<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: SEPTEMBER 30, 1999
OR
[ ] 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 0-21055
TELETECH HOLDINGS, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1291044
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1700 LINCOLN STREET, SUITE 1400
DENVER, COLORADO 80203
(Address of principal (Zip Code)
executive office)
(303) 894-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock November 2, 1999
Common Stock, par value $.01 per share 61,380,428
<PAGE>
TELETECH HOLDINGS, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets--December 31, 1998 and September 30, 1999 3
Condensed consolidated statements of income--Three months ended September 30,
1999 and 1998 5
Condensed consolidated statements of income--Nine months ended September 30,
1999 and 1998 6
Condensed consolidated statements of cash flows--Nine months ended
September 30, 1999 and 1998 7
Notes to condensed consolidated financial statements--September 30, 1999 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
PART II . OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 5. Recent Developments 19
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 21
</TABLE>
<PAGE>
Item 1.
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,796 $ 20,254
Short-term investments 37,082 37,273
Accounts receivable, net of allowance for doubtful
accounts of $2,900 and $3,448, respectively 68,830 77,014
Prepaids and other assets 2,811 4,350
Deferred tax asset 3,855 4,201
-------- --------
Total current assets 121,374 143,092
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $38,432 and $56,479, respectively 77,546 100,764
-------- --------
OTHER ASSETS:
Long-term accounts receivable 4,274 4,232
Goodwill, net of accumulated amortization
of $1,599 and $2,692, respectively 15,022 19,372
Contract acquisition cost, net of accumulated
amortization of zero and $1,158, respectively 10,900 9,740
Other assets 1,794 2,786
-------- --------
Total assets $230,910 $279,986
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
3
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 7,989 $ 6,634
Bank overdraft 778 1,085
Accounts payable 11,814 6,072
Accrued employee compensation 18,134 25,584
Accrued income taxes 4,191 2,855
Other accrued expenses 11,520 16,013
Customer advances, deposits and deferred income 3,803 4,309
-------- --------
Total current liabilities 58,229 62,552
-------- --------
DEFERRED TAX LIABILITIES 835 1,026
-------- --------
LONG-TERM DEBT, net of current portion:
Capital lease obligations 4,208 1,961
Line of credit -- 22,000
Other debt 2,145 808
-------- --------
Total liabilities 65,417 88,347
-------- --------
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value; 150,000,000 shares
authorized; 60,769,724 and 61,361,982 shares,
respectively, issued and outstanding 606 612
Additional paid-in capital 111,080 115,140
Accumulated other comprehensive income (1,610) (627)
Retained earnings 55,417 76,514
-------- --------
Total stockholders' equity 165,493 191,639
-------- --------
Total liabilities and stockholders' equity $230,910 $279,986
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
4
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1999
------------ ----------
<S> <C> <C>
REVENUES $ 92,366 $126,131
-------- --------
OPERATING EXPENSES:
Costs of services 59,143 83,869
Selling, general and administrative
Expenses 25,085 31,274
-------- --------
Total operating expenses 84,228 115,143
-------- --------
INCOME FROM OPERATIONS 8,138 10,988
OTHER INCOME (EXPENSE):
Interest expense (413) (567)
Interest income 725 488
Equity in income of affiliate (16) --
Business combination expenses (440) --
Gain on settlement of long-term contract -- 6,726
Other (220) 334
-------- --------
(364) 6,981
-------- --------
INCOME BEFORE INCOME TAXES 7,774 17,969
Provision for income taxes 3,059 7,138
-------- --------
NET INCOME $ 4,715 $ 10,831
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 60,234 61,247
======== ========
Diluted 62,040 63,280
======== ========
NET INCOME PER SHARE
Basic $ .08 $ .18
======== ========
Diluted $ .08 $ .17
======== ========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements
5
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1999
------------ ----------
<S> <C> <C>
REVENUES $ 260,709 $ 357,334
--------- ---------
OPERATING EXPENSES:
Costs of services 168,294 238,072
Selling, general and administrative
Expenses 69,505 91,243
--------- ---------
Total operating expenses 237,799 329,315
--------- ---------
INCOME FROM OPERATIONS 22,910 28,019
OTHER INCOME (EXPENSE):
Interest expense (946) (1,460)
Interest income 2,444 1,690
Equity in income of affiliate 70 --
Business combination expenses (1,321) --
Gain on settlement of long-term contract -- 6,726
Other (371) 229
--------- ---------
(124) 7,185
--------- ---------
INCOME BEFORE INCOME TAXES 22,786 35,204
Provision for income taxes 9,055 14,108
--------- ---------
NET INCOME $ 13,731 $ 21,096
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 59,784 61,037
========= =========
Diluted 62,026 62,607
========= =========
NET INCOME PER SHARE
Basic $ .23 $ .35
========= =========
Diluted $ .22 $ .34
========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements
6
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1998 1999
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,731 $ 21,096
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 13,935 21,012
Allowance for doubtful accounts 387 463
Deferred income taxes (176) (355)
Equity in income of affiliate 981 --
Deferred compensation expense 95 --
Changes in assets and liabilities:
Accounts receivable (8,458) (7,587)
Prepaids and other assets (1,237) (618)
Accounts payable and accrued expenses 6,662 3,998
Customer advances, deposits and deferred income (355) 120
--------- ---------
Net cash provided by operating activities 25,565 38,129
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (23,939) (39,983)
Purchase of Intellisystems (2,000) --
Purchase of Pamet River, net of $339 cash acquired -- (1,462)
Purchase of Smart Call -- (2,590)
Contract acquisition costs (10,900) --
Changes in accounts payable and accrued liabilities
related to investing activities (781) (55)
(Increase) decrease in short-term investments 13,790 (191)
--------- ---------
Net cash used in investing activities (23,830) (44,281)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings 1,549 307
Net increase in line of credit -- 22,000
Cash received in acquisition 276 --
Payments on long-term debt and capital leases (1,908) (4,991)
Proceeds from exercise of stock options 2,302 2,313
--------- ---------
Net cash provided by financing activities 2,219 19,629
--------- ---------
Effect of exchange rate changes on cash (1) (2,019)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,953 11,458
CASH AND CASH EQUIVALENTS, beginning of period 7,338 8,796
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 11,291 $ 20,254
========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
7
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE (1)--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. The condensed
consolidated financial statements reflect all adjustments (consisting of only
normal recurring accruals) which, in the opinion of management, are necessary
to present fairly the financial position, results of operations and cash
flows of TeleTech Holdings, Inc. and subsidiaries (the "Company") as of
September 30, 1999 and 1998 and for the periods then ended. Operating results
for the three and nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1999.
The unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated and combined financial statements
and footnotes thereto included in the Company's Form 10-K for the year ended
December 31, 1998.
NOTE (2)-- SEGMENT INFORMATION AND CUSTOMER CONCENTRATIONS
The Company classified its business activities into four fundamental
areas: outsourced operations in the United States, facilities management
operations, international outsourced operations, and technology services and
consulting. These areas are separately managed and each has significant
differences in capital requirements and cost structures. Outsourced,
facilities management and international outsourced operations are reportable
business segments with their respective financial performance detailed
herein. Technology services and consulting is included in corporate
activities as it is not a material business segment. Also included in
corporate activities are general corporate expenses and overall operational
management expenses. Assets of corporate activities include unallocated cash,
short-term investments and deferred income taxes. There are no significant
transactions between the reported segments for the periods presented. The
Company's three largest clients accounted for 51% of consolidated revenue for
the three months ended September 30, 1999 as compared to 49% for the three
months ended September 30, 1998. Due to the declines in operating income
caused largely by decreased capacity utilization in several of the Company's
North American shared customer interaction centers, these large clients'
contribution to the operating income of the Company has increased.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
(in thousands) 1998 1999
--------- ---------
<S> <C> <C>
REVENUES:
Outsourced $ 50,969 $ 74,369
Facilities Management 21,442 23,556
International Outsourced 17,775 23,434
Corporate Activities 2,180 4,772
--------- ---------
Total $ 92,366 $ 126,131
========= =========
INCOME (LOSS) FROM OPERATIONS:
Outsourced $ 11,739 $ 17,451
Facilities Management 2,961 1,118
International Outsourced 399 2,011
Corporate Activities (6,961) (9,592)
--------- ---------
Total $ 8,138 $ 10,988
========= =========
</TABLE>
8
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 - CONTINUED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
(in thousands) 1998 1999
--------- ---------
<S> <C> <C>
REVENUES:
Outsourced $ 140,382 $ 213,145
Facilities Management 61,032 64,289
International Outsourced 53,553 62,260
Corporate Activities 5,742 17,640
--------- ---------
Total $ 260,709 $ 357,334
========= =========
INCOME (LOSS) FROM OPERATIONS:
Outsourced $ 28,493 $ 48,007
Facilities Management 8,376 4,172
International Outsourced 3,949 3,144
Corporate Activities (17,908) (27,304)
--------- ---------
Total $ 22,910 $ 28,019
========= =========
</TABLE>
<TABLE>
<CAPTION>
BALANCE AS OF
----------------------------
DECEMBER 31 SEPTEMBER 30,
(in thousands) 1998 1999
----------- -------------
<S> <C> <C>
ASSETS:
Outsourced Assets $101,105 $124,515
Facilities Management Assets 18,121 15,653
International Outsourced Assets 57,567 66,106
Corporate Activities Assets 54,117 73,712
-------- --------
Total $230,910 $279,986
======== ========
GOODWILL (INCLUDED IN TOTAL ASSETS):
International Outsourced Goodwill, Net $ 6,803 $ 8,965
Corporate Activities Goodwill, Net 8,219 10,407
-------- --------
Total $ 15,022 $ 19,372
======== ========
</TABLE>
9
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 - CONTINUED
The following geographic data include revenues based on the location
the services are provided (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
REVENUES:
United States $ 70,443 $ 97,594
Australia 8,946 12,983
Canada 9,409 8,218
Rest of world 3,568 7,336
-------- --------
Total $ 92,366 $126,131
======== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
REVENUES:
United States $197,221 $280,248
Australia 26,672 36,930
Canada 26,789 24,622
Rest of world 10,027 15,534
-------- --------
Total $260,709 $357,334
======== ========
</TABLE>
NOTE (3)--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NONCASH
INVESTING AND FINANCING ACTIVITIES (IN THOUSANDS):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Cash paid for interest $ 946 $ 1,461
Cash paid for income taxes $ 5,641 $15,444
Noncash investing and financing activities:
Stock issued in purchase of Intellisystems $ 3,389 $ --
Stock issued in purchase of Pamet River, Inc. $ -- $ 1,753
</TABLE>
NOTE (4)--ACQUISITIONS
On March 18, 1999, the Company acquired 100% of the common stock of
Pamet River, Inc. ("Pamet") for approximately $1,821,000 in cash and 285,711
shares of common stock in the Company. Pamet is a global marketing company
offering end-to-end marketing solutions by leveraging Internet and database
technologies. The transaction has been accounted for as a purchase and
goodwill will be amortized using the straight-line method over 20 years. The
operations of Pamet for all periods prior to the acquisition are immaterial
to the results of the Company and, accordingly, no pro forma financial
information has been presented.
On March 31, 1999, the Company acquired 100% of the common stock of
Smart Call S.A. ("Smart Call") for approximately $2,350,000 in cash including
costs related to the acquisition. Smart Call is based in Buenos Aires,
Argentina and provides a wide range of customer management solutions to Latin
American and
10
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 - CONTINUED
multinational companies. The transaction has been accounted for as a purchase
and goodwill will be amortized using the straight-line method over 20 years.
The operations of Smart Call for all periods prior to the acquisition are
immaterial to the results of the Company and, accordingly, no pro forma
financial information has been presented.
As a part of the Smart Call acquisition, the Company paid $300,000,
including costs associated with the transaction, for the option to acquire
Connect S.A. ("Connect"), a sister company with additional customer service
and systems integration capabilities. The option has been accounted for as an
other asset. Refer to Note (6)--Subsequent Event for an update on this
acquisition.
NOTE (5)--COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). The purpose of SFAS 130 is to report a measure of all
changes in equity that result from recognized transactions and other economic
events of the period other than transactions with owners in their capacity as
owners. The only item of other comprehensive income reported by the Company
is the cumulative translation adjustment.
The Company's comprehensive income for the three and nine months
ended September 30, 1998 and 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
1998 1999
-------- --------
<S> <C> <C>
Net income for the period $ 4,715 $10,831
Change in cumulative translation adjustment (191) 307
------- -------
Comprehensive income $ 4,524 $11,138
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1999
-------- --------
<S> <C> <C>
Net income for the period $ 13,731 $ 21,096
Change in cumulative translation adjustment (758) 983
-------- --------
Comprehensive income $ 12,973 $ 22,079
======== ========
</TABLE>
NOTE (6)--SUBSEQUENT EVENT
On October 12, 1999, the Company acquired 100% of the common stock
of Connect (See "Note (4)--Acquisitions" above) for approximately $2,300,000
in cash including costs related to the acquisition. The former owners of
Connect will also be entitled to an earn-out premium based on the results of
the Company's consolidated operations in Argentina in 2000. Connect is
located in Buenos Aires, Argentina and provides customer relationship
management solutions, as well as help desk, systems integration and
information technology solutions to Latin American and multinational
companies in a variety of industries. The transaction has been accounted for
as a purchase and goodwill will be amortized using the straight-line method
over 20 years. The operations of Connect for all periods prior to the
acquisition are immaterial to the results of the Company and, accordingly, no
pro forma financial information has been presented.
