<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996
FILE NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
TELESPECTRUM WORLDWIDE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7389 23-2845501
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
443 SOUTH GULPH ROAD
KING OF PRUSSIA, PA 19406
(610) 962-5140
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
J. BRIAN O'NEILL
Chairman of the Board and Chief Executive Officer
TeleSpectrum Worldwide Inc.
443 South Gulph Road
King of Prussia, PA 19406
(610) 962-5140
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
THOMAS J. SHARBAUGH BARRY M. ABELSON
DAVID A. GERSON BRIAN M. KATZ
Morgan, Lewis & Bockius LLP Pepper, Hamilton & Scheetz
2000 One Logan Square 3000 Two Logan Square
Philadelphia, Pennsylvania 19103- 18th & Arch Streets
6993 Philadelphia, Pennsylvania 19103-
(215) 963-5000 2799
(215) 981-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, par value
$.01 per share........ 12,354,614 shares $17.50 $216,205,745 $74,555
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 1,611,471 shares that may be issued upon the exercise of an over-
allotment option.
(2) Estimated solely for the purpose of calculating the registration fee;
based on a bona fide estimate of the maximum offering price of the
securities being registered in accordance with Rule 457.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY PART I
OF FORM S-1
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
-------- ------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front and Outside Back Cover
Pages
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges.. Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds............. Prospectus Summary; Use of Proceeds
5. Determination of Offering
Price...................... Underwriting
6. Dilution.................... Dilution
7. Selling Security Holders.... Principal and Selling Stockholders
8. Plan of Distribution........ Outside Front Cover Page; Underwriting
9. Description of Securities to
be Registered.............. Description of Capital Stock
10. Interests of Named Experts
and Counsel................ Not applicable
11. Information with Respect to
the Registrant............. Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization;
Selected Pro Forma Combined Financial
Data; Selected Financial Data of
Operating Businesses; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Shares Eligible
for Future Sale; Index to Financial
Statements
12. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Not applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion
Dated May 23, 1996
10,743,143 Shares
TELESPECTRUM WORLDWIDE INC.
Common Stock
(par value $.01 per share)
Of the 10,743,143 shares of Common Stock, par value $.01 per share ("Common
Stock"), offered hereby, 10,286,000 shares are being sold by TeleSpectrum
Worldwide Inc., a Delaware corporation (the "Company"), and 457,143 shares are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of Common Stock by the Selling Stockholders.
Prior to the Offering, there has been no public market for the Common Stock of
the Company. It is currently anticipated that the initial public offering price
will be between and per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price of the Common Stock.
The Company has applied to have the Common Stock approved for quotation and
trading on The Nasdaq National Market under the proposed symbol "TLSP."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED
BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS PROCEEDS TO
PRICE TO UNDERWRITING TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------
Total(3) $ $ $ $
- --------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $2,100,000.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 1,611,471 shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock being offered by this Prospectus are offered by the
Underwriters, subject to prior sale, when, as and if delivered to and accepted
by the Underwriters, and subject to approval of certain legal matters by
Pepper, Hamilton & Scheetz, counsel for the Underwriters. It is expected that
delivery of such shares will be made against payment therefor on or about ,
1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York,
New York.
J.P. MORGAN & CO.
DILLON, READ & CO. INC.
LEGG MASON WOOD WALKER
INCORPORATED
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1996
<PAGE>
[INSIDE COVER ART]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Stock in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Stockholders or any Underwriter that would permit a public offering of
the Common Stock or possession or distribution of this Prospectus in any
jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are required
by the Company and the Underwriters to inform themselves about and to observe
any restrictions as to the offering of the Common Stock and the distribution of
this Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 4
Risk Factors........................ 9
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Pro Forma Combined
Financial Data..................... 18
Selected Financial Data of the
Operating Businesses............... 22
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ............. 25
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Business........................... 42
Management......................... 51
Certain Relationships and Related
Party Transactions................ 58
Principal and Selling Stockhold-
ers............................... 64
Description of Capital Stock....... 66
Shares Eligible for Future Sale.... 67
Underwriting....................... 68
Legal Matters...................... 69
Experts............................ 69
Additional Information............. 70
Index to Financial Statements...... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent public accountants
and quarterly reports containing unaudited consolidated financial statements
for each of the first three quarters of each fiscal year.
3
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with the closing of the offering made by this Prospectus (the
"Offering"), TeleSpectrum Worldwide Inc. will acquire, in separate transactions
(the "Acquisitions") in exchange for cash and shares of its Common Stock, a
number of telemarketing, market research and direct mail and fulfillment
businesses (collectively, the "Operating Businesses"). Unless otherwise
indicated, all references herein to the "Company" include the Operating
Businesses after the effectiveness of the Acquisitions, and references herein
to "TeleSpectrum Worldwide" shall mean TeleSpectrum Worldwide Inc. prior to the
effectiveness of the Acquisitions.
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, all share, per share and financial information set forth
herein: (i) has been adjusted to give effect to the Acquisitions and a
8.510137-for-1 stock split to be effected through a stock dividend prior to the
consummation of the Offering; (ii) assumes an initial public offering price of
$17.50 per share; and (iii) assumes no exercise of the Underwriters' over-
allotment option. In addition, all references to years, unless otherwise noted,
refer to the Company's fiscal year, which ends on December 31.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
TeleSpectrum Worldwide was founded in April 1996 to create a national provider
of integrated teleservices solutions. With the capabilities of the Operating
Businesses, the Company can offer its clients complete direct marketing
solutions that build upon a foundation of outbound and inbound telemarketing
and include inbound customer service, market research, direct mail and
fulfillment and other direct marketing services. The Company operates over
1,500 workstations in 20 call centers located primarily in the eastern United
States. The Company focuses on providing teleservices to major clients in the
telecommunications, insurance, financial services, pharmaceuticals and
healthcare, consumer products and high technology industries. The Company's
1995 pro forma revenues were $88.0 million.
The teleservices industry facilitates the direct communication of marketing
information to and from current and prospective customers by telephone. Direct
marketing methods, such as telemarketing and direct mail, employ a "one-to-one"
approach to deliver a marketing message directly to a specific current or
prospective customer and to elicit immediate customer response. As businesses
seek greater returns from their investments in marketing activities, they are
increasingly coupling traditional indirect marketing methods such as
advertising with direct marketing methods such as telemarketing. Advances in
computer and telecommunications technology are helping telemarketers to more
accurately identify and contact prospective customers, and are providing call
center representatives ("CCRs") with more complete on-line guidance and
support. Improvements in the scale and speed of computer and telecommunications
networking capabilities allow teleservices providers to implement larger and
more complex programs for their clients. As the trend toward outsourcing
continues, the Company believes that businesses will increasingly seek to
reduce the number of vendors they utilize, and may prefer single-source
providers of integrated solutions drawing upon a variety of related
teleservices capabilities. Moreover, the Company believes that further
opportunities may emerge for an integrated teleservices provider that can
assemble and offer other value-added teleservices, such as inbound customer
service, market research, direct mail and fulfillment, training, consulting,
call center management and electronic order processing. See "Business--Industry
Overview" and "--Competition."
4
<PAGE>
The Company's goal is to become the premier national provider of integrated
teleservices solutions. To attain this goal, the Company intends to provide a
single source for complete, integrated solutions to its clients' direct
marketing and customer service needs, establish long-term relationships with
major clients, add new clients in its targeted industries and pursue strategic
acquisitions that will enable the Company to broaden its market reach. See
"Business--Strategy" and "--Sales, Marketing and Clients."
The Company is being formed by the Acquisitions of substantially all of the
assets of the following Operating Businesses from the entities described below
and their affiliates (the "Sellers"):
The SOMAR Business ("SOMAR")--Headquartered in Salisbury, North Carolina,
SOMAR, Inc. operates 686 workstations in seven call centers located in North
Carolina and West Virginia. SOMAR currently focuses on outbound services and
has a diverse portfolio of clients in the insurance, financial services,
telecommunications and retail industries.
The NBG Business ("NBG")--Headquartered in Cambridge, Massachusetts, NBG
Services, Inc. operates 240 workstations in six call centers located in
Massachusetts and Arizona. NBG provides outbound telemarketing services to
clients in the high technology, financial services and telecommunications
industries. NBG also provides market research, database development and account
management services.
The Harris Businesses ("Harris")--Harris Direct Marketing, Inc. ("HDM"),
headquartered in Philadelphia, Pennsylvania, and Harris Fulfillment, Inc.
("HFI"), headquartered in King of Prussia, Pennsylvania, comprise a regional
vertically-integrated direct mail and fulfillment organization. Harris provides
its services primarily to companies in the pharmaceuticals and healthcare,
financial services and insurance industries. In addition, Harris operates an
automated inbound call center to provide fulfillment services to a client in
the pharmaceuticals and healthcare industry.
The Reich Business ("Reich")--Headquartered in Philadelphia, Pennsylvania, The
Reich Group, Inc. and its affiliates comprise a fully-integrated direct
marketing company with expertise in strategic planning, marketing,
telemarketing and database development services. Reich, which operates 344
workstations in three call centers, specializes in providing services to
companies in the financial services, telecommunications and insurance
industries.
The TeleSpectrum Business ("TeleSpectrum")--Headquartered in Annapolis,
Maryland, TeleSpectrum, Inc. provides inbound and outbound telemarketing and
fulfillment services. TeleSpectrum operates 134 workstations in two call
centers and focuses on providing inbound customer services to companies in the
high technology, pharmaceuticals and healthcare and consumer products
industries. In addition, TeleSpectrum's affiliate provides call center
management outsourcing and telemarketing consulting and training services for
businesses.
The Response Center Business ("The Response Center")--Headquartered in Upper
Darby, Pennsylvania, The Response Center, Inc. and its affiliate provide custom
market research, data tabulation, analysis and consulting, principally to
clients in the telecommunications, financial services, utilities and
pharmaceuticals and healthcare industries. The Response Center operates 130
workstations in one call center.
The Company maintains its principal executive offices at 443 South Gulph Road,
King of Prussia, Pennsylvania 19406, and has facilities in Arizona, California,
Delaware, Maryland, Massachusetts, North Carolina, Pennsylvania and West
Virginia. The telephone number of its principal executive offices is (610)-962-
5140. See "Business--TeleSpectrum Worldwide Facilities."
5
<PAGE>
THE OFFERING
COMMON STOCK OFFERED:
<TABLE>
<S> <C>
By the Company....................... 10,286,000 shares
By the Selling Stockholders.......... 457,143 shares
TOTAL OFFERING(1) ..................... 10,743,143 shares
COMMON STOCK OUTSTANDING AFTER THE
OFFERING(2)(3)........................ 23,200,000 shares
USE OF PROCEEDS BY THE COMPANY......... To pay the cash portion of the
purchase price for the Operating
Businesses, to repay indebtedness
assumed in connection with the
Acquisitions, to make certain capital
expenditures and to fund general
corporate purposes, including working
capital and possible acquisitions. See
"Use of Proceeds."
DIVIDEND POLICY........................ The Company intends to retain its
earnings to fund development of its
business and does not anticipate
paying cash dividends in the
foreseeable future. See "Dividend
Policy."
RISK FACTORS........................... For a discussion of certain
considerations relevant to an
investment in the Common Stock, see
"Risk Factors."
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL................................ "TLSP"
</TABLE>
- --------
(1)Assumes that the Underwriters' over-allotment option for up to 1,611,471
shares of Common Stock is not exercised. See "Underwriting."
(2)Includes 4,403,863 shares of Common Stock to be issued in connection with
the closing of the Acquisitions. Excludes additional shares of Common Stock
which may be issued to three of the Sellers pursuant to earn-out arrangements.
See "Certain Relationships and Related Party Transactions--The Acquisitions."
(3)Excludes 1,281,100 shares of Common Stock issuable upon the exercise of
options to be granted on the date of this Prospectus in connection with the
closing of the Acquisitions under the TeleSpectrum Worldwide Inc. 1996 Equity
Compensation Plan (the "1996 Stock Incentive Plan") and 593,400 shares of
Common Stock issuable upon the exercise of warrants to be granted on the date
of this Prospectus. All of such options and warrants have a per share exercise
price equal to the initial public offering price. Also excludes 400,000 shares
that would be issuable upon the exercise of options that the Company is to
grant, pursuant to employment agreements with two of its executive officers,
ratably over the course of the next four years. As of the date of this
Prospectus, 1,018,900 additional shares are reserved for future issuance under
the 1996 Stock Incentive Plan (618,900 shares, if all of the options to be
granted to two of its executive officers over the next four years were to be
granted). See "Certain Relationships and Related Party Transactions--The
Acquisitions" and "Management--Employment Agreements" and "--1996 Stock
Incentive Plan."
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
TeleSpectrum Worldwide will acquire, simultaneously with and as a condition to
the consummation of the Offering, the Operating Businesses. These Acquisitions
will be recorded using the purchase method of accounting. The Summary Pro Forma
Combined Financial Data assume the consummation of the Acquisitions and the
consummation of the Offering. See "Certain Relationships and Related Party
Transactions--The Acquisitions," "Pro Forma Combined Financial Statements" and
"Notes to Pro Forma Combined Financial Statements."
<TABLE>
<CAPTION>
--------------------------------------------
PRO FORMA
--------------------------------------------
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1995 1995 1996
Dollars in thousands, except per share data ------------ -------------- --------------
<S> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA(1):
Revenues $ 87,954 $ 20,391 $ 26,470
Cost of services 59,596 13,004 18,441
Selling, general and
administrative expense(2) 16,921 4,223 4,921
Goodwill amortization(3) 5,524 1,381 1,381
----------- -------------- --------------
Operating income 5,913 1,783 1,727
Interest income 158 15 61
Interest expense(4) (94) (22) (22)
----------- -------------- --------------
Income before income taxes 5,977 1,776 1,766
Income taxes(5) 2,510 746 742
----------- -------------- --------------
Net income $ 3,467 $ 1,030 $ 1,024
----------- -------------- --------------
Net income per share(6) $ 0.15 $ 0.04 $ 0.04
=========== ============== ==============
Shares used in computing pro
forma net income per share (6) 23,200,000 23,200,000 23,200,000
----------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------
MARCH 31, 1996
PRO FORMA,
AFTER INITIAL PRO FORMA,
CAPITALIZATION(7) AS ADJUSTED(1)
Dollars in thousands ----------------- --------------
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents $ 1,610 $ 60,657
Working capital 2,110 68,959
Goodwill -- 138,109
Total assets 2,110 234,230
Long-term debt, less current maturities -- --
Stockholders' equity 2,110 222,448
</TABLE>
- --------
(1)Assumes that the closings of the Acquisitions and the Offering had occurred
as of January 1, 1995, in the case of the pro forma statement of income data,
and as of March 31, 1996, in the case of the pro forma balance sheet data. The
pro forma combined financial data are based upon preliminary estimates,
available information and certain assumptions that management deems
appropriate. The pro forma combined financial data presented herein are not
necessarily indicative of the results the Company would have obtained had such
events occurred at the beginning of the period or of the future results of the
Company. The pro forma combined financial data should be read in conjunction
with the other financial data and notes thereto included elsewhere in this
Prospectus.
7
<PAGE>
(2)Includes a pro forma adjustment to reflect reduced officers' compensation
expense of the Operating Businesses based upon employment agreements to be
entered into upon the closing of the Acquisitions. Does not reflect costs
(which will be significant) related to employment arrangements with other
executive officers of TeleSpectrum Worldwide or corporate expenses related to
being a public company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Management--Executive Compensation"
and "--Employment Agreements."
(3)Represents a pro forma adjustment to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions.
(4)Includes a pro forma adjustment to reflect the elimination of interest
expense resulting from the reduction of debt paid from the net proceeds of the
Offering.
(5)Includes a pro forma adjustment to calculate the provision for income taxes
on the pro forma combined results at an effective tax rate of 42.0%.
(6)Computed on a basis described in Note 5 of Notes to Pro Forma Combined
Financial Statements.
(7)Includes a pro forma adjustment to reflect a $2.1 million capital
contribution by CRW Financial, Inc. ("CRW Financial") to TeleSpectrum Worldwide
(of which $1.6 million was contributed in the form of cash and $0.5 million was
contributed in the form of a promissory note from the Seller of the
TeleSpectrum Operating Business held by CRW Financial). This contribution was
made on May 22, 1996 (the "Initial Capitalization"), at which time TeleSpectrum
Worldwide was a wholly owned subsidiary of CRW Financial. See "Certain
Relationships and Related Party Transactions--The Acquisitions" and "--CRW
Transactions--Initial Capitalization."
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following factors
should be considered carefully by prospective investors in evaluating the
Company and its business before purchasing shares of Common Stock offered
hereby.
ABSENCE OF COMBINED OPERATING HISTORY
TeleSpectrum Worldwide was founded in April 1996 and has conducted no
operations to date. TeleSpectrum Worldwide has entered into agreements to
acquire the Operating Businesses simultaneously with the consummation of the
sale of the shares of Common Stock offered hereby. The Operating Businesses
have been operating independently and the Company may not be able to
successfully integrate these businesses and their disparate operations,
employees and management. In connection with the Acquisitions, three of the
Sellers and certain of the executives of the Operating Businesses may receive
earn-outs and bonuses based upon the performance of that Operating Business,
and certain of the Acquisition agreements require the Company to maintain the
separate existence of certain of the Operating Businesses pending completion of
earn-out arrangements. Such provisions may delay the integration by the Company
of the Operating Businesses and therefore may adversely impact the Company's
business, financial condition and results of operations. The Company's
management group has been assembled only recently and the management control
structure is still in its formative stages. Management may not be able to
oversee the combined entity and implement effectively the Company's operating
strategies. See "Certain Relationships and Related Party Transactions--The
Acquisitions," "Business--The Operating Businesses" and "Management."
POTENTIAL INABILITY TO MANAGE GROWTH
The Operating Businesses have expanded significantly in the past several years
and this expansion will place demands on the Company's administrative,
operational and financial resources. Any continued growth of the Company's
client base and its services could place an additional strain on the capacity,
management and operations of the Company and the Operating Businesses. The
Company's future performance and profitability will depend in part on its
ability to successfully implement improved financial and management systems, to
add capacity as and when needed and to hire qualified personnel to respond to
changes in its business. The failure to implement such systems, add any such
capacity or hire such qualified personnel may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RELIANCE ON MAJOR CLIENTS AND KEY INDUSTRIES
It is anticipated that a significant portion of the Company's revenues will be
derived from relatively few clients. The Company's ten largest clients in 1995
accounted for approximately 56.4% of the Company's 1995 pro forma revenues. In
addition, each of the Company's Operating Businesses is substantially dependent
on one or a limited number of clients. Certain of the clients of the Operating
Businesses compete with one another, and the Company cannot assure that
competing clients will not realign their outsourcing needs after the
Acquisitions so as to avoid potential or perceived conflicts. The Company's
contracts with its clients can generally be canceled by the client upon
relatively short notice. Moreover, the Company does not believe that it is the
sole or primary source for any of the services rendered to those clients which
utilize a number of other teleservices organizations. The loss of one or more
of its major clients could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview" and "Business--Sales, Marketing and Clients."
In addition, the Company's future prospects are dependent in large part upon
continued demand from the industries primarily served by the Company. A
significant downturn in the demand for teleservices generally, and particularly
from clients in the insurance, financial services, pharmaceuticals and
healthcare, telecommunications, consumer products or high technology
industries, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business."
9
<PAGE>
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of the Company's strategy is to pursue strategic acquisitions that
either expand or complement the Company's business. The Company may not be able
to identify additional attractive acquisition candidates on terms favorable to
the Company or in a timely manner. Acquisitions involve a number of special
risks, including the diversion of management's attention to the assimilation of
the operations and personnel of the acquired companies, adverse short-term
effects on the Company's operating results and the potential inability to
integrate financial and management reporting systems. A significant portion of
the Company's capital resources, including any remaining balance of the net
proceeds of this Offering, could be used for these acquisitions. The Company
may require additional debt or equity financing for future acquisitions, which
may not be available on terms favorable to the Company, if at all. Moreover,
the Company may not be able to successfully integrate any acquired business
into the Company's business or to operate any acquired business profitably. See
"Business--Strategy--Pursue Strategic Acquisitions" and "Use of Proceeds."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Operating Businesses have in the past experienced, and the Company could in
the future experience, quarterly variations in revenues, operating income and
cash flow as a result of many factors, including the timing and magnitude of
clients' marketing campaigns and customer service programs, the opening of new
call centers, the loss of a major client, weather-related interruptions,
additional selling, general and administrative expenses to acquire and support
new business, the timing and magnitude of required capital expenditures and
changes in the revenue mix among the Company's various service offerings or in
the relative contribution of the several Operating Businesses. In connection
with certain contracts, the Company could incur costs in periods prior to
recognizing revenues under those contracts. In addition, the Company must plan
its operating expenditures based on revenue forecasts, and a revenue shortfall
below such forecasts in any quarter would likely adversely affect the Company's
operating results for that quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
POSSIBLE DECLINE IN EFFECTIVENESS OF TELEMARKETING
The Company derives its revenues primarily from telemarketing activities.
Although the telemarketing industry has grown significantly in the last ten
years, advances in new forms of direct marketing, such as the development of
interactive commerce through television, computer networks (including the
Internet) and other media, could have an adverse effect on the demand for
teleservices as a form of direct marketing. As the industry continues to grow,
telemarketing's effectiveness as a direct marketing tool may also decrease as a
result of consumer saturation and consumer resistance to telemarketing
generally. Although the Company attempts to monitor industry trends and respond
accordingly, the Company may not be able to anticipate and successfully respond
to such trends in a timely manner.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent upon the efforts of the senior
management of the Operating Businesses, as well as J. Brian O'Neill, Chairman
of the Board and Chief Executive Officer, Michael C. Boyd, President and Chief
Operating Officer, Richard C. Schwenk, Jr., Senior Vice President and Chief
Financial Officer, and William F. Rhatigan, who is to be President of the
Company's Telemarketing Division following consummation of the Offering.
Although Mr. O'Neill intends to devote the majority of his time to the
Company's business, he is also Chairman of the Board and Chief Executive
Officer of CRW Financial, a principal stockholder of the Company, and is
required to devote a substantial amount of time to those duties. The Company
will likely also be dependent on the senior management of companies that may be
acquired in the future. If any of these executives become unable to continue in
or devote adequate time to their present roles, or if the Company is unable to
attract and retain other skilled management personnel, the Company's business,
results of operations and financial condition could be adversely affected. See
"Management." The Company does not maintain any policies of key person life
insurance on the lives of any of its senior management personnel.
10
<PAGE>
DEPENDENCE ON LABOR FORCE
Teleservices are labor-intensive and often characterized by high personnel
turnover. Unskilled and semi-skilled employees typically work part-time and
receive relatively modest hourly wages; skilled or licensed employees commonly
work full-time and command higher wages. Some of the Company's telemarketing
activities, particularly insurance product sales and inbound customer service,
require highly-trained employees. A high turnover rate among the Company's
employees would increase the Company's recruiting and training costs, and if
the Company were unable to recruit and retain a sufficient number of employees,
it would be forced to limit its growth or possibly curtail its operations. In
certain markets, the Company competes for qualified personnel with other
teleservices providers, and periodically is required to pay premium hourly
wages to attract and retain personnel. The Company may be unable to continue to
hire and retain a sufficient number of qualified personnel, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Personnel and Training."
RELIANCE ON TECHNOLOGY
The Operating Businesses have invested significant resources in sophisticated
telecommunications and computer technology, including universal workstations,
predictive dialers, automated call distributors, digital switches and computer
systems. The Company anticipates that it will be necessary to continue
investing in technology. The Company may not be successful in anticipating
technological changes or in selecting and developing new and enhanced
technology on a timely basis. In addition, the temporary or permanent loss of
telecommunications, computer equipment or software, through casualty or
operating malfunction, could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--The
Operating Businesses."
The telecommunications and computer systems of the Operating Businesses contain
certain incompatible software and hardware systems. Accordingly, it may not be
feasible to integrate such systems and any attempt to do so may cause
disruptions which could delay or prevent the Company from realizing any
benefits that might be derived from integration, such as the elimination of
duplicate functions and the facilitation of capacity shifting. Such disruptions
could have a material adverse effect on the Company.
POSSIBLE ADVERSE IMPACT OF GOVERNMENT REGULATION
The telemarketing industry has become subject to an increasing amount of
federal and state regulation during the past five years. The federal Telephone
Consumer Protection Act of 1991 limits the hours during which telemarketers may
call consumers and prohibits the use of automated telephone dialing equipment
to call certain telephone numbers. The federal Telemarketing and Consumer Fraud
and Abuse Prevention Act of 1994 (the "TCFAPA") broadly authorizes the Federal
Trade Commission (the "FTC") to issue regulations prohibiting
misrepresentations in telemarketing sales. The FTC's new telemarketing sales
rules prohibit misrepresentations of the cost, terms, restrictions, performance
or duration of products or services offered by telephone solicitation, prohibit
a telemarketer from calling a consumer when that consumer has instructed the
telemarketer not to contact him or her, prohibit a telemarketer from calling
prior to 8:00 a.m. or after 9:00 p.m. and specifically address other perceived
telemarketing abuses in the offering of prizes and the sale of business
opportunities or investments. While the FTC's new rules have not caused the
Operating Businesses to alter their operating procedures, additional federal or
state consumer-oriented legislation could limit the telemarketing activities of
the Company or its clients or significantly increase the Company's costs of
regulatory compliance.
Several of the industries served by the Company, particularly the insurance
industry, are subject to varying degrees of government regulation. Although
compliance with these regulations is generally the responsibility of the
Company's clients, the Company could be subject to a variety of enforcement or
private actions for its failure or the failure of its clients to comply with
such regulations. Employees of the Company who sell insurance products are
required to be licensed by various state insurance commissions and participate
in regular continuing education programs, many of which are currently provided
by the Company. This requires the Company to comply
11
<PAGE>
with the extensive regulations of these state commissions, and changes in these
regulations could materially increase the Company's operating costs. See
"Business--Government Regulation."
COMPETITION
The teleservices industry is extremely competitive and highly fragmented. The
Company competes with numerous independent direct marketing services firms,
some of which are larger than the Company, as well as the in-house
telemarketing, customer service, market research and direct mail and
fulfillment operations of many of its clients or potential clients. The
teleservices industry competes with other marketing tools, such as television,
radio, print and other advertising media, as well as electronic commerce media
such as the Internet. The Company's business, financial condition and results
of operations could be materially and adversely affected if additional
competitors with greater resources than the Company were to enter the industry,
or if the Company's clients were to choose to conduct more of their direct
marketing activities internally. See "Business--Competition."
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company currently estimates that the net proceeds of the Offering, together
with cash generated from operations, will be sufficient to finance its current
operations, potential obligations relating to the Acquisitions and planned
capital expenditure requirements at least through 1997. There can be no
assurance, however, that the Company will not be required to seek additional
capital at an earlier date. The Company may, from time to time, seek additional
funding through public or private financing, including equity financing. There
can be no assurance that adequate funding will be available as needed or, if
available, on terms acceptable to the Company. If additional funds are raised
by issuing equity securities, existing shareholders may experience dilution.
Insufficient funds may require the Company to scale back or eliminate some or
all of its teleservices offerings. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
POTENTIAL INFLUENCE OF EXISTING STOCKHOLDERS
After the sale of shares of Common Stock offered hereby, the Company's
executive officers, directors and 5% stockholders will own beneficially an
aggregate of approximately 53.5% of the outstanding shares of Common Stock
(approximately 50.2% if the Underwriters' over-allotment option is exercised in
full). In particular, CRW Financial will own approximately 36.7% of the
outstanding shares of Common Stock (approximately 34.3% if the Underwriters'
over-allotment option is exercised in full). J. Brian O'Neill, Chairman of the
Board and Chief Executive Officer of the Company, is the Chairman of the Board
and Chief Executive Officer of CRW Financial. The Company's officers, directors
and 5% stockholders if acting together would, and CRW Financial may, be able to
control the election of directors and matters requiring the approval of
stockholders of the Company. This concentration of ownership by existing
stockholders may also have the effect of delaying or preventing a change in
control of the Company. See "Principal and Selling Stockholders."
DEPENDENCE ON TELEPHONE AND POSTAL SERVICE
The Company's business is materially dependent upon service provided by various
local and long distance telephone companies and the United States Postal
Service. Rate increases imposed by these organizations will increase the
Company's operating expenses and adversely affect its operating results to the
extent that the Company is unable to pass the increases through to its clients.
Any significant interruption or capacity limitation in either service would
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Services Overview."
SHARES ELIGIBLE FOR FUTURE SALE
The 10,743,143 shares being sold in this Offering will be freely tradeable
unless acquired by affiliates of the Company. The market price of the Common
Stock could be adversely affected by the sale of substantial amounts of Common
Stock in the public market following the Offering.
12
<PAGE>
Simultaneously with the closing of this Offering, the Sellers will receive, in
the aggregate, 4,403,863 shares of Common Stock as a portion of the
consideration for their businesses; except for the 457,143 shares of Common
Stock to be sold by the Selling Stockholders, these shares are not being
offered by this Prospectus. The Company, each of its directors and officers,
and the holders of all of the shares of Common Stock and options or warrants to
purchase shares of Common Stock that are or will be outstanding prior to the
consummation of the Acquisitions have agreed with the Underwriters not to
offer, sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exercisable or exchangeable for such shares for a period of
180 days after the date of this Prospectus without the prior written consent of
J.P. Morgan Securities Inc. The holders of the shares of Common Stock and
warrants issued or to be issued in the Acquisitions have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exercisable or exchangeable for such
shares for a period of 360 days after the date of this Prospectus without the
prior written consent of J.P. Morgan Securities Inc. In connection with the
Acquisitions, the Company has granted certain stockholders the right to include
up to 3,946,720 shares of Common Stock in certain registrations of Common Stock
under the Securities Act of 1933, as amended (the "Securities Act"), effected
following consummation of the Offering. In addition, certain of such
stockholders have the right to demand or piggyback registration of all or a
portion of the shares of Common Stock that may be issued to them in payment of
the earn-out component of the purchase price for their Operating Businesses. In
connection with the CRW Lender Warrants and the CRW Management Warrants (each
as defined in "Certain Relationships and Related Party Transactions--CRW
Transactions--Initial Capitalization"), the Company has granted demand and
piggyback registration rights with respect to 2,272,562 shares of Common Stock
purchasable from CRW Financial upon exercise thereof. In addition, the Company
intends to file a registration statement under the Securities Act to register
initially an aggregate of 2,300,000 shares of Common Stock reserved for
issuance in connection with the 1996 Stock Incentive Plan. The issuance of
shares upon the exercise of options or warrants could result in the dilution of
the voting power of the shares of Common Stock purchased in the Offering and
could have a dilutive effect on earnings per share. None of the securities
described above was acquired in a transaction registered under the Securities
Act, and, accordingly, such securities may not be sold except in transactions
registered under the Securities Act or pursuant to an exemption from
registration. See "Certain Relationships and Related Party Transactions" and
"Shares Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has not been a public market for the Common Stock,
and there can be no assurance that an active trading market will develop and
continue after the Offering is completed or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price will be determined by negotiations between the Company
and the representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The trading price of the Common Stock could be subject to
significant fluctuations in response to introduction of new products or
services by competitors, variations in quarterly operating results, changes in
government regulations or market conditions affecting the teleservices and
direct marketing industries and other events or factors. In addition, the stock
market in the past has experienced significant price and value fluctuations,
which have not necessarily been related to corporate operating performance. The
volatility of the market could adversely affect the market price of the Common
Stock and the ability of the Company to raise equity in the public markets. See
"Underwriting."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Bylaws impose certain procedures and
limitations applicable to stockholders' meetings, proposal of business and
nomination of directors that could have the effect of making it more difficult
for a third party to acquire, or discouraging a third party from attempting to
acquire, control of the Company. Such provisions may limit the price that
certain investors may be willing to pay in the future for shares of the Common
Stock. These provisions may also reduce the likelihood of an acquisition of the
Company at a premium price by another person or entity. In addition, under the
Company's Certificate of Incorporation, the Board of Directors has the
authority to fix the rights and preferences of, and issue shares of, preferred
stock without further action of the stockholders. Therefore, preferred stock
could be issued, without stockholder approval, that could have voting,
13
<PAGE>
liquidation and dividend rights superior to that of existing stockholders. The
issuance of preferred stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders would receive dividend
payments and payments on liquidation, and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plan to issue any shares of preferred stock. See "Description of
Capital Stock."
DILUTION
After giving effect to the Acquisitions, the purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution of
$13.86 per share in the pro forma as adjusted net tangible book value of their
shares. See "Dilution." In the event the Company issues additional Common Stock
in the future, including shares which may be issued in connection with earn-out
arrangements relating to the Acquisitions or with future acquisitions,
purchasers of Common Stock in this Offering may experience further dilution in
the net tangible book value per share of the Common Stock.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting estimated underwriting discounts and other
offering expenses, all of which are payable by the Company, are estimated to be
approximately $165.3 million (approximately $191.5 million if the Underwriters'
over-allotment option is exercised in full), assuming an initial public
offering price of $17.50 per share. The Company will not receive any of the net
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The principal uses of such net proceeds to the Company are described below.
Consummation of Acquisitions
Approximately $90.9 million of the net proceeds will be used to pay the cash
portion of the aggregate purchase price for the Operating Businesses at closing
of the Acquisitions. See "Certain Relationships and Related Party
Transactions--The Acquisitions." In addition, approximately $3.5 million of the
net proceeds will be used to pay fees and expenses incurred in connection with
the negotiation and consummation of the Acquisitions.
Repayment of Indebtedness
An aggregate of approximately $14.9 million of the net proceeds will be used to
repay indebtedness of the Operating Businesses assumed in the Acquisitions. As
of March 31, 1996 the following indebtedness was to be repaid: SOMAR, $9.5
million; NBG, $1.2 million; Harris, $1.8 million; Reich, $0.7 million; and
TeleSpectrum, $1.7 million. See "Certain Relationships and Related Party
Transactions--The Acquisitions."
Capital Expenditures
Approximately $16.0 million of the net proceeds will be used to make certain
anticipated capital expenditures related to telephony equipment, computer
hardware and software and purchases in connection with the opening of new call
center facilities for SOMAR and TeleSpectrum. Of this amount, the Company is
committed to expend up to $14.0 million for the purpose of meeting SOMAR's
capital expenditure requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Certain Relationships and Related Party Transactions--The Acquisitions--
SOMAR."
Working Capital and General Corporate Purposes
The balance of the net proceeds, approximately $40.0 million (approximately
$66.2 million if the Underwriters' over-allotment option is exercised in full),
will be added to the Company's working capital and used for general corporate
purposes, including possible acquisitions and capital expenditures associated
with integrating the Operating Businesses. In addition, a portion of the net
proceeds may be used for closing purchase price adjustments in connection with
the Acquisitions and to pay that portion of the purchase price of certain
Acquisitions that is subject to earn-out arrangements. See "Certain
Relationships and Related Party Transactions--The Acquisitions." With the
exception of the Acquisitions, the Company is not currently involved in
negotiations and has no current commitments or agreements with respect to any
acquisitions, and no such acquisitions may ever be consummated.
Pending application of the net proceeds as described above, the Company intends
to invest the net proceeds in short-term investment grade securities.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future because it intends to retain its earnings, if any, to
finance the expansion of its business and for general corporate purposes. Any
payment of future dividends will be at the discretion of the Board of Directors
and will depend upon, among other factors, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other considerations
that the Company's Board of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March 31,
1996, on a pro forma basis reflecting the Initial Capitalization and on a pro
forma as adjusted basis to reflect (i) the sale of 10,286,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $17.50 per
share and the application of a portion of the estimated net proceeds therefrom
and (ii) the consummation of the Acquisitions and the issuance of 4,403,863
shares of Common Stock in connection therewith. See "Selected Financial Data of
the Operating Businesses" and "Use of Proceeds." This table should be read in
conjunction with the pro forma financial statements and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
-----------------------------
MARCH 31, 1996
PRO FORMA,
AFTER INITIAL PRO FORMA,
CAPITALIZATION AS ADJUSTED(1)
Dollars in thousands -------------- --------------
<S> <C> <C>
Long-term debt and capital lease obligations,
less current portion $ -- $ --
---------- ---------
Stockholders' equity:
Preferred stock, $.01 par value per share,
5,000,000 shares authorized, no shares issued
and outstanding -- --
Common stock, $.01 par value per share,
200,000,000 shares authorized, 8,510,137
shares issued and outstanding pro forma,
23,200,000 shares issued and outstanding pro
forma as adjusted 85 232
Additional paid-in capital 2,025 222,216
Retained earnings -- --
---------- ---------
Total stockholders' equity 2,110 222,448
---------- ---------
Total capitalization $ 2,110 $ 222,448
========== =========
</TABLE>
- --------
(1)Excludes additional shares of Common Stock which may be issued to three of
the Sellers pursuant to earn-out arrangements. Also excludes 1,874,500 shares
of Common Stock issuable upon the exercise of options and warrants to be
granted on the date of this Prospectus, with a per share exercise price equal
to the initial public offering price. As of the date of this Prospectus,
1,018,900 additional shares are reserved for future issuance under the 1996
Stock Incentive Plan (618,900 shares, if all of the options to be granted
ratably over the next four years to two executive officers of the Company
pursuant to their employment agreements were to be granted). See "Certain
Relationships and Related Party Transactions--The Acquisitions" and
"Management--1996 Stock Incentive Plan."
16
<PAGE>
DILUTION
The Company had a net tangible book value at March 31, 1996, on a pro forma
basis reflecting the Initial Capitalization, of $2,110,000, or $0.25 per share
of Common Stock. Pro forma net tangible book value per share is determined by
dividing the pro forma net tangible book value of the Company (pro forma
tangible assets less pro forma liabilities) by the pro forma number of shares
of Common Stock outstanding. Adjusting for the Acquisitions and the sale by the
Company of the 10,286,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $17.50 per share, and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds," the pro
forma net tangible book value of the Company, as adjusted, at March 31, 1996
would have been $84,339,000, or $3.64 per share. This amount represents an
immediate dilution to new investors of $13.86 per share and an immediate
increase in pro forma as adjusted net tangible book value per share to existing
stockholders of $3.39 per share. The following table illustrates this per share
dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share $17.50
Pro forma net tangible book value per share after Initial
Capitalization $0.25
Increase in net tangible book value per share resulting from the
Acquisitions
and the Offering 3.39
-----
Pro forma as adjusted net tangible book value per share after the
Acquisitions
and the Offering 3.64
------
Pro forma as adjusted dilution to new investors(1) $13.86
======
</TABLE>
- --------
(1)Determined by subtracting the pro forma as adjusted net tangible book value
per share after the Offering from the assumed initial public offering price per
share.
If the Underwriters' over-allotment option is exercised in full, the increase
in pro forma net tangible book value per share attributable to the Offering,
pro forma as adjusted net tangible book value per share after the Offering, and
pro forma as adjusted dilution to new investors would be $4.21, $4.46 and
$13.04, respectively.
The following table sets forth at March 31, 1996, after giving effect to the
Acquisitions and the sale of the Common Stock offered by the Company in the
Offering: (i) the number of shares of Common Stock purchased by existing
stockholders from the Company and the total consideration (including the fair
value of the shares of Common Stock issued to the Sellers) and average price
per share paid to the Company for such shares; (ii) the number of shares of
Common Stock purchased by new investors in the Offering from the Company and
the total consideration and the price per share paid by them for such shares;
and (iii) the percentage of shares purchased from the Company by existing
stockholders and the new investors and the percentages of consideration paid to
the Company for such shares by existing stockholders and new investors.
<TABLE>
<CAPTION>
-------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1) 12,914,000 55.7% $ 55,010,000 23.4% $ 4.26
New investors 10,286,000 44.3 180,005,000 76.6 $17.50
---------- ----- ------------ -----
Total 23,200,000 100.0% $235,015,000 100.0%
========== ===== ============ =====
</TABLE>
- --------
(1)Consists of the Sellers and the stockholders of TeleSpectrum Worldwide prior
to the consummation of the sale of the shares of Common Stock offered hereby.
Sales by the Selling Stockholders in the Offering will reduce the outstanding
number of shares held by existing stockholders to 12,456,857 shares, or
approximately 53.7% of the total number of shares of Common Stock outstanding
after the Offering, and will increase the number of shares to be held by new
stockholders to 10,743,143 shares, or approximately 46.3% of the total number
of shares of Common Stock outstanding after the Offering. See "Principal and
Selling Stockholders."
17
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
TeleSpectrum Worldwide will acquire, simultaneously with and as a condition to
the consummation of the Offering, the Operating Businesses. These Acquisitions
will be recorded using the purchase method of accounting. The Selected Pro
Forma Combined Financial Data assume the consummation of the Acquisitions and
the consummation of the Offering. See "Certain Relationships and Related Party
Transactions--The Acquisitions," "Pro Forma Combined Financial Statements" and
"Notes to Pro Forma Combined Financial Statements."
<TABLE>
<CAPTION>
--------------------------------------------
Dollars in thousands, except PRO FORMA
per share data --------------------------------------------
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED MARCH 31,
1995 1995 1996
------------ -------------- --------------
<S> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME
DATA(1):
Revenues $ 87,954 $ 20,391 $ 26,470
Cost of services 59,596 13,004 18,441
Selling, general and adminis-
trative expense(2) 16,921 4,223 4,921
Goodwill amortization(3) 5,524 1,381 1,381
---------- -------------- --------------
Operating income 5,913 1,783 1,727
Interest income 158 15 61
Interest expense(4) (94) (22) (22)
---------- -------------- --------------
Income before income taxes 5,977 1,776 1,766
Income taxes(5) 2,510 746 742
---------- -------------- --------------
Net income $ 3,467 $ 1,030 $ 1,024
---------- -------------- --------------
Net income per share(6) $ 0.15 $ 0.04 $ 0.04
========== ============== ==============
Shares used in computing pro
forma net income
per share(6) 23,200,000 23,200,000 23,200,000
---------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------
MARCH 31,1996
PRO FORMA
AFTER INITIAL PRO FORMA
CAPITALIZATION(7) AS ADJUSTED(1)
Dollars in thousands ----------------- --------------
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Cash and cash equivalents $ 1,610 $ 60,657
Working capital 2,110 68,959
Goodwill -- 138,109
Total assets 2,110 234,230
Long-term debt, less current matu-
rities -- --
Stockholders' equity 2,110 222,448
</TABLE>
- --------
(1)Assumes that the closings of the Acquisitions and the Offering had occurred
as of January 1, 1995, in the case of the pro forma statement of income data,
and as of March 31, 1996, in the case of the pro forma balance sheet data. The
pro forma combined financial data are based upon preliminary estimates,
available information and certain assumptions that management deems
appropriate. The pro forma combined financial data presented herein are not
necessarily indicative of the results the Company would have obtained had such
events occurred at the beginning of the period, or of the future results of the
Company. The pro forma combined financial data should be read in conjunction
with the other financial data and notes thereto included elsewhere in this
Prospectus.
(2)Includes a pro forma adjustment to reflect reduced officers' compensation
expense of the Operating Businesses based upon employment agreements to be
entered into upon the closing of the Acquisitions. Does not reflect costs
(which will be significant) related to employment arrangements with other
executive officers of TeleSpectrum Worldwide or corporate expenses related to
being a public company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Management--Executive Compensation"
and "--Employment Agreements."
(3)Represents a pro forma adjustment to reflect the amortization expense on the
goodwill recorded in connection with the Acquisitions.
18
<PAGE>
(4)Includes a pro forma adjustment to reflect the elimination of interest
expense resulting from the reduction of debt paid from the net proceeds of the
Offering.
(5)Includes a pro forma adjustment to calculate the provision for income taxes
on the pro forma combined results at an effective tax rate of 42.0%.
(6)Computed on a basis described in Note 5 of Notes to Pro Forma Combined
Financial Statements.
(7)Includes a pro forma adjustment to reflect the Initial Capitalization.
GENERAL
The Company was founded in April 1996 to create a national provider of
integrated teleservices solutions that build upon a foundation of outbound and
inbound telemarketing and include inbound customer service, market research,
direct mail and fulfillment and other direct marketing services. The Company
focuses on providing teleservices to major clients in the telecommunications,
insurance, financial services, pharmaceuticals and healthcare, consumer
products and high technology industries.
The Company's revenues are derived primarily from service fees charged to
clients on an hourly or project basis and commissions charged on a per result
basis. A majority of the Company's pro forma 1995 revenues were derived from
service fees. In the aggregate, the revenues of the Operating Businesses have
grown from $23.7 million in 1991 to $88.0 million in 1995. This growth
primarily resulted from the Operating Businesses' ability to meet their
clients' increasing demands to deliver new services as the market required and
to attract new customers with quality service at competitive prices.
The Company's cost of services consists primarily of compensation, telephone
and other call center-related operating and support expenses. Cost of services
as a percentage of revenues has fluctuated during the period 1991 through 1995
as a result of call center start-up costs, offset in certain periods by
efficiencies associated with increased operations. The Company anticipates
continued fluctuations in cost of services as a percentage of revenues.
TeleSpectrum Worldwide, which has conducted no operations to date, has entered
into agreements to acquire the Operating Businesses simultaneously with the
consummation of the sale of the Common Stock offered hereby. The Operating
Businesses have been operating independently. The Company intends to integrate
these businesses, their operations and administrative functions over a period
of time, subject to contractual obligations in the agreements relating to the
Acquisitions. See "Certain Relationships and Related Party Transactions--The
Acquisitions." Such integration may present opportunities to reduce costs
through the elimination of duplicate functions and through economies of scale,
particularly in obtaining greater volume discounts from telecommunications
service providers, but may also necessitate additional costs and expenditures
for corporate management and administration, corporate expenses related to
being a public company, systems integration, employee relocation and severance
and facilities expansion. These various costs and possible cost-savings may
make comparison of future operating results with historical results difficult.
See "Management--Executive Compensation" and "--Employment Agreements."
PRO FORMA RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the Selected Pro
Forma Combined Financial Data, the Selected Financial Data of the Operating
Businesses and the Financial Statements and related notes appearing elsewhere
in this Prospectus.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenues. Revenues increased to $26.5 million in the three months ended March
31, 1996 from $20.4 million in the three months ended March 31, 1995, an
increase of $6.1 million, or 29.8%. The increase in revenues resulted primarily
from increased call volume from existing clients and the addition of new
clients.
19
<PAGE>
Cost of Services. Cost of services increased to $18.4 million in the three
months ended March 31, 1996 from $13.0 million in the three months ended March
31, 1995, an increase of $5.4 million, or 41.8%. As a percentage of revenues,
cost of services increased to 69.7% in the three months ended March 31, 1996
from 63.8% in the three months ended March 31, 1995. This percentage increase
was primarily the result of start-up costs associated with adding new capacity
to support the Operating Businesses' growth and a temporary shift at one of the
Operating Businesses to lower margin services to fill capacity resulting from
an unexpected reduction in demand from a major client.
Selling, General and Administrative. Selling, general and administrative
expenses, excluding goodwill, increased to $4.9 million in the three months
ended March 31, 1996 from $4.2 million in the three months ended March 31,
1995, an increase of $0.7 million, or 16.5%. The increase was primarily the
result of additional administrative, personnel and related corporate expenses
associated with the Operating Businesses' growth. As a percentage of revenues,
selling, general and administrative expenses decreased to 18.6% in the three
months ended March 31, 1996 from 20.7% in the three months ended March 31,
1995, primarily as a result of the spreading of expenses over increased
revenues.
Net Income. Net income of $1.024 million in the three months ended March 31,
1996 declined 0.6%, from $1.030 million in the three months ended March 31,
1995. The decrease resulted principally from higher cost of services relative
to revenues at one of the Operating Businesses (which realized a net loss for
the period) and the effects of lower revenues upon relatively unchanged
expenses at two other Operating Businesses (one of which realized a net loss
for both periods presented). See "Selected Financial Data of the Operating
Businesses."
LIQUIDITY AND CAPITAL RESOURCES
The Company will utilize proceeds from the Offering to repay substantially all
of the Operating Businesses' existing short-term and long-term debt. In
addition, the Company intends to obtain a bank credit facility after the
consummation of the Offering.
In connection with the acquisition of the assets of SOMAR, Inc., the Company
has agreed to expend up to $14.0 million, if necessary, to meet that Operating
Business's capital expenditures requirements, which primarily relate to
potential openings of additional call centers. The Company does not have any
other commitments for significant capital expenditures, although it anticipates
expanding and upgrading existing call centers and opening new call centers in
the ordinary course of business.
The Company believes that funds generated from operations, together with the
net proceeds of the Offering, will be sufficient to finance its current
operations, potential obligations relating to the Acquisitions and planned
capital expenditure requirements at least through 1997.
INFLATION
The Company does not believe that inflation has had a material effect on the
operating results of the Operating Businesses. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Operating Businesses have in the past experienced, and the Company could in
the future experience, quarterly variations in revenues, operating income and
cash flow as a result of many factors, including the timing and magnitude of
clients' marketing campaigns and customer service programs, the opening of new
call centers, the loss of a major client, weather-related interruptions,
additional selling, general and administrative expenses to acquire and support
new business, the timing and magnitude of required capital expenditures and
changes in the revenue mix among the Company's various service offerings or in
the relative contribution of the several Operating Businesses. In connection
with certain contracts, the Company could incur costs in periods prior to
recognizing
20
<PAGE>
revenues under those contracts. In addition, the Company must plan its
operating expenditures based on revenue forecasts, and a revenue shortfall
below such forecasts in any quarter would likely adversely affect the Company's
operating results for that quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
21
<PAGE>
SELECTED FINANCIAL DATA OF THE OPERATING BUSINESSES
The selected financial data of the Operating Businesses are derived in part
from the more detailed financial statements and notes thereto of the Operating
Businesses included elsewhere in this Prospectus. The balance sheet data as of
December 31, 1994 and 1995, and the statement of income data for each of the
three years in the period ended December 31, 1995, for SOMAR, Harris and Reich
have been derived from the audited financial statements included elsewhere
herein. The balance sheet data as of December 31, 1991, 1992 and 1993, and the
statement of income data for each of the two years in the period ended December
31, 1992, for SOMAR, Harris and Reich have been derived from unaudited data.
The balance sheet data at September 30, 1994 and 1995 and the statement of
income data for each of the two years in the period ended September 30, 1995
for The Response Center have been derived from the audited financial statements
included elsewhere herein. The balance sheet data as of September 30, 1991,
1992 and 1993 and the statement of income data for each of three years in the
period ended September 30, 1993 for The Response Center have been derived from
unaudited data. The balance sheet data as of December 30, 1994 and December 29,
1995, and the statement of income data for the years ended December 31, 1993,
December 30, 1994 and December 29, 1995, for NBG have been derived from the
audited financial statements included elsewhere herein. The balance sheet data
as of December 27, 1991, December 25, 1992 and December 31, 1993 and the
statement of income data for December 27, 1991 and December 25, 1992, for NBG
have been derived from unaudited data. The balance sheet data at December 31,
1995, and the statement of income data for the year then ended, for
TeleSpectrum have been derived from the audited financial statements included
elsewhere herein. The balance sheet data as of December 31, 1991, 1992, 1993
and 1994, and the statement of income data for each of the four years in the
period ended December 31, 1994, for TeleSpectrum have been derived from
unaudited data.
The selected individual financial data of the Operating Businesses for the
three months ended March 31, 1995 and 1996 have been derived from the unaudited
financial statements included elsewhere herein. In addition, the selected
financial data for The Response Center for the three months ended December 31,
1994 and 1995 are unaudited. Such selected financial data are not necessarily
indicative of the results to be expected for the full year.
In the opinion of the Company, the unaudited financial statements of the
Operating Businesses reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Operating Businesses for those
periods in accordance with generally accepted accounting principles. Selected
Financial Data of the Operating Businesses should be read in conjunction with
the financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus. All Operating Businesses have fiscal years ending December
31, with the exceptions of The Response Center, whose year end is September 30,
and NBG, which operates on a fifty-two, fifty-three week fiscal year ending on
the last Friday of the calendar year.
22
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------
THREE MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31,
1991 1992 1993 1994 1995 1995 1996
Dollars in thousands ------ ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA(1):
SOMAR
Revenues $4,674 $6,594 $10,703 $20,785 $31,900 $6,862 $9,274
Cost of services 2,712 5,194 7,731 15,623 25,048 5,032 7,931
Selling, general and
administrative
expenses 1,712 1,775 2,787 4,115 5,162 1,284 1,554
Operating income
(loss) 250 (375) 185 1,047 1,690 546 (211)
Income (loss) before
income taxes 217 (474) 96 627 979 417 (424)
NBG
Revenues $814 $ 2,875 $ 4,849 $ 5,778 $12,829 $2,695 $3,960
Cost of services 533 1,838 3,200 4,259 8,572 1,766 2,752
Selling, general and
administrative
expenses 169 1,028 1,289 1,443 2,115 508 631
Operating income 112 9 360 76 2,142 421 577
Income (loss) before
income taxes 112 (35) 285 33 2,106 406 562
Harris
Revenues $5,944 $5,734 $ 7,018 $10,115 $12,690 $3,988 $2,617
Cost of services 3,192 3,008 3,834 5,530 6,402 2,078 1,324
Selling, general and
administrative
expenses 2,223 2,273 2,473 2,680 2,986 761 768
Operating income 529 453 711 1,905 3,302 1,149 525
Income before income
taxes 322 281 569 1,719 3,158 1,108 513
Reich
Revenues $5,009 $3,252 $ 4,375 $ 5,424 $12,253 $2,059 $5,465
Cost of services 3,981 2,388 3,172 4,225 7,836 1,327 3,165
Selling, general and
administrative
expenses 1,429 1,019 1,111 976 2,534 297 570
Operating income
(loss) (401) (155) 92 223 1,883 435 1,730
Income (loss) before
income taxes (553) (220) 71 199 1,840 428 1,719
TeleSpectrum
Revenues $4,167 $6,827 $ 9,916 $ 9,386 $11,854 $2,846 $3,725
Cost of services 3,017 4,555 7,429 6,754 8,338 1,920 2,483
Selling, general and
administrative
expenses 1,144 1,622 2,628 2,505 3,072 805 951
Operating income
(loss) 6 650 (141) 127 444 121 291
Income (loss) before
income taxes (81) 552 (240) (154) 278 117 248
The Response Center
Revenues $3,057 $3,946 $ 6,061 $ 6,183 $ 6,719 $1,941 $1,429
Cost of services 1,360 1,771 2,911 3,426 3,583 881 786
Selling, general and
administrative
expenses 661 972 2,806 2,800 2,717 1,061 875
Operating income
(loss) 1,036 1,203 344 (43) 419 (1) (232)
Income (loss) before
income taxes 1,033 1,208 356 (37) 429 (1) (232)
</TABLE>
- --------
(1)TeleSpectrum Worldwide was incorporated on April 26, 1996; accordingly there
were no historical operating results prior to that date.
23
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------
AT
AT FISCAL YEAR END MARCH 31,
1991 1992 1993 1994 1995 1996
Dollars in thousands ------ ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
SOMAR
Cash and cash equivalents $ 10 $ 1 $ 16 $ 2 $ 25 $ 4
Working capital (deficit) (147) (280) (149) (242) (1,990) (2,874)
Total assets 1,644 1,694 2,014 5,526 10,792 13,806
Long-term debt, including
capital lease
obligations, less
current portion 238 786 755 1,145 1,639 3,046
Stockholders' equity
(deficit) 123 (487) (391) 478 771 347
NBG
Cash and cash equivalents $ 2 $ 14 $ 9 $ -- $ 700 $ 1,988
Working capital (deficit) 12 (95) (102) (238) 1,270 1,619
Total assets 488 616 1,162 1,483 4,234 5,677
Long-term debt, including
capital lease
obligations, less
current portion 202 208 265 277 454 824
Stockholders' equity 113 78 363 396 2,254 2,816
Harris
Cash and cash equivalents $ 232 $ 469 $ 334 $ 975 $ 2,919 $ 2,311
Working capital 529 623 931 2,260 3,741 4,044
Total assets 5,365 5,679 7,101 8,773 10,803 10,049
Long-term debt less
current portion 1,948 2,006 1,818 1,863 1,530 1,451
Stockholders' equity 2,254 2,465 3,007 4,580 6,375 6,640
Reich
Cash and cash equivalents $ 66 $ 30 $ 28 $ 31 $ 220 $ 676
Working capital (deficit) (575) (220) (243) (59) 821 1,910
Total assets 1,175 795 827 1,111 4,318 5,994
Long-term debt, including
capital lease
obligations, less
current portion 26 159 226 273 371 485
Stockholder's equity
(deficit) (637) (541) (470) (272) 1,668 3,387
TeleSpectrum
Cash and cash equivalents $ 100 $ 330 $ 28 $ 163 $ 15 $ 402
Working capital (deficit) (296) (97) (85) (241) 37 125
Total assets 2,051 3,217 3,224 3,182 3,549 4,535
Long-term debt, including
capital lease
obligations, less
current portion 659 293 470 217 57 18
Stockholders' equity 92 765 481 409 687 935
The Response Center
Cash and cash equivalents $ 293 $ 98 $ 213 $ 72 $ 282 $ 641
Working capital 1,053 1,508 1,179 1,111 1,665 1,449
Total assets 1,369 1,947 2,034 1,863 2,298 2,425
Long-term debt less
current portion -- -- -- -- -- --
Stockholders' equity 1,124 1,569 1,353 1,283 1,812 1,704
</TABLE>
- --------
(1)TeleSpectrum Worldwide was incorporated on April 26, 1996; accordingly,
there were no historical results prior to that date.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data of the Operating Businesses and the Financial Statements and
related notes thereto appearing elsewhere in this Prospectus.
OPERATING BUSINESSES
Each of the Sellers (other than TeleSpectrum Training Services, Inc., an
affiliate of TeleSpectrum, Inc.) has elected to be treated as an "S
corporation" under Subchapter S of the Internal Revenue Code of 1986, as
amended (the "Code"). As a result, no Seller (other than TeleSpectrum Training
Services, Inc.) was subject to federal income taxes.
SOMAR
Founded in 1982, SOMAR is one of the nation's largest providers of outsourced
telephone-based sales, marketing and customer management services, principally
to clients in the insurance industry and also to clients in the financial
services, telecommunications and consumer products industries. SOMAR typically
receives payment on an hourly basis for services rendered.
Results of Operations
The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $10,703 100.0% $20,785 100.0% $31,900 100.0% $6,862 100.0% $9,274 100.0%
Cost of services 7,731 72.2 15,623 75.2 25,048 78.5 5,032 73.3 7,931 85.5
Selling, general and
administrative
expenses 2,787 26.1 4,115 19.8 5,162 16.2 1,284 18.7 1,554 16.8
------- ------- ------- ------ ------
Total operating
expenses 10,518 98.3 19,738 95.0 30,210 94.7 6,316 92.0 9,485 102.3
Operating income
(loss) 185 1.7 1,047 5.0 1,690 5.3 546 8.0 (211) (2.3)
Interest expense, net 89 0.8 420 2.0 711 2.2 129 1.9 213 2.3
------- ------- ------- ------ ------
Pre-tax income (loss) $ 96 0.9 $ 627 3.0 $ 979 3.1 $ 417 6.1 $ (424) (4.6)
======= ======= ======= ====== ======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenues. Revenues increased to $9.3 million in the three months ended March
31, 1996 from $6.9 million in the three months ended March 31, 1995, an
increase of $2.4 million, or 35.2%. The increase in revenues resulted primarily
from increased call volume from existing insurance clients and the addition of
new insurance clients.
Cost of Services. Cost of services, which primarily consists of labor,
telephone and other call center-related operating and support expenses,
increased to $7.9 million in the three months ended March 31, 1996 from $5.0
million in the three months ended March 31, 1995, an increase of $2.9 million,
or 57.6%. As a percentage of revenues, cost of services increased to 85.5% in
the three months ended March 31, 1996 from 73.3% in the three months ended
March 31, 1995. This percentage increase was primarily the result of a
temporary shift to lower margin services to fill capacity resulting from an
unexpected reduction in demand from SOMAR's largest client, start-up costs
associated with the opening of the Beckley, West Virginia call center on
February 29, 1996 and costs associated with revenues lost due to inclement
weather. Start-up costs included new management and staff, insurance licensing
and education.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.6 million in the three months ended March 31, 1996
from $1.3 million in the three months ended March 31, 1995, an increase of $0.3
million, or 21.0%. The increase was primarily the result of additional
administrative, personnel and related corporate expenses associated with
SOMAR's growth. As a percentage of revenues, selling, general and
administrative expenses decreased to 16.8% in the three months ended March 31,
1996 from 18.7% in the three months ended March 31, 1995, primarily as a result
of the spreading of expenses over increased revenues.
25
<PAGE>
Interest Expense, Net. Interest expense, net, increased to $0.2 million in the
three months ended March 31, 1996 from $0.1 million in the three months ended
March 31, 1995, an increase of $0.1 million, or 65.1%. The increase resulted
from higher average borrowings outstanding during the three months ended March
31, 1996 compared with the three months ended March 31, 1995. The borrowed
funds were used primarily to finance working capital requirements, to open the
Beckley, West Virginia call center and to purchase new equipment. As a
percentage of revenues, interest expense, net, increased to 2.3% in the three
months ended March 31, 1996 from 1.9% in the three months ended March 31, 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased to $31.9 million in 1995 from $20.8 million in
1994, an increase of $11.1 million, or 53.5%. This increase primarily resulted
from increased call volume from existing insurance clients and the addition of
new insurance clients.
Cost of Services. Cost of services increased to $25.0 million in 1995 from
$15.6 million in 1994, an increase of $9.4 million, or 60.3%. As a percentage
of revenues, cost of services increased to 78.5% in 1995 from 75.2% in 1994.
This increase resulted primarily from start-up costs related to the opening of
two new call centers in Huntington, West Virginia in March and August 1995, and
a delay in anticipated new business. The start-up costs included new management
and staff, insurance licensing and education.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $5.2 million in 1995 from $4.1 million in 1994, an
increase of $1.1 million, or 25.4%. This increase primarily resulted from
additional administrative, personnel and corporate expenses associated with the
growth in existing facilities. As a percentage of revenues, selling, general
and administrative expenses decreased to 16.2% in 1995 from 19.8% in 1994,
primarily as a result of the spreading of expenses over increased revenues.
Interest Expense, Net. Interest expense, net, increased to $0.7 million in 1995
from $0.4 million in 1994, an increase of $0.3 million, or 69.3%. This increase
resulted from higher average borrowings outstanding during 1995 compared to
1994. The borrowed funds were used primarily to finance working capital
requirements, to open the Huntington, West Virginia call centers and to
purchase new equipment. As a percentage of revenues, interest expense, net,
increased to 2.2% in 1995 from 2.0% in 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased to $20.8 million in 1994 from $10.7 million in
1993, an increase of $10.1 million, or 94.2%. This increase primarily resulted
from increased call volume from existing clients and the addition of new
clients, primarily in the financial services industry.
Cost of Services. Cost of services increased to $15.6 million in 1994 from $7.7
million in 1993, an increase of $7.9 million, or 102.1%. As a percentage of
revenues, cost of services increased to 75.2% in 1994 from 72.2% in 1993. This
increase resulted primarily from start-up costs related to the opening of two
new call centers in Fayetteville, North Carolina and Asheville, North Carolina
in January 1994 and September 1994, respectively. These costs included new
management and staff, insurance licensing and education.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $4.1 million in 1994 from $2.8 million in fiscal 1993, an
increase of $1.3 million, or 47.7%. This increase primarily resulted from
additional administrative, personnel and corporate expenses associated with the
growth in existing facilities. As a percentage of revenues, selling, general
and administrative expenses decreased to 19.8% in 1994 from 26.1% in 1993,
primarily as a result of the spreading of expenses over the increased revenues.
Interest Expense, Net. Interest expense, net, increased to $0.4 million in 1994
from $0.1 million in 1993, an increase of $0.3 million. This increase resulted
from higher average borrowings outstanding during 1994
26
<PAGE>
compared to 1993. The borrowed funds were used primarily to finance working
capital requirements, to open the Asheville and Fayetteville, North Carolina
call centers and to purchase new equipment. As a percentage of revenues,
interest expense, net, increased to 2.0% in 1994 from 0.8% in 1993.
Liquidity and Capital Resources
SOMAR's principal source of liquidity has been available borrowings under
credit facilities. The following table sets forth selected information from
SOMAR's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
---------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands ------- ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities $ 254 $ 57 $ 441 $ (75) $ (313)
Net cash provided by (used
in) investment activities (444) 346 (2,870) (1,522) (461)
Net cash provided by (used
in) financing activities 205 (417) 2,452 1,598 753
</TABLE>
From 1993 through the end of 1995, SOMAR generated $0.8 million in net cash
from operating activities. During this period, $3.2 million of cash was
generated primarily from pre-tax income plus non-cash charges, and was reduced
by $2.4 million of cash used to fund increases in working capital resulting
from the increase in revenues over the same period. Net cash used in the three
months ended March 31, 1996 reflects the net loss for the period.
Cash used in investment activities was attributable to equipment and other
capital to support SOMAR's growth, namely through additions to SOMAR's number
of call centers and expenditures for information technology equipment and
through investments in database management, telephone systems and management
information systems. From the beginning of 1993 through March 31, 1996, SOMAR
opened four new call centers, adding approximately 384 workstations. Capital
expenditures during this period of $5.0 million were funded with borrowings and
capitalized leases.
Financing activities have included distributions to shareholders and borrowing
activity. Dividends paid to shareholders from the beginning of 1993 through
March 31, 1996 of $1.4 million were primarily payments to cover shareholder
taxes related to SOMAR's S-corporation status.
On December 29, 1995, SOMAR entered into an agreement with a bank for a one-
year revolving line of credit (the "Credit Facility") which now has a maximum
borrowing limit applicable to SOMAR of $6.5 million and an interest rate equal
to the bank's prime rate plus one percentage point. The Credit Facility is
secured by trade accounts receivable, equipment and other assets of SOMAR. The
agreement terminates on January 1, 1997, and contains certain restrictive
covenants which, among other things, require the maintenance of certain
financial ratios, limit capital expenditures and bonuses and restrict future
indebtedness. As of March 31, 1996, SOMAR was in violation of certain loan
covenants, for which it has obtained a waiver letter from the bank. Outstanding
amounts under the Credit Facility will be paid in connection with the closing
of the Offering.
On December 31, 1995, SOMAR borrowed $1.0 million from a bank on a short-term
basis in connection with the transition of its line of credit from another
lender. This short-term note was repaid on January 3, 1996, with proceeds from
the new Credit Facility.
From 1993 through March 31, 1996, SOMAR financed certain equipment purchases
through term financing agreements and capital leases with various lending
institutions and a government agency. The financing agreements are secured by
the related equipment and other assets of SOMAR. As of March 31, 1996,
outstanding obligations under term financing agreements with the various
lending institutions totaled $2.9 million, with a weighted average interest
rate of 9.9%, and outstanding capital leases were $1.7 million, with a weighted
average
27
<PAGE>
interest rate of 11.5%. The outstanding amounts under these financing
arrangements and leases will be paid in connection with the closing of the
Offering. The West Virginia Economic Development Authority ("WVEDA") has
committed to provide term financing of $0.7 million at 4.0%. This financing
will replace $0.7 million of term financing used to finance SOMAR's Huntington,
West Virginia call centers, which term financing was due on May 21, 1996 and
has been extended through June 1, 1996.
28
<PAGE>
NBG
Founded in 1991, NBG provides outbound telemarketing services to clients in the
financial services, telecommunications and high technology industries. NBG's
revenues are derived primarily from service fees charged to clients on a
performance/results basis, rather than on an hourly basis.
Results of Operations
The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
YEAR ENDED THIRTEEN WEEKS ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
Dollars in thousands ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,849 100.0% $5,778 100.0% $12,829 100.0% $2,695 100.0% $3,960 100.0%
Cost of services 3,200 66.0 4,259 73.7 8,572 66.8 1,766 65.5 2,752 69.5
Selling, general and
administrative
expenses 1,289 26.6 1,443 25.0 2,115 16.5 508 18.9 631 15.9
------ ------ ------- ------ ------
Total operating
expenses 4,489 92.6 5,702 98.7 10,687 83.3 2,274 84.4 3,383 85.4
Operating income 360 7.4 76 1.3 2,142 16.7 421 15.6 577 14.6
Interest expense, net 75 1.5 43 0.7 36 0.3 15 0.5 15 0.4
------ ------ ------- ------ ------
Pre-tax income $ 285 5.9 $ 33 0.6 $ 2,106 16.4 $ 406 15.1 $ 562 14.2
====== ====== ======= ====== ======
</TABLE>
Thirteen Weeks Ended March 29, 1996 Compared to Thirteen Weeks Ended March 31,
1995
Revenues. Revenues increased to $4.0 million in the thirteen weeks ended March
29, 1996 from $2.7 million in the thirteen weeks ended March 31, 1995, an
increase of $1.3 million, or 46.9%. This increase was primarily a result of an
increase in revenues from two of NBG's most significant clients to $3.7 million
in the thirteen weeks ended March 29, 1996 from $2.5 million in the thirteen
weeks ended March 31, 1995, an increase of $1.2 million, or 48.0%. Revenues
from these clients increased primarily as a result of increased telemarketing
call volume. The remaining increase in revenues was attributable to the
addition of new clients, primarily in the high technology and financial
services industries.
Cost of Services. Cost of services, which primarily consists of labor,
telephone and other call center-related operating and support expenses,
increased to $2.8 million in the thirteen weeks ended March 29, 1996 from $1.8
million in the thirteen weeks ended March 31, 1995, an increase of $1.0
million, or 55.8%. As a percentage of revenues, cost of services increased to
69.5% in the thirteen weeks ended March 29, 1996 from 65.5% in the thirteen
weeks ended March 31, 1995. This increase primarily resulted from the hiring of
new CCRs to support anticipated revenue growth.
Selling, General, and Administrative. Selling, general and administrative
expenses increased to $0.6 million in the thirteen weeks ended March 29, 1996
from $0.5 million in the thirteen weeks ended March 31, 1995, an increase of
$0.1 million, or 24.2%. As a percentage of revenues, selling, general, and
administrative expenses decreased to 15.9% in the thirteen weeks ended March
29, 1996 from 18.9% in the thirteen weeks ended March 31, 1995, primarily as a
result of the spreading of expenses over increased revenues.
