shares covered by any Registration Statement from and after a date
not later than the effective date of such Registration Statement;
(o) in connection with any sale or transfer of the Registrable Shares
that will result in such securities no longer being restricted from resale
without registration under the Securities Act, cooperate with the Holders and
the representative of the underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing the Registrable Shares to
be sold, which certificates shall not bear any restrictive legends, and to
enable such Registrable Shares to be in such denominations and registered in
such names as the representative of the underwriters, if any, or Holders may
request at least two Business Days prior to any sale of the Registrable Shares;
and
8
<PAGE> 9
(p) upon effectiveness of the first Registration Statement of the
Company declared effective relating to the Common Stock, the Company will take
such actions and make such filings as are necessary to effect the registration
of the Common Stock under the Exchange Act simultaneously with or immediately
following the effectiveness of the Registration Statement.
The Company may require each Holder to furnish to the Company such
information regarding the proposed distribution by such Holder of Registrable
Shares as the Company may from time to time reasonably request in writing and no
Holder shall be entitled to be named as a selling securityholder in any
Registration Statement and no Holder shall be entitled to use the Prospectus
forming a part thereof if such Holder does not provide such information to the
Company.
Upon receipt of written notice from the Company of the happening of any
event of the kind described in SECTION 5(d)(iii) hereof, the Holders will
immediately discontinue disposition of Registrable Shares pursuant to a
Registration Statement until the Holders' receipt of the copies of a
supplemented or amended Prospectus. If so requested by the Company, the Holders
will deliver to the Company (at the expense of the Company) all copies in their
possession, other than permanent file copies then in the Holders' possession, of
the Prospectus covering such Registrable Shares current at the time of receipt
of such notice.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless (i) each Holder, including without limitation, the Investor, (ii)
each Person, if any, who controls (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) any Holder (any of the persons
referred to in this clause (ii) being hereinafter referred to as a "controlling
person"), and (iii) the respective officers, directors, partners, members,
employees, representatives and agents of the Investor and each Holder or any
controlling person as follows:
(i) from and against any and all loss, claim, liability and
damage whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment or supplement thereto) pursuant to which Registrable Shares were
registered under the Securities Act including all documents incorporated therein
by reference, or the omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or arising
out of any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto), including
all documents incorporated therein by reference, or the omission or alleged
omission to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) from and against any and all loss, liability, claim and
damage whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim
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<PAGE> 10
whatsoever based upon any such untrue statement or omission, if such settlement
is effected with the prior written consent of the Company; and
(iii) from and against any and all expense reasonably incurred
(including reasonable fees and disbursements of counsel), in investigating,
preparing or defending against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, in each case whether
or not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement does not apply to any Holder
with respect any loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with written information furnished to
the Company by such Holder expressly for use in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION BY HOLDERS. Each Holder severally agrees to
indemnify and hold harmless the Company, and directors, officers, partners,
employees, representatives and agents (including each officer of the Company who
signed the Registration Statement), and each Person, if any, who controls the
Company, within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, against any and all loss, liability, claim, damage and
expenses described in the indemnity contained in SECTION 7(a) hereof (PROVIDED,
HOWEVER, that any settlement described in SECTION 7(a)(ii) hereof is effected
with the written consent of such Holder), as incurred, but only with respect to
such untrue statements or omissions, or alleged untrue statements or omissions,
made in a Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Holder expressly for use in
such Registration Statement (or any amendment thereto) or such Prospectus (or
any amendment or supplement thereto), and PROVIDED, FURTHER, that no Holder
shall be liable for any amount in excess of the net proceeds received by such
Holder from the sale of such Holder's Registrable Shares pursuant to a
Registration Statement or a Prospectus, as the case may be.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Each indemnified party
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve it
from any liability which it may have under this indemnity agreement except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. If the indemnifying party so elects within a reasonable time after
receipt of such notice, the indemnifying party may assume the defense of such
action or proceeding at such indemnifying party's own expense with counsel
chosen by the indemnifying party and approved by the indemnified parties
defendant in such action or proceeding, which approval shall not be unreasonably
withheld; PROVIDED, HOWEVER, that, if such indemnified party or parties
reasonably determined that a conflict of interest exists where it is advisable
for such indemnified party or parties to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to them
which
10
<PAGE> 11
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party or parties shall be entitled to one separate counsel (and any
necessary local counsel) at the indemnifying party's expense. If an indemnifying
party is not entitled to assume the defense of such action or proceeding as a
result of the proviso to the preceding sentence, such indemnifying party's
counsel shall be entitled to conduct such indemnifying party's defense and
counsel for the indemnified party or parties shall be entitled to conduct the
defense of such indemnified party or parties, it being understood that both such
counsel will cooperate with each other to conduct the defense of such action or
proceeding as efficiently as possible. If an indemnifying party is not so
entitled to assume the defense of such action or does not assume such defense,
after having received the notice referred to in the first sentence of this
paragraph, the indemnifying party or parties will pay the reasonable fees and
expenses of not more than one counsel (and any necessary local counsel) for the
indemnified party or parties. In such event, however, no indemnifying party will
be liable for any settlement effected without the written consent of such
indemnifying party. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into a settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation. If an indemnifying party is entitled to
assume, and assumes, the defense of such action or proceeding in accordance with
this paragraph, such indemnifying party shall not be liable for any fees and
expenses for counsel for the indemnified parties incurred thereafter in
connection with such action or proceeding.
