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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 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)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
ON FEBRUARY 15, 2000, THE REGISTRANT HAD 21,852,231 OUTSTANDING SHARES
OF COMMON STOCK, $0.01 PAR VALUE, AND BASED UPON THE CLOSING MARKET PRICE OF THE
REGISTRANT'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET ON SUCH DATE, THE
AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT WAS APPROXIMATELY $253,800,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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INDEX
PART I.
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ITEM NO. PAGE
<S> <C> <C>
1. Business.....................................................................................3
2. Properties..................................................................................13
3. Legal Proceedings...........................................................................14
4. Submission of Matters to a Vote of Security-Holders.........................................15
PART II.
5. Market for the Registrant's Common Equity and Related Stockholder Matters...................16
6. Selected Financial Data.....................................................................18
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................................21
7A. Quantitative and Qualitative Disclosures About Market Risk..................................33
8. Financial Statements and Supplementary Data.................................................34
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........34
PART III.
10. Directors and Executive Officers of the Registrant..........................................34
11. Executive Compensation......................................................................37
12. Security Ownership of Certain Beneficial Owners and Management..............................48
13. Certain Relationships and Related Transactions..............................................51
PART IV.
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................53
</TABLE>
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PART I.
ITEM 1. BUSINESS
GENERAL
Precision Response Corporation ("PRC" or the "Company") was
incorporated in the state of Florida in 1982 as a fulfillment company and is
currently a leading full-service provider of outsourced customer care, utilizing
a fully-integrated mix of traditional call center and e-commerce customer care
solutions and services to large corporations and high-growth Internet-focused
companies. Through the integration of its teleservicing, e-commerce customer
care services, information technology, which includes database marketing and
management ("Information Technology"), and fulfillment capabilities, the Company
is able to offer a total customer relationship solution to meet its clients'
needs. The Company believes that its integrated approach, combined with its
sophisticated use of advanced technologies, provides a distinct competitive
advantage in attracting and retaining clients seeking cost-effective ways to
contact and service prospective and existing customers.
During 1999, the Company continued its strategic initiatives to
capitalize on the extraordinary growth of Internet commerce by integrating
Internet technologies with current PRC products and services to, in effect,
create multimedia "customer interaction centers." These multimedia centers are
support facilities in which customer care associates interact with customers
over multiple communications channels including telephone, e-mail, web
collaboration and online chat/IP telephony. Internet customer care is a natural
extension of the Company's traditional products and services that enable a full
spectrum of Customer Relationship Management capabilities for PRC clients.
Customer Relationship Management is the practice of identifying, attracting and
retaining the best customers to generate profitable revenue growth. Utilizing
these capabilities in order to assist clients to improve the utility of
e-commerce applications is a significant business opportunity for the Company.
In February 1999, the Company launched prcnetcare.com, Inc. ("prcnetcare.com")
to capitalize on the expected customer service opportunities related to the
extraordinary growth of e-commerce.
The Company is focused on attracting clients that have significant
customer service needs including database design and management and substantial
ongoing teleservicing and e-commerce customer care. The Company believes that
the long-term outlook for outsourced customer service and marketing is favorable
due to the expected steady growth in out-sourcing of traditional telephone-based
customer care. In addition, the Company believes that the opportunities
presented by the explosive growth of business over the Internet, and
particularly of e-commerce, present prcnetcare.com with significant prospects
for growth. Longer-term, the Company expects to drive revenue growth by
continuing to cross-sell PRC's traditional teleservices to prcnetcare.com's
Internet clients and providing additional services to e-commerce companies that
take advantage of PRC's existing capabilities.
RECENT DEVELOPMENTS
On January 12, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, USA Networks, Inc.
("USAi"), a Delaware corporation, and P Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of USAi ("Newco"), pursuant to which
Newco would be merged with and into the Company, with the Company remaining as
the surviving corporation in the merger. Upon and subject to consummation of the
merger, each share of PRC common stock would be converted into 1.08 shares of
USAi common stock (taking into account the two-for-one stock split of USAi
common stock to be effected on February 24, 2000 as to USAi common shareholders
as of February 10, 2000). Consummation of the Merger Agreement is subject to
certain terms, conditions and termination rights specified in the Merger
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Agreement. In particular, the Company may elect to terminate the Merger
Agreement if the volume-weighted average sales price per share of USAi common
stock on the twenty consecutive trading days ending on the second full trading
day prior to the Company's special meeting of shareholders (to be convened to
take action upon the Merger Agreement) is less than $18.52 (taking into account
the above-described USAi two-for-one stock split). If the Company makes such
election, USAi may, however, elect, in its sole discretion, to increase the
exchange ratio at that time so that PRC shareholders receive $20.00 worth of
USAi common stock for each share of PRC common stock, in which case the
Company's termination election will be deemed to be rescinded. In addition, the
merger is subject to approval or expiration or earlier termination of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 and the approval of shareholders of the Company holding a majority of
outstanding shares of common stock, as well as other customary closing
conditions. See "Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K - Reports on Form 8-K."
The merger is currently expected to be completed by June 2000. Upon
consummation of the merger, PRC would be integrated with USA Electronic Commerce
and Services ("ECS"), a USAi company that delivers integrated electronic
commerce solutions with a multi-platform business to business package including
teleservices, product fulfillment, customer care, systems development, database
marketing and integrated marketing products. The combined and centrally managed
teleservices operations of the Company and ECS, which includes the call center
operations of Home Shopping Network and Ticketmaster, is expected to have
approximately 10,000 workstations in approximately 40 call centers throughout
the world.
INDUSTRY OVERVIEW
PRC believes that the long-term outlook for outsourced customer service
and marketing is favorable. The growth of the customer care industry is expected
to stem from: (i) steady growth in outsourcing of traditional telephone-based
customer care; (ii) strong growth in customer care needs across multiple
communication channels; and (iii) substantial growth in the demand for Internet
customer care.
The Company expects that large companies increasingly will outsource
their customer care activities in order to focus internal resources on their
core competencies and to improve the quality and cost-effectiveness of their
customer service and marketing efforts. Timely and effective customer care
develops and strengthens customer loyalty which is critical for companies to
remain competitive. The Company also believes that organizations with superior
customer service and sophisticated advanced technology, such as PRC, will
particularly benefit from this outsourcing trend.
The traditional telephone-based customer service and marketing industry
is quickly changing as multiple communication channels, such as fax, e-mail and
the Internet, become increasingly available. Today, customers of PRC's clients
are accessing information through these alternative methods as well as by the
telephone. As a result, large companies that outsource their customer care
activities are likely to demand an integrated customer care provider that can
deliver consistent support across multiple communication channels. In addition,
being able to provide an end-to-end solution is expected to be a key competitive
factor. An end-to-end solution includes the additional services of customer
relationship management, fulfillment and information technology consulting,
which research indicates is expected to potentially be a $60 billion market by
2003.
In particular, the Internet has created a new market for customer care.
Research shows that 90% of on-line customers prefer human interaction. Research
also indicates that spending on Internet and e-commerce services, including
customer support services, is expected to grow to $22 billion by 2002. As
e-commerce grows, companies are seeing an increasing percentage of their revenue
becoming dependent on their ability to service customers over the Internet. PRC
believes Internet customer care represents a significant growth opportunity for
the Company.
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BUSINESS STRATEGY
PRC's vision is to be the premier provider of interactive customer
communications to large corporations and high-growth Internet-focused companies.
The Company's strategy is to offer its clients high-quality, fully integrated
services that are customized to address each client's unique needs and to
improve the quality and cost-effectiveness of the client's customer service and
marketing operations. The Company seeks to implement this strategy through the
following:
"ONE-STOP" SOLUTIONS THROUGH FULLY INTEGRATED SERVICES
The Company's current integration of teleservices, Information
Technology, which includes database marketing and management, and fulfillment
services as part of a one-stop solution provides a cost-effective and efficient
method for its clients to manage their growing customer service and marketing
needs. In addition, the Company has integrated Internet communications as yet
another part of the one-stop solution. The Company is typically involved in all
stages of formulating, designing and implementing its clients' customer service
and marketing programs. PRC believes that this solution-oriented, value-added
approach to addressing its clients' needs distinguishes PRC from its competitors
and plays a vital role in the Company's ability to attract and retain clients.
INFORMATION TECHNOLOGY CAPABILITIES
Through the efforts of its Information Technology and Internet
applications groups, the Company is able to rapidly design, develop and
implement application software for each client's unique customer service and
marketing programs. PRC offers a wide array of services, including formulating,
designing and customizing teleservicing and electronic applications,
programming, and demographic and psychographic profiling. The Information
Technology group also integrates the Company's centrally managed wide area
network with the client's management information systems, thereby enabling
clients to access real-time program information and obtain comprehensive trend
analyses. As the needs of a client evolve, PRC's Information Technology
specialists work with the client to modify their programs.
ADVANCED TECHNOLOGY
The Company's sophisticated use of advanced technology enables it to
develop and deliver solutions to its clients' complex customer service and
marketing needs. PRC has developed a specialized component-based development
software strategy with related proprietary products for its traditional
teleservicing and fulfillment services. PRC has also developed InfiniteAccess,
Precision Resolution and other specialized software, which cost-effectively
utilize the Company's hardware and software capabilities. PRC's component-based
software approach allows the Company's Information Technology group to build and
to test customer interaction center applications much more quickly than with
conventional approaches. As a result, clients receive a customer interaction
center solution of superior quality.
CAPITALIZE ON THE INTERNET OPPORTUNITY
The Company believes that the opportunities presented by the explosive
growth of business over the Internet, and particularly of e-commerce, present
prcnetcare.com with outstanding prospects for growth. Longer-term, the Company
expects to drive revenue growth by continuing to cross-sell PRC's traditional
teleservice capabilities to prcnetcare.com's Internet clients and providing
additional services to e-commerce companies that take advantage of PRC's
existing capabilities.
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LONG-TERM CLIENT RELATIONSHIPS
The Company seeks to develop long-term client relationships by becoming
an integral part of its clients' overall customer service and marketing efforts.
Dedicated client commitment teams, headed by a general manager and comprised of
representatives of the teleservices, Internet applications, Information
Technology and fulfillment operating groups, are assigned to work closely with a
client to formulate, design, implement and operate the client's program.
Typically, a customer care associate is dedicated to one client, which
translates into customer loyalty and being an integral part of the client's
strategic team.
STRONG COMMITMENT TO QUALITY
PRC strives to achieve the highest quality standards in the industry.
Currently, approximately 98% of PRC's customer care associates are full-time,
which the Company believes results in greater stability and quality in its
workforce. The Company has a rigorous screening process for new hires. All new
associates participate in extensive classroom and on-the-job training programs
lasting up to six weeks. After training, each associate's performance is
monitored regularly through on-site supervision, remote and on-site call
monitoring, and on-line performance tracking. The Company's client commitment
team ensures that the Company fulfills its commitments in connection with each
client program in a timely manner. Because PRC's services involve direct contact
with its clients' customers, the Company's commitment to quality is critical to
its ability to attract and retain clients. PRC believes that the Company's
commitment to total quality continues to strengthen its ability to attract
quality clients and employees.
OPERATIONS OVERVIEW
PRC's operations are organized to effectively provide one-stop
solutions for its clients' customer service and marketing needs.
MANAGEMENT OF CLIENTS THROUGH GENERAL MANAGERS TEAMS. Each client
program is managed by a general manager who is dedicated to a single client or a
small group of clients and is the sole point of contact for all matters related
to the client's program. The general manager's responsibility includes full
operational, financial and client relations functions. The general manager
assembles a client commitment team consisting of members from the teleservices,
Internet applications, Information Technology and fulfillment operating groups,
which is assigned responsibility for that program. This team works with the
client to formulate and design a customer service or marketing program tailored
to achieve that client's objectives. In implementing the program, the team is
supported by the human resources department which carefully selects the customer
care associates for that particular program. In addition, the quality assurance
and client commitment teams monitor the program to ensure that it is carried out
in accordance with specifications. The Company believes that its integrated team
approach and solution-oriented focus provide PRC with a distinct competitive
advantage.
PROGRAM FORMULATION AND DESIGN. PRC's client commitment teams work with
clients to formulate a customer service and marketing program suited to each
client's needs. The Information Technology group uses its substantial expertise
in rapid application development and systems integration to help clients more
effectively target marketing programs, resulting in higher response rates and
profitability, and to design customer service programs which capture information
useful in the client's customer retention programs and other marketing efforts.
PRC offers a wide array of services, including formulating, designing and
customizing database architecture, programming, demographic and psychographic
profiling and scripting.
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PROGRAM IMPLEMENTATION. PRC's general manager teams work with the
teleservices, Internet applications, Information Technology and fulfillment
operating groups to implement the client's customer service and/or marketing
program.
OPERATIONS. PRC's teleservicing operations allow clients to establish
and maintain direct communications with their customers. The Company can provide
a stand-alone teleservices application or support for an existing program. PRC
also specializes in business-to-consumer and business-to-business programs and
is experienced in a wide range of industries including telecommunications,
financial services, hospitality, transportation and e-commerce/Internet.
Teleservicing operations involve direct communication with the clients'
customers through inbound or outbound calls. In 1999, teleservicing activities
accounted for 89% of the Company's total revenues. Of this amount, 94% was from
inbound calls.
In handling inbound calls, the Company's customer care associates
respond to a variety of customer requests, including inquiries, billing
questions, complaints, direct mail response and order processing and provide
technical support. The complexity of inbound calls ranges from simple one
dimensional data look-ups to more complex multi-system navigation and analysis
or sophisticated technical help and trouble shooting. PRC's automated call
distributors and digital telephony switches identify each inbound call by an
"800" number, then routes the call to a PRC customer care associate trained and
dedicated to that particular client's program.
PRC's outbound services include conducting customer satisfaction and
preference surveys and cross-selling client products, as well as providing
proactive customer management with the goal of increased sales and enhanced
customer retention. Almost all outbound calls are in response to
customer-initiated inquiries or are made to a client's existing customers. The
Company's outbound call management system utilizes predictive dialers which
automatically dial the telephone numbers, determine if a live connection is made
and present connected calls to a customer care associate who has been trained
specifically for that client's program. The customer's name, along with other
information about the customer and the program script, simultaneously appear on
the customer care associate's computer screen. The associate then uses the
script to take an order for the client's product or service or to request
information to broaden the client's database.
The Company's teleservicing operations are enhanced by the use of
universal workstation technology. Universal workstations allow the customer care
associate to handle either inbound or outbound calls as dictated by demand. From
the client's standpoint, universal workstations provide increased efficiencies
by allowing the customer care associate (for whose service the client generally
pays on an hourly basis) to be productive with either inbound or outbound calls.
Information obtained during a customer call by the PRC customer care
associate is captured by the Company's database marketing and management
systems. This information is used by PRC to ensure high quality performance and
to provide fulfillment services, if necessary. PRC's database marketing and
management technology also enables the Company to seamlessly connect with its
clients' systems and thus deliver on-line, real-time program and customer
information.
Fulfillment services include high-speed laser and electronic document
printing, lettershop, and automated mailing and pick and pack capabilities.
While fulfillment services represent a relatively small portion of the Company's
revenues, they enable the Company to support full-service customer care and
marketing programs by managing and fulfilling requests for literature, products
and other specialty items and by permitting the rapid distribution of client
marketing information and products. The fulfillment operation was upgraded in
1999 to include e-mail and web-based tracking and order-entry communications.
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prcnetcare.com, a wholly owned subsidiary of PRC, is dedicated to
developing and providing a total customer care solution for companies conducting
business over the Internet. prcnetcare.com currently offers two lines of
products and services: InfiniteAccess and Precision Resolution.
InfiniteAccess provides e-mail response and management services
("click-to-email"), live web-based customer care services ("click-to-talk",
"click-to-chat"), customer information and database management, fulfillment, and
hosting of Web application services to companies engaged in e-commerce and other
forms of Internet communications on a fully outsourced, turnkey basis. Such
products and services include:
PRC SMART MAIL is an electronic messaging service which reduces the
cost and time of managing large volumes of e-mail by providing rapid and
appropriate responses to a client's customers.
PRC WEB ON-LINE is a collaborative service that enables customer care
associates to simultaneously interact with clients' customers over the telephone
and the Web ("click-to-talk"). This product complements Web-based self-service
aids by providing live customer care associate assistance. This service also
provides "text chat" capabilities.
PRC INTERNET FULFILLMENT SERVICE provides e-mail and Web-based
fulfillment processes to service e-commerce transactions or requests for
information.
PRC HOST is a Web application hosting service and Web information
service which enables clients to conduct Web-based commerce without the
expenditure to establish and support Internet commerce technology infrastructure
and provides clients with Internet-related information and reports about their
business performance, including sales performance, customer feedback and market
analyses.
InfiniteAccess is designed to change the growing customer care
challenges faced by companies into opportunities to capture and retain new
customers by providing the following solutions:
REDUCE THE RATE OF ABANDONMENT OF ELECTRONIC SHOPPING CARTS AND
ENHANCE THE CONVERSION OF BROWSERS TO BUYERS. Confusion, unanswered questions
and rejected order forms cause customers to abandon shopping carts before
completing their on-line purchase. Live customer support from a customer care
associate via "click-to-talk" makes it easier for customers to have their
questions answered, which enhances the likelihood of shoppers completing the
on-line purchasing process.
REDUCE THE AMOUNT OF TIME REQUIRED TO RESPOND TO E-MAIL. Companies
often take five or more days to respond to a customer's e-mail. The ability to
manage and process large volumes of e-mail, and therefore respond promptly,
increases the likelihood of a customer's repeat visit to a client's web-site.
DATA CAPTURING. PRC has expertise and extensive experience in
capturing, analyzing and utilizing data from customer interactions.
ENHANCES CUSTOMER RETENTION. Companies are committing large sums of
marketing dollars in order to attract customers who will return frequently and
become long-term sources of earnings. On-line customer service enhances the
on-line shopping experience, improves customer satisfaction and builds customer
loyalty.
STREAMLINE FULFILLMENT PROCESSES. Fulfilling orders has proven
difficult and costly for many companies selling on the Web. PRC has a
sophisticated fulfillment operation that can be seamlessly integrated with
clients' Web stores.
Precision Resolution is an error resolution and record standardization
system for information transferred electronically or over the Internet that
allows for the automated collection, resolution, monitoring and reporting of
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faulty records from highly transactional, relational databases on a real-time
basis. Precision Resolution provides solutions for several critical business
problems to both on-line and traditional companies. Some of these problems
include:
REDUCING "ORDER FALLOUT." Many potential customers never purchase
products because errors or omission cause their on-line orders to be rejected by
the system. For example, missing or mismatched information can cause a whole
order to be rejected. Precision Resolution allows companies to capture these
order fallouts and to present these fallouts to a customer service
representative for resolution. This is valuable to clients since it enables them
to potentially capture revenues that would otherwise be lost.
ERROR AND EXCEPTION PROCESSING AND RESOLUTION ON A TIMELY BASIS.
Precision Resolution's automated process systems help companies significantly
reduce the amount of time required to correct errors.
MORE ACCURATE AND TIMELY INFORMATION FOR OUR CLIENTS' MANAGEMENT.
Data from the error resolution process is captured in a database and made
available for clients' management analysis by individual error types. By
compiling all the information in one database and automating summary outputs,
Precision Resolution allows clients' management to view summary information on
types of errors in order to efficiently correct overarching issues.
LOWER OPERATING COSTS. Precision Resolution processes exceptions
and errors more cost effectively than companies can do on their own.
QUALITY ASSURANCE. PRC maintains its strong commitment to quality
through its quality assurance and client commitment teams. Within each of PRC's
operating departments, the quality assurance teams monitor performance to ensure
that the Company's services are delivered at a level of quality that meets both
the Company's and the client's standards. The client commitment team functions
on a Company-wide basis to audit the achievement of the Company's commitments to
each client program.
CLIENT REPORTING. Data derived from customer service and marketing
programs are a source of valuable information to PRC's clients in evaluating
ongoing programs and planning and designing future programs. PRC has developed
technologies and reporting procedures that effectively convert raw data gathered
during the course of the program into useful information upon which clients can
base strategic decisions and more effectively respond to customer needs and
inquiries. These technologies and reporting procedures allow clients to monitor
their teleservicing and Internet-based programs on-line, in real-time, to obtain
comprehensive trend analyses and modify program parameters as necessary. In
addition, PRC provides clients with customized reports in printed form,
electronic mail, computer-to-computer transmission, disk, tape and on-line.
TECHNOLOGY
The Company's sophisticated use of advanced technology enables it to
develop and deliver customized solutions to meet its clients' complex customer
service and marketing needs across all media. PRC has developed a specialized
component-based software development strategy with related proprietary data
technology products for its traditional teleservicing and fulfillment services.
Component-based development refers to the tools and techniques employed by the
Information Technology group to assemble and/or modify software applications
from reusable software "parts" as opposed to building an application from
scratch. PRC has also developed InfiniteAccess, Precision Resolution and other
specialized software which cost-effectively utilize the Company's hardware
capabilities. PRC's component-based software approach allows the Company's
Information Technology group to build, test and rapidly deploy customer turnkey
solutions much more quickly than with conventional approaches. As a result,
clients receive a customer interaction center solution of superior quality.
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The Company utilizes a UNIX-based open architecture system comprised of
multiple computer systems which, in conjunction with its rapid application tool
for user interface development, allows PRC to expand capacity from a PC-class
computer to a mainframe without rewriting software and provides flexibility in
designing applications tailored to the client's needs. In conjunction with the
Company's use of Oracle database applications and Windows NT applications, the
UNIX-based open architecture system permits the Company to seamlessly integrate
with many different types of traditional and e-commerce client systems and
allows an electronic link from each center's system to the Company's operational
headquarters, resulting in a centrally managed wide area network.
The Company's multimedia centers are linked via advanced voice and data
communications systems. Each center utilizes telephony switches to route calls
and electronic inquiries directly to customer care associates located within the
network. Each desktop unit is equipped to handle any customer care function as
the computerized routing systems direct inquiries to a specific customer care
associate based on his/her individual expertise. This capability exists as a
result of a highly scalable, technically integrated platform that brings
together the resources of the premier providers of customer relationship
management technology.
All PRC hardware is supported by an uninterruptable power supply
designed for protection against outages or any data loss due to power
variations, as well as a diesel generator to assure an uninterrupted power
source. The Company believes that the integrity of client information is
adequately protected by its data security system and its off-site disaster
back-up storage facilities.
MANAGEMENT INFORMATION SYSTEMS
During 1999, PRC completed its implementation of an Enterprise Resource
Planning solution, which the Company designated as the PRISM Project. The PRISM
Project allows for all internal systems (including those related to billing,
payroll, client profitability management, human resource management, inventory
and purchasing management, and general ledger) to be fully integrated into a
common platform. The PRISM Project utilized both internal resources as well as
outside consultants to allow for a quick and efficient implementation. The PRISM
Project was implemented in phases over a two-year period with certain systems or
modules becoming functional at different points in the project timeframe. The
total cost of full implementation, including software, hardware, consulting fees
and internal resources, was approximately $12.8 million (see Note 5 - Property
and Equipment of the Notes to Consolidated Financial Statements).
PERSONNEL AND TRAINING
PRC believes that its rigorous approach to hiring and training its
employees is a key component of its ability to provide high quality client and
customer service. The Company selects the locations for its multimedia centers
based on demographic studies in an attempt to ensure the availability of an
adequate and qualified pool of potential employees. Its hiring procedures are
designed to ensure that only the most qualified candidates are offered
employment. The Company offers extensive classroom and on-the-job training
programs for its personnel, including instruction on the businesses of PRC's
clients and proper customer service techniques. Each new customer care associate
receives up to six weeks of training, which provides the skills training he or
she needs to work on a specific, dedicated client program. The Company offers a
benefits package to full-time customer care associates after three to six months
of employment. The Company believes that its careful selection process and
development of its employees results in a high quality, dedicated work force.
The Company also provides a full array of management courses and materials
designed to ensure that its operations and administrative managers receive
continuous and up-to-date training using the latest trends and techniques.
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As of December 31, 1999, the Company had approximately 6,550 full-time
and 95 part-time employees, of which approximately 5,200 of the full-time
employees and 90 of the part-time employees were customer care associates. The
Company believes that its percentage of full-time customer care associates is
high relative to that of its competitors, resulting in greater stability and
quality in its workforce. None of PRC's employees are subject to a collective
bargaining agreement. The Company considers its relations with its employees to
generally be good.
SALES AND MARKETING
The Company's prcnetcare.com and traditional business sales teams are
supported by customer relationship management and e-commerce service
specialists, as well as the general managers and the Information Technology
organization. The account team approach - sales, general managers and
Information Technology specialists - allows the Company to focus on both new and
existing clients as part of its growth plan. The Company believes its reputation
for providing high quality, one-stop solutions has enabled it to obtain new
business through requests for proposals, client referrals and cross-selling
opportunities to existing clients. In addition, the Company's sales team
actively pursues new business opportunities by identifying companies and
industries that are in need of or currently utilize outsourced customer service.
Working with the Information Technology and Internet applications groups, the
sales and marketing team is able to demonstrate to prospective clients the
Company's rapid application development and effective systems integration
capabilities to meet a proposed program's objectives. After an initial request
for proposal is completed, the account team will perform a service and systems
need analysis to determine the feasibility of the opportunity and staffing
assignment. At the conclusion of a successful sales process, a service agreement
is executed between the Company and the client.
CLIENT RELATIONSHIPS
The Company seeks to develop and maintain long-term relationships with
its clients. PRC targets those companies which have the potential for generating
recurring revenues due to the magnitude of their customer service departments or
marketing programs. The Company believes that its clients view PRC as a
strategic partner and a valuable resource in formulating, designing and
implementing their customer service and marketing programs. During 1999, the
Company provided its services to approximately 60 clients in industries such as
telecommunications, financial services, hospitality, transportation and
e-commerce/Internet. The Company's ongoing clients include several business
units of AT&T, American Express, British Airways, DIRECTV, Ryder TRS and
priceline.com's WebHouse Club. The Company's five largest clients accounted for
69% of its total gross revenues for 1999. Revenues generated by the various
business units of AT&T, the Company's largest client, accounted for 42% of gross
revenues for 1999. Besides AT&T, no other client accounted for 10% or more of
total gross revenues for 1999.
Although the Company enters into written contracts with its clients,
generally either party retains the right to terminate on varying periods of
prior notice. The contracts do not assure the Company will generate a specific
level of revenue or designate the Company as the exclusive service provider.
Contracts typically encompass all aspects of the Company's relationship with the
client, together with all applicable charges. The Company's teleservicing
charges are primarily based on a fixed hourly fee for dedicated service. The
Company has also generated teleservicing revenues under incentive-based
compensation agreements whereby the amount of revenue earned correlated to the
achievement of established targets. However, at the end of the third quarter of
1998 the Company made a strategic decision to exit a large incentive-based
outbound teleservices program due to margin constraints and to focus its efforts
on more predictable and profitable programs going forward. This incentive-based
program ended in the fourth quarter of 1998 and PRC's relationship with such
client ended in March 1999.
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<PAGE> 12
Charges for database marketing and management services are based on an
hourly rate or on the volume of information stored. Charges for fulfillment
services are typically assessed on a transaction basis, with an additional
charge for warehousing products for clients. The Company assesses separate
charges for program design, development and implementation, database design and
management, training or retraining of personnel, processing and access fees and
account services, where appropriate.
Billing charges assessed by the Company for Internet customer care and
electronic message servicing are based on hourly rates and on a transaction
basis, respectively, or a combination of charges thereof.
COMPETITION
The interactive customer communications industry in which PRC operates
is very competitive and highly fragmented. PRC's competitors range in size from
very small firms offering specialized applications and short-term projects, to
large independent and international firms and the in-house operations of many
clients and potential clients. In-house interactive customer communications
organizations comprise the largest segment of the industry. The market includes
non-captive interactive customer service operations such as APAC TeleServices,
Convergys Corporation, RMH Teleservices, SITEL Corporation, Sykes Enterprises,
TeleSpectrum Worldwide, TeleTech Holdings and West TeleServices. In addition,
some of PRC's services also compete with other forms of direct marketing such as
mailhouses, television, radio and on-line services. PRC believes that the
principal competitive factors in its industry are a reputation for quality,
sales and marketing results, price, technological expertise and application, and
the ability to promptly provide clients with customized and creative solutions
and approaches to their customer service and marketing needs. The Company
believes that it competes favorably with other companies with respect to the
foregoing factors for large-scale, ongoing customer service and marketing
programs where the principal competitive factor is quality. The Company has not
generally chosen to compete for high-volume outbound marketing programs where
the principal competitive factor is price. Certain competitors may have
capabilities and resources greater than the Company's which might competitively
disadvantage PRC in bidding for very large programs.
GOVERNMENT REGULATION
Telephone sales practices are regulated at both the Federal and state
level. The rules of the Federal Communications Commission (the "FCC") under the
Federal Telephone Consumer Protection Act of 1991 (the "TCPA") prohibit the
initiation of telephone solicitations to residential subscribers before 8:00
a.m. or after 9:00 p.m., local time, and prohibit the use of automated telephone
dialing equipment to call certain telephone numbers. In addition, the FCC rules
require telemarketers to have procedures in place to maintain lists of
residential customers who do not want to receive telephone solicitations and to
avoid making calls to those customers. The FCC rules also prohibit the use of
pre-recorded or artificial voice calls to consumers (with limited exceptions)
and advertising via telephone facsimile machines. The FCC, private individuals
and state attorneys general may seek both injunctive and monetary relief for
violation of these FCC rules. Monetary damages may be awarded for the greater of
actual damages or $1,500 per offense for willful violation of these rules.
The Federal Telemarketing and Consumer Fraud and Abuse Prevention Act
of 1994 (the "TCFAPA") broadly authorizes the Federal Trade Commission (the
"FTC") to issue regulations prohibiting misrepresentation in telephone sales. In
August 1995, the FTC issued rules under the TCFAPA. These rules set forth
disclosure requirements for telemarketers when placing calls, prohibit deceptive
telemarketing acts or practices during solicitation, provide guidelines on
collecting payments by check and credit cards, provide restrictions on abusive
telephone solicitation practices and promulgate certain record keeping
requirements. The FTC, private individuals and state attorneys general may seek
both injunctive and monetary damages for violation of these FTC rules. Penalties
may range up to $10,000 for each intentional violation of these rules.
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<PAGE> 13
The Company believes that it is in compliance with the TCPA and FCC
rules thereunder and with the FTC's rules under the TCFAPA. The Company trains
its customer care associates to comply with the FTC and FCC rules and programs
its call management system to avoid telephone calls during restricted hours or
to individuals maintained on PRC's restricted "do-not-call" list.
Most states have enacted or are considering legislation to regulate
telephone solicitations. For example, some states require telemarketers to be
licensed by state regulatory agencies prior to soliciting purchasers within that
state. Additionally, telephone sales in certain states cannot be final unless a
written contract is delivered to and signed by the buyer and may be canceled
within three business days. At least one state also prohibits telemarketers from
requiring credit card payment and several other states require certain
telemarketers to obtain licenses and post bonds. Penalties for violation of
these state telemarketing regulations vary from state to state and include civil
as well as criminal penalties. From time to time, bills are introduced in
Congress which, if enacted, would regulate the use of credit information. In
addition, legislation could be introduced in the future with respect to the use
of the Internet, including regulations relating to its use in connection with
customer care and service. The Company cannot predict whether any of these types
of legislation will be enacted and what effect, if any, it would have on the
Company or its industry.
The industries served by the Company are also subject to varying
degrees of government regulation. The Company works closely with its clients and
their advisors to develop the scripts to be used by PRC in connection with
making customer contacts. The Company generally requires its clients to
indemnify PRC against claims and expenses arising with respect to the Company's
services performed on its clients' behalf. The Company has never been held
responsible for regulatory noncompliance by a client.
ITEM 2. PROPERTIES
During 1999 the Company completed the transition of its traditional
call centers into customer interaction centers with multimedia capabilities. The
Company had eight such centers in operation as of December 31, 1999. One new
multimedia center was opened during 1999. Additionally, in connection with its
1998 restructuring and performance-enhancing initiatives plan, the Company, as
of December 31, 1999, had relocated all of the ongoing teleservicing programs
from one center (Margate-Coconut Creek) and maintained reduced workstation
capacity in another center (Jacksonville). As of December 31, 1999, the Company
leased and operated the following multimedia centers, all of which are located
in the state of Florida:
APPROXIMATE NUMBER OF
WORKSTATIONS
LOCATION DATE OPENED AT DECEMBER 31, 1999
- ------------------- -------------------- --------------------
Miami (1) July 1992 360
Miami Lakes January 1996 495
Kendall April 1996 413
Orlando June 1996 629
Margate September 1996 644
Miami-Glades (2) December 1996 1,543
Jacksonville February 1997 600
East Kendall August 1999 166
--------------------
4,850
===================
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- ----------
(1) The Company's principal executive offices are also currently
located in this facility.
(2) Certain administrative and operational departments are also
located in this facility.
The leases for these facilities would generally expire between 2004 and
2022 assuming the Company's exercise of all renewal options (see Note 7 - Lease
Commitments of the Notes to Consolidated Financial Statements). However, as a
result of the 1998 restructuring plan, as mentioned above, the Company will
terminate the Jacksonville facility lease agreement no later than the lease
option date in May 2002 (see Note 6 Credit Facilities and Long-Term Debt of the
Notes to Consolidated Financial Statements). The Company will also terminate the
Margate-Coconut Creek facility lease agreement no later than the lease option
date in May 2002. As noted above, the Margate-Coconut Creek facility was no
longer part of the Company's ongoing operations as of December 31, 1999 as the
Company had relocated all of the ongoing teleservicing programs from this center
in connection with the 1998 restructuring plan.
As a result of growth beyond that which could be serviced from existing
sites, the Company will open two new multimedia centers during the first quarter
of 2000. One center is located in Sunrise, Florida, for which the Company
secured a mortgage during the second quarter of 1998 (see Note 6 - Credit
Facilities and Long-Term Debt of the Notes to Consolidated Financial
Statements). The second center, located in Cutler Ridge (Perrine), Florida, is a
subleased facility for which the lease agreement expires in 2007, with two
5-year renewal options. As of January 2000, the Sunrise facility was in
operation and the Cutler Ridge (Perrine) facility is currently expected to
commence operations in March 2000.
On July 20, 1999, the Company executed a ten-year lease agreement with
Crossroads Business Park Associates, which includes options to extend the
initial term of the lease for an additional 15 years. The premises, located in
Plantation, Florida, will be the site of the Company's new principal corporate
offices. Certain terms of the new lease were amended on October 29, 1999, to
provide for additional space. The Company currently expects to fully occupy the
premises by the end of the first quarter of 2000. See Note 7 Lease Commitments
of the Notes to Consolidated Financial Statements.
The Company's fulfillment operations are located in a separate leased
facility in Miami, Florida, consisting of 47,577 square feet, the lease for
which expires in 2001, with a 5-year renewal option. The Company also leases
additional facilities and certain other real property incidental to its
operations. The Company believes that its existing facilities and other real
property are suitable and adequate for its current operations, but additional
facilities may be required to support growth. The Company further believes that
suitable space will be available as needed to expand its business on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
On or about August 26, 1998 a lawsuit was filed in Connecticut,
captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v.
PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No.
3:98-CV-1895-AVC (D. Conn.)). It is currently pending in 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 Amended 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, negligent misrepresentation 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. 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.
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<PAGE> 15
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.
On or about November 5, 1999 a lawsuit, captioned JOSEPH P. RIANO v.
PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID
L. EPSTEIN (Case No. 99-25774 CA 10), was filed in the Circuit Court of the
Eleventh Judicial Circuit in and for Miami Dade-County, Florida. This lawsuit
alleges that the Company misappropriated the plaintiff's alleged trade secret.
The plaintiff asserts a statutory claim against all defendants under the Florida
Uniform Trade Secrets Act, Chapter 688, Florida Statutes. The plaintiff also
asserts a claim against PRC that it breached a contract entered into with the
plaintiff to keep certain information confidential. In addition, the plaintiff
asserts claims for conversion against all of the defendants and for conspiracy
to commit conversion against the individual defendants. The plaintiff also
asserts a claim for unjust enrichment against PRC and prcnetcare.com. The
plaintiff's complaint seeks an unspecified amount of compensatory damages,
including all profits earned by the defendants as a result of their conduct,
exemplary damages, attorneys' fees, interests and costs. The plaintiff also
seeks an accounting and entry of an injunction preventing PRC and prcnetcare.com
from continuing to misappropriate the plaintiff's alleged trade secret.
On January 28, 2000, the court entered an order denying the defendants'
motion to dismiss, with the exception of conspiracy claims against the corporate
defendants, which were dismissed by agreement of counsel. An answer and
affirmative defenses have been filed on behalf of all defendants. The Company
believes that the plaintiff's allegations are totally without merit and intends
to defend the lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of the Company's
security-holders during the quarter ended December 31, 1999.
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<PAGE> 16
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
COMMON STOCK INFORMATION
Since the Company's initial public offering declared effective July 16,
1996 (the "Initial Public Offering"), the common stock of the Company has been
traded on The Nasdaq National Market under the symbol "PRRC." The following
table sets forth, for the calendar quarters indicated, the high and low closing
sale prices of the common stock as reported on The Nasdaq National Market during
such period:
HIGH LOW
1999
First quarter............................. $ 9-5/16 $ 3-5/32
Second quarter............................ 7-3/4 3-1/4
Third quarter............................. 14-5/8 5-7/16
Fourth quarter............................ 29-3/8 11-3/4
1998
First quarter............................. $ 11 $ 7-5/8
Second quarter............................ 9-3/4 5-7/16
Third quarter............................. 8-9/16 3-3/4
Fourth quarter............................ 8-7/8 4-1/4
As of February 15, 2000, there were 21,852,231 shares of the Company's common
stock outstanding held by approximately 56 holders of record. The Company
estimates, based upon information provided by the Company's transfer agent, that
it has approximately 2,500 beneficial owners of its common stock as of February
15, 2000.
DIVIDEND POLICY
The Company currently intends to retain future earnings to finance its
growth and development and therefore does not anticipate paying any cash
dividends in the foreseeable future. In addition, the Company's revolving credit
facility prohibits the payment of cash dividends by the Company. Payment of any
future dividends will depend upon the future earnings and capital requirements
of the Company and other factors which the Company's Board of Directors
considers appropriate.
Prior to the consummation of the Initial Public Offering, the Company's
Board of Directors declared a cash dividend (the "Dividend") to the then current
stockholders of the Company of approximately $5,243,000. The Dividend was equal
to the Company's estimate of its cumulative taxable income prior to the
Company's conversion from an S corporation to a C corporation immediately prior
to the consummation of the Initial Public Offering, to the extent such taxable
income had not previously been distributed. The Dividend was subject to
adjustment based upon actual cumulative taxable income as finally determined
based on the Company's final tax return as an S corporation. During the second
quarter of 1997, the Company's final tax return as an S corporation was
completed and filed. As a result, an additional $174,000 was paid to the
Company's existing shareholders prior to the Initial Public Offering as a final
distribution of the Company's accumulated taxable income prior to conversion to
C corporation status. No cash dividends were paid to the shareholders in 1998 or
1999. See Note 11 - Capital Stock of the Notes to Consolidated Financial
Statements.
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<PAGE> 17
RECENT SALES OF UNREGISTERED SECURITIES
The Company did not issue or sell any unregistered securities during
the quarter ended December 31, 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 93,500 shares of Common
Stock to 50 employees at an exercise price of $12.59 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 (November 3, 1999).
(ii) The Company granted options to purchase 2,500 shares of Common
Stock to an employee at an exercise price of $12.47 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 (November 16, 1999).
(iii) The Company granted options to purchase 25,000 shares of Common
Stock to an independent contractor at an exercise price of $12.47
per share. These options have a term of seven years and vest at
the rate of 33%, 33% and 34%, respectively, on each of the first
three anniversaries from the date of grant (November 16, 1999).
(iv) The Company granted options to purchase 47,975 shares of Common
Stock to each of two executive officers and 52,772 shares of
Common Stock to another executive officer at an exercise price of
$24.72 per share. These options have a term of seven years and
vest at the rate of 33%, 33% and 34%, respectively, on each of
the first three anniversaries from the date of grant (December
31, 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.
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<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
The following Selected Financial Data of the Company as of and for the
years-ended 1995 through 1999 has been derived (except for Other Data) from the
audited consolidated financial statements of the Company. Such data is qualified
by reference to and should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements (the "Financial Statements") and the Notes to Consolidated
Financial Statements included elsewhere in this report. See also Note 16 -
Unaudited Quarterly Financial Data of the Notes to Consolidated Financial
Statements for certain financial information presented on a quarterly basis for
1999 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1999 1998(7) 1997(7) 1996 1995
------------- ------------ ------------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
(FOR THE FISCAL YEAR):
REVENUES ................................ $ 215,920 $ 175,173 $ 143,584 $ 97,637 $ 30,204
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of services ................... 177,668 153,638 128,177 71,345 21,212
Selling, general and
administrative expenses ........ 23,249 23,290 25,874 14,727 7,164
Restructuring and asset
impairment charges ............. -- 13,583 11,591 -- --
------------ ------------ ------------ ------------ ------------
Total operating expenses ....... 200,917 190,511 165,642 86,072 28,376
============ ============ ============ ============ ============
Operating income (loss) ........ $ 15,003 $ (15,338) $ (22,058) $ 11,565 $ 1,828
============ ============ ============ ============ ============
NET INCOME (LOSS)(1) ................... $ 8,291 $ (10,189) $ (13,066) $ 7,850 $ 1,456
============ ============ ============ ============ ============
PROFORMA DATA (UNAUDITED)(1):
Income before proforma
income taxes ................... $ 10,877 $ 1,456
Proforma provision for income
taxes relating to corporation 4,358 619
------------ ------------
PROFORMA NET INCOME .................... $ 6,519 $ 837
============ ============
COMMON STOCK DATA(2):
Net income (loss) per common
share(diluted) .................. $ 0.37 $ (0.47) $ (0.61)
Proforma net income per common
share (diluted)(1)(3)(4)(5) ..... $ 0.36 $ 0.05
Book value per share(5) .............. $ 4.14 $ 3.68 $ 4.15 $ 2.65 $ 0.17
Number of shares outstanding
(at year-end)(5) ................ 21,794,400 21,549,000 21,542,000 20,000,000 16,400,000
Weighted average number of common
shares outstanding (diluted)(3).. 22,445,156 21,547,981 21,392,814 18,171,000 16,527,061
FINANCIAL POSITION(2):
(AT YEAR-END):
Working capital ..................... $ 21,288 $ 22,019 $ 23,521 $ 11,849 $ 1,365
Current ratio ....................... 1.63X 1.65x 1.68x 1.40x 1.23x
Property and equipment, net ......... $ 88,109 $ 71,414 $ 63,301 $ 42,034 $ 5,284
Total assets ........................ $ 149,363 $ 133,446 $ 127,413 $ 88,415 $ 12,713
Long-term obligations, less
current maturities(6) ........... $ 23,425 $ 16,916 $ 3,493 $ 4,190 $ 3,924
Shareholders' equity ................ $ 90,283 $ 79,359 $ 89,440 $ 52,950 $ 2,816
OTHER DATA:
(AT YEAR-END):
Number of workstations .............. 4,850 4,500 4,500 3,220 550
Number of call renters .............. 8 8 8 8 2
</TABLE>
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- ----------
(1) Prior to the Company's Initial Public Offering on July 16, 1996, the
Company was an S corporation and not subject to Federal and state corporate
income taxes. On July 16, 1996, the Company revoked its S election and
changed its tax status from an S corporation to a C corporation, recorded
deferred income taxes totaling $90,000 and began providing for Federal and
state corporate income taxes from and including that date. The summary of
operations data reflects a proforma provision for income taxes as if the
Company were subject to Federal and state corporate income taxes for all
years. This proforma provision for income taxes is computed using a
combined Federal and state tax rate of 37.6%.
(2) Effective January 29, 1997 (the actual closing date was February 4, 1997),
the Company and certain selling shareholders completed a second equity
offering of 4,740,000 shares of common stock at an offering price of
$35.125 per share (the "Second Equity Offering"). Of the 4,740,000 shares,
1,500,000 shares were sold by the Company. See Note 2 - Public Offerings of
the Notes to Consolidated Financial Statements.
(3) The actual weighted average number of common shares outstanding for the
years ended December 31, 1996 and 1995 were 18,013,115 and 16,400,000,
respectively, after giving effect to the stock splits effected by way of
share dividends discussed in note (5) below. However, as required by
generally accepted accounting principles, the weighted average number of
common shares outstanding has been increased by 127,061 shares (weighted
for the applicable period), which shares are not actually outstanding. This
number is equal to the number of shares which, when multiplied by $14.50
per share (the price in the Initial Public Offering), would have been
sufficient to replace the amount of the Dividend in excess of proforma
earnings for the 12 months ended June 30, 1996.
(4) Supplemental proforma net income per common share would have been $0.36 per
share and $0.06 per share for the years ended December 31, 1996 and 1995,
respectively, giving effect to the use of a portion of the net proceeds of
the Initial Public Offering to repay the Company's bank borrowings at
January 1, 1995, and assuming an increase in the weighted average number of
common shares outstanding to 18,285,311 and 16,729,131, respectively (based
on the price in the Initial Public Offering of $14.50 per share).
(5) Includes a retroactive adjustment for stock splits effected by way of share
dividends. On May 31, 1996, the Company declared a share dividend of an
aggregate of 12,734,900 shares of common stock, $0.01 par value,
immediately payable to its shareholders of record in order to effect the
equivalent of a 127,350-for-1 stock split to increase the number of shares
of common stock outstanding from 100 shares to 12,735,000 shares. On June
20, 1996, the Company declared a share dividend of an aggregate total of
3,665,000 shares of common stock, $0.01 par value, immediately payable to
its shareholders of record in order to effect the equivalent of a
1.287789556-for-1 stock split to increase the number of shares of common
stock outstanding from 12,735,000 shares to 16,400,000 shares.
(6) Long-term obligations for 1999 and 1998 consist of the outstanding balance
of the Company's revolving credit facility as of that year then ended,
mortgage loan payable to the lender on the revolving credit facility,
capital lease obligations and other long-term obligations, all of which are
described more fully in Note 6 - Credit Facilities and Long-Term Debt of
the Notes to Consolidated Financial Statements. Long-term obligations for
1997 and 1996 consist only of capital lease obligations. For the year-ended
1995, long-term obligations consist of capital lease obligations, a note
payable to a bank, certain installment loans and the outstanding balance of
the Company's revolving credit loan as of that year then ended.
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<PAGE> 20
(7) Includes special charges of $22.1 million and $26.2 million before taxes in
1998 and 1997, respectively, described more fully in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Overview and Basis of Presentation" and Note 3 - Restructuring and Other
Non-Recurring Special Charges of the Notes to Consolidated Financial
Statements.
20
<PAGE> 21
ITEM 7. 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 "Selected Financial
Data," the Financial Statements and the Notes to Consolidated Financial
Statements.
OVERVIEW AND BASIS OF PRESENTATION
The Company is a full-service provider of outsourced customer care,
utilizing a fully-integrated mix of traditional call center and e-commerce
customer care solutions and services to large corporations and high-growth
Internet-focused companies. Through the integration of its teleservicing,
e-commerce customer care services, Information Technology, which includes
database marketing and management, and fulfillment capabilities, the Company is
able to offer a total customer relationship solution to meet its clients' needs.
The Company's primary source of revenue is teleservicing activities
which are comprised of both inbound (customer-initiated) and outbound calls. The
majority of teleservicing revenues are derived from inbound calls, which
represented 94% of teleservicing revenues and 83% of total revenues in 1999 and
86% of teleservicing revenues and 68% of total revenues in 1998. Inbound
teleservicing consists of longer-term customer care and customer service
programs that tend to be more predictable than other teleservicing revenues.
Outbound teleservicing, as performed by the Company, is generally in response to
customer-initiated inquiries or a follow-up to an inbound call. Outbound
teleservicing may be 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).
During 1999, the Company continued its strategic initiatives to
capitalize on the extraordinary growth of Internet commerce by integrating
Internet technologies with current PRC products and services to, in effect,
create multimedia customer interaction centers. In 1999, the Company continued
to make advances in the development and marketing of the Internet-based and
e-commerce services offered by PRCNETCARE.COM(SM), its Internet-based customer
service subsidiary. PRCNETCARE.COM is dedicated to developing and providing a
total customer care solution for companies conducting business over the
Internet. During 1999, its first year of operation, PRCNETCARE.COM generated
revenues of approximately $6.7 million. PRCNETCARE.COM currently offers two
lines of products and services: InfiniteAccess and Precision Resolution.
The InfiniteAccess suite of products and services enable 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 collaborative service enabling the Company's customer care associates to
simultaneously interact with clients' customers live over the telephone and the
Web; PRC Internet Fulfillment Service, an e-mail and Web-based fulfillment
process that supports e-commerce transactions or information requests; and PRC
Host, a Web application hosting service and Web 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.
Precision Resolution is an error resolution and record standardization
system for information transferred electronically or over the Internet that
allows for the automated collection, resolution, monitoring and reporting of
faulty records from highly transactional, relational databases on a real-time
basis. Precision Resolution provides solutions for several critical business
problems to both on-line and traditional companies.
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<PAGE> 22
The Company offers a wide variety of Information Technology services
including formulating, designing and customizing teleservicing and electronic
applications, programming, and demographic and psychographic profiling. The
Company employs Information Technology specialists who design, develop and
manage applications for each client's unique customer service and marketing
programs.
Fulfillment services include high-speed laser and electronic document
printing, lettershop and automated mailing and pick and pack capabilities. While
fulfillment services represent a relatively small portion of the Company's total
revenues, they enable the Company's to support full-service customer care and
marketing programs by managing and fulfilling requests for literature, products
and other specialty items and by permitting the rapid distribution of client
marketing information and products. The fulfillment operation was upgraded in
1999 to include e-mail and Web-based tracking and order-entry communications.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data,
as a percentage of revenues, for the years indicated (and includes the impact of
restructuring and non-recurring special charges during 1998 and 1997 as
discussed below):
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
SELECTED OPERATING RESULTS:
Revenues..................................................... 100.0% 100.0% 100.0%
Cost of services............................................. 82.3 87.7 89.3
------------- ----------- -----------
Gross margin............................................. 17.7 12.3 10.7
Selling, general and administrative expenses................. 10.8 13.3 18.0
Restructuring and asset impairment charges................... -- 7.8 8.1
------------- ----------- -----------
Operating income (loss).................................. 6.9% (8.8)% (15.4)%
============= =========== ===========
</TABLE>
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, consolidating and making adjustments to certain
call centers' workstation capacity 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 connection with
the Company's decision to exit the incentive-based outbound teleservicing
program and to make call center capacity adjustments, certain reductions in
overhead and administrative headcount were also made resulting in the
termination of nine employees. 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.
The charges to earnings are included in the following categories in the
accompanying Consolidated Statements of Operations for the year ended December
31, 1998:
<TABLE>
<CAPTION>
AFTER-TAX PER
PRE-TAX DOLLAR SHARE
AMOUNT (DILUTED)
(IN MILLIONS) AMOUNT
------------------- ------------------
<S> <C> <C>
Restructuring and asset impairment charges................... $ 13.6 $ (0.39)
Cost of services............................................. 2.3 (0.07)
Selling, general and administrative expenses................. 6.2 (0.18)
------------------- ------------------
Total.............................................. $ 22.1 $ (0.64)
=================== ==================
</TABLE>
22
<PAGE> 23
During the third quarter of 1997, the Company initiated an extensive
and systematic review of its operations and cost structure in response to
inefficiencies primarily resulting from the addition of capacity and
infrastructure to accommodate a contract for its largest client that had been
delayed indefinitely and an across-the-board price reduction imposed by this
client. As a result of this review, the Company announced a major restructuring
and cost reduction plan designed to reduce its cost structure and adjust its
infrastructure to significantly improve operating efficiencies and performance
as the Company sought to shift its customer base to a more diversified
portfolio. In adopting this plan, the Company recorded non-recurring
restructuring and other special charges of approximately $26.2 million in the
third quarter of 1997 with an after-tax impact of $15.7 million. The charges to
earnings are included in the following categories in the accompanying
Consolidated Statements of Operations for the year ended December 31, 1997:
<TABLE>
<CAPTION>
AFTER-TAX PER
PRE-TAX DOLLAR SHARE
AMOUNT (DILUTED)
(IN MILLIONS) AMOUNT
------------------- ------------------
<S> <C> <C>
Restructuring and asset impairment charges................... $ 11.6 $ (0.32)
Cost of services............................................. 7.8 (0.22)
Selling, general and administrative expenses................. 6.8 (0.19)
------------------- ------------------
Total.............................................. $ 26.2 $ (0.73)
=================== ==================
</TABLE>
See Note 3 - Restructuring and Other Non-Recurring Special Charges of
the Notes to Consolidated Financial Statements for further discussion of the
non-recurring special charges in 1998 and 1997.
1999 vs. 1998
REVENUES
During 1999, revenues increased by $40.7 million to $215.9 million, or
23.3%, in comparison to the prior year. The principal components of revenues are
teleservicing activities (representing 88.8% of revenues in 1999), Information
Technology services (representing 8.3% of revenues in 1999) and fulfillment
services (representing 2.9% of revenues in 1999).
The Company had eight multimedia customer interaction centers and
approximately 4,850 workstations in operation as of December 31, 1999, and eight
centers and approximately 4,500 workstations in operation as of December 31,
1998. In connection with its 1998 restructuring and performance-enhancing
initiatives plan, the Company, as of December 31, 1999, had relocated all of the
ongoing teleservicing programs from one center and maintained reduced
workstation capacity in another center. This relocation and elimination was
offset during 1999 by the expansion of workstations and capacity in existing
centers and the opening of a small multimedia customer interaction center. The
Company is continuing to expand workstation capacity in its existing sites to
meet current capacity needs. However, due to continued growth, the Company
opened an additional center in January 2000 at the facility that the Company
owns in Sunrise, Florida and expects to open one more center in March 2000. As
of December 31, 1999, the Company's workstation utilization rate was
approximately 91%.
During 1999, the Company generated revenue from several new clients,
including several new business units of its largest client, a telecommunications
company, as well as a company that markets, distributes and produces bottled and
canned liquid nonalcoholic refreshments, a leader in the deployment of enhanced
telecommunications and interactive information systems, a major national
wireless service provider, and a financial services company. In addition, during
1999, PRCNETCARE.COM introduced new clients in the e-commerce/Internet industry,
including one of the nations largest Internet e-commerce companies. Overall, new
client business accounted for $23.0 million, or 10.6%, of revenues for 1999.
23
<PAGE> 24
Teleservicing activities accounted for the majority of the revenue
growth during 1999. Revenues from teleservicing activities in 1999 were $191.8
million, representing an increase of $51.5 million, or 36.7%, over 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 as described above. Revenues from the Company's largest
client accounted for 42% of total revenues for 1999, down from 45% for 1998.
Besides the Company's largest client, no other client accounted for 10% or more
of total revenues in 1999. Generally, teleservicing revenues are earned on a
rate-per-hour basis. However, during 1998, approximately 10% of total revenues
were earned under an incentive-based compensation arrangement. As discussed
above, the Company made a strategic decision to exit this incentive-based
outbound teleservices program at the end of the third quarter of 1998 and ceased
earning revenues under such program during the fourth quarter of 1998.
Revenues from Information Technology services for 1999 were $17.8
million, representing an increase of $1.7 million, or 10.6%, from 1998. The
increase was primarily attributable to Information Technology services provided
as a result of the addition of new clients and growth in the Company's
relationships with existing clients, partially offset by Information Technology
services provided to a certain client during the second quarter of 1998 compared
to no such services provided to this client in 1999.
Revenues from Internet-based customer care services for 1999, in
connection with PRCNETCARE.COM'S first year of operations, were approximately
$6.7 million, and are included in revenues from teleservicing and Information
Technology services noted above. PRCNETCARE.COM continues to develop client
relationships with existing clients, as well as new Internet-focused companies.
Revenues from fulfillment services for 1999 were $6.3 million,
representing a decrease of $12.5 million, or 66.5%, from the prior year.
Revenues from fulfillment services for 1998 included fulfillment services
provided in connection with the incentive-based outbound teleservices program
discussed above, which also included several fulfillment services.
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
customer interaction 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 year ended December 31, 1999 were $177.7 million. Excluding
the impact of the restructuring and non-recurring special charges during 1998,
this represented an increase of $26.4 million, or 17.4%, over 1998, 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
$6.9 million for the year ended December 31, 1999.
Excluding the impact of restructuring and non-recurring special
charges, the decrease in cost of services, as a percentage of revenues, from
86.4% in 1998 to 82.3% for 1999 is primarily attributable to the Company's
continued focus on increasing cost efficiencies and operating leverage during
1999, as well as the Company's continued improvement in the utilization of
workstation capacity. The decrease is also attributable to the Company's less
than satisfactory operating results generated by the incentive-based outbound
teleservices program in 1998. As described above, the Company exited the
incentive-based outbound teleservices program in the fourth quarter of 1998.
24
<PAGE> 25
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 year ended
December 31, 1999 were $23.2 million. Excluding the impact of restructuring and
non-recurring special charges during 1998, this represented an increase of $6.2
million, or 36.1%, over 1998. A portion of this increase is due to the Company's
continued investment in the development, sales and marketing of PRCNETCARE.COM,
resulting in SG&A of approximately $2.8 million during 1999. The remainder of
the increase is principally due to the Company's growth in operations, including
an increase in commissions, as well as the addition of certain management
positions during 1999 and annual salary increases.
Excluding the impact of restructuring and non-recurring special charges
during 1998, SG&A, as a percentage of revenues, increased from 9.8% for 1998 to
10.8% for 1999. This increase is principally a result of the development, sales
and marketing of PRCNETCARE.COM, as well as an increase in commissions and the
addition of certain management positions during 1999.
INTEREST, NET
Interest expense, net of interest income and capitalized interest, was
$1.1 million for 1999 compared to $789,000 for 1998. The increase in net
interest expense is a result of increased borrowings under the Company's
revolving credit facility in 1999, partially offset by the capitalization of
certain interest costs that were incurred as a result of borrowings used to
partially fund the Company's PRISM Project and the development of internal use
software. (See Note 5 - Property and Equipment of the Notes to Consolidated
Financial Statements.)
INCOME TAXES
The Company had a net deferred tax asset of $7.5 million at December
31, 1999 and $12.4 million at December 31, 1998. The net deferred tax asset in
the amount of $7.5 million at December 31, 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 (LOSS) AND NET INCOME (LOSS) PER SHARE
For the fiscal year ended December 31, 1999, net income was $8.3
million compared to net income of $3.6 million, excluding the impact of
restructuring and non-recurring special charges, for the comparable period of
1998. Net income per common share for 1999 was $0.37, compared to net income per
common share of $0.17, excluding the impact of restructuring and non-recurring
special charges, for 1998. After giving effect to the impact of restructuring
and non-recurring special charges, net loss for 1998 was $10.2 million and net
loss per share for 1998 was $(0.47).
25
<PAGE> 26
1998 vs. 1997
REVENUES
During 1998, revenues increased by $31.6 million to $175.1 million, or
22%, in comparison to the prior year. The principal components of revenues are
teleservicing activities (representing 80% of revenues in 1998) and fulfillment
services (representing 11% of revenues in 1998), with the remaining 9% of 1998
revenues primarily represented by Information Technology services. The Company
had approximately 4,500 workstations in operation as of both December 31, 1998
and 1997. As of December 31, 1998 and 1997, the Company was operating at
approximately 78% and 55%, respectively, of full utilization of these
workstations.
During 1998, the Company generated several new client opportunities.
The Company commenced both customer care services and use of its proprietary,
automated error resolution system, Precision Resolution, for a large east
coast-based utility company. The Company also began a database, telemarketing
and fulfillment services program targeting information technology professionals
for an international manufacturer and provider of computer products and
services.
Teleservicing activities accounted for the majority of the revenue
growth during 1998 with an increase of $34.6 million, or 33%, to $140.3 million
in 1998. Major factors contributing to the increase in teleservicing revenues
were the addition of several new programs for existing clients as well as the
addition of new clients, principally in the utility, computer products and
services and financial services industries. Overall, new client business
accounted for $16.7 million, or 10%, of total revenues for 1998, while revenues
from the Company's largest client accounted for 45% of total revenues, up from
38% for 1997. Generally, teleservicing revenues are earned on a rate-per-hour
basis. However, during 1998 and 1997, approximately 10% of total revenues were
earned under incentive-based compensation agreements.