Year Ended December 29, 1995 Compared to Year Ended December 30, 1994
Revenues. Revenues increased to $12.8 million in 1995 from $5.8 million in
1994, an increase of $7.0 million, or 122.0%. This increase was primarily a
result of an increase in revenues from two of NBG's most significant clients to
$12.0 million in 1995 from $5.2 million in 1994, an increase of $6.8 million,
or 130.8%. Revenues from these clients increased primarily as a result of
increased telemarketing call volume and in particular, a full year of revenues
in 1995 from one of these clients, compared to approximately four months of
revenues in 1994. The remaining increase was due to the addition of several
clients in the high technology and financial services industries.
29
<PAGE>
Cost of Services. Cost of services increased to $8.6 million in 1995 from $4.3
million in 1994, an increase of $4.3 million, or 101.3%. As a percentage of
revenues, cost of services decreased to 66.8% in 1995 from 73.7% in 1994. This
decrease primarily resulted from the spreading of certain fixed costs over
increased revenues.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.1 million in 1995 from $1.4 million in 1994, an
increase of $0.7 million, or 46.6%. This increase primarily resulted from
additional administrative, personnel and related corporate expenses associated
with NBG's growth. As a percentage of revenues, selling, general and
administrative expenses decreased to 16.5% in 1995 from 25.0% in 1994,
primarily as a result of the spreading of expenses over increased revenues.
Year Ended December 30, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased to $5.8 million in 1994 from $4.8 million in 1993,
an increase of $1.0 million, or 19.2%. This increase was primarily a result of
an increase in revenues from two of NBG's most significant clients to $5.2
million in 1994 from $4.6 million in 1993. The remaining increase was a result
of increased telemarketing call volume from other existing clients and the
addition of new clients.
Cost of Services. Cost of services increased to $4.3 million in 1994 from $3.2
million in 1993, an increase of $1.1 million, or 33.1%. As a percentage of
revenues, cost of services increased to 73.7% in 1994 from 66.0% in 1993. This
increase resulted primarily from investments to increase capacity.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.4 million in 1994 from $1.3 million in 1993, an
increase of $0.1 million, or 11.9%. This increase resulted primarily from
additional administrative, personnel and related corporate expenses associated
with NBG's growth. As a percentage of revenues, selling, general and
administrative expenses decreased to 25.0% in 1994 from 26.6% in 1993,
primarily as a result of the spreading of expenses over increased revenues.
Liquidity and Capital Resources
NBG's primary sources of liquidity have historically been cash flows from
operating activities and available borrowing capacity under credit facilities.
The following table sets forth selected information from NBG's statements of
cash flows for the period indicated.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
YEAR ENDED THIRTEEN WEEKS ENDED
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
Dollars in thousands ------------ ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating ac-
tivities $280 $297 $1,301 $546 $1,913
Net cash provided by
(used in) investing ac-
tivities (78) (42) (594) (7) (31)
Net cash provided by
(used in) financing ac-
tivities (207) (264) (7) (69) (594)
</TABLE>
From 1993 through the thirteen weeks ended March 29, 1996, NBG generated net
cash of $3.8 million principally from operating activities. This amount was
generated from pre-tax income plus depreciation and amortization. Growth in
accounts receivable has been offset primarily by increases in deferred revenue
and accrued expenses.
Historically, net cash used in investing activities has been expended for
equipment and other capital to support expansion of NBG's call center
operations, including additions to NBG's data management, telephone and
management information systems. Financing activities have included limited
borrowings, and distributions to stockholders. NBG finances the majority of its
equipment purchases with capital leases. Outstanding amounts under capitalized
leases and other outstanding indebtedness will be paid in connection with the
closing of the Offering.
30
<PAGE>
HARRIS
Founded in 1931, Harris is a regional, vertically-integrated direct mail and
fulfillment organization which provides its services primarily to companies in
the pharmaceuticals and healthcare, financial services and insurance
industries. HDM clients and certain of HFI clients compensate Harris on a per
project basis.
Results of Operations
The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $7,018 100.0% $10,115 100.0% $12,690 100.0% $3,988 100.0% $2,617 100.0%
Cost of services 3,834 54.6 5,530 54.7 6,402 50.5 2,078 52.1 1,324 50.6
Selling, general and
administrative
expenses 2,473 35.3 2,680 26.5 2,986 23.5 761 19.1 768 29.4
------ ------- ------- ------ ------
Total operating
expenses 6,307 89.9 8,210 81.2 9,388 74.0 2,839 71.2 2,092 80.0
Operating income 711 10.1 1,905 18.8 3,302 26.0 1,149 28.8 525 20.0
Interest expense, net 142 2.0 186 1.8 144 1.1 41 1.0 12 0.5
------ ------- ------- ------ ------
Pre-tax income $ 569 8.1 $ 1,719 17.0 $ 3,158 24.9 $1,108 27.8 $ 513 19.5
====== ======= ======= ====== ======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenues. Revenues decreased to $2.6 million in the three months ended March
31, 1996 from $4.0 million in the three months ended March 31, 1995, a decrease
of $1.4 million, or 34.4%. This decrease resulted from a 32.5% decrease in HFI
revenue and a 37.5% decrease in HDM revenue. The decrease in HFI revenue to
$1.6 million in the three months ended March 31, 1996 from $2.4 million in the
three months ended March 31, 1995 was primarily a result of a $0.6 million
decrease in revenue from a single pharmaceuticals client. The decrease in HDM
revenue to $1.0 million in the three months ended March 31, 1996 from $1.6
million in the three months ended March 31, 1995 was due to a $0.8 million
decrease from two of HDM's most significant clients, which was partially offset
by revenue growth in the remaining HDM client base and revenue generated from
new clients.
Cost of Services. Cost of services, which primarily consists of labor and other
direct mail and fulfillment-related operating and support expenses, decreased
to $1.3 million in the three months ended March 31, 1996 from $2.1 million in
the three months ended March 31, 1995, a decrease of $0.8 million, or 36.3%. As
a percentage of revenues, cost of services remained relatively stable.
Selling, General and Administrative. Selling, general and administrative
expenses were $0.8 million in the three months ended March 31, 1996 and 1995.
As a percentage of revenues, selling, general and administrative expenses
increased to 29.4% in the three months ended March 31, 1996 from 19.1% in the
three months ended March 31, 1995. This increase was primarily a result of a
decrease in revenues at HFI. Selling, general and administrative expenses
remained consistent at HDM as a percentage of HDM revenues for the three months
ended March 31, 1996 compared to the three months ended March 31, 1995, as HDM
was able to reduce its fixed costs at a rate consistent with the decrease in
HDM revenue.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased to $12.7 million in 1995 from $10.1 million in
1994, an increase of $2.6 million, or 25.5%. This increase primarily resulted
from an increase in HFI revenues to $8.3 million in 1995 from $5.4 million in
1994. The increase in HFI revenues reflected a $2.4 million increase generated
from a single pharmaceuticals client and a 23.5% increase from the remaining
HFI client base. The increase in HFI revenues
31
<PAGE>
was partly offset by a decrease in HDM revenues to $4.6 million in 1995 from
$5.0 million in 1994, primarily as a result of the loss of two significant
direct mail clients, partially offset by revenues from several new clients.
Cost of Services. Cost of services increased to $6.4 million in 1995 from $5.5
million in 1994, an increase of $0.9 million, or 15.8%. As a percentage of
revenues, cost of services decreased to 50.5% in 1995 from 54.7% in 1994. This
decrease primarily resulted from the spreading of certain fixed costs of HFI's
operations over increased revenues. HDM's cost of services as a percentage of
revenues in 1995 remained consistent with that of 1994.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $3.0 million in 1995 from $2.7 million in 1994, an
increase of $0.3 million, or 11.4%. This increase primarily resulted from
additional infrastructure needed to support Harris's growth. As a percentage of
revenues, selling, general and administrative expenses decreased to 23.5% in
1995 from 26.5% in 1994. This decrease was primarily a result of the spreading
of expenses over increased revenues.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased to $10.1 million in 1994 from $7.0 million in
1993, an increase of $3.1 million, or 44.1%. This increase primarily resulted
from an increase in HFI revenues to $5.4 million in 1994 from $3.2 million in
1993, $2.2 million of which was generated from an HFI pharmaceuticals client.
HDM revenues increased to $5.0 million in 1994 from $4.0 million in 1993. This
increase was primarily a result of an investment made in printing and insertion
equipment which generated an additional $0.8 million in HDM revenues from HDM's
two most significant clients.
Cost of Services. Cost of services increased to $5.5 million in 1994 from $3.8
million in 1993, an increase of $1.7 million, or 44.2%. As a percentage of
revenues, cost of services remained stable.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.7 million in 1994 from $2.5 million in 1993, an
increase of $0.2 million, or 8.4%. The increase was primarily due to additional
infrastructure needed to support Harris's growth. As a percentage of revenues,
selling, general and administrative expenses decreased to 26.5% in 1994 from
35.3% in 1993, primarily as a result of the spreading of expenses over
increased revenues.
Liquidity and Capital Resources
Harris's primary sources of liquidity have been cash flows from operating
activities, availability of borrowings on its lines of credit, and bank
financing for equipment purchases. The following table sets forth selected
information from Harris's statements of cash flows for the periods indicated.
<TABLE>
<CAPTION>
-------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ 230 $ 1,883 $ 4,149 $ (382) $ (210)
Net cash provided by (used in)
investing activities (429) (903) (460) (239) (77)
Net cash provided by (used in)
financing activities 64 (339) (1,745) 159 (321)
</TABLE>
From 1993 through March 31, 1996, Harris generated $6.1 million in net cash
from operating activities. During this period, $8.0 million of cash was
generated from pre-tax income plus non-cash charges, reduced by $1.9 million of
cash used for working capital. Harris's working capital needs have been
supplemented by advances from customers for freight and postage. In the three
months ended March 31, 1996, Harris used net cash in operating activities due
to the timing of its clients' payments.
32
<PAGE>
Net cash used in investing activities has supported HDM equipment purchases and
growth of HFI. Harris has incurred significant capital equipment expenditures
in its HDM operations, including expenditures for printing, insertion and
commingler equipment. In 1993, Harris generated $0.3 million in proceeds from
the sale of certain property and equipment.
Financing activities have included payments on HDM's facility mortgage and
distributions to stockholders. Stockholder distributions totaled $27,000, $0.1
million, $1.4 million and $0.3 million in 1993, 1994, 1995 and the three months
ended March 31, 1996, respectively. Harris's two lines of credit expired in
April 1996 and Harris did not elect to renew them. Harris has secured several
equipment loans from a bank, which are being paid down by cash generated from
operating activities. Outstanding indebtedness will be paid in connection with
the closing of the Offering.
33
<PAGE>
REICH
Founded in 1978, Reich offers telemarketing services to clients in the
financial services, telecommunications and insurance industries. Reich also
offers additional value-added services to its clients, such as marketing
planning, database marketing, creative development, situation analysis, in-
house copy and art services and production management. Reich earns revenue for
telemarketing services on an hourly basis and is compensated for planning and
marketing services on a fee-for-service basis.
Results of Operations
The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $4,375 100.0% $5,424 100.0% $12,253 100.0% $2,059 100.0% $5,465 100.0%
Cost of services 3,172 72.5 4,225 77.9 7,836 63.9 1,327 64.5 3,165 57.9
Selling, general and
administrative expenses 1,111 25.4 976 18.0 2,534 20.7 297 14.4 570 10.4
------ ------ ------- ------ ------
Total operating
expenses 4,283 97.9 5,201 95.9 10,370 84.6 1,624 78.9 3,735 68.3
Operating income 92 2.1 223 4.1 1,883 15.4 435 21.1 1,730 31.7
Interest expense, net 21 0.5 24 0.4 43 0.4 7 0.3 11 0.2
------ ------ ------- ------ ------
Pre-tax income $ 71 1.6 $ 199 3.7 $ 1,840 15.0 $ 428 20.8 $1,719 31.5
====== ====== ======= ====== ======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenues. Revenues increased to $5.5 million for the three months ended March
31, 1996 from $2.1 million for the three months ended March 31, 1995, an
increase of $3.4 million, or 165.4%. This increase primarily resulted from
increased telemarketing call volume from existing clients and the addition of
new clients in the telecommunications and financial services industries.
Reich's call center in West Virginia, which opened in May 1995, and the
expansion of its Delaware call center provided the capacity for the increased
call volume.
Cost of Services. Cost of services, which primarily consists of labor,
telephone and other call center-related operating and support expenses,
increased to $3.2 million for the three months ended March 31, 1996 from $1.3
million for the three months ended March 31, 1995. As a percentage of revenues
cost of services decreased from 64.5% to 57.9% for the three months ended March
31, 1995 and 1996, respectively. The decrease in cost of services as a
percentage of revenues is the result of increased utilization of existing
capacity.
Selling, General and Administrative. Selling, general and administrative costs
increased to $0.6 million for the three months ended March 31, 1996 from $0.3
million for the three months ended March 31, 1995, an increase of $0.3 million,
or 91.9%. The increase primarily resulted from salaries and related expenses
attributable to personnel added to the executive management team. The remaining
increase was the result of increases in general and administrative costs
associated with the increased business activity and the relocation and
expansion of the Delaware call center facility.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased to $12.3 million in 1995 from $5.4 million in
1994, an increase of $6.9 million, or 126.0%. This increase primarily resulted
from increased telemarketing call volume from a financial services client and
the addition of new clients in the telecommunications and financial services
industries. The opening of Reich's call center in West Virginia in May 1995
provided the capacity for the increased call volume. Revenues from non-
telemarketing-related services decreased to $0.9 million in 1995 from $1.3
million in 1994, as Reich focused its attention on telemarketing activities.
34
<PAGE>
Cost of Services. Cost of services increased to $7.8 million in 1995 from $4.2
million in 1994, an increase of $3.6 million, or 85.5%. As a percentage of
revenues, however, cost of services decreased to 63.9% in 1995 from 77.9%. This
decrease primarily resulted from the increased utilization of existing
capacity.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $2.5 million in 1995 from $1.0 million in 1994, an
increase of $1.5 million, or 160.0%. The majority of this increase was due to a
one-time $0.8 million increase in compensation to Reich's president and sole
shareholder to $0.9 million in 1995 from $0.1 million in 1994. The remaining
increase was primarily due to salaries and related expenses attributable to
personnel added to the executive management team in 1995, as well as additional
general and administrative costs associated with the increase in business
activity.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues increased to $5.4 million in 1994 from $4.4 million in 1993,
an increase of $1.0 million, or 24.0%. This increase primarily resulted from
increased telemarketing call volume from financial services clients.
Cost of Services. Cost of services increased to $4.2 million in 1994 from $3.2
million in 1993, an increase of $1.0 million, or 33.2%. As a percentage of
revenues, cost of services increased to 77.9% in 1994 from 72.5% in 1993. This
increase primarily resulted from increased costs for additional management and
other infrastructure required to handle the revenue growth. Other
infrastructure costs were primarily attributable to additional account
management, information services and operation management personnel.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $1.0 million in 1994 from $1.1 million in 1993, a
decrease of $0.1 million, or 12.2%. As a percentage of revenues, selling,
general and administrative expenses decreased to 18.0% in 1994 from 25.4% in
1993. This decrease primarily resulted from enhanced control and management of
expenses, particularly the reduction of administrative and office support
expenses.
Liquidity and Capital Resources
Reich's principal sources of liquidity have been cash flows from operating
activities and available borrowing capacity under credit facilities and capital
leases. The following table sets forth selected information from Reich's
statements of cash flows for the periods indicated.
<TABLE>
<CAPTION>
------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
in)
operating activities $ (4) $ 219 $ 745 $ (69) $ 1,420
Net cash provided by (used
in)
investing activities (37) (138) (1,212) (14) (559)
Net cash provided by (used
in)
financing activities 39 (78) 656 55 (405)
</TABLE>
From 1993 through March 31, 1996, Reich's net cash provided by operating
activities of $2.4 million was primarily generated from pre-tax income. During
the period, operating cash flow was negatively impacted by increases in working
capital (excluding cash and current maturities on long-term debt). The
additional working capital was principally related to the increase in accounts
receivable which was offset in part by an increase in accounts payable and
accrued expenses that resulted from the growth in the telemarketing business
over the same period.
Net cash used in investing activities was attributable to equipment and other
capital to support the opening of a new call center and expansion of Reich's
existing call centers. The significant increase in 1995 capital
35
<PAGE>
expenditures related to the opening of Reich's new call center operation in
West Virginia. The continued capital expenditures during the three months ended
March 31, 1996 related to the expansion and relocation of the Delaware call
center and the expansion of the West Virginia call center.
Financing activities primarily have included borrowing activities under various
long-term debt arrangements, capital leases and shareholder loans; all
outstanding amounts will be paid in connection with the closing of the
Offering. In December 1995, Reich received commitments for low interest loans
of up to $0.7 million from the City of Wheeling, West Virginia and the WVEDA.
These loans will be used to relocate and expand Reich's West Virginia call
center and also finance prior purchases funded out of operating cash flows.
36
<PAGE>
TELESPECTRUM
Founded in 1984, TeleSpectrum specializes in providing both inbound and
outbound telemarketing services to the high technology, pharmaceuticals and
healthcare and consumer products industries. TeleSpectrum's revenues primarily
derive from inbound teleservices and call center management services.
TeleSpectrum is typically paid on an hourly basis for telemarketing services
and on a negotiated, project-by-project basis for other services.
Results of Operations
The following table sets forth selected financial data and data as a percentage
of revenues for the period indicated.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands -------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,916 100.0% $9,386 100.0% $11,854 100.0% $2,846 100.0% $3,725 100.0%
Cost of services 7,429 74.9 6,754 72.0 8,338 70.2 1,920 67.5 2,483 66.7
Selling, general and
administrative
expenses 2,628 26.5 2,636 28.0 3,072 26.0 805 28.3 951 25.5
------- ------ ------- ------ ------
Total operating
expenses 10,057 101.4 9,390 100.0 11,410 96.2 2,725 95.8 3,434 92.2
Operating income
(loss) (141) (1.4) (4) -- 444 3.8 121 4.2 291 7.8
Interest expense, net 99 1.0 150 1.6 184 1.6 4 0.1 43 1.2
------- ------ ------- ------ ------
Pre-tax income (loss) $ (240) (2.4) $ (154) (1.6) $ 260 2.2 $ 117 4.1 $ 248 6.6
======= ====== ======= ====== ======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenues. Revenues increased to $3.7 million in the three months ended March
31, 1996 from $2.8 million in the three months ended March 31, 1995, an
increase of $0.9 million, or 30.9%. This increase primarily resulted from
increased call volume from existing clients and the addition of several new
clients.
Cost of Services. Cost of services, which primarily consists of labor,
telephone and other call center-related operating and support expenses,
increased to $2.5 million in the three months ended March 31, 1996 from $1.9
million in the three months ended March 31, 1995, an increase of $0.6 million,
or 29.3%. This increase was primarily the result of increased activity and the
opening of a new call center.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $1.0 million in the three months ended March 31, 1996
from $0.8 million in the three months ended March 31, 1995, an increase of $0.2
million, or 18.1%. This increase was principally the result of additional
administrative, personnel and related corporate expenses associated with
TeleSpectrum's growth. As a percentage of revenues, selling, general and
administrative expenses decreased to 25.5% in 1996 from 28.3% in 1995,
primarily as a result of the spreading of expenses over increased revenues.
Interest Expense, Net. Interest expense, net, increased to $43,000 in the three
months ended March 31, 1996 from $4,000 in the three months ended March 31,
1995. This increase primarily reflected higher average outstanding borrowings
during the three months ended March 31, 1996 compared to borrowings in the
three months ended March 31, 1995. Borrowings were used to finance working
capital needs.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased to $11.9 million in 1995 from $9.4 million in
1994, an increase of $2.5 million, or 26.3%. This increase primarily resulted
from increased call volume from existing inbound clients and the addition of
new inbound clients, principally in the pharmaceuticals and healthcare
industry.
Cost of Services. Cost of services increased to $8.3 million in 1995 from $6.8
million in 1994, an increase of $1.5 million, or 23.5%. As a percentage of
revenues, cost of services decreased to 70.2% in 1995 from 72.0% in 1994,
primarily as a result of the spreading of fixed costs over increased revenues.
37
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses increased to $3.1 million in 1995 from $2.6 million in 1994, an
increase of $0.5 million, or 16.5%. This increase primarily resulted from
additional administrative, personnel and corporate expenses associated with the
growth in revenues. As a percentage of revenues, selling, general and
administrative expenses decreased to 26.0% in 1995 from 28.0% in 1994,
primarily as a result of the spreading of expenses over increased revenues.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues. Revenues decreased to $9.4 million in 1994 from $9.9 million in 1993,
a decrease of $0.5 million, or 5.3%. This decrease was primarily the result of
a loss of revenues of approximately $0.4 million from a pharmaceuticals and
healthcare client.
Cost of Services. Cost of services decreased to $6.7 million in 1994 from $7.4
million in 1993, a decrease of $0.7 million, or 9.1%. As a percentage of
revenues, cost of services decreased to 72.0% in 1994 from 74.9% in 1993,
primarily as a result of the closing of a software products distribution
division.
Selling, General and Administrative. Selling, general and administrative
expenses were $2.6 million in 1993 and 1994. As a percentage of revenues,
selling, general and administrative expenses increased to 28.0% in 1994 from
26.5% in 1993, primarily as a result of the decrease in revenues.
Liquidity and Capital Resources
TeleSpectrum's primary sources of liquidity have been cash flows from operating
activities and available borrowing capacity under credit facilities. The
following sets forth selected information from TeleSpectrum's statement of cash
flows for the periods indicated:
<TABLE>
---------------------------------------------------
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
Dollars in thousands -------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
in) operating activities $(412) $(260) $ (4) $(167) $ 491
Net cash provided by (used
in) investing activities (69) 37 (99) (87) (162)
Net cash provided by (used
in) financing activities 179 359 (45) 91 58
</TABLE>
Net cash provided by operating activities from 1993 through March 31, 1996
consisted of pre-tax income plus depreciation and amortization and increases in
deferred revenue and accounts payable and accrued liabilities, less an increase
in accounts receivable. Net cash used in investing activities was expended
primarily for the purchase of telecommunications and computer equipment. Net
cash provided by financing activities included borrowings under TeleSpectrum's
line of credit facility and payments of debt and capital lease obligations.
In May 1996, TeleSpectrum obtained a $4.0 million revolving line of credit with
interest at the bank's prime rate plus 1.5%. This revolving credit facility is
to be used for refinancing of existing debt, working capital purposes and
capital expenditure purposes. This credit facility contains a financial
covenant which requires TeleSpectrum to maintain a prescribed interest coverage
ratio. Outstanding amounts will be paid in connection with the closing of the
Offering.
In connection with the agreement for the Acquisition of the TeleSpectrum
Operating Business, CRW Financial advanced TeleSpectrum $0.5 million, evidenced
by a promissory note due one year from the date the proceeds were received with
interest at 9.0%. The note has been contributed by CRW Financial to
TeleSpectrum Worldwide as part of the Initial Capitalization. Upon the closing
of the Acquisition of the TeleSpectrum Operating Business, TeleSpectrum
Worldwide will pay a portion of the purchase price by cancellation of the
promissory note.
38
<PAGE>
THE RESPONSE CENTER
Founded in 1987, The Response Center is a full service custom market research
firm which primarily serves clients in the telecommunications, financial
services, utilities, pharmaceuticals and healthcare industries. The Response
Center derives its revenues from the provision of market research services and
is paid on a per-project basis.
Results of Operations
The following table sets forth selected financial data and data as a percentage
of revenues for the periods indicated.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31,
1993 1994 1995 1994 1995 1995 1996
Dollars in thousands ------------- ------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $6,061 100.0% $6,183 100.0% $6,719 100.0% $1,643 100.0% $1,352 100.0% $1,941 100.0% $1,429 100.0%
Cost of services 2,911 48.0 3,426 55.4 3,583 53.3 930 56.6 748 55.3 881 45.4 786 55.0
Selling, general
and
administrative
expenses 2,806 46.3 2,800 45.3 2,717 40.5 490 29.8 435 32.2 1,061 54.7 875 61.2
------ ------ ------ ------ ------ ------ ------
Total
operating
expenses 5,717 94.3 6,226 100.7 6,300 93.8 1,420 86.4 1,183 87.5 1,942 100.1 1,661 116.2
Operating income
(loss) 344 5.7 (43) (0.7) 419 6.2 223 13.6 169 12.5 (1) (0.1) (232) (16.2)
Interest expense
(income), net (12) (0.2) (6) (0.1) (10) (0.2) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Pre-tax income
(loss) $ 356 5.9 $ (37) (0.6) $ 429 6.4 $ 223 13.6 $ 169 12.5 $ (1) (0.1) $ (232) (16.2)
====== ====== ====== ====== ====== ====== ======
</TABLE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
Revenues. Revenues decreased to $1.4 million in the three months ended March
31, 1996 from $1.9 million in the three months ended March 31, 1995, a decrease
of $0.5 million, or 26.4%. This decrease was primarily the result of reduced
revenues from The Response Center's largest client.
Cost of Services. Cost of services, which primarily consists of labor,
telephone and other call center-related operating and support expenses,
decreased to $0.8 million in the three months ended March 31, 1996 from $0.9
million in the three months ended March 31, 1995, a decrease of $0.1 million,
or 10.8%. As a percentage of revenues, cost of services increased to 55.0% in
the three months ended March 31, 1996 from 45.4% in the three months ended
March 31, 1995, as a result of reduced revenues.
Selling, General and Administrative. Selling, general and administrative
expenses were $0.9 million and $1.1 million in the three months ended March 31,
1996 and 1995, respectively, a decrease of $0.2 million, or 17.5%. As a
percentage of revenues, selling, general and administrative expenses increased
to 61.2% in the three months ended March 31, 1996 from 54.7% in the three
months ended March 31, 1995 as a result of the decrease in revenues. Selling,
general and administrative expenses include compensation paid to The Response
Center's officers totaling $0.5 million in the three months ended March 31,
1996 and $0.6 million in the three months ended March 31, 1995.
Three Months Ended December 31, 1995 Compared to Three Months Ended December
31, 1994
Revenues. Revenues decreased to $1.4 million in the three months ended December
31, 1995 from $1.6 million in the three months ended December 31, 1994, a
decrease of $0.2 million, or 17.7%. This decrease was primarily the result of
reduced revenues from The Response Center's largest client and revenues from
tracking surveys related to federal elections performed in the three months
ended December 31, 1994, which were not repeated in the three months ended
December 31, 1995.
Cost of Services. Cost of services decreased to $0.7 million in the three
months ended December 31, 1995 from $0.9 million in the three months ended
December 31, 1994, a decrease of $0.2 million, or 19.6%. As a
39
<PAGE>
percentage of revenues, cost of services decreased to 55.3% in the three months
ended December 31, 1995 from 56.6% in the three months ended December 31, 1994.
Selling, General and Administrative. Selling, general and administrative
expenses were $0.4 million and $0.5 million in the three months ended December
31, 1995 and 1994, respectively. As a percentage of revenues, selling, general
and administrative expenses increased to 32.2% in the three months ended
December 31, 1995 from 29.8% in the three months ended December 31, 1994,
primarily as a result of the decrease in revenues. Selling, general and
administrative expenses include compensation paid to The Response Center's
officers totaling $0.1 million in the three months ended December 31, 1995 and
$0.1 million in the three months ended December 31, 1994.
Year Ended September 30, 1995 Compared to Year Ended September 30, 1994
Revenues. Revenues increased to $6.7 million in 1995 from $6.2 million in 1994,
an increase of $0.5 million, or 8.7%. The Response Center generated
approximately 20.0% of 1995 revenues from new clients. This increase in
revenues was partially offset by a decrease in revenues from an existing
client.
Cost of Services. Cost of services increased to $3.6 million in 1995 from $3.4
million in 1994, an increase of $0.2 million, or 4.6%. As a percentage of
revenues, cost of services decreased to 53.3% in 1995 from 55.4% in 1994. This
decrease primarily resulted from reduced recruitment cost due to more cost
effective agreements with temporary agencies, and reduced telephone expense as
a percentage of revenues, partially offset by increased interviewer payroll
costs as a percentage of revenues. Reduced telephone expense resulted from
lower rates negotiated in a new long distance contract.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $2.7 million in 1995 from $2.8 million in 1994, a
decrease of $0.1 million, or 3.0%. As a percentage of revenues, selling,
general and administrative expenses decreased to 40.4% in 1995 from 45.3% in
1994, primarily as a result of economies of scale related to increased revenues
despite increased data processing payroll costs. Selling, general and
administrative expenses include compensation paid to The Response Center's
officers totaling $1.5 million in each of 1994 and 1995.
Year Ended September 30, 1994 Compared to Year Ended September 30, 1993
Revenues. Revenues increased to $6.2 million in 1994 from $6.1 million in 1993,
an increase of $0.1 million, or 2.0%. This increase in revenues was due to
increased revenues from new and existing clients, partly offset by a decrease
in revenues from The Response Center's largest client.
Cost of Services. Cost of services increased to $3.4 million in 1994 from $2.9
million in 1993, an increase of $0.5 million, or 17.7%. As a percentage of
revenues, cost of services increased to 55.4% in 1994 from 48.0% in 1993. This
increase was primarily the result of a single, large project in 1993 which was
billed at a higher-than-standard rate.
Selling, General and Administrative. As a percentage of revenues, selling,
general and administrative expenses decreased to 45.3% in 1994 from 46.3% in
1993. Selling, general and administrative expenses include compensation paid to
The Response Center's officers of $1.4 million in 1994 as compared to $1.7
million in 1993.
40
<PAGE>
Liquidity and Capital Resources
The Response Center's principal source of liquidity has historically been cash
flows from operating activities and loans from shareholders. The following
table sets forth selected information from The Response Center's statements of
cash flows for the periods indicated.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
THREE MONTHS ENDED THREE MONTHS
YEAR ENDED SEPTEMBER 30, DECEMBER 31, ENDED MARCH 31,
1993 1994 1995 1994 1995 1995 1996
Dollars in thousands ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net cash provided by
(used in) operating
activities $ 368 $ 111 $188 $ 764 $ 975 $ (634) $ (446)
Net cash provided by
(used in) investing
activities 158 (59) 44 (21) (57) 44 (91)
Net cash provided by
(used in) financing
activities (412) (193) (22) (22) (22) -- --
</TABLE>
From fiscal 1993 through March 31, 1996, The Response Center generated $1.2
million in cash from operating activities. During this period, $0.8 million of
cash was generated from pre-tax income plus noncash charges, and $.4 million of
cash was generated from working capital (excluding cash and current maturities
of long-term debt). Additional working capital changes were principally related
to a decrease in accounts payable and increase in accounts receivable resulting
from the increase in revenues.
Investing activities have included purchases of property and equipment, sales
of short term investments and purchases of short term investments.
Financing activities have included distributions to and borrowing activity from
shareholders.
41
<PAGE>
BUSINESS
TeleSpectrum Worldwide was founded in 1996 to create a national provider of
integrated teleservices solutions. With the capabilities of the Operating
Businesses, the Company can offer its clients complete solutions that build
upon a foundation of outbound and inbound telemarketing and include inbound
customer service, market research, direct mail and fulfillment and other direct
marketing services. The Company operates over 1,500 workstations in 20 call
centers located primarily in the eastern United States. The Company focuses on
providing teleservices to major clients in the telecommunications, insurance,
financial services, pharmaceuticals and healthcare, consumer products and high
technology industries.
INDUSTRY OVERVIEW
The teleservices industry facilitates the direct communication of marketing
information to and from current and prospective customers by telephone.
Indirect marketing methods, such as radio, television and print advertising,
employ a "one-to-many" approach to convey marketing information that can
position products and services within a broad market context. Direct marketing
methods, such as telemarketing and direct mail, employ a "one-to-one" approach
to deliver a marketing message directly to a specific current or prospective
customer and to elicit immediate customer response. In addition to traditional
outbound and inbound telemarketing, teleservices include inbound telephone-
based customer service and support and related value-added services such as
market research, direct mail and fulfillment, training, consulting, call center
management and electronic order processing.
As businesses seek greater returns from their investments in marketing
activities, they are increasingly coupling traditional indirect marketing
methods such as advertising with direct marketing methods such as
telemarketing. Advances in computer and telecommunications technology are
helping telemarketers to more accurately identify and contact potential
customers, and are providing CCRs with more complete on-line guidance and
support. Improvements in the scale and speed of computer and telecommunications
networking capabilities allow teleservices providers to implement larger and
more complex programs for their clients. As a result, clients in a variety of
industries have the opportunity to increase the breadth and depth of their
telemarketing efforts. Industry sources estimate that companies in the United
States spent approximately $77 billion on telemarketing activities in 1995.
To date, businesses have relied overwhelmingly upon in-house call center
personnel to provide telemarketing and telephone-based customer support
services. However, the Company believes that businesses are increasingly
outsourcing their ancillary needs to third party providers as they focus more
closely upon their core businesses. This trend toward outsourcing may be
reinforced by the rising level of capital expenditures necessary to provide
telemarketing services that can take full advantage of recent advances in
computer and telecommunications technology. Providers of outsourced
teleservices can offer clients economies of scale in sharing the cost of new
technology among a larger base of users than might be possible with in-house
telemarketing, while at the same time better matching available capacity to
fluctuating client demand.
As the trend toward outsourcing continues, the Company believes that businesses
will increasingly seek to reduce the number of vendors they utilize, and may
prefer single-source providers of integrated solutions drawing upon a variety
of related services and capabilities. Such a trend could encourage
consolidation within the currently fragmented teleservices industry. The
Company thus believes that further opportunities may emerge for an integrated
teleservices provider that can assemble and offer other value-added services,
such as inbound customer service, market research, direct mail and fulfillment
and other direct marketing services, which together can create complete
solutions to clients' direct marketing needs.
42
<PAGE>
STRATEGY
The Company's goal is to become the premier national provider of integrated
teleservices solutions. To attain this goal, the Company intends to employ the
following strategies:
Offer a Single Source for Complete, Integrated Solutions
The Company intends to offer its clients a single source for all of their
outsourced teleservices needs. To effect this strategy, the Company is focused
upon assembling the full spectrum of teleservices resources, including outbound
and inbound calling, customer service, market research, direct mail and
fulfillment, training, consulting, call center management and electronic order
processing. In particular, the Company will utilize its expertise and expand
its capacity to provide sophisticated and flexible inbound customer service
solutions for its clients. The Company will seek to craft tailored, value-added
teleservices solutions that are designed to achieve clients' intended marketing
results.
Establish Long-Term Relationships with Major Clients
The Company seeks to establish associations with major clients whose
outsourcing needs foster long-term, significant relationships. As clients
continue to outsource an increasing portion of their direct sales and customer
service activities, the Company will endeavor to capitalize upon its
relationships and past performance to expand the range of services that it
provides to each of its clients.
Add New Clients in Targeted Industries
The Company is focused upon expanding its client base in those industries
currently utilizing teleservices, including telecommunications, insurance,
financial services, pharmaceuticals and healthcare and high technology. The
Company believes that within these industries there are many large corporations
which may employ the services offered by the Company for a substantial portion
of their direct sales and customer service needs. The Company will seek to
provide services to new clients in its existing targeted industries, and to add
clients in new targeted industries where it believes that it can utilize its
capabilities and expertise. In particular, due to increased competition for
local and long-distance telephone customers anticipated to result from recent
deregulation, the Company has identified additional teleservices opportunities
and is targeting new clients in the telecommunications industry.
Pursue Strategic Acquisitions
The Company intends to complement internal growth through aggressive pursuit of
acquisitions to expand the Company's capacity, add new services and products
and extend its market reach. The Company's management team includes individuals
with significant experience in effecting strategic acquisitions and integrating
acquired businesses.
SERVICES OVERVIEW
Simultaneously with the closing of the Offering, TeleSpectrum Worldwide will
acquire, in the Acquisitions, the Operating Businesses. The Operating
Businesses provide the following services:
Outbound Telemarketing
The Company provides both business-to-consumer and business-to-business
outbound telemarketing services, which consist primarily of direct sales
activities initiated by the Company on behalf of clients. These activities are
directed towards client-generated, electronically transmitted lists of
customers who have been selected to match the demographic profile of the
targeted customer for the offered product or service. The Company's
computerized call management systems utilize predictive dialers to
automatically dial telephone numbers, determine if a live connection is made
and present connected calls to a CCR who has been trained for the client's
program. The client or the Company provides a prepared script to assist the CCR
in marketing the product or service to the call recipient.
43
<PAGE>
Inbound Teleservices
The Company provides inbound teleservices support for activities such as
customer service, catalog sales, response to customer inquiries and electronic
order processing. Inbound callers typically call toll-free numbers to request
product or service information, place orders for advertised products or obtain
assistance with a previous order or purchase. The Company uses automated call
distributors to direct callers to appropriate CCRs, who have access to on-line
support databases to address customers' needs.
Market Research
The Company's market research capabilities include problem conceptualization,
program design, data gathering by telephone, mail and focus groups, data
tabulation and results analysis. Interviewing personnel use advanced data
collection technology to obtain data from a statistically projectable sample of
survey contacts. The Company then tabulates and analyzes fielded data using
multi-variate statistical techniques, and produces detailed reports that can
answer clients' marketing questions and suggest further avenues of inquiry
where appropriate.
Direct Mail and Fulfillment
The Company's direct mail services include preparing, addressing, coordinating,
sorting and mailing materials to current and potential customers of the
Company's clients. The Company also provides fulfillment services, which
involve filling orders received through outbound telemarketing, direct mail
solicitation and inbound customer service calls, including automated inbound
call center services. In its direct mail operations, the Company obtains name
and address data from clients, processes the data to eliminate duplicates and
correct errors and addresses pre-printed materials, in some cases with
personalized greetings and messages. Mailings are then coordinated and collated
by automated folding and inserting equipment, sorted by zip code to obtain the
fullest available postal discounts for mass-mailings, and in most instances
mailed from the Company's in-house postal facility. In its fulfillment
operations, the Company maintains warehouse space for storage of client-
supplied products and literature, which are sorted and bar-coded for inventory
control.
Additional Value-Added Services
The Company offers additional value-added services, such as strategic
marketing, planning and consulting services, database marketing and management,
training and call center management, to complement its core teleservices
offerings. Planning and consulting services include product development and
program design. Call center management involves all aspects of recruiting,
staffing, managing operations, providing analysis and reports to clients at
their own on-site telemarketing facilities and providing call center technology
and systems integration for database development.
THE OPERATING BUSINESSES
The following table sets forth certain information about the Operating
Businesses as of March 31, 1996.
<TABLE>
<CAPTION>
INSURANCE
EMPLOYEES CCRS AGENTS WORK STATIONS CALL CENTERS
--------- ----- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
SOMAR................... 1,873 1,375 554* 686 7
NBG..................... 705 650 0 240 6
Harris.................. 149 0 0 0 1
Reich................... 829 705 72** 344 3
TeleSpectrum............ 259 194 0 134 2
The Response Center..... 230 180 0 130 1
----- ----- --- ----- ---
Total................. 4,045 3,104 626 1,534 20
</TABLE>
- --------
* Holding an aggregate of 8,000 insurance licenses in 35 states.
** Holding an aggregate of 470 insurance licenses in 46 states.
44
<PAGE>
SOMAR
Founded in 1982, SOMAR is one of the nation's largest providers of outsourced
telephone-based sales, marketing and customer management services, principally
to clients in the insurance industry and also to clients in the financial
services, telecommunications and consumer products industries. SOMAR's three
principal clients in 1995 were in the insurance industry and accounted for
32.7%, 15.7% and 15.0%, of SOMAR's 1995 revenues of $31.9 million. For the
three months ended March 31, 1996, these same clients accounted for 25.8%,
22.9% and 13.3%, of SOMAR's revenues of $9.3 million in that period. As of
March 31, 1996, SOMAR's 1,375 CCRs (of whom 554 were licensed insurance agents)
operated 686 workstations in seven call centers located in North Carolina and
West Virginia. These call centers are managed from SOMAR's headquarters
facility in Salisbury, North Carolina through local- and wide-area networking
telecommunications and computer technology.
NBG
Founded in 1991, NBG provides outbound telemarketing services to clients in the
financial services, telecommunications and high technology industries. NBG's
principal clients in 1995 were a financial services industry client and an
outsourcing contractor, which coordinated the provision of services to a
telecommunications industry company and a financial services industry company;
these two principal clients accounted for 52.7% and 39.9%, respectively, of
NBG's 1995 revenues of $12.8 million. For the three months ended March 31,
1996, these same clients accounted for 64.2% and 29.4%, respectively, of NBG's
revenues of $4.0 million in that period. As of March 31, 1996, NBG's 650 CCRs
operated 240 workstations in six call centers located in Massachusetts and
Arizona. These call centers are managed from NBG's headquarters in Cambridge,
Massachusetts.
Harris
Founded in 1931, Harris is a regional, vertically-integrated direct mail and
fulfillment organization which provides its services primarily to companies in
the pharmaceuticals and healthcare, financial services and insurance
industries. Harris operates a full service direct mail organization that
provides data processing, lettershop, printing and bindery and postal services.
Utilizing electronic tracking and automated customer interface technologies,
Harris also provides turnkey fulfillment services including warehousing,
inventory management, packing and shipping. Harris's principal client in 1995
was a pharmaceuticals industry client, which accounted for 44.7% of Harris's
1995 revenues of $12.9 million. For the three months ended March 31, 1996, this
same client accounted for 42.8% of Harris's revenues of $2.6 million in that
period.
Reich
Founded in 1978, Reich offers telemarketing services to clients in the
financial services, telecommunications and insurance industries. Reich also
offers additional value-added services to its clients, such as marketing
planning, database marketing, creative development, situation analysis, in-
house copy and art services and production management. Reich's principal
clients in 1995 were two financial services industry clients, an insurance
industry client and a telecommunications industry client, which accounted for
46.2%, 12.3%, 14.7% and 14.7%, respectively, of Reich's 1995 revenues of $12.3
million. For the three months ended March 31, 1996, these same clients
accounted for 44.7%, 0.1%, 11.8% and 34.0%, respectively, of Reich's revenues
of $5.5 million in that period. As of April 30, 1996, Reich's 705 CCRs (of whom
72 were licensed insurance agents) operated 344 workstations in Reich's three
call centers in Pennsylvania, Delaware and West Virginia. These call centers
are managed from Reich's headquarters in Philadelphia, Pennsylvania.
TeleSpectrum
Founded in 1984, TeleSpectrum specializes in providing inbound and outbound
telemarketing and fulfillment services to the high technology, pharmaceuticals
and healthcare and consumer products industries. Based in Annapolis, Maryland,
TeleSpectrum also provides call center management and telephone marketing,
consulting and training services. As of March 31, 1996, TeleSpectrum's 194 CCRs
operated 134 workstations in two call centers located in Maryland.
TeleSpectrum's proprietary training services include both customized and off-
the-shelf solutions. TeleSpectrum's principal client in 1995 was a high
technology industry client, which
45
<PAGE>
accounted for 21.7% of TeleSpectrum's 1995 revenues of $11.9 million. For the
three months ended March 31, 1996, TeleSpectrum's principal client was a high
technology industry client, which accounted for 12.6%, respectively, of
TeleSpectrum's revenues of $3.7 million in that period.
The Response Center
Founded in 1987, The Response Center is a full service custom market research
firm which primarily serves clients in the telecommunications, financial
services, utilities, pharmaceuticals and healthcare industries. The Response
Center designs and implements, through the use of customized software, research
programs in areas such as customer satisfaction, advertising tracking, product
positioning, pricing strategies and concept testing. The Response Center then
analyzes the results of its research and presents those results to clients. As
of March 31, 1996, 180 CCRs operated 130 workstations from The Response
Center's call center in Upper Darby, Pennsylvania. The Response Center's
principal client in 1995 was in the telecommunications industry and accounted
for 27.5% of 1995 revenues of $6.7 million. For the three months ended March
31, 1996, The Response Center's principal client was in the telecommunications
industry, and accounted for 20.8% of The Response Center's revenues of $1.4
million in that period.
No client referred to above was a significant client of more than one Operating
Business.
COMPETITION
The telemarketing industry is intensely competitive. Industry participants
compete primarily on price, available capacity, range of service offerings,
quality and customer service. The Company competes with numerous independent
telemarketing firms, as well as the in-house telemarketing operations of many
of its clients or potential clients. The Company's competitors include APAC
TeleServices Inc., ICT Group, Inc., ITI Marketing Services, Inc., MATRIXX
Marketing Inc., SITEL Corporation and West Telemarketing Corporation. In
addition, most businesses that are significant consumers of teleservices
utilize more than one telemarketing firm at a time and reallocate work among
various firms from time to time. A significant amount of such work is
contracted on an individual project basis, with the effect that the Company and
other firms seeking such business are required to compete with each other
frequently as individual projects are initiated. Further, the Company believes
that businesses with telemarketing operations will continue to outsource the
management of those operations and that this trend may attract new competitors,
including competitors that are substantially larger and better capitalized than
the Company, into the Company's market. The Company may not be able to compete
effectively against its current competitors, and the Company cannot assure that
additional competitors with greater resources than the Company will not enter
the industry and compete effectively against the Company or that the trend
toward outsourcing telemarketing activity will continue. To the extent that the
Company is unable to compete successfully against its existing and future
competitors, its business, operating results and financial condition could be
materially adversely affected.
SALES, MARKETING AND CLIENTS
The Company's marketing strategy centers around providing tailored solutions to
each client's teleservices needs. Each Operating Business has its own sales
personnel and, as of March 31, 1996, there were a total of 25 sales personnel
employed by all of the Operating Businesses. The Company intends to enable
sales personnel from all of its Operating Businesses to work together to take
advantage of potential cross-selling opportunities. Sales personnel are
compensated by salary and bonuses based on individual performance and overall
profitability.
Sales teams work directly with each client or potential client to develop an
effective solution to the client's teleservices needs. Often, the Company
initially develops a pilot program for a new client to demonstrate the
Company's abilities and the effectiveness of its teleservices offerings. The
Company's sales personnel often communicate results of teleservices programs
and assist clients in modifying programs for future use.
The Company generally operates under short-term contractual relationships with
its clients. Pricing often includes an initial fee, a base service charge and
separate charges for ancillary services. Service charges for telemarketing
46
<PAGE>
services are based upon hourly rates for outbound calls, per minute rates for
inbound calls or a commission or performance payment on successful sales or
results. Charges for other services such as consulting, market research,
training, direct mail and fulfillment may be computed on a fee-for-service or
piecework basis.
Historically, the Operating Businesses have acquired new clients and marketed
their services primarily by attending trade shows, advertising in industry
publications, responding to requests for proposals, pursuing client referrals
and cross-selling to existing clients. The Company targets those companies with
the greatest potential to generate recurring revenues because of their ongoing
direct sales and customer service needs, and also those which have large
customer bases which can benefit from targeted telemarketing programs. Many of
the Company's current clients have sizable in-house telemarketing operations,
and the Company often competes against those in-house operations for the
client's business. During 1995, the Company provided, on a pro forma basis,
services to over 350 clients. Mass Marketing Insurance Group accounted for
approximately 11.9% of the Company's pro forma 1995 revenues. No other client
accounted for more than 10.0% of the Company's pro forma revenues in 1995.
TARGETED INDUSTRIES
The Company targets its teleservices solutions toward clients in the following
industries:
Telecommunications
The Company provides telemarketing programs for major telecommunications
companies for long distance, cellular and cable products and services, as well
as regional telecommunications companies marketing advanced telephone features.
The Company offers its telecommunications industry clients a range of services,
including customer service, sales and survey campaigns.
Insurance
The Company works with large consumer insurance companies and their agents,
complementing its clients' own sales efforts by offering products such as life
and accidental death and dismemberment insurance. As of March 31, 1996, the
Company employed 626 agents collectively holding 8,470 state insurance licenses
from 46 states.
Financial Services
The Company provides banks and other financial services clients with a wide
range of services, which primarily consist of credit cardholder acquisitions
and also include active account generation, account balance transfer, account
retention and customer service.
Pharmaceuticals and Healthcare
The Company provides pharmaceuticals clients with product support, customer
service and fulfillment services. In addition, the Company performs market
research and analysis for clients in the healthcare industry.
Consumer Products
The Company provides its consumer products clients with customer service, order
entry and new customer acquisition services and can support inbound calls 24
hours per day and 365 days per year.
High Technology
The Company provides product support and customer service inbound teleservices
for clients in the computer hardware and software industry. In addition, the
Company provides business-to-business teleservices such as lead generation,
customer qualification and account management, as well as call center
management, for high technology clients.
PERSONNEL AND TRAINING
As of March 31, 1996, the Operating Business employed 4,045 individuals on a
full-time and part-time basis, 3,104 of whom were CCRs. The Company's ability
to hire, train and manage qualified employees is critical to its
47
<PAGE>
ability to provide high quality services to its clients. The Company's service
centers are located in areas that give the Company access to a capable labor
supply. The Company provides training upon hire, as well as advanced and
follow-up training. This training includes instruction in proper direct
marketing and customer service techniques, as well as instruction in the
specific characteristics of the industries which the Company serves. In
addition, the Company has 626 insurance CCRs, each of whom is licensed to sell
insurance in one or more states, and collectively are licensed to sell
insurance in 46 states.
QUALITY ASSURANCE
The Operating Businesses have consistently emphasized quality service and
extensive employee training. The Company's quality assurance program includes
the selection and training of qualified CCRs, the training and professional
development of call center management personnel, monitoring of calls and sales
verification and editing. Both the Company and its clients are able to perform
real time on-site and remote call monitoring to maintain quality and
efficiency. Sales confirmations may be recorded (with the customer's consent),
and callers may also be monitored by management personnel to verify the
accuracy and authenticity of transactions. Additionally, the Company is able to
provide its clients with current updates on the progress of an ongoing
telemarketing effort. Access to this data allows the Company and its clients to
identify previously unrecognized potential campaign opportunities and to
immediately modify or enhance a telemarketing effort.
GOVERNMENT REGULATION
Telemarketing sales practices are regulated at both the federal and state
level. The federal Telephone Consumer Protection Act of 1991 (the "TCPA"),
enforced by the Federal Communications Commission, imposes restrictions on
unsolicited automated telephone calls to residential telephone subscribers.
Under the TCPA it is unlawful to initiate telephone solicitations to
residential telephone subscribers before 8:00 a.m. or after 9:00 p.m., local
time at the subscriber's location, or to use automated telephone dialing
systems or artificial or prerecorded voices to call certain subscribers.
Additionally, the TCPA requires telemarketing firms to develop a written policy
implementing a "do not call" list, including the training of its telemarketing
personnel to comply with these restrictions. Currently, the Company trains its
service representatives to comply with the regulations of the TCPA and programs
its call management system to prevent initiating telephone calls during
restricted hours or to individuals maintained on the Company's "do not call"
list.
The Federal Trade Commission (the "FTC") regulates both general sales
practices, and telemarketing specifically. Under the Federal Trade Commission
Act (the "FTC Act"), the FTC has broad authority to prohibit a variety of
advertising or marketing practices that may constitute "unfair or deceptive
acts and practices."
The FTC also administers the federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 (the "TCFAPA"). Under the TCFAPA, the FTC has issued
regulations prohibiting a variety of deceptive, unfair or abusive practices in
telemarketing sales. Generally, these rules prohibit misrepresentations of the
cost, quantity, terms, restrictions, performance or characteristics of products
or services offered by telephone solicitation or of refund, cancellation or
exchange policies. The regulations also regulate the use of prize promotions in
telemarketing to prevent deception and require that a telemarketer identify
promptly and clearly the seller on whose behalf the telemarketer is calling,
the purpose of the call, the nature of the goods or services offered and, if
applicable, that no purchase or payment is necessary to win a prize. The
regulations also require that telemarketers maintain records on various aspects
of their business. The Company believes that it is in compliance with the TCPA
and the regulations promulgated pursuant to the TCFAPA.
From time to time, bills are introduced in Congress which, if enacted, would
regulate the use of credit information. There can be no assurance that any such
legislation, if enacted, will not have an adverse effect on the telemarketing
industry generally or the Company's operations specifically.
Most states have enacted statutes similar to the FTC Act prohibiting unfair or
deceptive acts and practices. A number of states have enacted legislation and
other states are considering enacting legislation to regulate
48
<PAGE>
telemarketing. For example, telephone sales in certain states are not final
until a written contract is delivered to and signed by the buyer, and such a
contract often may be canceled within three business days. At least one state
also prohibits telemarketers from requiring credit card payment, and several
other states require certain telemarketers to obtain licenses, post bonds or
submit sales scripts to the state's attorney general.
The industries served by the Company's Operating Businesses are also subject to
government regulation. Company employees who complete the sale of insurance
products are required to be licensed by various state insurance commissions and
to participate in regular continuing education programs, which currently are
provided by the Company.
TELESPECTRUM WORLDWIDE FACILITIES
The Company's corporate headquarters are located in 3,000 square feet of leased
space in King of Prussia, Pennsylvania, where it shares office space with CRW
Financial, a principal stockholder of the Company. See "Certain Relationships
and Related Party Transactions--Headquarters Lease." In addition, as of March
31, 1996 (except for facilities opened in April 1996, which are presented as of
April 30, 1996) the Company maintained the following material facilities:
<TABLE>
<CAPTION>
OPERATING DATE
BUSINESS LOCATION OPENED WORKSTATIONS
- --------- ------------------- -------------- ------------
<S> <C> <C> <C>
SOMAR Salisbury, NC February 1991 96
Winston-Salem, NC December 1992 84
Fayetteville, NC January 1994 104
Asheville, NC September 1994 81
Huntington, WV March 1995 103
Huntington, WV August 1995 103
Beckley, WV March 1996 115
NBG Cambridge, MA November 1991 32
Andover, MA November 1994 48
Westborough, MA June 1995 40
Burlington, MA December 1995 40
Phoenix, AZ December 1995 40
Cambridge, MA January 1996 40
Harris Philadelphia, PA February 1976 *
King of Prussia, PA May 1987 **
Reich Philadelphia, PA February 1989 88
Wilmington, DE January 1996 64
Wheeling, WV April 1996 192
TeleSpectrum Annapolis, MD June 1989 110
San Francisco, CA June 1989 ***
Annapolis, MD September 1992 **
Linthicum, MD June 1993 24
The Response Center Upper Darby, PA April 1996 130
-----
1,534
=====
</TABLE>
- --------
* Direct mail services.
** Fulfillment services.
*** Consulting and training services.
All of the Company's material facilities are leased, with the exception of the
Harris facility in Philadelphia, which is owned.
49
<PAGE>
In addition to the call center capacity described above, TeleSpectrum
anticipates adding 40 workstations to its Annapolis, Maryland facility in July
1996.
The Company believes that its existing and planned facilities are adequate for
the Company's current and near-term anticipated operations.
LEGAL PROCEEDINGS
The Company is not currently engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect
on the business, results of operation or financial condition of the Company.
50
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
executive officers and directors of the Company following the consummation of
this Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
J. Brian O'Neill 36 Chairman of the Board and Chief Executive Officer
Michael C. Boyd 55 President, Chief Operating Officer and Director
Richard C. Schwenk, Jr. 46 Senior Vice President and Chief Financial Officer
William F. Rhatigan 51 President of the Company's Telemarketing Division and Person
Named to Become a Director
Mark J. DeNino 42 Director
Richard W. Virtue 51 Person Named to Become a Director
Gregory M. Alcorn 38 Chief Executive Officer of the Company's SOMAR subsidiary
Patrick M. Baldasare 40 President of the Company's Response Center subsidiary
Michael J. Gallant 54 President of the Company's NBG subsidiary
Edward M. Idzik 54 President of the Company's Harris subsidiary
Morton M. Reich 56 President of the Company's Reich subsidiary
Karen E. Schweitzer 53 President of the Company's TeleSpectrum subsidiary
</TABLE>
J. BRIAN O'NEILL has been Chairman of the Board and Chief Executive Officer
since the formation of TeleSpectrum Worldwide in April 1996. Mr. O'Neill is
also Chairman of the Board of Directors and Chief Executive Officer of CRW
Financial, a receivables management company which was spun off from Casino and
Credit Services, Inc., a casino credit database and collection service
provider, in May 1995. Although Mr. O'Neill intends to devote the majority of
his time to the Company's business, he is also required to devote a substantial
amount of his time to his duties at CRW Financial. From July 1992 to May 1995,
Mr. O'Neill was Chairman and CEO of Casino and Credit Services, Inc. From May
1988 to July 1992, Mr. O'Neill was Chairman of O'Neill Properties, Inc., a real
estate development company.
MICHAEL C. BOYD has been President and Chief Operating Officer of TeleSpectrum
Worldwide since its formation in April 1996 and a director since May 1996. Mr.
Boyd was a co-founder of QVC Network, Inc., a home shopping television company,
in 1986, and served as President and Chief Operating Officer until 1994. From
1994 to 1996, Mr. Boyd was an independent consultant.
RICHARD C. SCHWENK, JR. has served as Senior Vice President and Chief Financial
Officer of TeleSpectrum Worldwide since May 1996. Mr. Schwenk served as Chief
Financial Officer and Executive Vice President of Electronic Payment Services,
Inc., a provider of automated teller machine and point-of-sale transaction
processing services, from November 1992 to January 1996. From January 1991 to
July 1992, Mr. Schwenk was the Chief Financial Officer and Vice President of
Finance for Harris Adacom Corporation, a manufacturer and distributor of data
communication and computer peripheral equipment.
WILLIAM F. RHATIGAN will serve as President of the Company's Telemarketing
Division and will become a director upon consummation of the Offering. Mr.
Rhatigan was Chairman and Chief Executive Officer of NBG Services, Inc. from
1991 until the consummation of the Offering.
MARK J. DENINO has served as a director of TeleSpectrum Worldwide since May
1996. Mr. DeNino has been a managing director of Technology Leaders Management,
Inc., the general partner of Technology Leaders II L.P., which is a venture
capital firm and significant shareholder of CRW Financial, since 1994. For more
than three years prior to that, Mr. DeNino was President of Crossroads Capital,
Inc., an investment banking firm.
RICHARD W. VIRTUE has served as Chief Executive Officer of SOMAR, Inc. since
1982, and will relinquish that post upon consummation of the Offering at which
time he will become a director of the Company. Mr. Virtue has
51
<PAGE>
entered into a consulting agreement under which he will render consulting
services to the Company following the Offering. See "Certain Relationships and
Related Party Transactions--The Acquisitions--SOMAR."
Upon consummation of the Acquisitions, the Company will form separate wholly-
owned subsidiaries which will hold the assets of the respective Operating
Businesses. The following individuals will hold the positions indicated with
such wholly-owned subsidiaries. See "Certain Transactions."
GREGORY M. ALCORN will become Chief Executive Officer of the Company's SOMAR
subsidiary upon consummation of the Offering. Mr. Alcorn served as President of
SOMAR, Inc. from 1982 until the consummation of the Offering.
PATRICK M. BALDASARE will serve as President of the Company's The Response
Center subsidiary upon consummation of the Offering. Mr. Baldasare was
President of The Response Center, Inc. from 1987 until the consummation of the
Offering.
MICHAEL J. GALLANT will serve as President of the Company's NBG subsidiary upon
consummation of the Offering. Mr. Gallant was President of NBG Services, Inc.
from 1991 until the consummation of the Offering.
EDWARD M. IDZIK will serve as President of the Company's Harris subsidiary upon
consummation of the Offering. Mr. Idzik was President of HDM and HFI from 1979
until the consummation of the Offering.
MORTON M. REICH will serve as President of the Company's Reich subsidiary upon
consummation of the Offering. Mr. Reich was President of The Reich Group, Inc.
from 1978 until the consummation of the Offering.
KAREN E. SCHWEITZER will serve as President of the Company's TeleSpectrum
subsidiary upon consummation of the Offering. Ms. Schweitzer co-founded
TeleSpectrum, Inc. and was its President from 1984 until the consummation of
the Offering.
The Company intends to elect another independent, unaffiliated director (in
addition to Mr. DeNino) to the Company's Board of Directors as promptly as
practicable.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established two committees: an Audit
Committee and a Compensation Committee.
The responsibilities of the Audit Committee include recommending to the Board
of Directors the independent public accountants to be selected to conduct the
annual audit of the books and records of the Company, reviewing the proposed
scope of such audit and approving the audit fees to be paid, accounting and
financial controls of the Company with the independent public accountants and
the Company's financial and accounting staff and reviewing and approving
transactions between the Company and its directors, officers and affiliates.
Mr. DeNino is the sole member of the Audit Committee. Following consummation of
the Offering, the additional independent, unaffiliated director to be elected
to the Company's Board of Directors will be appointed to the Audit Committee.
The Compensation Committee provides a general review of the Company's
compensation plans to ensure that they meet corporate objectives. The
responsibilities of the Compensation Committee also include administering the
1996 Stock Incentive Plan, including selecting the officers and salaried
employees to whom awards will be granted. Mr. DeNino is the sole member of the
Compensation Committee. Following consummation of the Offering, the additional
independent, unaffiliated director to be elected to the Company's Board of
Directors will be appointed to the Compensation Committee.
52
<PAGE>
DIRECTOR COMPENSATION
Directors who are not currently receiving compensation as officers, employees
or consultants of the Company are entitled to receive an annual retainer fee of
$7,500, plus $500 and reimbursement of expenses for each meeting of the Board
of Directors and each committee meeting that they attend in person. In
addition, directors receive certain formula grants of non-qualified stock
options under the 1996 Stock Incentive Plan. See "--Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee following the consummation of the
Offering are to be Mr. DeNino and the other independent, unaffiliated director
to be elected to the Company's Board of Directors as promptly as practicable.
EXECUTIVE COMPENSATION
TeleSpectrum Worldwide was incorporated in April 1996. Effective upon
consummation of the Acquisitions and for the balance of 1996, the Company
anticipates that it will, pursuant to employment agreements, pay compensation
based on the following annual salaries to its Chief Executive Officer and to
the four other individuals named below who are to be executive officers of the
Company and who the Company believes will be its four other most highly
compensated executive officers in 1996 (together, the "Named Executive
Officers").
<TABLE>
<CAPTION>
--------------------------------
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
SECURITIES
UNDERLYING
NAME POSITION SALARY BONUS OPTIONS
---- ------------------------ -------- ------- ------------
<C> <S> <C> <C> <C>
J. Brian O'Neill Chairman of the Board
and Chief Executive
Officer $130,000 $ -- 500,000(1)
President and Chief
Michael C. Boyd Operating Officer 275,000 225,000(2) 300,000(1)(3)
William F. Rhatigan President of the
Company's Telemarketing
Division 250,000 150,000(4) --
Morton M. Reich President of the
Company's Reich
subsidiary 300,000 200,000(5) --
Edward M. Idzik President of the
Company's Harris
subsidiary 275,000 225,000(4) --
</TABLE>
- --------
(1) Options are to be granted under the Company's 1996 Stock Incentive Plan as
of the date of this Prospectus at an exercise price equal to the initial public
offering price and will vest ratably over three years.
(2) Consists of a performance bonus to be awarded based in part upon the
individual's performance and in part upon the operating performance of the
Company.
(3) Does not include options to purchase 300,000 additional shares that the
Company is to grant ratably over the course of the next four years pursuant to
Mr. Boyd's employment agreement.
(4) Consists of a guaranteed bonus.
(5) Consists of a performance bonus to be awarded based in part upon the
individual's performance and in part upon the operating performance of the
Company's Reich subsidiary.
1996 STOCK INCENTIVE PLAN
The Company has adopted the 1996 Stock Incentive Plan, effective as of May 17,
1996. The 1996 Stock Incentive Plan provides for grants of stock options
("Options"), restricted stock, stock appreciation rights and performance units
(collectively, "Grants") to selected officers (including officers who are also
directors) and other employees of the Company, independent contractors and
consultants who perform services to the Company and its subsidiaries (the
"Participants"). In addition, the 1996 Stock Incentive Plan provides for grants
of formula stock options to non-employee directors. By encouraging stock
ownership, the Company seeks to motivate such individuals and to encourage such
individuals to devote their best efforts to the business and financial success
of the Company.
53
<PAGE>
General. Subject to adjustment in certain circumstances as discussed below, the
1996 Stock Incentive Plan authorizes up to 2,300,000 shares of Common Stock for
issuance pursuant to the terms of the 1996 Stock Incentive Plan. If and to the
extent Options or Grants granted under the 1996 Stock Incentive Plan expire or
are terminated for any reason without being exercised, the shares of Common
Stock subject to such Option or Grant again will be available for purposes of
the 1996 Stock Incentive Plan.
Administration of the 1996 Stock Incentive Plan. The 1996 Stock Incentive Plan
is administered and interpreted by the Compensation Committee (the "Committee")
of the Board of Directors consisting of not less than two persons appointed by
the Board of Directors from among its members, each of whom must be a
"disinterested person" as defined by Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and an "outside director" as
defined by Section 162(m) of the Code. Except with the formula stock option
grants to non-employee directors, the Committee has the sole authority to (i)
determine the individuals to whom awards shall be made under the 1996 Stock
Incentive Plan, (ii) determine the type, size and terms of the awards to be
made to each such individual, (iii) determine the time when the grants will be
made and the duration of any applicable exercise or restriction period,
including the criteria for vesting and the acceleration of vesting and (iv)
deal with any other matters arising under the Plan. See "--Committees of the
Board of Directors."
Awards. Awards under the 1996 Stock Incentive Plan may consist of (i) options
intended to qualify as incentive stock options ("ISOs") within the meaning of
Section 422 of the Code, (ii) so-called "nonqualified stock options" that are
not intended to so qualify ("NQSOs"), (iii) restricted stock, (iv) stock
appreciation rights ("SARs") and (v) performance units.
Eligibility for Participation. Awards may be made to any employee (including
officers and directors), independent contractor and consultant of the Company
or its subsidiaries. Non-employee directors of the Company are entitled only to
formula awards of NQSOs. During any calendar year, no participant may receive
awards for more than shares of Common Stock issued or available for issuance
under the 1996 Stock Incentive Plan. As of May 17, 1996, no options were
outstanding under the 1996 Stock Incentive Plan.
Options. The exercise price of any ISO granted under the 1996 Stock Incentive
Plan will not be less than the fair market value of the underlying shares of
Common Stock on the date of grant. The exercise price of an ISO granted to an
employee who owns more than 10% of the Common Stock may not be less than 110%
of the fair market value of the underlying shares of Common Stock on the date
of grant. The exercise price of an NQSO may be greater than, equal to or less
than the fair market value of the underlying shares of Common Stock on the date
of grant. The Committee will determine the term of each Option; provided,
however, that the exercise period may not exceed ten years from the date of
grant, and the exercise period of an ISO granted to an employee who owns more
than 10% of the Common Stock may not exceed five years from the date of grant.
The participant may pay the exercise price (i) in cash, (ii) with the approval
of the Committee, by delivering shares of Common Stock owned by the participant
and having a fair market value on the date of exercise equal to the exercise
price or (iii) by a combination of the foregoing. The participant may instruct
the Company to deliver the shares of Common Stock due upon the exercise to a
designated broker instead of to the participant.
Formula Option Grants to Non-Employee Directors. Non-employee directors are
entitled to receive NQSOs pursuant to the formula grants under the 1996 Stock
Incentive Plan. According to the formula grants, each non-employee director who
is a member of the Board of Directors as of the effective date of the 1996
Stock Incentive Plan will receive a grant of an NQSO to purchase 2,500 shares
of Common Stock at a price equal to the initial public offering price in this
Offering. Thereafter, on each date on which the Company holds its annual
meeting of stockholders, each non-employee director in office immediately
before and after the annual election of directors will receive a grant of an
NQSO to purchase 2,500 shares of Common Stock at an exercise price equal to the
closing price per share on The Nasdaq National Market on the date of grant.
Each non-employee director who first becomes a member of the Board of Directors
after the effective date of the 1996 Stock Incentive Plan will receive a grant
of an NQSO to purchase 2,500 shares of Common Stock on the date he or she
becomes a member of the Board of Directors, at an exercise price equal to the
closing price on The Nasdaq National Market on the date of
54
<PAGE>
grant. The term of each such option shall be ten years and each such option
shall be fully and immediately exercisable upon the date of grant.
Restricted Stock. The Committee may issue shares of restricted Common Stock to
a participant pursuant to the 1996 Stock Incentive Plan. Shares may be issued
for consideration or for no consideration, as the Committee determines. The
number of shares of Common Stock granted to each participant shall be
determined by the Committee, subject to the maximum limit described above.
Grants of restricted stock will be made subject to such performance
requirements, vesting provisions, transfer restrictions or other restrictions
and conditions as the Committee may determine in its sole discretion.
Stock Appreciation Rights. The Committee may grant SARs alone or in tandem with
any stock option pursuant to the 1996 Stock Incentive Plan. The exercise price
of an SAR will be either (i) the exercise price of the related stock option or
(ii) the fair market value of a share of Common Stock on the date of grant of
the SAR. When the participant exercises an SAR, the participant will receive
the amount by which the fair market value of the Common Stock on the date of
exercise exceeds the exercise price of the SAR. The participant may elect to
have such appreciation paid in cash or in shares of Common Stock, subject to
Committee approval. To the extent a participant exercises a tandem SAR, the
related option shall terminate. Similarly, upon exercise of a stock option, the
related SAR, if any, shall terminate.
Performance Units. The Committee may grant performance unit awards payable in
cash or shares of Common Stock at the end of a specified performance period.
Payment will be contingent upon achieving performance goals by the end of the
performance period. The measure of a performance unit may, in the Committee's
discretion, be equal to the fair market value of a share of Common Stock. The
performance goals will be comprised of specified annual levels of one or more
performance criteria as the Committee may deem appropriate such as earnings per
share of Common Stock of the Company, net earnings, operating earnings, unit
volume, net sales, market share, balance sheet measurements, cash return on
assets, stockholder return, or return on capital. The Committee will determine
the length of an award period, the maximum payment value of an award, and the
minimum performance goals required before payment will be made.
Amendment and Termination of the 1996 Stock Incentive Plan. The Board of
Directors may amend or terminate the 1996 Stock Incentive Plan at any time;
provided, however, that, the Board of Directors may not amend the 1996 Stock
Incentive Plan to (i) increase (except for increases due to the adjustments
discussed below) the aggregate number of shares of Common Stock for which
Options and/or Grants may be granted hereunder, (ii) decrease the minimum
exercise price specified by the 1996 Stock Incentive Plan in respect of ISOs,
(iii) change the class of employees eligible to receive ISOs under the 1996
Stock Incentive Plan, (iv) increase the individual limit of shares of Common
Stock for which Options and/or Grants may be granted to any single individual
under the 1996 Stock Incentive Plan, or (v) make any amendment that requires
stockholder approval pursuant to Rule 16b-3 of the Exchange Act or 162(m) of
the Code without stockholder approval. The 1996 Stock Incentive Plan will
terminate on the day immediately preceding the tenth anniversary of its
effective date, unless terminated earlier by the Board of Directors or extended
by the Board of Directors with approval of the stockholders.
