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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998, 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.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 84-1291044
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1700 Lincoln Street, Suite 1400, Denver, Colorado 80203
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(Address of Principal Executive Offices) (Zip Code)
(303) 894-4000
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g)of the Act: Common Stock,
$.01 par value per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. Yes X No
---- ----
As of March 25, 1999, there were 61,056,310 shares of the
registrant's common stock outstanding. The aggregate market value of the
registrant's voting stock that was held by non-affiliates on such date was
$154,609,728 based on the closing sale price of the registrant's common stock
on such date as reported on the Nasdaq Stock Market.
Documents Incorporated by Reference:
Portions of TeleTech Holdings, Inc.'s proxy statement for its annual
meeting of stockholders to be held on May 13, 1999, are incorporated by
reference into Part III of this Form 10-K, as indicated.
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PART I
ITEM 1. BUSINESS.
OVERVIEW
TeleTech Holdings, Inc. (together with its wholly owned
subsidiaries, the Company or TeleTech) is a leading provider of customer
management solutions for large and multinational companies. TeleTech helps
its clients acquire, serve and retain their customers by strategically
managing inbound telephone, Internet and PC-based video inquiries on their
behalf. Such programs include both automated and human-assisted support and
involve all stages of the customer relationship. Programs consist of a
variety of customer service and product support activities, such as providing
new product information, enrolling customers in client programs, providing
24-hour technical and help desk support, resolving customer complaints and
conducting satisfaction surveys. The Company's customer management solution
encompasses the following capabilities:
- strategic consulting and process redesign;
- infrastructure deployment including the securing, designing and
building of world-class customer interaction centers;
- recruitment, education and management of client-dedicated customer
care representatives;
- engineering operational process controls and quality systems;
- technology consulting and implementation, including the integration of
hardware, software, network and computer-telephony technology; and
- database management, which involves the accumulation, management and
analysis of customer information to deliver actionable marketing
solutions.
TeleTech delivers its customer management services mostly through
customer-initiated (inbound) telephone calls and over the Internet. Services
are provided via automated support and by trained customer care
representatives (representatives) in response to an inquiry that a customer
makes by calling a toll-free telephone number or by sending an Internet
message.
Representatives respond to customer inquiries from customer
interaction centers utilizing state-of-the-art workstations, which operate on
TeleTech's advanced technology platform, enabling the representatives to
provide rapid, single-call resolution. This technology platform incorporates
digital switching, client/server technology, object-oriented software
modules, relational database management systems, proprietary call tracking
management software, computer telephony integration and interactive voice
response.
TeleTech provides services from customer interaction centers leased,
equipped and staffed by TeleTech (fully outsourced programs) and from
customer interaction centers leased and equipped by its clients and staffed
by TeleTech (facilities management programs). The Company's fully outsourced
customer interaction centers are utilized to serve either multiple clients
(shared centers) or one dedicated client (dedicated centers). TeleTech
typically establishes long-term, strategic relationships, formalized by
multiyear contracts, with selected clients in the telecommunications,
technology, transportation, financial services, government services,
healthcare and utilities industries. TeleTech targets clients in these
industries because of their complex product and service offerings and large
customer bases, which require frequent, increasingly sophisticated, customer
interactions. For example, the Company has entered into multiyear,
multi-facility contracts with the U.S. Postal Service (the Postal Service)
and GTE Communications Corporation (GTE).
The Company was founded in 1982 and has been providing primarily
inbound customer management solutions since its inception. As of December 31,
1998, TeleTech leased or managed a total of 24 customer interaction centers,
14 located in the United States, three in Canada, two in Australia and one
each in Brazil, Mexico, New Zealand, Singapore and the United Kingdom,
equipped with a total of 9,435 state-of-the-art workstations. In 1999, the
Company plans to deploy two dedicated centers in the U.S.: one in Topeka,
Kansas, and a second in a location to be determined. In addition, the Company
plans to deploy four shared centers in 1999: in Australia; Brazil; Canada;
and one additional U.S location. No other new shared centers are scheduled
for construction until existing capacity is sold.
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SERVICES
TeleTech offers fully integrated customer management solutions
encompassing strategy, infrastructure, education, technology and marketing
solutions. TeleTech works closely with its clients to rapidly design and
implement large-scale, tailored customer management programs that provide
comprehensive solutions to their specific business needs. An integral
component of TeleTech's service offering is strategic consulting, by which
the Company develops and applies improved processes to make a client's
customer management or product support processes more cost-effective,
productive and valuable. At the start of a potential new client relationship,
TeleTech assesses the client's existing capabilities; goals and strategies;
customer service or product support processes and related software, hardware
and telecommunications systems; training; real estate project development;
and facilities management and develops a tailored customer management
solution based on its assessment. After presenting a proposed solution and
being awarded a contract, TeleTech works closely with the client to further
develop, refine and implement more efficient and productive customer
interaction processes and technological solutions that link the customer, the
client and TeleTech. These processes generally include the development of
event-driven software programs for customer interactions where the script
being followed by a representative changes depending upon information
contained in the customer file or on information gathered during the
representative's interaction with the customer.
After the Company designs and develops a customer management
program, representatives provide a wide range of ongoing voice and data
communications services incorporating one or more customer acquisition,
service and retention or satisfaction and loyalty programs. In a typical
inbound customer interaction, a customer calls a toll-free number to request
product, service or technical information or assistance. TeleTech's advanced
telecommunications system identifies each inbound call by its telephone
number and routes the call to an appropriate representative who is trained
for that particular client program. Upon receipt of the call, the
representative's computer screen automatically displays the client's specific
product, service or technical information to enable the representative to
assist the customer. TeleTech also has extended its capabilities to
incorporate multimedia technology for customer interactions, including the
Internet, e-mail and interactive video.
In 1998, the Company acquired three technology companies to broaden
its service offering. In February 1998, the Company acquired Intellisystems,
Inc., a leading developer of patented automated product support solutions.
Intellisystems' products electronically resolve a significant percentage of
customer inquiries coming into a Web site or customer interaction center via
the telephone, Internet, e-mail or fax-on-demand. During the year,
Intellisystems also incorporated speech recognition capabilities into its
system. In June 1998, the Company acquired Digital Creators, Inc., a leading
developer of Web-based applications, with special emphasis on distance-based
education and training. Digital Creators develops and designs Web sites,
distance-based learning courses and electronic performance support systems
that incorporate real-time performance feedback onto the desktop.
Additionally, in December 1998, the Company acquired Cygnus Computer
Associates Ltd., a Canadian provider of systems integration and call center
solutions. Cygnus provides a comprehensive software and integration solution
to help companies integrate both their legacy systems and customer service
applications with varied customer contact channels, including the Internet,
telephone and interactive voice response.
Each customer interaction, even in its simplest form, presents
TeleTech and its clients with an opportunity to gather valuable customer
information, including the customer's demographic profile and preferences.
This information can prompt the representative to make logical, progressive
inquiries about the customer's interest in additional services, identify
additional revenue-generating and cross-selling opportunities, or resolve
other customer issues relating to a client's products or services. The
Company is looking to further strengthen its existing database management
capabilities, most likely through acquisition.
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TeleTech frequently provides several of the services listed below in
an integrated program tailored to its clients' needs:
CUSTOMER ACQUISITION PROGRAMS. Customer acquisition programs are
designed to secure new customers and can include a wide range of activities
depending upon the customer inquiry. A sampling of these services includes:
- providing presales product or service education;
- processing and fulfilling information requests for product or service
offerings;
- verifying sales and activating services;
- directing callers to product or service sources;
- receiving orders for and processing purchases of products or services;
and
- providing initial post-sales support, including operating instructions
for new product or service use.
CUSTOMER SERVICE AND RETENTION PROGRAMS. Customer service and
retention programs are designed to maintain and extend the customer
relationship and maximize the long-term value of a client's relationships
with its customers. These programs generally are driven by the customer's
purchase of a product or service, or by the customer's need for ongoing help
desk resources. The majority of the Company's revenues are generated by the
provision of customer service and retention programs. A sampling of these
services includes:
- providing technical help desk, product or service support;
- activating product or service upgrades;
- responding to billing and other account inquiries;
- resolving complaints and product or service problems;
- registering warranty information; and
- dispatching on-site service.
CUSTOMER SATISFACTION AND LOYALTY PROGRAMS. Customer satisfaction
and loyalty programs enable clients to learn from their customers, be more
responsive to customers' needs and concerns, and reward customers for their
continued patronage. A sampling of these services includes:
- responding to client promotional, affinity-building programs;
- developing and implementing client-branded loyalty programs;
- conducting satisfaction assessments;
- confirming receipt of promised products or services; and
- reserving and reconfirming reservations at product or service
seminars.
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MARKETS AND CLIENTS
TeleTech focuses its marketing efforts on large and multinational
companies in the telecommunications, technology, transportation, financial
services, government services and healthcare industries, which accounted for
approximately 38%, 25%, 13%, 10%, 8% and 4%, respectively, of the Company's
revenues in 1998. The Company is also currently developing opportunities in
the utilities marketplace given the deregulation and privatization taking
place in the industry. Other industries, including utilities, accounted for
2% of the Company's revenues in 1998. The Company's three largest clients in
1998 were GTE, United Parcel Service and AT&T which accounted for
approximately 25%, 13% and 8%, respectively, of the Company's revenues. (See
"Risk Factors -- Reliance on a Few Major Clients" on page 10.) TeleTech's
Strategic Business Units (SBUs) are responsible for developing and
implementing customized, industry-specific customer management solutions for
clients in these target industries. TeleTech's healthcare and utilities SBUs
are still in the development stage.
TELECOMMUNICATIONS. The telecommunications SBU primarily serves
long-distance, local and wireless telephone service providers, including GTE
and AT&T and certain regional Bell operating companies. Services include
verifying long-distance service sales, responding to customer inquiries,
providing consumer and business telephone service account management and
providing ongoing product and service support. TeleTech believes that the
Telecommunications Act of 1996, which has removed barriers to competition in
and between the local and long-distance telephone markets within the United
States, and the development of new wireless products, including those
utilizing personal communication services (PCS) technology, are expanding the
breadth of products and services that require customer service and support
and will create additional demand for TeleTech's services within the
telecommunications industry.
TECHNOLOGY. The growth of high technology products and services,
including Internet-related products and services, has increased demand for
consumer and technical product support. TeleTech provides technical support
to a number of Internet Service Providers (ISPs), including GTE in the United
States, and several international ISPs. TeleTech intends to further utilize
its technological capabilities to serve customers over the Internet and is
exploring business opportunities related to new interactive media.
TRANSPORTATION. TeleTech's transportation SBU provides a variety of
services to clients in the package delivery and travel industries. Since
1996, TeleTech has managed three customer interaction centers and provided
customer service and support on behalf of United Parcel Service, one of the
nation's largest parcel delivery companies. Under its five-year contract,
TeleTech provides services to United Parcel Service from three centers leased
by United Parcel Service but staffed and managed by TeleTech.
FINANCIAL SERVICES. In 1998, TeleTech signed two multiyear
agreements with leading financial services institutions, including a large
Canadian insurance company and a prominent North American provider of
financial services, to provide comprehensive customer management solutions.
In addition, TeleTech provides customer services for several large Australian
banks from its customer interaction centers in Australia and New Zealand. The
Australian and New Zealand operations also provide customer management
solutions to customers of insurance companies and automobile club clients.
Solutions include providing emergency home repair assistance, responding to
customer inquiries regarding property damage and insurance coverage,
procuring emergency roadside automobile and medical assistance and
facilitating motor vehicle insurance claims.
GOVERNMENT SERVICES. In August 1998, the Postal Service awarded
TeleTech a second contract to develop a customer interaction center and to
deploy people, infrastructure and processes to provide customer service and
support to Postal Service customers. In September 1998, TeleTech was awarded
a multiyear contract from Science Applications International Corporation
(SAIC) to provide customer interaction support for instant background checks
of prospective firearm purchasers on behalf of the Federal Bureau of
Investigation (FBI). Additionally, in January 1999, TeleTech was selected to
partner with EDS to provide customer interaction center support, application
development and quality assurance for the Year 2000 Census.
HEALTHCARE. TeleTech provides customer management solutions on
behalf of healthcare providers located primarily in Australia and New
Zealand. Services include emergency and non-emergency medical information and
referral services; information and assistance to parents of newborns;
information about drug interventions; referrals to
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community support organizations such as home care, child care and counseling
options; and medical claims review services. The Company provides these
services to customers by means of telephone access to registered nurses,
counselors, pharmacists, medical librarians, dieticians and other specially
trained representatives.
SALES AND MARKETING
As most companies consider the customer management function to be
strategic in nature, the Company's business development personnel generally
focus their marketing efforts on potential clients' senior executives. For
each SBU, TeleTech hires business development personnel who have substantial
industry expertise and can identify and generate sales leads. TeleTech
employs a consultative approach in assessing the current and prospective
needs of a potential client. Following initial discussions with a potentially
significant client, a carefully chosen TeleTech team, usually composed of
applications and systems specialists, operations experts, human resources
professionals and other appropriate management personnel, thoroughly studies
the client's operations. The Company invests significant resources during the
development of a potentially large client relationship to understand the
client's existing customer service processes, culture, decision parameters
and goals and strategies. TeleTech assesses the client's customer management
needs and, with input from the client, develops and implements tailored
customer management solutions.
As a result of its consultative approach, TeleTech can identify new
revenue-generating opportunities, customer communication possibilities and
product or service improvements previously overlooked or not adequately
addressed by the client. TeleTech's technological capabilities enable it to
develop working prototypes of proposed customer management programs and to
rapidly implement strategic customer management solutions, generally with
minimal capital investment by the client.
TeleTech generally provides customer management solutions pursuant
to written contracts with terms ranging from one to seven years, which often
contain renewal or extension options. Under substantially all of its
significant contracts, TeleTech generates revenues based on the amount of
time representatives devote to a client's program. In addition, clients
typically are required to pay fees relating to TeleTech's education and
training of representatives to implement the client's program, setup and
management of the program, and development and integration of computer
software and technology. TeleTech typically negotiates a Client Services
Agreement (CSA) with each of its clients. The CSA generally contains
provisions that (i) allow TeleTech or the client to terminate the contract
upon the occurrence of certain events, (ii) designate the manner by which
TeleTech is to receive payment for its services, (iii) limit TeleTech's
maximum liability to the client thereunder and (iv) protect the
confidentiality and ownership of information and materials owned by TeleTech
or the client that are used in connection with the performance of the
contract. Many of TeleTech's contracts also require the client to pay
TeleTech a contractually agreed amount in the event of early termination.
TeleTech's material contracts generally have terms of at least two years and,
in some cases, contain contractual provisions adjusting the amount of
TeleTech's fees if there are significant variances from estimated
implementation expenses.
OPERATIONS
TeleTech provides its customer management services through the
operation of 24 state-of-the-art customer interaction centers located in the
United States, Australia, Brazil, Canada, Mexico, New Zealand, Singapore and
the United Kingdom. As of December 31, 1998, TeleTech leased 19 customer
interaction centers and also managed five customer interaction centers on
behalf of three clients. TeleTech expects to open three new U.S. and three
new international customer interaction centers in 1999. TeleTech has received
ISO 9002 certification for nine of its U.S. customer interaction centers and
for its three customer interaction centers in Australia and New Zealand.
TeleTech plans to certify additional customer interaction centers in 1999.
TeleTech uses standardized development procedures to minimize the
time it takes to open a new customer interaction center. The Company applies
predetermined site selection criteria to identify locations conducive to
operating large-scale, sophisticated customer management facilities in a
cost-effective manner. TeleTech can establish a new, fully operational,
inbound customer interaction center containing 450 or more workstations
within 90 to 180 days. TeleTech's corporate real estate delivery practices
and processes drive the development and management of
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world-class customer interaction centers. TeleTech site selection processes
are based on extensive geographic analyses of labor demographics, economic
incentives and competitive market development costs.
Customer interaction center capacity is determined both by
geographical analysis and site selection as well as complexity and type of
customer management programs provided. The Company's U.S.-leased, full-scale
customer interaction centers range in size from 31,000 to 90,000 square feet
and contain between 352 and 600 production workstations. Although the
dimensions of its existing customer interaction centers currently are not
uniform, the Company has developed a standardized technology and
infrastructure platform for TeleTech-leased customer interaction centers. The
Company expects that new U.S. customer interaction centers will contain
approximately 50,000 to 65,000 square feet of space and between 300 to 450
workstations.
CUSTOMER INTERACTION CENTER MANAGEMENT. TeleTech manages its U.S.
customer interaction centers through its Technology Command Center in
Colorado (the Command Center). The Command Center operates 24 hours a day,
seven days a week, and is responsible for monitoring, coordinating and
managing TeleTech's U.S. operations. Each U.S. customer interaction center is
connected to the Command Center and to other U.S. customer interaction
centers through multiple fiber-optic voice/data T-1 circuits to form an
integrated and redundant wide area network. This network connectivity
provides a high level of security and redundancy that is integral to
TeleTech's ability to ensure recovery capabilities in the event of a disaster
or structural failure. If a customer interaction center were to experience
extreme excess call volume or become non-operational, the Command Center
would coordinate the rerouting of incoming calls to an appropriate site.
TeleTech also has established uniform operational policies and
procedures to ensure the consistent delivery of high-quality service at each
customer interaction center. These policies and procedures detail specific
performance standards, productivity and profitability objectives and daily
administrative routines designed to ensure efficient operation. All TeleTech
customer interaction centers are designed to operate 24 hours a day, seven
days a week. TeleTech believes that recruiting, training and managing
full-time representatives who are dedicated to a single client facilitate
integration between client and representative, enhance service quality and
efficiency and differentiate TeleTech from its competitors.
TeleTech utilizes a number of sophisticated applications designed to
minimize administrative burdens and maximize productivity. Such applications
include a proprietary agent performance system that tracks representative
activity at each workstation and a proprietary billing system that tracks
time spent on administration, training, data processing and other processes
conducted in support of client or internal tasks.
QUALITY ASSURANCE. TeleTech monitors and measures the quality and
accuracy of its customer interactions through a quality assurance department
located at each center. Each department evaluates, on a real-time basis,
approximately 1% of calls per day. TeleTech also has the capabilities to
enable its clients to monitor customer interactions as they occur. Quality
assurance professionals monitor customer interactions and simultaneously
evaluate representatives according to criteria mutually determined by the
Company and the client. Representatives are evaluated and provided with
feedback on their performance on a weekly basis and, as appropriate,
recognized for superior performance or scheduled for additional training and
coaching.
TECHNOLOGY
Utilizing industry standard tools and upon request, the Company
creates customer relationship management systems customized for a client.
These systems enable the Company to track the details of each customer
interaction and consolidate that information into a customer file that can be
accessed and referred to by representatives as they deliver services.
TeleTech customer interaction centers employ state-of-the-art technology that
incorporates digital switching technology, object-oriented software modules,
relational database management systems, proprietary call tracking and
workforce management systems, CTI and interactive voice response. TeleTech's
digital switching technology enables calls to be routed to the next available
representative who has the appropriate knowledge, skill and language sets.
Call tracking and workforce management systems generate and track historical
call volumes by client,
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enabling the Company to schedule personnel efficiently to accommodate
anticipated fluctuations in call volume. TeleTech's technology base enables
it to provide single call resolution and decrease customer hold times,
thereby enhancing customer satisfaction.
TeleTech-leased centers utilize "Universal Representative"
workstations with inbound, outbound, Internet and fax-back capabilities, the
majority of which run on Pentium-based computers. All workstations are
PC-based and utilize CTI technology, which connects the computer to a
telephone switch allowing calls and computer data to be transferred
simultaneously. By using simple, intuitive graphical user interfaces (GUIs),
which substitute easy-to-understand graphics for text, TeleTech enables its
representatives to focus on assisting the customer rather than on the
technology and to obtain customer information using significantly fewer
keystrokes. The user-friendly interface also helps to decrease training time
and increase the speed of call handling.
TeleTech's applications software uses products developed by
Microsoft, Oracle, Novell, IBM and others. TeleTech has invested significant
resources in designing, developing and debugging industry-specific and
open-systems software applications and tools. As a result, TeleTech maintains
an extensive library of reusable, object-oriented software code that is used
by TeleTech's applications development professionals to develop customized
customer management software. TeleTech's systems capture and download a
variety of information obtained during each customer interaction into
relational databases for real-time, daily, weekly or monthly reporting to
clients. TeleTech runs its applications software on open-system,
client-server architecture that utilizes computer processors, server
components and hardware platforms produced by manufacturers such as Compaq,
Hewlett Packard, IBM and Sun Microsystems. TeleTech has and will continue to
invest significant resources into the development of new and emerging
customer management and technical support technologies.
The Company continually evaluates acquisitions of companies that
would enhance TeleTech's technological capabilities. In February 1998, the
Company acquired Intellisystems, Inc., a leading developer of patented
automated product support solutions. Intellisystems, through its patented
technology, provides systems that automatically answer and resolve a
significant percentage of customer inquiries coming into Web sites or
customer interaction centers. It allows customers to diagnose their own
problems and receive product information 24 hours a day, seven days a week.
The information that customers need is contained in a knowledge base, which
is accessible with a touch tone telephone, the Internet or a modem. The
system's rule-based design enables each of the callers' answers to be stored
and used to determine which questions or information will follow. Conversely,
typical decision-tree systems are set up in a fixed format, requiring callers
to answer all questions in the order presented regardless of its
applicability to the inquiry. Additionally, Intellisystems' product allows
for specific solutions to be delivered immediately over the phone, faxed
directly to a customer's fax machine, e-mailed to the customer or displayed
on a computer screen.
In June 1998, the Company acquired Digital Creators, Inc., a leading
developer of Web-based applications, with special emphasis on distance-based
education and training. Digital Creators has more than 60 employees involved
in the development and design of Web sites, distance-based learning courses
and electronic support systems that incorporate real-time performance
feedback onto the desktop. These applications are made available to users in
the corporate and higher education markets via Internet/intranet architecture
and CD-ROMs.
Additionally, in December 1998, the Company acquired Cygnus Computer
Associates Ltd., a Canadian provider of systems integration and call center
solutions. Cygnus provides a comprehensive software and integration solution
to help companies integrate both their legacy systems and customer service
applications with varied customer contact channels, including the Internet,
telephone and interactive voice response. Cygnus has developed several Web
and telephone-based, real-time transaction processing solutions for its
clients' automated customer service needs. Cygnus's expertise in systems
integration, transaction processing and high-end multimedia development has
enabled it to develop significant relationships with several leading Canadian
telecommunications providers.
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HUMAN RESOURCES
TeleTech's success in recruiting, hiring and training large numbers
of skilled employees is critical to its ability to provide high-quality
customer management solutions to its clients. TeleTech generally offers a
competitive pay scale, hires primarily full-time employees who are eligible
to receive the full range of employee benefits and provides employees with a
clear, viable career path.
TeleTech is committed to the continued education and development of
its employees and believes that providing TeleTech employees with access to
new learning opportunities produces job satisfaction, ensures a higher
quality labor force and fosters loyalty between TeleTech's employees and the
clients they serve. Before taking customer calls, representatives receive
from one to five weeks of on-site training in TeleTech's or the client's
training facilities to learn about the client's corporate culture, specific
product or service offerings, and the customer management program that
TeleTech and the client will be undertaking. Representatives generally
receive a minimum of six to eight hours of ongoing training per month and
often receive supplemental training as needed to provide high-quality
customer service and product support.
As of December 31, 1998, TeleTech had approximately 10,000
representatives, of which approximately 90% were full time. Although the
Company's industry is very labor-intensive and has experienced significant
personnel turnover, the Company seeks to manage employee turnover through
proactive initiatives. None of TeleTech's employees are subject to a
collective bargaining agreement, and TeleTech believes its relations with its
employees are good.
INTERNATIONAL OPERATIONS
TeleTech operates three customer interaction centers in Canada; two
customer interaction centers in Australia; and one customer interaction
center in each of Brazil, Mexico, New Zealand, Singapore and the United
Kingdom.
In May 1997, TeleTech acquired Telemercadeo Integral (TMI), a
Mexico-based provider of customer management services. TMI employs more than
600 customer management representatives and provides services including
customer acquisition, support and satisfaction to major Mexican and U.S.
companies. This acquisition has allowed TeleTech to introduce its services to
large Mexican companies and to aid U.S. companies in serving their
Spanish-speaking customers.
In 1998 and early 1999, TeleTech entered three new countries through
new client relationships and via acquisitions. In March 1998, TeleTech
entered the Canadian market through a multiyear agreement with a large
Canadian insurance company to provide comprehensive customer management
solutions through a licensed insurance agency. Additionally, in June 1998,
TeleTech acquired EDM Electronic Direct Marketing (EDM), one of Canada's
largest providers of customer management solutions, and further expanded the
Company's presence in Canada. EDM specializes in software technical support,
customer service and fulfillment, and outbound telemarketing. In August 1998,
TeleTech acquired Outsource Informatica, a Brazilian customer management
provider. Outsource specializes in customer services and technical support
for leading multinational and Brazilian corporations in the technology,
transportation and financial services industries.
A key component of the Company's growth strategy is to continue its
international expansion, which may include the acquisition of businesses with
products or technologies that extend or complement TeleTech's existing
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businesses. The Company is engaged in ongoing evaluations of, and discussions
with, third parties regarding possible acquisitions; however, the Company
currently has no agreements, commitments or understandings with respect to
any material acquisitions.
COMPETITION
The Company believes that it competes primarily with the in-house
teleservices and customer service operations of its current and potential
clients. TeleTech also competes with certain companies that provide
teleservices and customer services on an outsourced basis, including APAC
Teleservices, Convergys Corporation, Precision Response Corporation, SITEL
Corporation, Sykes Enterprises Incorporated, TeleSpectrum Worldwide, Inc. and
West TeleServices Corporation. Additionally, EDS and IBM announced the
creation of customer relationship management divisions this year, although
not historically in the customer service business. TeleTech competes
primarily on the basis of quality and scope of services provided, speed and
flexibility of implementation, and technological expertise. Although the
teleservices industry is very competitive and highly fragmented with numerous
small participants, management believes that TeleTech generally does not
directly compete with traditional telemarketing companies, which provide
primarily outbound "cold calling" services.
RISK FACTORS
RELIANCE ON A FEW MAJOR CLIENTS. The Company strategically focuses
its marketing efforts on developing long-term relationships with large and
multinational companies in targeted industries. As a result, the Company
derives a substantial portion of its revenues from relatively few clients.
The Company's three largest clients in 1998, GTE, United Parcel Service and
AT&T, accounted for 25%, 13% and 8%, respectively, of the Company's 1998
revenues. The Company's three largest clients in 1997, United Parcel Service,
AT&T and GTE, accounted for 23%, 18% and 15%, respectively, of the Company's
1997 revenues. The Company believes its customer concentration will continue
because the Company's programs are becoming larger and more complex and
because the lead time necessary to execute a new sales agreement with a
client has been steadily increasing. In at least one instance, almost two
years elapsed from the time of the Company's initial sales presentation until
the time a written agreement was signed and the client program commenced. As
a result of the longer sales cycle, it may become more difficult for the
Company to replace lost clients or completed programs in a timely manner.
There can be no assurance that the Company will not become more dependent on
a few significant clients, that the Company will be able to retain any of its
largest clients, that the volumes or profit margins of its most significant
programs will not be reduced, or that the Company would be able to replace
such clients or programs with clients or programs that generate a comparable
amount of profits. Consequently, the loss of one or more of the Company's
significant clients could have a material adverse effect on the business,
results of operations or financial condition of the Company.
RISKS ASSOCIATED WITH THE COMPANY'S CONTRACTS. The Company's
contracts do not ensure that it will generate a minimum level of revenues,
and the profitability of each client program may fluctuate, sometimes
significantly, throughout the various stages of such program. Although the
Company seeks to sign multiyear contracts with its clients, the Company's
contracts generally enable the clients to terminate the contract, or
terminate or reduce program call volumes, on relatively short notice.
Although many of such contracts require the client to pay a contractually
agreed amount in the event of early termination, there can be no assurance
that the Company will be able to collect such amount or that such amount, if
received, will sufficiently compensate the Company for its investment in the
canceled program or for the revenues it may lose as a result of the early
termination. The Company usually is not designated as its client's exclusive
service provider; however, the Company believes that meeting its clients'
expectations can have a more significant impact on revenues generated by the
Company than the specific terms of its client contracts. In addition, some of
the Company's contracts limit the aggregate amount the Company can charge for
its services, and several prohibit the Company from providing services to the
client's direct competitor that are similar to the services the Company
provides to such client.
10
<PAGE>
A few of the Company's contracts allow the Company to increase its
service fees if and to the extent certain cost or price indices increase;
however, most of the Company's significant contracts do not contain such
provisions and some contracts require the Company to decrease its service
fees if, among other things, the Company does not achieve certain performance
objectives. Increases in the Company's service fees that are based upon
increases in cost or price indices may not fully compensate the Company for
increases in labor and other costs incurred in providing services.
DIFFICULTIES OF MANAGING CAPACITY UTILIZATION. The Company's
profitability is influenced significantly by its customer interaction center
capacity utilization. The Company attempts to maximize utilization; however,
because almost all of the Company's business is inbound, the Company has
significantly higher utilization during peak (weekday) periods than during
off-peak (night and weekend) periods. The Company has experienced periods of
excess capacity, particularly in its shared customer interaction centers, and
occasionally has accepted short-term assignments to utilize the excess
capacity. In addition, the Company has experienced, and in the future may
experience, at least short-term, excess peak period capacity when it opens a
new customer interaction center or terminates or completes a large client
program. There can be no assurance that the Company will be able to achieve
or maintain optimal customer interaction center capacity utilization.
DIFFICULTIES OF MANAGING RAPID GROWTH. The Company has experienced
rapid growth over the past several years. Continued future growth will depend
on a number of factors, including the Company's ability to (i) initiate,
develop and maintain new client relationships and expand its existing client
programs; (ii) recruit, motivate and retain qualified management and hourly
personnel; (iii) rapidly identify, acquire or lease suitable customer
interaction center facilities on acceptable terms and complete buildouts of
such facilities in a timely and economic fashion; and (iv) maintain the high
quality of the services and products that it provides to its clients. There
can be no assurance that the Company will be able to effectively manage its
expanding operations or maintain its profitability. If the Company is unable
to effectively manage its growth, its business, results of operations or
financial condition could be materially adversely affected.
RISKS ASSOCIATED WITH RAPIDLY CHANGING TECHNOLOGY. The Company's
business is highly dependent on its computer and telecommunications equipment
and software capabilities. The Company's failure to maintain the superiority
of its technological capabilities or to respond effectively to technological
changes could have a material adverse effect on the Company's business,
results of operations or financial condition. In addition, a variety of
automated customer support technologies, such as interactive voice response
and interactive Internet e-mail, have been and are being developed that could
supplement, compete with or replace the Company's services. For some client
applications, these alternative automated customer support technologies may
achieve similar results and be more cost-effective to the client than the
services currently provided by the Company. The Company's continued growth
and future profitability will be highly dependent on a number of factors,
including the Company's ability to (i) expand its existing service offerings
to include automated customer support capabilities; (ii) achieve cost
efficiencies in the Company's existing customer interaction center operations
through the integration of alternative automated technologies; and (iii)
introduce new services and products that leverage and respond to changing
technological developments. There can be no assurance that technologies or
services developed by the Company's competitors will not render the Company's
products or services non-competitive or obsolete, that the Company can
successfully develop and market any new services or products, that any such
new services or products will be commercially successful or that the
integration of automated customer support capabilities will achieve intended
cost reductions.
DEPENDENCE ON KEY PERSONNEL. The Company's success to date has
largely been the result of the skills and efforts of Kenneth D. Tuchman, the
Company's founder, chairman of the board, president and chief executive
officer. Continued growth and profitability will depend upon the Company's
ability to strengthen its leadership infrastructure by recruiting and
retaining qualified, experienced executive personnel. Competition in the
Company's industry for executive-level personnel is fierce and there can be
no assurance that the Company will be able to hire, motivate and retain other
executive employees, or that the Company can do so on economically feasible
terms. The loss of Mr. Tuchman or the Company's inability to hire or retain
such other executive employees could have a material adverse effect on the
Company's business, growth, results of operations or financial condition.
11
<PAGE>
POTENTIAL YEAR 2000 PROBLEMS. The Company currently is unable to
ascertain the exact magnitude of its Year 2000 issues because it has not yet
completed the assessment phase of the program. Many potential risks exist
related to the infrastructures supporting the Company's various facilities,
including the telephone and power grids supporting the Company's global
operations. The Company believes that it is unlikely a prolonged or long-term
telephone or power outage will occur at one or more of its key operation
centers as a result of Year 2000 problems, however the occurrence of such an
outage would cause major challenges and would significantly impact the
Company's ability to generate revenues during the outage. Methods to reduce
this risk are being evaluated based on the probability of occurrence. The
inability to support one or more of the Company's clients due to the
Company's own technology issues is less likely, although a possibility. This
risk is being minimized by the assessment of the compliance levels of the
Company's vendor products and by the implementation of inspection, analysis
and test activities.
The Company is unable to predict with certainty the extent to which
its suppliers will be affected by the Year 2000 issue, or the extent to which
the Company may be vulnerable to a supplier's inability to remediate any
issues in a timely manner. Additionally, the Company utilizes a computer
interface with many of its large customers as a key component of the client
program. Should these client systems contain Year 2000 problems, the Company
may be unable to provide services under the program. TeleTech is working with
its clients to determine the extent of the clients' readiness, but the
Company has not completed this assessment.
Currently contingency planning is being addressed but is still
uncertain pending the completion of the internal and client assessments.
TeleTech is assuming that system failures can occur not only as the result of
incorrect date data or calculations, but also due to external problems with
power, telecommunications or other business dependencies. The Company's
contingency planning will entail the preparation of alternative work
processes in the event of possible system or process failures. If the Company
does not adequately address the Year 2000 issues, the failure could have a
material adverse effect on the Company's business, growth, results of
operations or financial condition.