Revenues from fulfillment services for 1998 were $18.8 million, an
increase of $4.1 million, or 28%, from the prior year. The increase is
reflective of fulfillment services provided in connection with the
incentive-based outbound teleservices program which was exited in the fourth
quarter of 1998.
Revenues from Information Technology services for 1998 were $16.1
million, a decrease of $7.2 million, or 31%, from 1997. The decrease was
primarily attributable to the transfers of teleservicing-based application
software totaling $9.8 million in 1997, compared with no such transfers in 1998,
offset by an increase in traditional Information Technology services revenues in
1998. Transfers of teleservicing-based application software produce
substantially higher margins than other Information Technology services (which
involve the development of unique, individual customer-based applications). Due
to the substantially higher margins on these transfers, the Company's operating
results can be significantly impacted based upon the Company effecting these
transactions in any period.
COST OF SERVICES
Cost of services, excluding the impact of restructuring and
non-recurring special charges, increased by $30.9 million, or 25.7%, to $151.3
million in 1998, principally as a result of the growth in operations. Including
the impact of the restructuring and non-recurring special charges of $2.3
million in 1998 and $7.8 million in 1997, cost of services increased by $25.5
million, or 19.9%, to $153.6 million in 1998.
Excluding the impact of restructuring and non-recurring special
charges, the increase in cost of services, as a percentage of revenues, from
83.8% in 1997 to 86.4% in 1998 is primarily attributable to the Company's
expansion of its infrastructure in 1997 and the resultant excess capacity
together with lower than expected yield on incentive-based programs and higher
26
<PAGE> 27
wage rates paid in call centers in strained labor markets in 1998. Approximately
1,280 workstations were added in two call centers opened during the first six
months of 1997. The opening of these new call centers, and the related increase
in workstation capacity, was carried out primarily in anticipation of providing
increased services to the Company's largest client. This increase in services
did not materialize leaving the Company with excess capacity and a higher than
desired fixed cost structure. Additionally, the Company's largest client
instituted an across-the-board price reduction in the third quarter of 1997.
Cost of services, as a percentage of revenues, including the impact of
restructuring and non-recurring special charges, decreased from 89.3% in 1997 to
87.7% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A, excluding the impact of restructuring and non-recurring special
charges, decreased $2.0 million, or 10.4%, to $17.1 million in 1998. The
decrease is indicative of the Company's successful implementation of its
cost-cutting initiatives associated with the restructuring plans announced in
the third quarters of 1997 and 1998 along with management's efforts to postpone,
or temporarily reduce, non-revenue-producing expenditures, whenever possible.
Including the impact of restructuring and non-recurring special charges of $6.2
million in 1998 and $6.8 million in 1997, SG&A decreased by $2.6 million, or
10.0%, to $23.3 million in 1998.
As a percentage of revenues, excluding the impact of restructuring and
non-recurring special charges, SG&A decreased from 13.3% in 1997 to 9.8% in
1998. This decrease is a result of increased revenues during 1998 coupled with
the cost-cutting initiatives and the postponement or reduction of expenditures.
SG&A, as a percentage of revenues, including the impact of restructuring and
non-recurring special charges, decreased from 18.0% in 1997 to 13.3% in 1998.
INTEREST, NET
Interest expense, net of interest income and capitalized interest, was
$789,000 for 1998 compared to net interest income of $282,000 for 1997. During
1997, the Company generated interest income from the investment of a portion of
the net proceeds from the Second Equity Offering and had an absence of
borrowings under its revolving credit facility, while during 1998 the Company
incurred interest charges from borrowings on its revolving credit facility.
INCOME TAXES
The Company had a deferred tax asset of $12.4 million at December 31,
1998 and $6.4 million at December 31, 1997. The net deferred tax asset at
December 31, 1998 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.
NET LOSS AND NET LOSS PER SHARE
For the fiscal year ended December 31, 1998, the net loss was $10.2
million compared to the net loss of $13.1 million for the comparable period of
1997, including the impact of restructuring and non-recurring special charges as
set forth in the next paragraph. The net loss per share for 1998 was $0.47,
compared to the net loss per share of $0.61 in 1997, including the impact of
restructuring and non-recurring special charges as set forth in the next
paragraph.
The net loss and net loss per share amounts associated with the
restructuring and non-recurring special charges were $13.8 million and $0.64,
respectively, for the fiscal year ended December 31, 1998, and $15.7 million and
$0.73, respectively, for the fiscal year ended December 31, 1997. See Note
3-Restructuring and Other Non-Recurring Special Charges of the Notes to
Consolidated Financial Statements for further discussion of the restructuring
and non-recurring special charges.
27
<PAGE> 28
For the fiscal year ended December 31, 1998, excluding the impact of
restructuring and non-recurring special charges, net income was $3.6 million
compared to net income of $2.6 million for the comparable period of 1997.
Excluding the impact of restructuring and non-recurring special charges, net
income per share for 1998 was $0.17 compared to net income per share of $0.12
for 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1999 and 1998, the Company funded its operations and capital
expenditures primarily through cash flows from operations and 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 to increase the amount available under the credit facility
to $35.0 million through January 31, 2000. The $25.0 million revolving credit
facility was further amended effective December 31, 1999 (the "Credit Facility")
to extend the $35.0 million amount available through February 29, 2000. In
addition, the amount available under the Credit Facility will be increased to
$50.0 million for the period of time between March 1, 2000 and June 30, 2000,
subject to certain limitations (including a borrowing base limitation) and
satisfactory completion of the lender's audit of the Company's books and records
and operations. Effective as of July 1, 2000, the amount available under the
Credit Facility reverts back to $25.0 million. The December 31, 1999 amendment
also extended the maturity date of the Credit Facility to June 30, 2001. 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 December
31, 1999, with the lender on its Credit Facility in connection with the
acquisition of a property (land and existing building) located in Sunrise,
Florida, which in January 2000 was opened as a customer interaction center by
the Company. 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 interior improvements to the property
by March 2, 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 December 31, 1999, the Company had cash and cash equivalents of $2.1
million and total long-term obligations (including current maturities thereof)
of $25.1 million. Net cash provided by operating activities was $26.6 million
for 1999, while $3.0 million of net cash was provided by operating activities in
1998 and $8.7 million of net cash was used in operating activities in 1997. The
increase in net cash provided by operating activities between 1999 and 1998 was
primarily attributable to the increase in net income in 1999 before non-cash
charges, a significantly lower change in accounts receivable balances in 1999 as
compared to 1998 as a result of increased collection efforts and the
implementation of an integrated billing system, and improved capacity
utilization, partially offset by the Company's receipt of income tax refunds in
1998. The decrease in cash used in operating activities from 1997 to 1998 was
primarily attributable to the Company's receipt of income tax refunds and the
increase in net income after non-cash charges (depreciation and amortization,
provision for bad debts and sales allowances, restructuring and asset impairment
charges, and deferred income taxes) in 1998 partially offset by the Company's
investment in working capital.
The Company's working capital as of December 31, 1999 and 1998 was
$21.3 million and $22.0 million, respectively. The slight decrease in 1999 from
1998 was primarily due to higher deferred current tax assets in 1998 compared to
1999 generated by the Company's net loss position for 1998 offset by increases
in accounts receivable in 1999 due to the Company's growth in operations.
28
<PAGE> 29
Net cash used in investing activities in the amounts of $33.8 million,
$24.9 million and $34.1 million in 1999, 1998 and 1997, respectively, was
principally for capital expenditures. Additionally, in 1999, investing
activities included an investment in Global Reservation Systems, Inc. ("GRS"), a
West Coast firm specializing in Internet-based travel products and service
systems, at an aggregate cost of $1.6 million which is described in further
detail in Note 4 - Investment in Unconsolidated Affiliate of the Notes to
Consolidated Financial Statements.
Capital expenditures, including the capitalized value of property and
equipment, were $32.1 million, $24.9 million and $35.9 million for 1999, 1998
and 1997, respectively. Capital expenditures for 1999 relate primarily to costs
incurred for the expansion of workstations in existing facilities as well as new
customer interaction centers to accommodate the award of new and existing client
programs. The Company opened one new center during 1999, an additional center in
January 2000 and will open another additional center in March 2000. Capital
expenditures in 1999 also include costs incurred for the PRISM Project, IMA
Advantage/Edge, Advanced Communications Network ("ACN"), and PRCNETCARE.COM
product and service offerings, all of which are discussed below. Capital
expenditure for 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 1997 were primarily for
telecommunications and computer equipment principally attributable to the large
increase in the Company's total workstation capacity and leasehold improvements
for the new call centers to house the additional workstations. In 1997, the
Company opened one new call center in both the first and second quarters of
1997, while one small call center was converted into administrative offices in
the first quarter of 1997 and another call center was closed during the third
quarter of 1997 as part of the Company's restructuring plan. As a result,
workstation capacity increased from approximately 3,200 workstations as of
December 31, 1996 to approximately 4,500 workstations as of December 31, 1997.
During the first quarter of 1998, the Company began its implementation
of an Enterprise Resource Planning ("ERP") solution, which allows for all
internal systems (including those related to billing, payroll, client
profitability management, human resource management, inventory and purchasing
management, and general ledger) to be fully integrated into a common platform.
The Company designated its ERP implementation as the PRISM Project. The PRISM
Project utilized both internal resources as well as outside consultants to allow
for a quick and efficient implementation. As of December 31, 1999, all modules
of the PRISM Project had been placed in service. The cost of full
implementation, including software, hardware, consulting fees and internal
resources, was approximately $12.8 million and has been capitalized in
accordance with the provisions of AICPA Statement of Financial Position 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE ("SOP 98-1"). See Note 1 - Operations and Significant Accounting Policies
and Note 5 - Property and Equipment of the Notes to Consolidated Financial
Statements.
29
<PAGE> 30
During the fourth quarter of 1999, the Company completed the
implementation of IMA Advantage/Edge, a third party customer interaction
software product that utilizes advanced customer care technology, during the
fourth quarter of 1999. The cost of full implementation, including software,
hardware, consulting fees and internal resources, was approximately $7.7 million
and has been capitalized in accordance with SOP 98-1. Additionally, the Company
is developing technology that will enhance its virtual call center capabilities.
This project, ACN, will allow integration of multiple centers via private voice
line connections. This configuration will allow the Company to move customer
programs from one location to another and will provide redundancy and disaster
recovery solutions for clients. As of December 31, 1999, the Company had
invested approximately $3.0 million in ACN, primarily consisting of the purchase
of a third party software. Full implementation of this project, including third
party's software and internal development and resources, is currently estimated
to cost approximately $5.0 million and is expected to take place during the
third quarter of 2000. See Note 5 - Property and Equipment of the Notes to
Consolidated Financial Statements.
In connection with PRCNETCARE.COM, the Company expects through 2000 to
continue its investment in developing and enhancing software products and
technology infrastructure to accommodate Internet-based interactive customer
communications.
Net cash provided by financing activities was $7.6 million, $12.5
million and $46.6 million in 1999, 1998 and 1997, respectively. Financing
activities for 1999 and 1998 are principally comprised of net borrowings under
the Company's Credit Facility. In addition, included in net cash provided by
financing activities in 1998 are the proceeds from the mortgage loan for the
land and building located in Sunrise, Florida. In 1997, the Company raised
additional capital from the Second Equity Offering and used a portion of the net
proceeds provided by such offering principally to fund anticipated workstation
capacity growth
The Company believes that funds generated from operations, available
borrowings under the Credit Facility (assuming that the amount available under
the Credit Facility would remain at the $50.0 million level throughout 2000 and
not revert to $25.0 million on July 1, 2000 as currently provided under the
Credit Facility) and capital lease financings will be sufficient to finance its
planned capital expenditures at least through 2000. 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 available borrowings under the Credit
Facility would revert to $25.0 million or funds generated from the sources
described above are otherwise 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 financing. No assurance can be given that additional financing
will be available or that, if available, it will be 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.
During 1998 and continuing in 1999, the Company evaluated its installed
computer systems, network elements, software applications and other business
systems that have time-sensitive programs and developed a plan to ensure their
Year 2000 compliance. The Company established a Year 2000 Compliance Team that
monitored the progress and status of the Company's Year 2000 plan. The Company's
Year 2000 plan was divided into seven major sections: Internal Systems and
30
<PAGE> 31
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 involved 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.
As of the end of the third quarter of 1999, the Company had completed
all phases of its Year 2000 plan and the Company continued to monitor its Year
2000 plan throughout the remainder of 1999. Through December 31, 1999, the
Company had spent approximately $1.5 million on the Year 2000 issue. As the
Company did not, nor does it expect to, experience significant systems or other
Year 2000 problems at or after the turn of the millennium, the Company does not
currently expect to incur any significant additional costs related to its Year
2000 efforts. All incremental costs associated with the Year 2000 issue have
been expensed as incurred.
Since the Year 2000 issue may also affect the systems and applications
of the Company's customers or suppliers, the Company initiated formal
communications with its customers and suppliers during 1998 and 1999 to
determine their overall Year 2000 readiness and the extent to which the
Company's interface systems were vulnerable to those third parties' failure to
remediate their own Year 2000 issues. The Company did not experience any
material adverse impact on its operations during the beginning of 2000 as a
result of Year 2000 issues of its customers or suppliers. However, as not all
Year 2000 issues will necessarily surface during the beginning of 2000, no
assurance can be given that one or more of its major suppliers or customers will
not encounter future Year 2000 problems which could have a material adverse
impact on its operations.
The extent of the Company's future Year 2000 exposure is based on
management's knowledge to date. Although the Company does not expect any Year
2000 issues to surface in the future, there is no guarantee that this will be
achieved. Specific factors that give rise to this uncertainty include, but are
not limited to, availability and cost of personnel, failure to identify and
correct all Year 2000 susceptible systems and applications, future Year 2000
problems encountered by customers, suppliers and other third parties whose
systems and operations impact the Company, and other similar uncertainties.
The Company has not developed post-2000 contingency plans in the
unlikely event that the uncertainties described above do in fact occur as
management currently believes that the probability of such an event and the
magnitude of its impact on operations is insignificant. The Company will,
however, continue to assess the need for a formal post-2000 contingency plan and
make a determination as to the nature and scope of its post-2000 contingency
plan, if required, based on the occurrence of Year 2000 issues in the future (if
any).
IMPACT OF INFLATION
Inflation has not had a material impact upon operating results, and the
Company does not expect it to have such an impact in the future. To the extent
the Company experiences cost increases and is not able to increase its billing
rates to offset the costs, such cost increases must be recovered through
operating efficiencies and improved gross profit margins. However, there can be
no assurance that the Company's business will not be so affected by inflation or
that it will be able to absorb cost increases through operating efficiencies or
through billing rate adjustments to customers and remain competitive.
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'
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
31
<PAGE> 32
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. See Note 16 - Unaudited
Quarterly Financial Data of the Notes to Consolidated Financial Statements.
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/or beliefs concerning future events and
goals. If and when used in this report, the words "believes," "feels,"
"estimates," "plans," "expects," "intends," "projects," "anticipates," "sees,"
"contemplates," "may," "would," "could" and similar expressions as they relate
to the Company or its management are intended to identify forward-looking
statements. The Company can give no assurance that such expectations and beliefs
will prove to be correct. Accordingly, 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 failure of the acquisition of the Company by USAi to be consummated at all
or on a timely basis, the Company's effective and timely initiation, development
and implementation of new client relationships and programs (especially with
respect to its Internet clients), 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 profits and
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 information technologies and infrastructures and operational and financial
systems, 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, IMA Advantage/Edge, ACN
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, 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
32
<PAGE> 33
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 expansion of PRCNETCARE.COM's business and operations, the
adequacy of cash flows from operations and available financing (including,
without limitation, under the Credit Facility) 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 and the
Company undertakes no obligation to revise or update any forward-looking
statements in order to reflect events or circumstances that may arise after the
date of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk: The Company's exposure to market risk for changes
in interest rates relates primarily to its long-term debt. The Company's Credit
Facility and mortgage loan with the lender for the Credit Facility bear interest
at variable rates, as discussed in Note 6 - Credit Facility and Long-Term Debt
of the Notes to Consolidated Financial Statements. The Company mitigates
interest rate risk by continually monitoring the interest rates.
The table below presents outstanding principal amounts and the related
fair values (in thousands), together with maturity dates as of December 31,
1999, and the weighted average interest rates for the Company's long-term debt
(including current maturities thereof) subject to variable rates for the year
then ended:
<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING AVERAGE
PRINCIPAL FAIR INTEREST MATURITY
AMOUNT VALUE RATE DATE
--------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Credit Facility (prime).................................. $ 5,000 $ 5,000 7.98% June 30, 2001
Credit Facility (LIBOR).................................. 14,000 14,000 6.74% June 30, 2001
Mortgage loan............................................ 4,000 4,000 6.69% June 1, 2005
--------------- -----------
Total long-term debt subject to variable rates......... $ 23,000 $ 23,000
=============== ===========
</TABLE>
Based on the borrowing rates available to the Company for debt with
similar terms and average maturities, the fair value of the Company's debt
approximates carrying value.
33
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is set forth in the Company's
Consolidated Financial Statements contained in this report. The Consolidated
Financial Statements can be found at the pages in this report listed in the
following index:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants -
PricewaterhouseCoopers LLP..............................................................F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998..................................F-2
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Operations................................................F-3
Consolidated Statements of Shareholders' Equity......................................F-4
Consolidated Statements of Cash Flows................................................F-5
Notes to Consolidated Financial Statements....................................................F-6
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is a list (as of February 15, 2000) of the names of the
directors and executive officers of the Company, their respective ages and their
respective positions with the Company. The terms of the directors expire
annually upon the holding of the annual meeting of shareholders of the Company.
The Company's executive officers serve at the discretion of the Board of
Directors, although all of the executive officers have employment agreements.
See "Item 11. Executive Compensation - Employment Agreements."
<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ ------- -------------------------------------------------------------------------------
<S> <C> <C>
Mark J. Gordon 52 Chairman of the Board
David L. Epstein 35 Director and Chief Executive Officer
Wesley T. O'Brien 44 President and Chief Operating Officer
Richard D. Mondre 54 Director, Executive Vice President, General Counsel and Secretary
Richard N. Ferry, Jr. 47 Executive Vice President - Business Development
Paul M. O'Hara 53 Executive Vice President - Finance and Chief Financial Officer
James R. Weber 52 Senior Vice President - Business Operations
Frank Modrak 44 Senior Vice President - Sales
Michael P. Miller 39 Senior Vice President and Chief Technology Officer
Robert K. Tenzer 39 Senior Vice President - Human Resources
Thomas F. Jennings, Jr. 40 Vice President and Controller
Joseph E. Gillis 42 Vice President and Treasurer
Bernard J. Kosar, Jr. 36 Senior Advisor and Director
Neil A. Natkow 52 Director
Richard N. Krinzman 52 Director
Christian Mustad 61 Director
</TABLE>
34
<PAGE> 35
The following sets forth the background of each of the Company's directors and
executive officers, including the principal occupation of those individuals for
at least the past five years:
MARK J. GORDON joined the Company in 1984 and became a director at that time.
Mr. Gordon served as the Company's Chief Executive Officer from 1985 to November
1998. Since April 1996 to date, Mr. Gordon has served as Chairman of the Board.
DAVID L. EPSTEIN joined the Company in 1982 and was named Executive Vice
President in 1984, President in 1985 and Chief Executive Officer in November
1998. Mr. Epstein became a director of the Company in April 1996.
WESLEY T. O'BRIEN became President and Chief Operating Officer of the Company in
November 1998. From October 1995 until joining the Company, Mr. O'Brien was the
Chief Executive Officer and President of Trescom International Communications
Corporation, an international and long distance communications company. Prior to
that position, Mr. O'Brien was employed for approximately twelve years with MCI
Communications Corporation, a long distance telecommunications company, where he
served in various executive capacities.
RICHARD D. MONDRE joined the Company in March 1996 as Executive Vice President,
General Counsel and Secretary. He became a director of the Company in May 1996.
From January 1983 to March 1996, Mr. Mondre was a partner at the law firm of
Rubin Baum Levin Constant Friedman & Bilzin ("Rubin Baum"), which served as the
Company's regular outside counsel until January 31, 1998. As of February 1,
1998, the successor firm to Rubin Baum, Bilzin Sumberg Dunn Price & Axelrod LLP
("BSDPA"), commenced serving as the Company's regular outside counsel. After
joining the Company, Mr. Mondre remained "Of Counsel" to Rubin Baum and is
currently "Of Counsel" to BSDPA.
RICHARD N. FERRY, JR. joined the Company in November 1994 as Vice President -
Business Development, was appointed Senior Vice President in that position in
May 1996 and was appointed Executive Vice President in that position in November
1997. Additionally, Mr. Ferry was appointed as President of prcnetcare.com,
Inc., a subsidiary of the Company, in February 1999. From November 1993 to
November 1994, Mr. Ferry was a principal of Virtual Marketing International,
providing consulting services to a number of companies, including many of the
Company's competitors in the teleservicing and direct marketing industries. From
November 1991 to November 1993, Mr. Ferry was the Director of Marketing Services
at Century Telecommunications, a provider of telephone services, and from
September 1984 until November 1991, Mr. Ferry was the Vice President of
Operations for Advanced Telemarketing Corp., a provider of teleservices.
PAUL M. O'HARA joined the Company in August 1996 as Senior Vice President -
Finance and Chief Financial Officer. Mr. O'Hara was appointed as Executive Vice
President - Finance in November 1998. From March 1994 until joining the Company,
Mr. O'Hara was Executive Vice President and Chief Financial Officer of Sunbeam
Corp., a consumer products company. From April 1988 to March 1994, Mr. O'Hara
was Executive Vice President and Chief Financial Officer of Fruit of the Loom,
Inc., an apparel manufacturer.
JAMES R. WEBER joined the Company in June 1996 as Senior Vice President -
Telemarketing Operations and was formally appointed as an executive officer in
November 1996. Mr. Weber was appointed Senior Vice President Business Operations
in October 1998. From August 1994 until joining the Company, Mr. Weber was
Senior Vice President - Operations for SafeCard Services, Inc., a credit card
protection company. From June 1992 to August 1994, Mr. Weber worked with MCI
Telecommunications, a telecommunications company, initially as a Center Director
and then as Regional Director for the western region. From March 1985 to May
1992, Mr. Weber held a number of positions with American Express Company, a
financial services company, including that of Director for its telephone service
center and card issuance division.
35
<PAGE> 36
FRANK MODRAK joined the Company in January 1996 as Vice President - Sales. Mr.
Modrak was appointed Senior Vice President - Sales in November 1998. From 1987
until joining the Company, Mr. Modrak was the National Director of Customer
Service and Sales for Cox Communications, a cable communications company.
MICHAEL P. MILLER joined the Company in April 1999 as Senior Vice President and
Chief Technology Officer. From July 1997 until December 1998, Mr. Miller was the
Senior Vice President and Chief Technology Officer for IQI, Inc., a
telemarketing company located in Los Angeles, California, which has merged with
ATC Communications to form Aegis Communications Group, Inc. From August 1995
until March 1997, Mr. Miller was the Chief Information Officer for Softbank
Exposition and Conference Company, a trade show production and management
company and a division of Softbank, Inc. of Tokyo, Japan, and from January 1992
until July 1995, Mr. Miller was employed by The Gap, Inc., an apparel retailer
and manufacturer, where he served as the Senior Director of Management
Information Systems and, prior to that position, as Director of Network Design
and Engineering. Mr. Miller also has managed a consulting firm that he
originally founded in 1986, initially providing custom software to the medical,
dental and legal professions and later information technology services to a wide
variety of clients in the retail, banking and manufacturing sectors.
ROBERT K. TENZER joined the Company in September 1994 as Director of Human
Resources. Mr. Tenzer was appointed Vice President of Human Resources in May
1997 and Senior Vice President in September 1997. From September 1984 until
joining the Company, Mr. Tenzer was a Director of Human Resources and Store
Operations for Neiman Marcus, a clothing and specialty items retailer. Mr.
Tenzer has a Masters of Science in Human Resources Management.
THOMAS F. JENNINGS, JR. joined the Company in March 1997 as Controller and was
formally appointed Vice President, Controller and Principal Accounting Officer
in May 1997. From July 1994 until joining the Company, Mr. Jennings was Vice
President and Chief Financial Officer for the Music Division of Blockbuster
Entertainment. From March 1993 to July 1994 , Mr. Jennings was Controller for
the Domestic Consumer Division of Blockbuster Entertainment. From September 1981
to joining Blockbuster Entertainment, Mr. Jennings was employed by the public
accounting firm of PricewaterhouseCoopers LLP (formerly Coopers & Lybrand LLP).
Mr. Jennings is a Certified Public Accountant.
JOSEPH E. GILLIS joined the Company in November 1994 as Chief Financial Officer
and Treasurer, continues to serve as Treasurer and was appointed a Vice
President in May 1997. From October 1993 until joining the Company, Mr. Gillis
was Chief Financial Officer of William Schneider, Inc., a jewelry manufacturer.
From June 1989 to October 1993, Mr. Gillis was Vice President of Finance for the
Vertical Blinds Division of Hunter Douglas, Inc., a manufacturer of window
coverings, or its predecessor, Profile Corp. Mr. Gillis is a Certified Public
Accountant.
BERNARD J. KOSAR, JR. was appointed a director of the Company in October 1996.
Mr. Kosar is currently employed by the Company as a Senior Advisor, in which,
among other functions, he advises executives of the Company on general sales and
client matters and participates in client relations. Mr. Kosar served as Senior
Vice President - Client Relations for the Company from January 1997 to September
1998. From January 1995 until joining the Company, Mr. Kosar had served as a
consultant to the Company. Since July 1985 until his retirement in 1997, Mr.
Kosar had been a quarterback in the National Football League and most recently
with the Miami Dolphins. Mr. Kosar is also a director and majority owner of
Tidewater Management Group, Inc., a franchisee for a national food chain, and
Bernie Kosar Greeting Card Company, a distributor of greeting cards.
36
<PAGE> 37
NEIL A. NATKOW was appointed a director of the Company in October 1996. Dr.
Natkow served as Senior Vice President - Health Care for the Company from
February 1997 to October 1997. Upon leaving the Company, Dr. Natkow became
President and Chief Executive Officer of NAN II, Inc., a Florida corporation
which is the general partner of PhyTrust, Ltd., a Florida management services
organization. From December 1993 until his retirement in October 1995, Dr.
Natkow served as an executive officer of PCA Health Plans of Florida, a health
maintenance organization, most recently as its Chief Executive Officer. From
August 1992 to December 1993, Dr. Natkow was the President and Chief Executive
Officer of Family Health Plan, a health maintenance organization, and, from June
1987 to July 1992, Dr. Natkow was the Vice President for Professional Affairs at
Southeastern University for Health Sciences. Dr. Natkow is also a director of
Sheridan Healthcare, Inc., a publicly traded company. Dr. Natkow is a member of
the Audit and Compensation Committees of the Board.
RICHARD N. KRINZMAN was appointed a director of the Company in February 1997.
Mr. Krinzman is a shareholder and director of the law firm of Holtzman,
Krinzman, Equels & Furia, P.A., a position he has held since 1979. Mr. Krinzman
has practiced law in Dade County, Florida, for over 25 years with concentration
on transactional matters in the areas of real property, banking and commercial
law. Mr. Krinzman is a member of the Audit Committee of the Board.
CHRISTIAN MUSTAD was appointed a director of the Company in October 1996. For
the past 25 years, Mr. Mustad has been a managing director of The Mustad Group,
which owns and/or manages approximately 35 companies throughout the world. The
Mustad Group businesses and activities range from manufacturing of horseshoes
and horseshoe nails, level gauging for the shipping industry, precision parts,
paper cores, machinery for the cardboard industry and fasteners to oil
recycling. Mr. Mustad is a member of the Audit and Compensation Committees of
the Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's executive officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and the National
Association of Securities Dealers, Inc. Executive officers, directors and
greater than ten percent shareholders are required by the Exchange Act to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations that no Forms 5 were required, the Company believes
that, during 1999, its directors, executive officers and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation paid
or earned for services rendered to the Company in 1999, 1998 and 1997 by the
chairman of the board of the Company, the chief executive officer of the Company
and the Company's four other most highly compensated executive officers whose
aggregate annual compensation exceeded $100,000 and who were executive officers
of the Company at December 31, 1999 (all of the individuals named in the
following table are collectively defined as the "Named Executive Officers"). The
Company does not have a pension plan or a long-term incentive plan, has not
issued any restricted stock awards and has not granted any stock appreciation
rights as of this date. The Company has granted stock options. See "Option
Grants and Holdings" and "Employee Stock Plan and Director Stock Plan." The
value of all other annual compensation (perquisites and other personal benefits)
received by each Named Executive Officer in each respective year did not exceed
the lesser of $50,000 or 10% of the Named Executive Officer's total annual
salary and bonus reported for such Named Executive Officer.
37
<PAGE> 38
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ----------------
COMPENSATION SECURITIES
FISCAL -------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS OPTIONS(#) (2) COMPENSATION
- ----------------------------------- ------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
David L. Epstein 1999 $ 442,325 - 52,772 $ 34,251(3)
Chief Executive Officer 1998 418,841 - - -
1997 388,187 - - -
Richard D. Mondre 1999 428,355 - 47,975 -
Executive Vice President, 1998 406,588 - - -
General Counsel and Secretary 1997 372,270 - - -
Mark J. Gordon 1999 388,460 - - 25,559(4)
Chairman of the Board 1998 408,226 - - 29,712(4)
1997 403,269 - - 10,703(4)
Paul M. O'Hara 1999 398,589 - - -
Executive Vice President- 1998 374,639 $ 50,000 200,000 -
Finance and Chief Financial 1997 298,215 50,000 350,000(5) -
Officer
Wesley T. O'Brien 1999 369,500 - - 19,076(6)
President and Chief Operating 1998 71,058(7) - 350,000 9,788(6)
Officer 1997 - - - -
Richard N. Ferry, Jr. 1999 311,442 - 47,975 -
Executive Vice President- 1998 331,870 - 200,000 -
Business Development 1997 196,738 73,514 336,000 (8) -
</TABLE>
- -----------
(1) Includes compensation in connection with payment of auto allowance.
(2) See "Option Grants and Holdings" below for a description of such executive
officers' options.
(3) Consists of premiums paid for three split-dollar life insurance policies
for the benefit of Mr. Epstein's family. See "Item 13. Certain
Relationships and Related Transactions."
(4) Consists of premiums paid for up to three split-dollar life insurance
policies for the benefit of the Mark Gordon Family Trust. See "Item 13.
Certain Relationships and Related Transactions."
(5) The option for 200,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996.
(6) Consists of premiums paid for a life insurance policy for the benefit of
Mr. O'Brien.
(7) Mr. O'Brien joined the Company in November 1998. His base annual salary
for 1998 was $350,000.
(8) The option for 136,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996.
38
<PAGE> 39
OPTION GRANTS AND HOLDINGS
1999 OPTION GRANTS TABLE
The following table summarizes the options which were granted during 1999 to the
Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------
% of Potential Realizable
Total Value Value at Assumed
Options Closing at Annual Rates
Number of Granted Market Grant-Date of Stock Price
Securities to Price On Market Appreciation
Underlying Employees Exercise Date of Price for Option Term(1)
Options In Fiscal Price Grant Expiration --------- ---------------------------
Name Granted(#) Year ($/Sh) ($/Share)(2) Date 0%($)(2) 5%($) 10%($)
-------------------- ---------- ---------- -------- ---------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
David L. Epstein 52,772 4.96 24.72 24.25 12/31/06 - 496,172 1,189,290
Richard D. Mondre 47,975 4.51 24.72 24.25 12/31/06 - 451,070 1,081,183
Mark J. Gordon - - - - - - - -
Paul M. O'Hara - - - - - - - -
Wesley T. O'Brien - - - - - - - -
Richard N. Ferry, Jr. 47,975 4.51 24.72 24.25 12/31/06 - 451,070 1,081,183
</TABLE>
- ----------
(1) Potential realizable value is based on the assumption that the Company's
Common Stock price appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the option term. The
amounts have been calculated based on the requirements promulgated by the
Commission. The actual value, if any, a Named Executive Officer may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised (if the executive officer were to sell the
shares on the date of exercise). Accordingly, there is no assurance that
the value realized will be at or near the potential realizable value as
calculated in this table.
(2) For purposes of and as provided under the 1996 Incentive Stock Plan (as
amended to date, the "Employee Stock Plan"), "fair market value" on the
date of grant of any option is the average of the high and low sales prices
of a share of Common Stock on The Nasdaq National Market on the trading day
immediately preceding such date of grant. The Compensation Committee of the
Company believes this calculation more accurately reflects "fair market
value" of the Company's Common Stock on any given day as compared to simply
using the closing market price on the date of grant. As a result, the
closing market price on the date of grant at times may be different than
the exercise price per share.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides information regarding the value of all options
exercised during 1999 and unexercised options held at December 31, 1999 by the
Named Executive Officers.
<TABLE>
<CAPTION>
SHARES NUMBER OF
ACQUIRED SECURITIES UNDERLYING VALUE OF UNEXERCISED
ON VALUE UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT
NAME EXERCISE REALIZED DECEMBER 31, 1999 DECEMBER 31, 1999 (1)
- --------------------- ---------- ---------- ------------------------------- -------------------------------
UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David L. Epstein - - 52,772 - - -
Richard D. Mondre - - 47,975 - - -
Mark J. Gordon - - - - - -
Paul M. O'Hara - - 192,834 357,166 $ 3,341,824 $6,201,426
Wesley T. O'Brien - - 115,500 234,500 2,165,625 4,396,875
Richard N. Ferry, Jr. - - 238,429 352,546 3,300,472 6,169,208
</TABLE>
- ----------
(1) Based on a per share price of $24.25 on December 31, 1999, which was the
closing market price of the Company's Common Stock on the last day of the
Company's 1999 fiscal year.
39
<PAGE> 40
COMPENSATION OF DIRECTORS
Directors who are not employees or officers of the Company receive a quarterly
retainer of $2,500 and receive $1,000 for attendance at each meeting of the
Board of Directors (the "Board") or committee thereof. Such directors also
receive an option to purchase shares of Common Stock upon initial election and
upon each re-election. See "Employee Stock Plan and Director Stock Plan" below.
Directors may also be reimbursed for certain expenses in connection with
attendance at Board and Board committee meetings. Other than with respect to
reimbursement of expenses, directors who are employees or officers of the
Company do not receive additional compensation for service as a director.
EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN
On May 31, 1996, the Company adopted the Employee Stock Plan and the 1996
Non-employee Director Stock Option Plan (the "Director Stock Plan"). Officers,
key employees and non-employee consultants may be granted incentive stock
options ("ISOs"), nonqualified stock options ("NSOs"), stock appreciation rights
("SARs"), stock awards, performance shares and performance units under the
Employee Stock Plan. The Compensation Committee of the Board administers the
Employee Stock Plan. The Compensation Committee has final authority to interpret
any provision of the Employee Stock Plan, any grant made under the Employee
Stock Plan or any provision of any agreement evidencing such grant. The
Compensation Committee determines the term of each option and the time or times,
and conditions (such as a change in control) under which, each option vests and
may be exercised. However, the term of an ISO may not exceed ten years from the
date of grant and the term of an NSO may not exceed fifteen years from the date
of grant. The Compensation Committee also determines the option exercise price.
However, the exercise price of an ISO may not be less than the fair market value
of Common Stock on the date of grant. Under certain circumstances (relating to
ownership of more than 10% of the total combined voting power of all classes of
stock of the Company), the exercise price of an ISO may not be less than 110% of
the fair market value on the date of grant and the term of such ISO may not
exceed five years from the date of grant. The exercise price for an NSO may not
be less than 85% of the fair market value on the date of grant, except for a
maximum of 50,000 shares of Common Stock which may be granted at an exercise
price as low as $0.01 per share. The aggregate fair market value (determined at
the time the option is granted) of the Common Stock with respect to which ISOs
are exercisable for the first time by a participant during any calendar year
(under all options of the Company) shall not exceed $100,000 and, to the extent
in excess of such $100,000, such excess options shall be treated as NSOs. If an
optionee terminates his or her employment or consulting relationship for any
reason, such optionee's options may be exercised to the extent they have vested
or vest and were exercisable at the date of such termination for a period of
time determined by the Compensation Committee at the time the option is granted.
The Company currently has reserved 4,750,000 shares of the Common Stock for
issuance under the Employee Stock Plan. The Employee Stock Plan will expire by
its own terms on May 30, 2006. The Board has the power to amend the Employee
Stock Plan from time to time. Shareholder approval of an amendment is only
required to the extent necessary to maintain the Employee Stock Plan's status as
a protected plan under applicable securities laws or as a qualified plan under
applicable tax laws.
The Director Stock Plan provides for annual grants of non-qualified stock
options to each non-employee director of the Company. At the Company's annual
meeting of shareholders on June 21, 1999, the Director Stock Plan was amended
and restated in its entirety (the "Restated Director Stock Plan"). The Restated
Director Stock Plan increased the number of nonqualified stock options
automatically awarded to each non-employee director upon re-election from 2,500
shares to 5,000 shares of common stock at an exercise price equal to the fair
market value of the common stock on the date of grant. However, the Restated
Director Stock Plan provided for the award of 15,000 nonqualified stock options
to each non-employee director re-elected at the June 21, 1999 meeting in lieu of
the 5,000 annual grant. The purpose of the exception was to retroactively adjust
the aggregate number of options previously awarded to the existing non-employee
directors to be more consistent with the initial and annual awards under the
Restated Director Stock Plan. In addition, the Restated Director Stock
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authorized the Board, in its sole discretion, to grant to a non-employee
director at the time of his or her initial election as a director of the Company
nonqualified stock options in excess of the 5,000 shares of common stock
automatically granted on initial election to the Board of Directors up to and
not exceeding 50,000 shares at an exercise price equal to fair market value of
the common stock on the date of grant. The options granted to each non-employee
director will have a term of ten years and vest, in the case of options granted
under the Director Stock Plan, in equal installments over three years and, in
the case of options granted under the Restated Director Stock Plan, in full
after the first anniversary of the date the option is granted. The Company
currently has reserved 300,000 shares of Common Stock for issuance under the
Director Stock Plan.
Including the option of Richard N. Ferry, Jr., the Company's Executive Vice
President-Business Development, to purchase the balance of 7,000 shares at an
exercise price of $0.01 per share, the options to purchase 4,277,372 shares
granted under the Employee Stock Plan and the Director Stock Plan outstanding as
of December 31, 1999, have a weighted average exercise price of $7.60. As of
December 31, 1999, the Company had not granted any SARs, stock awards,
performance shares or performance units under the Employee Stock Plan. See Note
12 - Stock-Based Compensation Plans of the Notes to Consolidated Financial
Statements.
RETIREMENT PLANS
The Company maintains a profit sharing and 401(k) savings plan (as amended,
the "Profit Sharing/401(k) Plan"). Under the provisions of the Profit
Sharing/401(k) Plan, employees meeting certain eligibility requirements may
contribute a maximum of 15% of pre-tax gross wages, subject to certain
restrictions imposed pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"). Company contributions are at the discretion of its Board. Vesting
occurs over a six-year period at the rate of 20% per year, beginning after the
second year of service. The Company accrued a contribution to the Profit
Sharing/401(k) Plan of approximately $100,000 in 1999, which is expected to be
paid during the first quarter of 2000, $85,000 in 1998, which was paid in April
1999, and $45,000 in 1997, which was paid in 1998.
EMPLOYMENT AGREEMENTS
MARK J. GORDON AND DAVID L. EPSTEIN. Each of Mr. Gordon and Mr. Epstein
entered into an employment agreement with the Company in May 1996, the terms of
which are substantially similar except to the extent the terms of Mr. Epstein's
agreement have been modified as hereinafter indicated pursuant to amendments to
his agreement effective as of April 1, 1999, September 1, 1999 and January 12,
2000 (individually an "Epstein Amendment"). The initial employment term is the
period from July 1, 1996 to June 30, 2001, subject to an Epstein Amendment
extending Mr. Epstein's initial term to March 31, 2002, but is thereafter
subject to automatic annual renewal, absent notice from either party of its
desire not to renew. However, the employee may terminate the agreement at any
time upon 30 days' notice. Each of Messrs. Gordon's and Epstein's agreements
provide for a minimum base salary of $425,000 per annum (adjusted for inflation)
subject to increase by the Compensation Committee; provided, however, that
Mr. Gordon's base salary was recently decreased to $200,000 per annum with the
agreement of Mr. Gordon. An annual bonus is payable based on criteria to be
agreed upon by the Compensation Committee and the employee at the beginning of
each year. No such criteria have yet been established, except that an Epstein
Amendment now gives the Compensation Committee authority to determine the annual
bonus in its sole discretion based upon the operating results of the Company and
Mr. Epstein's performance during the year. Each agreement provides for the
annual grant of stock options in a number to be determined by the Compensation
Committee, but for no fewer than 5% of the aggregate number of shares for which
options were granted under the Stock Plans during the year. The
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vesting of any options granted pursuant to the agreements will accelerate in
certain events including a change in control (as defined therein). Each of Mr.
Gordon and Mr. Epstein has waived both their annual bonus and stock option
grants with respect to the years ended December 31, 1996, 1997 and 1998. With
respect to the year ended December 31, 1999, Mr. Gordon has waived both his
annual bonus and stock option grants and Mr. Epstein has waived his annual
bonus. Each of Mr. Gordon and Mr. Epstein has certain piggyback and demand
registration rights. If either Mr. Gordon's or Mr. Epstein's employment is
terminated by death, disability or voluntary resignation, the employee is
entitled to severance equal to 18 months' salary, bonus and benefits, and if
employment is terminated by the Company without cause or constructive
termination (as defined in the agreements), the terminated individual is
entitled to severance equal to salary, bonus and benefits for the balance of the
contract term or three years, whichever is longer. An Epstein Amendment also
added nonrenewal of Mr. Epstein's agreement to events in which the foregoing
three-year severance would be paid and amended Mr. Epstein's agreement to
include funding by the Company of a portion of the premiums due on three
split-dollar life insurance policies. Mr. Gordon's agreement also provides for
funding by the Company of a portion of the premiums due on a split-dollar life
insurance policy. See "Item 13. Certain Relationships and Related Transactions"
for discussion of such split-dollar life insurance arrangements. In connection
with the Company entering into the Merger Agreement with USAi, Mr. Epstein
entered into an Epstein Amendment dated January 12, 2000, which would amend Mr.
Epstein's employment agreement effective only on and after the completion of the
merger between the Company and USAi (the "Effective Time") and which provides,
among other things, that (i) Mr. Epstein's agreement would no longer provide for
an annual grant of options, (ii) Mr. Epstein would no longer be entitled to
voluntarily terminate his employment without being in breach of his employment
agreement (except upon constructive termination), (iii) Mr. Epstein would no
longer be entitled to severance benefits if his employment agreement is not
renewed at the end of its initial term and (iv), if Mr. Epstein is employed by
the Company at or immediately following the Effective Time, he would be granted
a non-qualified option to purchase 75,000 shares of USAi common stock on
standard terms and conditions for option grants by USAi to its employees. In
addition, on January 12, 2000 in connection with the Company entering into the
Merger Agreement, Mr. Gordon agreed to terminate his employment and service as
chairman of the Company's Board as of the Effective Time.
RICHARD D. MONDRE. Effective April 1, 1999, Mr. Mondre entered into a new
employment agreement with the Company replacing his former employment agreement
that had expired as of March 31, 1999. Mr. Mondre's new employment agreement
extends to March 31, 2002, with automatic renewal of such employment agreement
for successive one-year terms unless either party notifies the other in writing
of nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $400,000, an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the Company
and Mr. Mondre's performance, and the annual grant of stock options in a number
to be determined by the Compensation Committee, but no fewer than 5% of the
aggregate number of shares for which options were granted under the Stock Plans
during the year (other than stock options awarded to certain executive officers
pursuant to a provision in their respective employment agreements with the
Company substantially the same as the stock option grant provision in Mr.
Mondre's employment agreement). The vesting of any options granted to Mr. Mondre
as described in the previous sentence will accelerate in certain events
including a Change in Control (as hereinafter defined). If Mr. Mondre's
employment is terminated by the Company without cause or as the result of
constructive termination (as defined) other than in connection with a Change in
Control, he will be entitled to the sum of the salary that he would have
received during the greater of (i) the one year period following the date of
such termination and (ii) the remainder of the initial term (if such termination
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occurs during the initial term) and $200,000. If Mr. Mondre's employment is not
renewed by the Company at the end of the initial term or any one-year renewal
term other than in connection with a Change of Control, he will be entitled to
one year's salary, subject, however, to the modification of this provision
included in an amendment to his agreement entered into on January 12, 2000 and
discussed below (the "Mondre Amendment"). If Mr. Mondre's employment is
terminated without cause or as a result of constructive termination or
nonrenewal (subject, however, to the Mondre Amendment) by the Company (or its
successor) within generally 180 days before or after a Change in Control, he
will be entitled to a lump sum severance payment equal to 2.99 times an amount
equal to the average of the sum of the annual salary and bonus amount paid to
him each year during the employment term. A "Change in Control" generally means
that neither Mr. Gordon nor Mr. Epstein control the Company nor is occupying the
positions of Chairman of the Board and/or Chief Executive Officer of the
Company. Accordingly, a Change in Control would occur upon the consummation of
the Company's acquisition by USAi. Mr. Mondre has also been granted certain
demand and piggyback registration rights (subject, however, to the Mondre
Amendment). Mr. Mondre is authorized to remain "Of Counsel" to BSDPA as long as
his duties in that capacity do not interfere with his performance under the
employment agreement with the Company. In connection with the Company entering
into the Merger Agreement with USAi, Mr. Mondre entered into the Mondre
Amendment, which would amend Mr. Mondre's employment agreement effective only on
and after the Effective Time and which provides, among other things, that (i)
Mr. Mondre's employment agreement would no longer provide for an annual grant of
options, (ii) Mr. Mondre would no longer be entitled to voluntarily terminate
his employment without being in breach of his employment agreement (except upon
constructive termination or if Mr. Epstein is no longer chief executive
officer), (iii) Mr. Mondre would no longer be entitled to severance benefits if
his employment agreement is not renewed at the end of its initial term and (iv),
if Mr. Mondre is employed by the Company at or immediately following the
Effective Time, he would be granted a non-qualified option to purchase 25,000
shares of USAi common stock on standard terms and conditions for option grants
by USAi to its employees.
WESLEY T. O'BRIEN. Mr. O'Brien's employment agreement extends to December 31,
2001, with automatic renewal of such employment agreement for successive
one-year terms unless either party notifies the other in writing of nonrenewal
at least 60 days prior to expiration of the initial term or any renewal term.
The employment agreement provides for, among other things, an annual salary of
$350,000, an annual bonus determined by the Compensation Committee in its sole
discretion based upon the operating results of the Company and Mr. O'Brien's
performance in an amount not to exceed 75% of Mr. O'Brien's annual salary, and
stock options to acquire 350,000 shares of Common Stock at an exercise price of
$5.50 per share (the fair market value on the date of grant) vesting 50% six
months from the date of grant (October 20, 1998), 17% on each of the first and
second anniversaries from the date of grant and 16% on the third anniversary
from the date of grant. The vesting of Mr. O'Brien's options accelerate in
certain events including a Change in Control. If Mr. O'Brien's employment is
terminated by the Company without cause or as a result of constructive
termination (as defined) other than in connection with a Change in Control, he
will be entitled to the sum of the salary that he would have received during the
greater of (i) the one year period following the date of such termination and
(ii) the remainder of the initial term (if such termination occurs during the
initial term) and $175,000. If Mr. O'Brien's employment is not renewed by the
Company at the end of the initial term or any one-year renewal term other than
in connection with a Change in Control, he will be entitled to one year's salary
unless the Company waives his covenant-not-to-compete. If Mr. O'Brien's
employment is terminated without cause or as a result of constructive
termination or nonrenewal by the Company (or its successor) within 180 days
after a Change in Control, he will be entitled to a lump sum severance payment
equal to 2.99 times an amount equal to the average of the sum of the annual
salary and bonus amount paid to him each year during the employment term. Any
cash payable to Mr. O'Brien, however, would be reduced to the extent necessary
to prevent Mr. O'Brien from being in receipt of an "excess parachute payment."
RICHARD N. FERRY, JR. Effective April 1, 1999, Mr. Ferry entered into a new
employment agreement with the Company replacing his employment agreement that
was to expire on June 30, 1999. Mr. Ferry's new employment agreement extends to
March 31, 2002, with automatic renewal of such employment agreement for
successive one-year terms unless either party notifies the other in writing of
nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $300,000, an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the Company
and Mr. Ferry's performance, and the annual grant of stock options in a number
to be determined by the Compensation Committee, but no fewer than 5% of the
aggregate number of shares for which options were granted under the Stock Plans
during the year (other than stock options awarded to certain executive officers
pursuant to a provision in their respective employment agreements with the
Company substantially the same as the stock option grant provision in Mr.
Ferry's employment agreement). The vesting of any options granted to Mr. Ferry
as described in the previous sentence will accelerate in certain events
including a Change in Control. If Mr. Ferry's employment is terminated by the
Company without cause or as the result of constructive termination (as defined
and to be modified at the Effective Time by an amendment to his employment
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agreement entered into on January 12, 2000 in connection with the Company
entering into the Merger Agreement) other than in connection with a Change in
Control, he will be entitled to the sum of the salary that he would have
received during the greater of (i) the one-year period following the date of
such termination and (ii) the remainder of the initial term (if such termination
occurs during the initial term) and $150,000. If Mr. Ferry's employment is not
renewed by the Company at the end of the initial term or any one-year renewal
term other than in connection with a Change of Control, he will be entitled to
one year's salary. If Mr. Ferry's employment is terminated without cause or as a
result of constructive termination or nonrenewal by the Company (or its
successor) within generally 180 days before or after a Change in Control, he
will be entitled to a lump sum severance payment equal to 2.99 times an amount
equal to the average of the sum of the annual salary and bonus amount paid to
him each year during the employment term. Upon a Change in Control the vesting
of all of the options presently held by Mr. Ferry accelerates.
PAUL M. O'HARA. Effective August 9, 1999, Mr. O'Hara entered into a new
employment agreement with the Company replacing his former employment agreement
that had expired as of August 8, 1999. Mr. O'Hara's new employment agreement
extends to August 8, 2002, with automatic renewal of such employment agreement
for successive one-year terms unless either party notifies the other in writing
of nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $400,000 and an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the Company
and Mr. O'Hara's performance. If Mr. O'Hara's employment is terminated by the
Company without cause or as the result of constructive termination (as defined
and to be modified at the Effective Time by an amendment to his employment
agreement entered into on January 12, 2000 in connection with the Company
entering into the Merger Agreement) other than in connection with a Change in
Control, he will be entitled to the amount of salary, bonus and benefits, if
any, accrued and unpaid through the date of termination and a lump sum payment
of $600,000. If Mr. O'Hara's employment is terminated without cause or as a
result of constructive termination within 180 days before or one year after a
Change in Control or as a result of nonrenewal by the Company (or its successor)
within 120 days before or one year after a Change in Control, he will be
entitled to a lump sum severance payment equal to 2.99 times an amount equal to
the average of the sum of the annual salary and bonus amount paid to him each
calendar year during up to the last five years of his employment by the Company
preceding the calendar year in which the Change in Control occurred. Upon a
Change in Control the vesting of all of the option presently owned by Mr. O'Hara
accelerates.
JAMES R. WEBER. Mr. Weber's employment agreement extends to March 31, 2001,
with an automatic renewal of such employment agreement for successive one-year
terms unless either party notifies the other in writing of nonrenewal at least
60 days prior to expiration of the initial term or any renewal term. The
employment agreement provides for, among other things, a base annual salary of
$225,000 through March 31, 1999, $250,000 through March 31, 2000 and $275,000
thereafter, and an annual bonus based on Mr. Weber's performance and consistent
with the Company's then current bonus plan. In connection with the employment
agreement, (i) the Company granted Mr. Weber stock options to acquire 85,000
shares of Common Stock at an exercise price of $5.09 per share vesting 50% on
the date of grant (October 6, 1998) and an additional 25% on each of the first
and second anniversaries from the date of grant and (ii) the Company amended Mr.
Weber's existing stock options to purchase an aggregate of 115,000 shares of
Common Stock at an exercise price of $7.875 per share to provide for a new
vesting schedule (with 50% of such options immediately vesting and an additional
25% of such options vesting on each of April 1, 1999 and April 1, 2000) and for
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accelerating vesting upon a Change in Control, which accelerated vesting on a
Change in Control is also provided with respect to the new options covering
85,000 shares described above. If Mr. Weber's employment is terminated by the
Company without cause (including, without limitation, upon a Change in Control),
he will be entitled to (i) the salary and certain benefits that he would have
received during the one-year period following the date of termination of his
employment as and when they would have been payable or provided if he had
remained an employee for such additional one-year period and (ii) an amount
equal to the average of the annual bonus paid to him during the employment term,
which amount will be paid in twelve equal consecutive monthly installments
thereafter. However, Mr. Weber will not be entitled to the foregoing severance
to the extent that he receives or is entitled to receive compensation or
benefits for new employment with respect to employment services rendered during
such period.
FRANK MODRAK. Mr. Modrak's employment agreement with the Company, effective
October 1, 1999, extends to December 31, 2000. The employment agreement provides
for, among other things, a base annual salary of $175,000. The Company may
decide, in its sole discretion, to increase (but not decrease) the base annual
salary at any time during the employment term. The employment agreement also
provides for quarterly bonuses pursuant to a bonus plan based upon new revenue
acquired by the Company during each quarter during the employment term. If Mr.
Modrak's employment is terminated by the Company without cause or Mr. Modrak
resigns his employment with the Company within 90 days of a significant change
in the scope of his job responsibilities or within 90 days after a Change in
Control, he will be entitled to the salary that he would have received during
the one-year period following the date of termination of his employment as and
when it would have been payable if he had remained an employee for such
additional one-year period. However, Mr. Modrak will not be entitled to the
foregoing severance to the extent that he receives or is entitled to receive
compensation for new employment with respect to employment services rendered
during such period.
MICHAEL P. MILLER. Mr. Miller's employment agreement, which commenced on April
26, 1999, extends to April 25, 2001, with an automatic extension for an
additional one-year period unless, prior to January 25, 2001, either Mr. Miller
or the Company notifies the other in writing of nonrenewal. The employment
agreement provides for, among other things, a base annual salary of $185,000, an
annual bonus, based on Mr. Miller's performance and consistent with the
Company's then current bonus plan, of up to 40% of his base annual salary, and
reimbursement of up to a maximum amount of $65,000 for expenses incurred by Mr.
Miller in connection with the relocation of himself and his family from Pacific
Palisades, California to South Florida. If Mr. Miller is not employed by the
Company continuously for at least the one-year period commencing April 26, 1999
other than if he is terminated without cause, he shall repay the Company all
amounts received for relocation expenses. The employment agreement also provides
for stock options to acquire 60,000 shares of Common Stock at an exercise price
of $4.38 per share (the fair market value of the Common Stock on the date he
commenced employment) vesting 33-1/3% on each of the first, second and third
anniversaries from the date of grant (April 26, 1999). If Mr. Miller's
employment is terminated by the Company without cause (including, without
limitation, upon a Change in Control), he will be entitled to the salary that he
would have received from the date of termination through the 180 day period
following the date of termination or the expiration of the term of the
employment agreement, whichever is less. However, Mr. Miller will not be
entitled to the foregoing severance to the extent that he receives or is
entitled to receive compensation or benefits from new employment with respect to
employment services rendered during such period. Effective November 24, 1999,
Mr. Miller's existing stock option agreement was amended to provide for
accelerated vesting of his options upon the occurrence of a Change in Control
and the Company's (or its successor's) termination of Mr. Miller without cause
within the earlier to occur of (i) 180 days after the occurrence of a Change in
Control or (ii) the expiration date of the employment term of his employment
agreement. Effective as of January 12, 2000, Mr. Miller's employment agreement
(as well as the employment agreements of each of Robert Tenzer, Thomas F.
Jennings, Jr. and Joseph Gillis, each of which is discussed below) was amended
to provide that, if any of the payments or benefits to be received in connection
with a Change in Control would result in an "excess parachute payment," payments
and/or benefits made pursuant to the employment agreement would be reduced to
the extent necessary to prevent receipt of an "excess parachute payment," if
such reduction would provide such executive officer with a better after tax
result.
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ROBERT TENZER. Mr. Tenzer's employment agreement extends to December 31, 2000,
with no renewal options. The employment agreement provides for, among other
things, a base annual salary of $125,000 until October 1, 1998, at which time
the Company's then President was to review the base annual salary. As a result
of such review, the base annual salary was increased to $150,000. In addition,
Mr. Tenzer's base annual salary was further increased to $180,000 in October
1999. The employment agreement also provides for an annual bonus based on Mr.
Tenzer's performance and consistent with the Company's then current bonus plan.
In connection with the employment agreement, (i) the Company granted Mr. Tenzer
stock options to acquire 70,000 shares of Common Stock at an exercise price of
$4.69 per share vesting 33%, 34% and 33% on each of the first, second and third
anniversaries from the date of grant (September 14, 1998) and (ii) the Company
amended Mr. Tenzer's existing stock options to purchase an aggregate of 70,000
shares of Common Stock at an exercise price of $7.875 per share to provide for a
new vesting schedule (with options for 10,000 shares immediately vesting and
options for 60,000 shares vesting in 20% annual increments on each of December
5, 1998, 1999, 2000, 2001 and 2002) and for accelerating vesting upon a Change
in Control, which accelerated vesting on a Change in Control is also provided
with respect to the new options covering 70,000 shares described above. If Mr.
Tenzer's employment is terminated by the Company without cause (including,
without limitation, upon a Change in Control) or Mr. Tenzer resigns his
employment with the Company within 90 days of a significant change in the scope
of his job responsibilities or within 90 days of a Change in Control, he will be
entitled to the salary that he would have received during the one-year period
following the date of termination of his employment as and when it would have
been payable if he had remained an employee for such additional one-year period.
However, Mr. Tenzer will not be entitled to the foregoing severance to the
extent that he receives or is entitled to receive compensation for new
employment with respect to employment services rendered during such period.
THOMAS F. JENNINGS, JR. Mr. Jennings' employment agreement with the Company,
effective November 15, 1999, extends to December 31, 2001, with automatic
renewal of such employment agreement for successive one-year terms unless either
party notifies the other in writing of nonrenewal at least 90 days prior to
expiration of the initial term or any renewal term. The employment agreement
provides for, among other things, a base annual salary of $175,000 until April
1, 2000, at which time the Company's then Chief Financial Officer shall review
the base annual salary. The Company may decide at this time, in its sole
discretion, to increase (but not decrease) the base annual salary or at any time
during the employment term. The employment agreement also provides for an annual
bonus, the amount of which will be determined by the Company in its sole
discretion in a manner consistent with the Company's then current bonus plan. If
Mr. Jennings' employment is terminated by the Company without cause (including,
without limitation, upon a Change in Control) or Mr. Jennings resigns his
employment with the Company within 90 days of either a significant change in the
scope of his job responsibilities or the Company requiring him, without his
prior written consent, to relocate his office to a location other than northern
Miami-Dade County, Broward County or Palm Beach County, Florida, he will be
entitled to (i) the salary and general employee benefits that he would have
received during the one-year period following the date of termination of his
employment as and when it would have been payable if he had remained an employee
for such additional one-year period and (ii) an amount equal to the average of
the bonuses paid to him during the last two years prior to the date of
termination, which amount shall be payable in twelve equal consecutive monthly
installments commencing one month from the date of termination. Effective
September 1, 1999, Mr. Jennings's existing stock option agreements were amended
to provide for accelerated vesting of his options to purchase an aggregate of
75,000 shares of the Company's common stock upon the occurrence of a Change in
Control.