Adjustment Provisions. Subject to the change of control provisions below, in
the event of certain transactions identified in the 1996 Stock Incentive Plan,
the Board of Directors may appropriately adjust: (i) the number of shares of
Common Stock (and the option price per share) subject to the unexercised
portion of any outstanding options or SARs, (ii) the number of sharers of
Common Stock to be acquired pursuant to an award which has not vested, and
(iii) the number of shares of Common Stock for which awards may be made under
the 1996 Stock Incentive Plan, and such adjustments shall be effective and
binding for all purposes of the 1996 Stock Incentive Plan.
Change of Control of the Company. In the event of a change of control, all
Options and Grants shall be fully vested. Each participant will be provided
with advance written notice by the Company prior to the change of control (to
the extent possible) and will have the right, within 90 days after such notice,
to exercise the options and SARs in full. Any Options or SARs not timely
exercised will terminate unless exchanged or substituted with
55
<PAGE>
the Company (or its successor). Within 12 months following a change of control,
a percentage of the performance unit payments, if any, for the full performance
period in which the participant so terminates equal to the percentage of the
performance period during which the participant was in the employ or service of
the Company (or its successor) and all amounts for the prior performance period
if not then distributed will be distributed to such participant in a lump sum.
A change of control is defined as (i) a tender offer, merger or other
transaction as a result of which any person or group becomes the owner of more
than of the Common Stock or the combined voting power of the Company's then
outstanding securities, (ii) a liquidation or a sale of substantially all the
Company's assets, (iii) the individuals constituting the Board of Directors or
individuals nominated or elected by them cease to constitute a majority of the
Board of Directors, or (iv) the Company's merger or consolidation with any
other corporation (other than a wholly owned subsidiary) if the Company is not
the surviving corporation (or survives only as a subsidiary of another
corporation).
Section 162(m). Under Section 162(m) of the Code, the Company may be precluded
from claiming a federal income tax deduction for total remuneration in excess
of $1,000,000 paid to the chief executive officer or to any of the other four
most highly compensated officers in any one year. Total remuneration would
include amounts received upon the exercise of stock options granted under the
1996 Stock Incentive Plan and the value of shares received when the shares of
restricted stock became transferable (or such other time when income is
recognized). An exception does exist, however, for "performance-based
compensation," including amounts received upon the exercise of stock options
pursuant to a plan approved by stockholders that meets certain requirements.
The 1996 Stock Incentive Plan has been approved by stockholders and is intended
to make grants of Options thereunder meet the requirements of "performance-
based compensation." Awards of restricted stock generally will not qualify as
"performance-based compensation."
New Plan Benefits. Upon the Effective Date, it is contemplated that the Company
will grant certain Options under the 1996 Stock Incentive Plan at an exercise
price equal to the initial public offering price per share. The options will
vest one-third each on the first, second and third anniversaries of the date of
grant, and will expire on the tenth anniversary of the date of grant. The
following table sets forth certain information with respect to such
contemplated Option grants.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE(1) NUMBER OF UNITS(2)
----------------- --------------- ------------------
<S> <C> <C>
J. Brian O'Neill........................ Not determinable 500,000
Chairman of the Board and Chief
Executive Officer
Michael C. Boyd......................... Not determinable 300,000(3)
President and Chief Operating Officer
William F. Rhatigan..................... Not determinable --
President of the Company's
Telemarketing Division
Morton M. Reich......................... Not determinable --
President of the Company's Reich
subsidiary
Edward M. Idzik......................... Not determinable --
President of the Company's Harris
subsidiary
All current executive officers as a
group.................................. Not determinable 800,000
All current directors who are not
executive officers as a group.......... Not determinable 2,500
All employees, including all current
officers who are not executive
officers, as a group................... Not determinable 381,100
</TABLE>
- --------
(1)The dollar values of the awards under the 1996 Stock Incentive Plan are not
determinable at this time, since the options are expected to be granted at an
exercise price equal to the initial public offering price of the Common Stock.
(2) The number of units represents the number of shares of Common Stock
underlying the options expected to be granted.
(3)Does not include options to purchase 300,000 additional shares that the
Company is to grant ratably over the course of the next four years pursuant to
Mr. Boyd's employment agreement.
56
<PAGE>
EMPLOYMENT AGREEMENTS
Effective as of the consummation of the Offering, the Company and the wholly
owned subsidiaries of the Company which will hold the net assets of the
Operating Businesses will enter into employment agreements with the Named
Executive Officers and certain of its other executive officers. Mr. O'Neill's
agreement provides that he will be employed by the Company at an annual salary
of $130,000. Mr. Boyd's agreement provides that he will be employed by the
Company at an annual salary of $275,000, plus an annual performance bonus of up
to $225,000 based in part upon his performance and in part upon the operating
performance of the Company. Mr. Schwenk's agreement provides that he will be
employed by the Company at an annual salary of $200,000, plus an annual
performance bonus of up to $150,000 based in part upon his performance and in
part upon the operating performance of the Company. Mr. Rhatigan's agreement
provides that he will be employed by the Company at an annual salary of
$250,000, plus an annual guaranteed bonus of $150,000. Mr. Alcorn's agreement
provides that he will be employed by the Company at an annual salary of
$195,000, plus an annual performance bonus of up to $195,000 based upon the
operating performance of the Company's SOMAR subsidiary. Mr. Baldasare's
agreement provides that he will be employed at an annual salary of $195,000,
which shall increase to $220,000 after December 21, 1997, plus an annual bonus,
which bonus shall be a portion of a pool, the amount of which shall be
determined by the operating performance of the Company's The Response Center
subsidiary. Mr. Gallant's agreement provides that he will be employed by the
Company at an annual salary of $250,000, plus an annual guaranteed bonus of
$150,000. Mr. Idzik's agreement provides that he will be employed by the
Company at an annual salary of $275,000, plus an annual guaranteed bonus of
$225,000. Mr. Reich's agreement provides that he will be employed by the
Company at an annual salary of $300,000 plus an annual performance bonus of up
to $200,000 based in part upon his performance and in part upon the operating
performance of the Company's Reich subsidiary. Ms. Schweitzer's agreement
provides that she will be employed by the Company at an annual salary of
$160,000 plus an annual performance bonus of at least $150,000 based in part
upon her performance, and in part upon the operating performance of the
Company's TeleSpectrum subsidiary. The agreements are for three- to four-year
terms of employment and provide for severance payments, upon termination of
employment without cause, equal to the salary and, in certain instances, bonus
for the remainder of the term. The agreements also contain confidentiality and
non-competition provisions. The non-competition provisions apply throughout the
term of employment and for a period of two years thereafter.
57
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following table contains information concerning the aggregate cash paid and
stock and warrants issued in connection with the Acquisitions (excluding cash
and securities that may be paid or issued in connection with earn-out
arrangements).
<TABLE>
<CAPTION>
CASH SHARES
(IN SHARES OF UNDERLYING
OPERATING BUSINESS MILLIONS) COMMON STOCK WARRANTS
- ------------------ --------- ------------ ----------
<S> <C> <C> <C>
SOMAR...................................... $25.0 2,207,340 210,000
NBG........................................ 14.1 1,120,225 112,500
Harris..................................... 12.2 202,192 60,900
Reich...................................... 20.0 441,468 105,000
TeleSpectrum............................... 8.0(1) 176,587 44,100
The Response Center........................ 11.6 256,051 60,900
----- --------- -------
Total.................................... $90.9 4,403,863 593,400
</TABLE>
- --------
(1) Does not include the cancellation of a $0.5 million promissory note from
the Seller of the Operating Business held by the Company.
THE ACQUISITIONS
Simultaneously with and as a condition of the consummation of the sale of the
shares of Common Stock offered hereby, TeleSpectrum Worldwide will acquire the
Operating Businesses in the Acquisitions, upon the following material terms:
SOMAR
TeleSpectrum Worldwide will acquire substantially all of the assets (and assume
substantially all of the liabilities) of SOMAR for $25.0 million in cash,
2,207,340 shares of Common Stock, contingent payments, the grant of warrants
and the payment of certain of SOMAR's expenses. The contingent payment for
1996, if any, is equal to 50% of the amount by which the earnings before
interest and taxes ("EBIT") of the Company's SOMAR subsidiary for 1996 exceed
$4.3 million and is payable in cash. The contingent payment for 1997, if any,
is equal to the amount by which 1997 EBIT of the Company's SOMAR subsidiary
exceeds $17.3 million, multiplied by five, less the bonus payment discussed
below, not to exceed $45.0 million. The 1997 payment is payable in Common Stock
registrable upon demand by SOMAR. The number of shares to be issued in
satisfaction of the contingent payment will be calculated by reference to the
trading price of the Company's Common Stock at the time of the determination of
1997 EBIT. In addition, the Company shall make a bonus payment to the Company's
SOMAR Subsidiary, in an amount equal to 50% of the amount by which the 1997
EBIT exceeds $17.3 million, not to exceed $5.0 million. The bonus payment is
payable in cash to the SOMAR subsidiary for the purpose of granting bonuses to
employees of the SOMAR subsidiary, at the discretion of Mr. Alcorn. SOMAR shall
reimburse the Company the amount, if any, by which the shareholders' equity set
forth on the SOMAR balance sheet as of the closing date of the Acquisition is
less than the shareholders' equity set forth on the SOMAR balance sheet as of
December 31, 1995, excluding expenses associated with the Acquisition and the
Offering and certain permitted distributions.
The Company will issue warrants exercisable for an aggregate of 210,000 shares
of Common Stock to certain senior management personnel of SOMAR, including
Messrs. Alcorn (31,500 shares) and Virtue (129,500 shares) at an exercise price
per share equal to the initial public offering price. The warrants will be
immediately exercisable and will expire ten years from issuance. On the
Effective Date the Company will grant options under the 1996 Stock Incentive
Plan to purchase an aggregate of 90,000 shares of Common Stock to certain
employees of SOMAR, not including Messrs. Alcorn and Virtue, at an exercise
price per share equal to the initial public offering price, which options shall
be subject to a three-year vesting period. The Company has granted piggyback
registration rights with respect to those shares issued in payment of a portion
of the purchase price of the Acquisition. SOMAR has the right to include in the
Offering 171,429 shares of Common Stock.
The Company will cause the Operating Business of SOMAR to be held and operated
as a separate subsidiary of the Company through December 31, 1997. The Company
has committed to make available to the Company's
58
<PAGE>
SOMAR subsidiary up to $14.0 million for the purpose of meeting SOMAR's capital
expenditure requirements. At or prior to the Effective Date, CRW Financial, a
significant stockholder of the Company, will nominate and vote its shares in
favor of the election of Mr. Virtue to the Company's Board of Directors.
The Company will reimburse SOMAR for the fees and expenses incurred in
connection with the audit of its financial statements for the years ended
December 31, 1993 and 1994; one-half of the fee paid by SOMAR to The Robinson-
Humphrey Company, Inc., not to exceed $400,000; one-half of all accounting
fees, excluding those fees described above, incurred by SOMAR in connection
with the Acquisition and the Offering; and one-half of the legal fees incurred
by SOMAR in connection with the Acquisition and the Offering.
Upon consummation of the Offering, Mr. Virtue will repay to the Seller of the
SOMAR Operating Business an advance that, as of March 31, 1996, was in the
amount of $1.0 million. At or prior to the consummation of the Offering, all
amounts owing to the Company from certain entities which are under common
control and ownership with SOMAR, Inc. (the "SOMAR Affiliates"), or owing to
the SOMAR Affiliates from the Company, will be fully satisfied. All agreements,
understanding and arrangements with such SOMAR Affiliates will be amended so
that all continuing obligations of the Company's SOMAR subsidiary thereunder
are no greater than they would be under agreements with unaffiliated third
parties.
NBG
TeleSpectrum Worldwide will acquire substantially all of the assets (and assume
substantially all of the liabilities) of NBG for $14.1 million in cash,
1,120,225 shares of Common Stock, a contingent payment, the grant of warrants,
and the payment of certain of NBG's expenses. The contingent payment is equal
to the amount by which the product of NBG's 1996 EBIT and 7.25 exceeds $25.4
million. The amount of the contingent payment is payable in the form of a
convertible promissory note to be issued at closing of the Acquisition of NBG,
which note is payable in three equal installments of principal, together with
accrued interest thereon, ending January 2, 1999. Interest on the unpaid
principal balance of the note accrues at 7.25% per annum. The outstanding
principal balance, or a portion thereof, is convertible into shares of the
Common Stock after the thirtieth day following the first anniversary of the
closing of the Acquisition of NBG, at a conversion price equal to the average
of the closing sale prices of the Common Stock on the five trading days prior
to December 31, 1996. NBG shall reimburse the Company the amount, if any, by
which the shareholders' equity set forth on the NBG balance sheet as of the
closing date of the Acquisition is less than the shareholders' equity set forth
on the NBG balance sheet as of December 31, 1995, excluding certain permitted
distributions.
The Company will issue warrants exercisable for an aggregate of 56,250 shares
of Common Stock to each of Messrs. Rhatigan and Gallant, at an exercise price
per share equal to the initial public offering price. The warrants will be
immediately exercisable and will expire ten years from the date of issuance. On
the Effective Date, the Company will grant options under the 1996 Stock
Incentive Plan to purchase an aggregate of 75,000 shares of the Common Stock to
certain employees of NBG, not including Messrs. Rhatigan and Gallant, at an
exercise price per share equal to the initial public offering price, which
options shall be subject to a three-year vesting period. NBG has piggyback
registration rights with respect to those shares of Common Stock issued in
payment of a portion of the purchase price of the Acquisition and those shares
of Common Stock to be issued pursuant to the convertible note, if any. NBG has
the right to include in the Offering 285,714 shares of Common Stock.
At or prior to the Effective Date, CRW Financial, a significant stockholder of
the Company, shall nominate and vote its shares in favor of the election of Mr.
Rhatigan to the Company's Board of Directors. The Company will cause the
Operating Business of NBG to be held and operated as a separate subsidiary
through December 31, 1996. The Company shall pay the expenses incurred by NBG's
independent public accounting firm and up to $100,000 of the legal fees
incurred by NBG in connection with the Acquisition and the Offering.
Harris
TeleSpectrum Worldwide will acquire substantially all of the assets (and assume
substantially all of the liabilities) of Harris for $12.2 million in cash,
202,192 shares of Common Stock, the grant of warrants and the payment of
certain of Harris's expenses. Harris has piggyback registration rights with
respect to those shares of Common Stock issued in payment of a portion of the
purchase price of the Acquisition. The Company will issue warrants exercisable
for an aggregate of 60,900 shares of Common Stock to certain executives of
Harris, including warrants exercisable for 54,810 shares to Mr. Idzik, at an
exercise price per share equal to the initial public offering price.
59
<PAGE>
The warrants will be immediately exercisable and will expire ten years from the
date of issuance. On the Effective Date, the Company will grant options under
the 1996 Stock Incentive Plan to purchase an aggregate of 26,100 shares of the
Common Stock to certain employees of Harris, not including Mr. Idzik, at an
exercise price per share equal to the initial public offering price, which
options shall be subject to a three-year vesting period. Harris shall reimburse
the Company the amount, if any, by which the shareholders' equity set forth on
the Harris balance sheet as of the closing date of the Acquisitions is less
than the shareholders' equity set forth on the Harris balance sheet as of
December 31, 1995, excluding certain permitted distributions. The Company will
pay the expenses incurred by Harris's independent accounting firm and up to
$100,000 of the legal fees incurred by Harris in connection with the
Acquisition and the Offering.
Reich
TeleSpectrum Worldwide will acquire substantially all of the assets (and assume
substantially all of the liabilities) of Reich for $20.0 million in cash,
441,468 shares of Common Stock, a contingent payment, the grant of warrants,
and the payment of certain of Reich's expenses. The contingent payment is based
upon the amount, if any, by which Reich's 1996 EBIT multiplied by 7.25 exceeds
$25.0 million and is payable in the form of a convertible promissory note to be
issued at closing of the Acquisition, which note is payable in three equal
installments of principal, together with accrued-interest thereon, ending
January 2, 1999. Interest on the unpaid principal balance of the note accrues
at 7.25% per annum. The outstanding principal balance is convertible into
shares of the Common Stock, after the thirtieth day following the first
anniversary of closing of the Acquisition of Reich, at a conversion price equal
to the average of the closing sale prices of the Common Stock on the five
trading days prior to December 31, 1996. The Company will issue warrants
exercisable for an aggregate of 105,000 shares of Common Stock to Morton M.
Reich, at an exercise price per share equal to the initial public offering
price. The warrants will be immediately exercisable and will expire ten years
from the date of issuance. On the Effective Date, the Company will grant
options under the 1996 Stock Incentive Plan to purchase an aggregate of 45,000
shares of the Common Stock to certain employees of Reich, not including Mr.
Reich, at an exercise price per share equal to the initial public offering
price, which options shall be subject to a three-year vesting period. Reich has
piggyback registration rights with respect to those shares of Common Stock
issued in payment of a portion of the purchase price of the Acquisition and
those shares of Common Stock to be issued pursuant to the convertible note, if
any. Reich shall reimburse the Company the amount, if any, by which the
shareholders' equity set forth on the Reich balance sheet as of the closing
date is less than the shareholders' equity set forth in the Reich balance sheet
as of December 31, 1995, excluding expenses associated with the Acquisition and
the Offering. In addition, prior to the closing of the Acquisition, Reich may
(i) make distributions in an amount necessary to enable Mr. Reich to pay all
federal, state and local taxes for all periods prior to such closing and (ii)
distribute on the day immediately prior to such closing an amount equal to the
aggregate net income of Reich for federal income tax purposes for 1995;
provided, however, that if Reich does not have sufficient cash to make such
distributions, the Company will assume an obligation to pay such amount prior
to March 1, 1997. One of the liabilities assumed by the Company from Reich is
an outstanding debt to Morton M. Reich, as of March 31, 1996, in the aggregate
amount of $220,000. The Company will repay this debt in its entirety upon
consummation of the Offering. The Company will cause the Operating Business of
Reich to be held and operated as a separate subsidiary at least through
December 31, 1996. The Company will pay the expenses incurred by Reich's
independent accounting firm and up to $100,000 of the legal fees incurred by
Reich in connection with the Acquisition and the Offering.
TeleSpectrum
TeleSpectrum Worldwide will acquire substantially all of the assets (and assume
substantially all of the liabilities) of TeleSpectrum for $8.0 million in cash,
176,587 shares of Common Stock, the grant of warrants, the payment of certain
of TeleSpectrum's expenses and the cancellation of the outstanding principal
amount of a promissory note held by TeleSpectrum Worldwide, in the original
principal amount of $500,000, which represented an advance of purchase price
from CRW Financial to TeleSpectrum on behalf of TeleSpectrum Worldwide. The
Company will issue warrants exercisable for an aggregate of 44,100 shares to
two executives of TeleSpectrum, including warrants to Ms. Schweitzer
exercisable for 22,050 shares at an exercise price per share equal to the
initial public offering price. The warrants will be immediately exercisable and
will expire ten years from the date of issuance. On the Effective Date, the
Company will grant options under the 1996 Stock Incentive Plan to purchase an
aggregate of
60
<PAGE>
18,900 shares of Common Stock to certain employees of TeleSpectrum, not
including Ms. Schweitzer, at an exercise price per share equal to the initial
public offering price, which options shall be subject to a three year vesting
period. TeleSpectrum has piggyback registration rights with respect to those
shares of Common Stock issued in payment of a portion of the purchase price of
the Acquisition. TeleSpectrum shall reimburse the Company the amount, if any,
by which the shareholders' equity set forth on the TeleSpectrum balance sheet
as of the closing date of the Acquisition is less than the shareholders' equity
set forth on the TeleSpectrum balance sheet as of December 31, 1995. The
Company will pay the expenses incurred by TeleSpectrum's independent accounting
firm and up to $100,000 of the legal fees incurred by TeleSpectrum in
connection with the Acquisition and the Offering.
The Response Center
TeleSpectrum Worldwide will acquire substantially all of the assets (and assume
substantially all of the liabilities) of The Response Center for $11.6 million
in cash, 256,051 shares of Common Stock, the grant of warrants and the payment
of certain of The Response Center's expenses. The Company will issue warrants
exercisable for an aggregate of 60,900 shares of Common Stock to certain
executives of The Response Center, including warrants to Mr. Baldasare
exercisable for 55,474 shares, at an exercise price per share equal to the
initial public offering price. The warrants will be immediately exercisable and
will expire ten years from the date of issuance. On the Effective Date, the
Company will grant options under the 1996 Stock Incentive Plan to purchase an
aggregate of 26,100 shares of Common Stock to certain employees of The Response
Center, including 11,887 to Mr. Baldasare, at an exercise price per share equal
to the initial public offering price. The Response Center has piggyback
registration rights with respect to those shares of Common Stock issued at
closing in payment of a portion of the purchase price of the Acquisition.
TeleSpectrum Worldwide will pay the expenses incurred by The Response Center's
independent public accounting firm and up to $100,000 of legal fees incurred in
connection with the Acquisition and the Offering. The Response Center shall
reimburse the Company the amount, if any, by which the shareholders' equity set
forth on The Response Center balance sheet as of the closing date is less than
the sum of the shareholders' equity set forth on The Response Center balance
sheet as of September 30, 1995 and The Response Center's net income for income
tax purposes for the period from October 1, 1995 through March 31, 1996, minus
the sum of $455,000 and certain permitted distributions.
CONSULTING AGREEMENT WITH PERSON NAMED TO BECOME DIRECTOR
Effective as of the consummation of the Offering, the Company will enter into a
consulting agreement with Richard W. Virtue, who has been named to become a
director of the Company. Mr. Virtue's agreement provides that he will perform
consulting services for the Company for $150,000 per year. The agreement has a
three-year term and contains confidentiality and non-competition provisions.
HEADQUARTERS LEASE
TeleSpectrum Worldwide subleases an aggregate of approximately 3,000 square
feet of space in King of Prussia, Pennsylvania from CRW Financial. The space
houses TeleSpectrum Worldwide's headquarters facility and comprises 14.2% of
the aggregate space previously occupied by CRW Financial at this location. CRW
Financial, in turn, leases this space from CRW Building Limited Partnership, a
partnership controlled by J. Brian O'Neill, who is Chairman and Chief Executive
Officer of both TeleSpectrum Worldwide and CRW Financial. The sublease
commenced on May 9, 1996, and expires on September 30, 2004. Under the
sublease, TeleSpectrum Worldwide performs and pays 14.2% of all obligations of
CRW Financial under its lease with CRW Building Limited Partnership; monthly
base rent payments under the sublease are approximately $4,100. TeleSpectrum
Worldwide believes that the sublease reflects the prevailing commercial market
rate for the space that it occupies.
61
<PAGE>
CRW TRANSACTIONS
Initial Capitalization
CRW Financial, the sole stockholder of TeleSpectrum Worldwide, has made a
capital contribution to TeleSpectrum Worldwide of $1.6 million in cash and $0.5
million in the form of a promissory note from TeleSpectrum, Inc. to CRW
Financial. The capital contribution represents the proceeds of borrowings by
CRW Financial under subordinated notes (the "CRW Notes") issued to eight
individuals and one partnership (the "Lenders") on May 22, 1996. Amounts
outstanding under the CRW Notes bear interest at 12% per annum. Principal and
interest on the CRW Notes are due and payable in full immediately upon
repayment in full of all amounts owing from CRW Financial to Mellon Bank N.A.
(the "Mellon Repayment"), or in quarterly installments of 12.5% of the
principal amount plus accrued but unpaid interest beginning January 1, 1997 if
the Mellon Repayment has not been effected on or before any such quarterly
repayment date. As part of the consideration for the CRW Notes, CRW Financial
issued to the Lenders warrants (the "CRW Lender Warrants") to purchase a total
of 1,433,454 shares of Common Stock of TeleSpectrum Worldwide that are
currently owned by CRW Financial. The CRW Lender Warrants are exercisable at
any time during a 10-year period at a price of $1.50 per share (the "CRW
Warrant Price"), the fair value of a share of Common Stock of TeleSpectrum
Worldwide on the date of grant, as determined by the CRW Financial Board of
Directors. In connection with the CRW Initial Capitalization, TeleSpectrum
Worldwide has granted the Lenders the right to have the TeleSpectrum Worldwide
shares of Common Stock owned by CRW Financial and underlying the CRW Lender
Warrants registered under the Securities Act along with the registration of any
other TeleSpectrum Worldwide shares of Common Stock and also the right to
certain demand registrations subject to the Lenders' agreement not to sell
during the 180 days after consummation of the Offering any shares of Common
Stock acquired through exercise of the CRW Lender Warrants. The Lenders, their
respective relationships with CRW Financial and TeleSpectrum Worldwide and
their respective loan and share amounts are as follows:
<TABLE>
<CAPTION>
SHARES OWNED BY
CRW FINANCIAL AND
UNDERLYING CRW
LENDER CRW NOTE LENDER WARRANTS
- ------ -------- -----------------
<S> <C> <C>
Technology Leaders II L.P. $650,000 443,693
Stockholder of CRW Financial
J. Brian O'Neill 650,000 443,693
Chairman of the Board and Chief Executive
Officer of CRW Financial and of the Company
Michael C. Boyd 200,000 136,514
President and Chief Operating Officer of the Com-
pany
Richard C. Schwenk, Jr. 200,000 136,514
Senior Vice President and Chief Financial Officer
of the Company
Bernard Morgan 100,000 68,250
Director of CRW Financial
Robert N. Verratti 100,000 68,250
Director of CRW Financial
Arthur R. Spector 100,000 68,250
Consultant to CRW Financial
Jonathan P. Robinson 50,000 34,145
Chief Financial Officer of CRW Financial and
Director of Acquisitions of the Company
Kevin E. Mullin 50,000 34,145
Director of Acquisitions of CRW Financial
---------- ---------
$2,100,000 1,433,454
========== =========
</TABLE>
62
<PAGE>
CRW Management Warrants
CRW Financial granted warrants (the "CRW Management Warrants") on May 17, 1996
to four individuals related to CRW Financial (the "CRW Managers") who are
performing services on behalf of CRW Financial in connection with the
Acquisitions and the Offering. The CRW Management Warrants entitle the holders
to purchase a total of 839,108 shares of Common Stock of TeleSpectrum Worldwide
that are currently owned by CRW Financial. The CRW Management Warrants vest
immediately and are exercisable at any time after vesting during a 10-year
period at the CRW Warrant Price. TeleSpectrum Worldwide has granted the CRW
Managers the right to have the shares of Common Stock underlying the CRW
Management Warrants registered under the Securities Act along with the
registration of any other shares of Common Stock and also the right to certain
demand registrations, subject to the CRW Managers' agreement not to sell during
the 180 days after consummation of the Offering any shares of Common Stock
acquired through exercise of the CRW Management Warrants. The CRW Managers
(whose respective relationships with CRW Financial and TeleSpectrum Worldwide
are described above in connection with the CRW Notes) and their respective
share amounts underlying the CRW Management Warrants are as follows: J. Brian
O'Neill--610,160 shares; Arthur R. Spector--76,316 shares; Jonathan P.
Robinson--76,316 shares; and Kevin E. Mullin--76,316 shares.
CRW Market Research
On or prior to the Effective Date, CRW Financial will terminate the operations
of the market research business it has conducted since January 1996 ("CRWMR")
and will make the employees of CRWMR available to be hired by the Company or
The Response Center subsidiary on or after the closing of the Acquisitions.
Neither the Company nor The Response Center subsidiary will have any obligation
to hire any CRWMR employees. CRW Financial will retain the accounts receivable
and all accounts payable and other obligations associated with the CRWMR
business.
63
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
Prior to the Acquisitions and the Offering, all of the Common Stock was held by
CRW Financial. The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of May 22, 1996, assuming
completion of the Acquisitions, and as adjusted to reflect the sale of the
Common Stock being offered hereby, by: (i) each person (or group of affiliated
persons) known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock; (ii) each executive officer of the
Company; (iii) each director of the Company and each person named to become a
director; (iv) all of the Company's directors, persons named to become
directors and executive officers as a group; and (v) the Selling Stockholders.
Each stockholder possesses sole voting and investment power with respect to the
shares listed, unless otherwise noted.
<TABLE>
-----------------------------------------------------------------------------
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY
PRIOR TO THE OFFERING NUMBER OF OWNED AFTER OFFERING
---------------------------------- SHARES ----------------------------------
NUMBER BEING NUMBER
BENEFICIAL OWNER OF SHARES PERCENT OFFERED OF SHARES PERCENT
- ---------------- --------------- ----------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
CRW Financial, Inc. 8,510,137 65.9 -- 8,510,137 36.7
443 South Gulph Road
King of Prussia, PA
19406
J. Brian O'Neill 8,510,137 (1) 65.9 -- 8,510,137 (1) 36.7
443 South Gulph Road
King of Prussia, PA
19406
Technology Leaders II 8,510,137 (2) 65.9 -- 8,510,137 (2) 36.7
L.P.
435 Devon Park Drive
Wayne, PA 19087
SOMAR, Inc. 2,207,340 17.1 171,429 2,035,911 8.8
118 South Main Street
Salisbury, NC 28144
NBG Services, Inc. 1,120,225 8.7 285,714 834,511 3.6
One Broadway, 12th
Floor
Cambridge, MA 02142
Michael C. Boyd 136,514 (3) 1.0 -- 136,514 (3) *
Richard C. Schwenk, Jr. 136,514 (3) 1.0 -- 136,514 (3) *
Mark J. DeNino 8,512,637 (2)(4) 65.9 -- 8,512,637 (2)(4) 36.7
William F. Rhatigan 1,176,475 (5) 9.1 -- 890,761 (5) 3.8
Richard W. Virtue 2,336,840 (6) 17.9 -- 2,165,411 (6) 9.3
Gregory M. Alcorn 31,500 (7) * -- 31,500 (7) *
Patrick M. Baldasare 323,412 (8) 2.4 -- 323,412 (8) 1.4
Edward M. Idzik 257,002 (9) 2.0 -- 257,002 (9) 1.1
Morton M. Reich 546,468 (10) 4.1 -- 546,468 (10) 2.3
Karen E. Schweitzer 198,637 (11) 1.5 -- 198,637 (11) *
Michael J. Gallant 1,176,475 (5) 9.1 -- 890,761 (5) 3.8
All directors, persons
named to become direc-
tors and executive of-
ficers, as a group (12
persons) 13,439,221 (12) 100.0 457,143 12,982,078 (12) 54.7
</TABLE>
- --------
* Less than one percent.
(1)Consists of 8,510,137 shares held by CRW Financial. Mr. O'Neill is Chairman
of the Board and Chief Executive Officer, and a principal stockholder, of CRW
Financial, and may be deemed to have shared voting and investment power over
the shares held by CRW Financial. Mr. O'Neill disclaims beneficial ownership of
all such shares. Of the shares held by CRW Financial, 443,693 shares are
purchasable by Mr. O'Neill from CRW Financial upon the exercise of CRW Lender
Warrants granted to Mr. O'Neill, and 610,160 shares are issuable by CRW
Financial to Mr. O'Neill upon the exercise of CRW Management Warrants granted
to Mr. O'Neill. Does not include 500,000 shares issuable upon the exercise of
stock options contemplated to be granted to Mr. O'Neill under the 1996 Stock
Incentive Plan upon consummation of the Offering at an exercise price equal to
the initial public offering price per share. None of the excluded warrants or
options will be exercisable within 60 days of May 22, 1996.
64
<PAGE>
(2)Consists of 8,510,137 shares held by CRW Financial. Mark J. DeNino is a
managing director of Technology Leaders Management, Inc., which is a general
partner of Technology Leaders II L.P. ("TL Ventures"), a significant
stockholder of CRW Financial, and may be deemed to share with Technology
Leaders II L.P., voting and investment power over the shares held by CRW
Financial, of which Mr. DeNino is a director. The Ventures and Mr. DeNino
disclaim beneficial ownership of all such shares. Of the shares held by CRW
Financial, 443,693 shares are purchasable by TL Ventures upon the exercise of
CRW Lender Warrants granted to TL Ventures, which warrants are immediately
exercisable. Mr. DeNino disclaims beneficial ownership of all such shares.
(3)Consists of 136,514 shares issuable upon the exercise of CRW Lender
Warrants, which warrants are immediately exercisable. Does not include 300,000
and 100,000 shares issuable upon the exercise of stock options contemplated to
be granted to Messrs. Boyd and Schwenk, respectively, under the 1996 Stock
Incentive Plan upon consummation of the Offering at an exercise price equal to
the initial public offering price per share; none of these options will be
exercisable within 60 days of May 22, 1996.
(4)Includes 2,500 shares issuable upon the exercise of options granted to Mr.
DeNino under the 1996 Stock Incentive Plan in connection with Mr. DeNino's
appointment to the Company's Board of Directors. All such options are
immediately exercisable.
(5)Includes 1,120,225 shares held by NBG Services, Inc. Mr. Rhatigan and Mr.
Gallant together own all of the outstanding capital stock of NBG Services,
Inc., and each may be deemed to share voting and investment power over the
shares held by NBG Services, Inc. Also includes 56,250 shares issuable to each
of Messrs. Rhatigan and Gallant upon exercise of warrants granted to such
persons in connection with the Acquisition of the NBG Operating Business, which
warrants are immediately exercisable.
(6)Includes 2,207,340 shares held by SOMAR, Inc. Mr. Virtue is a principal
shareholder of SOMAR, Inc., and may be deemed to share voting and investment
power over the shares held by SOMAR, Inc. Mr. Virtue disclaims beneficial
ownership of all such shares. Also includes 129,500 shares issuable upon the
exercise of warrants granted to Mr. Virtue in connection with the Acquisition
of the SOMAR Operating Business, which warrants are immediately exercisable.
(7)Consists of 31,500 shares issuable upon the exercise of warrants granted to
Mr. Alcorn in connection with the Acquisition of the SOMAR Operating Business,
which warrants are immediately exercisable.
(8)Includes 256,051 shares held by The Response Center, Inc. and The Tab House,
Inc. Mr. Baldasare is a principal stockholder of both The Response Center, Inc.
and The Tab House, Inc., and may be deemed to share voting and investment power
over the shares held by such entities. Also includes 55,474 shares issuable
upon the exercise of warrants granted to Mr. Baldasare in connection with the
Acquisition of The Response Center Operating Business, which warrants are
immediately exercisable, and 11,887 shares issuable upon the exercise of
options granted to Mr. Baldasare in connection with the Acquisition of The
Response Center Operating Business, which options are immediately exercisable.
(9)Includes 202,192 shares held by HDM and HFI. Mr. Idzik is a principal
stockholder of HDM and HFI, and may be deemed to share voting and investment
power over the shares held by HDM and HFI. Also includes 54,810 shares issuable
upon the exercise of warrants granted to Mr. Idzik in connection with the
Acquisition of the Harris Operating Business, which warrants are immediately
exercisable.
(10)Includes 441,468 shares held by The Reich Group, Inc. and its affiliates.
Mr. Reich is the sole stockholder of The Reich Group, Inc. and of all such
affiliates, and may be deemed to share voting and investment power over the
shares held by such entities. Also includes 105,000 shares issuable upon the
exercise of warrants granted to Mr. Reich in connection with the Acquisition of
the Reich Operating Business, which warrants are immediately exercisable.
(11)Includes 176,587 shares held by TeleSpectrum, Inc. Ms. Schweitzer is
President and a 50% stockholder of TeleSpectrum, Inc. and may be deemed to
share voting and investment power over the shares held by TeleSpectrum, Inc.
Also includes 22,050 shares issuable upon the exercise of warrants to be
granted to Ms. Schweitzer in connection with the Acquisition of the
TeleSpectrum Operating Business, which warrants are immediately exercisable.
(12)Includes 510,834 shares issuable upon the exercise of immediately
exercisable warrants, and 14,387 shares issuable upon the exercise of
immediately exercisable options issued in connection with the Acquisitions.
Does not include 1,471,052 shares issuable upon the exercise of options to be
granted upon consummation of the Offering or 400,000 shares issuable upon the
exercise of options to be granted by the Company ratably over the next four
years to two executive officers pursuant to their employment agreements; none
of the excluded options will be exercisable within 60 days of May 22, 1996. See
also Notes (1) through (11) above.
65
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 200,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The following summary
description of the capital stock of the Company does not purport to be complete
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Certificate of Incorporation and Bylaws, copies of which have
been filed as exhibits to the registration statement of which this Prospectus
forms a part, and to the applicable provisions of the General Corporation Law
of the State of Delaware (the "DGCL").
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to the
rights of any holders of Preferred Stock, holders of Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in the distribution of all assets remaining
after payment of liabilities, subject to the rights of any holders of Preferred
Stock. The holders of Common Stock have no preemptive rights to subscribe for
additional shares of the Company and no right to convert their Common Stock
into any other securities. In addition, there are no redemption or sinking fund
provisions applicable to the Common Stock. All of the outstanding shares of
Common Stock are, and the Common Stock offered hereby will be, fully paid and
nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
stockholders, to issue any or all shares of authorized Preferred Stock as a
class without series or in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and
could have the effect of delaying, deferring or impeding a change in control of
the Company. As of the date of this Prospectus, the Company has not authorized
the issuance of any Preferred Stock and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years prior to
the proposed business combination has owned 15% or more of the corporation's
voting stock.
The Company's Certificate of Incorporation provides that liability of directors
of the Company is eliminated to the fullest extent permitted under Section
102(b)(7) of the DGCL. As a result, no director of the Company will be liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (i) for any breach of the director's
duty of loyalty to the Company or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for any wilful or negligent payment of an unlawful
dividend, stock purchase or redemption; or (iv) for any transaction from which
the director derived an improper personal benefit.
66
<PAGE>
The Bylaws of the Company provide that stockholders must follow an advance
notification procedure for certain stockholder nominations of candidates for
the Board of Directors and for certain other stockholder business to be
conducted at an annual meeting. These provisions could, under certain
circumstances, operate to delay, defer or prevent a change in control of the
Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chemical Mellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering and the Acquisitions, the Company will have
23,200,000 shares of Common Stock outstanding, based upon the number of shares
outstanding as of May 22, 1996. The 10,743,143 shares sold in this Offering
will be freely tradeable without restriction or further registration under the
Securities Act, unless acquired by an "affiliate" of the Company as that term
is defined in Rule 144 promulgated under the Securities Act ("Rule 144"), which
shares will be subject to resale limitations of Rule 144 described below. As of
the consummation of this Offering, holders of 6,219,283 shares of Common Stock
will have piggyback rights to require the Company in certain circumstances to
register such shares for sale under the Securities Act.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned for at least two years shares privately acquired directly or
indirectly from the Company or from an affiliate of the Company, and persons
who are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number
of shares that does not exceed the greater of: (i) one percent of the
outstanding shares of Common Stock (approximately 232,000 shares immediately
after completion of the offering); or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements relating to the manner
and notice of sale and the availability of current public information about the
Company.
The Company, each of its directors and officers, the holders of all of the
shares of Common Stock that are or will be outstanding prior to the
consummation of the Acquisitions and the holders of all of the CRW Lender
Warrants and CRW Management Warrants have agreed with the Underwriters not to
offer, sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exercisable or exchangeable for such shares for a period of
180 days after the date of this Prospectus without the prior written consent of
J.P. Morgan Securities Inc. The holders of the shares of Common Stock and
warrants issued or to be issued in the Acquisitions have agreed with the
Underwriters not to offer, sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exercisable or exchangeable for such
shares for a period of 360 days after the date of this Prospectus without the
prior written consent of J.P. Morgan Securities Inc.
In connection with the Acquisitions, the Company has granted certain of the
Sellers the right to include up to 3,946,721 shares of Common Stock in certain
registrations of Common Stock under the Securities Act effected following
consummation of the Offering. In addition, certain of the Sellers have the
right to demand or piggyback registration of all or a portion of the shares of
Common Stock that may be issued to them in payment of the earn-out component of
the purchase price for their Operating Businesses. In connection with the
shares issuable upon exercise of the CRW Lender Warrants and the CRW Management
Warrants, the Company has agreed to include the 2,272,562 shares of Common
Stock issuable upon exercise thereof in any registration of shares of Common
Stock to be sold by the Company.
Prior to this Offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales
of shares of the Common Stock or the availability of shares for sale will have
on the market price of the Common Stock after the completion of the Offering.
Sales of substantial amounts of Common Stock in the public market following the
Offering, or the perception that such sales may occur, could adversely affect
the market price of the Common Stock or the ability of the Company to raise
capital through sales of its equity securities. See "Risk Factors--No Prior
Public Market; Possible Volatility of Stock Price."
67
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
Underwriters named below, for whom J.P. Morgan Securities Inc., Dillon, Read &
Co. Inc., Legg Mason Wood Walker, Incorporated and The Robinson-Humphrey
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective numbers of shares of Common Stock set forth opposite their names
below. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated to take and pay for all such shares of Common Stock,
if any are taken. Under certain circumstances, the commitments of nondefaulting
Underwriters may be increased as set forth in the Underwriting Agreement.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ----------
<S> <C>
J.P. Morgan Securities Inc.
Dillon, Read & Co. Inc.
Legg Mason Wood Walker, Incorporated
The Robinson-Humphrey Company, Inc.
----------
Total 10,743,143
==========
</TABLE>
The Underwriters propose initially to offer the Common Stock directly to the
public at the price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to other dealers. After the initial public
offering of the Common Stock, the public offering price and such concession may
be changed.
The Company has granted to the Underwriters an option, expiring at the close of
business on the 30th day after the date of this Prospectus, to purchase up to
1,611,471 additional shares of Common Stock at the initial public offering
price, less the underwriting discount. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any. To the
extent the Underwriters exercise the option, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the preceding table bears to the total number of shares
of Common Stock offered hereby.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
The Company, each of its directors and officers, and the holders of all of the
shares of Common Stock and options or warrants to purchase shares of Common
Stock that are or will be outstanding prior to the consummation of the
Acquisitions have agreed with the Underwriters not to offer, sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for such shares for a period of 180 days after the
date of this Prospectus without the prior written consent of J.P. Morgan
Securities Inc. The holders of the shares of Common Stock and warrants issued
or to be issued in the Acquisitions have agreed with the Underwriters not to
offer, sell or otherwise dispose of any shares of Common Stock or securities
convertible into or exercisable or exchangeable for such shares for a period of
360 days after the date of this Prospectus without the prior written consent of
J.P. Morgan Securities Inc.
68
<PAGE>
The Company has applied for listing of the Common Stock on The Nasdaq National
Market, under the trading symbol "TLSP."
The Underwriters have advised the Company that they do not expect that sales to
accounts over which they exercise discretionary authority will exceed 5% of the
shares offered hereby.
Prior to this Offering, there has been no public market for the Common Stock.
The initial public offering price for the shares of Common Stock offered hereby
was determined by agreement among the Company and the Underwriters. Among the
factors considered in making such determination were the history of and the
prospects for the industry in which the Company competes, an assessment of the
Company's management, the present operations of the Company, the historical
results of operations of the Company and the trend of its revenues and
earnings, the prospects for future earnings of the Company, the general
conditions of the securities markets at the time of the Offering and the prices
of similar securities of generally comparable companies.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market
subsequent to the Offering at or above the initial public offering price.
From time to time in the ordinary course of their respective businesses, the
Representatives and their respective affiliates have provided and may in the
future provide investment banking and other financial services to the Company
and its affiliates. The Company will pay Legg Mason Wood Walker, Incorporated a
fee of $1.4 million for investment banking services rendered in connection with
the structuring and negotiation of the Acquisitions. The Company has also
agreed to pay one-half of the $800,000 fee due from the Seller of the SOMAR
Operating Business to The Robinson-Humphrey Company, Inc. for financial
advisory services, including advice regarding the Acquisition of SOMAR by
TeleSpectrum Worldwide. See "Certain Relationships and Related Party
Transactions--The Acquisitions--SOMAR."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed upon
for the Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters relating to the shares of Common Stock offered hereby
will be passed upon for the Underwriters by Pepper, Hamilton & Scheetz,
Philadelphia, Pennsylvania.
EXPERTS
The financial statements of TeleSpectrum Worldwide as of April 30, 1996 and for
the period from inception (April 26, 1996) to April 30, 1996 included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
The financial statements of SOMAR, Harris and Reich as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of NBG as of December 30, 1994 and December 29, 1995
and for each of the three fiscal years in the period ended December 29, 1995
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
69
<PAGE>
The financial statements of The Response Center as of September 30, 1994 and
1995 and for each of the two years in the period ended September 30, 1995
included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of TeleSpectrum as of and for the year ended December
31, 1995 included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, covering the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement, and the exhibits and schedules thereto for
further information with respect to the Company and the Common Stock offered
hereby. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are not necessarily complete, and in each instance, reference is made
to the exhibit for a more complete description of the matter involved, each
such statement being qualified in its entirety by such reference. The
Registration Statement may be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
maintained at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The Company intends to furnish its stockholders with unaudited quarterly
reports and annual reports containing financial statements audited by
independent public accountants.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TELESPECTRUM WORLDWIDE INC.
<TABLE>
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS:
Basis of Presentation................................................... F-3
Pro Forma Combined Balance Sheet as of March 31, 1996................... F-4
Pro Forma Combined Statement of Income for the Year Ended December 31,
1995................................................................... F-5
Pro Forma Combined Statement of Income for the Three Months Ended
March 31, 1995....................................................... F-6
Pro Forma Combined Statement of Income for the Three Months Ended
March 31, 1996....................................................... F-7
Notes to Pro Forma Combined Financial Statements........................ F-8
HISTORICAL FINANCIAL STATEMENTS(/1/):
TELESPECTRUM WORLDWIDE INC. (TELESPECTRUM WORLDWIDE)
Report of Independent Public Accountants........................... F-12
Balance Sheet as of April 30, 1996................................. F-13
Statement of Operations for the Period from Inception (April 26,
1996) to April 30, 1996............................................ F-13
Notes To Financial Statements...................................... F-14
SOMAR, INC. (SOMAR)
Report of Independent Public Accountants........................... F-16
Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996............................................................... F-17
Statements of Income for the Years Ended December 31, 1993, 1994 and
1995 and Three Months Ended March 31, 1995 and 1996.............. F-18
Statements of Stockholders' Equity for the Years Ended December 31,
1993, 1994 and 1995 and Three Months Ended March 31, 1996........ F-19
Statements of Cash Flows for the Years Ended December 31, 1993, 1994
and 1995 and Three Months Ended March 31, 1995 and 1996.......... F-20
Notes to Financial Statements...................................... F-21
NBG SERVICES, INC. (NBG)
Report of Independent Public Accountants........................... F-28
Balance Sheets as of December 30, 1994, December 29, 1995 and March
29, 1996......................................................... F-29
Statements of Income for the Years Ended December 31, 1993, December
30, 1994 and December 29, 1995 and Thirteen Weeks Ended March 31,
1995 and March 29, 1996.......................................... F-30
Statements of Shareholders' Equity for the Years Ended December 31,
1993, December 30, 1994 and December 29, 1995 and Thirteen Weeks
Ended March 29, 1996............................................. F-31
Statements of Cash Flows for the Years Ended December 31, 1993, Decem-
ber 30, 1994 and December 30, 1995 and Thirteen Weeks Ended March
31, 1995 and March 29, 1996...................................... F-32
Notes to Financial Statements...................................... F-33
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC. (HARRIS)
Report of Independent Public Accountants........................... F-37
Combined Balance Sheets as of December 31, 1994 and 1995 and March 31,
1996............................................................. F-38
Combined Statements of Income for the Years Ended December 31, 1993,
1994 and 1995 and Three Months Ended March 31, 1995 and 1996..... F-39
Combined Statements of Shareholders' Equity for the Years Ended De-
cember 31, 1993, 1994 and 1995 and Three Months Ended March 31,
1995 and 1996...................................................... F-40
Combined Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and Three Months Ended March 31, 1995 and
1996............................................................. F-41
Notes to Combined Financial Statements.............................. F-42
</TABLE>
(1) The audited financial statements included in this Prospectus have been
included in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 80.
F-1
<PAGE>
<TABLE>
<S> <C>
THE REICH GROUP COMPANIES (REICH)
Report of Independent Public Accountants............................ F-47
Combined Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996........................................................... F-48
Combined Statements of Income for the Years Ended December 31, 1993,
1994 and 1995 and Three Months Ended March 31, 1995 and 1996....... F-49
Combined Statements of Shareholder's Equity for the Years Ended De-
cember 31, 1993, 1994 and 1995 and Three Months Ended March 31,
1996............................................................... F-50
Combined Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995 and Three Months Ended March 31, 1995 and
1996............................................................... F-51
Notes To Combined Financial Statements................................ F-52
THE RESPONSE CENTER INC. AND THE TAB HOUSE, INC. (THE RESPONSE
CENTER)
Report of Independent Public Accountants........................... F-58
Combined Balance Sheets as of September 30, 1994 and 1995 and
December 31, 1995 and March 31, 1995............................. F-59
Combined Statements of Income for the Years Ended September 30, 1994
and 1995 and Three Months Ended December 31, 1994 and 1995 and
Three Months Ended March 31, 1995 and 1996....................... F-60
Combined Statements of Shareholders' Equity for the Years Ended Sep-
tember 30, 1994 and 1995 and the Three Months Ended December 31,
1995 and Three Months Ended March 31, 1995 and 1996.............. F-61
Combined Statements of Cash Flows for the Years Ended September 30,
1994 and 1995 and Three Months Ended December 31, 1994 and 1995
and Three Months Ended March 31, 1995 and 1996................... F-62
Notes To Combined Financial Statements............................. F-63
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
(TELESPECTRUM)
Report of Independent Public Accountants........................... F-67
Combined Balance Sheets as of December 31, 1995 and March 31,
1996............................................................... F-68
Combined Statements of Income for the Year Ended December 31, 1995 and
Three Months Ended March 31, 1995 and 1996....................... F-69
Combined Statements of Stockholders' Equity for the Year Ended Decem-
ber 31, 1995 and Three Months Ended March 31, 1996............... F-70
Combined Statements of Cash Flows for the Year Ended December 31, 1995
and Three Months Ended March 31, 1995 and 1996................... F-71
Notes To Combined Financial Statements............................. F-72
</TABLE>
F-2
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND OPERATING BUSINESSES
PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisitions by TeleSpectrum Worldwide Inc. ("TeleSpectrum Worldwide")
of substantially all of the net assets of (i) SOMAR, (ii) NBG, (iii) Harris,
(iv) Reich, (v) The Response Center and (vi) TeleSpectrum (together the
"Operating Businesses"). TeleSpectrum Worldwide and the Operating Businesses
are hereafter referred to as the "Company." These acquisitions (the
"Acquisitions") will occur simultaneous with the closing of TeleSpectrum
Worldwide's initial public offering (the Offering) and will be accounted for
using the purchase method. The unaudited pro forma combined financial
statements also give effect to the issuance of Common Stock, which will be
issued by TeleSpectrum Worldwide to the sellers of the Operating Businesses
(the "Sellers") upon the effectiveness of the Offering. These statements are
based on the historical financial statements of the Operating Businesses
included elsewhere in this Prospectus and the estimates and assumptions set
forth below and in the notes to the unaudited pro forma combined financial
statements.
The unaudited pro forma combined balance sheet gives effect to these
transactions (the "Acquisitions and Offering") and the initial capitalization
of TeleSpectrum Worldwide (See Note 1) as if they occurred on March 31, 1996.
The unaudited pro forma combined statements of income give effect to these
transactions as if they occurred on January 1, 1995.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein are not
necessarily indicative of the results TeleSpectrum Worldwide would have
obtained had such events occurred at the beginning of the period, as assumed,
or of the future results of TeleSpectrum Worldwide. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
F-3
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND OPERATING BUSINESSES
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA OPERATING BUSINESSES--HISTORICAL
TELESPECTRUM ------------------------------------------------------ PRO FORMA
WORLDWIDE* THE ACQUISITIONS
DOLLARS IN AFTER INITIAL RESPONSE AND OFFERING
THOUSANDS CAPITALIZATION(A) SOMAR NBG HARRIS REICH CENTER TELESPECTRUM ADJUSTMENTS
- ---------- ----------------- ------- ------ ------- ------ -------- ------------ ------------
(NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents....... $1,610 $ 4 $1,988 $ 2,311 $ 676 $ 641 $ 402 $ 53,025 (b)(c)(d)(e)(f)
Marketable
securities........ -- -- 170 -- -- 310 -- --
Accounts
receivable........ -- 5,650 1,350 2,960 2,931 1,087 3,199 --
Amounts due from
affiliates........ 500 1,365 -- -- 160 -- -- (1,500)(c)(f)
Prepaid expenses
and other......... -- 520 148 579 157 132 92 --
------ ------- ------ ------- ------ ------ ------ --------
Total current
assets.......... 2,110 7,539 3,656 5,850 3,924 2,170 3,693 51,525
------ ------- ------ ------- ------ ------ ------ --------
Property and
equipment, net..... -- 6,267 1,872 4,062 2,044 250 736 --
Goodwill........... -- -- -- -- -- -- -- 138,109 (c)(e)
Other assets....... -- -- 149 137 26 5 106 --
------ ------- ------ ------- ------ ------ ------ --------
Total assets.... $2,110 $13,806 $5,677 $10,049 $5,994 $2,425 $4,535 $189,634
====== ======= ====== ======= ====== ====== ====== ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Line of credit.... $ -- $ 3,586 $ -- $ -- $ -- $ -- $1,425 $ (5,011)(d)
Current
maturities of
long-term debt.... -- 2,888 392 305 236 -- 219 (4,040)(d)
Accounts
payable........... -- 2,657 273 320 1,015 198 566 --
Accrued
liabilities....... -- 684 442 478 402 241 929 --
Customer
advances.......... -- -- -- 703 -- -- -- --
Due to
affiliates........ -- 598 -- -- 220 -- -- --
Other current
liabilities....... -- -- 930 -- 141 282 429 --
------ ------- ------ ------- ------ ------ ------ --------
Total current
liabilities..... -- 10,413 2,037 1,806 2,014 721 3,568 (9,051)
------ ------- ------ ------- ------ ------ ------ --------
LONG-TERM DEBT..... 3,046 824 1,451 485 -- 18 (5,824)(d)
OTHER NONCURRENT
LIABILITIES........ -- -- 152 108 -- 14
STOCKHOLDERS'
EQUITY:
Preferred Stock,
$.01 par value,
1,000,000 shares
authorized........ -- -- -- -- -- -- -- --
Common stock,
$.01 par value,
200,000,000
shares
authorized,
23,200,000 shares
issued and
outstanding (pro
forma)............ 85 12 -- 1 2 51 6 75 (b)(c)(e)
Additional paid-
in capital........ 2,025 789 -- 45 450 1 217 218,689 (b)(c)(e)
Net unrealized
gain on
marketable
securities........ -- -- -- -- 98 -- (98)(e)
Retained
earnings.......... -- (454) 2,816 6,719 3,174 1,554 712 (14,521)(e)
Treasury stock,
at cost........... -- -- -- (125) (239) -- -- 364 (e)
------ ------- ------ ------- ------ ------ ------ --------
Total
stockholders'
equity.......... 2,110 347 2,816 6,640 3,387 1,704 935 204,509
====== ======= ====== ======= ====== ====== ====== ========
Total
liabilities and
stockholders'
equity.......... $2,110 $13,806 $5,677 $10,049 $5,994 $2,425 $4,535 $189,634
====== ======= ====== ======= ====== ====== ====== ========
<CAPTION>
PRO FORMA
DOLLARS IN TELESPECTRUM
THOUSANDS WORLDWIDE
- ---------- ------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents....... $ 60,657
Marketable
securities........ 480
Accounts
receivable........ 17,177
Amounts due from
affiliates........ 525
Prepaid expenses
and other......... 1,628
------------
Total current
assets.......... 80,467
------------
Property and
equipment, net..... 15,231
Goodwill........... 138,109
Other assets....... 423
------------
Total assets.... $234,230
============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
CURRENT
LIABILITIES:
Line of credit.... $ --
Current
maturities of
long-term debt.... --
Accounts
payable........... 5,029
Accrued
liabilities....... 3,176
Customer
advances.......... 703
Due to
affiliates........ 818
Other current
liabilities....... 1,782
------------
Total current
liabilities..... 11,508
------------
LONG-TERM DEBT..... --
OTHER NONCURRENT
LIABILITIES........ 274
STOCKHOLDERS'
EQUITY:
Preferred Stock,
$.01 par value,
1,000,000 shares
authorized........ --
Common stock,
$.01 par value,
200,000,000
shares
authorized,
23,200,000 shares
issued and
outstanding (pro
forma)............ 232
Additional paid-
in capital........ 222,216
Net unrealized
gain on
marketable
securities........ --
Retained
earnings.......... --
Treasury stock,
at cost........... --
------------
Total
stockholders'
equity.......... 222,448
============
Total
liabilities and
stockholders'
equity.......... $234,230
============
</TABLE>
- ----
* TeleSpectrum Worldwide was incorporated on April 26, 1996; accordingly,
there were no historical results prior to that date (See Note 1).
See accompanying notes to pro forma combined financial statements.
F-4
<PAGE>
TELESPECTRUM WORLDWIDE INC.* AND OPERATING BUSINESSES
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING BUSINESSES--HISTORICAL
--------------------------------------------------------- PRO FORMA
THE ACQUISITIONS PRO FORMA
DOLLARS AND SHARES IN RESPONSE AND OFFERING TELESPECTRUM
THOUSANDS SOMAR NBG HARRIS REICH CENTER TELESPECTRUM ADJUSTMENTS WORLDWIDE
- --------------------- ------- ------- ------- ------- -------- ------------ ------------ ------------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $31,900 $12,829 $12,690 $12,253 $6,428 $11,854 $ -- $87,954
OPERATING EXPENSES:
Cost of services....... 25,048 8,572 6,402 7,836 3,400 8,338 -- 59,596
Selling, general and
administrative........ 5,162 2,115 2,986 2,534 2,663 3,072 (1,611)(h) 16,921
Goodwill
amortization.......... -- -- -- -- -- -- 5,524 (g) 5,524
------- ------- ------- ------- ------ ------- ------- -------
Total operating
expenses............ 30,210 10,687 9,388 10,370 6,063 11,410 3,913 82,041
------- ------- ------- ------- ------ ------- ------- -------
Operating income....... 1,690 2,142 3,302 1,883 365 444 (3,913) 5,913
INTEREST INCOME......... 45 19 70 14 10 -- -- 158
INTEREST EXPENSE........ (756) (55) (214) (57) -- (184) 1,172 (i) (94)
------- ------- ------- ------- ------ ------- ------- -------
Income before taxes.... 979 2,106 3,158 1,840 375 260 (2,741) 5,977
INCOME TAXES............ -- -- -- -- -- 18 (2,528)(j) (2,510)
------- ------- ------- ------- ------ ------- ------- -------
Net income.............. $ 979 $ 2,106 $ 3,158 $ 1,840 $ 375 $ 278 $(5,269) $ 3,467
======= ======= ======= ======= ====== ======= ======= =======
PRO FORMA NET INCOME PER
SHARE.................. $ 0.15 (k)
=======
SHARES USED IN COMPUTING
PRO FORMA NET INCOME
PER SHARE.............. 23,200 (k)
=======
</TABLE>
- --------
* TeleSpectrum Worldwide was incorporated on April 26, 1996; accordingly there
were no historical results prior to that date (See Note 1).
See accompanying notes to pro forma combined financial statements.
F-5
<PAGE>
TELESPECTRUM WORLDWIDE INC.* AND OPERATING BUSINESSES
PRO FORMA COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING BUSINESSES--HISTORICAL
----------------------------------------------------- PRO FORMA
THE ACQUISITIONS PRO FORMA
DOLLARS AND SHARES IN RESPONSE AND OFFERING TELESPECTRUM
THOUSANDS SOMAR NBG HARRIS REICH CENTER TELESPECTRUM ADJUSTMENTS WORLDWIDE
- --------------------- ------ ------ ------ ------ -------- ------------ ------------ ------------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $6,862 $2,695 $3,988 $2,059 $1,941 $2,846 $ -- $20,391
OPERATING EXPENSES:
Cost of services....... 5,032 1,766 2,078 1,327 881 1,920 -- 13,004
Selling, general and
administrative........ 1,284 508 761 297 1,061 805 (493)(h) 4,223
Goodwill
amortization.......... -- -- -- -- -- -- 1,381 (g) 1,381
------ ------ ------ ------ ------ ------ ------- -------
Total operating
expenses............ 6,316 2,274 2,839 1,624 1,942 2,725 888 18,608
------ ------ ------ ------ ------ ------ ------- -------
Operating income
(loss)................ 546 421 1,149 435 (1) 121 (888) 1,783
INTEREST INCOME......... -- -- 12 3 -- -- 15
INTEREST EXPENSE........ (129) (15) (53) (10) -- (4) 189 (i) (22)
------ ------ ------ ------ ------ ------ ------- -------
Income before taxes.... 417 406 1,108 428 (1) 117 (699) 1,776
INCOME TAXES............ -- -- -- -- -- -- (746)(j) (746)
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss)....... $ 417 $ 406 $1,108 $ 428 $ (1) $ 117 $(1,445) $ 1,030
====== ====== ====== ====== ====== ====== ======= =======
PRO FORMA NET INCOME PER
SHARE.................. $ 0.04(k)
=======
SHARES USED IN COMPUTING
PRO FORMA NET INCOME
PER SHARE.............. 23,200 (k)
=======
</TABLE>
- --------
* TeleSpectrum Worldwide was incorporated on April 26, 1996; accordingly there
were no historical results prior to that date (See Note 1).
See accompanying notes to pro forma combined financial statements.
F-6
<PAGE>
TELESPECTRUM WORLDWIDE INC.* AND OPERATING BUSINESSES
PRO FORMA COMBINED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING BUSINESSES--HISTORICAL
----------------------------------------------------- PRO FORMA
THE ACQUISITIONS PRO FORMA
DOLLARS AND SHARES IN RESPONSE AND OFFERING TELESPECTRUM
THOUSANDS SOMAR NBG HARRIS REICH CENTER TELESPECTRUM ADJUSTMENTS WORLDWIDE
- --------------------- ------ ------ ------ ------ -------- ------------ ------------- ------------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES................ $9,274 $3,960 $2,617 $5,465 $1,429 $3,725 $ -- $26,470
OPERATING EXPENSES:
Cost of services....... 7,931 2,752 1,324 3,165 786 2,483 -- 18,441
Selling, general and
administrative........ 1,554 631 768 570 875 951 (428)(h) 4,921
Goodwill
amortization.......... -- -- -- -- -- -- 1,381 (g) 1,381
------ ------ ------ ------ ------ ------ ------- -------
Total operating
expenses............ 9,485 3,383 2,092 3,735 1,661 3,434 953 24,743
------ ------ ------ ------ ------ ------ ------- -------
Operating income
(loss)................ (211) 577 525 1,730 (232) 291 (953) 1,727
INTEREST INCOME......... 4 20 29 8 -- -- 61
INTEREST EXPENSE........ (217) (35) (41) (19) -- (43) 333 (i) (22)
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) before
taxes................. (424) 562 513 1,719 (232) 248 (620) 1,766
INCOME TAXES............ -- -- -- -- -- -- (742)(j) (742)
------ ------ ------ ------ ------ ------ ------- -------
Net income (loss)....... $ (424) $ 562 $ 513 $1,719 $ (232) $ 248 $(1,362) $ 1,024
====== ====== ====== ====== ====== ====== ======= =======
PRO FORMA NET INCOME
PER SHARE.............. $ 0.04(k)
=======
SHARES USED IN COMPUTING
PRO FORMA NET INCOME
PER SHARE.............. 23,200(k)
=======
</TABLE>
- --------
* TeleSpectrum Worldwide was incorporated on April 26, 1996; accordingly,
there were no historical results prior to that date (See Note 1).
See accompanying notes to pro forma combined financial statements.
F-7
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND OPERATING BUSINESSES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. TELESPECTRUM WORLDWIDE BACKGROUND:
TeleSpectrum Worldwide was incorporated as a wholly-owned subsidiary of CRW
Financial, Inc. ("CRW") on April 26, 1996. Accordingly, there are no historical
financial statements available for TeleSpectrum Worldwide prior to April 26,
1996. On May 22, 1996, CRW contributed $2.1 million of capital to TeleSpectrum
Worldwide. The $2.1 million CRW capital contribution consisted of $1.6 million
of cash and a $.5 million promissory note from TeleSpectrum. The note
represented an April 1996 advance of the purchase price from CRW on behalf of
TeleSpectrum Worldwide (See Note 3).
TeleSpectrum Worldwide was formed to create a national provider of integrated
teleservices solutions. TeleSpectrum Worldwide has conducted no operations to
date and will acquire the Operating Businesses simultaneously with the
consummation of the Offering. See "Risk Factors", "Certain Relationships and
Related Party Transactions" and page F-3 for additional information.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations for the Sellers and were derived from the respective
financial statements where indicated. All Operating Businesses have December 31
year ends, except for the Response Center and NBG. The Response Center's year
end is September 30 and NBG operates on a fifty-two, fifty-three week fiscal
year ending on the last Friday of the calendar year. However, for purposes of
the Pro Forma Combined Financial Statements, the balance sheet and statements
of income information for The Response Center and NBG are as of March 31, 1996
and the year ended December 31, 1995 and the three months ended March 31, 1995
and 1996. The audited historical financial statements included elsewhere in
this Prospectus have been included in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 80.
3. ACQUISITION OF OPERATING BUSINESSES:
Concurrent with the closing of the Offering, TeleSpectrum Worldwide will
acquire substantially all of the net assets of the Operating Businesses. The
Acquisitions will be accounted for using the purchase method of accounting with
TeleSpectrum Worldwide treated as the acquirer. The total estimated purchase
price is $149.9 million, which consists of (i) $90.9 million of cash to be paid
to the Sellers upon the consummation of the Offering, (ii) forgiveness of the
$.5 million promissory note from TeleSpectrum, (iii) $52.9 million estimated
fair value of 4,403,863 shares of TeleSpectrum Worldwide ("Common Stock") to be
issued to the Sellers, (iv) $2.1 million estimated fair value of warrants to
purchase 593,400 shares of Common Stock at the estimated Offering price to be
issued in connection with the Acquisitions and (v) estimated transaction costs
of $3.5 million. The estimated purchase price for the Acquisitions is subject
to certain purchase price adjustments at closing. See "Certain Relationships
and Related Party Transactions".
The holders of 3,946,720 shares of Common Stock issued in partial payment of
the Acquisitions have agreed not to offer, sell or otherwise dispose of any of
these shares for a period of 360 days after the Offering without prior written
consent of J.P. Morgan Securities Inc. The fair value of these shares reflects
this restriction.
The estimated total purchase price of $149.9 million of the Acquisitions has
been allocated to the assets acquired and liabilities assumed. Based upon
management's preliminary analysis, it is anticipated that the historical
carrying value of the Operating Businesses' assets and liabilities will
approximate fair value. The
F-8
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND OPERATING BUSINESSES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
amount allocated to goodwill is $138.1 million. The Operating Businesses have
no long-term client contracts and client relationships can be cancelled by the
client upon relatively short notice. Though the Operating Businesses have
sophisticated computer systems, the computer systems are not proprietary. No
additional portion of the price was allocated to these items. Further,
management has not identified any other tangible or identifiable intangible
assets of the Operating Businesses to which a portion of the purchase price
could reasonably be allocated.
In addition to the purchase price discussed above, the SOMAR, NBG and Reich
acquisitions have certain earn-out provisions based upon 1996 and/or 1997
operating results. If these earn-out provisions are achieved there will be
additional purchase price allocated to goodwill. In addition, TeleSpectrum
Worldwide has agreed to implement a bonus plan for the employees of SOMAR. Such
bonus payments could be significant.
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) To reflect the $2.1 million capital contribution ($1.6 million of cash and
$0.5 million promissory note) made by CRW on May 22, 1996, and
incorporation of TeleSpectrum Worldwide by CRW on April 26, 1996 (See Note
1).
(b) To reflect the proceeds of the Offering, net of expenses and underwriting
discount of $165.3 million.
(c) To reflect: (i) the use of a portion of the net proceeds of the Offering to
pay the cash portion of the purchase price of the Operating Businesses
payable at closing (ii) forgiveness of the $0.5 million promissory note
from TeleSpectrum (iii) the issuance of 4,403,863 shares of Common Stock to
the Sellers and (iv) the issuance of warrants to purchase 593,400 shares of
Common Stock at the Offering price and estimated transaction costs of $3.5
million.
(d) To reflect the use of a portion of the net proceeds of the Offering to
reduce debt originally incurred by the Operating Businesses payable at
closing.
(e) To reflect the purchase price adjustments associated with the acquisition
of the Operating Businesses including estimated closing purchase price
adjustments to the purchase price to the Sellers (approximately $4.0
million).
(f) To reflect the repayment of the SOMAR amount due from affiliate of $1.0
million.
A summary of the unaudited proforma combined balance sheet adjustments (b),
(c), (d), (e) and (f) is as follows:
<TABLE>
<CAPTION>
DEBIT (CREDIT)
----------------------------------------------------------------
BALANCE SHEET ACCOUNTS UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
- ---------------------- ----------------------------------------------------------------
(B) (C) (D) (E) (F) TOTAL
--------- -------- -------- -------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash.................... $ 165,300 $(94,400) $(14,875) $ (4,000) $ 1,000 $ 53,025
Amounts due from
affiliates............. (500) (1,000) (1,500)
Goodwill................ 149,938 (11,829) 138,109
Line of credit.......... 5,011 5,011
Current maturities of
long-term debt......... 4,040 4,040
Long-term debt.......... 5,824 5,824
Common stock............ (103) (44) 72 (75)
Additional paid-in
capital................ (165,197) (54,994) 1,502 (218,689)
Net unrealized gain on
available securities... 98 98
Retained earnings....... 14,521 14,521
Treasury stock, at
cost................... (364) (364)
--------- -------- -------- -------- ------- ---------
$ -- $ -- $ -- $ -- $ -- $ --
========= ======== ======== ======== ======= =========
</TABLE>
F-9
<PAGE>
5. UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME ADJUSTMENTS:
(g) To reflect the amortization expense for the goodwill recorded in
connection with the acquisition of the Operating Businesses. The goodwill
is being amortized on a straight-line basis over an estimated life of 25
years.
(h) To reflect officers' compensation expense of the Operating Businesses
based upon employment agreements entered into upon the closing of the
Acquisitions.
(i) To reflect the elimination of interest expense resulting from the
reduction of debt from the net proceeds of the Offering (see
Adjustment(d)).