DEPENDENCE ON LABOR FORCE. The Company's success is largely
dependent on its ability to recruit, hire, train and retain qualified
employees. The Company's industry is very labor-intensive and has experienced
high personnel turnover. A significant increase in the Company's employee
turnover rate could increase the Company's recruiting and training costs and
decrease operating effectiveness and productivity. Also, if the Company
obtains several significant new clients or implements several new,
large-scale programs, it would be required to recruit, hire and train
qualified personnel at an accelerated rate. The Company may not be able to
continue to hire, train and retain sufficient qualified personnel to
adequately staff new customer management programs. Because a significant
portion of the Company's operating costs relate to labor costs, an increase
in wages, costs of employee benefits or employment taxes could have a
material adverse effect on the Company's business, results of operations or
financial condition. In addition, certain of the Company's customer
interaction centers are located in geographic areas with relatively low
unemployment rates, which could make it more difficult and costly to hire
qualified personnel.
HIGHLY COMPETITIVE MARKET. The Company believes that the market in
which it operates is fragmented and highly competitive and that competition
is likely to intensify in the future. The Company competes with small firms
offering specific applications, divisions of large entities, large
independent firms and, most significantly, the in-house operations of clients
or potential clients. A number of competitors have or may develop greater
capabilities and resources than those of the Company. Similarly, there can be
no assurance that additional competitors with greater resources than the
Company will not enter the Company's market. Because the Company's primary
competitors are the in-house operations of existing or potential clients, the
Company's performance and growth could be adversely affected if its existing
or potential clients decide to provide in-house customer management services
that currently are outsourced, or retain or increase their in-house customer
service and product support capabilities. A variety of automated customer
support technologies have been developed that may make it easier and more
cost-effective for clients and potential clients to provide customer
management services in-house. In addition, competitive pressures from current
or future competitors also could cause the Company's services to lose market
acceptance or result in significant price erosion, with a material adverse
effect upon the Company's business, results of operations or financial
condition.
12
<PAGE>
DIFFICULTIES OF COMPLETING AND INTEGRATING ACQUISITIONS AND JOINT
VENTURES. One component of the Company's growth strategy is to pursue
strategic acquisitions of companies that have services, technologies,
industry specializations or geographic coverage that extend or complement the
Company's existing business. There can be no assurance that the Company will
be successful in acquiring such companies on favorable terms or in
integrating such companies into the Company's existing businesses, or that
any completed acquisition will enhance the Company's business, results of
operations or financial condition. The Company has faced, and in the future
may continue to face, increased competition for acquisition opportunities,
which may inhibit the Company's ability to consummate suitable acquisitions
on favorable terms. The Company may require additional debt or equity
financing for future acquisitions, which financing may not be available on
terms favorable to the Company, if at all. As part of its growth strategy,
the Company also may pursue strategic alliances in the form of joint
ventures. Joint ventures involve many of the same risks as acquisitions, as
well as additional risks associated with possible lack of control of the
joint ventures.
RISK OF BUSINESS INTERRUPTION. The Company's operations are
dependent upon its ability to protect its customer interaction centers,
computer and telecommunications equipment and software systems against damage
from fire, power loss, telecommunications interruption or failure, natural
disaster and other similar events. In the event the Company experiences a
temporary or permanent interruption at one or more of its customer
interaction centers, through casualty, operating malfunction or otherwise,
the Company's business could be materially adversely affected and the Company
may be required to pay contractual damages to some clients or allow some
clients to terminate or renegotiate their contracts with the Company. The
Company maintains property and business interruption insurance; however, such
insurance may not adequately compensate the Company for any losses it may
incur.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND EXPANSION. The
Company currently conducts business in Australia, Brazil, Canada, Mexico, New
Zealand, Singapore and the United Kingdom. The Company's international
operations accounted for approximately 24% and 17% of its revenues for 1998
and 1997, respectively. In addition, a key component of the Company's growth
strategy is continued international expansion. There can be no assurance that
the Company will be able to (i) increase its market share in the
international markets in which the Company currently conducts business and
(ii) successfully market, sell and deliver its services in additional
international markets. In addition, there are certain risks inherent in
conducting international business, including exposure to currency
fluctuations, longer payment cycles, greater difficulties in accounts
receivable collection, difficulties in complying with a variety of foreign
laws, unexpected changes in regulatory requirements, difficulties in managing
capacity utilization and in staffing and managing foreign operations,
political instability and potentially adverse tax consequences. Any one or
more of such factors could have a material adverse effect on the Company's
international operations and, consequently, on the Company's business,
results of operations or financial condition.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company has
experienced and could continue to experience quarterly variations in revenues
as a result of a variety of factors, many of which are outside the Company's
control. Such factors include the timing of new contracts; labor strikes and
slowdowns; reductions or other modifications in its clients' marketing and
sales strategies; the timing of new product or service offerings; the
expiration or termination of existing contracts or the reduction in existing
programs; the timing of increased expenses incurred to obtain and support new
business; changes in the revenue mix among the Company's various service
offerings; and the seasonal pattern of certain of the businesses serviced by
the Company. In addition, the Company makes decisions regarding staffing
levels, investments and other operating expenditures based on its revenue
forecasts. If the Company's revenues are below expectations in any given
quarter, its operating results for that quarter would likely be materially
adversely affected.
DEPENDENCE ON KEY INDUSTRIES. The Company generates a majority of
its revenues from clients in the telecommunications, technology,
transportation, financial services and government services industries. The
Company's growth and financial results are largely dependent on continued
demand for the Company's services from clients in these industries and
current trends in such industries to outsource certain customer management
services. A general economic downturn in any of these industries or a
slowdown or reversal of the trend in any of these industries to outsource
certain customer management services could have a material adverse effect on
the Company's business, results of operations or financial condition. The
Company also provides services to clients in the healthcare and utilities
industries; however, these SBUs are still in the development stage and there
can be no assurance that the Company can successfully develop them.
13
<PAGE>
A significant percentage of the revenues generated from clients in
the telecommunications industry relate to the Company's provision of
third-party verification of long-distance telephone service sales.
Third-party verification services, which are required by the rules of the
Federal Communications Commission, accounted for 4% and 8% of the Company's
total revenues in 1998 and 1997, respectively. Revenues generated from
third-party verification services were significantly lower than expected in
the second half of 1997 as a result of reductions implemented by a large
telecommunications client in its direct marketing program. The Company's
business, results of operations or financial condition could be materially
adversely affected if its clients further reduce their direct marketing
expenditures and their corresponding need for third-party sales verification
and/or the Federal Communications Commission no longer requires such
verification.
DEPENDENCE ON THE SUCCESS OF ITS CLIENTS' PRODUCTS. In substantially
all of its client programs, the Company generates revenues based, in large
part, on the amount of time that the Company's personnel devotes to a
client's customers. Consequently, and due to the inbound nature of the
Company's business, the amount of revenues generated from any particular
client program is dependent upon consumers' interest in, and use of, the
client's products and/or services. Furthermore, a significant portion of the
Company's expected revenues and planned capacity utilization relate to
recently introduced product or service offerings of the Company's clients.
There can be no assurance as to the number of consumers who will be attracted
to the products and services of the Company's clients and who will therefore
need the Company's services, or that the Company's clients will develop new
products or services that will require the Company's services.
14
<PAGE>
ITEM 2. PROPERTIES.
TeleTech's corporate headquarters are located in Denver, Colorado,
in approximately 39,000 square feet of leased office space. As of December
31, 1998, TeleTech leased (unless otherwise noted) and operated the following
customer interaction centers:
<TABLE>
<CAPTION>
NUMBER OF TOTAL
YEAR OPENED PRODUCTION NUMBER OF TRAINING NUMBER OF
OR ACQUIRED WORKSTATIONS WORKSTATIONS (1) WORKSTATIONS
----------- ------------ ------------------ ------------
<S> <C> <C> <C> <C>
LOCATION
U.S. OUTSOURCED CENTERS
Burbank, California 1995 416 67 483
Enfield, Connecticut 1998 84 (2) 60 144
Kansas City, Kansas 1998 500 230 730
Moundsville, West Virginia 1998 500 62 562
Niagara Falls, New York 1997 550 60 610
Sherman Oaks, California 1985 512 48 560
Thornton, Colorado, Center 1 (3) 1996 575 60 635
Thornton, Colorado, Center 2 (3) 1996 415 58 473
Uniontown, Pennsylvania 1998 600 40 640
Van Nuys, California 1996 352 38 390
INTERNATIONAL OUTSOURCED CENTERS
Auckland, New Zealand 1996 170 28 198
Sheppard, Canada 1998 265 18 283
Casebridge, Canada 1998 82 0 82
Glasgow, Scotland 1996 200 46 246
Melbourne, Australia 1997 223 24 247
Mexico City, Mexico 1997 646 72 718
Sao Paulo, Brazil 1998 156 0 156
Tampines, Singapore 1998 68 0 68
Sydney, Australia 1996 258 20 278
MANAGED CENTERS (4)
Greenville, South Carolina 1996 686 105 791
Montbello, Colorado 1996 500 182 682
Tampa, Florida 1996 651 90 741
Toronto, Canada 1998 397 60 457
Tucson, Arizona 1996 629 90 719
Total number of workstations 9,435 1,458 10,893
</TABLE>
(1) Training workstations are fully operative as production workstations should
the Company require additional capacity.
(2) The Enfield customer interaction center is expected to have 450 seats when
fully operational.
(3) TeleTech operates each floor in the Thornton facility as an independent
customer interaction center, and each of Thornton center 1 and Thornton
center 2 employs its own management and representatives.
(4) Centers are leased or owned by TeleTech's clients, and managed by TeleTech
on behalf of such clients pursuant to facilities management agreements.
15
<PAGE>
The leases for TeleTech's U.S. customer interaction centers have
terms ranging from one to 15 years and generally contain renewal options.
These leases are being structured with specific business terms that allow for
flexibility in response to changing business conditions. The Company believes
that its existing customer interaction centers are suitable and adequate for
its current operations and targets capacity utilization in its fully
outsourced centers at 85% of its available workstations during peak
(weekday). During 1998, the Company experienced excess capacity in newly
constructed shared centers in Moundsville, West Virginia; Uniontown,
Pennsylvania; and Mexico City. In 1999, the Company plans to deploy two
dedicated centers in the United States: one in Topeka, Kansas, and a second
location to be determined. In addition, the Company plans to deploy four
shared centers in 1999: in Australia; Brazil; Canada; and one additional U.S
location. No other new shared centers are scheduled for construction until
existing capacity is sold.
Due to the inbound nature of the Company's business, the Company
experiences significantly higher capacity utilization during peak periods
than during off-peak (night and weekend) periods. The Company has been and
will be required to open or expand customer interaction centers to create the
additional peak period capacity necessary to accommodate new or expanded
customer management programs. The opening or expansion of a customer
interaction center may result, at least in the short term, in excess capacity
during peak periods until any new or expanded program is implemented fully.
ITEM 3. LEGAL PROCEEDINGS.
In late November 1996, CompuServe notified TeleTech that CompuServe
was withdrawing its WOW! Internet service from the marketplace and that
effective January 31, 1997, it would terminate all the programs TeleTech
provided to CompuServe. Pursuant to its agreement with TeleTech, CompuServe
was entitled to terminate the agreement for reasonable business purposes upon
120 days' advance notice and payment to TeleTech of a termination fee
calculated in accordance with the agreement. In December 1996, TeleTech filed
suit against CompuServe in the Federal District Court for the Southern
District of Ohio to enforce these 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
mid-1997, because of the proposed acquisition of CompuServe by WorldCom, the
parties agreed to delay proceedings in the lawsuit. In December 1997,
proceedings related to the lawsuit were recommenced and then stayed again
pending settlement negotiations, which currently are moving forward. Although
the Company believes that these legal proceedings will not have a material
adverse effect on the Company's financial condition or results of operations,
the ultimate outcome of the proceedings is uncertain. (See Note 8 of "Notes
to Consolidated and Combined Financial Statements.")
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of its fiscal year ended December 31, 1998.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
In August 1996, the Company completed an initial public offering of
the common stock (the Initial Public Offering) at an initial price to public
of $14.50 per share. The market price of the common stock has been highly
volatile and could continue to be subject to wide fluctuations in response to
quarterly variations in operating results; announcements of new contracts or
contract cancellations; announcements of technological innovations or new
products or services by the Company or its competitors; changes in financial
estimates by securities analysts; or other events or factors. The market
price of the common stock also may be affected by the Company's ability to
meet analysts' expectations, and any failure to meet such expectations, even
if minor, could have a material adverse effect on the market price of the
common stock.
The common stock is traded on the Nasdaq Stock Market under the
symbol "TTEC." The following table sets forth the range of the high and low
closing sale prices of the common stock for the fiscal quarters indicated as
reported on the Nasdaq Stock Market:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
First Quarter 1997 34-1/4 17-1/4
Second Quarter 1997 27-1/8 16-5/8
Third Quarter 1997 25-1/2 12-7/8
Fourth Quarter 1997 14-5/16 9-7/8
First Quarter 1998 14-1/2 8-1/2
Second Quarter 1998 17 12
Third Quarter 1998 12 6-3/8
Fourth Quarter 1998 11-3/8 8
</TABLE>
As of December 31, 1998, there were 60,769,724 shares of common
stock outstanding, held by approximately 144 shareholders of record.
TeleTech did not declare or pay any dividends on its common stock in
1998 and it does not expect to do so in the foreseeable future. The board of
directors anticipates that all cash flow generated from operations in the
foreseeable future will be retained and used to develop and expand TeleTech's
business. Any future payment of dividends will depend upon TeleTech's results
of operations, financial condition, cash requirements and other factors
deemed relevant by the board of directors.
17
<PAGE>
The registration statement for the Company's initial public offering
was effective July 30, 1996. The net proceeds to the Company from the initial
public offering were $52,565,000. The following is the amount of net offering
proceeds used by the Company for each of the purposes listed below. The
following use of proceeds does not represent a material change in the use of
proceeds described in the initial public offering prospectus.
<TABLE>
<CAPTION>
DIRECT OR INDIRECT PAYMENTS TO DIRECTORS, OFFICERS, GENERAL DIRECT OR
PARTNERS OF THE ISSUER OR THEIR ASSOCIATES: TO PERSONS INDIRECT
OWNING TEN PERCENT OF MORE OF ANY CLASS OF EQUITY SECURITIES PAYMENTS TO
OF THE ISSUER; AND TO AFFILIATES OF THE ISSUER OTHERS
------------------------------------------------------------ -----------
<S> <C> <C>
Purchase and installation of
machinery and equipment $21,735,000
Acquisition of other businesses 4,337,000
Repayment of indebtedness 9,950,000
Working Capital $500,000 15,055,000
Acquisition of 98,810 shares
of Treasury Stock 988,000
</TABLE>
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Financial Statements and the related notes appearing
elsewhere in this report. The financial information for years prior to 1998
has been restated to reflect the June 1998 business combinations with EDM
Electronic Direct Marketing Ltd. and Digital Creators, Inc., accounted for
using the pooling of interests method of accounting.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1994 1995 1996 1997 1998
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $35,462 $54,933 $171,265 $279,057 $369,045
Costs of services 17,406 30,941 104,142 178,702 241,230
SG&A expenses 15,860 19,230 43,504 67,208 96,077
------------------------------------------------------------
Income from operations 2,196 4,762 23,619 33,147 31,738
Other income (expense) (481) 2,468 (2) 18 2,310 159 (3)
Provision for income taxes 20 2,992 9,773 14,123 12,695
------------------------------------------------------------
Net income $ 1,695 $ 4,238 (2) $ 13,864 $ 21,334 $ 19,202
------------------------------------------------------------
------------------------------------------------------------
Pro forma net income $ 1,037 (1)
Net income per share:
Basic $ .03 (1) $ .08 (2) $ 0.25 $ 0.37 $ 0.32
Diluted $ .02 (1) $ .08 (2) $ 0.24 $ 0.35 $ 0.31
Average shares outstanding:
Basic 40,700 52,624 54,522 58,435 59,950
Diluted 43,753 55,882 58,152 61,646 62,052
OPERATING DATA:
Number of production workstations 560 1,040 5,600 6,800 9,400
Number of customer
interaction centers 2 5 16 20 24
BALANCE SHEET DATA:
Working capital surplus (deficit) $ (780) $11,305 $ 88,511 $ 81,750 $ 63,145
Total assets 10,102 30,583 147,011 192,367 230,910
Long-term debt, net of
current portion 2,463 3,590 10,144 9,891 6,353
Total stockholders' equity 2,197 4,068 108,530 138,252 165,493
</TABLE>
(1) During 1994, the Company was an S corporation and, accordingly, was not
subject to federal income taxes. Pro forma net income includes a provision
for income taxes at an effective rate of 39.5% for the year ended December
31, 1994.
(2) Includes the $2.4 million pretax net proceeds of a one-time payment made by
a former client to TeleTech in connection with such client's early
termination of a contract.
(3) Includes $1.3 million of business combination expenses relating to the
pooling of interests transactions.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
TeleTech generates its revenues by providing customer management
solutions, both from TeleTech-leased customer interaction centers (fully
outsourced) and client-owned customer interaction centers (facilities
management). The Company's fully outsourced customer interaction centers are
utilized to serve either multiple clients (shared centers) or one dedicated
client (dedicated centers). The Company currently has dedicated centers only
in the United States. The Company bills for its services based primarily on
the amount of time TeleTech representatives devote to a client's program, and
revenues are recognized as services are provided. The Company also derives
revenues from consulting services, including the sale of customer interaction
center and customer service technology, automated customer support, systems
integration and Web-based education. These consulting and technology revenues
historically have not been a significant component of the Company's revenues
although the Company believes that these services will become more
significant in future years. The Company seeks to enter into multiyear
contracts with its clients that cannot be terminated early except upon the
payment of a contractually agreed amount. The majority of the Company's
revenues are, and the Company anticipates that the majority of its future
revenues will continue to be, from multiyear contracts. However, the Company
does provide some significant programs on a short-term basis. The Company's
agreements with its clients do not ensure that TeleTech will generate a
specific level of revenue and may be canceled by clients on short notice.
TeleTech's profitability is significantly influenced by its customer
interaction center capacity utilization. The Company seeks to optimize new
and existing capacity utilization during both peak (weekday) and off-peak
(night and weekend) periods to achieve maximum fixed cost absorption.
TeleTech may be adversely impacted by excess capacity in its fully outsourced
centers if prior to the opening or expansion of a customer interaction
center, the Company has not contracted for the provision of services or if a
client program does not reach its intended level of operations on a timely
basis. In addition, the Company can also be adversely impacted by excess
capacity in its facilities management contracts. In a facilities management
contract, the Company does not incur the costs of the facilities and
equipment; however the costs of the management team supporting the customer
interaction center are semifixed in nature and absorption of these costs will
be negatively impacted if the customer interaction center has idle capacity.
The Company attempts to plan the development and opening of new customer
interaction centers to minimize the financial impact resulting from excess
capacity. In planning the opening of new centers or the expansion of existing
centers, management considers numerous factors that affect its capacity
utilization, including anticipated expirations, reductions, terminations or
expansions of existing programs, and the size and timing of new client
contracts that the Company expects to obtain. The Company has concentrated
its marketing efforts toward obtaining larger, more complex, strategic
customer management programs. As a result, the time required to negotiate and
execute an agreement with the client has increased. To enable the Company to
respond rapidly to changing market demands, implement new programs and expand
existing programs, TeleTech may be required to commit to additional capacity
prior to the contracting of additional business, which may result in excess
capacity. TeleTech targets capacity utilization in its fully outsourced
centers at 85% of its available workstations during the weekday period.
The Company was adversely impacted by excess capacity in its fully
outsourced centers during 1997 and 1998 that has resulted in a decline in
operating margins from those achieved during 1997. During 1998, the Company
experienced excess capacity in newly constructed shared centers in
Moundsville, West Virginia; Uniontown, Pennsylvania; and Mexico City.
Capacity utilization was also adversely affected in the second half of 1997
and throughout 1998 when one of the Company's telecommunications clients
significantly reduced call volumes in the Company's program for this client.
The Company also has incurred reduced operating margins on one of its
significant facilities management contracts due to reduced volumes and excess
capacity in certain centers operated by the Company. In 1999, the Company
plans to deploy two dedicated centers in the United States: one in Topeka,
Kansas, and a second location to be determined. In addition, the Company
plans to deploy four shared centers in 1999: in Perth, Australia; Sao Paulo,
Brazil; Sudbury, Canada; and one additional U.S. location. No other new
shared centers are scheduled for construction until existing capacity is sold.
20
<PAGE>
The Company records costs specifically associated with client
programs as costs of services. These costs, which include direct labor wages
and benefits, telecommunication charges, sales commissions and certain
facility costs, are primarily variable in nature. Labor costs represent in
excess of 80% of costs of services. All other expenses of operations,
including technology support, depreciation and amortization, sales and
marketing, human resource management and other administrative functions and
customer interaction center operational expenses that are not allocable to
specific programs are recorded as selling, general and administrative (SG&A)
expenses. SG&A expenses tend to be either semivariable or fixed in nature.
The majority of the Company's operating expenses have consisted of labor
costs. Representative wage rates, which comprise the majority of the
Company's labor costs, have been and are expected to continue to be a key
component of the Company's expenses.
The cost characteristics of TeleTech's fully outsourced programs
differ significantly from the cost characteristics of its facilities
management programs. Under facilities management programs, customer
interaction centers and the related equipment are owned by the client but are
staffed and managed by TeleTech. Accordingly, facilities management programs
have higher costs of services as a percentage of revenues and lower SG&A
expenses as a percentage of revenues than fully outsourced programs. As a
result, the Company expects its overall gross margin will continue to
fluctuate as revenues attributable to fully outsourced programs vary in
proportion to revenues attributable to facilities management programs.
Management believes the Company's operating margin, which is income from
operations expressed as a percentage of revenues, is a better measure of
"profitability" on a period-to-period basis than gross margin. Operating
margin may be less subject to fluctuation as the proportion of the Company's
business portfolio attributable to fully outsourced programs versus
facilities management programs changes. The Company's first facilities
management agreement began in the second quarter of 1996. Revenue from
facilities management contracts represented 31% and 24% of consolidated
revenues in 1997 and 1998, respectively.
The Company has used business combinations and acquisitions to
expand the Company's international customer management operations and to
obtain complementary technology solution offerings. The following is a
summary of this activity.
INTERNATIONAL OPERATIONS:
<TABLE>
<CAPTION>
CONSIDERATION
------------------------
LOCATIONS SHARES CASH DATE
----------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Outsource Informatica, Ltda. Sao Paulo, Brazil 606,343 -- August 1998
EDM Electronic Direct Marketing Toronto, Ontario,
Ltd. Canada 1,783,444 -- June 1998
Telemercadeo Integral, S.A. Mexico City, Mexico 100,000 $2.4 million May 1997
TeleTech International Pty Limited Sydney, Australia,
and Auckland, New
Zealand 970,240 $2.3 million January 1996
</TABLE>
TECHNOLOGY AND SERVICES:
<TABLE>
<CAPTION>
CONSIDERATION
------------------------
COMPANY DESCRIPTION SHARES CASH DATE
------------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Cygnus Computer Provider of systems
Associates integration and call center
software solutions 324,744 $0.7 million December 1998
Digital Creators, Inc. Developer of Web-based
applications and
distance-based learning and 1,069,000 -- June 1998
education
Intellisystems, Inc. Developer of automated
product support systems 344,487 $2.0 million February 1998
</TABLE>
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain income statement data as a
percentage of revenues:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Costs of services 60.8 64.0 65.4
SG&A expenses 25.4 24.1 26.0
Income from operations 13.8 11.9 8.6
Other income -- 0.8 --
Provision for income taes 5.7 5.1 3.4
Net income 8.1 7.6 5.2
</TABLE>
1998 COMPARED TO 1997
REVENUES. Revenues increased $89.9 million, or 32.2%, to $369.0
million in 1998 from $279.1 million in 1997. The increase resulted from $56.0
million in revenues from new clients and $81.0 million in increased revenues
from existing clients. These increases were offset in part by contract
expirations and other client reductions. Client reductions reflect a $35.6
million decline in 1998 revenue from two significant clients. Revenues for
1998 include a $5.0 million sale of technology consulting and call center
technology products to an existing client for use in its internal call
centers. The Company has not historically sold its technology or significant
levels of consulting services as a separate product and only provided such
services to clients as part of a long-term outsourcing agreement. As a result
of the acquisition of Intellisystems, Digital Creators and Cygnus, the
Company anticipates that sales of technology deployment and systems
integration services, Web-based education platforms and customer-centric
marketing solutions will become a more significant portion of revenues in the
future. Revenues for 1998 include approximately $85.7 million from facilities
management contracts as compared with $84.0 million during 1997. Total
international revenues represent 24% of consolidated revenues during 1998 as
compared with 18% during 1997.
COSTS OF SERVICES. Costs of services increased $62.5 million, or
35.0%, to $241.2 million in 1998 from $178.7 million in 1997. Costs of
services as a percentage of revenues increased from 64.0% in 1997 to 65.4% in
1998. This increase in costs of services as a percentage of revenues is
primarily the result of reduced volumes in one of the company's facilities
management contracts. This reduced volume resulted in excess capacity in
three customer interaction centers managed by the Company and reduced gross
margins on the client program. This resulted in a $4.5 million decrease in
operating income from the Company's facilities management business. The
increase in costs of services as a percent of revenues relating to this was
partially offset by the favorable impact of the technology sale discussed
earlier. This sale had significantly lower costs of services as a percentage
of revenues when compared with the Company's recurring revenues from
outsourcing.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased $28.9
million, or 43.0%, to $96.1 million in 1998, from $67.2 million in 1997
resulting from the Company's increased number of customer interaction
centers, global expansion and increased investment in technology. SG&A
expenses as a percentage of revenues increased from 24.1% in 1997 to 26.0% in
1998. This increase is the result of excess capacity in several of the
Company's outsourced domestic and international customer interaction centers
discussed earlier.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations decreased $1.4 million, or 4.3%, to $31.7 million in 1998
from $33.1 million in 1997. Income from operations as a percentage of
revenues decreased from 11.9% in 1997 to 8.6% in 1998. Operating income as a
percentage of revenues in 1998 has been favorably impacted by approximately
700 basis points resulting from the technology sale discussed earlier.
Operating income as a percentage of revenues is not anticipated to
significantly improve until the Company increases capacity utilization.
22
<PAGE>
OTHER INCOME (EXPENSE). Other income decreased $2.2 million to
$159,000 in 1998 compared to $2.3 million in 1997. Included in other income
(expense) in 1998 is $1.3 million in business combination expenses relating
to the business combinations accounted for under the pooling of interests
method. Interest expense increased $104,000 to $1.3 million in 1998 compared
to $1.2 million in 1997. This increase is primarily the result of increased
borrowings in the Company's international locations offset by debt reductions
in the United States. Interest income decreased $325,000 to $3.1 million in
1998 compared to $3.4 million in 1997. This decrease is the result of the
decrease in short-term investments during 1998.
INCOME TAXES. The Company's effective tax rate was 39.8% in 1997 and
1998. This resulted from a slight increase in the effective rate due
primarily to higher taxes on the Company's operations in Canada offset by
increases in state income tax credits received from certain states for
employment incentives. It is anticipated that the effective rate will
increase slightly in 1999 as a result of the Company's increased
international operations.
NET INCOME. As a result of the foregoing factors, net income
decreased $2.1 million, or 10.0%, to $19.2 million in 1998 from $21.3 million
in 1997. Diluted earnings per share decreased from 35 cents to 31 cents.
Excluding the one-time business combination expenses, net income in 1998
would have been $20.0 million, representing a $1.3 million decrease from
1997, and diluted earnings per share would have been 32 cents.
1997 COMPARED TO 1996
REVENUES. Revenues increased $107.8 million, or 62.9%, to $279.1
million in 1997 from $171.3 million in 1996. The increase resulted from $73.1
million in revenues from new clients and $62.8 million in increased revenues
from existing clients. These increases were offset in part by contract
expirations and other client reductions, including the loss of $21.3 million
from the termination of the CompuServe contract in the first quarter of 1997.
Revenues for 1997 include approximately $84.0 million from facilities
management contracts as compared with $48.4 million during 1996.
COSTS OF SERVICES. Costs of services increased $74.6 million, or
71.6%, to $178.7 million in 1997 from $104.1 million in 1996. Costs of
services as a percentage of revenues increased from 60.8% in 1996 to 64.0% in
1997. This increase in the costs of services as a percentage of revenues is a
result of reduced capacity utilization due to lower third and fourth quarter
1997 volumes in two significant client programs. These lower volumes resulted
from a labor strike experienced by a client in the transportation industry,
for which TeleTech manages three of the client's facilities, coupled with
increased efficiencies in this client's call centers and a reduction in
marketing spending by a telecommunications client.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses increased $23.7
million, or 54.5%, to $67.2 million in 1997, from $43.5 million in 1996. This
increase is almost entirely the result of the increased level of operations
during 1997. SG&A expenses as a percentage of revenues decreased from 25.4%
in 1996 to 24.1% in 1997.
INCOME FROM OPERATIONS. As a result of the foregoing factors, income
from operations increased $9.5 million, or 40.3%, to $33.1 million in 1997
from $23.6 million in 1996. Income from operations as a percentage of
revenues decreased from 13.8% in 1996 to 11.9% in 1997. This decline resulted
from the lower third and fourth quarter volumes associated with two
significant clients in the telecommunications and transportation industries.
OTHER INCOME (EXPENSE). Other income increased $2.3 million to $2.3
million in 1997 compared to $18,000 in 1996. Interest expense increased
$6,000 to $1.2 million in 1997. This increase is the result of increased
borrowings of the Company's international subsidiaries offset by a slight
decrease in borrowings under capital leases in the United States during 1997.
Interest income increased $2.0 million to $3.4 million in 1997 compared to
$1.4 million in 1996. This increase is the result of the increase in
short-term investments during 1997 arising from the proceeds of the Company's
two public stock offerings during the second half of 1996.
INCOME TAXES. The Company's effective tax rate decreased from 41.4%
in 1996 to 39.8% in 1997. This is primarily the result of decreased state
income taxes resulting from tax credits received from certain states for
employment incentives offset by increased taxes in the Company's foreign
subsidiaries.
23
<PAGE>
NET INCOME. As a result of the foregoing factors, net income
increased $7.5 million, or 53.8%, to $21.3 million in 1997 from $13.9 million
in 1996. Diluted earnings per share increased 11 cents to 35 cents in 1997
from 24 cents in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $24.8 million in 1998 as
compared to $29.4 million in 1997. Cash provided by operating activities
consists of $38.5 million of total net income before depreciation and
amortization, offset in part by $13.7 million of changes in working capital.
The amount of cash used by the Company in investing activities was
$19.7 million in 1998. During 1998, the Company's capital expenditures
(inclusive of $2.8 million in assets acquired under capital leases) were
$41.1 million, and the Company used $2.7 million in cash for the
Intellisystems and Cygnus acquisitions. In addition, the Company paid $10.9
million in cash for the acquisition of a long-term customer contract. These
expenditures were offset in part by the reduction of $32.6 million in
short-term investments. Cash used in investing activities was $31.6 million
for 1997, resulting primarily from $34.8 million in capital expenditures, and
$2.4 million for the purchase of Telemercadeo offset by reductions in the
Company's short-term investments.
Historically, capital expenditures have been, and future capital
expenditures are anticipated to be, primarily for the development of customer
interaction centers, as well as expansion of the Company's customer
management consulting, technology deployment and systems integration,
Web-based education platforms, Internet customer care and customer-centric
marketing solutions. The Company currently expects total capital expenditures
in 1999 to be approximately $50 million to $65 million, which includes
capital expenditures to be made in connection with the Year 2000 remediation
discussed on page 25. The Company expects that such capital expenditures will
be used primarily to open up two new dedicated and four new shared customer
interaction centers during 1999. Such expenditures will be financed with
internally generated funds, existing cash balances and additional borrowings.
The level of capital expenditures incurred in 1999 will be dependent upon new
client contracts obtained by the Company and the corresponding need for
additional capacity. In addition, if the Company's future growth is generated
through facilities management contracts, the anticipated level of capital
expenditures could be reduced significantly.
Cash used in financing activities in 1998 was $3.5 million. This
primarily resulted from an increase in capital lease and long-term debt
payments offset in part by the exercise of stock options and the related tax
benefit. In 1997, cash provided by financing activities of $3.9 million
resulted from the exercise of stock options and the related tax benefit
offset in part by capital lease and long-term debt payments.
In November 1998, the Company obtained a three-year, $50 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 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. The Company had no borrowings under the line of credit at December
31, 1998.
The Company believes that existing cash and short-term investments
together with available borrowings under its line of credit will be
sufficient to finance the Company's current operations, planned capital
expenditures and anticipated growth through 1999. However, if the Company
were to make any significant acquisitions for cash, it may be necessary for
the Company to obtain additional debt or equity financing. The Company is
engaged in ongoing evaluations of, and discussions with, third parties
regarding possible acquisitions; however, the Company currently has no
definitive agreements with respect to any significant acquisitions.
24
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 December 31, 1998, 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 December 31, 1998, there were approximately $778,000 in borrowings
outstanding on the operating loan. 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 Australia, Brazil,
Canada, Mexico, New Zealand, Singapore and the United Kingdom. Revenues and
expenses from these operations are typically denominated in local currency,
thereby creating exposures to changes in exchange rates. The changes in the
exchange rate may positively or negatively affect the Company's revenues and
net income attributed to these subsidiaries.
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, in conjunction with an outside consulting firm, has
implemented a multiphased program to inventory, assess, remediate and test
its systems for Year 2000 compliance (the "Program"). The Company has nearly
completed the enterprisewide inventory, and the target date for the
completion of the assessment, analysis and remediation associated with the
Year 2000 issues is September 1999. The targeted completion date includes
addressing the technology and non-technology interfaces with its clients and
suppliers.