JOSEPH E. GILLIS. Mr. Gillis' employment agreement with the Company, effective
November 15, 1999, extends to December 31, 2001, with automatic renewal of such
employment agreement for successive one-year terms unless either party notifies
the other in writing of nonrenewal at least 90 days prior to expiration of the
initial term or any renewal term. The employment agreement provides for, among
other things, a base annual salary of $140,000 until April 1, 2000, at which
time the Company's then Chief Financial Officer shall review the base annual
salary. The Company may decide at this time, in its sole discretion, to increase
(but not decrease) the base annual salary or at any time during the employment
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term. The employment agreement also provides for an annual bonus, the amount of
which will be determined by the Company in its sole discretion in a manner
consistent with the Company's then current bonus plan. If Mr. Gillis' employment
is terminated by the Company without cause (including, without limitation, upon
a Change in Control) or Mr. Gillis resigns his employment with the Company
within 90 days of either a significant change in the scope of his job
responsibilities or the Company requiring him, without his prior written
consent, to relocate his office to a location other than northern Miami-Dade
County, Broward County or Palm Beach County, Florida, he will be entitled to (i)
the salary and general employee benefits that he would have received during the
one-year period following the date of termination of his employment as and when
it would have been payable if he had remained an employee for such additional
one-year period and (ii) an amount equal to the average of the bonuses paid to
him during the last two years prior to the date of termination, which amount
shall be payable in twelve equal consecutive monthly installments commencing one
month from the date of termination. Effective September 1, 1999, Mr. Gillis'
existing stock option agreements were amended to provide for accelerated vesting
of his options to purchase an aggregate of 65,000 shares of the Company's common
stock upon the occurrence of a Change in Control.
BERNARD J. KOSAR, JR. On January 2, 1997, Mr. Kosar agreed to join the Company
as an executive officer. Mr. Kosar initially entered into a one-year employment
agreement with the Company providing for a base annual salary of $150,000 and a
discretionary bonus. In October 1997, the Company and Mr. Kosar entered into an
amendment to such employment agreement which provided, among other things, for
automatic renewal of such employment agreement for successive one-year terms
unless either party notified the other in writing not to renew at least 60 days
prior to expiration of the initial term or any renewal term, an increase in the
base annual salary to $275,000, quarterly bonuses in amounts and based upon the
Company's actual revenues equaling or exceeding forecasted revenues on a
quarterly basis and the percentage by which forecasted revenues were exceeded in
any quarter and severance equal to his compensation (salary and bonuses) for one
year in the event Mr. Kosar was terminated without cause within 180 days of a
Change in Control. In connection with such amendment to his employment
agreement, Mr. Kosar was granted options to purchase 165,000 shares at an
exercise price of $7.41 per share vesting 50% on the date of grant (October 1,
1997) and 25% on each of the first and second anniversaries from the date of
grant. Additionally, Mr. Kosar's then existing options to purchase 310,000
shares were repriced to $7.41 per share (of which options to purchase 250,000
shares were also modified to provide for a more accelerated vesting schedule
than when originally granted to him) and the vesting of all his options now
accelerates on a Change in Control. Effective October 1, 1998, the Company and
Mr. Kosar entered into a new employment agreement that supersedes and replaces
in its entirety the above mentioned employment agreement, as amended. The new
employment agreement extends to March 31, 2000, and provides, among other
things, for an annual salary of $75,000 and commissions, payable to Mr. Kosar at
the rate of 1-1/2% of Adjusted Gross Sales (as defined) collected by the Company
from a customer as a result of Mr. Kosar's material facilitative efforts in
procuring that customer for the Company. Such commissions for each such customer
are payable up to a period of one year or the termination of employment other
than with cause, whichever is less. In connection with the cancellation of the
former employment agreement, as amended, Mr. Kosar received a cancellation
payment in the aggregate amount of $400,000. All stock option agreements between
the Company and Mr. Kosar remain unchanged. Mr. Kosar also resigned as an
executive officer of the Company effective October 1, 1998 and, pursuant to his
new employment agreement, is acting as a Senior Advisor to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was comprised of two non-employee
directors during 1999, Christian Mustad and Neil A. Natkow. The Compensation
Committee determines executive officers' salaries and bonuses and administers
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<PAGE> 48
the Company's Stock Plans. In 1999, neither of the members of the Compensation
Committee had any relationship with the Company requiring disclosure under Item
404 of Regulation S-K.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's articles of incorporation (the "Articles") contain a provision
eliminating the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
Florida Business Corporation Act. This provision in the Articles does not
eliminate the duty of care and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under Florida law. Each director will continue to be subject to
liability for breach of a director's duty of loyalty to the Company or its
shareholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, or for any transaction from which the
director derived an improper personal benefit. This provision also does not
affect a director's responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws.
The Articles and bylaws of the Company (the "Bylaws") provide that the Company
will indemnify its directors and officers, and may indemnify its employees and
other agents, to the fullest extent permitted by law. The Company's Bylaws also
permit it to secure insurance on behalf of any person it is required or
permitted to indemnify for any liability arising out of his or her actions in
such capacity, regardless of whether the Articles and Bylaws would permit
indemnification. The Company maintains liability insurance for its directors and
officers.
In addition to the indemnification provided for in the Company's Articles and
Bylaws, the Company has entered into agreements to indemnify its directors and
its executive officers. These agreements, among other things, indemnify the
Company's directors and executive officers for all direct and indirect expenses
and costs (including, without limitation, all reasonable attorneys' fees and
related disbursements, other out of pocket costs and reasonable compensation for
time spent by such persons for which they are not otherwise compensated by the
Company or any third person) and liabilities of any type whatsoever (including,
but not limited to, judgments, fines and amounts paid in settlement) actually
and reasonably incurred by such person in connection with either the
investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or other proceeding, including any action by or in the
right of the corporation, arising out of such person's services as a director,
officer, employee or other agent of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.
At present, there are two pending lawsuits against the Company involving
certain of its directors and officers where indemnification may be required or
permitted. See "Item 3. Legal Proceedings" for a discussion of HENRY E. FREEMAN
AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v. PRECISION RESPONSE
CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No. 3:98-CV-1895-AVC (D.
Conn.)) and JOSEPH P. RIANO v. PRECISION RESPONSE CORPORATION; PRCNETCARE.COM,
INC.; MARK J. GORDON; AND DAVID L. EPSTEIN (Case No. 99-25774 CA 10).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of February 15, 2000 by (i) each shareholder of the
Company who beneficially owns more than 5% of the Company's Common Stock; (ii)
each director of the Company; (iii) each Named Executive Officer; and (iv) all
directors and executive officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of Common Stock
listed below, based on information provided by such owners, have sole investment
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<PAGE> 49
and voting power with respect to such shares. The address of each person who
beneficially owns more than 5% of Common Stock is the Company's principal
executive office.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------
NAME NUMBER PERCENT (1)
- -------------------------------------------------------- --------------------- ----------------
<S> <C> <C> <C>
Mark J. Gordon (2) 6,365,313 (3) 29.1%
David L. Epstein (2) 4,653,017 (4) 21.3
Richard D. Mondre 4,413,283 (5) 20.2
Stacy Lynn Gordon PRC Trust 1,435,000 (6) 6.6
Jason Howard Gordon PRC Trust 1,435,000 (7) 6.6
Bernard J. Kosar, Jr. 900,300 (8) 4.0
Paul M. O'Hara (2) 557,166 (9) 2.5
Richard N. Ferry, Jr. (2) 552,546 (10) 2.5
Wesley T. O'Brien 234,500 (11) 1.1
Christian Mustad 156,899 (12) *
Neil A. Natkow 43,533 (13) *
Richard N. Krinzman 12,999 (14) *
All directors and executive officers as a group
(16 persons) 14,561,323 (15) 61.4%
</TABLE>
- ----------
*Less than 1%.
(1) Percentage of beneficial ownership is based on 21,852,231 shares of Common
Stock outstanding as of February 15, 2000, except that, in the case of
Messrs. Kosar, O'Hara, Ferry, O'Brien, Mustad, Natkow and Krinzman and all
directors and executive officers as a group, the number of options held by
Messrs. Kosar, O'Hara, Ferry, O'Brien, Mustad, Natkow and Krinzman and all
directors and executive officers as a group which are exercisable within 60
days of February 15, 2000 are also included in such calculations, as
applicable.
(2) Mr. Gordon and Mr. Epstein each has certain rights to acquire shares owned
by each of Mr. O'Hara and Mr. Ferry pursuant to stock purchase and pledge
agreements. For a more detailed description of these rights, see
"Shareholder Agreements."
(3) Includes 50,000 shares owned directly by Mr. Gordon and 4,959,500 shares
held by a Texas limited partnership in which Mr. Gordon is a 80.3562156%
limited partner, two grantor retained annuity trusts are limited partners
having an aggregate 17.28089% interest, a trust for the benefit of Mr.
Gordon's grandchildren is a limited partner having a 0.3628944% interest,
Mr. Gordon's wife is a 1% limited partner and a Texas corporation, which is
wholly owned by Mr. Gordon, is a 1% general partner. The grantor retained
annuity trusts each provides an annuity to Mr. Gordon for five years, and
thereafter Mr. Gordon's wife and his lineal descendants have a principal
and/or income interest in the remainder. Also includes (i) 607,500 shares
held by a Texas limited partnership in which Mr. Gordon is a 98% limited
partner, Mr. Gordon's wife is a 1% limited partner and a Texas corporation,
which is wholly owned by Mr. Gordon, is a 1% general partner; (ii) 100,030
shares by the Gail and Mark Gordon Foundation, an Internal Revenue Code
Section 501 (c)(3) exempt corporation as to which Mr. Gordon and his spouse
are the sole directors; and (iii) 648,283 shares beneficially owned by the
David Epstein 1995 Grantor Trust (held as described below) as to which Mr.
Gordon shares the voting and dispositive duties with respect to the shares
as co-trustee under this trust, which was created by Mr. Epstein for the
benefit of his children. The shares beneficially owned by the David Epstein
1995 Grantor Trust are held of record by two Texas limited partnerships in
which each trust is a 98% limited partner, Mr. Epstein's wife is a 1%
limited partner and a Texas corporation, which is wholly owned by the
trust, is the 1% general partner. Messrs. Gordon and Mondre share the
voting and dispositive duties with respect to these shares as co-trustees
under the trust, which was created by Mr. Epstein for the benefit of his
children, and as the directors of the Texas corporation which is the
general partner of each Texas limited partnership.
(4) Includes 1,180,917 shares held by a Texas limited partnership in which Mr.
Epstein is a 78.65071% limited partner, a grantor retained annuity trust is
a 4.83439% limited partner, a trust for the benefit of Mr. Epstein's
children is a 14.5149% limited partner, Mr. Epstein's wife is a 1% limited
partner and a Texas corporation, which is wholly owned by Mr. Epstein, is
the 1% general partner. The grantor retained annuity trust provides an
annuity to Mr. Epstein for five years, and his wife, his parents and their
lineal descendants and others have principal and/or income interests in the
remainder. Also includes (i) 537,500 shares held by a Texas limited
partnership in which Mr. Epstein is a 98% limited partner, Mr. Epstein's
wife is a 1% limited partner and a Texas corporation, which is wholly owned
by Mr. Epstein, is the 1% general partner; (ii) 1,435,000 shares
beneficially owned by the Jason Howard Gordon PRC Trust (held as described
in footnote (7) below) and 1,435,000 shares beneficially owned by the Stacy
Lynn Gordon PRC Trust (held as described in footnote (6) below), as to
which Mr. Epstein shares the voting and dispositive duties as co-trustee
under these trusts which were created by Mr. Gordon for the benefit of his
children; and (iii) 64,600 shares owned by an Ohio corporation owned 50% by
Messrs. Epstein and Kosar.
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<PAGE> 50
(5) Includes 845,000 shares in the aggregate held by two Texas limited
partnerships in each of which Mr. Mondre is a 98% limited partner, Mr.
Mondre's wife is a 1% limited partner and a Texas corporation, which is
wholly owned by Mr. Mondre, is the 1% general partner. Also includes (i)
1,435,000, 1,435,000 and 648,283 shares as to which Mr. Mondre shares the
voting and dispositive duties as co-trustee under the Jason Howard Gordon
PRC Trust, the Stacy Lynn Gordon PRC Trust and the David Epstein 1995
Grantor Trust, respectively (see footnotes (3) and (4) above and (6) and
(7) below); and (ii) 50,000 shares held by a Texas limited partnership in
which a Texas corporation, which is wholly owned by Mr. Mondre, is the 1%
general partner and Mr. Mondre's son is a 99% limited partner. See
"Shareholder Agreements" for a description regarding from whom Mr. Mondre
acquired, and to whom are pledged, 895,000 shares beneficially and
pecuniarily owned by Mr. Mondre and his family.
(6) All of these shares are held by two Texas limited partnerships in each of
which the trust is a 98% limited partner, Stacy Lynn Gordon is a 1%
limited partner and a Texas limited liability company is the 1% general
partner. The general partner is owned by the trust as a 99% member and by
a Texas corporation, which is wholly owned by the trust, as a 1% managing
member. Messrs. Epstein and Mondre share the voting and dispositive duties
with respect to these shares as co-trustees under this trust, which was
created by Mr. Gordon for the benefit of his daughter, Stacy Lynn Gordon,
and as directors of the Texas corporation.
(7) All of these shares are held by two Texas limited partnerships in each of
which the trust is a 98% limited partner, Jason Howard Gordon is a 1%
limited partner and a Texas limited liability company is the 1% general
partner. The general partner is owned by the trust as a 99% member and by a
Texas corporation, which is wholly owned by the trust, as a 1% managing
member. Messrs. Epstein and Mondre share the voting and dispositive duties
with respect to these shares as co-trustees under this trust, which was
created by Mr. Gordon for the benefit of his son, Jason Howard Gordon, and
as directors of the Texas corporation.
(8) Includes (i) 64,600 shares of Common Stock owned by an Ohio corporation
owned 50% by Messrs. Kosar and Epstein; and (ii) 651,600 shares of Common
Stock issuable upon the exercise of options within 60 days of February 15,
2000.
(9) Includes (i) 200,000 shares of Common Stock owned by a grantor trust in
which Mr. O'Hara's daughter is trustee and Mr. O'Hara and his spouse are
the beneficiaries; and (ii) 357,166 shares of Common Stock issuable upon
the exercise of options within 60 days of February 15, 2000.
(10) Includes 352,546 shares of Common Stock issuable upon the exercise of
options within 60 days of February 15, 2000.
(11) Includes 216,319 shares of Common Stock issuable upon the exercise of
options within 60 days of February 15, 2000.
(12) Includes 4,999 shares of Common Stock issuable upon the exercise of options
within 60 days of February 15, 2000.
(13) Includes (i) 400 shares of Common Stock held in trust for one of Dr.
Natkow's sons; and (ii) 3,333 shares of Common Stock issuable upon the
exercise of options within 60 days of February 15, 2000.
(14) Includes (i) 1,000 shares held on behalf of Mr. Krinzman's mother; (ii)
1,000 shares held on behalf of Mr. Krinzman's mother-in-law; and (iii)
4,999 shares of Common Stock issuable upon the exercise of options within
60 days of February 15, 2000.
(15) See other footnotes above. Does not include options held by officers and
directors which are not exercisable within 60 days of February 15, 2000.
SHAREHOLDER AGREEMENTS
Mr. Mondre acquired 595,000 of the shares of Common Stock beneficially and
pecuniarily owned by Mr. Mondre and his family 75% from Mr. Gordon and 25% from
Mr. Epstein in February 1996 (the "1996 Acquisition") and 300,000 of his shares
of Common Stock from an affiliate of Mr. Gordon in October 1998. The purchase
prices for such shares are evidenced by long-term promissory notes guaranteed by
Mr. Mondre's spouse and are secured by a pledge of the shares sold and, in the
case of the shares purchased in the 1996 Acquisition, other securities owned by
Mr. Mondre's spouse pursuant to separate pledge agreements.
Each of Mr. O'Hara and Mr. Ferry acquired his shares of Common Stock 62.5%
from an affiliate of Mr. Gordon and 37.5% from an affiliate of Mr. Epstein in
September 1998. The purchase prices for such shares are evidenced by long-term
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<PAGE> 51
promissory notes guaranteed by the spouses of each of Mr. O'Hara and Mr. Ferry
and are secured by a pledge of the shares sold pursuant to stock purchase and
pledge agreements. In connection with these purchases, each of Mr. O'Hara and
Mr. Ferry agreed to significant restrictions on their respective rights to sell,
alienate or otherwise dispose of the shares of Common Stock acquired by them
from the affiliates of Mr. Gordon and Mr. Epstein, respectively, as well as to
rights on the part of such affiliates to purchase those shares under certain
circumstances. Generally, each of Mr. O'Hara and Mr. Ferry may not sell,
alienate or otherwise dispose of their shares of Common Stock prior to September
2, 2001, without the consent of the affiliates of Mr. Gordon and Mr. Epstein,
subject to certain exceptions including a Change in Control, termination of
employment by the Company other than for cause, a sale of the Company and death.
Such shares owned by Mr. O'Hara and Mr. Ferry are subject to repurchase rights
of the affiliates of Mr. Gordon and Mr. Epstein, respectively, at the
acquisition price if the respective individual's employment with the Company
terminates prior to September 2, 2001, as a result of termination by the Company
of his employment for cause or his resignation from employment with the Company
other than after a Change in Control. All of the repurchase rights terminate
upon the occurrence of a Change in Control, termination by the Company of the
respective individual's employment other than for cause or a sale of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999 the Company leased two facilities, currently used for warehouse
space, located at 4250 N.W. 135th Street, Miami, and 13180 N.W. 43rd Avenue,
Miami, from a corporation of which Mark J. Gordon, the Chairman of the Board of
the Company, is the sole shareholder. Prior to May 1, 1996, these two facilities
were leased to the Company on a month-to-month basis. In May 1996, the Company
entered into written leases for such facilities. The leases commenced on May 1,
1996 for a term of five years, with a five-year renewal option. During 1999 the
aggregate monthly rent for these two properties was approximately $24,000. Total
rent expense for these facilities was approximately $284,000 in 1999. The
Company believes that the rents payable under these leases are no less favorable
to it than could be obtained from unaffiliated parties.
The Company subleases its facility at 11975 S.W. 140th Terrace, Miami, from a
partnership jointly owned by Mr. Gordon and David L. Epstein, the Chief
Executive Officer of the Company. The term of this sublease expires in January
2004 and the current monthly rental obligation is approximately $16,600. In
addition, the Company is obligated to remit an annual payment for applicable
property taxes. The property is subleased to the Company on the same terms as
the primary lease with an unaffiliated party. The affiliated partnership holds
an option to purchase the property. The Company also subleases a parking
facility adjacent to the 11975 S.W. 140th Terrace facility from the same
affiliated partnership. This sublease expires in January 2002 and the monthly
rental obligation is approximately $2,500 plus one-twelfth of the applicable
real estate taxes. This property is also subleased to the Company on the same
terms as the primary lease. The Company was originally the lessee under both
primary leases, but assigned its interest to the partnership in May 1996 for
nominal consideration. Effective June 1996, the Company entered into a net lease
with the aforementioned partnership for an additional parking area. The term of
the lease expires five years from June 1996 and the monthly rental obligation is
approximately $2,800 plus one-twelfth of the applicable real estate taxes. The
aggregate rental expenses with respect to the aforementioned subleases and the
lease of the additional parking area were approximately $250,000 in 1999, not
including applicable property and real estate taxes. The Company believes that
the rents paid and that are payable under these subleases and the net lease are
no less favorable than could be obtained from unaffiliated parties.
The Company funds a portion of the life insurance premiums payable with
respect to up to three split-dollar life insurance policies owned by the Mark
Gordon Family Trust. The amounts paid by the Company are reimbursable to the
Company without interest upon the death of Mr. Gordon, the surrender of the
policies or the termination of the arrangement. This obligation is secured by
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<PAGE> 52
the benefits payable under the insurance policies. The aggregate amount
outstanding for these premiums as of December 31, 1999 was approximately
$167,000.
The Company also funds a portion of the life insurance premiums payable with
respect to three split-dollar life insurance policies owned by three separate
trusts for the benefit of Mr. Epstein's family. The amounts paid by the Company
are reimbursable to the Company without interest upon, under one policy, the
death of Mr. Epstein, and under the other two policies, the death of the last to
die of Mr. Epstein and his spouse, the surrender of the policies or the
termination of the arrangement; provided, however, that, in the event that prior
to such time Mr. Epstein's employment with the Company is terminated in certain
circumstances (including, without limitation, as a result of his disability,
without cause or constructive termination), the amounts paid by the Company will
not be reimbursed. This obligation is secured by the benefits payable under the
insurance policies. The aggregate amount outstanding for these premiums as of
December 31, 1999 was approximately $34,000.
Richard D. Mondre, the Company's Executive Vice President, General Counsel and
Secretary and a director, was a partner of Rubin Baum until immediately prior to
joining the Company in March 1996 and remains "Of Counsel" to BSDPA, the
successor firm to Rubin Baum. Prior to February 1, 1998, Rubin Baum had acted as
the Company's regular outside legal counsel and since then BSDPA has acted as
the Company's regular outside counsel. The total fees and costs paid by the
Company to BSDPA and Rubin Baum in 1999 were approximately $558,000 and $44,000,
respectively. The Company believes that the fees paid to Rubin Baum and BSDPA
are no less favorable than could be obtained from other comparable law firms in
the area.
During 1999, the Company paid approximately $385,000 in fees to charter an
aircraft in connection with business travel for the Company's personnel. The
aircraft is owned by an entity of which Mr. Gordon is the sole shareholder. The
Company believes that the fees paid to Mr. Gordon's affiliate were no less
favorable to it than would have been obtained from unaffiliated parties.
Richard N. Krinzman, a director of the Company, is a shareholder and director
of the law firm of Holtzman, Krinzman, Equels & Furia, P.A., located in Miami,
Florida. In July 1998, such law firm was engaged by the Company to represent it
in connection with governmental relations matters. Pursuant to such engagement,
such law firm received a retainer of $25,000 and is payable $2,500 per month.
Such law firm received legal fees from the Company in the amount of $30,000 in
1999. The engagement is terminable at any time by either party. The Company
believes that this engagement and the fees payable to such law firm in
connection therewith are no less favorable than could be obtained from other
comparable law firms in the area.
In November 1999, the Company entered into a put/call agreement with
Presidential Suites, Ltd., a Florida limited partnership directly and indirectly
owned by Mr. Gordon ("Presidential"). Pursuant to such agreement, the Company
was granted the right to cause Presidential to assign (and, in connection with
such assignment, the Company would assume Presidential's obligations accruing
after such assignment with respect to), and Presidential was granted the right
to cause the Company to assume Presidential's obligations accruing after such
assumption with respect to (and, in connection with such assumption,
Presidential would assign), Presidential's interest in a certain lease agreement
for leased space consisting of approximately 3,388 rentable square feet
("Presidential Premises") and adjacent to the Company's new leased premises
located in Plantation, Florida, which will be the site of the Company's new
principal corporate offices (see "Item 2. Properties"). In the event of the
exercise of the Company or Presidential of this put/call right, the Company
would also purchase, and Presidential would convey, Presidential's furniture,
fixtures and equipment kept on the Presidential Premises ("FF&E"). In connection
with the assignment and assumption of the aforesaid lease for the Presidential
Premises and the conveyance of the FF&E, the Company would, among other things,
(i) pay to Presidential the unamortized portion (which is amortizable over the
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initial term of the lease for the Presidential Premises) of the sum of (a) the
cost of the tenant improvements constructed on the Presidential Premises in
excess of the landlord's contribution in cash (and not in the form of a rent
credit) and (b) the cost of the FF&E, and (ii) provide a substitute letter of
credit to replace the then outstanding amount of Presidential's letter of credit
delivered to the landlord (the initial amount of Presidential's letter of credit
was $67,760). The base rental payable by Presidential under the lease for the
Presidential Premises is $49,126 per annum (increasing by 3% per annum during
the term) and the initial term of such lease is ten years.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Financial Statements
See Index to Consolidated Financial Statements located in Item
8 of this report.
2. Financial Statement Schedule PAGE
Schedule II - Valuation and Qualifying Accounts.........S-1
3. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of Precision Response Corporation (Exhibit 3.1 to Form S-1)*
3.2 Amended and Restated Bylaws of Precision Response Corporation (filed herewith)
10.1 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan as amended through May
15, 1997 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, File No. 0-20941)+
10.2 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan (as amended through
June 12, 1998) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, File No. 0-20941)+
10.3 Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan (as amended through
June 21, 1999) (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, File No. 0-20941)+
10.4 Precision Response Corporation 1996 Non-employee Director Stock Option Plan (Exhibit 10.2 to Form
S-1) *+
10.5 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)+
10.6 Precision Response Corporation Profit Sharing Plan (Exhibit 10.3 to Form S-1) *+
10.7 Employment Agreement with Mark Gordon (Exhibit 10.4 to Form S-1*), as amended by letter agreement
dated January 12, 2000 between the Company and Mark J. Gordon (filed herewith) +
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.8 Employment Agreement with David Epstein (Exhibit 10.5 to Form S-1*), as amended by Amendment to
Employment Agreement dated as of April 1, 1999 between the Company and David L. Epstein
(incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-20941), as further amended by Second Amendment to
Employment Agreement dated as of September 1, 1999 between the Company and David L. Epstein (filed
herewith) and as further amended by Third Amendment to Employment Agreement dated as of January 12,
2000 between the Company and David L. Epstein (filed herewith) +
10.9 Stock Purchase and Shareholder Agreement, dated February 16, 1996, between Richard Mondre and Mark
Gordon, as amended effective as of February 16, 1996 (Exhibit 10.8 to Form S-1) *
10.10 Stock Purchase and Shareholder Agreement, dated February 16, 1996, between Richard Mondre and David
Epstein, as amended effective as of February 16, 1996 (Exhibit 10.9 to Form S-1) *
10.11 Agreement, dated February 16, 1996, among Richard Mondre, Mark Gordon and David Epstein (Exhibit
10.10 to Form S-1) *
10.12 Stockholder Agreement, dated May 10, 1996, between Mark Gordon and David Epstein (Exhibits 10.14 to
Form S-1*), as terminated by letter dated January 12, 2000 from David L. Epstein to and accepted by
Mark J. Gordon (filed herewith)
10.13 S Corporation Tax Allocation and Indemnification Agreement (Exhibit 10.15 to Form S-1) *
10.14 Form of Indemnification Agreement (Exhibit 10.17 to Form S-1) *
10.15 Net Lease, dated May 1, 1996, between MJG Properties, Inc. and Precision Response Corporation (13180
N.W. 43rd Avenue lease) (Exhibit 10.18 to Form S-1) *
10.16 Net Lease, dated May 1, 1996, between MJG Properties, Inc. and Precision Response Corporation (4250
N.W. 135th Street lease) (Exhibit 10.19 to Form S-1) *
10.17 Lease Agreement and Option to Purchase Real Property, dated January 23, 1996, between Burger King
Corporation and Precision Response Corporation (without schedules) (Exhibit 10.21 to Form S-1) *
10.18 Assignment of Lease, dated as of April 18, 1996, between Precision Response Corporation and Deerwood
Realty Partners, Ltd (Exhibit 10. 22 to Form S-1) *
10.19 Sublease, dated May 1, 1996, between Precision Response Corporation and Deerwood Realty Partners,
Ltd. (Exhibit 10.23 to Form S-1) *
10.20 Lease, dated January 25, 1996, between Donald V. Mariutto and Eugene L. Mariutto, and Precision
Response Corporation (Exhibit 10.24 to Form S-1) *
10.21 Assignment of Lease, dated April 30, 1996, between Precision Response Corporation and Deerwood
Realty Partners, Ltd. (Exhibit 10.25 to Form S-1) *
</TABLE>
54
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.22 Sublease, dated May 1, 1996, between Precision Response Corporation and Deerwood Realty Partners,
Ltd. (Exhibit 10.26 to Form S-1) *
10.23 Net Lease, dated May 1, 1996, between Deerwood Realty Partners, Ltd. and Precision Response
Corporation (Exhibit 10.30 to Form S-1) *
10.24 Registration Rights Agreement, dated May 15, 1996, between Precision Response Corporation and Mark
Gordon (Exhibit 10.27 to Form S-1) *
10.25 Registration Rights Agreement, dated May 15, 1996, between Precision Response Corporation and David
Epstein (Exhibit 10.28 to Form S-1) *
10.26 Credit Agreement (with exhibits but without schedules) dated as of March 2, 1998 among the Company,
as the Borrower, NationsBank, N.A. and the other lenders that become signatories thereto, as the
Banks, and NationsBank, N.A., as the Agent (incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, File No. 0-20941)
10.27 First Amendment to Credit Agreement effective as of June 30, 1998 between the Company and
NationsBank, N.A. (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)
10.28 Second Amendment to Revolving Credit Agreement effective as of September 30, 1998 between the
Company and NationsBank, N.A. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941)
10.29 Confirmation letter dated December 1, 1998 from NationsBank, N.A. to the Company regarding
definition of "fixed charge coverage ratio " (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-20941)
10.30 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")
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, File No. 0-20941)
10.31 Fourth Amendment to Revolving Credit Agreement effective as of December 31, 1999 between the Company
and NationsBank (filed herewith)
10.32 Consolidated Renewal Promissory Note dated as of May 29, 1998 from the Company payable to the order
of NationsBank, N.A. (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)
10.33 First Amendment to Consolidated Renewal Promissory Note effective as of June 30, 1999 between the
Company and NationsBank (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)
</TABLE>
55
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.34 Revolving Promissory Note effective as of December 31, 1999 between the Company and NationsBank
(filed herewith)
10.35 Mortgage Loan Agreement dated as of May 29, 1998 between the Company and NationsBank, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, File No. 0-20941)
10.36 First Amendment to Mortgage Loan Agreement effective as of June 30, 1998 between the Company and
NationsBank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, File No. 0-20941)
10.37 Second Amendment to Mortgage Loan Agreement effective as of September 30, 1998 between the Company
and NationsBank, N.A. (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998, File No. 0-20941)
10.38 Third Amendment to Mortgage Loan Agreement effective as of June 30, 1999 between the Company and
NationsBank (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999, File No. 0-20941)
10.39 Fourth Amendment to Mortgage Loan Agreement effective as of December 31, 1999 between the Company
and NationsBank (filed herewith)
10.40 Employment Agreement dated as of August 4, 1998 between the Company and Robert Tenzer (incorporated
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-20941), as amended by First Amendment to Employment Agreement dated
as of January 13, 2000 between the Company and Robert Tenzer (filed herewith)+
10.41 Employment Agreement dated as of October 6, 1998 between the Company and James R. Weber
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998, File No. 0-20941)+
10.42 Employment Agreement effective as of October 20, 1998 between the Company and Wesley T. O'Brien
(incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, File No. 0-20941)+
10.43 Letter agreement effective as of October 1, 1998 from the Company to and accepted by Bernard J.
Kosar, Jr. (incorporated by reference to Exhibit 10.41 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, File No. 0-20941)+
10.44 Employment Agreement dated as of April 1, 1999 between the Company and Richard D. Mondre together
with Registration Rights Agreement dated as of April 1, 1999 between the Company and Richard D.
Mondre annexed as Exhibit "A" thereto (incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, File No. 0-20941), as amended by
First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Richard
D. Mondre (filed herewith)+
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.45 Employment Agreement dated as of April 1, 1999 between the Company and Richard N. Ferry, Jr.
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment
Agreement dated as of January 12, 2000 between the Company and Richard N. Ferry, Jr. (filed
herewith)+
10.46 Employment Agreement dated as of April 14, 1999 between the Company and Michael P. Miller
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, File No. 0-20941), as amended by First Amendment to Employment
Agreement dated as of January 13, 2000 between the Company and Michael P. Miller (filed herewith)+
10.47 Securities Purchase Agreement dated as of June 15, 1999 between the Company and Global Reservation
Systems, Inc. ("GRS") (without exhibits or schedules) (incorporated by reference to Exhibit 10.6 to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)
10.48 Common Stock Purchase Warrant dated June 15, 1999 from GRS in favor of the Company (incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, File No. 0-20941)
10.49 Shareholders' Rights Agreement dated as of June 15, 1999 among the Company, GRS and certain
shareholders of GRS (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, File No. 0-20941)
10.50 Registration Rights Agreement dated as of June 15, 1999 between the Company and GRS (incorporated by
reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, File No. 0-20941)
10.51 Lease Agreement effective as of July 20, 1999 between Crossroads Business Park Associates, as
landlord, and the Company, as tenant, as amended by Lease Amendment No. 1 dated and effective as of
October 29, 1999 between Crossroads Business Park Associates, as landlord, and the Company, as
tenant (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, File No. 0-20941)
10.52 Put/Call Agreement dated November 17, 1999 between the Company and Presidential Suites, Ltd. (filed
herewith)
10.53 Employment Agreement effective as of August 9, 1999 between the Company and Paul M. O'Hara
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, File No. 0-20941), as amended by First Amendment to Employment
Agreement dated as of January 12, 2000 between the Company and Paul M. O'Hara (filed herewith)+
10.54 Tri-Party Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999 between
the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 and the Epstein 1997 Family Trust u/a/d
June 19, 1997 and the Company (filed herewith)+
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- ------------------------------------------------------------------------------------------------------
<S> <C>
10.55 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
1999 between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 and the
Company (filed herewith)+
10.56 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
1999 between the Epstein 1995 Family Trust u/a/d August 2, 1995 and the Company (filed herewith)+
10.57 Split Dollar Agreement and Collateral Assignment effective April 1998 between the Mark Gordon Family
Trust u/a/d March 1, 1990 and the Company (filed herewith)+
10.58 Employment Agreement dated as of November 15, 1999 between the Company and Joseph E. Gillis, as
amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the Company
and Joseph E. Gillis (filed herewith)+
10.59 Employment Agreement dated as of November 15, 1999 between the Company and Thomas F. Jennings, Jr.,
as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the
Company and Thomas F. Jennings, Jr. (filed herewith)+
10.60 Employment Agreement executed as of October 1, 1999 between the Company and Frank Modrak (filed
herewith)+
10.61 Agreement and Plan of Merger, dated as of January 12, 2000, among the Company, USA Networks, Inc.
and P Acquisition Corp. (incorporated by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K filed on January 13, 2000, File No. 0-20941)
10.62 Stockholders Agreement, dated as of January 12, 2000, by and among USA Networks, Inc. and each of
the stockholders listed on Schedule I thereto (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed on January 13, 2000, File No. 0-20941)
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
- ----------
* Previously filed and incorporated by reference to exhibit in the Company's
Registration Statement on Form S-1, as amended (File No. 333-03209),
initially filed on May 6, 1996 ("Form S-1"), as set forth after such
agreement or document.
+ Indicates a management contract or compensatory plan or arrangement.
58
<PAGE> 59
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999. However, the Company has filed (i) a Current Report on
Form 8-K dated January 13, 2000, reporting in Item 5 thereof, among other
things, the entering into the Merger Agreement with USAi on January 12,
2000 and in Item 7 thereof the filing of a copy of the Merger Agreement,
Stockholders Agreement dated as of January 12, 2000 among USAi and each
of the stockholders listed on Schedule I thereto and a press release of
the Company and USAi dated January 12, 2000, and (ii) a Current Report on
Form 8-K dated January 27, 2000, reporting in Item 5 thereof the
Company's issuance on January 26, 2000 of a press release announcing its
revenues and earnings for the fourth quarter and year ended December 31,
1999 and in Item 7 thereof the filing of a copy of such press release of
the Company dated January 26, 2000.
59
<PAGE> 60
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) 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
(Principal Financial Officer)
Dated: February 18, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ MARK J. GORDON Chairman of the Board February 18, 2000
- -------------------------------------------
Mark J. Gordon
/s/ DAVID L. EPSTEIN Chief Executive Officer and February 18, 2000
- ------------------------------------------- Director
David L. Epstein (Principal Executive Officer)
/S/ RICHARD D. MONDRE Executive Vice President, February 18, 2000
- ------------------------------------------- General Counsel, Secretary
Richard D. Mondre and Director
/s/ PAUL M. O'HARA Executive Vice President - Finance February 18, 2000
- ------------------------------------------- and Chief Financial Officer
Paul M. O'Hara
/s/ THOMAS F. JENNINGS, JR. Vice President and Controller February 18, 2000
- ------------------------------------------- (Principal Accounting Officer)
Thomas F. Jennings, Jr.
Director , 2000
- -------------------------------------------
Bernard J. Kosar, Jr.
/s/ RICHARD N. KRINZMAN Director February 18, 2000
- -------------------------------------------
Richard N. Krinzman
/s/ CHRISTIAN MUSTAD Director February 18, 2000
- -------------------------------------------
Christian Mustad
/s/ NEIL A. NATKOW Director February 18, 2000
- -------------------------------------------
Neil A. Natkow
</TABLE>
60
<PAGE> 61
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Precision Response Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 8 on page 34 and Item 14(a)(1) on page 53 present fairly,
in all material respects, the financial position of Precision Response
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion the financial
statement schedule listed in the index appearing under Item 14 (a)(2) on page 53
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Miami, Florida
January 26, 2000
F-1
<PAGE> 62
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 2,067 $ 1,656
Accounts receivable, net of allowances of $2,411 and $8,225, in 1999 and 1998,
respectively ............................................................. 46,173 42,771
Income taxes receivable ...................................................... 199 215
Deferred income taxes ........................................................ 3,823 6,906
Prepaid expenses and other current assets .................................... 2,714 4,186
--------- ---------
Total current assets ................................................. 54,976 55,734
Property and equipment, net ...................................................... 88,109 71,414
Deferred income taxes ............................................................ 3,713 5,516
Other assets ..................................................................... 2,565 782
--------- ---------
Total assets ......................................................... $ 149,363 $ 133,446
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations .................................. $ 1,691 $ 2,510
Accounts payable ............................................................. 18,472 16,571
Restructuring accrual ........................................................ 1,280 3,244
Accrued compensation expenses ................................................ 4,632 3,108
Other accrued expenses ....................................................... 7,236 7,174
Customer deposits ............................................................ 377 1,108
--------- ---------
Total current liabilities ............................................ 33,688 33,715
Long-term obligations, less current maturities ................................... 23,425 16,916
Restructuring accrual ............................................................ 1,967 3,456
--------- ---------
Total liabilities .................................................... 59,080 54,087
--------- ---------
Commitments and contingencies (see Notes 7 and 15) ............................... -- --
Shareholders' equity:
Common stock, $0.01 par value; 100,000,000 shares authorized;
21,794,400 and 21,549,000 issued and outstanding, respectively ........... 218 215
Additional paid-in capital ................................................... 100,218 97,179
Accumulated deficit .......................................................... (9,744) (18,035)
Unearned compensation ........................................................ (409) --
--------- ---------
Total shareholders' equity ........................................... 90,283 79,359
--------- ---------
Total liabilities and shareholders' equity ........................... $ 149,363 $ 133,446
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 63
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues ............................................ $ 215,920 $ 175,173 $ 143,584
--------- --------- ---------
Operating expenses:
Cost of services ................................ 177,668 153,638 128,177
Selling, general and administrative expenses .... 23,249 23,290 25,874
Restructuring and asset impairment charges ...... -- 13,583 11,591
--------- --------- ---------
Total operating expenses ................ 200,917 190,511 165,642
--------- --------- ---------
Operating income (loss) ................. 15,003 (15,338) (22,058)
Other income (expense):
Interest income ................................. 74 261 984
Interest expense ................................ (1,195) (1,050) (702)
--------- --------- ---------
Income (loss) before income tax
provision (benefit) ................... 13,882 (16,127) (21,776)
Income tax provision (benefit) ...................... 5,591 (5,938) (8,710)
--------- --------- ---------
Net income (loss) ....................... $ 8,291 $ (10,189) $ (13,066)
========= ========= =========
Net income (loss) per common share:
Basic ............................................. $ 0.38 $ (0.47) $ (0.61)
========= ========= =========
Diluted ........................................... $ 0.37 $ (0.47) $ (0.61)
========= ========= =========
Weighted average number of common shares outstanding:
Basic ............................................. 21,587 21,548 21,393
========= ========= =========
Diluted ........................................... 22,445 21,548 21,393
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 64
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS UNEARNED
SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION TOTAL
--------- --------- ---------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ............ 20,000 $ 200 $ 47,808 $ 5,394 $ (452) $ 52,950
Net loss ............................ -- -- -- (13,066) -- (13,066)
Payment of dividend ................. -- -- -- (174) -- (174)
Issuance of common stock ............ 1,500 15 49,149 -- -- 49,164
Exercise of employee stock options .. 42 -- 222 -- -- 222
Amortization of unearned compensation -- -- -- -- 344 344
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 ............ 21,542 215 97,179 (7,846) (108) 89,440
Net loss ............................ -- -- -- (10,189) -- (10,189)
Exercise of employee stock options .. 7 -- -- -- -- --
Amortization of unearned compensation -- -- -- -- 108 108
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 ............ 21,549 215 97,179 (18,035) -- 79,359
Net income .......................... -- -- -- 8,291 -- 8,291
Stock option grants ................. -- -- 486 -- (486) --
Exercise of employee stock options .. 246 3 1,862 -- -- 1,865
Tax effect on exercise of employee
stock options .................. -- -- 691 -- -- 691
Amortization of unearned compensation -- -- -- -- 77 77
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1999 ............ 21,795 $ 218 $ 100,218 $ (9,744) $ (409) $ 90,283
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 65
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
------------- ---------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) .......................................................... $ 8,291 $(10,189) (13,066)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization .......................................... 15,440 12,822 11,506
Provision for bad debts and sales allowances ........................... 2,393 14,534 5,895
Amortization of unearned compensation .................................. 77 108 344
Restructuring and asset impairment charges ............................. -- 6,458 6,832
Other asset write-offs ................................................. -- 5,392 --
Deferred income taxes .................................................. 5,577 (6,037) (4,905)
Changes in operating assets and liabilities, excluding effects of
acquisition:
Accounts receivable .................................................... (5,795) (30,165) (7,205)
Income taxes receivable ................................................ 16 6,755 (6,970)
Prepaid expenses and other current assets .............................. 1,472 (448) (4,048)
Other assets ........................................................... (143) (247) 787
Accounts payable ....................................................... 1,901 3,549 (3,761)
Restructuring accrual .................................................. (3,453) 4,497 2,863
Accrued compensation expenses .......................................... 1,524 (1,993) 1,023
Income taxes payable ................................................... -- -- (3,297)
Other accrued expenses ................................................. 62 815 3,748
Customer deposits ...................................................... (731) (2,846) 1,534
-------- -------- --------
Net cash provided by (used in) operating
activities ...................................................... 26,631 3,005 (8,720)
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment ........................................ (32,135) (24,883) (34,251)
Investment in unconsolidated affiliate ..................................... (1,640) -- --
Cash acquired in acquisition, net of cash paid ............................. -- -- 192
-------- -------- --------
Net cash used in investing activities .............................. (33,775) (24,883) (34,059)
-------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from revolving credit loan .................................... 8,000 11,000 --
Payments on long-term obligations .......................................... (2,310) (2,546) (2,615)
Proceeds from long-term obligations ........................................ -- 4,000 --
Net proceeds from issuance of common stock ................................. -- -- 49,386
Dividend paid .............................................................. -- -- (174)
Proceeds from exercise of stock options .................................... 1,865 -- --
-------- -------- --------
Net cash provided by financing activities .......................... 7,555 12,454 46,597
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................... 411 (9,424) 3,818
Cash and cash equivalents at beginning of year ................................. 1,656 11,080 7,262
-------- -------- --------
Cash and cash equivalents at end of year ....................................... $ 2,067 $ 1,656 $ 11,080
======== ======== ========
Supplemental cash flow information:
Cash paid for interest, including capital leases, net of
amounts capitalized ..................................................... $ 877 $ 893 $ 724
======== ======== ========
Cash paid for income taxes ................................................. $ -- $ 215 $ 3,330
======== ======== ========
Supplemental schedule of non-cash investing and financing activities:
Installment loans and capital lease obligations ........................ $ -- $ -- $ 1,687
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 66
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Precision Response Corporation and subsidiaries (the "Company") is a
full-service provider of outsourced customer care, utilizing a fully-integrated
mix of traditional call center and e-commerce customer care solutions and
services, to large corporations and high-growth Internet-focused companies.
Through the integration of its teleservicing, e-commerce customer care services,
information technology, which includes database marketing and management, and
fulfillment capabilities, the Company is able to offer a total customer
relationship solution to meet its clients' needs.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates consist primarily of the allowance for doubtful
accounts and sales allowances, the valuation allowance on net deferred tax
assets, the useful lives of property and equipment, and accrued expenses. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less on
their acquisition date are considered cash equivalents. The Company places its
temporary cash investments with high credit quality financial institutions. At
times, such investments may be in excess of the federally-insured limits.
PROPERTY AND EQUIPMENT
Property and equipment, including expenditures for major improvements,
is stated at cost less accumulated depreciation and amortization. Repairs and
maintenance are expensed as incurred. Depreciation and amortization is
determined using the straight-line method over the estimated useful lives of the
respective assets or, in relation to leasehold improvements and property under
capital leases, over the lesser of the asset's estimated useful life or the
lease term (see Note 5 - Property and Equipment).
Upon the sale, retirement or other disposition of assets, the related
cost and accumulated depreciation or amortization is eliminated from the
accounts. Any resulting gains or losses from disposals are included in the
Consolidated Statements of Operations.
LONG-LIVED ASSETS
The Company evaluates long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable in accordance with Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF (see Note 3 - Restructuring and Other
Non-Recurring Special Charges).
F-6
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITALIZED INTEREST
The Company capitalizes certain interest costs recognized on borrowings
as part of the historical cost of acquiring or producing certain assets in
accordance with Statement of Financial Accounting Standards No. 34,
CAPITALIZATION OF INTEREST COST. The amount capitalized is an allocation of the
interest cost incurred during the period required to complete the asset. During
1999 and 1998, certain borrowings under the Company's revolving credit facility
(see Note 6- Credit Facilities and Long-Term Debt) were used to partially fund
the Company's PRISM Project (see Note 5- Property and Equipment) and other
internally developed or modified software, and the resulting interest costs
incurred have been capitalized. Total interest cost incurred during 1999 was
$1.8 million, of which $1.2 million was expensed and is included in the
accompanying 1999 Consolidated Statements of Operations, and the remaining $0.6
million was capitalized and is included in Property and equipment, net in the
accompanying Consolidated Balance Sheets. Total interest cost incurred during
1998 was $1.3 million, of which $1.1 million was expensed and is included in the
accompanying 1998 Consolidated Statements of Operations, and the remaining $0.2
million was capitalized and is included in Property and equipment, net in the
accompanying Consolidated Balance Sheets. As each module of the PRISM Project
became operational or as other internally developed or modified software is
available for use, all associated capitalized costs, including capitalized
interest, is, or will begin to be, amortized on a straight-line basis over the
module's or software's estimated useful life.
REVENUE RECOGNITION
The Company recognizes revenues as services are performed.
Teleservicing charges are primarily based on a fixed hourly fee for dedicated
service. Internet customer care and electronic message servicing are based on
hourly rates and on a transaction basis, respectively, or a combination of
charges thereof. Beginning in the third quarter of 1997, the Company also
generated teleservicing revenues under incentive-based compensation agreements
whereby the amount of revenue earned correlates to the achievement of
established targets. The Company exited the incentive-based teleservicing
program during 1998. Charges for database marketing and management services are
based on an hourly rate or on the volume of information stored. Charges for
fulfillment services are typically assessed on a transaction basis, with an
additional charge for warehousing products for customers.
Revenues earned from the transfers of software by the Company are
generally recognized when the software has been shipped, payment is due within
one year, collectibility is probable and there are no significant obligations
remaining. No such revenues were recognized in 1999 or 1998.
SOFTWARE DEVELOPMENT COSTS
The Company capitalized costs related to the development of certain
software products integral to the Company's teleservicing programs and recent
business process reengineering, which were either for internal use or with an
objective of being marketed externally. Capitalized software development costs
were reported at the lower of unamortized cost or net realizable value based
upon future use on a product-by-product basis. In accordance with Statement of
Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, ("SFAS No. 86")
capitalization of these software development costs began when technological
feasibility had been established and ended when the product was available for
general use in the Company's teleservicing programs. The establishment of
technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by
management with respect to certain external factors, including, but not limited
to, anticipated future demands of teleservicing programs, estimated economic
life and changes in software and hardware technologies.
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commencing upon initial product release, capitalized software costs
were amortized on an individual product basis using the straight-line method
over the estimated economic life of the product or three years. The amount of
externally marketed software development costs capitalized in 1997 was
$1,660,000. No software development costs were incurred during 1999 or 1998 in
accordance with the provisions of SFAS No. 86. Amortization expense related to
externally marketed software development costs was $744,000 and $1,368,000 in
1998 and 1997, respectively. No amortization expense related to externally
marketed software development costs was recorded in 1999. In conjunction with
the Company's restructuring plan during the third quarter of 1998, the remaining
unamortized balance of software development costs in the amount of $1,243,000
was written off (see Note 3 - Restructuring and Other Non-Recurring Special
Charges).
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 acquired and internally developed or modified software
solely to meet the Company's internal needs integral to the Company's
teleservicing or Internet-based programs. The Company capitalizes certain
internal and external costs directly associated with developing or modifying the
internal use software, which begins with the application development stage and
ends when the project is substantially complete and ready for its intended use.
The amount of costs capitalized in 1999 and 1998 relating to internal use
software in process was $3.1 million and $4.9 million, respectively, consisting
principally of software purchased from external vendors, and is included in
Property and equipment, net in the accompanying Consolidated Balance Sheets. In
addition, $10.1 million of software developed or modified for internal purposes
was available for use as of December 31, 1999 and is included in Property and
equipment, net in the accompanying Consolidated Balance Sheets (see Note 5-
Property and Equipment). As of December 31, 1998, no internal use software
development projects were ready for their intended uses with the exception of
the PRISM Project which is discussed in the following paragraph. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future teleservicing program or Internet-based
program demand, estimated economic life and changes in software and hardware
technologies.
In addition, in accordance with Emerging Issues Task Force 97-13,
ACCOUNTING FOR COSTS INCURRED IN CONNECTION WITH A CONSULTING CONTRACT OR AN
INTERNAL PROJECT THAT COMBINES BUSINESS PROCESS REENGINEERING AND INFORMATION
TECHNOLOGY TRANSFORMATION, and the provisions of SOP 98-1, the Company
capitalized certain costs incurred in the enhancement of internal financial and
operating systems associated with its initiative to implement an Enterprise
Resource Planning solution, which the Company designated the PRISM Project.
Capitalized costs incurred on the PRISM Project, consisting principally of
software purchased from Oracle Corporation, outside consultant fees and, to a
lesser extent, payroll and payroll-related costs for employees directly
associated with the PRISM Project, were $12.8 million and $8.6 million as of
December 31, 1999 and 1998, respectively, and are included in Property and
equipment, net in the accompanying Consolidated Balance Sheets (see Note 5-
Property and Equipment). The PRISM Project has been implemented in phases with
certain systems or modules becoming functional at different points in the
project timeframe. As each module of the PRISM Project was implemented, all
associated capitalized costs began to be amortized on a straight-line basis over
the module's estimated useful life. As of December 31, 1999, all modules of the
PRISM Project had been placed in service. Amortization expense relating to the
modules placed in service was approximately $1.3 million and $100,000 in 1999
and 1998, respectively.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. Accordingly, compensation expense for qualified and non-qualified
stock options granted under the Company's stock option plans is generally
measured as the difference between the quoted market price of the Company's
F-8
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
stock at the date of grant and the amount an employee must pay to acquire the
stock. For options granted to other than employees in exchange for goods or
services, compensation cost is measured at fair value in accordance with SFAS
123 (see Note 12- Stock-Based Compensation Plans).
ADVERTISING EXPENSES
Advertising expenses are charged to operations as incurred. During
1999, 1998 and 1997, advertising expenses were $477,000, $418,000 and $341,000,
respectively.
INCOME TAXES
The Company provides for deferred income taxes under the asset and
liability method for financial accounting and reporting for income taxes.
Deferred tax assets and liabilities are determined based on the differences
between the financial statements carrying amounts and the tax bases of existing
assets and liabilities using the enacted statutory tax rates in effect for the
year in which the differences are expected to reverse.
EARNINGS PER COMMON SHARE
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE ("SFAS No. 128"), which supersedes
Accounting Principles Board Opinion No. 15, EARNINGS PER SHARE. Basic earnings
per common share calculations are determined by dividing earnings available to
common shareholders by the weighted average number of shares of common stock
outstanding during the year. Diluted earnings per common share calculations are
determined by dividing earnings available to common shareholders by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding during the year (all related to outstanding stock options discussed
in Note 12- Stock-Based Compensation Plans).
2. PUBLIC OFFERINGS
Effective January 29, 1997 (the actual closing date was February 4,
1997), the Company and certain selling shareholders completed a second equity
offering of 4,740,000 shares of common stock at an offering price of $35.125 per
share (the "Second Equity Offering"). Of the 4,740,000 shares, 1,500,000 shares
were sold by the Company. Net proceeds to the Company from the Second Equity
Offering in the amount of $49.2 million, after deducting $3.5 million in costs
associated with the offering, have been used for call center expansion, other
capital expenditures necessary to support the Company's growth, working capital
and other general corporate purposes.
3. 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. Such
review focused on determining the needed workstation capacity appropriate and
desirable in light of several factors. These factors included the requirements
for servicing the Company's current, recently attained, and anticipated new
clients; the Company's less than satisfactory operating results relative to a
large incentive-based, outbound teleservices program; and, the Company's
inability to recruit, train and maintain an employee base relative to available
workstations in certain strained labor markets without paying premium wage rates
not able to be supported by the operating margins being generated.
F-9
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, consolidating and making
adjustments to certain call centers' workstation capacity 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 connection with the Company's decision to exit the
incentive-based outbound teleservicing program and to make call center capacity
adjustments, certain reductions in overhead and administrative headcount were
also made resulting in the termination of nine employees.
In adopting this plan, the Company recorded restructuring and other
non-recurring special charges of $22.1 million before taxes with an after-tax
impact of $13.8 million. This pre-tax amount is allocated as follows in the
Consolidated Statements of Operations for the year ended December 31, 1998:
$13.6 million to Restructuring and asset impairment charges (as further
described in the next paragraph); $2.3 million to Cost of services (of which
$700,000 represents cash items and $1.6 million represents non-cash items)
related principally to the write-off of teleservicing software that the Company
decided to replace with new customer interaction software reflective of advances
in customer care technology; and $6.2 million to Selling, general and
administrative expenses (of which $2.1 million represents cash items and $4.1
million represents non-cash items) principally for asset impairments of $4.1
million related to the plan to exit an incentive-based outbound teleservicing
program, $1.5 million related to increases in the provisions for certain accrued
liabilities, and $600,000 related to severance and other employee costs incurred
during the development of the performance enhancing initiatives plan. Of the
total $8.5 million in Cost of services and Selling, general and administrative
expenses described above, approximately $704,000 and $1.0 million was accrued at
December 31, 1999 and 1998, respectively, and is included in Other accrued
expenses in the accompanying Consolidated Balance Sheets.
Amounts included in Restructuring and asset impairment charges in the
Consolidated Statements of Operations for the year ended December 31, 1998
include cash items such as severance and other employee-related costs of $1.0
million and lease and other facility exit costs associated with the reduction of
workstation capacity of $6.1 million. Of the total $7.1 million, approximately
$3.2 million and $6.2 million is accrued as of December 31, 1999 and 1998,
respectively, as part of the restructuring accrual. Non-cash restructuring and
asset impairment charges of $6.5 million are primarily related to the write-off
of leasehold improvements and telephone and computer equipment associated with
the reduction in workstation capacity.
As of December 31, 1999, the Company had substantially completed its
restructuring and performance enhancing initiatives. During the fourth quarter
of 1998, the Company's exit of the incentive-based outbound teleservicing
program was completed and during the first quarter of 1999, the Company
completed its termination of certain designated employees. As of the end of the
fourth quarter of 1999, the Company had relocated all of the ongoing
teleservicing programs from one center and maintained reduced workstation
capacity in another center. Additionally, the Company implemented new customer
interaction software reflective of advances in customer care technology.
During the third quarter of 1997, the Company initiated an extensive
and systematic review of its operations and cost structure in response to
inefficiencies primarily resulting from the addition of capacity and
infrastructure to accommodate a contract for its largest client that had been
delayed indefinitely and an across-the-board price reduction imposed by this
client. The review of the Company's operations focused primarily on operational
and organization structures and systems, client profitability and facilities
rationalization.
As a result of this review, the Company announced a major restructuring
and cost reduction plan designed to reduce its cost structure and adjust its
infrastructure to significantly improve operating efficiencies and performance
as the Company sought to shift its customer base to a more diversified
portfolio. The Company initiated a plan to consolidate three administrative
locations into unused space in an existing facility, to reduce overhead and
administrative headcount by 10%, to consolidate and reorganize various
F-10
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
functional departments and to integrate and enhance its financial and operating
systems. The headcount reductions resulted in the termination of approximately
150 employees primarily in the areas of teleservicing, information services and
administration. Payment of substantially all termination benefits took place
during the fourth quarter of 1997 during which time actual employee terminations
occurred.
In adopting this plan, the Company recorded a non-recurring special
charge of $26.2 million before taxes with an after-tax impact of $15.7 million.
This amount is allocated as follows in the Consolidated Statements of Operations
for the year ended December 31, 1997: $11.6 million to Restructuring and asset
impairment charges (as further described in the next paragraph); $7.8 million to
Cost of services (of which $6.6 million represented cash items and $1.2 million
represented non-cash items) related principally to significant,
non-capitalizable start-up and other costs incurred in expanding and improving
the Company's ability to provide certain types of teleservicing and fulfillment
services which it had previously been providing only on a limited basis (these
costs primarily related to development of systems applications and training
modules as well as actual employee training); and $6.8 million to Selling,
general and administrative expenses (of which $6.7 million represented cash
items and $100,000 represented non-cash items) principally for non-recurring
operating expenses including $4.8 million of costs associated with the
development of the Company's restructuring and cost reduction initiatives,
increases in the provisions for certain accrued liabilities totaling $1.9
million and various balance sheet write-offs totaling $100,000. As of December
31, 1999, all accruals relating to Cost of services and Selling, general and
administrative expenses described above were fully utilized.
Amounts included in Restructuring and asset impairment charges in the
Consolidated Statements of Operations for the year ended December 31, 1997
include cash items such as severance and other employee costs of $2.1 million
and lease obligations and other exit costs associated with the consolidation of
three administrative locations into an existing facility and the closing of one
small, unused call center of $2.6 million. Non-cash restructuring and asset
impairment charges of $6.9 million are primarily related to the write-off of
leasehold improvements associated with the administrative facility consolidation
and closing along with the cost to fully amortize redundant systems that are not
deemed recoverable in light of the aforementioned changes with the Company's
largest client. At December 31, 1999, $57,000 is included in Restructuring
accrual in the Consolidated Balance Sheets, relating to facility consolidation
costs associated with the 1997 restructuring plan.
The Company initiated the restructuring and cost savings initiatives
during the third quarter of 1997 and during the fourth quarter of 1997 and
during 1998, the Company terminated designated employees and reorganized its
operational and administrative management structure in connection with the
restructuring and cost savings plan. The Company also completed the relocation
and consolidation of administrative office space into unused space at an
existing facility. Additionally, the Company continued its attempts to divest
unused facilities. This included termination in February 1998, of a lease for an
unused facility whose landlord is a corporation that is wholly owned by the
Company's Chairman of the Board. In consideration of a termination payment of
approximately $82,000, the landlord relieved the Company of its future lease
commitments totaling approximately $161,000. The Company believes that the
amount of the termination payment was no less favorable to it than could have
been negotiated from an unaffiliated party. The Company's implementation
throughout 1998 was substantially completed prior to the Company's initiation of
additional restructuring and performance enhancing initiatives described above.
F-11
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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 year ended December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
BALANCE AT BALANCE AT
DECEMBER 31, DECEMBER 31,
1998 EXPENDITURES 1999
----------------- ----------------- ----------------
<S> <C> <C> <C>
Severance and other employee costs................... $ 697 $ (697) $ --
Closure and consolidation of facilities and related
exit costs....................................... 6,003 (2,756) 3,247
----------------- ----------------- ----------------
Total restructuring accrual.............. 6,700 $ (3,453) 3,247
=================
Less current portion..................... (3,244) (1,280)
----------------- ----------------
Total restructuring accrual, long-term... $ 3,456 $ 1,967
================= ================
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
On June 15, 1999, the Company acquired 6,000,000 shares of common stock
of Global Reservation Systems, Inc. ("GRS"), currently representing an
approximate 16% ownership interest in GRS's successor (see below), for an
aggregate cost of $1.6 million. GRS (and its successor), a California
corporation, specializes in developing Internet-based travel products and
service systems. This equity 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 December 31, 1999.
In conjunction with this transaction, the Company also was 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 the 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, which exercise price
currently is $0.60 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 as defined in the agreement. 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 - Credit Facilities and Long-Term Debt).