(j) To calculate the provision for income taxes on the combined pro forma
income before taxes at the effective tax rate of 42%.
(k) The weighted average shares outstanding used to calculate pro forma
earnings per share is based upon the estimated average number of shares of
Common Stock and common stock equivalents outstanding during the period
calculated as follows:
<TABLE>
<S> <C>
Shares issued in the formation of TeleSpectrum Worldwide.......... 8,510,137
Shares issued to the Sellers of the Operating Businesses.......... 4,403,863
Shares issued in the Offering..................................... 10,286,000
----------
23,200,000
==========
</TABLE>
Outstanding options and warrants have been excluded since all such options
and warrants are exercisable at the Offering price.
TeleSpectrum Worldwide has entered into employment agreements with its Chief
Executive Officer, Chief Operating Officer and a Chief Financial Officer. In
addition, TeleSpectrum Worldwide is in the process of hiring other corporate
staff. Also, certain corporate expenses will be incurred in 1996 and
thereafter related to operating as a public company and in managing the
Operating Businesses, which heretofore have operated as autonomous businesses.
These additional expenses (which will be significant) have not been reflected
in the accompanying pro forma statements of income. See "Executive
Compensation" and "Employment Agreements" under "Management".
F-10
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND OPERATING BUSINESSES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. PRO FORMA COMBINED STATEMENTS OF INCOME SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies have been reflected in the
Company's pro forma combined income statements.
Revenue Recognition and Concentration of Credit Risk
The Company recognizes revenues as services are performed for its clients.
The Company's ten largest clients in 1995 represented approximately 56.4% of
the Company's pro forma revenues, with the largest client accounting for 11.9%.
Loss of one or more of these clients could have a material adverse effect on
the Company's business, results of operations and financial condition.
Depreciation
Depreciation is recorded on a straight line basis as follows:
<TABLE>
<CAPTION>
TYPE USEFUL LIVES
---- ------------
<S> <C>
Building and Building Improvements.............................. 10-40
Telemarketing Equipment......................................... 5-7
Machinery and Equipment......................................... 5-10
Furniture and Office Equipment.................................. 3-10
Leasehold Improvements.......................................... 5-10
</TABLE>
Training Costs
The Company maintains on-going training programs for its employees. The cost
of this training is charged to expense when incurred.
F-11
<PAGE>
After the recapitalization transaction discussed in Note 1 to Financial
Statements is effected, we expect to be in a position to render the following
audit report.
Arthur Andersen LLP
Philadelphia, PA
May 17, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeleSpectrum Worldwide Inc.:
We have audited the accompanying balance sheet of TeleSpectrum Worldwide
Inc. (a Delaware Corporation) as of April 30, 1996 and statement of operations
for the period from inception (April 26, 1996) to April 30, 1996. 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 audit.
We conducted our audit 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 audit provides 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 TeleSpectrum Worldwide
Inc. as of April 30, 1996, and the results of its operations for the period
from inception (April 26, 1996) to April 30, 1996, in conformity with
generally accepted accounting principles.
F-12
<PAGE>
TELESPECTRUM WORLDWIDE INC.
BALANCE SHEET
APRIL 30, 1996
(IN THOUSANDS--EXCEPT PAR VALUE AND SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
DEFERRED ACQUISITION COSTS............................................. $1,800
DEFERRED PUBLIC OFFERING COSTS......................................... 425
------
Total assets....................................................... $2,225
======
LIABILITIES AND STOCKHOLDER'S EQUITY
ACCOUNTS PAYABLE....................................................... $ 200
ACCRUED EXPENSES....................................................... 2,225
STOCKHOLDER'S EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none
issued.............................................................. --
Common stock, $.01 par value, 200,000,000 shares authorized,
1,000,000 shares issued and outstanding............................. 10
Accumulated deficit.................................................. (200)
Receivable from Stockholder.......................................... (10)
------
Total liabilities and stockholder's equity......................... $2,225
======
</TABLE>
TELESPECTRUM WORLDWIDE INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 26, 1996 (INCEPTION) TO APRIL 30, 1996
<TABLE>
<S> <C>
Revenues................................................................ $ --
OPERATING EXPENSES:
Cost of services...................................................... --
Selling, general and administrative .................................. 200
-----
Total operating expenses............................................ 200
=====
Operating loss........................................................ (200)
INTEREST INCOME......................................................... --
INTEREST EXPENSE........................................................ --
-----
Net loss............................................................ $(200)
=====
</TABLE>
The accompanying notes are an integral part of these statements.
F-13
<PAGE>
TELESPECTRUM WORLDWIDE INC.
NOTES TO FINANCIAL STATEMENTS
1. BACKGROUND:
TeleSpectrum Worldwide Inc. (TeleSpectrum Worldwide) was incorporated in
Delaware on April 26, 1996, as a wholly owned subsidiary of CRW Financial, Inc.
(CRW). TeleSpectrum Worldwide was formed to create a national provider of
integrated teleservices solutions (see Note 2). On May 22, 1996, TeleSpectrum
Worldwide received a $2.1 million capital contribution from CRW (see Note 5).
On June , 1996, TeleSpectrum Worldwide effected a 8.510137 for 1 split of its
Common Stock. All share and per share amounts included in the financial
statements reflect this split.
TeleSpectrum Worldwide has conducted no operations to date and has entered
into agreements to acquire substantially all of the net assets of the
businesses discussed in Note 2. These businesses have been operating
independently and TeleSpectrum Worldwide may not be able to successfully
integrate these businesses and their operations, employees and management.
Given the nature of TeleSpectrum Worldwide, it is and will be subject to many
risks, including but not limited to (i) an absence of combined operating
history, (ii) the potential inability to manage growth, (iii) risks generally
associated with acquisitions, (iv) possible fluctuations in quarterly results,
(v) reliance on major clients and key industries, (vi) possible decline in
effectiveness of telemarketing and (vii) reliance on key personnel.
2. ACQUISITIONS AND PUBLIC OFFERING:
In May 1996, CRW assigned to TeleSpectrum Worldwide its rights to acquire
substantially all of the net assets of SOMAR, Inc. (SOMAR), NBG Services, Inc.
(NBG), Harris Direct Marketing, Inc. and Harris Fulfillment, Inc. (Harris), The
Reich Group Companies (Reich), The Response Center, Inc. and The Tab House,
Inc. (Response Center) and TeleSpectrum, Inc. and TeleSpectrum Training
Services, Inc. (TeleSpectrum); together, the Operating Businesses. These
acquisitions will occur contemporaneously with the closing of TeleSpectrum
Worldwide's initial public offering (the Offering) and will be accounted for
using the purchase method. The estimated total purchase price of the Operating
Businesses is $149.9 million, which consists of (i) $90.9 million of cash to be
paid to the Sellers of the Operating Businesses (the Seller's) upon the
consummation of the Offering; (ii) forgiveness of the $.5 million promissory
note from TeleSpectrum (iii) $52.9 million estimated fair value of 4,403,863
shares of Common Stock of TeleSpectrum Worldwide (Common Stock) to be issued to
the Sellers; (iv) $2.1 million estimated fair value of warrants to purchase
593,400 shares of Common Stock at the estimated offering price issued in
connection with the acquisitions of the Operating Businesses (Acquisitions),
and (v) estimated transaction costs of $3.5 million. The estimated purchase
price for the Acquisitions is subject to certain purchase price adjustments at
Closing, as defined.
In addition to the total per share price discussed above, the SOMAR, NBG and
Reich acquisitions have earnout provisions based upon 1996 and/or 1997
operating results. If these earnout provisions are achieved, there will be
additional purchase price. In addition, TeleSpectrum Worldwide has agreed to
implement a bonus plan for the employees of SOMAR. Such bonus payments could be
significant. Also, Telespectrum Worldwide will be committed to provide up to
$14.0 million in funding for future SOMAR capital expenditures.
3. OPTIONS AND WARRANTS:
1996 EQUITY COMPENSATION PLAN
TeleSpectrum Worldwide plans to adopt a 1996 Stock Incentive Plan (the Plan)
prior to the Offering. The Plan reserves up to 2,300,000 shares of Common Stock
for issuance in connection with the exercise and/or grant of incentive and
nonqualified stock options, restricted stock, stock appreciation rights and
performance units to selected officers (including officers who are also
directors) and other TeleSpectrum Worldwide employees, independent contractors
and consultants. In addition, the Plan provides for grants of formula stock
options to employee directors.
F-14
<PAGE>
In May 1996, TeleSpectrum Worldwide has agreed to grant to the Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer and
other management options to purchase 1,000,000 shares of Common Stock at the
Offering price per share. These options will vest over three years and are
exercisable over ten years. In addition, 400,000 shares are issuable upon the
exercise of options that TeleSpectrum Worldwide is to grant, pursuant to
employment agreements with two of its executive officers, ratably over the
course of the next four years.
Upon the effective date of the Offering, TeleSpectrum Worldwide has agreed to
grant to employees of the Operating Businesses, options to purchase 281,100
shares of Common Stock at the offering price per share. These options will vest
over three years and are exercisable over ten years.
Warrants
Effective upon the consummation of the Offering, TeleSpectrum Worldwide will
issue warrants to purchase 593,400 shares of Common Stock in connection with
the acquisitions of the Operating Businesses at the Offering per share price.
These options are exercisable for ten years.
4. EMPLOYMENT AGREEMENTS:
TeleSpectrum Worldwide has entered into employment agreements with its Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer which
provide for minimum annual compensation of $605,000 plus bonuses. In addition,
in connection with the Closing of the Acquisitions, TeleSpectrum Worldwide will
enter employment agreements with several management members of the Operating
Businesses. The related annual compensation commitment will be significant.
5. CRW TRANSACTIONS:
As discussed in Note 1, CRW made a capital contribution to TeleSpectrum
Worldwide on May 22, 1996 of $1.6 million in cash and $0.5 million in the form
of a promissory note from TeleSpectrum, Inc. to CRW. The capital contribution
represents the proceeds of borrowings by CRW under subordinated notes issued to
the following individuals and partnership: J. Brian O'Neill, TeleSpectrum
Worldwide's Chairman of the Board and Chief Executive Officer and Chairman and
Chief Executive Officer of CRW, TL Ventures (a significant CRW Shareholder),
Michael Boyd, TeleSpectrum Worldwide's Chief Operating Officer and President,
Richard C. Schwenk, Jr., TeleSpectrum Worldwide's Senior Vice President and
Chief Financial Officer, Jonathan P. Robinson, CRW's Chief Financial Officer
and TeleSpectrum Worldwide Director of Acquisitions, Kevin Mullin, CRW's
Director of Acquisitions, Arthur Spector, a consultant to CRW, Bernard Morgan
and Robert Veratti (CRW directors) and Technology Leaders L.P., a stockholder
of CRW. As additional consideration, the lenders to CRW received warrants from
CRW to purchase 1,433,454 shares of TeleSpectrum Worldwide Common Stock owned
by CRW at $1.50 per share.
CRW also agreed to issue warrants to purchase 839,108 shares of TeleSpectrum
Worldwide Common Stock owned by CRW at $1.50 per share to Messrs. O'Neill,
Robinson, Mullin and Spector. These warrants were granted by CRW to these
individuals for services provided to CRW.
6. SIGNIFICANT ACCOUNTING POLICIES:
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Pronouncement
The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation." The Company is required to adopt this standard
for the year ending December 31, 1996. The Company has elected to adopt the
disclosure requirement of this pronouncement. The adoption of this
pronouncement will have no impact on the Company's financial position or
results of operations.
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SOMAR, Inc.:
We have audited the accompanying balance sheets of SOMAR, Inc. (a North
Carolina corporation) as of December 31, 1994 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. 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 SOMAR, Inc. as of December
31, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Charlotte, North Carolina,
April 29, 1996
F-16
<PAGE>
SOMAR, INC.
BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
--------------- MARCH 31,
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................ $ 2 $ 25 $ 4
Accounts receivable, net of reserves of $40 for
1994, 1995 and 1996............................ 2,822 4,825 5,650
Amounts due from--
Stockholders................................... 529 881 1,000
Affiliates..................................... 1 210 365
Prepaid expenses and other...................... 307 451 520
------ ------- -------
Total current assets.......................... 3,661 6,392 7,539
PROPERTY AND EQUIPMENT, net....................... 1,865 4,400 6,267
------ ------- -------
Total assets.................................. $5,526 $10,792 $13,806
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit.................................. $1,429 $ 1,182 $ 3,586
Note payable--Bank.............................. -- 1,000 --
Current portion of long term debt............... 82 2,182 1,785
Current portion of capital lease obligations.... 501 852 1,103
Accounts payable................................ 1,345 1,959 2,657
Accrued compensation............................ 340 523 437
Other accrued expenses.......................... 101 122 247
Amounts due to an affiliate..................... 105 562 598
------ ------- -------
Total current liabilities..................... 3,903 8,382 10,413
------ ------- -------
LONG-TERM DEBT.................................... 300 767 689
------ ------- -------
CAPITAL LEASE OBLIGATIONS......................... 845 872 2,357
------ ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5 and 6)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 100,000 shares
authorized; 11,765 shares issued and
outstanding.................................... 12 12 12
Additional paid-in capital...................... 772 789 789
Retained deficit................................ (306) (30) (454)
------ ------- -------
Total stockholders' equity.................... 478 771 347
------ ------- -------
Total liabilities and stockholders' equity.... $5,526 $10,792 $13,806
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
SOMAR, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31 MARCH 31
------------------------- --------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES...................... $10,703 $20,785 $31,900 $ 6,862 $ 9,274
------- ------- ------- --------- ---------
OPERATING EXPENSES............
Cost of services............ 7,731 15,623 25,048 5,032 7,931
Selling, general and
administrative expenses.... 2,787 4,115 5,162 1,284 1,554
------- ------- ------- --------- ---------
Total operating expenses.. 10,518 19,738 30,210 6,316 9,485
------- ------- ------- --------- ---------
Operating income (loss)... 185 1,047 1,690 546 (211)
INTEREST INCOME............... 17 12 45 -- 4
INTEREST EXPENSE.............. (106) (432) (756) (129) (217)
------- ------- ------- --------- ---------
NET INCOME (LOSS)............. $ 96 $ 627 $ 979 $ 417 $ (424)
======= ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
SOMAR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN STOCKHOLDER EARNINGS STOCKHOLDERS'
STOCK CAPITAL LOAN (DEFICIT) EQUITY (DEFICIT)
------ ---------- ----------- --------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993................... $12 $474 $(612) $(361) $(487)
Net income............. -- -- -- 96 96
--- ---- ----- ----- -----
BALANCE, DECEMBER 31,
1993................... 12 474 (612) (265) (391)
Net income............. -- -- -- 627 627
Distributions.......... -- -- -- (668) (668)
Repayments of stock-
holder loan........... -- -- 612 -- 612
Stock Options.......... -- 298 -- -- 298
--- ---- ----- ----- -----
BALANCE, DECEMBER 31,
1994................... 12 772 -- (306) 478
Net income............. -- -- -- 979 979
Distributions.......... -- -- -- (703) (703)
Stock Options.......... -- 17 -- -- 17
--- ---- ----- ----- -----
BALANCE, DECEMBER 31,
1995................... 12 789 -- (30) 771
Net loss (unaudited)... -- -- -- (424) (424)
--- ---- ----- ----- -----
BALANCE, MARCH 31, 1996
(unaudited)............ $12 $789 $ -- $(454) $ 347
=== ==== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
SOMAR, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED THREE MONTHS
DECEMBER 31 ENDED MARCH 31
----------------------- ----------------
1993 1994 1995 1995 1996
----- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................. $ 96 $ 627 $ 979 $ 417 $ (424)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization.... 145 288 775 130 268
Stock option compensation ex-
pense........................... -- 298 17 -- --
Changes in operating assets and
liabilities--
Accounts receivable............ 144 (1,987) (2,003) (1164) (825)
Prepaid expenses and other..... (89) (123) (144) (188) (69)
Accounts payable............... (165) 559 614 248 698
Accrued expenses............... 123 395 203 482 39
----- ------- ------- ------- -------
Net cash provided by (used
in) operating activities.... 254 57 441 (75) (313)
----- ------- ------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equip-
ment.............................. (19) (174) (2,309) (1,033) (187)
Advanced to stockholder............ (426) (103) (352) (341) (119)
Advances to affiliates............. -- (2) (209) (148) (155)
Repayments of advances to affili-
ates.............................. 1 13 -- -- --
Repayment of stockholder loan...... -- 612 -- -- --
----- ------- ------- ------- -------
Net cash (used in) provided
by investing activities..... (444) 346 (2,870) (1,522) (461)
----- ------- ------- ------- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) on
long-term debt.................... (62) (6) 2,567 891 (475)
Borrowings (repayments) on note
payable--Bank..................... -- -- 1,000 -- (1,000)
Borrowings (repayments) from affil-
iates............................. 506 (491) 458 202 36
Distributions paid................. -- (669) (703) -- --
Payments on capital lease obliga-
tions............................. (302) (297) (623) (79) (212)
Net (repayments) borrowings on line
of credit agreement............... 63 1,046 (247) 584 2,404
----- ------- ------- ------- -------
Net cash provided by (used
in) financing activities.... 205 (417) 2,452 1,598 753
----- ------- ------- ------- -------
NET INCREASE (DECREASE) IN CASH...... 15 (14) 23 1 (21)
CASH, BEGINNING OF PERIOD............ 1 16 2 2 25
----- ------- ------- ------- -------
CASH, END OF PERIOD.................. $ 16 $ 2 $ 25 $ 3 $ 4
===== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
INDUSTRY INFORMATION
SOMAR, Inc. (the "Company") is a provider of outsourced telephone-based
sales, marketing and customer management services, to clients principally in
the insurance industry and also to clients in the financial services,
telecommunications and consumer products industries.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company recognizes revenues on programs as services are performed for its
clients, generally based upon hours incurred.
The nature of the industry is such that the Company is dependent on several
large clients for a significant portion of its annual revenues. For the years
ended December 31, 1993, 1994, 1995, and for the three months ended March 31,
1996, the Company had three, four, three and three clients, respectively, that
each accounted for more than 10% of the Company's revenues. For the period
ended December 31, 1993, the three clients accounted for 36%, 25% and 11% of
the Company's revenues, respectively. For the period ended December 31, 1994,
the four clients accounted for 20%, 17%, 16% and 13% of the Company's revenues,
respectively. For the period ended December 31, 1995, the three clients
accounted for 33%, 16% and 15% of the Company's revenues. For the three months
ended March 31, 1996, the three clients accounted for 26%, 23%, and 13% of the
Company's revenues, respectively. The loss of one or more of these major
clients could have a materially adverse effect on the Company's business.
Concentration of credit risk is limited to trade accounts receivable and is
subject to the financial conditions of certain major clients described above.
Two of these clients are engaged in transactions with each other and represent
a single credit risk to the Company. The Company does not require collateral to
secure clients' receivables. The Company performs periodic reviews of its
clients' financial condition to reduce collection risk on trade accounts
receivable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method for financial reporting purposes and accelerated
methods for income tax reporting purposes over the estimated useful lives of
the respective assets. Assets recorded under capital leases are amortized using
the straight-line method over the estimated useful lives of the leased assets.
Upon sale or retirement, the related cost and accumulated depreciation are
removed from the accounts, and any gain or loss is recognized in the statement
of income.
Major improvements are capitalized and charged to expense through
depreciation. Repairs and maintenance are charged to expense as incurred.
Certain general and administrative expenses associated with the opening of new
call centers are expensed prior to the opening of the call center.
As of January 1, 1993, the Company prospectively revised the remaining lives
of certain furniture and equipment to better reflect the periods during which
such assets are expected to remain in service. Furniture and equipment lives
that previously averaged three years were increased to an average of six years.
This change increased income for the year ended December 31, 1993, by $101,000.
F-21
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
INCOME TAXES
The Company has elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code and North Carolina General Statutes. As a result,
the Company is not subject to federal income taxes, and the taxable income of
the Company is included in the individual tax returns of the Company's
stockholders. Accordingly, no provision for federal or state income taxes has
been recorded in the accompanying financial statements.
The Company reports certain income and expense items for income tax purposes
on a basis different from that reflected in the accompanying financial
statements. The principal differences relate to the timing of the recognition
of accrued expenses that are not deductible for federal income tax purposes
until paid and the use of accelerated methods of depreciation for income tax
purposes. At December 31, 1995, the financial reporting basis of the Company's
net assets exceeds the tax basis of the net assets by approximately $580,000.
In the event that the S Corporation is terminated, deferred income taxes
applicable to these differences would be reflected in the accompanying
financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term
nature of those instruments. The carrying amount of the line of credit, note
payable and long-term debt approximates fair value on the balance sheet dates.
PREPAID AGENT LICENSE FEES
The Company capitalizes the cost of licensing its agents and amortizes
license fees over a 12-month period. Prepaid agent license fees amounted to
$59,000 and $172,000 at December 31, 1994 and 1995, respectively.
ACCOUNTING OF STOCK-BASED COMPENSATION
The Company currently utilizes Accounting Principles Board Opinion No. 25 in
its accounting for stock options. In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation." The accounting method as
provided in the pronouncement is not required to be adopted; however, it is
encouraged. The Company does not anticipate adopting the accounting provisions
of the statement but will include in the footnotes to the financial statements
the disclosures required by SFAS No. 123 in fiscal 1996.
TRAINING COSTS
The Company maintains ongoing training programs for its employees. The cost
of this training is charged to expense when incurred. As of December 31, 1995,
the Company recorded a $407,000 receivable from a State Economic Development
Agency for certain educational and training costs that are to be reimbursed.
PERVASIVENESS 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
F-22
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited and, in the opinion of management of the
Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full year.
2. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31
USEFUL --------------- MARCH 31
LIVES 1994 1995 1996
--------- ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Furniture and fixtures.................. 5-7 years $ 874 $ 2,265 $2,952
Telemarketing equipment................. 5 years 1,694 3,263 3,811
Building................................ 40 years -- -- 900
Leasehold improvements.................. 5-6 years 9 359 359
------ ------- ------
2,577 5,887 8,022
Less--Accumulated depreciation and
amortization........................... (712) (1,487) (1,755)
------ ------- ------
$1,865 $ 4,400 $6,267
====== ======= ======
</TABLE>
The gross cost of equipment under capital lease obligations included above
amounted to $1,547,000, $2,547,000 and $4,435,000 at December 31, 1994, 1995
and March 31, 1996, respectively.
Depreciation and amortization expense for the years ended December 31, 1993,
1994, 1995, and for the three months ended March 31, 1996 was $145,000,
$288,000, $775,000 and $268,000, respectively.
3. LINE OF CREDIT AND NOTE PAYABLE--BANK:
At December 31, 1994 and 1995, the Company had a line of credit with Fremont
Financial Corporation ("Fremont"). The Company has entered into an agreement
with NationsBank of Georgia ("NationsBank") for a revolving line of credit with
a maximum borrowing limit of $6,500,000. Interest on the line of credit is
payable monthly and accrues on borrowings under the revolving line of credit at
the bank's prime rate plus 1%.
The Company's borrowing base under the NationsBank revolver is limited to 85%
of eligible receivables as defined by the agreement. The line is secured by
trade accounts receivable, equipment and other assets of the Company. At April
29, 1996, the Company's availability under the NationsBank revolver was
approximately $610,000.
The agreement terminates on January 1, 1997, and contains certain restrictive
covenants that, among other things, require the maintenance of certain
financial ratios, limitations on capital expenditures and bonuses, and
restrictions on future indebtedness. As of March 31, 1996, the Company was in
violation of certain loan covenants for which it has obtained a waiver letter
from the bank.
F-23
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
At December 31, 1995, the Company was transitioning its line of credit
arrangement from Fremont to NationsBank. In connection with the transition, the
Company borrowed $1,000,000 from NationsBank on a short-term basis at an
interest rate equal to the bank's prime rate (8.5%) plus 1%. This note was
repaid on January 3, 1996, with the proceeds from the new revolving line of
credit arrangement.
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31
------------- MARCH 31
1994 1995 1996
----- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Note payable to MCI Telecommunications Corpora-
tion, unsecured, payable in eight monthly in-
stallments of $128,300 through July 1996, and re-
maining payment of $118,700 due in August 1996,
interest at 9.75%................................ $ -- $ 981 $617
Notes payable to a bank, secured by related
equipment, payable on May 21, 1996, interest
payable monthly at the bank's prime rate plus 150
basis points (10% at December 31, 1995),
guaranteed by the Company's two principal
stockholders and two affiliated companies (at
April 29, 1996, these notes are in the process of
being refinanced by the West Virginia due May 21
Economic Development Authority; the refinanced
notes will be secured by assets of the Company,
payable in monthly installments of $21,100
including interest, through May 1999, at an
interest rate of 4%)............................. -- 720 720
Installment note payable to a bank, secured by
related equipment, payable in monthly
installments of $11,900 including interest,
through August 1998, at the bank's prime interest
rate plus 150 basis points (10% at December 31,
1995), guaranteed by the Company's two principal
stockholders and two affiliated companies........ -- 331 315
Note payable to Network Sampling Services, balance
due July 1, 1997, including interest at 10%,
guaranteed by one of the Company's principal
stockholders..................................... 382 300 300
Installment note payable to a bank, secured by
related equipment, payable in monthly
installments of $11,957 including interest,
through April 1998, at the bank's prime interest
rate plus 150 basis points (10% at December 31,
1995), guaranteed by the Company's two principal
stockholders and two affiliated companies........ -- 288 261
Installment note payable to a bank, secured by
related equipment, payable in monthly
installments of $21,774 including interest,
through October 1996, at the bank's prime rate
plus 150 basis points (10% at December 31, 1995),
guaranteed by the Company's two principal
stockholders and two affiliated companies........ -- 226 166
Installment note payable to a finance company,
unsecured, payable in monthly installments of
$3,800 including interest, through August 1998 at
an interest rate of 9%........................... -- 103 95
----- ------ ------
382 2,949 2,474
Less--Current portion........................... (82) (2,182) (1,785)
----- ------ ------
$ 300 $ 767 $ 689
===== ====== ======
</TABLE>
F-24
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Minimum principal repayments of long-term debt as of December 31, 1995, are
as follows (in thousands):
<TABLE>
<S> <C>
1996.................................................................. $2,182
1997.................................................................. 602
1998.................................................................. 165
------
$2,949
======
</TABLE>
The notes payable to a bank contain certain restrictive covenants. As of
March 31, 1996, the Company was in violation of one of the loan covenants for
which it has obtained a waiver letter from the bank.
5. COMMITMENTS AND CONTINGENCIES:
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
LEASES
The Company leases administrative offices, telephone call centers and
equipment under noncancelable operating leases. In addition, the Company has
capital leases covering certain operating equipment. Future minimum lease
payments at December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1996...................................................... $ 673 $ 989
1997...................................................... 549 647
1998...................................................... 449 280
1999...................................................... 221 16
2000...................................................... 179 --
Thereafter................................................ 503 --
------ -----
Total................................................. $2,574 1,932
======
Less--Amount representing interest...................... (208)
-----
Present value of future minimum lease payments............ 1,724
Less--Current portion................................... (852)
-----
$ 872
=====
</TABLE>
Rent expense under operating leases was approximately $631,000, $599,000,
$673,000 and $198,000 for the years ended December 31, 1993, 1994, 1995 and for
the three months ended March 31, 1996 (including amounts paid to related
parties), respectively (see Note 7).
The Company financed purchases of approximately $59,000, $1,488,000,
$1,000,000 and $1,948,000 through capital leases in 1993, 1994, 1995 and for
the three months ended March 31, 1996, respectively.
EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution 401(k) profit-sharing plan for
eligible employees. Company contributions to the plan, which are based on a
company match percentage, amounted to
F-25
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
$8,000, $21,000, $30,000 and $12,000 for the years ended December 31, 1993,
1994, 1995, and for the three months ended March 31, 1996, respectively.
6. STOCK OPTIONS:
In December 1991, the Company's two principal shareholders granted stock
options to three key employees for the purchase of up to 2,588 shares of their
common stock at an exercise price of $10 per share. The options vested
immediately and were exercisable through December 31, 1994. The deemed value of
the options for accounting purposes at the date of grant was less than the $10
exercise price. Accordingly, no compensation expense was recorded at the date
of these grants.
In December 1994, the principal shareholders extended all option exercise
dates from December 31, 1994 to March 31, 1996. All remaining option terms,
including the $10 per share exercise price, remained unchanged. The deemed
value of the options for accounting purposes at the extension date was $125 per
share. Accordingly, $298,000 of compensation expense was recorded at the date
of extension.
In May 1995, the Company's two principal shareholders granted stock options
to another key employee for the purchase of up to 117 shares of their common
stock at an exercise price of $10 per share through March 31, 1996. The deemed
value of the options for accounting purposes at the date of grant was $156 per
share. Accordingly, $17,000 of compensation expense was recorded at the date of
grant.
At December 31, 1994 and 1995, no options had been exercised and 2,588 and
2,705 options were outstanding, respectively.
In March 1996, all options were exercised and 2,705 shares were issued by the
Company's principal shareholders to the option holders.
7. RELATED-PARTY TRANSACTIONS:
Southern Investments (a partnership), The Development Group, Inc. ("DGI"),
Southern Alloy of America, Inc., SOMAR Telecommunications, Inc. ("STI") and
Engineered Machine Technologies, Inc. ("EMTI") are affiliated with the Company
through common ownership.
The Company leases residential real estate, automobiles, computer equipment
and furniture and equipment from Southern Investments on a month-to-month
basis. Rent expense related to these operating leases totaled approximately
$495,000, $363,000, $278,000 and $74,000 for the years ended December 31, 1993,
1994, 1995 and for the three months ended March 31, 1996, respectively.
F-26
<PAGE>
SOMAR, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
Following is a schedule of amounts due from a shareholder and affiliates (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
------------- ---------
<S> <C> <C> <C>
Stockholders........................................ $529 $ 881 $1,000
Southern Investments................................ -- 102 111
DGI................................................. -- 42 96
EMTI................................................ 1 5 8
STI................................................. -- 61 150
----- ------- ------
$530 $1,091 $1,365
===== ======= ======
</TABLE>
Following is a schedule of amounts due to an affiliate (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Southern Alloy of America, Inc...................... $105 $562 $598
====== ====== ====
</TABLE>
Included in interest expense and interest income in the accompanying
financial statements is interest income (expense) from (to) related parties
(including allocated interest expense) as follows (in thousands):
<TABLE>
<CAPTION>
FROM (TO)
---------------------------
DECEMBER 31,
---------------- MARCH 31,
1993 1994 1995 1996
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Southern Alloy of America, Inc.................. $(18) $(99) $(94) $(22)
Southern Investments............................ (14) 12 -- --
---- ---- ---- ----
$(32) $(87) $(94) $(22)
==== ==== ==== ====
</TABLE>
In 1993, 1994, 1995 and for the three months ended March 31, 1996, the
Company was allocated interest expense from Southern Alloy of America, Inc.,
amounting to approximately $18,000, $99,000, $94,000 and $22,000, respectively.
The Company's senior management are employees of DGI. DGI charges the Company
for services provided by these individuals. These expenses amounted to
approximately $879,000, $1,132,000, $1,136,000 and $333,000 in 1993, 1994, 1995
and for the three months ended March 31, 1996, respectively.
The Company has guaranteed a line of credit agreement for Southern Alloy of
America, Inc. The outstanding balance under this agreement amounted to
$1,424,000 at December 31, 1995 and $1,384,000 at March 31, 1996. The guarantee
related to this line of credit agreement is not being assumed in connection
with the sale of the business discussed in Note 8 below.
8. SALE OF BUSINESS:
In April, 1996, the Company entered into an Asset Purchase Agreement with
TeleSpectrum Worldwide, a wholly owned subsidiary of CRW Financial, Inc.
("CRW"), whereby CRW agreed to purchase substantially all of the Company's net
assets.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NBG Services, Inc.:
We have audited the accompanying balance sheets of NBG Services, Inc. (a
Massachusetts corporation--see Note 1) as of December 30, 1994 and December 29,
1995, and the related statements of income, shareholders' equity and cash flows
for each of the three fiscal years in the period ended December 29, 1995. 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 NBG Services, Inc. as of
December 30, 1994 and December 29, 1995, and the results of its operations and
its cash flows for each of the three fiscal years in the period ended December
29, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
May 8, 1996
F-28
<PAGE>
NBG SERVICES, INC.
BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............. $ -- $ 700 $1,988
Short-term investments................. 14 210 170
Accounts receivable, net of reserves of
$37, $90, and $105 in 1994, 1995 and
1996, respectively.................... 527 1,757 1,350
Prepaid expenses and other............. 31 129 148
------ ------ ------
Total current assets................. 572 2,796 3,656
PROPERTY AND EQUIPMENT, net.............. 817 1,336 1,872
OTHER ASSETS............................. 94 102 149
------ ------ ------
Total assets......................... $1,483 $4,234 $5,677
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease
obligations........................... $ 273 $ 277 $ 392
Bank overdraft......................... 82 -- --
Demand note............................ -- 500 --
Accounts payable....................... 196 212 273
Accrued expenses....................... 259 537 442
Deferred revenue....................... -- -- 930
------ ------ ------
Total current liabilities............ 810 1,526 2,037
------ ------ ------
CAPITAL LEASE OBLIGATIONS................ 277 454 824
------ ------ ------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, no par value, 10,000
shares authorized,
100 shares issued and outstanding..... -- -- --
Retained earnings...................... 396 2,254 2,816
------ ------ ------
Total shareholders' equity........... 396 2,254 2,816
------ ------ ------
Total liabilities and shareholders'
equity.............................. $1,483 $4,234 $5,677
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
NBG SERVICES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THIRTEEN
FOR THE FISCAL YEAR ENDED WEEKS ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES................ $4,849 $5,778 $12,829 $2,695 $3,960
------ ------ ------- ------ ------
OPERATING EXPENSES:
Cost of services...... 3,200 4,259 8,572 1,766 2,752
Selling, general and
administrative
expenses............. 1,289 1,443 2,115 508 631
------ ------ ------- ------ ------
Total operating
expenses........... 4,489 5,702 10,687 2,274 3,383
------ ------ ------- ------ ------
Operating income.... 360 76 2,142 421 577
INTEREST INCOME......... 1 17 19 -- 20
INTEREST EXPENSE........ (76) (60) (55) (15) (35)
------ ------ ------- ------ ------
NET INCOME.............. $ 285 $ 33 $ 2,106 $ 406 $ 562
====== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE>
NBG SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993.................. 100 $ -- $ 78 $ 78
Net income.............................. -- -- 285 285
--- ----- ------ ------
BALANCE, DECEMBER 31, 1993................ 100 -- 363 363
Net income.............................. -- -- 33 33
--- ----- ------ ------
BALANCE, DECEMBER 30, 1994................ 100 -- 396 396
Net income.............................. -- -- 2,106 2,106
Distributions........................... -- -- (248) (248)
--- ----- ------ ------
BALANCE, DECEMBER 29, 1995................ 100 -- 2,254 2,254
Net income (unaudited).................. -- -- 562 562
--- ----- ------ ------
BALANCE, MARCH 29, 1996 (unaudited)....... 100 $ -- $2,816 $2,816
=== ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE>
NBG SERVICES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THIRTEEN
FOR THE FISCAL YEAR ENDED WEEKS ENDED
-------------------------------------- -------------------
DECEMBER 31, DECEMBER 30, DECEMBER 29, MARCH 31, MARCH 29,
1993 1994 1995 1995 1996
------------ ------------ ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............ $ 285 $ 33 $ 2,106 $406 $ 562
Adjustments to
reconcile net income
to net cash provided
by operating
activities--
Depreciation and
amortization....... 128 205 319 57 114
Provision for loss
on accounts
receivable......... -- 37 113 43 15
Changes in operating
assets and
liabilities--
Accounts
receivable....... (176) (182) (1,343) (29) 392
Prepaid expenses
and other........ (45) (46) (106) (8) (66)
Bank overdraft.... -- 82 (82) (82) --
Accounts payable.. 41 93 16 25 61
Accrued expenses.. 47 75 278 134 (95)
Deferred revenue.. -- -- -- -- 930
----- ---- ------- ---- ------
Net cash
provided by
operating
activities..... 280 297 1,301 546 1,913
----- ---- ------- ---- ------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of short-term
investments.......... (41) (35) (205) -- --
Proceeds from short-
term investments..... -- 62 9 -- 40
Purchases of property
and equipment........ (37) (69) (398) (7) (71)
----- ---- ------- ---- ------
Net cash used in
investing
activities..... (78) (42) (594) (7) (31)
----- ---- ------- ---- ------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of capital
lease obligations.... (207) (264) (259) (69) (94)
Proceeds from demand
note................. -- -- 500 -- --
Repayment of demand
note................. -- -- -- -- (500)
Distributions to
shareholders......... -- -- (248) -- --
----- ---- ------- ---- ------
Net cash used in
financing
activities..... (207) (264) (7) (69) (594)
----- ---- ------- ---- ------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ (5) (9) 700 470 1,288
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 14 9 -- -- 700
----- ---- ------- ---- ------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................. $ 9 $ -- $ 700 $470 $1,988
===== ==== ======= ==== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
NBG SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE THIRTEEN WEEKS ENDED MARCH 31,
1995 AND MARCH 29, 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
INDUSTRY INFORMATION
RG Associates, Inc., d/b/a NBG Services, Inc. was incorporated in June 1991.
In April 1996, RG Associates, Inc., d/b/a NBG Services, Inc., amended its
Articles of Incorporation to change the name of the corporation to NBG
Services, Inc. (the "Company"). The Company provides outbound telemarketing
data processing and fulfillment services in the financial services,
telecommunications and high technology industries.
The Company operates on a fifty-two, fifty-three week fiscal year ending on
the last Friday of the calendar year.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISKS
The Company recognizes revenues as services are performed for its clients.
Cash received in advance of services performed is deferred and recorded as
deferred revenue in the accompanying balance sheets. For the fiscal years ended
December 31, 1993, December 30, 1994 and December 29, 1995 and the thirteen
weeks ended March 29, 1996, the Company had two customers in the financial
services and telecommunications industries which accounted for 95%, 90%, 93%,
and 94%, respectively, of the Company's revenues. The loss of either of these
significant clients would have a material adverse effect on the Company's
business.
The concentration of credit risk is limited to trade accounts receivables and
is subject to the financial conditions of the Company's clients. The Company
does not require collateral or other securities to support customer
receivables.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Investments are held at market value, and at December 29, 1995 and March 29,
1996 were classified as short-term. Cash, cash equivalents and investments
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
------------ -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH:
Money market and demand accounts.... $ -- $700 $1,988
INVESTMENTS:
Common stocks....................... 11 196 160
Mutual funds........................ 3 14 10
----- ---- ------
$ 14 $910 $2,158
===== ==== ======
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115)
effective January 1, 1994. This statement requires the Company to classify its
investment securities as: (1) held to maturity, (2) available for sale or (3)
held for trading purposes. At December 30, 1994, December 29, 1995 and March
29, 1996 all of the Company's short-term investments are classified as
available for sale, therefore any unrealized holding gains or losses should be
presented in a separate component of shareholders' equity. At December 30,
1994, December 29, 1995 and March 29, 1996, there were no significant
unrealized holding gains or losses.
F-33
<PAGE>
NBG SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE
THIRTEEN WEEKS ENDED MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives or the lease term, whichever is shorter.
Expenditures for maintenance, repairs and betterments which do not prolong
the useful life of an asset have been charged to operations as incurred.
Additions and betterments which substantially extend the useful life of the
asset are capitalized. Upon sale or other disposition of assets, the cost and
related accumulated depreciation and amortization are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income.
STATEMENT OF CASH FLOWS
For the fiscal years ended December 31, 1993, December 30, 1994, December 29,
1995 and the thirteen weeks ended March 29, 1996, the Company paid interest of
$76,000, $60,000, $55,000 and $35,000, respectively. For the fiscal years ended
December 31, 1993, December 30, 1994, December 29, 1995 and the thirteen weeks
ended March 29, 1996, the Company financed equipment purchases with capital
leases of $381,000, $302,000, $440,000 and $579,000 respectively.
INCOME TAXES
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company is not subject to federal income taxes,
and the taxable income of the Company is included in the shareholders' tax
returns. Therefore, no provision for federal and state income taxes has been
made for the fiscal years ended December 31, 1993, December 30, 1994 and
December 29, 1995 and the thirteen weeks ended March 29, 1996.
The Company is on the cash basis of accounting for income tax reporting
purposes and on the accrual basis for financial reporting purposes. Therefore,
the Company reports certain income and expense items for income tax purposes on
a basis different from that reflected in the accompanying financial statements.
At December 29, 1995, the Company's financial reporting basis of the net assets
exceeds the tax basis of the net assets by approximately $1,500,000. In the
event that the S Corporation is terminated, deferred income taxes applicable to
these differences would be reflected in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term
nature of those instruments. The carrying amount of the demand note and capital
lease obligations approximates fair value at December 29, 1995 and March 29,
1996.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 29, 1996 and for the thirteen weeks
ended March 31, 1995 and March 29, 1996 are unaudited and, in the opinion of
management of the Company, include all adjustments (consisting
F-34
<PAGE>
NBG SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE
THIRTEEN WEEKS ENDED MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
only of normal recurring adjustments) necessary for a fair presentation of the
results for those interim periods. The results of operations for the thirteen
weeks ended March 29, 1996 are not necessarily indicative of the results to be
expected for the full year.
2. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
USEFUL DECEMBER 30, DECEMBER 29, MARCH 29,
LIVES 1994 1995 1996
------ ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Telemarketing equipment.......... 5 $1,097 $1,845 $2,408
Furniture and office equipment... 7 155 195 282
Leasehold improvements........... 7 -- 50 50
------ ------ ------
1,252 2,090 2,740
Less--Accumulated depreciation
and amortization................ (435) (754) (868)
------ ------ ------
$ 817 $1,336 $1,872
====== ====== ======
</TABLE>
Depreciation expense for the fiscal years ended December 31, 1993, December
30, 1994 and December 29, 1995 and the three months ended March 29, 1996 was
$128,000, $205,000, $319,000 and $ 114,000, respectively.
3. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued compensation............. $ 84 $ 174 $ 214
Accrued profit sharing........... 110 139 29
Accrued telephone................ 50 77 112
Accrued other.................... 15 147 87
------ ------ ------
$ 259 $ 537 $ 442
====== ====== ======
</TABLE>
4. DEBT:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 29, MARCH 29,
1994 1995 1996
------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Demand note...................... $ -- $ 500 $ --
Capitalized lease obligations
(Note 5)........................ 550 731 1,216
------ ------ ------
550 1,231 1,216
Less-current portion............. (273) (777) (392)
------ ------ ------
$ 277 $ 454 $ 824
====== ====== ======
</TABLE>
On December 29, 1995, the Company borrowed $500,000 from a bank under a
demand note which bears interest at prime rate (8.5% at December 29, 1995). The
note matures on May 31, 1996, and is collateralized by all of the assets of the
Company. The note was repaid on March 29, 1996. Interest expense on this note
was $15,000 for the thirteen weeks ended March 29, 1996.
The Company has a line of credit with a bank which provides for maximum
borrowings of $1,000,000. The line is collateralized by all of the assets of
the Company and is personally guaranteed by the shareholders. The line of
credit expires on May 31, 1996. At December 29, 1995 and March 29, 1996, there
was no outstanding balance on this line of credit.
F-35
<PAGE>
NBG SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF MARCH 29, 1996 AND FOR THE
THIRTEEN WEEKS ENDED MARCH 31, 1995 AND MARCH 29, 1996 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities and equipment under capital and noncancelable
operating leases at seven locations through December, 2002. Interest rates on
the capital leases range from 4% to 18%. Rent expense under operating leases
for the fiscal years ended December 31, 1993, December 30, 1994, December 29,
1995 and the thirteen weeks ended March 29, 1996 was $110,000, $213,000,
$331,000 and $138,000, respectively.
Future minimum lease payments under the Company's leases as of December 29,
1995 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
(IN THOUSANDS)
<S> <C> <C>
1996...................................................... $ 747 $ 328
1997...................................................... 512 277
1998...................................................... 514 154
1999...................................................... 524 57
2000...................................................... 470 --
Thereafter................................................ 462 --
------ -----
Total minimum lease payments.............................. $3,229 816
======
Less--Amount representing interest........................ (85)
-----
Present value of future minimum lease payments............ 731
-----
Less--Current portion of principal payments............... (277)
-----
$ 454
=====
</TABLE>
The Company subleases two of its facilities under noncancelable operating
leases through December 31, 1996. Total minimum lease payments have not been
reduced by the minimum sublease rentals of $90,000 due to the Company under
these two noncancelable subleases.
6. EMPLOYEE BENEFIT PLANS:
The Company sponsors a noncontributory profit sharing plan for employees. The
Company's contributions to the plan are at the discretion of the Board of
Directors. For the fiscal years ended December 31, 1993, December 30, 1994 and
December 29, 1995 the Company's discretionary contributions to the plan were
$75,000, $110,000 and $139,000, respectively. There were no contributions to
the plan for the thirteen weeks ended March 29, 1996.
On January 1, 1996, the Company adopted a defined contribution 401(k) savings
plan. The plan provides for a matching contribution by the Company based on
employee contributions. Additional Company contributions may be made at the
discretion of management. For the thirteen weeks ended March 29, 1996, the
Company contributed $4,000 to the plan.
7. SALE OF BUSINESS:
In May 1996, an asset purchase agreement was signed among TeleSpectrum
Worldwide Inc., a wholly-owned subsidiary of CRW Financial, Inc., the Company
and the shareholders of the Company, whereby TeleSpectrum Worldwide agreed to
purchase substantially all of the net assets of the Company.
F-36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harris Direct Marketing, Inc. and Harris Fulfillment, Inc.:
We have audited the accompanying combined balance sheets of Harris Direct
Marketing, Inc. and Harris Fulfillment, Inc. (Pennsylvania corporations) as of
December 31, 1994 and 1995, and the related combined statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Companies' 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 combined financial position of Harris Direct
Marketing, Inc. and Harris Fulfillment, Inc. as of December 31, 1994 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
April 19, 1996
F-37
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
--------------- -----------
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 975 $ 2,919 $ 2,311
Accounts receivable, net of reserves of $25,
$161 and $64 at December 31, 1994, 1995 and
March 31, 1996................................. 2,872 2,930 2,960
Prepaid expenses and other...................... 592 651 579
------ ------- -------
Total current assets.......................... 4,439 6,500 5,850
PROPERTY AND EQUIPMENT, net....................... 4,270 4,139 4,062
OTHER ASSETS...................................... 64 164 137
------ ------- -------
Total assets.................................. $8,773 $10,803 $10,049
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............... $ 349 $ 299 $ 305
Accounts payable................................ 338 362 320
Accrued expenses................................ 616 635 478
Customer advances............................... 876 1,463 703
------ ------- -------
Total current liabilities..................... 2,179 2,759 1,806
------ ------- -------
LONG-TERM DEBT.................................... 1,863 1,530 1,451
------ ------- -------
DEFERRED RENT..................................... 116 120 120
------ ------- -------
OTHER NONCURRENT LIABILITIES...................... 35 19 32
------ ------- -------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock (Harris Direct Marketing, Inc.), no
par value, 10,000 shares authorized, 99 shares
issued......................................... 1 1 1
Common stock (Harris Fulfillment, Inc.), $1 par
value, 1,000 shares authorized, 111 1/9 shares
issued and outstanding......................... -- -- --
Additional paid-in capital...................... 45 45 45
Retained earnings............................... 4,659 6,454 6,719
Treasury stock, at cost......................... (125) (125) (125)
------ ------- -------
Total shareholders' equity.................... 4,580 6,375 6,640
------ ------- -------
Total liabilities and shareholders' equity.... $8,773 $10,803 $10,049
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31 ENDED MARCH 31
------------------------ ----------------------
1993 1994 1995 1995 1996
------ ------- ------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................... $7,018 $10,115 $12,690 $3,988 $2,617
------ ------- ------- ---------- ----------
OPERATING EXPENSES:
Cost of services........... 3,834 5,530 6,402 2,078 1,324
Selling, general and
administrative expenses... 2,473 2,680 2,986 761 768
------ ------- ------- ---------- ----------
Total operating
expenses................ 6,307 8,210 9,388 2,839 2,092
------ ------- ------- ---------- ----------
Operating income......... 711 1,905 3,302 1,149 525
INTEREST INCOME.............. 21 9 70 12 29
INTEREST EXPENSE............. (163) (195) (214) (53) (41)
------ ------- ------- ---------- ----------
NET INCOME................... $ 569 $ 1,719 $ 3,158 $1,108 $ 513
====== ======= ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HARRIS DIRECT HARRIS
MARKETING, INC. FULFILLMENT, INC.
COMMON STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- --------------------- PAID-IN RETAINED TREASURY SHAREHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------- -------- -------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993................... 99 $ 1 111 1/9 $ -- $ 45 $ 2,544 $(125) $ 2,465
Net income............. -- -- -- -- -- 569 -- 569
Distributions.......... -- -- -- -- -- (27) -- (27)
------- ------- -------- -------- ---- ------- ----- -------
BALANCE, DECEMBER 31,
1993................... 99 1 111 1/9 -- 45 3,086 (125) 3,007
Net income............. -- -- -- -- -- 1,719 -- 1,719
Distributions.......... -- -- -- -- -- (146) -- (146)
------- ------- -------- -------- ---- ------- ----- -------
BALANCE, DECEMBER 31,
1994................... 99 1 111 1/9 -- 45 4,659 (125) 4,580
Net income............. -- -- -- -- -- 3,158 -- 3,158
Distributions.......... -- -- -- -- -- (1,363) -- (1,363)
------- ------- -------- -------- ---- ------- ----- -------
BALANCE, DECEMBER 31,
1995................... 99 1 111 1/9 -- 45 6,454 (125) 6,375
Net income (unau-
dited)................ -- -- -- -- -- 513 -- 513
Distributions (unau-
dited)................ -- -- -- -- -- (248) -- (248)
------- ------- -------- -------- ---- ------- ----- -------
BALANCE, MARCH 31, 1996
(unaudited)............ 99 $ 1 111 1/9 $ -- $ 45 $ 6,719 $(125) $ 6,640
======= ======= ======== ======== ==== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31 MARCH 31
------------------------ --------------
1993 1994 1995 1995 1996
------- ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................... $ 569 $1,719 $ 3,158 $1,108 $ 513
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities--
Depreciation and amortization.... 436 527 591 138 154
Provision for loss on accounts
receivable...................... 31 25 136 93 16
Provision for deferred rent...... 22 94 4 1 --
Changes in operating assets and
liabilities--
Accounts receivable............ (1,265) (628) (195) (1,777) (46)
Prepaid expenses and other..... (330) (51) (159) (607) 99
Accounts payable............... 305 (152) 24 196 (42)
Accrued expenses............... 44 160 3 (139) (144)
Customer advances.............. 418 189 587 605 (760)
------- ------ ------- ------ ------
Net cash provided by (used
in) operating activities.... 230 1,883 4,149 (382) (210)
------- ------ ------- ------ ------
INVESTING ACTIVITIES:
Proceeds from the sale of property
and equipment..................... 255 -- -- -- --
Purchases of property and
equipment......................... (684) (903) (460) (239) (77)
------- ------ ------- ------ ------
Net cash used in investing
activities.................. (429) (903) (460) (239) (77)
------- ------ ------- ------ ------
FINANCING ACTIVITIES:
Net borrowings (repayments) on
lines of credit................... -- (250) -- 250 --
Repayment of long-term debt........ (398) (360) (382) (91) (73)
Proceeds from long-term debt....... 489 417 -- -- --
Shareholder distributions.......... (27) (146) (1,363) -- (248)
------- ------ ------- ------ ------
Net cash provided by (used
in) financing activities.... 64 (339) (1,745) 159 (321)
------- ------ ------- ------ ------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (135) 641 1,944 (462) (608)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................... 469 334 975 975 2,919
------- ------ ------- ------ ------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ 334 $ 975 $ 2,919 $ 513 $2,311
======= ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-41
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
INDUSTRY INFORMATION
Harris Direct Marketing, Inc. and Harris Fulfillment, Inc. (together the
Company) are a regional, vertically-integrated direct mail and fulfillment
organization which provides its services primarily to companies in the
pharmaceutical, financial services and insurance industries.
The financial statements reflect the combined financial position, results of
operations and cash flows of Harris Direct Marketing, Inc. and Harris
Fulfillment, Inc. The Companies are engaged in related operations, and are
owned by the same shareholders who have identical ownership in each entity. The
financial statements reflect the elimination of all significant intercompany
accounts and transactions.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISKS
The Company recognizes revenues on programs as services are performed for its
clients based upon hours incurred. Cash received in advance of services
performed is deferred and recorded as customer advances in the accompanying
balance sheets. For the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1996, the Company had one customer in the
pharmaceutical industry which accounted for 17.0%, 32.0%, 44.0% and 43.0%,
respectively, of the Company's revenues. The loss of this significant customer
would have a material adverse effect on the Company's business.
The concentration of credit risk is limited to trade accounts receivables and
is subject to the financial conditions of the Company's customers. The Company
does not require collateral or other securities to support customer
receivables.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At the
balance sheet dates, cash equivalents were composed primarily of investments in
money market funds.
The Company maintains cash accounts which, at times, may exceed federally
insured limits. The Company has not experienced any losses from maintaining
cash accounts in excess of federally insured limits and believes that they are
not exposed to any significant risks on their cash accounts.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives.
Expenditures for maintenance, repairs and improvements that do not prolong
the useful life of an asset have been charged to operations as incurred.
Additions and betterments that substantially extend the useful life of the
asset are capitalized. Upon sale or other disposition of assets, the cost and
related accumulated depreciation and amortization are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income.
F-42
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
STATEMENT OF CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995 and the three months
ended March 31, 1996, the Company paid interest of $150,000, $197,000, $222,000
and $32,000, respectively.
INCOME TAXES
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company is not subject to federal income taxes,
and the taxable income of the Company is included in the shareholders' tax
returns. The Company has also elected S Corporation status for state income tax
purposes. Therefore, no provision for federal and state income taxes has been
made for the years ended December 31, 1993, 1994 and 1995 and the three months
ended March 31, 1996.
The Company reports certain income and expense items for income tax purposes
on a basis different from that reflected in the accompanying financial
statements. The principal differences relate to timing of the recognition of
bad debt expense, and the use of accelerated methods of depreciation for income
tax purposes. At December 31, 1995, the Company's financial reporting basis of
the net assets exceeds the tax basis of the net assets by approximately
$300,000. In the event that the S Corporation is terminated, deferred income
taxes applicable to these differences would be reflected in the accompanying
financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term
nature of those instruments. The carrying amount of long-term debt obligations
approximates fair value at the balance sheet dates.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM FINANCIAL SERVICES
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited and, in the opinion of management of the
Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full year.
2. PREPAID EXPENSES AND OTHER:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------- --------
1994 1995 1996
----- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Prepaid postage........................................ $ 418 $ 498 $427
Other.................................................. 174 153 152
----- ----- ----
$ 592 $ 651 $579
===== ===== ====
</TABLE>
F-43
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
USEFUL ---------------- --------
LIVES 1994 1995 1996
------ ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Machinery and equipment............... 5-10 $ 3,344 $ 3,543 $3,549
Furniture and office equipment........ 5-10 814 969 1,040
Building and building improvements.... 10-30 2,341 2,345 2,345
Leasehold improvements................ 15 41 41 41
Land.................................. 80 80 80
------- ------- ------
6,620 6,978 7,055
Less--Accumulated depreciation and
amortization......................... (2,350) (2,839) (2,993)
------- ------- ------
$ 4,270 $ 4,139 $4,062
======= ======= ======
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996, was $436,000, $527,000, $591,000, and
$154,000, respectively.
4. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------- --------
1994 1995 1996
----- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued vacation..................................... $ 217 $ 210 $210
Accrued compensation................................. 139 161 48
Accrued other........................................ 260 264 220
----- ----- ----
$ 616 $ 635 $478
===== ===== ====
</TABLE>
5. LINES OF CREDIT:
The Company had two lines of credit with the same bank that expired in April
1996 and had a combined borrowing limit of $850,000. The lines bear interest at
the bank's prime rate (9.0% at December 31, 1994, 8.25% at December 31, 1995
and 8.25% at March 31, 1996). The Company had no outstanding balances on the
lines of credit at December 31, 1994 and 1995, and March 31, 1996. The maximum
borrowed under the lines was $390,000 and $850,000 in 1994 and 1995,
respectively, and $0 for the three months ended March 31, 1996, and the average
amount outstanding was $128,000 and $212,000 in 1994 and 1995, respectively and
$0 for the three months ended March 31, 1996. The weighted average interest
rate during 1994 and 1995 and the three months ended March 31, 1996 was
approximately 6.92%, 9.0% and 0%, respectively.
F-44
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------- ----------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage payable to bank, payable in variable
monthly installments including interest at the
bank's prime rate plus .75% through June 2005.... $1,317 $1,245 $1,224
Note payable to bank, payable in monthly
installments of $17,000 plus interest at 8.25%
through October 1998............................. 791 584 532
Note payable to bank, payable in monthly
installments of $4,000 plus interest at 7%
through December 1996............................ 93 -- --
Note payable to bank, payable in monthly
installments of $2,000 plus interest at prime
plus 1% through March 1995....................... 5 -- --
Other............................................. 6 -- --
------ ------ ------
2,212 1,829 1,756
Less--Current portion............................. 349 299 305
------ ------ ------
$1,863 $1,530 $1,451
====== ====== ======
</TABLE>
In November 1994, the Company refinanced $509,000 of its outstanding debt
with an $825,000 note with the same bank. The net proceeds were used to finance
additional equipment purchases.
The mortgage and notes payable are with the same bank and are collateralized
by all of the Company's assets. Minimum principal repayments of long-term debt
as of December 31, 1995, are as follows (in thousands):
<TABLE>
<S> <C>
1996.................................................................. $ 299
1997.................................................................. 298
1998.................................................................. 273
1999.................................................................. 112
2000.................................................................. 124
Thereafter............................................................ 723
------
$1,829
======
</TABLE>
F-45
<PAGE>
HARRIS DIRECT MARKETING, INC. AND HARRIS FULFILLMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities at three locations through August 31, 2002.
Rent expense under operating leases for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1996, was $272,000, $568,000,
$583,000 and $155,000, respectively.
Future minimum lease payments under the Company's operating leases as of
December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
1996.............................................................. $ 567
1997.............................................................. 357
1998.............................................................. 388
1999.............................................................. 433
2000.............................................................. 464
Thereafter........................................................ 821
------
Total minimum lease payments...................................... $3,030
======
</TABLE>
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
8. PROFIT SHARING PLAN:
The Company has a noncontributory profit sharing plan to provide retirement
benefits to its eligible employees. The amount of the Company's contribution is
determined at the discretion of the Company's Board of Directors. For the years
ended December 31, 1993, 1994 and 1995 and the three months ended March 31,
1996 the Company contributed $62,000, $55,000, $49,000, and $0, respectively,
to the profit sharing plan.
9. SALE OF BUSINESS:
In April 1996, an asset purchase agreement was entered into among CRW
Financial Inc. ("CRW"), the Company and the shareholders of the Company,
whereby TeleSpectrum Worldwide Inc., a wholly-owned subsidiary of CRW agreed to
purchase substantially all of the net assets of the Company.
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Reich Group Companies:
We have audited the accompanying combined balance sheets of The Reich Group
Companies identified in Note 1 as of December 31, 1994 and 1995, and the
related combined statements of operations, shareholder's equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Companies' 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 combined financial position of The Reich Group
Companies as of December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
April 24, 1996
F-47
<PAGE>
THE REICH GROUP COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
-------------- -----------
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................... $ 31 $ 220 $ 676
Accounts receivable, net of reserves of $16
in 1994 and $73 in 1995 and 1996............ 691 2,544 2,931
Due from shareholder......................... 49 132 160
Prepaid expenses and other................... 87 79 157
------ ------ ------
Total current assets....................... 858 2,975 3,924
EQUIPMENT AND FURNITURE, net................... 248 1,328 2,044
OTHER ASSETS................................... 5 15 26
------ ------ ------
Total assets............................... $1,111 $4,318 $5,994
====== ====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit............................... $ 70 $ -- $ --
Current portion of long-term debt............ 102 155 236
Current portion of deferred rent............. 68 68 68
Accounts payable............................. 370 930 1,015
Accrued salaries and wages................... 128 363 402
Notes payable to shareholder................. -- 570 220
Other current liabilities.................... 179 68 73
------ ------ ------
Total current liabilities.................. 917 2,154 2,014
------ ------ ------
LONG-TERM DEBT................................. 273 371 485
------ ------ ------
DEFERRED RENT.................................. 193 125 108
------ ------ ------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock (see Note 8).................... 2 2 2
Additional paid-in capital................... 350 450 450
Retained earnings (deficit).................. (385) 1,455 3,174
Treasury stock, at cost (TRG/Communications,
Inc. 150 shares)............................ (239) (239) (239)
------ ------ ------
Total shareholder's equity (deficit)....... (272) 1,668 3,387
------ ------ ------
Total liabilities and shareholder's equity
(deficit)................................. $1,111 $4,318 $5,994
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE>
THE REICH GROUP COMPANIES
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31 MARCH 31
----------------------- --------------
1993 1994 1995 1995 1996
------ ------ ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES.............................. $4,375 $5,424 $12,253 $2,059 $5,465
------ ------ ------- ------ ------
OPERATING EXPENSES:
Cost of services.................... 3,172 4,225 7,836 1,327 3,165
Selling, general and administrative
expenses........................... 1,111 976 2,534 297 570
------ ------ ------- ------ ------
Total operating expenses.......... 4,283 5,201 10,370 1,624 3,735
------ ------ ------- ------ ------
Operating income.................. 92 223 1,883 435 1,730
INTEREST INCOME....................... 16 13 14 3 8
INTEREST EXPENSE...................... (37) (37) (57) (10) (19)
------ ------ ------- ------ ------
NET INCOME............................ $ 71 $ 199 $ 1,840 $428 $1,719
====== ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
THE REICH GROUP COMPANIES
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS - EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DIALDIRECT
THE REICH TELE- TRG/ COMMUNI- INSUREDIRECT
GROUP, INC. DIALDIRECT, INC. MARKETING, LTD. CATIONS, INC. AGENCY INC.
------------- ------------------- ----------------- ------------- -------------
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL RETAINED
------------- ------------------- ----------------- ------------- ------------- PAID-IN EARNINGS TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) STOCK
------ ------ -------- --------- ------- -------- ------ ------ ------ ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1993.......... 100 $ -- 100 $ -- 100 $ -- 150 $ 2 100 $ -- $350 $ (655) $(239)
Net income...... -- -- -- -- -- -- -- -- -- -- -- 71 --
--- ----- ------- --------- ------ -------- --- --- --- ----- ---- ------ -----
BALANCE, DECEMBER
31, 1993......... 100 -- 100 -- 100 -- 150 2 100 -- 350 (584) (239)
Net income...... -- -- -- -- -- -- -- -- -- -- -- 199 --
--- ----- ------- --------- ------ -------- --- --- --- ----- ---- ------ -----
BALANCE, DECEMBER
31, 1994......... 100 -- 100 -- 100 -- 150 2 100 -- 350 (385) (239)
Capital contri-
bution to Dial
Direct
Telemarketing,
Ltd. by share-
holder.......... -- -- -- -- -- -- -- -- -- -- 100 -- --
Net income...... -- -- -- -- -- -- -- -- -- -- -- 1,840 --
--- ----- ------- --------- ------ -------- --- --- --- ----- ---- ------ -----
BALANCE, DECEMBER
31, 1995......... 100 -- 100 -- 100 -- 150 2 100 -- 450 1,455 (239)
--- ----- ------- --------- ------ -------- --- --- --- ----- ---- ------ -----
Net income (un-
audited)........ -- -- -- -- -- -- -- -- -- -- -- 1,719 --
--- ----- ------- --------- ------ -------- --- --- --- ----- ---- ------ -----
BALANCE, MARCH
31, 1996 (unau-
dited)........... 100 $ -- 100 $ -- 100 $ -- 150 $ 2 100 $ -- $450 $3,174 $(239)
=== ===== ======= ========= ====== ======== === === === ===== ==== ====== =====
<CAPTION>
TOTAL
SHAREHOLDER'S
EQUITY
(DEFICIT)
-------------
<S> <C>
BALANCE, JANUARY
1, 1993.......... $ (542)
Net income...... 71
-------------
BALANCE, DECEMBER
31, 1993......... (471)
Net income...... 199
-------------
BALANCE, DECEMBER
31, 1994......... (272)
Capital contri-
bution to Dial
Direct
Telemarketing,
Ltd. by share-
holder.......... 100
Net income...... 1,840
-------------
BALANCE, DECEMBER
31, 1995......... 1,668
-------------
Net income (un-
audited)........ 1,719
-------------
BALANCE, MARCH
31, 1996 (unau-
dited)........... $3,387
=============
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
THE REICH GROUP COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31 MARCH 31
--------------------- --------------
1993 1994 1995 1995 1996
----- ----- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................ $ 71 $ 199 $ 1,840 $ 428 $1,719
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities--
Depreciation and amortization....... 106 143 220 33 93
Amortization of deferred rent....... (68) (68) (68) (17) (17)
Loss on disposal of property........ 8 1 7 -- --
Changes in operating assets and
liabilities --
Accounts receivable............... (34) (193) (1,853) (845) (387)
Due from shareholder.............. 57 (40) (83) (2) (28)
Prepaid expenses and other
assets........................... 227 (33) (2) -- (89)
Accounts payable.................. (348) 88 560 158 85
Accrued salaries and wages........ (43) 37 235 99 39
Other current liabilities......... 20 85 (111) 77 5
----- ----- ------- ----- -------
Net cash provided by (used in)
operating activities........... (4) 219 745 (69) 1,420
----- ----- ------- ----- -------
INVESTING ACTIVITIES:
Purchases of furniture and equipment,
net of capital lease obligations of
$178 in 1993 and $95 in 1995......... (37) (138) (1,212) (14) (559)
----- ----- ------- ----- -------
Net cash used in investing
activities..................... (37) (138) (1,212) (14) (559)
----- ----- ------- ----- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of
credit............................... 60 10 (70) 78 --
Repayment of long-term debt........... (97) (88) (109) (23) (55)
Proceeds from long-term debt.......... 76 -- 165 -- --
Capital contribution to DialDirect
Telemarketing, Ltd. from
shareholder.......................... -- -- 100 -- --
Proceeds from (repayment of) notes
payable to shareholder............... -- -- 570 -- (350)
----- ----- ------- ----- -------
Net cash provided by (used in)
financing activities........... 39 (78) 656 55 (405)
----- ----- ------- ----- -------
NET INCREASE (DECREASE) IN CASH......... (2) 3 189 (28) 456
CASH, BEGINNING OF PERIOD............... 30 28 31 31 220
----- ----- ------- ----- -------
CASH, END OF PERIOD..................... $ 28 $ 31 $ 220 $ 3 $ 676
===== ===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<PAGE>
THE REICH GROUP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
INDUSTRY INFORMATION
The Reich Group Companies (the "Company") offers telemarketing services to
clients in the financial services, insurance, telecommunications and publishing
industries. In 1995, the Company derived 93% of its revenue from telemarketing
activities.
The 1993, 1994 and 1995 financial statements reflect the combined financial
position, results of operations and cash flows of The Reich Group, Inc.,
DialDirect, Inc., DialDirect Telemarketing, LTD., TRG/Communications, Inc. and
InsureDirect Agency, Inc. The accompanying financial statements are presented
on a combined basis, as all companies are owned by the same shareholder. The
financial statements reflect the elimination of all significant intercompany
accounts and transactions.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company recognizes revenues on programs as services are performed for
customers, generally based upon hours incurred. In 1993, 1994 1995 and the
three months ended March 31, 1996, the Company had three, two, four and three
customers, respectively, each of which accounted for more than 10% of revenues,
and which accounted collectively for 68%, 71%, 88% and 91% of total revenues,
respectively.
The concentration of credit risk is limited to trade accounts receivables and
is subject to the financial and industry conditions of the Company's customers.
The Company does not require collateral or other securities to support customer
receivables.
CASH
The Company maintains cash accounts which, at times, may exceed federally
insured limits. The Company has not experienced losses from maintaining cash
accounts in excess of federally insured limits. The Company believes that it is
not exposed to significant credit risk in relation to their cash accounts.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost. Equipment and furniture
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of five to seven years.
Expenditures for maintenance, repairs and betterments which do not prolong
the useful life of an asset are charged to expense as incurred. Additions and
betterments which extend the useful life of the properties are capitalized.
Upon sale or other disposition of assets, the cost and related accumulated
depreciation and amortization are removed from the respective accounts, and the
resulting gain or loss, if any, is included in income.
PROFIT SHARING PLAN
The Company has a noncontributory profit sharing plan covering all eligible
employees. Contributions to the plan are at the sole discretion of the
management. Contributions of $40,000, and $62,000 were made for the years ended
December 31, 1993 and 1994, respectively. No contribution was made for the year
ended December 31, 1995 or for the three months ended March 31, 1996.
F-52
<PAGE>
THE REICH GROUP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
STATEMENT OF CASH FLOWS
For the years ended December 31, 1993, 1994 and 1995 and the three months
ended March 31, 1996, the Company paid interest of $37,000, $37,000, $57,000
and $19,000.
INCOME TAXES
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company is not subject to federal or state
income taxes, and the taxable income of the Company is included in the
shareholder's tax returns. Therefore, no provision for federal and state income
taxes has been made for the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996.
The Company is on the cash basis of accounting for income tax reporting
purposes and on the accrual basis for financial reporting purposes. Therefore,
the Company reports certain income and expense items for income tax purposes on
a basis different from that reflected in the accompanying financial statements.
At December 31, 1995, the Company's financial reporting basis of the net assets
exceeds the tax basis of the net assets by approximately $934,000. In the event
that the S Corporation status is terminated, deferred income taxes applicable
to these differences would be reflected in the accompanying financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term
nature of those instruments. The carrying amount of long-term debt and capital
lease obligations approximates fair value at the balance sheet dates.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the recorded amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited and, in the opinion of management of the
Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full year.
2. EQUIPMENT AND FURNITURE:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
USEFUL ---------------- ------------
LIVES 1994 1995 1996
------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Telemarketing equipment............. 5 $ 471 $ 1,766 $ 2,332
Furniture and office equipment...... 5-7 777 768 892
Leasehold improvements.............. 7 60 76 195
------- ------- -------
1,308 2,610 3,419
Less--Accumulated depreciation and
amortization....................... (1,060) (1,282) (1,375)
------- ------- -------
$ 248 $ 1,328 $ 2,044
======= ======= =======
</TABLE>
F-53
<PAGE>
THE REICH GROUP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
Depreciation expense for the years ended December 31, 1993, 1994 and 1995,
and the three months ended March 31, 1996 was $106,000, $143,000, $220,000 and
$93,000, respectively.
3. OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31
----------- MARCH 31
1994 1995 1996
----- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued profit sharing.................................. $ 62 $ -- $--
Advance billings........................................ 82 60 67
Other accrued liabilities............................... 35 8 6
----- ----- ----
$ 179 $ 68 $ 73
===== ===== ====
</TABLE>
4. LINE OF CREDIT:
The Company has a revolving line of credit with a bank which provides for
maximum borrowings of $700,000. Borrowings under the line are limited to 60% of
eligible accounts receivable, as defined. The line is collateralized by the
Company's accounts receivable and general intangibles, a second mortgage on the
personal residences of the Company's shareholder and his wife and other
personal assets of the Company's shareholder and his wife. The line is also
personally guaranteed by the Company's shareholder and his wife. At December
31, 1995, and March 31, 1996 there was no outstanding balance on this line of
credit. Interest on the outstanding balance is payable monthly and accrues on
borrowings under the revolving line of credit at the bank's base rate (10.5% at
December 31, 1995).
The agreement shall continue until all indebtedness to the bank has been
repaid in full and the parties terminate the agreement.
F-54
<PAGE>
THE REICH GROUP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31
------------ MARCH 31
1994 1995 1996
----- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to bank, interest is payable monthly
at the bank's rate plus 1/2% (11% on December 31,
1995). Principal due in monthly installments of
$4,000 through August 1998. This note is collater-
alized by accounts receivable, equipment and other
assets of the Company and a second mortgage on the
personal residences of the Company's shareholder
and his wife. Payment on the note is also guaran-
teed by the Company's shareholder and his wife.... $ 140 $ 105 $ 96
Note payable to regional industrial development au-
thority, interest accrues at 5%, principal and in-
terest due in monthly installments of $3,000
through August 2000, collateralized by specified
furniture and equipment of the Company............ -- 155 148
Payable to landlord, no stated interest (discounted
at 8.9%), unsecured, due in varying monthly in-
stallments from $3,000 to $4,000 through October
31, 1998.......................................... 117 96 88
Capitalized lease obligations (Note 6)............. 118 170 389
----- ----- -----
375 526 721
Less--Current portion.............................. (102) (155) (236)
----- ----- -----
$ 273 $ 371 $ 485
===== ===== =====
</TABLE>
Minimum principal repayments of long-term debt as of December 31, 1995,
excluding capitalized lease obligations (see Note 6), are as follows (in
thousands):
<TABLE>
<S> <C>
1996.................................................................... $ 95
1997.................................................................... 111
1998.................................................................... 91
1999.................................................................... 35
2000.................................................................... 24
----
$356
====
</TABLE>
In December 1995, the City of Wheeling, West Virginia issued a commitment to
provide $235,000 of financing at 5% interest for a term of five years.
Additionally, the West Virginia Economic Development Authority issued a
commitment to provide $500,000 of financing at prime less 4% (minimum rate of
5%) interest for a term of five years. Each loan is to be collateralized by the
furniture and equipment in the Company's West Virginia facility.
In 1995, the Company received a grant of $187,000 from the West Virginia
Economic Development Authority as a reimbursement for certain costs in
connection with the establishment of a calling center in West Virginia. The
grant has been recorded as an offset to cost of services in the combined
statement of income.
F-55
<PAGE>
THE REICH GROUP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES:
The Company leases facilities and equipment under capital and noncancelable
operating leases with terms through 2000. Interest rates on the capital leases
range from 11.0% to 15.5%. At December 31, 1995, the capital leases are
collateralized by telemarketing equipment with a book value of $137,000 (net of
accumulated amortization of $313,000). Rent expense under operating leases for
the years ended December 31, 1993, 1994, 1995 and the three months ended March
31, 1996 was $132,000, $140,000, $195,000 and $58,000, respectively.
Future minimum lease payments under the Company's leases as of December 31,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1996....................................................... $238 $ 78
1997....................................................... 220 78
1998....................................................... 188 44
1999....................................................... 11 1
2000....................................................... 1 --
---- ----
Total minimum lease payments............................... $658 201
====
Less--Amount representing interest......................... (31)
----
Present value of future minimum lease payments............. 170
Less--Current portion of principal payments................ (60)
----
$110
----
</TABLE>
In February 1996, the Company entered into an additional capital lease for
the acquisition of furniture and equipment for the Company's Delaware facility.
The total amount of the future lease commitment was $250,000 with monthly
payments of $8,000 for 36 months.
In November and December 1995, the Company entered into two leases for new
office space in connection with the expansion of its telemarketing facilities
in Delaware and West Virginia. The lease for the Delaware facility commenced on
January 1, 1996 with a minimum monthly rental payment of $6,000 for a term of
three years. The lease for the West Virginia facility commenced on April 1,
1996 with a minimum monthly rental payment of $10,000 beginning June 15, 1996
for a term of five years.
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
7. NOTES PAYABLE TO SHAREHOLDER:
In December 1995, the Company received the proceeds from two demand notes
payable to its shareholder for $500,000 (repaid subsequent to December 31,
1995) and $70,000, respectively. The remaining note of $70,000 accrues interest
at 8%.
F-56
<PAGE>
THE REICH GROUP COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1996 IS UNAUDITED)
8. COMMON STOCK:
The description of the Company's common stock is as follows:
<TABLE>
<CAPTION>
COMMON
STOCK
PAR VALUE
---------
<S> <C>
The Reich Group, Inc.
$1 par value, 1,000 shares authorized, 100 shares issued and
outstanding.................................................... $ 100
DialDirect, Inc.
$1 par value, 1,000 shares authorized, 100 shares issued and
outstanding.................................................... 100
DialDirect Telemarketing, Ltd.
$1 par value, 1,000 shares authorized, 100 shares issued and
outstanding.................................................... 100
TRG/Communications, Inc.
$2,000 stated value, 150 shares outstanding.................... 2,000
InsureDirect Agency, Inc.
$1 par value, 1,000 shares authorized, 100 shares issued and
outstanding.................................................... 100
------
$2,400
======
</TABLE>
9. SALE OF BUSINESS:
In April 1996, an asset purchase agreement was entered into among CRW
Financial Inc. ("CRW"), the Company and the shareholder of the Company whereby
TeleSpectrum Worldwide Inc., a wholly-owned subsidiary of CRW agreed to
purchase substantially all of the net assets of the Company.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Response Center, Inc. and The Tab House, Inc.:
We have audited the accompanying combined balance sheets of The Response
Center, Inc. and The Tab House, Inc. (Pennsylvania corporations) as of
September 30, 1994 and 1995, and the related combined statements of operations,
shareholders' equity and cash flows for each of the two fiscal years in the
period ended September 30, 1995. These financial statements are the
responsibility of the Companies' 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 combined financial position of The Response Center,
Inc. and The Tab House, Inc. as of September 30, 1994 and 1995, and the results
of their operations and their cash flows for each of the two fiscal years in
the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the combined financial statements, the Company
changed its method of accounting for marketable securities in fiscal 1995.
Arthur Andersen LLP
Philadelphia, Pa.,
April 26, 1996
F-58
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30
------------- DECEMBER 31, MARCH 31,
1994 1995 1995 1996
------ ------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........... $ 72 $ 252 $1,178 $ 641
Marketable securities............... 248 324 316 310
Accounts receivable, net of reserves
of $32, $28, $28, and $28.......... 1,357 1,522 843 1,087
Prepaid expenses and other.......... 14 23 82 132
------ ------ ------ ------
Total current assets.............. 1,691 2,151 2,419 2,170
PROPERTY AND EQUIPMENT, net........... 164 139 178 250
OTHER ASSETS.......................... 8 8 34 5
------ ------ ------ ------
Total assets...................... $1,863 $2,298 $2,631 $2,425
====== ====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................... $ 126 $ 119 $ 140 $ 198
Accrued expenses.................... 326 275 233 241
Deferred revenue.................... 128 92 315 282
------ ------ ------ ------
Total current liabilities......... 580 486 688 721
------ ------ ------ ------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock (The Response Center,
Inc.), no par value, 1,000 shares
authorized, 550 shares issued and
outstanding........................ 51 51 51 51
Common stock (The Tab House, Inc.),
$.01 par value, 1,000 shares
authorized, 550 shares issued and
outstanding........................ -- -- -- --
Additional paid-in capital.......... 1 1 1 1
Net unrealized gain on marketable
securities available for sale...... -- 121 105 98
Retained earnings................... 1,231 1,639 1,786 1,554
------ ------ ------ ------
Total shareholders' equity........ 1,283 1,812 1,943 1,704
------ ------ ------ ------
Total liabilities and
shareholders' equity............. $1,863 $2,298 $2,631 $2,425
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE THREE FOR THE THREE
ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30 DECEMBER 31 MARCH 31
-------------------- ------------- --------------
1994 1995 1994 1995 1995 1996
--------- --------- ------ ------ ------ ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES.................... $ 6,183 $ 6,719 $1,643 $1,352 $1,941 $1,429
OPERATING EXPENSES:
Cost of services.......... 3,426 3,583 930 748 881 786
Selling, general and
administrative........... 2,800 2,717 490 435 1,061 875
--------- --------- ------ ------ ------ ------
Total operating
expenses............... 6,226 6,300 1,420 1,183 1,942 1,661
--------- --------- ------ ------ ------ ------
Operating income
(loss)................. (43) 419 223 169 (1) (232)
INTEREST INCOME............. 8 10 -- -- -- --
INTEREST EXPENSE............ (2) -- -- -- -- --
--------- --------- ------ ------ ------ ------
NET INCOME (LOSS)........... $ (37) $ 429 $ 223 $ 169 $ (1) $ (232)
========= ========= ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-60
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THE RESPONSE THE
CENTER, INC. TAB HOUSE, INC. UNREALIZED
COMMON STOCK COMMON STOCK ADDITIONAL GAIN ON TOTAL
------------- ------------------ PAID-IN MARKETABLE RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES EARNINGS EQUITY
------ ------ ------- -------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1,
1993................... 550 $ 51 550 $ -- $ 1 $-- $1,301 $1,353
Net loss............... -- -- -- -- -- -- (37) (37)
Distributions.......... -- -- -- -- -- -- (33) (33)
--- ---- ------- -------- ---- ---- ------ ------
BALANCE, SEPTEMBER 30,
1994................... 550 51 550 -- 1 -- 1,231 1,283
Net income............. -- -- -- -- -- -- 429 429
Distributions.......... -- -- -- -- -- -- (21) (21)
Net unrealized gain on
marketable
securities............ -- -- -- -- -- 121 -- 121
--- ---- ------- -------- ---- ---- ------ ------
BALANCE, SEPTEMBER 30,
1995................... 550 51 550 -- 1 121 1,639 1,812
Net loss (unaudited)... -- -- -- -- -- -- 169 169
Distributions
(unaudited)........... -- -- -- -- -- -- (22) (22)
Net unrealized loss on
marketable securities
(unaudited)........... -- -- -- -- -- (16) -- (16)
--- ---- ------- -------- ---- ---- ------ ------
BALANCE, DECEMBER 31,
1995 (unaudited)....... 550 51 550 -- 1 105 1,786 1,943
Net loss (unaudited)... -- -- -- -- -- -- (232) (232)
Net unrealized loss on
marketable securities
(unaudited)........... -- -- -- -- -- (7) -- (7)
--- ---- ------- -------- ---- ---- ------ ------
BALANCE, MARCH 31, 1996
(unaudited)............ 550 $ 51 550 $ -- $ 1 $ 98 $1,554 $1,704
=== ==== ======= ======== ==== ==== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-61
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE FOR THE
FOR THE FISCAL YEAR MONTHS THREE MONTHS
ENDED ENDED ENDED MARCH
SEPTEMBER 30 DECEMBER 31 31
-------------------- ------------ -------------
1994 1995 1994 1995 1995 1996
--------- --------- ---- ------ ----- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).......... $ (37) $ 429 $223 $ 169 $ (1) $ (232)
Adjustments to reconcile
net income to net cash
provided by operating
activities--
Depreciation and
amortization............ 43 48 16 12 12 18
Gain on sale of
marketable securities... (7) (22) -- (2) (16) --
Changes in operating
assets and liabilities--
Accounts receivable..... 13 (165) 450 679 (497) (244)
Prepaid expenses and
other.................. 41 (8) (12) (59) (7) (50)
Other assets............ (2) -- -- (25) -- 29
Accounts payable........ (202) (7) 35 21 -- 57
Accrued expenses........ 219 (51) (42) (43) (32) 9
Deferred revenue........ 43 (36) 94 223 (93) (33)
--------- --------- ---- ------ ----- ------
Net cash provided by
(used in) operating
activities............ 111 188 764 975 (634) (446)
--------- --------- ---- ------ ----- ------
INVESTING ACTIVITIES:
Purchases of marketable
securities.............. (93) -- -- (15) -- --
Proceeds on sales of
marketable securities... 73 67 -- 9 44 --
Purchases of property and
equipment............... (39) (23) (21) (51) -- (91)
--------- --------- ---- ------ ----- ------
Net cash provided by
(used in) investing
activities............ (59) 44 (21) (57) 44 (91)
--------- --------- ---- ------ ----- ------
FINANCING ACTIVITIES:
Repayment of shareholder
loan.................... (160) -- -- -- -- --
Distributions paid....... (33) (22) (22) (22) -- --
--------- --------- ---- ------ ----- ------
Net cash used in
financing activities.. (193) (22) (22) (22) -- --
--------- --------- ---- ------ ----- ------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS............... (141) 210 721 896 (590) (537)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD....... 213 72 72 282 793 1,178
--------- --------- ---- ------ ----- ------
CASH AND CASH EQUIVALENTS,
END OF PERIOD............. $ 72 $ 282 $793 $1,178 $ 203 $ 641
========= ========= ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-62
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE THREE MONTHS ENDED DECEMBER
31, 1994 AND 1995 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
INDUSTRY INFORMATION
The Response Center, Inc. and the Tab House, Inc. (collectively the
"Company") provide custom market research and analysis, principally to clients
in the telecommunications, financial services, pharmaceutical and healthcare
industries.
The accompanying financial statements reflect the combined financial position
and results of operations of The Response Center, Inc. and The Tab House, Inc.
The accompanying financial statements are presented on a combined basis, as The
Response Center, Inc. and The Tab House, Inc. are owned by the same
shareholders who have identical ownership in each entity. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company recognizes revenues as services are performed for customers on a
per project basis. In fiscal 1994, 1995 and the three months ended December 31,
1995, the Company had one customer, which accounted for 36%, 27% and 24.6% of
revenues, and 24%, 27% and 20% of accounts receivable, respectively. The
Company expects total revenues for this customer to decline in fiscal 1996
versus 1995.
The concentration of credit risk is limited to trade accounts receivables and
is subject to the financial conditions of the Company's customers. The Company
does not require collateral or other securities to support customer
receivables.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At the
balance sheet dates, cash equivalents were composed primarily of investments in
money market funds.
The Company maintains cash accounts which, at times, may exceed federally
insured limits. The Company has not experienced any losses from maintaining
cash accounts in excess of federally insured limits. The Company believes that
they are not exposed to any significant credit risks on their cash accounts.
MARKETABLE SECURITIES
During fiscal 1995, the Company began reporting marketable securities in
accordance with Statement of Financial Accounting Standards No. 115. All
securities have been classified as available-for-sale and reported at quoted
market value with net unrealized gains being reported as a separate component
of shareholders' equity. Prior to 1995, marketable securities were reported at
the lower of cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are provided using the straight-line method over the estimated useful lives as
follows:
<TABLE>
<S> <C>
Computer and office equipment...... 5 years
Furniture and fixtures............. 7 years
Leasehold improvements............. The lessor of 6 years or the lease term.
</TABLE>
F-63
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE THREE MONTHS ENDED DECEMBER
31, 1994 AND 1995 IS UNAUDITED)
Expenditures for maintenance, repairs and betterments which do not prolong
the normal useful life of an asset have been charged to operations as incurred.
Additions and improvements which substantially extend the useful lives of the
properties are capitalized. Upon sale or other disposition of assets, the cost
and related accumulated depreciation and amortization are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income.
INCOME TAXES
The Company has elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result, the Company is not subject to federal income taxes,
and the taxable income of the Company is included in the shareholders' tax
returns. The Company has also elected S Corporation status for state income tax
purposes. Therefore, no provision for federal and state income taxes has been
made in the accompanying financial statements.
The Company is on the cash basis of accounting for income tax purposes and on
the accrual basis for financial reporting purposes. Therefore, the Company
reports certain income and expense items for income tax purposes on a basis
different from that reflected in the accompanying financial statements. At
September 30, 1995, the Company's financial reporting basis of the net assets
exceeds the tax basis of the net assets by approximately $1,000,000. In the
event that the S Corporation is terminated, deferred income taxes applicable to
these differences would be reflected in the accompanying financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at the fair value due to the short-term
nature of those instruments.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The financial statements as of December 31, 1995 and for the three months
ended December 31, 1994 and 1995 are unaudited and, in the opinion of
management of the Company, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results for
those interim periods. The results of operations for the three months ended
December 31, 1995 are not necessarily indicative of the results to be expected
for the full year.
401(K) PLAN
On October 1, 1991, the Company adopted a 401(k) plan for its employees (the
"Plan"). The Plan allows all participants to contribute a percentage of their
compensation with Company contributions. The Company contributed $10,000 and
$13,000 in fiscal 1994 and 1995, respectively.
2. MARKETABLE SECURITIES:
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115)
effective October 1, 1994. This statement requires the
F-64
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE THREE MONTHS ENDED DECEMBER 31,
1994 AND 1995 IS UNAUDITED
Company to classify its investment securities as: (1) held-to-maturity,
(2) available-for-sale or (3) trading securities. At September 30, 1995, all of
the Company's marketable securities are classified as available for sale and
reported at market value; therefore, any unrealized holding gains or losses are
presented as a separate component of shareholders' equity. The cumulative
effect of adopting SFAS 115 was an increase in shareholders' equity of
$121,000.
In accordance with SFAS 115, the Company has not restated the financial
statements for prior years. For the year ended September 30, 1994, marketable
securities are carried at the lower of cost or market. The following is a
summary of available-for-sale securities as of September 30, 1995 (in
thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
HOLDING HOLDING MARKET
COST LOSSES GAINS VALUE
---- ---------- ---------- ------
<S> <C> <C> <C> <C>
Common stocks............................. $118 $ (6) $106 $218
Municipal bonds, maturity dates ranging
from 12/99 to 3/05....................... 59 -- 20 79
Mutual Funds.............................. 26 -- 1 27
---- ---- ---- ----
Total Marketable Securities............... $203 $ (6) $127 $324
==== ==== ==== ====
</TABLE>
During the year ended September 30, 1995 the Company sold marketable
securities in the amount of $103,000. Under the specific identification method,
the Company realized gains of $22,000 on these sales.
The following is a summary of available-for-sale securities as of September
30, 1994 (in thousands):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
HOLDING HOLDING MARKET
COST LOSSES GAINS VALUE
---- ---------- ---------- ------
<S> <C> <C> <C> <C>
Common stocks............................. $148 $ (9) $ 77 $216
Municipal bonds, maturity dates ranging
from 12/99 to 3/05....................... 59 -- 12 71
Mutual Funds.............................. 41 (2) -- 39
---- ---- ---- ----
Total Marketable Securities............... $248 $(11) $ 89 $326
==== ==== ==== ====
</TABLE>
During the period ended September 30, 1994, the Company sold marketable
securities in the amount of $243,000. Under the specific identification method,
the Company realized gains of $17,000 on these sales.
F-65
<PAGE>
THE RESPONSE CENTER, INC. AND THE TAB HOUSE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
INFORMATION AS OF DECEMBER 31, 1995 AND FOR THE THREE MONTHS ENDED DECEMBER 31,
1994 AND 1995 IS UNAUDITED
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER MARCH
SEPTEMBER 30 31 31
---------------- -------- -----
1994 1995 1995 1996
------- ------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer equipment......................... $ 161 $ 154 $ 180 $198
Furniture and office equipment............. 89 96 122 148
Leasehold improvements..................... 19 19 19 65
------- ------- ----- ----
269 269 321 411
Less--Accumulated depreciation and
amortization.............................. (105) (130) (143) (161)
------- ------- ----- ----
$ 164 $ 139 $ 178 250
======= ======= ===== ====
</TABLE>
Depreciation and amortization expense for the fiscal years ended September
30, 1994 and 1995 and the three months ended December 31, 1995 and March 31,
1996 was $43,000, $48,000, $12,000 and $18,000 respectively.
4. ACCRUED EXPENSES:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31 MARCH 31
--------------- ----------- --------
1994 1995 1995 1996
------- ------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Accrued compensation and
related expenses.............. $ 115 $ 132 $123 $103
Accrued local taxes............ 19 30 30 30
Other accrued liabilities...... 192 113 80 108
------- ------- ---- ----
$ 326 $ 275 $233 $241
======= ======= ==== ====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company leases a facility and equipment. Such leases have terms which
extend through 2000. Rent expense for the fiscal years ended September 30, 1994
and 1995 and the three months ended December 31, 1995 was $157,000, $161,000
and $38,000 respectively.
Future minimum lease payments under the Company's leases as of September 30,
1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................................... $138
1997................................................................... 111
1998................................................................... 58
1999................................................................... 55
2000................................................................... 55
----
Total minimum lease payments........................................... $417
====
</TABLE>
6. SALE OF BUSINESS:
In April 1996, an asset purchase agreement was entered into among
TeleSpectrum Worldwide Inc. a wholly-owned subsidiary of CRW Financial, the
Company, and the shareholders of the Company whereby TeleSpectrum Worldwide
agreed to purchase substantially all of the net assets of the Company.
F-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc.:
We have audited the accompanying combined balance sheet of TeleSpectrum, Inc.
and TeleSpectrum Training Services, Inc. (Maryland corporations) as of December
31, 1995, and the related combined statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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
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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of TeleSpectrum, Inc.
and TeleSpectrum Training Services, Inc. as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Philadelphia, Pa.,
April 17, 1996
(Except with respect to the matter discussed in paragraph one of Note 7, as to
which the date is May 1, 1996)
F-67
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
----------- -----------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 15 $ 402
Accounts receivable, net of reserves of $22 and $22.. 2,690 3,199
Due from shareholder/officer......................... 4 --
Prepaid expenses and other........................... 95 92
------ ------
Total current assets............................... 2,804 3,693
PROPERTY AND EQUIPMENT, net............................ 657 736
OTHER ASSETS........................................... 88 106
------ ------
Total assets....................................... $3,549 $4,535
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit....................................... $1,350 $1,425
Current portion of long-term debt.................... 198 219
Accounts payable..................................... 498 566
Accrued compensation................................. 161 453
Deferred revenue..................................... 197 429
Other accrued expenses............................... 363 476
------ ------
Total current liabilities.......................... 2,767 3,568
------ ------
LONG-TERM DEBT AND OTHER NONCURRENT LIABILITIES........ 81 18
------ ------
DEFERRED TAXES......................................... 14 14
------ ------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, TeleSpectrum, Inc. $.01 par value,
5,000 shares authorized, 3,000 shares issued and
outstanding......................................... -- --
Common stock, TeleSpectrum Training Services, Inc. no
par value, 5,000 shares authorized, 200 shares
issued and outstanding.............................. 6 6
Additional paid-in capital........................... 217 217
Retained earnings.................................... 464 712
------ ------
Total stockholders' equity......................... 687 935
------ ------
Total liabilities and stockholders' equity......... $3,549 $4,535
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-68
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
COMBINED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31
FOR THE YEAR ENDED --------------
DECEMBER 31, 1995 1995 1996
------------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES.................................... $11,854 $2,846 $3,725
------- ------ ------
OPERATING EXPENSES:
Cost of services.......................... 8,338 1,920 2,483
Selling, general and administrative ex-
penses................................... 3,072 805 951
------- ------ ------
Total operating expenses................ 11,410 2,725 3,434
------- ------ ------
Operating income........................ 444 121 291
INTEREST EXPENSE............................ (184) (4) (43)
------- ------ ------
Income before income taxes.............. 260 117 248
INCOME TAX BENEFIT.......................... 18 -- --
------- ------ ------
NET INCOME.................................. $ 278 $ 117 $ 248
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-69
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
TELESPECTRUM
TRAINING
TELESPECTRUM, SERVICES, ADDITIONAL TOTAL
INC. INC. PAID-IN RETAINED STOCKHOLDERS'
SHARES SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------- ------------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1995................... 3,000 200 $ 6 $217 $186 $409
Net income............ -- -- -- -- 278 278
----- --- ---- ---- ---- ----
BALANCE, DECEMBER 31,
1995................... 3,000 200 6 217 464 687
----- --- ---- ---- ---- ----
Net income (unau-
dited)............... -- -- -- -- 248 248
Distribution (unau-
dited)............... -- -- -- -- -- --
----- --- ---- ---- ---- ----
BALANCE, MARCH 31, 1996
(unaudited)............ 3,000 200 $ 6 $217 $712 $935
===== === ==== ==== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-70
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31
FOR THE YEAR ENDED --------------
DECEMBER 31, 1995 1995 1996
------------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................ $ 278 $ 117 $ 248
Adjustments to reconcile net income to net
cash used in operating activities--
Depreciation and amortization........... 343 86 83
Changes in operating assets and
liabilities--
Accounts receivable................... (679) (224) (509)
Due from stockholder/officer.......... 1 -- 4
Prepaid expenses and other............ (2) (10) 3
Other, net ........................... (114) (3) (43)
Deferred revenue...................... (205) (251) 232
Accounts payable and accrued
liabilities.......................... 374 118 473
----- ------ ------
Net cash used in operating
activities......................... (4) (167) 491
----- ------ ------
INVESTING ACTIVITIES:
Purchases of property and equipment....... (99) 87 (162)
----- ------ ------
Net cash used in investing
activities......................... (99) (87) (162)
----- ------ ------
FINANCING ACTIVITIES:
Net borrowings on line of credit.......... 807 158 75
Proceeds from notes payable............... -- -- 50
Principal payments on long-term debt and
capital leases........................... (852) (38) (67)
Bank overdraft............................ -- (29) --
----- ------ ------
Net cash used in financing
activities......................... (45) 91 58
----- ------ ------
NET (DECREASE) INCREASE IN CASH............. (148) (163) 387
CASH, BEGINNING OF PERIOD................... 163 163 15
----- ------ ------
CASH, END OF PERIOD......................... $ 15 $ -- $ 402
===== ====== ======
CASH PAID FOR:
Interest.................................. 182 46 43
===== ====== ======
Taxes..................................... 36 30 55
===== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
INDUSTRY INFORMATION
TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. (together the
"Company") specializes in providing both outbound and inbound telemarketing
services and fullfillment to the high technology, pharmaceutical and healthcare
and consumer products industries.
The financial statements reflect the combined financial position and results
of operations of TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc.
The accompanying financial statements are presented on a combined basis, as
TeleSpectrum, Inc. and TeleSpectrum Training Services, Inc. are owned by the
same stockholders who have identical ownership in each entity. The financial
statements reflect the elimination of all significant intercompany accounts and
transactions.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
The Company recognizes revenues on programs as services are performed for the
clients, generally based upon hours incurred. In 1995 and the three months
ended March 31, 1996, the Company had one client which accounted for
approximately 12% and 21% of revenues and 15% and 19% of accounts receivable,
respectively.
The concentration of credit risk is limited to trade accounts receivables and
is subject to the financial conditions of the Company's clients. The Company
does not require collateral or other securities to support client receivables.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Property and equipment
capitalized under capital leases are recorded at the present value of the
minimum lease payments due over the term of the lease. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of three to ten years.
Expenditures for maintenance, repairs and betterments which do not prolong
the normal useful life of an asset have been charged to operations as incurred.
Additions and betterments which substantially extend the useful life of the
properties are capitalized. Upon sale or other disposition of assets, the cost
and related accumulated depreciation and amortization are removed from the
respective accounts, and the resulting gain or loss, if any, is included in
income.
INCOME TAXES
TeleSpectrum, Inc. elected to be taxed as an S Corporation under the
provisions of the federal and state statutes. In lieu of federal and state
corporate income taxes, the stockholders are taxed on their proportionate share
of the Company's taxable income. Accordingly, no provision for federal or state
income taxes was recorded for the year ended December 31, 1995 or the three
months ended March 31, 1996.
The Company reports certain income and expense items for income tax purposes
on a basis different from that reflected in the accompanying financial
statements. The principal differences relate to the timing of the recognition
of accrued expenses which are not deductible for federal income tax purposes
until paid and the use of accelerated methods of depreciation for income tax
purposes. At December 31, 1995, the financial reporting basis of the Company's
net assets exceeds the tax basis of the net assets by approximately $140,000.
In the event that the S Corporation is terminated, deferred income taxes
applicable to these differences would be reflected in the accompanying
financial statements.
F-72
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED
TeleSpectrum Training Services, Inc. is a C Corporation and follows the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." This standard requires an asset and liability approach to
the recognition of deferred tax assets and liabilities related to the expected
future consequences of events that have been recognized in the financial
statements or tax returns.
TeleSpectrum Training Services, Inc. has recorded $14,000 of long-term
deferred tax liabilities as of December 31, 1995 and March 31, 1996. This
amount relates principally to differences between the accelerated depreciation
methods used for income tax purposes and those used for financial reporting
purposes.
The (benefit) for income taxes for TeleSpectrum Training Services, Inc. is
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1995 1996
----------- --------
<S> <C> <C>
Current................................................... $ 2 $--
Deferred.................................................. (20) --
---- ----
Total benefit........................................... $(18) $--
==== ====
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term
nature of those instruments. The carrying amounts of line of credit, long-term
debt and capital lease obligations approximate fair value at the balance sheet
dates.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1996 and for the three months ended
March 31, 1995 and 1996 are unaudited and, in the opinion of management of the
Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for the full year.
2. PROPERTY AND EQUIPMENT (IN THOUSANDS--EXCEPT USEFUL LIFE DATA):
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
USEFUL ----------- --------
LIVES 1995 1996
------ ----------- --------
<S> <C> <C> <C>
Telemarketing equipment......................... 5- 7 $ 825 $ 889
Furniture and office equipment.................. 3- 5 1,221 1,319
Leasehold Improvements.......................... 3-10 91 91
------- -------
2,137 2,299
Less--Accumulated depreciation and
amortization................................... (1,480) (1,563)
------- -------
$ 657 $ 736
======= =======
</TABLE>
F-73
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED
Depreciation expense for the year ended December 31, 1995 and the three
months ended March 31, 1996, was $343,000 and $83,000, respectively.
3. LINE OF CREDIT:
The Company has a $1.75 million line of credit with a bank, with interest at
the bank's prime rate plus 2.5% (11% at December 31, 1995). At December 31,
1995, the balance of this line was $1.35 million. Interest expense on
borrowings under this line of credit amounted to $127,000 during 1995 and
$34,000 during the three months ended March 31, 1996.
The line of credit agreement contains certain financial covenants which
require, among other things, the Company to maintain a minimum net worth and
minimum ratios with respect to net worth and cash flow to debt service. As of
December 31, 1995, the Company had not met its minimum net worth covenant. In
May 1995, the Company entered into a forbearance agreement with the bank (see
Note 4) which expires on May 31, 1996. (See Note 7).
4. LONG-TERM DEBT (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
Note payable to bank (see Note 3), interest at the
bank's prime rate plus 2%, monthly principal payments
of $13,000 plus interest, maturing July 1996, collater-
alized by all assets of the Company; eighty percent
(80%) guaranteed by the United States Small Business
Administration (SBA); personally guaranteed by the
Company's officers..................................... $ 91 $ 52
Note payable, interest at 15%, monthly principal and in-
terest payments of $2,000, maturing October 1997, guar-
anteed by an officer of the
company................................................ 38 37
Note payable, interest at 22%, maturing June 1996,
guaranteed by an officer of the Company................ -- 50
Capitalized lease obligations (Note 5).................. 126 98
----- ----
255 237
Less--Current portion................................... (198) (219)
----- ----
$ 57 $ 18
===== ====
</TABLE>
Minimum principal repayments of long-term debt as of December 31, 1995,
excluding capitalized lease obligations, are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................................. $110
1997................................................................. 19
----
$129
====
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
The Company is party to various claims and other matters arising in the
normal course of business. In the opinion of management, the outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
F-74
<PAGE>
TELESPECTRUM, INC. AND TELESPECTRUM TRAINING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1995
AND 1996 IS UNAUDITED
The Company leases facilities and equipment at several locations. Rent
expense under operating leases for the year ended December 31, 1995 and the
three months ended March 31, 1996 was $264,000 and $69,000, respectively.
Future minimum lease payments under the Company's leases as of December 31,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1996...................................................... $ 395 $ 99
1997...................................................... 447 36
1998...................................................... 441 4
1999...................................................... 382 --
2000...................................................... 19 --
------ ----
Total minimum lease payments.............................. $1,684 139
======
Less--Amount representing interest........................ (13)
----
Present value of future minimum lease payments............ 126
Less--Current portion..................................... (88)
----
$ 38
====
</TABLE>
6. SALE OF BUSINESS:
In April 1996, an asset purchase agreement was entered into among CRW
Financial, Inc. ("CRW"), the Company and the shareholders of the Company
whereby TeleSpectrum Worldwide Inc., a wholly-owned subsidiary of CRW, agreed
to purchase substantially all of the net assets of the Company.
7. SUBSEQUENT EVENTS:
Effective May 1, 1996, a financial institution issued a commitment letter to
the Company to establish a $4 million revolving line of credit with interest at
the bank's prime rate plus 1 1/2%. This revolving credit facility is to be used
for refinancing of existing debt, working capital purposes and capital
expenditure purposes. This credit facility contains a financial covenant which
requires the Company to maintain interest coverage, defined as earnings before
interest, taxes and depreciation divided by interest expense, at a minimum of 3
to 1 on a quarterly basis.
Upon signing the asset purchase agreement (see Note 6), CRW advanced the
Company $500,000 in the form of a promissory note due one year from the date
the proceeds are received with interest at 9%. Upon the closing of the
transaction, a portion of the purchase price will be paid by cancellation of
the promissory note.
Effective April 21, 1996, the Anne Arundel Economic Development Corporation
issued a three year loan to the Company for $250,000 with interest at 12%,
subject to adjustment each year on January 1. This loan is to be used to
acquire operating equipment and for working capital purposes. The Company will
be required to make monthly principal and interest payments of $8,300.
F-75
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth fees payable to the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc., and other
estimated expenses expected to be incurred in connection with issuance and
distribution of securities being registered. All such fees and expenses shall
be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 74,555
NASD Fee...................................................... 22,121
Nasdaq National Market Listing Fee............................ 50,000
Printing and Engraving Expenses............................... *
Accounting Fees and Expenses.................................. *
Legal Fees and Expenses....................................... *
Blue Sky Qualification Fees and Expenses...................... *
Transfer Agent Fees and Expenses.............................. *
Miscellaneous................................................. *
----------
Total....................................................... $2,100,000
==========
</TABLE>
- --------
*To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of
directors to the corporation or its stockholders for monetary damages for
breaches of fiduciary duty, except for liability (a) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived and improper personal benefit.
Article 7 of the registrant's Certificate of Incorporation provides that the
personal liability of directors of the registrant is eliminated to the fullest
extent permitted by Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances and subject to
certain limitations against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director of officer acted in
accordance with the applicable standard of conduct set forth in such statutory
provision. Article 7 of the registrant's Bylaws provides that the registrant
will indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was a director, officer, employee or agent of
the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another entity, against certain
liabilities, costs and expenses. Article 7 further permits the registrant to
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the registrant, or is or was serving at the request of
the registrant as a director, officer, employee or agent of another entity,
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of his status as such, whether or not the
registrant would have the power to indemnify such person against such
liability under the DGCL. The registrant maintains directors' and officers'
liability insurance.
Under Section 9 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1.01 hereto.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 29, 1996, the registrant sold 8,510,137 shares of its common stock
(after giving effect to a 8.510137-to-1 stock split effected through a stock
dividend paid to stockholders of record on May 22, 1996) to CRW Financial, Inc.
in an organizational subscription for aggregate cash consideration of $10,000.
The transaction was intended to be exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof.
On May 22, 1996, the registrant entered into an Amended and Restated Asset
Purchase Agreement with Harris Direct Marketing Inc., Harris Fulfillment Inc.,
Bruce M. Schorle and Edward M. Idzik, pursuant to which the registrant has
agreed to issue 202,192 shares of its Common Stock and warrants to purchase
60,900 shares, as partial consideration for the purchase by the registrant of
all of the net assets of the "Harris Operating Business" (as defined in the
Prospectus which forms a part of this registration statement (the
"Prospectus")). Pursuant to the Amended and Restated Asset Purchase Agreement,
the Company has agreed to grant 26,100 stock options to certain employees of
this Operating Business following consummation of the asset purchase. The
transaction was intended to be exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof.
On May 22, 1996, the registrant entered into an Amended and Restated Asset
Purchase Agreement with Dial Direct, Inc., Insure Direct, Inc., Dial Direct
Telemarketing, Ltd., TRG/Communication, Inc., The Reich Group, Inc. and Morton
M. Reich, pursuant to which the registrant has agreed to issue 441,468 shares
of its Common Stock and warrants to purchase 105,000 shares as partial
consideration for the purchase by the registrant of all of the net assets of
the "Reich Operating Business" (as defined in the Prospectus). Pursuant to the
Amended and Restated Asset Purchase Agreement, the Company has agreed to grant
45,000 stock options to certain employees of this Operating Business following
consummation of the asset purchase. The transaction was intended to be exempt
from the registration requirements of the Securities Act of 1933, as amended,
by virtue of Section 4(2) thereof.
On May 22, 1996 the registrant entered into an Amended and Restated Asset
Purchase Agreement with TeleSpectrum, Inc., TeleSpectrum Training Services,
Inc., Karen Schweitzer and Sherry Paterra, pursuant to which the registrant has
agreed to issue 176,587 shares of its Common Stock and warrants to purchase
44,100 shares as partial consideration for the purchase by the registrant of
all of the net assets of the "TeleSpectrum Operating Business" (as defined in
the Prospectus). Pursuant to the Amended and Restated Asset Purchase Agreement,
the Company has agreed to grant 18,900 stock options to certain employees of
this Operating Business following consummation of the asset purchase. The
transaction was intended to be exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof.
On May 22, 1996, the registrant entered into an Amended and Restated Asset
Purchase Agreement with SOMAR, Inc., and Richard W. Virtue, pursuant to which
the registrant has agreed to issue 2,207,340 shares of its Common Stock and
warrants to purchase 210,000 shares as partial consideration for the purchase
by the registrant of all of the net assets of the "SOMAR Operating Business"
(as defined in the Prospectus). Pursuant to the Amended and Restated Asset
Purchase Agreement, the Company has agreed to grant 90,000 stock options to
certain employees of this Operating Business following consummation of the
asset purchase. The transaction was intended to be exempt from the registration
requirements of the Securities Act of 1933, or amended, by virtue of Section
4(2) thereof.
On May 22, 1996, the registrant entered into an Amended and Restated Asset
Purchase Agreement with the Response Center, Inc. The Tab House, Patrick M.
Baldasare, Richard Raquet and Edward Olesky, pursuant to which the registrant
has agreed to issue 256,051 shares of its Common Stock and warrants to purchase
60,900 shares as partial consideration for the purchase by the registrant of
all of the net assets of "The Response Center Operating Business" (as defined
in the Prospectus). Pursuant to the Amended and Restated Asset Purchase
Agreement, the Company has agreed to grant 26,100 stock options to certain
employees of this Operating Business following consummation of the asset
purchase. The transaction was intended to be exempt from the registration
requirements of the Securities Act of 1933, or amended, by virtue of Section
4(2) thereof.
II-2
<PAGE>
On May 22, 1996, the registrant entered into an Amended and Restated Asset
Purchase Agreement with NBG Services, Inc., William F. Rhatigan and Michael J.
Gallant, pursuant to which the registrant has agreed to issue 1,120,225 shares
of its Common Stock and warrants to purchase 112,500 shares as partial
consideration for the purchase by the registrant of all of the net assets of
the "NBG Operating Business" (as defined in the Prospectus). Pursuant to the
Amended and Restated Asset Purchase Agreement, the Company has agreed to grant
75,000 stock options to certain employees of this Operating Business following
consummation of the asset purchase. The transaction was intended to be exempt
from the registration requirements of the Securities Act of 1933, as amended,
by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.01 Form of Underwriting Agreement (to be filed by amendment).
3.01 Restated Certificate of Incorporation of TeleSpectrum Worldwide Inc.
(to be filed by amendment).
3.02 Bylaws of TeleSpectrum Worldwide Inc.
5.01 Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered (to be filed by amendment).
10.01 Asset Purchase Agreement, dated as of April 4, 1996, supplemented
April 6, 1996 and amended and restated as of May 22, 1996, by and
among CRW Financial, Inc., TeleSpectrum Worldwide Inc., Harris
Direct Marketing, Inc., Harris Fulfillment, Inc., Bruce M. Schorle
and Edward M. Idzik.
10.02 Asset Purchase Agreement, dated as of April 5, 1996 and amended and
restated as of May 22, 1996, by and among CRW Financial, Inc.,
TeleSpectrum Worldwide Inc., DialDirect, Inc., InsureDirect, Inc.,
DialDirect Telemarketing, Ltd., TRG/Communications, Inc., The Reich
Group, Inc. and Morton M. Reich.
10.03 Asset Purchase Agreement, dated as of April 10, 1996 and amended and
restated as of May 22, 1996, by and among CRW Financial, Inc.,
TeleSpectrum Worldwide Inc., TeleSpectrum, Inc., TeleSpectrum
Training Services, Inc., Karen Schweitzer and Sherry Paterra.
10.04 Asset Purchase Agreement, dated as of April 26, 1996 and amended and
restated as of May 22, 1996, by and among SOMAR, Inc., Richard W.
Virtue, CRW Financial, Inc. and TeleSpectrum Worldwide Inc.
10.05 Asset Purchase Agreement, dated as of April 30, 1996 and amended and
restated as of May 22, 1996, by and among TeleSpectrum Worldwide
Inc., The Response Center, Inc., The Tab House, Inc., Patrick M.
Baldasare, Richard Raquet and Edward Olesky.
10.06 Asset Purchase Agreement, dated as of May 3, 1996 and amended and
restated as of May 22, 1996, by and among TeleSpectrum Worldwide
Inc., CRW Financial, Inc., NBG Services, Inc., William F. Rhatigan
and Michael J. Gallant.
10.07 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., Edward M. Idzik.
10.08 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial Inc. and Karen Schweitzer.
10.09 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc. and Morton M. Reich.
10.10 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., Patrick M. Baldasare.
10.11 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., and Gregory M. Alcorn.
10.12 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., and Michael J. Gallant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.13 Form of Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. and William F. Rhatigan.
10.14 Form of Consulting Agreement to be entered into between TeleSpectrum
Worldwide Inc. and Richard W. Virtue.
10.15 Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. and J. Brian O'Neill (to be filed by amendment).
10.16 Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. and Michael C. Boyd (to be filed by amendment).
10.17 Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. Richard C. Schwenk, Jr. (to be filed by amendment).
10.18 TeleSpectrum Worldwide Inc. 1996 Equity Compensation Plan (to be
filed by amendment).
23.01 Consent of Arthur Andersen LLP.
23.02 Consent of Morgan, Lewis & Bockius LLP (included in opinion filed as
Exhibit 5.01) (to be filed by amendment).
24.01 Power of Attorney (included on signature page of this registration
statement).
27.01 Financial Data Schedule.
99.01 Consent of William F. Rhatigan as a person named to become a
director.
99.02 Consent of Richard W. Virtue as a person named to become a director.
</TABLE>
(b) Financial statement schedules have been omitted because they are
inapplicable, are not required under applicable provisions of Regulation S-X,
or the information that would otherwise be included in such schedules is
contained in the registrant's financial statements or accompanying notes.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registrations statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Philadelphia,
Commonwealth of Pennsylvania, on May 22, 1996.
TeleSpectrum Worldwide Inc.
By: /s/ J. Brian O'Neill
---------------------------------
J. Brian O'Neill
Chairman of the Board and
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints J. Brian O'Neill and Michael Boyd, and each of
them his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this registration
statement, and to file the same, with all exhibits thereto, and other
documentation in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact an agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ J. Brian O'Neill Chairman of the Board May 22, 1996
- --------------------------- and Chief Executive
J. Brian O'Neill Officer and a Director
(Principal Executive
Officer)
/s/ Michael C. Boyd President and Chief May 22, 1996
- --------------------------- Operating Officer and a
Michael C. Boyd Director
/s/ Richard C. Schwenk, Jr. Chief Financial Officer May 22, 1996
- --------------------------- (Principal Financial
Richard C. Schwenk, Jr. and Accounting Officer)
/s/ Mark J. DeNino Director May 22, 1996
- ---------------------------
Mark J. DeNino
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.01 Form of Underwriting Agreement (to be filed by amendment).
3.01 Restated Certificate of Incorporation of TeleSpectrum Worldwide Inc.
(to be filed by file amendment)
3.02 Bylaws of TeleSpectrum Worldwide Inc. (to be filed by file
amendment)
5.01 Opinion of Morgan, Lewis & Bockius LLP as to the legality of the
securities being registered (to be filed by amendment).
10.01 Asset Purchase Agreement, dated as of April 4, 1996, supplemented
April 6, 1996 and amended and restated as of May , 1996, by and
among CRW Financial, Inc., TeleSpectrum Worldwide Inc., Harris
Direct Marketing, Inc., Harris Fulfillment, Inc., Bruce M. Schorle
and Edward M. Idzik.
10.02 Asset Purchase Agreement, dated as of April 5, 1996 and amended and
restated as of May , 1996, by and among CRW Financial, Inc.,
TeleSpectrum Worldwide Inc., DialDirect, Inc., InsureDirect, Inc.,
DialDirect Telemarketing, Ltd., TRG/Communications, Inc., The Reich
Group, Inc. and Morton M. Reich.
10.03 Asset Purchase Agreement, dated as of April 10, 1996 and amended and
restated as of May , 1996, by and among CRW Financial, Inc.,
TeleSpectrum Worldwide Inc., TeleSpectrum, Inc., TeleSpectrum
Training Services, Inc., Karen Schweitzer and Sherry Paterra.
10.04 Asset Purchase Agreement, dated as of April 26, 1996 and amended and
restated as of May , 1996, by and among SOMAR, Inc., Richard W.
Virtue, CRW Financial, Inc. and TeleSpectrum Worldwide Inc.
10.05 Asset Purchase Agreement, dated as of April 30, 1996 and amended and
restated as of May , 1996, by and among TeleSpectrum Worldwide
Inc., The Response Center, Inc., The Tab House, Inc., Patrick M.
Baldasare, Richard Raquet and Edward Olesky.
10.06 Asset Purchase Agreement, dated as of May 3, 1996 and amended and
restated as of May , 1996, by and among TeleSpectrum Worldwide
Inc., CRW Financial, Inc., NBG Services, Inc., William F. Rhatigan
and Michael J. Gallant.
10.07 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., Edward M. Idzik.
10.08 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial Inc. and Karen Schweitzer.
10.09 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc. and Morton M. Reich.
10.10 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., Patrick M. Baldasare.
10.11 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., and Gregory M. Alcorn.
10.12 Form of Employment Agreement to be entered into among TeleSpectrum
Worldwide Inc., CRW Financial, Inc., and Michael J. Gallant.
10.13 Form of Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. and William F. Rhatigan.
10.14 Form of Consulting Agreement to be entered into between TeleSpectrum
Worldwide Inc. and Richard W. Virtue.
10.15 Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. and J. Brian O'Neill (to be filed by amendment).
10.16 Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. and Michael C. Boyd (to be filed by amendment).
10.17 Employment Agreement to be entered into between TeleSpectrum
Worldwide Inc. Richard C. Schwenk, Jr. (to be filed by amendment).
10.18 TeleSpectrum Worldwide Inc. 1996 Equity Compensation Plan (to be
filed by amendment).
23.01 Consent of Arthur Andersen LLP.
23.02 Consent of Morgan, Lewis & Bockius LLP (included in opinion filed as
Exhibit 5.01) (to be filed by amendment).
24.01 Power of Attorney (included on signature page of this registration
statement).
27.01 Financial Data Schedule
99.01 Consent of William F. Rhatigan as a person named to become a
director.
99.02 Consent of Richard W. Virtue as a person named to become a director.
</TABLE>
<PAGE>
E4XHIBIT 10.01
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
TELESPECTRUM WORLDWIDE INC.
(a Delaware corporation),
CRW FINANCIAL, INC.
(a Delaware corporation),
HARRIS DIRECT MARKETING, INC.
(a Pennsylvania corporation),
HARRIS FULFILLMENT, INC.
(a Pennsylvania corporation),
BRUCE M. SCHORLE
and
EDWARD M. IDZIK
Dated as of April 5, 1996,
as amended and restated
as of and May 21, 1996.
- --------------------------------------------------------------------------------
<PAGE>
Section Page
- ------- ----
1. Reference to Definitions........................................... -1-
------------------------
2. Formation of CRW Subsidiary........................................ -1-
---------------------------
3. Purchase and Sale of the Business and Assets........................ -1-
--------------------------------------------
4. Closing............................................................. -5-
-------
5. Conditions to Buyer's Obligations................................... -6-
---------------------------------
6. Conditions to each Company's and each Shareholder's Obligations..... -7-
---------------------------------------------------------------
7. Representations and Warranties of the Companies and the Shareholders -7-
--------------------------------------------------------------------
8. Representations and Warranties of the Buyer....................... -18-
-------------------------------------------
9. Certain Agreements................................................ -19-
------------------
10. Conduct of the Business Prior to the Closing...................... -23-
--------------------------------------------
11. Survival of Representations; Indemnification...................... -25-
--------------------------------------------
12. Termination....................................................... -27-
-----------
13. Payment of Expenses............................................... -28-
-------------------
14. Contents of Agreement............................................. -28-
---------------------
15. Amendment, Parties in Interest, Assignment, Etc................... -28-
-----------------------------------------------
16. Interpretation.................................................... -29-
--------------
17. Remedies.......................................................... -29-
--------
18. Notices........................................................... -29-
-------
19. Governing Law..................................................... -30-
-------------
20. Consent to Jurisdiction; Service of Process, etc.................. -30-
------------------------------------------------
21. Securities Law Matters............................................ -31-
----------------------
22. Counterparts...................................................... -33-
------------
23. Definitions....................................................... -33-
-----------
<PAGE>
Exhibits
- --------
A Form of Escrow Agreement
B Form of Employment Agreement (Idzik)
C Form of Employment Agreement (Schorle)
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of April 5, 1996, as amended and
restated as of May 21, 1996, by and among TeleSpectrum Worldwide Inc., a
Delaware corporation ("Buyer"), CRW Financial, Inc., a Delaware corporation
("CRW"), Harris Direct Marketing, Inc., a Pennsylvania corporation ("Harris" or
a "Company"), Harris Fulfillment, Inc., a Pennsylvania corporation (a "Company"
or together with Harris, the "Companies"), Bruce M. Schorle and Edward M. Idzik.
Messrs. Schorle and Idzik are sometimes collectively referred to as the
"Shareholders."
Background
----------
The Companies are engaged in the business of direct mail and fulfillment
services. The Shareholders own all of the issued and outstanding capital stock
of each Company. The Buyer desires to purchase the Purchased Assets (as defined
herein), each Company desires to sell its respective Purchased Assets, and the
Shareholders desire to cause the each Company to sell its respective Purchased
Assets, all on the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Reference to Definitions. For convenience, certain terms used in this
------------------------
Agreement are listed in alphabetical order and defined or referred to in Section
23 (such terms as well as any other terms defined elsewhere in this Agreement
shall be equally applicable to both the singular and plural forms of the terms
defined).
2. Formation of CRW Subsidiary. The parties hereto acknowledge that CRW
---------------------------
formed the Buyer on April 26, 1996. The parties acknowledge that the Buyer may
form one or more subsidiaries to acquire, own and operate the Businesses and the
Purchased Assets and that the Buyer may assign its rights under the Agreement to
one or more wholly-owned subsidiaries although it shall retain all of its
obligations and liabilities hereunder.
3. Purchase and Sale of the Business and Assets.
--------------------------------------------
3.1 The Purchased Assets. Each Company, subject to the terms and
--------------------
conditions of this Agreement, shall sell, transfer, convey and deliver to the
Buyer all of such Company's right, title and interest in all of its respective
Assets (collectively, the "Purchased Assets") which are not Excluded Assets.
The Purchased Assets include, without limitation, all of the following assets:
(a) the Business of each Company;
(b) the names Harris Fulfillment and Harris Direct Marketing;
(c) cash and cash equivalents of each Company, wherever located;
<PAGE>
(d) each Company's accounts and notes receivable and rights to payment
from any party for products sold and/or services delivered prior to the Closing;
(e) tangible and intangible personal property of each Company, however
owned, leased, or held, including, without limitation, machinery, equipment,
furniture, fixtures, supplies, vehicles, inventory, supplies and computer
hardware and software;
(f) the interests of each Company under all Contracts related to the
Business;
(g) the Permits of each Company;
(h) the goodwill, going concern value, past and present customer and
supplier lists and Intellectual Property (including the goodwill associated
therewith of each Company);
(i) the prepaid expenses of each Company; and
(j) the books and records of each Company.
3.2 Excluded Assets. Notwithstanding anything to the contrary in Section
---------------
3.1, the following Assets (the "Excluded Assets") shall not be included in the
Purchased Assets:
(a) the corporate seal, Charter Documents, bylaws, minute books and
other corporate and tax records of each Company (provided that the Companies
shall provide the Buyer with access to such Assets upon reasonable notice at any
time within five years after the Closing Date);
3.3 Assumed Liabilities. At the Closing, the Buyer shall assume and
-------------------
thereafter in due course timely pay and fully satisfy all Liabilities (the
"Assumed Liabilities"):
(a) under all Contracts and Permits which are conveyed to the Buyer
as Purchased Assets pursuant to the terms and conditions hereof;
(b) any and all Liabilities relating exclusively to the Businesses
that are reflected on the Company Balance Sheets and incurred after the date of
the Balance Sheets in the ordinary course of business and in accordance with
Section 10 (but with the provisions of Section 10 applied as if the provisions
thereof had been in effect from the close of business on the date of the Balance
Sheets through the Closing Date.)
3.4 Excluded Liabilities. Except as expressly set forth in Section 3.3,
--------------------
the Buyer shall not, by virtue of its purchase of the Purchased Assets or
otherwise in connection with the Transactions, assume or become responsible for
any other Liabilities (the "Excluded Liabilities") of the Company; including,
without limitation, (a) Liabilities for any taxes, (b) Liabilities relating to
the violation of any Regulation, (c) tort Liabilities, (d) Liabilities from
claims arising under any Contract or Permit not assumed by the Buyer hereunder
and (e) Liabilities for claims arising under any Contract or Permit to the
extent such claim is based on acts or omissions of any person constituting a
breach of the Contract or Permit which occurred prior to the Closing.
-2-
<PAGE>
3.5 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by any Company to assign to the Buyer pursuant to this
Agreement any Contract or Permit included in the Purchased Assets which is by
its terms or by Regulation nonassignable without the consent of any other party
or parties, unless such consent or approval shall have been given, or as to
which all the remedies for the enforcement thereof available to such Company
would not by Regulation pass to the Buyer as an incident of the assignments
provided for by this Agreement (a "Non-Assignable Contract"). To the extent
that any such consent or approval in respect of, or a novation of, a Non-
Assignable Contract shall not have been obtained on or before the Closing Date,
the Companies and the Shareholders shall continue to use commercially reasonable
efforts to obtain any such consent, approval or novation after the Closing Date
until such time as it shall have been obtained, and the Companies shall
cooperate with the Buyer in any economically feasible arrangement to provide
that the Buyer shall receive the applicable Company's benefits under such Non-
Assignable Contract, provided that the Buyer shall undertake to pay or satisfy
the corresponding Liabilities under the terms of such Non-Assignable Contract to
the extent that the Buyer would have been responsible therefor if such consent,
approval or novation had been obtained and the Companies shall not be required
to incur any additional financial obligation to procure any such consent,
approval or novation. Nothing contained in this Section 3.5 or elsewhere in
this Agreement shall be deemed a waiver by the Buyer of its right to have
received on or before the Closing Date an effective assignment of all of the
Purchased Assets, nor shall this Section 3.5 or any other provision of this
Agreement be deemed to constitute an agreement to exclude from the Purchased
Assets any assets described under Section 3.1.
3.6 Post-Closing Adjustment to Purchase Price. As soon as practicable,
-----------------------------------------
but in any event within 30 days after the Closing, the Buyer shall engage Arthur
Andersen LLP to prepare, in accordance with GAAP, a balance sheet of each
Company (the "Closing Date Balance Sheets") as of the end of business on the day
prior to the Closing Date. If the aggregate shareholders' equity as shown on
the Closing Date Balance Sheets is less than the aggregate shareholders' equity
as shown on the Annual Balance Sheets as at December 31, 1995, within ten
business days after delivery of the Closing Date Balance Sheets to the
Companies, the Companies shall pay the Buyer by wire transfer of immediately
available funds an amount equal to the Net Worth Deficiency. Notwithstanding
anything in this Section 3.6 to the contrary, if there is any Net Worth
Deficiency and the Companies dispute any item contained on the Closing Date
Balance Sheets, the Companies shall notify the Buyer in writing of each disputed
item (collectively, the "Disputed Amounts"), and specify the amount thereof in
dispute within thirty business days after the delivery of the Closing Date
Balance Sheets. If the Buyer and the Companies cannot resolve any such dispute
which would eliminate or reduce the amount of the Net Worth Deficiency, then
such dispute shall be resolved by an independent nationally recognized
accounting firm which is reasonably acceptable to the Buyer and the Companies
(the "Independent Accounting Firm"). The determination of the Independent
Accounting Firm shall be made as promptly as practical and shall be final and
binding on the parties, absent manifest error which error may only be corrected
by such Independent Accounting Firm. Any expenses relating to the engagement of
the Independent Accounting Firm shall be allocated between the Buyer and the
Companies so that the Companies' aggregate share of such costs shall bear the
same proportion to the total costs that the Disputed Amounts unsuccessfully
contested by the Companies (as finally determined by the Independent Accounting
Firm) bear to the total of the Disputed Amounts so submitted to the Independent
Accounting Firm.
-3-
<PAGE>
3.7 Payments. In addition to assuming the Assumed Liabilities, the
--------
aggregate price to be paid by the Buyer for the purchase of the Purchased Assets
shall be $14,500,000 (the "Purchase Price") which shall be allocated among the
assets of the Companies as set forth on Exhibit 3.7 hereto. The Buyer shall pay
the Purchase Price at the Closing by delivery of (i) $11,710,000 by certified or
bank check or by wire transfer of immediately available funds pursuant to
written instructions provided by the Companies to the Buyer, (ii) $500,000 to
the Escrow Agent pursuant to the terms of the Escrow Agreement, and (iii)
certificates to the Companies or their designees as set forth on Exhibit 3.7
representing such number of shares (the "Shares") of the Buyer's common stock,
$.01 par value per share (the "Buyer Common Stock"), with an aggregate
acquisition stock value of $2,290,000 (the "Acquisition Stock Value").
3.8 Percentage Interests.
--------------------
(a) Private Percentage. Subject to adjustment pursuant to Section
------------------
3.8(b), after specifically giving effect to the acquisition by the Buyer of
those organizations listed on Exhibit 3.8 hereto (the "Initial Targets") and the
consummation of all of the transactions and corporate reorganizations incident
to such acquisitions (collectively, the "Acquisition Transactions"), but prior
to the offering of Buyer Common Stock pursuant to the Registration Statement
(the "Initial Public Offering"), the aggregate number of Shares issuable in the
full amount of the Acquisition Stock Value shall represent 1.57% (the "Harris
Private Percentage") of the aggregate Buyer Common Stock that will be
outstanding immediately after the issuance of the Shares. The Harris Private
Percentage is equal to the percentage obtained from the division of (i) the
Acquisition Stock Value by (ii) the "Acquisition Base." The Acquisition Base
means the sum of (x) the Purchase Price, (y) the aggregate purchase price
(exclusive of any contingent payments) which Buyer has agreed to pay the other
Initial Targets at the closings of the acquisitions of the other Initial Targets
and (z) $5,000,000. The Harris Private Percentage has been calculated on a
basis consistent with the Private Percentages, each of which is set forth
opposite the name of each Initial Target on Exhibit 3.8.
(b) Adjustment to Percentages. The Harris Private Percentage shall
-------------------------
be subject to proportionate adjustments based upon the occurrence of any of
the following events:
(i) the acquisition by Buyer of any additional organizations
prior to the consummation of the Initial Public Offering (the "Additional
Targets");
(ii) the failure of Buyer for any reason to consummate the
acquisition of any Initial Target prior to the consummation of the Initial
Public Offering; and
(iii) the issuance of any securities in connection with the
obtaining of financing, the proceeds of which are used to acquire any
Initial Target and/or any Additional Target (whether prior to or in
connection with the consummation of the Initial Public Offering).
With respect to any adjustment pursuant to Sections 3.8(b)(i) and (ii), the
Harris Private Percentage shall be adjusted by adding to the Acquisition Base
the purchase price (exclusive of any contingent payments) payable by the Buyer
at the closing of any such acquisition pursuant
-4-
<PAGE>
to Section 3.8(b)(i) and, with respect to any Initial Target not acquired by
Buyer prior to the consummation of the Initial Public Offering, subtracting from
the Acquisition Base the purchase price which would have been payable by the
Buyer at the closing of any Initial Target had such Initial Target been acquired
by Buyer. No adjustment to the Harris Private Percentage shall be made pursuant
to Section 3.8(b)(iii) unless the Private Percentages and the percentage of the
outstanding Buyer Common Stock owned by CRW are likewise reduced on a
proportionate basis.
4. Closing.
-------
4.1 Location, Date. The closing of the Transactions (the "Closing") shall
--------------
take place at the offices of the Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 on June 30, 1996 (or as soon as practicable
thereafter), or at such other place, date and time as the parties may agree in
writing, subject to the following:
(a) If any of the conditions set forth in Section 5 have not been
satisfied on the date on which the Closing would otherwise occur, the Buyer may
from time to time, by notice to the Companies, defer the Closing to a business
day specified in that notice, but not later than August 31, 1996; provided,
--------
however, that the Buyer may defer the Closing until October 31, 1996 (the
- -------
"Termination Date") if the Buyer has by August 31, 1996 filed the Registration
Statement with the U.S. Securities and Exchange Commission.
(b) If any of the conditions set forth in Section 6 have not been
satisfied on the date on which the Closing would otherwise occur, the Companies
may from time to time, by notice to Buyer, defer the closing to a business day
specified in that notice, but not later than August 31, 1996.
(c) If both of the preceding paragraphs (a) and (b) are applicable,
the Closing shall take place on the later of the dates determined in accordance
with those paragraphs. The date of Closing is also sometimes referred to herein
as the "Closing Date."
4.2 Closing Deliveries. In connection with the completion of the
------------------
Transactions contemplated in Section 3, at the Closing,
(a) the Buyer shall deliver or cause to be delivered:
(i) the cash portion of the Purchase Price which is required to
be delivered to each of the Companies at the Closing;
(ii) executed copies of the Escrow Agreement;
(iii) the certificates representing the Shares, registered in
the name of the Companies;
(iv) executed copies of the Employment Agreements; and
(v) such other agreements, documents and instruments contemplated
by this Agreement and such other items as may be reasonably requested.
-5-
<PAGE>
(b) the Companies shall deliver or cause to be delivered:
(i) payment instructions regarding the cash portion of the
Purchase Price which is required to be delivered to the Companies at
the Closing;
(ii) bills of sale and assignment and assumption agreements
transferring all of the Companies right, title and interest in and to
the Purchased Assets in form and substance satisfactory to the Buyer;
(iii) executed copies of the Escrow Agreement; and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(c) each Shareholder shall deliver his executed counterpart of his
Employment Agreement.
5. Conditions to Buyer's Obligations. The obligations of Buyer to effect the
---------------------------------
Closing shall be subject to the satisfaction at or prior to the Closing of the
following conditions, any one or more of which may be waived by Buyer:
5.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or threatened that prevents or that seeks to restrain the consummation,
or challenges the validity or legality, of Transactions.
5.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Companies and the Shareholders set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at such time and (b) the Companies and the Shareholders shall have
each performed or tendered performance in all material respects of all covenants
and agreements contained in this Agreement required to be performed and complied
with by them at or prior to the Closing. The Companies and the Shareholders
shall have delivered to the Buyer a certificate signed by the President of each
Company and by each Shareholder, in form and substance reasonably satisfactory
to counsel to the Buyer, that the Companies and the Shareholders have performed
all covenants and agreements to be performed by them under this Agreement and as
regarding the accuracy of its representations and warranties contained herein as
of the Closing Date.
5.3 Legal Opinion. The Companies and the Shareholders shall have tendered
-------------
a legal opinion of Drinker Biddle & Reath, counsel to the Companies and the
Shareholders, that is reasonably acceptable to counsel to the Buyer.
5.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
-6-
<PAGE>
5.5 Financing. Buyer shall have obtained sufficient financing for the
---------
consummation of the transactions contemplated hereby.
5.6 Required Tender. The Shareholders and the Companies shall have
---------------
tendered or caused the tender of the items set forth in Section 4.2.
6. Conditions to each Company's and each Shareholder's Obligations. The
---------------------------------------------------------------
obligations of the Companies and the Shareholders to effect the Closing shall be
subject to the satisfaction at or prior to the Closing of the following
conditions, any one or more of which may be waived by such parties:
6.1 No Injunction. No Court Order or Litigation shall be pending or
-------------
threatened that prevents or that seeks to restrain the consummation, or
challenges the validity or legality, of Transactions.
6.2 Representations, Warranties and Agreements. The representations and
------------------------------------------
warranties of the Buyer set forth in this Agreement shall be true and complete
in all material respects as of the Closing Date as though made at such time and
the Buyer shall have performed or tendered performance in all material respects
of all covenants and agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing. The Buyer shall
have delivered a certificate signed by the President of the Buyer, in form and
substance reasonably satisfactory to counsel to the Companies, that the Buyer
has performed all covenants and agreements to be performed by it under this
Agreement and as regarding the accuracy of its representations and warranties
contained herein as of the Closing Date.
6.3 Legal Opinion. The Buyer shall have tendered a legal opinion of
-------------
Morgan, Lewis & Bockius LLP, counsel to the Buyer, that is reasonably acceptable
to counsel to the Companies.
6.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
6.5 Required Tender. The Buyer shall have tendered or caused the tender
---------------
of the items set forth in Section 4.2(a).
7. Representations and Warranties of the Companies and the Shareholders. Each
--------------------------------------------------------------------
Company and each Shareholder hereby jointly and severally represent and warrant
to the Buyer that, except as set forth in a letter dated as of the date of this
Agreement, executed by each Company and each Shareholder, addressed and
delivered to Buyer within 14 days after the date of this Agreement and
containing information required by this Agreement and exceptions to the
representations and warranties of the Companies and the Shareholders under this
Agreement (the "Disclosure Letter"); provided, however, that any representations
and warranties of the Companies and the Shareholders are conditioned upon and
not effective until the delivery of such Disclosure Letter:
7.1 Corporate Status. Each Company is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and is qualified to
-7-
<PAGE>
do business as a foreign corporation and is in good standing in each
jurisdiction where it is required to be so qualified, except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of each Company that have been delivered to the Buyer are effective
under applicable Regulations and are current, correct and complete.
7.2 Authorization. Each Company has the requisite power and authority to
-------------
own its property and carry on its Business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by each Company has been duly authorized by all necessary corporate
action. Each Shareholder has the requisite power, capacity, legal right and
authority to execute and deliver the Transaction Documents to which he is a
party and to perform the Transactions to be performed by him thereunder. Each
Transaction Document executed and delivered by each Company has been duly
executed and delivered by such Company and constitutes a valid and binding
obligation of such Company, enforceable against it in accordance with its terms.
Each Transaction Document to be executed and delivered by each Shareholder will
be duly executed and delivered by him and will constitute a valid and binding
obligation of him, enforceable against him in accordance with its terms.
7.3 Consents and Approvals. Except for the consents specified in the
----------------------
Disclosure Letter (the "Required Consents"), neither the execution or delivery
by either Company or either Shareholder of the Transaction Documents to which it
or he is a party, nor the performance of the Transactions to be performed by it
or him thereunder, will require any filing, consent or approval, constitute a
Default or cause any payment obligation to arise under (a) any Regulation or
Court Order to which such Company or Shareholder is subject, (b) the Charter
Documents or bylaws of either Company or (c) any Contract, Permit or other
document to which either Company is a party or by which its Business or Assets
may be subject.
7.4 Stock Ownership. The Shareholders own all of the issued and
---------------
outstanding capital stock of each Company.
7.5 Financial Statements. The Disclosure Letter includes correct and
--------------------
complete copies of each Company's audited financial statements consisting of a
balance sheet of such Company as of December 31, 1993, 1994 and 1995 and the
related statements of income, retained earnings and cash flows for the years
then ended (collectively, the "Annual Financial Statements"), each of
which were audited by Arthur Andersen LLP. The Disclosure Letter also includes
correct and complete copies of each Company's unaudited financial statements
consisting of a balance sheet of such Company as of the end of the two-month
period ended February 29, 1996 and the related statements of income and cash
flow for the period then ended (the "Interim Financial Statements," and together
with the Annual Financial Statements, the "Financial Statements"). The
Financial Statements of each Company are consistent with the books and records
of such Company, and there are no material transactions required by GAAP to be
recorded in accounting records that have not been recorded in the accounting
records underlying such Financial Statements. The Financial Statements have
been prepared in accordance with GAAP consistently applied and present fairly
the financial position and assets and liabilities of each Company as of the
dates thereof and its cash flows and the results of its operations for the years
and periods then ended, subject to normal recurring year-end adjustments and the
absence of notes in the case of the Interim Financial Statements. The balance
sheets of the Companies
-8-
<PAGE>
as of December 31, 1995 that are included in the Financial Statements are
referred to herein as the "Company Balance Sheets" and the dates thereof are
referred to as the "Balance Sheet Date." The balance sheets of the Companies as
of February 29, 1996 that are included in the Financial Statements are referred
to herein as the "Interim Company Balance Sheets" and the dates thereof is
referred to as the "Interim Balance Sheet Date."