The consulting firm works 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 have been initiated. The Company
anticipates that the need for software conversion caused by Year 2000 issues
is not anticipated to be significant, given the Company's extensive use of
off-the-shelf products.
25
<PAGE>
While the cost to address Year 2000 issues continues to be developed
as the assessment phase nears completion, the Company currently anticipates
that the total cost of assessment and remediation will be between $5 million
and $10 million. Of this total approximately 50% is anticipated to be new
capital expenditures to replace non-compliant computer hardware and software.
As of December 31, 1998, the Company has incurred approximately $623,000 in
inventory and assessment work on Year 2000 issues, which have been expensed
in the accompanying statement of operations and were funded by cash flow from
operations. Expenditures in 1999 will be funded primarily through cash flow
from operations and available cash on hand.
DISCLOSURE OF RISKS AND UNCERTAINTIES
The Company currently is unable to ascertain the exact magnitude of
its Year 2000 issues because it has not yet completed the assessment phase of
the program. Many potential risks exist related to the infrastructures
supporting the Company's various facilities, including the telephone and
power grids supporting the Company's global operations. The Company believes
that it is unlikely a prolonged or long-term telephone or power outage will
occur at one or more of its key operation centers as a result of Year 2000
problems, however the occurrence of such an outage would cause major
challenges and would significantly impact the Company's ability to generate
revenues during the outage. Methods to reduce this risk are being evaluated
based on the probability of occurrence. The inability to support one or more
of the Company's clients due to the Company's own technology issues is less
likely, although a possibility. This risk is being minimized by the
assessment of the compliance levels of the Company's vendor products and by
the implementation of inspection, analysis and test activities.
The Company is unable to predict with certainty the extent its
suppliers will be affected by the Year 2000 issue, or the extent to which the
Company may be vulnerable to a supplier's inability to remediate any issues
in a timely manner. Additionally, the Company utilizes a computer interface
with many of its large customers as a key component of the client program.
Should these client systems contain Year 2000 problems, the Company may be
unable to provide services under the program. TeleTech is working with its
clients to determine the extent of the clients' readiness, but the Company
has not completed this assessment.
Currently contingency planning is being addressed but is still
uncertain pending the completion of the internal and client assessments.
TeleTech is assuming that system failures can occur not only as the result of
incorrect date data or calculations, but also due to external problems with
power, telecommunications or other business dependencies. The Company's
contingency planning will entail the preparation of alternative work
processes in the event of possible system or process failures.
FORWARD-LOOKING STATEMENTS
All statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" or elsewhere in
this annual report that are not statements of historical facts are
forward-looking statements that involve substantial risks and uncertainties.
Forward-looking statements include (a) the Company's expectation that
customer management consulting, systems integration, Web-based education and
customer-centric marketing sales will represent a more significant portion of
revenues in future years, (b) the Company's expectation that operating
margins will not significantly improve until the Company has sold its excess
capacity, (c) the expected opening of additional customer interaction centers
in 1999 and the Company's expectation that there will be sufficient business
to utilize existing and additional customer interaction center capacity; (d)
the amount and nature of planned capital expenditures; (e) the Company's
belief that existing cash, short-term investments and available borrowing
will be sufficient to finance the Company's near-term operations and Year
2000 requirements; (f) the Company's assessment of the impact of the Year
2000 issues; (g) the Company's belief that reasonably possible near-term
changes in interest rates will not result in a material effect on future
earnings; and (h) statements relating to the Company or its operations that
are preceded by terms such as "anticipates," "expects," "believes" and
similar expressions.
26
<PAGE>
The Company's actual results, performance or achievements may differ
materially from those expressed or implied by such forward-looking statements
as a result of various factors, including the following: TeleTech has not yet
completed the assessment phase of its Year 2000 Program and, thus, TeleTech
cannot know with certainty the full magnitude of costs to remediate, or
effect on its business of, any Year 2000 problems resident in TeleTech's or
its clients' systems. The Company historically has not sold its technology or
significant consulting services to its clients. Therefore, TeleTech does not
know the potential volume or profitability of any such future technology or
consulting sales. TeleTech's agreements with clients do not ensure that
TeleTech will generate a specific level of revenue and may be canceled by the
clients on short notice. The amount of revenue TeleTech 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
unproven in the marketplace. Any event that adversely affects the demand for
and customers' use of a client's products or services, whether increased
competition, labor shortage or strike, unavailability of raw materials or
otherwise, may adversely affect the Company's revenues attributable to such
client program. The loss of a significant client or the termination,
reduction or completion of a significant client program may have a material
adverse effect on TeleTech's capacity utilization and results of operations.
See "Risk Factors" on page 10 for other factors that may cause actual results
to differ materially from the forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are located beginning
on page 34 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
There is hereby incorporated by reference the information to appear
in TeleTech's definitive proxy statement for its 1999 Annual Meeting of
Stockholders under the captions "Information Concerning the Nominees for
Election as Directors," "Section 16(a) Beneficial Ownership Reporting
Compliance" and "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
There is hereby incorporated by reference the information to appear
under the caption "Executive Officers - Executive Compensation" in TeleTech's
definitive proxy statement for its 1999 Annual Meeting of Stockholders,
provided, however, that neither the Report of the Compensation Committee on
Executive Compensation nor the performance graph set forth therein shall be
incorporated by reference herein or in any of the Company's previous or
future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
There is hereby incorporated by reference the information to appear
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in TeleTech's definitive proxy statement for its 1999 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
There is hereby incorporated by reference the information to appear
under the caption "Certain Relationships and Related Party Transactions" in
TeleTech's definitive proxy statement for its 1999 Annual Meeting of
Stockholders.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) Consolidated Financial Statements
The Index to Financial Statements is set forth on page 32 of this
report.
(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves of TeleTech
Holdings, Inc. for periods ending December 31, 1998, 1997, and 1996
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<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}
10.1 Employment Agreement dated as of January 1, 1995, between Joseph D.
Livingston and TeleTech [1] {Exhibit 10.2}
10.2 Amendment to the Employment Agreement between Joseph D. Livingston
and TeleTech dated May 14, 1996 [1] {Exhibit 10.3}
10.3 Employment Agreement dated as of April 1, 1996, between Steven B. Coburn
and TeleTech [1] {Exhibit 10.4}
10.4 TeleTech Holdings, Inc. Stock Plan, as amended and restated [1]
{Exhibit 10.7}
10.5 TeleTech Holdings, Inc. Directors Stock Option Plan [1] {Exhibit 10.8}
10.6 Form of Client Services Agreement, 1996 version [1] {Exhibit 10.12}
10.7 Agreement for Customer Interaction Center Management Between
United Parcel General Services Co. and TeleTech [1] {Exhibit 10.13}
10.8 Business Loan Agreement dated March 29, 1996, among TeleTech
Telecommunications, Inc.; TeleTech Teleservices, Inc.; and
TeleTech, as borrower, and First Interstate Bank of
California, as lender; addendum dated March 29, 1996 [1]
{Exhibit 10.15}
10.9 Master Lease Agreement dated as of July 11, 1995, among First
Interstate Bank of California; TeleTech; TeleTech
Telecommunications, Inc.; and TeleTech Teleservices, Inc. [1]
{Exhibit 10.17}
10.10 TeleTech Holdings, Inc. Employee Stock Purchase Plan [3]
{Exhibit 10.22}
10.11 Employment Agreement dated as of January 1, 1998, between
Kenneth D. Tuchman and TeleTech [4] {Exhibit 10.11}
10.12 Client Services Agreement dated May 1, 1997, between TeleTech
Customer Care Management (Telecommunications), Inc. and GTE Card
Services Incorporated d/b/a GTE Solutions [4] {Exhibit 10.12}
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.13* $50.0 Million Revolving Credit Agreement dated as of November 20, 1998.
10.14* Employment Agreement dated as of February 26, 1998 between
Morton H. Meyerson and TeleTech.
21.1* List of subsidiaries
23.1* Consent of Arthur Andersen LLP to incorporation by reference of the
financial statements into TeleTech's previously filed Registration
Statements on Form S-8 and Form S-3.
27* Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith.
[ ] Such exhibit previously filed with the Securities and Exchange
Commission as exhibits to the filings 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).
[2] TeleTech's Registration Statements on Form S-1, as amended
(Registration Statement Nos. 333-13833 and 333-15297).
[3] TeleTech's Annual Report on Form 10-K for the year ended
December 31, 1996.
[4] TeleTech's Annual Report on Form 10-K for the year ended
December 31, 1997.
(b) REPORT ON FORM 8-K
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Denver, State of Colorado, on March 20, 1998.
TELETECH HOLDINGS, INC.
/s/ KENNETH D. TUCHMAN
------------------------------
By: Kenneth D. Tuchman
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 22, 1999, by the following persons on
behalf of the registrant and in the capacities indicated:
SIGNATURE TITLE
- --------- -----
/s/ KENNETH D. TUCHMAN Chairman of the Board and Chief
- ------------------------ Executive Officer (Principal
Kenneth D. Tuchman Executive Officer)
/s/ STEVEN B. COBURN Chief Financial Officer (Principal
- ------------------------ Financial and Accounting Officer)
Steven B. Coburn
/s/ ROD DAMMEYER Director
- ------------------------
Rod Dammeyer
/s/ GEORGE HEILMEIER Director
- ------------------------
George Heilmeier
/s/ JOHN T. MCLENNAN Director
- ------------------------
John T. McLennan
/s/ MORTON H. MEYERSON Director
- ------------------------
Morton H. Meyerson
/s/ ALAN SILVERMAN Director
- ------------------------
Alan Silverman
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TELETECH HOLDINGS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants 33
Consolidated Balance Sheets as of December 31, 1997 and 1998 34
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997, and 1998 36
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997, and 1998 37
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997, and 1998 38
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1997, and 1998 40
</TABLE>
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeleTech Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
TELETECH HOLDINGS, INC. (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TeleTech
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 8, 1999.
33
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
ASSETS 1997 1998
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,338 $ 8,796
Short-term investments 69,633 37,082
Accounts receivable, net of allowance for doubtful
accounts of $2,327 and $2,900, respectively 43,664 68,830
Prepaids and other assets 1,220 2,811
Deferred tax asset 2,902 3,855
-------- --------
Total current assets 124,757 121,374
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $21,812 and $38,432, respectively 53,738 77,546
-------- --------
OTHER ASSETS:
Long-term accounts receivable 4,274 4,274
Goodwill, net of amortization of $587 and $1,599, respectively 7,295 15,022
Contract acquisition cost -- 10,900
Investment in affiliated company accounted for
under the equity method 981 --
Other assets 1,322 1,794
-------- --------
Total assets $192,367 $230,910
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
34
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998
------------------------------------ -------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,910 $ 7,989
Bank overdraft 1,094 778
Accounts payable 8,086 11,814
Accrued employee compensation 12,244 18,134
Accrued income taxes 2,507 4,191
Other accrued expenses 11,694 11,520
Customer advances, deposits and deferred income 1,472 3,803
-------- --------
Total current liabilities 43,007 58,229
DEFERRED TAX LIABILITIES 1,217 835
LONG-TERM DEBT, net of current portion:
Capital lease obligations 9,432 4,208
Other debt 459 2,145
-------- --------
Total liabilities 54,115 65,417
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value; 150,000,000
shares authorized; 59,262,397 and 60,769,724
shares, respectively, issued; and 59,163,587 and
60,769,724 shares, respectively, outstanding 592 606
Additional paid-in capital 104,016 111,080
Accumulated other comprehensive income (922) (1,610)
Unearned compensation-restricted stock (127) --
Treasury stock, 98,810 shares, at cost (988) --
Retained earnings 35,681 55,417
-------- --------
Total stockholders' equity 138,252 165,493
-------- --------
Total liabilities and stockholders' equity $192,367 $230,910
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
35
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES $171,265 $279,057 $369,045
-------- -------- --------
OPERATING EXPENSES:
Costs of services 104,142 178,702 241,230
Selling, general and administrative
Expenses 43,504 67,208 96,077
-------- -------- --------
Total operating expenses 147,646 245,910 337,307
-------- -------- --------
INCOME FROM OPERATIONS 23,619 33,147 31,738
OTHER INCOME (EXPENSE):
Interest expense (1,166) (1,270) (1,160)
Interest income 1,406 3,399 3,074
Equity in income (losses) of affiliate (70) 302 70
Business combination expenses -- -- (1,321)
Other (158) (225) (394)
-------- -------- --------
18 2,310 159
-------- -------- --------
INCOME BEFORE INCOME TAXES 23,637 35,457 31,897
Provision for income taxes 9,773 14,123 12,695
-------- -------- --------
NET INCOME $ 13,864 $ 21,334 $ 19,202
-------- -------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 54,522 58,435 59,950
-------- -------- --------
Diluted 58,152 61,646 62,052
-------- -------- --------
NET INCOME PER SHARE
Basic $ .25 $ .37 $ .32
-------- -------- --------
Diluted $ .24 $ .35 $ .31
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
36
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE,
CONVERTIBLE
PREFERRED STOCK TREASURY STOCK COMMON STOCK
------------------ -------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 1,860 $ 12,867 -- $ -- 40,700 $ 407
Purchase of Access 24 970 10
Translation adjustments
Dividends on Preferred Stock 422
Issuance of restricted stock 76 1
Compensation expense on
restricted stock
Conversion of Preferred Stock (1,860) (13,289) 9,300 93
Issuance of common stock 5,944 59
Acquisition of treasury stock 99 (988)
Exercise of stock options 166 1
Net income
Comprehensive income
Distribution to stockholder
------ -------- ----- ----- ------ -----
BALANCES, December 31, 1996 -- -- 99 (988) 57,156 571
Employee stock purchase plan 28
Acquisition of TMI 100 1
Translation adjustments
Compensation expense on
restricted stock
Exercise of stock options 470 5
Issuance of common stock 1,508 15
Net income
Comprehensive income
Distribution to stockholder
------ -------- ----- ----- ------ -----
BALANCES, December 31, 1997 -- -- 99 (988) 59,262 592
Employee stock purchase plan 28
Acquisition of Intellisystems (99) 988 245 2
Acquisition of Cygnus 325 3
Combination with Outsource 606 6
Translation adjustments
Brokerage fee on EDM combination 42
Year-end change for EDM
Exercise of stock options 249 3
Other stock issuances 13
Compensation expense on
restricted stock
Net income
Comprehensive income
------ -------- ----- ----- ------ -----
BALANCES, December 31, 1998 -- $ -- -- $ -- 60,770 $ 606
------ -------- ----- ----- ------ -----
------ -------- ----- ----- ------ -----
<CAPTION>
ACCUMULATED UNEARNED
ADDITIONAL OTHER COMPENSATION- TOTAL
PAID-IN COMPREHENSIVE RESTRICTED RETAINED COMPREHENSIVE STOCKHOLDER
CAPITAL INCOME STOCK EARNINGS INCOME EQUITY
---------- ------------- ------------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 $ 1,847 $ -- $ -- $ 1,814 $ 4,068
Purchase of Access 24 4,841 4,851
Translation adjustments 98 $ 98 98
Dividends on Preferred Stock (422) (422)
Issuance of restricted stock 379 (380) --
Compensation expense on
restricted stock 126 126
Conversion of Preferred Stock 13,196 13,289
Issuance of common stock 71,939 71,998
Acquisition of treasury stock (988)
Exercise of stock options 1,857 1,858
Net income 13,864 13,864 13,864
--------
Comprehensive income $ 13,962 --
--------
--------
Distribution to stockholder (212) (212)
-------- ------- ------ ------- --------
BALANCES, December 31, 1996 94,059 98 (254) 15,044 108,530
Employee stock purchase plan 440 440
Acquisition of TMI 1,797 1,798
Translation adjustments (1,020) $ (1,020) (1,020)
Compensation expense on 127 127
restricted stock
Exercise of stock options 5,072 5,077
Issuance of common stock 2,648 2,663
Net income 21,334 21,334 21,334
--------
Comprehensive income $ 20,314 --
--------
--------
Distribution to stockholder (697) (697)
-------- ------- ------ ------- --------
BALANCES, December 31, 1997 104,016 (922) (127) 35,681 138,252
Employee stock purchase plan 334 334
Acquisition of Intellisystems 2,089 3,079
Acquisition of Cygnus 2,658 2,661
Combination with Outsource 804 810
Translation adjustments (688) $ (688) (688)
Brokerage fee on EDM combination 485 485
Year-end change for EDM (270) (270)
Exercise of stock options 1,457 1,460
Other stock issuances 41 41
Compensation expense on 127 127
restricted stock
Net income 19,202 19,202 19,202
--------
Comprehensive income $ 18,514 --
-------- ------- ------ ------- -------- --------
--------
BALANCES, December 31, 1998 $111,080 $(1,610) $ -- $55,417 $165,493
-------- ------- ------ ------- --------
-------- ------- ------ ------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
37
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,864 $ 21,334 $ 19,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,242 11,331 19,293
Allowance for doubtful accounts 673 865 573
Deferred income taxes (585) (1,169) (1,235)
Equity in (income) losses of affiliate 70 (302) (70)
Deferred compensation expense 126 127 127
Business combination expenses paid in stock -- -- 485
Changes in assets and liabilities:
Accounts receivable (21,702) (15,421) (24,585)
Prepaids and other assets (1,170) 175 (799)
Deferred contract costs (2,015) -- --
Accounts payable and accrued expenses 11,500 12,012 9,827
Customer advances, deposits and deferred income 7 455 2,030
-------- -------- --------
Net cash provided by operating activities 8,010 29,407 24,848
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (8,212) (34,803) (38,246)
Purchase of Intellisystems -- -- (2,000)
Purchase of Cygnus, net of cash acquired -- -- (308)
Purchase of TMI, net of cash acquired -- (2,440) --
Purchase of Access 24, net of cash acquired (2,461) -- --
Contract acquisition costs -- -- (10,900)
Proceeds from sale of interest in Access 24 UK Limited 3,905 -- 981
Temporary deposit (3,000) 3,000 --
Changes in accounts payable and accrued liabilities
related to investing activities 1,196 (190) (1,762)
Decrease (increase) in short-term investments (62,151) 2,841 32,551
-------- -------- --------
Net cash used in investing activities (70,723) (31,592) (19,684)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
38
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in bank overdraft $ (1,065) $ 745 $ (316)
Net increase (decrease) in short-term borrowings (1,000) -- 351
Payments on long-term debt (936) (216) (1,126)
Proceeds from long-term debt borrowings 42 593 3,227
Payments under capital lease obligations (1,530) (4,933) (7,466)
Proceeds from common stock issuances 71,998 3,240 375
Proceeds from exercise of stock options 250 1,917 1,008
Tax benefit from stock option exercises 1,608 3,160 452
Acquisition of treasury stock (988) -- --
Payments under subordinated notes payable to
stockholder -- 29 --
Distributions to stockholder (212) (678) --
--------- --------- ---------
Net cash provided by (used in) financing activities 68,167 3,857 (3,495)
--------- --------- ---------
Effect of exchange rate changes on cash 48 102 (211)
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,502 1,774 1,458
CASH AND CASH EQUIVALENTS, beginning of period 62 5,564 7,338
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 5,564 $ 7,338 $ 8,796
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,099 $ 1,296 $ 1,269
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes $ 6,808 $ 12,189 $ 10,553
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Assets acquired through capital leases $ 10,483 $ 5,229 $ 2,811
--------- --------- ---------
--------- --------- ---------
Stock issued in purchase of Access 24 $ 4,851 $ -- $ --
--------- --------- ---------
--------- --------- ---------
Stock issued in purchase of TMI $ -- $ 1,798 $ --
--------- --------- ---------
--------- --------- ---------
Stock issued in purchase of Intellisystems $ -- $ -- $ 3,079
--------- --------- ---------
--------- --------- ---------
Stock issued in pooling of EDM (brokerage fee) $ -- $ -- $ 485
--------- --------- ---------
--------- --------- ---------
Stock issued in purchase of Cygnus $ -- $ -- $ 2,661
--------- --------- ---------
--------- --------- ---------
Restricted stock issued under employment agreements $ 380 $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
39
<PAGE>
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
TeleTech Holdings, Inc. ("THI" or the "Company") is a provider of
outsourced customer management solutions for large and multinational
companies in the United States, Australia, Brazil, Canada, Mexico, New
Zealand, Singapore and the United Kingdom. Customer management encompasses a
wide range of customer acquisition, retention and satisfaction programs
designed to maximize the lifetime value of the relationship between the
Company's clients and their customers.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements are composed of the accounts
of THI and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
As more fully discussed in Note 16, during June 1998, the Company
entered into business combinations with Digital Creators, Inc. ("Digital")
and EDM Electronic Marketing Ltd. ("EDM"). The business combinations have
been accounted for as pooling of interests and the historical consolidated
financial statements of the Company for all years prior to the business
combination have been restated in the accompanying consolidated financial
statements to include the financial position, results of operations and cash
flows of Digital and EDM.
The consolidated financial statements of the Company include
reclassifications made to conform the financial statement presentation of
Digital and EDM to that of the Company.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of the Company's foreign subsidiaries,
whose functional currency is other than the U.S. dollar, are translated at
the exchange rates in effect on the reporting date, and income and expenses
are translated at the weighted average exchange rate during the period. The
net effect of translation gains and losses is not included in determining net
income, but is accumulated as a separate component of stockholders' equity.
The net effect of translation gains on the Company's Mexican subsidiary is
included in determining net income, as Mexico is considered a highly
inflationary economy. Foreign currency transaction gains and losses are
included in determining net income. Such gains and losses were not material
for any period presented.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Additions, improvements and major renewals are capitalized.
Maintenance, repairs and minor renewals are expensed as incurred. Amounts
paid for software licenses and third-party packaged software are capitalized.
Depreciation is computed on the straight-line method based on the
estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Computer equipment and software 4-5 years
Telephone equipment 5-7 years
Furniture and fixtures 5-7 years
Leasehold improvements 5-10 years
Vehicles 5 years
</TABLE>
40
<PAGE>
Assets acquired under capital lease obligations are amortized over
the life of the applicable lease of four to seven years (or the estimated
useful lives of the assets, of four to seven years, where title to the leased
assets passes to the Company upon termination of the lease).
REVENUE RECOGNITION
The Company recognizes revenues at the time services are performed.
The Company has certain contracts that are billed in advance. Accordingly,
amounts billed but not earned under these contracts are excluded from
revenues and included in deferred income.
The Company maintains ongoing training programs for its employees.
The cost of this training is expensed as incurred. In addition, certain
contracts require clients to reimburse the Company for specific training.
These costs are billed to the clients as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations when
incurred and are included in operating expenses. Research and development
costs were not material for any period presented.
DEFERRED CONTRACT COSTS
The Company previously deferred certain incremental direct costs
incurred in connection with preparing to provide services under certain
long-term facilities management agreements. Costs that were deferred included
the costs of hiring dedicated personnel to manage client-owned facilities,
their related payroll and other directly associated costs from the time
long-term facilities management agreements were entered into until the
beginning of providing services. Such costs were amortized over 12 months.
For the years ended December 31, 1996 and 1997, the Company recorded
amortization expense of $1,658,000 and $703,000, respectively. There were no
deferred contract costs remaining on the December 31, 1997 and 1998, balance
sheets.
INTANGIBLE ASSETS
The excess of cost over the fair market value of tangible net assets
and trademarks of acquired businesses is amortized on a straight-line basis
over the periods of expected benefit of 9 to 25 years. Amortization of
goodwill for the years ended December 31, 1996, 1997, and 1998, was $238,000,
$349,000 and $1,012,000, respectively.
Subsequent to an acquisition, the Company continually evaluates
whether later events and circumstances have occurred that indicate the
remaining estimated useful life of an intangible asset may warrant revision
or that the remaining balance of an intangible asset may not be recoverable.
When factors indicate that an intangible asset should be evaluated for
possible impairment, the Company uses an estimate of the related business'
undiscounted future cash flows over the remaining life of the asset in
measuring whether the intangible asset is recoverable. Management does not
believe that any provision for impairment of intangible assets is required.
CONTRACT ACQUISITION COSTS
Amounts paid to a client to obtain a long-term contract are being
amortized on a straight-line basis over the term of the contract commencing
with the date of the first revenues from the contract. There was no
amortization expense during 1998.
41
<PAGE>
INCOME TAXES
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for
Income Taxes," which requires recognition of deferred tax assets and
liabilities for the expected future income tax consequences of transactions
that have been included in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets then may be
reduced by a valuation allowance for amounts that do not satisfy the
realization criteria of SFAS 109.
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average
number of common shares and common share equivalents outstanding.
Basic earnings per share are computed by dividing reported earnings
available to common stockholders by weighted average shares outstanding. No
dilution for any potentially dilutive securities is included. Diluted
earnings per share reflect the potential dilution assuming the issuance of
common shares for all dilutive potential common shares outstanding during the
period. For purposes of the calculation of basic earnings per share for 1996,
net income was reduced by $422,000, representing dividends on Preferred
Stock, to arrive at net income available for common shareholders. The
difference between diluted and basic shares outstanding relates to
outstanding stock options.
RESTRICTED STOCK AWARDS
In January 1996, the Company awarded 76,000 restricted shares of the
Company's common stock to certain employees as compensation to be earned over
the term of the employees' related employment agreements (three years). The
market value of the stock at the date of award was $380,000. This amount was
recorded as unearned compensation-restricted stock and shown as a separate
component of stockholders' equity. For the years ended December 31, 1996,
1997, and 1998, the Company recognized compensation expense of $126,000,
$127,000 and $127,000, respectively, related to these awards.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For the purposes of the statement of cash flows, the Company
considers all cash and investments with an original maturity of 90 days or
less to be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," which establishes standards for the way public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The adoption of SFAS 131 in
1998 resulted in additional disclosures by the Company.
42
<PAGE>
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 does not require a specific format for that financial
statement but requires that the enterprise display an amount representing
total comprehensive income for the period in that financial statement. The
adoption of SFAS 130 in 1998 resulted in displaying comprehensive income on
the statements of stockholders' equity.
LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles to be held
and used by the Company are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An asset is considered impaired when future undiscounted
cash flows are estimated to be insufficient to recover the carrying amount.
If impaired, an asset is written down to its fair value.
SELF-INSURANCE PROGRAM
The Company self-insures for certain levels of workers' compensation
and employee health insurance. Estimated costs of these self-insurance
programs were accrued at the projected settlements for known and anticipated
claims. The Company has a $250,000 per occurrence stop loss limit.
Self-insurance liabilities of the Company amounted to $3.2 million and $3.2
million at December 31, 1998 and 1997, respectively.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning
after June 15, 1999. SFAS 133 establishes accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. It also requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 may not
be applied retroactively, and must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired or substantively modified after December 31, 1997 (and, at
the Company's election, before January 1, 1998). Management believes that the
impact of SFAS 133 will not significantly affect its financial reporting.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Opinion ("SOP") 98-5, "Reporting on the Costs
of Start-Up Activities." This statement is effective for financial statements
for fiscal years beginning after December 15, 1998. In general, SOP 98-5
requires costs of start-up activities and organization costs to be expensed
as incurred. Initial application of SOP 98-5 should be reported as the
cumulative effect of a change in accounting principle. Management believes
SOP 98-5 will not have a material impact on the financial statements.
43
<PAGE>
(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.
<TABLE>
<CAPTION>
(in thousands) 1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Outsourced $ 103,151 $ 143,627 $ 200,514
Facilities Management 48,445 84,033 85,694
International Outsourced 19,669 50,314 74,065
Corporate Activities -- 1,083 8,772
--------- --------- ---------
Total $ 171,265 $ 279,057 $ 369,045
--------- --------- ---------
--------- --------- ---------
OPERATING INCOME (LOSS):
Outsourced $ 24,258 $ 30,243 $ 41,495
Facilities Management 9,936 16,159 11,648
International Outsourced 1,520 4,258 5,675
Corporate Activities (12,095) (17,513) (27,080)
--------- --------- ---------
Total $ 23,619 $ 33,147 $ 31,738
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND AMORTIZATION INCLUDED
IN OPERATING INCOME:
Outsourced $ 4,232 $ 7,463 $ 12,688
Facilities Management 1,693 522 239
International Outsourced 1,259 3,102 5,054
Corporate Activities 58 244 1,312
--------- --------- ---------
Total $ 7,242 $ 11,331 $ 19,293
--------- --------- ---------
--------- --------- ---------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
(in thousands) 1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
ASSETS:
Outsourced Assets $ 44,460 $ 88,829 $101,105
Facilities Management Assets 10,839 6,759 18,121
International Outsourced Assets 12,727 34,934 50,764
Corporate Activities Assets 75,728 54,550 45,898
International Outsourced Goodwill, Net 3,257 7,295 6,803
Corporate Activities Goodwill, Net -- -- 8,219
-------- -------- --------
Total $147,011 $192,367 $230,910
-------- -------- --------
-------- -------- --------
CAPITAL EXPENDITURES (INCLUDING CAPITAL
LEASES):
Outsourced $ 16,090 $ 22,337 $ 28,144
Facilities Management 378 50 1,169
International Outsourced 2,015 15,963 4,697
Corporate Activities 212 1,682 7,047
-------- -------- --------
Total $ 18,695 $ 40,032 $ 41,057
-------- -------- --------
-------- -------- --------
</TABLE>
The following geographic data include revenues based on the location
the services are provided and gross property and equipment based on the
physical location (in thousands).
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
United States $151,596 $228,743 $281,077
Australia 13,264 29,790 36,958
Canada 5,761 14,497 36,852
Rest of world 644 6,027 14,158
-------- -------- --------
Total $171,265 $279,057 $369,045
-------- -------- --------
-------- -------- --------
GROSS PROPERTY AND EQUIPMENT:
United States $ 30,787 $ 54,912 $ 86,189
Australia 3,484 10,622 11,956
Canada 1,700 4,790 5,645
Rest of world 644 5,226 12,188
-------- -------- --------
Total $ 36,615 $ 75,550 $115,978
-------- -------- --------
-------- -------- --------
</TABLE>
The Company's revenues from major customers (revenues in excess of
10% of total sales) are from entities involved in the telecommunications,
technology and transportation industries. The revenues from such customers as
a percentage of total revenues for each of the three years ended December 31
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Customer A 26% 18% 8%
Customer B 14% 2% --
Customer C 27% 23% 13%
Customer D -- 15% 25%
--- --- ---
67% 58% 46%
--- --- ---
--- --- ---
</TABLE>
At December 31, 1997, accounts receivable from Customers A, B, C and
D were $6.2 million, $4.3 million, $4.3 million and $8.4 million,
respectively. At December 31, 1998, accounts receivable from Customers A, C
and D.
45
<PAGE>
were $5.2 million, $4.7 million and $8.2 million, respectively. There were no
other customers with receivable balances in excess of 10% of consolidated
accounts receivable. Customers A, B and D are included in the outsourced
reporting segment. Customer C is included in the facilities management
reporting segment.
The loss of one or more of its significant customers could have a
material adverse effect on the Company's business, operating results or
financial condition. To limit the Company's credit risk, management performs
ongoing credit evaluations of its customers and maintains allowances for
potentially uncollectible accounts. Although the Company is directly impacted
by economic conditions in the telecommunications, technology, transportation,
healthcare, financial services and government services industries, management
does not believe significant credit risk exists at December 31, 1998.
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,
1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and software $ 34,213 $ 55,547
Telephone equipment 6,530 7,773
Furniture and fixtures 17,014 23,350
Leasehold improvements 17,456 29,280
Other 337 28
--------- ---------
75,550 115,978
Less accumulated depreciation (21,812) (38,432)
--------- ---------
$ 53,738 $ 77,546
--------- ---------
--------- ---------
</TABLE>
Included in the cost of property and equipment is the following
equipment obtained through capitalized leases as of December 31, 1997 and
1998 (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computer equipment and software $ 15,545 $ 16,928
Telephone equipment 1,078 1,906
Furniture and fixtures 7,471 8,071
-------- -------
24,094 26,905
Less accumulated depreciation (9,060) (14,160)
-------- -------
$ 15,034 $ 12,745
-------- -------
-------- -------
</TABLE>
Depreciation expense was $5.4 million, $10.3 million and $18.3
million for the years ended December 31, 1996, 1997, and 1998, respectively.
Depreciation expense related to leased equipment under capital leases was
$3.2 million, $4.7 million and $5.1 million for the years ended December 31,
1996, 1997, and 1998, respectively.
(4) CAPITAL LEASE OBLIGATIONS
The Company has financed property and equipment under non-cancelable
capital lease obligations. Accordingly, the fair value of the equipment has
been capitalized and the related obligation recorded. The average implicit
interest rate on these leases was 8.3% at December 31, 1998. Interest is
charged to expense at a level rate applied to declining principal over the
period of the obligation.
46
<PAGE>
The future minimum lease payments under capitalized lease
obligations as of December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1999 $ 7,452
2000 3,479
2001 921
2002 388
2003 146
-------
12,386
Less amount representing interest (2,474)
-------
9,912
Less current portion (5,704)
-------
$4,208
-------
</TABLE>
Interest expense on the outstanding obligations under such leases
was $892,000, $1,106,000 and $1,015,000 for the years ended December 31,
1996, 1997, and 1998, respectively.