11
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
INTRODUCTION
Management's discussion and analysis of financial condition and
results of operations in this Form 10-Q should be read in conjunction with
the risk factors included in the Company's Form 10-K for the year ended
December 31, 1998. Specifically, the Company has experienced, and in the
future could experience, quarterly variations in revenues and earnings as a
result of a variety of factors, many of which are outside the Company's
control, including: the timing of new contracts; the timing of new product or
service offerings or modifications in client strategies; the expiration or
termination of existing contracts; the timing of increased expenses incurred
to obtain and support new business; the timing of increased expenses
resulting from addressing potential Year 2000 problems; and the seasonal
pattern of certain of the businesses serviced by the Company. In addition,
the Company has concentrated its marketing efforts towards obtaining larger,
more complex, strategic customer care programs. As a result, the time
required to negotiate and execute an agreement with the client has increased.
This may lead to short-term delays in the anticipated start-up of new client
programs and in the Company achieving full capacity utilization.
FORWARD-LOOKING STATEMENTS
All statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" or elsewhere in
this quarterly report that are not statements of historical fact are
forward-looking statements that involve substantial risks and uncertainties.
Forward-looking statements include, without limitation (i) the expectation
that selling, general, and administrative expenses will decline in periods of
significant revenue increases; (ii) the anticipated level of capital
expenditures for 1999; (iii) the Company's belief that existing cash,
available borrowings and cash from operations will be sufficient to finance
the Company's near term operations; (iv) the Company's estimate of the impact
of the Year 2000 issues; (v) the Company's belief that near-term interest
rate fluctuations will not result in a material effect on future earnings,
fair values or cash flows of the Company; (vi) the Company's belief that
foreign currency rate fluctuations may positively or negatively affect
revenues and net income attributable to the Company's foreign subsidiaries;
and (vii) statements relating to the Company or its operations that are
preceded by terms such as "anticipates", "expects," "believes," "intends,"
"will," "plans" and similar expressions.
The Company's actual results, performance or achievements may differ
materially from expectations implied by such forward-looking statements as a
result of various factors, including, without limitation, the following:
- agreements with its clients do not ensure that the Company will
generate a specific level of revenue and may be canceled by the
clients on short notice;
- amount of revenue the Company generates from a particular client
is dependent upon customers' interest in and use of the client's
products or services, some of which are recently introduced or
untested;
- loss of a significant client or the termination or completion of a
significant client program may have a material adverse effect on
the Company's capacity utilization and results of operations;
- there can be no assurance that the Company will be successful
in integrating acquired companies into the Company's existing
businesses or that any completed acquisition will enhance the
Company's business, results of operations or financial condition;
- certain risks inherent in conducting international business,
including without limitation exposure to currency fluctuations,
longer payment cycles and greater difficulties in accounts
receivable collection; and
- management's view of the most reasonably likely worst case Year
2000 scenario may be too optimistic.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 - CONTINUED
These cautionary statements should not be construed as an exhaustive list.
The Company cannot always predict what factors would cause actual results to
differ materially from those indicated by its forward-looking statements. All
cautionary statements should be read as being applicable to all
forward-looking statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Total consolidated revenues increased $33.8 million or 37% to $126.1
million for the three months ended September 30, 1999 from $92.4 million for
the three months ended September 30, 1998. Revenues from the Company's
Outsourced segment increased $23.4 million to $74.4 million for the three
months ended September 30, 1999 from $51.0 million for the three months ended
September 30, 1998. This revenue growth was derived as follows. This increase
resulted from $5.7 million in revenues from new client programs and $18.5
million in increased revenue from existing client programs. Contract
expirations and other client reductions offset a portion of these increases.
Revenues for the three months ended September 30, 1999 include $23.6 million
from the Facilities Management segment as compared with $21.4 million for the
three months ended September 30, 1998 due to increased client volumes.
Revenues from the Company's International Outsourced segment increased $5.7
million to $23.4 million for the three months ended September 30, 1999 from
$17.8 million for the three months ended September 30, 1998. This increase is
primarily due to increased revenue from existing clients in Australia and
Latin America offset by declines in revenue in Canada. Revenues from the
Corporate Activities segment (which includes technology-related revenues)
increased $2.6 million to $4.8 million for the three months ended September
30, 1999 from $2.2 million for the three months ended September 30, 1998.
This is primarily related to revenues from the Cygnus and Pamet River
acquisitions completed in the fourth quarter of 1998 and the first quarter of
1999, respectively.
Costs of services increased $24.7 million, or 42%, to $83.9 million
for the three months ended September 30, 1999 from $59.1 million for the
three months ended September 30, 1998. Costs of services as a percentage of
revenues increased from 64.0% for the three months ended September 30, 1998
to 66.5% for the three months ended September 30, 1999. This is primarily due
to gross margin declines resulting from the decreased revenue in the
Facilities Management segment. Also, increased revenues in several large
client programs as they matured through the start-up phase caused a change in
the revenue and service mix and resulted in cost of services as a higher
percentage of revenues.
Selling, general and administrative expenses increased $6.2 million,
or 25% to $31.3 million for the three months ended September 30, 1999 from
$25.1 million for the three months ended September 30, 1998. Selling, general
and administrative expenses as a percentage of revenues decreased from 27.2%
for the three months ended September 30, 1998 to 24.8% for the three months
ended September 30, 1999 due to significant cost containment measures.
As a result of the foregoing factors, income from operations
increased $2.9 million or 35%, to $11.0 million for the three months ended
September 30, 1999 from $8.1 million for the three months ended September 30,
1998. Operating income as a percentage of revenues decreased slightly from
8.8% for the three months ended September 30, 1998 to 8.7% for the three
months ended September 30, 1999. Income from operations from the Company's
Outsourced segment increased $5.7 million to $17.5 million for the three
months ended September 30, 1999 from $11.7 million for the three months ended
September 30, 1998. Income from operations as a percentage of revenue for the
outsourced segment increased from 23.0% for the three months ended September
30, 1998 to 23.5% for the three months ended September 30, 1999. This
increase resulted from significant increases in revenues in several large
client programs offset by excess capacity in several customer interaction
centers. Income from operations for the three months ended September 30, 1999
includes approximately $1.1 million from the Facilities Management segment as
compared with $3.0 million for the three
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 - CONTINUED
months ended September 30, 1998. Income from operations as a percentage of
revenue for the Facilities Management segment decreased from 13.8% for the
three months ended September 30, 1998 to 4.7% for the three months ended
September 30, 1999. This decrease resulted primarily from increased
healthcare costs in one of the Company's Facilities Management contracts and
decreased volumes in another Facilities Management contract. Income from
operations in the Company's International Outsourced segment increased $1.6
million to $2.0 million for the three months ended September 30, 1999 from
$399,000 for the three months ended September 30, 1998. Income from
operations as a percentage of revenue for the International Outsourced
segment increased from 2.2% for the three months ended September 30, 1998 to
8.6% for the three months ended September 30, 1999. This increase resulted
primarily from increased revenues in Australia and Latin America offset by
lower volumes in Canada. The operating loss from operations from the
Corporate Activities segment (which includes technology-related operations)
increased $2.6 million to $9.6 million for the three months ended September
30, 1999 from $7.0 million for the three months ended September 30, 1998.
This increase is primarily related to the increased expenses resulting from
the Company's significant growth over the period and the Company's increased
investment in technology. The Company's three largest clients accounted for
51% of the Company's revenues for the three months ended September 30, 1999.
Due to the declines in operating income caused largely by the capacity
utilization in several of the Company's North American shared customer
interaction centers, these large clients contribution to the operating income
of the Company has increased from prior periods.
Other income totaled $7.0 million for the three months ended
September 30, 1999 compared with a $364,000 loss during the three months
ended September 30, 1998. This is primarily related to a $6.7 million gain on
the settlement of a long-term contract (See "Part II. Other Information, Item
1. Legal Proceedings.") and a decrease in business combination expenses.
As a result of the foregoing factors, net income increased $6.1
million or 129.7%, to $10.8 million for the three months ended September 30,
1999 from $4.7 million for the three months ended September 30, 1998.
Exclusive of the impact of the one time gain on settlement of the long term
contract in 1999 and the business combination expenses in 1998, net income
increased $1.8 million or 36.0% from $5.0 million for the three months ended
September 30, 1998 to $6.8 million for the three months ended September 30,
1999.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
Revenues increased $96.6 million or 37% to $357.3 million for the
nine months ended September 30, 1999 from $260.7 million for the nine months
ended September 30, 1998. This revenue growth was derived as follows.
Revenues from the Company's Outsourced segment increased $72.8 million to
$213.1 million for the nine months ended September 30, 1999 from $140.4
million for the nine months ended September 30, 1998. This increase resulted
from $13.4 million in revenues from new client programs and $66.7 million in
increased revenue from existing client programs. Contract expirations and
other client reductions offset a portion of these increases. Revenues for the
nine months ended September 30, 1999 include $64.3 million from the
Facilities Management segment as compared with $61.0 million for the nine
months ended September 30, 1998. This increase is due to increased volumes in
one of the Company's facilities management contracts and lower volumes in
another contract. Revenues from the Company's International Outsourced
segment increased $8.7 million to $62.3 million for the nine months ended
September 30, 1999 from $53.6 million for the nine months ended September 30,
1998. This increase is primarily due to increased revenue from existing
clients in Australia and Latin America offset by declines in volumes in
Canada. Revenues from the Corporate Activities segment (which includes
technology-related revenues) increased $11.9 million to $17.6 million for the
nine months ended September 30, 1999 from $5.7 million for the nine months
ended September 30, 1998. This is primarily related to revenues from the
Cygnus and Pamet River acquisitions completed in the fourth quarter of 1998
and the first quarter of 1999, respectively.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 -- CONTINUED
Costs of services increased $69.8 million, or 42%, to $238.1
million for the nine months ended September 30, 1999 from $168.3 million for
the nine months ended September 30, 1998. Costs of services as a percentage
of revenues increased from 64.6% for the nine months ended September 30, 1998
to 66.6% for the nine months ended September 30, 1999. This is primarily a
result of increased revenues in several large client programs as they matured
through the start-up phase caused a change in the revenue and service mix and
resulted in cost of services as a higher percentage of revenues. Also
decreased revenue in the Facilities Management segment contributed to gross
margin declines.
Selling, general and administrative expenses increased $21.7
million, or 31% to $91.2 million for the nine months ended September 30, 1999
from $69.5 million for the nine months ended September 30, 1998. Selling,
general and administrative expenses as a percentage of revenues decreased
from 26.7% for the nine months ended September 30, 1998 to 25.5% for the nine
months ended September 30, 1999 due to significant cost containment measures.
As a result of the foregoing factors, income from operations
increased $5.1 million or 22%, to $28.0 million for the nine months ended
September 30, 1999 from $22.9 million for the nine months ended September 30,
1998. Operating income as a percentage of revenues decreased from 8.8% for
the nine months ended September 30, 1998 to 7.8% for the nine months ended
September 30, 1999. Income from operations from the Company's outsourced
segment increased $19.5 million to $48.0 million for the nine months ended
September 30, 1999 from $28.5 million for the nine months ended September 30,
1998. Income from operations as a percentage of revenue for the Outsourced
segment increased from 20.3% for the nine months ended September 30, 1998 to
22.5% for the nine months ended September 30, 1999. This increase resulted
from significant increases in revenues in several large client programs
offset by excess capacity in several customer interaction centers. Income
from operations for the nine months ended September 30, 1999 includes
approximately $4.2 million from the Facilities Management segment as compared
with $8.4 million for the nine months ended September 30, 1998. Income from
operations as a percentage of revenue for the Facilities Management segment
decreased from 13.7% for the nine months ended September 30, 1999 to 6.5% for
the nine months ended September 30, 1998. This decrease resulted primarily
from decreased volumes and increased healthcare costs in one of the Company's
Facilities Management contracts. Income from operations from the Company's
International Outsourced segment decreased $805,000 to $3.1 million for the
nine months ended September 30, 1999 from $3.9 million for the nine months
ended September 30, 1998. Income from operations as a percentage of revenue
for the International Outsourced segment decreased from 7.3% for the nine
months ended September 30, 1999 to 5.0% for the nine months ended September
30, 1998. This decrease resulted primarily from lower volumes in Canada. The
loss from operations from the Corporate Activities segment (which includes
technology-related operations) increased $9.4 million to $27.3 million for
the nine months ended September 30, 1999 from $17.9 million for the nine
months ended September 30, 1998. This increase is primarily related to the
increased expenses resulting from the Company's significant growth over the
period and the Company's increased investment in technology.