In January 2000, GRS reorganized itself by transferring all of its
assets and substantially all of its liabilities to a newly-formed California
corporation which retained the Global Reservation Systems name. All existing
shareholders, including the Company, retained the same relative interests in
this new corporation as they had in the predecessor corporation.
5. 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):
F-12
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------- -----------------------------------
ESTIMATED
USEFUL
OWNED LEASED TOTAL OWNED LEASED TOTAL LIVES
--------- -------- --------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Land ........................... $ 1,057 $ -- $ 1,057 $ 1,057 $ -- $ 1,057 N/A
Buildings and improvements ..... 5,140 -- 5,140 4,878 -- 4,878 25 years
Telecommunications equipment and
software ................... 25,681 4,406 30,087 20,946 4,432 25,378 3-7 years
Computer equipment and software 63,538 5,429 68,967 33,768 5,523 39,291 3-5 years
Leasehold improvements ......... 14,064 -- 14,064 11,167 -- 11,167 *
Furniture and fixtures ......... 8,683 242 8,925 8,044 242 8,286 5-7 years
Vehicles ....................... 111 -- 111 111 -- 111 3 years
--------- --------- --------- --------- --------- ---------
118,274 10,077 128,351 79,971 10,197 90,168
Development in process ......... 5,360 -- 5,360 11,408 -- 11,408 N/A
--------- --------- --------- --------- --------- ---------
123,634 10,077 133,711 91,379 10,197 101,576
Less: accumulated depreciation
and amortization ............. (39,640) (5,962) (45,602) (25,943) (4,219) (30,162)
--------- --------- --------- --------- --------- ---------
$ 83,994 $ 4,115 $ 88,109 $ 65,436 $ 5,978 $ 71,414
========= ========= ========= ========= ========= =========
</TABLE>
* The lesser of the asset's estimated useful life or the lease term (see also
Note 7- Lease Commitments).
Depreciation and amortization expense amounted to $15,440,000,
$12,078,000 and $10,138,000 for 1999, 1998 and 1997, respectively.
As discussed in Note 1 - Operations and Significant Accounting
Policies, the Company capitalizes certain costs in connection with its PRISM
Project and software developed or modified for internal purposes, which will be
amortized when the project modules are implemented or software is available for
use. As of December 31, 1999, all modules of the PRISM Project had been placed
in service and are included within Computer equipment and software in the above
table in the amount of $12.8 million. Also included within Computer equipment
and software in the above table is $10.1 million of software developed or
modified for internal purposes, including IMA Advantage/Edge, that was available
for use as of December 31, 1999. Additionally, as of December 31, 1999, $3.1
million of internal use software in process, including the Company's Advanced
Communications Network project, is included within Development in process in the
above table.
During 1998, the Company acquired a property (land and existing
building) in Sunrise, Florida. See also Note 6- Credit Facilities and Long-Term
Debt below. The building and related building improvements of $5.1 million as of
December 31, 1999 were not depreciated in 1999 or 1998 due to the fact that the
building was not occupied or utilized during this time. The property, beginning
in January 2000, is occupied and being utilized as a new customer interaction
center.
6. CREDIT FACILITIES 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 to increase the amount available under the credit facility
to $35.0 million through January 31, 2000. The $25.0 million revolving credit
facility was further amended effective December 31, 1999 (the "Credit Facility")
to extend the $35.0 million amount available through February 29, 2000. In
addition, the amount available under the Credit Facility will be increased to
$50.0 million for the period of time between March 1, 2000 and June 30, 2000,
subject to certain limitations, as described below, and satisfactory completion
of the lender's audit of the Company's books and records and operations.
Effective as of July 1, 2000, the amount available under the Credit Facility
reverts back to $25.0 million. The December 31, 1999 amendment also extended the
maturity date of the Credit Facility to June 30, 2001. In accordance with the
F-13
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PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
terms of the amendment effective December 31, 1999, the Company paid the lender
on its Credit Facility a modification fee in the amount of $200,000 in January
2000, which will be amortized over the remaining life of the Credit Facility.
The terms of the amendment also require the Company to pay the lender on its
Credit Facility an additional fee in the amount of $250,000 on July 1, 2000, in
the event that USA Networks, Inc. has not completed its acquisition of the
Company by June 30, 2000. See Note 17 - Subsequent Event for a further
discussion of USA Network Inc.'s acquisition of the Company.
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"). Prior to December 31, 1999, the Company paid 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, of which the rate was 0.1875% per
annum at December 31, 1999. Effective December 31, 1999, the future fee on
unused commitments was increased to between 0.25% and 0.375% per annum. 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 December 31, 1999, the outstanding balance of
the Credit Facility was $19.0 million ($5.0 million at 8.50% per annum, $5.2
million at 7.48% per annum, $4.0 million at 7.73% per annum, $2.5 million at
7.46% per annum and $2.3 million at 7.32% per annum) and is included in
Long-term obligations, less current maturities in the accompanying Consolidated
Balance Sheets. At December 31, 1999, the available balance under the terms of
the Credit Facility was $15.2 million. As of December 31, 1999, the Company was
in compliance with all financial debt covenants.
The Company also has secured a mortgage, as amended effective December
31, 1999, with the lender on its Credit Facility in connection with the
acquisition of a property (land and existing building) located in Sunrise,
Florida, which in January 2000 was opened as a customer interaction center by
the Company. 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 interior improvements to the property
by March 2, 2000. The amended mortgage note accrues interest payable quarterly
at the LIBOR rate plus 1.50% per annum, of which the interest rate was 7.33% per
annum at December 31, 1999. Principal payments are due quarterly, commencing on
January 31, 2000, based 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.
Effective May 1997, the Company entered into a ten-year agreement to
lease its operating facility located in Jacksonville, Florida. The terms of the
lease included a construction allowance payment of approximately $1.0 million
made by the lessor to the Company on commencement of the lease and in return the
Company was obligated to make improvements to the facility. The lease agreement
also specifies that if the Company terminates the lease agreement prior to its
full term, it is required to refund the lessor the $1.0 million on a pro-rata
basis. In connection with the restructuring plan adopted in the third quarter of
1998 (see Note 3 - Restructuring and Other Non-Recurring Special Charges), the
Company reconfigured the workstation capacity and utilized space of the
Jacksonville facility during 1999 and, therefore, will terminate the
Jacksonville lease agreement at the lease option date in May 2002, which will
represent only five years of the specified ten year lease term. As such, the
Company will be obligated to refund the lessor 50% of the $1.0 million
construction allowance, or $500,000, upon termination of the lease. The $500,000
was accrued at December 31, 1999 and is included in Long-term obligations, less
current maturities in the accompanying Consolidated Balance Sheets.
F-14
<PAGE> 75
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term obligations as of December 31, 1999 and 1998 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- ---------------
<S> <C> <C>
Credit Facility............................................... $ 19,000 $ 11,000
Mortgage loan................................................. 4,000 4,000
Capital lease obligations..................................... 1,616 3,926
Other long-term obligations................................... 500 500
--------------- ---------------
25,116 19,426
Less: current maturities...................................... 1,691 2,510
--------------- ---------------
Long-term obligations, less current maturities................ $ 23,425 $ 16,916
=============== ===============
</TABLE>
Based on the borrowing rates available to the Company for debt with
similar terms and average maturities, the fair value of the Company's debt
approximates carrying value.
7. LEASE COMMITMENTS
The Company's operations are conducted in leased facilities which have
initial terms generally ranging from two to ten years. The leases for these
facilities would generally expire between 2004 and 2022 assuming the Company's
exercise of all renewal options. However, as a result of the 1998 restructuring
plan and continual assessment of the capacity requirements in Jacksonville and
Margate-Coconut Creek, the Company will terminate the lease agreements relating
to these locations no later than the lease option dates in May 2002. However, as
of December 31, 1999, the Company had relocated all of the ongoing teleservicing
programs from the Margate-Coconut Creek facility and maintained reduced
workstation capacity in the Jacksonville center.
The Company also has certain equipment leases which have terms of up to
five years, of which the latest expiration date occurs in 2001. Rent expense
under operating leases was $6,224,000, $6,542,000 and $5,867,000 for 1999, 1998
and 1997, respectively.
On July 20, 1999, the Company executed a ten-year lease agreement with
Crossroads Business Park Associates (the "Landlord"), which includes options to
extend the initial term of the lease for an additional 15 years. The premises,
located in Plantation, Florida, will be the site of the Company's new principal
corporate offices. Certain terms of the new lease were amended on October 29,
1999, to provide for additional administrative space. The monthly base rent, as
amended, payable commencing on the earlier of (i) the fifteenth business day
immediately following the date that a certificate of occupancy or its equivalent
is issued permitting the Company to occupy the premises or (ii) March 15, 2000
for the initial space and April 15, 2000 for the additional space, will
initially be $54,775 per month, subject to 3% annual increases. The Company will
also pay its proportionate share of customary operating expenses of the office
building in which the Company's premises are located. Pursuant to the lease
agreement, as amended, the Landlord will pay the Company an improvement
allowance in the amount of $1.8 million. The Company has delivered a letter of
credit in the amount of $750,000 to the Landlord as security for the performance
of the Company's obligations under the lease agreement. The amount of such
letter of credit will decrease annually by $150,000.
In November 1999, the Company entered into a put/call agreement with
Presidential Suites, Ltd., a Florida limited partnership directly and indirectly
owned by the Company's chairman of the board ("Presidential"). Pursuant to such
agreement, the Company was granted the right to cause Presidential to assign
(and, in connection with such assignment, the Company would assume
F-15
<PAGE> 76
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Presidential's obligations accruing after such assignment with respect to), and
Presidential was granted the right to cause the Company to assume Presidential's
obligations accruing after such assumption with respect to (and, in connection
with such assumption, Presidential would assign), Presidential's interest in a
certain lease agreement for leased space consisting of approximately 3,388
rentable square feet ("Presidential Premises") and adjacent to the Company's new
leased premises located in Plantation, Florida, as discussed above. In the event
of the exercise of the Company or Presidential of this put/call right, the
Company would also purchase, and Presidential would convey, Presidential's
furniture, fixtures and equipment kept on the Presidential Premises ("FF&E"). In
connection with the assignment and assumption of the aforesaid lease for the
Presidential Premises and the conveyance of the FF&E, the Company would, among
other things, (i) pay to Presidential the unamortized portion (which is
amortizable over the initial term of the lease for the Presidential Premises) of
the sum of (a) the cost of the tenant improvements constructed on the
Presidential Premises in excess of the landlord's contribution in cash (and not
in the form of a rent credit), and (b) the cost of the FF&E, and (ii) provide a
substitute letter of credit to replace the then outstanding amount of
Presidential's letter of credit delivered to the landlord (the initial amount of
Presidential's letter of credit was $67,760). The base rental payable by
Presidential under the lease for the Presidential Premises is $49,126 per annum
(increasing by 3% per annum during the term) and the initial term of such lease
is ten years.
Future minimum lease payments under capital and operating leases,
including all renewal periods, and the annual rentals due on the related party
leases discussed in Note 9 - Related Party Transactions, at December 31, 1999
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ ----------- -------------
<S> <C> <C> <C>
2000......................................................................... $ 1,575 $ 5,602
2001......................................................................... 127 4,753
2002......................................................................... -- 3,919
2003......................................................................... -- 3,264
2004......................................................................... -- 3,226
Thereafter................................................................... -- 48,624
----------- --------
Total minimum lease payments................................................. 1,702 $ 69,388
========
Less: amount representing interest..................................................... 86
-----------
Present value of net minimum lease payments under capital leases....................... 1,616
Less: current maturities............................................................... 1,491
-----------
Long-term obligations.................................................................. $ 125
===========
</TABLE>
8. INFORMATION ABOUT SERVICES AND SIGNIFICANT CLIENTS
The Company has one reportable operating segment; developing and
delivering solutions to its clients' customer service and marketing needs
utilizing teleservices, e-mail and the Internet, database marketing and
management, information technology, electronic data processing and fulfillment
services.
A significant portion of the Company's business is dependent upon
several large clients. For the years ended December 31, 1999, 1998 and 1997, the
Company's five largest clients accounted for approximately 69%, 76% and 64% of
gross revenues, respectively. As of December 31, 1999, 1998 and 1997,
approximately 64%, 68% and 68%, respectively, of the Company's accounts
receivable were from the five largest clients. Accounts receivable represents
the Company's greatest concentration of credit risk and is subject to the
financial condition of its largest clients. The Company does not require
collateral or other security to support clients' receivables. The Company
conducts periodic reviews of its clients' financial condition and vendor payment
practices to minimize collection risks on trade accounts receivable.
F-16
<PAGE> 77
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1999, 1998 and 1997, certain clients individually accounted for
more than 10% of the Company's total gross revenues. The clients and their
related percentage and amount of total gross revenues (in thousands) were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- ----------------------
% Amount % Amount % Amount
------ ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Company A......................... 42% $ 90,793 45% $ 80,559 38% $ 55,022
Company B......................... * * 12% $ 20,882 11% $ 15,139
</TABLE>
- ----------
*Accounted for less than 10% of total gross revenues for the year indicated.
9. RELATED PARTY TRANSACTIONS
During 1996, but prior to the completion of the Company's Initial
Public Offering, the Company entered into various lease agreements for certain
real property with a corporation that is wholly-owned by the Company's Chairman
of the Board providing for aggregate annual rentals of approximately $288,000.
The primary lease term is five years with a renewal option for an additional
five-year period. In accordance with the Company's 1997 restructuring plan, the
Company terminated one of the lease agreements and a termination payment of
approximately $82,000 was made in February 1998. Rent expense under these leases
was $284,000, $287,000 and $275,000 for 1999, 1998 and 1997, respectively. The
Company also subleases another facility and a parking lot and leases an
additional parking lot from a partnership jointly owned by certain of its
shareholders. The sublease on the facility expires in January 2004, the sublease
on the parking lot expires in January 2002 and the additional parking lot lease
expires in June 2001, with combined annual rentals aggregating approximately
$250,000.
The Company paid approximately $385,000, $198,000 and $200,000 in 1999,
1998 and 1997, respectively, in fees to charter an aircraft in connection with
business travel for the Company's personnel. The aircraft is owned by an entity
of which the Company's Chairman of the Board is the sole shareholder.
During 1999 and 1998 the Company funded a portion of the life insurance
premiums payable with respect to up to three split-dollar life insurance
policies owned by the Mark Gordon Family Trust. The amounts paid by the Company
are reimbursable to the Company without interest upon the death of the Company's
Chairman of the Board, the surrender of the policies or the termination of the
arrangement. This obligation is secured by the benefits payable under the
insurance policies. The aggregate amount outstanding for these premiums as of
December 31, 1999 and 1998 was approximately $167,000 and $140,000,
respectively, and is included in Other Assets in the accompanying Consolidated
Balance Sheets.
During 1999 the Company also funded a portion of the life insurance
premiums payable with respect to three split-dollar life insurance policies
owned by three separate trusts for the benefit of the family of the Company's
chief executive officer. The amounts paid by the Company are reimbursable to the
Company without interest upon, under one policy, the death of the chief
executive officer, and under the other two policies, the death of the last to
die of the chief executive officer and his spouse, the surrender of the policies
or the termination of the arrangement; provided, however, that, in the event
that prior to such time the chief executive officer's employment with the
Company is terminated in certain circumstances (including, without limitation,
as a result of his disability, without cause or constructive termination), the
amounts paid by the Company will not be reimbursed. This obligation is secured
F-17
<PAGE> 78
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
by the benefits payable under the insurance policies. The aggregate amount
outstanding for these premiums as of December 31, 1999 was approximately $34,000
and is included in Other Assets in the accompanying Consolidated Balance Sheet.
The Company's executive vice president, general counsel and secretary
(and who is also a director of the Company) was a partner of a certain law firm
until immediately prior to joining the Company in March 1996, and remained "Of
Counsel" to such law firm after joining the Company. Prior to February 1, 1998,
such law firm had acted as the Company's regular outside legal counsel. As of
February 1, 1998, a successor law firm commenced serving as the Company's
regular outside counsel. The Company's executive vice president, general counsel
and secretary is currently "Of Counsel" to such successor law firm. The total
fees and costs paid by the Company to the aforementioned law firm and the
successor law firm in 1999 were approximately $44,000 and $558,000,
respectively, and in 1998 were approximately $98,000 and $468,000, respectively.
The Company believes that the fees paid to these law firms are no less favorable
than could be obtained from other comparable law firms in the area.
In July 1998 the Company engaged a law firm to represent it in
connection with governmental relations matters. A director of the Company is a
shareholder and director of such law firm. Pursuant to such engagement, such law
firm received a retainer of $25,000 in 1998 and received legal fees from the
Company in the amount of $30,000 and $12,500 in 1999 and 1998, respectively. The
engagement is terminable at any time by either party.
10. INCOME TAXES
As described in Note 1 - Operations and Significant Accounting
Policies, the Company provides for deferred income taxes under the asset and
liability method for financial accounting and reporting for income taxes.
The components of the income tax provision (benefit) for the years
ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
-------- -------- ---------
Current:
Federal . $ 14 $ -- $(3,805)
State ... -- -- --
------- ------- -------
14 -- (3,805)
------- ------- -------
Deferred:
Federal . 4,760 (5,068) (3,632)
State ... 817 (870) (1,273)
------- ------- -------
5,577 (5,938) (4,905)
------- ------- -------
$ 5,591 $(5,938) $(8,710)
======= ======= =======
A reconciliation of the difference between the actual income tax
provision and income taxes computed at the U.S. Federal statutory tax rate for
the years ended December 31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
-------- -------- ---------
U.S. Federal statutory tax rate applied to
pre-tax income (loss) ................ $ 4,859 $(5,644) $(7,622)
State income taxes, net of Federal
benefit................................. 539 (577) (790)
Nondeductible expenses and other,
net .................................... 193 283 (298)
------- ------- -------
Income tax provision (benefit) ..... $ 5,591 $(5,938) $(8,710)
======= ======= =======
F-18
<PAGE> 79
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The significant components of the net deferred tax asset as of December
31, 1999 and 1998 are as follows (in thousands):
1999 1998
------- -------
Deferred tax assets:
Allowances and reserves ....................... $ 8,059 $ 9,898
Net operating loss and tax credit carryforwards 9,177 10,043
Other ......................................... 143 174
------- -------
17,379 20,115
Deferred tax liability:
Property and equipment ........................ 9,843 7,693
------- -------
Net deferred tax assets ................. $ 7,536 $12,422
======= =======
The net deferred tax asset in the amount of $7.5 million as of December
31, 1999 is based upon expected utilization of net operating loss ("NOL")
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 in the future. 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.
The Company has a Federal NOL carryforward of approximately $18.6
million and a state NOL carryforward of approximately $31.6 million, both of
which will begin to expire in 2012.
11. CAPITAL STOCK
The Company has authorized 100 million shares, par value $0.01, of
common stock. The Company has also authorized 25 million shares, par value
$0.01, of preferred stock, the terms of which have not yet been determined. The
Company has no present plans to issue any preferred stock.
Prior to the consummation of the Company's Initial Public Offering, the
Company's Board of Directors declared a dividend payable in cash to the then
current shareholders of the Company of approximately $5,243,000 (the
"Dividend"). The Dividend was equal to the Company's then estimate of its
cumulative taxable income prior to the conversion to a C corporation to the
extent such taxable income had not previously been distributed. During the
second quarter of 1997, the Company's final tax return as an S corporation was
completed and filed. As a result, an additional $174,000 was paid to the
Company's existing shareholders prior to the Initial Public Offering as a final
distribution of the Company's accumulated taxable income prior to conversion to
C corporation status.
12. STOCK-BASED COMPENSATION PLANS
On May 31, 1996, the Company adopted the 1996 Incentive Stock Plan (the
"Employee Stock Plan") and the 1996 Non-employee Director Stock Option Plan (the
"Director Stock Plan"; together with the Employee Stock Plan, the "Stock
Plans"). Officers, key employees and certain non-employee consultants may be
granted stock options, stock appreciation rights, stock awards, performance
shares and performance units under the Employee Stock Plan. Participation in the
Director Stock Plan is limited to members of the Company's Board of Directors
who are not salaried officers or employees of the Company. The Company
originally reserved 1,931,684 shares of common stock for issuance under the
Employee Stock Plan and 96,584 shares of common stock for issuance under the
Director Stock Plan, after giving effect to the previously described stock
splits by way of share dividends, and subject in each case to further
anti-dilution adjustments. At the Company's annual meeting of shareholders on
F-19
<PAGE> 80
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 15, 1997, June 12, 1998, and June 21, 1999, the total number of shares
reserved for issuance under the Employee Stock Plan was increased to 3,000,000,
4,000,000 and 4,750,000, respectively. In addition, at the Company's annual
meeting of shareholders on June 21, 1999, the total number of shares reserved
under the Director Stock Plan was increased to 300,000.
Prior to the establishment of a compensation committee (the
"Committee") of the Board of Directors, the Employee Stock Plan was administered
by the Board of Directors of the Company. The Board of Directors or the
Committee are authorized to determine, among other things, the key employees to
whom, and the times at which, options and other benefits are to be granted, the
number of shares subject to each option, the applicable vesting schedule and the
exercise price. The Board of Directors or the Committee also determines the
treatment to be afforded to a participant in the Employee Stock Plan in the
event of termination of employment for any reason, including death, disability,
retirement or change in control. Under the Employee Stock Plan, the maximum term
of an incentive stock option is 10 years and the maximum term of a non-qualified
stock option is 15 years. Incentive stock options under the Employee Stock Plan
are required to be granted at an exercise price equal to that of 100% of the
fair market value at the date of grant. Non-qualified options under the Employee
Stock Plan are required to be granted at an exercise price not less than 85% of
the fair market value at the date of grant, except for options covering up to
50,000 shares which may be granted at an exercise price equal to or in excess of
par value (or $0.01 per share) (the "$0.01 Options"). With the exception of the
$0.01 Options covering 21,000 shares and options to purchase an aggregate of
500,000 shares which were granted at an exercise price of approximately 94% of
the fair market value at the date of grant, non-qualified options granted under
the Employee Stock Plan through December 31, 1999 have been granted at an
exercise price not less than 100% of the fair market value at the date of grant.
The Director Stock Plan provides for annual grants of non-qualified
stock options to each non-employee director of the Company. At the Company's
annual meeting of shareholders on June 21, 1999, the Director Stock Plan was
amended and restated in its entirety (the "Restated Director Stock Plan"). The
Restated Director Stock Plan increased the number of nonqualified stock options
automatically awarded to each non-employee director upon re-election from 2,500
shares to 5,000 shares of common stock at an exercise price equal to the fair
market value of the common stock on the date of grant. However, the Restated
Director Stock Plan provided for the award of 15,000 nonqualified stock options
to each non-employee director re-elected at the June 21, 1999 meeting in lieu of
the 5,000 annual grant. The purpose of the exception was to retroactively adjust
the aggregate number of options previously awarded to the existing non-employee
directors to be more consistent with the initial and annual awards under the
Restated Director Stock Plan. In addition, the Restated Director Stock Plan
authorized the Board, in its sole discretion, to grant to a non-employee
director at the time of his or her initial election as a director of the Company
nonqualified stock options in excess of the 5,000 shares of common stock
automatically granted on initial election to the Board of Directors up to and
not exceeding 50,000 shares. The options granted to each non-employee director
will have a term of ten years and vest, in the case of options granted under the
Director Stock Plan, in equal installments over three years and, in the case of
options granted under the Restated Director Stock Plan, in full after the first
anniversary of the date the option is granted. Stock options to purchase 45,000
shares at an exercise price of $5.53 per share were granted under the Restated
Director Stock Plan during 1999. Stock options to purchase 7,500 shares at an
exercise price of $6.32 per share during 1998 and 7,500 shares at exercise
prices ranging between $21.125 and $33.75 per share during 1997 were granted
under the Director Stock Plan.
On July 16, 1996, an executive officer of the Company was granted a
non-qualified stock option to purchase 21,000 shares of common stock at an
exercise price of $0.01 per share under the Employee Stock Plan. In accordance
with APB 25, the difference between the fair market value of the common stock
and the exercise price, which amounted to $304,290, was recorded as unearned
compensation (a separate component of shareholders' equity) and was recognized
over the related vesting period. Amortization of the unearned compensation
recorded in the accompanying Consolidated Financial Statements in accordance
with APB 25 resulted in compensation expense of $41,000 and $111,000 for 1998
and 1997, respectively. As of December 31, 1998, the related unearned
compensation was fully amortized.
F-20
<PAGE> 81
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1996, two then non-employee consultants were granted options
under the Employee Stock Plan to purchase an aggregate total of 85,000 shares of
common stock at various exercise prices equal to 100% of the fair market values
at the dates of grant. Pursuant to the application of SFAS 123 in accounting for
these non-employee stock options, the Company recorded $387,000 in unearned
compensation, which was amortized ratably over the related vesting periods.
Amortization of the unearned compensation recorded in the accompanying
Consolidated Financial Statements in accordance with SFAS 123 resulted in
compensation expense of $67,000 and $233,000 for 1998 and 1997, respectively. As
of December 31, 1998, the related unearned compensation was fully amortized.
In late November 1997, the Company offered each employee, who had
previously been granted options to purchase the Company's stock, the opportunity
to change the option price, date of grant and vesting period effective December
5, 1997 (the "Repricing"). Under the terms of the Repricing, all previously
granted stock options would be cancelled, including any vested options, and the
employee would be granted the same number of options at the fair market value of
the Company's common stock on December 5, 1997, which was $7.875 per share. The
new grants would generally vest on a straight-line basis on each of the first
five anniversaries from the new date of grant. At the time of the offer, the
Company had approximately 170 employees who had been granted options to purchase
the Company's common stock since the Company's Initial Public Offering with
option prices ranging from $14.50 to $43.00. The Repricing plan was accepted by
approximately 125 eligible Company employees with respect to 925,000 outstanding
stock options.
Additionally, during the fourth quarter of 1997, three executive
officers of the Company had certain of their existing stock options repriced.
Options covering a total of 646,000 shares of common stock were repriced, with
310,000 shares having a new exercise price of $7.41 per share and 336,000 shares
having a new exercise price of $6.88 per share. As part of the repricing,
certain of these stock options provided for a new vesting schedule. Options
covering 254,000 shares now vest 50% on the original date of grant of the
options with an additional 25% vesting on each of the first two anniversaries
from the original date of grant, and options covering 336,000 shares now vest
50% six months from the repricing date of grant with an additional approximately
16-2/3% vesting on each of the first three anniversaries from the repricing date
of grant.
During the second quarter of 1998, the Company repriced options to
purchase 100,000 shares of common stock previously issued to an employee. The
exercise price of the options was reduced from $17.625 per share to $8.00 per
share, the fair market value of the Company's common stock on the date of
repricing. The repriced options were fully vested on the date of repricing.
These options were cancelled during 1999 as a result of this employees voluntary
termination.
During 1999, a non-employee consultant was granted options on two
occasions under the Employee Stock Plan to purchase an aggregate total of 50,000
shares of common stock at exercise prices equal to 100% of the fair market
values at the dates of grant. Pursuant to the application of SFAS 123 in
accounting for these non-employee stock options, the Company recorded $329,000
in unearned compensation, which is being amortized ratably over the related
vesting periods. Amortization of the unearned compensation recorded in the
accompanying Consolidated Financial Statements in accordance with SFAS 123
resulted in compensation expense of $50,000 for 1999.
Also during 1999, two employees of the Company were each granted
non-qualified stock options to purchase 250,000 shares of common stock at an
exercise price of $5.1875 per share, which represented 94% of the fair market
value at the date of grant, under the Employee Stock Plan. In accordance with
APB 25, the difference between the fair market value of the common stock and the
exercise price, which amounted to $157,000, was recorded as unearned
compensation (a separate component of shareholders' equity) and is being
recognized over the related vesting period. Amortization of the unearned
compensation recorded in the accompanying Consolidated Financial Statements in
accordance with APB 25 resulted in compensation expense of $27,000 for 1999.
F-21
<PAGE> 82
The fair value of each option grant under the Company's Stock Plans is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ -------------------- ------------------
<S> <C> <C> <C>
Expected volatility.......................... 76.7% 73.0% 78.3%
Risk-free interest rate...................... 4.6% -6.6% 4.1% -5.9% 5.92% - 6.81%
Dividend yield............................... 0.0% 0.0% 0.0%
Expected life................................ 4-10 years 1-10 years 7 years
</TABLE>
A summary of the status of the Company's Stock Plans as of December 31,
1999, 1998 and 1997 and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
----------------- ---------------------
<S> <C> <C>
Outstanding at January 1, 1997..................................... 904,750 $ 26.63
Granted......................................................... 3,667,750 (1) 12.40
Exercised....................................................... (42,000) 7.02
Forfeited....................................................... (1,865,117) (1) 25.34
---------------
Outstanding at December 31, 1997 2,665,383 8.26
Granted......................................................... 1,663,750 (2) 6.60
Exercised....................................................... (7,000) 0.01
Forfeited....................................................... (481,483) (2) 10.06
---------------
Outstanding at December 31, 1998 3,840,650 7.39
Granted......................................................... 1,108,222 8.99
Exercised....................................................... (245,400) 7.60
Forfeited....................................................... (426,100) 9.59
---------------
Outstanding at December 31, 1999................................... 4,277,372 $ 7.60
===============
</TABLE>
----------
(1) Includes 925,000 shares cancelled and then subsequently re-granted as part
of the Repricing and 646,000 shares cancelled and then subsequently
re-granted in the fourth quarter of 1997 as part of a repricing of three
executive officers' stock options at exercise prices ranging between $6.88
and $7.41 per share.
(2) Includes 100,000 shares cancelled and, then, subsequently re-granted in the
second quarter of 1998 as part of a repricing of an employee's stock
options at an exercise price of $8.00 per share.
The number of options exercisable at December 31, 1999, 1998 and 1997
was 2,021,921, 1,243,759 and 225,464, respectively. The per share
weighted-average fair value of stock options granted during 1999, 1998 and 1997
was $6.77, $4.30 and $9.53, respectively.
F-22
<PAGE> 83
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------
WEIGHTED-AVERAGE
NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT EXERCISE
RANGE OF EXERCISE PRICES DCEMBER 31, 1999 LIFE (YEARS) PRICE DECEMBER 31, 1999 PRICE
- ------------------------------ ----------------- ------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
$0.01 (1) 7,000 3.54 $ 0.01 7,000 $ 0.01
$4.06 to $6.32 1,190,500 6.30 5.21 388,849 5.35
$6.875 to $6.94 1,377,800 4.91 6.91 745,775 6.89
$7.41 to $7.7188 426,600 4.70 7.43 401,600 7.41
$7.875 (2) 606,250 5.41 7.88 275,249 7.88
$8.0313 to $16.00 508,000 5.93 9.34 193,450 8.24
$21.125 to $43.00 161,222 7.01 25.32 9,998 34.17
----------------- ----------------
$0.01 to $43.00 4,277,372 5.54 7.60 2,021,921 7.07
================= ================
</TABLE>
- ----------
(1) As noted herein, the Employee Stock Plan provides for options covering up
to 50,000 shares which may be granted at an exercise price equal to or in
excess of par value (or $0.01 per share).
(2) Represents the exercise price under the Repricing plan.
Had compensation cost for the Company's Stock Plans been determined
based on the fair value at the grant dates for awards under the Stock Plans
consistent with the method prescribed by SFAS 123, the Company's net income
(loss) and net income (loss) per share (diluted) in 1999, 1998 and 1997 would
have been reduced to the proforma amounts indicated below (in thousands, except
per share data):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported.................................... $ 8,291 $ (10,189) $ (13,066)
Proforma....................................... 4,835 (14,733) (18,474)
Diluted net income (loss) per common share:
As reported.................................... $ 0.37 $ (0.47) $ (0.61)
Proforma.......................................... 0.22 (0.68) (0.86)
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. The Company anticipates that additional awards
will be granted in future years.
13. 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):
F-23
<PAGE> 84
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ -------------------------------- ------------------------------
NET PER NET PER NET PER
INCOME SHARES SHARE LOSS SHARES SHARE LOSS SHARES SHARE
------ ------ ----- ---- ------ ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income (loss) available
to common shareholders.. $ 8,291 21,587 $ 0.38 $(10,189) 21,548 $(0.47) $(13,066) 21,393 $ (0.61)
EFFECT OF DILUTIVE
SECURITIES:
Stock options(1) ........ -- 858 (0.01) -- -- -- -- -- --
-------- ------ -------- -------- ------ ------ -------- ------ --------
DILUTED EPS:
Income (loss) available
to common shareholders
and assumed exercises... $ 8,291 22,445 $ 0.37 $(10,189) 21,548 $(0.47) $(13,066) 21,393 $ (0.61)
======== ====== ======== ======== ====== ====== ======== ====== ========
</TABLE>
- -------------
(1) The effect of 71,679 and 178,684 shares of potential common stock were
anti-dilutive in 1998 and 1997, respectively.
14. RETIREMENT PLANS
The Company has adopted a profit sharing plan (the "Profit Sharing
Plan") which covers substantially all employees who have been employed with the
Company for at least two years and are at least 21 years of age. Under the terms
of the Profit Sharing Plan, the Company makes elective contributions to the
Profit Sharing Plan, the allocation of which to employees is based on relative
salary.
Effective January 1, 1997, the Company amended the Profit Sharing Plan
to include certain 401(k) savings plan features (as amended, the "Profit
Sharing/401(k) Plan"). Under the provisions of the Profit Sharing/401(k) Plan,
employees meeting certain eligibility requirements may contribute a maximum of
15% of pre-tax gross wages, subject to certain restrictions imposed pursuant to
the Internal Revenue Code. Company contributions are at the discretion of its
Board of Directors. Vesting occurs over a six-year period at the rate of 20% per
year, beginning after the second year of service. The Company accrued a
contribution of $100,000, $85,000 and $45,000 to the Profit Sharing/401(k) Plan
during 1999, 1998 and 1997, respectively.
15. CONTINGENCIES
On or about August 26, 1998 a lawsuit was filed in Connecticut,
captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL ENTERPRISES CORPORATION v.
PRECISION RESPONSE CORPORATION, MARK J. GORDON AND DAVID L. EPSTEIN (Case No.
3:98-CV-1895-AVC (D. Conn.)). It is currently pending in 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 Amended 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, negligent misrepresentation 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. 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.
F-24
<PAGE> 85
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On or about November 5, 1999 a lawsuit, captioned JOSEPH P. RIANO v.
PRECISION RESPONSE CORPORATION; PRCNETCARE.COM, INC.; MARK J. GORDON; AND DAVID
L. EPSTEIN (Case No. 99-25774 CA 10), was filed in the Circuit Court of the
Eleventh Judicial Circuit in and for Miami Dade-County, Florida. This lawsuit
alleges that PRC misappropriated the plaintiff's alleged trade secret. The
plaintiff asserts a statutory claim against all defendants under the Florida
Uniform Trade Secrets Act, Chapter 688, Florida Statutes. The plaintiff also
asserts a claim against Precision Response Corporation ("PRC") that it breached
a contract entered into with the plaintiff to keep certain information
confidential. In addition, the plaintiff asserts claims for conversion against
all of the defendants and for conspiracy to commit conversion against the
individual defendants. The plaintiff also asserts a claim for unjust enrichment
against PRC and prcnetcare.com, Inc. ("prcnetcare.com"). The plaintiff's
complaint seeks an unspecified amount of compensatory damages, including all
profits earned by the defendants as a result of their conduct, exemplary
damages, attorneys' fees, interests and costs. The plaintiff also seeks an
accounting and entry of an injunction preventing PRC and prcnetcare.com from
continuing to misappropriate the plaintiff's alleged trade secret.
On January 28, 2000, the court entered an order denying the defendants'
motion to dismiss, with the exception of conspiracy claims against the corporate
defendants, which were dismissed by agreement of counsel. An answer and
affirmative defenses have been filed on behalf of all defendants. The Company
believes that the plaintiff's allegations are totally without merit and intends
to defend the lawsuit vigorously.
16. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL 1999
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues........................................ $ 46,248 $ 50,090 $ 57,006 $ 62,576
Gross profit.................................... 7,317 8,655 10,431 11,849
Operating income................................ 2,447 2,984 4,283 5,289
Net income...................................... 1,238 1,696 2,392 2,965
Basic earnings per common share................. 0.06 0.08 0.11 0.14
Diluted earnings per common share............... 0.06 0.08 0.11 0.13
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1998
-----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues....................................... $ 40,535 $ 43,379 $ 44,978 $ 46,281
Gross profit................................... 4,025 6,157 4,437 6,916
Operating income (loss)........................ 705 1,727 (19,880) (1) 2,110
Net income (loss).............................. 373 829 (12,604) 1,213
Basic earnings (loss) per common share......... 0.02 0.04 (0.58) 0.06
Diluted earnings (loss) per common share....... 0.02 0.04 (0.58) 0.06
</TABLE>
- ----------
(1) Includes non-recurring special charges of $22.1 million before taxes in
1998 as part of the Company's restructuring and cost reduction initiatives
(see Note 3 - Restructuring and Other Non-Recurring Special Charges).
F-25
<PAGE> 86
PRECISION RESPONSE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENT
On January 12, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the Company, USA Networks, Inc.
("USAi"), a Delaware corporation, and P Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of USAi ("Newco"), pursuant to which
Newco would be merged with and into the Company, with the Company remaining as
the surviving corporation in the merger. Upon and subject to consummation of the
merger, each share of the Company's common stock would be converted into 1.08
shares of USAi common stock (taking into account the two-for-one stock split of
USAi common stock to be effected on February 24, 2000 as to USAi common
shareholders as of February 10, 2000). Consummation of the Merger Agreement is
subject to certain terms, conditions and termination rights specified in the
Merger Agreement. In particular, the Company may elect to terminate the Merger
Agreement if the volume-weighted average sales price per share of USAi common
stock on the twenty consecutive trading days ending on the second full trading
day prior to the Company's special meeting of shareholders (to be convened to
take action upon the Merger Agreement) is less than $18.52 (taking into account
the above-described USAi two-for-one stock split). If the Company makes such
election, USAi may, however, elect, in its sole discretion, to increase the
exchange ratio at that time so that the Company's shareholders receive $20.00
worth of USAi common stock for each share of the Company's common stock, in
which case the Company's termination election will be deemed to be rescinded. In
addition, the merger is subject to approval or expiration or earlier termination
of any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the approval of shareholders of the Company holding
a majority of outstanding shares of common stock, as well as other customary
closing conditions. The merger is currently expected to close by June 2000.
F-26
<PAGE> 87
PRECISION RESPONSE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND ENDING
DESCRIPTION BALANCE EXPENSES (1) DEDUCTIONS (2) BALANCE
- ------------------------------------------- -------------- ----------------- ------------------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts
and sales allowances............ $ 8,225 $ 2,393 $ 8,207 $ 2,411
Year ended December 31, 1998:
Allowance for doubtful accounts
and sales allowances............ 2,864 14,534 9,173 8,225
Year ended December 31, 1997:
Allowance for doubtful accounts
and sales allowances............ 2,650 5,895 5,681 2,864
</TABLE>
- ------------
(1) Amounts charged to bad debt expense and sales credits were $50 and $2,343
in 1999, respectively, $4,314 and $10,220 in 1998, respectively, and $448
and $5,447 in 1997, respectively.
(2) Deductions represent customer accounts written-off and sales credit
S-1
<PAGE> 88
PRECISION RESPONSE CORPORATION
INDEX TO EXHIBITS FILED HEREWITH
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------------------
<S> <C>
3.2 Amended and Restated Bylaws of Precision Response Corporation
10.7 Letter agreement dated January 12, 2000 between the Company and Mark J. Gordon
10.8 Second Amendment to Employment Agreement dated as of September 1, 1999 between the Company and
David L. Epstein and Third Amendment to Employment Agreement dated as of January 12, 2000 between
the Company and David L. Epstein
10.12 Letter dated January 12, 2000 from David L. Epstein to and accepted by Mark J. Gordon terminating
Stockholder Agreement dated May 10, 1996 between Messrs. Gordon and Epstein
10.31 Fourth Amendment to Revolving Credit Agreement effective as of December 31, 1999 between the
Company and NationsBank
10.34 Revolving Promissory Note effective as of December 31, 1999 between the Company and NationsBank
10.39 Fourth Amendment to Mortgage Loan Agreement effective as of December 31, 1999 between the Company
and NationsBank
10.40 First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and
Robert Tenzer
10.44 First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and
Richard D. Mondre
10.45 First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and
Richard N. Ferry, Jr.
10.46 First Amendment to Employment Agreement dated as of January 13, 2000 between the Company and
Michael P. Miller
10.52 Put/Call Agreement dated November 17, 1999 between the Company and Presidential Suites, Ltd.
10.53 First Amendment to Employment Agreement dated as of January 12, 2000 between the Company and Paul
M. O'Hara
10.54 Tri-Party Split Dollar Agreement and Collateral Assignment effective as of September 1, 1999
between the David Epstein 1995 Grantor Trust u/a/d December 28, 1995 and the Epstein 1997 Family
Trust u/a/d June 19, 1997 and the Company
10.55 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
1999 between the David Epstein 1995 Irrevocable Life Insurance Trust u/a/d August 2, 1995 and the
Company
10.56 Amended and Restated Split Dollar Agreement and Collateral Assignment effective as of September 1,
1999 between the Epstein 1995 Family Trust u/a/d August 2, 1995 and the Company
</TABLE>
(i)
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- --------------------------------------------------------------------------------------------------
<S> <C>
10.57 Split Dollar Agreement and Collateral Assignment effective April 1998 between the Mark Gordon
Family Trust u/a/d March 1, 1990 and the Company
10.58 Employment Agreement dated as of November 15, 1999 between the Company and Joseph E. Gillis, as
amended by First Amendment to Employment Agreement dated as of January 13, 2000 between the
Company and Joseph E. Gillis
10.59 Employment Agreement dated as of November 15, 1999 between the Company and Thomas F. Jennings,
Jr., as amended by First Amendment to Employment Agreement dated as of January 13, 2000 between
the Company and Thomas F. Jennings, Jr.
10.60 Employment Agreement executed as of October 1, 1999 between the Company and Frank Modrak
23.1 Consent of PricewaterhouseCoopers LLP
27.1 Financial Data Schedule
</TABLE>
(ii)
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
PRECISION RESPONSE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
ARTICLE I MEETINGS OF SHAREHOLDERS...............................................................1
Section 1. Annual Meeting.........................................................................1
Section 2. Special Meetings.......................................................................1
Section 3. Place..................................................................................1
Section 4. Notice.................................................................................1
Section 5. Manner of Notice.......................................................................2
Section 6. Notice of Adjourned Meetings...........................................................2
Section 7. Fixing of Record Date..................................................................2
Section 8. Shareholders' List For Meeting.........................................................3
Section 9. Shareholder Quorum and Voting..........................................................3
Section 10. Voting Entitlement of Shares...........................................................4
Section 11. Proxies................................................................................5
Section 12. Voting Trusts..........................................................................5
Section 13. Notice of Shareholder Business and Nominations.........................................5
(a) Annual Meetings of Shareholders........................................................5
(b) Special Meetings of Shareholders.......................................................6
(c) General................................................................................7
Section 14. Shareholders' Agreements...............................................................7
ARTICLE II DIRECTORS..............................................................................7
Section 1. Function...............................................................................7
Section 2. Qualification..........................................................................7
Section 3. Compensation...........................................................................8
Section 4. Duties of Directors....................................................................8
Section 5. Presumption of Assent..................................................................8
Section 6. Number.................................................................................8
Section 7. Election...............................................................................9
Section 8. Term...................................................................................9
Section 9. Resignation............................................................................9
Section 10. Vacancies..............................................................................9
Section 11. Removal of Directors...................................................................9
Section 12. Quorum and Voting......................................................................9
Section 13. Conflicts of Interest..................................................................9
Section 14. Executive and Other Committees........................................................10
Section 15. Meetings..............................................................................11
Section 16. Notice of Meetings....................................................................11
Section 17. Waiver of Notice......................................................................11
Section 18. Action Without a Meeting..............................................................11
Section 19. Amendment by Board of Directors.......................................................12
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE III OFFICERS..............................................................................12
Section 1. Officers..............................................................................12
Section 2. Powers and Duties.....................................................................12
Section 3. Delegation............................................................................13
Section 4. Resignation and Removal of Officers...................................................13
Section 5. Contract Rights.......................................................................14
ARTICLE IV STOCK CERTIFICATES....................................................................14
Section 1. Form and Content of Certificates......................................................14
Section 2. Transfer of Stock.....................................................................15
Section 3. Lost, Stolen or Destroyed Certificates................................................15
ARTICLE V BOOKS AND RECORDS.....................................................................15
Section 1. Corporate Records.....................................................................15
Section 2. Inspection of Records by Shareholders.................................................16
Section 3. Scope of Inspection Right.............................................................17
Section 4. Financial Statements for Shareholders.................................................17
ARTICLE VI DIVIDENDS.............................................................................17
Section 1. Distributions to Shareholders.........................................................17
Section 2. Share Dividends.......................................................................19
ARTICLE VII CORPORATE SEAL........................................................................19
ARTICLE VIII EXECUTION OF DOCUMENTS................................................................19
ARTICLE IX INDEMNIFICATION.......................................................................19
ARTICLE X AMENDMENT.............................................................................22
</TABLE>
(ii)
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
PRECISION RESPONSE CORPORATION
ARTICLE I
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
The annual meeting of the shareholders of this corporation shall be
held at the time and place designated by the Board of Directors of the
corporation. The annual meeting of shareholders for any calendar year shall be
held no later than thirteen months after the last preceding annual meeting of
shareholders. Business transacted at the annual meeting shall include the
election of directors of the corporation and any proper business as may come
before the meeting.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the shareholders shall be held when directed by the
Board of Directors, or when a signed and dated written demand is delivered to
the secretary of the corporation by the holders of not less than fifty (50%)
percent of all votes entitled to be cast on any issue to be considered at the
proposed special meeting, describing the purposes of the proposed special
meeting. At any special meeting only such business may be transacted which is
related to the purpose or purposes set forth in the notice of such special
meeting.
SECTION 3. PLACE.
Meetings of shareholders may be held within or without the State of
Florida.
SECTION 4. NOTICE.
The corporation shall notify shareholders of the date, time and place
of each annual and special shareholders' meeting no fewer than ten (10) or more
than sixty (60) days before the meeting date. Unless the Florida Business
Corporation Act, as amended (the "Act"), or the Articles of Incorporation, as
amended from time to time hereafter (the "Articles of Incorporation") require
otherwise, the corporation is required to give notice only to shareholders
entitled to vote at the meeting. Notice shall be given in the manner provided in
section 5 below, by or at the direction of the chairman of the board or chief
executive officer, the secretary, or the officer or persons calling the meeting.
If the notice is mailed at least thirty (30) days before the date of the
meeting, it may be done by a class of United States mail other than first class.
Notwithstanding section 5 below, if mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid.
Unless the Act or the Articles of Incorporation require otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
<PAGE> 5
Notice of a special meeting must include a description of the purpose
or purposes for which the meeting is called.
Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given to a shareholder if (a) an annual report and proxy statement for
two consecutive annual meetings of shareholders or (b) all, and at least two,
checks in payment of dividends or interest on securities during a twelve (12)
month period have been sent by first-class United States mail, addressed to the
shareholder at his address as it appears on the share transfer books of the
corporation, and returned undeliverable. The obligation of the corporation to
give notice of a shareholders' meeting to any such shareholder shall be
reinstated once the corporation has received a new address for such shareholder
for entry on its share transfer books.
SECTION 5. MANNER OF NOTICE.
Any notice given under these Bylaws must be written and may be
communicated in person; telegraph, teletype or other form of electronic
communication; or by mail.
Written notice by the corporation to a shareholder shall be effective
when mailed, if mailed postpaid and correctly addressed to the shareholder's
address shown in the corporation's current record of shareholders.
Written notice to a domestic or foreign corporation authorized to
transact business in this state may be addressed to its registered agent at its
registered office or to the corporation or its secretary at its principal office
shown in its most recent annual report or, in the case of corporation that has
not yet delivered an annual report, in a domestic corporation's articles of
incorporation or in a foreign corporation's application for certificate of
authority.
Except as otherwise provided herein or in the Act, written notice shall
be effective at the earliest date of the following: (a) when received; (b) five
days after its deposit in the United States mail, as evidenced by the postmark,
if mailed postpaid and correctly addressed; or (c) on the date shown on the
return receipt, if sent by registered or certified mail return receipt
requested, and the receipt is signed by or on behalf of the addressee.
SECTION 6. NOTICE OF ADJOURNED MEETINGS.
If an annual or special shareholders' meeting is adjourned to a
different date, time or place, notice need not be given of the new date, time or
place if the new date, time or place is announced at the meeting before an
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date for the adjourned meeting is or must be fixed, however, notice
of the adjourned meeting must be given as provided in section 5 above to persons
who are shareholders as of the new record date who are entitled to notice of the
meeting.
SECTION 7. FIXING OF RECORD DATE.
For the purpose of determining shareholders entitled to notice of a
shareholders' meeting, to demand a special meeting, to vote, or to take any
other action, the Board of Directors may fix the record date. In no event may a
record date fixed by the Board of Directors be a date preceding the date upon
which the
2
<PAGE> 6
resolution fixing the record date is adopted. The record date for determining
shareholders entitled to demand a special meeting is the date the first
shareholder delivers his demand to the corporation.
If not otherwise provided by or pursuant to these Bylaws, the record
date for determining shareholders entitled to notice of and to vote at an annual
or special shareholders' meeting is the close of business on the day before the
first notice is delivered to shareholders. A record date for purposes of this
section may not be more than seventy (70) days before the meeting or action
requiring a determination of shareholders. A determination of shareholders
entitled to notice of or to vote at a shareholders' meeting is effective for any
adjournment of the meeting unless the Board of Directors fixes a new record
date, which it must do if the meeting is adjourned to a date more than the one
hundred twenty (120) days after the date fixed for the original meeting.
SECTION 8. SHAREHOLDERS' LIST FOR MEETING.
After fixing a record date for a meeting, the corporation shall prepare
an alphabetical list of the names of all its shareholders who are entitled to
notice of a shareholders' meeting, arranged by voting group with the address of,
and the number and class and series, if any, of shares held by, each. The
shareholders' list must be available for inspection by any shareholder for a
period of ten (10) days prior to the meeting or such shorter time as exists
between the record date and the meeting and continuing through the meeting at
the corporation's principal office, at a place identified in the meeting notice
in the city where the meeting will be held, or at the office of the
corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list during regular
business hours and at his expense during the period it is available for
inspection. The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
If the requirements of this section have not been substantially
complied with or if the corporation refuses to allow a shareholder or his agent
or attorney to inspect the shareholders' list before or at the meeting, the
meeting shall be adjourned until such requirements are complied with on the
demand of any shareholder in person or by proxy who failed to get such access.
Refusal or failure to comply with the requirements of this section shall not
affect the validity of any action taken at such meeting.
SECTION 9. SHAREHOLDER QUORUM AND VOTING.
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. When a specified
item of business is required to be voted on by a class or series of stock, a
majority of the shares of such class or series shall constitute a quorum for the
transaction of such item of business by that class or series.
If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders unless otherwise provided by law or the
Articles of Incorporation.
After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
3
<PAGE> 7
SECTION 10. VOTING ENTITLEMENT OF SHARES.
Except as otherwise provided below, each outstanding share, regardless
of class, is entitled to one vote on each matter submitted to a vote at a
meeting of shareholders. Only shares are entitled to vote.
The shares of the corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the corporation owns, directly or indirectly, a majority of the shares entitled
to vote for directors of the second corporation. This paragraph does not limit
the power of the corporation to vote any shares, including its own shares, held
by it in a fiduciary capacity.
Redeemable shares are not entitled to vote on any matter, and shall not
be deemed to be outstanding, after notice of redemption is mailed to the holders
thereof and a sum sufficient to redeem such shares has been deposited with a
bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the Bylaws of the
corporate shareholder or, in the absence of any applicable provision, by such
person as the Board of Directors of the corporate shareholder may designate. In
the absence of any such designation, or in case of a conflicting designation by
the corporate shareholder, the chairman of the board, the president, any vice
president, the secretary and the treasurer of the corporate shareholder, in that
order, shall be presumed to be fully authorized to vote such shares.
Shares held by an administrator, executor, guardian, personal
representative or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the name of
a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name or the name of his nominee.
Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the corporation is given notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, the acts with respect to voting have the following effect:
(a) if only one votes, in person or by proxy, his act binds all; (b) if more
than one votes, in person or by proxy, the act of the majority so voting binds
all; (c) if more than one votes, in person or by proxy, but the vote is evenly
split on any particular matter, each faction is entitled to vote the share or
shares in question proportionally; (d) if the instrument or order so filed shows
that any such tenancy is held in unequal interest, a majority or a vote evenly
split for purposes of this section shall be a majority or a vote evenly split in
interest; (e) the principles of this section shall apply, insofar as possible,
to execution of proxies, waivers, consents, or objections and for the purpose of
ascertaining the presence of a quorum.
Nothing herein contained shall prevent trustees or other fiduciaries
holding shares registered in the name of a nominee from causing such shares to
be voted by such nominee as the trustee or other fiduciary may direct. Such
nominee may vote shares as directed by a trustee or other fiduciary without the
necessity of transferring the shares to the name of the trustee or other
fiduciary.
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SECTION 11. PROXIES.
A shareholder, other person entitled to vote on behalf of a shareholder
pursuant to section 10 above, or attorney-in-fact may vote the shareholders'
shares in person or by proxy.
A shareholder may appoint a proxy to vote or otherwise act for him by
signing an appointment form, either personally or by his attorney-in-fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic or equivalent reproduction of an
appointment form, is a sufficient appointment form.
An appointment of a proxy is effective when received by the secretary
or other officer or agent authorized to tabulate votes. An appointment is valid
for up to eleven (11) months unless a longer period is expressly provided in the
appointment form.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
SECTION 12. VOTING TRUSTS.
One or more shareholders may create a voting trust, conferring on a
trustee the right to vote or otherwise act for them, by signing an agreement
setting out the provisions of the trust as provided by law and transferring
their shares to a trustee. The trustee shall thereafter prepare a list of names
and addresses of all owners of beneficial interests in the trust, together with
the number and class of shares of each transferred to the trust, and deliver
copies of the list and agreement to the corporation's principal office. After
filing a copy of the list and agreement in the corporation's principal office,
such copies shall be open to inspection by any shareholder of the corporation
(subject to the requirements of Article V herein) or any beneficiary of the
trust under the agreement during business hours.
SECTION 13. NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF SHAREHOLDERS.
(1) Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the shareholders may be made at an annual meeting of shareholders (a) by or at
the direction of the Board of Directors or (b) by any shareholder of the
corporation who was a shareholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (b) of paragraph
(a)(1) of this Bylaw, the shareholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for shareholder action. To be timely, a
shareholder's notice shall be delivered to the
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Secretary at the principal executive offices of the corporation not later than
the close of business on the sixtieth (60th) day, nor earlier than the close of
business on the ninetieth (90th) day, prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than thirty (30) days before or more than
sixty (60) days after such anniversary date, notice by the shareholder to be
timely must be so delivered not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the later of the sixtieth (60th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made by the corporation. In no event shall the
public announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as described above. Such
shareholder's notice shall set forth (a) as to each person whom the shareholder
proposes to nominate for election or re-election as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the
corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Bylaw to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting, a shareholder's notice required by this Bylaw
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the date on which such public
announcement is first made by the corporation.
(b) SPECIAL MEETINGS OF SHAREHOLDERS. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any shareholder of the
corporation who is a shareholder of record at the time of giving of notice
provided for in this Bylaw, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Bylaw. In the event the
corporation calls a special meeting of shareholders for the purposes of electing
one or more directors to the Board of Directors, any such shareholder may
nominate a person or persons (as the case may be), for election of such
position(s) as specified in the corporation's notice of meeting, if the
shareholder's notice required by paragraph (a)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the corporation
not earlier than the close of business on the ninetieth (90th) day prior to such
special meeting and not later than the close of business on the later of the
sixtieth (60th) day prior to such special meeting or the tenth (10th)
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day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
shareholder's notice as described above.
(c) GENERAL.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Bylaw shall be eligible to serve as directors and
only such business shall be conducted at a meeting of shareholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Bylaw. Except as otherwise provided by law, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Bylaw and, if any
proposed nomination or business is not in compliance with this Bylaw, to declare
that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
(i) of shareholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders
of any series of preferred stock to elect directors under specified
circumstances.
SECTION 14. SHAREHOLDERS' AGREEMENTS.
Two or more shareholders of this corporation may provide for
the manner in which they vote their shares by signing an agreement for that
purpose as provided by law.
ARTICLE II
DIRECTORS
SECTION 1. FUNCTION.
All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation managed under the direction of,
its Board of Directors.
SECTION 2. QUALIFICATION.
Directors must be natural persons who are eighteen (18) years of age or
older but need not be residents of the State of Florida or shareholders of this
corporation.
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SECTION 3. COMPENSATION.
The Board of Directors may fix the compensation of directors.
SECTION 4. DUTIES OF DIRECTORS.
A director shall discharge his duties as a director, including his
duties as a member of a committee: in good faith; with the care an ordinarily
prudent person in a like position would exercise under similar circumstances;
and in a manner he reasonably believes to be in the best interests of the
corporation.
In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in
the matters presented;
(b) Legal counsel, public accountants or other persons as to
matters the director reasonably believes are within the
persons' professional or expert competence; or
(c) A committee of the Board of Directors of which he is not a
member, if the director reasonably believes the committee
merits confidence.
In discharging his duties, a director may consider such factors as the
director deems relevant, including the long-term prospects and interests of the
corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
A director is not acting in good faith if he has knowledge concerning
the matter in question that makes reliance otherwise permitted by this section
unwarranted. A director shall not be liable for any action taken as a director,
or any failure to take any action, if he performed the duties of his office in
compliance with this section.
SECTION 5. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of its Board
of Directors or a committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless: (a) he objects at
the beginning of the meeting (or promptly upon his arrival) to holding it or
transacting specified business at the meeting; or (b) he votes against or
abstains from the action taken.
SECTION 6. NUMBER.
The number of directors of this corporation shall be not less than four
(4) nor more than eight (8). The number of directors of this corporation shall
initially be set at four (4). The number of directors may be increased or
decreased from time to time as determined by a majority of the entire Board of
Directors of this corporation or by amendment to these Bylaws.
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SECTION 7. ELECTION.
Directors are elected at the first annual shareholders' meeting and at
each annual meeting thereafter.
SECTION 8. TERM.
The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected. The terms of all
other directors expire at the next annual shareholders' meeting following their
election. A decrease in the number of directors does not shorten an incumbent
director's term. The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected. Despite the
expiration of a director's term, he or she continues to serve until his or her
successor is elected and qualifies or until there is a decrease in the number of
directors.
SECTION 9. RESIGNATION.
A director may resign at any time by delivering written notice to the
Board of Directors or its chairman or to the corporation. A resignation is
effective when the notice is delivered unless the notice specifies a later
effective date. If a resignation is made effective at a later date, the Board of
Directors may fill the pending vacancy before the effective date if the Board of
Directors provides that the successor does not take office until the effective
date.
SECTION 10. VACANCIES.
Whenever a vacancy occurs on the Board of Directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board of Directors or by the shareholders.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date or otherwise) may be filled before the
vacancy occurs but the new director may not take office until the vacancy
occurs.
SECTION 11. REMOVAL OF DIRECTORS.
The shareholders may remove one or more directors with or without cause
at a meeting of shareholders, provided the notice of the meeting states that the
purpose, or one of the purposes, of the meeting is removal of the director.
SECTION 12. QUORUM AND VOTING.
A quorum of the Board of Directors consists of a majority of the number
of directors. If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the Board of Directors.
SECTION 13. CONFLICTS OF INTEREST.
No contract or other transaction between this corporation and one or
more of its directors or any other corporation, firm, association or entity in
which one or more of the directors are directors or officers
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or are financially interested shall be either void or voidable because of such
relationship or interest or because such director or directors are present at
the meeting of the Board of Directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction or because his or their votes
are counted for such purpose, if:
(a) the fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes,
approves or ratifies the contract or transaction by a vote or
consent sufficient for the purpose without counting the votes
or consents of such interested directors; or
(b) the fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize,
approve or ratify such contract or transaction by vote or
written consent; or
(c) the contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the Board,
committee or the shareholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
For purposes of subparagraph (b) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this section. Shares owned
by or voted under the control of a director who has a relationship or interest
in the transaction described in this section may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under subparagraph (b) above. The vote of those shares,
however, is counted in determining whether the transaction is approved under
other sections of the Act. A majority of the shares, whether or not present,
that are entitled to be counted in a vote on the transaction under this section
constitutes a quorum for the purpose of taking action under this section.