(5) LONG-TERM DEBT
As of December 31, 1997 and 1998, long-term debt consisted of the
following notes (in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Note payable, interest at 8% per annum, principal and interest payable monthly,
maturing May 2000 $ 95 $ 58
Note payable, interest at 5% per annum, principal and interest payable quarterly,
maturing December 1999 422 222
Note payable, interest at 8% per annum, principal and interest payable quarterly,
maturing March 2001 -- 1,673
Note payable, interest at 7% per annum, principal and interest payable quarterly,
maturing December 1999 -- 449
Note payable, interest at 5% per annum, principal and interest payable quarterly,
maturing January 2000 174 89
Note payable, interest at 8.78% per annum, principal and interest payable
quarterly, maturing December 2002 97 80
Note payable, interest at 4% per annum, principal and interest payable monthly,
maturing December 2004 -- 375
Note payable, interest at 8% per annum, principal and interest payable monthly,
maturing January 2001 -- 1,448
Other notes payable 26 36
------- -------
814 4,430
Less current portion (355) (2,285)
------- -------
$ 459 $ 2,145
------- -------
</TABLE>
47
<PAGE>
Annual maturities of the long-term debt described on page 47 are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C>
1999 $2,285
2000 1,594
2001 337
2002 79
2003 66
Thereafter 69
------
$4,430
------
</TABLE>
(6) REVOLVING LINE OF CREDIT
In November 1998, the Company entered into a three-year unsecured
revolving line of credit agreement with a syndicate of five commercial banks
under which it may borrow up to $50 million. Interest is payable at various
interest rates. The borrowings can be made at (a) the bank's base rate or (b)
the bank's offshore rate (approximating LIBOR) plus a margin ranging from 50
to 150 basis points depending upon the Company's leverage. In addition, the
Company, at its option, can elect to secure up to $25 million of the line
with existing cash investments. Advances under the secured portion will be
made at a margin of 22.5 basis points. At December 31, 1998, there were no
amounts outstanding under this facility. The Company is required to comply
with certain minimum financial ratios under covenants in connection with the
agreement described above. As of December 31, 1998, the Company was in
compliance with all covenants under the agreement.
The Company's Canadian subsidiary has available an operating loan of
CDN$2.0 million, which is due on demand and bears interest at the bank's
prime rate, which was 6.75% and 6.5% at December 31, 1998 and 1997,
respectively. The operating loan is collateralized by a general security
agreement, a partial assignment of accounts receivable insurance in the
amount of CDN$500,000, a partial assignment of life insurance on the former
majority shareholder in the amount of CDN$400,000 and an assignment of fire
insurance. As of December 31, 1997 and 1998, there was $1,094,000 and
$778,000, respectively, outstanding under this operating loan.
(7) INCOME TAXES
The components of income before income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Domestic $22,163 $31,325 $23,518
Foreign 1,474 4,132 8,379
------- ------- -------
Total $23,637 $35,457 $31,897
------- ------- -------
------- ------- -------
</TABLE>
48
<PAGE>
The components of the provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Current provision:
Federal $ 7,653 $11,116 $ 8,297
State 1,784 2,490 1,865
Foreign 921 1,686 3,768
-------- -------- ---------
10,358 15,292 13,930
-------- -------- ---------
Deferred provision:
Federal (474) (1,036) (834)
State (111) (190) (195)
Foreign -- 57 (206)
-------- -------- ---------
(585) (1,169) (1,235)
-------- -------- ---------
$ 9,773 $14,123 $12,695
-------- -------- ---------
</TABLE>
The following reconciles the Company's effective tax rate to the
federal statutory rate for the years ended December 31, 1996, 1997, and 1998
(in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Income tax expense per federal statutory rate $ 8,273 $ 12,410 $ 11,152
State income taxes, net of federal deduction 1,144 1,491 1,100
Permanent differences 150 (100) (315)
Foreign income taxed at higher rate 206 322 758
-------- -------- ---------
$ 9,773 $ 14,123 $ 12,695
-------- -------- ---------
</TABLE>
The Company's deferred income tax assets and liabilities are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 876 $ 1,024
Vacation accrual 1,062 1,202
Compensation 358 954
Insurance reserves 475 644
Other 131 31
-------- --------
2,902 3,855
Deferred tax liabilities:
Excess depreciation for tax (1,217) (835)
-------- --------
Net deferred income tax asset $ 1,685 $ 3,020
-------- --------
</TABLE>
A valuation allowance has not been recorded as the Company expects
that all deferred tax assets will be realized in the future.
49
<PAGE>
(8) COMMITMENTS AND CONTINGENCIES
LEASES. The Company has various operating leases for equipment,
customer interaction centers and office space. Lease expense under operating
leases was approximately $4,327,000, $8,163,000 and $12,336,000 for the years
ended December 31, 1996, 1997, and 1998, respectively.
The future minimum rental payments required under non-cancelable
operating leases as of December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
1999 $ 11,128
2000 8,989
2001 7,947
2002 6,062
2003 5,357
Thereafter 25,841
--------
$ 65,324
--------
--------
</TABLE>
LEGAL PROCEEDINGS. In November 1996, the Company received notice that
CompuServe Incorporated ("CompuServe") was withdrawing its WOW! Internet
service from the marketplace and that effective January 31, 1997, it would
terminate all the programs provided to CompuServe by the Company. Pursuant to
the terms of its agreement with the Company, CompuServe was entitled to
terminate the agreement for reasonable business purposes upon 120 days
advance notice and by payment of a termination fee calculated in accordance
with the agreement. In December 1996, the Company filed suit against
CompuServe to enforce these 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, against the amount that may be awarded to CompuServe on its
counterclaim, if any, certain accounts receivable it owes to the Company for
services rendered. These accounts receivable total $4.3 million as of
December 31, 1997 and 1998.
In mid-1997, CompuServe announced it had agreed to sell its worldwide
on-line services business to America Online, Inc. and its network services
business to a wholly owned subsidiary of WorldCom, Inc. The Company and
CompuServe agreed to delay proceedings pending the sale, which was completed
in January 1998. In December 1997, proceedings related to the lawsuit were
recommenced and then stayed again pending settlement negotiations. The
Company has been in negotiation with America Online, Inc. and WorldCom, Inc.
to resolve these matters and the Company believes that this will be settled
without a material adverse effect on the Company's financial condition or
results of operations, although the ultimate outcome is still uncertain.
Because it is uncertain when this matter will be concluded, the Company has
reclassified the $4.3 million receivable as a long-term asset in the
accompanying balance sheets.
(9) COMMON STOCK OFFERINGS
In August 1996, the Company completed an initial public offering of
4.0 million shares of common stock at a price of $14.50 per share. Selling
shareholders sold an additional 3.2 million shares of common stock in the
Company's initial public offering. Immediately prior to the offering, the
Company acquired 98,810 shares of treasury stock at a price of $10 per share.
In November 1996, the Company completed a secondary offering of
600,000 shares of common stock at a price of $31.00 per share. Selling
shareholders sold an additional 4.0 million shares of common stock in
connection with the secondary offering of which 155,600 shares were sold upon
the exercise of stock options.
50
<PAGE>
(10) EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit-sharing plan that covers all
employees who have completed one year of service, as defined, and are 21 or
older. Participants may defer up to 15% of their gross pay up to a maximum
limit determined by law. Participants are always 100% vested in their
contributions. Participants are also eligible for a matching contribution by
the Company of 50% of the first 5% of compensation a participant contributes
to the plan. Participants vest in all matching contributions over a four-year
period.
(11) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1995, the Company issued 1.86 million shares of
convertible Preferred Stock at $6.45 per share for gross proceeds of $12.0
million. The 1.86 million shares of Preferred Stock initially were
convertible into 9.3 million shares of common stock. In connection with and
immediately prior to the Company's initial public offering in July 1996, all
1.86 million outstanding shares of Preferred Stock together with all accrued
dividends thereon were converted into 9.3 million shares of common stock.
(12) STOCK COMPENSATION PLANS
The Company adopted a stock option plan during 1995 and amended and
restated the plan in January 1996 for directors, officers, employees,
consultants and independent contractors. The plan reserves 7.0 million shares
of common stock and permits the award of incentive stock options,
non-qualified options, stock appreciation rights and restricted stock.
Outstanding options vest over a three- to five-year period and are
exercisable for 10 years from the date of grant.
In January 1996, the Company adopted a stock option plan for
non-employee directors (the "Director Plan"), covering 750,000 shares of
common stock. All options are to be granted at fair market value at the date
of grant. Options vest as of the date of the option and are not exercisable
until six months after the option date. Options granted are exercisable for
10 years from the date of grant unless a participant is terminated for cause
or one year after a participant's death. The Director Plan had options to
purchase 418,750 and 337,500 shares outstanding at December 31, 1998 and
1997, respectively.
In July 1996, the Company adopted an employee stock purchase plan
(the "ESPP"). Pursuant to the ESPP, an aggregate of 200,000 shares of common
stock of the Company will be sold in periodic offerings to eligible employees
of the Company. The price per share purchased in any offering period is equal
to the lesser of 90% of the fair market value of the common stock on the
first day of the offering period or on the purchase date. The offering
periods have a term of six months. Contributions to the plan for the years
ended December 31, 1996, 1997, and 1998, were $166,000, $419,000 and
$334,000, respectively.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 (SFAS 123)
The FASB's SFAS 123, "Accounting for Stock Based Compensation,"
defines a fair value based method of accounting for an employee stock option,
employee stock purchase plan or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed
by the Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting
in APB 25 must make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting defined in SFAS 123 has
been applied.
51
<PAGE>
The Company has elected to account for its stock-based compensation
plans under APB 25; however, the Company has computed, for pro forma
disclosure purposes, the value of all options granted using the Black-Scholes
option pricing model as prescribed by SFAS 123 and the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.3% 5.4% 5.2%
Expected dividend yield 0% 0% 0%
Expected lives 4.1 years 3.2 years 6.0 years
Expected volatility 59% 70% 70%
</TABLE>
The pro forma compensation expense was computed to be the following
approximate amounts:
<TABLE>
<S> <C>
Year ended December 31, 1996 $3,922,000
Year ended December 31, 1997 $4,121,000
Year ended December 31, 1998 $8,652,000
</TABLE>
If the Company had accounted for these plans in accordance with SFAS
123, the Company's net income and pro forma net income per share would have
been reported as follows:
NET INCOME (IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
As reported $13,864 $21,334 $19,202
Pro forma $11,491 $18,820 $14,010
</TABLE>
PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
As reported:
Basic $.25 $.37 $.32
Diluted $.24 $.35 $.31
Pro forma:
Basic $.21 $.32 $.23
Diluted $.20 $.31 $.23
</TABLE>
52
<PAGE>
A summary of the status of the Company's two stock option plans for
the three years ended December 31, 1998, together with changes during each of
the years then ended, is presented in the following table:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PRICE
SHARES PER SHARE
---------- ------
<S> <C> <C>
Outstanding, December 31, 1995 2,355,000 $ 1.90
Grants 2,929,405 8.78
Exercises (165,600) 1.51
Forfeitures (79,115) 9.36
---------- ------
Outstanding, December 31, 1996 5,039,690 5.79
---------- ------
Grants 880,500 17.79
Exercises (470,272) 4.08
Forfeitures (519,600) 9.95
---------- ------
Outstanding, December 31, 1997 4,930,318 7.61
---------- ------
Grants 3,163,074 12.03
Exercises (249,440) 4.03
Forfeitures (1,563,802) 13.73
---------- ------
Outstanding, December 31, 1998 6,280,150 8.54
---------- ------
Options exercisable at year-end:
1996 990,234 $ 3.32
---------- ------
1997 1,498,425 $ 4.90
---------- ------
1998 2,076,578 $ 5.62
---------- ------
Weighted average fair value of
options granted during the year:
1996 $ 4.25
------
1997 $ 7.68
------
1998 $ 8.14
------
</TABLE>
The following table sets forth the exercise price range, number of
shares, weighted average exercise price and remaining contractual lives at
December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
EXERCISE NUMBER OF AVERAGE CONTRACTUAL
PRICE RANGE SHARES EXERCISE PRICE LIFE
-------------- ---------- ---------------- ---------------
<S> <C> <C> <C>
$1.29 - $1.30 941,100 $ 1.29 7
$2.00 - $5.00 1,171,696 $ 3.52 7
$7.25 - $8.00 919,765 $ 7.95 8
$8.75 - $11.50 975,994 $ 9.79 9
$11.87 - $12.63 1,053,750 $ 12.32 10
$12.69 - $14.50 1,062,845 $ 14.06 9
$18.00 - $27.13 155,000 $ 22.62 8
</TABLE>
53
<PAGE>
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of cash equivalents and other current accounts receivable
and payable approximate the carrying amounts due to their short-term nature.
Short-term investments include primarily U.S. government Treasury bills,
investments in commercial paper, short-term corporate bonds and other
short-term corporate obligations. These investments are classified as held to
maturity securities and are measured at amortized cost. The carrying values
of these investments approximate their fair values.
Debt and long-term receivables carried on the Company's consolidated
balance sheet at December 31, 1997 and 1998, respectively, have a carrying
value that is not significantly different than its estimated fair value. The
fair value is based on discounting future cash flows using current interest
rates adjusted for risk. The fair value of the short-term debt approximates
its recorded value due to its short-term nature.
(14) RELATED PARTY TRANSACTIONS
The Company has entered into agreements pursuant to which Avion, LLC,
a Colorado limited liability company, and AirMax LLC, a related Colorado
limited liability company, provide certain aviation flight services to and as
requested by the Company. Such services include the use of an aircraft and
flight crew. Kenneth D. Tuchman, chairman and chief executive officer of the
Company, is the owner, directly or indirectly, of Avion, LLC and AirMax LLC.
During 1998, the Company paid an aggregate of $480,000 to Avion, LLC and
AirMax LLC for services they provided to the Company.
During 1998 the Company entered into an employment agreement with
Morton H. Meyerson, a director of the Company, pursuant to which Mr. Meyerson
has agreed to render certain advisory and consulting services to the Company.
As compensation for such services, the Company has granted to Mr. Meyerson an
option with an exercise price of $9.50 per share. The option vests over five
years and is subject to accelerated vesting if and to the extent that the
closing sales price of the common stock during the term equals or exceeds
certain levels. Under the terms of the option, the exercise price is required
to be paid by delivery of TeleTech shares to the Company and provides that
Mr. Meyerson will receive no more than 200,000 shares of common stock, net of
the shares received by the Company for exercise consideration.
The Company utilizes the services of EGI Risk Services, Inc. for
reviewing, obtaining and/or renewing various insurance policies. EGI Risk
Services, Inc. is a wholly owned subsidiary of The Equity Group Investments,
Inc., of which Samuel Zell, a former director of the Company, is chairman of
the board. During the years ended December 31, 1996, 1997, and 1998, the
Company incurred $448,000, $1,166,000 and $2,288,000, respectively, for such
services.
During 1996, 1997 and 1998, the Company paid $115,000, $4,000 and
$8,500, respectively, to various subsidiaries of Jacor Communications, Inc.
for broadcasting radio advertisements regarding employment opportunities at
the Company. Rod Dammeyer, a director of the Company, is a director of Jacor
Communications, Inc.
The Company provided reservation call handling services to Midway
Airlines Corporation ("Midway"), a majority-owned subsidiary of Zell/Chilmark
Fund, L.P. Samuel Zell, a former director of the Company, is an affiliate of
Zell/Chilmark Fund, L.P., and Rod Dammeyer, a director of the Company and a
member of the Audit Committee of the board of directors, is the managing
director of Zell/Chilmark Fund, L.P. During the years ended December 31, 1996
and 1997, the Company charged Midway an aggregate of $2,324,000 and $841,000,
respectively, for services rendered by the Company. Services to Midway were
discontinued in 1997.
54
<PAGE>
In May 1996, the board of directors approved the payment of fees to
The Equity Group Investments, Inc., an affiliate of Samuel Zell, a former
director of the Company, for advice and assistance in consummating the
following transactions:
<TABLE>
<S> <C>
Access 24 purchase.......................................... $ 300,000
The Company's initial public offering of stock.............. 500,000
Sale of Access 24 Limited stock to PPP (Note 16)............ 200,000
----------
$1,000,000
----------
</TABLE>
Fees associated with the Access 24 purchase were allocated to the
purchase price. Fees associated with the initial public offering of common
stock were netted against the offering proceeds received by the Company. Fees
associated with the sale of stock to PPP were netted against the proceeds
from this sale.
(15) CONTRACT ACQUISITION COSTS
In September 1998, the Company paid $10.9 million to obtain a
long-term contract with a significant client in the telecommunications
industry. This amount is recorded as contract acquisition cost in the
accompanying balance sheet and will be amortized over the six-year term of
the contract commencing with the opening of the first customer interaction
center in the first quarter of 1999.
(16) ACQUISITIONS
On February 17, 1998, the Company acquired the assets of
Intellisystems, Inc. ("Intellisystems") for $2.0 million in cash and 344,487
shares of common stock, which included 98,810 shares of treasury stock.
Intellisystems is a leading developer of patented automated product support
systems. Intellisystems' products can electronically resolve a significant
percentage of calls coming into customer interaction centers through
telephone, Internet or fax-on-demand. The acquisition has been accounted for
as a purchase.
On June 8, 1998, and June 17, 1998, the Company consummated business
combinations with Digital Creators, Inc. ("Digital"), which included the
issuance of 1,069,000 shares of Company common stock, and Electronic Direct
Marketing, Ltd. ("EDM"), which included the obligation to issue 1,783,444
shares of Company common stock. These business combinations were accounted
for as poolings of interests and, accordingly, the historical financial
statements of the Company have been restated to include the financial
statements of Digital and EDM for all periods presented.
The consolidated balance sheet of the Company as of December 31,
1997, includes the balance sheet of EDM for the fiscal year ended February
28, 1998. Accordingly, the Company's retained earnings have been adjusted
during the quarter ended March 31, 1998, for the effect of utilizing
different fiscal year-ends for this period. During 1998, the fiscal year-end
of EDM has been changed from February to December to conform to the Company's
year-end.
The consolidated financial statements have been prepared to give
retroactive effect to the business combinations with Digital and EDM.
55
<PAGE>
The table below sets forth the results of operations of the
previously separate enterprises for the period prior to the consummation of
the June 1998 business combinations during the periods ended December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
TELETECH DIGITAL EDM ADJUSTMENTS COMBINED
-------- ------- --- ----------- --------
<S> <C> <C> <C> <C> <C>
1998:
Revenues $ 136,244 $ 2,038 $ 10,258 $ (1,171) $ 147,369
Net income 6,972 136 654 -- 7,762
1997
Revenues $ 263,477 $ 2,521 $ 14,497 $ (1,438) $ 279,057
Net income 20,273 276 785 -- 21,334
</TABLE>
On August 26, 1998, the Company consummated a business combination
with Outsource Informatica Ltda. ("Outsource"), a leading Brazilian customer
management provider, which included the issuance of 606,343 shares of Company
common stock. This business combination was accounted for as a pooling of
interests. The operations of Outsource prior to the acquisition are
immaterial to all periods presented.
On December 31, 1998, the Company acquired 100% of the common stock
of Cygnus Computer Associates Ltd. ("Cygnus") for approximately $660,000 in
cash and 324,744 shares of common stock in the Company. Cygnus is a Canadian
provider of systems integration and call center solutions. The transaction
has been accounted for as a purchase and goodwill will be amortized using the
straight-line method over 10 years. The Company has also agreed to pay
contingent consideration of up to CDN$4.8 million if Cygnus achieves certain
levels of operating income in 1999 and 2000. Due to the uncertainty
surrounding the achievement of these targets, none of the contingent
consideration has been reflected as a liability in the accompanying financial
statements. The operations of Cygnus 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.
In May 1997, the Company acquired 100% of the common stock of
Telemercadeo Integral, S.A. ("TMI") for total consideration of $4.2 million,
consisting of 100,000 shares of the Company's common stock and cash of $2.4
million. TMI is a customer management provider in Mexico. The acquisition was
accounted for using the purchase method. The excess of cost of the
acquisition over the underlying net assets of $4.4 million is being amortized
using the straight-line method over 25 years.
On January 1, 1996, the Company acquired 100% of the common stock of
Access 24 Services Corporation Pty Limited (with its subsidiaries, "Access
24") for total consideration of $7.6 million, consisting of cash of $2.3
million; 970,240 shares of common stock in the Company; and expenses related
to the acquisition. Access 24 provides inbound, toll-free customer service
primarily to the healthcare and financial services sector in Australia, the
United Kingdom and New Zealand.
On April 30, 1996, the Company completed the sale of 50% of the
common stock of Access 24 Limited ("Access 24 UK") to PPP Health Care Group
plc ("PPP") for $3.8 million in cash. Access 24 UK was the United Kingdom
subsidiary of Access 24, acquired by the Company as part of the Access 24
acquisition, which operates a customer interaction center in Reigate,
England. In addition, PPP also purchased 1.0 million preferred shares of
Access 24 UK for consideration of $1.5 million. The preferred shares have a
par value of 1 British pound per share and dividends are cumulative at the
rate of 7% per annum. A portion of the proceeds from the sale of the
Preferred Stock was used to repay outstanding advances from Access 24.
56
<PAGE>
The acquisition of Access 24 has been accounted for using the
purchase method. The proceeds from the sale of 50% of the stock of Access 24
UK in excess of the proportionate share of the carrying amounts of the Access
24 UK assets and liabilities have been reflected as a reduction of the
goodwill arising from the Access 24 acquisition. The Company's remaining 50%
interest in Access 24 UK was accounted for using the equity method of
accounting. The excess of the cost of the investment over the underlying net
assets of Access 24 UK was amortized using the straight-line method over 15
years.
(17) SALE OF JOINT VENTURE
On September 21, 1998, the Company sold its 50% interest in Access 24
UK to Priplan Investments, Ltd. for cash consideration of approximately $1.0
million. The Company incurred $129,000 in costs relating to the disposal of
this joint venture in the third quarter 1998.
(18) QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER
SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenues $80,244 $88,099 $92,366 $108,336
Income from operations 7,126 7,646 8,138 8,828
Net income 4,552 4,464 4,715 5,471
Net income per common share:
Basic .08 .07 .08 .09
------- ------- ------- --------
------- ------- ------- --------
Diluted .07 .07 .08 .09
------- ------- ------- --------
------- ------- ------- --------
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Revenues $61,258 $67,648 $70,374 $79,777
Income from operations 8,564 10,244 6,773 7,566
Net income 5,352 6,497 4,544 4,941
Net income per common share:
Basic .09 .11 .08 .09
------- ------- ------- --------
------- ------- ------- --------
Diluted .09 .11 .07 .08
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To TeleTech Holdings, Inc.:
We have audited in accordance with generally accepted auditing
standards the financial statements of TeleTech Holdings, Inc. for each of the
three years in the period ended December 31, 1998, included in this Form 10-K
and have issued our report thereon dated February 8, 1999. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken
as a whole. Schedule II following this report is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken
as a whole.
/s/ Arthur Andersen LLP
Denver, Colorado
February 8, 1999.
58
<PAGE>
SCHEDULE II
TELETECH HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT BEGINNING ADDITIONS CHARGED CHARGED TO OTHER FROM BALANCE AT END
OF PERIOD TO INCOME ACCOUNTS RESERVES (a) OF PERIOD
-------------------- ----------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $ 789 $ 771 $ -- $ (98) $ 1,462
------- ------- ---- ------- -------
------- ------- ---- ------- -------
Year ended December 31, 1997 $ 1,462 $ 1,018 $ -- $ (153) $ 2,327
------- ------- ---- ------- -------
------- ------- ---- ------- -------
Year ended December 31, 1998 $ 2,327 $ 1,060 $ -- $ (487) $ 2,900
------- ------- ---- ------- -------
------- ------- ---- ------- -------
</TABLE>
- -------------------
(a) Uncollectible accounts written off.
59
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$50,000,000
REVOLVING CREDIT AGREEMENT
DATED AS OF NOVEMBER 20, 1998
AMONG
TELETECH HOLDINGS, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS ADMINISTRATIVE AGENT,
THE CO-AGENTS PARTY THERETO
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
NATIONSBANC MONTGOMERY SECURITIES LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE IDEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Interpretive Provisions . . . . . . . . . . . . . . . . .21
1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . .22
ARTICLE IITHE CREDITS. . . . . . . . . . . . . . . . . . . . . . . . . . .23
2.01 Amounts and Terms of Commitments; Tranche Modifications . . . .23
2.02 Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . .24
2.03 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . .24
2.04 Conversion and Continuation Elections . . . . . . . . . . . . .26
2.05 Voluntary Termination or Reduction of Commitments . . . . . . .27
2.06 Optional Prepayments. . . . . . . . . . . . . . . . . . . . . .27
2.07 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . .28
2.08 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
2.09 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
(a) Arrangement, Agency Fees . . . . . . . . . . . . . . . . .29
(b) Commitment Fees. . . . . . . . . . . . . . . . . . . . . .29
2.10 Computation of Fees and Interest. . . . . . . . . . . . . . . .29
2.11 Payments by the Company . . . . . . . . . . . . . . . . . . . .30
2.12 Payments by the Lenders to the Administrative Agent . . . . . .31
2.13 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . .31
2.14 Security and Guaranty . . . . . . . . . . . . . . . . . . . . .32
2.15 Extensions of the Commitments . . . . . . . . . . . . . . . . .32
ARTICLE IIITAXES, YIELD PROTECTION AND ILLEGALITY. . . . . . . . . . . . .33
3.01 Taxes.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.02 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.03 Increased Costs and Reduction of Return . . . . . . . . . . . .35
3.04 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . .35
3.05 Inability to Determine Rates. . . . . . . . . . . . . . . . . .36
3.06 Reserves on Offshore Rate Loans . . . . . . . . . . . . . . . .36
3.07 Certificates of Lenders . . . . . . . . . . . . . . . . . . . .37
3.08 Substitution of Lenders . . . . . . . . . . . . . . . . . . . .37
3.09 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . .37
ARTICLE IVCONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . .37
4.01 Conditions of Initial Loans . . . . . . . . . . . . . . . . . .37
-i-
<PAGE>
<S> <C>
(a) Credit Agreement and Notes . . . . . . . . . . . . . . . .37
(b) Resolutions; Incumbency. . . . . . . . . . . . . . . . . .37
(c) Organization Documents; Good Standing. . . . . . . . . . .38
(d) Legal Opinions . . . . . . . . . . . . . . . . . . . . . .38
(e) Payment of Fees. . . . . . . . . . . . . . . . . . . . . .38
(f) Collateral Documents . . . . . . . . . . . . . . . . . . .38
(g) Certificate. . . . . . . . . . . . . . . . . . . . . . . .39
(h) Year 2000. . . . . . . . . . . . . . . . . . . . . . . . .39
(i) Other Documents. . . . . . . . . . . . . . . . . . . . . .39
4.02 Conditions to All Borrowings. . . . . . . . . . . . . . . . . .39
(a) Notice of Borrowing or Conversion/Continuation . . . . . .39
(b) Continuation of Representations and Warranties . . . . . .39
(c) No Existing Default. . . . . . . . . . . . . . . . . . . .39
(d) Maximum Loan Balance . . . . . . . . . . . . . . . . . . .40
(e) No Future Advance Notice . . . . . . . . . . . . . . . . .40
ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . .40
5.01 Corporate Existence and Power . . . . . . . . . . . . . . . . .40
5.02 Corporate Authorization; No Contravention . . . . . . . . . . .40
5.03 Governmental Authorization. . . . . . . . . . . . . . . . . . .41
5.04 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . .41
5.05 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .41
5.06 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . .42
5.07 ERISA Compliance. . . . . . . . . . . . . . . . . . . . . . . .42
5.08 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . .42
5.09 Title to Properties . . . . . . . . . . . . . . . . . . . . . .43
5.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
5.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . .43
5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . .43
5.13 Collateral Documents. . . . . . . . . . . . . . . . . . . . . .44
5.14 Regulated Entities. . . . . . . . . . . . . . . . . . . . . . .44
5.15 No Burdensome Restrictions. . . . . . . . . . . . . . . . . . .45
5.16 Copyrights, Patents, Trademarks and Licenses, etc.. . . . . . .45
5.17 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . .45
5.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .45
5.19 Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
5.20 Swap Obligations. . . . . . . . . . . . . . . . . . . . . . . .45
5.21 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . .46
5.22 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . .46
ARTICLE VI AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . .46
-ii-
<PAGE>
<S> <C>
6.01 Financial Statements and Other Reports. . . . . . . . . . . . .46
6.02 Certificates; Other Information . . . . . . . . . . . . . . . .47
6.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
6.04 Preservation of Corporate Existence, Etc. . . . . . . . . . . .50
6.05 Maintenance of Property . . . . . . . . . . . . . . . . . . . .50
6.06 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .50
6.07 Payment of Obligations. . . . . . . . . . . . . . . . . . . . .50
6.08 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . .51
6.09 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . .51
6.10 Inspection of Property and Books and Records. . . . . . . . . .51
6.11 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . .51
6.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . .52
6.13 Further Assurances. . . . . . . . . . . . . . . . . . . . . . .52
ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . .53
7.01 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . .53
7.02 Disposition of Assets . . . . . . . . . . . . . . . . . . . . .54
7.03 Consolidations and Mergers. . . . . . . . . . . . . . . . . . .55
7.04 Loans and Investments . . . . . . . . . . . . . . . . . . . . .55
7.05 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . .56
7.06 Transactions with Affiliates. . . . . . . . . . . . . . . . . .56
7.07 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . .57
7.08 Contingent Obligations. . . . . . . . . . . . . . . . . . . . .57
7.09 Joint Ventures. . . . . . . . . . . . . . . . . . . . . . . . .57
7.10 Lease Obligations . . . . . . . . . . . . . . . . . . . . . . .57
7.11 Restricted Payments . . . . . . . . . . . . . . . . . . . . . .58
7.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
7.13 Amendments to Charter Documents . . . . . . . . . . . . . . . .58
7.14 Change in Business. . . . . . . . . . . . . . . . . . . . . . .58
7.15 Accounting Changes. . . . . . . . . . . . . . . . . . . . . . .59
7.16 Debt to EBITDAR Ratio . . . . . . . . . . . . . . . . . . . . .59
7.17 Fixed Charge Coverage Ratio . . . . . . . . . . . . . . . . . .59
7.18 Quarterly Profitability . . . . . . . . . . . . . . . . . . . .59
7.19 Maximum Combination of Cash Capital Expenditures
and Permitted Acquisitions. . . . . . . . . . . . . . . . . . .59
7.20 Permitted Acquisitions. . . . . . . . . . . . . . . . . . . . .59
7.21 Secured Amount. . . . . . . . . . . . . . . . . . . . . . . . .59
7.22 Restrictive Agreements. . . . . . . . . . . . . . . . . . . . .59
ARTICLE VIIIEVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . .60
8.01 Event of Default. . . . . . . . . . . . . . . . . . . . . . . .60
-iii-
<PAGE>
<S> <C>
(a) Non-Payment. . . . . . . . . . . . . . . . . . . . . . . .60
(b) Representation or Warranty . . . . . . . . . . . . . . . .60
(c) Specific Defaults. . . . . . . . . . . . . . . . . . . . .60
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . .60
(e) Cross-Default. . . . . . . . . . . . . . . . . . . . . . .60
(f) Insolvency; Voluntary Proceedings. . . . . . . . . . . . .61
(g) Involuntary Proceedings. . . . . . . . . . . . . . . . . .61
(h) ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . .61
(i) Monetary Judgments . . . . . . . . . . . . . . . . . . . .62
(j) Non-Monetary Judgments . . . . . . . . . . . . . . . . . .62
(k) Change of Control. . . . . . . . . . . . . . . . . . . . .62
(l) Loss of Licenses . . . . . . . . . . . . . . . . . . . . .62
(m) Adverse Change . . . . . . . . . . . . . . . . . . . . . .62
(n) Guarantor Defaults . . . . . . . . . . . . . . . . . . . .62
(o) Collateral . . . . . . . . . . . . . . . . . . . . . . . .63
8.02 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . .63
8.03 Rights Not Exclusive. . . . . . . . . . . . . . . . . . . . . .63
ARTICLE IXTHE ADMINISTRATIVE AGENT . . . . . . . . . . . . . . . . . . . .64
9.01 Appointment and Authorization; "Administrative Agent" . . . . .64
9.02 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . .64
9.03 Liability of Administrative Agent . . . . . . . . . . . . . . .64
9.04 Reliance by Administrative Agent. . . . . . . . . . . . . . . .65
9.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . .65
9.06 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . .66
9.07 Indemnification of Administrative Agent . . . . . . . . . . . .66
9.08 Administrative Agent in Individual Capacity . . . . . . . . . .67
9.09 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . .67
9.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . .67
9.11 Collateral Matters. . . . . . . . . . . . . . . . . . . . . . .69
9.12 Co-Agents . . . . . . . . . . . . . . . . . . . . . . . . . . .70
ARTICLE XMISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . .70
10.01 Amendments and Waivers . . . . . . . . . . . . . . . . . . . .70
10.02 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . .71
10.03 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . .72
10.04 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . .72
10.05 Company Indemnification. . . . . . . . . . . . . . . . . . . .73
10.06 Marshalling; Payments Set Aside. . . . . . . . . . . . . . . .73
10.07 Successors and Assigns . . . . . . . . . . . . . . . . . . . .74
10.08 Assignments, Participations, etc.. . . . . . . . . . . . . . .74
-iv-
<PAGE>
<S> <C>
10.09 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . .76
10.10 Set-off. . . . . . . . . . . . . . . . . . . . . . . . . . . .77
10.11 Automatic Debits of Fees . . . . . . . . . . . . . . . . . . .77
10.12 Notification of Addresses, Lending Offices, Etc. . . . . . . .77
10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . .78
10.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . .78
10.15 No Third Parties Benefited . . . . . . . . . . . . . . . . . .78
10.16 Governing Law and Jurisdiction . . . . . . . . . . . . . . . .78
10.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . .78
10.18 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . .79
</TABLE>
SCHEDULES
Schedule 2.01 Commitments
-v-
<PAGE>
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT is entered into as of November 20, 1998,
among TeleTech Holdings, Inc., a Delaware corporation (the "COMPANY"), the
several financial institutions from time to time party to this Agreement
(collectively, the "LENDERS"; individually, a "LENDER"), Bank of America
National Trust and Savings Association, as Administrative Agent for the Lenders,
and the parties identified on the signature pages hereto as Co-Agents in such
capacity.