7.6 Title to Assets and Related Matters. Each Company has good and
-----------------------------------
marketable title to, valid leasehold interests in or valid licenses to use, all
of its respective Purchased Assets, free from any Encumbrances except those
specified on the Disclosure Letter. The use of the Purchased Assets is not
subject to any Encumbrances (other than those specified in the preceding
sentence), and such use does not materially encroach on the property or rights
of anyone else. All Purchased Assets are in the possession or under the control
of the Companies and consist of all of the Assets necessary to operate the
Businesses as now being operated. Except as set forth on the Disclosure Letter,
all of the tangible personal property included in the Purchased Assets (a) is in
good working condition and reasonable repair, subject to normal wear and tear,
(b) is usable in the ordinary course of business and (c) conforms in all
material respects with all applicable Regulations relating to its construction,
use and operation. Except for those items subject to the Personal Property
Leases, no Person other than the Companies own any vehicles, equipment or other
tangible assets located on the Real Property that are used by the Companies in
the Businesses (other than immaterial items of personal property owned by the
employees of the Companies) or that are necessary for the operation of the
Businesses.
7.7 Real Property. The Disclosure Letter describes all real estate
-------------
(including, without limitation, a description of how such real estate is zoned)
used in the operation of the Businesses as well as any other real estate that is
in the possession of or leased by the Companies and the improvements (including
buildings and other structures) located on such real estate (collectively, the
"Real Property"), identifies which Real Property is owned and which is leased,
and lists any leases under which any such Real Property is possessed by the
Companies or leased by the Companies to others (the "Real Estate Leases"). To
the knowledge of each Company and each Shareholder, all of the buildings and
structures included in the Real Property are structurally sound, and all of the
heating, ventilating, air conditioning, plumbing, sprinkler, electrical and
drainage systems, elevators and roofs, and all other fixtures, equipment and
systems at or serving such Real Property are generally in good condition, repair
and working order and are generally adequate for the present use of the Real
Property by the Companies in conducting their respective Businesses, and there
is no condition which will result in the termination of the present access from
the Real Property to such utility services and other facilities. The Companies
have received no notices, oral or written, and have no reason to believe, that
any governmental body having jurisdiction over any Real Property intends to
exercise the power of eminent domain or a similar power with respect to all or
any part of the Real Property. Neither Company has received any notices, oral
or written, from any governmental body, and has any reason to believe, that any
of the Real Property or any improvements erected or situate thereon, or the uses
conducted thereon or therein, violate any Regulations of any governmental body
having jurisdiction over such Real Property. The Companies have not received
any notice from the holder of any mortgage, from any insurance company which has
issued a policy with respect to any of the Real Property or from any board of
fire underwriters (or other body exercising similar functions) claiming any
defects or deficiencies in any of the Real Property or suggesting or requesting
the performance of any repairs, alterations or other work to any of the Real
Property.
-9-
<PAGE>
7.8 Certain Personal Property. The Disclosure Letter contains a complete
-------------------------
fixed asset schedule, describing and specifying the location of all items of
tangible personal property that are included in the Company Balance Sheets.
Except as listed on the Disclosure Letter, since the Balance Sheet Date, the
Companies have not (i) acquired any items of tangible personal property that
has, in any case, a carrying value in excess of $50,000, or an aggregate
carrying value in excess of $250,000 or (ii) disposed of any items of tangible
personal property (other than inventory) that have, in any case, an initial
carrying value in excess of $50,000, or an initial aggregate carrying value in
excess of $250,000.
7.9 Personal Property Leases. The Disclosure Schedule lists all assets
------------------------
and property (other than Real Property) that have been used in the operation of
the Businesses and that are possessed by the Companies under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $25,000 (each, an "Immaterial Lease"). The Disclosure Letter also
lists the leases under which such assets and property listed on the Disclosure
Letter are possessed. All of such leases (excluding "Immaterial Leases") are
referred to herein as the "Personal Property Leases."
7.10 Accounts Receivable. The accounts receivable of each Company are bona
-------------------
fide accounts receivable created in the ordinary course of business and are not
subject to defenses, set-offs or counterclaims and are good and collectible at
the aggregate recorded amounts thereof (in each case, net of the reserves set
forth on the Disclosure Letter (which reserves are reasonable reserves based
upon GAAP and the past experience of the Companies)) for such items included in
the Interim Company Balance Sheets). The Disclosure Letter includes a correct
and complete accounts and notes receivable aging of the Companies as of the
Interim Balance Sheet Date reflecting the aggregate dollar amount of all
accounts and notes receivable due the Companies which have been outstanding for:
30 days or less; more than 30 but less than 61 days; more than 60 but less than
91 days; and more than 90 days.
7.11 Inventory. All inventory of each Company consists of items useable or
---------
saleable in the ordinary course and is valued on such Company's books and
records at the lower of cost or fair market value. The inventory records for
each Company that have been delivered to the Buyer or made available for
inspection by the Buyer are accurate with respect to the data contained therein.
7.12 Accounts Payable. All accounts payable as set forth on the Interim
----------------
Company Balance Sheets or arising since the date thereof have been incurred in
the ordinary course of business.
7.13 Product Warranties and Price Guarantees. The Disclosure Letter sets
---------------------------------------
forth all express product warranties and price guarantees made by the Companies.
7.14 Liabilities. Except as specified on the Disclosure Letter, the
-----------
Companies do not have any Liabilities, and none of the Purchased Assets is
subject to any Liabilities, except (a) as specifically disclosed on the Interim
Company Balance Sheets, (b) Liabilities incurred in the ordinary course since
the Interim Balance Sheet Date, and (c) Liabilities under any Contracts
-10-
<PAGE>
specifically disclosed on the Disclosure Letter (or not required to be disclosed
because of the term or amount involved) that were not required under GAAP to
have been specifically disclosed or reserved for on the Interim Company Balance
Sheets.
7.15 Taxes. The Companies have duly filed all Federal, state, local,
-----
foreign and other tax returns that are required to be filed and that were due
prior to the Closing Date, and have paid all taxes and assessments shown as
being due pursuant to such returns or pursuant to any assessment received. All
taxes and other assessments and levies that the Companies have been required by
law to withhold or to collect have been duly withheld and collected and have
been paid over to the proper governmental authorities or are properly held by
the Companies for such payment. There are no proceedings or other actions, nor
is there any basis for any proceedings or other actions, for the assessment or
collection of additional taxes of any kind for any period for which returns have
or should have been filed.
7.16 Subsidiaries. Neither Company owns, directly or indirectly, any
------------
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
7.17 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as disclosed on the Disclosure Letter, there is no
Litigation that is pending or, to knowledge of either Company or either
Shareholder, threatened against or related to either Company. There has been no
Default under any Regulation applicable to either Company, the Assets or the
Businesses, including any Regulation relating to pollution or protection of the
environment, except for any Defaults that have been cured without material cost
or that would not have a Material Adverse Effect, and neither Company has
received any notices from any governmental entity regarding any alleged Default
under any Regulation except those that have been cured without material cost or
that would not have a Material Adverse Effect. There has been no Default with
respect to any Court Order applicable against either Company.
(b) Without limiting the generality of Section 7.17(a), except as
described on Disclosure Letter, there has not been any Environmental Condition
(i) at any premises at which the Businesses of the Companies (or any predecessor
of either Company) is currently conducted, (ii) at any property owned, leased or
operated at any time by either Company (or any predecessor of either Company) or
any Person controlled by any Affiliate of either Company, or (iii) at any
property at which wastes have been deposited or disposed by or at the behest or
direction of either Company (or any predecessor of either Company) or any Person
controlled by any Affiliate of either Company, nor has either Company received
written notice of any such Environmental Condition. "Environmental Condition"
means any condition or circumstance, including the presence of Hazardous
Substances, whether created by either Company (or any predecessor of either
Company) or any third party, at or relating to any such property or premises
that would (i) require abatement or correction under an Environmental Law, (ii)
give rise to any civil or criminal liability under an Environmental Law, or
(iii) create a public or private nuisance. "Environmental Law" means all
Regulations and Court Orders relating to pollution or protection of the
environment as well as any principles of common law under which a Person may be
held liable for the release or discharge of any materials into the environment.
-11-
<PAGE>
(c) The Companies will deliver (contemporaneously with the delivery
of the Disclosure Letter) to the Buyer correct and complete copies of any
written reports, studies or assessments in the possession or control of either
Company or either Shareholder that relate to any Environmental Condition.
Neither any Company nor any Shareholder knows of any other written reports,
studies or assessments, whether or not in the possession or control of either
Company or either Shareholder, that relate to any Environmental Condition.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) each Company has obtained and is in full compliance with all
Permits, all of which are listed on the Disclosure Letter along with their
respective expiration dates, that are required for the ownership of the Assets
or operation of the Business and Assets as currently operated by such Company,
(ii) all of the Permits are currently valid and in full force and (iii) each
Company has filed such timely and complete renewal applications as may be
required with respect to its Permits. To the knowledge of each Company and each
Shareholder, no revocation, cancellation or withdrawal of a Permit has been
threatened.
7.18 Contracts.
---------
(a) The Disclosure Letter lists each Contract of the following types
to which either Company is a party or by which it is bound:
(i) Contracts with any present or former shareholder, director,
officer, employee, partner or consultant or with any Affiliate of
either Shareholder;
(ii) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third
party, in excess of $10,000 with respect to any one supplier or other
party;
(iii) Contracts to sell or supply products, inventory or other
property to, or to perform services for, a third party, that involve
an amount in excess of $10,000 with respect to any one customer or
other party;
(iv) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(v) Contracts limiting or restraining it from engaging or
competing in any lines or business with any Person;
(vi) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(vii) Contracts to lease to or to operate for any other party
any asset that involve an amount in excess of $10,000 in any
individual case (other than Real Estate Leases and Personal Property
Leases identified on the Disclosure Letter);
(viii) Any notes, debenture, bonds, conditional sale
agreements, equipment trust agreements, letter of credit agreements,
reimbursement agreements,
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<PAGE>
loan agreements or other Contracts for the borrowing or lending of
money (including loans to or from officers, directors, partners or
shareholders or with Affiliates of either Shareholder or any members
of his immediate families), or agreements or arrangements for a line
of credit or for a guarantee of, or other undertaking in connection
with, the indebtedness of any other Person;
(ix) Contracts creating or recognizing any Encumbrances with
respect to any Assets;
(x) Contracts with distributors, manufacturers sales
representatives or other sales agents;
(xi) Contracts which relate in whole or in part to any software,
technical assistance or other know-how or other Intellectual Property
right;
(xii) Contracts for any capital expenditure or leasehold
improvement in excess of $10,000; and
(xiii) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and
those described in any of (i) through (xii) above) not made in the
ordinary course of business or which are material to the Business or
the assets.
(b) Neither Company is in Default under any Contract. To the
knowledge of each Company and each Shareholder, neither Company has received any
communication from, or given any communication to, any other party indicating
that such Company or such other party, as the case may be, is in Default under
any Contract. To the knowledge of each Company and each Shareholder, none of
the other parties to any such Contract to which a Company is a party is in
Default thereunder.
7.19 Insurance. The Disclosure Letter lists all policies or binders of
---------
insurance held by or on behalf either Company or relating to the Businesses or
any of the Assets, specifying with respect to each policy the insurer, the type
of insurance, the amount of the coverage, the insured, the expiration date, the
policy number and any pending claims thereunder. There is no Default with
respect to any such policy or binder, nor has there been any failure to give any
notice or present any claim under any such policy or binder in a timely fashion
or in the manner or detail required by the policy or binder, except for any of
the foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that has been
received by either Company, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
7.20 Intellectual Property and Software Products. Neither Company
-------------------------------------------
currently uses nor has it previously used in the operation of its Business
(including in the development or marketing of products and services) any
Copyright, Patent or Trademark except for those listed on the Disclosure Letter.
Except as listed in the Disclosure Letter, each Company owns or has the lawful
right to use all Intellectual Property that is used or has been used in the
operation of its
-13-
<PAGE>
Business. All of the Intellectual Property listed in the Disclosure Letter is
owned by the Companies free and clear of any Encumbrances, or is used pursuant
to an agreement that is described in the Disclosure Letter. Neither Company
infringes upon or unlawfully or wrongfully uses any Intellectual Property rights
owned or claimed by another Person. Neither Company is in Default, nor has it
received any notice of any claim of infringement or any other claim or
proceeding, with respect to any such Intellectual Property. No current or
former employee of either Company and no other Person owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, and including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
7.21 Employee Relations.
------------------
(a) Except as described in the Disclosure Letter, neither Company is
(a) a party to or otherwise bound by any collective bargaining or other type of
union agreement, (b) a party to, involved in or, to the knowledge of either
Company or either Shareholder, threatened by, any labor dispute or unfair labor
practice charge, or (c) currently negotiating any collective bargaining
agreement, and neither Company has experienced any work stoppage during the last
three years. The Disclosure Letter sets forth the names and current annual
salary rates or current hourly wages of all present employees of each Company.
(b) Each Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. There are no
outstanding claims against either Company (whether under Regulation, Contract,
policy, or otherwise) asserted by or on behalf of any present or former employee
or job applicant of such Company on account of or for (i) overtime pay, other
than overtime pay for work done in the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) any amount of
vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the current fiscal year, (iv)
any amount of severance pay or similar benefits, (v) unemployment insurance
benefits, (vi) workers' compensation or disability benefits, (vii) any violation
of any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including but not limited to The Workers
Adjustment and Retraining Act, (viii) any violation of any statute, ordinance,
order, rule or regulations relating to employee "whistleblower" or "right-to-
know" rights and protection, (ix) any violation of any statute, ordinance,
order, rule or regulations relating to the employment obligations of federal
contractors or subcontractors or (x) any violation of any Regulation relating to
minimum wages or maximum hours of work, and neither Company nor either
Shareholder is aware of any such claims which have not been asserted. No Person
(including any governmental body) has asserted or threatened any claims against
either Company under or arising out of any Regulation relating to discrimination
or occupational safety in employment or employment practices.
7.22 ERISA.
-----
(a) The Disclosure Letter contains a complete list of all Benefit
Plans sponsored or maintained by each Company or under which such Company may be
obligated. The Company will make available at the offices of the Companies,
upon request and to the extent applicable, any of the following documents: (i)
accurate and complete copies of all Benefit Plan documents
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<PAGE>
and all other material documents relating thereto, including all summary plan
descriptions, summary annual reports and insurance contracts, (ii) accurate and
complete detailed summaries of all unwritten Benefit Plans, (iii) accurate and
complete copies of the most recent financial statements and actuarial reports
with respect to all Benefit Plans for which financial statements or actuarial
reports are required or have been prepared and (iv) accurate and complete copies
of all annual reports for all Benefit Plans (for which annual reports are
required) prepared within the last three years. Each Benefit Plan providing
benefits that are funded through a policy of insurance is indicated by the word
"insured" placed by the listing of the Benefit Plan in the Disclosure Letter.
(b) All Benefit Plans conform (and at all times have conformed) to,
and are being administered and operated (and at all times have been administered
and operated) in material compliance with, the applicable requirements of ERISA,
the Code and all other applicable Regulations. All returns, reports and
disclosure statements required to be made under ERISA and the Code with respect
to all Benefit Plans have been timely filed or delivered. There have not been
any "prohibited transactions," as such term is defined in Section 4975 of the
Code or Section 406 of ERISA involving any of the Benefit Plans, that could
subject either Company to any penalty or tax imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. To the knowledge of
either Company or either Shareholder, nothing has occurred since the date of
any such determination that would affect adversely such qualification or
exemption, or result in the imposition of excise taxes or income taxes on
unrelated business income under the Code or ERISA with respect to any Benefit
Plan.
(d) Neither Company has a defined benefit plan subject to Title IV of
ERISA, nor does it have a current or contingent obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA). Neither Company has
any liability with respect to any employee benefit plan (as defined in Section
3(3) of ERISA) other than with respect to the Benefit Plans. For purposes of
this Section 7.22(d), the term "Company" shall include any corporation that is a
member of any controlled group of corporations (as defined in Section 414(b) of
the Code) that includes each Company, any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with either Company, any organization (whether or not incorporated) that
is a member of an affiliated service group (as defined in Section 414(m) of the
Code) that includes either Company and any other entity required to be
aggregated with such Company pursuant to the regulations issued under Section
414(o) of the Code.
(e) There are no pending or, to the knowledge of either Company or
either Shareholder, threatened claims by or on behalf of any Benefit Plans, or
by or on behalf of any individual participants or beneficiaries of any Benefit
Plans, alleging any breach of fiduciary duty on the part of either Company or
any of its officers, directors or employees under ERISA or any other applicable
Regulation, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of either the Company or
the Shareholder, any basis for any such claim. To the knowledge of either
Company or either Shareholder, the
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<PAGE>
Benefit Plans are not the subject of any investigation, audit or action by the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC").
(f) Each Company has made all required contributions under its
Benefit Plans, including the payment of any premiums payable to the PBGC and
other insurance premiums on a timely basis, or such contributions are properly
accrued on such Company's Financial Statements.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, and (iv) all Welfare Plans may be amended
or terminated by the Company at any time on or after the Closing Date.
7.23 Absence of Certain Changes. Except as contemplated by this Agreement,
--------------------------
since the Balance Sheet Date, each Company has conducted its Business in the
ordinary course and there has not been with respect to such Company:
(a) any material adverse change in its Business, Assets or
Liabilities;
(b) any change or amendment in its Charter Documents;
(c) any distribution or payment declared or made in respect of its
capital stock by way of dividend, purchase or redemption of shares or otherwise;
(d) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
(e) any sale, assignment or transfer of any material Assets, or any
additions to or transactions involving any material Assets, other than those
made in the ordinary course of business;
(f) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(g) any payment to any Affiliate of such Company, except as specified
in the Disclosure Letter;
(h) any change in the accounting policies followed by such Company or
the
-16-
<PAGE>
method of applying such principles; or
(i) any capital expenditure commitment involving in any individual
case, or series of related cases, more than (i) $100,000 or (ii) an amount that
would cause the sum of all such capital expenditure commitments to exceed
$250,000.
7.24 Customers. Each Company has used its reasonable business efforts to
---------
maintain and currently maintains, good working relationships with all of its
customers. The Disclosure Letter contains a list of the names of each of the
five customers that, for the year ended December 31, 1995, were the largest
dollar volume customers of products and services sold and provided by each
Company. Except as specified on the Disclosure Letter, none of such customers
has given either Company notice terminating, cancelling or threatening to
terminate or cancel any Contract or relationship with such Company.
7.25 Finder's Fees. No Person retained by the either Company or either
-------------
Shareholder is or will be entitled to any commission or finder's or similar fee
in connection with the Transactions.
7.26 Purchase for Investment. The Companies are acquiring the Shares for
-----------------------
investment purposes only and are not acquiring them with an intent to distribute
or resell them in violation of applicable Federal or state securities laws.
7.27 Additional Information. The Disclosure Letter accurately lists the
----------------------
following:
(a) the names of all officers and directors of each Company;
(b) the names and addresses of every bank or other financial
institution in which either Company maintains an account (whether checking,
saving or otherwise), lock box or safe deposit box, and the account numbers and
names of the Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of either Company;
(d) the names of all Persons holding powers of attorney from each
Company and a summary statement of the terms thereof; and
(e) all names under which either Company has conducted any Business
or which it has otherwise used at any time during the past five years.
7.28 Transactions with Affiliates. Except as set forth on the Disclosure
----------------------------
Letter, no affiliate of any Shareholder or any member of his immediate family,
owns or has a controlling ownership interest in any corporation or other entity
that is a party to any Contract with respect to the Assets or Business.
7.29 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by either
Company or either Shareholder in this
-17-
<PAGE>
Agreement, the Disclosure Letter, the Exhibits to this Agreement, any other
Transaction Document or in any of the documents, certificates and instruments
delivered or to be delivered by either Company or either Shareholder pursuant to
this Agreement and each Company and each Shareholder has not omitted to state
any fact necessary to make statements made herein or therein not materially
misleading.
8. Representations and Warranties of the Buyer. The Buyer hereby represents
-------------------------------------------
and warrants to each Company and each Shareholder as follows:
8.1 Corporate. The Buyer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware. The
Buyer has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions to
be performed by it thereunder, and such execution, delivery and performance by
it have been duly authorized by all necessary corporate action.
8.2 Enforceability. The Transaction Documents to which the Buyer is a
--------------
party constitute valid and binding obligations of the Buyer, enforceable against
it in accordance with their terms.
8.3 Consents and Approvals. Neither the execution and delivery by the
----------------------
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which it is subject, (b) its Charter Documents or bylaws or (c) any
Contract, Permit or other document to which it is a party or by which its
properties or other assets may be subject.
8.4 Stock Ownership; Valuation. The total authorized capital stock of the
--------------------------
Buyer consists of 200,000,000 shares of Buyer Common Stock (of which 8,510,000
shares are issued and outstanding) and 5,000,000 shares of preferred stock, par
value $.01 per share (of which no shares are outstanding). All of the shares
are duly and validly authorized and issued, fully paid and non-assessable. Upon
completion of the Transactions at the Closing, the Companies shall receive valid
title to all of the Shares, free and clear of all Encumbrances (other than
restrictions imposed generally by applicable securities laws).
8.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions, except for Legg Mason Wood Walker, Inc., which fee shall be paid
by Buyer.
8.6 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Buyer in
this Agreement, the Disclosure Letter, the Exhibits to this Agreement or in any
of the documents, certificates and instruments delivered or to be delivered by
the Buyer pursuant to this Agreement and the Buyer has not omitted to state any
fact necessary to make statements made herein or therein not materially
misleading.
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<PAGE>
9. Certain Agreements.
------------------
9.1 Access. Between the date of this Agreement and the Closing Date, each
------
Company shall (a) give Buyer and its authorized representatives and legal
counsel reasonable access to all properties, books, Contracts, Assets and
records of such Company, (b) permit Buyer to make inspections thereof, and (c)
cause its officers and its advisors to furnish the Buyer with such financial and
operating data and other information with respect to its Business and to discuss
with the Buyer and its authorized representatives and legal counsel the affairs
of such Company, all as Buyer may from time to time reasonably request.
9.2 Regulatory Matters. The Companies and the Buyer shall (a) file with
------------------
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the transactions and (b)
cooperate with each other as they may reasonably request in connection with the
foregoing.
9.3 Exclusivity. From the date hereof until the earlier of the Closing or
-----------
the termination of this Agreement, neither Company nor either Shareholder or any
of their respective agents shall, directly or indirectly, solicit or negotiate
or enter into any agreement with any other Person, or provide any nonpublic
information to any other Person, with respect to or in furtherance of any
proposal for a merger or business combination involving, or acquisition of any
interest in, or (except in the ordinary course of business) sale of assets by,
the Companies, except for the acquisition of the Purchased Assets by Buyer.
9.4 Update Disclosure Letter. Between the date the Disclosure Letter is
------------------------
delivered to the Buyer and the Closing Date, the Companies and the Shareholders
shall promptly disclose to Buyer in writing any information set forth in the
Disclosure Letter which is no longer applicable and any information of the
nature of that set forth in the Disclosure Letter which arises after the date
hereof and which would have been required to be included in the Disclosure
Letter if such information had been obtained on the date of delivery thereof.
9.5 Best Efforts. Each party shall use their best efforts to cause all
------------
conditions to the performance of the parties hereto that are within its control
to be satisfied and the Transactions consummated within 60 days after the date
of this Agreement.
9.6 Financial Information. Until the Closing, each Company shall provide
---------------------
the Buyer, within 30 days after the end of each month, with an unaudited
consolidated balance sheet and income statement of such Company as of and for
the month then ended, prepared on the same basis as the interim financial
statements referred to in Section 7.5, and certified as such by the chief
financial officer of such Company; provided, however, that the Companies shall
use commercially reasonable efforts to deliver such financial statements as soon
as practicable following each such month.
9.7 Restrictive Covenants.
---------------------
(a) Mr. Idzik covenants that, except as otherwise set forth in his
Employment Agreement, for the period ending five years after the Closing Date,
he will not, directly or indirectly, own, manage, operate, join, control,
finance or participate in the ownership,
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<PAGE>
management, operation, control or financing of, or be connected as a partner,
principal, agent, representative, consultant or otherwise with or use or permit
his name to be used in connection with, any business or enterprise engaged
directly or indirectly in competition with the business conducted by the Buyer
at any time during such period within any portion of the United States in the
direct marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail and customer retention (the "Restricted Business"). It
is recognized by the Buyer and Mr. Idzik that the Restricted Business is and is
expected to continue to be conducted throughout the United States and that more
narrow geographical limitations of any nature on this non-competition covenant
(and the non-solicitation covenant set forth in Section 9.7(b)) are therefore
not appropriate. The foregoing restriction shall not be construed to prohibit
the ownership by Mr. Idzik of a passive investment of not more than five percent
(5%) of any class of securities of any corporation which is engaged in any of
the foregoing businesses having a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended.
(b) Mr. Idzik further covenants that for the period ending five years
after the Closing Date, he will not, either directly or indirectly, (i) call on
or solicit any Person who or which within the past two years has been a customer
with respect to the Restricted Business with respect to the activities
prohibited by Section 9.7(a) or (ii) solicit the employment of any person who is
employed by the Buyer during such period on a full or part-time basis.
(c) Mr. Idzik recognizes and acknowledges that by reason of his
ownership of and employment by the Companies he has had access to Confidential
Information relating to the Restricted Business. Mr. Idzik acknowledges that
such Confidential Information is a valuable and unique asset and covenants that
he will not disclose any such Confidential Information after the Closing Date to
any person for any reason whatsoever, unless such information (i) is in the
public domain through no wrongful act of Mr. Idzik, (ii) has been rightfully
received from a third party without restriction and without breach of this
Agreement or (iii) except as may be required by law.
(d) Mr. Idzik acknowledges that the restrictions contained in this
Section 9.7 are reasonable and necessary to protect the legitimate interests of
the Buyer, and that any violation will result in irreparable injury to the
Buyer.
(e) Mr. Idzik agrees that the Buyer shall be entitled to preliminary
and permanent injunctive relief, without the necessity of proving actual
damages, as well as an equitable accounting of all earnings, profits and other
benefits arising from any violation of this Section 9.7, which rights shall be
cumulative and in addition to any other rights or remedies to which the Buyer
may be entitled. In the event that any of the provisions of this Section 9.7
should ever be adjudicated to exceed the time, geographic, product or service,
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
(f) The covenants set forth in this Section 9 shall be in addition to
and not in limitation of any similar covenants set forth in any employment
agreement between the Buyer or any of its Affiliates and Mr. Idzik.
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<PAGE>
9.8 Required Consents. Each Company and each Shareholder shall use its
-----------------
best efforts to take, or cause to be taken, such action to execute and deliver,
or cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable to
obtain the Required Consents except for the incurrence of any additional
monetary obligations.
9.9 Release of Personal Guarantees. The Buyer shall cause all obligations
------------------------------
of the Company which have been guaranteed by any Shareholder to either be
retired or use its best efforts to arrange to have such guarantees released;
provided, however, to the extent that the Company and the Buyer are unable to
- -------- -------
effectuate any such release, the Buyer shall indemnify and hold harmless each
Shareholder from and against any liabilities, claims, demands, judgments,
losses, costs, damages or expenses whatsoever (including reasonable attorneys'
fees and disbursements incurred by them in connection therewith) that he may
sustain, suffer or incur and that result from, arise out of or relate to such
guarantees.
9.10 Offer Regarding Biesel. In connection with the consummation of the
----------------------
Closing, the Buyer shall make an offer to Mr. William R. Biesel, a former
shareholder of the Company, to retire all of the Company's remaining obligations
to such person in an amount equal to the present value of such obligations
(based on a discount rate of 9%).
9.11 Employment Matters.
------------------
(a) Except for the Shareholders, who shall enter into employment
contracts in the forms to be set forth in Exhibit B and Exhibit C, Buyer shall
offer employment to all employees of the Companies who are employed by the
Companies on the day before the Closing Date (the "Company Employees," each a
"Company Employee") as an at-will-employee on the Closing Date. Those Company
Employees who are on a leave of absence due to disability (including but not
limited to maternity leave) which terminates within the one-year period
beginning on the Closing Date and which are listed on the Disclosure Letter
shall receive an offer of employment from Buyer on the date such leave of
absence terminates and Buyer shall assume all health and other benefits provided
such persons on the day prior to the Closing Date. The terms of employment
offered to such Company Employees shall be based on Buyer's employment practices
and policies, provided that it shall be a term of such offer that each such
Company Employee be entitled to receive (i) cash compensation (including
bonuses) based on a pay scale which is no less generous than the Companies pay
scale and (ii) and substantially the same benefits as such Company Employee had
immediately prior to the Closing, all of which data is set forth on the
Disclosure Letter. Buyer shall assume any and all obligations for vacation,
sick and personal leave earned by Company Employees who accept employment with
Buyer, all of which data is set forth on the Disclosure Letter. All employees
who report to work following the Closing Date shall be deemed to have accepted
employment with the Buyer.
(b) Buyer shall not assume any obligations arising under any
"employee benefit plan" (as such term is defined in Section 3(3) of ERISA) which
the Companies maintain relating to any Company Employee (collectively the
"Plans").
(c) The Companies shall terminate the Harris Direct Marketing Inc.
Profit-Sharing Plan (the "Company Plan") on or before the Closing Date and shall
file for a ruling from the
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<PAGE>
Internal Revenue Service that the termination of such plan and subsequent
distribution of its accounts to employees (or former employees) of the Companies
does not adversely affect such plan's tax-qualified status. Upon receipt of
such ruling, the Companies shall wind up such plan and distribute its accounts
to the appropriate Company Employees (or former employees). All Company
Employees who accept Buyer's offer of employment described above shall be
entitled to participate in a 401(k) plan maintained by or on behalf of Buyer as
soon as possible after the Closing Date and will be credited under such plan
with years of service at the Companies for purposes of eligibility to
participate and vesting; such Company Employee shall be entitled to roll over
into the Buyer's 401(k) plan amounts received in the winding up of the Company's
Plan.
(d) Buyer acknowledges that the Companies are not obligated to offer
"continuation coverage" as provided by Part 6 of Title I of the Employee
Retirement Income Security Act of 1974, as amended and Section 4980B of the
Internal Revenue Code ("COBRA") under Company's group health plans with respect
to the Company Employees who accept Buyer's offer of employment because Buyer
shall be providing as of the Closing Date group health plans which provide
coverage which is comparable to the coverage such under the Company's group
health plans. Buyer or its Affiliates shall comply with all COBRA obligations
applicable to group health plans maintained or established by Buyer or its
Affiliates on or after the Closing Date for the benefit of Company Employees who
accept employment with Buyer, or its Affiliates.
(e) Pursuant to the "Alternative Procedure" provided in Section 5 of
Revenue Procedure 84-77, 1984-2 C.B. 753, with respect to filing and furnishing
Internal Revenue Service Forms W-2, W-3 and 941, (i) each Company and the Buyer
shall report on a "predecessor-successor" basis as set forth therein, (ii) each
Company shall be relieved from furnishing Forms W-2 to transferred employees and
(iii) the Buyer shall assume the obligations of each Company to furnish such
forms to such employees for the full 1996 calendar year.
9.12 CRW Market Research. On or prior to the Closing, CRW shall wind down
-------------------
the operation of its Market Research Division and use its best efforts to make
available the employees of such division for employment with The Response Center
Inc., an Initial Target.
9.13 Lock-Up Agreements. In connection with the Initial Public Offering,
------------------
for good and valuable consideration, each Company and each Shareholder each
hereby irrevocably agree that for a period of 360 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except as contemplated in Section 3.7 hereto), directly or indirectly, any
shares of Buyer Common Stock or any securities convertible into or exercisable
or exchangeable for shares of Buyer Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Buyer Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Buyer Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities Inc. Neither either Company nor
either Shareholder, without the prior written consent of J.P. Morgan Securities
Inc., shall exercise any demand, mandatory, piggyback, optional or any other
registration rights, if any such rights exist, for a period of 360 days from the
Effective Date. Each Company and each Shareholder agree that the foregoing
shall be binding upon their
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<PAGE>
transferees, successors, assigns, heirs, and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Buyer and its transfer agent, are hereby
authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this Section 9.13.
9.14 Options and Warrants.
--------------------
(a) At or after the Closing, the Buyer shall grant options (each of
which shall be exercisable at a price per share equal to the Initial Public
Offering price) under its 1996 Equity Compensation Plan exercisable for at least
an aggregate of 26,100 shares of Buyer Common Stock. Such options shall be
granted to certain employees of the Companies (other than Mr. Idzik) and shall
be subject to a three-year vesting period.
(b) At the Closing, the Buyer shall grant a warrant to each
Shareholder exercisable for that number shares of Buyer Common Stock set forth
on Exhibit 9.14 and pursuant to the other terms of the warrant substantially in
the form attached as Exhibit 9.14A hereto.
9.15 Value of Shares. If the aggregate value (the "Aggregate Value") of
---------------
the shares of Buyer Common Stock (based upon the Initial Public Offering price)
issuable pursuant to Section 3.7 is less than $2,290,000, the Buyer shall pay
the Companies at the Closing an amount equal to the difference between
$2,290,000 and the Aggregate Value.
10. Conduct of the Business Prior to the Closing.
--------------------------------------------
10.1 Operation in Ordinary Course. Between the date of this Agreement and
----------------------------
the Closing Date, each Company shall conduct its Business in all material
respects in the ordinary course and to use commercially reasonable efforts to
maintain all current business relationships.
10.2 Business Organization. Between the date of this Agreement and the
---------------------
Closing Date, each Company shall use commercially reasonable efforts, to
preserve substantially intact its business organization and keep available the
services of the present officers and employees of such Company.
10.3 Corporate Organization. Between the date of this Agreement and the
----------------------
Closing Date, neither Company shall amend its Charter Document or bylaws and
shall not:
(a) issue, sell or otherwise dispose of any of its capital stock, or
create, sell or otherwise dispose of any options, rights,
conversion rights or other agreements or commitments of any kind
relating to the issuance, sale or disposition of any of its
capital stock;
(b) reclassify, split up or otherwise change its capital stock;
(c) be party to any merger, consolidation or other business
combination;
(d) sell, lease, license or otherwise dispose of any of its Assets
(including, but not limited to rights with respect to its
Intellectual Property), except in the
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<PAGE>
ordinary course of business; or
(e) organize any subsidiary or acquire any equity securities of any
Person or any equity or ownership interest in any business.
10.4 Business Restrictions. Between the date of this Agreement (the
---------------------
Balance Sheet Date with respect to Section 10.4(a)) and the Closing Date,
neither Company shall:
(a) declare, make or pay any dividends or other distributions other
than dividends (i) limited in an amount necessary for the
Shareholders to satisfy their respective federal, state and local
tax obligations with respect to the fiscal year ended December
31, 1995 and the six-month period ended June 30, 1996 and (ii) of
the Company's net income as calculated in accordance with GAAP
for all periods after July 1, 1996;
(b) borrow any funds or otherwise become subject to, whether directly
or by way of guarantee or otherwise, any indebtedness for
borrowed money;
(c) create any material Encumbrance on any of its material Assets;
(d) except in the ordinary course of business, increase in any manner
the compensation of any director or officer or increase in any
manner the compensation of any class of employees;
(e) create or materially modify any bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase,
stock option, or other fringe benefit plan, arrangement or
practice or any other employee benefit plan (as defined in
section 3(3) of ERISA);
(f) except as set forth on Disclosure Letter, make any capital
expenditure or acquire any property or assets (other than raw
materials and supplies) for a cost in excess of $100,000 in any
one case;
(g) enter into any agreement that materially restricts the Company
from carrying on the Business;
(h) cancel any material debts of others or waive any material claims
or rights; or
(i) act or omit from taking any action which would cause any of the
representations and warranties in Section 7 to be inaccurate.
10.5 Duty of Shareholders. The Shareholders shall cause each Company to
--------------------
take or refrain from taking such actions set forth elsewhere in this Section 10.
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<PAGE>
11. Survival of Representations; Indemnification.
--------------------------------------------
11.1 Survival of Representations, Etc. The representations and warranties
--------------------------------
given by each Company, each Shareholder and the Buyer under this Agreement shall
survive the Closing for a period of two years after the Closing Date, except
that all representations and warranties contained in Sections 7.15 shall survive
the Closing for the period of the applicable statute of limitations plus any
extensions or waivers thereof.
11.2 Indemnification by the Shareholders and the Companies. The
-----------------------------------------------------
Shareholders and the Companies, jointly and severally, hereby agree to indemnify
and hold harmless the Buyer, and its successors and assigns, (each, an
"Indemnified Buyer Party") from and against any and all Liabilities, claims,
demands, judgments, settlement payments, losses, costs, damages and expenses
whatsoever (including reasonable attorneys', consultants' and other professional
fees and disbursements of every kind, nature and description incurred by such
Indemnified Buyer Party in connection therewith) (collectively, "Damages") that
such Indemnified Buyer Party may sustain, suffer or incur that result from,
arise out of or relate to (a) any Excluded Liability, (b) any breach of or any
inaccuracy in any representation, warranty, covenant or agreement of any Company
or either Shareholder contained in this Agreement, including any breach of the
obligation to indemnify hereunder, (c) any Liability or obligation of any
Company involving an Environmental Condition or which otherwise relates to, or
involves a claim, Liability or obligation which arises out of or is based upon,
any Environmental Law, to the extent that such Liability or obligation relates
to or arises out of, in whole or in part, any activity occurring, condition
existing, omission to act or other matter existing prior to the Closing Date, or
(d) any Liability or obligation of either Company or either Shareholder
involving taxes due and payable by, or imposed with respect to either Company or
either Shareholder for any all taxable periods ending on or prior to the Closing
Date (whether or not such taxes have been due and payable).
11.3 Indemnification by the Buyer. The Buyer hereby agrees to indemnify
----------------------------
and hold harmless each Company (each, an "Indemnified Seller Party") from and
against any Damages that any Indemnified Seller Party may sustain, suffer or
incur that result from, arise out of or relate to any breach of or inaccuracy in
any representation, warranty, covenant or agreement of the Buyer contained in
this Agreement, including any breach of the obligation to indemnify hereunder.
11.4 Limitation on Liabilities.
-------------------------
(a) Notwithstanding anything in this Agreement to the contrary, an
indemnifying party shall not have any liability to an indemnified party in
respect of any claim for indemnification for the breach of any representation or
warranty contained herein (i) unless a claim with respect thereto is delivered
to the indemnifying party specifying the factual basis of the claim in
reasonable detail to the extent then known by the indemnifying party prior to
the termination of the survival period for such representation and warranty set
forth in Section 11.1 hereof and (ii) until the damages to the indemnified
party, after taking into account Section 11.4(a) hereof, exceed (A) a cumulative
aggregate of $150,000 with respect to breaches of representations or warranties
contained in Sections 7.5, 7.10, 7.18 and 7.21 and (B) in a cumulative aggregate
total of $ 100,000 with respect to breaches of any and all representations or
warranties including those contained in Sections 7.5 and 7.10, but then to the
full extent of
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such Damages.
(b) In addition, the indemnification liability of (i) the Companies
under Section 11.2 of this Agreement shall be limited to an aggregate of
$1,950,000, (ii) Mr. Idzik under Section 11.2 of this Agreement shall be limited
to an aggregate of $1,755,000 and (iii) Mr. Schorle under Section 11.2 of this
Agreement shall be limited to an aggregate of $195,000, in the case of any claim
or claims for breaches of representations and warranties of either Company or
either Shareholder made herein or in any other Transaction Document.
11.5 Procedure for Claims.
--------------------
(a) An Indemnified Buyer Party or an Indemnified Seller Party that
desires to seek indemnification under any part of this Section 11 (each, an
"Indemnified Party") shall give notice (a "Claim Notice") to each party
responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor"). Such notice shall briefly explain the nature of the claim and
the parties known to be involved, and shall specify the amount thereof. If the
matter to which a claim relates shall not have been resolved as of the date of
the Claim Notice, the Indemnified Party shall estimate the amount of the claim
in the Claim Notice, but also specify therein that the claim has not yet been
liquidated (an "Unliquidated Claim"). If an Indemnified Party gives a Claim
Notice for an Unliquidated Claim, the Indemnified Party shall also give a second
Claim Notice (the "Liquidated Claim Notice") within 60 days after the matter
giving rise to the claim becomes finally resolved, and the Second Claim Notice
shall specify the amount of the claim. Each Indemnitor to which or whom a Claim
Notice is given shall respond to any Indemnified Party that has given a Claim
Notice (a "Claim Response") within 30 days (the "Response Period") after the
later of (i) the date that the Claim Notice is given or (ii) if a Claim Notice
is first given with respect to an Unliquidated Claim, the date on which the
Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be
given in accordance with the notice requirements hereunder, and any Claim
Response shall specify whether or not the Indemnitor giving the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the applicable Response Period the amount to which
such Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 11, the Indemnitor and
the Indemnified Party shall seek to resolve such dispute through negotiations
and, if such dispute is not resolved within twenty days, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to 10%.
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11.6 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or if so requested by such Indemnified Party, any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided, however, that such
Indemnified Party shall have the right to participate at its own expense in the
defense of such Action; and provided, further, that the Indemnitor shall not
consent to the entry of any judgment or enter into any settlement, except with
the written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any such Action or (b) grants the
claimant or plaintiff any injunctive relief against the Indemnified Party. Any
failure to give prompt notice under this Section 11.6 shall not bar an
Indemnified Party's right to claim indemnification under this Section 11, except
to the extent that an Indemnitor shall have been harmed by such failure.
11.7 Exceptions to Limitations. Nothing herein shall be deemed to limit or
-------------------------
restrict in any manner any rights or remedies which the Buyer has, or might
have, at law, in equity or otherwise, against either Company or either
Shareholder based on a willful misrepresentation or willful breach of warranty
by either Company or either Shareholder hereunder.
11.8 Effect of Investigation. Any claim for indemnification shall not be
-----------------------
invalid as a result of any investigation by or opportunity to investigate
afforded to Buyer; provided, however, that no claim for indemnification shall be
valid if the matter constituting the basis of the claim was identified with
specificity in the Disclosure Letter.
11.9 Contingent Claims. Nothing herein shall be deemed to prevent an
-----------------
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made; provided, however, that any such potential or contingent claim or
demand must mature into an actual claim or demand not later than three years
after the Closing Date.
12. Termination.
-----------
12.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
(a) by mutual written consent of the Buyer and the Companies;
(b) by either Company or by Buyer, if the Closing has not occurred by
the Termination Date; provided, however, that the right to terminate this
Agreement under this paragraph (b) of Section 12.1 shall not be available to any
party that has breached any of its covenants, representations or warranties in
this Agreement in any material respect (which breach has not been cured);
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(c) by either Company or the Buyer, if there shall be any Regulation
that makes consummation of the Transactions illegal or otherwise prohibited or
if any Court Order enjoining such Company or the Buyer from consummating the
Transactions is entered and such Court Order shall become final and
nonappealable;
(d) by the Buyer, if either Company shall have materially breached
any of its covenants hereunder or if the representations and warranties of
either Company contained in this Agreement or in any certificate or other
writing delivered by such Company pursuant hereto shall not be true and correct
in all material respects, except for such changes as are contemplated by this
Agreement, and, in either event, if such breach is subject to cure, such Company
has not cured such breach within 10 business days of the Buyer's notice of an
intent to terminate; or
(e) by either Company, if the Buyer shall have materially breached
any of its covenants hereunder or if the representations and warranties of the
Buyer contained in this Agreement or in any certificate or other writing
delivered by the Buyer pursuant hereto shall not be true and correct in all
material respects, except for such changes as are contemplated by this
Agreement, and, in either event, if such breach is subject to cure, the Buyer
has not cured such breach within 10 business days of a Company's notice of an
intent to terminate.
12.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 12.1, any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party.
13. Payment of Expenses. Each party hereto shall pay their own expenses for
-------------------
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions; provided, however, that the
-------- -------
Buyer shall pay the expenses incurred by the Company's independent public
accounting firm in connection with the Transactions and up to $100,000 of the
Companies' legal expenses if the Transactions are consummated.
14. Contents of Agreement. This Agreement, together with the other Transaction
---------------------
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters; except for the
Supplemental Agreement dated as of April 6, 1996 between the Companies, the
Shareholders and CRW which will remain in full force and effect.
15. Amendment, Parties in Interest, Assignment, Etc. This Agreement may be
-----------------------------------------------
amended, modified or supplemented only by a written instrument duly executed by
each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. The parties hereto shall execute and deliver any and all
documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
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16. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
17. Remedies. The remedies provided by Section 11 shall constitute the
--------
exclusive remedies for the matters covered thereby. With respect to any matters
not covered by such Section, any party shall be entitled to such rights and
remedies as such party may have at law or in equity or otherwise for any breach
of this Agreement, including the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or diminished
by the remedies provided hereunder.
18. Notices. All notices that are required or permitted hereunder shall be in
-------
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto given in accordance with the foregoing notice procedures:
If to the Buyer:
CRW Financial, Inc.
443 S. Gulph Road
King of Prussia, PA 19406
FAX: 610-962-5109
Attention: J. Brian O'Neill, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Stephen M. Goodman, Esquire
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<PAGE>
If to Harris Fulfillment, Inc., Mr. Idzik or Mr. Schorle:
Harris Fulfillment, Inc.
640 Allendale Road
King of Prussia, PA 19406-1418
FAX: 610-265-2520
Attention: Edward M. Idzik, President
If to Harris:
Harris Direct Marketing, Inc.
2751 Southampton Road
Philadelphia, PA 19154-1269
FAX: 215-698-1041
Attention: Edward M. Idzik, President
with a required copy to (in the case of either Company, Mr. Idzik or Mr.
Schorle):
Barry S. Wildstein, Esq.
Drinker Biddle & Reath
1100 PNB Building
1345 Chestnut Street
Philadelphia, PA 19107
FAX: 215-988-2757
19. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
20. Consent to Jurisdiction; Service of Process, etc.
------------------------------------------------
(a) Each party hereto irrevocably and unconditionally (i) agrees that any
suit, action or other legal proceeding (collectively, "Suit") arising out of
this Agreement may be brought and adjudicated in the United States District
Court for the Eastern District of Pennsylvania or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of competent civil
jurisdiction in Montgomery County, Pennsylvania, (ii) consents and submits to
the non-exclusive jurisdiction of any such court for the purposes of any such
Suit and (iii) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it or he is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper.
(b) Each party hereto also irrevocably consents to the service of any
process, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 18 or by any other method provided or permitted under
applicable law. Each party hereto agrees that final judgment in any Suit (with
all right of appeal having either expired or been waived or exhausted) shall be
conclusive and that the Buyer shall be entitled to enforce such judgment in any
other jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall
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be conclusive evidence of the fact and amount of indebtedness arising from such
judgment.
21. Securities Law Matters.
----------------------
21.1 Economic Risk; Sophistication.
-----------------------------
(a) The Company and each Shareholder represents and warrants that it
or he has not relied on any purchaser representative, or on the Buyer or any
other Shareholder, in connection with the acquisition of shares of Buyer Common
Stock hereunder. The Company and each Shareholder (i) has such knowledge,
sophistication and experience in business and financial matters that it or he is
capable of evaluating the merits and risks of an investment in the shares of
Buyer Common Stock, (ii) fully understands the nature, scope and duration of the
limitations on transfer contained in this Agreement and (iii) can bear the
economic risk of an investment in the shares of Buyer Common Stock and can
afford a complete loss of such investment. The Company and each Shareholder
have had an adequate opportunity to ask questions and receive answers from the
officers of the Buyer concerning any and all matters relating to the
transactions described herein including without limitation the background and
experience of the officers and directors of the Buyer, the plans for the
operations of the business of the Buyer, the business, operations and financial
condition of the Buyer, and any plans for additional acquisitions and the like.
The Company and the Shareholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
(b) The Company and each Shareholder further represents, warrants,
acknowledges and agrees that he or it (i) is acquiring the shares of Buyer
Common Stock under this Agreement for its or his own account, as principal and
not on behalf of other persons, and for investment and not with a view to the
resale or distribution of all or any part of such shares and (ii) will not sell
or otherwise transfer such shares unless, in the opinion of counsel who is
satisfactory to the Company, the transfer can be made without violating the
registration provisions of the 1933 Act, as amended, and the rules and
regulations promulgated thereunder.
(c) The Shareholders and the Companies acknowledge that they have
carefully reviewed the prospectus included in the draft of the Registration
Statement delivered to them by the Buyer on or about May 21, 1996 and have had
the opportunity to discuss with the Buyer any questions or comments they have
with respect to such prospectus.
21.2 Restriction on Resale. The certificates evidencing the Buyer Common
---------------------
Stock to be received by the Company and the Shareholders hereunder will bear a
legend substantially in the form set forth below and containing such other
information as the Buyer may deem appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE
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SKY LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as counsel for
the Buyer reasonably determines are required under the applicable laws of any
state.
21.3 Piggyback Registration.
----------------------
(a) Right to Piggyback. At any time after the Initial Public
------------------
Offering, whenever buyer proposes to register any Buyer Common Stock under the
Securities Act of 1933, as amended, and the registration form to be used may be
used for the registration of Registrable Securities (a "Piggyback
Registration"), the Buyer will give prompt written notice to all holders of
Registrable Securities and will include in such Piggyback Registration, subject
to the allocation provisions below, all Registrable Securities with respect to
which the Buyer has received written requests for inclusion within 20 days after
the Buyer's mailing of such notice.
(b) Piggyback Expenses. In all Piggyback Registrations, the Buyer
------------------
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Buyer, and the managing
underwriters advise the Buyer in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Buyer will allocate the securities to be included as follows: first, the
securities the Buyer proposes to sell on its own behalf; and second, Registrable
Securities requested to be included in such registration by the Selling
Stockholders, pro rata on the basis of the respective Registrable Securities
owned among the Selling Stockholders.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is initiated as an underwritten secondary registration on behalf of holders of
the Buyer's securities and the managing underwriters advise the Buyer in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Buyer will allocate the securities to be
included on a pro rata basis, based on the number of Registrable Securities
owned among the Selling Stockholders.
(e) Selection of Underwriters. The selection of investment banker(s)
-------------------------
and manager(s) and the other decisions regarding the underwriting arrangements
for the offering will be made by the Buyer.
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(f) Indemnification. The Buyer shall indemnify, to the extent
---------------
permitted by law, each Selling Stockholder against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Selling Stockholder expressly for use therein or by such
Stockholder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Buyer has
furnished such Selling Stockholder with a sufficient number of copies of the
same.
(g) Information. In connection with any registration statement in
-----------
which a Selling Stockholder is participating, each such holder will furnish to
the Buyer in writing such information as is reasonably requested by the Buyer
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, the Buyer, its directors and officers and each
person who controls the Buyer (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder specifically for use in preparing the registration statement.
22. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all of
which shall constitute one and the same instrument. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
23. Definitions.
-----------
"Acquisition Base" is defined in Section 3.8.
"Acquisition Transactions" is defined in Section 3.8.
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by either Company.
"Assumed Liabilities" is defined in Section 3.3.
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"Balance Sheet Date" is defined in Section 7.5.
"Benefit Plans" means all employee benefit plans of each Company within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies, arrangements, practices, customs and understandings,
in each case whether formal or informal, that provide benefits of economic value
to any present or former employee of the Company, or present or former
beneficiary, dependent or assignee of any such employee or former employee,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, medical, disability, share purchase or other similar plans,
policies, programs, practices or arrangements.
"Businesses" means the entire existing business and the operations,
facilities and other Assets of the Companies.
"Buyer" is defined above in the preamble.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 4.1.
"Closing Date" is defined in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Buyer Common Stock" is defined in Section 3.7.
"Companies" is defined the preamble.
"Company Balance Sheets" is defined in Section 7.5.
"Confidential Information" means any confidential information or trade
secrets of the Business, including, without limitation, information and
knowledge pertaining to products and services offered, innovations, designs,
ideas, plans, trade secrets, proprietary information, know-how and other
technical information, advertising, distribution and sales methods and systems,
sales and profit figures, customer and client lists, and relationships with
dealers, distributors, wholesalers, customers, clients, suppliers and others who
have business dealings with the Business.
"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is or may be binding on any Person or its property under
applicable law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
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"Court Order" means any judgment, decree, injunction, order or ruling of
any Federal, state, local or foreign court or governmental or regulatory body or
arbitrator or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
"Disclosure Letter" is defined in Section 7.
"Employment Agreements" means the Employment Agreements between the Buyer
and each Shareholder entered into as of the Closing Date in substantially the
forms attached as Exhibits B and C respectively.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 7.17(b).
"Environmental Law" is defined in Section 7.17(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agreement" means the Escrow Agreement among the Companies, the
Buyer and the Escrow Agent attached as Exhibit A hereto.
"Excluded Assets" is defined in Section 3.2.
"Excluded Liabilities" is defined in Section 3.4.
"Financial Statements" is defined in Section 7.5.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law, and (iii)
asbestos, asbestos-containing substances or urea formaldehyde insulation.
"Indemnified Buyer Party" is defined in Section 11.2.
"Indemnified Seller Party" is defined in Section 11.4.
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"Interim Balance Sheets" is defined in Section 7.5.
"Interim Balance Sheet Date" is defined in Section 7.5.
"Intellectual Property" means any Copyrights, Patents, Trademarks, know-
how, trade secrets (including, without limitation, all results of research and
development), product formulae, franchises, inventions, rights-to-use and other
industrial and intellectual property rights.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition, results of operations, liquidity, products,
competitive position, customers or customer relations of the Companies, taken as
a whole.
"Non-Assignable Contracts" is defined in Section 3.5.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
"Patents" means all patents and patent applications.
"Permit" means any governmental permit, license, registration, certificate
of occupancy, approval and other authorization, in each case, other than any
applicable under federal or state securities laws.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Personal Property Leases" is defined in Section 7.9.
"Private Percentages" means the percentage of the outstanding Buyer Common
Stock which will be owned by the Initial Targets (on an aggregate basis with
respect to affiliated Initial Targets) after the consummation of the Acquisition
Transactions but prior to the consummation of the Initial Public Offering and
subject to the adjustments set forth in Section 3.8 hereto.
"Purchase Price" is defined in Section 3.7.
"Purchased Assets" is defined in Section 3.1.
"Real Estate Leases" is defined in Section 7.7.
-36-
<PAGE>
"Real Property" is defined in Section 7.7.
"Registrable Securities" means (i) the shares of Buyer Common Stock issued
in Buyer's initial round of acquisitions and (ii) any securities issued or to be
issued with respect to such securities by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have been (A) effectively registered under the 1933 Act and disposed of in
accordance with the registration statement covering them, or (B) transferred
pursuant to Rule 144 promulgated under such Act (or any similar provision then
in force).
"Registration Expenses" means all expenses incident to the Buyer's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges or
electronic quotation systems on which similar securities issued by the Buyer are
then listed, and fees and disbursements of counsel for the Buyer and of all
independent certified public accountants, underwriters (other than Underwriting
Commissions) and other persons retained by the Buyer.
"Registration Statement" means the Buyer's Registration Statement on Form
S-1 to be filed with the Securities and Exchange Commission registering a
sufficient number of shares of Buyer's capital stock which, based on the minimum
estimated offering price of such shares (as set forth in the prospectus included
in such Registration Statement), upon consummation of the offering described in
the Registration Statement would yield net proceeds sufficient for Buyer to
consummate the acquisitions of the Initial Targets and the Additional Targets.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Selling Stockholders" means registered holders of Registrable Securities
who request inclusion of all or a portion of their shares of Registrable
Securities in a Piggyback Registration pursuant to Section 21.
"Shareholders" is defined in the preamble.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Employment Agreements and
the Escrow Agreement.
"Transactions" means the purchase and sale of the Purchased Assets, the
issuance of the Shares, and the consummation of the other transactions
contemplated by the Transaction
-37-
<PAGE>
Documents.
-38-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
TELESPECTRUM WORLDWIDE INC.
/s/ J. Brian O'Neill
By: ____________________________________
J. Brian O'Neill
Chairman
CRW FINANCIAL, INC.
/s/ J. Brian O'Neill
By: ____________________________________
J. Brian O'Neill
Chairman
HARRIS DIRECT MARKETING, INC.
/s/ Edward Idzik
By: ____________________________________
Edward Idzik
President
HARRIS FULFILLMENT, INC.
/s/ Edward Idzik
By: ____________________________________
Edward Idzik
President
SHAREHOLDERS
/s/ Edward M. Idzik
________________________________________
Edward M. Idzik
/s/ Bruce M. Schorle
________________________________________
Bruce M. Schorle
<PAGE>
EXHIBIT 10.02
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
TELESPECTRUM WORLDWIDE INC.
(a Delaware corporation)
CRW FINANCIAL, INC.
(a Delaware corporation)
DIALDIRECT, INC.
(a Pennsylvania corporation)
INSUREDIRECT AGENCY, INC.
(a Pennsylvania corporation)
DIALDIRECT TELEMARKETING, LTD.
(a Pennsylvania corporation)
TRG/COMMUNICATIONS, INC.
(a Pennsylvania corporation)
THE REICH GROUP, INC.
(a Pennsylvania corporation)
and
MORTON M. REICH
Dated as of April 5, 1996,
as amended and restated as of May 21, 1996
- --------------------------------------------------------------------------------
<PAGE>
Section Page
- ------- ----
1. Reference to Definitions............................................ -1-
------------------------
2. Formation of Acquisition Corp....................................... -1-
-----------------------------
3. Purchase and Sale of the Business and Assets........................ -1-
--------------------------------------------
4. Closing............................................................. -5-
-------
5. Conditions to the Buyer's Obligations............................... -6-
--------------------------------------
6. Conditions to the Companies' and the Shareholder's Obligations...... -7-
---------------------------------------------------------------
7. Representations and Warranties of the Companies and the Shareholder. -8-
-------------------------------------------------------------------
8. Representations and Warranties of the Buyer......................... -18-
-------------------------------------------
9. Certain Agreements.................................................. -19-
------------------
10. Conduct of the Business Prior to the Closing........................ -22-
--------------------------------------------
11. Survival of Representations; Indemnification........................ -24-
--------------------------------------------
12. Termination......................................................... -27-
-----------
13. Payment of Expenses................................................. -28-
-------------------
14. Contents of Agreement............................................... -28-
---------------------
15. Amendment, Parties in Interest, Assignment, Etc..................... -28-
-----------------------------------------------
16. Interpretation...................................................... -29-
--------------
17. Remedies............................................................ -29-
--------
18. Notices............................................................. -29-
-------
19. Governing Law....................................................... -30-
-------------
20. Consent to Jurisdiction; Service of Process, etc.................... -30-
-------------------------------------------------
21. Securities Law Matters.............................................. -30-
----------------------
22. Counterparts........................................................ -32-
------------
23. Definitions......................................................... -33-
-----------
<PAGE>
Exhibits
- --------
A Form of Promissory Note
B Form of Employment Agreement
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of April 5, 1996, as amended and
restated as of May 21, 1996, by and among TeleSpectrum Worldwide Inc., a
Delaware corporation (the "Buyer"), CRW Financial, Inc., a Delaware corporation
("CRW"), DialDirect, Inc., a Pennsylvania corporation, InsureDirect Agency,
Inc., a Pennsylvania corporation, DialDirect Telemarketing, Ltd., a Pennsylvania
corporation, TRG/Communications, Inc., a Pennsylvania corporation and The Reich
Group, Inc., a Pennsylvania corporation, (each a "Company", and collectively,
the "Companies"), and Morton M. Reich (the "Shareholder").
Background
----------
The Companies are engaged in the business of providing direct mail and
telemarketing services. The Shareholder owns all of the issued and outstanding
capital stock of each of the Companies. The Buyer desires to purchase the
Purchased Assets (as defined herein), the Companies desire the Purchased Assets
to be sold, and the Shareholder desires to cause the Companies to sell the
Purchased Assets, all on the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Reference to Definitions. For convenience, certain terms used in this
------------------------
Agreement are listed in alphabetical order and defined or referred to in Section
23 hereof (such terms as well as any other terms defined elsewhere in this
Agreement shall be equally applicable to both the singular and plural forms of
the terms defined).
2. Formation of Acquisition Corp. The parties hereto acknowledge that CRW
-----------------------------
formed the Buyer on April 26, 1996. The parties acknowledge that the Buyer may
form one or more subsidiaries to acquire, own and operate the Business and the
Purchased Assets and that the Buyer may assign its rights under the Agreement to
one or more wholly-owned subsidiaries although it shall retain all of its
obligations and liabilities hereunder.
3. Purchase and Sale of the Business and Assets.
--------------------------------------------
3.1 The Purchased Assets. Each Company, subject to the terms and
--------------------
conditions of this Agreement, shall sell, transfer, convey and deliver to the
Buyer all of such Company's right, title and interest in and to all of the
Assets (the "Purchased Assets") that are not Excluded Assets. The Purchased
Assets include all of the following assets:
(a) the Business;
(b) the Trademarks and trade names of each Company;
(c) cash and cash equivalents, wherever located;
<PAGE>
(d) accounts and notes receivable and rights to payment from any
party for products sold and/or services delivered prior to the Closing;
(e) tangible and intangible personal property however owned, leased,
or held, including machinery, equipment, furniture, fixtures, supplies,
vehicles, inventory and computer hardware and software;
(f) interests under all Contracts related to the Business, subject to
Section 3.5 hereof;
(g) Permits, to the extent assignable;
(h) the goodwill, going concern value, past and present customer and
supplier lists, Intellectual Property (including the goodwill associated
therewith);
(i) prepaid expenses; and
(j) books and records (other than books and records that the
Companies are required by law to retain).
3.2 Excluded Assets. Notwithstanding anything to the contrary in Section
---------------
3.1 hereof, the following Assets (the "Excluded Assets") shall not be included
in the Purchased Assets:
(a) the corporate seal, Charter Documents, bylaws, minute books,
stock books and other corporate records;
(b) refunds or claims for refunds due from federal, state, local and
foreign taxing authorities with respect to taxes paid or to be paid by each
Company or the Shareholder with respect to events occurring on or before the
Closing Date; and
(c) any assets relating to any Benefit Plans maintained by each
Company for any employees.
3.3 Assumed Liabilities. At the Closing, the Buyer shall assume and
-------------------
thereafter in due course timely pay and fully satisfy all Liabilities (the
"Assumed Liabilities"):
(a) incurred after the Closing under all Contracts and Permits that
are conveyed to the Buyer as Purchased Assets pursuant to the terms and
conditions hereof;
(b) any and all Liabilities relating exclusively to the Business that
are (i) reflected on the Company Balance Sheets, (ii) incurred after the date of
the Company Balance Sheets in the ordinary course of business and in accordance
with Section 10 hereof (but with the provisions of Section 10 applied as if the
provisions thereof had been in effect from the close of business on the Balance
Sheet Date through the Closing Date), (iii) the liability to the Shareholder
pursuant to Section 10.4(a)(ii) hereof or (iv) set forth on the Disclosure
Letter; and
(c) all obligations to employees, including payroll, vacation pay,
sick pay and
-2-
<PAGE>
health insurance, to the extent included on the Company Balance Sheet or
incurred after the Balance Sheet Date in the ordinary course of business.
In addition, the Buyer shall take all action necessary to release the
Shareholder from any guarantees of any Liabilities of any Company.
3.4 Excluded Liabilities. Except as expressly set forth in Section 3.3
--------------------
hereof, the Buyer shall not, by virtue of its purchase of the Purchased Assets
or otherwise in connection with the Transactions, assume or become responsible
for any other Liabilities (the "Excluded Liabilities") of any Company, including
(a) Liabilities for any corporate, franchise or income taxes, or (b) Liabilities
from claims arising under any Contract or Permit not assumed by the Buyer
hereunder.
3.5 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by any Company to assign to the Buyer pursuant to this
Agreement any Contract or Permit included in the Purchased Assets which is by
its terms or by Regulation nonassignable without the consent of any other party
or parties, unless such consent or approval shall have been given, or as to
which all the remedies for the enforcement thereof available to such Company
would not by Regulation pass to the Buyer as an incident of the assignments
provided for by this Agreement (a "Non-Assignable Contract"). To the extent
that any such consent or approval in respect of, or a novation of, a Non-
Assignable Contract shall not have been obtained on or before the Closing Date,
the Companies and the Shareholder shall continue to use commercially reasonable
efforts to obtain any such consent, approval or novation after the Closing Date
until such time as it shall have been obtained, and, to the extent permitted by
any Non-Assignable Contract, the Companies shall cooperate with the Buyer in any
economically feasible arrangement to provide that the Buyer shall receive the
applicable Company's benefits under such Non-Assignable Contract, provided that
the Buyer shall undertake to pay or satisfy the corresponding Liabilities under
the terms of such Non-Assignable Contract to the extent that the Buyer would
have been responsible therefor if such consent, approval or novation had been
obtained. The Buyer agrees that the Companies shall not be obligated to seek
the assignment of the Customer Contracts until the financing contingency in
Section 5.7 hereof is satisfied. Notwithstanding any of the foregoing, the
failure of the Companies to obtain consent to any assignment of any Customer
Contract shall not be deemed to be a violation of this Agreement.
3.6 Post-Closing Adjustment to Purchase Price. As soon as practicable,
-----------------------------------------
but in any event within 30 days after the Closing, the Buyer shall engage Arthur
Andersen LLP to prepare, in accordance with GAAP, a balance sheet of each
Company (collectively, the "Closing Date Balance Sheets") as of the end of the
business on the day prior to the Closing Date. If the aggregate shareholders'
equity as shown on the Closing Date Balance Sheets is less than the aggregate
shareholders' equity as shown on the Company Balance Sheet (such amount is
referred to as the "Net Worth Deficiency"), within ten business days after
delivery of the Closing Date Balance Sheets to the Companies, the Companies
shall pay the Buyer by wire transfer of immediately available funds an amount
equal to the Net Worth Deficiency. The determination of "Net Worth Deficiency"
shall not take into consideration the expenses incurred in connection with the
Financing and the expenses of the Companies in connection with the Transactions,
provided that such Transaction expenses will be paid by the Companies out of the
proceeds hereunder. Notwithstanding anything in this Section 3.6 to the
contrary, if there is any Net Worth Deficiency and the Companies dispute any
item contained on the Closing Date Balance
-3-
<PAGE>
Sheets, the Companies shall notify the Buyer in writing of each disputed item
(collectively, the "Disputed Amounts"), and specify the amount thereof in
dispute within ten business days after the delivery of the Closing Date Balance
Sheets. If the Buyer and the Companies cannot resolve any such dispute that
would eliminate or reduce the amount of the Net Worth Deficiency, then such
dispute shall be resolved by an independent nationally recognized accounting
firm reasonably acceptable to the Buyer and the Companies (the "Independent
Accounting Firm"). The determination of the Independent Accounting Firm shall
be made as promptly as practical and shall be final and binding on the parties,
absent manifest error which error may only be corrected by such Independent
Accounting Firm. Any expenses relating to the engagement of the Independent
Accounting Firm shall be allocated between the Buyer and the Companies so that
the Companies' aggregate share of such costs shall bear the same proportion to
the total costs that the Disputed Amounts unsuccessfully contested by the
Companies (as finally determined by the Independent Accounting Firm) bear to the
total of the Disputed Amounts so submitted to the Independent Accounting Firm.
3.7 Payments. In addition to assuming the Assumed Liabilities, the
--------
aggregate price to be paid by the Buyer for the purchase of the Purchased Assets
shall be the sum of $25,000,000 plus the Additional Consideration (the "Purchase
Price"). The Buyer shall pay the Companies the Purchase Price at the Closing by
delivery of (i) $20,000,000 to the Companies by certified or bank check or by
wire transfer of immediately available funds pursuant to written instructions
provided by the Companies to the Buyer, (ii) certificates to the Companies or
the Shareholder representing such number of shares (the "Shares") of the Buyer's
common stock, $.01 par value per share (the "Buyer Common Stock"), with an
aggregate valuation of $5,000,000 (the "Acquisition Stock Value") based on the
Private Percentage in the Company, as determined a set forth in Section 3.8
hereof and (iii) the Promissory Note payable in the amount of the Additional
Consideration in substantially the form attached as Exhibit A hereto.
3.8 Percentage Interests.
--------------------
(a) Private Percentage. Subject to adjustment pursuant to Section
------------------
3.8(b), after specifically giving effect to the acquisition by the Buyer of
those organizations listed on Exhibit 3.8 hereto (the "Initial Targets") and the
consummation of all of the transactions and corporate reorganizations incident
to such acquisitions (collectively, the "Acquisition Transactions"), but prior
to the offering of Buyer Common Stock pursuant to the Registration Statement
(the "Initial Public Offering"), the aggregate number of Shares issuable in the
full amount of the Acquisition Stock Value shall represent 3.42% (the "Reich
Private Percentage") of the aggregate Buyer Common Stock that will be
outstanding immediately after the issuance of the Shares. The Reich Private
Percentage is equal to the percentage obtained from the division of (i) the
Acquisition Stock Value by (ii) the "Acquisition Base." The Acquisition Base
means the sum of (x) the Purchase Price (exclusive of the Additional
Consideration), (y) the aggregate purchase price (exclusive of any contingent
payments) which Buyer has agreed to pay the other Initial Targets at the
closings of the acquisitions of the other Initial Targets and (z) $5,000,000.
The Reich Private Percentage has been calculated on a basis consistent with the
Private Percentages, each of which is set forth opposite the name of each
Initial Target on Exhibit 3.8.
-4-
<PAGE>
(b) Adjustment to Percentages. The Reich Private Percentage shall be
-------------------------
subject to proportionate adjustments based upon the occurrence of any of the
following events:
(i) the acquisition by Buyer of any additional organizations
prior to the Initial Public Offering (the "Additional Targets");
(ii) the failure of Buyer for any reason to consummate the
acquisition of any Initial Target prior to the consummation of the Initial
Public Offering; and
(iii) the issuance of any securities in connection with the
obtaining of financing, the proceeds of which are used to acquire any
Initial Target and/or any Additional Target (whether prior to or in
connection with the consummation of the Initial Public Offering).
With respect to any adjustment pursuant to Sections 3.8(b)(i) and (ii), the
Reich Private Percentage shall be adjusted by adding to the Acquisition Base the
purchase price payable (exclusive of any contingent payments) by the Buyer at
the closing of any such acquisition pursuant to Section 3.8(b)(i) and, with
respect to any Initial Target not acquired by Buyer prior to the consummation of
the Initial Public Offering, subtracting from the Acquisition Base the purchase
price which would have been payable by the Buyer at the closing of any Initial
Target had such Initial Target been acquired by Buyer. No adjustment to the
Reich Private Percentage shall be made pursuant to Section 3.8(b)(iii) unless
the Private Percentages and the percentage of the outstanding Buyer Common Stock
owned by CRW are likewise reduced on a proportionate basis.