SECTION 14. EXECUTIVE AND OTHER COMMITTEES.
The Board of Directors, by resolution adopted by a majority of the full
Board of Directors, may designate from among its members an executive committee
and one or more other committees, consisting of a minimum of two (2) directors
who serve at the pleasure of the Board of Directors, each of which, to the
extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, except that no committee shall have the
authority to:
(a) Approve or recommend to shareholders actions or proposals
required by law to be approved by shareholders;
(b) Fill vacancies on the Board of Directors or any committee
thereof;
(c) Adopt, amend or repeal the Bylaws;
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the Board
of Directors; or
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(e) Authorize or approve the issuance or sale or contract for the
sale of shares, or determine the designation and relative
rights, preferences and limitations of a voting group, except
that the Board of Directors may authorize a committee (or a
senior executive officer of the corporation) to do so within
limits specifically prescribed by the Board of Directors.
The provisions of section 12 above and sections 15, 16 and 17 below,
which govern meetings, notice and waiver of notice, and quorum and voting
requirements of the Board of Directors, shall apply to committees and their
members as well.
SECTION 15. MEETINGS.
The Board of Directors may hold regular or special meetings in or out
of the State of Florida. A majority of the directors present, whether or not a
quorum exists, may adjourn any meeting of the Board of Directors to another time
and place. Notice of any such adjourned meeting shall be given to the directors
who were not present at the time of the adjournment and, unless the time and
place of the adjourned meeting are announced at the time of the adjournment, to
the other directors. Meetings of the Board of Directors may be called by the
chairman of the board or by the chief executive officer of the corporation. The
Board of Directors may permit any or all directors to participate in a regular
or special meeting by, or conduct the meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other during the meeting. A director participating in a meeting by this means is
deemed to be present in person at the meeting.
SECTION 16. NOTICE OF MEETINGS.
Regular meetings of the Board of Directors may be held without notice
of the date, time, place or purpose of the meeting. Special meetings of the
Board of Directors must be preceded by at least two (2) days' notice of the
date, time and place of the meeting. The notice need not describe the purpose of
the special meeting unless required by the articles of incorporation or these
Bylaws.
SECTION 17. WAIVER OF NOTICE.
Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the meeting or promptly upon
arrival at the meeting, any objection to the transaction of business because the
meeting is not lawfully called or convened.
SECTION 18. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken at a Board of Directors'
meeting or committee meeting may be taken without a meeting if the action is
taken by all members of the Board of Directors or the committee. The actions
must be evidenced by one or more written consents describing the action taken
and signed by each director or committee member.
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Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date. A
consent signed under this section has the effect of a meeting vote and may be
described as such in any document.
SECTION 19. AMENDMENT BY BOARD OF DIRECTORS.
The corporation's Board of Directors may adopt one or more amendments
to the corporation's Articles of Incorporation without shareholder action:
(1) To delete the names and addresses of the initial directors;
(2) To delete the name and address of the initial registered agent
or registered office, if a statement of change is on file with
the Department of State;
(3) To delete any other information contained in the Articles of
Incorporation that is solely of historical interest;
(4) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the
corporation has only shares of that class outstanding;
(5) To delete the authorization for a class or series of shares
authorized as provided by law, if no shares of such class or
series have been issued;
(6) To change the corporate name by substituting the word
"corporation," "Incorporated," or "company," or the
abbreviation "corp.," "Inc.," or "Co.," for a similar word or
abbreviation in the name, or by adding, deleting, or changing
a geographical attribution for the name; or
(7) To make any other change expressly permitted by the Act to be
made without shareholder action.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS.
The Board of Directors may elect from its own number a chairman of the
board and may elect a president, chief executive officer, chief operating
officer, chief financial officer, such vice presidents and a treasurer as in the
opinion of the Board of Directors the business of the corporation requires. The
Board of Directors shall elect a secretary and shall delegate to the secretary
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation. The Board of
Directors or the chief executive officer may appoint one or more other officers
or assistant officers. The same individual may simultaneously hold more than one
office in the corporation.
SECTION 2. POWERS AND DUTIES.
The officers of the corporation shall have the following duties:
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(a) The chairman of the board, if elected, or failing his or her
election, the chief executive officer, shall preside at all
meetings of the shareholders and Board of Directors and shall
have such other powers and perform such other duties as may be
prescribed from time to time by the Board of Directors.
(b) The chief executive officer shall have overall charge and
supervision of the officers of the corporation, who shall
report to the chief executive officer or such other person or
persons designated by the chief executive officer, and shall,
in the absence or failing the election of a chairman of the
board, preside at all meetings of the shareholders and the
Board of Directors.
(c) The president shall have general charge and supervision of the
day-to-day business, affairs, administration and operations of
the corporation subject to the direction of the Board of
Directors and chief executive officer. The president shall
have such other powers and perform such other duties as may
from time to time be assigned to him by the Board of Directors
or chief executive officer.
(d) Each of the chief operating officer and vice presidents, if
elected, shall have such powers and shall perform such duties
as may from time to time be assigned to him or her by the
Board of Directors.
(e) The secretary shall be the custodian of, and shall maintain,
all of the corporate records except the financial records,
shall authenticate all corporate records, shall prepare and
record the minutes of all meetings of the shareholders and
Board of Directors, send out all notices of meetings, and
shall have such other powers and shall perform such other
duties as may be prescribed by the Board of Directors or the
chief executive officer.
(f) The chief financial officer or treasurer shall be the
custodian of all corporate funds, securities and financial
records, shall keep full and accurate accounts of receipts and
disbursements and render accounts thereof at the annual
meetings of shareholders and whenever else required by the
Board of Directors or the chief executive officer, and shall
have such other powers and perform such other duties as may be
prescribed by the Board of Directors or the chief executive
officer.
SECTION 3. DELEGATION.
In the event of the absence of any officer of this corporation or for
any other reason that the Board of Directors may deem sufficient, the Board of
Directors may at any time and from time to time delegate all or any part of the
powers or duties of any officer to any other officer or officers or to any
director or directors.
SECTION 4. RESIGNATION AND REMOVAL OF OFFICERS.
An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the Board of
Directors may fill
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the pending vacancy before the effective date if the Board of Directors provides
that the successor does not take office until the effective date.
The Board of Directors may remove any officer at any time with or
without cause. Any officer or assistant officer, if appointed by the chief
executive officer, may likewise be removed by the chief executive officer.
SECTION 5. CONTRACT RIGHTS.
The appointment of an officer does not itself create contract rights.
An officer's removal does not affect the officer's contract rights, if any, with
the corporation. An officer's resignation does not affect the corporation's
contract rights, if any, with the officer.
ARTICLE IV
STOCK CERTIFICATES
SECTION 1. FORM AND CONTENT OF CERTIFICATES.
Shares may, but are not required to, be represented by certificates. At
a minimum each share certificate, if this corporation has share certificates,
must state on its face: the name of the corporation and that the corporation is
organized under the laws of the State of Florida; the name of the person to whom
issued; and the number and class of shares and the designation of the series, if
any, the certificate represents.
If the corporation is authorized to issue different classes of shares
or different series within a class, the designations, relative rights,
preferences, and limitations applicable to each class and the variations in
rights, preferences, and limitations determined for each series (and the
authority of the Board of Directors to determine variations for future series)
must be summarized on the front or back of each certificate if this corporation
has share certificates. Alternatively, each certificate, if this corporation has
share certificates, may state conspicuously on its front or back that the
corporation will furnish the shareholder a full statement of this information on
request and without charge.
Each share certificate must be signed (either manually or in facsimile)
by the chief executive officer, president or a vice president and the secretary
or an assistant secretary of the corporation and shall bear the corporate seal
or its facsimile.
If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
The Board of Directors may authorize the issuance of some or all of the
shares of any or all of its classes or series without certificates pursuant to
and to the extent permitted by applicable law.
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SECTION 2. TRANSFER OF STOCK.
Subject to any restrictions on the transfer or registration of transfer
of the shares represented by a stock certificate which have been imposed or
adopted as authorized by the Act, the corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder of record or by his duly authorized attorney and is accompanied
with any additional documents, instruments, certificates, signature guaranties
or other items required from time to time by the Board of Directors in its sole
discretion.
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES.
The corporation shall issue a new stock certificate in the place of any
certificate previously issued if the holder of record of the certificate (a)
makes proof in affidavit form that it has been lost, destroyed or wrongfully
taken; (b) requests the issue of a new certificate before the corporation has
notice that the certificate has been acquired by a purchaser for value in good
faith and without notice of any adverse claim; (c) gives bond or other security
or indemnity in such form as the corporation may direct to indemnify the
corporation, the transfer agent, and registrar against any claim that may be
made on account of the alleged loss, destruction, or theft of a certificate; and
(d) satisfies any other reasonable requirements imposed by the corporation.
ARTICLE V
BOOKS AND RECORDS
SECTION 1. CORPORATE RECORDS.
The corporation shall keep as permanent records minutes of all meetings
of its shareholders and its Board of Directors, a record of all actions taken by
the shareholders or Board of Directors without a meeting, and a record of all
actions taken by a committee of the Board of Directors in place of the Board of
Directors on behalf of the corporation. The corporation shall maintain accurate
accounting records.
The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each. The corporation shall maintain its
records in written form or in another form capable of conversion into written
form within a reasonable time. The corporation shall keep a copy of the
following records:
(a) Its Articles or Restated Articles of Incorporation and all
amendments to them currently in effect;
(b) Its Bylaws or Restated Bylaws and all amendments to them
currently in effect;
(c) Resolutions adopted by its Board of Directors creating one or
more classes or series of shares and fixing their relative
rights, preferences, and limitations, if shares issued
pursuant to those resolutions are outstanding;
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(d) The minutes of all shareholders' meetings and records of all
action taken by shareholders without a meeting for the past
three (3) years.
(e) Written communications to all shareholders generally or all
shareholders of a class or series within the past three (3)
years, including the financial statements required to be
furnished for the past three (3) years under section 4 of this
Article V;
(f) A list of the names and business street addresses of its
current directors and officer; and
(g) Its most recent annual report delivered to the Department of
State.
SECTION 2. INSPECTION OF RECORDS BY SHAREHOLDERS.
A shareholder of the corporation is entitled to inspect and copy,
during regular business hours at the corporation's principal office, any of the
records of the corporation described in subparagraphs (a) through (g) in section
1 above if he gives the corporation written notice of his demand at least five
(5) business days before the date on which he wishes to inspect and copy.
A shareholder of the corporation is entitled to inspect and copy,
during regular business hours at a reasonable location specified by the
corporation, any of the following records of the corporation if the shareholder
meets the requirements of this section and gives the corporation written notice
of his demand at least five (5) business days before the date on which he wishes
to inspect and copy:
(a) Excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board
of Directors while acting in place of the Board of Directors
on behalf of the corporation, minutes of any meeting of the
shareholders, and records of action taken by the shareholders
or Board of Directors without a meeting, to the extent not
otherwise subject to inspection under these Bylaws;
(b) Accounting records of the corporation;
(c) The record of shareholders; and
(d) Any other books and records.
A shareholder may inspect and copy the records described in subparagraphs (a)
through (d) in the preceding paragraph only if:
(a) His demand is made in good faith and for a proper purpose;
(b) He describes with reasonable particularity his purpose and the
records he desires to inspect; and
(c) The records are directly connected with his purpose.
This section does not affect the right of a shareholder to inspect and
copy records under Article I, section 8 of these Bylaws, or, if the shareholder
is in litigation with the corporation, to the same extent as
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any other litigant; or the power of a court, independently of the Act, to compel
the production of corporate records for examination.
For purposes of this section, the term "shareholder" includes a
beneficial owner whose shares are held in a voting trust or by a nominee on his
behalf; and a "proper purpose" means a purpose reasonably related to such
person's interest as a shareholder.
SECTION 3. SCOPE OF INSPECTION RIGHT.
A shareholder's agent or attorney has the same inspection and copying
rights as the shareholder he represents. The right to copy and/or to have
converted unwritten records into written form and/or to otherwise inspect the
corporate records, including expenses and charges therefore, shall be the same
as provided or permitted by law.
SECTION 4. FINANCIAL STATEMENTS FOR SHAREHOLDERS.
Unless modified by resolution of the shareholders within one hundred
twenty (120) days of the close of each fiscal year, the corporation shall
furnish its shareholders annual financial statements which may be consolidated
or combined statements of the corporation and one or more of its subsidiaries,
as appropriate, that include a balance sheet as of the end of the fiscal year,
an income statement for that year, and a statement of cash flows for that year.
If financial statements are prepared for the corporation on the basis of
generally accepted accounting principles, the annual financial statements must
also be prepared on that basis.
If the annual financial statements are reported upon by a public
accountant, its report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation;
and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the
statements prepared for the preceding year.
A corporation shall mail the annual financial statements to each
shareholder within one hundred twenty (120) days after the close of each fiscal
year or within such additional time thereafter as is reasonably necessary to
enable the corporation to prepare its financial statements if, for reasons
beyond the corporation's control, it is unable to prepare its financial
statements within the prescribed period. Thereafter, on written request from a
shareholder who was not mailed the statements, the corporation shall mail him
the latest annual financial statements.
ARTICLE VI
DIVIDENDS
SECTION 1. DISTRIBUTIONS TO SHAREHOLDERS.
The Board of Directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by its Articles of
Incorporation and/or the Act.
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If the Board of Directors does not fix the record date for determining
shareholders entitled to a distribution (other than one involving a purchase,
redemption or other acquisition of the corporation's shares), it is the date the
Board of Directors authorizes the distribution. No distribution may be made if,
after giving it effect: the corporation would not be able to pay its debts as
they become due in the usual course of business; or the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. The Board of Directors may base a determination that a
distribution is not prohibited either on financial statements prepared on the
basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
Except as otherwise provided herein, the effect of a distribution under
this section is measured:
(a) In the case of distribution by purchase, redemption or other
acquisition of the corporation's shares, as of the earlier of:
(1) The date money or other property is transferred or
debt incurred by the corporation;
or
(2) The date the shareholder ceases to be a shareholder
with respect to the acquired shares;
(b) In the case of any other distribution of indebtedness, as of
the date the indebtedness is distributed;
(c) In all other cases, as of:
(1) The date the distribution is authorized if the
payment occurs within one hundred twenty (120) days
after the date of authorization; or
(2) The date the payment is made if it occurs more than
one hundred twenty (120) days after the date of
authorization.
The corporation's indebtedness to a shareholder incurred by reason of a
distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general unsecured creditors, except to the
extent subordinated by agreement.
Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
this section if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
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SECTION 2. SHARE DIVIDENDS.
Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
Shares of one class or series may not be issued as a share dividend in
respect of shares of another class or series unless a majority of the votes
entitled to be cast by the class or series to be issued approves the issue, or
there are no outstanding shares of the class or series to be issued. If the
Board of Directors does not fix the record date for determining shareholders
entitled to a share dividend, it is the date the Board of Directors authorizes
the share dividend.
ARTICLE VII
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation,
the year of incorporation, the word "Florida" and the word "seal"; it may be a
facsimile, engraved, printed or an impression seal.
ARTICLE VIII
EXECUTION OF DOCUMENTS
All contracts, instruments, agreements, bills payable, notes, checks,
drafts, warrants or other obligations of this corporation shall be made in the
name of the corporation and shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
ARTICLE IX
INDEMNIFICATION
(a) The corporation shall indemnify any person who was or is a party to
any proceeding (other than an action by, or in the right of, the corporation),
by reason of the fact that he is or was a director, officer, employee, or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against liability incurred in connection
with such proceeding, including any appeal thereof, if he acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any proceeding by judgment, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person, who was or is a party
to any proceeding by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation
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as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof, if such person acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made under
this subsection in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable unless, and only to the extent
that, the court in which such proceeding was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
(c) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsection (a) or subsection (b), or in defense of any
claim, issue, or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsection (a) or subsection (b), unless
pursuant to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsection (a) or
subsection (b). Such determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(2) If such a quorum is not obtainable or, even if obtainable,
by majority vote of a committee duly designated by the Board of Directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(3) By independent legal counsel:
1. Selected by the Board of Directors
prescribed in paragraph (1) or the committee
prescribed in paragraph (2); or
2. If a quorum of the directors cannot be
obtained for paragraph (1) and the committee
cannot be designated under paragraph (2),
selected by majority vote of the full Board
of Directors (in which directors who are
parties may participate); or
(4) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(e) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the
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<PAGE> 24
determination of permissibility is made by independent legal counsel, persons
specified by paragraph (d)(3) shall evaluate the reasonableness of expenses and
may authorize indemnification.
(f) Expenses incurred by an officer or director in defending a civil or
criminal proceeding shall be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents shall be paid in advance upon
such terms or conditions that the board of directors deems appropriate.
(g) The indemnification and advancement of expenses provided pursuant
to these Bylaws are not exclusive, and the corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of share
holders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office. However, indemnification or advancement of expenses shall not be made to
or on behalf of any director, officer, employee, or agent if a judgment or other
final adjudication establishes that his actions, or omissions to act, were
material to the cause of action so adjudicated and constitute:
(1) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(2) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(3) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 of the Florida Business Corporation Act
are applicable; or
(4) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(h) Indemnification and advancement of expenses as provided in these
Bylaws shall continue as, unless otherwise provided when authorized or ratified,
to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such a
person, unless otherwise provided when authorized or ratified.
(i) For purposes of this Bylaw, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, IS in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(j) For purposes of this section:
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(1) The term "other enterprises" includes employee
benefit plans;
(2) The term "expenses" includes counsel fees, including
those for appeal;
(3) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an
excise tax assessed with respect to any employee
benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(4) The term "proceeding" includes any threatened,
pending, or completed action, suit, or other type of
proceeding, whether civil, criminal, administrative,
or investigative and whether formal or informal;
(5) The term "agent" includes a volunteer;
(6) The term "serving at the request of the corporation"
includes any service as a director, officer,
employee, or agent of the corporation that imposes
duties on such persons, including duties relating to
an employee benefit plan and its participants or
beneficiaries; and
(7) The term "not opposed to the best interest of the
corporation" describes the actions of a person who
acts in good faith and in a manner he reasonably
believes to be in the best interests of the
participants and beneficiaries of an employee benefit
plan.
(k) The corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this section.
ARTICLE X
AMENDMENT
These Bylaws may be altered, amended or repealed by either the Board of
Directors or the shareholders, but the Board of Directors may not alter, amend
or repeal the Bylaws generally or a particular Bylaw provision adopted by the
shareholders if the shareholders expressly provide that the Bylaws generally or
a particular Bylaw provision is not subject to amendment, alteration or repeal
by the Board of Directors.
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<PAGE> 1
EXHIBIT 10.7
PRECISION RESPONSE CORPORATION
1505 NW 167TH STREET
MIAMI, FLORIDA 33169
January 12, 2000
Mr. Mark J. Gordon
19951 Northeast 39th Place
Aventura, Florida 33180
Dear Mark:
Precision Response Corporation, a Florida corporation (the "COMPANY"), is
entering into an Agreement and Plan of Merger (the "MERGER AGREEMENT") with
USA Networks, Inc., a Delaware corporation ("USAi"), and a wholly-owned
subsidiary of USAi ("MERGER SUB"), pursuant to which the Company has agreed to
merge with and into Merger Sub, subject to certain terms and conditions. It is
a material condition to such merger (the "MERGER") that you enter into this
letter agreement (the "LETTER AGREEMENT") with the Company, and you have agreed
to enter into this Letter Agreement in consideration of, among other things,
the benefits to be received by you in connection with the Merger. This Letter
Agreement and all of the terms hereof shall become effective on and after the
Effective Time (as defined in the Merger Agreement), whether or not you
continue to be employed by the Company at such time.
This Letter Agreement (i) confirms that, effective as of the Effective
Time, you will no longer serve as the Chairman of the Board of the Company,
(ii) terminates, effective as of the Effective Time, the Employment Agreement,
dated as of May 15, 1996 (the "EMPLOYMENT AGREEMENT"), between you and the
Company, and (iii) terminates, effective as of the Effective Time, the
Registration Rights Agreement, dated as of May 15, 1996 (the "REGISTRATION
RIGHTS AGREEMENT"), between you and the Company.
1. Effective as of the Effective Time, you will resign as the Chairman of
the Board of the Company and from all positions you then occupy as an officer or
director of the Company and any subsidiary or affiliate of the Company and will
terminate as an employee of the Company and any subsidiary or affiliate of the
Company.
2. (a) In view of the consideration to be received by you in connection
with the Merger and as material inducement to USAi to enter into the Merger,
effective on and after the Effective Time, you, in your individual capacity
only, hereby waive, release and forever discharge the Company and its
subsidiaries, and their respective divisions, branches, predecessors,
successors, assigns, directors, officers, employees, agents, partners, members,
stockholders, representatives and attorneys, in their individual and
representative capacities
<PAGE> 2
(collectively, the "RELEASEES"), of and from any and all claims, rights,
damages, demands, causes of action or liabilities of any nature whatsoever,
known or unknown, contingent or fixed, whether due or to become due, that you
have had, now have or may have at any future time by reason of any cause,
matter or thing whatsoever, directly or indirectly, related to the Employment
Agreement, the Registration Rights Agreement or otherwise in connection with
your employment with any Releasees (collectively, "CLAIMS"), including without
limitation under Title VII of the Civil Rights Act of 1964, as amended, 42
U.S.C. Section 2000 et seq.; the Fair Labor Standards Act, as amended, 29
U.S.C. Section 201 et seq.: the Age Discrimination in Employment Act, 29 U.S.C.
Section 621 et seq. (the "ADEA"); the Americans With Disabilities Act, 42 U.S.C.
Section 1001 et seq. and Section 12,112 et seq.; the Employee Retirement Income
Security Act of 1974, as amended, 29 U.S.C. Section 1001 et seq.; the
Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et seq.;
and all other federal, state and local laws, statutes, rules or regulations of
any type or description, including, without limitation, contract law, tort law,
civil rights laws, express or implied covenants of good faith or fair dealing,
and otherwise, regarding employment discrimination or the employment of labor,
which you or your heirs, executors, administrators, successors and assigns
ever had, now have or hereafter can, shall or may have against the Releasees or
any of them whatsoever from the beginning of the world to the Effective Time,
except for Claims arising under or in connection with this Letter Agreement and
your rights to accrued salary and other benefits through the Effective Time and
under COBRA to continue your medical benefits under the Company's health plan,
at you own expense, after the Effective Time.
(b) Notwithstanding anything to the contrary set forth in this
paragraph 2 or otherwise, you do not in any manner whatsoever waive or
discharge or release your rights against the Company or any of its subsidiaries,
or any rights arising in connection with or under the Merger Agreement, from or
with respect to any claims for or rights to indemnification or contribution
under agreement, at law, in equity or otherwise with respect to any liability,
obligation, loss or expense incurred by you, or claims made against you in your
capacity as a shareholder, director, officer or employee of the Company (or any
subsidiary thereof).
(c) For the purpose of implementing a full and complete release and
discharge of the Releasees you expressly acknowledge that the release set out
in this Letter Agreement is intended to include in its effect, without
limitation, all claims or other matters described in this paragraph 2 that you
do not know or suspect to exist in your favor at the time of execution hereof,
and that the release set out in this Letter Agreement contemplates the
extinguishment of any and all such claims or other such matters.
3. (a) You acknowledge that you have been informed by the Company of
the Company's policy to maintain as secret and confidential all information and
materials relating to (i) the financial condition, operations, business and
interests of the Company, (ii) the systems, know-how, records, products,
services, cost information, inventions, computer and Internet software,
marketing and sales techniques and/or programs, methods, methodologies, manuals,
lists and other trade secrets from time to time acquired, sold, developed,
maintained and/or used by the Company, and (iii) the nature and terms of the
Company's relationships with its clients, suppliers, lenders, underwriters,
vendors, consultants, independent contractors, attorneys, accountants and
employees (all such information and materials being hereinafter collectively
referred to as "Confidential Information"). You further acknowledge that such
Confidential
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<PAGE> 3
Information is of great value to the Company and has been developed by the
Company as a result of substantial effort and expense and that you have been
given access to Company's clients and prospective clients because of your
business position with the Company. Therefore, you understand that it is
reasonably necessary to protect the Company's goodwill, trade secrets and
business interests that you agree and, accordingly, you do hereby agree, that
you will not directly or indirectly (except where authorized by the Board of
Directors, Chairman of the Board or Chief Executive Officer of the Company for
the benefit of the Company at any time hereafter divulge or disclose for any
purpose to any persons, firms, corporations or other entities (hereinafter
referred to collectively as "THIRD PARTIES"), or use or cause or authorize any
Third Parties to use, any such Confidential Information, except as otherwise
required by law.
(b) In accordance with the foregoing, you furthermore agree that (i)
you will at no time retain or remove from the premises of the Company any
products, prototypes, drawings, notebooks, computer or Internet software or
discs, tapes or similar containers of software, manuals, data, books, records,
materials or documents of any kind or description of the Company or related to
its business for any purpose unconnected with the performance of your duties
with the Company and (ii) on or before the Effective Time, you shall forthwith
deliver or cause to be delivered up to the Company any and all drawings,
notebooks, software programs or discs, tapes or similar containers of software,
manuals, data, books, records, materials and other documents and materials in
your possession or under your control relating to any Confidential Information
or any other material or thing which is the property of the Company.
4. In view of (a) the Confidential Information that has been obtained by
or disclosed to you, and (b) the consideration received by you in connection
with the Merger and as a material inducement to USAi to enter into the Merger,
you covenant and agree that, for a period of two (2) years after the Effective
Time, you shall not directly or indirectly, (i) engage in any venture
enterprise, activity or business, passively or actively, as an owner,
consultant, adviser, participant, employee, agent or in any other capacity,
competitive with the business in which the Company is engaged or involved as of
the Effective Time, anywhere within the continental United States, including,
without limitation, the sale of any products or services sold or offered by the
Company to any person or entity who is or was a client of the Company and for or
to whom the Company is performing services or selling products or for or to whom
the Company has performed services or sold products at any time during the
one-year period ending as of the Effective Time or (ii) solicit the services of,
or hire, directly or indirectly, whether on your own behalf or on behalf of
others, any managerial or executive employee, account manager or other sales or
marketing employee, programmer, information services employee (including,
without limitation, network or other information services or Internet operation
employee) or database management or marketing employee of the Company who was or
is employed by the Company at any time during the two-year period ending as of
the Effective Time. Notwithstanding the foregoing, nothing in this paragraph 4
shall prohibit you from owning as a passive investor beneficially and/or of
record less than 5% of the outstanding equity securities of any entity whose
equity securities are registered under the Securities Exchange Act of 1934, as
amended, or are listed for trading on any United States or foreign stock
exchange. You acknowledge that the business of the Company is national in scope,
that one can effectively compete with such business from anywhere in the
continental United States, and that, therefore, such geographical area of
restriction is reasonable in the circumstances to protect the Company's trade
secrets and other legitimate business interests.
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<PAGE> 4
5. You covenant and agree that if you shall violate or breach any of your
covenants or agreements provided for in paragraph 3 or 4 hereof, the Company
shall be entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration and benefits which you directly or indirectly have
realized and realize as a result of, growing out of or in connection with any
such violation or breach. In addition, in the event of a breach or violation or
threatened or imminent breach or violation of any provisions of paragraph 3 or 4
hereof, the Company shall be entitled to a temporary and permanent injunction or
any other appropriate decree of specific performance or equitable relief from a
court of competent jurisdiction in order to prevent, prohibit or restrain any
such breach or violation or threatened or imminent breach or violation by you.
The Company shall be entitled to such injunctive or other equitable relief in
addition to any ascertainable damages which are suffered, together with
reasonable attorneys' and paralegals' fees and costs and other costs incurred in
connection with any such litigation, both before and at trial and at all
tribunal levels. It is understood that resort by the Company to such injunctive
or other equitable relief shall not be deemed to waive or to limit in any
respect any other rights or remedies which the Company may have with respect to
such breach or violation.
6. (a) You acknowledge that any breach or violation of paragraph 3 or 4
hereof will cause irreparable injury and damage and incalculable harm to the
Company. You further acknowledge that you have carefully read and considered
the provisions of paragraphs 3, 4 and 5 hereof and, having done so, agree that
the restrictions and remedies set forth in such paragraphs (including, but not
limited to, the time period, geographical and types of restrictions imposed)
are fair and reasonable and are reasonably required for the protection of the
business, trade secrets, interest and goodwill of the Company.
(b) You understand and intend that each provision and restriction
agreed to by you in paragraphs 3, 4, and 5 hereof shall be construed as
separate and divisible from every other provision and restriction. In the event
that any one of the provisions of, or restrictions in, paragraphs 3, 4, and/or 5
hereof shall be held to be invalid or unenforceable, and is not reformed by a
court of competent jurisdiction (which a court, in lieu of striking a provision
entirely, is urged by the parties to do), the remaining provisions thereof and
restrictions therein shall nevertheless continue to be valid and enforceable as
though the invalid or unenforceable provisions or restrictions had not been
included. In the event that any such provision relating to time period,
geographical and/or type of restriction shall be declared by a court of
competent jurisdiction to exceed the maximum or permissible time period,
geographical or type of restriction such court deems reasonable and
enforceable, said time period, geographical and/or type of restriction shall
be deemed to become and shall thereafter be the maximum time period or
geographical area and/or type of restriction which such court deems reasonable
and enforceable.
(c) The restrictions, acknowledgements, covenants and agreements of
you set forth in paragraphs 3, 4, 5 and 6 of this Letter Agreement shall survive
any termination of this Letter Agreement.
(d) For purposes of paragraphs 3, 4, 5, and 6 of this Letter
Agreement, the term "COMPANY" includes the Company and all wholly-owned
subsidiaries of the Company as of the Effective Time.
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<PAGE> 5
7. This Letter Agreement shall be governed by and construed pursuant to
the laws of the State of Florida. Any and all disputes between the parties
which may arise pursuant to this Letter Agreement will be heard and determined
before an appropriate federal court in Florida, or, if not maintainable
therein, then in an appropriate Florida state court.
8. (a) This Letter Agreement is personal in its nature and the parties
shall not, without the prior written consent of the other, assign or transfer
this Letter Agreement or any rights or obligations hereunder; PROVIDED,
HOWEVER, the provisions hereof shall inure to the benefit of, and be binding
upon, (i) each successor of the Company or any of its affiliates, whether by
merger, consolidation, transfer of all or substantially all of its assets or
similar transaction, and (ii) your heirs, legatees, executors, administrators
and legal representatives.
(b) This Letter Agreement contains the entire understanding of the
parties hereto relating to the subject matter herein contained and supersedes,
on and after the Effective Time, all prior agreements or understandings between
the parties hereto with respect thereto, including, without limitation, the
Employment Agreement and the Registration Rights Agreement, and can be changed
only by a writing signed by both parties hereto. No waiver shall be effective
against a party unless in writing and signed by the party against whom such
waiver shall be enforced.
9. For purposes of this Letter Agreement, notices and other
communications provided for in this Letter Agreement shall be deemed to be
properly given if delivered personally or sent by United States certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to you: Mark J. Gordon
19951 Northeast 39th Place
Aventura, Florida 33180
If to the Company: USA Networks, Inc.
152 West 57th Street, 42nd Floor
New York, New York 10019
Attn.: General Counsel
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt. Notices also may be given
by facsimile and in such case shall be deemed to be properly given when sent so
long as the sender uses reasonable efforts to confirm and does confirm the
receiver's receipt of the facsimile transmission.
10. This Letter Agreement may be executed in two or more counterparts,
all of which shall be considered one and the same agreement.
11. You acknowledge and agree that, in deciding to execute this Letter
Agreement, you have relied entirely upon your own judgment, that you have read
this Letter Agreement and have had adequate time to consider its terms and
effects and to ask any question that you may have of anyone, including your
legal counsel and that you have executed this Letter Agreement
5
<PAGE> 6
voluntarily and with full understanding of its terms and effects on you, and
that no fact, evidence, event or transaction currently unknown to you but which
may later become known to you will affect in any way or manner the final and
unconditional nature of this Letter Agreement. You further acknowledge that (a)
you were advised to consult with an attorney before you executed this Letter
Agreement; (b) you were afforded sufficient opportunity to and did consult with
an attorney; and (c) you may revoke your release of any Claims under the ADEA
set forth in paragraph 2 by delivering written notice to the Company within a
period of seven days following the day on which you execute this Letter
Agreement (the "REVOCATION PERIOD"), and your release of any Claims under the
ADEA set forth in paragraph 2 shall not become effective or enforceable until
after the Revocation Period has expired. For this revocation to be effective,
written notice from you must be received by the Company at the address set forth
and as provided in paragraph 9 no later than the close of business on the
seventh day after you sign this Letter Agreement. If you revoke your release of
any claims under the ADEA set forth in paragraph 2, such release will be of no
force or effect.
12. If the Merger Agreement is terminated before the Effective Time, this
Letter Agreement shall be null and void and of no force or effect.
BY SIGNING THIS LETTER AGREEMENT, YOU STATE THAT:
(a) YOU HAVE READ THIS LETTER AGREEMENT AND HAVE HAD SUFFICIENT TIME
TO CONSIDER ITS TERMS;
(b) YOU UNDERSTAND ALL OF THE TERMS AND CONDITIONS OF THIS LETTER
AGREEMENT AND KNOW THAT YOU ARE GIVING UP IMPORTANT RIGHTS;
(c) YOU AGREE WITH EVERYTHING IN THIS LETTER AGREEMENT;
(d) YOU ARE AWARE OF YOUR RIGHT TO CONSULT WITH AN ATTORNEY BEFORE
SIGNING THIS LETTER AGREEMENT AND HAVE BEEN ADVISED OF SUCH RIGHT; AND
(e) YOU HAVE SIGNED THIS LETTER AGREEMENT KNOWINGLY AND VOLUNTARILY.
6
<PAGE> 7
If the foregoing correctly sets forth our understanding, please sign one
copy of this Letter Agreement and return it to the undersigned, whereupon this
letter shall constitute a binding agreement between us.
Sincerely,
PRECISION RESPONSE CORPORATION
By: /s/ David Epstein
-------------------------------
Name: David Epstein
Title: Chief Executive Officer
ACCEPTED AND
AGREED TO:
/s/ Mark J. Gordon
- ---------------------------------
Mark J. Gordon
7
<PAGE> 8
STATE OF FLORIDA )
) ss:
COUNTY OF MIAMI-DADE )
The foregoing instrument was acknowledged before me this 12th day of
January, 2000, by David Epstein, as Chief Executive Officer of Precision
Response Corporation, a Florida corporation, on behalf of said corporation. He
is personally known to me or has produced a State of Florida driver's license as
identification.
Sign Name: /s/ Richard D. Mondre
------------------------
Print Name: Richard D. Mondre
------------------------
NOTARY PUBLIC
Serial No. (none, if blank:)
-------
OFFICIAL NOTARY SEAL
RICHARD D. MONDRE
NOTARY PUBLIC STATE OF FLORIDA
My Commission Expires: COMMISSION NO. CC888151
MY COMMISSION EXP. DEC. 9, 2003
<PAGE> 9
STATE OF FLORIDA )
) ss:
COUNTY OF MIAMI-DADE )
The foregoing instrument was acknowledged before me this 12th day of
January, 2000, by Mark J. Gordon. He is personally known to me or has produced a
State of Florida driver's license as identification.
Sign Name: /s/ Richard D. Mondre
------------------------
Print Name: Richard D. Mondre
------------------------
NOTARY PUBLIC
Serial No. (none, if blank:)
-------
OFFICIAL NOTARY SEAL
RICHARD D. MONDRE
NOTARY PUBLIC STATE OF FLORIDA
My Commission Expires: COMMISSION NO. CC888151
MY COMMISSION EXP. DEC. 9, 2003
<PAGE> 1
EXHIBIT 10.8
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (this "Amendment") dated
and effective as of September 1, 1999, by and between Precision Response
Corporation, a corporation organized and existing under the laws of the State of
Florida ("Company"), and David L. Epstein ("Executive").
W I T N E S S E T H
WHEREAS, Company currently employs Executive pursuant to that certain
Employment Agreement dated May 15, 1996, by and between Company and Executive,
as previously amended by that certain Amendment to Employment Agreement dated
and effective as of April 1, 1999, by and between Company and Executive
(collectively, the "Employment Agreement"); and
WHEREAS, Company and Executive desire to amend one of the provisions of
the Employment Agreement as set forth herein.
NOW THEREFORE, the parties agree that the Employment Agreement shall be
amended effective as of and after the date hereof as follows:
1. Schedule 6(e) to the Employment Agreement is amended to provide,
immediately following the existing description of the Split Dollar Plan, and as
an addition thereto, the following:
"Company shall also commence funding a portion of the premiums
due on a life insurance policy dated September 25, 1997, and issued
September 26, 1997, by New York Life Insurance Company insuring the
lives of Executive and his spouse, Jodi A. Epstein, pursuant to a
separate written "Split Dollar Agreement and Collateral Assignment" in
the form executed by two separate trusts administered for the benefit
of Executive's family, one of which is the owner of the insurance
policy, and Company, as same may be amended from time to time."
2. Except as otherwise specifically modified by this Amendment, all
terms, conditions and provisions of the Employment Agreement shall remain
effective and shall continue to operate in full force throughout the entire term
of the Employment Agreement, as amended hereby.
3. This Amendment shall be governed by and construed pursuant to the
laws of the State of Florida.
4. This Amendment may be executed in counterparts, each of which shall
be an original, but both of which together shall constitute one and the same
instrument.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed as of the day and year first above written.
PRECISION RESPONSE CORPORATION
BY: /s/ MARK J. GORDON
-----------------------------------------
Mark J. Gordon, Chairman of the Board
/s/ DAVID L. EPSTEIN
-----------------------------------------
DAVID L. EPSTEIN
2
<PAGE> 3
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
Third Amendment to Employment Agreement (this "AMENDMENT") dated as of
January 12, 2000 and effective as of the Effective Time (as defined below),
between Precision Response Corporation, a Florida corporation ("COMPANY"), and
David Epstein ("EXECUTIVE"). "EFFECTIVE TIME" has the meaning set forth
in the Merger Agreement described below.
Company currently employs Executive pursuant to that certain Employment
Agreement, dated May 15, 1996, as amended as of April 1, 1999 and September 1,
1999, between Company and Executive (collectively, the "AGREEMENT");
Company has entered into an Agreement and Plan of Merger (the "MERGER
AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and its
wholly-owned subsidiary ("MERGER SUB"), pursuant to which Company has agreed to
merge with and into Merger Sub, subject to certain terms and conditions. It is a
material condition to such merger (the "MERGER") that Executive enter into this
Amendment, and Executive has agreed to enter into this Amendment in
consideration of, among other things, the benefits to be received by the
Executive in connection with the Merger.
The parties agree that the Agreement shall be amended effective on and
after the Effective Time (whether or not the Executive continues to be employed
by the Company at such time) as follows:
1. Paragraph 1 of the Agreement is amended by adding the following
sentence between the second and third sentences thereof:
"Executive shall report directly to the President of USAi's Electronic
Commerce and Services division (the "REPORTING OFFICER")."
In addition, the third sentence of paragraph 1 of the Agreement is amended by
replacing the words "Board of Directors of the Company or the Chairman of the
Board" with "Reporting Officer".
2. (a) Paragraph 6(b) of the Agreement is deleted in its entirety, and
Executive hereby waives and releases any and all rights or benefits that he may
now have to be granted any stock options thereunder in respect of the years
ended December 31, 1996, December 31, 1997 and December 31, 1998 (but excluding
the year ended December 31, 1999 in which it is acknowledged Executive was
granted stock options thereunder) and in respect of any year commencing after
December 31, 1999.
(b) At or immediately following the Effective Time and provided that
Executive continues to be employed by the Company at such time, in
consideration of Executive's entering into this Amendment and continued
employment with the Company at the Effective Time, Executive shall be granted
under USAi's 1997 Stock and Annual Incentive Plan
<PAGE> 4
a non-qualified stock option to purchase 75,000 shares of USAi common stock on
the standard terms and conditions for option grants by USAi to its employees.
3. Paragraph 7(d) of the Agreement is deleted in its entirety.
4. The heading to paragraph 8(a) of the Agreement is amended by
deleting the words "Voluntary Termination," and the first sentence of
paragraph 8(a) of the Agreement is amended by deleting the words "voluntary or"
in the second line thereof.
5. The first sentence of paragraph 8(c) of the Agreement is amended by
deleting the words "or upon expiration of the Employment Term pursuant to the
terms of paragraph 2 hereof" from the fourth and fifth lines thereof.
6. Paragraph 10 of and Schedule 10 to the Agreement are deleted in
their entirety and the Registration Rights Agreement, dated as of May 15, 1996,
between Company and Executive is terminated in its entirety.
7. The Agreement is amended to add a new paragraph 20 at the end
thereof as follows:
20. Non-Disclosure of Confidential Information
A. Confidential Information. Executive acknowledges that
Executive has been informed by Company of Company's policy to
maintain as secret and confidential all information and materials
relating to (i) the financial condition, operations, business and
interests of Company, (ii) the systems, know-how, records, products,
services, cost information, inventions, computer and Internet
software, marketing and sales techniques and/or programs,
methods, methodologies, manuals, lists and other trade secrets from
time to time acquired, sold, developed, maintained and/or used by
Company, and (iii) the nature and terms of Company's relationships
with its clients, suppliers, lenders, underwriters, vendors,
consultants, independent contractors, attorneys, accountants and
employees (all such information and materials being hereinafter
collectively referred to as "Confidential Infomation"). Executive
further acknowledges that such Confidential Information is of great
value to Company and has been developed by Company as a result of
substantial effort and expense and that Executive has been and will
be given access to Company's clients and prospective clients because
of Executive's business position with Company. Therefore, Executive
understands that it is reasonably necessary to protect Company's
goodwill, trade secrets and business interests that Executive agree
and, accordingly, Executive does hereby agree, that Executive will
not directly or indirectly (except where authorized by the Board of
Directors or Chairman of the Board of Company for the benefit of
2
<PAGE> 5
Company and/or as required in the course of employment) at any time
hereafter divulge or disclose for any purpose to any persons, firms,
corporations or other entities (hereinafter referred to collectively
as "Third Parties"), or use or cause or authorize any Third Parties
to use, any such Confidential Information, except as otherwise
required by law.
B. Company's Materials. In accordance with the foregoing,
Executive furthermore agrees that (i) Executive will at no time
retain or remove from the premises of Company any products,
prototypes, drawings, notebooks, computer or Internet software or
discs, tapes or similar containers of software, manuals, data,
books, records, materials or documents of any kind or description of
Company or related to its business for any purpose unconnected with
the performance of Executive's duties with Company and (ii) upon the
cessation or termination of Executive's employment with Company for
any reason, Executive shall forthwith deliver or cause to be
delivered up to Company any and all drawings, notebooks, software
programs or discs, tapes or similar containers of software, manuals,
data, books, records, materials and other documents and materials in
Executive's possession or under Executive's control relating to any
Confidential Information or any other material or thing which is the
property of Company.
8. The Agreement is amended to add a new paragraph 21 at the end
thereof as follows:
21. Covenant Not-To-Compete
In view of (a) the Confidential Information to be obtained by
or disclosed to Executive, and (b) the consideration received by
Executive in connection with the merger (the "Merger") of the
Company with and into a wholly-owned subsidiary of USA Networks,
Inc. ("USAi"), a Delaware corporation, the options to purchase stock
in USAi granted to Executive as of the Effective Time and the
consideration payable to Executive under this Agreement, and as a
material inducement to USAi to enter into the Merger, Executive
covenants and agrees that, for as long as Executive is employed by
Company and for a period of two (2) years after the later of (A) the
last day of the Initial Term (if Executive ceases for any reason to
be employed by Company before the expiration of the Initial Term)
and (B) the date on which Executive ceases for any reason to be
employed by Company, Executive shall not, directly or indirectly,
(i) engage in any venture, enterprise, activity or business,
passively or actively, as an owner, consultant, adviser,
participant, employee, agent or in any
3
<PAGE> 6
other capacity, competitive with the business in which Company is
engaged or involved during the period that Executive is employed by
Company and, in the case of the period after termination of
employment, in which Company is engaged or involved as of the date
Executive ceases for any reason to be employed by Company, anywhere
within the continental United States, including, without limitation,
the sale of any products or services sold or offered by Company to
any person or entity who is or was a client of Company and for or to
whom Company is performing services or selling products or for or to
whom Company has performed services or sold products at any time
during the one-year period ending on Executive's termination of
employment, or (ii) solicit the services of, or hire, directly or
indirectly, whether on Executive's own behalf or on behalf of
others, any managerial or executive employee, account manager or
other sales or marketing employee, programmer, information services
employee (including, without limitation, network or other
information services or Internet operation employee) or database
management or marketing employee of Company who was or is employed
by Company at any time during the two-year period ending on the date
of termination of Executive's employment. Notwithstanding the
foregoing, nothing in this paragraph 21 shall prohibit Executive
from owning as a passive investor beneficially and/or of record less
than 5% of the outstanding equity securities of any entity whose
equity securities are registered under the Securities Exchange Act
of 1934, as amended, or are listed for trading on any United States
or foreign stock exchange. Executive acknowledges that the business
of Company is national in scope, that one can effectively compete
with such business from anywhere in the continental United States,
and that, therefore, such geographical area of restriction is
reasonable in the circumstances to protect Company's trade secrets
and other legitimate business interests.
9. The Agreement is amended to add a new paragraph 22 in its entirety
as follows:
22. Company's Remedies for Breach of Paragraphs 20 and 21
Executive covenants and agrees that if Executive shall violate or
breach any of Executive's covenants or agreements provided for in
paragraph 20 or 21 hereof, Company shall be entitled to an
accounting and repayment of all profits, compensation, commissions,
remuneration and benefits which Executive directly or indirectly has
realized and realizes as a result of, growing out of or in
connection with any such violation or breach. In addition, in the
event of a breach or violation or threatened or imminent breach or
violation of any provisions of paragraph 20 or 21 hereof, Company
shall be entitled to a temporary and permanent
4
<PAGE> 7
injunction or any other appropriate decree of specific performance
or equitable relief from a court of competent jurisdiction in order
to prevent, prohibit or restrain any such breach or violation or
threatened or imminent breach or violation by Executive. Company
shall be entitled to such injunctive or other equitable relief in
addition to any ascertainable damages which are suffered, together
with reasonable attorneys' and paralegals' fees and costs and other
costs incurred in connection with any such litigation, both before
and at trial and at all tribunal levels. It is understood that
resort by Company to such injunctive or other equitable relief shall
not be deemed to waive or to limit in any respect any other rights
or remedies which Company may have with respect to such breach or
violation.
10. The Agreement is amended to add a new paragraph 23 in its entirety
as follows:
23. Reasonableness of Restrictions
A. Reasonableness. Executive acknowledges that any breach or
violation of paragraph 20 or 21 hereof will cause irreparable injury
and damage and incalculable harm to Company. Executive further
acknowledges that Executive has carefully read and considered the
provisions of paragraphs 20, 21 and 22 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections
(including, but not limited to, the time period, geographical and
types of restrictions imposed) are fair and reasonable and are
reasonably required for the protection of the business, trade
secrets, interests and good will of Company.
B. Severability. Executive understands and intends that each
provision and restriction agreed to by Executive in paragraphs 20,
21 and 22 hereof shall be construed as separate and divisible from
every other provision and restriction. In the event that any one of
the provisions of, or restrictions in, paragraphs 20, 21 and/or 22
hereof shall be held to be invalid or unenforceable, and is not
reformed by a court of competent jurisdiction (which a court, in
lieu of striking a provision entirely, is urged by the parties to
do), the remaining provisions thereof and restrictions therein shall
nevertheless continue to be valid and enforceable as though the
invalid or unenforceable provisions or restrictions had not been
included. In the event that any such provision relating to time
period, geographical and/or type of restriction shall be declared by
a court of competent jurisdiction to exceed the maximum or
permissible time period, geographical or type of restriction such
court deems reasonable and enforceable, said time period,
geographical and/or type of restriction shall be deemed to become
and shall thereafter be the maximum time period or geographical
5
<PAGE> 8
area and/or type of restriction which such court deems reasonable
and enforceable.
C. Survivability. The restrictions, acknowledgments, covenants
and agreements of Executive set forth in paragraphs 20, 21, 22 and
23 of this Agreement shall survive any termination of this Agreement
or of Executive's employment (for any reason, including expiration
of the Employment Term).
D. Definition of Company. For purposes of paragraphs 20, 21,
22 and 23 of this Agreement, the term "Company" includes the Company
and all wholly-owned subsidiaries of Company.
11. Except as otherwise specifically modified by this Amendment, all
terms, conditions and provisions of the Agreement shall remain effective and
shall continue to operate in full force throughout the entire term of the
Agreement, as amended hereby.
12. This Amendment shall be governed by and construed pursuant to the
laws of the State of Florida. Any and all disputes between the parties which may
arise pursuant to the Agreement, as amended by this Amendment, will be heard and
determined before an appropriate federal court in Florida, or, if not
maintainable therein, then in an appropriate Florida state court.
13. This Amendment may be executed in counterparts, each of which shall
be an original, but both of which together shall constitute one and the same
instrument.
14. If the Merger Agreement is terminated before the Effective Time,
this Amendment shall be null and void and of no force or effect.
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
PRECISION RESPONSE CORPORATION
By: /s/ Mark Gordon
------------------------------------------
Name: Mark Gordon
Title: Chairman
/s/ David Epstein
------------------------------------------
David Epstein
6
<PAGE> 1
Exhibit 10.12
David L. Epstein
3478 Derby Lane
Ft. Lauderdale, Florida 33331
January 12, 2000
Mark J. Gordon
19951 N.E. 39th Place
Aventura, Florida 33180
Dear Mark:
This will confirm that we hereby agree that the certain Stockholders
Agreement dated May 10, 1996, between Mark J. Gordon and David L. Epstein (the
"Agreement") is terminated as of the date hereof and, accordingly, neither of
us has any further obligations or liabilities thereunder.
By your execution of a copy of this letter, you hereby confirm that you
hereby agree to the termination of the Agreement as set forth in the foregoing
paragraph.
Sincerely,
/s/ David L. Epstein
-----------------------------
David L. Epstein
AGREED TO AND ACCEPTED BY:
/s/ Mark J. Gordon
- ----------------------------
Mark J. Gordon
<PAGE> 1
EXHIBIT 10.31
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment")
is entered into effective as of December 31, 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 by
Third Amendment dated as of June 30, 1999 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.
(a) The Amount of Commitment by NationsBank is hereby
increased to Thirty Five Million and No/100 Dollars ($35,000,000.00) for the
period of time between the date of this Amendment and February 29, 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.
(b) Subject to satisfactory completion of the audit referenced
in paragraph 1(c) below , the Amount of Commitment by NationsBank will be
increased to Fifty Million and No/100 Dollars ($50,000,000.00) for the period of
time between March 1, 2000 and June 30, 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 July 1, 2000, the Amount of Commitment by NationsBank shall revert to Twenty-
Five Million and No/100 Dollars ($25,000,000.00).
(c) NationsBank shall conduct an audit of the Borrower's books
and records and business operations within forty-five (45) days from the date of
this Amendment. The increase of the Commitment to Fifty Million and No/100
Dollars ($50,000,000.00) for the period of time between March 1, 2000 and June
30, 2000 is contingent upon NationsBank being satisfied with the results of the
audit in the sole discretion NationsBank. In the event that the audit is not
completed by March 1, 2000, or if NationsBank is not satisfied with the results
of
<PAGE> 2
the audit, the Amount of Commitment by NationsBank shall revert to Twenty-Five
Million and No/100 Dollars ($25,000,000.00) as of March 1, 2000.
2. DEFINITIONS.
(a) The definition of "Commitment Fee Rate" in Section 1.01 is
hereby modified in its entirety to read as follows:
"COMMITMENT FEE RATE" means the percent per
annum set forth below, which shall be based as specified below
upon the ratio of Funded Debt as of the last day of the fiscal
quarter of the Borrower most recently ended to EBITDA for the
Four-Quarter Period most recently ended:
<TABLE>
<CAPTION>
Ratio of Funded Debt
to EBITDA Commitment Fee Rate
-------------------- -------------------
<S> <C>
(i) Less than or equal to 1.00 to 1.0 .25%
(ii) Greater than 1.00 to 1.0 .375%
</TABLE>
The Commitment Fee Rate shall be established
for each fiscal quarter of the Borrower based upon the
foregoing ratio at the end of the immediately preceding fiscal
quarter of the Borrower (the "Determination Date"). Each such
ratio shall be determined based upon the computations set
forth in the certificate furnished to the Agent pursuant to
ss.7.01(a), subject to review and approval of such
computations by the Agent. If the Borrower shall fail to
deliver any such certificate within the time period required
by ss.7.01(a) with respect to a particular quarter, the
Commitment Fee Rate for such quarter shall be .375% per annum.
Nothing herein shall be construed to permit the Borrower to
permit the ratio of Funded Debt to EBITDA to exceed 2.50 to
1.0 or to bar the Agent and the Banks from treating its doing
so as an Event of Default or charging interest at the
Post-Default Rate as provided in ss. 2.05(b) hereof.
3. The definition of "Credit Termination Date" in Section 1.01 is
hereby modified in its entirety to read as follows:
"CREDIT TERMINATION DATE" means the earlier of (i)
June 30, 2001 and (ii) the date of termination in
whole of the Banks' Commitments pursuant to ss.8.02.
-2-
<PAGE> 3
4. NEGATIVE COVENANTS. Section 6.04 is hereby modified in its entirety
to read as follows:
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) Forty Million Dollars ($40,000,000) in any
Fiscal Year.
5. FACILITY FEE. Borrower shall pay to NationsBank the amount of Two
Hundred Thousand Dollars ($200,000.00) as a fee for the Credit Agreement
modification, to be paid upon the closing of this Amendment.
6. ADDITIONAL FEE. Borrower agrees to pay to Bank an additional fee in
the amount of Two Hundred Fifty Thousand Dollars ($250,000.00) on July 1, 2000,
in the event that USA Networks, Inc. has not completed its acquisition of
Borrower by June 30, 2000.
7. REAFFIRMATION. Except as expressly modified herein, the Credit
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 & 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/ GUILLERMO G. CASTILLO
-------------------------------------
Name: GUILLERMO G. CASTILLO
Title: SENIOR VICE PRESIDENT
-3-
<PAGE> 1
EXHIBIT 10.34
REVOLVING NOTE
$50,000,000.00 December 31, 1999
FOR VALUE RECEIVED, the undersigned PRECISION RESPONSE CORPORATION, a
Florida corporation, (the "Borrower") hereby absolutely and unconditionally
promises to pay to the order of BANK OF AMERICA, N.A., d/b/a NATIONSBANK, N.A.
(the "Bank") at the offices of BANK OF AMERICA, N.A., as Agent for the Banks
(the "Agent") at 100 S.E. 2nd Street, 15th Floor, Miami, Florida 33131 (or such
other place as the Agent may designate in writing):
1. On June 30, 2001, the principal amount of Fifty Million and 00/100
Dollars ($50,000,000.00) or, if less, the aggregate unpaid principal amount of
Loans advanced pursuant to the Credit Agreement, dated as of March 2, 1998, by
and among the Borrower, the Bank, the Agent, and certain other banks or
financial institutions (as amended, modified, supplemented or restated and in
effect from time to time, the "Credit Agreement"); and
2. Interest on the principal balance hereof from time to time
outstanding from the date hereof through and including the date on which such
principal amount is paid in full, at the times and at the rates provided in the
Credit Agreement.
This Note evidences Loans made by the Bank under, and has been issued
by the Borrower in accordance with the terms of, the Credit Agreement and is one
of the Notes referred to therein. The Bank and any holder hereof is entitled to
the benefits of the Credit Agreement (and the Security Documents and Guaranties
referred to therein) and may enforce the agreements of the Borrower contained
therein, and any holder hereof may exercise the remedies provided for thereby or
otherwise available in respect thereof, all in accordance with the terms
thereof. This Note is secured by the Security Agreement described in the Credit
Agreement. All capitalized terms used in this Note and not otherwise defined
herein shall have the same meanings herein as in the Credit Agreement.
The Borrower has the right in certain circumstances and the obligation
under certain other circumstances to repay or prepay the whole or part of the
principal of this Note on the terms and conditions specified in the Credit
Agreement.
If any one or more of the Events of Default shall occur, the entire
unpaid principal amount of this Note and all of the unpaid interest accrued
thereon may become or be declared due and payable in the manner and with the
effect provided in the Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any future occasion.
Except as specifically provided in the Credit Agreement, the Borrower
and every endorser and guarantor of this Note or the obligation represented
hereby waive all requirements of diligence in collection, presentation, demand,
notice, protest, notice of intent to accelerate,
<PAGE> 2
notice of acceleration, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, assent
to any extension or postponement of the time of payment or any other indulgence,
to any substitution, exchange or release of collateral and to the addition or
release of any other party or person primarily or secondarily liable.
This Note shall be construed in accordance with, and governed by, the
laws of the State of Florida, without regard to any conflicts-of-law rule or
principle that would give effect to the law of any other jurisdiction.
This Note replaces that certain $25,000,000.00 Revolving Note executed
by the Borrower dated March 2, 1998.
THE BORROWER AND (BY ACCEPTANCE HEREOF) THE BANK EACH WAIVE ANY RIGHT
THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING HEREUNDER OR RELATING HERETO.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed
under seal by its duly authorized officer as of the date first set forth above.
PRECISION RESPONSE CORPORATION
By: /s/ JOSEPH E. GILLIS
-------------------------------
Name: JOSEPH E. GILLIS
Title: VP & TREASURER
-2-
<PAGE> 1
EXHIBIT 10.39
FOURTH AMENDMENT TO MORTGAGE LOAN AGREEMENT
THIS FOURTH AMENDMENT TO MORTGAGE LOAN AGREEMENT (the "Fourth
Amendment") is entered into effective as of December 31, 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
by Third Amendment dated June 30, 1999; 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. NEGATIVE COVENANTS. Section 5.04 is hereby modified in its entirety
to read as follows:
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) Forty Million Dollars ($40,000,000) in any Fiscal
Year.
2. LOAN HOLDBACK. Section 2.02 as previously modified by the Third
Amendment 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 March 2, 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
<PAGE> 2
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 March 2, 2000, then Bank shall not
be obligated to advance the Interior Improvement 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 March 2, 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.
3. 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 & 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/ GUILLERMO G. CASTILLO
--------------------------------------
Name: GUILLERMO G. CASTILLO
Title: SENIOR VICE PRESIDENT
-2-
<PAGE> 1
EXHIBIT 10.40
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") dated and
effective as of JANUARY 13, 2000, by and between Precision Response Corporation,
a corporation organized and existing under the laws of the State of Florida
(hereinafter referred to as "Employer"), and Robert Tenzer hereinafter referred
to as ("Employee").
W I T N E S S E T H
WHEREAS, Employer currently employs Employee pursuant to an Employment
Agreement dated August 4, 1998 by and between Employer and Employee; and
WHEREAS, Employer and Employee desire to amend the Employment Agreement
as set forth herein.
NOW THEREFORE, the parties agree that the Employment Agreement shall be
amended as of and after the date hereof as follows:
Section 9 is hereby amended by the addition of the following
Subsection G:
G. EXCISE TAX TREATMENT. If any of the payments or benefits to be
received by Employee in connection with a Change in Control
(as defined in Subsection 9E.) pursuant to the terms of this
agreement or any other plan, arrangement or agreement (such
payments or benefits the "Total Payments") will be subject to
any excise tax imposed by Section 4999 of the Internal Revenue
of 1986, as amended (the "Code"), then, after taking into
account any reduction in the Total Payments provided by
Section 280G of the Code in such other plan, arrangement or
agreement, the payments made pursuant to Subsection 9E. of
this Employment Agreement shall be reduced to the extent
necessary so that no portion of the Total Payments is subject
to the excise tax but only if (i) the net amount of such Total
Payments, as so reduced (and after subtracting the net amount
of federal, state and local income taxes on such reduced Total
Payments) is greater than or equal to (ii) the net amount of
such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income
taxes on such Total Payments and the amount of excise tax to
which the Employee would be subject in respect of such
unreduced Total Payments).