WHEREAS, the Lenders have agreed to make available to the Company a
revolving credit facility that is partially secured upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. The following terms have the following
meanings:
"ACQUISITION" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or of
any business or division of a Person, (b) the acquisition of in excess of
50% of the capital stock, partnership interests, membership interests or
equity of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other combination with
another Person (other than a Person that is a Subsidiary) provided that the
Company or the Subsidiary is the surviving entity.
"ADMINISTRATIVE AGENT" means BofA in its capacity as Administrative
Agent for the Lenders hereunder, and any successor agent arising under
SECTION 9.09.
"AFFILIATE" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities,
membership interests, by contract, or otherwise.
<PAGE>
"AGENT-RELATED PERSONS" means the initial Administrative Agent and any
successor agent arising under SECTION 9.09, together with their respective
Affiliates (including, in the case of BofA, the Arranger), and the
officers, directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
"AGENT'S PAYMENT OFFICE" means the address for payments set forth on
SCHEDULE 10.02 or such other address as the Administrative Agent may from
time to time specify.
"AGGREGATE COMMITMENT" means the aggregate Commitments of the Lenders.
"AGREEMENT" means this Revolving Credit Agreement.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means (a) with respect to the
Tranche A Commitment Amount, .125% and (b) with respect to the Tranche B
Commitment Amount, subject to the last sentence of this definition, for any
period, the applicable of the following percentages in effect with respect
to such period as the Debt to EBITDAR Ratio of the Company shall fall
within the indicated ranges:
<TABLE>
<CAPTION>
<S> <C>
Debt to EBITDAR Ratio Commitment Fee
> = 2.50 to 1.0 0.35%
> = 2.0 to 1.0 and 0.30
< 2.50 to 1.0
> = 1.0 to 1.0 and 0.25
< 2.0 to 1.0
< 1.0 to 1.0 0.20
</TABLE>
The Debt to EBITDAR Ratio shall be calculated by the Company as of the end
of each fiscal quarter, commencing with the fiscal quarter ended September
30, 1998, and shall be reported to the Administrative Agent pursuant to a
Compliance Certificate executed by a Responsible Officer of the Company and
delivered pursuant to SUBSECTION 6.02(b) hereof. The Applicable Commitment
Fee Percentage with respect to the Tranche B Commitment Amount shall be
adjusted, if necessary, on the third Business Day after the delivery of
such certificate; PROVIDED, that if such certificate, together with the
financial statements to which such certificate relates, is not delivered to
the Administrative Agent by the fifth Business Day after the date on which
the related financial statements are due to be delivered to the
Administrative Agent pursuant to SUBSECTION 6.01(a) or (b), then, from such
fifth Business Day until the third Business Day after delivery of such
certificate, the Applicable Commitment Fee Percentage with respect to the
Tranche B
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<PAGE>
Commitment Amount shall be equal to 0.35%. From the Closing Date
until adjusted as described above, the Applicable Commitment Fee Percentage
with respect to the Tranche B Commitment Amount shall be equal to .25 %.
"APPLICABLE MARGIN" means (a) with respect to Tranche A Loans, .225%
per annum and (b) with respect to Tranche B Loans, subject to the last sentence
of this definition, for any period, the applicable of the following percentages
in effect with respect to such period as the Debt to EBITDAR Ratio of the
Company shall fall within the indicated ranges:
<TABLE>
<CAPTION>
Debt to EBITDAR Ratio Applicable Margin
<S> <C>
> = 2.5 to 1.0 1.50%
> = 2.0 to 1.0 and 1.25
< 2.50 to 1.0
> = 1.0 to 1.0 and 1.00
< 2.0 to 1.0
> = 0.5 to 1.0 and 0.75
< 1.0 to 1.0
< 0.5 to 1.0 0.50
</TABLE>
The Debt to EBITDAR Ratio shall be calculated by the Company as of the end
of each fiscal quarter, commencing with the fiscal quarter ended September
30, 1998, and shall be reported to the Administrative Agent pursuant to a
Compliance Certificate executed by a Responsible Officer of the Company and
delivered pursuant to SUBSECTION 6.02(b). The Applicable Margin with
respect to Tranche B Loans shall be adjusted, if necessary, on the third
Business Day after the delivery of such certificate, with such adjustment
to apply to all Interest Periods then outstanding and beginning thereafter
until the next adjustment date; PROVIDED, that if such certificate,
together with the financial statements to which such certificate relates,
is not delivered to the Administrative Agent by the fifth Business Day
after the date on which the related financial statements are due to be
delivered to the Administrative Agent pursuant to SUBSECTION 6.01(a) or
(b), then, from such fifth Business Day until the third Business Day after
delivery of such certificate, the Applicable Margin with respect to Tranche
B Loans shall be equal to 1.50%. From the Closing Date until
-3-
<PAGE>
adjusted as described above, the Applicable Margin with respect to Tranche
B Loans shall be equal to 1.0%.
"ARRANGER" means NationsBanc Montgomery Securities LLC, a Delaware
limited liability company.
"ASSIGNEE" has the meaning specified in SUBSECTION 10.08(a).
"ATTORNEY COSTS" means and includes all fees and disbursements of any
law firm or other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, ET SEQ.).
"BASE RATE" means, for any day, the higher of: (a) 0.50% per annum
above the latest Federal Funds Rate; and (b) the rate of interest in effect
for such day as publicly announced from time to time by BofA in San
Francisco, California, as its "reference rate." (The "reference rate" is a
rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is used
as a reference point for pricing some loans, which may be priced at, above,
or below such announced rate.) Any change in the reference rate announced
by BofA shall take effect at the opening of business on the day specified
in the public announcement of such change.
"BASE RATE LOAN" means a Loan that bears interest based on the Base
Rate.
"BOFA" means Bank of America National Trust and Savings Association, a
national banking association.
"BORROWING" means a borrowing hereunder consisting of Loans of the
same Type made to the Company on the same day by the Lenders under ARTICLE
II, and in the case of Offshore Rate Loans, having the same Interest
Period.
"BORROWING DATE" means any date on which a Borrowing occurs under
SECTION 2.03.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City, Chicago or San Francisco
are authorized or required by law to close and, if the applicable Business
Day relates to any Offshore Rate Loan, means such a day on which dealings
are carried on in the applicable offshore dollar interbank market.
-4-
<PAGE>
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"CAPITAL EXPENDITURES" means, without duplication, any expenditures
for any purchase or other acquisition for value of any asset that is
classified on the consolidated balance sheet of the Company and the
Subsidiaries prepared in accordance with GAAP as a fixed or capital asset
(other than expenditures incurred to effect an Acquisition) excluding (a)
the cost of assets acquired under Capitalized Lease Obligations, (b)
expenditures of insurance proceeds to rebuild or replace any assets after a
casualty loss, and (c) leasehold improvement expenditures for which the
Borrower or a Subsidiary is reimbursed promptly by the lessor.
"CAPITALIZED LEASE" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such
Person prepared in accordance with GAAP.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as
a liability on a balance sheet of such Person prepared in accordance with
GAAP.
"CASH EQUIVALENTS" means Investments maturing within one year from the
date of investment in (a) certificates of deposit, Eurodollar time
deposits, other interest bearing deposits or accounts and repurchase
agreements with high quality United States commercial banks having a
combined capital and surplus of at least $500,000,000, (b) certificates of
deposit, other interest bearing accounts or deposits and demand deposits
with other United States commercial banks, which deposits and accounts are
in amounts fully insured by the Federal Deposit Insurance Corporation, (c)
obligations issued or unconditionally guaranteed by the United States
government or issued by an agency thereof, (d) direct obligations issued by
any state of the United States or any political subdivision thereof which
have the highest short-term or long-term rating obtainable from Standard &
Poor's Ratings Group or Moody's Investors Services, Inc. on the date of
investment, (e) commercial paper rated A-1 or better by Standard & Poor
Ratings Group or P-1 or better by Moody's Investors Services, Inc. or (f)
money market mutual funds investing in investments of the types described
in clauses (a) through (e).
"CERCLA" has the meaning specified in the definition of "Environmental
Laws."
"CHANGE OF CONTROL" means (a) any acquisition by any Person, or two or
more Persons acting in concert, including without limitation any
acquisition effected by means
-5-
<PAGE>
of any transaction contemplated by SECTION 7.03, of beneficial ownership
(within the meaning of Rule 13d-3 of the SEC under the Exchange Act) of
25% or more of the outstanding shares of voting stock of the Company or
(b) during any period of 25 consecutive calendar months, commencing on
the date of this Agreement, the ceasing of those individuals (the
"CONTINUING DIRECTORS") who either (i) were directors of the Company on
the first day of each such period or (ii) subsequently became directors
of the Company 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 the Company, to
constitute a majority of the board of directors of the Company.
"CLOSING DATE" means the date on which all conditions precedent set
forth in SECTION 4.01 are satisfied or waived by all Lenders (or, in the
case of SUBSECTION 4.01(e), waived by the Person entitled to receive such
payment).
"CODE" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"COLLATERAL" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by the Company in or upon which a
Lien now or hereafter exists in favor of the Lenders, or the Administrative
Agent on behalf of the Lenders, whether under this Agreement, the
Collateral Documents or any other documents executed by any such Person and
delivered to the Administrative Agent or the Lenders.
"COLLATERAL ACCOUNTS" means the securities accounts and deposit
accounts maintained by the Company with BofA or other Lenders, which
accounts, the Eligible Securities (if applicable) and amounts therein and
all rights with respect thereto have been pledged for the benefit of the
Administrative Agent and the Lenders pursuant to the Security Agreement.
"COLLATERAL DOCUMENTS" means (a) the Security Agreement, the Control
Agreements and the Subsidiary Guaranty and (b) any amendments, supplements,
modifications, renewals, replacements, consolidations, substitutions and
extensions of any of the foregoing.
"COMMITMENT", as to each Lender, has the meaning specified in SECTION
2.01.
"COMPANY" has the meaning specified in the introductory clause hereto.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT C.
-6-
<PAGE>
"CONTINGENT OBLIGATION" means, as to any Person, any direct or
indirect liability of that Person (without duplication), whether or not
contingent, with or without recourse, (a) with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "PRIMARY
OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"), including any
obligation of that Person (i) to purchase, repurchase or otherwise acquire
such primary obligations or any security therefor, (ii) to advance or
provide funds for the payment or discharge of any such primary obligation,
or to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or
(iv) otherwise to assure or hold harmless the holder of any such primary
obligation against loss in respect thereof (each, a "GUARANTY OBLIGATION");
(b) with respect to any Surety Instrument issued for the account of that
Person or as to which that Person is otherwise liable for reimbursement of
drawings or payments; (c) to purchase any materials, supplies or other
property from, or to obtain the services of, another Person if the relevant
contract or other related document or obligation requires that payment for
such materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered; or (d) in respect of any Swap Contract. The amount of any
Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the stated or determinable amount of the primary obligation in
respect of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect
thereof, and in the case of other Contingent Obligations shall be equal to
the maximum reasonably anticipated liability in respect thereof.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"CONTROL AGREEMENT" means an agreement in substantially the form of
EXHIBIT F hereto entered into among the Company, the Administrative Agent
and the Lender establishing the applicable account.
"CONVERSION/CONTINUATION DATE" means any date on which, under SECTION
2.04, the Company (a) converts Loans of one Type to another Type, or
(b) continues as Loans of the same Type, but with a new Interest Period,
Loans having Interest Periods expiring on such date.
-7-
<PAGE>
"CURRENT COMMITMENT TERMINATION DATE" has the meaning specified in
SUBSECTION 2.15(a).
"DEBT" means as of the end of any fiscal quarter an amount equal to
the sum of (a) all Indebtedness as of such date and (b) five (5) times
Rental Expenses for the period of four fiscal quarters then ended, in each
case of the Company and its Subsidiaries on a consolidated basis.
"DEBT TO EBITDAR RATIO" means, as of the end of any fiscal quarter,
the ratio of Debt calculated as of such date to EBITDAR for the period of
four fiscal quarters then ended.
"DEFAULT" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"DOLLARS", "DOLLARS" and "$" each mean lawful money of the United
States.
"EBITDAR" means, for any period, for the Company and its Subsidiaries
on a consolidated basis, determined in accordance with GAAP, the sum of (a)
the Net Income (or net loss) for such period, PLUS (b) all amounts treated
as expenses for depreciation and interest and the amortization of
intangibles of any kind to the extent deducted in the determination of such
Net Income (or net loss), PLUS (c) all accrued taxes on or measured by
income to the extent included in the determination of such Net Income (or
net loss), LESS (d) any nonrecurring gains (or PLUS any nonrecurring losses
resulting directly from or incurred directly as a consequence of the sale
or closure of any operating facilities by the Company and its
Subsidiaries), PLUS (e) Rental Expenses for such period.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital
and surplus of at least $100,000,000, PROVIDED that such bank is acting
through a branch or agency located in the United States; (c) a Person that
is primarily engaged in the business of commercial banking and that is
(i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a
Lender is a Subsidiary, or (iii) a Person of which a Lender is a
Subsidiary; (d) (i) an "accredited investor", as such term is defined in
Rule 501(a) of Regulation D under the Securities Act of 1933, as amended
(other than the Company or an Affiliate of the Company) or (ii) a finance
company, insurance company or other financial institution or fund (whether
a corporation, partnership, trust or other entity) that
-8-
<PAGE>
is primarily engaged in the business of making, purchasing or otherwise
investing in commercial loans, which, in any such case, has assets in
excess of $10,000,000; and (e) any other entity approved by the Company
and the Administrative Agent.
"ELIGIBLE SECURITIES" means "Investment Property" (as defined in
Article 9 of the Uniform Commercial Code as now and hereafter in effect in
the State of Illinois or any other applicable jurisdiction to which the
Administrative Agent shall agree) in which a security interest may be
perfected by the execution of a control agreement among the Company, the
Administrative Agent and the Lender with which the applicable Collateral
Account is maintained, consisting exclusively of Investments meeting the
criteria specified in clauses (a) through (e) of the definition of "Cash
Equivalents".
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment or threat to public health, personal injury
(including sickness, disease or death), property damage, natural resources
damage, or otherwise alleging liability or responsibility for damages
(punitive or otherwise), investigation, cleanup, removal, remedial or
response costs, restitution, civil or criminal penalties, injunctive
relief, or other type of relief, resulting from or based upon the presence,
placement, discharge, emission or release (including intentional and
unintentional, negligent and non-negligent, sudden or non-sudden,
accidental or non-accidental, placement, spills, leaks, discharges,
emissions or releases) of any Hazardous Material at, in, or from any
property, whether or not owned by the Company or any Subsidiary or taken as
collateral, or in connection with any operations of the Company or any
Subsidiary.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and
land use matters; including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
the Clean Air Act, the Federal Water Pollution Control Act of 1972, the
Solid Waste Disposal Act, the Federal Resource Conservation and Recovery
Act, the Toxic Substances Control Act and the Emergency Planning and
Community Right-to-Know Act.
"ENVIRONMENTAL PERMITS" has the meaning specified in SUBSECTION
5.12(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
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<PAGE>
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
substantial cessation of operations which is treated as such a withdrawal
under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the
Company or any ERISA Affiliate from a Multiemployer Plan or notification
that a Multiemployer Plan is in reorganization; (d) the filing of a notice
of intent to terminate, the treatment of a Plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the commencement of proceedings by
the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the
imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon the
Company or any ERISA Affiliate.
"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in the
definition of "Offshore Rate".
"EVENT OF DEFAULT" means any of the events or circumstances specified
in SECTION 8.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"EXTENDED TERMINATION DATE" has the meaning specified in
SUBSECTION 2.15(b).
"EXTENSION CONFIRMATION DATE" has the meaning specified in
SUBSECTION 2.15(b).
"EXTENSION CONFIRMATION NOTICE" has the meaning specified in
SUBSECTION 2.15(b).
"EXTENSION REQUEST" has the meaning specified in SUBSECTION 2.15(a).
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
-10-
<PAGE>
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Administrative Agent
of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of three
leading brokers of Federal funds transactions in New York City selected by
the Administrative Agent.
"FEE LETTER" has the meaning specified in SUBSECTION 2.09(a).
"FIXED CHARGES" means, with respect to the Company and its
Subsidiaries on a consolidated basis, as of any date of determination, (a)
interest expenses paid or accrued on outstanding Indebtedness for the
period of four fiscal quarters ending on the date of determination, PLUS
(b) principal payments on Indebtedness which are required to be made for
the next succeeding twelve months, PLUS (c) Rental Expenses incurred during
the period of four fiscal quarters ending on the date of determination.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"FURTHER TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges (including, without limitation, net income taxes and franchise
taxes), and all liabilities with respect thereto, imposed by any
jurisdiction on account of amounts payable or paid pursuant to SECTION
3.01.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means (a) any nation or government, any state
or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing and (b) the National Association of Insurance Commissioners.
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<PAGE>
"GUARANTORS" means each Subsidiary of the Company from time to time
party to the Subsidiary Guaranty. The initial Guarantors shall be the
domestic Subsidiaries listed on SCHEDULE 5.17.
"GUARANTY OBLIGATION" has the meaning specified in the definition of
"Contingent Obligation."
"HAZARDOUS MATERIALS" means all those substances that are regulated
by, or which form the basis of liability or a standard of conduct under,
any Environmental Law, including any substance identified under any
Environmental Law as a pollutant, contaminant, hazardous waste, hazardous
constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste.
"INDEBTEDNESS" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all Contingent Obligations with respect to Surety Instruments;
(d) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with
the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to
property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property); (f) all Capitalized Lease
Obligations; (g) all indebtedness referred to in clauses (a) through (f)
above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or
in property (including accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such indebtedness (with the amount of such Indebtedness to be equal to the
lesser of the face amount thereof and the fair market value of the property
made subject to such Lien); and (h) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses
(a) through (g) above. For all purposes of this Agreement, (x) the
Indebtedness of any Person shall include all recourse Indebtedness of any
partnership or joint venture or limited liability company in which such
Person is a general partner or a joint venturer or a member and as to which
such Person is directly liable and (y) the amount of any Indebtedness of
any Person which respect to which the creditor may, by its terms, have only
limited recourse to the assets of the obligor, shall be equal to the lesser
of the face amount thereof and the fair market value of the assets to which
recourse may be obtained.
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<PAGE>
"INDEMNIFIED LIABILITIES" has the meaning specified in SECTION 10.05.
"INDEMNIFIED PERSON" has the meaning specified in SECTION 10.05.
"INDEPENDENT AUDITOR" has the meaning specified in SUBSECTION 6.01(a).
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial
portion of its creditors; in each case, undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code.
"INTEREST EXPENSE" means, for any period, an amount equal to the
interest expense of the Company and its Subsidiaries on a consolidated
basis during such period, determined in accordance with GAAP.
"INTEREST PAYMENT DATE" means, as to any Offshore Rate Loan, the last
day of each Interest Period applicable to such Loan and, as to any Base
Rate Loan, the last Business Day of each calendar quarter, PROVIDED,
HOWEVER, that if any Interest Period for an Offshore Rate Loan exceeds
three months, the date that falls three months after the beginning of such
Interest Period and three months after each Interest Payment Date
thereafter is also an Interest Payment Date.
"INTEREST PERIOD" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two, three
or six months thereafter as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation;
PROVIDED that:
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be extended to
the following Business Day unless the result of such extension would
be to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day
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<PAGE>
in the calendar month at the end of such Interest Period) shall end
on the last Business Day of the calendar month at the end of such
Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond
the Current Commitment Termination Date.
"INVESTMENTS" has the meaning specified in SECTION 7.04.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"JOINT VENTURE" means a single-purpose corporation, partnership,
limited liability company, joint venture or other similar legal arrangement
(whether created by contract or conducted through a separate legal entity)
now or hereafter formed by the Company or any of its Subsidiaries with
another Person in order to conduct a common venture or enterprise with such
Person.
"LENDER" has the meaning specified in the introductory clause hereto.
"LENDING OFFICE" means, as to any Lender, the office or offices of
such Lender specified as its "Lending Office" or "Domestic Lending Office"
or "Offshore Lending Office", as the case may be, on SCHEDULE 10.02, or
such other office or offices as such Lender may from time to time notify
the Company and the Administrative Agent.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a Capitalized Lease, any
financing lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
"LOAN" means an extension of credit by a Lender to the Company under
ARTICLE II, and may be a Base Rate Loan or an Offshore Rate Loan (each, a
"TYPE" of Loan) and includes each Tranche A Loan and Tranche B Loan.
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"LOAN DOCUMENTS" means this Agreement, any Notes, the Collateral
Documents, the Fee Letter, and all other documents delivered to the
Administrative Agent or any Lender in connection with the transactions
contemplated by this Agreement.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties or
financial condition of the Company or the Company and its Subsidiaries
taken as a whole; (b) a material impairment of the ability of the Company
or any Subsidiary to perform its obligations under any Loan Document and to
avoid any Event of Default; or (c) a material adverse effect upon (i) the
legality, validity, binding effect or enforceability against the Company or
any Subsidiary of any Loan Document, or (ii) the perfection or priority of
any Lien granted under any of the Collateral Documents.
"MAXIMUM LOAN BALANCE" means, as of any date of determination, the
lesser of (a) the sum of (i) the cash and Cash Equivalents held by the
Company and its domestic Subsidiaries as of such date, PLUS (ii) the amount
equal to the lesser of (A) 75% of the aggregate consolidated accounts
receivable of the Company and its Subsidiaries as of such date and (B) 85%
of the aggregate consolidated accounts receivable of the Company and its
domestic Subsidiaries as of such date, and (b) the Aggregate Commitment.
"MULTIEMPLOYER PLAN" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate
makes, is making, or is obligated to make contributions or, during the
preceding three calendar years, has made, or been obligated to make,
contributions.
"NET INCOME" means, for any period, the net income of the Company and
its Subsidiaries, on a consolidated basis, determined in accordance with
GAAP.
"NOTE" means a promissory note executed by the Company in favor of a
Lender pursuant to SUBSECTION 2.02(b), in substantially the form of EXHIBIT
E.
"NOTICE OF BORROWING" means a notice in substantially the form of
EXHIBIT A.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially
the form of EXHIBIT B.
"OBLIGATIONS" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company
to any Lender,
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the Administrative Agent, or any Indemnified Person, whether direct
or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising.
"OFFSHORE RATE" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/16th of 1%) determined by
the Administrative Agent as follows:
Offshore Rate = IBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded
upward to the next 1/100th of 1%) in effect on such day (whether or
not applicable to any Lender) under regulations issued from time to
time by the FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred
to as "EUROCURRENCY LIABILITIES"); and
"IBOR" means the rate of interest per annum determined by the
Administrative Agent as the rate at which dollar deposits in the
approximate amount of BofA's Offshore Rate Loan for such Interest
Period would be offered by BofA's Grand Cayman Branch, Grand Cayman
B.W.I. (or such other office as may be designated for such purpose by
BofA), to major banks in the offshore dollar interbank market at their
request at approximately 11:00 a.m. (New York City time) two Business
Days prior to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"OFFSHORE RATE LOAN" means a Loan that bears interest based on the
Offshore Rate.
"ORGANIZATION DOCUMENTS" means, for any corporation, the certificate
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
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"OTHER TAXES" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution,
delivery, performance, enforcement or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents.
"PARTICIPANT" has the meaning specified in SUBSECTION 10.08(e).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA in respect of which the Company or any
ERISA Affiliate has or may have any liability.
"PERMITTED ACQUISITIONS" means Acquisitions that meet all the
following criteria: (a) the Acquisition has been approved by the Board of
Directors (or functional equivalent thereof) of the Person whose stock or
assets are being acquired; (b) the Person or assets being acquired are in
the same or a similar or complementary line of business as the Company; (c)
the Person or assets being acquired had positive net income before net,
non-recurring expenses for the most recently ended 12 calendar months; and
(d) both immediately before and after giving effect to the Acquisition, no
Default or Event of Default exists.
"PERMITTED LIENS" has the meaning specified in SECTION 7.01.
"PERMITTED SWAP OBLIGATIONS" means all obligations (contingent or
otherwise) of the Company or any Subsidiary existing or arising under Swap
Contracts, provided that each of the following criteria is satisfied:
(a) such obligations are (or were) entered into by such Person in the
ordinary course of business for the purpose of directly mitigating risks
associated with liabilities, commitments or assets held or reasonably
anticipated by such Person, or changes in the value of securities issued by
such Person in conjunction with a securities repurchase program not
otherwise prohibited hereunder, and not for purposes of speculation or
taking a "market view;" (b) such Swap Contracts do not contain any
provision ("walk-away" provision) exonerating the non-defaulting party from
its obligation to make payments on outstanding transactions to the
defaulting party.
"PERSON" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
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"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) in respect of which the Company or any ERISA Affiliate has or may
have any liability.
"PRINCIPAL BALANCE" means the aggregate outstanding principal balance
of the Loans.
"PRO RATA SHARE" means, as to any Lender at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) (a)
at any time at which the Aggregate Commitments remain outstanding, such
Lender's Commitment divided by the Aggregate Commitments of all Lenders,
and (b) after the termination of the Aggregate Commitment, the principal
amount of such Lender's outstanding Loans divided by the aggregate
principal amount of the outstanding Loans of all the Lenders.
"RENTAL EXPENSE" means, for any period, the sum of the aggregate
payments of the Company and its Subsidiaries on a consolidated basis under
noncancellable agreements to rent or lease any real or personal property
(exclusive of Capital Lease Obligations and exclusive of agreements to rent
or lease real or personal property which are not cancellable at the option
of the lessee without penalty within a three month period), all as
determined on a consolidated basis for the Company and its Subsidiaries in
accordance with GAAP.
"REPLACEMENT LENDER" has the meaning specified in SECTION 3.08.
"REPORTABLE EVENT" means, any of the events set forth in Section
4043(c) of ERISA or the regulations thereunder, other than any such event
for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"REQUIRED LENDERS" means at any time Lenders then holding at least 51%
of the then aggregate unpaid principal amount of the Loans, or, if no
amounts are outstanding, Lenders then having at least 51% of the aggregate
amount of the Commitments.
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"RESPONSIBLE OFFICER" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company, or any other officer having substantially the same authority and
responsibility.
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"REVOLVING TERMINATION DATE" means the earlier to occur of:
(a) the Current Commitment Termination Date; and
(b) the date on which the Aggregate Commitment terminates in
accordance with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SECURED AMOUNT" means the sum of (a) the aggregate cash balances in
the Collateral Accounts and (b) the aggregate fair market value of the
Eligible Securities held in the Collateral Accounts, as to which, in each
case, the Administrative Agent shall have a first priority perfected
security interest.
"SECURITY AGREEMENT" means that certain Security Agreement dated as of
the date hereof between the Company and the Administrative Agent with
respect to the various Collateral Accounts.
"SOLVENT" means, as to any Person at any time, that (a) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(31) of the Bankruptcy Code and, in the alternative,
for purposes of the Illinois Uniform Fraudulent Transfer Act; (b) the
present fair saleable value of the property of such Person is not less than
the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured; (c) such Person is
able to realize upon its property and pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they
mature in the normal course of business; (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature; and
(e) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital; PROVIDED, that in
each case, the liabilities of any Subsidiary shall be determined without
regard to the Indebtedness of such Subsidiary owing to the Company or any
Wholly-Owned Subsidiary.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests or
other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of
the Subsidiaries of the Person, or a combination thereof. Unless the
context
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otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Company.
"SUBSIDIARY GUARANTY" means that certain Subsidiary Guaranty dated as
of the date hereof by each domestic Subsidiary in favor of the
Administrative Agent and the Lenders.
"SURETY INSTRUMENTS" means all letters of credit (including standby
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"SWAP CONTRACT" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or
any combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"SWAP TERMINATION VALUE" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or
after the date such Swap Contracts have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and
(b) for any date prior to the date referenced in clause (a) the amount(s)
determined as the mark-to-market value(s) for such Swap Contracts, as
determined by the Company based upon one or more mid-market or other
readily available quotations provided by any recognized dealer in such Swap
Contracts (which may include any Lender).
"TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the case
of each Lender and the Administrative Agent, respectively, taxes imposed on
or measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Lender or the
Administrative Agent, as the case may be, is organized or maintains a
lending office.
"TRANCHE A COMMITMENT AMOUNT" means, at any time, the amount of the
Tranche A Loan Limit at such time.
"TRANCHE A LOAN LIMIT" means $15,000,000, as such limit may be
adjusted up to $30,000,000 from time to time in accordance with SUBSECTION
2.01(b).
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"TRANCHE A LOANS" means, subject to SUBSECTION 2.01(c) OR (e), all
Loans that are not Tranche B Loans.
"TRANCHE B COMMITMENT AMOUNT" means, at any time (a) the Aggregate
Commitment at such time MINUS (b) the Tranche A Loan Limit at such time.
"TRANCHE B LOANS" means, subject to SUBSECTION 2.01(c) OR (e), (a) all
Loans made at a time when the Principal Balance (before giving effect to
such Loans) exceeds the Tranche A Loan Limit and (b) all Loans made at a
time when, before giving effect to such Loans, the Principal Balance is
less than or equal to the Tranche A Loan Limit, but after giving effect to
such Loans, the Principal Balance exceeds the Tranche A Loan Limit, but
only to the extent of the amount by which, after giving effect to such
Loans, the Principal Balance exceeds the Tranche A Loan Limit.
"TYPE" has the meaning specified in the definition of "Loan".
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"UNITED STATES" and "U.S." each means the United States of America.
"WHOLLY-OWNED SUBSIDIARY" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and, except with respect to EDM
Electronic Direct Marketing Ltd. (which shall be deemed to be a
Wholly-Owned Subsidiary), 100% of the capital stock of every other class,
in each case (or, in the case of Persons other than corporations,
membership interests or other equity interests), at the time as of which
any determination is being made, is owned, beneficially and of record, by
the Company, or by one or more of the other Wholly-Owned Subsidiaries,
or both.
1.02 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
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(ii) The term "including" is not limiting and means "including
without limitation".
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including".
(iv) The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments, supplements and other modifications
thereto, but only to the extent such amendments and other modifications are in
writing and not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulation are to be construed as including
all statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms. This Agreement and each of the other
Loan Documents shall be construed, to the extent reasonable, to be consistent
one with the other; PROVIDED, that to the extent that the terms and conditions
of this Agreement are actually inconsistent with the terms and conditions of any
other Loan Document, this Agreement shall govern. Unless otherwise expressly
provided, any reference to any action of the Administrative Agent or the Lenders
by way of consent, approval or waiver shall be deemed modified by the phrase "in
its/their sole reasonable discretion".
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Administrative
Agent, the Company and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lenders or the
Administrative Agent merely because of the Administrative Agent's or Lenders'
involvement in their preparation.
1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
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(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
(c) In the event that any changes in GAAP occur after the date of
this Agreement and such changes result in a material variation in the method of
calculation of financial covenants or other terms of this Agreement, then the
Company, the Administrative Agent and the Lenders agree to amend such provisions
of this Agreement so as to equitably reflect such changes so that the criteria
for evaluating the Company's financial condition will be substantially the same
after such changes as if such changes had not occurred.
ARTICLE II
THE CREDITS
2.01 AMOUNTS AND TERMS OF COMMITMENTS; TRANCHE MODIFICATIONS. (a) Each
Lender severally agrees, on the terms and conditions set forth herein, to make
Loans to the Company from time to time on any Business Day during the period
from the Closing Date to the Revolving Termination Date, in an aggregate amount
not to exceed at any time outstanding the lesser of (i) the amount set forth
next to its name on SCHEDULE 2.01 (such amount shall be, as the same may be
reduced under SECTION 2.05 or as a result of one or more assignments under
SECTION 10.08, the Lender's "COMMITMENT") and (ii) its Pro Rata Share of the
Aggregate Commitment; PROVIDED, HOWEVER, that, after giving effect to any
Borrowing, the aggregate principal amount of all outstanding Loans, shall not at
any time exceed the Maximum Loan Balance. Within the limits of each Lender's
Commitment, and subject to the other terms and conditions hereof, the Company
may borrow under this Section, prepay under SECTION 2.06 and reborrow under this
Section.
(b) Not more than once each fiscal quarter the Company may, upon 10
Business Days' prior written notice to the Administrative Agent elect, as of any
Business Day, to increase or decrease the Tranche A Loan Limit by an amount of
not less than $500,000 or any integral multiple of $100,000 in excess thereof;
PROVIDED, HOWEVER, that (i) the Tranche A Loan Limit may not exceed the lesser
of (A) $30,000,000 and (B) the Aggregate Commitment; (ii) the Tranche A Loan
Limit may not be increased to an amount in excess of the Secured Amount; and
(iii) the Tranche A Loan Limit may not be decreased during the continuance of
any Default or Event of Default. The Administrative Agent will promptly notify
each Lender of its receipt of a notice from the Company pursuant to this
subsection and the effective date of any changes in the Tranche A Loan Limit.
(c) Loans shall be made as Tranche A Loans until the Principal
Balance equals the Tranche A Loan Limit, after which all Loans shall be made as
Tranche B Loans. Upon any increase in the Tranche A Loan Limit, Tranche B Loans
shall be automatically converted to Tranche A Loans in an aggregate principal
amount equal to the lesser of (i) the aggregate
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outstanding Principal Balance of the Tranche B Loans and (ii) the new Tranche
A Loan Limit MINUS the old Tranche A Loan Limit. Such conversion shall be
made on a pro rata (relative to Commitment amount) basis among the Lenders.
(d) If at any time the outstanding principal amount of the Loans
exceeds the Maximum Loan Balance, the Company shall immediately repay such Loans
in an amount sufficient to eliminate any such excess.
(e) If at any time the outstanding principal amount of the Tranche A
Loans exceeds the lesser of the Secured Amount and the Tranche A Loan Limit,
then the Company shall immediately repay such Loans in an amount sufficient to
eliminate any such excess; PROVIDED, HOWEVER, that if no Default or Event of
Default shall then have occurred and is continuing and SECTION 2.01(d) is not
applicable, Tranche A Loans in a principal amount equal to such excess shall be
automatically converted to Tranche B Loans to the extent of the amount of the
then unutilized Tranche B Commitment.