(d) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this SECTION 7 is for any reason held to be unenforceable, unavailable or
insufficient although applicable in accordance with its terms; the Company and
the Holders in question shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company and such Holders in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holders on the other (taking into consideration the fact that the
provisions of the registration rights hereunder are a material inducement to the
Investor to purchase the Registrable Shares), in connection with the statement
or omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. Relative fault
shall be determined by reference to, among other things, whether an untrue or
alleged untrue statement of a material fact or an omission or alleged omission
of a material fact relates to information supplied by or available to the
Company on the one hand, or such Holders, on the other hand, and by the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, no Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. No Holder shall be liable for
any amount in excess of the net proceeds received by such Holder from the sale
of such Holder's Registrable Shares pursuant to a Registration Statement or a
Prospectus, as the case may be. For purposes of this SECTION 7, each Person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such Holder, and each director
of the Company, each officer of the Company who signed the Registration
11
<PAGE> 12
Statement and each Person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act and each
partner, employee, representative or agent of the Company shall have the same
rights to contribution as the Company. Each party entitled to contribution
agrees that upon the service of a summons or other initial legal process upon it
in any action instituted against it in respect of which contribution may be
sought, it shall promptly give written notice of such service to the party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise.
8. LOCK-UP PERIOD. Each Holder agrees, if requested (pursuant to a timely
written notice) by the managing underwriter or underwriters in the Company's
first public underwritten offering, not to effect any public sale or
distribution of any of the Registrable Shares including a sale pursuant to Rule
144 or Rule 144A, without the prior written consent of the underwriters (except
as part of such underwritten offering), during the period beginning 7 days prior
to, and ending 90 days (or such shorter lock-up period, as the managing
underwriter or underwriters shall agree) after the effective date of the
registration statement in connection with such public underwritten offering, to
the extent timely notified in writing by the Company or by the managing
underwriter or underwriters. The Holders shall not be subject to the
restrictions set forth in this Section 8 for longer than 97 days during any
12-month period.
9. MISCELLANEOUS.
(a) REMEDIES. In the event of a breach by the Company, or by a Holder
of any of their obligations under this Agreement, each Holder or the Company, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. It is agreed that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, the parties shall
waive the defense that a remedy at law would be adequate.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, without the written consent of the Company and Holders owning not less
than 50% of the then outstanding Registrable Shares and, to the extent that at
any such time it still owns at least 25% of the Registrable Securities initially
owned by it, the Investor; PROVIDED, HOWEVER, that, for the purposes of this
Agreement, Registrable Shares that are owned, directly or indirectly, by either
the Company or an Affiliate of the Company shall not be deemed to be
outstanding. Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of a Holder whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of any
other Holder may be given by such Holder; PROVIDED, HOWEVER, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
12
<PAGE> 13
(c) NOTICES. All notices and other communications provided for herein
shall be made in writing by hand-delivery, next-day air courier, certified
first-class mail, return receipt requested, telex or telecopy:
(i) if to the Company:
Global Reservation Systems, Inc.
2320 Marinship Way
Sausalito, CA 94965
Facsimile: (415) 289-4299
Attention: Tony Wicks
(ii) if to the Investor:
Precision Response Corporation
1505 NW 167th Street
Miami, FL 33169
Facsimile: (305) 816-4363
Attention: General Counsel
(iii) if to any other Holder, to the address of such Holder as
it appears in the Common Stock register of the Company.
Except as otherwise provided in this Agreement, all such communications
shall be deemed to have been duly given when (v) delivered by hand, if
personally delivered, (w) one Business Day after being timely delivered to a
next-day air courier, (x) five Business Days after being deposited in the mail,
postage prepaid, if mailed, (y) when answered back, if telexed or (z) when
receipt is acknowledged by the recipient's telecopier machine, if telecopied.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of each of the
parties and shall inure to the benefit of each Holder. Each Holder shall be
deemed a third party beneficiary of this Agreement. The Company may not assign
its rights or obligations hereunder without the prior written consent of each
Holder. Notwithstanding the foregoing, no assignee of the Company shall have any
of the rights granted under this Agreement until such assignee shall acknowledge
its rights and obligations hereunder by a signed written agreement pursuant to
which such assignee accepts such rights and obligations.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed within the State of California without regard to principles
of conflicts of law.
13
<PAGE> 14
(g) SEVERABILITY. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the provisions hereof.
All references made in this Agreement to "Section" refer to such Section of this
Agreement, unless expressly stated otherwise.
(i) ATTORNEY'S FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing party, as determined by the court, shall be
entitled to recover its reasonable attorneys' fees in addition to any other
available remedy.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
GLOBAL RESERVATION SYSTEMS, INC.
By: /s/ Tony D. Wicks
----------------------------------
Name: Tony D. Wicks
Title: President
The foregoing Registration Rights Agreement
is hereby confirmed and accepted as of the date
first above written.
PRECISION RESPONSE CORPORATION
By: /s/ Paul M. O'Hara
---------------------------------------
Name: Paul M. O'Hara
Title: Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 514
<SECURITIES> 0
<RECEIVABLES> 39,307
<ALLOWANCES> 1,437
<INVENTORY> 0
<CURRENT-ASSETS> 45,560
<PP&E> 115,459
<DEPRECIATION> 37,107
<TOTAL-ASSETS> 132,960
<CURRENT-LIABILITIES> 29,933
<BONDS> 18,033
0
0
<COMMON> 215
<OTHER-SE> 82,105
<TOTAL-LIABILITY-AND-EQUITY> 132,960
<SALES> 0
<TOTAL-REVENUES> 96,338
<CGS> 0
<TOTAL-COSTS> 80,366
<OTHER-EXPENSES> 9,670
<LOSS-PROVISION> 871
<INTEREST-EXPENSE> 457
<INCOME-PRETAX> 4,974
<INCOME-TAX> 2,040
<INCOME-CONTINUING> 2,934
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,934
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