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed as of the day and year first above written.
PRECISION RESPONSE CORPORATION
BY: /s/ RICHARD D. MONDRE
---------------------------------------
Exec. Vice Pres.
/s/ ROBERT TENZER
---------------------------------------
Robert Tenzer
2
<PAGE> 1
Exhibit 10.44
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
First Amendment to Employment Agreement (this "AMENDMENT"), dated as of
January 12, 2000 and effective as of the Effective Time (as defined below),
between Precision Response Corporation, a Florida corporation ("EMPLOYER"), and
Richard D. Mondre ("EMPLOYEE"). "EFFECTIVE TIME" has the meaning set forth in
the Merger Agreement described below.
Employer currently employs Employee pursuant to that certain Employment
Agreement, dated as of April 1, 1999, between Employer and Employee (the
"AGREEMENT");
Employer has entered into an Agreement and Plan of Merger (the "MERGER
AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi") and a
wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which Employer has
agreed to merge with and into Merger Sub, subject to certain terms and
conditions. It is a material condition to such merger (the "MERGER") that
Employee enter into this Amendment, and Employee has agreed to enter into this
Amendment in consideration of, among other things, the benefits to be received
by the Employee is connection with the Merger.
The parties agree that the Agreement shall be amended effective on and
after the Effective Time (whether or not the Employee continues to be employed
by the Employer at such time) as follows:
1. (a) Section 5.C. of the Agreement is deleted in its entirety, and
Employee hereby waives and releases any and all rights or benefits that he may
now have to be granted any stock options thereunder commencing after December
31, 1999 (but excluding the year ended December 31, 1999 in which it
acknowledged Employee was granted stock options thereunder).
(b) At or immediately following the Effective Time and provided that
Employee continues to be employed by the Company at such time, in consideration
of Employee's entering into this Amendment and continued employment with the
Company at the Effective Time, Employee shall be granted under USAi's 1997
Stock and Annual Incentive Plan a non-qualified stock option to purchase 25,000
shares of USAi common stock on standard terms and conditions for option grants
by USAi to its employees.
2. Section 9.A. of the Agreement is amended by adding the following
language at the end of clause (i) thereof ", provided that Employee may only
give such notice of resignation to Employer if David Epstein has ceased to be
the Chief Executive Officer of the Company within the 90-day period immediately
preceding the giving of such notice and is not serving as the Chief Executive
Officer on the effective date of resignation specified in Employee's notice"
and by changing the time period in clause (i) of Section 9A. from "ninety (90)
days" to "thirty (30) days".
<PAGE> 2
3. The definition of "Constructive Termination" in the fifth sentence of
Section 9B. of the Agreement is amended by deleting the references to "Chairman
of the Board" and to "Mark J. Gordon" is clause (z) thereof.
4. Section 9C. of the Agreement is amended by adding after the clause
"or because Employee resigns from Employee's employment" the following
language: "to the extent permitted in Section 9A."
5. The heading to Section 9E. of the Agreement is amended by deleting
the words "or Expiration", and the language of Section 9E. is amended in all
respects as necessary to delete any references to the payment of any amounts
to Employee upon the expiration of the Employment Term pursuant to the terms of
Section 2 of the Agreement.
6. The first sentence of Section 9F of the Agreement is amended by
deleting clause (iii) in its entirety and is amended in all respects as
necessary to delete any references to the payment of any amounts to Employee
if Employer (or its successor) delivers to Employee a written notice of
termination pursuant to Section 2 of the Agreement.
7. Clause (i) of Section 11 of the Agreement is amended by replacing the
words "for a period of 24 months after the date Employee ceases for any reason
to be employed by "Employer" with "for two (2) years after the later of (x)
the last day of the Initial Employment Term (if Employee ceases for any reason
to be employed by Employer before the expiration of the Initial Employment
Term) and (y) the date on which Employee ceases for any reason to be employed
by Employer". Clause (ii) of Section 11 of the Agreement is amended by
replacing the words "competitive with the business of Employer" with the words
"competitive with the business in which Employer is engaged or involved during
the period that Employee is employed by Employer and, in the case of Severance
Period, in which Employer is engaged or involved as of the date Employee ceases
for any reason to be employed by Employer". The definition of "Severance
Period" in Section 11 of the Agreement is amended and restated in its entirety
as follows: "For purposes of this Section 11, the 'Severance Period' shall mean
two (2) years after the later of (x) the last day of the Initial Employment
Term (if Employee ceases for any reason to be employed by Employer before the
expiration of the Initial Employment Term) and (y) the date on which Employee
ceases for any reason to be employed by Employer."
8. Section 13.D. of the Agreement is amended and restated in its entirety
as follows:
"For purposes of Section 10, 11, 12 and 13 of this Employment
Agreement, the term 'Employer' includes the Employer and all
wholly-owned subsidiaries of Employer."
9. Section 14 of the Agreement is deleted in its entirety, and Exhibit
"A" is deleted is its entirety.
10. Section 18 of the Agreement is amended to delete the reference to
the Registration Rights Agreement.
2
<PAGE> 3
11. Except as otherwise specifically modified by this Amendment, all
terms, conditions and provisions of the Agreement shall remain effective and
shall continue to operate in full force throughout the entire term of the
Agreement, as amended hereby.
12. This Amendment shall be governed by and construed pursuant to the
laws of the State of Florida. Any and all disputes between the parties which
may arise pursuant to the Agreement, as amended by this Amendment, will be heard
and determined before an appropriate federal court in Florida, or, if not
maintainable therein, then in an appropriate Florida state court.
13. This Amendment may be executed in counterparts, each of which shall
be an original, but both of which together shall constitute one and the same
instrument.
14. If the Merger Agreement is terminated before the Effective Time, this
Amendment shall be null and void and of no force or effect.
The parties hereto have cause this Agreement to be duly executed as of the
day and year first above written.
PRECISION RESPONSE CORPORATION
By: /s/ David Epstein
---------------------------------
Name: David Epstein
Title: Chief Executive Officer
/s/ Richard D. Mondre
-------------------------------------
Richard D. Mondre
3
<PAGE> 1
Exhibit 10.45
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
First Amendment to Employment Agreement (this "AMENDMENT") dated as of
January 12, 2000 and effective as of the Effective Time (as defined below),
between Precision Response Corporation, a Florida corporation ("EMPLOYER"), and
Richard N. Ferry, Jr. ("EMPLOYEE"). "EFFECTIVE TIME" has the meaning set forth
in the Merger Agreement described below.
Employer currently employs Employee pursuant to that certain Employment
Agreement, dated as of April 1, 1999, between Employer and Employee (the
"AGREEMENT");
Employer has entered into an Agreement and Plan of Merger (the "MERGER
AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and a
wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which Employer has
agreed to merge with and into Merger Sub, subject to certain terms and
conditions. It is a material condition to such merger (the "MERGER") that
Employee enter into this Amendment, and Employee has agreed to enter into this
Amendment in consideration of, among other things, the benefits to be received
by the Employee in connection with the Merger.
The parties agree that the Agreement shall be amended effective on and
after the Effective Time as follows:
1. The definition of "Constructive Termination" in the fifth sentence of
Section 9(B) of the Agreement is amended by deleting the references to
"Chairman of the Board" and to "Mark J. Gordon" in clause (z) thereof.
2. Except as otherwise specifically modified by this Amendment, all
terms, conditions and provisions of the Agreement shall remain effective and
shall continue to operate in full force throughout the entire term of the
Agreement, as amended hereby.
3. This Amendment shall be governed by and construed pursuant to the
laws of the State of Florida.
4. This Amendment may be executed in counterparts, each of which shall
be an original, but both of which together shall constitute one and the same
instrument.
5. If the Merger Agreement is terminated before the Effective Time, this
Amendment shall be null and void and of no force or effect.
<PAGE> 2
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
PRECISION RESPONSE CORPORATION
By: /s/ David Epstein
--------------------------------
Name: David Epstein
Title: Chief Executive Officer
/s/ Richard N. Ferry
-----------------------------------
Richard N. Ferry, Jr.
2
<PAGE> 1
EXHIBIT 10.46
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") dated and
effective as of JANUARY 13, 2000, by and between Precision Response Corporation,
a corporation organized and existing under the laws of the State of Florida
(hereinafter referred to as "Employer"), and Michael Miller hereinafter referred
to as ("Employee").
W I T N E S S E T H
WHEREAS, Employer currently employs Employee pursuant to an Employment
Agreement dated April 14, 1999 by and between Employer and Employee; and
WHEREAS, Employer and Employee desire to amend the Employment Agreement
as set forth herein.
NOW THEREFORE, the parties agree that the Employment Agreement shall be
amended as of and after the date hereof as follows:
Section 9 is hereby amended by the addition of the following
Subsection F:
F. EXCISE TAX TREATMENT. If any of the payments or benefits to be
received by Employee in connection with a Change in Control
(as defined in Subsection 9E.) pursuant to the terms of this
agreement or any other plan, arrangement or agreement (such
payments or benefits the "Total Payments") will be subject to
any excise tax imposed by Section 4999 of the Internal Revenue
of 1986, as amended (the "Code"), then, after taking into
account any reduction in the Total Payments provided by
Section 280G of the Code in such other plan, arrangement or
agreement, the payments made pursuant to Subsection 9E. of
this Employment Agreement shall be reduced to the extent
necessary so that no portion of the Total Payments is subject
to the excise tax but only if (i) the net amount of such Total
Payments, as so reduced (and after subtracting the net amount
of federal, state and local income taxes on such reduced Total
Payments) is greater than or equal to (ii) the net amount of
such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income
taxes on such Total Payments and the amount of excise tax to
which the Employee would be subject in respect of such
unreduced Total Payments).
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed as of the day and year first above written.
PRECISION RESPONSE CORPORATION
BY: /s/ RICHARD D. MONDRE
---------------------------------------
Exec. Vice Pres.
/s/ MICHAEL MILLER
---------------------------------------
Michael Miller
2
<PAGE> 1
EXHIBIT 10.52
PUT/CALL AGREEMENT
This Put/Call Agreement (the "Agreement") is made and entered into this
17th day of November, 1999 by and between PRESIDENTIAL SUITES, LTD., a Florida
limited partnership ("Presidential") and PRECISION RESPONSE CORPORATION, a
Florida corporation ("PRC").
W I T N E S S E T H
WHEREAS, Presidential entered into that certain Lease Agreement (the
"Lease") having an effective date of October 29, 1999, wherein Crossroads
Business Park Associates is the landlord and Presidential is the tenant, for the
lease of premises consisting of approximately 3,388 rentable square feet on the
third floor of Building Two in Crossroads Business Park located at 8151 West
Peters Road, Plantation, Florida 33317; and
WHEREAS, PRC leases space in the aforesaid Building Two which is
adjacent to the premises leased by Presidential under the Lease; and
WHEREAS, Presidential desires the right to assign its interest in the
Lease to PRC and to convey its furniture, fixtures and equipment commonly kept
on the leased premises ("FF&E") to PRC and to thereupon cause PRC to assume the
obligations of tenant under the Lease all in accordance with the terms and
conditions set forth herein; and
WHEREAS, PRC desires the right to cause Presidential to assign its
interest in the Lease to PRC and to convey the FF&E to PRC and to thereupon
assume the obligations of tenant under the Lease all in accordance with the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the promises,
agreements, representations, warranties, and covenants hereinafter set forth,
Presidential and PRC agree as follows:
1. RECITALS. The foregoing recitals are true and correct and
incorporated herein in their entirety.
2. TERMS. Unless otherwise defined herein, capitalized terms shall have
the meaning given them in the Lease.
3. PRESIDENTIAL RIGHT TO ASSIGN LEASE. Subject to the terms and
conditions set forth herein, and provided no Event of Default has occurred and
is continuing under the Lease, Presidential has the absolute right at any time
during the Term by giving written notice (the "Put Notice"), to assign its
interest in the Lease to PRC and to convey the FF&E to PRC, whereupon PRC will
assume the obligations of Tenant under the Lease accruing from and after the
Assignment and Assumption Effective Date (as hereinafter defined) and accept the
FF&E. Notwithstanding the
<PAGE> 2
foregoing, Presidential may not deliver the Put Notice prior to the receipt of a
final Certificate of Occupancy for the Premises from the City of Plantation.
4. PRC RIGHT TO CAUSE ASSIGNMENT OF LEASE. Subject to the terms and
conditions set forth herein, PRC has the absolute right at any time during the
Term by giving written notice (the "Call Notice"), to cause Presidential to
assign its interest in the Lease to PRC provided PRC thereupon assumes the
obligations of Tenant under the Lease accruing from and after the Assignment and
Assumption Effective Date (as hereinafter defined) and accepts the FF&E.
5. PROCEDURE FOR ASSIGNMENT AND ASSUMPTION OF LEASE AND CONVEYANCE OF
FF&E. In the event Presidential exercises its rights under paragraph 3 hereof or
PRC exercises its rights under paragraph 4 hereof, the assignment of
Presidential's interest in the Lease and the assumption by PRC of the Tenant's
obligations under the Lease shall be evidenced by an Assignment and Assumption
Agreement (the "Assignment and Assumption Agreement") substantially in the form
attached hereto as Exhibit "A," but subject to the reasonable comments of the
Landlord, and the conveyance of the FF&E shall be evidenced by a Bill of Sale in
the form of that attached hereto as Exhibit B (the "Bill of Sale"). Following
delivery of the Put Notice or Call Notice, as the case may be, Presidential and
PRC shall agree in writing upon the effective date of the Assignment and
Assumption Agreement (the "Assignment and Assumption Effective Date"), which
date shall be the first day of a calendar month; provided, however, if the
parties are unable to agree, the Assignment and Assumption Effective Date shall
be the first date which is at least 90 days from the date of delivery of the Put
Notice or Call Notice, as the case may be, and which is the first day of a
calendar month.
The parties acknowledge the provisions of subparagraph
14.01(e) of the Lease and agree to cooperate in good faith to comply with such
provisions. Not later than 20 days prior to the Assignment and Assumption
Effective Date (the "Delivery Date"), Presidential and PRC shall jointly deliver
to Landlord (i) written notice of the assignment and assumption of
Presidential's interest in the Lease, which notice shall include a request that
the Landlord release Presidential from all liability accruing under the Lease
from and after the Assignment and Assumption Effective Date, and (ii) a copy of
the fully executed Assignment and Assumption Agreement (effective as of the
Assignment and Assumption Effective Date). On the Delivery Date, PRC shall
deliver to Landlord, with copy to Presidential, (i) evidence that it has in
place all insurance required to be maintained under the Lease which insurance
policies shall name Landlord as an additional insured and (ii) a substitute
letter of credit which letter of credit shall be in the amount required for the
Letter of Credit as of the Assignment and Assumption Effective Date and
otherwise comply with the requirements of the Lease for the Letter of Credit and
be sufficient to cause Landlord to release to Presidential the existing Letter
of Credit as of or before the Assignment and Assumption Effective Date. On the
Delivery Date, the party which delivered the Put Notice or Call Notice, as the
case may be, shall deliver to Landlord the administrative charge required by
14.01(e)(iv) of the Lease.
On the Delivery Date, Presidential shall deliver to PRC (i) a
certificate certifying to PRC that all the representations and warranties of
Presidential contained in this Agreement are true and correct in all material
respects and will be true and correct in all material respects as of the
2
<PAGE> 3
Assignment and Assumption Effective Date and (ii) documentation sufficient to
allow PRC to determine the TI Adjustment (as defined below) and the FF&E Payment
(as defined below).
No sooner than 45 days, and no later than 30 days, prior to
the Assignment and Assumption Effective Date, Presidential shall request in
writing from Landlord an estoppel certificate to be addressed to PRC and
otherwise in accordance with subparagraph 27.01(j) of the Lease.
On the Assignment and Assumption Effective Date, Presidential
shall deliver to PRC (i) the Premises, broom-clean and free of Presidential's
personal property, other than the FF&E, (ii) the FF&E in the condition required
hereby, (iii) the Assignment and Assumption Agreement, (iv) the Bill of Sale,
and (v) all keys and access devices for the Premises and any and all plans and
specifications, certificates of occupancy, approvals, licenses, permits,
architectural drawings, permits, warranties and guaranties pertaining to the
Premises and Interior Buildout, all assigned to PRC to the extent assignable.
On the Assignment and Assumption Effective Date, PRC shall deliver to
Presidential the Assignment and Assumption Agreement, and PRC shall pay to
Presidential (i) the FF&E Payment (as defined below), and (ii) the TI Adjustment
(as defined below).
On the Assignment and Assumption Effective Date, Presidential and PRC
shall jointly deliver to Landlord instruction to release the Letter of Credit to
Presidential.
On the Assignment and Assumption Effective Date, Presidential shall pay
PRC or PRC shall pay Presidential, as appropriate, the payments required by the
first sentence of the following Section.
6. FINANCIAL MATTERS UNDER THE LEASE. It is the intent of the parties
that all monetary obligations of Presidential under the Lease shall be made
current by Presidential at or prior to the Assignment and Assumption Effective
Date. To the extent necessary or appropriate, the parties shall prorate Rent,
utilities and other financial matters as of the Assignment and Assumption
Effective Date and make payment of prorated items to the appropriate party on
the Assignment and Assumption Effective Date. To the extent Presidential's
obligations under the Lease are not ascertainable as of the Assignment and
Assumption Effective Date (such as Tenant's Proportionate Share of Operating
Expenses), the parties agree to promptly adjust and pay or reimburse the same
when such matters are ascertainable.
Following the Assignment and Assumption Effective Date, PRC
shall have the right, but not the obligation, to contest Landlord's
determination of Tenant's Percentage Share of Operating Costs for the calendar
year during which the Assignment and Assumption Effective Date falls. PRC and
Presidential agree to provide the other party with copies of all notices and
evidence concerning Landlord's determination of Tenant's Proportionate Share of
Operating Costs which either party receives from Landlord for such calendar
year. Presidential may at its expense contest Landlord's determination of
Tenant's Proportionate Share of Operating Expenses if PRC does not elect to do
3
<PAGE> 4
so. Any savings as a result of such contest shall be prorated between the
parties as of the Assignment and Assumption Effective Date after reimbursing the
contesting party for the costs and expenses of contest.
7. TENANT IMPROVEMENT ADJUSTMENT/FF&E PAYMENT. Promptly, but in no
event later than sixty (60) days following the completion of the Interior
Buildout and the furnishing of the Premises, Presidential shall deliver to PRC
such documentation and other support as PRC may reasonably request demonstrating
(i) the cost of the tenant improvements constructed or installed in the Premises
(other than the FF&E) by or on behalf of Presidential (the "TI Cost"), (ii) the
portion of Landlord's Contribution actually paid to Presidential in cash, and
not in the form of a rent credit (the "Paid Contribution"), and (iii) the cost
of the FF&E. Within thirty (30) days following receipt of such documentation and
support, the parties shall seek to agree as to the amount of the difference
between the TI Cost and the Paid Contribution (the "Difference") and the cost of
the FF&E (the "FF&E Cost"). If the parties are unable to agree as to the amount
of the Difference or the FF&E Cost, the same shall be determined by PRC's then
independent public accountants, which determination shall be conclusive. The
Difference and the FF&E Cost shall be amortized over the portion of the initial
Term remaining after the final certificate of occupancy for the Premises has
been issued. The unamortized Difference as of the Assignment and Assumption
Effective Date shall be the "TI Adjustment"; the unamortized FF&E Cost as of the
Assignment and Assumption Effective Date shall be the "FF&E Payment." The
parties shall adjust the FF&E Cost from time to time as FF&E is added to or
removed from the Premises using the procedure set forth in this Section. The
cost of any FF&E which is added to the Premises shall be amortized over an
assumed ten year term.
8. PRESIDENTIAL REPRESENTATIONS AND WARRANTIES. Presidential represents
and warrants to PRC that as of the date of this Agreement and as of the
Assignment and Assumption Effective Date:
(i) Presidential is a limited partnership duly formed,
validly existing and in good standing under the laws
of the State of Florida.
(ii) Presidential has the power and authority to execute
and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement has
been duly executed and delivered by Presidential and
is a valid and binding agreement of Presidential,
enforceable in accordance with its terms.
(iii) The negotiation, execution, delivery and performance
of this Agreement by Presidential, and the
consummation of the transactions contemplated hereby,
do not and will not conflict with or result in any
breach of any of the provisions of, constitute a
default under, or result in a violation of the Lease,
or require any authorization, consent, approval,
exemption or other action by or notice to any third
party other than the notice to Landlord required by
14.01(e) of the Lease.
4
<PAGE> 5
(iv) There are no actions, suits, proceedings, orders,
investigations or claims pending or threatened
against Presidential, or to which Presidential is a
party, at law or in equity, or before or by any
court, tribunal, governmental department, commission,
board, bureau, agency or instrumentality, or
otherwise which pertain to the Lease or the Premises.
(v) There are no claims for brokerage commissions,
finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement
or for which Presidential is obligated as a result of
the Lease or its negotiation.
(vi) To the best of Presidential's knowledge, the Premises
are not in material violation of any law or any
regulation or requirement, and Presidential has not
received notice of any such violation.
(vii) To the best of Presidential's knowledge there is no
condition, circumstance, or set of facts that
constitutes a significant hazard to health, safety,
property, or the environment relating to the Premises
or Building.
(viii) Attached hereto as Schedule 1 is a true, correct and
complete copy of the Lease containing all amendments
and modifications thereto.
(ix) Presidential has accepted possession of the Premises
from Landlord subject to the Interior Buildout.
(x) Presidential has delivered the Letter of Credit to
Landlord.
(xi) No Event of Default has occurred under the Lease nor
has any event occurred which, but for notice and the
passage of time, would constitute an Event of Default
under the Lease.
9. PRC REPRESENTATIONS AND WARRANTIES. PRC represents and warrants to
Presidential that as of the date of this Agreement and as of the Assignment and
Assumption Effective Date:
(i) PRC is a corporation duly incorporated, validly
existing and in good standing under the laws of the
State of Florida.
(ii) PRC has the corporate power and authority to execute
and deliver this Agreement and to consummate the
transactions contemplated on its part hereby. This
Agreement has been duly executed and delivered by PRC
and is the valid and binding agreement of PRC.
5
<PAGE> 6
(iii) The execution, delivery and performance of this
Agreement by PRC and the consummation of the
transactions contemplated hereby do not and will not
conflict with or result in any breach of any of the
provisions of, or require any authorization, consent,
approval, exemption or other action by or notice to
any third party under the provisions of the Articles
of Incorporation or ByLaws of PRC or any other
agreement or instrument to which PRC is a party.
(iv) There are no claims for brokerage commissions,
finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on
behalf of PRC.
10. COVENANTS OF PRESIDENTIAL. Presidential covenants and agrees with
PRC that from the date hereof until the Assignment and Assumption Effective
Date:
(i) Presidential shall not amend or modify or consent to
any amendment or modification of the Lease without
the prior written consent of PRC, which consent shall
not be unreasonably withheld or delayed;
(ii) Presidential shall faithfully and diligently cause
the Interior Buildout to occur in accordance plans
and specifications to be prepared by Presidential and
thereafter occupy and maintain the Premises and FF&E
in accordance with the Lease;
(iii) Presidential shall comply in all respects with the
terms and conditions of the Lease and shall cause the
Landlord to comply with all terms and condition of
the Lease; and
(iv) Presidential shall not pledge, transfer, assign,
sublet, hypothecate or otherwise encumber the Lease
or the Premises, or any portion thereof, or any
interest of Presidential in the Premises or in the
Lease.
11. CONDITIONS PRECEDENT.
(a) PRC shall not be obligated to consummate the transaction
described in this Agreement unless:
(i) Presidential shall have performed in all
material respects all of the agreements,
covenants and obligations contained in this
Agreement to be performed or complied with
by Presidential on or prior to the
Assignment and Assumption Effective Date;
and
6
<PAGE> 7
(ii) All representations and warranties made by
Presidential hereunder shall be true,
complete and accurate in all material
respects on the date hereof and as of
Assignment and Assumption Effective Date.
PRC, in its sole discretion, may waive any of the foregoing conditions in this
paragraph 11(a).
(b) Presidential shall not be obligated to consummate the
transactions described in this Agreement unless:
(i) PRC has performed in all material respects
all of the obligations and agreements
performable by PRC hereunder; and
(ii) All the representations and warranties made
by PRC hereunder are true and correct in all
material respects on the date hereof and as
of the Assignment and Assumption Effective
Date; and
(iii) Landlord delivers to Presidential a release
from all liability accruing under the Lease
from and after the Assignment and Assumption
Effective Date.
Presidential, in its sole discretion, may waive any of the foregoing conditions
in this paragraph 11(b).
12. MISCELLANEOUS.
12.01 SURVIVAL. The representations and warranties of
Presidential and PRC shall survive delivery of the Assignment and Assumption
Agreement.
12.02 TERMINATION. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and abandoned at any
time prior to consummation of the transactions contemplated hereby:
(i) By the mutual consent of Presidential and PRC;
(ii) By PRC if there shall be any Event of Default under
the Lease at any time following the delivery of the
Put Notice or Call Notice, as the case may be;
(iii) Presidential has materially breached any
representation or warranty herein or failed to
perform any material obligation or condition hereof
and such breach or failure shall not have been cured
in manner, form and substance reasonably satisfactory
to PRC;
(iv) By Presidential if PRC has materially breached any
representation or warranty herein or failed to
perform any material obligation or condition
7
<PAGE> 8
hereof and such breach or failure has not been cured
in manner, form and substance reasonably satisfactory
to Presidential.
12.03 EXPENSES. Each party will pay all of its expenses in
connection with the negotiation of this Agreement, the performance of its
obligations hereunder, and the consummation of the transactions contemplated by
this Agreement.
12.04 AMENDMENTS AND WAIVERS. The parties hereto, by mutual
agreement in writing, may amend, modify and supplement this Agreement. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
12.05 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be given by hand or by
registered mail, return receipt requested, addressed as follows:
If to Presidential:
c/o Mark Gordon, President
19951 Northeast 39th Place
Aventura, Florida 33180
If to PRC:
1505 Northwest 167th Street
Miami, Florida 33169
Attention: General Counsel
Any party hereto may specify in writing a different address for such purpose by
notice to the other parties.
12.06 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, provided that neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by any party without the prior written consent of the other party
hereto.
12.07 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
8
<PAGE> 9
of such provision or the remaining provision of this Agreement unless the
consummation of the transaction contemplated hereby is adversely affected
thereby.
12.08 COMPLETE AGREEMENT. This document and the documents
referred to herein contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way.
12.09 NO THIRD-PARTY BENEFICIARIES. This Agreement shall be
for the benefit only of the parties hereto, and their respective successors and
assigns.
12.10 GOVERNING LAW. All questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement will be governed by the laws of the
State of Florida without reference to any conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
intending to be legally bound hereby.
PRESIDENTIAL SUITES, LTD., a Florida
limited partnership
By: Presidential Suites Corp.,
a Florida corporation, as
its sole general partner
/s/ ESTHER HERNANDEZ By: /s/ MARK GORDON
- ---------------------------------- --------------------------
Name: Mark Gordon
/s/ DOROTHY DEDARIO Title: President
- ----------------------------------
PRECISION RESPONSE CORPORATION,
a Florida corporation
/s/ ESTHER HERNANDEZ By: /s/ DAVID EPSTEIN
- ---------------------------------- --------------------------
Name: David Epstein
/s/ DOROTHY DEDARIO Title: Chief Executive Officer
- ----------------------------------
9
<PAGE> 10
EXHIBIT A
[Form of Assignment and Assumption Agreement]
10
<PAGE> 11
ASSIGNMENT AND ASSUMPTION OF LEASE
THE STATE OF FLORIDA )
) KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF MIAMI-DADE )
THIS ASSIGNMENT AND ASSUMPTION OF LEASE (the "ASSIGNMENT"), is executed
and delivered effective as of the ___ day of __________, ______ by and between
Presidential Suites, Ltd., a Florida limited partnership ("ASSIGNOR"), and
Precision Response Corporation, a Florida corporation ("ASSIGNEE");
W I T N E S S E T H:
Assignor, as tenant, has heretofore entered into a certain Lease Agreement
(the "Lease") with Crossroads Business Park Associates, as landlord, for lease
of Premises located on the third floor of Building Two at Crossroads Business
Park located at 8151 West Peters Road, Plantation, Florida 33317, a true copy
of the Lease being attached hereto as Exhibit A.
NOW, THEREFORE, for and in consideration of the premises and the
agreements and covenants herein set forth, together with the sum of Ten Dollars
($10.00) and other good and valuable consideration this day paid and delivered
by Assignee to Assignor, the receipt and sufficiency of which by Assignor are
hereby confirmed and acknowledged, Assignor does hereby ASSIGN, TRANSFER, SET
OVER, and DELIVER unto Assignee all of the Assignor's interest as tenant in
and to the Lease and all of the rights, benefits and privileges of the tenant
thereunder, subject to all terms, conditions, reservations, and limitations set
forth in the Lease.
TO HAVE AND TO HOLD all and singular the tenant's interest in and to the
Lease unto Assignee, its successors, and assigns, and Assignor does hereby bind
itself, its successors, and assigns, to warrant and forever defend all and
singular the tenant's interest in and under the Lease unto Assignee, its
successors and assigns, against every person whomsoever lawfully claiming or
attempting to claim the same, or any part thereof by, through and under
Assignor, but not otherwise.
Such assignment of the Lease by Assignor to Assignee is made on the
following terms and conditions:
Assignee assumes Assignor's interest under the Lease and agrees to perform
all of the terms, covenants, obligations, and conditions of the Lease on the
part of the tenant therein required to be performed, from and after the
effective date hereof, but not prior thereto. Assignee hereby covenants and
agrees to indemnify, save, and hold harmless Assignor from and against any and
all demands, claims, assessments, costs, damages, penalties, attorney's fees,
loss, liability, claims, actions or
<PAGE> 12
causes of action in any way directly or indirectly arising from, out of or
relating to Assignee's acts, omissions, breaches or failures to perform with
respect to the Lease from and after the effective date of this Assignment.
Assignor acknowledges to Assignee and landlord under the Lease that this
Assignment does not release Assignor from liability under the Lease unless the
Landlord under the Lease specifically releases Assignor.
It is further agreed that Assignee is not responsible under the Lease for
the discharge and performance of the tenant's obligations and duties thereunder
prior to the effective date hereof and Assignor hereby covenants and agrees to
indemnify, save, and hold harmless Assignee from and against any and all
demands, claims, assessments, costs, damages, penalties, attorney's fees, loss,
liability, claims, actions or causes of action in any way directly or
indirectly arising from, out of or relating to Assignor's acts or omissions
with respect to the Lease prior to the effective date hereof.
All of the covenants, terms, and conditions set forth herein shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
IN WITNESS WHEREOF, Assignee and Assignor have executed this Assignment
effective as of the date set forth above.
WITNESSES: ASSIGNOR:
Presidential Suites, Ltd., a Florida limited
partnership
By: Presidential Suites Corp., a
Florida corporation, its sole
general partner
By:
- --------------------------- ---------------------------
Name:
- --------------------------- -------------------------
Title:
------------------------
ASSIGNEE:
Precision Response Corporation, a Florida
corporation
By:
- --------------------------- ---------------------------
Name:
- --------------------------- -------------------------
Title:
------------------------
2
<PAGE> 13
EXHIBIT A
[Lease]
3
<PAGE> 14
EXHIBIT B
[FORM OF BILL OF SALE]
<PAGE> 15
EXHIBIT "B"
BILL OF SALE
Presidential Suites, Ltd., ("Assignor") for and in consideration of $10.00
and other good and valuable consideration from Precision Response Corporation
("Assignee"), receipt and sufficiency of which is acknowledged, grants,
bargains, sells, transfers and delivers to Assignee and Assignee's successors
and assigns all of the goods, chattels and personal property ("FF & E")
described on Exhibit A hereto.
TO HAVE AND TO HOLD the same forever.
AND Seller covenants with Assignee and Assignee's successors and assigns
that: Assignor is the lawful owner of the FF & E; the FF & E is free from all
encumbrances; Assignor has good right to sell the FF & E; and Assignor will
warrant and defend the sale of the FF & E to Assignee and Assignee's successors
and assigns against the lawful claims and demands of all persons whomsoever.
Seller has executed this instrument, as _____________________, _______.
Signed, sealed and delivered Presidential Suites, Ltd.
in the presence of:
By: Presidential Suites Corp., it sole
general partner
- ------------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
- ------------------------------
<PAGE> 16
EXHIBIT A
(FF & E)
<PAGE> 17
SCHEDULE 1
[The Lease]
12
<PAGE> 1
Exhibit 10.53
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
First Amendment to Employment Agreement (this "AMENDMENT") dated as of
January 12, 2000 and effective as of the Effective Time (as defined below),
between Precision Response Corporation, a Florida corporation ("EMPLOYER"), and
Paul M. O'Hara ("EMPLOYEE"). "EFFECTIVE TIME" has the meaning set forth
in the Merger Agreement described below.
Employer currently employs Employee pursuant to that certain Employment
Agreement, dated as of August 9, 1999, between Employer and Employee (the
"AGREEMENT");
Employer has entered into an Agreement and Plan of Merger (the "MERGER
AGREEMENT") with USA Networks, Inc., a Delaware corporation ("USAi"), and a
wholly-owned subsidiary of USAi ("MERGER SUB"), pursuant to which Employer has
agreed to merge with and into Merger Sub, subject to certain terms and
conditions. It is a material condition to such merger (the "MERGER") that
Employee enter into this Amendment, and Employee has agreed to enter into this
Amendment in consideration of, among other things, the benefits to be received
by the Employee in connection with the Merger.
The parties agree that the Agreement shall be amended effective on and
after the Effective Time as follows:
1. The definition of "Constructive Termination" in the third sentence of
Section 9(B) of the Agreement is amended by deleting the references to
"Chairman of the Board" and to "Mark J. Gordon" in clause (z) thereof.
2. Except as otherwise specifically modified by this Amendment, all
terms, conditions and provisions of the Agreement shall remain effective and
shall continue to operate in full force throughout the entire term of the
Agreement, as amended hereby.
3. This Amendment shall be governed by and construed pursuant to the
laws of the State of Florida.
4. This Amendment may be executed in counterparts, each of which shall
be an original, but both of which together shall constitute one and the same
instrument.
5. If the Merger Agreement is terminated before the Effective Time, this
Amendment shall be null and void and of no force or effect.
<PAGE> 2
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
PRECISION RESPONSE CORPORATION
By: /s/ David Epstein
--------------------------------
Name: David Epstein
Title: Chief Executive Officer
/s/ Paul M. O'Hara
-----------------------------------
Paul M. O'Hara
2
<PAGE> 1
EXHIBIT 10.54
TRI-PARTY
SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT
AGREEMENT (the "Agreement") made and effective as of September
1, 1999, by and between the David Epstein 1995 Grantor Trust u/a/d December 28,
1995 (the "Grantor Trust") and the Epstein 1997 Family Trust u/a/d June 19, 1997
(the "Family Trust") and PRECISION RESPONSE CORPORATION, a Florida corporation
(the "Company") (whose address is 1505 N.W. 167 Street, Miami, Florida 33169).
WHEREAS, the Family Trust is the owner of a certain life
insurance policy (the "Policy") dated September 25, 1997, and issued September
26, 1997, by New York Life Insurance Company (the "Insurance Company") on the
lives of David L. Epstein ("Husband" or "David L. Epstein") and his spouse, Jodi
A. Epstein ("Wife");
WHEREAS, pursuant to that certain Split Dollar Agreement and
Collateral Assignment (the "1997 Agreement") dated on or about September 1,
1997, between the Trustees of the Family Trust and the Grantor Trust, the
Grantor Trust has contributed a portion of the premiums due on the Policy;
WHEREAS, the Grantor Trust desires henceforth to cease
contributing a portion of the premiums due on the Policy pursuant to the 1997
Agreement;
WHEREAS, the Husband is employed by the Company pursuant to
that certain Employment Agreement (the "Employment Agreement") dated as of May
15, 1996, between the Husband and the Company, as amended by the Amendment to
Employment Agreement dated as of April 1, 1999, between the Husband and the
Company;
WHEREAS, the Company desires henceforth to contribute a
portion of the premiums due on the Policy under a continuing "Split Dollar"
arrangement;
WHEREAS, the Family Trust will continue to be the owner
of the Policy subject to the terms of this Agreement;
WHEREAS, the Policy will be collaterally assigned to the
Grantor Trust and the Company as security for the repayment of the amounts which
the Grantor Trust and the Company have contributed or will contribute as
premiums due on the Policy, all as more fully set forth herein; and
WHEREAS, the Family Trust and the Grantor Trust hereby desire
that, pursuant to ARTICLE 14 of the 1997 Agreement, this Agreement should
supersede in its entirety the 1997 Agreement, which hereafter shall be of no
further force and effect.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement, it is agreed between the parties to this Agreement
as follows:
ARTICLE 1
INSURANCE POLICY
The Family Trust has obtained the Policy on the Husband's and
Wife's joint lives in the total face amount of $30,000,000. The policy number,
type of policy, face amount and plan of payments contained in the Policy are
recorded on Schedule A attached hereto and the parties hereto agree that the
Policy is held subject to the terms of this Agreement.
ARTICLE 2
OWNERSHIP OF INSURANCE
The Family Trust is and shall continue to be the owner of the
Policy and may exercise all rights of ownership with respect to the Policy,
except as to the limited security interest in the Policy specifically granted to
the Grantor Trust and the Company herein. Subject to such security interest of
the Grantor Trust and the Company, the rights reserved to the Family Trust
include specifically the right to change the beneficiaries of the Policy, the
right to surrender the Policy, the right to assign the Policy or revoke such an
assignment, and the right to pledge the Policy for a loan or to obtain a loan
from the Insurance Company against the surrender value of the Policy.
ARTICLE 3
PREMIUM
When used in this Agreement the words "the Premium" shall mean
and refer to the annual premium shown on Schedule A attached hereto, or such
other annual amounts as the parties hereto may from time to time agree in
writing to pay to the Insurance Company with respect to the Policy; provided,
however, that in no event shall the Premium be less than the smallest annual
payment necessary to keep the Policy in full force and effect.
ARTICLE 4
PAYMENT OF PREMIUMS ON POLICY
A. The Company shall pay either directly to the Insurance
Company or by making the necessary funds therefor
-2-
<PAGE> 3
available to the Family Trust the Premium when due less the amounts due from the
Family Trust pursuant to the provisions of Section B of this ARTICLE 4. The
Premium may be paid under any payment method acceptable to the Company and the
Insurance Company.
B. The Family Trust shall pay that portion of each annual
premium equal to the cost (calculated by application of the lower of the
Internal Revenue Service's U.S. Life Table 38 rate or the Insurance Company's
annual term insurance rates on the lives of the Husband and Wife while they are
both alive, and by application of the lower of the Internal Revenue Service's
U.S. Life Table 58 rate or the Insurance Company's annual term insurance rate on
the life of the survivor of the Husband and Wife after the death of the first of
them to die) of the insurance proceeds which the beneficiary or beneficiaries
named by the Family Trust would be entitled to receive if the survivor of the
Husband and Wife died during that policy year (before any reduction for any
repayments to be made to the Grantor Trust or the Company pursuant to this
Agreement).
ARTICLE 5
FAMILY TRUST'S OBLIGATION TO GRANTOR TRUST AND COMPANY
A. The Family Trust must repay to the Grantor Trust the
aggregate amount paid by the Grantor Trust under Section A of ARTICLE 4 of the
1997 Agreement as premiums on the Policy (such amount being hereinafter referred
to as the "Grantor Trust Net Payment Amount") in accordance with Section A of
ARTICLE 8, Section A of ARTICLE 9, and Section A of ARTICLE 11 of this Agreement
(as the case may be).
B. The Family Trust must repay to the Company the aggregate
amount paid by the Company under Section A of ARTICLE 4 of this Agreement as
premiums on the Policy (such amount being hereinafter referred to as the
"Company Net Payment Amount") in accordance with ARTICLE 7, Section B of ARTICLE
8, Section B of ARTICLE 9, and Section B of ARTICLE 11 of this Agreement (as the
case may be), subject, however, to the provisions of Section C of this ARTICLE
5.
C. Notwithstanding anything in this Agreement to the contrary,
the Family Trust shall not be required to repay to the Company any part or all
of the Company Net Payment Amount in the event of the termination of Husband's
employment with the Company by reason of any one or more of the following events
(hereinafter referred to individually in this Agreement as a "Vesting Event"):
1. The termination of Husband's employment as a
result of Husband's disability (as such term is defined in
paragraph 7(b) of the Employment Agreement);
-3-
<PAGE> 4
2. The voluntary resignation of Husband from
employment by Company (a) in connection with a Change in Control of Company (as
defined in paragraph 1 of Section B of ARTICLE 7 hereof) or (b) due to Husband's
attainment of normal retirement age of sixty-five (65) years;
3. The termination of Husband's employment as a
result of Husband's Constructive Termination (as defined in paragraph 7(e) of
the Employment Agreement);
4. The involuntary termination of Husband's
employment by Company for any reason not set forth in paragraph 7 of the
Employment Agreement; and/or
5. The failure or refusal by Company to renew the
term of the Employment Agreement pursuant to paragraph 2 thereof or to renew or
continue any successor employment agreement (other than in connection with (a)
the occurrence of a Termination Event (as defined in Section A of Article 7
hereof); (b) the death of Husband or (c) Husband entering into a successor
employment agreement with the Company acceptable to Husband in his sole
discretion).
D. Immediately upon the occurrence of a Vesting Event:
1. The Company shall release the collateral
assignment of the Policy made by the Family Trust to the Company pursuant to
Section A of ARTICLE 6 hereof;
2. The Family Trust's obligations to the Company
under Section B of this ARTICLE 5 shall terminate and cease forever;
3. The Company shall have no right, title and
interest in and to the Policy, including without limitation by way of ARTICLE 7,
Section B of ARTICLE 8, Section B of ARTICLE 9 and/or Section B of ARTICLE 11
hereof; and
4. The obligation of the Company under Section A of
ARTICLE 4 hereof shall be funded as and when, to the extent and for the period
required under paragraph 8 of the Employment Agreement consistent with such
obligation being a benefit of Husband which Husband is entitled to receive under
such paragraph 8 upon the termination of his employment with the Company by
reason of a Vesting Event. Upon the funding of the required amount of the
Company's obligation under Section A of ARTICLE 4 hereof, the Company shall have
no further obligations hereunder.
ARTICLE 6
ASSIGNMENT OF POLICY
A. The Family Trust hereby collaterally assigns, and grants a
security interest in, all of its right, title and interest
-4-
<PAGE> 5
in and to the Policy, to (i) the Grantor Trust as security for repayment of the
Grantor Trust Net Payment Amount and (ii) the Company as security for repayment
of the Company Net Payment Amount, subject, however, to the provisions of
Section B of this ARTICLE 6. Such collateral assignment shall be joint and
several as to the Grantor Trust and the Company, subject, however, to and as
provided in the provisions of Section B of this ARTICLE 6. Such collateral
assignment shall not be altered or changed without the written consent of the
Grantor Trust and the Company.
B. The Grantor Trust and the Company hereby acknowledge and
agree that any and all right, title and interest of the Grantor Trust in and to
the Policy under Section A of this ARTICLE 6, including without limitation any
and all right, title and interest of the Grantor Trust in and to the cash
surrender value of the Policy and/or the death benefits provided under the
Policy, are hereby and shall be junior, subject to, and subordinate in all
respects to any and all right, title and interest of the Company in and to the
Policy under said Section A, including without limitation any and all right,
title and interest of the Company in and to the cash surrender value of the
Policy and/or the death benefits provided under the Policy; it being the intent
of this Section B that the Company be repaid the Company Net Payment Amount as
and to the extent it is entitled to be repaid same hereunder prior to any
repayment of the Grantor Trust Net Payment Amount. Such agreement shall not be
altered or changed without the written consent of the Grantor Trust and the
Company.
ARTICLE 7
CLAIMS UPON TERMINATION OF EMPLOYMENT
A. The Family Trust must repay to the Company the Company Net
Payment Amount less any repayments made by the Family Trust to the Company prior
to the occurrence of a Termination Event (as hereinafter defined) upon the
termination of Husband's employment by Company by reason of any one or more of
the following events (hereinafter referred to individually in this Agreement as
a "Termination Event"):
1. The termination of Husband's employment by Company
for cause pursuant to paragraph 7(c) of the Employment Agreement; and/or
2. The voluntary resignation by Husband from
employment by Company pursuant to paragraph 7(d) of the Employment Agreement
(other than any such resignation resulting in the occurrence of a Vesting
Event).
B. As used in this Agreement:
1. A "Change in Control of Company" means that (i)
neither Mark J. Gordon (for these purposes, counting all common
-5-
<PAGE> 6
stock directly or indirectly beneficially owned by Mark J. Gordon's Affiliates
(as hereinafter defined)) nor David L. Epstein (for these purposes, counting all
common stock directly or indirectly beneficially owned by David L. Epstein's
Affiliates) beneficially owns at least ten (10%) percent of the issued and
outstanding common stock of Company (or its successor); (ii) neither Mark J.
Gordon (for these purposes, counting all common stock directly or indirectly
beneficially owned by Mark J. Gordon's Affiliates) nor David L. Epstein (for
these purposes, counting all common stock directly or indirectly beneficially
owned by David L. Epstein's Affiliates) is the stockholder of Company (or its
successor) beneficially owning the highest number of issued and outstanding
shares of common stock of Company (or its successor); or (iii) Mark J. Gordon
and/or David L. Epstein do not occupy the positions of Chairman of the Board and
Chief Executive Officer of Company (or its successor).
2. "Affiliate" means, with respect to Mark J. Gordon
or David L. Epstein, an Immediate Family Member (as hereinafter defined) of his,
a trust principally for his benefit and/or the benefit of his Immediate Family
Members and/or lineal descendants, or a family limited partnership or any other
entity the direct or indirect beneficial or pecuniary owners of which are
principally him, his Immediate Family Members and/or trusts or other entities
principally for the benefit of him, his Immediate Family Members and/or lineal
descendants.
3. "Immediate Family Members" means, with respect to
Mark J. Gordon or David L. Epstein, his spouse, children, parents, siblings or
other lineal descendants.
C. The repayment pursuant to Section A of this ARTICLE 7 must
be made within one (1) year from the date of the Termination Event; provided,
however, that upon receipt of such repayment, the Company shall release the
collateral assignment of the Policy made by the Family Trust to the Company
pursuant to Section A of ARTICLE 6 of this Agreement and the Company shall have
no further right, title and interest in and to the Policy. The receipt by the
Company of the Company Net Payment Amount shall constitute satisfaction of the
Family Trust's obligation under Section B of ARTICLE 5 hereof and this
ARTICLE 7.
ARTICLE 8
DEATH CLAIMS
A. When the survivor of the Husband and Wife dies, the Grantor
Trust shall be entitled to receive a portion of the death benefits provided
under the Policy. The amount to which the Grantor Trust shall be entitled shall
be the lesser of (i) the excess, if any, of such death benefits over the amount,
if any, payable to the Company under Section B of this ARTICLE 8 or (ii) the
Grantor Trust Net Payment Amount less any repayments made by the Family Trust to
-6-
<PAGE> 7
the Grantor Trust prior to the death of the survivor of the Husband and Wife;
provided, however, that upon receipt of such amount by the Grantor Trust, the
Grantor Trust shall release the collateral assignment of the Policy made by the
Family Trust to the Grantor Trust pursuant to Section A of ARTICLE 6 of this
Agreement. The receipt by the Grantor Trust of the Grantor Trust Net Payment
Amount less any repayments made by the Family Trust to the Grantor Trust prior
to the death of the survivor of the Husband and Wife shall constitute
satisfaction of the Family Trust's obligation under Section A of ARTICLE 5 of
this Agreement. To the extent, if any, the death benefits provided under the
Policy are insufficient to pay in full the Grantor Trust Net Payment Amount less
any repayments made by the Family Trust to the Grantor Trust prior to the death
of the survivor of the Husband and Wife, the Family Trust shall be liable to the
Grantor Trust for the amount of such insufficiency.
B. When the survivor of the Husband and Wife dies, the Company
shall be entitled to receive a portion of the death benefits provided under the
Policy; provided, however, that a Vesting Event shall not have occurred prior to
such death, in which event the Company shall not receive any part or all of the
death benefits provided under the Policy. The amount to which the Company shall
be entitled shall be the Company Net Payment Amount less any repayments made by
the Family Trust to the Company prior to the death of the survivor of the
Husband and Wife; provided, however, that upon receipt of such amount by the
Company, the Company shall release the collateral assignment of the Policy made
by the Family Trust to the Company pursuant to Section A of ARTICLE 6 of this
Agreement. The receipt of such amount by the Company shall consti tute
satisfaction of the Family Trust's obligation under Section B of ARTICLE 5 of
this Agreement. To the extent, if any, the death benefits under the Policy are
insufficient to pay in full the Company Net Payment Amount less any repayments
made by the Family Trust to the Company prior to the death of the survivor of
the Husband and Wife, the Family Trust shall be liable to the Company for the
amount of such insufficiency.
C. When the survivor of the Husband and Wife dies, the
beneficiary or beneficiaries named by the Family Trust (or by its assignees)
shall be entitled to receive the amount, if any, of the death benefits provided
under the Policy in excess of the sum of (i) the amount, if any, payable to the
Grantor Trust under Section A of this ARTICLE 8 and (ii) the amount, if any,
payable to the Company under Section B of this ARTICLE 8. Such amount shall be
paid under the settlement option elected by the Family Trust (or by its
assignees).
D. If any interest is due upon the death benefits provided
under the Policy, the Grantor Trust, the Company and the beneficiary or
beneficiaries named by the Family Trust (or by its assignees) shall share such
interest in the same proportions as their respective shares of such death
benefits (as provided in Sections A, B and C, respectively, of this ARTICLE 8)
shall bear to
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<PAGE> 8
the total death benefits provided under the Policy excluding such
interest.
E. If, upon the death of the survivor of the Husband and Wife,
there is a refund of unearned premium under the Policy, then any such refund
shall be divided between the Grantor Trust, the Company (provided, however, that
a Vesting Event shall not have occurred prior to such death, in which event the
Company shall not receive any part or all of such refund under the Policy) and
the beneficiary or beneficiaries named by the Family Trust (or by its assignees)
in the same proportions as their respective shares of the last premium payment
made by the Grantor Trust, the Company and the Family Trust, respectively.
ARTICLE 9
DIVISION OF THE NET CASH SURRENDER
VALUE OF THE POLICY
A. If the Policy is surrendered (which the then Trustees of
the Family Trust, in their sole discretion, shall have the right to do at any
time), the Grantor Trust shall thereupon be entitled to receive the lesser of
(i) the excess, if any, of the net cash surrender value of the Policy over the
amount, if any, payable to the Company pursuant to the provisions of Section B
of this ARTICLE 9 or (ii) the Grantor Trust Net Payment Amount less any
repayments made by the Family Trust to the Grantor Trust prior to such
surrender. To the extent, if any, the net cash surrender value of the Policy is
insufficient to pay in full the Grantor Trust Net Payment Amount less any
repayments made by the Family Trust to the Grantor Trust prior to such
surrender, the Family Trust shall be liable to the Grantor Trust for the amount
of such insufficiency.
B. If the Policy is surrendered (which the then Trustees of
the Family Trust, in their sole discretion, shall have the right to do at any
time), the Company shall thereupon be entitled to receive the Company Net
Payment Amount less any repayments made by the Family Trust to the Company prior
to such surrender; provided, however, that a Vesting Event shall not have
occurred prior to such surrender, in which event the Company shall not receive
any part or all of the Company Net Payment Amount. To the extent, if any, the
net cash surrender value of the Policy is insufficient to pay in full the
Company Net Payment Amount less any repayments made by the Family Trust to the
Company prior to such surrender, the Family Trust shall be liable to the Company
for the amount of such insufficiency.
C. The Family Trust (or its assignees), shall be entitled to
receive any balance of the net cash surrender value of the Policy.
-8-
<PAGE> 9
ARTICLE 10
TERMINATION OF AGREEMENT
This Agreement shall terminate when any of the following
events occur:
A. Termination of the Family Trust;
B. Upon the election of the aggrieved party, if either the
Company or the Family Trust shall fail for any reason to make payment of any
portion of the Premium due on the Policy as required by ARTICLE 4 of this
Agreement on or prior to the due date thereof; provided, however, that any
election to terminate this Agreement under this Section B must be made within
ninety (90) days after the failure to make the required payment occurs; and
provided further, however, that the election to terminate this Agreement by the
Family Trust shall be in addition to all of the other rights and remedies at law
or in equity of the Family Trust against the Company for its failure to pay any
portion of the Premium it was required to make; or
C. Full repayment by the Family Trust of both (i) the Grantor
Trust Net Payment Amount and (ii) the Company Net Payment Amount; provided,
however, that a Vesting Event shall not have occurred prior to such repayment,
in which event the Company shall not receive any part or all of the Company Net
Payment Amount.
ARTICLE 11
DISPOSITION OF POLICY ON
TERMINATION OF AGREEMENT
A. If the Policy is surrendered by the then Trustees of the
Family Trust or this Agreement is terminated under Section A or Section B of
ARTICLE 10 hereof, the Family Trust shall have one hundred twenty (120) days in
which to repay to the Grantor Trust the Grantor Trust Net Payment Amount less
any repayments made by the Family Trust to the Grantor Trust prior to the
termination of this Agreement. Upon receipt of such amount, the Grantor Trust
shall release the collateral assignment of the Policy made by the Family Trust
to the Grantor Trust pursuant to Section A of ARTICLE 6 of this Agreement. If
the Family Trust does not repay such amount within such one hundred twenty (120)
day period, the Grantor Trust may enforce its rights against the Family Trust
under this Agreement in any way it sees fit.
B. If the Policy is surrendered by the then Trustees of the
Family Trust or this Agreement is terminated under Section A or Section B of
ARTICLE 10 hereof, the Family Trust shall have one hundred twenty (120) days in
which to repay to the Company the Company Net Payment Amount less any repayments
made by the Family Trust to the Company prior to the termination of this
Agreement;
-9-
<PAGE> 10
provided, however, that a Vesting Event shall not have occurred prior to such
termination, in which event the Company shall not receive any part or all of the
Company Net Payment Amount. Upon receipt of such amount, the Company shall
release the collateral assignment of the Policy made by the Family Trust to the
Company pursuant to Section A of ARTICLE 6 of this Agreement. If the Family
Trust does not repay such amount within such one hundred twenty (120) day
period, the Company may enforce its rights against the Family Trust under this
Agreement in any way it sees fit, subject, however, to the Family Trust's right
to set off against any claim made by the Company any damages suffered by or
claims of the Family Trust to the extent this Agreement was terminated by the
Family Trust pursuant to Section B of ARTICLE 10 hereof.
C. Any repayment made by the Family Trust pursuant to this
ARTICLE 11 shall be made first to the Company to the extent of the Company Net
Payment Amount less any repayments made by the Family Trust to the Company prior
to the termination of this Agreement (subject, however, to a Vesting Event not
having occurred) and, if and only if such amount is paid in full, then to the
Grantor Trust to the extent of the Grantor Trust Net Payment Amount less any
repayments made by the Family Trust to the Grantor Trust prior to the
termination of this Agreement.
ARTICLE 12
INSURANCE COMPANY A PARTY
The Insurance Company is a party to this Agreement and hereby
acknowledges and agrees to be bound by the terms and provisions hereof,
including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof,
and shall be fully discharged from any and all liability under the terms of any
policy issued by it, which is subject to the terms of this Agreement, upon
payment or other performance of its obligations in accordance with the terms and
provisions of such policy and this Agreement.
ARTICLE 13
ASSIGNMENT BY GRANTOR TRUST AND COMPANY
Each of the Grantor Trust and the Company is prohibited from
assigning its right, title or interest in and to the Policy (or any portion
thereof) to anyone other than the Family Trust (or its assignees).
-10-
<PAGE> 11
ARTICLE 14
AMENDMENT OF AGREEMENT
This Agreement shall not be modified or amended except by a
written agreement signed by the Grantor Trust, the Company and the Family Trust.
This Agreement shall be binding upon the successors and assigns of each party
hereto.
ARTICLE 15
GOVERNING LAW
This Agreement shall be deemed a contract made under the laws
of, executed and delivered in the State of Florida, and for all purposes shall
be construed and interpreted in accordance with the laws of such State without
reference to conflicts of laws principles.
ARTICLE 16
ATTORNEYS' FEES
In the event that any of the parties to this Agreement
institutes suit against any other party to this Agreement to enforce or declare
any of their respective rights or obligations hereunder, the prevailing party in
such action shall be entitled to recover from the other party or parties all
reasonable costs thereof, including reasonable attorneys' and paralegals' fees
and costs incurred before and at trial and at all tribunal levels, and whether
or not suit or any other proceeding is instituted.
ARTICLE 17
ENTIRE AGREEMENT
This Agreement constitutes the entire final agreement among
the parties with respect to, and supersedes any and all prior and
contemporaneous agreements between or among the parties hereto both oral and
written (including, without limitation, the 1997 Agreement) concerning, the
subject matter hereof and may not be amended, modified or terminated except by a
writing signed by the parties hereto.
ARTICLE 18
COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ MARK J. GORDON
-------------------------------------
MARK J. GORDON, as a Trustee
of the David Epstein 1995 Grantor
Trust
/s/ RICHARD D. MONDRE
-------------------------------------
RICHARD D. MONDRE, as a Trustee
of the David Epstein 1995 Grantor
Trust
/s/ MARK J. GORDON
-------------------------------------
MARK J. GORDON, as a Trustee of
the Epstein 1997 Family Trust
/s/ RICHARD D. MONDRE
-------------------------------------
RICHARD D. MONDRE, as a Trustee
of the Epstein 1997 Family Trust
CITICORP TRUST SOUTH DAKOTA, as a
Trustee of the Epstein 1997 Family
Trust
By: /s/ ROBIN MARY STEPHENS
---------------------------------
Name: Robin Mary Stephens
Title: Trust Officer
PRECISION RESPONSE CORPORATION, a
Florida corporation
By: /s/ MARK J. GORDON
---------------------------------
Mark J. Gordon, Chairman of the
Board
This Split Dollar Agreement and Collateral Assignment relating to the Policy was
executed and recorded by New York Life Insurance Company on 2-9-2000, 1999.
NEW YORK LIFE INSURANCE COMPANY
By: /s/ YVONE SHUMPUT
---------------------------------
Name:
Title: Consultant 1
The issuer assumes no responsibility for the validity of any assignment or
collateral assignment.
[X] NEW YORK LIFE INSURANCE COMPANY
By /s/ George J. Trapp
---------------------------------
Secretary
[ ] NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
By /s/ George J. Trapp
---------------------------------
Secretary
[ ] NEW YORK LIFE INSURANCE COMPANY OF ARIZONA
By /s/ not legible DATE 2-9-2000
--------------------------------- ---------------
Secretary
-12-
<PAGE> 13
SCHEDULE A
INSURANCE POLICY ON THE JOINT
LIVES OF DAVID EPSTEIN AND JODI EPSTEIN
<TABLE>
<CAPTION>
New York Life
Insurance Annual
Company Planned
Policy Number Type of Policy Face Amount Premium
- ------------- -------------- ----------- -------
<S> <C> <C> <C>
Beginning
as of
09/25/97:
$127,100
Beginning
as of
09/25/2002:
46 111 916 Second-to-die $30,000,000 $124,900
</TABLE>
-13-
<PAGE> 1
EXHIBIT 10.55
AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND COLLATERAL
ASSIGNMENT
THIS AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND
COLLATERAL ASSIGNMENT (the "Agreement") made and effective as of September 1,
1999, by and between the David Epstein 1995 Irrevocable Life Insurance Trust
u/a/d August 2, 1995 (the "Epstein Life Insurance Trust") and PRECISION RESPONSE
CORPORATION, a Florida corporation (the "Company") (whose address is 1505 N.W.
167 Street, Miami, Florida, 33169).
WHEREAS, the Epstein Life Insurance Trust is the owner of a
certain life insurance policy (the "Policy") issued on September 1, 1995, by New
York Life Insurance Company (the "Insurance Company") on the life of David L.