Other income totaled $7.2 million for the nine months ended
September 30, 1999 compared with a $124,000 loss during the nine months ended
September 30, 1998. This is primarily related to a $6.7 million gain on the
settlement of a long-term contract (See "Part II. Other Information, Item 1.
Legal Proceedings.") and a decrease in business combination expenses offset
by an increase in interest expense.
As a result of the foregoing factors, net income increased $7.4
million or 53.6%, to $21.1 million for the nine months ended September 30,
1999 from $13.7 million for the nine months ended September 30, 1998.
Exclusive of the impact of the one time gain on settlement of the long term
contract in 1999 and the business combination expenses in 1998, net income
increased $2.5 million or 17.4% from $14.5 million for the nine months ended
September 30, 1998 to $17.0 million for the nine months ended September 30,
1999.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 the Company had cash and cash equivalents
of $20.3 million and short-term investments of $37.3 million. Cash provided
by operating activities was $38.1 million for the nine months ended September
30, 1999, which primarily resulted from income from operations and increased
collections of accounts receivable during the period.
Cash used in investing activities was $44.3 million for the nine
months ended September 30, 1999 resulting primarily from $40.0 million in
capital expenditures, $1.5 million toward the purchase of Pamet River and
$2.6 million toward the purchase of Smart Call (see Note 4 accompanying the
condensed financial statements).
Cash provided by financing activities was $19.6 million resulting
from the increase in borrowings of $22.0 million on the Company's line of
credit offset in part by pay downs of capital leases and other debt.
The Company has a $50.0 million unsecured revolving line of credit
with a syndicate of five banks. The Company also has the option to secure at
any time up to $25.0 million of the line with available cash investments. The
Company has two interest rate options: an offshore rate option or a bank base
rate option. The Company will pay interest at a spread of 50 to 150 basis
points over the applicable offshore or bank base rate, depending upon the
Company's leverage. Interest on the secured portion is based on the
applicable rate plus 22.5 basis points. Borrowings under this agreement
totaled $22.0 million at September 30, 1999 of which $15.0 million was
secured at the Company's option with temporary short term investments
disclosed on the balance sheet. Interest rates under these borrowings
averaged 6.4% at September 30, 1999. Under this line of credit, the Company
has agreed to maintain certain financial ratios and capital expenditure
limits. The Company is in compliance with all covenants of this agreement as
of September 30, 1999.
The Company currently expects total capital expenditures in 1999 to
be approximately $50 million of which $40.0 million was expended in the first
nine months. The Company believes that existing cash on hand and available
borrowings under the line of credit together with cash from operations should
be sufficient to finance the Company's operations, planned capital
expenditures and anticipated growth through 2000.
YEAR 2000
The Year 2000 problem results from date-sensitive computer programs
being written using two digits, rather than four digits, to define the
applicable year. Computer programs that are not Year 2000 compliant will be
unable, for example, to determine whether date references to "00" refers to
the year 1900 or 2000. Determining whether the Company's and its clients'
systems are Year 2000 compliant is critical because the Company utilizes a
significant number of software programs and operating systems throughout its
organization, and the Company's systems regularly interface with the various
information systems of its clients. The Company's or its clients' failure to
detect and remediate Year 2000 related problems in its or their computer and
information systems could have a material adverse effect on the business,
results of operations or financial condition of the Company.
The Company, with the assistance of two outside consulting firms,
has implemented a multiphased program to inventory, assess, remediate and
test its information technology ("IT") and non-ITsystems for Year 2000
compliance (the "Program"). The Company has completed the enterprisewide
inventory, assessment, analysis and most of the remediation activities
associated with Year 2000 issues. The Company is currently conducting an
intensive Year 2000 follow up audit of each of its sites which has resulted
in minor additional remediation activities.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 - CONTINUED
The Company's Year 2000 consulting firms work with full-time Company
employees who are dedicated to the Program. The assessments completed to date
have led to the need to migrate several human resource- and payroll-oriented
applications to Year 2000 compliant software, upgrade several telephone
switches and procure several hundred replacement workstations. Analysis and
testing of Company-generated software applications has been completed and
only minor remediation has been required. The Company does not anticipate a
significant need for software conversion due to Year 2000 issues, given the
Company's extensive use of off-the-shelf products.
Although the Company has completed its assessment of its internal
systems, many of the Company's client programs interact with and are at least
partially dependent upon the clients' internal computer systems. The Company
has sought representations from each of its clients as to the Year
2000-compliance status of their systems. The Company has only received
positive responses from five of its clients, which represent approximately
10% of the Company's consolidated revenues, the remainder of the Company's
clients have indicated that they are in process of reviewing these systems or
have referred the Company to their website for Year 2000 updates. The Company
will continue to monitor the progress of its clients Year 2000 readiness and
is in the process of developing contingency plans for each client program in
the event that clients' systems experience Year 2000 problems.
While the estimated cost to address Year 2000 issues are subject to
change as the project nears completion, the Company currently anticipates
that the total cost of assessment and remediation will be between $4 million
and $5 million. Of this total estimated costs approximately 70% is
anticipated to be new capital expenditures to replace non-compliant computer
hardware and software. For the nine months ended September 30, 1999, the
Company has incurred approximately $3.5 million in inventory, assessment and
remediation and equipment and software replacement work on Year 2000 issues.
Of this amount, $1.4 million was expensed in the accompanying statement of
operations ($300,000 related to the third quarter of 1999) and were funded
through cash flow from operations. The remaining expenditures in 1999 will be
funded primarily through cash flow from operations and available cash on hand.
In management's view, the most reasonably likely worst case Year
2000 scenario is that one or more of the Company's client programs are unable
to interact with the client's computer systems. In addition, a limited number
of applications may unexpectedly fail. The Company's inability to interact
with the client computer systems or the failure of certain applications could
result in a disruption of the Company's ability to service customers of the
Company's clients.
In the event that the Company's most reasonably likely worst case
scenario occurs, the Company will assist its clients customers with systems
that are operational and return calls and e-mail at the earliest opportunity
in the event that a particular system or application is temporarily
unavailable. The Company also plans to have key managers and staff available
to address any problems that may arise.
17
<PAGE>
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Market risk represents the risk of loss that may impact the
financial position, results of operations or cash flows of the Company due to
adverse changes in financial and commodity market prices and rates. The
Company is exposed to market risk in the areas of changes in U.S. interest
rates and changes in foreign currency exchange rates as measured against the
U.S. dollar. These exposures are directly related to its normal operating and
funding activities. Historically, and as of September 30, 1999, the Company
has not used derivative instruments or engaged in hedging activities.
INTEREST RATE RISK
The interest on the Company's line of credit and its Canadian
subsidiary's operating loan is variable based on the bank's base rate or
offshore rate, and therefore, affected by changes in market interest rates.
At September 30, 1999, there was approximately $25 million in borrowings
subject to interest rate risk. The Company monitors interest rates frequently
and has sufficient cash balances to pay off the line of credit and any early
termination penalties, should interest rates increase significantly. The
Company's investments are typically short-term in nature and as a result do
not expose the Company to significant risk from interest rate fluctuations.
Therefore, the Company does not believe that reasonably possible near-term
changes in interest rates will result in a material effect on future
earnings, fair values or cash flows of the Company.
FOREIGN CURRENCY RISK
The Company has wholly owned subsidiaries in Argentina, Australia,
Brazil, Canada, Mexico, New Zealand, Singapore and the United Kingdom. The
substantial majority of revenues and expenses from these operations are
typically denominated in local currency, thereby creating financial statement
translation exposures to changes in exchange rates. The changes in the
exchange rates may positively or negatively affect the Company's revenues and
net income attributed to these subsidiaries.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As disclosed in the Company's 1998 Annual Report on Form 10-K, in
December 1996, TeleTech filed suit against CompuServe in the Federal District
Court for the Southern District of Ohio to enforce termination provisions and
collect the termination fee. CompuServe filed a counterclaim in December 1996
alleging that the Company breached other provisions of this agreement and
seeking unspecified monetary damages. In March 1997, CompuServe asserted a
right to offset certain accounts receivable it owes to the Company for
services rendered against the amount that may be awarded to CompuServe on its
counterclaim, if any. These accounts receivable total $4.3 million. In July
1999, the Company reached a settlement with CompuServe and other parties
whereby the Company would receive $12.0 million in final settlement, of which
$5.5 million was received on August 10, 1999 and the remainder is required to
be paid in the fourth quarter of 1999.
From time to time, the Company is involved in litigation, most of
which is incidental to its business. In the Company's opinion, no litigation
to which the Company currently is a party is likely to have a material
adverse effect on the Company's results of operations or financial condition.
Item 5. Recent Developments
On October 18, 1999, TeleTech named systems integration, solutions,
and services industry expert, Scott D. Thompson ("Mr. Thompson") as president
and chief executive officer. Mr. Thompson also joined the TeleTech board of
directors.
Mr. Thompson, 43, was formerly president of Lucent Technologies'
Netcare Professional Services Division. Netcare designs, installs, maintains,
manages and operates broadband networks that deliver converged voice, data
and video. Prior to Lucent, Mr. Thompson was executive vice president of
Global Integration Services for Ascend Communications, which was acquired by
Lucent. His background also includes executive management internationally and
domestically at Compaq Computer Corporation and Tandem Computers Incorporated.
Kenneth D. Tuchman, (" Mr. Tuchman") 40, will continue as TeleTech
chairman of the board. Mr. Tuchman has served as TeleTech chairman and CEO
since he founded the company in 1982. As chairman, he will share in providing
strategic direction and developing alliances and customer relationships. Mr.
Thompson will lead development and execution of the company's strategic
direction, provide day-to-day management of the company's operations and
contribute to corporate relations activities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following documents are filed as an exhibit to this report:
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of
TeleTech[1] {Exhibit 3.1}
3.2 Amended and Restated Bylaws of TeleTech [1] {Exhibit 3.2}
10.19* Employment Agreement dated October 2, 1999 between
Scott D. Thompson and TeleTech
10.20* Stock Option Agreement dated October 18, 1999 between
Scott D. Thompson and TeleTech
10.21* Stock Option Agreement dated October 18, 1999 between
Scott D. Thompson and TeleTech
27.1* Financial Data Schedule
</TABLE>
19
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (continued)
* Filed herewith
[ ]Such exhibit previously filed with the Securities and Exchange
Commission as exhibits to the filing indicated below, under the
exhibit number indicated in brackets {}, and is incorporated by
reference.
[1] TeleTech's Registration Statement on Form S-1, as amended
(Registration Statement No. 333-04097)
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELETECH HOLDINGS, INC.
-----------------------
(Registrant)
Date: November 11, 1999 By: /s/ SCOTT D. THOMPSON
----------------- --------------------------
Scott D. Thompson
President and Chief Executive Officer
Date: November 11, 1999 By: /s/ NORMAN A. BLOME
----------------- --------------------------
Norman A. Blome, Acting Chief
Financial Officer
21
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is between TeleTech Holdings, Inc. ("TeleTech") and Scott
Thompson ("Thompson"), and shall be effective as of October 2, 1999.
1. APPOINTMENT.
a. TeleTech hereby employs Thompson as Chief Executive Officer,
and Thompson hereby accepts such employment with TeleTech. Thompson's first
day of regular, full-time active employment with TeleTech (the "Start Date")
shall be on or before October 18, 1999, unless Thompson and TeleTech agree,
in advance, that Thompson may begin work on a different date. TeleTech shall
appoint Thompson to the Board of Directors of TeleTech (the "Board") for a
term ending in May 2000 at the next annual meeting to TeleTech shareholders.
Thereafter, upon the expiration of any Board term to which Thompson is
appointed or elected, and so long as Thompson serves as TeleTech's Chief
Executive Officer, TeleTech shall nominate him for re-election to the Board.
b. Reporting to the Board, the Chief Executive Officer shall be
responsible for providing vision and setting TeleTech's strategic direction,
as well as ensuring its successful execution. Those efforts should result in
TeleTech assuming and maintaining market leadership and sustained growth in
shareholder value. The Chief Executive Officer will manage external and
internal relationships to solidify and enhance credibility and visibility
with customers, employees, the financial community, governments, and the
media. The Chief Executive Officer shall have all functional and operational
responsibility for TeleTech and its affiliates. All employees and departments
of TeleTech and its affiliates shall report directly or indirectly to the
Chief Executive Officer. TeleTech represents, warrants, covenants and agrees
that the office of Chief Executive Officer is and shall remain, so long as
this Agreement is in effect, the most senior and highest-ranking officer of
TeleTech. As such Thompson shall only be required to report to the Board
c. Thompson shall devote his full-time and best efforts to the
performance of all duties as shall be assigned to him from time to time by
TeleTech and shall use his best efforts to promote the business and prospects
of TeleTech. Unless otherwise specifically authorized in writing by TeleTech,
Thompson shall not engage in any other business activity, or be gainfully
employed, if such other activity or employment materially affects or limits
Thompson's performance of his obligations to TeleTech. Further, except as
otherwise provided in any TeleTech securities-related policy that is
applicable generally to TeleTech's senior executives and/or any other
agreement between Thompson and Teletech, Thompson shall not be prohibited
from making investments in other businesses or enterprises provided such
investments do not require the provision of substantial services by Thompson
to the operations or the affairs of such businesses or enterprises such that
the provisions thereof would interfere in any material respect with the
performance of Thompson's duties hereunder.