3.9 Allocation of Purchase Price. The Purchase Price shall be allocated
----------------------------
among the Purchased Assets and the Companies as mutually agreed by the parties
at or prior to the Closing. Each of the Companies and the Buyer shall prepare
its respective Federal, state and local tax returns employing such allocation
and shall not take a position in any tax proceeding or otherwise that is
inconsistent with such allocation. Each of the Companies, the Shareholder and
the Buyer shall give prompt notice to each other of the commencement of any tax
audit or the assertion of any proposed deficiency or adjustment by any taxing
authority or agency which challenges such allocation.
4. Closing.
-------
4.1 Location, Date. The closing of the Transactions (the "Closing") shall
--------------
take place at the offices of the Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 on or before August 31, 1996, subject to
extension pursuant to Section 9.5 hereof, or at such other place, date and time
as the parties may agree in writing.
The date of the Closing is also sometimes referred to herein as the
"Closing Date."
-5-
<PAGE>
4.2 Closing Deliveries. In connection with the completion of the
------------------
Transactions contemplated in Section 3 hereof, at the Closing,
(a) the Buyer shall deliver or cause to be delivered:
(i) the cash portion of the Purchase Price required to be
delivered to the Companies at the Closing;
(ii) the certificates representing the Shares, registered in the
name of the Companies or their designees;
(iii) the executed Promissory Note;
(iv) its executed counterpart of the Employment Agreement;
(v) instruments of assumption of liabilities, sufficient to vest
in the Buyer the obligation to satisfy the Assumed Liabilities; and
(vi) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(b) the Companies shall deliver or cause to be delivered:
(i) payment instructions regarding the cash portion of the
Purchase Price required to be delivered to the Companies at the
Closing;
(ii) bills of sale and assignment and assumption agreements
transferring all of the Companies' right, title and interest in and to
the Purchased Assets in form and substance satisfactory to the Buyer;
and
(iii) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(c) the Shareholder shall deliver his executed counterpart of the
Employment Agreement.
5. Conditions to the Buyer's Obligations.
--------------------------------------
The obligations of the Buyer to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by the Buyer:
5.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or reasonably deemed subject to reasonably imminent litigation that
prevents the consummation, or challenges the validity or legality, of the
Transactions.
-6-
<PAGE>
5.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of each Company and the Shareholder set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at such time (except to the extent they relate to a particular date,
in which case they shall remain true and correct as of such date) and (b) each
Company and the Shareholder shall have each performed in all material respects
all of the covenants and agreements contained in this Agreement required to be
performed and complied with by them at or prior to the Closing. Each Company
and the Shareholder shall have delivered to the Buyer a certificate signed by
the President of each Company and the Shareholder, in form and substance
reasonably satisfactory to counsel to the Buyer, that each Company and the
Shareholder has performed all covenants and agreements to be performed by it
under this Agreement and as regarding the accuracy of their representations and
warranties contained herein as of the Closing Date.
5.3 Legal Opinion. The Companies and the Shareholder shall have tendered
-------------
a legal opinion of Cozen and O'Connor, counsel to the Companies and the
Shareholder, that is reasonably acceptable to counsel to the Buyer.
5.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of the Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
5.5 Required Consents. Subject to Section 3.5 hereof, all Required
-----------------
Consents shall have been obtained on terms and conditions reasonably
satisfactory to the Buyer.
5.6 Due Diligence. Subject to the restrictions set forth in Section 9.10
-------------
hereof, within 60 days after the date of execution of this Agreement, the Buyer
shall have the right to complete a due diligence review of the Companies.
5.7 Financing. The Buyer shall have obtained financing in the amount of
---------
$50 million for the consummation of the Transactions contemplated hereby (the
"Financing").
5.8 Required Tender. The Shareholder and the Companies shall have
---------------
tendered or caused the tender of the items set forth in Sections 3.2 (b) and (c)
hereof.
6. Conditions to the Companies' and the Shareholder's Obligations.
---------------------------------------------------------------
The obligations of each Company and the Shareholder to effect the Closing
shall be subject to the satisfaction at or prior to the Closing of the following
conditions, any one or more of which may be waived by such parties:
6.1 No Injunction. No Court Order or Litigation shall be pending or
-------------
reasonably deemed subject to reasonably imminent litigation that prevents the
consummation, or challenges the validity or legality, of the Transactions.
6.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Buyer set forth in this Agreement shall be true and
complete in all material respects as of the Closing Date as though made at such
time (except to the extent they relate to
-7-
<PAGE>
a particular date, in which case they shall remain true and correct as of such
date) and (b) the Buyer shall have performed in all material respects all of the
covenants and agreements contained in this Agreement required to be performed
and complied with by it at or prior to the Closing. The Buyer shall have
delivered a certificate signed by the President of the Buyer, in form and
substance reasonably satisfactory to counsel to the Companies and the
Shareholder, that the Buyer has performed all covenants and agreements to be
performed by it under this Agreement and as regarding the accuracy of its
representations and warranties contained herein as of the Closing Date.
6.3 Legal Opinion. The Buyer shall have tendered a legal opinion of
-------------
Morgan, Lewis & Bockius LLP, counsel to the Buyer, that is reasonably acceptable
to counsel to the Companies and the Shareholder.
6.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of the Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
6.5 Required Tender. The Buyer shall have tendered or caused the tender
---------------
of the items set forth in Section 3.2(a) hereof.
7. Representations and Warranties of the Companies and the Shareholder. Each
-------------------------------------------------------------------
Company and the Shareholder hereby jointly and severally represents and warrants
to the Buyer that, except as set forth in a letter to be provided to the Buyer
within 14 days after the execution of this Agreement, executed by each Company
and the Shareholder, addressed and delivered to the Buyer and containing
information required by this Agreement and exceptions to the representations and
warranties of each Company and the Shareholder under this Agreement (the
"Disclosure Letter"):
7.1 Corporate Status. Each Company is a corporation duly organized,
----------------
validly subsisting and in good standing under the laws of the Commonwealth of
Pennsylvania and is qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where it is required to be so qualified. The
Charter Documents and bylaws of each Company that have been delivered to the
Buyer are effective under applicable Regulations and are current, correct and
complete.
7.2 Authorization. Each Company has the requisite power and authority to
-------------
own its property and carry on the Business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by the Companies have been duly authorized by all necessary
corporate action. The Shareholder has the requisite power, capacity, legal
right and authority to execute and deliver the Transaction Documents to which he
is a party and to perform the Transactions to be performed by him thereunder.
Each Transaction Document executed and delivered by such Company has been duly
executed and delivered by such Company and constitutes a valid and binding
obligation of such Company, enforceable against it in accordance with its terms
except to the extent that such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, or other laws
relating to creditors' rights generally or subject to general principles of
equity. Each Transaction
-8-
<PAGE>
Document to be executed and delivered by the Shareholder will be duly executed
and delivered by him and will constitute a valid and binding obligation of him,
enforceable against him in accordance with its terms except to the extent that
such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, or other laws relating to creditors' rights
generally or subject to general principles of equity.
7.3 Consents and Approvals. Except for the consents specified on the
----------------------
Disclosure Letter (the "Required Consents"), neither the execution and delivery
by each Company or the Shareholder of the Transaction Documents to which it or
he is a party, nor the performance of the Transactions to be performed by each
Company or the Shareholder thereunder, will require any filing, consent or
approval, or constitute a Default under (a) any Regulation or Court Order to
which such Company or the Shareholder is subject, (b) the Charter Documents or
bylaws of each Company or (c) any Contract, Government Permit or other document
to which any Company is a party or by which the Business or Assets may be
subject.
7.4 Stock Ownership. The Shareholder owns all of the issued and
---------------
outstanding capital stock of each Company.
7.5 Financial Statements. The Disclosure Letter includes correct and
--------------------
complete copies of the Companies' audited financial statements consisting of a
combined balance sheet of the Companies as of December 31, 1993, 1994 and 1995
and the related combined statements of income, retained earnings and cash flows
for the years then ended (the "Audited Financial Statements"), each of which was
audited by the firm of Arthur Andersen LLP. The Companies will deliver correct
and complete copies of the Companies' combined unaudited financial statements
consisting of a combined balance sheet of the Companies as of the end of the
quarter ended March 31, 1996 and the related combined statements of income and
cash flow for the period then ended (the "Unaudited Financial Statements," and
together with the Audited Financial Statements, the "Financial Statements").
The Audited Financial Statements are, and the Unaudited Financial Statements
will be, consistent with the books and records of the Companies, and there are
no material transactions required by GAAP to be recorded in accounting records
that have not been or will not be recorded in the accounting records underlying
such Financial Statements. The Financial Statements have been, and the
Unaudited Financial Statements will be, prepared in accordance with GAAP
consistently applied and present fairly the financial position and assets and
liabilities of the Companies as of the dates thereof and their cash flows and
the results of operations for the years and periods then ended, subject to
normal recurring year-end adjustments and the absence of notes in the case of
the Unaudited Financial Statements. The combined balance sheet of the Companies
as of December 31, 1995 that is included in the Financial Statements is referred
to herein as the "Company Balance Sheet" and the date thereof is referred to as
the "Balance Sheet Date."
7.6 Title to Assets and Related Matters. Each Company has good and
-----------------------------------
sufficient title to, valid leasehold interests in or valid licenses to use, all
of the Purchased Assets, free from any material Encumbrances except those
specified on the Disclosure Letter. The use of the Purchased Assets is not
subject to any material Encumbrances (other than those specified in the
preceding sentence), and to the knowledge of each Company and the Shareholder,
such use does not materially encroach on the property or rights of anyone else.
All Purchased Assets are in the possession or under the control of the Companies
and consist of all of the Assets necessary to
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operate the Business as now being operated. Except as set forth on the
Disclosure Letter or in the Financial Statements, all of the tangible personal
property included in the Assets (a) is in good working condition and reasonable
repair, subject to normal wear and tear, (b) is usable in the ordinary course of
business and (c) conforms in all material respects with all applicable
Regulations relating to its construction, use and operation. Except for those
items subject to the Personal Property Leases, no Person other than the
Companies owns any vehicles, equipment or other tangible assets located on the
Real Property that are used by the Companies in the Business (other than
immaterial items of personal property owned by the Companies' employees) or that
are necessary for the operation of the Business.
7.7 Real Property. None of the Companies owns any real estate. The
-------------
Disclosure Letter describes all real estate currently used in the operation of
the Business as well as any other real estate that is in the possession of or
leased by any Company (collectively, the "Real Property"), and lists any leases
under which any such Real Property is possessed by any Company or leased by any
Company to others (the "Real Estate Leases"). To the knowledge of each Company
and the Shareholder, all of the buildings and structures on the Real Property,
and all of the heating, ventilating, air conditioning, plumbing, sprinkler,
electrical and drainage systems, elevators and roofs, and all other fixtures,
equipment and systems at or serving such Real Property are generally in good
condition, repair and working order and are generally adequate for the present
use of the Real Property by the Companies in conducting the Business. No
Company has knowledge that any governmental body having jurisdiction over any
Real Property intends to exercise the power of eminent domain or a similar power
with respect to all or any part of the Real Property. No Company has received
any notice from any insurance company that has issued a policy with respect to
any of the Real Property or from the Landlord claiming any material defects or
deficiencies in any of the Real Property or suggesting or requesting the
performance of any material repairs, alterations or other work to any of the
Real Property that would be the responsibility of any Company under the Lease.
7.8 Certain Personal Property. The Companies have delivered to the Buyer
-------------------------
a complete fixed asset schedule, describing and specifying the location of all
items of tangible personal property that are included in the Company Balance
Sheet. Except as listed on the Disclosure Letter, since the Balance Sheet Date,
no Company has (a) acquired any items of tangible personal property that have
cost in excess of $25,000 or (b) disposed of any items of tangible personal
property (other than inventory) that had an initial cost in excess of $25,000.
7.9 Personal Property Leases. The Disclosure Schedule lists all assets
------------------------
and property (other than Real Property) that have been used in the operation of
the Business and that are possessed by any Company under an existing lease,
including all automobiles, equipment, furniture and computers, except for any
lease under which the aggregate annual payments are less than $10,000 (each, an
"Immaterial Lease"). The Disclosure Letter also lists the leases under which
such assets and property listed on the Disclosure Letter are possessed. All of
such leases (excluding "Immaterial Leases") are referred to herein as the
"Personal Property Leases."
7.10 Accounts Receivable. The accounts receivable of each Company are bona
-------------------
fide accounts receivable created in the ordinary course of business and are not
subject to defenses, set-offs or counterclaims and are good and collectible at
the aggregate recorded amounts thereof (in each case, net of the reserves for
such items included in the Company Balance Sheet). The
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Disclosure Letter includes a correct and complete accounts and notes receivable
aging of the Companies as of the Balance Sheet Date reflecting the aggregate
dollar amount of all accounts and notes receivable due any Company that have
been outstanding for: 30 days or less; more than 30 but less than 61 days; more
than 60 but less than 91 days; and more than 90 days.
7.11 Inventory. No Company has any inventory, other than office supplies
---------
used by such Company in the ordinary course of business.
7.12 Accounts Payable. All accounts payable as set forth on the Company
----------------
Balance Sheet or arising since the date thereof have been incurred in the
ordinary course of business.
7.13 Product Warranties and Price Guarantees. The Disclosure Letter sets
---------------------------------------
forth all express product warranties and price guarantees made by any Company.
7.14 Liabilities. Except as specified on the Disclosure Letter, no Company
-----------
has any Liabilities, and none of the Purchased Assets are subject to any
Liabilities, except (a) as specifically disclosed on the Company Balance Sheet,
(b) Liabilities incurred in the ordinary course since the Balance Sheet Date and
(c) Liabilities under any Contracts specifically disclosed on the Disclosure
Letter (or not required to be disclosed because of the term or amount involved)
that were not required under GAAP to have been specifically disclosed or
reserved for on the Company Balance Sheet or in the notes thereto.
7.15 Taxes. Each Company has duly filed all Federal, state, local, foreign
-----
and other tax returns that are required to be filed and the due date of which,
taking extensions into account (which shall be disclosed on the Disclosure
Letter), was prior to the Closing Date, and have paid all taxes and assessments
shown as being due pursuant to such returns or pursuant to any assessment
received. All taxes and other assessments and levies that each Company has been
required by law to withhold or to collect have been duly withheld and collected
and have been paid over to the proper governmental authorities or are properly
held by such Company for such payment. There are no proceedings or other
actions for the assessment or collection of additional taxes of any kind for any
period for which returns have or should have been filed.
7.16 Subsidiaries. None of the Companies owns, directly or indirectly, any
------------
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
7.17 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as disclosed on the Disclosure Letter, there is no
Litigation pending or, to the knowledge of each Company and the Shareholder,
threatened against or related to the Companies. Except as disclosed on the
Disclosure Letter, there has been no Default under any Regulation applicable to
any Company, the Assets or the Business, including any Regulation relating to
pollution or protection of the environment, except for any Defaults that have
been cured without material cost or that would not have a Material Adverse
Effect, and no Company has received any notices from any governmental entity
regarding any alleged Default under any Regulation except those that have been
cured without material cost or that would not have a
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Material Adverse Effect. There has been no Default with respect to any Court
Order applicable to any Company.
(b) Without limiting the generality of Section 7.17(a) hereof, except
as described on the Disclosure Letter, there has not been any Environmental
Condition (i) at any premises at which the Business of the Companies (or any
predecessor of the Companies) is currently conducted, (ii) at any property
owned, leased or operated at any time by any Company (or to the knowledge of
each Company and the Shareholder), any predecessor of a Company) or any Person
controlled by any Affiliate of a Company or (iii) at any property at which
wastes have been deposited or disposed by or at the behest or direction of a
Company (or to the knowledge of each Company and the Shareholder, any
predecessor of a Company) or any Person controlled by any Affiliate of a
Company, nor has any Company received written notice of any such Environmental
Condition. "Environmental Condition" means any condition or circumstance,
including the presence of Hazardous Substances, whether created by any Company
(or any predecessor of a Company) or any third party, at or relating to any such
property or premises that would (i) require abatement or correction under an
Environmental Law, (ii) give rise to any civil or criminal liability under an
Environmental Law or (iii) create a public or private nuisance. "Environmental
Law" means all Regulations and Court Orders relating to pollution or protection
of the environment as well as any principles of common law under which a Person
may be held liable for the release or discharge of any materials into the
environment.
(c) The Companies have delivered to the Buyer correct and complete
copies of any written reports, studies or assessments in the possession or
control of any Company or the Shareholder that relate to any Environmental
Condition. The Shareholder knows of no other written reports, studies or
assessments, whether or not in the possession or control of any Company or the
Shareholder, that relate to any Environmental Condition.
(d) Except in those cases where the failure to do so would not have a
Material Adverse Effect, (i) each Company has obtained and is in full compliance
with all Permits, all of which are listed on the Disclosure Letter along with
their respective expiration dates, that are required for the ownership of the
Assets or operation of the Business and Assets as currently operated, (ii) all
of the Permits are currently valid and in full force and (iii) each Company has
filed such timely and complete renewal applications as may be required with
respect to its Permits. To the knowledge of any Company or the Shareholder, no
revocation, cancellation or withdrawal of a Permit has been threatened.
7.18 Contracts.
---------
(a) The Disclosure Letter lists each current Contract of the following
types to which any of the Companies is a party or by which any of the Companies
is bound:
(i) Contracts with any present shareholder, director, officer,
employee, partner or consultant or with any Affiliate of the
Shareholder;
(ii) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third
party, in excess of $10,000 with respect to any one supplier or other
party;
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(iii) Contracts to sell or supply products, inventory or other
property to, or to perform services for, a third party, that involve
an amount in excess of $25,000 with respect to any one customer or
other party;
(iv) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(v) Contracts limiting or restraining it from engaging or
competing in any lines or business with any Person;
(vi) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(vii) Contracts to lease to or to operate for any other party
any asset that involve an amount in excess of $10,000 in any
individual case (other than Real Estate Leases and Personal Property
Leases identified on the Disclosure Letter);
(viii) Any notes, debenture, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers, directors,
partners or stockholders or with Affiliates of the Shareholder or any
members of their immediate families), or agreements or arrangements
for a line of credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other Person;
(ix) Contracts creating or recognizing any Encumbrances with
respect to any Assets;
(x) Contracts with distributors, manufacturers sales
representatives or other sales agents;
(xi) Contracts relating in whole or in part to any software,
technical assistance or other know-how or other Intellectual Property
right;
(xii) Contracts for any capital expenditure or leasehold
improvement in excess of $10,000; and
(xiii) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and
those described in any of (i) through (xii) above) not made in the
ordinary course of business or which are material to the Business or
the Assets.
(b) No Company is in Default under any Contract. To the knowledge of any
Company or the Shareholder, no Company has received any communication from, or
given any
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<PAGE>
communication to, any other party indicating that such Company or such other
party, as the case may be, is in Default under any Contract. To the knowledge
of any Company the Shareholder, none of the other parties to any such Contract
to which a Company is a party is in Default thereunder.
7.19 Insurance. The Disclosure Letter lists all current policies or
---------
binders of insurance held by or on behalf of any Company or relating to the
Business or any of the Assets, specifying with respect to each policy the
insurer, the type of insurance, the amount of the coverage, insured, the
expiration date, the policy number and any pending claims thereunder. There is
no Default with respect to any such policy or binder, nor has there been any
failure to give any notice or present any claim under any such policy or binder
in a timely fashion or in the manner or detail required by the policy or binder,
except for any of the foregoing that would not, individually or in the
aggregate, have a Material Adverse Effect. There is no notice of nonrenewal or
cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by any Company, except for any of the
foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect.
7.20 Intellectual Property and Software Products. No Company currently
-------------------------------------------
uses in the operation of the Business (including in the development or marketing
of products and services) any Copyright, Patent or Trademark except for those
listed on the Disclosure Letter. Except as listed on the Disclosure Letter, any
Company owns or has the lawful right to use all Intellectual Property that is
used or necessary for the operation of the Business. All of the Intellectual
Property listed on the Disclosure Letter is owned by any Company or Companies
free and clear of any Encumbrances, or is used pursuant to an agreement that is
described on the Disclosure Letter. To the knowledge of each Company and the
Shareholder, no Company infringes upon or unlawfully or wrongfully uses any
Intellectual Property rights owned or claimed by another Person. No Company has
received any notice of any claim of infringement or any other claim or
proceeding, with respect to any such Intellectual Property. No current or
former employee of any Company and no other Person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, and
including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
7.21 Employee Relations.
------------------
(a) Except as described on the Disclosure Letter, none of the
Companies is (i) a party to or otherwise bound by any collective bargaining or
other type of union agreement, (ii) a party to, involved in or, to the knowledge
of each Company and the Shareholder, threatened by, any labor dispute or unfair
labor practice charge or (iii) currently negotiating any collective bargaining
agreement, and no Company has experienced any work stoppage during the last
three years. The Disclosure Letter sets forth the names and current annual
salary rates or current hourly wages of all present salaried employees of the
Companies with annual salaries of at least $30,000.
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<PAGE>
(b) Each Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and are not engaged in any unfair labor practice. There are no
outstanding claims against any Company (whether under Regulation, Contract,
policy, or otherwise) asserted by or on behalf of any present or former employee
or job applicant of any Company on account of or for (i) overtime pay, other
than overtime pay for work done in the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) any amount of
vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the respective vacation year,
(iv) any amount of severance pay or similar benefits, (v) workers' compensation
or disability benefits, which claim has not been resolved, (vi) any violation of
any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including The Workers Adjustment and
Retraining Act, (vii) any violation of any statute, ordinance, order, rule or
regulations relating to employee "whistleblower" or "right-to-know" rights and
protection, (viii) any violation of any statute, ordinance, order, rule or
regulations relating to the employment obligations of federal contractors or
subcontractors or (ix) any violation of any Regulation relating to minimum wages
or maximum hours of work, and neither any Company nor the Shareholder is aware
of any such claims that have not been asserted. Except as set forth on the
Disclosure Letter, no Person (including any governmental body) has asserted or,
to the knowledge of any Company or the Shareholder, threatened any claims
against any Company under or arising out of any Regulation relating to
discrimination or occupational safety in employment or employment practices.
7.22 ERISA.
-----
(a) The Disclosure Letter contains a complete list of all Benefit
Plans sponsored or maintained by each Company or under which a Company may be
obligated. The Companies have delivered to the Buyer, to the extent applicable,
(i) accurate and complete copies of all Benefit Plan documents and all other
documents relating thereto, including all summary plan descriptions, summary
annual reports for the last year and insurance contracts, (ii) accurate and
complete detailed summaries of all unwritten Benefit Plans, (iii) accurate and
complete copies of the most recent financial statements with respect to all
Benefit Plans for which financial statements or actuarial reports are required
or have been prepared and (iv) accurate and complete copies of all annual
reports for all Benefit Plans (for which annual reports are required) prepared
within the last three years. Each Benefit Plan providing benefits that are
funded through a policy of insurance is indicated by the word "insured" placed
by the listing of the Benefit Plan on the Disclosure Letter.
(b) All Benefit Plans conform (and at all times have conformed) to,
and are being administered and operated (and at all times have been administered
and operated) in compliance with, the requirements of ERISA, the Code and all
other applicable Regulations. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all Benefit Plans
have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Benefit Plans, that could subject the Company
to any penalty or tax imposed under the Code or ERISA.
(c) Except as set forth on the Disclosure Letter, any Benefit Plan
that is intended
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to be qualified under Section 401(a) of the Code and exempt from tax under
Section 501(a) of the Code has been determined by the Internal Revenue Service
to be so qualified, and such determination remains in effect and has not been
revoked. To the knowledge of the each Company or the Shareholder, nothing has
occurred since the date of any such determination that would affect adversely
such qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under the Code or ERISA with respect
to any Benefit Plan.
(d) No Company has any defined benefit plans subject to Title IV of
ERISA, nor do they have any current or contingent obligation to contribute to
any multiemployer plan (as defined in Section 3(37) of ERISA). No Company has
any liability with respect to any employee benefit plan (as defined in Section
3(3) of ERISA) other than with respect to the Benefit Plans. For purposes of
this Section 7.22(d), the term "Company" shall include any corporation that is a
member of any controlled group of corporations (as defined in Section 414(b) of
the Code) that includes such Company, any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with the Company, any organization (whether or not incorporated) that is a
member of an affiliated service group (as defined in Section 414(m) of the Code)
that includes the Company and any other entity required to be aggregated with
the Company pursuant to the regulations issued under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of any Company or the
Shareholder, threatened claims by or on behalf of any Benefit Plans, or by or on
behalf of any individual participants or beneficiaries of any Benefit Plans,
alleging any breach of fiduciary duty on the part of any Company or any of their
respective officers, directors or employees under ERISA or any other applicable
Regulation, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of each Company and the
Shareholder, any basis for any such claim. To the knowledge of each Company and
the Shareholder, the Benefit Plans are not the subject of any investigation,
audit or action by the Internal Revenue Service, the Department of Labor or the
Pension Benefit Guaranty Corporation ("PBGC").
(f) Each Company has made all required contributions under the
Benefit Plans, including the payment of any premiums payable to the PBGC and
other insurance premiums on a timely basis, or such contributions are properly
accrued on the Financial Statements.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in compliance with all applicable requirements
pertaining to such deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a Welfare Plan, there
is no disqualified benefit (within the meaning of Section 4976(b) of the Code)
that would result in the imposition of a tax under Section 4976(a) of the Code,
(iii) any Benefit Plan that is a group health plan (within the meaning of
Section 4980B(g)(2) of the Code) complies, and in each and every case has
complied, with all of the requirements of Section 4980B of the Code, ERISA,
Title XXII of the Public Health Service Act and the applicable provisions of the
Social Security Act and (iv) all Welfare Plans may be amended or terminated by
each Company at any time on
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or after the Closing Date.
7.23 Absence of Certain Changes. Except as contemplated by this Agreement
--------------------------
or as set forth on the Disclosure Letter, since the Balance Sheet Date, each
Company has conducted the Business in the ordinary course and there has not been
with respect to any Company.
(a) any material adverse change in the Business, Assets or
Liabilities;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividend, purchase or redemption of shares or otherwise;
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
(d) any sale, assignment or transfer of any material Assets, or any
additions to or transactions involving any material Assets, other than those
made in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any material debt held;
(f) any payment to any Affiliate of any Company, except as specified
on the Disclosure Letter;
(g) any change in the accounting policies followed by any Company or
the method of applying such principles; or
(h) any capital expenditure commitment involving in any individual
case, or series of related cases, more than (i) $25,000 or (ii) an amount that
would cause the sum of all such capital expenditure commitments to exceed
$50,000.
7.24 Customers. Each Company has used its reasonable business efforts to
---------
maintain good working relationships with all of its customers. The Disclosure
Letter contains a list of the names of each of the five customers that, for the
year ended December 31, 1995, were the largest dollar volume customers of
products and services sold and provided by the Companies as a whole. Each
Company will give prompt notice to the Buyer if it receives a notice of
termination of any Contract with a customer.
7.25 Finder's Fees. No Person retained by the any Company or the
-------------
Shareholder is or will be entitled to any commission or finder's or similar fee
in connection with the Transactions.
7.26 Purchase for Investment. The Companies or their designees are
-----------------------
acquiring the Shares for investment purposes only and are not acquiring them
with an intent to distribute or resell them in violation of applicable Federal
or state securities laws; provided that the shares will be distributed to the
Shareholder upon liquidation of the Companies.
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<PAGE>
7.27 Additional Information. The Disclosure Letter accurately lists the
----------------------
following:
(a) the names of all officers and directors of each Company;
(b) the names and addresses of every bank or other financial
institution in which any Company maintains an account (whether checking, saving
or otherwise), lock box or safe deposit box, and the account numbers and names
of the Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of each Company;
(d) the names of all Persons holding powers of attorney from any
Company and a summary statement of the terms thereof; and
(e) all names under which each Company has conducted any Business or
which any has otherwise used at any time during the past five years.
7.28 Transactions with Affiliates. Except as set forth on the Disclosure
----------------------------
Letter, no Affiliate of the Shareholder or any member of his immediate family,
owns or has a controlling ownership interest in any corporation or other entity
that is a party to any Contract with respect to the Assets or Business.
7.29 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by each Company
or the Shareholder in this Agreement, the Disclosure Letter, the Exhibits to
this Agreement, any other Transaction Document or in any of the documents,
certificates and instruments delivered or to be delivered by each Company or the
Shareholder pursuant to this Agreement and neither any Company nor the
Shareholder has omitted to state any fact necessary to make statements made
herein or therein not materially misleading.
8. Representations and Warranties of the Buyer. The Buyer hereby represents
-------------------------------------------
and warrants to each Company and the Shareholder as follows:
8.1 Corporate Status. The Buyer is a corporation duly organized, validly
----------------
subsisting and in good standing under the laws of the State of Delaware. The
Buyer has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions to
be performed by it thereunder, and such execution, delivery and performance by
it have been duly authorized by all necessary corporate action.
8.2 Enforceability. The Transaction Documents to which the Buyer is a
--------------
party constitute valid and binding obligations of the Buyer, enforceable against
it in accordance with their terms except to the extent that such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, or other laws relating to creditors' rights generally or subject to
general principles of equity.
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8.3 Consents and Approvals. Neither the execution and delivery by the
----------------------
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which it is subject, (b) its Charter Documents or bylaws or (c) any
Contract, Permit or other document to which it is a party or by which its
properties or other assets may be subject.
8.4 Stock Ownership; Valuation. The total authorized capital stock of
--------------------------
the Buyer consists of 200,000,000 shares of Buyer Common Stock (of which
8,510,000 shares are issued and outstanding) and 5,000,000 shares of preferred
stock, par value $.01 per share (of which no shares are outstanding). All of
the shares of the Buyer issued to the Companies are duly and validly authorized
and issued, fully paid and non-assessable. Upon completion of the Transactions
at the Closing, the Companies or their designees shall receive valid title to
all of the Shares, free and clear of all Encumbrances (other than restrictions
imposed generally by applicable securities laws).
8.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions, except for Legg Mason Wood & Walker, whose fee shall be paid by
the Buyer.
8.6 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Buyer in
this Agreement, the Exhibits to this Agreement or in any of the documents,
certificates and instruments delivered or to be delivered by the Buyer pursuant
to this Agreement and the Buyer has not omitted to state any fact necessary to
make statements made herein or therein not materially misleading.
9. Certain Agreements.
------------------
9.1 Access. Between the date of this Agreement and the Closing Date, each
------
Company shall, upon reasonable notice from the Buyer (a) give the Buyer and its
authorized representatives and legal counsel reasonable access to all
properties, books, Contracts, Assets and records of such Company, (b) permit the
Buyer to make inspections thereof and (c) cause its officers and its advisors to
furnish the Buyer with such financial and operating data and other information
with respect to the Business and to discuss with the Buyer and its authorized
representatives and legal counsel the affairs of each Company, all as the Buyer
may from time to time reasonably request. After the Closing Date, the Buyer
shall provide the Shareholder and his authorized representatives reasonable
access to all tax returns, books and records of the Business as may be required
for the Shareholder or a Company to comply with any laws or regulations.
9.2 Regulatory Matters. The Companies and the Buyer shall (a) file with
------------------
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the Transactions and (b)
cooperate with each other as they may reasonably request in connection with the
foregoing.
9.3 Exclusivity. From the date hereof until the earlier of the Closing or
-----------
the termination of this Agreement, neither any of the Companies nor the
Shareholder nor any of their respective agents shall, directly or indirectly,
solicit or negotiate or enter into any agreement with
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any other Person, or provide any nonpublic information to any other Person, with
respect to or in furtherance of any proposal for a merger or business
combination involving, or acquisition of any interest in, or (except in the
ordinary course of business) sale of assets by, any Company, except for the
acquisition of the Purchased Assets by the Buyer.
9.4 Update Disclosure Letter. Between the date of the Disclosure Letter
------------------------
and the Closing Date, each Company and the Shareholder shall promptly disclose
to the Buyer in writing any information set forth on the Disclosure Letter that
is no longer applicable and any information of the nature of that set forth on
the Disclosure Letter that arises after the date hereof and that would have been
required to be included on the Disclosure Letter if such information had been
obtained on the date of delivery thereof.
9.5 Best Efforts; Termination. Each party shall use its best efforts to
-------------------------
cause all conditions to the performance of the parties hereto that are within
its control to be satisfied and the Transactions consummated as soon as
reasonably practicable after the date of this Agreement. If the Transactions
are not consummated on or before August 31, 1996, this Agreement may be
terminated by any of the parties hereto, subject to Section 13 hereof; provided,
however, that if the Registration Statement has been filed with the Securities
and Exchange Commission by August 31, 1996, the Buyer may, by notice to the
Companies and the Shareholder, defer the Closing until the Financing is
complete, but not later than October 31, 1996 (the "Termination Date").
9.6 Financial Information. Until the Closing, the Companies shall provide
---------------------
the Buyer, by the fifteenth day of each month, with an unaudited combined
balance sheet and income statement of the Companies as of and for the previous
month, certified by the chief financial officer of each Company.
9.7 Restrictive Covenants.
---------------------
(a) The Shareholder covenants that for the period ending five years
after the Closing Date, he will not, without the prior written consent of the
Buyer, directly or indirectly, own, manage, operate, control, finance or
participate in the ownership, management, operation, control or financing of, or
participate as a partner, principal, agent, representative, consultant or
otherwise with or use or permit his name to be used in connection with, any
business or enterprise engaged directly or indirectly in competition with the
business conducted by the Buyer at any time during such period within any
portion of the United States in the direct marketing business which includes
inbound and outbound telemarketing, fulfillment, direct mail and customer
retention (the "Restricted Business"). It is recognized by the Buyer and the
Shareholder that the Restricted Business is and is expected to continue to be
conducted throughout the United States and that more narrow geographical
limitations of any nature on this non-competition covenant (and the non-
solicitation covenant set forth in Section 9.7(b) hereof) are therefore not
appropriate. The foregoing restriction shall not be construed to prohibit the
shareholder from (i) the owning as a passive investment of not more than five
percent (5%) of any class of securities of any corporation engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Securities Exchange Act of 1934, or (ii) engaging in any business in which the
Restricted Business is ancillary to the business conducted by the Shareholder.
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(b) The Shareholder further covenants that for the period ending five
years after the Closing Date, he will not, either directly or indirectly, (i)
call on or solicit any Person who or which within the past two years has been a
customer with respect to the Restricted Business with respect to the activities
prohibited by Section 9.7(a) hereof or (ii) solicit the employment of any person
who is employed by the Buyer in connection with the Business during such five
year period on a full or part-time basis.
(c) The Shareholder recognizes and acknowledges that by reason of his
ownership of and employment by the Companies he has had access to Confidential
Information relating to the Restricted Business. The Shareholder acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the Closing
Date to any person for any reason whatsoever, unless such information (i) is in
the public domain through no wrongful act of the Shareholder, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The Shareholder acknowledges that the restrictions contained in
this Section 9.7 are reasonable and necessary to protect the legitimate
interests of the Buyer and that any violation will result in irreparable injury
to the Buyer.
(e) The Shareholder agrees that the Buyer shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 9.7, which rights
shall be cumulative and in addition to any other rights or remedies to which the
Buyer may be entitled. In the event that any of the provisions of this Section
9.7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
9.8 Required Consents. Each Company and the Shareholder shall use its
-----------------
best efforts to take, or cause to be taken, such action to execute and deliver,
or cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable to
obtain the Required Consents; provided that the failure of any Company to obtain
consent to any assignment of any customer Contract shall not be deemed to be a
violation of this Agreement.
9.9 Nondisclosure. The Buyer agrees not to (i) disclose the fact that the
-------------
Companies and the Shareholder are involved in the Transactions or in the
Financing or (ii) contact any nonexecutive employees or customers of any Company
until circulation of a prospectus included as a part of the Registration
Statement, after the Buyer has received an initial round of comments from the
Securities and Exchange Commission, or as otherwise required by law.
9.10 Covenant to Continue Business. To permit the Shareholder and the
-----------------------------
Companies to have the opportunity to achieve the Additional Consideration, the
Companies and the Buyer agree that, at least through December 31, 1996, the
Companies' operations shall be continued in substantially the same manner as
conducted prior to the Closing and that the Shareholder shall
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have operating control of the Reich Sub, including supervision of all employees.
In furtherance of such business and operations, the Buyer agrees not to sell,
convert or otherwise dispose of material capital or intangible assets (including
property, plant, equipment, contracts) without the prior written consent of the
Shareholder. The Buyer will make no attempt to hamper, divert or redirect to
any other organizations any sales created by the Reich Sub.
9.11 CRW Market Research. On or prior to the Closing, CRW shall
-------------------
wind down the operation of its Market Research Division and use its best efforts
to make available the employees of such division for employment with The
Response Center, Inc.
9.12 Lock-Up Agreements. In connection with the Initial Public Offering,
------------------
for good and valuable consideration, each Company and the Shareholder each
hereby irrevocably agree that for a period of 360 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Buyer Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Buyer Common
Stock, or (ii) enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of the Buyer Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Buyer Common Stock or such other securities, in cash
or otherwise without the prior written consent of J.P. Morgan Securities Inc.
Neither any Company nor the Shareholder, without the prior written consent of
J.P. Morgan Securities Inc., shall exercise any demand, mandatory, piggyback,
optional or any other registration rights, if any such rights exist, for a
period of 360 days from the Effective Date. Each Company and the Shareholder
agree that the foregoing shall be binding upon their transferees, successors,
assigns, heirs, and personal representatives and shall benefit and be
enforceable by the underwriters in the Initial Public Offering. In furtherance
of the foregoing, the Buyer and its transfer agent, are hereby authorized to
decline to make any transfer of securities if such transfer would constitute a
violation or breach of this Section 9.12.
9.13 Options and Warrants.
--------------------
(a) At or after the Closing, the Buyer shall grant options (each of
which shall be exercisable at a price per share equal to the Initial Public
Offering price) under its 1996 Equity Compensation Plan exercisable for at least
an aggregate of 45,000 shares of Buyer Common Stock. Such options shall be
granted to certain employees of the Companies (other than Mr. Reich) and shall
be subject to a three-year vesting period.
(b) At the Closing, the Buyer shall grant a warrant to the Shareholder
exercisable for 105,000 shares of Buyer Common Stock and pursuant to the other
terms of the warrant substantially in the form attached as Exhibit 9.13 hereto.
10. Conduct of the Business Prior to the Closing.
--------------------------------------------
10.1 Operation in Ordinary Course. Between the date of this Agreement and
----------------------------
the Closing Date, each Company shall conduct the Business in all material
respects in the ordinary course and shall use commercially reasonable efforts to
maintain all current business relationships.
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10.2 Business Organization. Between the date of this Agreement and the
---------------------
Closing Date, each Company shall use commercially reasonable efforts to preserve
substantially intact its business organization and keep available the services
of the present officers and employees of each Company.
10.3 Corporate Organization. Between the date of this Agreement and the
----------------------
Closing Date, no Company shall:
(a) issue, sell or otherwise dispose of any of its capital stock, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its capital stock;
(b) be party to any merger, consolidation or other business
combination;
(c) sell, lease, license or otherwise dispose of any of its Assets
(including rights with respect to its Intellectual Property), except in the
ordinary course of business; or
(d) organize any subsidiary or acquire any equity securities of any
Person or any equity or ownership interest in any business.
10.4 Business Restrictions. Except as set forth in this Agreement or on
---------------------
the Disclosure Letter, between the date of this Agreement (the Balance Sheet
Date with respect to Section 10.4(a)) and the Closing Date, no Company shall:
(a) declare, make or pay any dividends or other distributions except
(i) to pay or enable the Shareholder to pay all Federal, state and local taxes
of the Companies and/or the Shareholder for all periods ending immediately prior
to the Closing, as determined by Coopers & Lybrand, LLP; and (ii) on the day
immediately preceding the Closing, the Companies shall distribute to the
Shareholder an amount equal to the aggregate net income of the Companies for
Federal income tax purposes for 1995 determined by Coopers & Lybrand, LLP;
provided, however, that, after use of the Companies' credit lines and after
providing for normal working capital balances, to the extent that, on such date,
the Companies do not have sufficient cash to make such payments in full, the
Buyer will assume at Closing an obligation to the Shareholder to pay such unpaid
amount before March 1, 1997. For purposes of this Section 10.4(a), (x) the net
income for federal income tax purposes and the revenues, income and net worth of
DialDirect Telemarketing, Ltd. shall be determined using the accrual method of
accounting, rather than the cash method and (y) any such dividends or
distributions pursuant to clause (i) or (ii) above shall not be deemed
compensation.
(b) borrow any funds or otherwise become subject to, whether directly
or by way of guarantee or otherwise, any indebtedness for borrowed money, except
for (i) borrowings of up to $2 million to be used in connection with the
expansion of facilities, of which the Companies shall give three days' written
notice to the Buyer and the Buyer shall have the opportunity to give its consent
to such borrowings, which consent shall not be unreasonably withheld, (ii) the
borrowing or repayment of any loans from the Shareholder, in each case, which
are approved by the Buyer upon the provision of notice describing in particular
the borrowings and proposed use of proceeds and delivered at least 3 business
days prior to each proposed
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<PAGE>
borrowing (which such consent shall not unreasonably be withheld) or (iii)
borrowings under or the extent of the Companies' existing line of credit.
(c) create any material Encumbrance on any of its material Assets;
(d) except in the ordinary course of business, increase in any manner
the compensation of any director or officer or increase in any manner the
compensation of any class of employees;
(e) create or materially modify any bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
(f) make any capital expenditure or acquire any property or assets
(other than raw materials and supplies) for a cost in excess of $100,000 in any
one case or $250,000 in the aggregate, except for any capital expenditures or
acquisitions of up to $2 million in connection with the expansion of facilities,
of which the Companies shall give three days' written notice to the Buyer and
the Buyer shall have the opportunity to give its consent to such expenditures,
which consent shall not be unreasonably withheld;
(g) enter into any agreement that materially restricts any Company
from carrying on the Business;
(h) cancel any material debts of others or waive any material claims
or rights; or
(i) act or omit from taking any action which would cause any of the
representations and warranties in Section 7 hereof to be inaccurate.
10.5 Duty of the Shareholder. The Shareholder shall cause the Companies to
-----------------------
take or refrain from taking such actions set forth elsewhere in this Section 10.
11. Survival of Representations; Indemnification.
--------------------------------------------
11.1 Survival of Representations, Etc. The representations and warranties
---------------------------------
given by each Company, the Shareholder and the Buyer under this Agreement shall
survive the Closing for a period of two years after the Closing Date, except
that all representations and warranties contained in Sections 7.15, 7.17, 7.22
and 7.26 shall survive the Closing for the period of the applicable statute of
limitations plus any extensions or waivers thereof.
11.2 Indemnification by the Shareholder and each Company. The Shareholder
---------------------------------------------------
and each Company jointly and severally, hereby agrees to indemnify and hold
harmless the Buyer, and its successors and assigns, (each, an "Indemnified Buyer
Party") from and against any and all Liabilities, claims, demands, judgments,
settlement payments, losses, costs, damages and expenses whatsoever (including
reasonable attorneys', consultants' and other professional fees and
disbursements of every kind, nature and description incurred by such Indemnified
Buyer Party in connection therewith) (collectively, "Damages") that such
Indemnified Buyer Party may
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<PAGE>
sustain, suffer or incur that result from, arise out of or relate to (a) any
breach of or any inaccuracy in any representation, warranty, covenant or
agreement of any Company or the Shareholder contained in this Agreement,
including any breach of the obligation to indemnify hereunder, (b) any Excluded
Liability, (c) any Liability or obligation of any Company involving an
Environmental Condition or which otherwise relates to, or involves a claim,
Liability or obligation which arises out of or is based upon, any Environmental
Law, to the extent that such Liability or obligation relates to or arises out
of, in whole or in part, any activity occurring, condition existing, omission to
act or other matter existing prior to the Closing Date or (d) other than the
Assumed Liabilities, any Liability or obligation of any Company involving taxes
due and payable by, or imposed with respect to any Company for any all taxable
periods ending on or prior to the Closing Date (whether or not such taxes have
been due and payable).
11.3 Indemnification by the Buyer. The Buyer hereby agrees to indemnify
----------------------------
and hold harmless each Company and the Shareholder (each, an "Indemnified Seller
Party") from and against any Damages that any Indemnified Seller Party may
sustain, suffer or incur that result from, arise out of or relate to (a) any
breach of or inaccuracy in any representation, warranty, covenant or agreement
of the Buyer contained in this Agreement, including any breach of the obligation
to indemnify hereunder, (b) any Assumed Liability, (c) any liability or
obligation of the Buyer involving an Environmental Condition or that otherwise
relates to, or involves a claim, Liability or obligation relating to the
Business or the Assets which arises out of or is based upon, any Environmental
Law, to the extent that such Liability or obligation relates to or arises out
of, in whole or in part, any activity occurring, omission to act or condition or
other matter arising subsequent to the Closing Date, (d) any Liability or
obligation of the Buyer involving taxes due and payable by, or imposed with
respect to the Business the Assets for any and all taxable periods ending
subsequent to the Closing Date, (e) any third party claims relating to the
Buyer's conduct of the Business after the Closing Date or (f) any Liability
arising out of or in connection with any untrue statements or alleged untrue
statements of material fact contained in any preliminary prospectus,
registration statement or prospectus filed with the Securities and Exchange
Commission or any exchange in connection with the Financing, or the omission or
alleged omission from any of the foregoing of a material fact required to be
stated therein or necessary to make the statement therein not misleading, except
for any statement or omission made solely in reliance upon and in conformity
with written information furnished to the Buyer by any Company or the
Shareholder expressly for use in any preliminary prospectus, registration
statement or prospectus in connection with the Financing.
11.4 Limitation on Liabilities.
-------------------------
(a) Notwithstanding anything in this Agreement to the contrary, an
indemnifying party shall not have any liability to an indemnified party in
respect of any claim for indemnification for the breach of any representation or
warranty contained herein (i) unless a claim with respect thereto is delivered
to the indemnifying party specifying the factual basis of the claim in
reasonable detail to the extent then known by the indemnifying party prior to
the termination of the survival period for such representation and warranty set
forth in Section 11.1 hereof and (ii) until the damages to the indemnified
party, after taking into account Section 11.4(a) hereof, exceed a cumulative
aggregate total of $50,000, but then to the full extent of such Damages in
excess of $50,000.
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(b) In addition, the indemnification liability of the Companies and
the Shareholder under Section 11.2 hereof shall be limited to an amount equal to
the Purchase Price, less any taxes paid or payable by the Companies and/or the
Shareholder and shall be paid to the Buyer in the form such Purchase Price was
received in the Transactions.
11.5 Procedure for Claims.
--------------------
(a) An Indemnified Buyer Party or an Indemnified Seller Party that
desires to seek indemnification under any part of this Section 11 (each, an
"Indemnified Party") shall give notice (a "Claim Notice") to each party
responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor"). Such notice shall briefly explain the nature of the claim and
the parties known to be involved, and shall specify the amount thereof. If the
matter to which a claim relates shall not have been resolved as of the date of
the Claim Notice, the Indemnified Party shall estimate the amount of the claim
in the Claim Notice, but also specify therein that the claim has not yet been
liquidated (an "Unliquidated Claim"). If an Indemnified Party gives a Claim
Notice for an Unliquidated Claim, the Indemnified Party shall also give a second
Claim Notice (the "Liquidated Claim Notice") within 60 days after the matter
giving rise to the claim becomes finally resolved, and the Liquidated Claim
Notice shall specify the amount of the claim. Each Indemnitor to which or whom
a Claim Notice is given shall respond to any Indemnified Party that has given a
Claim Notice (a "Claim Response") within 30 days (the "Response Period") after
the later of (i) the date that the Claim Notice is given or (ii) if a Claim
Notice is first given with respect to an Unliquidated Claim, the date on which
the Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall
be given in accordance with the notice requirements hereunder, and any Claim
Response shall specify whether or not the Indemnitor giving the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the applicable Response Period the amount to which
such Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 11, the Indemnitor and
the Indemnified Party shall seek to resolve such dispute through negotiations
and, if such dispute is not resolved within 20 days, the Indemnified Party may
pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to 10%.
11.6 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any
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<PAGE>
Indemnitor may, or if so requested by such Indemnified Party, any Indemnitor
shall, participate in such Action or assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided that such
Indemnified Party shall have the right to participate at its own expense in the
defense of such Action; and provided, further, that the Indemnitor shall not
consent to the entry of any judgment or enter into any settlement, except with
the written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any such Action or (b) grants the
claimant or plaintiff any injunctive relief against the Indemnified Party. Any
failure to give prompt notice under this Section 11.6 shall not bar an
Indemnified Party's right to claim indemnification under this Section 11, except
to the extent that an Indemnitor shall have been harmed by such failure.
11.7 Exceptions to Limitations. Nothing herein shall be deemed to limit or
-------------------------
restrict in any manner any rights or remedies which the Buyer, the Companies or
the Shareholder has, or might have, at law, in equity or otherwise, against the
Buyer, any Company or the Shareholder, as the case may be, based on a willful
misrepresentation or willful breach of warranty by the Buyer, any Company or the
Shareholder hereunder.
11.8 Effect of Investigation. Any claim for indemnification shall not be
-----------------------
invalid as a result of any investigation by or opportunity to investigate
afforded to the Buyer. The Buyer shall give the Companies and the Shareholders
prompt notice of any fact or event that the Buyer discovers during the course of
its due diligence investigation of the Companies that might give rise to the
Buyer's rights to indemnification under Section 11.2 hereof.
12. Termination.
-----------
12.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
(a) by mutual written consent of the Buyer, the Companies and the
Shareholder;
(b) by the Buyer within 60 days after the date hereof if its due
diligence investigation and review of the Businesses, the Purchase Assets and
the prospects and obligations of each Company shall not have been completed to
its sole satisfaction;
(c) by any Company, the Shareholder or the Buyer, if the Closing has
not occurred by the Termination Date; provided, however, that the right to
terminate this Agreement under this paragraph (b) of Section 12.1 shall not be
available to any party that has breached any of its covenants, representations
or warranties in this Agreement in any material respect (which breach has not
been cured);
(d) by any Company, the Shareholder or the Buyer, if there shall be
any Regulation that makes consummation of the Transactions illegal or otherwise
prohibited or if any Court Order enjoining such Company or the Buyer from
consummating the Transactions is entered and such Court Order shall become final
and nonappealable;
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(e) by the Buyer, if any Company shall have breached any of its
covenants hereunder or if the representations and warranties of any Company
contained in this Agreement or in any certificate or other writing delivered by
such Company pursuant hereto shall not be true and correct, except for such
changes as are contemplated by this Agreement, and, in either event, if such
breach or misrepresentation has a Material Adverse Effect; or
(f) by any Company or the Shareholder if the Buyer shall have breached
any of its covenants hereunder or if the representations and warranties of the
Buyer contained in this Agreement or in any certificate or other writing
delivered by the Buyer pursuant hereto shall not be true and correct, except for
such changes as are contemplated by this Agreement, and, in either event, if
such breach or misrepresentation has a Material Adverse Effect.
12.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 12.1, any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party to this
Agreement.
13. Payment of Expenses. Each party hereto shall pay their own expenses for
-------------------
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions; provided, however, that the
Buyer shall pay the expenses incurred by the Companies' independent public
accounting firm in connection with the Transactions and up to $100,000 of the
Companies legal expenses if the Transactions are consummated.
14. Contents of Agreement. This Agreement, together with the other Transaction
---------------------
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
15. Amendment, Parties in Interest, Assignment, Etc. This Agreement may be
------------------------------------------------
amended, modified or supplemented only by a written instrument duly executed by
each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. The parties hereto shall execute and deliver any and all
documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
16. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
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17. Remedies. The remedies provided by Section 11 shall constitute the
--------
exclusive remedies for the matters covered thereby. With respect to any matters
not covered by such Section, any party shall be entitled to such rights and
remedies as such party may have at law or in equity or otherwise for any breach
of this Agreement, including the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or diminished
by the remedies provided hereunder.
18. Notices. All notices that are required or permitted hereunder shall be in
-------
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto given in accordance with the foregoing notice procedures:
If to the Buyer:
443 S. Gulph Road
King of Prussia, PA 19406
FAX: 610-962-5109
Attention: J. Brian O'Neill, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Stephen M. Goodman, Esquire
If to any Company or to the Shareholder:
Reich Group, Inc.
1635 Market Street, 2nd Floor
Philadelphia, PA 19103
FAX: 215-972-3801
Attention: Morton M. Reich
with a required copy to:
Cozen and O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
FAX: 215-665-2013
Attention: E. Gerald Riesenbach, Esq.
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19. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
20. Consent to Jurisdiction; Service of Process, etc.
-------------------------------------------------
(a) Each party hereto irrevocably and unconditionally (i) agrees that
any suit, action or other legal proceeding (collectively, "Suit") arising out of
this Agreement may be brought and adjudicated in the United States District
Court for the Eastern District of Pennsylvania or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of competent civil
jurisdiction in Montgomery County, Pennsylvania, (ii) consents and submits to
the non-exclusive jurisdiction of any such court for the purposes of any such
Suit and (iii) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it or he is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper.
(b) Each party hereto also irrevocably consents to the service of any
process, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 17 or by any other method provided or permitted under
applicable law. Each party hereto agrees that final judgment in any Suit (with
all right of appeal having either expired or been waived or exhausted) shall be
conclusive and that the Buyer shall be entitled to enforce such judgment in any
other jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and amount of
indebtedness arising from such judgment.
21. Securities Law Matters.
----------------------
21.1 Economic Risk; Sophistication.
-----------------------------
(a) Each Company and the Shareholder represents and warrants that it
or he has not relied on any purchaser representative, or on the Buyer, in
connection with the acquisition of shares of Buyer Common Stock hereunder. Each
Company and the Shareholder (i) has such knowledge, sophistication and
experience in business and financial matters that it or he is capable of
evaluating the merits and risks of an investment in the shares of Buyer Common
Stock, (ii) fully understands the nature, scope and duration of the limitations
on transfer contained in this Agreement and (iii) can bear the economic risk of
an investment in the shares of Buyer Common Stock and can afford a complete loss
of such investment. Each Company and the Shareholder have had an adequate
opportunity to ask questions and receive answers from the officers of the Buyer
concerning any and all matters relating to the transactions described herein
including without limitation the background and experience of the officers and
directors of the Buyer, the plans for the operations of the business of the
Buyer, the business, operations and financial condition of the Buyer, and any
plans for additional acquisitions and the like. Each Company and the
Shareholder have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
(b) Each Company and the Shareholder further represents, warrants,
acknowledges and agrees that it or he (i) is acquiring the shares of Buyer
Common Stock under this Agreement
-30-
<PAGE>
for its or his own account, as principal and not on behalf of other persons, and
for investment and not with a view to the resale or distribution of all or any
part of such shares and (ii) will not sell or otherwise transfer such shares
unless, in the opinion of counsel who is reasonably satisfactory to the Company,
the transfer can be made without violating the registration provisions of the
Securities Act of 1933 Act, as amended (the"1933 Act"), and the rules and
regulations promulgated thereunder.
(c) Each Company and the Shareholder acknowledge that they have
carefully reviewed the prospectus included in the draft of the Registration
Statement delivered to them by the Buyer on or about May 18, 1996 and have had
the opportunity to discuss with the Buyer any questions or comments they have
with respect to such prospectus.
21.2 Restriction on Resale. The certificates evidencing the Buyer Common
---------------------
Stock to be received by the Companies and the Shareholder hereunder will bear a
legend substantially in the form set forth below and containing such other
information as the Buyer may deem appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY
LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as counsel for
the Buyer reasonably determines are required under the applicable laws of any
state.
21.3 Piggyback Registration.
----------------------
(a) Right to Piggyback. At any time after the Buyer's initial public
------------------
offering, whenever the Buyer proposes to register any Buyer Common Stock under
the 1933 Act, and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Buyer
will give prompt written notice to all holders of Registrable Securities and
will include in such Piggyback Registration, subject to the allocation
provisions below, all Registrable Securities with respect to which the Buyer has
received written requests for inclusion within 20 days after the Buyer's mailing
of such notice.
(b) Piggyback Expenses. In all Piggyback Registrations, the Buyer
------------------
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an
-31-
<PAGE>
underwritten primary registration on behalf of the Buyer, and the managing
underwriters advise the Buyer in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Buyer will allocate the securities to be included as follows: first, the
securities the Buyer proposes to sell on its own behalf; and second, Registrable
Securities requested to be included in such registration by the Selling
Stockholders, pro rata on the basis of the respective Registrable Securities
owned among the Selling Stockholders.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is initiated as an underwritten secondary registration on behalf of holders of
the Buyer's securities and the managing underwriters advise the Buyer in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Buyer will allocate the securities to be
included on a pro rata basis, based on the number of Registrable Securities
owned among the Selling Stockholders.
(e) Selection of Underwriters. The selection of investment banker(s)
-------------------------
and manager(s) and the other decisions regarding the underwriting arrangements
for the offering will be made by the Buyer.
(f) Indemnification. The Buyer shall indemnify, to the extent
---------------
permitted by law, each Selling Stockholder against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Selling Stockholder expressly for use therein or by such
Stockholder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Buyer has
furnished such Selling Stockholder with a sufficient number of copies of the
same.
(g) Information. In connection with any registration statement in
-----------
which a Selling Stockholder is participating, each such holder will furnish to
the Buyer in writing such information as is reasonably requested by the Buyer
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, the Buyer, its directors and officers and each
person who controls the Buyer (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder specifically for use in preparing the registration statement.
22. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all of
which shall constitute one and the same instrument. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
-32-
<PAGE>
23. Definitions.
-----------
"Acquisition Base" is defined in Section 3.8.
"Acquisition Transactions" is defined in Section 3.8.
"Additional Consideration" is defined in the Promissory Note.
"Affiliate" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this Agreement and the exhibits and schedules hereto.
"Agreed Value Per Share" is defined in Section 3.6 hereof.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by any Company.
"Assumed Liabilities" is defined in Section 3.3 hereof.
"Balance Sheet Date" is defined in Section 7.5 hereof.
"Benefit Plans" means all employee benefit plans of any Company within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies, arrangements, practices, customs and understandings,
in each case whether formal or informal, that provide benefits of economic value
to any present or former employee of any Company, or present or former
beneficiary, dependent or assignee of any such employee or former employee,
including all incentive, bonus, deferred compensation, vacation, holiday,
medical, disability, share purchase or other similar plans, policies, programs,
practices or arrangements.
"Business" means the aggregate entire existing business and the operations,
employees, facilities and other Assets of each Company.
"Buyer" is defined in the preamble hereof.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 4.1 hereof.
"Closing Date" is defined in Section 4.1 hereof.
-33-
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Buyer Common Stock" is defined in Section 3.7 hereof.
"Companies" is defined in the preamble hereof.
"Company" is defined the preamble hereof.
"Company Balance Sheet" is defined in Section 7.5 hereof.
"Confidential Information" means any confidential information or trade
secrets of the Business, including information and knowledge pertaining to
products and services offered, innovations, designs, ideas, plans, trade
secrets, proprietary information, know-how and other technical information,
advertising, distribution and sales methods and systems, sales and profit
figures, customer and client lists, and relationships with dealers,
distributors, wholesalers, customers, clients, suppliers and others who have
business dealings with the Business.
"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is or may be binding on any Person or its property under
applicable law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any Federal, state, local or foreign court or governmental or regulatory body or
arbitrator or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
"Disclosure Letter" is defined in Section 7 hereof.
"Employment Agreement" means the Employment Agreement between the Buyer and
the Shareholder entered into as of the Closing Date, in substantially the form
attached hereto as Exhibit B.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 7.17(b) hereof.
"Environmental Law" is defined in Section 7.17(b) hereof.
-34-
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" is defined in Section 3.2 hereof.
"Excluded Liabilities" is defined in Section 3.4 hereof.
"Financial Statements" is defined in Section 7.5 hereof.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substances" means (a) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (b) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law and (c)
asbestos, asbestos-containing substances or urea formaldehyde insulation.
"Indemnified Buyer Party" is defined in Section 11.2 hereof.
"Indemnified Seller Party" is defined in Section 11.4 hereof.
"Intellectual Property" means any Copyrights, Patents, Trademarks, know-
how, trade secrets (including all results of research and development), product
formulae, franchises, inventions, rights-to-use and other industrial and
intellectual property rights.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition, results of operations, liquidity, products,
competitive position, customers or customer relations of the Companies as a
whole.
"Non-Assignable Contracts" is defined in Section 3.5 hereof.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
"Patents" means all patents and patent applications.
"Permit" means any governmental permit, license, registration, certificate
of occupancy, approval and other authorization.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
-35-
<PAGE>
"Personal Property Leases" is defined in Section 7.9 hereof.
"Private Percentages" means the percentage of the outstanding Buyer Common
Stock which will be owned by the Initial Targets (on an aggregate basis with
respect to affiliated Initial Targets) after the consummation of the Acquisition
Transactions but prior to the consummation of the Initial Public Offering and
subject to the adjustments set forth in Section 2.8 hereto.
"Promissory Note" means the promissory note of the Buyer to be delivered to
the Companies at the Closing in substantially the form attached hereto as
Exhibit A.
"Purchase Price" is defined in Section 3.6 hereof.
"Purchased Assets" is defined in Section 3.1 hereof.
"Real Estate Leases" is defined in Section 7.7 hereof.
"Real Property" is defined in Section 7.7 hereof.
"Registrable Securities" means (i) the shares of Buyer Common Stock issued
in the Buyer's initial round of acquisitions, including the Shares of Buyer
Common Stock to be issued to the Companies or their designees hereunder and
under the Promissory Note and (ii) any securities issued or to be issued with
respect to such securities by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been (A)
effectively registered under the 1933 Act and disposed of in accordance with the
registration statement covering them, or (B) transferred pursuant to Rule 144
promulgated under such Act (or any similar provision then in force).
"Registration Expenses" means all expenses incident to the Buyer's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges or
electronic quotation systems on which similar securities issued by the Buyer are
then listed, and fees and disbursements of counsel for the Buyer and of all
independent certified public accountants, underwriters (other than Underwriting
Commissions) and other persons retained by the Buyer.
"Registration Statement" means the Buyer's Registration Statement on Form
S-1 to be filed with the Securities and Exchange Commission registering a
sufficient number of shares of the Buyer's capital stock which, based on the
minimum estimated offering price of such shares (as set forth in the prospectus
included in such Registration Statement), upon consummation of the offering
described in the Registration Statement would yield net proceeds sufficient for
the Buyer to consummate the First Round Acquisitions.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery,
-36-
<PAGE>
recordkeeping, zoning, antidiscrimination, antitrust, wage and hour, and price
and wage control matters.
"Reich Sub" means a subsidiary of the Buyer formed to operate the
Companies.
"Selling Stockholders" means registered holders of Registrable Securities
who request inclusion of all or a portion of their shares of Registrable
Securities in a Piggyback Registration pursuant to Section 21, regardless of
whether such holder actually sells such Registrable Securities in such Piggyback
Registration.
"Shareholder" is defined in the preamble hereof.
"Shares" is defined in Section 3.7 hereof.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Employment Agreement, and
the Promissory Note and the letter between the parties regarding expenses dated
April 5, 1996.
"Transactions" means the purchase and sale of the Purchased Assets, the
issuance of the Shares, and the consummation of the other transactions
contemplated by the Transaction Documents.
-37-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
TELESPECTRUM WORLDWIDE INC.
By: /s/ J. Brian O'Neill
------------------------------------
J. Brian O'Neill
Chairman
CRW FINANCIAL, INC.
By: /s/ J. Brian O'Neill
------------------------------------
J. Brian O'Neill
Chairman
DIALDIRECT, INC.
By: /s/ Morton M. Reich
------------------------------------
Morton M. Reich
President
INSUREDIRECT, INC.
By: /s/ Morton M. Reich
------------------------------------
Morton M. Reich
President
DIALDIRECT TELEMARKETING, LTD.
By: /s/ Morton M. Reich
------------------------------------
Morton M. Reich
President
-38-
<PAGE>
TRG/COMMUNICATIONS, INC.
By: /s/ Morton M. Reich
------------------------------------
Morton M. Reich
President
THE REICH GROUP, INC.
By: /s/ Morton M. Reich
------------------------------------
Morton M. Reich
President
SHAREHOLDER
By: /s/ Morton M. Reich
------------------------------------
Morton M. Reich
-39-
<PAGE>
EXHIBIT 10.30
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
TELESPECTRUM WORLDWIDE INC.
(a Delaware corporation),
CRW FINANCIAL, INC.
(a Delaware corporation),
TELESPECTRUM, INC.
(a Maryland corporation),
TELESPECTRUM TRAINING SERVICES, INC.
(a Maryland corporation),
KAREN SCHWEITZER,
and
SHERRY PATERRA
Dated as of April 10, 1996,
as amended and restated as of May 21, 1996
- --------------------------------------------------------------------------------
<PAGE>
Section Page
- ------- ----
1. Reference to Definitions............................................. -1-
------------------------
2. Formation of CRW Acquisition Corp.................................... -1-
---------------------------------
3. Purchase and Sale of the Business and Assets......................... -1-
--------------------------------------------
4. Closing.............................................................. -5-
-------
5. Conditions to Buyer's Obligations.................................... -6-
----------------------------------
6. Conditions to each Company's and each Shareholder's Obligations...... -7-
----------------------------------------------------------------
7. Representations and Warranties of the Companies and the Shareholders. -8-
--------------------------------------------------------------------
8. Representations and Warranties of the Buyer..........................-19-
-------------------------------------------
9. Certain Agreements...................................................-20-
------------------
10. Conduct of the Business Prior to the Closing.........................-24-
--------------------------------------------
11. Survival of Representations; Indemnification.........................-25-
--------------------------------------------
12. Termination..........................................................-28-
-----------
13. Payment of Expenses..................................................-29-
-------------------
14. Contents of Agreement................................................-29-
---------------------
15. Amendment, Parties in Interest, Assignment, Etc......................-29-
-------------------------------------------------
16. Interpretation.......................................................-30-
--------------
17. Remedies.............................................................-30-
--------
18. Notices..............................................................-30-
-------
19. Governing Law........................................................-31-
-------------
20. Consent to Jurisdiction; Service of Process, etc.....................-31-
-------------------------------------------------
21. Securities Law Matters...............................................-32-
----------------------
22. Counterparts.........................................................-34-
------------
23. Definitions..........................................................-34-
-----------
<PAGE>
Exhibits
- --------
A Form of Employment Agreement (Schweitzer)
B Form of Employment Agreement (Paterra)
C Form of Pledge Agreement
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of April 10, 1996, as amended and
restated as of May 21, 1996, by and among CRW Financial, Inc., a Delaware
corporation ("CRW"), TeleSpectrum Worldwide Inc., a Delaware corporation
("Buyer"), TeleSpectrum, Inc., a Maryland corporation ("TeleSpectrum"),
TeleSpectrum Training Services, Inc., a Maryland corporation ("Training" and
together with TeleSpectrum, the "Companies"), Karen Schweitzer and Sherry
Paterra. Ms. Schweitzer and Ms. Paterra are sometimes referred to together as
the "Shareholders."
Background
----------
The Companies are engaged in the business of telemarketing. The
Shareholders own all of the issued and outstanding capital stock of each
Company. The Buyer desires to purchase the Purchased Assets (as defined
herein), the Companies desire the Purchased Assets to be sold, and the
Shareholders desire to cause the Companies to sell the Purchased Assets, all on
the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Reference to Definitions. For convenience, certain terms used in this
------------------------
Agreement are listed in alphabetical order and defined or referred to in Section
23 (such terms as well as any other terms defined elsewhere in this Agreement
shall be equally applicable to both the singular and plural forms of the terms
defined).
2. Formation of CRW Acquisition Corp. The parties hereto acknowledge that CRW
---------------------------------
formed the Buyer on April 26, 1996. The parties acknowledge that the Buyer may
form one or more subsidiaries to acquire, own and operate the Businesses and the
Purchased Assets and that the Buyer may assign its rights under the Agreement to
one or more wholly-owned subsidiaries although it shall retain all of its
obligations and liabilities hereunder.
3. Purchase and Sale of the Business and Assets.
--------------------------------------------
3.1 The Purchased Assets. Each Company, subject to the terms and
--------------------
conditions of this Agreement, shall sell, transfer, convey and deliver to the
Buyer all of such Company's right, title and interest in all of its respective
Assets (collectively, the "Purchased Assets") which are not Excluded Assets.
The Purchased Assets include, without limitation, all of the following assets:
(a) the Business of each Company;
(b) the name TeleSpectrum;
<PAGE>
(c) the cash and cash equivalents of each Company, wherever located;
(d) each Company's accounts and notes receivable and rights to payment
from any party for products sold and/or services delivered prior to the Closing;
(e) the tangible and intangible personal property of each Company,
however owned, leased, or held, including, without limitation, machinery,
equipment, furniture, fixtures, supplies, vehicles, inventory, supplies and
computer hardware and software;
(f) the interests of each Company under all Contracts related to the
Business;
(g) the Permits of each Company;
(h) the goodwill, going concern value, past and present customer and
supplier lists and Intellectual Property (including the goodwill associated
therewith) of each Company;
(i) the prepaid expenses of each Company; and
(j) the books and records of each Company.
3.2 Excluded Assets. Notwithstanding anything to the contrary in Section
---------------
3.1, the following Assets (the "Excluded Assets") shall not be included in the
Purchased Assets:
(a) the corporate seal, Charter Documents, bylaws, minute books and
other corporate records of each Company;
(b) whole life policies on the Shareholders, detailed in the
Disclosure Schedule.
3.3 Assumed Liabilities. At the Closing, the Buyer shall assume and
-------------------
thereafter in due course timely pay and fully satisfy all obligations (the
"Assumed Liabilities"):
(a) incurred after the Closing under all Contracts and Permits which
are conveyed to Buyer as Purchased Assets pursuant to the terms and conditions
hereof;
(b) any and all Liabilities relating exclusively to the Businesses
that are reflected on the Balance Sheets and incurred after the date of the
Balance Sheets in the ordinary course of business and in accordance with Section
9.4 (but with the provisions of Section 9.4 applied as if the provisions thereof
had been in effect from the close of business on the date of he Balance Sheets
through the Closing Date.)