Epstein (the "Grantor" or "David L. Epstein");
WHEREAS, pursuant to that certain Split Dollar Agreement and
Collateral Assignment (the "1999 Agreement") dated on or around May 17, 1999,
between the Trustees of the Epstein Life Insurance Trust and the Company, the
Company has contributed a portion of the premiums due on the Policy;
WHEREAS, pursuant to ARTICLE 14 of the 1999 Agreement, the
Epstein Life Insurance Trust and the Company desire to amend and restate in its
entirety the 1999 Agreement;
WHEREAS, the Grantor is employed by the Company pursuant to
that certain Employment Agreement (the "Employment Agreement") dated as of May
15, 1996, between the Grantor and the Company, as amended by the Amendment to
Employment Agreement dated as of April 1, 1999, between the Grantor and the
Company;
WHEREAS, the Company desires to contribute a portion of the
premiums due on the Policy under a continuing "Split Dollar" arrangement;
WHEREAS, the Epstein Life Insurance Trust will continue to be
the owner of the Policy subject to the terms of this Agreement; and
WHEREAS, the Policy will be collaterally assigned to the
Company as security for the repayment of the amounts which the Company has
contributed or will contribute as premiums due on the Policy, all as more fully
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement, the parties hereby amend and restate in its
entirety the 1999 Agreement as follows:
<PAGE> 2
ARTICLE 1
INSURANCE POLICY
The Epstein Life Insurance Trust has obtained the Policy on
the Grantor's life in the total face amount of $1,500,000. The policy number,
type of policy, face amount and plan of payments contained in the Policy are
recorded on Schedule A attached hereto and the parties hereto agree that the
Policy is held subject to the terms of this Agreement.
ARTICLE 2
OWNERSHIP OF INSURANCE
The Epstein Life Insurance Trust is and shall continue to be
the owner of the Policy and may exercise all rights of ownership with respect to
the Policy, except as to the limited security interest in the Policy
specifically granted to the Company herein. Subject to such security interest of
the Company, the rights reserved to the Epstein Life Insurance Trust include
specifically the right to change the beneficiaries of the Policy, the right to
surrender the Policy, the right to assign the Policy or revoke such an
assignment, and the right to pledge the Policy for a loan or to obtain a loan
from the Insurance Company against the surrender value of the Policy.
ARTICLE 3
PREMIUM
When used in this Agreement the words "the Premium" shall mean
and refer to the semi-annual premium shown on Schedule A attached hereto, or
such other semi-annual amounts as the parties hereto may from time to time agree
in writing to pay to the Insurance Company with respect to the Policy; provided,
however, that in no event shall the Premium be less than the smallest
semi-annual payment necessary to keep the Policy in full force and effect.
ARTICLE 4
PAYMENT OF PREMIUMS ON POLICY
A. The Company shall pay either directly to the Insurance
Company or by making the necessary funds therefor available to the Epstein Life
Insurance Trust the Premium when due less the amounts due from the Epstein Life
Insurance Trust pursuant
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<PAGE> 3
to the provisions of Section B of this ARTICLE 4. The Premium may be paid under
any payment method acceptable to the Company and the Insurance Company.
B. The Epstein Life Insurance Trust shall pay that portion of
each semi-annual premium equal to the cost (calculated by application of the
lower of the Internal Revenue Service's U.S. Life Table 58 rate or the Insurance
Company's annual term insurance rate on the life of the Grantor) of the
insurance proceeds which the beneficiary or beneficiaries named by the Epstein
Life Insurance Trust would be entitled to receive if the Grantor died during
that policy year (before any reduction for any repayments to be made to the
Company pursuant to this Agreement).
ARTICLE 5
EPSTEIN LIFE INSURANCE TRUST'S OBLIGATION TO COMPANY
A. The Epstein Life Insurance Trust must repay to the Company
the aggregate amount paid by the Company under Section A of ARTICLE 4 of this
Agreement as premiums on the Policy (such amount being hereinafter referred to
as the "Net Payment Amount") in accordance with ARTICLE 7, Section A of ARTICLE
8, Section A of ARTICLE 9, and ARTICLE 11 of this Agreement (as the case may
be), subject, however, to the provisions of Section B of this ARTICLE 5.
B. Notwithstanding anything in this Agreement to the contrary,
the Epstein Life Insurance Trust shall not be required to repay to the Company
any part or all of the Net Payment Amount in the event of the termination of
Grantor's employment with the Company by reason of any one or more of the
following events (hereinafter referred to individually in this Agreement as a
"Vesting Event"):
1. The termination of Grantor's employment as a
result of Grantor's disability (as such term is defined in paragraph 7(b) of the
Employment Agreement);
2. The voluntary resignation of Grantor from
employment by Company (a) in connection with a Change in Control of Company (as
defined in paragraph 1 of Section B of ARTICLE 7 hereof) or (b) due to Grantor's
attainment of normal retirement age of sixty-five (65) years;
3. The termination of Grantor's employment as a
result of Grantor's Constructive Termination (as defined in paragraph 7(e) of
the Employment Agreement);
4. The involuntary termination of Grantor's
employment by Company for any reason not set forth in paragraph 7 of the
Employment Agreement; and/or
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<PAGE> 4
5. The failure or refusal by Company to renew the
term of the Employment Agreement pursuant to paragraph 2 thereof or to renew or
continue any successor employment agreement (other than in connection with (a)
the occurrence of a Termination Event (as defined in Section A of Article 7
hereof); (b) the death of Grantor or (c) Grantor entering into a successor
employment agreement with the Company acceptable to Grantor in his sole
discretion).
C. Immediately upon the occurrence of a Vesting Event:
1. The Company shall release the collateral
assignment of the Policy made by the Epstein Life Insurance Trust to the Company
pursuant to ARTICLE 6 hereof;
2. The Epstein Life Insurance Trust's obligations to
the Company under Section A of this ARTICLE 5 shall terminate and cease forever;
3. The Company shall have no right, title and
interest in and to the Policy, including without limitation by way of ARTICLE 7,
Section A of ARTICLE 8, Section A of ARTICLE 9 and/or ARTICLE 11 hereof; and
4. The obligation of the Company under Section A of
ARTICLE 4 hereof shall be funded as and when, to the extent and for the period
required under paragraph 8 of the Employment Agreement consistent with such
obligation being a benefit of Grantor which Grantor is entitled to receive under
such paragraph 8 upon the termination of his employment with the Company by
reason of a Vesting Event. Upon the funding of the required amount of the
Company's obligation under Section A of ARTICLE 4 hereof, the Company shall have
no further obligations hereunder.
ARTICLE 6
ASSIGNMENT OF POLICY
The Epstein Life Insurance Trust hereby collaterally assigns,
and grants a security interest in, all of its right, title and interest in and
to the Policy to the Company as security for repayment of the Net Payment
Amount. Such collateral assignment shall not be altered or changed without the
written consent of the Company.
ARTICLE 7
CLAIMS UPON TERMINATION OF EMPLOYMENT
A. The Epstein Life Insurance Trust must repay to the Company
the Net Payment Amount less any repayments made by the Epstein Life Insurance
Trust to the Company prior to the occurrence of a Termination Event (as
hereinafter defined) upon the
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<PAGE> 5
termination of Grantor's employment by Company by reason of any one or more of
the following events (hereinafter referred to individually in this Agreement as
a "Termination Event"):
1. The termination of Grantor's employment by Company
for cause pursuant to paragraph 7(c) of the Employment Agreement; and/or
2. The voluntary resignation by Grantor from
employment by Company pursuant to paragraph 7(d) of the Employment Agreement
(other than any such resignation resulting in the occurrence of a Vesting
Event).
B. As used in this Agreement:
1. A "Change in Control of Company" means that (i)
neither Mark J. Gordon (for these purposes, counting all common stock directly
or indirectly beneficially owned by Mark J. Gordon's Affiliates (as hereinafter
defined)) nor David L. Epstein (for these purposes, counting all common stock
directly or indirectly beneficially owned by David L. Epstein's Affiliates)
beneficially owns at least ten (10%) percent of the issued and outstanding
common stock of Company (or its successor); (ii) neither Mark J. Gordon (for
these purposes, counting all common stock directly or indirectly beneficially
owned by Mark J. Gordon's Affiliates) nor David L. Epstein (for these purposes,
counting all common stock directly or indirectly beneficially owned by David L.
Epstein's Affiliates) is the stockholder of Company (or its successor)
beneficially owning the highest number of issued and outstanding shares of
common stock of Company (or its successor); or (iii) Mark J. Gordon and/or David
L. Epstein do not occupy the positions of Chairman of the Board and Chief
Executive Officer of Company (or its successor).
2. "Affiliate" means, with respect to Mark J.
Gordon or David L. Epstein, an Immediate Family Member (as hereinafter defined)
of his, a trust principally for his benefit and/or the benefit of his Immediate
Family Members and/or lineal descendants, or a family limited partnership or any
other entity the direct or indirect beneficial or pecuniary owners of which are
principally him, his Immediate Family Members and/or trusts or other entities
principally for the benefit of him, his Immediate Family Members and/or lineal
descendants.
3. "Immediate Family Members" means, with respect to
Mark J. Gordon or David L. Epstein, his spouse, children, parents, siblings or
other lineal descendants.
C. The repayment pursuant to Section A of this ARTICLE 7 must
be made within one (1) year from the date of the Termination Event; provided,
however, that upon receipt of such repayment, the Company shall release the
collateral assignment of the Policy made by the Epstein Life Insurance Trust to
the Company pursuant to ARTICLE 6 of this Agreement and the Company shall have
no further right, title and interest in and to the Policy. The receipt by the
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<PAGE> 6
Company of the Company Net Payment Amount shall constitute satisfaction of the
Epstein Life Insurance Trust's obligation under Section A of ARTICLE 5 hereof
and this ARTICLE 7.
ARTICLE 8
DEATH CLAIMS
A. When the Grantor dies, the Company shall be entitled to
receive a portion of the death benefits provided under the Policy; provided,
however, that a Vesting Event shall not have occurred prior to the death of the
Grantor, in which event the Company shall not receive any part or all of the
death benefits provided under the Policy. The amount to which the Company shall
be entitled shall be the Net Payment Amount less any repayments made by the
Epstein Life Insurance Trust to the Company prior to the death of the Grantor;
provided, however, that upon receipt of such amount by the Company, the Company
shall release the collateral assignment of the Policy made by the Epstein Life
Insurance Trust to the Company pursuant to ARTICLE 6 of this Agreement. The
receipt of such amount by the Company shall constitute satisfaction of the
Epstein Life Insurance Trust's obligation under Section A of ARTICLE 5 of this
Agreement. To the extent, if any, the death benefits under the Policy are
insufficient to pay in full the Net Payment Amount less any repayments made by
the Epstein Life Insurance Trust to the Company prior to the death of the
Grantor, the Epstein Life Insurance Trust shall be liable to the Company for the
amount of such insufficiency.
B. When the Grantor dies, the beneficiary or benefi ciaries
named by the Epstein Life Insurance Trust (or by its assignees) shall be
entitled to receive the amount, if any, of the death benefits provided under the
Policy in excess of the amount, if any, payable to the Company under Section A
of this ARTICLE 8. Such amount shall be paid under the settlement option elected
by the Epstein Life Insurance Trust (or by its assignees).
C. If any interest is due upon the death benefits provided
under the Policy, the Company and the beneficiary or beneficiaries named by the
Epstein Life Insurance Trust (or by its assignees) shall share such interest in
the same proportions as their respective shares of such death benefits (as
provided in Sections A and B, respectively, of this ARTICLE 8) shall bear to the
total death benefits provided under the Policy excluding such interest.
D. If, upon the death of the Grantor, there is a refund of
unearned premium under the Policy, then any such refund shall be divided between
the Company (provided, however, that a Vesting Event shall not have occurred
prior to the death of the Grantor, in which event the Company shall not receive
any part or all of such refund under the Policy) and the beneficiary or
beneficiaries named by the Epstein Life Insurance Trust (or by its assignees) in
the same
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<PAGE> 7
proportions as their respective shares of the last premium payment made by the
Company and the Epstein Life Insurance Trust, respectively.
ARTICLE 9
DIVISION OF THE NET CASH SURRENDER
VALUE OF THE POLICY
A. If the Policy is surrendered (which the then Trustees of
the Epstein Life Insurance Trust, in their sole discretion, shall have the right
to do at any time), the Company shall thereupon be entitled to receive the Net
Payment Amount less any repayments made by the Epstein Life Insurance Trust to
the Company prior to such surrender; provided, however, that a Vesting Event
shall not have occurred prior to such surrender, in which event the Company
shall not receive any part or all of the Net Payment Amount. To the extent, if
any, the net cash surrender value of the Policy is insufficient to pay in full
the Net Payment Amount less any repayments made by the Epstein Life Insurance
Trust to the Company prior to such surrender, the Epstein Life Insurance Trust
shall be liable to the Company for the amount of such insufficiency.
B. The Epstein Life Insurance Trust (or its assignees), shall
be entitled to receive any balance of the net cash surrender value of the
Policy.
ARTICLE 10
TERMINATION OF AGREEMENT
This Agreement shall terminate when any of the following
events occur:
A. Termination of the Epstein Life Insurance Trust;
B. Upon the election of the aggrieved party, if either the
Company or the Epstein Life Insurance Trust shall fail for any reason to make
payment of any portion of the Premium due on the Policy as required by ARTICLE 4
of this Agreement on or prior to the due date thereof; provided, however, that
any election to terminate this Agreement under this Section B must be made
within ninety (90) days after the failure to make the required payment occurs;
and provided further, however, that the election to terminate this Agreement by
the Epstein Life Insurance Trust shall be in addition to all of the other rights
and remedies at law or in equity of the Epstein Life Insurance Trust against the
Company for its failure to pay any portion of the Premium it was required to
make; or
C. Full repayment by the Epstein Life Insurance Trust of the
Net Payment Amount; provided, however, that a Vesting Event shall not have
occurred prior to such repayment, in which event the Company shall not receive
any part or all of the Net Payment Amount.
-7-
<PAGE> 8
ARTICLE 11
DISPOSITION OF POLICY ON
TERMINATION OF AGREEMENT
If the Policy is surrendered by the then Trustees of the
Epstein Life Insurance Trust or this Agreement is terminated under Section A or
Section B of ARTICLE 10 hereof, the Epstein Life Insurance Trust shall have one
hundred twenty (120) days in which to repay to the Company the Net Payment
Amount less any repayments made by the Epstein Life Insurance Trust to the
Company prior to the termination of this Agreement; provided, however, that a
Vesting Event shall not have occurred prior to such termination, in which event
the Company shall not receive any part or all of the Net Payment Amount. Upon
receipt of such amount, the Company shall release the collateral assignment of
the Policy made by the Epstein Life Insurance Trust to the Company pursuant to
ARTICLE 6 of this Agreement. If the Epstein Life Insurance Trust does not repay
such amount within such one hundred twenty (120) day period, the Company may
enforce its rights against the Epstein Life Insurance Trust under this Agreement
in any way it sees fit, subject, however, to the Epstein Life Insurance Trust's
right to set off against any claim made by the Company any damages suffered by
or claims of the Epstein Life Insurance Trust to the extent this Agreement was
terminated by the Epstein Life Insurance Trust pursuant to Section B of ARTICLE
10 hereof.
ARTICLE 12
INSURANCE COMPANY A PARTY
The Insurance Company is a party to this Agreement and hereby
acknowledges and agrees to be bound by the terms and provisions hereof,
including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof,
and shall be fully discharged from any and all liability under the terms of any
policy issued by it, which is subject to the terms of this Agreement, upon
payment or other performance of its obligations in accordance with the terms and
provisions of such policy and this Agreement.
ARTICLE 13
ASSIGNMENT BY EPSTEIN LIFE INSURANCE TRUST AND COMPANY
The Company is prohibited from assigning its right, title or
interest in and to the Policy (or any portion thereof) to anyone other than the
Epstein Life Insurance Trust (or its assignees).
-8-
<PAGE> 9
ARTICLE 14
AMENDMENT OF AGREEMENT
This Agreement shall not be modified or amended except by a
written agreement signed by the Company and the Epstein Life Insurance Trust.
This Agreement shall be binding upon the successors and assigns of each party
hereto.
ARTICLE 15
GOVERNING LAW
This Agreement shall be deemed a contract made under the laws
of, executed and delivered in the State of Florida, and for all purposes shall
be construed and interpreted in accordance with the laws of such State without
reference to conflicts of laws principles.
ARTICLE 16
ATTORNEYS' FEES
In the event that either party to this Agreement institutes
suit against any other party to this Agreement to enforce or declare any of
their respective rights or obligations hereunder, the prevailing party in such
action shall be entitled to recover from the other party all reasonable costs
thereof, including reasonable attorneys' and paralegals' fees and costs incurred
before and at trial and at all tribunal levels, and whether or not suit or any
other proceeding is instituted.
ARTICLE 17
ENTIRE AGREEMENT
This Agreement constitutes the entire final agreement among
the parties with respect to, and supersedes any and all prior and
contemporaneous agreements between or among the parties hereto both oral and
written (including, without limitation, the 1999 Agreement) concerning, the
subject matter hereof and may not be amended, modified or terminated except by a
writing signed by the parties hereto.
ARTICLE 18
COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ MARK J. GORDON
---------------------------------------------
MARK J. GORDON, as a Trustee of the
David Epstein 1995 Irrevocable Life
Insurance Trust
/s/ RICHARD D. MONDRE
---------------------------------------------
RICHARD D. MONDRE, as a Trustee of
the David Epstein 1995 Irrevocable
Life Insurance Trust
PRECISION RESPONSE CORPORATION, a
Florida corporation
By: /s/ MARK J. GORDON
-----------------------------------------
Mark J. Gordon, Chairman of the
Board
This Amended and Restated Split Dollar Agreement and Collateral Assignment
relating to the Policy was executed and recorded by New York Life Insurance
Company on 12-8-99.
NEW YORK LIFE INSURANCE COMPANY
By: /s/ ANNA WILLIAMS
----------------------------------
Name:
Title:
The issuer assumes no responsibility for the validity of any assignment or
collateral assignment.
[X] NEW YORK LIFE INSURANCE COMPANY
By /s/ George J. Trapp
---------------------------------
Secretary
[ ] NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
By /s/ George J. Trapp
---------------------------------
Secretary
[ ] NEW YORK LIFE INSURANCE COMPANY OF ARIZONA
By /s/ not legible DATE 12-8-99
--------------------------------- ---------------
Secretary
-10-
<PAGE> 11
SCHEDULE A
INSURANCE POLICY ON THE LIFE
OF DAVID L. EPSTEIN
<TABLE>
<CAPTION>
New York Life
Insurance Semi-Annual
Company Planned
Policy Number Type of Policy Face Amount Premium
------------- -------------- ----------- -------
<S> <C> <C> <C>
45 588 030 Single Life $1,500,000.00 $7,033.00
</TABLE>
-11-
<PAGE> 1
EXHIBIT 10.56
AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND COLLATERAL
ASSIGNMENT
THIS AMENDED AND RESTATED SPLIT DOLLAR AGREEMENT AND
COLLATERAL ASSIGNMENT ("the Agreement") made and effective as of September 1,
1999, by and between the Epstein 1995 Family Trust u/a/d August 2, 1995 (the
"Epstein Family Trust") and PRECISION RESPONSE CORPORATION, a Florida
corporation (the "Company") (whose address is 1505 N.W. 167 Street, Miami,
Florida, 33169).
W I T N E S S E T H:
WHEREAS, the Epstein Family Trust is the owner of a certain
life insurance policy (the "Policy") issued on September 1, 1995, by New York
Life Insurance Company (the "Insurance Company") on the lives of David L.
Epstein (the "Husband" or "David L. Epstein") and his spouse, Jodi A. Epstein
("Wife");
WHEREAS, pursuant to that certain Split Dollar Agreement and
Collateral Assignment (the "1999 Agreement") dated on or around May 17, 1999,
between the Trustees of the Epstein Family Trust and the Company, the Company
has contributed a portion of the premiums due on the Policy;
WHEREAS, pursuant to ARTICLE 14 of the 1999 Agreement, the
Epstein Family Trust and the Company desire to amend and restate in its entirety
the 1999 Agreement;
WHEREAS, the Husband is employed by the Company pursuant to
that certain Employment Agreement (the "Employment Agreement") dated as of May
15, 1996, between the Husband and the Company, as amended by the Amendment to
Employment Agreement dated as of April 1, 1999, between the Husband and the
Company;
WHEREAS, the Company desires to contribute a portion of the
premiums due on the Policy under a continuing "Split Dollar" arrangement;
WHEREAS, the Epstein Family Trust will continue to be the
owner of the Policy subject to the terms of this Agreement; and
WHEREAS, the Policy will be collaterally assigned to the
Company as security for the repayment of the amounts which the Company has
contributed or will contribute as premiums due on the Policy, all as more fully
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement, the parties hereby amend and restate in its
entirety the 1999 Agreement, as follows:
<PAGE> 2
ARTICLE 1
INSURANCE POLICY
The Epstein Family Trust has obtained the Policy on the
Husband's and Wife's joint lives in the total face amount of $3,000,000. The
policy number, type of policy, face amount and plan of payments contained in the
Policy are recorded on Schedule A attached hereto and the parties hereto agree
that the Policy is held subject to the terms of this Agreement.
ARTICLE 2
OWNERSHIP OF INSURANCE
The Epstein Family Trust is and shall continue to be the owner
of the Policy and may exercise all rights of ownership with respect to the
Policy, except as to the limited security interest in the Policy specifically
granted to the Company herein. Subject to such security interest of the Company,
the rights reserved to the Epstein Family Trust include specifically the right
to change the beneficiaries of the Policy, the right to surrender the Policy,
the right to assign the Policy or revoke such an assignment, and the right to
pledge the Policy for a loan or to obtain a loan from the Insurance Company
against the surrender value of the Policy.
ARTICLE 3
PREMIUM
When used in this Agreement the words "the Premium" shall mean
and refer to the semi-annual premium shown on Schedule A attached hereto, or
such other semi-annual amounts as the parties hereto may from time to time agree
in writing to pay to the Insurance Company with respect to the Policy; provided,
however, that in no event shall the Premium be less than the smallest
semi-annual payment necessary to keep the Policy in full force and effect.
ARTICLE 4
PAYMENT OF PREMIUMS ON POLICY
A. The Company shall pay either directly to the Insurance
Company or by making the necessary funds therefor available to the Epstein
Family Trust the Premium when due less the amounts due from the Epstein Family
Trust pursuant to the provisions of Section B of this ARTICLE 4. The Premium may
be paid under any payment method acceptable to the Company and the Insurance
Company.
-2-
<PAGE> 3
B. The Epstein Family Trust shall pay that portion of each
semi-annual premium equal to the cost (calculated by application of the lower of
the Internal Revenue Service's U.S. Life Table 38 rate or the Insurance
Company's annual term insurance rates on the lives of the Husband and Wife while
they are both alive, and by application of the lower of the Internal Revenue
Service's U.S. Life Table 58 rate or the Insurance Company's annual term
insurance rate on the life of the survivor of the Husband and Wife after the
death of the first of them to die) of the insurance proceeds which the
beneficiary or beneficiaries named by the Epstein Family Trust would be entitled
to receive if the survivor of the Husband and Wife died during that policy year
(before any reduction for any repayments to be made to the Company pursuant to
this Agreement).
ARTICLE 5
EPSTEIN FAMILY TRUST'S OBLIGATION TO COMPANY
A. The Epstein Family Trust must repay to the Company the
aggregate amount paid by the Company under Section A of ARTICLE 4 of this
Agreement as premiums on the Policy (such amount being hereinafter referred to
as the "Net Payment Amount") in accordance with ARTICLE 7, Section A of ARTICLE
8, Section A of ARTICLE 9, and ARTICLE 11 of this Agreement (as the case may
be), subject, however, to the provisions of Section B of this ARTICLE 5.
B. Notwithstanding anything in this Agreement to the contrary,
the Epstein Family Trust shall not be required to repay to the Company any part
or all of the Net Payment Amount in the event of the termination of Husband's
employment with the Company by reason of any one or more of the following events
(hereinafter referred to individually in this Agreement as a "Vesting Event"):
1. The termination of Husband's employment as a
result of Husband's disability (as such term is defined in paragraph 7(b) of the
Employment Agreement);
2. The voluntary resignation of Husband from
employment by Company (a) in connection with a Change in Control of Company (as
defined in paragraph 1 of Section B of ARTICLE 7 hereof) or (b) due to Husband's
attainment of normal retirement age of sixty-five (65) years;
3. The termination of Husband's employment as a
result of Husband's Constructive Termination (as defined in paragraph 7(e) of
the Employment Agreement);
4. The involuntary termination of Husband's
employment by Company for any reason not set forth in paragraph 7 of the
Employment Agreement; and/or
5. The failure or refusal by Company to renew the
term of the Employment Agreement pursuant to paragraph 2 thereof or
-3-
<PAGE> 4
to renew or continue any successor employment agreement (other than in
connection with (a) the occurrence of a Termination Event (as defined in Section
A of Article 7 hereof); (b) the death of Husband or (c) Husband entering into a
successor employment agreement with the Company acceptable to Husband in his
sole discretion).
C. Immediately upon the occurrence of a Vesting Event:
1. The Company shall release the collateral
assignment of the Policy made by the Epstein Family Trust to the Company
pursuant to ARTICLE 6 hereof;
2. The Epstein Family Trust's obligations to the
Company under Section A of this ARTICLE 5 shall terminate and cease forever;
3. The Company shall have no right, title and
interest in and to the Policy, including without limitation by way of ARTICLE 7,
Section A of ARTICLE 8, Section A of ARTICLE 9 and/or ARTICLE 11 hereof; and
4. The obligation of the Company under Section A of
ARTICLE 4 hereof shall be funded as and when, to the extent and for the period
required under paragraph 8 of the Employment Agreement consistent with such
obligation being a benefit of Husband which Husband is entitled to receive under
such paragraph 8 upon the termination of his employment with the Company by
reason of a Vesting Event. Upon the funding of the required amount of the
Company's obligation under Section A of ARTICLE 4 hereof, the Company shall have
no further obligations hereunder.
ARTICLE 6
ASSIGNMENT OF POLICY
The Epstein Family Trust hereby collaterally assigns, and
grants a security interest in, all of its right, title and interest in and to
the Policy to the Company as security for repayment of the Net Payment Amount.
Such collateral assignment shall not be altered or changed without the written
consent of the Company.
ARTICLE 7
CLAIMS UPON TERMINATION OF EMPLOYMENT
A. The Epstein Family Trust must repay to the Company the Net
Payment Amount less any repayments made by the Epstein Family Trust to the
Company prior to the occurrence of a Termination Event (as hereinafter defined)
upon the termination of Husband's employment by Company by reason of any one or
more of the following events (hereinafter referred to individually in this
Agreement as a "Termination Event"):
-4-
<PAGE> 5
1. The termination of Husband's employment by Company
for cause pursuant to paragraph 7(c) of the Employment Agreement; and/or
2. The voluntary resignation by Husband from
employment by Company pursuant to paragraph 7(d) of the Employment Agreement
(other than any such resignation resulting in the occurrence of a Vesting
Event).
B. As used in this Agreement:
1. A "Change in Control of Company" means that (i)
neither Mark J. Gordon (for these purposes, counting all common stock directly
or indirectly beneficially owned by Mark J. Gordon's Affiliates (as hereinafter
defined)) nor David L. Epstein (for these purposes, counting all common stock
directly or indirectly beneficially owned by David L. Epstein's Affiliates)
beneficially owns at least ten (10%) percent of the issued and outstanding
common stock of Company (or its successor); (ii) neither Mark J. Gordon (for
these purposes, counting all common stock directly or indirectly beneficially
owned by Mark J. Gordon's Affiliates) nor David L. Epstein (for these purposes,
counting all common stock directly or indirectly beneficially owned by David L.
Epstein's Affiliates) is the stockholder of Company (or its successor)
beneficially owning the highest number of issued and outstanding shares of
common stock of Company (or its successor); or (iii) Mark J. Gordon and/or David
L. Epstein do not occupy the positions of Chairman of the Board and Chief
Executive Officer of Company (or its successor).
2. "Affiliate" means, with respect to Mark J. Gordon
or David L. Epstein, an Immediate Family Member (as hereinafter defined) of his,
a trust principally for his benefit and/or the benefit of his Immediate Family
Members and/or lineal descendants, or a family limited partnership or any other
entity the direct or indirect beneficial or pecuniary owners of which are
principally him, his Immediate Family Members and/or trusts or other entities
principally for the benefit of him, his Immediate Family Members and/or lineal
descendants.
3. "Immediate Family Members" means, with respect to
Mark J. Gordon or David L. Epstein, his spouse, children, parents, siblings or
other lineal descendants.
C. The repayment pursuant to Section A of this ARTICLE 7 must
be made within one (1) year from the date of the Termination Event; provided,
however, that upon receipt of such repayment, the Company shall release the
collateral assignment of the Policy made by the Epstein Family Trust to the
Company pursuant to ARTICLE 6 of this Agreement and the Company shall have no
further right, title and interest in and to the Policy. The receipt by the
Company of the Company Net Payment Amount shall constitute satisfaction of the
Epstein Family Trust's obligation under Section A of ARTICLE 5 hereof and this
ARTICLE 7.
-5-
<PAGE> 6
ARTICLE 8
DEATH CLAIMS
A. When the survivor of the Husband and Wife dies, the Company
shall be entitled to receive a portion of the death benefits provided under the
Policy; provided, however, that a Vesting Event shall not have occurred prior to
such death, in which event the Company shall not receive any part or all of the
death benefits provided under the Policy. The amount to which the Company shall
be entitled shall be the Net Payment Amount less any repayments made by the
Epstein Family Trust to the Company prior to the death of the survivor of the
Husband and Wife; provided, however, that upon receipt of such amount by the
Company, the Company shall release the collateral assignment of the Policy made
by the Epstein Family Trust to the Company pursuant to ARTICLE 6 of this
Agreement. The receipt of such amount by the Company shall constitute
satisfaction of the Epstein Family Trust's obligation under Section A of ARTICLE
5 of this Agreement. To the extent, if any, the death benefits under the Policy
are insufficient to pay in full the Net Payment Amount less any repayments made
by the Epstein Family Trust to the Company prior to the death of the survivor of
the Husband and Wife, the Epstein Family Trust shall be liable to the Company
for the amount of such insufficiency.
B. When the survivor of the Husband and Wife dies, the
beneficiary or beneficiaries named by the Epstein Family Trust (or by its
assignees) shall be entitled to receive the amount, if any, of the death
benefits provided under the Policy in excess of the amount, if any, payable to
the Company under Section A of this ARTICLE 8. Such amount shall be paid under
the settlement option elected by the Epstein Family Trust (or by its assignees).
C. If any interest is due upon the death benefits provided
under the Policy, the Company and the beneficiary or beneficiaries named by the
Epstein Family Trust (or by its assignees) shall share such interest in the same
proportions as their respective shares of such death benefits (as provided in
Sections A and B, respectively, of this ARTICLE 8) shall bear to the total death
benefits provided under the Policy excluding such interest.
D. If, upon the death of the survivor of the Husband and Wife,
there is a refund of unearned premium under the Policy, then any such refund
shall be divided between the Company (provided, however, that a Vesting Event
shall not have occurred prior to such death, in which event the Company shall
not receive any part or all of such refund under the Policy) and the beneficiary
or beneficiaries named by the Epstein Family Trust (or by its assignees) in the
same proportions as their respective shares of the last premium payment made by
the Company and the Epstein Family Trust, respectively.
-6-
<PAGE> 7
ARTICLE 9
DIVISION OF THE NET CASH SURRENDER
VALUE OF THE POLICY
A. If the Policy is surrendered (which the then Trustees of
the Epstein Family Trust, in their sole discretion, shall have the right to do
at any time), the Company shall thereupon be entitled to receive the Net Payment
Amount less any repayments made by the Epstein Family Trust to the Company prior
to such surrender; provided, however, that a Vesting Event shall not have
occurred prior to such surrender, in which event the Company shall not receive
any part or all of the Net Payment Amount. To the extent, if any, the net cash
surrender value of the Policy is insufficient to pay in full the Net Payment
Amount less any repayments made by the Epstein Family Trust to the Company prior
to such surrender, the Epstein Family Trust shall be liable to the Company for
the amount of such insufficiency.
B. The Epstein Family Trust (or its assignees), shall be
entitled to receive any balance of the net cash surrender value of the Policy.
ARTICLE 10
TERMINATION OF AGREEMENT
This Agreement shall terminate when any of the following
events occur:
A. Termination of the Epstein Family Trust;
B. Upon the election of the aggrieved party, if either the
Company or the Epstein Family Trust shall fail for any reason to make payment of
any portion of the Premium due on the Policy as required by ARTICLE 4 of this
Agreement on or prior to the due date thereof; provided, however, that any
election to terminate this Agreement under this Section B must be made within
ninety (90) days after the failure to make the required payment occurs; and
provided further, however, that the election to terminate this Agreement by the
Epstein Family Trust shall be in addition to all of the other rights and
remedies at law or in equity of the Epstein Family Trust against the Company for
its failure to pay any portion of the Premium it was required to make; or
C. Full repayment by the Epstein Family Trust of the Net
Payment Amount; provided, however, that a Vesting Event shall not have occurred
prior to such repayment, in which event the Company shall not receive any part
or all of the Net Payment Amount.
-7-
<PAGE> 8
ARTICLE 11
DISPOSITION OF POLICY ON
TERMINATION OF AGREEMENT
If the Policy is surrendered by the then Trustees of the
Epstein Family Trust or this Agreement is terminated under Section A or Section
B of ARTICLE 10 hereof, the Epstein Family Trust shall have one hundred twenty
(120) days in which to repay to the Company the Net Payment Amount less any
repayments made by the Epstein Family Trust to the Company prior to the
termination of this Agreement; provided, however, that a Vesting Event shall not
have occurred prior to such termination, in which event the Company shall not
receive any part or all of the Net Payment Amount. Upon receipt of such amount,
the Company shall release the collateral assignment of the Policy made by the
Epstein Family Trust to the Company pursuant to ARTICLE 6 of this Agreement. If
the Epstein Family Trust does not repay such amount within such one hundred
twenty (120) day period, the Company may enforce its rights against the Epstein
Family Trust under this Agreement in any way it sees fit, subject, however, to
the Epstein Family Trust's right to set off against any claim made by the
Company any damages suffered by or claims of the Epstein Family Trust to the
extent this Agreement was terminated by the Epstein Family Trust pursuant to
Section B of ARTICLE 10 hereof.
ARTICLE 12
INSURANCE COMPANY A PARTY
The Insurance Company is a party to this Agreement and hereby
acknowledges and agrees to be bound by the terms and provisions hereof,
including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof,
and shall be fully discharged from any and all liability under the terms of any
policy issued by it, which is subject to the terms of this Agreement, upon
payment or other performance of its obligations in accordance with the terms and
provisions of such policy and this Agreement.
ARTICLE 13
ASSIGNMENT BY COMPANY
The Company is prohibited from assigning its right, title or
interest in and to the Policy (or any portion thereof) to anyone other than the
Epstein Family Trust (or its assignees).
-8-
<PAGE> 9
ARTICLE 14
AMENDMENT OF AGREEMENT
This Agreement shall not be modified or amended except by a
written agreement signed by the Company and the Epstein Family Trust. This
Agreement shall be binding upon the successors and assigns of each party hereto.
ARTICLE 15
GOVERNING LAW
This Agreement shall be deemed a contract made under the laws
of, executed and delivered in the State of Florida, and for all purposes shall
be construed and interpreted in accordance with the laws of such State without
reference to conflicts of laws principles.
ARTICLE 16
ATTORNEYS' FEES
In the event that either party to this Agreement institutes
suit against any other party to this Agreement to enforce or declare any of
their respective rights or obligations hereunder, the prevailing party in such
action shall be entitled to recover from the other party all reasonable costs
thereof, including reasonable attorneys' and paralegals' fees and costs incurred
before and at trial and at all tribunal levels, and whether or not suit or any
other proceeding is instituted.
ARTICLE 17
ENTIRE AGREEMENT
This Agreement constitutes the entire final agreement among
the parties with respect to, and supersedes any and all prior and
contemporaneous agreements between or among the parties hereto both oral and
written (including, without limitation, the 1999 Agreement) concerning, the
subject matter hereof and may not be amended, modified or terminated except by a
writing signed by the parties hereto.
ARTICLE 18
COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ MARK J. GORDON
---------------------------------------
MARK J. GORDON, as a Trustee of the
Epstein 1995 Family Trust
/s/ RICHARD D. MONDRE
---------------------------------------
RICHARD D. MONDRE, as a Trustee of
the Epstein 1995 Family Trust
PRECISION RESPONSE CORPORATION, a
Florida corporation
By: /s/ MARK J. GORDON
-----------------------------------
Mark J. Gordon, Chairman of the
Board
This Amended and Restated Split Dollar Agreement and Collateral Assignment
relating to the Policy was executed and recorded by New York Life Insurance
Company on DECEMBER 8, 1999.
NEW YORK LIFE INSURANCE COMPANY
By: /s/ YVONE SHUMPUT
------------------------------------
Name: Yvone Shumput
Title:
-10-
<PAGE> 11
SCHEDULE A
INSURANCE POLICY ON THE JOINT
LIVES OF DAVID L. EPSTEIN AND JODI A. EPSTEIN
<TABLE>
<CAPTION>
New York Life Semi-
Insurance Annual
Company Planned
Policy Number Type of Policy Face Amount Premium
------------- -------------- ----------- -------
<S> <C> <C>
45 588 264 Second-to-die $3,000,000.00 $5,191.00
</TABLE>
<PAGE> 1
EXHIBIT 10.57
SPLIT DOLLAR AGREEMENT AND COLLATERAL ASSIGNMENT
THIS AGREEMENT ("Agreement") effective on or around April,
1998, by and between the MARK GORDON FAMILY TRUST u/a/d March 1, 1990 (the
"Gordon Family Trust") and PRECISION RESPONSE CORPORATION, a Florida corporation
(the "Company"), whose address is 1505 N.W. 167 Street, Miami, Florida 33169.
WHEREAS, the Gordon Family Trust desires to insure the lives
of Mark J. Gordon (the "Husband") and his wife, Gail Gordon ("Wife") for the
benefit and protection of the Husband's family under a policy or policies issued
by Sun Life Assurance Company of Canada or such other life insurance companies
selected by the Gordon Family Trust (the "Insurance Company");
WHEREAS, the Trustees will surrender certain insurance
policies (the "Surrendered Policies") on the life of Husband and utilize, with
the consent of the Company, the cash surrender value of the Surrendered Policies
to acquire new insurance policy(ies) on the joint lives of Husband and Wife;
WHEREAS, the Company desires to help the Gordon Family Trust
provide insurance by contributing a portion of the premiums due on the policies
on the Husband's and Wife's lives under a continuing "Split Dollar" arrangement;
and
WHEREAS, the Gordon Family Trust will be the owner of the
insurance policies acquired pursuant to the terms of this Agreement and the
policies will be collaterally assigned to the Company as security for the
repayment of the amounts which the Company has contributed or will contribute as
premiums due on the Surrendered Policies and the policies.
NOW, THEREFORE, in consideration of the mutual covenants
contained in this Agreement, it is agreed between the parties to this Agreement
as follows:
ARTICLE 1
APPLICATION FOR INSURANCE
The Gordon Family Trust has applied to the Insurance Company
for a policy on the Grantor's life which the Insurance Company will issue to the
Gordon Family Trust as owner thereof on the Husband's and Wife's joint lives in
the total face amount of $5,000,000 (the "Policy"). The policy number, type of
policy, face amount and plan of payments contained in the Policy are recorded on
Schedule A attached hereto and the parties hereto agree that the Policy is held
subject to the terms of this Agreement.
<PAGE> 2
ARTICLE 2
OWNERSHIP OF INSURANCE
The Gordon Family Trust is and shall continue to be the owner
of the Policy and may exercise all rights of ownership with respect to the
Policy, except as to the limited security interest in the Policy specifically
granted to the Company herein. Subject to such security interest of the Company,
the rights reserved to the Gordon Family Trust include specifically the right to
change the beneficiaries of the Policy, the right to surrender the Policy, the
right to assign the Policy or revoke such an assignment, and the right to pledge
the Policy for a loan or to obtain a loan from the Insurance Company against the
surrender value of the Policy.
ARTICLE 3
PREMIUM
When used in this Agreement the words "the Premium" shall mean
and refer to the annual premium shown on Schedule A attached hereto, or such
other annual amounts as the parties hereto may from time to time agree in
writing to pay to the Insurance Company with respect to the Policy; provided,
however, that in no event shall the Premium be less than the smallest annual
payment necessary to keep the Policy in full force and effect.
ARTICLE 4
PAYMENT OF PREMIUMS ON POLICY
A. The Company shall pay either directly to the Insurance
Company or by making the necessary funds therefor available to the Gordon Family
Trust the Premium when due less the amounts due from the Gordon Family Trust
pursuant to the provisions of Section B of this ARTICLE 4. The Premium may be
paid under any payment method acceptable to the Company and the Insurance
Company.
B. The Gordon Family Trust shall pay that portion of each
annual premium equal to the cost (calculated by application of the lower of the
Internal Revenue Service's U.S. Life Table 38 rate or the Insurance Companies'
annual term insurance rates on the lives of the Husband and Wife while they are
both alive, and by application of the lower of the Internal Revenue Service's
U.S. Life Table 58 rate or the Insurance Companies' annual term insurance rate
on the life of the survivor of the Husband and Wife after the death of the first
of them to die) for the insurance proceeds which the beneficiary or
beneficiaries named by the Gordon Family Trust would be entitled to receive if
the survivor of the Husband and Wife died
-2-
<PAGE> 3
during such policy year (before any reduction for any repayments to be made to
the Company pursuant to this Agreement).
ARTICLE 5
GORDON FAMILY TRUST'S OBLIGATION TO COMPANY
The Gordon Family Trust must repay to the Company the
aggregate amount paid by the Company under Section A of ARTICLE 4 of this
Agreement, as premiums on the Policy (plus any payments made by the Company with
respect to the Surrendered Policies) (such amount being hereinafter referred to
as the "Net Payment Amount"). This repayment must be made in accordance with
ARTICLES 7 and 10 of this Agreement.
ARTICLE 6
ASSIGNMENT OF POLICY
The Gordon Family Trust hereby collaterally assigns, and
grants a security interest in, all of its right, title and interest in and to
the Policy to the Company as security for repayment of the Net Payment Amount.
Such collateral assignment shall not be altered or changed without the written
consent of the Company.
ARTICLE 7
DEATH CLAIMS
A. When the survivor of the Husband and Wife dies, the Company
shall be entitled to receive a portion of the death benefits provided under the
Policy. The amount to which the Company shall be entitled shall be the Net
Payment Amount less any repayments made by the Gordon Family Trust to the
Company prior to the death of the survivor of the Husband and Wife; provided,
however, that upon receipt of such amount by the Company, the Company shall
release the collateral assignment of the Policy made by the Gordon Family Trust
to the Company pursuant to ARTICLE 6 of this Agreement. The receipt of such
amount by the Company shall constitute satisfaction of the Gordon Family Trust's
obligation under ARTICLE 5 of this Agreement. To the extent, if any, the death
benefits under the Policy are insufficient to pay in full the Net Payment Amount
less any repayments made by the Gordon Family Trust to the Company prior to the
death of the survivor of the Husband and Wife, the Gordon Family Trust shall be
liable to the Company for the amount of such insufficiency.
B. When the survivor of the Husband and Wife dies, the
beneficiary or beneficiaries named by the Gordon Family Trust (or
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<PAGE> 4
by its assignees) shall be entitled to receive the amount, if any, of the death
benefits provided under the Policy in excess of the amount, if any, payable to
the Company under Section A of this ARTICLE 7. Such amount shall be paid under
the settlement option elected by the Gordon Family Trust (or by its assignees).
C. If any interest is due upon the death benefits provided
under the Policy, the Company and the beneficiary or beneficiaries named by the
Gordon Family Trust (or by its assignees) shall share such interest in the same
proportions as their respective shares of such death benefits (as provided in
Sections A and B, respectively, of this ARTICLE 7) shall bear to the total death
benefits provided under the Policy excluding such interest.
D. If, upon the death of the survivor of the Husband and Wife,
there is a refund of unearned premium under the Policy, then any such refund
shall be divided between the Company and the beneficiary or beneficiaries named
by the Gordon Family Trust (or by its assignees) in the same proportions as
their respective shares of the last premium payment made by the Company and the
Gordon Family Trust, respectively.
ARTICLE 8
DIVISION OF THE NET CASH SURRENDER
VALUE OF THE POLICY
A. If the Policy is surrendered (which the then Trustees of
the Gordon Family Trust, in their sole discretion, shall have the right to do at
any time), the Company shall thereupon be entitled to receive the Net Payment
Amount less any repayments made by the Gordon Family Trust to the Company prior
to such surrender. To the extent, if any, the net cash surrender value of the
Policy is insufficient to pay in full the Net Payment Amount less any repayments
made by the Gordon Family Trust to the Company prior to such surrender, the
Gordon Family Trust shall be liable to the Company for the amount of such
insufficiency.
B. The Gordon Family Trust (or its assignees) shall be
entitled to receive any balance of the net cash surrender value of the Policy.
ARTICLE 9
TERMINATION OF AGREEMENT
This Agreement shall terminate when any of the following
events occur:
A. Termination of the Gordon Family Trust;
B. Upon the election of the aggrieved party, if either the
Company or the Gordon Family Trust shall fail for any reason to make payment of
any portion of the Premium due on the Policy as
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<PAGE> 5
required by ARTICLE 4 of this Agreement on or prior to the due date thereof;
provided, however, that any election to terminate this Agreement under this
Section B must be made within ninety (90) days after the failure to make the
required payment occurs; and provided further, however, that the election to
terminate this Agreement by the Gordon Family Trust shall be in addition to all
of the other rights and remedies at law or in equity of the Gordon Family Trust
against the Company for its failure to pay any portion of the Premium it was
required to make; or
C. Full repayment by the Gordon Family Trust of the Net
Payment Amount; provided, however, that upon receipt of such repayment the
Company shall release the collateral assignment of the Policy by the Gordon
Family Trust pursuant to ARTICLE 6 hereof.
ARTICLE 10
DISPOSITION OF POLICY ON
TERMINATION OF AGREEMENT
If the Policy is surrendered by the then Trustees of the
Gordon Family Trust or this Agreement is terminated under Section A or Section B
of ARTICLE 9 hereof, the Gordon Family Trust shall have one hundred twenty (120)
days in which to repay to the Company the Net Payment Amount less any repayments
made by the Gordon Family Trust to the Company prior to the termination of this
Agreement. Upon receipt of such amount, the Company shall release the collateral
assignment of the Policy made by the Gordon Family Trust to the Company pursuant
to ARTICLE 6 of this Agreement. If the Gordon Family Trust does not repay such
amount within such one hundred twenty (120) day period, the Company may enforce
its rights against the Gordon Family Trust under this Agreement in any way it
sees fit, subject, however, to the Gordon Family Trust's right to set off
against any claim made by the Company any damages suffered by or claims of the
Gordon Family Trust to the extent this Agreement was terminated by the Gordon
Family Trust pursuant to Section B of ARTICLE 9 hereof.
ARTICLE 11
INSURANCE COMPANY A PARTY
The Insurance Company is a party to this Agreement and hereby
acknowledges and agrees to be bound by the terms and provisions hereof,
including without limitation the provisions of ARTICLE 5 and ARTICLE 6 hereof,
and shall be fully discharged from any and all liability under the terms of any
policy issued by it, which is subject to the terms of this Agreement, upon
payment or other performance of its obligations in accordance with the terms and
provisions of such policy and this Agreement.
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<PAGE> 6
ARTICLE 12
ASSIGNMENT BY COMPANY
The Company is prohibited from assigning its right, title or
interest in and to the Policy (or any portion thereof) to anyone other than the
Gordon Family Trust (or its assignees).
ARTICLE 13
AMENDMENT OF AGREEMENT
This Agreement shall not be modified or amended except by a
written agreement signed by the Company and the Gordon Family Trust. This
Agreement shall be binding upon the successors and assigns of each party hereto.
ARTICLE 14
GOVERNING LAW
This Agreement shall be deemed a contract made under the laws
of, and executed and delivered in, the State of Florida, and for all purposes
shall be construed and interpreted in accordance with the laws of such State
without reference to conflicts of laws principles.
ARTICLE 15
ATTORNEYS' FEES
In the event that either party to this Agreement institutes
suit against the other party to this Agreement to enforce or declare any of
their respective rights or obligations hereunder, the prevailing party in such
action shall be entitled to recover from the other party all reasonable costs
thereof, including reasonable attorneys' and paralegals' fees and costs incurred
before and at trial and at all tribunal levels, and whether or not suit or any
other proceeding is instituted.
ARTICLE 16
ENTIRE AGREEMENT
This Agreement constitutes the entire final agreement among
the parties with respect to, and supersedes any and all prior and
contemporaneous agreements between or among the parties hereto both oral and
written concerning, the subject matter hereof and may
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<PAGE> 7
not be amended, modified or terminated except by a writing signed by the parties
hereto.
ARTICLE 17
COUNTERPARTS
This Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first above written.
/s/ DAVID L. EPSTEIN
------------------------------------
DAVID L. EPSTEIN, as Co-Trustee of
the Gordon Family Trust
/s/ RICHARD D. MONDRE
------------------------------------
RICHARD D. MONDRE, as Co-Trustee of
the Gordon Family Trust
PRECISION RESPONSE CORPORATION, a
Florida corporation
By: /s/ DAVID L. EPSTEIN
--------------------------------
David L. Epstein,
Chief Executive Officer
This Split Dollar Agreement and Collateral Assignment relating to the Policy was
recorded by Sun Life Assurance Company of Canada on February 11, 2000.
SUN LIFE ASSURANCE COMPANY OF CANADA
By: /s/ CAROL J. MACKAY
--------------------------------
Name: Carol J. MacKay
Title: Customer Service Administrator
RECORDED
FEB 11 2000
SUN LIFE OF CANADA
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<PAGE> 8
SCHEDULE A
INSURANCE POLICY ON THE JOINT
LIVES OF MARK AND GAIL GORDON
<TABLE>
<CAPTION>
Sun Life
Assurance
Company of Annual
Canada Planned
Policy Number Type of Policy Face Amount Premium
- ------------- -------------- ----------- -------
<S> <C> <C> <C>
#020044604 Second-to-die $5,000,000 $25,832
</TABLE>
<PAGE> 1
EXHIBIT 10.58
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated and effective as of November 15, 1999, by
and between PRECISION RESPONSE CORPORATION, a corporation organized and existing
under the laws of the State of Florida (hereinafter referred to as "Employer"),
and JOSEPH E. GILLIS (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is a Florida corporation engaged in interactive
customer service and marketing through the integration of its teleservicing,
Internet, database management and marketing and fulfillment capabilities;
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth below and Employee desires to accept such continued
employment upon such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon the terms and conditions set forth in this
Employment Agreement.
2. TERM
Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Employment Agreement shall commence on the date hereof
and shall continue until 5:00, p.m., December 31, 2001 (the "Initial Employment
Term"), with the Initial Employment Term to be automatically renewed and
extended for consecutive additional one year periods unless, at least ninety
(90) days prior to the expiration of the Initial Employment Term or any one year
renewal period thereof, either party hereto delivers to the other party hereto
written notice of such party's termination of this Agreement at the expiration
of the Initial Employment Term or any one year renewal period thereof (as the
case may be). The Initial Employment Term together with any or all one year
renewal periods thereof are hereinafter collectively referred to as the
"Employment Term".
<PAGE> 2
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
Employee represents and warrants to Employer that Employee is
free to accept employment with Employer as contemplated herein and has no other
written or oral obligations or commitments of any kind or nature which would in
any way interfere with Employee's acceptance of employment pursuant to the terms
hereof or the full performance of Employee's obligations hereunder or the
exercise of Employee's best efforts in Employee's employment hereunder or which
would otherwise pose any conflict of interest.
4. DUTIES AND EXTENT OF SERVICES
A. DUTIES. Employee's duties and responsibilities hereunder
shall be those reasonably assigned to Employee from time to time by Employer,
consistent with the following: Employee shall, unless and until otherwise
determined by Employer, serve as Employer's Vice President and Treasurer,
subject to the direction of Employer's Chief Financial Officer. Employee shall
report directly to Employer's Chief Financial Officer. Employee agrees to devote
Employee's full and exclusive time, skill, attention and energy diligently and
competently to perform the duties and responsibilities properly assigned to
Employee hereunder, or pursuant hereto.
B. RULES AND REGULATIONS. Employee agrees to abide by the
rules and regulations of Employer promulgated by Employer from time to time with
respect and applicable to Employer's similarly-situated employees generally,
which are all hereby incorporated by reference and made a part of this
Employment Agreement.
5. COMPENSATION
A. BASE COMPENSATION. Subject to the provisions of Section 9
of this Employment Agreement, Employer shall pay salary to Employee ("Salary")
based upon the rate of $ 140,000 per annum from the date hereof until April 1,
2000, at which time Employer's Chief Financial Officer shall review Employee's
Salary. Employer may decide, in its sole discretion, to increase (but not to
decrease) the Salary at that time or at any time during the Employment Term.
Salary shall be payable in accordance with Employer's normal payroll practices
for its employees and shall be subject to payroll deductions and tax
withholdings in accordance with Employer's usual practices and as required by
law.
B. BONUS COMPENSATION. Employee shall receive an annual bonus,
the amount of which shall be determined by Employer in its sole and absolute
discretion in a manner consistent with Employer's then current bonus plan which
may be amended from time to time (the "Bonus Amount"). Each annual Bonus Amount
shall be paid on or before April 1st of each year of the Employment Term. The
Bonus Amount payable on or before each April 1st shall be based upon Employee's
performance during the calendar year immediately preceding such April 1st. Each
Bonus Amount shall be subject to payroll deductions and tax withholdings in
accordance with Employer's usual payroll practices and as required by law.
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<PAGE> 3
6. FRINGE BENEFITS AND EXPENSES
A. EMPLOYEE BENEFITS. Employee shall be entitled to such
benefits and fringe benefits (such as health, dental, life and disability
insurance) as are made available by Employer from time to time, in Employer's
sole discretion, to all other similarly-situated employees generally.
B. EXPENSES. Employer shall reimburse Employee for Employee's
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of Employee's duties and responsibilities hereunder, subject to
Employee's presentation of appropriate documentation and, if requested,
justification therefor, and provided that the types and amounts of expenses
incurred are consistent with, in Employer's judgment, Employer's policies and
practices.
7. VACATIONS
Employee shall be entitled to 30 days of paid time off ("PTO")
for vacation, personal and sick days each full year of the Employment Term, with
full compensation (provided, however, that Employee shall not be entitled to be
compensated for any unused PTO days upon termination of employment). The PTO
days are exclusive of any Employer recognized holidays. The periods during which
Employee shall be absent from work for vacation shall be at the reasonable
discretion of Employer.
8. FACILITIES
Employer shall provide and maintain (or cause to be provided
and maintained) such facilities, equipment, supplies and personnel as it
reasonably deems necessary for Employee's performance of Employee's duties and
responsibilities under this Employment Agreement.
9. TERMINATION OF EMPLOYMENT
A. TERMINATION EVENTS. Employee's employment under this
Employment Agreement may be terminated by Employer only as follows: with or
without Cause (as hereinafter defined), effective upon the delivery of written
notice to Employee; upon Employee's death; or upon Employee becoming Disabled
(as later defined) and receiving written notice of termination from Employer to
that effect. Employee may terminate Employee's employment under this Employment
Agreement without being in breach hereunder by giving written notification of
Employee's resignation to Employer which shall specify a resignation date no
earlier than thirty (30) days following the date of delivery of such notice of
resignation.
B. DEFINITIONS OF CAUSE AND DISABLED. For purposes of this
Employment Agreement, "Cause" shall mean and include: (i) commission of a
felony, or commission of acts of fraud, dishonesty, or the like; (ii) habitual
drunkenness during business hours or at Employer's premises; (iii) illicit use
of drugs during business hours or at Employer's premises; (iv) abandonment of
employment duties; (v) gross negligence in the performance of employment duties;
(vi) an act or omission on the part of Employee not directed by Employer which
results in or contributes to
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<PAGE> 4
Employer being sanctioned or penalized by any governmental or quasi-governmental
authority or body, or any stock exchange or body regulating or governing
publicly-traded companies (including the NASD); (vii) insubordination; or (viii)
breach by Employee of this Employment Agreement which, if curable, is not cured
by Employee within thirty (30) days following Employee's receipt of written
notice thereof. Employee shall be deemed "Disabled" for purposes of this
Agreement (a) if, in the reasonable judgment of Employer, Employee is unable,
due to physical, mental or emotional illness or injury, to perform substantially
all of Employee's duties and responsibilities for Employer for a continuous
period of ninety (90) days, or (b) if Employee is adjudicated as an incompetent
or has a guardian appointed to handle Employee's affairs.
C. EFFECT OF TERMINATION FOR CAUSE OR EMPLOYEE'S RESIGNATION.
In the event that Employee's employment under this Employment Agreement is
terminated by Employer with Cause, or because Employee resigns from or quits
Employee's employment, Employer shall pay to Employee, within thirty (30) days
following the date of such termination or resignation, subject to Employer's
right to set off any damages resulting from Employee's termination with Cause or
resignation effected without giving the required notice, the Salary, if any,
accrued and unpaid through the date of termination, and shall pay and provide to
Employee the amounts and items payable and to be provided under Section 6
through the date of such termination; and Employee shall not be entitled to any
other compensation, remuneration or other sums provided for in this Employment
Agreement or to which Employee might otherwise be entitled hereunder or at law
or in equity, including, without limitation, any accrued or unpaid Bonus Amount.
D. COMPENSATION UPON DEATH OR DISABILITY. Upon the death of
Employee, or termination of employment because Employee is Disabled, Employer
shall pay to Employee, Employee's legal guardian or the legal representative of
Employee's estate (or heir as designated by the legal representative of
Employee's estate at such time), within thirty (30) days following the date of
Employee's death or termination, the Salary and declared Bonus Amount, if any,
accrued and unpaid through the date of termination and shall pay and provide to
Employee, Employee's legal guardian or the legal representative of Employee's
estate the amounts and items payable and to be provided under Section 6 through
the date of such termination; and Employee (or such legal guardian, legal
representative or any heirs) shall not be entitled to any other compensation,
remuneration or other sums provided for in this Employment Agreement or to which
Employee might otherwise be entitled hereunder or at law or in equity.
E. COMPENSATION UPON TERMINATION WITHOUT CAUSE AND RESIGNATION
UPON SIGNIFICANT CHANGE IN SCOPE OF JOB RESPONSIBILITIES OR RELOCATION.
Notwithstanding anything in subsection C. of this Section 9, in the event that
Employer (or its successor) terminates Employee's employment under this
Employment Agreement without Cause (including, without limitation, upon a Change
in Control as hereinafter defined) or Employee resigns Employer's employment
within ninety (90) days of either a significant change in the scope of
Employee's job responsibilities or Employer's requiring Employee, without
Employee's prior written consent, to relocate Employee's office to a location
other than northern Miami-Dade County (i.e, not any further south in MiamiDade
County than the location of Employer's executive offices as of the date of this
Employment Agreement), Broward County or Palm Beach County, Florida, Employee's
sole and exclusive compensation and remedy hereunder shall be to receive from
Employer, and Employer shall pay and
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<PAGE> 5
provide, (i) the amount of Salary and declared Bonus Amount, if any, accrued and
unpaid through the date of termination (provided, however, that, in the event
that a Bonus Amount for the calendar year in which the date of termination has
occurred and/or prior calendar year has not been declared prior to the date of
termination, the Bonus Amount for such calendar year shall be determined on a
pro-rata basis consistent with Employer's bonus plan for such calendar year and
Employer's overall accrual for employee bonuses for the relevant calendar
year(s) through the date of termination), and the amounts and items payable or
to be provided under Section 6 through the date of termination, payable within
thirty (30) days following termination of employment, (ii) the Salary and the
amounts and items payable or to be provided under Section 6.A. that Employee
would have received during the one year period following the date of termination
of Employee's employment, as and when it would have been payable or been
provided if Employee had remained an employee of Employer for such additional
one year period, provided, however, that with respect to any such benefits
Employer shall have the right, if unable to provide to Employee or Employer
otherwise elects, in its sole discretion, to pay Employee the monetary
equivalent of any such benefits in lieu of providing same to Employee, and (iii)
an amount equal to the average of the Bonus Amount (and/or annual bonus amount,
as the case may be) paid to Employee during the last two years prior to the date
of termination, which amount shall be payable in twelve equal consecutive
monthly installments commencing one month from the date of termination. For
purposes of this Subsection E., (x) a "Change in Control" means that (1) neither
Mark Gordon (for these purposes, counting all common stock directly or
indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein
(for these purposes, counting all common stock directly or indirectly
beneficially owned by David Epstein's Affiliates) beneficially owns at least 10%
of the issued and outstanding common stock of Employer or its successor, (2)
neither Mark Gordon (for these purposes, counting all common stock directly or
indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein
(for these purposes, counting all common stock directly or indirectly
beneficially owned by David Epstein's Affiliates) is the stockholder
beneficially owning the highest number of issued and outstanding shares of
common stock of Employer or its successor, or (3) neither Mark Gordon nor David
Epstein occupies the position of Chairman of the Board, Chief Executive Officer
or President of Employer; (y) "Affiliate" means, with respect to Mark Gordon or
David Epstein, an immediate family member of his, a trust principally for his
benefit and/or the benefit of his family members and/or lineal descendants, or a
family limited partnership or any other entity the direct or indirect beneficial
or pecuniary owners of which are, principally, him, his immediate family members
and/or trusts principally for the benefit of him, his family members and/or
lineal descendants; and (z) "Immediate family members" mean, with respect to
Mark Gordon or David Epstein, his spouse, children, parents, siblings or other
lineal descendants.