<PAGE>
d. Thompson acknowledges that, as part of his employment duties
hereunder, Thompson may be required to perform services for, and serve as an
officer and/or director of, subsidiaries and affiliates of TeleTech, on
behalf of and as requested by TeleTech, and Thompson agrees to perform such
duties.
e. Thompson warrants and represents that neither his execution of
this Agreement or any other agreement in connection herewith nor his
performance of his duties hereunder shall breach his contractual or other
obligations or duties to any prior employer, including without limitation
Lucent Technologies.
2. COMPENSATION.
a. SALARY AND SALARY REVIEW. Thompson's starting base salary
shall be $425,000 per year, payable in equal installments in accordance with
TeleTech's standard payroll practice, less legally required withholdings.
TeleTech may, in its sole discretion, increase (but not decrease) Thompson's
base salary, as and when TeleTech deems appropriate.
b. SIGN-ON BONUS. Thompson shall receive, as a one-time sign-on
bonus, one or the other, but not both, of the benefits described in
paragraphs 2(b)(i) and 2(b)(ii), below. Thompson shall make his election in
writing before the Start Date. If he fails to do so, TeleTech may make the
election, in its sole discretion.
i. Thompson may elect to receive 100,000 shares of TeleTech
common stock (the "Stock"), restricted so as to prevent Thompson from
selling, transferring, encumbering or otherwise disposing of or alienating
the Stock or any interest therein. Upon Thompson's continued employment by
TeleTech as of the last day of each of the eleven calendar months following
the Start Date, the restrictions on 8,333 shares of the Stock shall be
removed, and on the first anniversary of the Start Date the restrictions on
the remaining 8,337 shares of the Stock shall be removed. If Thompson is
discharged without cause pursuant to paragraph 8(c), below, before the first
anniversary of the Start Date, all remaining restrictions on the Stock shall
be removed as of the discharge date. If, before the first anniversary of the
Start Date, Thompson resigns or is discharged for cause pursuant to paragraph
8(d), below, he shall be required to return to TeleTech only that portion of
the Stock from which the restrictions had not, as of the termination date,
been removed, as provided above. Thompson understands and agrees that the
removal of the restrictions on the Stock, or any part thereof, at any time
may result in taxable income to Thompson, and that such removal may give rise
to a tax withholding obligation on the part of TeleTech, and Thompson agrees
to satisfy any such tax withholdings, to the extent, and only to the extent,
that such tax withholdings relate to the employee's share, but not the
employer's matching share, if any, of any such tax withholdings.
2
<PAGE>
ii. Thompson may elect to receive a loan (the "Loan"), the
proceeds of which shall be distributed when Thompson executes a promissory
note evidencing the loan. Interest shall accrue on all unpaid principal at
the rate of 6% per annum. The principal amount of the loan shall be $900,000
if the Start Date is on or before October 18, 1999, and $500,000 if the Start
Date is after October 18, 1999, and before December 1, 1999. No loan shall be
made if the Start Date is on or after December 1, 1999. Upon Thompson's
continued employment by TeleTech as of the last day of each of the eleven
calendar months following the Start Date, TeleTech shall forgive one-twelfth
of the principal amount of the loan, and all interest accrued on the
principal amount then forgiven, and upon the first anniversary of the Start
Date all remaining unpaid principal, and all remaining accrued interest,
shall be forgiven. If Thompson is discharged without cause pursuant to
paragraph 8(c), below, before the first anniversary of the Start Date, all
remaining unpaid principal, and all remaining accrued interest, shall be
forgiven. If, before the first anniversary of the Start Date, Thompson
resigns or is discharged for cause pursuant to paragraph 8(d), below, he
shall be required to repay only that portion of the Loan that had not, as of
the termination date, been forgiven, as provided above. Thompson understands
and agrees that TeleTech's forgiveness of the loan or any part thereof at any
time may result in taxable income to Thompson, and that such forgiveness may
give rise to a tax withholding obligation on the part of TeleTech, and
Thompson agrees to satisfy any such tax withholdings, to the extent, and only
to the extent, that such tax withholdings relate to the employee's share, but
not the employer's matching share, if any, of any such tax withholdings.
c. ANNUAL BONUS.
i. Upon Thompson's continued employment by TeleTech as of
December 31, 2000, Thompson shall be entitled to an annual bonus in an amount
determined by TeleTech but no less than $340,000, payable in a lump sum, less
legally required withholdings, no later than March 31, 2001.
ii. In connection with Thompson's work during calendar 2001
and each full calendar year thereafter, Thompson shall be eligible for an
annual bonus targeted at between eighty percent and one hundred fifty percent
(or more) of his then-current base salary. The precise amount of that bonus
shall be determined based on the achievement of Thompson's Management Bonus
Opportunity ("MBO") performance goals, which goals shall be determined in
good faith and in advance jointly by Thompson and the Board. Any such bonus
shall be payable in a lump sum, less legally required withholdings, no later
than March 31 of the year following the calendar year with respect to which
the bonus is earned.
3. STOCK OPTIONS.
a. Thompson shall receive a one-time sign-on option award of
1,000,000 non-qualified stock options with an exercise price equal the fair
market value
3
<PAGE>
of TeleTech common stock on the Start Date, calculated as the last sale price
for TeleTech common stock reported by the Nasdaq Stock Market, Inc., as of
the close of business on the Start Date. This grant shall be reflected in a
stock option agreement providing, among other things, that upon Thompson's
continued employment by TeleTech, these options shall vest in equal
installments on the first five anniversaries of the Start Date, and that the
vesting of such options shall be accelerated upon a change of control, or the
attainment of stock price targets, as described in detail in the stock option
agreement.
b. Thompson shall be eligible to participate in a management
stock option program ("MSOP") designed to grant stock options to specified
executives at the end of each year. As CEO, Thompson shall be eligible for an
award of up to 75,000 options per year, which would, if awarded, vest in
equal annual installments over four years. The Board may from time to time
increase the maximum recommended grant. Grants of options in connection with
the MSOP shall be made when and in an amount determined by TeleTech in its
sole discretion, and shall be subject to the terms and conditions of a
separate stock option agreement to be executed by Thompson and TeleTech, and
to any terms or conditions of TeleTech's MSOP that may be established,
modified or amended from time to time.
4. FRINGE BENEFITS.
a. EXECUTIVE MEDICAL AND DENTAL INSURANCE. Thompson and his
dependents shall be eligible for coverage under the group medical and dental
insurance plans made available from time to time to TeleTech's executive and
management employees, beginning on the Start Date. TeleTech shall pay
premiums for Thompson and his dependents under such group medical and dental
insurance plans pursuant to the same premium-payment formula applicable to
TeleTech's other senior executives.
b. LIFE INSURANCE. Subject to Thompson's satisfactory completion
of a standard medical examination, Thompson shall be eligible for, and
TeleTech shall provide Thompson with, a $5,000,000 term life insurance
policy. TeleTech shall pay all premiums relating to such a policy. Such
insurance policy will be maintained by TeleTech on behalf of Thompson so long
as Thompson is employed by TeleTech. Thompson shall be the owner of such
policy and shall have the right to designate the beneficiary or beneficiaries
thereof. Upon termination of Thompson's employment for any reason whatsoever,
Thompson shall have the right to continue and maintain such policy by his
payment of future premiums due under the policy.
c. DISABILITY INSURANCE. Thompson shall be eligible to
participate in TeleTech's group disability insurance program, as that program
may be modified from time to time, under which, in the event of a qualifying
disability and subject to the other terms and conditions of that program,
Thompson shall be eligible to receive no less than 50% of his base salary and
annual bonus under paragraph 2(c), above,
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(calculated at 80% of his then-base salary) beginning on the ninety-first day
of a qualifying disability.
d. EXPENSES. TeleTech shall reimburse Thompson for all reasonable
and necessary expenses incurred by Thompson in connection with his
performance of his duties under this Agreement.
e. OFFICE. Thompson shall initially be assigned the chief
executive's office located on the 14th Floor of 1700 Lincoln Street, Denver,
Colorado 80203, or such other office space as TeleTech shall from time to
time designate for use by its chief executive, provided that such office
space shall at all times befit an executive of Thompson's stature and
responsibilities.
f. FINANCIAL PLANNING SERVICES. TeleTech shall reimburse Thompson
for the actual expenses he incurs in securing personal financial planning
services, up to a maximum reimbursement of $10,000 per calendar year.
g. MISCELLANEOUS BENEFITS. Thompson shall receive all fringe
benefits that other TeleTech executive and management employees may from time
to time receive.
5. PAID LEAVE.
a. VACATION. During each calendar year of Thompson's continuous,
full-time active employment with TeleTech, Thompson shall earn twenty days of
paid vacation time. Any unused vacation time in any given calendar year shall
be carried forward to succeeding calendar years. Vacation time shall be
earned incrementally during the year, so that, upon termination of Thompson's
employment, TeleTech shall pay Thompson the cash value, less legally required
withholdings, of the prorated portion of his vacation entitlement during the
year of termination, less the value of the vacation time used during that
year, plus the cash value, less legally required withholdings, of any accrued
unused vacation time from previous calendar years.
b. SICK LEAVE AND HOLIDAYS. Thompson shall receive paid sick
leave and holidays under the guidelines for such leave applicable from time
to time to TeleTech's executive and management employees.
6. RELOCATION EXPENSES. TeleTech shall reimburse Thompson for his
reasonable expenses in relocating to the Denver, Colorado metropolitan area
up to $150,000, including, without limitation, expenses, such as the payment
of any agent's or broker's fee and other closing costs, incurred by Thompson
in connection with the sale of his home, travel expenses for Thompson and his
wife between his present residence and Denver, Colorado, and closing costs
associated with Thompson's purchase of a new home in the Denver, Colorado
metropolitan area. All such
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reimbursements shall, if necessary, be grossed up to make Thompson whole on
an after-tax basis for his actual out-of-pocket expenses, up to the $150,000
limit.
7. RELATIONSHIP BETWEEN THIS AGREEMENT AND OTHER TELETECH
PUBLICATIONS. In the event of any conflict between any term of this Agreement
and any TeleTech contract, policy, procedure, guideline or other publication,
the terms of this Agreement shall control.
8. TERM AND TERMINATION.
a. TERM. The term of this Agreement shall be three years,
commencing on the Start Date and ending on the third anniversary thereof.
This Agreement shall be renewed for successive one-year terms if the parties
agree to such renewal in writing at least sixty days before the expiration of
the initial three-year term or any renewal term, as the case may be.
b. TERMINATION BY CONSENT. This Agreement may be terminated at
any time by the parties' mutual agreement, expressed in writing.
c. TERMINATION BY TELETECH WITHOUT CAUSE. If TeleTech terminates
Thompson's employment without cause during Thompson's first twelve months of
continuous, full-time active employment, then after Thompson executes a
separation agreement and legal release in a form satisfactory to TeleTech
(provided that any such agreement shall preserve Thompson's right, if any, to
indemnification under TeleTech's bylaws, articles of incorporation, insurance
policies and/or applicable law, and shall not modify Thompson's obligations,
under applicable law or any agreement, concerning the confidentiality of
information, competition, solicitation or the assignment of intellectual
property rights, or remedies pertaining thereto): (i) TeleTech shall pay
Thompson severance compensation equal to the sum of eighteen months of
Thompson's then-current base salary under paragraph 2(a), above, plus one and
one half times eighty percent of Thompson's then-current base salary, which
shall be payable in eighteen equal monthly installments, less legally
required withholdings, on the first business day of each month, beginning in
the month following the termination date; and (ii) all of Thompson's unvested
stock options that would have vested during the remainder of the Thompson's
first year of employment shall immediately vest and become exercisable. If
TeleTech terminates this Agreement at any time without cause under this
paragraph 8(c), pays Thompson all salary and vacation compensation earned and
unpaid as of the termination date, and offers to provide Thompson severance
compensation and accelerated option vesting in the amount and on the terms
specified above, TeleTech's acts in doing so shall be in complete accord and
satisfaction of any claim that Thompson has or may at any time have for
compensation or payments of any kind from TeleTech arising from or relating
in whole or part to Thompson's employment with TeleTech and/or this
Agreement. Because this paragraph 8(c) is intended to provide compensation to
enable Thompson to support himself in the event of Thompson's loss of
employment under certain circumstances specified herein, Thompson's right to
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severance pay under this paragraph 8(c) shall not be triggered by the sale of
all or a portion of TeleTech's stock or assets, unless such sale results in
Thompson's loss of employment, or Thompson thereafter terminates this
Agreement for "Good Cause," as that term is defined in paragraph 8(g), below.
d. TERMINATION BY TELETECH FOR CAUSE. TeleTech may terminate this
Agreement effective immediately upon notice to Thompson, with TeleTech's only
obligation being the payment of salary and accrued, unused vacation
compensation earned as of the date of termination and without liability for
severance compensation of any kind, if Thompson violates any material term of
this Agreement or any material TeleTech policy, procedure or guideline or if
Thompson engages in any of the following forms of misconduct: conviction of,
or a plea of nolo contendere to, any felony or of any misdemeanor involving
dishonesty or moral turpitude; theft or misuse of TeleTech's property or
time; use of alcohol or controlled substances on TeleTech's premises or
appearing on such premises while intoxicated or under the influence of drugs
not prescribed by a physician, or after having knowingly abused prescribed
medications (provided, however, that the use of alcohol or appearing
intoxicated on TeleTech's premises at a TeleTech-sanctioned or sponsored
event shall not constitute "Cause" for termination); illegal use of any
controlled substance; illegal gambling on TeleTech's premises; discriminatory
or harassing behavior, whether or not illegal under federal, state or local
law; willful misconduct in connection with Thompson's activities under this
Agreement; or intentionally falsifying any document or making any false or
misleading statement relating to Thompson's employment by TeleTech.