2.02 LOAN ACCOUNTS. (a) The Loans made by each Lender shall be evidenced
by one or more loan accounts or records maintained by such Lender in the
ordinary course of business. The loan accounts or records maintained by the
Administrative Agent and each Lender shall be conclusive absent manifest error
of the amount of the Loans made by the Lenders to the Company and the interest
and payments thereon. Any failure so to record or any error in doing so shall
not, however, limit or otherwise affect the obligation of the Company hereunder
to pay any amount owing with respect to the Loans.
(b) Upon the request of any Lender made through the Administrative
Agent, the Loans made by such Lender may be evidenced by one or more Notes,
instead of or in addition to loan accounts. Each such Lender shall endorse on
the schedules annexed to its Note(s) the date, amount and maturity of each Loan
made by it and the amount of each payment of principal made by the Company with
respect thereto. Each such Lender is irrevocably authorized by the Company to
endorse its Note(s) and each Lender's record shall be conclusive absent manifest
error; PROVIDED, HOWEVER, that the failure of a Lender to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Company hereunder or under any such Note to such
Lender.
2.03 PROCEDURE FOR BORROWING. (a) Each Borrowing shall be made upon the
Company's irrevocable notice delivered to the Administrative Agent in the form
of a Notice of Borrowing (which notice must be received by the Administrative
Agent prior to 10:00 a.m. (Chicago time) (i) two (2) Business Days prior to the
requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) on the
requested Borrowing Date, in the case of Base Rate Loans, specifying:
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(A) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $500,000 or any multiple of $100,000 in
excess thereof;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the Type of Loans comprising the Borrowing;
(D) with respect to Offshore Rate Loans, the duration of
the Interest Period applicable to such Loans included in such notice.
If the Notice of Borrowing fails to specify the duration of the
Interest Period for any Borrowing comprised of Offshore Rate Loans,
such Interest Period shall be three months; and
(E) the amount of the requested Loans comprising Tranche
A Loans and Tranche B Loans, respectively;
PROVIDED, HOWEVER, that with respect to the Borrowing to be made on the Closing
Date, such Borrowing will consist of Base Rate Loans only; and further provided
that if the Administrative Agent has determined in its sole discretion that
syndication of the Loans has not been completed, then all Borrowings during the
first 60 days following the Closing Date shall have the same Interest Period and
shall be Base Rate Loans or Offshore Rate Loans for Interest Periods no longer
than one month.
(b) The Administrative Agent will promptly notify each Lender of its
receipt of any Notice of Borrowing and of the amount of such Lender's Pro Rata
Share of that Borrowing.
(c) Each Lender will make the amount of its Pro Rata Share of each
Borrowing available to the Administrative Agent for the account of the Company
at the Administrative Agent's Payment Office by 1:00 p.m. (Chicago time) on the
Borrowing Date requested by the Company in funds immediately available to the
Administrative Agent. The proceeds of all such Loans will then be made
available to the Company by the Administrative Agent at such office by crediting
the account of the Company on the books of BofA with the aggregate of the
amounts made available to the Administrative Agent by the Lenders and in like
funds as received by the Administrative Agent or by wire transfer in accordance
with the directions of the Company.
(d) After giving effect to any Borrowing, unless the Administrative
Agent shall otherwise consent, there may not be more than six (6) different
Interest Periods in effect.
(e) The Company hereby authorizes the Lenders and the Administrative
Agent to accept Notices of Borrowing based on telephonic notices made by any
person or persons the Administrative Agent or any Lender believes to be acting
on behalf of the Company. The
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Company agrees to deliver promptly to the Administrative Agent a written
confirmation of each telephonic notice, signed by a Responsible Officer or an
authorized designee. If the written confirmation differs in any material
respect from the action taken by the Administrative Agent and the Lenders,
the records of the Administrative Agent and the Lenders shall govern absent
manifest error.
2.04 CONVERSION AND CONTINUATION ELECTIONS. (a) The Company may, upon
irrevocable notice to the Administrative Agent in accordance with SUBSECTION
2.04(b):
(i) elect, as of any Business Day, in the case of Base
Rate Loans, or as of the last day of the applicable Interest Period, in the
case of any other Type of Loans, to convert any such Loans (or any part
thereof in an amount not less than $500,000, or that is in an integral
multiple of $100,000 in excess thereof) into Loans of any other Type; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Loans having Interest Periods expiring on
such day (or any part thereof in an amount not less than $500,000, or that
is in an integral multiple of $100,000 in excess thereof);
PROVIDED, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Company to continue such Loans as, and convert such Loans into Offshore
Rate Loans shall terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Administrative Agent not later than 10:00 a.m. (Chicago time)
(i) at least two (2) Business Days in advance of the Conversion/Continuation
Date, if the Loans are to be converted into or continued as Offshore Rate Loans;
and (ii) on the Conversion/Continuation Date, if the Loans are to be converted
into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into Base
Rate Loans, the duration of the requested Interest Period.
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(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, or if any Default or Event
of Default then exists, the Company shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
(d) The Administrative Agent will promptly notify each Lender of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by the Company, the Administrative Agent will promptly notify each
Lender of the details of any automatic conversion. All conversions and
continuations shall be made ratably according to the respective outstanding
principal amounts of the Loans with respect to which the notice was given held
by each Lender.
(e) Unless the Required Lenders otherwise consent, during the
existence of a Default or Event of Default, the Company may not elect to have a
Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
unless the Administrative Agent shall otherwise consent, there may not be more
than six (6) different Interest Periods in effect.
(g) The Company hereby authorizes the Lenders and the Administrative
Agent to accept Notices of Conversion/Continuation based on telephonic notices
made by any person or persons the Administrative Agent or any Lender believes to
be acting on behalf of the Company. The Company agrees to deliver promptly to
the Administrative Agent a written confirmation of each telephonic notice,
signed by a Responsible Officer. If the written confirmation differs in any
material respect from the action taken by the Administrative Agent and the
Lenders, the records of the Administrative Agent and the Lenders shall govern
absent manifest error.
2.05 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. The Company may,
upon not less than five (5) Business Days' prior notice to the Administrative
Agent, terminate the Commitments, or permanently reduce the Commitments by an
aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess
thereof; UNLESS, after giving effect thereto and to any prepayments of Loans
made on the effective date thereof, the then-outstanding principal amount of the
Loans would exceed the amount of the Aggregate Commitment then in effect. Once
reduced in accordance with this Section, the Commitments may not be increased.
Any reduction of the Commitments shall be applied to each Lender according to
its Pro Rata Share. All accrued commitment fees to, but not including the
effective date of any reduction or termination of Commitments, shall be paid on
the effective date of such reduction or termination.
2.06 OPTIONAL PREPAYMENTS. Subject to SECTION 3.04, the Company may, at
any time or from time to time, upon not less than one (1) Business Day's
irrevocable notice to the
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Administrative Agent for Base Rate Loans and not less than three (3) Business
Days' irrevocable notice to the Administrative Agent for Offshore Rate Loans,
ratably prepay Loans in whole or in part, in minimum amounts of $500,000 or
any multiple of $100,000 in excess thereof. Such notice of prepayment shall
specify the date and amount of such prepayment and the Type(s) of Loans to be
prepaid. The Administrative Agent will promptly notify each Lender of its
receipt of any such notice, and of such Lender's Pro Rata Share of such
prepayment. If such notice is given by the Company, the Company shall make
such prepayment and the payment amount specified in such notice shall be due
and payable on the date specified therein, together, in the case of Offshore
Rate Loans, with accrued interest to each such date on the amount prepaid and
any amounts required pursuant to SECTION 3.04. All prepayments (other than
payments out of proceeds of the Collateral) shall be applied first to reduce
the Tranche B Loans and thereafter to reduce the Tranche A Loans.
2.07 REPAYMENT. The Company shall repay to the Lenders on the Revolving
Termination Date the aggregate principal amount of Loans outstanding on such
date.
2.08 INTEREST. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to (i) the Base Rate or (ii) the Offshore Rate PLUS the Applicable Margin.
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest on Base Rate Loans shall also be paid on the date of any
payment (including prepayment) in full thereof. Interest on Offshore Rate Loans
shall also be paid on the date of any prepayment of Offshore Rate Loans under
SECTION 2.01(D) or 2.06 for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof. During the existence of any Event of
Default, interest on all Loans shall be paid on demand of the Administrative
Agent at the request or with the consent of the Required Lenders.
(c) Notwithstanding subsection (a) of this Section, while any Event
of Default exists or after acceleration, the Company shall pay interest (after
as well as before any entry of judgment thereon to the extent permitted by law)
on the principal amount of all outstanding Loans, at a fluctuating rate per
annum equal to the Base Rate plus 2%.
(d) Anything herein to the contrary notwithstanding, the obligations
of the Company to any Lender hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Lender would be contrary to the provisions of
any law applicable to such Lender limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Lender, and in such
event the Company shall pay such Lender interest at the highest rate permitted
by applicable law.
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2.09 FEES. (a) ARRANGEMENT, AGENCY FEES. The Company shall pay such
fees to the Administrative Agent and the Arranger as are required by the letter
agreement ("FEE LETTER") among the Company, the Arranger and the Administrative
Agent dated August 7, 1998.
(b) COMMITMENT FEES. The Company shall pay to the Administrative
Agent for the account of each Lender a commitment fee on the average daily
unused portion of such Lender's Commitment, computed on a quarterly basis in
arrears on the last Business Day of each calendar quarter based upon the daily
utilization and mix of the Tranche A Loans and Tranche B Loans for that quarter
as calculated by the Administrative Agent, equal to the Applicable Commitment
Fee Percentage per annum. Such commitment fees shall accrue from the Closing
Date to the Revolving Termination Date and shall be due and payable quarterly in
arrears on the last Business Day of each calendar quarter commencing on the
Closing Date through the Revolving Termination Date, with the final payment to
be made on the Revolving Termination Date; PROVIDED that, in connection with any
reduction or termination of Commitments under SECTION 2.05, the accrued
commitment fee calculated for the period ending on such date shall also be paid
on the date of such reduction or termination, with the following quarterly
payment being calculated on the basis of the period from such reduction or
termination date to such quarterly payment date. The commitment fees provided
in this subsection shall accrue at all times during the period described above,
including at any time during which one or more conditions in ARTICLE IV are not
met.
2.10 COMPUTATION OF FEES AND INTEREST. (a) All computations of interest
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of fees and interest shall be made
on the basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Administrative
Agent shall be conclusive and binding on the Company and the Lenders in the
absence of manifest error.
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2.11 PAYMENTS BY THE COMPANY. (a) All payments to be made by the Company
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Company shall be made to the
Administrative Agent for the account of the Lenders at the Administrative
Agent's Payment Office, and shall be made in dollars and in immediately
available funds, no later than 12:00 noon (Chicago time) on the date specified
herein. The Administrative Agent will promptly distribute to each Lender its
Pro Rata Share (or other applicable share as expressly provided herein) of such
payment in like funds as received. Any payment received by the Administrative
Agent later than 2:00 p.m. (Chicago time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Administrative Agent receives notice from the Company
prior to the date on which any payment is due to the Lenders that the Company
will not make such payment in full as and when required, the Administrative
Agent may assume that the Company has made such payment in full to the
Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Company has not made such
payment in full to the Administrative Agent, each Lender shall repay to the
Administrative Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
(d) All payments received by the Administrative Agent in respect of
the Loans shall be applied first to Tranche B Loans and then to Tranche A Loans,
other than (i) payments from the proceeds of Collateral (which shall be applied
first to Tranche A Loans to the extent thereof), (ii) payments of principal in
respect of Tranche A Loans required pursuant to SECTION 2.01(d) and (iii)
payments to be applied to the payment of interest in respect of Offshore Rate
Loans due on the date of receipt in accordance with SUBSECTION 2.08(b).
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2.12 PAYMENTS BY THE LENDERS TO THE ADMINISTRATIVE AGENT. (a) Unless the
Administrative Agent receives notice from a Lender on or prior to the Closing
Date or, with respect to any Borrowing after the Closing Date, at least one
Business Day prior to the date of such Borrowing, that such Lender will not make
available as and when required hereunder to the Administrative Agent for the
account of the Company the amount of that Lender's Pro Rata Share of the
Borrowing, the Administrative Agent may assume that each Lender has made such
amount available to the Administrative Agent in immediately available funds on
the Borrowing Date and the Administrative Agent may (but shall not be so
required), in reliance upon such assumption, make available to the Company on
such date a corresponding amount. If and to the extent any Lender shall not
have made its full amount available to the Administrative Agent in immediately
available funds and the Administrative Agent in such circumstances has made
available to the Company such amount, that Lender shall on the Business Day
following such Borrowing Date make such amount available to the Administrative
Agent, together with interest at the Federal Funds Rate for each day during such
period. A notice of the Administrative Agent submitted to any Lender with
respect to amounts owing under this subsection (a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the
Administrative Agent shall constitute such Lender's Loan on the date of
Borrowing for all purposes of this Agreement. If such amount is not made
available to the Administrative Agent on the Business Day following the
Borrowing Date, the Administrative Agent will notify the Company of such failure
to fund and, upon demand by the Administrative Agent, the Company shall pay such
amount to the Administrative Agent for the Administrative Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Loans comprising such Borrowing.
(b) The failure of any Lender to make any Loan on any Borrowing Date
shall not relieve any other Lender of any obligation hereunder to make a Loan on
such Borrowing Date, but no Lender shall be responsible for the failure of any
other Lender to make the Loan to be made by such other Lender on any Borrowing
Date.
2.13 SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Lender shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Lender shall immediately (a) notify the
Administrative Agent of such fact, and (b) purchase from the other Lenders such
participations in the Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment pro rata with each of them;
PROVIDED, HOWEVER, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price paid therefor, together with an amount equal to such paying
Lender's ratable share (according to the proportion of (i) the amount of such
paying Lender's required repayment to (ii) the total amount so recovered from
the purchasing Lender) of any interest or other amount paid or payable
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by the purchasing Lender in respect of the total amount so recovered. The
Company agrees that any Lender so purchasing a participation from another
Lender may, to the fullest extent permitted by law, exercise all its rights
of payment (including the right of set-off, but subject to SECTION 10.10)
with respect to such participation as fully as if such Lender were the direct
creditor of the Company in the amount of such participation. The
Administrative Agent will keep records (which shall be conclusive and binding
in the absence of manifest error) of participations purchased under this
Section and will in each case notify the Lenders following any such purchases
or repayments.
2.14 SECURITY AND GUARANTY. The cash and the Eligible Securities held in
the Collateral Accounts from time to time shall secure the repayment of the
Tranche A Loans in accordance with the Security Agreement and the Control
Agreements. The Company shall provide that the Tranche A Loan Limit shall at no
time exceed the Secured Amount.
(b) All Obligations of the Company under this Agreement, each of the Notes
and all other Documents shall be unconditionally guaranteed by the Guarantors
pursuant to the Guaranty.
2.15 EXTENSIONS OF THE COMMITMENTS.
(a) "CURRENT COMMITMENT TERMINATION DATE" shall initially mean
November 20, 2001. On any Business Day that is not less than 60 days nor more
than 90 days prior to an anniversary of the Closing Date, the Company may, by
written notice (an "EXTENSION REQUEST") given to the Administrative Agent,
request that the Current Commitment Termination Date be extended. Each such
Extension Request shall contemplate an extension of the Current Commitment
Termination Date to a date that is one year after the Current Commitment
Termination Date then in effect. Notwithstanding anything to the contrary in
this SECTION 2.15, the Company may only request two (2) additional Extension
Requests during the term of this Agreement.
(b) The Administrative Agent shall promptly advise each Lender of its
receipt of any Extension Request. Each Lender may, in its sole discretion,
consent to a requested extension by giving written notice thereof to the
Administrative Agent by not later than the Business Day (the "EXTENSION
CONFIRMATION DATE") immediately preceding the date that is 31 days after the
date of the Extension Request. Failure on the part of any Lender to respond to
an Extension Request by the applicable Extension Confirmation Date shall be
deemed to be a denial of such request by such Lender. If all Lenders shall
consent in writing to the requested extension, such request shall be granted.
Promptly following the opening of business on the first Business Day following
the applicable Extension Confirmation Date, the Administrative Agent shall
notify the Company in writing as to whether the Extension Request has been
granted (such written notice being an "EXTENSION CONFIRMATION NOTICE") and, if
granted, such extension shall be confirmed upon the issuance of such Extension
Confirmation Notice. The Administrative Agent shall promptly
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thereafter provide a copy of such Extension Confirmation Notice to each
Lender. Each Extension Confirmation Notice shall specify therein the date to
which the Current Commitment Termination Date is to be extended (such date
being referred to herein as the "EXTENDED TERMINATION DATE"), which shall be
the date one year following the Current Commitment Termination Date then in
effect.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 TAXES. (a) Any and all payments by the Company to each Lender or
the Administrative Agent under this Agreement and any other Loan Document shall
be made free and clear of, and without deduction or withholding for, any Taxes.
In addition, the Company shall pay all Other Taxes.
(b) If the Company shall be required by law to deduct or withhold any
Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder or under any other Loan Document to any Lender or the Administrative
Agent, then:
(i) the sum payable shall be increased as necessary so
that, after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), such Lender or the Administrative Agent, as the case may be,
receives and retains an amount equal to the sum it would have received and
retained had no such deductions or withholdings been made;
(ii) the Company shall make such deductions and
withholdings;
(iii) the Company shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) the Company shall also pay to each Lender or the
Administrative Agent for the account of such Lender, at the time interest
is paid, Further Taxes in the amount that the respective Lender specifies
as necessary to preserve the after-tax yield the Lender would have received
if such Taxes, Other Taxes or Further Taxes had not been imposed.
(c) The Company agrees to indemnify and hold harmless each Lender,
the Administrative Agent and the Arranger and each of their affiliates for the
full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the
amount that the respective Lender, in good faith, specifies as necessary to
preserve the after-tax yield the Lender, Administrative Agent or Arranger
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would have received if such Taxes, Other Taxes or Further Taxes had not been
imposed, and any liability (including penalties, interest, additions to tax
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes, Other Taxes or Further Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days after the
date the Lender, the Administrative Agent or Arranger makes written demand
therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Lender or
the Administrative Agent the original or a certified copy of a receipt
evidencing payment thereof, or other evidence of payment reasonably satisfactory
to such Lender or the Administrative Agent.
(e) If the Company is required to pay any amount to any Lender or the
Administrative Agent pursuant to subsection (b) or (c) of this Section, then
such Lender shall use reasonable efforts (consistent with legal and regulatory
restrictions) to change the jurisdiction of its Lending Office so as to
eliminate any such additional payment by the Company which may thereafter
accrue, if such change in the sole reasonable judgment of such Lender is not
otherwise disadvantageous to such Lender.
3.02 ILLEGALITY. (a) If any Lender reasonably determines that the
introduction of any Requirement of Law, or any change in any Requirement of Law,
or in the interpretation or administration of any Requirement of Law, has made
it unlawful, or that any central bank or other Governmental Authority has
asserted that it is unlawful, for any Lender or its applicable Lending Office to
make Offshore Rate Loans, then, on notice thereof by the Lender to the Company
through the Administrative Agent, any obligation of that Lender to make Offshore
Rate Loans shall be suspended until the Lender notifies the Administrative Agent
and the Company that the circumstances giving rise to such determination no
longer exist.
(b) If a Lender determines that it is unlawful to maintain any
Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact
and demand from such Lender (with a copy to the Administrative Agent), prepay in
full such Offshore Rate Loans of that Lender then outstanding, together with
interest accrued thereon and amounts required under SECTION 3.04, either on the
last day of the Interest Period thereof, if the Lender may lawfully continue to
maintain such Offshore Rate Loans to such day, or immediately, if the Lender may
not lawfully continue to maintain such Offshore Rate Loan. If the Company is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Company shall borrow from the affected Lender, in the amount of
such repayment, a Base Rate Loan.
(c) If the obligation of any Lender to make or maintain Offshore Rate
Loans has been so terminated or suspended, the Company may elect, by giving
notice to the Lender through the Administrative Agent that all Loans which would
otherwise be made by the Lender as Offshore Rate Loans shall be instead Base
Rate Loans.
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(d) Before giving any notice to the Administrative Agent under this
Section, the affected Lender shall designate a different Lending Office with
respect to its Offshore Rate Loans if such designation will avoid the need for
giving such notice or making such demand and will not, in the reasonable
judgment of the Lender, be illegal or otherwise disadvantageous to the Lender.
3.03 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Lender
reasonably determines that, due to either (i) the introduction of or any change
(other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the Offshore Rate) in or in the
interpretation of any law or regulation or (ii) the compliance by that Lender
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to such Lender of agreeing to make or making, funding or maintaining
any Offshore Rate Loans, then the Company shall be liable for, and shall from
time to time, upon demand (with a copy of such demand to be sent to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender, additional amounts as are sufficient to compensate such Lender for such
increased costs.
(b) If any Lender shall have reasonably determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or
(iv) compliance by the Lender (or its Lending Office) or any corporation
controlling the Lender with any Capital Adequacy Regulation, affects or would
affect the amount of capital required or expected to be maintained by the Lender
or any corporation controlling the Lender and (taking into consideration such
Lender's or such corporation's policies with respect to capital adequacy and
such Lender's desired return on capital) determines, in good faith, that the
amount of such capital is increased as a consequence of its Commitment, loans,
credits or obligations under this Agreement, then, upon demand of such Lender to
the Company through the Administrative Agent, the Company shall pay to the
Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
3.04 FUNDING LOSSES. The Company shall reimburse each Lender and hold
each Lender harmless from any loss or expense which the Lender may sustain or
incur as a consequence of:
(a) the failure of the Company to make on a timely basis any payment
of principal of any Offshore Rate Loan;
(b) the failure of the Company to borrow, continue or convert a Loan
after the Company has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
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(c) the failure of the Company to make any prepayment in accordance
with any notice delivered under SECTION 2.06;
(d) the prepayment (including pursuant to SECTION 2.01(d), 2.05 or
2.06) or other payment (including after acceleration thereof) of an Offshore
Rate Loan on a day that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under SECTION 2.04 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Company to the Lenders under this Section and
under SUBSECTION 3.03(a), each Offshore Rate Loan made by a Lender (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the IBOR used in determining the Offshore Rate for
such Offshore Rate Loan by a matching deposit or other borrowing in the offshore
dollar interbank market for a comparable amount and for a comparable period,
whether or not such Offshore Rate Loan is in fact so funded.
3.05 INABILITY TO DETERMINE RATES. If the Administrative Agent
determines, in good faith, that for any reason adequate and reasonable means do
not exist for determining the Offshore Rate for any requested Interest Period
with respect to a proposed Offshore Rate Loan, or that the Offshore Rate
applicable pursuant to SUBSECTION 2.08(a) for any requested Interest Period with
respect to a proposed Offshore Rate Loan does not adequately and fairly reflect
the cost to the Lenders of funding such Loan, the Administrative Agent will
promptly so notify the Company and each Lender. Thereafter, the obligation of
the Lenders to make or maintain Offshore Rate Loans hereunder shall be suspended
until the Administrative Agent revokes such notice in writing. Upon receipt of
such notice, the Company may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Company, in the amount specified in the applicable notice submitted by
the Company, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans, as the case may be.
3.06 RESERVES ON OFFSHORE RATE LOANS. The Company shall pay to each
Lender, as long as such Lender shall be required under regulations of the FRB to
maintain reserves with respect to liabilities or assets consisting of or
including Eurocurrency funds or deposits (currently known as "EUROCURRENCY
LIABILITIES"), additional costs on the unpaid principal amount of each Offshore
Rate Loan equal to the actual costs of such reserves allocated to such Loan by
the Lender (as determined by the Lender in good faith, which determination shall
be conclusive absent manifest
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error), payable on each date on which interest is payable on such Loan,
provided the Company shall have received at least 15 days' prior written
notice (with a copy to the Administrative Agent) of such additional interest
from the Lender. If a Lender fails to give notice 15 days prior to the
relevant Interest Payment Date, such additional interest shall be payable 15
days from the Company's receipt of such notice.
3.07 CERTIFICATES OF LENDERS. Any Lender claiming reimbursement or
compensation under this ARTICLE III shall deliver to the Company (with a copy to
the Administrative Agent) a certificate setting forth in reasonable detail the
amount payable to the Lender hereunder and such certificate shall be conclusive
and binding on the Company in the absence of manifest error.
3.08 SUBSTITUTION OF LENDERS. Upon the receipt by the Company from any
Lender (an "AFFECTED LENDER") of a claim for compensation under SECTION 3.01 OR
3.03 or a notice under SECTION 3.02, the Company may: (a) obtain a replacement
bank or financial institution reasonably satisfactory to the Company and to the
Administrative Agent to acquire and assume all or a ratable part of all of such
Affected Lender's Loans and Commitment at the face amount thereof (a
"REPLACEMENT LENDER"), or (b) request one or more of the other Lenders to
acquire and assume all or part of such Affected Lender's Loans and Commitment.
Any assignment and assumption pursuant to this Section shall be consummated in
compliance with SECTION 10.08 and shall be subject to the prior written consent
of the Administrative Agent (which consent shall not be unreasonably delayed or
withheld).
3.09 SURVIVAL. The agreements and obligations of the Company in this
ARTICLE III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS OF INITIAL LOANS. The obligation of each Lender to make
its initial Loan hereunder is subject to the condition that the Administrative
Agent shall have received on or before the Closing Date all of the following, in
form and substance satisfactory to the Administrative Agent and each Lender, and
in sufficient copies for each Lender:
(a) CREDIT AGREEMENT AND NOTES. This Agreement and any Notes
requested pursuant to SECTION 2.02 executed by each party thereto;
(b) RESOLUTIONS; INCUMBENCY.
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(i) Copies of the resolutions of the board of directors of
the Company and each Subsidiary party to a Loan Document authorizing the
transactions contemplated hereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary of such Person; and
(ii) A certificate of the Secretary or Assistant Secretary of
the Company, and each Subsidiary party to a Loan Document certifying the
names and true signatures of the officers of the Company or such Subsidiary
authorized to execute, deliver and perform, as applicable, this Agreement,
and all other Loan Documents to be delivered by it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the following
documents:
(i) the articles or certificate of incorporation and the
bylaws of the Company and each Subsidiary party to any Loan Document as in
effect on the Closing Date, certified by the Secretary or Assistant
Secretary of the Company or such Subsidiary as of the Closing Date; and
(ii) a good standing certificate for the Company and each
Subsidiary party to any Loan Document from the Secretary of State (or
similar, applicable Governmental Authority) of its state of incorporation
and each state where the Company or such Subsidiary is qualified to do
business as a foreign corporation as of a recent date;
(d) LEGAL OPINIONS. An opinion of Neal, Gerber & Eisenberg, counsel
to the Company and addressed to the Administrative Agent and the Lenders, in
form and substance satisfactory to the Administrative Agent;
(e) PAYMENT OF FEES. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses payable by the Company pursuant to
Sections 2.09 and 10.04 to the extent then due and payable on the Closing Date,
together with Attorney Costs of BofA to the extent invoiced prior to or on the
Closing Date, plus such additional amounts of Attorney Costs as shall constitute
BofA's reasonable estimate of Attorney Costs incurred or to be incurred by it
through the closing proceedings (provided that such estimate shall not
thereafter preclude final settling of accounts between the Company and BofA);
(f) COLLATERAL DOCUMENTS. The Collateral Documents, executed by the
Company and its Subsidiaries, together with evidence that all other actions
necessary or, in the opinion of the Administrative Agent or the Lenders,
desirable to perfect and protect the first priority Lien created by the
Collateral Documents, and to enhance the Administrative Agent's ability to
preserve and protect its interests in and access to the Collateral, have been
taken;
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(g) CERTIFICATE. A certificate signed by a Responsible Officer,
dated as of the Closing Date, stating that:
(i) the representations and warranties contained in
ARTICLE V are true and correct on and as of such date, as though made on
and as of such date;
(ii) no Default or Event of Default exists or would
result from the initial Borrowing; and
(iii) there has occurred since December 31, 1997 no
event or circumstance that has resulted or could reasonably be expected to
result in a Material Adverse Effect;
(h) YEAR 2000. The Company shall have delivered to the
Administrative Agent such information with respect to year 2000 issues as the
Administrative Agent may have reasonably requested; and
(i) OTHER DOCUMENTS. Such other approvals, opinions, documents or
materials as the Administrative Agent or any Lender may reasonably request.
4.02 CONDITIONS TO ALL BORROWINGS. The obligation of each Lender to make
any Loan to be made by it (including its initial Loan) or to continue or convert
any Loan under SECTION 2.04 is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Conversion/Continuation
Date:
(a) NOTICE OF BORROWING OR CONVERSION/CONTINUATION. The
Administrative Agent shall have received (with, in the case of the initial Loan
only, a copy for each Lender) a Notice of Borrowing or a Notice of
Conversion/Continuation, as applicable;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in ARTICLE V shall be true and correct in all
material respects on and as of such Borrowing Date or Conversion/Continuation
Date with the same effect as if made on and as of such Borrowing Date or
Conversion/Continuation Date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date);
(c) NO EXISTING DEFAULT. No Default or Event of Default shall exist
or shall result from such Borrowing or continuation or conversion;
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(d) MAXIMUM LOAN BALANCE. The outstanding principal amount of the
Loans, after giving effect to such Borrowing, conversion or continuation shall
not exceed the Maximum Loan Balance; and
(e) NO FUTURE ADVANCE NOTICE. Neither the Administrative Agent nor
any Lender shall have received from the Company any notice that the Security
Agreement will no longer secure on a first priority basis Tranche A Loans made
or to be made under this Agreement.
Each Notice of Borrowing and Notice of Conversion/Continuation submitted by the
Company hereunder shall constitute a representation and warranty by the Company
hereunder, as of the date of each such notice and as of each Borrowing Date or
Conversion/Continuation Date, as applicable, that the conditions in this SECTION
4.02 are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Administrative Agent and each
Lender that:
5.01 CORPORATE EXISTENCE AND POWER. The Company and each of its
Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the corporate power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets, to carry on
its business and to execute, deliver, and perform its obligations under the Loan
Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clause (c) or clause (d) of this SECTION
5.01, to the extent that the failure to do so could not reasonably be expected
to have a Material Adverse Effect.
5.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by the Company and its Subsidiaries of this Agreement and each
other Loan Document to which
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such Person is party, have been duly authorized by all necessary corporate
action, and do not and will not:
(a) contravene the terms of any of the Company's or any Subsidiary's
Organization Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual Obligation
to which the Company or any Subsidiary is a party or any order, injunction, writ
or decree of any Governmental Authority to which the Company or any Subsidiary
or any of such Person's property is subject; or
(c) violate any Requirement of Law.
5.03 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required by or in respect of the Company
or any Subsidiary in connection with the execution, delivery or performance by,
or enforcement against, the Company or any of its Subsidiaries of the Agreement
or any other Loan Document.
5.04 BINDING EFFECT. This Agreement and each other Loan Document to which
the Company or any of its Subsidiaries is a party constitute the legal, valid
and binding obligations of the Company and any of its Subsidiaries to the extent
it is a party thereto, enforceable against such Person in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
5.05 LITIGATION. There are no actions, suits, proceedings, claims or
disputes pending or, to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties:
(a) which purport to affect or pertain to this Agreement or any other
Loan Document, or any of the transactions contemplated hereby or thereby; or
(b) as to which (either individually or in the aggregate) there
exists a substantial likelihood of an adverse determination, which determination
could reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order or any order of any nature has been issued by
any court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document,
or directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
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5.06 NO DEFAULT. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Company or from the grant or
perfection of the Liens of the Administrative Agent and the Lenders on the
Collateral. As of the Closing Date (after giving effect to the incurring of any
Obligations by the Company and the grant or perfection of the Liens of the
Administrative Agent and the Lenders on the Collateral), neither the Company nor
any Subsidiary is in default under or with respect to any Contractual Obligation
in any respect which, individually or together with all such defaults, could
reasonably be expected to have a Material Adverse Effect, or that would, if such
default had occurred after the Closing Date, create an Event of Default under
SUBSECTION 8.01(e).
5.07 ERISA COMPLIANCE. Except as specifically disclosed in SCHEDULE 5.07:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Company, nothing has occurred which would cause the loss of such qualification.
The Company and each ERISA Affiliate has made all required contributions to any
Plan subject to Section 412 of the Code, and no application for a funding waiver
or an extension of any amortization period pursuant to Section 412 of the Code
has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) the Pension Plans do not have aggregate Unfunded Pension Liabilities
in excess of $1,000,000; (iii) neither the Company nor any ERISA Affiliate has
incurred, or reasonably expects to incur, any liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not delinquent
under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate
has incurred, or reasonably expects to incur, any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
5.08 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by SECTION 6.12
and SECTION 7.07. Neither the
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Company nor any Subsidiary is generally engaged in the business of purchasing
or selling Margin Stock or extending credit for the purpose of purchasing or
carrying Margin Stock.
5.09 TITLE TO PROPERTIES. The Company and each Subsidiary have good title
in fee simple to, or valid leasehold interests in, all real property necessary
or used in the ordinary conduct of their respective businesses, except for such
defects in title as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. As of the Closing Date, the
property of the Company and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
5.10 TAXES. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 FINANCIAL CONDITION. (a) Each of (i) the audited consolidated
financial statements of the Company and its Subsidiaries as of December 31,
1997, and the related consolidated statements of income or operations,
shareholders' equity and cash flows for the fiscal year ended on that date and
(ii) the unaudited consolidated financial statements of the Company and its
Subsidiaries as of June 30, 1998 and the related consolidated statements of
income, shareholders' equity and cash flows for the period ended on that date:
(i) were prepared in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise
expressly noted therein;
(ii) fairly present the financial condition of the
Company and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in SCHEDULE 5.11,
show in accordance with GAAP all material indebtedness and other
liabilities, direct or contingent, of the Company and its consolidated
Subsidiaries as of the date thereof, including liabilities for taxes,
material commitments and Contingent Obligations.