F. KEY-MAN INSURANCE. In the event that Employer has obtained
or obtains a keyman insurance policy (the "Policy") on the life of Employee,
Employer shall be the sole owner thereof and all proceeds payable in respect
thereof shall be the property solely of Employer. In the event that Employee's
employment terminates for any reason other than Employee's death, Employee may
request that the Policy be assigned to Employee by giving written notice to
Employer to that effect. Subject to obtaining any requisite consent from the
insurer, Employer shall, if Employee has so requested, assign the Policy to
Employee subject to Employee's reimbursement to Employer of any premiums paid by
Employer which relate to any period following the date of termination of
Employee's employment, and the cash value, if any, of the Policy. In the event
that Employer desires
5
<PAGE> 6
to obtain any such Policy, Employee shall fully cooperate in Employer's efforts,
including submitting to medical exams and tests and executing and delivering
applications and information statements.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. CONFIDENTIAL INFORMATION. Employee acknowledges that
Employee has been informed by Employer of Employer's policy to maintain as
secret and confidential all information and materials relating to (i) the
financial condition, operations, business and interests of Employer, (ii) the
systems, technology, know-how, records, products, services, cost information,
inventions, computer and Internet software, marketing and sales techniques
and/or programs, methods, methodologies, manuals, lists and other trade secrets
from time to time acquired, sold, developed, maintained and/or used by Employer,
and (iii) the nature and terms of Employer's relationships with its clients,
suppliers, lenders, underwriters, vendors, consultants, independent contractors,
attorneys, accountants and employees (all such information and materials being
hereinafter collectively referred to as "Confidential Information"). Employee
further acknowledges that such Confidential Information is of great value to
Employer and has been developed by Employer as a result of substantial effort
and expense. Therefore, Employee understands that it is reasonably necessary to
protect Employer's good will, trade secrets and business interests that Employee
agree and, accordingly, Employee does hereby agree, that Employee will not
directly or indirectly (except where authorized by the Board of Directors,
Chairman of the Board, Chief Executive Officer or President of Employer for the
benefit of Employer and/or as required in the course of employment) at any time
hereafter divulge or disclose for any purpose to any persons, firms,
corporations or other entities (hereinafter referred to collectively as "Third
Parties"), or use or cause or authorize any Third Parties to use, any such
Confidential Information, except as otherwise required by law. Any software,
technology, know-how, trade secrets or intellectual property rights of any kind
developed by Employee during the period of his employment with Employer which in
any way relate or have application or value to Employer's business shall be the
property, as between Employee and Employer, solely of Employer.
B. EMPLOYER'S MATERIALS. In accordance with the foregoing,
Employee furthermore agrees that (i) Employee will at no time retain or remove
from the premises of Employer any products, prototypes, drawings, notebooks,
software programs or discs, tapes or similar containers of software, manuals,
data, books, records, materials or documents of any kind or description for any
purpose unconnected with the strict performance of Employee's duties with
Employer and (ii) upon the cessation or termination of Employee's employment
with Employer for any reason, Employee shall forthwith deliver or cause to be
delivered up to Employer any and all drawings, notebooks, software programs or
discs, tapes or similar containers of software, manuals, data, books, records,
materials and other documents and materials in Employee's possession or under
Employee's control relating to any Confidential Information or any other
material or thing which is the property of Employer.
11. COVENANT-NOT-TO-COMPETE
In view of (a) the Confidential Information known to and to be
obtained by or disclosed to Employee, and (b) the consideration payable to
Employee under this Employment
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<PAGE> 7
Agreement, and as a material inducement to Employer to enter into this
Employment Agreement and to continue to employ Employee, Employee covenants and
agrees that, (i) for as long as Employee is employed by Employer and for a
period of 24 months after the date Employee ceases for any reason to be employed
by Employer, Employee shall not, directly or indirectly, (A) sell any products
or services sold or offered by Employer to any person or entity who is or was a
client of Employer at any time during Employee's employment with Employer and
for or to whom Employer is performing services or selling products or for or to
whom Employer has performed services or sold products at any time during the
one-year period ending on Employee's termination of employment or (B) solicit
the services of, or hire, directly or indirectly, whether on Employee's own
behalf or on behalf of others, any managerial or executive employee, account
manager, programmer, information services employee (including, without
limitation, network or other information services or Internet operation
employee), database management or marketing employee or financial or accounting
personnel of Employer who was or is employed by Employer at any time during the
two-year period ending on the date of termination of Employee's employment or
the two-year period commencing on the date of termination of Employee's
employment, or (ii) for as long as Employee is employed by Employer and for a
period of 12 months after the date Employee ceases for any reason to be employed
by Employer, Employee shall not, directly or indirectly, engage in any venture,
enterprise, activity or business, passively or actively, as an owner,
consultant, adviser, participant, employee, agent or in any other capacity,
competitive with the business of Employer anywhere within the continental United
States. Employee acknowledges that the business of Employer is national in
scope, that one can effectively compete with such business from anywhere in the
continental United States, and that, therefore, such geographical area of
restriction is reasonable in the circumstances to protect Employer's trade
secrets and other legitimate business interests.
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11
Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Section 10
or 11 hereof, Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations and benefits which Employee
directly or indirectly has realized and realizes as a result of, growing out of
or in connection with any such violation or breach. In addition, in the event of
a breach or violation or threatened or imminent breach or violation of any
provisions of Section 10 or 11 hereof, Employer shall be entitled to a temporary
and permanent injunction or any other appropriate decree of specific performance
or equitable relief from a court of competent jurisdiction in order to prevent,
prohibit or restrain any such breach or violation or threatened or imminent
breach or violation by Employee, by Employee's partners, agents,
representatives, servants, employers or employees and/or by any Third Parties.
Employer shall be entitled to such injunctive or other equitable relief in
addition to any ascertainable damages which are suffered, together with
reasonable attorneys' and paralegals' fees and costs and other costs incurred in
connection with any such litigation, both before and at trial and at all
tribunal levels. It is understood that resort by Employer to such injunctive or
other equitable relief shall not be deemed to waive or to limit in any respect
any other rights or remedies which Employer may have with respect to such breach
or violation.
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<PAGE> 8
13. REASONABLENESS OF RESTRICTIONS
A. REASONABLENESS. Employee acknowledges that any breach or
violation of Section 10 or 11 hereof will cause irreparable injury and damage
and incalculable harm to Employer and that it would be very difficult or
impossible to measure all of the damages resulting from any such breach or
violation. Employee further acknowledges that Employee has carefully read and
considered the provisions of Sections 10, 11 and 12 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including,
but not limited to, the time period, geographical and types of restrictions
imposed) are fair and reasonable and are reasonably required for the protection
of the business, trade secrets, interests and good will of Employer.
B. SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof
shall be construed as separate and divisible from every other provision and
restriction. In the event that any one of the provisions of, or restrictions in,
Sections 10, 11 and/or 12 hereof shall be held to be invalid or unenforceable,
and is not reformed by a court of competent jurisdiction (which a court, in lieu
of striking a provision entirely, is urged by the parties to do), the remaining
provisions thereof and restrictions therein shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable provisions or
restrictions had not been included. In the event that any such provision
relating to time period, geographical and/or type of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum or
permissible time period, geographical or type of restriction such court deems
reasonable and enforceable, said time period, geographical and/or type of
restriction shall be deemed to become and shall thereafter be the maximum time
period or geographical area and/or type of restriction which such court deems
reasonable and enforceable.
C. SURVIVABILITY. The restrictions, acknowledgments, covenants
and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this
Employment Agreement shall survive any termination of this Employment Agreement
or of Employee's employment (for any reason, including expiration of the
Employment Term).
D. DEFINITION OF EMPLOYER. For purposes of Sections 10, 11, 12
and 13 of this Employment Agreement, the term "Employer" includes the Employer
and any parent corporation of Employer and all direct and indirect subsidiaries
of Employer and its parent corporation (if any).
14. LAW APPLICABLE
This Employment Agreement shall be governed by and construed
pursuant to the laws of the State of Florida.
15. NOTICES
Any notices required or permitted to be given pursuant to this
Employment Agreement shall be sufficient if in writing, and delivered
personally, by commercial courier service or sent by certified mail, return
receipt requested, and sent to Employer's executive offices, to the
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attention of the President, if sent to Employer, and to Employee's then current
residence, if sent to Employee.
16. SUCCESSION
This Employment Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective legal representatives,
heirs, assignees and/or successors in interest of any kind whatever; PROVIDED,
HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or
delegate any of Employee's rights, duties, responsibilities or obligations
hereunder to any other person or entity. Employer shall have the right to assign
its rights and delegate its duties under this Employment Agreement.
17. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire final
agreement between the parties with respect to, and supersedes any and all prior
and contemporaneous agreements between the parties hereto both oral and written
concerning, the subject matter hereof and may not be amended, modified or
terminated except by a writing signed by the parties hereto.
18. SEVERABILITY
If any provision of this Employment Agreement shall be held to
be invalid or unenforceable, and is not reformed by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision and shall not in any way affect or render invalid or unenforceable any
other provision of this Employment Agreement, and this Employment Agreement
shall be carried out as if such invalid or unenforceable provision were not
herein contained.
19. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant herein contained shall not be deemed a continuing waiver or a waiver of
any future or past breach or violation. No oral waiver shall be binding.
20. ATTORNEYS' FEES
In the event that either of the parties to this Employment
Agreement institutes suit against the other party to this Employment Agreement
to enforce or declare any of their respective rights hereunder, the prevailing
party in such action shall be entitled to recover from the other party all
reasonable costs thereof, including reasonable attorneys' and paralegals' fees
and costs incurred before and at trial and at all tribunal levels, and whether
or not suit or any other proceeding is instituted.
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21. COUNTERPARTS
This Employment Agreement may be executed in counterparts,
each of which shall be an original, but both of which together shall constitute
one and the same instrument.
22. INDEPENDENT COUNSEL
EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN
INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT
AGREEMENT BEFORE EMPLOYEE SIGNS IT.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the day and year first above written.
EMPLOYER:
PRECISION RESPONSE CORPORATION, a Florida
corporation
By: /s/ DAVID EPSTEIN
----------------------------------------
David Epstein, Chief Executive Officer
EMPLOYEE:
/s/ JOSEPH E. GILLIS
-------------------------------------
JOSEPH E. GILLIS
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FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") dated and
effective as of JANUARY 13, 2000, by and between Precision Response Corporation,
a corporation organized and existing under the laws of the State of Florida
(hereinafter referred to as "Employer"), and Joseph E. Gillis hereinafter
referred to as ("Employee").
W I T N E S S E T H
WHEREAS, Employer currently employs Employee pursuant to an Employment
Agreement dated November 15, 1999 by and between Employer and Employee; and
WHEREAS, Employer and Employee desire to amend the Employment Agreement
as set forth herein.
NOW THEREFORE, the parties agree that the Employment Agreement shall be
amended as of and after the date hereof as follows:
Section 9 is hereby amended by the addition of the following
Subsection G:
G. EXCISE TAX TREATMENT. If any of the payments or benefits to be
received by Employee in connection with a Change in Control
(as defined in Subsection 9E.) pursuant to the terms of this
agreement or any other plan, arrangement or agreement (such
payments or benefits the "Total Payments") will be subject to
any excise tax imposed by Section 4999 of the Internal Revenue
of 1986, as amended (the "Code"), then, after taking into
account any reduction in the Total Payments provided by
Section 280G of the Code in such other plan, arrangement or
agreement, the payments made pursuant to Subsection 9E. of
this Employment Agreement shall be reduced to the extent
necessary so that no portion of the Total Payments is subject
to the excise tax but only if (i) the net amount of such Total
Payments, as so reduced (and after subtracting the net amount
of federal, state and local income taxes on such reduced Total
Payments) is greater than or equal to (ii) the net amount of
such Total Payments without such reduction (but after
subtracting the net amount of federal, state and local income
taxes on such Total Payments and the amount of excise tax to
which the Employee would be subject in respect of such
unreduced Total Payments).
<PAGE> 12
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed as of the day and year first above written.
PRECISION RESPONSE CORPORATION
BY: /s/ RICHARD D. MONDRE
--------------------------------------
Exec. Vice Pres.
/S/ JOSEPH E. GILLIS
--------------------------------------
Joseph E. Gillis
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EXHIBIT 10.59
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated and effective as of November 15, 1999, by
and between PRECISION RESPONSE CORPORATION, a corporation organized and existing
under the laws of the State of Florida (hereinafter referred to as "Employer"),
and THOMAS F. JENNINGS, JR. (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is a Florida corporation engaged in interactive
customer service and marketing through the integration of its teleservicing,
Internet, database management and marketing and fulfillment capabilities;
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth below and Employee desires to accept such continued
employment upon such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon the terms and conditions set forth in this
Employment Agreement.
2. TERM
Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Employment Agreement shall commence on the date hereof
and shall continue until 5:00, p.m., December 31, 2001 (the "Initial Employment
Term"), with the Initial Employment Term to be automatically renewed and
extended for consecutive additional one year periods unless, at least ninety
(90) days prior to the expiration of the Initial Employment Term or any one year
renewal period thereof, either party hereto delivers to the other party hereto
written notice of such party's termination of this Agreement at the expiration
of the Initial Employment Term or any one year renewal period thereof (as the
case may be). The Initial Employment Term together with any or all one year
renewal periods thereof are hereinafter collectively referred to as the
"Employment Term".
<PAGE> 2
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
Employee represents and warrants to Employer that Employee is
free to accept employment with Employer as contemplated herein and has no other
written or oral obligations or commitments of any kind or nature which would in
any way interfere with Employee's acceptance of employment pursuant to the terms
hereof or the full performance of Employee's obligations hereunder or the
exercise of Employee's best efforts in Employee's employment hereunder or which
would otherwise pose any conflict of interest.
4. DUTIES AND EXTENT OF SERVICES
A. DUTIES. Employee's duties and responsibilities hereunder
shall be those reasonably assigned to Employee from time to time by Employer,
consistent with the following: Employee shall, unless and until otherwise
determined by Employer, serve as Employer's Vice President and Controller,
subject to the direction of Employer's Chief Financial Officer. Employee shall
report directly to Employer's Chief Financial Officer. Employee agrees to devote
Employee's full and exclusive time, skill, attention and energy diligently and
competently to perform the duties and responsibilities properly assigned to
Employee hereunder, or pursuant hereto.
B. RULES AND REGULATIONS. Employee agrees to abide by the
rules and regulations of Employer promulgated by Employer from time to time with
respect and applicable to Employer's similarly-situated employees generally,
which are all hereby incorporated by reference and made a part of this
Employment Agreement.
5. COMPENSATION
A. BASE COMPENSATION. Subject to the provisions of Section 9
of this Employment Agreement, Employer shall pay salary to Employee ("Salary")
based upon the rate of $175,000 per annum from the date hereof until April 1,
2000, at which time Employer's Chief Financial Officer shall review Employee's
Salary. Employer may decide, in its sole discretion, to increase (but not to
decrease) the Salary at that time or at any time during the Employment Term.
Salary shall be payable in accordance with Employer's normal payroll practices
for its employees and shall be subject to payroll deductions and tax
withholdings in accordance with Employer's usual practices and as required by
law.
B. BONUS COMPENSATION. Employee shall receive an annual bonus,
the amount of which shall be determined by Employer in its sole and absolute
discretion in a manner consistent with Employer's then current bonus plan which
may be amended from time to time (the "Bonus Amount"). Each annual Bonus Amount
shall be paid on or before April 1st of each year of the Employment Term. The
Bonus Amount payable on or before each April 1st shall be based upon Employee's
performance during the calendar year immediately preceding such April 1st. Each
Bonus Amount shall be subject to payroll deductions and tax withholdings in
accordance with Employer's usual payroll practices and as required by law.
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6. FRINGE BENEFITS AND EXPENSES
A. EMPLOYEE BENEFITS. Employee shall be entitled to such
benefits and fringe benefits (such as health, dental, life and disability
insurance) as are made available by Employer from time to time, in Employer's
sole discretion, to all other similarly-situated employees generally.
B. EXPENSES. Employer shall reimburse Employee for Employee's
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of Employee's duties and responsibilities hereunder, subject to
Employee's presentation of appropriate documentation and, if requested,
justification therefor, and provided that the types and amounts of expenses
incurred are consistent with, in Employer's judgment, Employer's policies and
practices.
7. VACATIONS
Employee shall be entitled to 30 days of paid time off ("PTO")
for vacation, personal and sick days each full year of the Employment Term, with
full compensation (provided, however, that Employee shall not be entitled to be
compensated for any unused PTO days upon termination of employment). The PTO
days are exclusive of any Employer recognized holidays. The periods during which
Employee shall be absent from work for vacation shall be at the reasonable
discretion of Employer.
8. FACILITIES
Employer shall provide and maintain (or cause to be provided
and maintained) such facilities, equipment, supplies and personnel as it
reasonably deems necessary for Employee's performance of Employee's duties and
responsibilities under this Employment Agreement.
9. TERMINATION OF EMPLOYMENT
A. TERMINATION EVENTS. Employee's employment under this
Employment Agreement may be terminated by Employer only as follows: with or
without Cause (as hereinafter defined), effective upon the delivery of written
notice to Employee; upon Employee's death; or upon Employee becoming Disabled
(as later defined) and receiving written notice of termination from Employer to
that effect. Employee may terminate Employee's employment under this Employment
Agreement without being in breach hereunder by giving written notification of
Employee's resignation to Employer which shall specify a resignation date no
earlier than thirty (30) days following the date of delivery of such notice of
resignation.
B. DEFINITIONS OF CAUSE AND DISABLED. For purposes of this
Employment Agreement, "Cause" shall mean and include: (i) commission of a
felony, or commission of acts of fraud, dishonesty, or the like; (ii) habitual
drunkenness during business hours or at Employer's premises; (iii) illicit use
of drugs during business hours or at Employer's premises; (iv) abandonment of
employment duties; (v) gross negligence in the performance of employment duties;
(vi) an act or omission on the part of Employee not directed by Employer which
results in or contributes to
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Employer being sanctioned or penalized by any governmental or quasi-governmental
authority or body, or any stock exchange or body regulating or governing
publicly-traded companies (including the NASD); (vii) insubordination; or (viii)
breach by Employee of this Employment Agreement which, if curable, is not cured
by Employee within thirty (30) days following Employee's receipt of written
notice thereof. Employee shall be deemed "Disabled" for purposes of this
Agreement (a) if, in the reasonable judgment of Employer, Employee is unable,
due to physical, mental or emotional illness or injury, to perform substantially
all of Employee's duties and responsibilities for Employer for a continuous
period of ninety (90) days, or (b) if Employee is adjudicated as an incompetent
or has a guardian appointed to handle Employee's affairs.
C. EFFECT OF TERMINATION FOR CAUSE OR EMPLOYEE'S RESIGNATION.
In the event that Employee's employment under this Employment Agreement is
terminated by Employer with Cause, or because Employee resigns from or quits
Employee's employment, Employer shall pay to Employee, within thirty (30) days
following the date of such termination or resignation, subject to Employer's
right to set off any damages resulting from Employee's termination with Cause or
resignation effected without giving the required notice, the Salary, if any,
accrued and unpaid through the date of termination, and shall pay and provide to
Employee the amounts and items payable and to be provided under Section 6
through the date of such termination; and Employee shall not be entitled to any
other compensation, remuneration or other sums provided for in this Employment
Agreement or to which Employee might otherwise be entitled hereunder or at law
or in equity, including, without limitation, any accrued or unpaid Bonus Amount.
D. COMPENSATION UPON DEATH OR DISABILITY. Upon the death of
Employee, or termination of employment because Employee is Disabled, Employer
shall pay to Employee, Employee's legal guardian or the legal representative of
Employee's estate (or heir as designated by the legal representative of
Employee's estate at such time), within thirty (30) days following the date of
Employee's death or termination, the Salary and declared Bonus Amount, if any,
accrued and unpaid through the date of termination and shall pay and provide to
Employee, Employee's legal guardian or the legal representative of Employee's
estate the amounts and items payable and to be provided under Section 6 through
the date of such termination; and Employee (or such legal guardian, legal
representative or any heirs) shall not be entitled to any other compensation,
remuneration or other sums provided for in this Employment Agreement or to which
Employee might otherwise be entitled hereunder or at law or in equity.
E. COMPENSATION UPON TERMINATION WITHOUT CAUSE AND RESIGNATION
UPON SIGNIFICANT CHANGE IN SCOPE OF JOB RESPONSIBILITIES OR RELOCATION.
Notwithstanding anything in subsection C. of this Section 9, in the event that
Employer (or its successor) terminates Employee's employment under this
Employment Agreement without Cause (including, without limitation, upon a Change
in Control as hereinafter defined) or Employee resigns Employer's employment
within ninety (90) days of either a significant change in the scope of
Employee's job responsibilities or Employer's requiring Employee, without
Employee's prior written consent, to relocate Employee's office to a location
other than northern Miami-Dade County (i.e., not any further south in Miami-
Dade County than the location of Employer's executive offices as of the date of
this Employment Agreement), Broward County or Palm Beach County, Florida,
Employee's sole and exclusive compensation and remedy hereunder shall be to
receive from Employer, and Employer shall pay and
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provide, (i) the amount of Salary and declared Bonus Amount, if any, accrued and
unpaid through the date of termination, (provided, however, that, in the event
that a Bonus Amount for the calendar year in which the date of termination has
occurred and/or the prior calendar year has not been declared prior to the date
of termination, the Bonus Amount for such calendar year shall be determined on a
pro-rata basis consistent with Employer's bonus plan for such calendar year and
Employer's overall accrual for employee bonuses for the relevant calendar
year(s) through the date of termination), and the amounts and items payable or
to be provided under Section 6 through the date of termination, payable within
thirty (30) days following termination of employment, (ii) the Salary and the
amounts and items payable or to be provided under Section 6.A. that Employee
would have received during the one year period following the date of termination
of Employee's employment, as and when it would have been payable or been
provided if Employee had remained an employee of Employer for such additional
one year period, provided, however, that with respect to any such benefits
Employer shall have the right, if unable to provide to Employee or Employer
otherwise elects, in its sole discretion, to pay Employee the monetary
equivalent of any such benefits in lieu of providing same to Employee, and (iii)
an amount equal to the average of the Bonus Amount (and/or annual bonus amount,
as the case may be) paid to Employee during the last two years prior to the date
of termination which amount shall be payable in twelve equal consecutive monthly
installments commencing one month from the date of termination. For purposes of
this Subsection E., (x) a "Change in Control" means that (1) neither Mark Gordon
(for these purposes, counting all common stock directly or indirectly
beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these
purposes, counting all common stock directly or indirectly beneficially owned by
David Epstein's Affiliates) beneficially owns at least 10% of the issued and
outstanding common stock of Employer or its successor, (2) neither Mark Gordon
(for these purposes, counting all common stock directly or indirectly
beneficially owned by Mark Gordon's Affiliates) nor David Epstein (for these
purposes, counting all common stock directly or indirectly beneficially owned by
David Epstein's Affiliates) is the stockholder beneficially owning the highest
number of issued and outstanding shares of common stock of Employer or its
successor, or (3) neither Mark Gordon nor David Epstein occupies the position of
Chairman of the Board, Chief Executive Officer or President of Employer; (y)
"Affiliate" means, with respect to Mark Gordon or David Epstein, an immediate
family member of his, a trust principally for his benefit and/or the benefit of
his family members and/or lineal descendants, or a family limited partnership or
any other entity the direct or indirect beneficial or pecuniary owners of which
are, principally, him, his immediate family members and/or trusts principally
for the benefit of him, his family members and/or lineal descendants; and (z)
"Immediate family members" mean, with respect to Mark Gordon or David Epstein,
his spouse, children, parents, siblings or other lineal descendants.
F. KEY-MAN INSURANCE. In the event that Employer has obtained
or obtains a key-man insurance policy (the "Policy") on the life of Employee,
Employer shall be the sole owner thereof and all proceeds payable in respect
thereof shall be the property solely of Employer. In the event that Employee's
employment terminates for any reason other than Employee's death, Employee may
request that the Policy be assigned to Employee by giving written notice to
Employer to that effect. Subject to obtaining any requisite consent from the
insurer, Employer shall, if Employee has so requested, assign the Policy to
Employee subject to Employee's reimbursement to Employer of any premiums paid by
Employer which relate to any period following the date of termination of
Employee's employment, and the cash value, if any, of the Policy. In the event
that Employer desires
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to obtain any such Policy, Employee shall fully cooperate in Employer's efforts,
including submitting to medical exams and tests and executing and delivering
applications and information statements.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. CONFIDENTIAL INFORMATION. Employee acknowledges that
Employee has been informed by Employer of Employer's policy to maintain as
secret and confidential all information and materials relating to (i) the
financial condition, operations, business and interests of Employer, (ii) the
systems, technology, know-how, records, products, services, cost information,
inventions, computer and Internet software, marketing and sales techniques
and/or programs, methods, methodologies, manuals, lists and other trade secrets
from time to time acquired, sold, developed, maintained and/or used by Employer,
and (iii) the nature and terms of Employer's relationships with its clients,
suppliers, lenders, underwriters, vendors, consultants, independent contractors,
attorneys, accountants and employees (all such information and materials being
hereinafter collectively referred to as "Confidential Information"). Employee
further acknowledges that such Confidential Information is of great value to
Employer and has been developed by Employer as a result of substantial effort
and expense. Therefore, Employee understands that it is reasonably necessary to
protect Employer's good will, trade secrets and business interests that Employee
agree and, accordingly, Employee does hereby agree, that Employee will not
directly or indirectly (except where authorized by the Board of Directors,
Chairman of the Board, Chief Executive Officer or President of Employer for the
benefit of Employer and/or as required in the course of employment) at any time
hereafter divulge or disclose for any purpose to any persons, firms,
corporations or other entities (hereinafter referred to collectively as "Third
Parties"), or use or cause or authorize any Third Parties to use, any such
Confidential Information, except as otherwise required by law. Any software,
technology, know-how, trade secrets or intellectual property rights of any kind
developed by Employee during the period of his employment with Employer which in
any way relate or have application or value to Employer's business shall be the
property, as between Employee and Employer, solely of Employer.
B. EMPLOYER'S MATERIALS. In accordance with the foregoing,
Employee furthermore agrees that (i) Employee will at no time retain or remove
from the premises of Employer any products, prototypes, drawings, notebooks,
software programs or discs, tapes or similar containers of software, manuals,
data, books, records, materials or documents of any kind or description for any
purpose unconnected with the strict performance of Employee's duties with
Employer and (ii) upon the cessation or termination of Employee's employment
with Employer for any reason, Employee shall forthwith deliver or cause to be
delivered up to Employer any and all drawings, notebooks, software programs or
discs, tapes or similar containers of software, manuals, data, books, records,
materials and other documents and materials in Employee's possession or under
Employee's control relating to any Confidential Information or any other
material or thing which is the property of Employer.
11. COVENANT-NOT-TO-COMPETE
In view of (a) the Confidential Information known to and to be
obtained by or disclosed to Employee, and (b) the consideration payable to
Employee under this Employment
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Agreement, and as a material inducement to Employer to enter into this
Employment Agreement and to continue to employ Employee, Employee covenants and
agrees that, (i) for as long as Employee is employed by Employer and for a
period of 24 months after the date Employee ceases for any reason to be employed
by Employer, Employee shall not, directly or indirectly, (A) sell any products
or services sold or offered by Employer to any person or entity who is or was a
client of Employer at any time during Employee's employment with Employer and
for or to whom Employer is performing services or selling products or for or to
whom Employer has performed services or sold products at any time during the
one-year period ending on Employee's termination of employment or (B) solicit
the services of, or hire, directly or indirectly, whether on Employee's own
behalf or on behalf of others, any managerial or executive employee, account
manager, programmer, information services employee (including, without
limitation, network or other information services or Internet operation
employee), database management or marketing employee or financial or accounting
personnel of Employer who was or is employed by Employer at any time during the
two-year period ending on the date of termination of Employee's employment or
the two-year period commencing on the date of termination of Employee's
employment, or (ii) for as long as Employee is employed by Employer and for a
period of 12 months after the date Employee ceases for any reason to be employed
by Employer, Employee shall not, directly or indirectly, engage in any venture,
enterprise, activity or business, passively or actively, as an owner,
consultant, adviser, participant, employee, agent or in any other capacity,
competitive with the business of Employer anywhere within the continental United
States. Employee acknowledges that the business of Employer is national in
scope, that one can effectively compete with such business from anywhere in the
continental United States, and that, therefore, such geographical area of
restriction is reasonable in the circumstances to protect Employer's trade
secrets and other legitimate business interests.
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11
Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Section 10
or 11 hereof, Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations and benefits which Employee
directly or indirectly has realized and realizes as a result of, growing out of
or in connection with any such violation or breach. In addition, in the event of
a breach or violation or threatened or imminent breach or violation of any
provisions of Section 10 or 11 hereof, Employer shall be entitled to a temporary
and permanent injunction or any other appropriate decree of specific performance
or equitable relief from a court of competent jurisdiction in order to prevent,
prohibit or restrain any such breach or violation or threatened or imminent
breach or violation by Employee, by Employee's partners, agents,
representatives, servants, employers or employees and/or by any Third Parties.
Employer shall be entitled to such injunctive or other equitable relief in
addition to any ascertainable damages which are suffered, together with
reasonable attorneys' and paralegals' fees and costs and other costs incurred in
connection with any such litigation, both before and at trial and at all
tribunal levels. It is understood that resort by Employer to such injunctive or
other equitable relief shall not be deemed to waive or to limit in any respect
any other rights or remedies which Employer may have with respect to such breach
or violation.
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13. REASONABLENESS OF RESTRICTIONS
A. REASONABLENESS. Employee acknowledges that any breach or
violation of Section 10 or 11 hereof will cause irreparable injury and damage
and incalculable harm to Employer and that it would be very difficult or
impossible to measure all of the damages resulting from any such breach or
violation. Employee further acknowledges that Employee has carefully read and
considered the provisions of Sections 10, 11 and 12 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including,
but not limited to, the time period, geographical and types of restrictions
imposed) are fair and reasonable and are reasonably required for the protection
of the business, trade secrets, interests and good will of Employer.
B. SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof
shall be construed as separate and divisible from every other provision and
restriction. In the event that any one of the provisions of, or restrictions in,
Sections 10, 11 and/or 12 hereof shall be held to be invalid or unenforceable,
and is not reformed by a court of competent jurisdiction (which a court, in lieu
of striking a provision entirely, is urged by the parties to do), the remaining
provisions thereof and restrictions therein shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable provisions or
restrictions had not been included. In the event that any such provision
relating to time period, geographical and/or type of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum or
permissible time period, geographical or type of restriction such court deems
reasonable and enforceable, said time period, geographical and/or type of
restriction shall be deemed to become and shall thereafter be the maximum time
period or geographical area and/or type of restriction which such court deems
reasonable and enforceable.
C. SURVIVABILITY. The restrictions, acknowledgments, covenants
and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this
Employment Agreement shall survive any termination of this Employment Agreement
or of Employee's employment (for any reason, including expiration of the
Employment Term).
D. DEFINITION OF EMPLOYER. For purposes of Sections 10, 11, 12
and 13 of this Employment Agreement, the term "Employer" includes the Employer
and any parent corporation of Employer and all direct and indirect subsidiaries
of Employer and its parent corporation (if any).
14. LAW APPLICABLE
This Employment Agreement shall be governed by and construed
pursuant to the laws of the State of Florida.
15. NOTICES
Any notices required or permitted to be given pursuant to this
Employment Agreement shall be sufficient if in writing, and delivered
personally, by commercial courier service or sent by certified mail, return
receipt requested, and sent to Employer's executive offices, to the
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attention of the President, if sent to Employer, and to Employee's then current
residence, if sent to Employee.
16. SUCCESSION
This Employment Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective legal representatives,
heirs, assignees and/or successors in interest of any kind whatever; PROVIDED,
HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or
delegate any of Employee's rights, duties, responsibilities or obligations
hereunder to any other person or entity. Employer shall have the right to assign
its rights and delegate its duties under this Employment Agreement.
17. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire final
agreement between the parties with respect to, and supersedes any and all prior
and contemporaneous agreements between the parties hereto both oral and written
concerning, the subject matter hereof and may not be amended, modified or
terminated except by a writing signed by the parties hereto.
18. SEVERABILITY
If any provision of this Employment Agreement shall be held to
be invalid or unenforceable, and is not reformed by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision and shall not in any way affect or render invalid or unenforceable any
other provision of this Employment Agreement, and this Employment Agreement
shall be carried out as if such invalid or unenforceable provision were not
herein contained.
19. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant herein contained shall not be deemed a continuing waiver or a waiver of
any future or past breach or violation. No oral waiver shall be binding.
20. ATTORNEYS' FEES
In the event that either of the parties to this Employment
Agreement institutes suit against the other party to this Employment Agreement
to enforce or declare any of their respective rights hereunder, the prevailing
party in such action shall be entitled to recover from the other party all
reasonable costs thereof, including reasonable attorneys' and paralegals' fees
and costs incurred before and at trial and at all tribunal levels, and whether
or not suit or any other proceeding is instituted.
9
<PAGE> 10
21. COUNTERPARTS
This Employment Agreement may be executed in counterparts,
each of which shall be an original, but both of which together shall constitute
one and the same instrument.
22. INDEPENDENT COUNSEL
EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN
INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT
AGREEMENT BEFORE EMPLOYEE SIGNS IT.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the day and year first above written.
EMPLOYER:
PRECISION RESPONSE CORPORATION, a Florida
corporation
By: /s/ DAVID EPSTEIN
--------------------------------------
David Epstein, Chief Executive Officer
EMPLOYEE:
/s/ THOMAS F. JENNINGS, JR.
------------------------------------------
THOMAS F. JENNINGS, JR.
10
<PAGE> 11
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment") dated and
effective as of JANUARY 13, 2000, by and between Precision Response Corporation,
a corporation organized and existing under the laws of the State of Florida
(hereinafter referred to as "Employer"), and Thomas F. Jennings, Jr. hereinafter
referred to as ("Employee").
W I T N E S S E T H
WHEREAS, Employer currently employs Employee pursuant to an Employment
Agreement dated November 15, 1999 by and between Employer and Employee; and
WHEREAS, Employer and Employee desire to amend the Employment Agreement
as set forth herein.
NOW THEREFORE, the parties agree that the Employment Agreement shall be
amended as of and after the date hereof as follows:
Section 9 is hereby amended by the addition of the following
Subsection G:
G. EXCISE TAX TREATMENT. If any of the payments or benefits to be
received by Employee in connection with a Change in Control (as defined in
Subsection 9E.) pursuant to the terms of this agreement or any other plan,
arrangement or agreement (such payments or benefits the "Total Payments") will
be subject to any excise tax imposed by Section 4999 of the Internal Revenue of
1986, as amended (the "Code"), then, after taking into account any reduction in
the Total Payments provided by Section 280G of the Code in such other plan,
arrangement or agreement, the payments made pursuant to Subsection 9E. of this
Employment Agreement shall be reduced to the extent necessary so that no portion
of the Total Payments is subject to the excise tax but only if (i) the net
amount of such Total Payments, as so reduced (and after subtracting the net
amount of federal, state and local income taxes on such reduced Total Payments)
is greater than or equal to (ii) the net amount of such Total Payments without
such reduction (but after subtracting the net amount of federal, state and local
income taxes on such Total Payments and the amount of excise tax to which the
Employee would be subject in respect of such unreduced Total Payments).
<PAGE> 12
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
duly executed as of the day and year first above written.
PRECISION RESPONSE CORPORATION
BY: /s/ RICHARD D. MONDRE
--------------------------------
Exec. Vice Pres.
/s/ THOMAS F. JENNINGS, JR.
--------------------------------
Thomas F. Jennings, Jr.
2
<PAGE> 1
EXHIBIT 10.60
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, executed as of October 1, 1999, by and between
PRECISION RESPONSE CORPORATION, a corporation organized and existing under the
laws of the State of Florida (hereinafter referred to as "Employer"), and FRANK
MODRAK (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, Employer is a Florida corporation engaged in interactive
customer care, service and marketing through the integration of its
teleservicing, Internet, database management and marketing and fulfillment
business;
WHEREAS, Employer desires to continue to employ Employee upon the terms
and conditions set forth below and Employee desires to accept such continued
employment upon such terms and conditions; and
WHEREAS, Employer and Employee desire to set forth in writing the terms
and conditions of their agreements and understandings with respect to Employee's
employment by Employer.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT
Employer hereby employs Employee, and Employee hereby accepts
employment by Employer, upon the terms and conditions set forth in this
Employment Agreement.
2. TERM
Subject to the provisions for earlier termination set forth in
Section 9 hereof, this Employment Agreement shall commence on the date hereof
and shall continue until 5:00, p.m., December 31, 2000 (the "Employment Term").
3. EMPLOYEE'S REPRESENTATIONS AND WARRANTIES
Employee represents and warrants to Employer that Employee is
free to accept employment with Employer as contemplated herein and has no other
written or oral obligations or commitments of any kind or nature which would in
any way interfere with Employee's acceptance of employment pursuant to the terms
hereof or the full performance of Employee's obligations hereunder or the
exercise of Employee's best efforts in Employee's employment hereunder or which
would otherwise pose any conflict of interest.
<PAGE> 2
4. DUTIES AND EXTENT OF SERVICES
A. DUTIES. Employee's duties and responsibilities hereunder
shall be those reasonably assigned to Employee from time to time by Employer,
consistent with the following: Employee shall, unless and until otherwise
determined by Employer, serve as Employer's Senior Vice President - Sales, and
shall, subject to the direction of Employer's President, have responsibility to
oversee and supervise all activities relating to Employer's sales department.
Employee shall report directly to either Employer's Chief Executive Officer or
President. Employee agrees to devote Employee's full and exclusive time, skill,
attention and energy diligently and competently to perform the duties and
responsibilities properly assigned to Employee hereunder, or pursuant hereto.
B. RULES AND REGULATIONS. Employee agrees to abide by the
rules and regulations of Employer promulgated by Employer from time to time with
respect and applicable to Employer's similarly-situated employees generally,
which are all hereby incorporated by reference and made a part of this
Employment Agreement, provided such rules and regulations do not abrogate any of
the terms and condition contained within this Employment Agreement.
5. COMPENSATION
A. BASE COMPENSATION. Subject to the provisions of Section 9
of this Employment Agreement, Employer shall pay salary to Employee ("Salary")
based upon the rate of $175,000 per annum from the date hereof until December
31, 1999, at which time Employer's President shall review Employee's Salary.
Employer may decide, in its sole discretion, to increase (but not to decrease)
the Salary at that time or at any time during the Employment Term. Salary shall
be payable in accordance with Employer's normal payroll practices for its
employees and shall be subject to payroll deductions and tax withholdings in
accordance with Employer's usual practices and as required by law.
B. BONUS COMPENSATION. Employee shall receive bonus
compensation in amounts consistent with the terms and conditions of that certain
memorandum dated April 21, 1999, from Employee to the President of Employer and
agreed to by Employee and Employer's President (individually a "Bonus Amount").
The Bonus Amount, if any, earned in any calendar quarter shall be paid to
Employee within thirty (30) days after Employer files its Quarterly Report on
Form 10-Q with the Securities and Exchange Commission for such quarter during
which the Bonus Amount was earned. Each Bonus Amount shall be subject to payroll
deductions and tax withholdings
2
<PAGE> 3
in accordance with Employer's usual payroll practices and as
required by law.
6. FRINGE BENEFITS AND EXPENSES
A. EMPLOYEE BENEFITS. Employee shall be entitled to such
benefits and fringe benefits (such as health, dental, life and disability
insurance) as are made available by Employer from time to time, in Employer's
sole discretion, to all other similarly-situated employees generally.
B. EXPENSES. Employer shall reimburse Employee for Employee's
reasonable out-of-pocket costs and expenses incurred in connection with the
performance of Employee's duties and responsibilities hereunder, subject to
Employee's presentation of appropriate documentation and, if requested,
justification therefor, and provided that the types and amounts of expenses
incurred are consistent with, in Employer's judgment, Employer's policies and
practices.
C. AUTOMOBILE. Employer shall provide to Employee an
automobile allowance of $500 per month during the Employment Term in order to
defray Employee's automobile expenses incurred in the performance of Employee's
duties, but shall not be obligated to provide Employee with an automobile.
7. VACATION, PERSONAL AND SICK DAYS
Employee shall be entitled to 30 days of paid time off ("PTO")
for vacation, personal and sick days each full calendar year of the Employment
Term (prorated for any partial calendar year), with full compensation (provided,
however, that Employee shall not be entitled to be compensated for any unused
PTO days upon termination of employment). The PTO days are exclusive of any
Employer recognized holidays. The periods during which Employee shall be absent
from work for vacation shall be at the reasonable discretion of Employer.
8. FACILITIES
Employer shall provide and maintain (or cause to be provided
and maintained) such facilities, equipment, supplies and personnel as it
reasonably deems necessary for Employee's performance of Employee's duties and
responsibilities under this Employment Agreement.
3
<PAGE> 4
9. TERMINATION OF EMPLOYMENT
A. TERMINATION EVENTS. Employee's employment under this
Employment Agreement may be terminated by Employer only as follows: with or
without Cause (as hereinafter defined), effective upon the delivery of written
notice to Employee; upon Employee's death; or upon Employee becoming Disabled
(as hereinafter defined) and receiving written notice of termination from
Employer to that effect. Employee may terminate Employee's employment under this
Employment Agreement without being in breach hereunder by giving written
notification of Employee's resignation to Employer which shall specify a
resignation date no earlier than forty-five (45) days following the date of
delivery of such notice of resignation.
B. DEFINITIONS OF CAUSE AND DISABLED. For purposes of this
Employment Agreement, "Cause" shall mean and include: (i) commission of a
felony, or commission of acts of fraud, dishonesty, or the like; (ii) habitual
drunkenness during business hours or at Employer's premises; (iii) illicit use
of drugs during business hours or at Employer's premises; (iv) abandonment of
employment duties; (v) gross negligence in the performance of employment duties;
(vi) an act or omission on the part of Employee not directed by Employer which
results in or contributes to Employer being sanctioned or penalized by any
governmental or quasi-governmental authority or body, or any stock exchange or
body regulating or governing publicly-traded companies (including the NASD);
(vii) insubordination (after at least two (2) prior notices of such conduct; or
(viii) breach by Employee of this Employment Agreement which, if curable, is not
cured by Employee within thirty (30) days following Employee's receipt of
written notice thereof. Employee shall be deemed "Disabled" for purposes of this
Agreement (a) if, in the reasonable judgment of Employer, Employee is unable,
due to physical, mental or emotional illness or injury, to perform substantially
all of Employee's duties and responsibilities for Employer for a continuous
period of ninety (90) days, or (b) if Employee is adjudicated as an incompetent
or has a guardian appointed to handle Employee's affairs.
C. EFFECT OF TERMINATION FOR CAUSE OR EMPLOYEE'S RESIGNATION.
In the event that Employee's employment under this Employment Agreement is
terminated by Employer with Cause, or because Employee resigns from or quits
Employee's employment, Employer shall pay to Employee, within thirty (30) days
following the date of such termination or resignation, subject to Employer's
right to set off any damages resulting from Employee's termination with Cause or
resignation effected without giving the required notice, the Salary, if any,
accrued and unpaid through the date of termination, and shall pay and provide to
Employee the amounts and items payable and to be provided under Section 6
through the date
4
<PAGE> 5
of such termination; and Employee shall not be entitled to any other
compensation, remuneration or other sums provided for in this Employment
Agreement or to which Employee might otherwise be entitled hereunder or at law
or in equity, including, without limitation, any accrued or unpaid Bonus Amount.
D. COMPENSATION UPON DEATH OR DISABILITY. Upon the death of
Employee, or termination of employment because Employee is Disabled, Employer
shall pay to Employee, Employee's legal guardian or the legal representative of
Employee's estate (or heir as designated by the legal representative of
Employee's estate at such time), within thirty (30) days following the date of
Employee's death or termination, the Salary accrued and unpaid through the date
of termination and Bonus Amount(if any) earned, accrued and unpaid for any
calendar quarter ending prior to the date of termination and shall pay and
provide to Employee, Employee's legal guardian or the legal representative of
Employee's estate the amounts and items payable and to be provided under Section
6 through the date of such termination; and Employee (or such legal guardian,
legal representative or any heirs) shall not be entitled to any other
compensation, remuneration or other sums provided for in this Employment
Agreement or to which Employee might otherwise be entitled hereunder or at law
or in equity.
E. COMPENSATION UPON ANY TERMINATION WITHOUT CAUSE,
SIGNIFICANT CHANGE IN SCOPE OF JOB RESPONSIBILITIES OR RESIGNATION AFTER A
CHANGE IN CONTROL. Notwithstanding anything in Subsection C. of this Section 9
to the contrary, in the event that Employer terminates Employee's employment
under this Employment Agreement without Cause at any time or Employee resigns or
quits Employer's employment within ninety (90) days of a significant change in
the scope of Employee's job responsibilities or Employee resigns or quits
Employer's employment within ninety (90) days after a Change of Control (as
hereinafter defined), Employee's sole and exclusive compensation and remedy
hereunder shall be to receive from Employer, and Employer shall pay and/or
provide, (i) the amount of Salary accrued and unpaid through the date of
termination or resignation and Bonus Amount, if any, earned, accrued and unpaid
for any calendar quarter ending prior to the date of termination or resignation
and the amounts and items payable or to be provided under Section 6 through the
date of termination or resignation, payable within thirty (30) days following
termination or resignation of employment, and (ii) the Salary that Employee
would have received during the one year period following the date of termination
or resignation of Employee's employment, as and when it would have been payable
if Employee had remained an employee of Employer for such additional one year
period. Employee shall not be entitled to the foregoing severance to the extent
that Employee receives or is entitled to receive compensation and/or benefits
5
<PAGE> 6
from new employment with respect to employment services rendered during such one
year period. For purposes of this Subsection E., a "Change in Control" means
that (1) neither Mark Gordon (for these purposes, counting all common stock
directly or indirectly beneficially owned by Mark Gordon's Affiliates) nor David
Epstein (for these purposes, counting all common stock directly or indirectly
beneficially owned by David Epstein's Affiliates) beneficially owns at least 10%
of the issued and outstanding common stock of Employer or its successor, (2)
neither Mark Gordon (for these purposes, counting all common stock directly or
indirectly beneficially owned by Mark Gordon's Affiliates) nor David Epstein
(for these purposes, counting all common stock directly or indirectly
beneficially owned by David Epstein's Affiliates) is the stockholder
beneficially owning the highest number of issued and outstanding shares of
common stock of Employer or its successor, or (3) neither Mark Gordon nor David
Epstein occupies the position of Chairman of the Board, Chief Executive Officer
or President of Employer. "Affiliate" means, for these purposes, with respect to
Mark Gordon or David Epstein, an immediate family member of his, a trust
principally for his benefit and/or the benefit of his family members and/or
lineal descendants, or a family limited partnership or any other entity the
direct or indirect beneficial or pecuniary owners of which are principally him,
his immediate family members and/or trusts or other entities principally for the
benefit of him, his family members and/or lineal descendants. "Immediate family
members" mean for these purposes, with respect to Mark Gordon or David Epstein,
his spouse, children, parents, siblings or other lineal descendants."
F. KEY-MAN INSURANCE. In the event that Employer has obtained
or obtains a key-man insurance policy (the "Policy") on the life of Employee,
Employer shall be the sole owner thereof and all proceeds payable in respect
thereof shall be the property solely of Employer. In the event that Employee's
employment terminates for any reason other than Employee's death, Employee may
request that the Policy be assigned to Employee by giving written notice to
Employer to that effect. Subject to obtaining any requisite consent from the
insurer, Employer shall, if Employee has so requested, assign the Policy to
Employee subject to Employee's reimbursement to Employer of any premiums paid by
Employer which relate to any period following the date of termination of
Employee's employment, and the cash value, if any, of the Policy. In the event
that Employer desires to obtain any such Policy, Employee shall fully cooperate
in Employer's efforts, including submitting to medical exams and tests and
executing and delivering applications and information statements.
6
<PAGE> 7
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
A. CONFIDENTIAL INFORMATION. Employee acknowledges that
Employee has been informed by Employer of Employer's policy to maintain as
secret and confidential all information and materials relating to (i) the
financial condition, operations, business and interests of Employer, (ii) the
systems, know-how, records, products, services, cost information, inventions,
computer and Internet software, marketing and sales techniques and/or programs,
methods, methodologies, manuals, lists and other trade secrets from time to time
acquired, sold, developed, maintained and/or used by Employer, and (iii) the
nature and terms of Employer's relationships with its clients, suppliers,
lenders, underwriters, vendors, consultants, independent contractors, attorneys,
accountants and employees (all such information and materials being hereinafter
collectively referred to as "Confidential Information"). Employee further
acknowledges that such Confidential Information is of great value to Employer
and has been developed by Employer as a result of substantial effort and
expense. Therefore, Employee understands that it is reasonably necessary to
protect Employer's good will, trade secrets and business interests that Employee
agree and, accordingly, Employee does hereby agree, that Employee will not
directly or indirectly (except where authorized by the Board of Directors,
Chairman of the Board, Chief Executive Officer or President of Employer for the
benefit of Employer and/or as required in the course of employment) at any time
hereafter divulge or disclose for any purpose to any persons, firms,
corporations or other entities (hereinafter referred to collectively as "Third
Parties"), or use or cause or authorize any Third Parties to use, any such
Confidential Information, except as otherwise required by law.
B. EMPLOYER'S MATERIALS. In accordance with the foregoing,
Employee furthermore agrees that (i) Employee will at no time retain or remove
from the premises of Employer any products, prototypes, drawings, notebooks,
computer or Internet software or discs, tapes or similar containers of software,
manuals, data, books, records, materials or documents of any kind or description
for any purpose unconnected with the strict performance of Employee's duties
with Employer and (ii) upon the cessation or termination of Employee's
employment with Employer for any reason, Employee shall forthwith deliver or
cause to be delivered up to Employer any and all drawings, notebooks, software
programs or discs, tapes or similar containers of software, manuals, data,
books, records, materials and other documents and materials in Employee's
possession or under Employee's control relating to any Confidential Information
or any other material or thing which is the property of Employer.
7
<PAGE> 8
11. COVENANT-NOT-TO-COMPETE
In view of (a) the Confidential Information known to and to be
obtained by or disclosed to Employee, and (b) the consideration payable to
Employee under this Employment Agreement, and as a material inducement to
Employer to enter into this Employment Agreement, Employee covenants and agrees
that, (i) for as long as Employee is employed by Employer and for a period of 24
months after the date Employee ceases for any reason to be employed by Employer,
Employee shall not, directly or indirectly, (A) sell any products or services
sold or offered by Employer to any person or entity who is or was a client of
Employer at any time during Employee's employment with Employer and for or to
whom Employer is performing services or selling products or for or to whom
Employer has performed services or sold products at any time during the one-year
period ending on Employee's termination of employment, or (B) solicit the
services of, or hire, directly or indirectly, whether on Employee's own behalf
or on behalf of others, any managerial or executive employee, account manager or
marketing or sales personnel, programmer, information services employee
(including, without limitation, network or other information services or
Internet operation employee) or database management employee of Employer who was
or is employed by Employer at any time during the two-year period ending on the
date of termination of Employee's employment or the two-year period commencing
on the date of termination of Employee's employment, or (ii) for as long as
Employee is employed by Employer and for a period of 12 months after the date
Employee ceases for any reason to be employed by Employer, Employee shall not,
directly or indirectly, engage in any venture, enterprise, activity or business,
passively or actively, as an owner, consultant, adviser, participant, employee
or agent or in any other capacity, competitive with the business of Employer
anywhere within the continental United States. Employee acknowledges that the
business of Employer is national in scope, that one can effectively compete with
such business from anywhere in the continental United States, and that,
therefore, such geographical area of restriction is reasonable in the
circumstances to protect Employer's trade secrets and other legitimate business
interests.
12. EMPLOYER'S REMEDIES FOR BREACH OF SECTIONS 10 AND 11
Employee covenants and agrees that if Employee shall violate
or breach any of Employee's covenants or agreements provided for in Section 10
or 11 hereof, Employer shall be entitled to an accounting and repayment of all
profits, compensation, commissions, remunerations and benefits which Employee
directly or indirectly has realized and realizes as a result of, growing out of
or in connection with any such violation or breach. In addition,
8
<PAGE> 9
in the event of a breach or violation or threatened or imminent breach or
violation of any provisions of Section 10 or 11 hereof, Employer shall be
entitled to a temporary and permanent injunction or any other appropriate decree
of specific performance or equitable relief from a court of competent
jurisdiction, applying the laws of the State of Florida, in order to prevent,
prohibit or restrain any such breach or violation or threatened or imminent
breach or violation by Employee, by Employee's partners, agents,
representatives, servants, employers or employees and/or by any Third Parties.
Employer shall be entitled to such injunctive or other equitable relief in
addition to any ascertainable damages which are suffered, together with
reasonable attorneys' and paralegals' fees and costs and other costs incurred in
connection with any such litigation, both before and at trial and at all
tribunal levels. It is understood that resort by Employer to such injunctive or
other equitable relief shall not be deemed to waive or to limit in any respect
any other rights or remedies which Employer may have with respect to such breach
or violation.
13. REASONABLENESS OF RESTRICTIONS
A. REASONABLENESS. Employee acknowledges that any breach or
violation of Section 10 or 11 hereof will cause irreparable injury and damage
and incalculable harm to Employer and that it would be very difficult or
impossible to measure all of the damages resulting from any such breach or
violation. Employee further acknowledges that Employee has carefully read and
considered the provisions of Sections 10, 11 and 12 hereof and, having done so,
agrees that the restrictions and remedies set forth in such Sections (including,
but not limited to, the time period, geographical and types of restrictions
imposed) are fair and reasonable and are reasonably required for the protection
of the business, trade secrets, interests and good will of Employer.
B. SEVERABILITY. Employee understands and intends that each
provision and restriction agreed to by Employee in Sections 10, 11 and 12 hereof
shall be construed as separate and divisible from every other provision and
restriction. In the event that any one of the provisions of, or restrictions in,
Sections 10, 11 and/or 12 hereof shall be held to be invalid or unenforceable,
and is not reformed by a court of competent jurisdiction (which a court, in lieu
of striking a provision entirely, is urged by the parties to do), the remaining
provisions thereof and restrictions therein shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable provisions or
restrictions had not been included. In the event that any such provision
relating to time period, geographical and/or type of restriction shall be
declared by a court of competent jurisdiction to exceed the maximum or
permissible time period, geographical or type of restriction
9
<PAGE> 10
such court deems reasonable and enforceable, said time period, geographical
and/or type of restriction shall be deemed to become and shall thereafter be the
maximum time period or geographical area and/or type of restriction which such
court deems reasonable and enforceable.
C. SURVIVABILITY. The restrictions, acknowledgments, covenants
and agreements of Employee set forth in Sections 10, 11, 12 and 13 of this
Employment Agreement shall survive any termination of this Employment Agreement
or of Employee's employment (for any reason, including expiration of the
Employment Term).
14. LAW APPLICABLE
This Employment Agreement shall be governed by and construed
pursuant to the laws of the State of Florida.
15. NOTICES
Any notices required or permitted to be given pursuant to this
Employment Agreement shall be sufficient if in writing, and delivered
personally, by commercial courier service or sent by certified mail, return
receipt requested, and sent to Employer's executive offices, to the attention of
the President, to Employer, and to Employee's then current residence, if to
Employee.
16. SUCCESSION
This Employment Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective legal representatives,
heirs, assignees and/or successors in interest of any kind whatever; PROVIDED,
HOWEVER, that Employee acknowledges and agrees that Employee cannot assign or
delegate any of Employee's rights, duties, responsibilities or obligations
hereunder to any other person or entity. Employer shall have the right to assign
its rights and delegate its duties under this Employment Agreement, provided
that, in the event of any such assignment, Employer shall remain liable for all
of its obligations hereunder.
17. ENTIRE AGREEMENT
This Employment Agreement constitutes the entire final
agreement between the parties with respect to, and supersedes any and all prior
and contemporaneous agreements between the parties hereto both oral and written
concerning, the subject matter hereof and may not be amended, modified or
terminated except by a writing signed by the parties hereto.
10
<PAGE> 11
18. SEVERABILITY
If any provision of this Employment Agreement shall be held to
be invalid or unenforceable, and is not reformed by a court of competent
jurisdiction, such invalidity or unenforceability shall attach only to such
provision and shall not in any way affect or render invalid or unenforceable any
other provision of this Employment Agreement, and this Employment Agreement
shall be carried out as if such invalid or unenforceable provision were not
herein contained.
19. NO WAIVER
A waiver of any breach or violation of any term, provision or
covenant herein contained shall not be deemed a continuing waiver or a waiver of
any future or past breach or violation. No oral waiver shall be binding.
20. ATTORNEYS' FEES
In the event that either of the parties to this Employment
Agreement institutes suit against the other party to this Employment Agreement
to enforce or declare any of their respective rights hereunder, the prevailing
party in such action shall be entitled to recover from the other party all
reasonable costs thereof, including reasonable attorneys' and paralegals' fees
and costs incurred before and at trial and at all tribunal levels, and whether
or not suit or any other proceeding is instituted.
21. COUNTERPARTS
This Employment Agreement may be executed in counterparts,
each of which shall be an original, but both of which together shall constitute
one and the same instrument.
22. INDEPENDENT COUNSEL
EMPLOYER STRONGLY RECOMMENDS TO EMPLOYEE THAT EMPLOYEE RETAIN
INDEPENDENT LEGAL COUNSEL TO ADVISE EMPLOYEE WITH RESPECT TO THIS EMPLOYMENT
AGREEMENT BEFORE EMPLOYEE SIGNS IT.
11
<PAGE> 12
IN WITNESS WHEREOF, the undersigned have hereunto set their hands on
the day and year first above written.
EMPLOYER:
PRECISION RESPONSE CORPORATION, a
Florida corporation
By: /s/ DAVID EPSTEIN
-----------------------------------
David Epstein
Chief Executive Officer
EMPLOYEE:
/s/ FRANK MODRAK 11/17/99
-----------------------------------
FRANK MODRAK
12
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File No. 333-19651) of Precision Response Corporation of
our report dated January 26, 2000 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Miami, Florida
February 18, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,067
<SECURITIES> 0
<RECEIVABLES> 48,584
<ALLOWANCES> 2,411
<INVENTORY> 0
<CURRENT-ASSETS> 54,976
<PP&E> 133,711
<DEPRECIATION> 45,602
<TOTAL-ASSETS> 149,363
<CURRENT-LIABILITIES> 33,688
<BONDS> 23,425
0
0
<COMMON> 218
<OTHER-SE> 90,065
<TOTAL-LIABILITY-AND-EQUITY> 149,363
<SALES> 0
<TOTAL-REVENUES> 215,920
<CGS> 0
<TOTAL-COSTS> 177,668
<OTHER-EXPENSES> 20,856
<LOSS-PROVISION> 2,393
<INTEREST-EXPENSE> 1,121
<INCOME-PRETAX> 13,882
<INCOME-TAX> 5,591
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,291
<EPS-BASIC> 0.38
<EPS-DILUTED> 0.37
</TABLE>