Notwithstanding any other provision of this Agreement, TeleTech shall not be
entitled to give notice of termination for discriminatory or harassing
behavior until the following occurs: (i) TeleTech gives Thompson at least
fifteen (15) days' written notice of any such claims or allegations of
harassment or discrimination, stating with particularity the facts and
circumstances forming the basis of such claims or allegations and, prior to
any hearing thereon as provided in clause (ii) below, provides to Thompson
copies of all witness statements and other written records and documentation
supporting such claims or allegations; and (ii) Thompson is given, with the
presence of counsel, a hearing before the Board prior to any determination by
TeleTech of the existence of cause pursuant to this provision, at which
hearing Thompson shall have a full and fair opportunity to present evidence
and argument concerning the existence of such cause; and PROVIDED, FURTHER,
that TeleTech shall not act upon any claim or allegation of harassment or
discrimination concerning Thompson unless and until TeleTech has received
information giving rise to a duty of inquiry or investigation on TeleTech's
part under applicable law. With respect to conduct other than discriminatory
or harassing behavior, TeleTech shall not be entitled to give notice of
termination of this Agreement for cause unless it first gives Thompson no
less than thirty days' written notice of the specific violation and which
notice describes with particularity the actions required on the part of
Thompson to cure such violation; provided that such prior notice shall not be
required where the conduct in question is of such a character that it cannot
reasonably be cured.
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f. TERMINATION UPON THOMPSON'S DEATH. This Agreement shall
terminate immediately upon Thompson's death. Thereafter, TeleTech shall pay
to Thompson's estate all compensation fully earned, and benefits fully
vested, as of the last date of Thompson's continuous, full-time active
employment with TeleTech, but shall not be required to pay any form of
severance or other compensation concerning or on account of Thompson's
employment with TeleTech or the termination thereof. The principal amount of
any loan made to Thompson pursuant to paragraph 2(b)(ii), above, to the
extent not forgiven under that paragraph before the date of Thompson's death,
shall be forgiven upon Thompson's death.
g. TERMINATION BECAUSE OF DISABILITY. During the first ninety
calendar days of any period during which a medical condition renders Thompson
continuously unable to perform the essential functions of his position (the
"Initial Disability Period"), he shall continue to receive his base salary
pursuant to paragraph 2(a), above. Thereafter, if Thompson qualifies for
benefits under TeleTech's long term disability insurance plan (the "LTD
Plan"), then he shall remain on leave for so long as he continues to qualify
for such benefits, during which time he shall be entitled to any benefits to
which the LTD Plan entitles him, but no additional compensation from
TeleTech. If at any time after the Initial Disability Period Thompson remains
unable to perform the essential functions of his position but is denied or
otherwise becomes ineligible for benefits under the LTD Plan, then TeleTech
may terminate this Agreement and/or Thompson's employment.
h. TERMINATION BY THOMPSON. Upon the occurrence of "Good Cause,"
as that term is defined below, Thompson may terminate this Agreement upon
ninety days' prior written notice. If Thompson terminates this Agreement for
Good Cause, as defined below, any unpaid principal balance of the Loan and
all interest accrued thereon shall be forgiven, provided that Thompson
understands and agrees that TeleTech's forgiveness of the loan or any part
thereof at any time may result in taxable income to Thompson, and that such
forgiveness may give rise to a tax withholding obligation on the part of
TeleTech, and Thompson agrees to satisfy any such tax withholdings, to the
extent, and only to the extent, that such tax withholdings relate to the
employee's share, but not the employer's matching share, if any, of any such
tax withholdings. As used in this paragraph 8(c), "Good Cause" shall mean (i)
a substantial and material diminution of Thompson's responsibilities and
duties concerning the operation of TeleTech's business; (ii) a material
decrease in Thompson's base salary and/or a material decrease in Thompson's
annual bonus amount (other than for TeleTech performance) and/or a material
decrease in Thompson's employee benefits (other than pursuant to a general
reduction or modification of such benefits that is applicable to all of
TeleTech's senior executives); or (iii) a material change in the
responsibilities or duties assigned to Thompson, as measured against
Thompson's responsibilities or duties immediately prior to such change, that
causes Thompson to be of materially reduced stature or responsibility; or
(iv) a material change in Thompson's reporting responsibilities or duties, as
measured against Thompson's reporting responsibilities or duties immediately
prior to such
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change, that materially curtails Thompson's ability to perform the services
required of Thompson's position; or (v) the permanent non-voluntary
relocation, to a site outside the Denver, Colorado metropolitan area, of
Thompson's current principal place of performance of services for TeleTech;
or (vi) the occurrence of circumstances establishing constructive discharge
under the common law of the State of Colorado. If Thompson terminates this
agreement for Good Cause before the first anniversary of the Start Date and
executes a separation agreement in the form prescribed in paragraph 8(c),
above, he shall be entitled to the severance compensation specified in
paragraph 8(c), above.
9. SUCCESSORS AND ASSIGNS. TeleTech, its successors and assigns may in
their sole discretion assign this Agreement to any person or entity, with or
without Thompson's consent. This Agreement thereafter shall bind, and inure
to the benefit of, TeleTech's successor or assign. Thompson shall not assign
either this Agreement or any right or obligation arising hereunder.
10. DISPUTE RESOLUTION.
a. Thompson and TeleTech agree that in the event of any
controversy or claim arising out of or relating to Thompson's employment with
and/or separation from TeleTech, they shall negotiate in good faith to
resolve the controversy or claim privately, amicably and confidentially. Each
party may consult with counsel in connection with such negotiations.
b. Excepting only: (1) worker's compensation claims; (2)
unemployment compensation claims; (3) proceedings to enforce the terms of any
confidentiality covenant or to protect Confidential Information and/or
Confidential Records; and (4) claims brought under the Colorado Wage Act,
C.R.S. Sections 8-4-101, ET SEQ., all controversies and claims arising from
or relating to Thompson's employment with TeleTech and/or the termination of
that employment that cannot be resolved by good-faith negotiations
("Arbitrable Disputes") shall be resolved only by final and binding
arbitration conducted privately and confidentially in the Denver, Colorado,
metropolitan area by a single arbitrator who is a member of the panel of
former judges that makes up the Judicial Arbiter Group ("JAG"); any successor
of JAG; or, if JAG or any successor is not in existence, any entity that can
provide a former judge to serve as arbitrator (collectively, the "Dispute
Resolution Service"). Without limiting the generality of the foregoing, the
parties understand and agree that this paragraph 10 shall require arbitration
of all disputes and claims that may arise at common law, such as breach of
contract, express or implied, promissory estoppel, wrongful discharge,
tortious interference with contractual rights, infliction of emotional
distress, defamation, or under federal, state or local laws, such as the Fair
Labor Standards Act, the Employee Retirement Income Security Act, the
National Labor Relations Act, Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the
Equal Pay Act, the Americans with Disabilities Act, and the Colorado Civil
Rights Act. The parties understand and agree that this Agreement evidences a
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transaction involving commerce within the meaning of 9 U.S.C. Section 2, and
that this Agreement shall therefore be governed by the Federal Arbitration
Act, 9 U.S.C. Sections 1, ET SEQ.
c. Notwithstanding any statute or rule governing limitations of
actions, any arbitration relating to or arising from any Arbitrable Dispute
shall be commenced by service of an arbitration demand before the earlier of
the one-year anniversary of the accrual of the aggrieved party's claim
pursuant to Colorado law or the one-year anniversary of Thompson's last day
of employment with TeleTech. Otherwise, all claims that were or could have
been brought by the aggrieved party against the other party shall be forever
barred.
d. To commence an arbitration pursuant to this Agreement, a party
shall serve a written arbitration demand (the "Demand") on the other party by
certified mail, return receipt requested, and at the same time submit a copy
of the Demand to the Dispute Resolution Service, together with a check
payable to the Dispute Resolution Service in the amount of that entity's
then-current arbitration filing fee; provided that in no event shall the
Thompson be required to pay an arbitration filing fee exceeding the sum then
required to file a civil action in the United States District Court for the
District of Colorado. The claimant shall attach a copy of this Agreement to
the Demand, which shall also describe the dispute in sufficient detail to
advise the respondent of the nature of the dispute, state the date on which
the dispute first arose, list the names and addresses of every current or
former employee of TeleTech or any affiliate whom the claimant believes does
or may have information relating to the dispute, and state with particularity
the relief requested by the claimant, including a specific monetary amount,
if the claimant seeks a monetary award of any kind. Within thirty days after
receiving the Demand, the respondent shall mail to the claimant a written
response to the Demand (the "Response"), and submit a copy of the Response to
the Dispute Resolution Service, together with a check for the difference, if
any, between the filing fee paid by the claimant and the Dispute Resolution
Service's then-current arbitration filing fee.
e. Promptly after service of the Response, the parties shall
confer in good faith to attempt to agree upon a suitable arbitrator. If the
parties are unable to agree upon an arbitrator, the Dispute Resolution
Service shall select the arbitrator, based, if possible, on his or her
expertise with respect to the subject matter of the Arbitrable Dispute.
f. Notwithstanding the choice-of-law principles of any
jurisdiction, the arbitrator shall be bound by and shall resolve all
Arbitrable Disputes in accordance with the substantive law of the State of
Colorado, federal law as enunciated by the federal courts situated in the
Tenth Circuit, and all Colorado and Federal rules relating to the
admissibility of evidence, including, without limitation, all relevant
privileges and the attorney work product doctrine.
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g. Before the arbitration hearing, TeleTech shall be entitled to
take a discovery deposition of Thompson and Thompson shall be entitled to
take a discovery deposition of one TeleTech representative with knowledge of
the dispute. Upon the written request of either party, the other party shall
promptly produce documents relevant to the Arbitrable Dispute or reasonably
likely to lead to the discovery of admissible evidence. The manner, timing
and extent of any further discovery shall be committed to the arbitrator's
sound discretion, provided that under no circumstances shall the arbitrator
allow more depositions or interrogatories than permitted by the presumptive
limitations set forth in F.R.Civ.P. 30(a)(2)(A) and 33(a). The arbitrator
shall levy appropriate sanctions, including an award of reasonable attorneys'
fees, against any party that fails to cooperate in good faith in discovery
permitted by this paragraph 10 or ordered by the arbitrator.
h. Before the arbitration hearing, any party may by motion seek
judgment on the pleadings as contemplated by F.R.Civ.P. 12(c) and/or summary
judgment as contemplated by F.R.Civ.P. 56. The other party may file a written
response to any such motion, and the moving party may file a written reply to
the response. The arbitrator: may in his or her discretion conduct a hearing
on any such motion; shall give any such motion due and serious consideration,
resolving the motion in accordance with F.R.Civ.P. 12(c) and/or a F.R.Civ.P.
56, as the case may be, and other governing law, pursuant to paragraph 10(f),
above; and shall issue a written award concerning any such motion no fewer
than ten days before any evidentiary hearing conducted on the merits of any
claim asserted in the arbitration.
i. Within thirty days after the arbitration hearing is closed,
the arbitrator shall issue a written award setting forth his or her decision
and the reasons therefor. If a party prevails on a statutory claim that
affords the prevailing party the right to recover attorneys' fees and/or
costs, then the arbitrator shall award to the party that substantially
prevails in the arbitration its costs and expenses, including reasonable
attorneys' fees. The arbitrator's award shall be final, nonappealable and
binding upon the parties, subject only to the provisions of 9 U.S.C. Section
10, and may be entered as a judgment in any court of competent jurisdiction.
j. The parties agree that reliance upon courts of law and equity
can add significant costs and delays to the process of resolving disputes.
Accordingly, they recognize that an essence of this Agreement is to provide
for the submission of all Arbitrable Disputes to binding arbitration.
Therefore, if any court concludes that any provision of this paragraph 10 is
void or voidable, the parties understand and agree that the court shall
reform each such provision to render it enforceable, but only to the extent
absolutely necessary to render the provision enforceable and only in view of
the parties' express desire that Arbitrable Disputes be resolved by
arbitration and, to the greatest extent permitted by law, in accordance with
the principles, limitations and procedures set forth in this Agreement.