(b) Since December 31, 1997 there has been no Material Adverse
Effect.
5.12 ENVIRONMENTAL MATTERS. (a) Except as specifically disclosed in
SCHEDULE 5.12, the on-going operations of the Company and each of its
Subsidiaries comply in all respects with all
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Environmental Laws, except such noncompliance which would not (if enforced in
accordance with applicable law) result in liability in excess of $1,000,000
in the aggregate.
(b) Except as specifically disclosed in SCHEDULE 5.12, the Company
and each of its Subsidiaries have obtained all licenses, permits, authorizations
and registrations required under any Environmental Law and necessary for their
respective ordinary course operations ("ENVIRONMENTAL PERMITS"), all such
Environmental Permits are in good standing, and the Company and each of its
Subsidiaries are in compliance with all material terms and conditions of such
Environmental Permits.
(c) Except as specifically disclosed in SCHEDULE 5.12, none of the
Company, any of its Subsidiaries or any of their respective present property or
operations, is subject to any outstanding written order from or agreement with
any Governmental Authority, nor subject to (i) any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental Claim
or Hazardous Material or (ii) any claim, proceeding or written notice from any
Person regarding any Environmental Law, Environmental Claim or Hazardous
Material.
(d) Except as specifically disclosed in SCHEDULE 5.12, there are no
Hazardous Materials or other conditions or circumstances existing with respect
to any property of the Company or any Subsidiary, or arising from operations
prior to the Closing Date, of the Company or any of its Subsidiaries that would
reasonably be expected to give rise to Environmental Claims with a potential
liability of the Company and its Subsidiaries in excess of $5,000,000 in the
aggregate for all such conditions, circumstances and properties. In addition,
to the Company's knowledge, (i) neither the Company nor any Subsidiary has any
underground storage tanks (x) that are not properly registered or permitted
under applicable Environmental Laws, or (y) that are leaking or disposing of
Hazardous Materials off-site, which in any such case could reasonably be
expected to have a Material Adverse Effect, and (ii) the Company and its
Subsidiaries have met all material notification requirements under Title III of
CERCLA and all other Environmental Laws.
5.13 COLLATERAL DOCUMENTS. (a) The provisions of each of the Collateral
Documents are effective to create in favor of the Administrative Agent for the
benefit of the Lenders, a legal, valid and enforceable and, assuming that the
secured party has taken all necessary action required by it, first priority
security interest in all right, title and interest of the Company and its
Subsidiaries in the collateral described therein.
(b) All representations and warranties of the Company and any of its
Subsidiaries party thereto contained in the Collateral Documents are true and
correct in all material respects.
5.14 REGULATED ENTITIES. None of the Company, any Person controlling the
Company, or any Subsidiary, is an "Investment Company" within the meaning of the
Investment Company Act
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of 1940. The Company is not subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce
Act, any state public utilities code, or any other Federal or state statute
or regulation limiting its ability to incur Indebtedness.
5.15 NO BURDENSOME RESTRICTIONS. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect, other than any
Material Adverse Effect arising as a result of any reduction in billable
services provided by the Company or any Subsidiary or any termination of any
customer service agreement (in either case, by parties other than the Company
and its Subsidiaries) pursuant to any provision included in the Contractual
Obligations.
5.16 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Company and
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without infringing upon or
violating the legal rights of any other Person. To the best knowledge of the
Company, no material slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to
be employed, by the Company or any Subsidiary infringes upon any rights held by
any other Person. No claim or litigation regarding any of the foregoing is
pending or, to the Company's knowledge, threatened, and no patent, invention,
device, application, principle or any statute, law, rule, regulation, standard
or code is pending or, to the knowledge of the Company, proposed, which, in
either case, could reasonably be expected to have a Material Adverse Effect.
5.17 SUBSIDIARIES. As of the Closing Date, the Company has no
Subsidiaries other than those specifically disclosed in part (a) of SCHEDULE
5.17 hereto and has no equity investments in any other corporation or entity
other than those specifically disclosed in part (b) of SCHEDULE 5.17.
5.18 INSURANCE. The properties of the Company and its Subsidiaries are
insured with financially sound and reputable insurance companies not Affiliates
of the Company, in such amounts, with such deductibles and covering such risks
as are customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the Company or such Subsidiary operates.
5.19 SOLVENCY. The Company and each of its Subsidiaries are Solvent.
5.20 SWAP OBLIGATIONS. Neither the Company nor any of its Subsidiaries has
incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations. The Company has undertaken its own independent
assessment of its consolidated assets, liabilities and commitments and has
considered appropriate means of mitigating and managing risks associated
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with such matters and has not relied on any swap counterparty or any
Affiliate of any swap counterparty in determining whether to enter into any
Swap Contract.
5.21 YEAR 2000 COMPLIANCE. As of the Closing Date, the Company and its
Subsidiaries are conducting a comprehensive review and assessment of their
computer applications and have made inquiry of their material suppliers, vendors
and customers with respect to the year 2000 problem (that is, the risk that
computer applications may not be able to properly perform date sensitive
functions after December 31, 1999). The Company believes any year 2000 problem
resident in its computer system could not reasonably be expected to have a
Material Adverse Effect.
5.22 FULL DISCLOSURE. None of the representations or warranties made by
the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Company to the Lenders prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading as of the time when made
or delivered.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Required Lenders
waive compliance in writing:
6.01 FINANCIAL STATEMENTS AND OTHER REPORTS. The Company shall deliver to
the Administrative Agent, in form and detail reasonably satisfactory to the
Administrative Agent, with sufficient copies for each Lender:
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(a) as soon as available, but not later than the earlier of (i) five
(5) days after the filing thereof with the SEC and (ii) 90 days after the end of
each fiscal year (commencing with the fiscal year ended December 31, 1998), a
copy of the audited consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of Arthur Andersen LLP or another
nationally-recognized independent public accounting firm ("INDEPENDENT AUDITOR")
which report shall state that such consolidated financial statements present
fairly the financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years. Such opinion shall not be
qualified or limited because of a restricted or limited examination by the
Independent Auditor of any material portion of the Company's or any Subsidiary's
records; and
(b) as soon as available, but not later than the earlier of (i) five
(5) days after the filing thereof with the SEC and (ii) 45 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing with the
fiscal quarter ended September 30, 1998), a copy of the unaudited consolidated
balance sheet of the Company and its Subsidiaries as of the end of such quarter
and the related consolidated statements of income, shareholders' equity and cash
flows for the period commencing on the first day and ending on the last day of
such quarter, setting forth in each case in comparative form the figures for the
previous fiscal year and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of operations of the
Company and the Subsidiaries.
6.02 CERTIFICATES; OTHER INFORMATION. The Company shall furnish to the
Administrative Agent, with sufficient copies for each Lender:
(a) concurrently with the delivery of the financial statements
referred to in SUBSECTION 6.01(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements
referred to in SUBSECTIONS 6.01(a) and (b), a Compliance Certificate executed by
a Responsible Officer, which shall include a statement of the Maximum Loan
Balance as of the last day of the applicable period;
(c) concurrently with the delivery of the financial statements
referred to in SUBSECTION 6.01(a), (i) a consolidating income statement for such
year (which need not be audited), and (ii) a budget for the next succeeding
fiscal year;
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(d) concurrently with the delivery of the financial statements
referred to in SUBSECTION 6.01(b), a consolidating income statement for such
quarter;
(e) promptly, copies of all financial statements and reports that the
Company sends to its shareholders and within five (5) days of filing with the
SEC, copies of all financial statements and regular, periodic or special reports
(including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make
to, or file with, the SEC;
(f) promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary as the
Administrative Agent, at the request of any Lender, may from time to time
reasonably request;
(g) promptly, upon the request of the Administrative Agent, a
computation of the Maximum Loan Balance; and
(h) within ten (10) Business Days after the end of each month and at
any other time, as soon as practicable after requested by the Administrative
Agent, a current listing of the Collateral Accounts (including a list of the
Eligible Securities deposited therein) and a current calculation of the Secured
Amount.
6.03 NOTICES. The Company shall notify the Administrative Agent and each
Lender promptly after any executive officer of the Company obtains knowledge:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of (i) any breach or non-performance of, or any default under,
any Contractual Obligation of the Company or any of its Subsidiaries which could
reasonably be expected to result in a Material Adverse Effect; (ii) any material
dispute, litigation, investigation, proceeding or suspension which may exist at
any time between the Company or any of its Subsidiaries and any Governmental
Authority; and (iii) any other matter or circumstance which has had or could
reasonably be expected to have a Material Adverse Effect;
(c) of the commencement of, or any material development in, any
litigation or proceeding affecting the Company or any Subsidiary (i) in which
the amount of damages claimed is $5,000,000 (or its equivalent in another
currency or currencies) or more, (ii) in which injunctive or similar relief is
sought and which, if adversely determined, would reasonably be expected to have
a Material Adverse Effect, or (iii) in which the relief sought is an injunction
or other stay of the performance of this Agreement or any Loan Document;
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(d) of (but in no event later than 10 days after becoming aware of)
(i) any and all material enforcement, investigation, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened against
the Company or any Subsidiary or any of their respective properties pursuant to
any applicable Environmental Laws, (ii) all other material Environmental Claims,
and (iii) any environmental or similar condition on any real property adjoining
or in the vicinity of the property of the Company or any Subsidiary that could
reasonably be expected to have a Material Adverse Effect;
(e) of any other litigation or proceeding affecting the Company or
any of its Subsidiaries which the Company would be required to report to the SEC
pursuant to the Exchange Act, within four days after reporting the same to the
SEC;
(f) of the occurrence of any of the following events affecting the
Company or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Administrative Agent and each Lender a copy of any
notice with respect to such event that is filed with a Governmental Authority
and any notice delivered by a Governmental Authority to the Company or any ERISA
Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of
any Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Company or any ERISA
Affiliate; or
(iv) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase
in contributions or Unfunded Pension Liability; and
(g) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Company or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under SUBSECTION 6.03(a) shall describe with particularity any and all clauses
or provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
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6.04 PRESERVATION OF CORPORATE EXISTENCE, ETC. Except in connection with
transactions permitted by SECTION 7.03 and sales of assets permitted by SECTION
7.02, the Company shall, and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
in the normal conduct of its business;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
6.05 MAINTENANCE OF PROPERTY. The Company shall maintain, and shall cause
each Subsidiary to maintain, and preserve all its property, including
intellectual property, which is used or useful in its business in good working
order and condition, ordinary wear and tear excepted and make all necessary
repairs thereto and renewals and replacements thereof except where the failure
to do so could not reasonably be expected to have a Material Adverse Effect,
except as permitted by SECTION 7.02. The Company and each Subsidiary shall use
the standard of care typical in the industry in the operation and maintenance of
its facilities.
6.06 INSURANCE. The Company shall maintain, and shall cause each of its
Subsidiaries to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons; PROVIDED, that the
Company and its Subsidiaries may self-insure against liabilities in respect of
medical and workers' compensation coverage.
6.07 PAYMENT OF OBLIGATIONS. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all material tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are being
contested in good faith and,
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to the extent necessary, by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property which would not be permitted under SECTION 7.01; and
(c) all Indebtedness (unless such Indebtedness is being contested in
good faith and, if necessary, by appropriate proceedings), as and when due and
payable, but subject to any subordination provisions contained in any instrument
or agreement evidencing such Indebtedness.
6.08 COMPLIANCE WITH LAWS. The Company shall comply, and shall cause each
Subsidiary to comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
6.09 COMPLIANCE WITH ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
6.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Administrative Agent and the Lenders,
together, to visit and inspect any of their respective properties, to examine
their respective corporate, financial and operating records, and make copies
thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers, and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; PROVIDED, HOWEVER, when an Event of Default exists the Administrative
Agent or any Lender may do any of the foregoing at the expense of the Company at
any time during normal business hours and without advance notice.
6.11 ENVIRONMENTAL LAWS. (a) The Company shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
material compliance with all Environmental Laws.
(b) Upon the written request of the Administrative Agent or, through
the Administrative Agent, any Lender, the Company shall submit and cause each of
its Subsidiaries to submit, to the Administrative Agent with sufficient copies
for each Lender, at the Company's
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sole cost and expense, at reasonable intervals, a report providing an update
of the status of any environmental, health or safety compliance, hazard or
liability issue identified in any notice or report required pursuant to
SUBSECTION 6.03(d), that could, individually or in the aggregate, result in
liability in excess of $1,000,000.
6.12 USE OF PROCEEDS. The Company shall use the proceeds of the Loans for
working capital and other general corporate purposes, including Permitted
Acquisitions and Capital Expenditures, not in contravention of any Requirement
of Law or of any Loan Document.
6.13 FURTHER ASSURANCES. (a) The Company shall ensure that all written
information, exhibits and reports furnished to the Administrative Agent or the
Lenders do not and will not contain any untrue statement of a material fact and
do not and will not omit to state any material fact or any fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and will promptly disclose to the Administrative
Agent and the Lenders and correct any material defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgment
or recordation thereof.
(b) Promptly upon request by the Administrative Agent or the Required
Lenders, the Company shall (and shall cause any of its Subsidiaries to) do,
execute, acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Administrative
Agent or such Lenders, as the case may be, may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
or any other Loan Document, (ii) to subject to the Liens created by any of the
Collateral Documents any of the properties, rights or interests covered by any
of the Collateral Documents, (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and the Liens
intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Administrative Agent and
Lenders the rights granted or now or hereafter intended to be granted to the
Lenders under any Loan Document or under any other document executed in
connection therewith.
(c) The Company shall cause each domestic Subsidiary which is
acquired or formed after the Closing Date to enter into the Subsidiary Guaranty.
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ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Required Lenders
waive compliance in writing:
7.01 LIMITATION ON LIENS. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("PERMITTED
LIENS"):
(a) any Lien (other than a Lien on the Collateral) existing on
property of the Company or any Subsidiary on the Closing Date and set forth in
SCHEDULE 7.01 securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by SECTION 6.07, provided that no notice
of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA and other than a Lien
on the Collateral) consisting of pledges or deposits required in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(f) Liens (other than Liens on the Collateral) on the property of
the Company or its Subsidiaries securing (i) the non-delinquent performance
of bids, trade contracts (other than for borrowed money), leases, statutory
obligations, (ii) contingent obligations on surety and appeal bonds, and
(iii) other non-delinquent obligations of a like nature; in each case,
incurred in the ordinary course of business; PROVIDED, that all such Liens in
the aggregate could not (even if enforced) reasonably be expected to cause a
Material Adverse Effect;
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(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
(h) Liens on assets of corporations which become Subsidiaries after
the date of this Agreement, PROVIDED, HOWEVER, that such Liens existed at the
time the respective corporations became Subsidiaries and were not created in
anticipation thereof;
(i) purchase money security interests on any property acquired or
held by the Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property; PROVIDED THAT (i) any such Lien
attaches to such property concurrently with or within 45 days after the
acquisition thereof, (ii) such Lien attaches solely to the property so acquired
in such transaction, (iii) the principal amount of the debt secured thereby does
not exceed 100% of the cost of such property, and (iv) the principal amount of
the Indebtedness secured by any and all such purchase money security interests
shall not at any time exceed $2,500,000;
(j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; PROVIDED THAT (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company or any Subsidiary in excess of those set forth by
regulations promulgated by the FRB, and (ii) such deposit account is not
intended by the Company or any Subsidiary to provide collateral to the
depository institution; and
(k) Liens on any property (other than the Collateral) securing
Indebtedness permitted to be incurred pursuant to SUBSECTION 7.05(e) or 7.10(c);
PROVIDED THAT such secured Indebtedness shall not exceed $2,500,000 in aggregate
principal amount.
7.02 DISPOSITION OF ASSETS. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, (x) issue any equity interests
of any Subsidiary to any Person which is not the Company or a Subsidiary or (y)
sell, assign, lease (as lessor), convey, transfer or otherwise dispose of
(whether in one or a series of transactions) any property (including accounts
and notes receivable, with or without recourse) or enter into any agreement to
do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
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(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment; and
(c) the license or sale of software or other proprietary assets of
the Company and its Subsidiaries to their clients in the ordinary course of
business; and
(d) dispositions not otherwise permitted hereunder which are made
for fair market value; PROVIDED, that (i) at the time of any disposition, no
Event of Default shall exist or shall result from such disposition, (ii) the
aggregate sales price from such disposition shall be paid in cash, and (iii) the
aggregate value of all assets so sold by the Company and its Subsidiaries,
together, shall not exceed in any fiscal year $5,000,000.
7.03 CONSOLIDATIONS AND MERGERS. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions all or substantially all of its assets (whether now owned
or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge with the Company or with any one or more
Subsidiaries, provided that (i) the Company shall be the continuing or surviving
corporation, and (ii) if any transaction shall be between a Subsidiary and a
Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or
surviving corporation;
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise) to the Company or another Wholly-Owned
Subsidiary; and
(c) any Subsidiary may merge with any Person in order to effect a
Permitted Acquisition or a Joint Venture expressly permitted hereunder.
7.04 LOANS AND INVESTMENTS. The Company shall not purchase or acquire, or
suffer or permit any Subsidiary to purchase or acquire, or make any commitment
therefor, any capital stock, equity interest, or any obligations or other
securities of, or any interest in, any Person, or make or commit to make any
Acquisitions, or make or commit to make any advance, loan, extension of credit
or capital contribution to or any other investment in, any Person including any
Affiliate of the Company (together, "INVESTMENTS"), except for:
(a) Investments held by the Company or Subsidiary in the form of (i)
Cash Equivalents or (ii) debt obligations of United States corporations rated
BBB or better by Standard & Poor's Ratings Group or Baa or better by Moody's
Investors Services, Inc. and maturing within one year from the date of
investment;
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(b) extensions of credit in the nature of accounts receivable, notes
receivable or other trade credit arising from the sale or lease of goods or
services in the ordinary course of business;
(c) extensions of credit by the Company to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its
Wholly-Owned Subsidiaries;
(d) Investments constituting Permitted Swap Obligations or payments
or advances under Swap Contracts relating to Permitted Swap Obligations;
(e) advances to employees in an aggregate amount not to exceed
$3,000,000 at any one time outstanding;
(f) Permitted Acquisitions as permitted under SECTIONS 7.19 and 7.20;
(g) Investments in Wholly-Owned Subsidiaries; and
(h) Investments in Joint Ventures permitted hereunder in an aggregate
amount not in excess of $2,000,000 after the Closing Date.
7.05 LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to SECTION 7.08;
(c) Indebtedness existing on the Closing Date and set forth in
SCHEDULE 7.05;
(d) Indebtedness incurred in connection with leases permitted
pursuant to SECTION 7.10; and
(e) other Indebtedness in an aggregate amount outstanding not at any
time to exceed $5,000,000.
7.06 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon terms
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no less favorable to the Company or such Subsidiary than it would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary.
7.07 USE OF PROCEEDS. The Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the proceeds of any Loan, directly
or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of the Company or others incurred to purchase or carry
Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying
any Margin Stock or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act.
7.08 CONTINGENT OBLIGATIONS. The Company shall not, and shall not suffer
or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Company and its Subsidiaries
existing as of the Closing Date and listed in SCHEDULE 7.08; and
(d) Contingent Obligations with respect to Surety Instruments
incurred in the ordinary course of business and not exceeding at any time
$1,000,000 in the aggregate in respect of the Company and its Subsidiaries
together.
7.09 JOINT VENTURES. Subject to the limitations of Section 7.04(h), the
Company shall not, and shall not suffer or permit any Subsidiary to enter into
any Joint Venture, other than with respect to any entity whose primary business,
if conducted by the Company or any Subsidiary, would be considered to be in the
ordinary course of the Company's business.
7.10 LEASE OBLIGATIONS. The Company shall not, and shall not suffer or
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under lease or agreement to lease, except for:
(a) leases of the Company and of Subsidiaries in existence on the
Closing Date and any renewal, extension or refinancing thereof;
(b) operating leases entered into by the Company or any Subsidiary
after the Closing Date in the ordinary course of business; and
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(c) Capitalized Leases other than those permitted under clause (a) of
this Section, entered into by the Company or any Subsidiary after the Closing
Date to finance the acquisition of equipment or real property.
7.11 RESTRICTED PAYMENTS. The Company shall not, and shall not suffer or
permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock, or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding, except
that (a) any Subsidiary may make unlimited payments and distributions to the
Company or to any Wholly-Owned Subsidiary and (b) the Company may:
(i) declare and make dividend payments or other distributions payable
solely in its common stock;
(ii) purchase, redeem or otherwise acquire shares of its common stock
or warrants or options to acquire any such shares with the proceeds received
from the substantially concurrent issue of new shares of its common stock; and
(iii) declare or pay cash dividends to its stockholders and purchase,
redeem or otherwise acquire shares of its capital stock or warrants, rights or
options to acquire any such shares for cash in an amount not exceeding
$5,000,000 in any calendar year; PROVIDED, that, immediately after giving
effect to such proposed action, no Default or Event of Default would exist.
7.12 ERISA. The Company shall not, and shall not suffer or permit any of
its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan which has resulted
or could reasonably expected to result in liability of the Company in an
aggregate amount in excess of $1,000,000; or (b) engage in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
7.13 AMENDMENTS TO CHARTER DOCUMENTS. The Company will not, nor will it
permit any Subsidiary to make any amendment or modification to any terms or
provisions of its Certificate or Articles of Incorporation or bylaws which is
materially adverse to the Administrative Agent or the Lenders without the prior
written consent of the Required Lenders.
7.14 CHANGE IN BUSINESS. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Company and its
Subsidiaries on the date hereof.
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7.15 ACCOUNTING CHANGES. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Company or of any Subsidiary.
7.16 DEBT TO EBITDAR RATIO. The Company shall not, as of the last day of
any fiscal quarter, permit its Debt to EBITDAR Ratio to be greater than 3.0 to
1.0.
7.17 FIXED CHARGE COVERAGE RATIO. The Company shall not, as of the last
day of any fiscal quarter, permit its ratio of (a) EBITDAR for the period of
four fiscal quarters then ending to (b) Fixed Charges for such four fiscal
quarter period to be less than (x) 2.75 to 1.0 for the period from the Closing
Date through March 31, 1999 and (y) 3.0 to 1.0 thereafter.
7.18 QUARTERLY PROFITABILITY. The Company shall have Net Income for each
fiscal quarter of at least $1.00.
7.19 MAXIMUM COMBINATION OF CASH CAPITAL EXPENDITURES AND PERMITTED
ACQUISITIONS. The Company shall not permit the total amount of the sum of (a)
Capital Expenditures PLUS (b) expenditures incurred to effect Permitted
Acquisitions, in each case made or committed to be made by the Company and its
Subsidiaries and paid for with consideration consisting of cash and other
property, to exceed $75,000,000 in any calendar year; PROVIDED, that to the
extent such sum in any calendar year is less than $75,000,000, the $75,000,000
limit for the following calendar year shall be increased by the amount of such
shortfall; PROVIDED, FURTHER, the Company shall first use the initial amount
permitted for the current year (without regard to the amount carried over from
the previous calendar year, if any) and then the amount carried over from the
previous calendar year to meet the requirements of this SECTION 7.19 and any
carried over amount not so utilized shall expire.
7.20 PERMITTED ACQUISITIONS. The Company shall not permit the fair market
value of common stock and common stock equivalents of the Company paid by the
Company as consideration for any single Permitted Acquisition to exceed
$50,000,000.
7.21 SECURED AMOUNT. The Company shall not at any time permit the Secured
Amount to be less than the Tranche A Loan Limit.
7.22 RESTRICTIVE AGREEMENTS. The Company shall not, nor shall it permit
any of its Subsidiaries to, enter into any indenture, agreement, instrument or
other arrangement which directly or indirectly prohibits or restrains, or has
the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the ability of any Subsidiary to (a) pay dividends or make
other distributions (i) on its capital stock or (ii) with respect to any other
interest or participation in, or measured by, its profits, (b) make loans or
advances to the Company or any Subsidiary, (c) repay loans or advances from the
Company or any Subsidiary, (d) grant Liens on
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any of its assets (other than assets which are subject to Permitted Liens and
as to which the Company or such Subsidiary has agreed not to extend a second
Lien) in favor of the Administrative Agent or any Lender to secure the
Obligations or (e) transfer any of its properties or assets to the Company or
any Subsidiary; PROVIDED, that any such agreement or arrangement to which any
Subsidiary which is the subject of a Permitted Acquisition is a party at the
time of such Permitted Acquisition may remain in effect for a period of
thirty (30) days following the consummation of such Permitted Acquisition.
ARTICLE VIII
EVENTS OF DEFAULT
8.01 EVENT OF DEFAULT. Any of the following shall constitute an "EVENT OF
DEFAULT":
(a) NON-PAYMENT. The Company fails to make, (i) when and as required
to be made herein, payments of any amount of principal of any Loan, or
(ii) within five (5) Business Days after the same becomes due, payment of any
interest, fee or any other amount payable hereunder or under any other Loan
Document; or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty by
the Company or any Subsidiary made or deemed made herein or in any other Loan
Document, or contained in any certificate, document or financial or other
statement by the Company, any Subsidiary, or any Responsible Officer, furnished
at any time under this Agreement, or in or under any other Loan Document is
incorrect in any material respect on or as of the date made or deemed made; or
(c) SPECIFIC DEFAULTS. The Company fails to perform or observe any
term, covenant or agreement contained in any of SECTIONS 6.01, 6.02, 6.03 or
6.09 or in ARTICLE VII; or
(d) OTHER DEFAULTS. The Company or any Subsidiary party thereto
fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document, and such default shall continue unremedied
for a period of 20 days after the earlier of (i) the date upon which a
Responsible Officer knew of such failure or (ii) the date upon which written
notice thereof is given to the Company by the Administrative Agent or any
Lender; or
(e) CROSS-DEFAULT. (i) The Company or any Subsidiary (A) fails to
make any payment in respect of any Indebtedness or Contingent Obligation (other
than in respect of Swap Contracts), having an aggregate principal amount
(including undrawn committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit arrangement) of more than
$2,500,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) giving effect to applicable grace periods;
or
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(B) fails to perform or observe any other condition or covenant, or any other
event shall occur or condition exist, under any agreement or instrument
relating to any such Indebtedness or Contingent Obligation, if the effect of
such failure, event or condition is to cause, or to permit the holder or
holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or Administrative Agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause such Indebtedness to be
declared to be due and payable or to be required to be repurchased prior to
its stated maturity, or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded; or (ii) there occurs under any
Swap Contract an Early Termination Date (as defined in such Swap Contract)
resulting from (1) any event of default under such Swap Contract as to which
the Company or any Subsidiary is the Defaulting Party (as defined in such
Swap Contract) or (2) any Termination Event (as so defined) as to which the
Company or any Subsidiary is an Affected Party (as so defined), and, in
either event, the Swap Termination Value owed by the Company or such
Subsidiary as a result thereof is greater than $1,000,000; or
(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Company or any Subsidiary
(i) ceases or fails to be solvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise;
(ii) voluntarily ceases to conduct its business in the ordinary course;
(iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes
any action to effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Company's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Company or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Company or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of the Company or any ERISA Affiliate under Title IV of
ERISA to such Pension Plan or Multiemployer Plan or to the PBGC in an aggregate
amount for all such Pension Plans and Multiemployer Plans in excess of
$1,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans and Multiemployer Plans at any time exceeds $1,000,000
(determined, in respect of Multiemployer Plans, by reference to the Unfunded
Pension Liability for which the Company
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or any ERISA Affiliate may be liable); or (iii) the Company or any ERISA
Affiliate shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an
aggregate amount in excess of $1,000,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against the
Company or any Subsidiary involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of $1,000,000 or more, and the same shall remain
unsatisfied, unvacated and unstayed pending appeal for a period of 30 days after
the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or
decree is entered against the Company or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) CHANGE OF CONTROL. There occurs any Change of Control; or
(l) LOSS OF LICENSES. Any Governmental Authority revokes or fails to
renew any material license, permit or franchise of the Company or any
Subsidiary, or the Company or any Subsidiary for any reason loses any material
license, permit or franchise, or the Company or any Subsidiary suffers the
imposition of any restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with respect to any
material license, permit or franchise; or
(m) ADVERSE CHANGE. There occurs a Material Adverse Effect; or
(n) GUARANTOR DEFAULTS. Any Guarantor fails in any material respect
to perform or observe any term, covenant or agreement in the Subsidiary
Guaranty; or the Subsidiary Guaranty is for any reason in any material
respect (including with respect to future advances) or wholly revoked or
invalidated, or otherwise ceases to be in full force and effect, or any
Guarantor or any other Person contests in any manner the validity or
enforceability thereof or denies that it has any further liability or
obligation thereunder; or any event described in subsection (f) or (g) of
this Section occurs with respect to a Guarantor; or
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(o) COLLATERAL.
(i) any provision of any Collateral Document shall for any
reason cease to be valid and binding on or enforceable against the Company
or any Subsidiary party thereto or the Company or any Subsidiary shall so
state in writing or bring an action to limit its obligations or liabilities
thereunder; or
(ii) any Collateral Document shall for any reason (other
than pursuant to the terms thereof) cease to create a valid security
interest in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and first priority
security interest.
8.02 REMEDIES. If any Event of Default occurs, the Administrative Agent
shall, at the request of, or may, with the consent of, the Required Lenders,
(a) declare the Commitment of each Lender to make Loans to be
terminated, whereupon such Commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Lenders all rights and
remedies available to it and the Lenders under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in subsection
(f) or (g) of SECTION 8.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each
Lender to make Loans shall automatically terminate and the unpaid principal
amount of all outstanding Loans and all interest and other amounts as aforesaid
shall automatically become due and payable without further act of the
Administrative Agent or any Lender.
8.03 RIGHTS NOT EXCLUSIVE. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
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ARTICLE IX
THE ADMINISTRATIVE AGENT
9.01 APPOINTMENT AND AUTHORIZATION; "ADMINISTRATIVE AGENT". Each Lender
hereby irrevocably (subject to SECTION 9.09) appoints, designates and authorizes
the Administrative Agent to take such action on its behalf under the provisions
of this Agreement and each other Loan Document and to exercise such powers and
perform such duties as are expressly delegated to it by the terms of this
Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Administrative Agent have or be deemed
to have any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Administrative Agent. Without limiting the generality of the foregoing
sentence, the use of the term "agent" in this Agreement with reference to the
Administrative Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
9.02 DELEGATION OF DUTIES. The Administrative Agent may execute any of
its duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
9.03 LIABILITY OF ADMINISTRATIVE AGENT. None of the Agent-Related Persons
shall (a) be liable for any action taken or omitted to be taken by any of them
under or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (b) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or any other
Loan Document, or for the value of or title to any Collateral, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Lender to ascertain or
to inquire as to the observance or performance of any of
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the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the properties, books or records of the Company
or any of the Company's Subsidiaries or Affiliates.
9.04 RELIANCE BY ADMINISTRATIVE AGENT. (a) The Administrative Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
writing, resolution, notice, consent, certificate, affidavit, letter, telegram,
facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a request or
consent of the Required Lenders and such request and any action taken or failure
to act pursuant thereto shall be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in SECTION 4.01, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Administrative Agent to such Lender
for consent, approval, acceptance or satisfaction, or required thereunder to be
consented to or approved by or acceptable or satisfactory to such Lender.
9.05 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Administrative Agent for the account of the Lenders,
unless the Administrative Agent shall have received written notice from a Lender
or the Company referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". The
Administrative Agent will notify the Lenders of its receipt of any such notice.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as may be requested by the Required Lenders in accordance with
ARTICLE VIII; PROVIDED, HOWEVER, that unless and until the Administrative Agent
has received any such request, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable or in the best
interest of the Lenders except to the extent that other provisions of this
Agreement expressly require that any such action be taken or not be taken only
with the consent and authorization or at the request of the Lenders or the
Required Lenders, as applicable.
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9.06 CREDIT DECISION. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Administrative Agent hereinafter taken, including any review of the
affairs of the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Company and its Subsidiaries, the
value of and title to any Collateral, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision to
enter into this Agreement and to extend credit to the Company hereunder. Each
Lender also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by the Administrative Agent and financial statements and other materials
provided pursuant to SECTION 6.01 or 6.02, the Administrative Agent shall not
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of the Company which may come into the
possession of any of the Agent-Related Persons.
9.07 INDEMNIFICATION OF ADMINISTRATIVE AGENT. Whether or not the
transactions contemplated hereby are consummated, the Lenders shall indemnify
upon demand the Agent-Related Persons (to the extent not reimbursed by or on
behalf of the Company and without limiting the obligation of the Company to do
so), in accordance with such Lender's Pro Rata Share of all Loans, from and
against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Lender
shall be liable for the payment to the Agent-Related Persons of any portion of
such Indemnified Liabilities resulting from such Person's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender shall
reimburse the Administrative Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of the
Company. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Administrative
Agent.
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9.08 ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. BofA and its Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Company and
its Subsidiaries and Affiliates as though BofA were not the Administrative Agent
hereunder and without notice to or consent of the Lenders. The Lenders
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding the Company or its Affiliates (including
information that may be subject to confidentiality obligations in favor of the
Company or such Subsidiary) and acknowledge that the Administrative Agent shall
be under no obligation to provide such information to them. With respect to its
Loans, BofA shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the Administrative
Agent, and the terms "Lender" and "Lenders" include BofA in its individual
capacity.
9.09 SUCCESSOR AGENT. The Administrative Agent may, and at the request of
the Required Lenders, shall resign as Administrative Agent upon 30 days' notice
to the Lenders. If the Administrative Agent resigns under this Agreement, the
Required Lenders shall appoint from among the Lenders a successor agent for the
Lenders. If no successor agent is appointed prior to the effective date of the
resignation of the Administrative Agent, the Administrative Agent may appoint,
after consulting with the Lenders and the Company, a successor agent from among
the Lenders. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Administrative Agent and the term "Administrative Agent"
shall mean such successor agent and the retiring Administrative Agent's
appointment, powers and duties as Administrative Agent shall be terminated.