11. MISCELLANEOUS.
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a. GOVERNING LAW. This Agreement, and all other disputes or
issues arising from or relating in any way to TeleTech's relationship with
Thompson, shall be governed by the internal laws of the State of Colorado,
irrespective of the choice of law rules of any jurisdiction.
b. SEVERABILITY. If any court of competent jurisdiction declares
any provision of this Agreement invalid or unenforceable, the remainder of
the Agreement shall remain fully enforceable. To the extent that any court
concludes that any provision of this Agreement is void or voidable, the court
shall reform such provision(s) to render the provision(s) enforceable, but
only to the extent absolutely necessary to render the provision(s)
enforceable.
c. INTEGRATION. This Agreement constitutes the entire agreement
of the parties and a complete merger of prior negotiations and agreements
and, except as provided in the preceding subparagraph 10(j), shall not be
modified by word or deed, except in a writing signed by Thompson and the
Chairman of TeleTech's Board.
d. WAIVER. No provision of this Agreement shall be deemed waived,
nor shall there be an estoppel against the enforcement of any such provision,
except by a writing signed by the party charged with the waiver or estoppel.
No waiver shall be deemed continuing unless specifically stated therein, and
the written waiver shall operate only as to the specific term or condition
waived, and not for the future or as to any act other than that specifically
waived.
e. CONSTRUCTION. Headings in this Agreement are for convenience
only and shall not control the meaning of this Agreement. Whenever
applicable, masculine and neutral pronouns shall equally apply to the
feminine genders; the singular shall include the plural and the plural shall
include the singular. The parties have reviewed and understand this
Agreement, and each has had a full opportunity to negotiate the agreement's
terms and to consult with counsel of their own choosing. Therefore, the
parties expressly waive all applicable common law and statutory rules of
construction that any provision of this Agreement should be construed against
the agreement's drafter, and agree that this Agreement and all amendments
thereto shall be construed as a whole, according to the fair meaning of the
language used.
f. COUNTERPARTS AND TELECOPIES. This agreement may be executed in
counterparts, or by copies transmitted by telecopier, which counterparts
and/or facsimile transmissions shall have the same force and effect as had
the contract been executed in person and in original form.
THOMPSON ACKNOWLEDGES AND AGREES: THAT HE UNDERSTANDS THIS AGREEMENT; THAT HE
ENTERS INTO IT FREELY, KNOWINGLY, AND MINDFUL OF THE FACT THAT IT CREATES
IMPORTANT LEGAL OBLIGATIONS AND AFFECTS HIS LEGAL RIGHTS; AND THAT HE
UNDERSTANDS THE NEED TO
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CONSULT CONCERNING THIS AGREEMENT WITH LEGAL COUNSEL OF HIS OWN CHOOSING, AND
HAS HAD A FULL AND FAIR OPPORTUNITY TO DO SO.
[SIGNATURES FOLLOW]
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TeleTech Holdings, Inc.
- -------------------------------- By:
Scott Thompson --------------------------------
Print name:
Date: ------------------------
--------------------- As its:
----------------------------
Date:
---------------------
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TELETECH HOLDINGS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "AGREEMENT") is entered
into between TELETECH HOLDINGS, INC., a Delaware corporation ("TELETECH"),
and Scott Thompson ("OPTIONEE"), as of October 18, 1999 (the "GRANT DATE").
In consideration of the mutual promises and covenants made herein, the
parties hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of the
TeleTech Holdings, Inc. 1999 Stock Option and Incentive Plan (the "PLAN"), a
copy of which is attached hereto as Exhibit A and incorporated herein by this
reference, TeleTech grants to Optionee an option (the "OPTION") to purchase
300,000 shares (the "SHARES") of TeleTech's common stock, $.01 par value (the
"COMMON STOCK"), at a price equal to $13.125 per share (the "OPTION PRICE").
The Option Price has been determined by the Compensation Committee of the
Board of Directors of TeleTech (the "COMMITTEE"), acting in good faith, to be
the fair market value of the Common Stock on the Grant Date based upon the
last sale price for Common Stock reported by The Nasdaq Stock Market, Inc.
("Nasdaq") as of the close of business on the Grant Date.
The Option is not intended to qualify as an incentive stock option
described in Section 422 of the Internal Revenue Code of 1986, as amended
(the "CODE"). All provisions of this Agreement are to be construed in
conformity with this intention.
2. TERM: OPTION RIGHTS. Except as provided below, the Option shall
be valid for a term commencing on the Grant Date and ending 10 years after
the Grant Date (the "EXPIRATION DATE").
(a) RIGHTS UPON TERMINATION OF EMPLOYMENT. If Optionee
ceases to be employed by TeleTech or any of its subsidiaries or affiliates
(collectively, the "SUBSIDIARIES") for any reason other than (i) for "Cause"
(as defined herein), (ii) Optionee's death, or (iii) Optionee's mental,
physical or emotional disability or condition (a "DISABILITY"), the Option
shall be exercisable at any time prior to the earlier of the Expiration Date
or the date three months after the date of termination of Optionee's
employment.
(b) RIGHTS UPON TERMINATION FOR CAUSE. If Optionee's
employment with TeleTech and/or its Subsidiaries is terminated for Cause, the
Option shall be immediately cancelled, no portion of the Option may be
exercised thereafter and Optionee shall forfeit all rights to the Option. The
term "Cause" shall have the meaning given to such term or to the term "For
Cause" or other similar phrase in Optionee's Employment Agreement with
TeleTech or any Subsidiary; provided, however, that (i) if at any time
Optionee's employment with TeleTech or any Subsidiary is not governed by an
employment agreement, then the term "Cause" shall have the meaning given to
such term in the Plan, and (ii) "Cause" shall exclude Optionee's death or
Disability.
(c) RIGHTS UPON OPTIONEE'S DEATH OR DISABILITY. If
Optionee's employment
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with TeleTech and/or its Subsidiaries is terminated as a result of (i)
Optionee's death, the Option may be exercised at any time prior to the
earlier of the Expiration Date or the date six months after the date of
Optionee's death, or (ii) Optionee's Disability, the Option may be exercised
at any time prior to the earlier of the Expiration Date or the date six
months after the date of Optionee's employment is terminated as a result of
Optionee's Disability.
3. VESTING. The Option may only be exercised to the extent vested.
Any vested portion of the Option may be exercised at any time in whole or
from time to time in part. The Option shall vest in accordance with the
following schedule (each date set forth below, a "VESTING DATE"):
<TABLE>
<CAPTION>
Cumulative
Percentage of
Vesting Date Option Vested
------------ -------------
<S> <C>
October 18, 2000 20%
October 18, 2001 40%
October 18, 2002 60%
October 18, 2003 80%
October 18, 2004 100%
</TABLE>
Optionee must be employed by TeleTech or any Subsidiary on any Vesting Date,
in order to vest in the portion of the Option set forth in the chart above
that vests on such Vesting Date. Except as provided in Section 3A below, no
portion of the Option shall vest between Vesting Dates; if Optionee ceases to
be employed by TeleTech or any Subsidiary, then any portion of the Option
that is scheduled to vest on any Vesting Date after the date Optionee's
employment is terminated automatically shall be forfeited as of the
termination of employment. Except as provided in Section 3A below, if
Optionee's employment with TeleTech or any Subsidiary is terminated for any
reason, any portion of the Option which is not then vested shall be
immediately forfeited; provided, however, that a transfer or reassignment of
Optionee from TeleTech to any Subsidiary, or VICE VERSA, shall not constitute
a termination of employment for purposes of this Agreement.
3A. ACCELERATED VESTING.
(a) VESTING FOLLOWING A CHANGE IN CONTROL. Notwithstanding
the vesting schedule contained in Section 3,
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(i) upon a Change in Control (as hereinafter defined),
any unvested portion of the Option that is scheduled to vest (pursuant to
Section 3) within 24 months following the date the Change of Control becomes
effective shall vest and become immediately exercisable as of the effective date
of the Change of Control, with the remainder of the unvested portion of the
Option vesting pursuant to Section 3, as accelerated by this Section 3A and
clarified by the following example:
For example, assume that on June 1, 1999 an optionee was granted
an option to acquire 10,000 shares of Common Stock, which option
vests over five years, pro rata, on each anniversary of the grant
date. On June 5, 2000, a Change of Control is consummated. As of
June 5, 2000, the optionee will be fully vested in the option with
respect to 6,000 shares (i.e., the 2,000 shares that vested on
June 1, 2000, plus an additional 4,000 shares that vested on June
5, 2000 in accordance with the accelerated vesting provisions of
this Section 3A), and the remaining unvested portion of the option
would vest (assuming all other conditions to vesting are
satisfied) with respect to the remaining 4,000 shares on each of
June 1, 2001 (2,000 shares) and June 2, 2002 (2,000 shares).
(ii) if Optionee's employment with TeleTech or any
Subsidiary is terminated within 24 months following a Change in Control, then
the entire amount of the Option shall become 100% vested and immediately
exercisable as of the Termination Date (as defined herein); PROVIDED, HOWEVER,
that the accelerated vesting described in the foregoing clause (ii) shall not
apply if Optionee's employment with TeleTech is terminated (A) by Optionee for
any reason other than for "Good Reason" (as defined herein), or (B) by TeleTech
for "Cause" (as defined herein).
(b) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Agreement, "CHANGE IN CONTROL" means the occurrence of any one of the following
events:
(i) any consolidation, merger or other similar
transaction (A) involving TeleTech, if TeleTech is not the continuing or
surviving corporation, or (B) which contemplates that all or substantially all
of the business and/or assets of TeleTech will be controlled by another
corporation;
(ii) any sale, lease, exchange or transfer (in one
transaction or series of related transactions) of all or substantially all of
the assets of TeleTech (a "DISPOSITION"); PROVIDED, HOWEVER, that the foregoing
shall not apply to any Disposition to a corporation with respect to which,
following such Disposition, more than 51% of the combined voting power of the
then outstanding voting securities of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners of at least 51% of the then
outstanding Common
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<PAGE>
Stock and/or other voting securities of TeleTech immediately prior to such
Disposition, in substantially the same proportion as their ownership immediately
prior to such Disposition;
(iii) approval by the stockholders of TeleTech of any plan
or proposal for the liquidation or dissolution of TeleTech, unless such plan or
proposal is abandoned within 60 days following such approval;
(iv) the acquisition by any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended), or two or more persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended) of 51% or more of the outstanding shares of voting stock of
TeleTech; PROVIDED, HOWEVER, that for purposes of the foregoing, "person"
excludes Kenneth D. Tuchman and his affiliates; PROVIDED, FURTHER that the
foregoing shall exclude any such acquisition (A) by any person made directly
from TeleTech, (B) made by TeleTech or any Subsidiary, or (C) made by an
employee benefit plan (or related trust) sponsored or maintained by TeleTech or
any Subsidiary; or
(v) if, during any period of 15 consecutive calendar
months commencing on September 1, 1999, those individuals (the "CONTINUING
DIRECTORS") who either (A) were directors of TeleTech on the first day of each
such 15-month period, or (B) subsequently became directors of TeleTech and whose
actual election or initial nomination for election subsequent to that date was
approved by a majority of the Continuing Directors then on the board of
directors of TeleTech, cease to constitute a majority of the board of directors
of TeleTech.
(c) OTHER DEFINITIONS. For purposes of this Section 3A, the
following terms have the meanings ascribed to them below:
(i) "CAUSE" has the meaning given to such term, or to
the term "For Cause" or other similar phrase, in Optionee's Employment Agreement
with TeleTech or any Subsidiary, if any; PROVIDED, HOWEVER, that if at any time
Optionee's employment with TeleTech or any Subsidiary is not governed by an
employment agreement, then the term "Cause" shall have the meaning given to such
term in the Plan; PROVIDED, FURTHER, that, notwithstanding the provisions of
Optionee's Employment Agreement or of the Plan, for purposes of this Agreement,
TeleTech shall have the burden to prove that Optionee's employment was
terminated for "Cause."
(ii) "TERMINATION DATE" means the latest day on which
Optionee is expected to report to work and is responsible for the performance of
services to or on behalf of TeleTech or any Subsidiary, notwithstanding that
Optionee may be entitled to receive payments from TeleTech (e.g., for unused
vacation or sick time, severance payments, deferred compensation or otherwise)
after such date; and
-4-
<PAGE>
(iii) "GOOD REASON" means (A) any reduction in Optionee's
base salary; PROVIDED THAT a reduction in Optionee's base salary of 10% or less
does not constitute "Good Reason" if such reduction is effected in connection
with a reduction in compensation that is applicable generally to officers and
senior management of TeleTech; (B) Optionee's responsibilities or areas of
supervision within TeleTech or its Subsidiaries are substantially reduced; or
(C) Optionee's principal office is relocated outside the metropolitan area in
which Optionee's office was located immediately prior to the Change in Control;
PROVIDED, HOWEVER, that temporary assignments made for the good of TeleTech's
business shall not constitute such a move of office location; or (D) for any
reason defined as "Good Cause" in Optionee's Employment Agreement with TeleTech
or any subsidiary.
(d) VESTING FOLLOWING TERMINATION BY TELETECH OTHER THAN FOR
CAUSE. In the event that Optionee's employment with TeleTech is terminated by
TeleTech for any reason other than for "Cause" (as defined above) within one
year of the Grant Date, the unvested portion of the Option that is scheduled to
vest on October 18, 2000, including any portion of the Option which has vested
in accordance with Section 3A(e) below as of the Termination Date, shall vest
and become immediately exercisable as of the day after Optionee's last day of
employment with TeleTech.
(e) VESTING BASED ON PERFORMANCE CRITERIA. In the event that
TeleTech's closing stock price, as reported by Nasdaq, is equal to, or exceeds,
any one of the per share prices set forth below for 120 consecutive days (the
"Price Period"), the following percentage of the portion of the Option then
remaining unvested shall vest and become immediately exercisable as of the last
day of such Price Period:
<TABLE>
<CAPTION>
Price Per Share Percentage of Option Vested
--------------- ---------------------------
<S> <C>
$ 25.00 25%
$ 30.00 50%
$ 40.00 75%
$ 50.00 100%
</TABLE>
4. PROCEDURE FOR EXERCISE. Exercise of the Option or a portion
thereof shall be effected by the giving of written notice to TeleTech in
accordance with the Plan and payment of the aggregate Option Price for the
number of Shares to be acquired pursuant to such exercise.
5. PAYMENT FOR SHARES. Payment of the Option Price (or portion
thereof) shall be made in cash or by such other method as may be permitted by
the Committee in accordance with the provisions of the Plan. No Shares shall be
delivered upon exercise of the Option until full payment has been made and all
applicable withholding requirements satisfied.
6. OPTIONS NOT TRANSFERABLE AND SUBJECT TO CERTAIN RESTRICTIONS. The
Option may
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<PAGE>
not be sold, pledged, assigned or transferred in any manner other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code. During
Optionee's lifetime, the Option may be exercised only by the Optionee or by a
legally authorized representative. In the event of Optionee's death, the
Option may be exercised by the distributee to whom Optionee's rights under
the Option shall pass by will or by the laws of descent and distribution.
7. ACCEPTANCE OF PLAN. Optionee hereby accepts and agrees to be
bound by all the terms and conditions of the Plan.
8. NO RIGHT TO EMPLOYMENT. Nothing herein contained shall confer
upon Optionee any right to continuation of employment by TeleTech or any
Subsidiary, or interfere with the right of TeleTech or any Subsidiary to
terminate at any time the employment of Optionee. Nothing contained herein
shall confer any rights upon Optionee as a stockholder of TeleTech, unless
and until Optionee actually receives Shares.
9. COMPLIANCE WITH SECURITIES LAWS. The Option shall not be
exercisable and Shares shall not be issued pursuant to exercis e of the
Option unless the exercise of the Option and the issuance and delivery of
Shares pursuant thereto shall comply with all relevant provisions of law
including, without limitation, the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which Common Stock may then be listed, and shall be further
subject to the approval of counsel for TeleTech with respect to such
compliance. If, in the opinion of counsel for TeleTech, a representation is
required to be made by Optionee in order to satisfy any of the foregoing
relevant provisions of law, TeleTech may, as a condition to the exercise of
the Option, require Optionee to represent and warrant at the time of exercise
that the Shares to be delivered as a result of such exercise are being
acquired solely for investment and without any present intention to sell or
distribute such Shares.
10. ADJUSTMENTS. Subject to the sole discretion of the Board of
Directors, TeleTech may, with respect to any unexercised portion of the
Option, make any adjustments necessary to prevent accretion, or to protect
against dilution, in the number and kind of shares covered by the Option and
in the applicable exercise price thereof in the event of a change in the
corporate structure or shares of TeleTech; provided, however, that no
adjustment shall be made for the issuance of preferred stock of TeleTech or
the conversion of convertible preferred stock of TeleTech. For purposes of
this Section 10, a change in the corporate structure or shares of TeleTech
includes, without limitation, any change resulting from a recapitalization,
stock split, stock dividend, consolidation, rights offering, spin-off,
reorganization or liquidation, and any transaction in which shares of Common
Stock are changed into or exchanged for a different number or kind of shares
of stock or other securities of TeleTech or another entity.
11. NO OTHER RIGHTS. Optionee hereby acknowledges and agrees that,
except as set forth herein, no other representations or promises, either oral
or written, have been made by TeleTech, any Subsidiary or anyone acting on
their behalf with respect to Optionee's right to
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<PAGE>
acquire any shares of Common Stock, stock options or awards under the Plan,
and Optionee hereby releases, acquits and forever discharges TeleTech, the
Subsidiaries and anyone acting on their behalf of and from all claims,
demands or causes of action whatsoever relating to any such representations
or promises and waives forever any claim, demand or action against TeleTech,
any Subsidiary or anyone acting on their behalf with respect thereto.
12. CONFIDENTIALITY. OPTIONEE AGREES NOT TO DISCLOSE, DIRECTLY OR
INDIRECTLY, TO ANY OTHER EMPLOYEE OF TELETECH AND TO KEEP CONFIDENTIAL ALL
INFORMATION RELATING TO ANY OPTIONS OR OTHER AWARDS GRANTED TO OPTIONEE,
PURSUANT TO THE PLAN OR OTHERWISE, INCLUDING THE AMOUNT OF ANY SUCH AWARD,
THE EXERCISE PRICE AND THE RATE OF VESTING THEREOF; PROVIDED THAT OPTIONEE
SHALL BE ENTITLED TO DISCLOSE SUCH INFORMATION TO SUCH OF OPTIONEE'S
ADVISORS, REPRESENTATIVES OR AGENTS, OR TO SUCH OF TELETECH'S OFFICERS,
ADVISORS, REPRESENTATIVES OR AGENTS (INCLUDING LEGAL AND ACCOUNTING
ADVISORS), WHO HAVE A NEED TO KNOW SUCH INFORMATION FOR LEGITIMATE TAX,
FINANCIAL PLANNING OR OTHER SUCH PURPOSES.
13. SEVERABILITY. Any provision of this Agreement (or portion
thereof) that is deemed invalid, illegal or unenforceable in any jurisdiction
shall, as to that jurisdiction and subject to this Section 13, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions thereof in such jurisdiction or
rendering that or any other provisions of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
14. REFERENCES. Capitalized terms not otherwise defined herein
shall have the same meaning ascribed to them in the Plan.
15. ENTIRE AGREEMENT. This Agreement (including the Plan, which is
incorporated herein) constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior and
contemporaneous agreements, oral or written, between TeleTech and Optionee
relating to Optionee's entitlement to stock options, Common Stock or similar
benefits, under the Plan or otherwise.
16. AMENDMENT. This Agreement may be amended and/or terminated at
any time by mutual written agreement of TeleTech and Optionee.
17. NO THIRD PARTY BENEFICIARY. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than Optionee
and Optionee's respective successors and assigns expressly permitted herein,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
18. GOVERNING LAW. The construction and operation of this Agreement
are governed
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<PAGE>
by the laws of the State of Delaware (without regard to its conflict of laws
provisions).
-8-
<PAGE>
Executed as of the date first written above.
TELETECH HOLDINGS, INC.
By:
-------------------------------------
Norman Blome,
Chief Financial Officer
----------------------------------------
Signature of Optionee
Scott Thompson
----------------------------------------
Printed Name of Optionee
###-##-####
----------------------------------------
Optionee's Social Security Number
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<PAGE>
TELETECH HOLDINGS, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (the "AGREEMENT") is entered
into between TELETECH HOLDINGS, INC., a Delaware corporation ("TELETECH"),
and Scott Thompson ("OPTIONEE"), as of October 18, 1999 (the "GRANT DATE").
In consideration of the mutual promises and covenants made herein, the
parties hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of the
TeleTech Holdings, Inc. Stock Plan (the "PLAN"), a copy of which is attached
hereto as Exhibit A and incorporated herein by this reference, TeleTech
grants to Optionee an option (the "OPTION") to purchase 700,000 shares (the
"SHARES") of TeleTech's common stock, $.01 par value (the "COMMON STOCK"), at
a price equal to $13.125 per share (the "OPTION PRICE"). The Option Price has
been determined by the Compensation Committee of the Board of Directors of
TeleTech (the "COMMITTEE"), acting in good faith, to be the fair market value
of the Common Stock on the Grant Date based upon the last sale price for
Common Stock reported by The Nasdaq Stock Market, Inc. ("Nasdaq") as of the
close of business on the Grant Date.
The Option is not intended to qualify as an incentive stock option
described in Section 422 of the Internal Revenue Code of 1986, as amended
(the "CODE"). All provisions of this Agreement are to be construed in
conformity with this intention.
2. TERM: OPTION RIGHTS. Except as provided below, the Option shall
be valid for a term commencing on the Grant Date and ending 10 years after
the Grant Date (the "EXPIRATION DATE").
(a) RIGHTS UPON TERMINATION OF EMPLOYMENT. If Optionee
ceases to be employed by TeleTech or any of its subsidiaries or affiliates
(collectively, the "SUBSIDIARIES") for any reason other than (i) for "Cause"
(as defined herein), (ii) Optionee's death, or (iii) Optionee's mental,
physical or emotional disability or condition (a "DISABILITY"), the Option
shall be exercisable at any time prior to the earlier of the Expiration Date
or the date three months after the date of termination of Optionee's
employment.
(b) RIGHTS UPON TERMINATION FOR CAUSE. If Optionee's
employment with TeleTech and/or its Subsidiaries is terminated for Cause, the
Option shall be immediately cancelled, no portion of the Option may be
exercised thereafter and Optionee shall forfeit all rights to the Option. The
term "Cause" shall have the meaning given to such term or to the term "For
Cause" or other similar phrase in Optionee's Employment Agreement with
TeleTech or any Subsidiary; provided, however, that (i) if at any time
Optionee's employment with TeleTech or any Subsidiary is not governed by an
employment agreement, then the term "Cause" shall have the meaning given to
such term in the Plan, and (ii) "Cause" shall exclude Optionee's death or
Disability.
(c) RIGHTS UPON OPTIONEE'S DEATH OR DISABILITY. If
Optionee's employment
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<PAGE>
with TeleTech and/or its Subsidiaries is terminated as a result of (i)
Optionee's death, the Option may be exercised at any time prior to the
earlier of the Expiration Date or the date six months after the date of
Optionee's death, or (ii) Optionee's Disability, the Option may be exercised
at any time prior to the earlier of the Expiration Date or the date six
months after the date of Optionee's employment is terminated as a result of
Optionee's Disability.
3. VESTING. The Option may only be exercised to the extent vested.
Any vested portion of the Option may be exercised at any time in whole or
from time to time in part. The Option shall vest in accordance with the
following schedule (each date set forth below, a "VESTING DATE"):
<TABLE>
<CAPTION>
Cumulative
Percentage of
Vesting Date Option Vested
------------ -------------
<S> <C>
October 18, 2000 20%
October 18, 2001 40%
October 18, 2002 60%
October 18, 2003 80%
October 18, 2004 100%
</TABLE>
Optionee must be employed by TeleTech or any Subsidiary on any Vesting Date,
in order to vest in the portion of the Option set forth in the chart above
that vests on such Vesting Date. Except as provided in Section 3A below, no
portion of the Option shall vest between Vesting Dates; if Optionee ceases to
be employed by TeleTech or any Subsidiary, then any portion of the Option
that is scheduled to vest on any Vesting Date after the date Optionee's
employment is terminated automatically shall be forfeited as of the
termination of employment. Except as provided in Section 3A below, if
Optionee's employment with TeleTech or any Subsidiary is terminated for any
reason, any portion of the Option which is not then vested shall be
immediately forfeited; provided, however, that a transfer or reassignment of
Optionee from TeleTech to any Subsidiary, or VICE VERSA, shall not constitute
a termination of employment for purposes of this Agreement.
3A. ACCELERATED VESTING.
(a) VESTING FOLLOWING A CHANGE IN CONTROL. Notwithstanding
the vesting schedule contained in Section 3,
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<PAGE>
(i) upon a Change in Control (as hereinafter
defined), any unvested portion of the Option that is scheduled to vest
(pursuant to Section 3) within 24 months following the date the Change of
Control becomes effective shall vest and become immediately exercisable as of
the effective date of the Change of Control, with the remainder of the
unvested portion of the Option vesting pursuant to Section 3, as accelerated
by this Section 3A and clarified by the following example:
For example, assume that on June 1, 1999 an optionee was granted
an option to acquire 10,000 shares of Common Stock, which option
vests over five years, pro rata, on each anniversary of the grant
date. On June 5, 2000, a Change of Control is consummated. As of
June 5, 2000, the optionee will be fully vested in the option with
respect to 6,000 shares (i.e., the 2,000 shares that vested on
June 1, 2000, plus an additional 4,000 shares that vested on June
5, 2000 in accordance with the accelerated vesting provisions of
this Section 3A), and the remaining unvested portion of the option
would vest (assuming all other conditions to vesting are
satisfied) with respect to the remaining 4,000 shares on each of
June 1, 2001 (2,000 shares) and June 2, 2002 (2,000 shares).