After any retiring Administrative Agent's resignation hereunder as
Administrative Agent, the provisions of this ARTICLE IX and SECTIONS 10.04 and
10.05 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Administrative Agent under this Agreement. If no successor
agent has accepted appointment as Administrative Agent by the date which is 30
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall perform all of the duties of the Administrative
Agent hereunder until such time, if any, as the Required Lenders appoint a
successor agent as provided for above.
9.10 WITHHOLDING TAX. (a) (i) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Lender agrees with and in favor of the Administrative
Agent, to deliver to the Administrative Agent:
(A) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, two properly
completed and executed copies of IRS Form 1001 before the payment of any
interest in the first calendar year and
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before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this
Agreement;
(B) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such
Lender, two properly completed and executed copies of IRS Form 4224 before
the payment of any interest is due in the first taxable year of such Lender
and in each succeeding taxable year of such Lender during which interest
may be paid under this Agreement; and
(C) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Administrative Agent of any
change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(ii) If any foreign Lender claims exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", such Lender agrees with and in favor of the
Administrative Agent and the Company to deliver to the Administrative Agent
and the Company a Form W-8, or any subsequent versions thereof or successors
thereto (and, if such Lender delivers a Form W-8, a certificate representing
that such Lender is not a "bank" for purposes of Section 881(c) of the Code,
is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(b)
of the Code) of the Company and is not a controlled foreign corporation
related to the Company (within the meaning of Section 864(d)(4) of the Code)).
(b) If any Lender claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Lender
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Company to such Lender, such Lender agrees to notify the
Administrative Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Company to such Lender. To the extent of
such percentage amount, the Administrative Agent will treat such Lender's IRS
Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants
a participation in, or otherwise transfers all or part of the Obligations of the
Company to such Lender, such Lender agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
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(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Administrative Agent may withhold from any interest payment
to such Lender an amount equivalent to the applicable withholding tax after
taking into account such reduction. However, if the forms or other
documentation required by subsection (a) of this Section are not delivered to
the Administrative Agent, then the Administrative Agent may withhold from any
interest payment to such Lender not providing such forms or other documentation
an amount equivalent to the applicable withholding tax imposed by Sections 1441
and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Administrative Agent did
not properly withhold tax from amounts paid to or for the account of any Lender
(because the appropriate form was not delivered or was not properly executed, or
because such Lender failed to notify the Administrative Agent of a change in
circumstances which rendered the exemption from, or reduction of, withholding
tax ineffective, or for any other reason) such Lender shall indemnify the
Administrative Agent fully for all amounts paid, directly or indirectly, by the
Administrative Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to the
Administrative Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Administrative Agent.
9.11 COLLATERAL MATTERS. (a) The Administrative Agent is authorized on
behalf of all the Lenders, without the necessity of any notice to or further
consent from the Lenders, from time to time to take any action with respect to
any Collateral or the Collateral Documents which may be necessary to perfect and
maintain perfected the security interest in and Liens upon the Collateral
granted pursuant to the Collateral Documents.
(b) The Lenders irrevocably authorize the Administrative Agent, at
its option and in its discretion, to release any Lien granted to or held by the
Administrative Agent upon any Collateral (i) upon termination of the Commitments
and payment in full of all Loans and all other Obligations known to the
Administrative Agent and payable under this Agreement or any other Loan
Document; (ii) consisting of an instrument evidencing Indebtedness or other debt
instrument, if the Indebtedness evidenced thereby has been paid in full; or
(iii) if approved, authorized or ratified in writing by the Required Lenders or
all the Lenders, as the case may be, as provided in SUBSECTION 10.01(g). Upon
request by the Administrative Agent at any time, the Lenders will confirm in
writing the Administrative Agent's authority to release particular types or
items of Collateral pursuant to this SUBSECTION 9.11(b), provided that the
absence of any such confirmation for whatever reason shall not affect the
Administrative Agent's rights under this SECTION 9.11.
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(c) Each Lender agrees with and in favor of each other (which
agreement shall not be for the benefit of the Company or any Subsidiary) that
the Company's obligation to such Lender under this Agreement and the other Loan
Documents is not and shall not be secured by any real property collateral now or
hereafter acquired by such Lender.
9.12 CO-AGENTS. None of the Lenders identified on the facing page or
signature pages of this Agreement as a "Co-Agent" shall have any right, power,
obligation, liability, responsibility or duty under this Agreement other than
those applicable to all Lenders as such. Without limiting the foregoing, none
of the Lenders so identified as a "Co-Agent" shall have or be deemed to have any
fiduciary relationship with any Lender. Each Lender acknowledges that it has
not relied and will not rely, on any of the Lenders so identified in deciding to
enter into this Agreement or in taking or not taking action hereunder.
ARTICLE X
MISCELLANEOUS
10.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company or any applicable Subsidiary therefrom, shall be
effective unless the same shall be in writing and signed by the Required Lenders
(or by the Administrative Agent at the written request of the Required Lenders)
and the Company and acknowledged by the Administrative Agent, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; PROVIDED, HOWEVER, that no such waiver,
amendment, or consent shall, unless in writing and signed by all the Lenders and
the Company and acknowledged by the Administrative Agent, do any of the
following:
(a) increase or extend the Commitment of any Lender (or reinstate any
Commitment terminated pursuant to SECTION 8.02);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
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(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;
(e) amend this Section, the definition of "Required Lenders", or
SECTION 2.13, or any provision herein providing for consent or other action by
all Lenders;
(f) increase the Tranche A Loan Limit to an amount in excess of
$30,000,000 or amend SECTION 7.21; or
(g) discharge any Guarantor, or release all or any material portion
of the Collateral except as otherwise may be provided in the Collateral
Documents or except where the consent of the Required Lenders only is
specifically provided for;
and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Administrative Agent in addition to the Required
Lenders or all the Lenders, as the case may be, affect the rights or duties of
the Administrative Agent under this Agreement or any other Loan Document, and
(ii) the Fee Letter may be amended, or rights or privileges thereunder waived,
in a writing executed by the parties thereto.
10.02 NOTICES. (a) All notices, requests, consents, approvals, waivers
and other communications shall be in writing (including, unless the context
expressly otherwise provides, by facsimile transmission, provided that any
matter transmitted by the Company by facsimile (i) shall be immediately
confirmed by a telephone call to the recipient at the number specified on
SCHEDULE 10.02, and (ii) shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices on SCHEDULE 10.02; or, as directed to the Company
or the Administrative Agent, to such other address as shall be designated by
such party in a written notice to the other parties, and as directed to any
other party, at such other address as shall be designated by such party in a
written notice to the Company and the Administrative Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to ARTICLE II or IX to the Administrative Agent shall not be
effective until actually received by the Agent.
(c) Any agreement of the Administrative Agent and the Lenders herein
to receive certain notices by telephone or facsimile is solely for the
convenience and at the request of the Company. The Administrative Agent and the
Lenders shall be entitled to rely on the authority
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of any Person purporting to be a Person authorized by the Company to give
such notice and the Administrative Agent and the Lenders shall not have any
liability to the Company or other Person on account of any action taken or
not taken by the Administrative Agent or the Lenders in reliance upon such
telephonic or facsimile notice. The obligation of the Company to repay the
Loans shall not be affected in any way or to any extent by any failure by the
Administrative Agent and the Lenders to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Administrative Agent and
the Lenders of a confirmation which is at variance with the terms understood
by the Administrative Agent and the Lenders to be contained in the telephonic
or facsimile notice.
10.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay
in exercising, on the part of the Administrative Agent or any Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.
10.04 COSTS AND EXPENSES. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Administrative
Agent) and the Arranger within five (5) Business Days after demand (subject to
SUBSECTION 4.01(e)) for all reasonable costs and expenses incurred by BofA
(including in its capacity as Administrative Agent) and the Arranger in
connection with the development, preparation, delivery, administration,
syndication and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by BofA (including in its
capacity as Administrative Agent) and the Arranger with respect thereto;
(b) pay or reimburse the Administrative Agent, the Arranger and each
Lender within five (5) Business Days after demand (subject to SUBSECTION
4.01(e)) for all costs and expenses (including Attorney Costs) incurred by them
in connection with the enforcement, attempted enforcement, or preservation of
any rights or remedies under this Agreement or any other Loan Document during
the existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding the
Loans, and including in any Insolvency Proceeding or appellate proceeding); and
(c) pay or reimburse BofA (including in its capacity as
Administrative Agent) within five (5) Business Days after demand (subject to
SUBSECTION 4.01(e)) for all appraisal (including the allocated cost of internal
appraisal services), audit, environmental inspection and review (including the
allocated cost of such internal services), search and filing costs, fees and
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expenses, incurred or sustained by BofA (including in its capacity as
Administrative Agent) in connection with the matters referred to under
subsections (a) and (b) of this Section.
10.05 COMPANY INDEMNIFICATION. (a) The Company shall indemnify, defend
and hold the Agent-Related Persons, and each Lender and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Administrative Agent or replacement of any Lender or assignment by any Lender of
its Loans or Commitment) be imposed on, incurred by or asserted against any
such Person in any way relating to or arising out of this Agreement or any
document contemplated by or referred to herein, or the transactions contemplated
hereby, or any action taken or omitted by any such Person under or in connection
with any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any Insolvency Proceeding or appellate
proceeding) related to or arising out of this Agreement or the Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "INDEMNIFIED LIABILITIES");
PROVIDED, that the Company shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities resulting from the gross
negligence or willful misconduct of such Indemnified Person. The agreements in
this Section shall survive payment of all other Obligations.
(b) Survival; Defense. The obligations in this Section shall survive
payment of all other Obligations. At the election of any Indemnified Person,
the Company shall defend such Indemnified Person using legal counsel
satisfactory to such Indemnified Person in such Person's sole discretion, at the
sole cost and expense of the Company. All amounts owing under this Section
shall be paid within 30 days after demand.
10.06 MARSHALLING; PAYMENTS SET ASIDE. Neither the Administrative
Agent nor the Lenders shall be under any obligation to marshall any assets in
favor of the Company or any other Person or against or in payment of any or
all of the Obligations. To the extent that the Company makes a payment to
the Administrative Agent or the Lenders, or the Administrative Agent or the
Lenders exercise their right of set-off, and such payment or the proceeds of
such set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Administrative Agent or such Lender in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the
extent of such recovery the obligation or part thereof originally intended to
be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such set-off had not occurred, and (b) each
Lender severally agrees to pay to the Administrative Agent upon demand its
pro rata share of any amount so recovered from or repaid by the
Administrative Agent.
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10.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Administrative Agent and each Lender.
10.08 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Lender may, with the
written consent of the Company at all times other than during the existence
of an Event of Default and the Administrative Agent, which consent of the
Company shall not be unreasonably withheld or delayed, at any time assign and
delegate to one or more Eligible Assignees (provided that no written consent
of the Company or the Administrative Agent shall be required in connection
with any assignment and delegation by a Lender to an Eligible Assignee that
is an Affiliate of such Lender) (each an "ASSIGNEE") all, or any ratable part
of all, of the Loans, the Commitments and the other rights and obligations of
such Lender hereunder, in a minimum amount of $5,000,000 or, if less, 100% of
such Lender's outstanding Loans and/or Commitment; PROVIDED, HOWEVER, that
the Company and the Administrative Agent may continue to deal solely and
directly with such Lender in connection with the interest so assigned to an
Assignee until (A) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee,
shall have been given to the Company and the Administrative Agent by such
Lender and the Assignee, (B) such Lender and its Assignee shall have
delivered to the Company and the Administrative Agent an Assignment and
Acceptance in the form of EXHIBIT D ("ASSIGNMENT AND ACCEPTANCE") together
with any Note or Notes subject to such assignment and (C) the assignor Lender
or Assignee has paid to the Administrative Agent a processing fee in the
amount of $3,500; PROVIDED, FURTHER, that upon receipt of notice from any
Lender that such Lender intends, pursuant to this SECTION 10.08, to make any
such assignment and delegation to an Assignee other than an Affiliate of such
Lender or another Lender, then, so long as no Event of Default has occurred
and is continuing, the Company shall have 10 days from the date of receipt of
such notice to obtain an Assignee (which Assignee shall be reasonably
satisfactory to the Administrative Agent and the assignor Lender) to accept
such assignment and delegation from such Lender, in lieu of the Assignee
specified by such assignor Lender, with such assignment to be made otherwise
in compliance with this SECTION 10.08, except that the $3,500 processing fee
shall be paid by the Company or the Assignee chosen by the Company; PROVIDED,
FURTHER, that if any Assignee chosen by the Company pursuant to preceding
proviso is found to be unsatisfactory to the assignor Lender, then the
Company shall have an additional 10-day period to obtain another Assignee.
(b) From and after the date that the Administrative Agent notifies
the assignor Lender that it has received (and, if required, provided its
consent with respect to) an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder
and under the other Loan Documents have been
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assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) Within five (5) Business Days after its receipt of notice by the
Administrative Agent that it has received an executed Assignment and Acceptance
and payment of the processing fee, (and provided that it consents to such
assignment in accordance with SUBSECTION 10.08(a)), the Company shall execute
and deliver to the Administrative Agent, new Notes evidencing such Assignee's
assigned Loans and Commitment and, if the assignor Lender has retained a portion
of its Loans and its Commitment, replacement Notes in the principal amount of
the Loans retained by the assignor Lender (such Notes to be in exchange for, but
not in payment of, the Notes held by such Lender). Immediately upon each
Assignee's making its processing fee payment under the Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
PRO TANTO.
(d) The Administrative Agent shall maintain a copy of each Assignment
and Acceptance delivered to it and a register for the recordation of the names
and addresses of the Lenders and the Commitments of, and principal amount of the
Loans owing to, each Lender from time to time. The entries in such register
shall be conclusive, in the absence of manifest error, and the Company, the
Administrative Agent and the Lenders shall treat each person whose name is
recorded in such register as the owner of the Commitments and the Loans recorded
therein for all purposes of this Agreement. The register shall be available for
inspection by the Company, any Lender and their representatives, at any
reasonable time and from time to time upon reasonable prior notice.
(e) Any Lender may at any time sell to one or more commercial banks
or other Persons not Affiliates of the Company (a "PARTICIPANT") participating
interests in any Loans, the Commitment of that Lender and the other interests of
that Lender (the "ORIGINATING LENDER") hereunder and under the other Loan
Documents; PROVIDED, HOWEVER, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Company and the Administrative Agent shall continue to deal solely and directly
with the originating Lender in connection with the originating Lender's rights
and obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Lenders
as described in clause (a) (but only in respect of any increase of any
Commitment of any originating Lender), (b) or (c) of the FIRST PROVISO to
SECTION 10.01. In the case of any such participation, the Participant shall be
entitled to the benefit of SECTIONS 3.01, 3.03 and 10.05 as though it were also
a Lender hereunder, and if
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amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of
set-off in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Lender under this Agreement.
(f) Notwithstanding any other provision in this Agreement, (i) any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law and (ii) any Lender that is a fund that invests in bank loans
may, without the consent of the Administrative Agent or the Company, pledge all
or any portion of its rights under and interest in this Agreement to any trustee
or to any other representative of holders of obligations owed or securities
issued by such fund as security for such obligations or securities; PROVIDED,
that any transfer to any Person upon the enforcement of such pledge or security
interest may only be made subject to SECTION 10.08.
10.09 CONFIDENTIALITY. Each Lender agrees to take and to cause its
Affiliates to take normal and reasonable precautions, in accordance with such
Lender's customary procedures for handling confidential information of this
nature, and exercise due care to maintain the confidentiality of all information
identified as "nonpublic", "confidential" or "secret" by the Company and
provided to it by the Company or any Subsidiary, or by the Administrative Agent
on the Company's or such Subsidiary's behalf, under this Agreement or any other
Loan Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with the Company or any Subsidiary; except to
the extent such information (a) was or becomes generally available to the public
other than as a result of disclosure by the Lender or its Affiliates, or (b) was
or becomes available on a non-confidential basis from a source other than the
Company or any Subsidiary, provided that such source is not bound by a
confidentiality agreement with the Company or such Subsidiary known to the
Lender; PROVIDED, HOWEVER, that any Lender may disclose such information (i) at
the request or pursuant to any requirement of any Governmental Authority to
which the Lender is subject or in connection with an examination of such Lender
by any such authority; (ii) pursuant to subpoena or other court process;
(iii) when required to do so in accordance with the provisions of any applicable
Requirement of Law; (iv) to the extent reasonably required in connection with
any litigation or proceeding to which the Administrative Agent, any Lender or
their respective Affiliates may be party; (v) to the extent reasonably required
in connection with the exercise of any remedy hereunder or under any other Loan
Document; (vi) to such Lender's independent auditors and other professional
advisors, provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Lenders hereunder; (vii) to any
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Participant or Assignee, actual or potential, provided that such Person agrees
in writing to keep such information confidential to the same extent required of
the Lenders hereunder; (viii) as to any Lender or its Affiliate, as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which the Company or any Subsidiary is party or is deemed
party with such Lender or such Affiliate; (ix) to its Affiliates; and (x) to the
National Association of Insurance Commissioners or any similar organization or
any nationally recognized rating agency that requires access to information
about such Lender's investment portfolio in connection with ratings issued with
respect to such Lender.
10.10 SET-OFF. In addition to any rights and remedies of the Lenders
provided by law and regardless of the adequacy of any of the Collateral, if an
Event of Default exists or the Loans have been accelerated, each Lender is
authorized at any time and from time to time, without prior notice to the
Company, any such notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or the
account of the Company against any and all Obligations owing to such Lender, now
or hereafter existing, irrespective of whether or not the Administrative Agent
or such Lender shall have made demand under this Agreement or any Loan Document
and although such Obligations may be contingent or unmatured. Each Lender
agrees promptly to notify the Company and the Administrative Agent after any
such set-off and application made by such Lender; PROVIDED, HOWEVER, that the
failure to give such notice shall not affect the validity of such set-off and
application.
10.11 AUTOMATIC DEBITS OF FEES. With respect to any commitment fee,
arrangement fee, or other fee, or any other cost or expense (including Attorney
Costs) due and payable to the Administrative Agent, BofA or the Arranger under
the Loan Documents, the Company hereby irrevocably authorizes BofA to debit any
deposit account of the Company with BofA in an amount such that the aggregate
amount debited from all such deposit accounts does not exceed such fee or other
cost or expense. If there are insufficient funds in such deposit accounts to
cover the amount of the fee or other cost or expense then due, such debits will
be reversed (in whole or in part, in BofA's sole discretion) and such amount not
debited shall be deemed to be unpaid. No such debit under this Section shall be
deemed a set-off.
10.12 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Lender shall
notify the Administrative Agent in writing of any changes in the address to
which notices to the Lender should be directed, of addresses of any Lending
Office, of payment instructions in respect of all payments to be made to it
hereunder and of such other administrative information as the Administrative
Agent shall reasonably request.
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<PAGE>
10.13 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.14 SEVERABILITY. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.15 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into
for the sole protection and legal benefit of the Company, the Lenders, the
Administrative Agent and the Agent-Related Persons, and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents.
10.16 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE
STATE OF ILLINOIS (WITHOUT REGARD TO CONFLICTS OF LAWS PROVISIONS THEREOF);
PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE
ADMINISTRATIVE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE
COMPANY, THE ADMINISTRATIVE AGENT AND THE LENDERS IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE ADMINISTRATIVE
AGENT AND THE LENDERS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS
LAW.
10.17 WAIVER OF JURY TRIAL. THE COMPANY, THE LENDERS AND THE
ADMINISTRATIVE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
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<PAGE>
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE
LENDERS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING
THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A
TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
10.18 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Lenders and the Administrative Agent, and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
[signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
TELETECH HOLDINGS, INC.
By: /s/ Kenneth Tuchman
-----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ David A. Johanson
-----------------------------------------
Title: Vice President
----------------------------------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as a Lender
By: /s/ Steve Standbridge
-----------------------------------------
Title: Senior Vice President
----------------------------------------
FIRST UNION NATIONAL BANK, individually and as Co-Agent
By: /s/ David C. Hanglid
-----------------------------------------
Title: Vice President
----------------------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
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<PAGE>
U.S. BANK NATIONAL ASSOCIATION, individually and as Co-Agent
By: /s/ Joni M. Fish
-----------------------------------------
Title: Vice President
----------------------------------------
WELLS FARGO BANK N.A., individually and as Co-Agent
By: /s/ Nancy S. Martorano
-----------------------------------------
Title: Vice President
----------------------------------------
FLEET NATIONAL BANK
By: /s/ Jeff Lynch
-----------------------------------------
Title: Senior Vice President
----------------------------------------
[SIGNATURES CONTINUED FROM PRECEDING PAGE]
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SCHEDULE 2.01
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Lender Commitment Share
------ ---------- --------
<S> <C> <C>
Bank of America
National Trust and
Savings Association $ 12,000,000 24%
First Union National Bank $ 9,500,000 19%
Fleet National Bank $ 9,500,000 19%
U.S. Bank National Association $ 9,500,000 19%
Wells Fargo Bank N.A. $ 9,500,000 19%
TOTAL $50,000,000 100%
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
February 26, 1998 between TeleTech Holdings, Inc., a Delaware corporation
(collectively with its subsidiaries, "TeleTech"), and Morton H. Meyerson
("Employee").
W I T N E S S E T H:
WHEREAS, TeleTech is engaged in the business of, among other things,
providing customer care solutions on an outsourced or facilities management
basis, primarily over the telephone and the Internet, using state-of-the-art
computer and software systems, telephony integration and interactive voice
response systems (collectively, the "BUSINESS");
WHEREAS, TeleTech desires to employ Employee, and Employee desires to all
as more fully described and subject to the terms and conditions set forth
herein;
WHEREAS, in consideration of TeleTech's employment of Employee, the
terms, conditions and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Employee and TeleTech agree to execute and be bound by this Agreement; and
WHEREAS, Employee has had an opportunity to review the terms and
conditions of this Agreement, to negotiate the terms hereof and to engage
independent legal counsel on his behalf.
NOW THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. SCOPE OF EMPLOYMENT. TeleTech hereby employs Employee to provide,
and Employee accepts employment with TeleTech and agrees to provide, advisory
and on-going consulting services including, among other things, (a) strategic
planning and advice regarding general management and operational matters, (b)
the identification, hiring and compensation of senior level management, (c)
the identification, contact and initiation of relationships with potential
clients, technology suppliers and venture partners, and (d) such other
matters as TeleTech's Chief Executive Officer may reasonably request from
time to time (collectively, the "Services"). Employee agrees to devote such
time and effort as may be necessary to adequately and properly perform the
Services, as agreed by TeleTech and Employee; however, Employee is employed
as and shall remain a part-time employee of TeleTech.
2. COMPENSATION. In consideration of TeleTech's employment of Employee
hereunder, TeleTech shall grant to Employee a Non-qualified Stock Option with
respect to up to 365,744 shares
<PAGE>
which shall enable Employee (pursuant to the terms hereof and thereof) to
retain net of exercise consideration and withholding tax up to 200,000 shares
of TeleTech's common stock, par value $.01 per share, at an exercise price of
$9.50 per share (the "Option"). The Option shall be subject to the terms and
conditions of the TeleTech Holdings, Inc. Stock Plan, as Amended and
Restated, and as it may hereafter be amended (the "Stock Plan"), and the
Non-qualified Stock Option Agreement, in the form attached hereto as EXHIBIT
A (the "Option Agreement"), to be executed concurrently with the execution of
this Agreement.
3. EXPENSES. TeleTech shall reimburse Employee for travel and
out-of-pocket expenses actually and reasonably incurred by Employee in
rendering the Services hereunder, subject to the approval of the Chairman of
the Board of Directors of TeleTech.
4. TERM AND TERMINATION. This Agreement shall commence on the date
hereof and shall continue for ten years from the date hereof; PROVIDED
HOWEVER that either party may terminate this Agreement upon 30 days' prior
written notice to the other party.
5. CONFIDENTIAL INFORMATION.
(a) Employee acknowledges that he will occupy a position of trust
with TeleTech and that, as part of his employment, Employee will have access
to or obtain certain Confidential Information (as defined herein). Employee
acknowledges and agrees that (i) any and all Confidential Information
obtained by Employee is the property of TeleTech and its affiliates and (ii)
he shall not use or disclose, directly or indirectly, any Confidential
Information to any person, other than such authorized personnel or agents of
TeleTech or Employee as may be necessary for Employee's proper performance of
the Services. Employee shall return to TeleTech, promptly upon termination
of this Agreement or otherwise upon the request of TeleTech, all copies of
any books, papers, documents, files or other materials containing or
embodying any Confidential Information. The provisions of this Section 5
shall survive termination of this Agreement for any reason.
(b) "Confidential Information" means all information, know-how,
systems and procedures of a technical, business or financial nature developed
or owned by or relating to the Business, including but not limited to all
ideas, concepts, experimental and research data; computer software, data
bases, files, documentation and related materials; service techniques and
protocols, business and marketing plans; information relating to financial
information, pricing, margins, call volumes, cost and sales information;
contractual arrangements, advertising and promotions, market research data,
client lists and other information about TeleTech's actual and prospective
employees, clients, suppliers and competitors; patents and patent
2
<PAGE>
applications, inventions and improvements (whether patentable or not),
development projects, designs, practices, processes, methods and techniques;
and all other trade secrets and information of a confidential and proprietary
nature.
6. NON-SOLICITATION AND NON-INTERFERENCE. Employee acknowledges that
TeleTech has invested substantial time and effort in assembling its present
staff and agrees that, so long as this Agreement is in effect and for a
period of 24 months thereafter, he shall not (irrespective of the time,
manner or cause of termination of this Agreement), either directly or
indirectly solicit, attempt to solicit or cause the solicitation or attempted
solicitation of any employee of TeleTech respectively, to leave his or her
employment and accept employment with Employee or any other person.
7. REASONABLENESS OF SCOPE; INJUNCTIVE RELIEF.
(a) Employee agrees that the restrictions contained in Section 6 are
reasonable as to time and geographic scope because of the nature of the
Business.
(b) Employee acknowledge that damages would be an inadequate remedy
for Employee's breach of any of the provisions of Sections 5 or 6 and that
any breach thereof will result in immeasurable and irreparable harm to
TeleTech. Therefore, in addition to any other remedy to which TeleTech may
be entitled by reason of Employee's breach or threatened breach of any such
provision, TeleTech shall be entitled to seek and obtain a temporary
restraining order, a preliminary and/or permanent injunction, or any other
form of equitable relief from any court of competent jurisdiction restraining
Employee from committing or continuing any breach of Section 5 or 6 without
the necessity of posting a bond. It is further agreed that the existence of
any claim or cause of action on the part of Employee against TeleTech,
whether arising from this Agreement or otherwise, shall in no way constitute
a defense to the enforcement of the provisions of this Section 7.
8. INDEMNIFICATION. TeleTech agrees to indemnify and hold harmless
Employee with respect to any claims or liabilities (including reasonable
costs and expenses incurred in defending such claims or liabilities,
including without limitation reasonable attorney's fees) that may be asserted
or imposed against any Employee arising out of, relating to or in connection
with the performance of the Services hereunder, except for any such claims
that may be asserted or liabilities that may be imposed by virtue of
Employee's gross negligence or willful misconduct.
9. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been
3
<PAGE>
made upon the earliest to occur of (a) receipt, if made by personal service,
(b) two days after delivery to a reputable overnight courier service, (c)
upon the delivering party's receipt of a written confirmation of a
transmission made by facsimile, or (d) five days after being mailed by
registered or certified air mail (postage prepaid, return receipt requested).
All notices and other communications hereunder to (i) TeleTech shall be sent
to its principal executive offices, to the attention of its Chief Executive
Officer, and (ii) Employee shall be sent to his home address as then recorded
on the books of TeleTech.
10. GOVERNING LAW. This Agreement shall be governed as to its validity
and effect by the laws of the State of Colorado, without regard to its choice
of law rules.
11. ARBITRATION. Any and all disputes arising out of or in any way
relating to this Agreement, the Option and/or the Option Agreement will be
decided by arbitration in Denver, Colorado by a single arbitrator who shall
be a retired judge of the federal or State district courts of Colorado, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. Discovery shall be limited to reasonable document requests.
All documents so requested shall be produced within 10 days after the
requests are made. The arbitrator's decision shall be final and binding, and
shall be enforceable upon the parties by any court of competent jurisdiction.
The prevailing party shall be entitled to an award of fees and costs.
12. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by any
party without the prior written consent of all other parties; PROVIDED,
HOWEVER, that this Agreement shall be binding upon and shall inure to the
benefit of the heirs, executors and legal representatives of Employee, upon
Employee's death, and any successor of TeleTech.
13. INTEGRATION. This Agreement and the Option Agreement constitute the
entire agreement between the parties with respect to the matters that are the
subject hereof and supersede all prior oral or written understandings and
agreements relating to its subject matter.
14. NO MODIFICATION. This Agreement may be modified only by a written
instrument executed by the parties, which is designated as an amendment to
this Agreement.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
16. SEVERABILITY. Any provision of this Agreement (or any portion
thereof) that is deemed invalid, illegal or unenforceable
4
<PAGE>
in any jurisdiction shall, as to that jurisdiction, 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. If any covenant should be deemed
invalid, illegal or unenforceable because its scope is considered excessive,
such covenant shall be modified so that the scope of the covenant is reduced
only to the minimum extent necessary to render the modified covenant valid,
legal and enforceable.
[Signature Page Follows]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TELETECH HOLDINGS, INC.
By: /s/ Steven B. Coburn
------------------------------
Name: Steven B. Coburn
Title: Chief Financial Officer
/s/ Morton H. Meyerson
---------------------------------
Morton H. Meyerson
6
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES OF
TELETECH HOLDINGS, INC.
<TABLE>
<CAPTION>
Name of Subsidiary * Jurisdiction of Incorporation
-------------------- -----------------------------
<S> <C> <C>
1. T-TEC Labs, Inc. [fka TeleTech (Technology Development and
Integration), Inc.].............................................. State of Delaware
(a) Digital Creators, Inc................................... State of Colorado
2. TeleTech Customer Care Management (California), Inc. [fka TeleTech
Telecommunications, Inc.]........................................ State of California
3. TeleTech Customer Care Management (Colorado), Inc. [fka TeleTech
Teleservices, Inc.].............................................. State of Colorado
4. EDM Electronic Direct Marketing Ltd.............................. Province of Ontario, Canada
5. TeleTech South America Holdings, Inc............................. State of Delaware
(a) Outsource Informatica Ltda.............................. Brazil
6. Cygnus Computer Associates Ltd................................... Province of Ontario, Canada
7. Telemercadeo Integral, S.A. de C.V............................... Mexico
8. TeleTech Services Corporation ................................... State of Colorado
(a) Access 24 Limited....................................... United Kingdom
(b) TeleTech Financial Services Management, Inc............. State of Delaware
(c) TeleTech Facilities Management (Postal Customer Support),
Inc. ................................................... State of Delaware
(d) TeleTech Facilities Management (Parcel Customer Support),
Inc. ................................................... State of Delaware
(e) TeleTech Health Services Management, Inc................ State of Delaware
(f) TeleTech Customer Care Management (West Virginia), Inc.. State of West Virginia
(g) TeleTech Customer Care Management (New York), Inc. ..... State of New York
(h) TeleTech Customer Care Management, Inc.................. State of Delaware
(i) TeleTech Customer Care Management (Pennsylvania), Inc... State of Pennsylvania
<PAGE>
<S> <C> <C>
(j) TeleTech Customer Care Solutions (Japan), Inc........... State of Delaware
(k) TeleTech Customer Care Management (General), Inc. [fka
Maxwell Leasing Company, Inc.].......................... State of Delaware
(l) TeleTech Customer Care Management (Telecommunications),
Inc..................................................... State of Delaware
(m) TeleTech Customer Care Management (Texas), Inc. ........ State of Texas
(n) TeleTech Customer Care Management (South America), Inc.. State of Delaware
(o) TeleTech Customer Care Management (GS), Inc............. State of Delaware
(p) TeleTech Financial Services Management (WV), Inc........ State of Delaware
(q) Pamet River, Inc........................................ State of Delaware
9. TeleTech International Pty Limited............................... New South Wales, Australia
(a) TeleTech Limited........................................ New Zealand
(b) High Performance Healthcare Limited..................... Queensland, Australia
10. TeleTech (UK) Limited............................................ United Kingdom
</TABLE>
- --------------------------
* Each of the subsidiaries conducts business under its legal corporate
name listed above.
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 8, 1999, included in this Form 10-K, into TeleTech
Holdings, Inc.'s previously filed Registration Statement File No. 333-17569 on
Form S-8, Registration Statement File No. 333-64575 on Form S-3 and Registration
Statement File No. 333-60001 on Form S-3.
/s/ Arthur Andersen LLP
Denver, Colorado
March 26, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TELETECH
HOLDINGS, INC.'S 1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,796
<SECURITIES> 37,082
<RECEIVABLES> 71,730
<ALLOWANCES> 2,900
<INVENTORY> 0
<CURRENT-ASSETS> 121,374
<PP&E> 115,978
<DEPRECIATION> 38,432
<TOTAL-ASSETS> 230,910
<CURRENT-LIABILITIES> 58,229
<BONDS> 6,353
0
9
<COMMON> 606
<OTHER-SE> 164,887
<TOTAL-LIABILITY-AND-EQUITY> 230,910
<SALES> 369,045
<TOTAL-REVENUES> 369,045
<CGS> 241,230
<TOTAL-COSTS> 337,307
<OTHER-EXPENSES> (1,429)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,270
<INCOME-PRETAX> 31,897
<INCOME-TAX> 12,695
<INCOME-CONTINUING> 19,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,202
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