(ii) if Optionee's employment with TeleTech or any
Subsidiary is terminated within 24 months following a Change in Control, then
the entire amount of the Option shall become 100% vested and immediately
exercisable as of the Termination Date (as defined herein); PROVIDED, HOWEVER,
that the accelerated vesting described in the foregoing clause (ii) shall not
apply if Optionee's employment with TeleTech is terminated (A) by Optionee for
any reason other than for "Good Reason" (as defined herein), or (B) by TeleTech
for "Cause" (as defined herein).
(b) DEFINITION OF "CHANGE IN CONTROL". For purposes of this
Agreement, "CHANGE IN CONTROL" means the occurrence of any one of the following
events:
(i) any consolidation, merger or other similar
transaction (A) involving TeleTech, if TeleTech is not the continuing or
surviving corporation, or (B) which contemplates that all or substantially all
of the business and/or assets of TeleTech will be controlled by another
corporation;
(ii) any sale, lease, exchange or transfer (in one
transaction or series of related transactions) of all or substantially all of
the assets of TeleTech (a "DISPOSITION"); PROVIDED, HOWEVER, that the foregoing
shall not apply to any Disposition to a corporation with respect to which,
following such Disposition, more than 51% of the combined voting power of the
then outstanding voting securities of such corporation is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners of at least 51% of the then
outstanding Common
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<PAGE>
Stock and/or other voting securities of TeleTech immediately prior to such
Disposition, in substantially the same proportion as their ownership
immediately prior to such Disposition;
(iii) approval by the stockholders of TeleTech of any
plan or proposal for the liquidation or dissolution of TeleTech, unless such
plan or proposal is abandoned within 60 days following such approval;
(iv) the acquisition by any "person" (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended), or two or more persons acting in concert, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended) of 51% or more of the outstanding shares of
voting stock of TeleTech; PROVIDED, HOWEVER, that for purposes of the
foregoing, "person" excludes Kenneth D. Tuchman and his affiliates; PROVIDED,
FURTHER that the foregoing shall exclude any such acquisition (A) by any
person made directly from TeleTech, (B) made by TeleTech or any Subsidiary,
or (C) made by an employee benefit plan (or related trust) sponsored or
maintained by TeleTech or any Subsidiary; or
(v) if, during any period of 15 consecutive calendar
months commencing on September 1, 1999, those individuals (the "CONTINUING
DIRECTORS") who either (A) were directors of TeleTech on the first day of
each such 15-month period, or (B) subsequently became directors of TeleTech
and whose actual election or initial nomination for election subsequent to
that date was approved by a majority of the Continuing Directors then on the
board of directors of TeleTech, cease to constitute a majority of the board
of directors of TeleTech.
(c) OTHER DEFINITIONS. For purposes of this Section 3A, the
following terms have the meanings ascribed to them below:
(i) "CAUSE" has the meaning given to such term, or to
the term "For Cause" or other similar phrase, in Optionee's Employment
Agreement with TeleTech or any Subsidiary, if any; PROVIDED, HOWEVER, that if
at any time Optionee's employment with TeleTech or any Subsidiary is not
governed by an employment agreement, then the term "Cause" shall have the
meaning given to such term in the Plan; PROVIDED, FURTHER, that,
notwithstanding the provisions of Optionee's Employment Agreement or of the
Plan, for purposes of this Agreement, TeleTech shall have the burden to prove
that Optionee's employment was terminated for "Cause."
(ii) "TERMINATION DATE" means the latest day on which
Optionee is expected to report to work and is responsible for the performance
of services to or on behalf of TeleTech or any Subsidiary, notwithstanding
that Optionee may be entitled to receive payments from TeleTech (e.g., for
unused vacation or sick time, severance payments, deferred compensation or
otherwise) after such date; and
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<PAGE>
(iii) "GOOD REASON" means (A) any reduction in
Optionee's base salary; PROVIDED THAT a reduction in Optionee's base salary
of 10% or less does not constitute "Good Reason" if such reduction is
effected in connection with a reduction in compensation that is applicable
generally to officers and senior management of TeleTech; (B) Optionee's
responsibilities or areas of supervision within TeleTech or its Subsidiaries
are substantially reduced; or (C) Optionee's principal office is relocated
outside the metropolitan area in which Optionee's office was located
immediately prior to the Change in Control; PROVIDED, HOWEVER, that temporary
assignments made for the good of TeleTech's business shall not constitute
such a move of office location; or (D) for any reason defined as "Good Cause"
in Optionee's Employment Agreement with TeleTech or any subsidiary.
(d) VESTING FOLLOWING TERMINATION BY TELETECH OTHER THAN FOR
CAUSE. In the event that Optionee's employment with TeleTech is terminated by
TeleTech for any reason other than for "Cause" (as defined above) within one
year of the Grant Date, the unvested portion of the Option that is scheduled
to vest on October 18, 2000, including any portion of the Option which has
vested in accordance with Section 3A(e) below as of the Termination Date,
shall vest and become immediately exercisable as of the day after Optionee's
last day of employment with TeleTech.
(e) VESTING BASED ON PERFORMANCE CRITERIA. In the event that
TeleTech's closing stock price, as reported by Nasdaq, is equal to, or
exceeds, any one of the per share prices set forth below for 120 consecutive
days (the "Price Period"), the following percentage of the portion of the
Option then remaining unvested shall vest and become immediately exercisable
as of the last day of such Price Period:
<TABLE>
<CAPTION>
Price Per Share Percentage of Option Vested
--------------- ---------------------------
<S> <C>
$ 25.00 25%
$ 30.00 50%
$ 40.00 75%
$ 50.00 100%
</TABLE>
4. PROCEDURE FOR EXERCISE. Exercise of the Option or a portion
thereof shall be effected by the giving of written notice to TeleTech in
accordance with the Plan and payment of the aggregate Option Price for the
number of Shares to be acquired pursuant to such exercise.
5. PAYMENT FOR SHARES. Payment of the Option Price (or portion
thereof) shall be made in cash or by such other method as may be permitted by
the Committee in accordance with the provisions of the Plan. No Shares shall
be delivered upon exercise of the Option until full payment has been made and
all applicable withholding requirements satisfied.
6. OPTIONS NOT TRANSFERABLE AND SUBJECT TO CERTAIN RESTRICTIONS.
The Option may
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<PAGE>
not be sold, pledged, assigned or transferred in any manner other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined in Section 414(p) of the Code. During
Optionee's lifetime, the Option may be exercised only by the Optionee or by a
legally authorized representative. In the event of Optionee's death, the
Option may be exercised by the distributee to whom Optionee's rights under
the Option shall pass by will or by the laws of descent and distribution.
7. ACCEPTANCE OF PLAN. Optionee hereby accepts and agrees to be
bound by all the terms and conditions of the Plan.
8. NO RIGHT TO EMPLOYMENT. Nothing herein contained shall confer
upon Optionee any right to continuation of employment by TeleTech or any
Subsidiary, or interfere with the right of TeleTech or any Subsidiary to
terminate at any time the employment of Optionee. Nothing contained herein
shall confer any rights upon Optionee as a stockholder of TeleTech, unless
and until Optionee actually receives Shares.
9. COMPLIANCE WITH SECURITIES LAWS. The Option shall not be
exercisable and Shares shall not be issued pursuant to exercise of the Option
unless the exercise of the Option and the issuance and delivery of Shares
pursuant thereto shall comply with all relevant provisions of law including,
without limitation, the Securities Act of 1933, as amended (the "SECURITIES
ACT"), the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock
exchange upon which Common Stock may then be listed, and shall be further
subject to the approval of counsel for TeleTech with respect to such
compliance. If, in the opinion of counsel for TeleTech, a representation is
required to be made by Optionee in order to satisfy any of the foregoing
relevant provisions of law, TeleTech may, as a condition to the exercise of
the Option, require Optionee to represent and warrant at the time of exercise
that the Shares to be delivered as a result of such exercise are being
acquired solely for investment and without any present intention to sell or
distribute such Shares.
10. ADJUSTMENTS. Subject to the sole discretion of the Board of
Directors, TeleTech may, with respect to any unexercised portion of the
Option, make any adjustments necessary to prevent accretion, or to protect
against dilution, in the number and kind of shares covered by the Option and
in the applicable exercise price thereof in the event of a change in the
corporate structure or shares of TeleTech; provided, however, that no
adjustment shall be made for the issuance of preferred stock of TeleTech or
the conversion of convertible preferred stock of TeleTech. For purposes of
this Section 10, a change in the corporate structure or shares of TeleTech
includes, without limitation, any change resulting from a recapitalization,
stock split, stock dividend, consolidation, rights offering, spin-off,
reorganization or liquidation, and any transaction in which shares of Common
Stock are changed into or exchanged for a different number or kind of shares
of stock or other securities of TeleTech or another entity.
11. NO OTHER RIGHTS. Optionee hereby acknowledges and agrees that,
except as set forth herein, no other representations or promises, either oral
or written, have been made by TeleTech, any Subsidiary or anyone acting on
their behalf with respect to Optionee's right to
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<PAGE>
acquire any shares of Common Stock, stock options or awards under the Plan,
and Optionee hereby releases, acquits and forever discharges TeleTech, the
Subsidiaries and anyone acting on their behalf of and from all claims,
demands or causes of action whatsoever relating to any such representations
or promises and waives forever any claim, demand or action against TeleTech,
any Subsidiary or anyone acting on their behalf with respect thereto.
12. CONFIDENTIALITY. OPTIONEE AGREES NOT TO DISCLOSE, DIRECTLY OR
INDIRECTLY, TO ANY OTHER EMPLOYEE OF TELETECH AND TO KEEP CONFIDENTIAL ALL
INFORMATION RELATING TO ANY OPTIONS OR OTHER AWARDS GRANTED TO OPTIONEE,
PURSUANT TO THE PLAN OR OTHERWISE, INCLUDING THE AMOUNT OF ANY SUCH AWARD,
THE EXERCISE PRICE AND THE RATE OF VESTING THEREOF; PROVIDED THAT OPTIONEE
SHALL BE ENTITLED TO DISCLOSE SUCH INFORMATION TO SUCH OF OPTIONEE'S
ADVISORS, REPRESENTATIVES OR AGENTS, OR TO SUCH OF TELETECH'S OFFICERS,
ADVISORS, REPRESENTATIVES OR AGENTS (INCLUDING LEGAL AND ACCOUNTING
ADVISORS), WHO HAVE A NEED TO KNOW SUCH INFORMATION FOR LEGITIMATE TAX,
FINANCIAL PLANNING OR OTHER SUCH PURPOSES.
13. SEVERABILITY. Any provision of this Agreement (or portion
thereof) that is deemed invalid, illegal or unenforceable in any jurisdiction
shall, as to that jurisdiction and subject to this Section 13, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions thereof in such jurisdiction or
rendering that or any other provisions of this Agreement invalid, illegal, or
unenforceable in any other jurisdiction.
14. REFERENCES. Capitalized terms not otherwise defined herein
shall have the same meaning ascribed to them in the Plan.
15. ENTIRE AGREEMENT. This Agreement (including the Plan, which is
incorporated herein) constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior and
contemporaneous agreements, oral or written, between TeleTech and Optionee
relating to Optionee's entitlement to stock options, Common Stock or similar
benefits, under the Plan or otherwise.
16. AMENDMENT. This Agreement may be amended and/or terminated at
any time by mutual written agreement of TeleTech and Optionee.
17. NO THIRD PARTY BENEFICIARY. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than Optionee
and Optionee's respective successors and assigns expressly permitted herein,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
18. GOVERNING LAW. The construction and operation of this Agreement
are governed
-7-
<PAGE>
by the laws of the State of Delaware (without regard to its conflict of laws
provisions).
-8-
<PAGE>
Executed as of the date first written above.
TELETECH HOLDINGS, INC.
By:
-------------------------------------
Norman Blome,
Chief Financial Officer
----------------------------------------
Signature of Optionee
Scott Thompson
----------------------------------------
Printed Name of Optionee
###-##-####
----------------------------------------
Optionee's Social Security Number
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TELETECH
HOLDINGS, INC.'S 1999 THIRD QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 20,254
<SECURITIES> 37,273
<RECEIVABLES> 80,462
<ALLOWANCES> 3,448
<INVENTORY> 0
<CURRENT-ASSETS> 143,092
<PP&E> 157,243
<DEPRECIATION> 56,479
<TOTAL-ASSETS> 279,986
<CURRENT-LIABILITIES> 62,552
<BONDS> 24,769
0
0
<COMMON> 612
<OTHER-SE> 191,027
<TOTAL-LIABILITY-AND-EQUITY> 279,986
<SALES> 357,334
<TOTAL-REVENUES> 357,334
<CGS> 238,072
<TOTAL-COSTS> 329,315
<OTHER-EXPENSES> (8,645)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,460
<INCOME-PRETAX> 35,204
<INCOME-TAX> 14,108
<INCOME-CONTINUING> 21,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,096
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.34
</TABLE>