3.4 Excluded Liabilities. Except as expressly set forth in Section 3.3,
--------------------
the Buyer shall not, by virtue of its purchase of the Purchased Assets or
otherwise in connection with the Transactions, assume or become responsible for
any Liabilities (the "Excluded Liabilities") of the Company; including, without
limitation, (a) Liabilities for any taxes, other than for federal and
-2-
<PAGE>
state income taxes owed by the Companies for periods prior to the Closing Date,
(b) Liabilities relating to any claims for health care or other welfare
benefits, (c) Liabilities relating to the violation of any Regulation, (d) tort
Liabilities, (e) Liabilities from claims arising under any Contract or Permit
not assumed by the Buyer hereunder; and (f) Liabilities for claims arising under
any Contract or Permit to the extent such claim is based on acts or omissions of
any person which occurred prior to the Closing.
3.5 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by the Company to assign to the Buyer pursuant to this
Agreement any Contract or Permit included in the Purchased Assets which is by
its terms or by Regulation nonassignable without the consent of any other party
or parties, unless such consent or approval shall have been given, or as to
which all the remedies for the enforcement thereof available to the Company
would not by Regulation pass to the Buyer as an incident of the assignments
provided for by this Agreement (a "Non-Assignable Contract"). To the extent
that any such consent or approval in respect of, or a novation of, a Non-
Assignable Contract shall not have been obtained on or before the Closing Date,
the Companies and the Shareholders shall continue to use commercially reasonable
efforts to obtain any such consent, approval or novation after the Closing Date
until such time as it shall have been obtained, and the Companies shall
cooperate with the Buyer in any economically feasible arrangement to provide
that the Buyer shall receive the applicable Company's benefits under such Non-
Assignable Contract, provided that Buyer shall undertake to pay or satisfy the
corresponding Liabilities under the terms of such Non-Assignable Contract to the
extent that the Buyer would have been responsible therefor if such consent,
approval or novation had been obtained.
3.6 Post-Closing Adjustment to Purchase Price. As soon as practicable,
-----------------------------------------
but in any event within 30 days after the Closing, the Buyer shall engage Arthur
Andersen LLP to prepare, in accordance with GAAP (applied in a manner consistent
with the Audited Financial Statements), a balance sheet of each Company (the
"Closing Date Balance Sheets") as of the end of the business on the day prior to
the Closing Date. If the aggregate shareholders' equity as shown on the Closing
Date Balance Sheets is less than the aggregate shareholders' equity as shown on
the Company Balance Sheets (such amount is referred to as the "Net Worth
Deficiency"), within ten business days after delivery of the Post-Closing
Balance Sheets to the Companies, the Companies shall pay the Buyer by wire
transfer of immediately available funds an amount equal to the Net Worth
Deficiency. Notwithstanding anything in this Section 3.6 to the contrary, if
there is any Net Worth Deficiency and the Companies dispute any item contained
on the Closing Date Balance Sheets, the Companies shall notify the Buyer in
writing of each disputed item, and specify the amount thereof in dispute within
thirty business days after the delivery of the Closing Balance Sheets. If the
Buyer and the Companies cannot resolve any such dispute which would eliminate or
reduce the amount of the Net Worth Deficiency, then such dispute shall be
resolved by an independent nationally recognized accounting firm which is
reasonably acceptable to the Buyer and the Companies (the "Independent
Accounting Firm"). The determination of the Independent Accounting Firm shall
be made as promptly as practical and shall be final and binding on the parties,
absent manifest error which error may only be corrected by such Independent
Accounting Firm. Any expenses relating to the engagement of the Independent
-3-
<PAGE>
Accounting Firm shall be allocated between the Buyer and the Companies so that
the Companies share of such costs shall be in the same proportion that the
aggregate amount of the disputed amounts submitted to the Independent Accounting
Firm that are unsuccessfully disputed by the Companies (as finally determined by
the Independent Accounting Firm) bears to the total amount of such disputed
amounts so submitted to the Independent Account Firm.
3.7 Payments. In addition to assuming the Assumed Liabilities, the
--------
aggregate price to be paid by the Buyer for the purchase of the Purchased Assets
shall be the sum of $10,000,000 and forgiveness of the Promissory Note (the
"Purchase Price") which shall be allocated between the Companies as set forth on
Exhibit 3.7 hereto. The Buyer shall pay the Purchase Price at the Closing by
delivery of (i) $8,000,000 by certified or bank check or by wire transfer of
immediately available funds pursuant to written instructions provided by the
Companies to the Buyer and (ii) certificates to the Companies or their designees
(in such proportion as set forth on Exhibit 3.7A) representing such number of
shares (the "Shares") of the Buyer's common stock, no par value (the "Buyer
Common Stock"), with an aggregate acquisition stock value of $2,000,000 (the
"Acquisition Stock Value"). In addition, the Buyer shall deliver to
TeleSpectrum the Promissory Note marked "paid in full."
3.8 Percentage Interests.
--------------------
(a) Private Percentage. Subject to adjustment pursuant to Section
------------------
3.8(b), after specifically giving effect to the acquisition by the Buyer of
those organizations listed on Exhibit 3.8 hereto (the "Initial Targets") and the
consummation of all of the transactions and corporate reorganizations incident
to such acquisitions (collectively, the "Acquisition Transactions"), but prior
to the offering of Buyer Common Stock pursuant to the Registration Statement
(the "Initial Public Offering"), the aggregate number of Shares issuable in the
full amount of the Acquisition Stock Value shall represent 1.37% (the
"TeleSpectrum Private Percentage") of the aggregate Buyer Common Stock that will
be outstanding immediately after the issuance of the Shares. The TeleSpectrum
Private Percentage is equal to the percentage obtained from the division of (i)
the Acquisition Stock Value by (ii) the "Acquisition Base." The Acquisition
Base means the sum of (x) the Purchase Price, (y) the aggregate purchase price
(exclusive of any contingent payments) which Buyer has agreed to pay the other
Initial Targets at the closings of the acquisitions of the other Initial Targets
and (z) $5,000,000. The TeleSpectrum Private Percentage has been calculated on
a basis consistent with the Private Percentages, each of which is set forth
opposite the name of each Initial Target on Exhibit 3.8.
(b) Adjustment to Percentages. The TeleSpectrum Private Percentage
-------------------------
shall be subject to proportionate adjustments based upon the occurrence of any
of the following events:
(i) the acquisition by Buyer of any additional organizations
prior to the consummation of the Initial Public Offering (the "Additional
Targets");
(ii) the failure of Buyer for any reason to consummate the
acquisition of any Initial Target prior to the consummation of the Initial
Public Offering;
-4-
<PAGE>
and
(iii) the issuance of any securities in connection with the
obtaining of financing, the proceeds of which are used to acquire any
Initial Target and/or any Additional Target (whether prior to or in
connection with the consummation of the Initial Public Offering).
With respect to any adjustment pursuant to Sections 3.8(b)(i) and (ii), the
TeleSpectrum Private Percentage shall be adjusted by adding to the Acquisition
Base the purchase price payable (exclusive of any contingent payment) by the
Buyer at the closing of any such acquisition pursuant to Section 3.8(b)(i) and,
with respect to any Initial Target not acquired by Buyer prior to the
consummation of the Initial Public Offering, subtracting from the Acquisition
Base the purchase price which would have been payable by the Buyer at the
closing of any Initial Target had such Initial Target been acquired by Buyer.
No adjustment to the TeleSpectrum Private Percentage shall be made pursuant to
Section 3.8(b)(iii) unless the Private Percentages and the percentage of the
outstanding Buyer Common Stock owned by CRW are likewise reduced on a
proportionate basis.
3.9 Allocation of the Purchase Price. The Purchase Price shall be
--------------------------------
allocated among the Purchased Assets as set forth on Exhibit 3.7 hereto. The
Companies and the Buyer shall prepare their respective Federal, state and local
tax returns employing the allocation set forth on Exhibit 3.7 and shall not take
a position in any tax proceeding or otherwise that is inconsistent with such
allocation. The Companies and the Buyer shall give prompt notice to each other
of the commencement of any tax audit or the assertion of any proposed deficiency
or adjustment by any taxing authority or agency which challenges such
allocation.
4. Closing.
-------
4.1 Location, Date. The closing of the Transactions (the "Closing") shall
--------------
take place at the offices of the Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 on or before October 31, 1996 (the "Termination
Date") or such earlier date upon the satisfaction of (or waiver by the party
entitled to the benefit of) the conditions set forth in Sections 5 and 6, or at
such other place, date and time as the parties may agree in writing.
4.2 Closing Deliveries. In connection with the completion of the
------------------
Transactions contemplated in Section 3, at the Closing,
(a) the Buyer shall deliver or cause to be delivered:
(i) the cash portion of the Purchase Price which is required
to be delivered to the Companies at the Closing;
(iii) the certificates representing the Shares, registered in
the name of the Companies or their designees;
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<PAGE>
(ii) the Promissory Note marked paid-in-full;
(iv) executed copies of the Employment Agreements;
(v) such other agreements, documents and instruments contemplated
by this Agreement and such other items as may be reasonably requested;
and
(vi) the amount of any state sales tax payable with respect to
the tangible Purchased Assets (with the exception of inventories).
(b) the Companies shall deliver or cause to be delivered:
(i) payment instructions regarding the cash portion of the
Purchase Price which is required to be delivered to the Companies at
the Closing;
(ii) bills of sale and assignment and assumption agreements
transferring all of the Companies right, title and interest in and to
the Purchased Assets in form and substance satisfactory to the Buyer;
(iii) executed copies of the Pledge Agreement; and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(c) each Shareholder shall deliver her respective executed counterpart
of her Employment Agreement.
5. Conditions to Buyer's Obligations.
----------------------------------
The obligations of Buyer to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Buyer:
5.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or threatened that prevents or that seeks to restrain the consummation,
or challenges the validity or legality, of Transactions or that would limit or
affect adversely Buyer's acquisition of the Purchased Assets.
5.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Companies and the Shareholders set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at such time and (b) the Companies and the Shareholders shall have
each performed or tendered performance in all material respects of all covenants
and agreements contained in this Agreement required to be performed and complied
with by them at or prior to the Closing. The Companies and the
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<PAGE>
Shareholders shall have delivered to the Buyer a certificate signed by the
President of each Company and each Shareholder, in form and substance reasonably
satisfactory to counsel to the Buyer, that the Companies and the Shareholders
have performed all covenants and agreements to be performed by them under this
Agreement and as regarding the accuracy of its representations and warranties
contained herein as of the Closing Date.
5.3 Legal Opinion. The Companies and the Shareholders shall have tendered
-------------
a legal opinion of Lee Benedict, counsel to the Companies and the Shareholders,
that is reasonably acceptable to counsel to the Buyer;
5.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
5.5 Board Approval. The Transactions shall have been approved by the
--------------
Buyer's board of directors.
5.6 Financing. The Underwriting Agreement is executed respecting the
---------
offering of securities pursuant to the Registration Statement.
5.7 Required Tender. The Shareholders and the Companies shall have
---------------
tendered or caused the tender of the items set forth in Section 4.2.
6. Conditions to each Company's and each Shareholder's Obligations.
----------------------------------------------------------------
The obligations of the Companies and the Shareholders to effect the Closing
shall be subject to the satisfaction at or prior to the Closing of the following
conditions, any one or more of which may be waived by such parties:
6.1 No Injunction. No Court Order or Litigation shall be pending or
-------------
threatened that prevents or that seeks to restrain the consummation, or
challenges the validity or legality, of Transactions.
6.2 Representations, Warranties and Agreements. The representations and
------------------------------------------
warranties of the Buyer set forth in this Agreement shall be true and complete
in all material respects as of the Closing Date as though made at such time and
the Buyer shall have performed or tendered performance in all material respects
of all covenants and agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing. The Buyer shall
have delivered a certificate signed by the President of the Buyer, in form and
substance reasonably satisfactory to counsel to the Companies, that the Buyer
has performed all covenants and agreements to be performed by it under this
Agreement and as regarding the accuracy of its representations and warranties
contained herein as of the Closing Date.
6.3 Legal Opinion. The Buyer shall have tendered a legal opinion of
-------------
Morgan, Lewis
-7-
<PAGE>
& Bockius LLP, counsel to the Buyer, that is reasonably acceptable to counsel to
the Companies.
6.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
6.5 Required Tender. The Buyer shall have tendered or caused the tender
---------------
of the items set forth in Section 4.2(a).
6.6 Financing. The Underwriting Agreement is executed with respect to the
---------
offering of Securities pursuant to the Registration Statement.
7. Representations and Warranties of the Companies and the Shareholders. Each
--------------------------------------------------------------------
Company and each Shareholder hereby jointly and severally represents and
warrants to the Buyer that, except as set forth in a letter dated the date of
this Agreement, executed by each Company and each Shareholder, addressed and
delivered to Buyer by each Company and each Shareholder within 21 days after the
date hereof and containing information required by this Agreement and exceptions
to the representations and warranties of the Companies and the Shareholders
under this Agreement (the "Disclosure Letter"):
7.1 Corporate Status. TeleSpectrum is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of Maryland
and is qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where it is required to be so qualified, except where the
failure to so qualify would not have a material adverse effect. The Charter
Documents and bylaws of TeleSpectrum that have been delivered to the Buyer are
effective under applicable Regulations and are current, correct and complete.
Training is a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland and is qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where it is
required to be so qualified, except where the failure to so qualify would not
have a material adverse effect. The Charter Documents and bylaws of Training
that have been delivered to the Buyer are effective under applicable Regulations
and are current, correct and complete.
7.2 Authorization. Each Company has the requisite power and authority to
-------------
own its property and carry on its Business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by each Company have been duly authorized by all necessary corporate
action. Each Shareholder has the requisite power, capacity, legal right and
authority to execute and deliver the Transaction Documents to which she is a
party and to perform the Transactions to be performed by her thereunder. Each
Transaction Document executed and delivered by each Company has been duly
executed and delivered by such Company and constitutes a valid and binding
obligation of such Company, enforceable against it in accordance with its terms.
Each Transaction Document to be executed and delivered by each Shareholder will
be duly executed and delivered by her and will constitute a valid and binding
-8-
<PAGE>
obligation of her, enforceable against her in accordance with its terms.
7.3 Consents and Approvals. Except for the consents specified in the
----------------------
Disclosure Letter (the "Required Consents"), neither the execution or delivery
by either Company or either Shareholder of the Transaction Documents to which it
or she is a party, nor the performance of the Transactions to be performed by it
or her thereunder, will require any filing, consent or approval, constitute a
Default or cause any payment obligation to arise under (a) any Regulation or
Court Order to which such Company or Shareholder is subject, (b) the Charter
Documents or bylaws of either Company or (c) any Contract, Government Permit or
other document to which either Company is a party or by which its Business or
Assets may be subject.
7.4 Stock Ownership. The Shareholders own all of the issued and
---------------
outstanding capital stock of each Company.
7.5 Financial Statements. The Disclosure Letter includes correct and
--------------------
complete copies of each Company's audited financial statements consisting of a
balance sheet of each Company as of December 31, 1993, 1994 and 1995 and the
related statements of income, retained earnings and cash flows for the years
then ended (collectively, the "Audited Financial Statements"), each of which
were audited by the firm of Rosen Sapperstein & Friedlander (DeLoitte & Touche
with respect to 1993). The Disclosure Letter also includes correct and complete
copies of each Company's unaudited financial statements consisting of a balance
sheet of each Company as of the end of the period ended February 29, 1996 and
the related statements of income and cash flow for the period then ended (the
"Unaudited Financial Statements," and together with the Audited Financial
Statements, the "Financial Statements"). The Financial Statements of each
Company are consistent with the books and records of such Company, and there are
no material transactions required by GAAP to be recorded in accounting records
that have not been recorded in the accounting records underlying such Financial
Statements. The Financial Statements have been prepared in accordance with GAAP
consistently applied and present fairly the financial position and assets and
liabilities of each Company as of the dates thereof and its cash flows and the
results of its operations for the years and periods then ended, subject to
normal recurring year-end adjustments and the absence of notes in the case of
the Unaudited Financial Statements. The balance sheets of the Companies as of
December 31, 1995 that are included in the Financial Statements are referred to
herein as the "Company Balance Sheets" and the dates thereof is referred to as
the "Balance Sheet Date." The balance sheets of the Companies as of February
29, 1996 that are included in the Financial Statements are referred to herein as
the "Interim Company Balance Sheets" and the dates thereof is referred to as the
"Interim Balance Sheet Date."
7.6 Title to Assets and Related Matters. Each Company has good and
-----------------------------------
marketable title to, valid leasehold interests in or valid licenses to use, all
of its respective Purchased Assets, free from any Encumbrances except those
specified on the Disclosure Letter. The use of the Purchased Assets is not
subject to any Encumbrances (other than those specified in the preceding
sentence), and such use does not materially encroach on the property or rights
of anyone else. All Purchased Assets are in the possession or under the control
of the Companies and consist of all of the Assets necessary to operate the
Businesses as now being operated. Except as set forth
-9-
<PAGE>
on the Disclosure Letter, all of the tangible personal property included in the
Assets (a) is in good working condition and reasonable repair, subject to normal
wear and tear, (b) is usable in the ordinary course of business and (c) conforms
in all material respects with all applicable Regulations relating to its
construction, use and operation. Except for those items subject to the Personal
Property Leases, no Person other than the Companies own any vehicles, equipment
or other tangible assets located on the Real Property that are used by the
Companies in the Businesses (other than immaterial items of personal property
owned by the employees of the Companies) or that are necessary for the operation
of the Businesses.
7.7 Real Property. The Disclosure Letter describes all real estate
-------------
(including, without limitation, a description of how such real estate is zoned)
used in the operation of the Businesses as well as any other real estate that is
in the possession of or leased by the Companies and the improvements (including
buildings and other structures) located on such real estate (collectively, the
"Real Property"), identifies which Real Property is owned and which is leased,
and lists any leases under which any such Real Property is possessed by the
Companies or leased by the Companies to others (the "Real Estate Leases"). The
Disclosure Letter also describes any other real estate previously owned, leased
or otherwise operated by the Companies and the time periods of any such
ownership, lease or operation. To the knowledge of each Company and each
Shareholder, all of the buildings and structures included in the Real Property
are structurally sound, and all of the heating, ventilating, air conditioning,
plumbing, sprinkler, electrical and drainage systems, elevators and roofs, and
all other fixtures, equipment and systems at or serving such Real Property are
generally in good condition, repair and working order and are generally adequate
for the present use of the Real Property by the Companies in conducting their
respective Businesses, and there is no condition which will result in the
termination of the present access from the Real Property to such utility
services and other facilities. The Companies have received no notices, oral or
written, and have no reason to believe, that any governmental body having
jurisdiction over any Real Property intends to exercise the power of eminent
domain or a similar power with respect to all or any part of the Real Property.
Neither Company has received any notices, oral or written, from any governmental
body, and has any reason to believe, that any of the Real Property or any
improvements erected or situate thereon, or the uses conducted thereon or
therein, violate any Regulations of any governmental body having jurisdiction
over such Real Property. The Companies have not received any notice from the
holder of any mortgage, from any insurance company which has issued a policy
with respect to any of the Real Property or from any board of fire underwriters
(or other body exercising similar functions) claiming any defects or
deficiencies in any of the Real Property or suggesting or requesting the
performance of any repairs, alterations or other work to any of the Real
Property.
7.8 Certain Personal Property. The Companies have delivered to the Buyer
-------------------------
a complete fixed asset schedule, describing and specifying the location of all
items of tangible personal property that are included in the Company Balance
Sheets. Except as listed on the Disclosure Letter, since the Balance Sheet
Date, the Companies have not (i) acquired any items of tangible personal
property that has, in any case, a carrying value in excess of $25,000, or an
aggregate carrying value in excess of $50,000 or (ii) disposed of any items of
tangible personal property (other than inventory) that have, in any case, an
initial carrying value in excess of $25,000, or
-10-
<PAGE>
an initial aggregate carrying value in excess of $50,000.
7.9 Personal Property Leases. The Disclosure Letter lists all assets and
------------------------
property (other than Real Property) that have been used in the operation of the
Businesses and that are possessed by the Companies under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $5,000 (each, an "Immaterial Lease"). The Disclosure Letter also
lists the leases under which such assets and property listed on the Disclosure
Letter are possessed. All of such leases (excluding "Immaterial Leases") are
referred to herein as the "Personal Property Leases."
7.10 Accounts Receivable. The accounts receivable of each Company are bona
-------------------
fide accounts receivable created in the ordinary course of business and are not
subject to defenses, set-offs or counterclaims and are good and collectible at
the aggregate recorded amounts thereof (in each case, net of the reserves for
such items included in the Interim Company Balance Sheets). The Disclosure
Letter includes a correct and complete accounts and notes receivable aging of
the Companies as of the Interim Balance Sheet Date reflecting the aggregate
dollar amount of all accounts and notes receivable due the Companies which have
been outstanding for: 30 days or less; more than 30 but less than 61 days; more
than 60 but less than 91 days; and more than 90 days.
7.11 Inventory. All inventory of each Company consists of items useable or
---------
saleable in the ordinary course and is valued on each Company's books and
records at the lower of cost or fair market value. The inventory records for
each Company that have been delivered to the Buyer or made available for
inspection by the Buyer are accurate with respect to the data contained therein.
7.12 Accounts Payable. All accounts payable as set forth on the Interim
----------------
Company Balance Sheets or arising since the date thereof have been incurred in
the ordinary course of business.
7.13 Product Warranties and Price Guarantees. The Disclosure Letter sets
---------------------------------------
forth all express product warranties and price guarantees made by the Companies.
7.14 Liabilities. Except as specified on the Disclosure Letter, the
-----------
Companies do not have any Liabilities, and none of the Purchased Assets are
subject to any Liabilities, except (a) as specifically disclosed on the Interim
Company Balance Sheets, (b) Liabilities incurred in the ordinary course since
the Interim Balance Sheet Date, and (c) Liabilities under any Contracts
specifically disclosed on the Disclosure Letter (or not required to be disclosed
because of the term or amount involved) that were not required under GAAP to
have been specifically disclosed or reserved for on the Interim Company Balance
Sheets.
-11-
<PAGE>
7.15 Taxes. The Companies have duly filed all Federal, state, local,
-----
foreign and other tax returns that are required to be filed and that were due
prior to the Closing Date, and have paid all taxes and assessments shown as
being due pursuant to such returns or pursuant to any assessment received. All
taxes and other assessments and levies that the Companies have been required by
law to withhold or to collect have been duly withheld and collected and have
been paid over to the proper governmental authorities or are properly held by
the Companies for such payment. There are no proceedings or other actions, nor
is there any basis for any proceedings or other actions, for the assessment or
collection of additional taxes of any kind for any period for which returns have
or should have been filed.
7.16 Subsidiaries. Neither Company owns, directly or indirectly, any
------------
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
7.17 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as disclosed on the Disclosure Letter, there is no
Litigation that is pending or, to knowledge of either Company or either
Shareholder, threatened against or related to either Company. There has been no
Default under any Regulation applicable to either Company, the Assets or the
Businesses, including any Regulation relating to pollution or protection of the
environment, except for any Defaults that have been cured without material cost
or that would not have a Material Adverse Effect, and neither Company has
received any notices from any governmental entity regarding any alleged Default
under any Regulation except those that have been cured without material cost or
that would not have a Material Adverse Effect. There has been no Default with
respect to any Court Order applicable either Company.
(b) Without limiting the generality of Section 7.17(a), except as
described on Disclosure Letter, there has not been any Environmental Condition
(i) at any premises at which the Businesses of the Companies (or any predecessor
of either Company) is currently conducted, (ii) at any property owned, leased or
operated at any time by either Company (or any predecessor of either Company) or
any Person controlled by any Affiliate of either Company, or (iii) at any
property at which wastes have been deposited or disposed by or at the behest or
direction of either Company (or any predecessor of either Company) or any Person
controlled by any Affiliate of either Company, nor has either Company received
written notice of any such Environmental Condition. "Environmental Condition"
means any condition or circumstance, including the presence of Hazardous
Substances, whether created by either Company (or any predecessor of either
Company) or any third party, at or relating to any such property or premises
that would (i) require abatement or correction under an Environmental Law, (ii)
give rise to any civil or criminal liability under an Environmental Law, or
(iii) create a public or private nuisance. "Environmental Law" means all
Regulations and Court Orders relating to pollution or protection of the
environment as well as any principles of common law under which a Person may be
held liable for the release or discharge of any materials into the environment.
(c) The Companies have delivered to the Buyer correct and complete
copies of
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<PAGE>
any written reports, studies or assessments in the possession or control of
either Company or either Shareholder that relate to any Environmental Condition.
Neither any Company or any Shareholder knows of any other written reports,
studies or assessments, whether or not in the possession or control of either
Company or either Shareholder, that relate to any Environmental Condition.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) each Company has obtained and is in full compliance with all
Permits, all of which are listed on the Disclosure Letter along with their
respective expiration dates, that are required for the ownership of the Assets
or operation of the Business and Assets as currently operated by such Company,
(ii) all of the Permits are currently valid and in full force and (iii) each
Company has filed such timely and complete renewal applications as may be
required with respect to its Permits. To the knowledge of each Company and each
Shareholder, no revocation, cancellation or withdrawal of a Permit has been
threatened.
7.18 Contracts.
---------
(a) The Disclosure Letter lists each Contract of the following types
to which either Company is a party or by which it is bound:
(i) Contracts with any present or former stockholder, director,
officer, employee, partner or consultant or with any Affiliate of
either Shareholder;
(ii) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third
party, in excess of $10,000 with respect to any one supplier or other
party;
(iii) Contracts to sell or supply products, inventory or other
property to, or to perform services for, a third party, that involve
an amount in excess of $10,000 with respect to any one customer or
other party;
(iv) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(v) Contracts limiting or restraining it from engaging or
competing in any lines or business with any Person;
(vi) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(vii) Contracts to lease to or to operate for any other party
any asset that involve an amount in excess of $10,000 in any
individual case (other than Real Estate Leases and Personal Property
Leases identified on the Disclosure Letter);
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<PAGE>
(viii) Any notes, debenture, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers, directors,
partners or stockholders or with Affiliates of either Shareholder or
any members of her immediate families), or agreements or arrangements
for a line of credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other Person;
(ix) Contracts creating or recognizing any Encumbrances with
respect to any Assets;
(x) Contracts with distributors, manufacturers sales
representatives or other sales agents;
(xi) Contracts which relate in whole or in part to any software,
technical assistance or other know-how or other Intellectual Property
right;
(xii) Contracts for any capital expenditure or leasehold
improvement in excess of $10,000; and
(xiii) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and
those described in any of (i) through (xii) above) not made in the
ordinary course of business or which are material to the Business or
the assets.
(b) Neither Company is in Default under any Contract. To the
knowledge of each Company and each Shareholder, neither Company has received any
communication from, or given any communication to, any other party indicating
that such Company or such other party, as the case may be, is in Default under
any Contract. To the knowledge of each Company and each Shareholder, none of
the other parties to any such Contract to which a Company is a party is in
Default thereunder.
7.19 Insurance. The Disclosure Letter lists all policies or binders of
---------
insurance held by or on behalf of the Companies or relating to the Business or
any of the Assets, specifying with respect to each policy the insurer, the type
of insurance, the amount of the coverage, insured, the expiration date, the
policy number and any pending claims thereunder. There is no Default with
respect to any such policy or binder, nor has there been any failure to give any
notice or present any claim under any such policy or binder in a timely fashion
or in the manner or detail required by the policy or binder, except for any of
the foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that has been
received by either Company, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
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7.20 Intellectual Property and Software Products. Neither Company
-------------------------------------------
currently uses nor has it previously used in the operation of its Business
(including in the development or marketing of products and services) any
Copyright, Patent or Trademark except for those listed on the Disclosure Letter.
Except as listed in the Disclosure Letter, each Company owns or has the lawful
right to use all Intellectual Property that is used or has been used in the
operation of its Business. All of the Intellectual Property listed in the
Disclosure Letter is owned by the Companies free and clear of any Encumbrances,
or is used pursuant to an agreement that is described in the Disclosure Letter.
Neither Company infringes upon or unlawfully or wrongfully uses any Intellectual
Property rights owned or claimed by another Person. Neither Company is in
Default, nor has it received any notice of any claim of infringement or any
other claim or proceeding, with respect to any such Intellectual Property. No
current or former employee of either Company and no other Person owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, and including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
7.21 Employee Relations.
------------------
(a) Except as described in the Disclosure Letter, neither Company is
(a) a party to or otherwise bound by any collective bargaining or other type of
union agreement, (b) a party to, involved in or, to the knowledge of either
Company or either Shareholder, threatened by, any labor dispute or unfair labor
practice charge, or (c) currently negotiating any collective bargaining
agreement, and neither Company has experienced any work stoppage during the last
three years. The Disclosure Letter sets forth the names and current annual
salary rates or current hourly wages of all present employees of each Company.
(b) Each Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. There are no
outstanding claims against either Company (whether under Regulation, Contract,
policy, or otherwise) asserted by or on behalf of any present or former employee
or job applicant of such Company on account of or for (i) overtime pay, other
than overtime pay for work done in the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) any amount of
vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the current fiscal year, (iv)
any amount of severance pay or similar benefits, (v) unemployment insurance
benefits, (vi) workers' compensation or disability benefits, (vii) any violation
of any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including but not limited to The Workers
Adjustment and Retraining Act, (viii) any violation of any statute, ordinance,
order, rule or regulations relating to employee "whistleblower" or "right-to-
know" rights and protection, (ix) any violation of any statute, ordinance,
order, rule or regulations relating to the employment obligations of federal
contractors or subcontractors or (x) any violation of any Regulation relating to
minimum wages or maximum hours of work, and neither the Company nor the
Shareholder is aware of any such claims which have not been asserted. No Person
(including any governmental body) has asserted or threatened any claims against
either Company under or arising out of any Regulation relating to
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discrimination or occupational safety in employment or employment practices.
7.22 ERISA.
-----
(a) The Disclosure Letter contains a complete list of all Benefit
Plans sponsored or maintained by each Company or under which such Company may be
obligated. The Companies has delivered to the Buyer, to the extent applicable,
(i) accurate and complete copies of all Benefit Plan documents and all other
material documents relating thereto, including all summary plan descriptions,
summary annual reports and insurance contracts, (ii) accurate and complete
detailed summaries of all unwritten Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Benefit Plans for which financial statements or actuarial reports
are required or have been prepared and (iv) accurate and complete copies of all
annual reports for all Benefit Plans (for which annual reports are required)
prepared within the last three years. Each Benefit Plan providing benefits that
are funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the Benefit Plan in the Disclosure Letter.
(b) All Benefit Plans conform (and at all times have conformed) to,
and are being administered and operated (and at all times have been administered
and operated) in material compliance with, the requirements of ERISA, the Code
and all other applicable Regulations. All returns, reports and disclosure
statements required to be made under ERISA and the Code with respect to all
Benefit Plans have been timely filed or delivered. There have not been any
"prohibited transactions," as such term is defined in Section 4975 of the Code
or Section 406 of ERISA involving any of the Benefit Plans, that could subject
either Company to any penalty or tax imposed under the Code or ERISA.
(c) Except as set forth in the Disclosure Letter, any Benefit Plan
that is intended to be qualified under Section 401(a) of the Code and exempt
from tax under Section 501(a) of the Code has been determined by the Internal
Revenue Service to be so qualified, and such determination remains in effect and
has not been revoked. To the knowledge of either Company or either
Shareholder, nothing has occurred since the date of any such determination that
would affect adversely such qualification or exemption, or result in the
imposition of excise taxes or income taxes on unrelated business income under
the Code or ERISA with respect to any Benefit Plan.
(d) Neither Company has a defined benefit plan subject to Title IV of
ERISA, nor does it have a current or contingent obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA). Neither Company has
any liability with respect to any employee benefit plan (as defined in Section
3(3) of ERISA) other than with respect to the Benefit Plans. For purposes of
this Section 7.22(d), the term "Company" shall include any corporation that is a
member of any controlled group of corporations (as defined in Section 414(b) of
the Code) that includes each Company, any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with either Company, any organization (whether or not incorporated) that
is a member of an affiliated service
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<PAGE>
group (as defined in Section 414(m) of the Code) that includes either Company
and any other entity required to be aggregated with such Company pursuant to the
regulations issued under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of either Company or
either Shareholder, threatened claims by or on behalf of any Benefit Plans, or
by or on behalf of any individual participants or beneficiaries of any Benefit
Plans, alleging any breach of fiduciary duty on the part of either Company or
any of its officers, directors or employees under ERISA or any other applicable
Regulation, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of either the Company or
the Shareholder, any basis for any such claim. To the knowledge of either
Company or either Shareholder, the Benefit Plans are not the subject of any
investigation, audit or action by the Internal Revenue Service, the Department
of Labor or the Pension Benefit Guaranty Corporation ("PBGC").
(f) Each Company has made all required contributions under its
Benefit Plans, including the payment of any premiums payable to the PBGC and
other insurance premiums on a timely basis, or such contributions are properly
accrued on such Company's Financial Statements.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, and (iv) all Welfare Plans may be amended
or terminated by the Company at any time on or after the Closing Date.
7.23 Corporate Records. The minute books of each Company contain complete
-----------------
and correct copies of its Charter Documents and bylaws and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders. The stock record book of each Company is complete and correct.
7.24 Absence of Certain Changes. Except as contemplated by this Agreement,
--------------------------
since the Balance Sheet Date, except as mutually agreed, each Company has
conducted its Business in the ordinary course and there has not been with
respect to such Company:
(a) any material adverse change in its Business, Assets or
Liabilities;
(b) any change or amendment in its Charter Documents;
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(c) any distribution or payment declared or made in respect of its
capital stock by way of dividend, purchase or redemption of shares or otherwise;
(d) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
(e) any sale, assignment or transfer of any material Assets, or any
additions to or transactions involving any material Assets, other than those
made in the ordinary course of business;
(f) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(g) any payment to any Affiliate of such Company, except as specified
in the Disclosure Letter;
(h) any change in the accounting policies followed by such Company or
the method of applying such principles; or
(i) any capital expenditure commitment involving in any individual
case, or series of related cases, more than (i) $25,000 or (ii) an amount that
would cause the sum of all such capital expenditure commitments to exceed
$50,000.
7.25 Customers. Each Company has used its reasonable business efforts to
---------
maintain and currently maintains, good working relationships with all of its
customers. The Disclosure Letter contains a list of the names of each of the
five customers that, for the year ended December 31, 1995, were the largest
dollar volume customers of products and services sold and provided by each
Company. Except as specified on the Disclosure Letter, none of such customers
has given either Company notice terminating, cancelling or threatening to
terminate or cancel any Contract or relationship with such Company.
7.26 Finder's Fees. Except for Anne Gayhart, whose fee will be paid by the
-------------
Company, no Person retained by the either Company or either Shareholder is or
will be entitled to any commission or finder's or similar fee in connection with
the Transactions.
7.27 Purchase for Investment. The Companies are acquiring the Shares for
-----------------------
investment purposes only and are not acquiring them with an intent to distribute
or resell them in violation of applicable Federal or state securities laws.
7.28 Additional Information. The Disclosure Letter accurately lists the
----------------------
following:
(a) the names of all officers and directors of each Company;
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(b) the names and addresses of every bank or other financial
institution in which each Company maintains an account (whether checking, saving
or otherwise), lock box or safe deposit box, and the account numbers and names
of the Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of each Company;
(d) the names of all Persons holding powers of attorney from each
Company and a summary statement of the terms thereof; and
(e) all names under which each Company has conducted any Business or
which it has otherwise used at any time during the past five years.
7.29 Transactions with Affiliates. Except as set forth on the Disclosure
----------------------------
Letter, no affiliate of any Shareholder or any member of her immediate family,
owns or has a controlling ownership interest in any corporation or other entity
that is a party to any Contract with respect to the Assets or Business.
7.30 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by either
Company or either Shareholder in this Agreement, the Disclosure Letter, the
Exhibits to this Agreement, any other Transaction Document or in any of the
documents, certificates and instruments delivered or to be delivered by either
Company or either Shareholder pursuant to this Agreement and each Company and
each Shareholder has not omitted to state any fact necessary to make statements
made herein or therein not materially misleading.
8. Representations and Warranties of the Buyer. The Buyer hereby represents
-------------------------------------------
and warrants to each Company and each Shareholder as follows:
8.1 Corporate. The Buyer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware. The
Buyer has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions to
be performed by it thereunder, and such execution, delivery and performance by
it have been duly authorized by all necessary corporate action.
8.2 Enforceability. The Transaction Documents to which the Buyer is a
--------------
party constitute valid and binding obligations of the Buyer, enforceable against
it in accordance with their terms.
8.3 Consents and Approvals. Neither the execution and delivery by the
----------------------
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which it is subject, (b) its Charter Documents or
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<PAGE>
bylaws or (c) any Contract, Permit or other document to which it is a party or
by which its properties or other assets may be subject.
8.4 Stock Ownership; Valuation. The total authorized capital stock of the
--------------------------
Buyer consists of 200,000,000 shares of Buyer Common Stock (of which 8,510,000
shares are issued and outstanding) and 5,000,000 shares of preferred stock, par
value $.01 per share (of which no shares are outstanding). All of the shares
are duly and validly authorized and issued, fully paid and non-assessable. Upon
completion of the Transactions at the Closing, the Companies shall receive valid
title to all of the Shares, free and clear of all Encumbrances (other than
restrictions imposed generally by applicable securities laws).
8.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions, except for Legg Mason Wood Walker, Inc., which fee shall be paid
by Buyer.
8.6 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Buyer in
this Agreement, the Disclosure Letter, the Exhibits to this Agreement or in any
of the documents, certificates and instruments delivered or to be delivered by
the Buyer pursuant to this Agreement and the Buyer has not omitted to state any
fact necessary to make statements made herein or therein not materially
misleading.
9. Certain Agreements.
------------------
9.1 Access. Between the date of this Agreement and the Closing Date, the
------
Companies shall (a) give Buyer and its authorized representatives and legal
counsel reasonable access to all properties, books, Contracts, Assets and
records of the Companies, (b) permit Buyer to make inspections thereof, and (c)
cause its officers and its advisors to furnish the Buyer with such financial and
operating data and other information with respect to the Business of the
Companies and to discuss with the Buyer and its authorized representatives and
legal counsel the affairs of the Companies, all as Buyer may from time to time
reasonably request.
9.2 Regulatory Matters. The Companies and the Buyer shall (a) file with
------------------
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the transactions and (b)
cooperate with each other as they may reasonably request in connection with the
foregoing.
9.3 Exclusivity. From the date hereof until the earlier of the Closing or
-----------
the termination of this Agreement, neither Company nor either Shareholder or any
of their respective agents shall, directly or indirectly, solicit or negotiate
or enter into any agreement with any other Person, or provide any nonpublic
information to any other Person, with respect to or in furtherance of any
proposal for a merger or business combination involving, or acquisition of any
interest in, or (except in the ordinary course of business) sale of assets by,
the Companies, except for the acquisition of the Purchased Assets by Buyer.
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<PAGE>
9.4 Update Disclosure Letter. Between the date hereof and the Closing
------------------------
Date, the Companies and the Shareholders shall promptly disclose to Buyer in
writing any information set forth in the Disclosure Letter which is no longer
applicable and any information of the nature of that set forth in the Disclosure
Letter which arises after the date hereof and which would have been required to
be included in the Disclosure Letter if such information had been obtained on
the date of delivery thereof.
9.5 Best Efforts. Each party shall use their best efforts to cause all
------------
conditions to the performance of the parties hereto that are within its control
to be satisfied and the Transactions consummated within 90 days after the date
of this Agreement.
9.6 Financial Information. Until the Closing, each Company shall provide
---------------------
the Buyer, within 15 days after the end of each month, with an unaudited
consolidated balance sheet and income statement of such Company as of and for
the month then ended, prepared on the same basis as the interim financial
statements referred to in Section 7.5, and certified as such by the chief
financial officer of such Company.
9.7 Restrictive Covenants.
---------------------
(a) Each Shareholder covenants that for the period ending five years
after the Closing Date, she will not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a partner, principal,
agent, representative, consultant or otherwise with or use or permit her name to
be used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Buyer at any time
during such period within any portion of the United States in the direct
marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail and customer retention (the "Restricted Business"). It
is recognized by the Buyer and each Shareholder that the Restricted Business is
and is expected to continue to be conducted throughout the United States and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenant set forth in Section 9.7(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by a Shareholder as a passive investment of not more than
five percent (5%) of any class of securities of any corporation which is engaged
in any of the foregoing businesses having a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.
(b) Each Shareholder further covenants that for the period ending
five years after the Closing Date, she will not, either directly or indirectly,
(i) call on or solicit any Person who or which within the past two years has
been a customer with respect to the Restricted Business with respect to the
activities prohibited by Section 9.7(a) or (ii) solicit the employment of any
person who is employed by the Buyer during such period on a full or part-time
basis.
(c) Each Shareholder recognizes and acknowledges that by reason of
his ownership of and employment by the Companies she has had access to
Confidential Information
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relating to the Restricted Business. Each Shareholder acknowledges that such
Confidential Information is a valuable and unique asset and covenants that she
will not disclose any such Confidential Information after the Closing Date to
any person for any reason whatsoever, unless such information (a) is in the
public domain through no wrongful act of such Shareholder, (b) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (c) except as may be required by law.
(d) Each Shareholder acknowledges that the restrictions contained in
this Section 9.7 are reasonable and necessary to protect the legitimate
interests of the Buyer, and that any violation will result in irreparable injury
to the Buyer.
(e) Each Shareholder agrees that the Buyer shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 9.7, which rights
shall be cumulative and in addition to any other rights or remedies to which the
Buyer may be entitled. In the event that any of the provisions of this Section
9.7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) The covenants set forth in this Section 9 shall be in addition to
and not in limitation of any similar covenants set forth in any employment
agreement between the Buyer or any of its Affiliates and either Shareholder.
9.8 Required Consents. Each Company and each Shareholder shall use their
-----------------
best efforts to take, or cause to be taken, such action to execute and deliver,
or cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable to
obtain the Required Consents.
9.9 Release of Personal Guarantees. The Buyer shall cause all obligations
-------------------------------
of the Company which have been guaranteed by any Shareholder to either be
retired or use its best efforts to arrange to have such guarantees released;
provided, however, to the extent that the Company and the Buyer are unable to
- -------- -------
effectuate any such release, Buyer shall indemnify and holds harmless each
Shareholder from and against any liabilities, claims, demands, judgments,
losses, costs, damages or expenses whatsoever (including reasonable attorneys'
fees and disbursements incurred by them in connection therewith) that she may
sustain, suffer or incur and that result from, arise out of or relate to such
guarantees.
9.10 Retention of Proceeds. Each Company shall at the Closing, fully
---------------------
satisfy or cause to have been satisfied all third party Liabilities and
obligations of such Company which are not also Assumed Liabilities. For a
period of one year following the Closing, neither Company shall dissolve,
liquidate, sell all or substantially all of its remaining assets or adopt any
resolution, enter into any agreement, or commence upon any plan to take any such
action, which would result in
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less than twenty percent of the Purchase Price being retained by the Companies.
This requirement shall be deemed satisfied by the pledge of the Shares pursuant
to the terms of the Pledge Agreement substantially in the form attached as
Exhibit D hereto.
9.11 Delivery of Promissory Note. Within seven business days following the
---------------------------
date of this Agreement, the Companies shall execute and deliver the Promissory
Note to the Buyer and the Buyer shall advance the proceeds under the Promissory
Note to the Companies pursuant to wire transfer instructions previously provided
by the Companies for such purpose.
9.12 CRW Market Research. On or prior to the Closing, CRW shall wind down
-------------------
the operation of its Market Research Division and use its best efforts to make
available the employees of such division for employment with The Response Center
Inc., an Initial Tarket.
9.13 Lock-Up Agreements. In connection with the Initial Public Offering,
------------------
for good and valuable consideration, each Company and each Shareholder each
hereby irrevocably agree that for a period of 360 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except as contemplated in Section 3.7 hereto), directly or indirectly, any
shares of Buyer Common Stock or any securities convertible into or exercisable
or exchangeable for shares of Buyer Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Buyer Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Buyer Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities Inc. Neither either Company nor
either Shareholder, without the prior written consent of J.P. Morgan Securities
Inc., shall exercise any demand, mandatory, piggyback, optional or any other
registration rights, if any such rights exist, for a period of 360 days from the
Effective Date. Each Company and each Shareholder agree that the foregoing
shall be binding upon their transferees, successors, assigns, heirs, and
personal representatives and shall benefit and be enforceable by the
underwriters in the Initial Public Offering. In furtherance of the foregoing,
the Buyer and its transfer agent, are hereby authorized to decline to make any
transfer of securities if such transfer would constitute a violation or breach
of this Section 9.13.
9.14 Options and Warrants.
--------------------
(a) At or after the Closing, the Buyer shall grant options (each of
which shall be exercisable at a price per share equal to the Initial Public
Offering price) under its 1996 Equity Compensation Plan exercisable for at least
an aggregate of 18,900 shares of Buyer Common Stock. Such options shall be
granted to certain employees of the Companies (other than Ms. Paterra or Ms.
Schweitzer) and shall be subject to a three-year vesting period.
(b) At the Closing, the Buyer shall grant a warrant to each
Shareholder exercisable for 22,500 shares of Buyer Common Stock and pursuant to
the other terms of the warrant
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substantially in the form attached as Exhibit 9.14 hereto.
10. Conduct of the Business Prior to the Closing.
--------------------------------------------
10.1 Operation in Ordinary Course. Between the date of this Agreement and
----------------------------
the Closing Date, each Company shall conduct its Business in all material
respects in the ordinary course and to use commercially reasonable efforts to
maintain all current business relationships.
10.2 Business Organization. Between the date of this Agreement and the
---------------------
Closing Date, each Company shall use commercially reasonable efforts, to
preserve substantially intact its business organization and keep available the
services of the present officers and employees of such Company.
10.3 Corporate Organization. Between the date of this Agreement and the
----------------------
Closing Date, neither Company shall amend its Charter Document or bylaws and
shall not:
(a) issue, sell or otherwise dispose of any of its capital stock, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its capital stock;
(b) reclassify, split up or otherwise change its capital stock;
(c) be party to any merger, consolidation or other business
combination;
(d) sell, lease, license or otherwise dispose of any of its Assets
(including, but not limited to rights with respect to its Intellectual
Property), except in the ordinary course of business; or
(e) organize any subsidiary or acquire any equity securities of any
Person or any equity or ownership interest in any business.
10.4 Business Restrictions. Between the date of this Agreement (the
---------------------
Balance Sheet Date with respect to Section 10.4(a)) and the Closing Date, except
as mutually agreed, neither Company shall:
(a) declare, make or pay any dividends or other distributions other
than dividends limited to such an amount equal to the product of (i) the net
income of the Company between January 1, 1996 and the Closing Date multiplied by
(ii) the federal and state income tax rate applicable to the Shareholders;
(b) borrow any funds or otherwise become subject to, whether directly
or by way of guarantee or otherwise, any indebtedness for borrowed money;
(c) create any material Encumbrance on any of its material Assets;
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(d) except in the ordinary course of business, increase in any manner
the compensation of any director or officer or increase in any manner the
compensation of any class of employees;
(e) create or materially modify any bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
(f) make any capital expenditure or acquire any property or assets
(other than raw materials and supplies) for a cost in excess of $50,000 in any
one case or $100,000 in the aggregate;
(g) enter into any agreement that materially restricts the Company
from carrying on the Business;
(h) cancel any material debts of others or waive any material claims
or rights; or
(i) act or omit from taking any action which would cause any of the
representations and warranties in Section 7 to be inaccurate.
10.5 Duty of Shareholders. The Shareholders shall cause each Company to
--------------------
take or refrain from taking such actions set forth elsewhere in this Section 10.
11. Survival of Representations; Indemnification.
--------------------------------------------
11.1 Survival of Representations, Etc. The representations and warranties
---------------------------------
given by each Company, each Shareholder and the Buyer under this Agreement shall
survive the Closing for a period of two years after the Closing Date, except
that all representations and warranties contained in Sections 7.1, 7.2, 7.3,
7.4, 7.15, 7.17, 7.22, 7.26, 8.1, 8.3 and 8.4 shall survive the Closing for the
period of the applicable statute of limitations plus any extensions or waivers
thereof.
11.2 Indemnification by the Shareholders and the Companies. The
-----------------------------------------------------
Shareholders and the Companies, jointly and severally, hereby agree to indemnify
and hold harmless the Buyer, and its successors and assigns, (each, an
"Indemnified Buyer Party") from and against any and all Liabilities, claims,
demands, judgments, settlement payments, losses, costs, damages and expenses
whatsoever (including reasonable attorneys', consultants' and other professional
fees and disbursements of every kind, nature and description incurred by such
Indemnified Buyer Party in connection therewith) (collectively, "Damages") that
such Indemnified Buyer Party may sustain, suffer or incur that result from,
arise out of or relate to (a) any Excluded Liability, (b) any breach of or any
inaccuracy in any representation, warranty, covenant or agreement of any Company
or either Shareholder contained in this Agreement, including any breach of the
obligation to indemnify hereunder, (c) any Liability or obligation of any
Company involving an
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Environmental Condition or which otherwise relates to, or involves a claim,
Liability or obligation which arises out of or is based upon, any Environmental
Law, to the extent that such Liability or obligation relates to or arises out
of, in whole or in part, any activity occurring, condition existing, omission to
act or other matter existing prior to the Closing Date, (d) any Liability or
obligation of either Company or either Shareholder involving taxes due and
payable by, or imposed with respect to either Company or either Shareholder for
any all taxable periods ending on or prior to the Closing Date (whether or not
such taxes have been due and payable) or (e) other specified indemnities based
upon due diligence investigation.
11.3 Indemnification by the Buyer. The Buyer hereby agrees to indemnify
----------------------------
and hold harmless each Company (each, an "Indemnified Seller Party") from and
against any Damages that any Indemnified Seller Party may sustain, suffer or
incur that result from, arise out of or relate to any breach of or inaccuracy in
any representation, warranty, covenant or agreement of the Buyer contained in
this Agreement, including any breach of the obligation to indemnify hereunder.
11.4 Limitation on Liabilities.
-------------------------
(a) Notwithstanding anything in this Agreement to the contrary, an
indemnifying party shall not have any liability to an indemnified party in
respect of any claim for indemnification for the breach of any representation or
warranty contained herein (i) unless a claim with respect thereto is delivered
to the indemnifying party specifying the factual basis of the claim in
reasonable detail to the extent then known by the indemnifying party prior to
the termination of the survival period for such representation and warranty set
forth in Section 11.1 hereof and (ii) until the damages to the indemnified
party, after taking into account Section 11.4(a) hereof, exceed a cumulative
aggregate total of $100,000, but then to the full extent of such Damages.
(b) In addition, the indemnification liability of the Companies and
the Shareholders under Section 11.2 of this Agreement shall be limited to an
aggregate of $10,000,000 in the case of any claim or claims for breaches of
representations and warranties of either Company or either Shareholder made
herein or in any other Transaction Document.
11.5 Procedure for Claims.
--------------------
(a) An Indemnified Buyer Party or an Indemnified Seller Party that
desires to seek indemnification under any part of this Section 11 (each, an
"Indemnified Party") shall give notice (a "Claim Notice") to each party
responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor"). Such notice shall briefly explain the nature of the claim and
the parties known to be involved, and shall specify the amount thereof. If the
matter to which a claim relates shall not have been resolved as of the date of
the Claim Notice, the Indemnified Party shall estimate the amount of the claim
in the Claim Notice, but also specify therein that the claim has not yet been
liquidated (an "Unliquidated Claim"). If an Indemnified Party gives a Claim
Notice for an Unliquidated Claim, the Indemnified Party shall also give a second
Claim
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Notice (the "Liquidated Claim Notice") within 60 days after the matter giving
rise to the claim becomes finally resolved, and the Liquidated Claim Notice
shall specify the amount of the claim. Each Indemnitor to which or whom a Claim
Notice is given shall respond to any Indemnified Party that has given a Claim
Notice (a "Claim Response") within 30 days (the "Response Period") after the
later of (i) the date that the Claim Notice is given or (ii) if a Claim Notice
is first given with respect to an Unliquidated Claim, the date on which the
Liquidated Claim Notice is given. Any Claim Notice or Claim Response shall be
given in accordance with the notice requirements hereunder, and any Claim
Response shall specify whether or not the Indemnitor giving the Claim Response
disputes the claim described in the Claim Notice. If any Indemnitor fails to
give a Claim Response within the Response Period, such Indemnitor shall be
deemed not to dispute the claim described in the related Claim Notice. If any
Indemnitor elects not to dispute a claim described in a Claim Notice, whether by
failing to give a timely Claim Response or otherwise, then the amount of such
claim shall be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the applicable Response Period the amount to which
such Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 11, the Indemnitor and
the Indemnified Party shall seek to resolve such dispute through negotiations
and, if such dispute is not resolved within twenty days, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to 10%.
11.6 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 11 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or if so requested by such Indemnified Party, any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided, however, that such
Indemnified Party shall have the right to participate at its own expense in the
defense of such Action; and provided, further, that the Indemnitor shall not
consent to the entry of any judgment or enter into any settlement, except with
the written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any such Action or (b) grants the
claimant or plaintiff any injunctive relief against the Indemnified Party. Any
failure to give prompt notice under this Section 11.6 shall not bar an
Indemnified Party's right to claim indemnification under this Section 11, except
to the extent that an Indemnitor shall have been harmed by such failure.
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11.7 Exceptions to Limitations. Nothing herein shall be deemed to limit
-------------------------
or restrict in any manner any rights or remedies which the Buyer has, or might
have, at law, in equity or otherwise, against either Company or either
Shareholder based on a willful misrepresentation or willful breach of warranty
by either Company or either Shareholder hereunder.
11.8 Effect of Investigation. Any claim for indemnification shall not be
-----------------------
invalid as a result of any investigation by or opportunity to investigate
afforded to Buyer.
11.9 Contingent Claims. Nothing herein shall be deemed to prevent an
-----------------
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made; provided, however, that any such potential or contingent claim or
demand must mature into an actual claim or demand not later than three years
after the Closing Date.
12. Termination.
-----------
12.1 Grounds for Termination. This Agreement may be terminated at any
-----------------------
time prior to the Closing Date:
(a) by mutual written consent of the Buyer and the Companies;
(b) by Buyer within 60 days after the date hereof if its due
diligence investigation and review of the Businesses, the Purchase Assets and
the prospects and obligations of each Company shall not have been completed to
its sole satisfaction;
(c) by either Company or by Buyer, if the Closing has not occurred by
the Termination Date; provided, however, that the right to terminate this
Agreement under this paragraph (b) of Section 12.1 shall not be available to any
party that has breached any of its covenants, representations or warranties in
this Agreement in any material respect (which breach has not been cured);
(d) by either Company or the Buyer, if there shall be any Regulation
that makes consummation of the Transactions illegal or otherwise prohibited or
if any Court Order enjoining such Company or the Buyer from consummating the
Transactions is entered and such Court Order shall become final and
nonappealable;
(e) by the Buyer, if either Company shall have breached any of its
covenants hereunder or if the representations and warranties of either Company
contained in this Agreement or in any certificate or other writing delivered by
such Company pursuant hereto shall not be true and correct, except for such
changes as are contemplated by this Agreement, and, in either event, if such
breach is subject to cure, such Company has not cured such breach within 10
business days of the Buyer's notice of an intent to terminate;
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(f) by either Company, if the Buyer shall have breached any of its
covenants hereunder or if the representations and warranties of the Buyer
contained in this Agreement or in any certificate or other writing delivered by
the Buyer pursuant hereto shall not be true and correct, except for such changes
as are contemplated by this Agreement, and, in either event, if such breach is
subject to cure, the Buyer has not cured such breach within 10 business days of
a Company's notice of an intent to terminate.
(g) by the Companies in the event that filing of the Registration
Statement has not occurred by July 1, 1996, unless any delay in meeting such
filing date resulted from failure or inability of the Companies or the
Shareholders to provide financial or other information necessary to enable such
filing by such date.
(h) by the Companies, if the Registration Statement has not been
declared effective by September 15, 1996, unless Buyer advances additional
financing as requested by the Company of up to $500,000, on the same terms as
the Promissory Note. Funds shall be provided within seven business days of the
receipt of notice from the Companies.
12.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 12.1, any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party.
13. Payment of Expenses. Each party hereto shall pay their own expenses for
-------------------
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions; provided, however, that the
-------- -------
Buyer shall pay the expenses incurred by the Companies independent public
accounting firm in connection with the Transactions and up to $100,000 of the
Companies' legal expenses if the Transactions are consummated.
14. Contents of Agreement. This Agreement, together with the other Transaction
---------------------
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
15. Amendment, Parties in Interest, Assignment, Etc. This Agreement may be
------------------------------------------------
amended, modified or supplemented only by a written instrument duly executed by
each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. The parties hereto shall execute and deliver any and all
documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
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16. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
17. Remedies. The remedies provided by Section 11 shall constitute the
--------
exclusive remedies for the matters covered thereby. With respect to any matters
not covered by such Section, any party shall be entitled to such rights and
remedies as such party may have at law or in equity or otherwise for any breach
of this Agreement, including the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or diminished
by the remedies provided hereunder.
18. Notices. All notices that are required or permitted hereunder shall be in
-------
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto given in accordance with the foregoing notice procedures:
If to the Buyer:
443 S. Gulph Road
King of Prussia, PA 19406
FAX: 610-962-5109
Attention: J. Brian O'Neill, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Stephen M. Goodman, Esquire
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If to the Company:
190 Admiral Cochran Dr.
Annapolis, MD 21401
If to Schweitzer:
1034 Shore View Circle
Crownsville, MD
If to Paterra:
16 Craig Ave.
Peidmont, California
with a required copy to:
Lee Benedict, Esquire
Gebhardt & Smith
9th Floor, The World Trade Center
Baltimore, MD 21202
19. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
20. Consent to Jurisdiction; Service of Process, etc.
-------------------------------------------------
(a) Each party hereto irrevocably and unconditionally (i) agrees that
any suit, action or other legal proceeding (collectively, "Suit") arising out of
this Agreement may be brought and adjudicated in the United States District
Court for the Eastern District of Pennsylvania or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of competent civil
jurisdiction in Chester County, Pennsylvania, (ii) consents and submits to the
non-exclusive jurisdiction of any such court for the purposes of any such Suit
and (iii) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it or he is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper.
(b) Each party hereto also irrevocably consents to the service of any
process, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 18 or by any other method provided or permitted under
applicable law. Each party hereto agrees that final judgment in any Suit (with
all right of appeal having either expired or been waived or exhausted) shall be
conclusive and that the Buyer shall be entitled to enforce such judgment in
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any other jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and amount of
indebtedness arising from such judgment.
21. Securities Law Matters.
----------------------
21.1 Economic Risk; Sophistication.
-----------------------------
(a) Each Company and each Shareholder represents and warrants that it
or she has not relied on any purchaser representative, or on the Buyer or any
other Shareholder, in connection with the acquisition of shares of Buyer Common
Stock hereunder. Each Company and each Shareholder (i) has such knowledge,
sophistication and experience in business and financial matters that it or she
is capable of evaluating the merits and risks of an investment in the shares of
Buyer Common Stock, (ii) fully understands the nature, scope and duration of the
limitations on transfer contained in this Agreement and (iii) can bear the
economic risk of an investment in the shares of Buyer Common Stock and can
afford a complete loss of such investment. Each Company and each Shareholder
have had an adequate opportunity to ask questions and receive answers from the
officers of the Buyer concerning any and all matters relating to the
transactions described herein including without limitation the background and
experience of the officers and directors of the Buyer, the plans for the
operations of the business of the Buyer, the business, operations and financial
condition of the Buyer, and any plans for additional acquisitions and the like.
The Companies and the Shareholders have asked any and all questions in the
nature described in the preceding sentence and all questions have been answered
to their satisfaction.
(b) Each Company and each Shareholder further represents, warrants,
acknowledges and agrees that it or she (i) is acquiring the shares of Buyer
Common Stock under this Agreement for its or her own account, as principal and
not on behalf of other persons, and for investment and not with a view to the
resale or distribution of all or any part of such shares and (ii) will not sell
or otherwise transfer such shares unless, in the opinion of counsel who is
satisfactory to the Buyer, the transfer can be made without violating the
registration provisions of the Securities Act of 1933 Act, as amended (the "1933
Act") and the rules and regulations promulgated thereunder.
(c) The Shareholders and the Companies acknowledge that they have
carefully reviewed the draft of the prospectus included in the Registration
Statement delivered to them by the Buyer on or about May 21, 1996 and have had
the opportunity to discuss with the Buyer any questions or comments they have
with respect to such prospectus.
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21.2 Restriction on Resale. The certificates evidencing the Buyer Common
---------------------
Stock to be received by the Companies and the Shareholders hereunder will bear a
legend substantially in the form set forth below and containing such other
information as the Buyer may deem appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY
LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as counsel for
the Buyer reasonably determines are required under the applicable laws of any
state.
21.3 Piggyback Registration.
----------------------
(a) Right to Piggyback. At any time after the Buyer's initial public
------------------
offering, whenever the Buyer proposes to register any Buyer Common Stock under
the Securities Act of 1933 and the registration form to be used may be used for
the registration of Registrable Securities (a "Piggyback Registration"), the
Buyer will give prompt written notice to all holders of Registrable Securities
and will include in such Piggyback Registration, subject to the allocation
provisions below, all Registrable Securities with respect to which the Buyer has
received written requests for inclusion within 20 days after the Buyer's mailing
of such notice.
(b) Piggyback Expenses. In all Piggyback Registrations, the Buyer
------------------
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Buyer, and the managing
underwriters advise the Buyer in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Buyer will allocate the securities to be included as follows: first, the
securities the Buyer proposes to sell on its own behalf; and second, Registrable
Securities requested to be included in such registration by the Selling
Stockholders, pro rata on the basis of the respective Registrable Securities
owned among the Selling Stockholders.
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(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is initiated as an underwritten secondary registration on behalf of holders of
the Buyer's securities and the managing underwriters advise the Buyer in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Buyer will allocate the securities to be
included on a pro rata basis, based on the number of Registrable Securities
owned among the Selling Stockholders.
(e) Selection of Underwriters. The selection of investment banker(s)
-------------------------
and manager(s) and the other decisions regarding the underwriting arrangements
for the offering will be made by the Buyer.
(f) Indemnification. The Buyer shall indemnify, to the extent
---------------
permitted by law, each Selling Stockholder against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Selling Stockholder expressly for use therein or by such
Stockholder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Buyer has
furnished such Selling Stockholder with a sufficient number of copies of the
same.
(g) Information. In connection with any registration statement in
-----------
which a Selling Stockholder is participating, each such holder will furnish to
the Buyer in writing such information as is reasonably requested by the Buyer
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, the Buyer, its directors and officers and each
person who controls the Buyer (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder specifically for use in preparing the registration statement.
22. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all of
which shall constitute one and the same instrument. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
23. Definitions.
-----------
"Acquisition Base" is defined in Section 3.8.
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<PAGE>
"Acquisition Transactions" is defined in Section 3.8.
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this Agreement and the exhibits hereto.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by the Companies.
"Assumed Liabilities" is defined in Section 3.3.
"Balance Sheet Date" is defined in Section 7.5.
"Benefit Plans" means all employee benefit plans of each Company within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies, arrangements, practices, customs and understandings,
in each case whether formal or informal, that provide benefits of economic value
to any present or former employee of the Company, or present or former
beneficiary, dependent or assignee of any such employee or former employee,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, medical, disability, share purchase or other similar plans,
policies, programs, practices or arrangements.
"Business" means the entire existing business and the operations,
facilities and other Assets of the Companies.
"Buyer" is defined above in the preamble.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 4.1.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Buyer Common Stock" is defined in Section 3.7.
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<PAGE>
"Companies" is defined the preamble.
"Company Balance Sheets" is defined in Section 7.5.
"Confidential Information" means any confidential information or trade
secrets of the Business, including, without limitation, information and
knowledge pertaining to products and services offered, innovations, designs,
ideas, plans, trade secrets, proprietary information, know-how and other
technical information, advertising, distribution and sales methods and systems,
sales and profit figures, customer and client lists, and relationships with
dealers, distributors, wholesalers, customers, clients, suppliers and others who
have business dealings with the Business.
"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is or may be binding on any Person or its property under
applicable law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any Federal, state, local or foreign court or governmental or regulatory body or
arbitrator or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
"Disclosure Letter" is defined in Section 7.
"Employment Agreement" means the Employment Agreement between the Buyer and
the each Shareholder entered into as of the Closing Date, in substantially the
forms attached as Exhibits B and C.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 7.17(b).
"Environmental Law" is defined in Section 7.17(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE>
"Excluded Assets" is defined in Section 3.2.
"Excluded Liabilities" is defined in Section 3.4.
"Financial Statements" is defined in Section 7.5.
"First Round Acquisitions" means the initial round of acquisitions by the
Buyer of other parties.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law, and (iii)
asbestos, asbestos-containing substances or urea formaldehyde insulation.
"Indemnified Buyer Party" is defined in Section 11.2.
"Indemnified Seller Party" is defined in Section 11.4.
"Interim Balance Sheet" is defined in Section 7.5.
"Interim Balance Sheet Date" is defined in Section 7.5.
"Intellectual Property" means any Copyrights, Patents, Trademarks, know-
how, trade secrets (including, without limitation, all results of research and
development), product formulae, franchises, inventions, rights-to-use and other
industrial and intellectual property rights.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition, results of operations, liquidity, products,
competitive position, customers or customer relations of either Company.
"Non-Assignable Contracts" is defined in Section 3.5.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
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"Patents" means all patents and patent applications.
"Permit" means any governmental permit, license, registration, certificate
of occupancy, approval and other authorization.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Personal Property Leases" is defined in Section 7.9.
"Pledge Agreement" means the Pledge Agreement between the Buyer and each
Shareholder entered into as of the Closing Date, in substantially the form
attached as Exhibit D.
"Private Percentages" means the percentage of the outstanding Buyer Common
Stock which will be owned by the Initial Targets (on an aggregate basis with
respect to affiliated Initial Targets) after the consummation of the Acquisition
Transactions but prior to the consummation of the Initial Public Offering and
subject to the adjustments set forth in Section 3.8 hereto.
"Promissory Note" means the promissory note of the Buyer delivered to
TeleSpectrum on April 11, 1996.
"Purchase Price" is defined in Section 3.7.
"Purchased Assets" is defined in Section 3.1.
"Real Estate Leases" is defined in Section 7.7.
"Real Property" is defined in Section 7.7.
"Registrable Securities" means (i) the shares of Buyer Common Stock issued
in Buyer's initial round of acquisitions and (ii) any securities issued or to be
issued with respect to such securities by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have been (A) effectively registered under the 1933 Act and disposed of in
accordance with the registration statement covering them, or (B) transferred
pursuant to Rule 144 promulgated under such Act (or any similar provision then
in force).
"Registration Expenses" means all expenses incident to the Buyer's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges or
electronic quotation systems on which similar securities issued by the Buyer are
then listed, and fees and disbursements of counsel for the Buyer and of all
independent certified public accoun-
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tants, underwriters (other than Underwriting Commissions) and other persons
retained by the Buyer.
"Registration Statement" means the Buyer's Registration Statement on Form
S-1 to be filed with the Securities and Exchange Commission registering a
sufficient number of shares of Buyer's capital stock which, based on the minimum
estimated offering price of such shares (as set forth in the prospectus included
in such Registration Statement), upon consummation of the offering described in
the Registration Statement would yield net proceeds sufficient for Buyer to
consummate the acquisitions of the Initial Targets and the Additional Targets.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Selling Stockholders" means registered holders of Registrable Securities
who request inclusion of all or a portion of their shares of Registrable
Securities in a Piggyback Registration pursuant to Section 21.
"Shareholders" is defined in the preamble.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Employment Agreements,
the Pledge Agreement and the Promissory Note.
"Transactions" means the purchase and sale of the Purchased Assets, the
issuance of the Shares, and the consummation of the other transactions
contemplated by the Transaction Documents.
-39-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
TELESPECTRUM WORLDWIDE INC.
By: /s/ J. Brian O'Neill
-----------------------------------------
J. Brian O'Neill
Chairman
CRW FINANCIAL, INC.
By: /s/ J. Brian O'Neill
-----------------------------------------
J. Brian O'Neill
Chairman
TELESPECTRUM, INC.
By: /s/ Karen Schweitzer
-----------------------------------------
Name:Karen Schweitzer
Title:President
TELESPECTRUM TRAINING SERVICES, INC.
By: /s/ Karen Schweitzer
-----------------------------------------
Name:Karen Schweitzer
Title:President
/s/ Sherry Paterra
_____________________________________________
Sherry Paterra
/s/ Karen Schweitzer
_____________________________________________
Karen Schweitzer
<PAGE>
EXHIBIT 10.04
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
SOMAR, INC.
(a North Carolina corporation),
Richard W. Virtue,
CRW Financial, Inc.
(a Delaware corporation)
and
TeleSpectrum Worldwide Inc.
(a Delaware corporation).
Dated as of April 26, 1996,
as amended and restated as of May 21, 1996
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Reference to Definitions......................................... 5
------------------------
2. Purchase and Sale of the Business and Assets..................... 5
--------------------------------------------
3. Closing.......................................................... 11
-------
4. Conditions to Buyer's Obligations................................ 12
----------------------------------
5. Conditions to the Company's and Shareholder's Obligations........ 13
----------------------------------------------------------
6. Representations and Warranties of the Company and the Shareholder 13
-----------------------------------------------------------------
7. Representations and Warranties of the Buyer...................... 24
-------------------------------------------
8. Certain Agreements............................................... 25
------------------
9. Conduct of the Business Prior to the Closing..................... 30
--------------------------------------------
10. Survival of Representations; Indemnification..................... 31
--------------------------------------------
11. Termination...................................................... 34
-----------
12. Payment of Expenses.............................................. 35
-------------------
13. Contents of Agreement............................................ 35
---------------------
14. Amendment, Parties in Interest, Assignment, Etc.................. 35
-----------------------------------------------
15. Interpretation................................................... 36
--------------
16. Remedies......................................................... 36
--------
17. Notices.......................................................... 36
-------
18. Governing Law.................................................... 37
-------------
19. Consent to Jurisdiction; Service of Process, etc.; Arbitration... 37
--------------------------------------------------------------
20. Securities Law Matters........................................... 38
----------------------
21. Demand Registration.............................................. 40
-------------------
22. Counterparts..................................................... 44
------------
23. Definitions...................................................... 44
-----------
</TABLE>
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of April 26, 1996, as amended and
restated as of May 21, 1996, by and among TeleSpectrum Worldwide Inc., a
Delaware corporation ("Buyer"), CRW Financial, Inc., a Delaware corporation
("CRW"), SOMAR, INC., a North Carolina corporation (the "Company"), and Richard
W. Virtue (the "Shareholder"). The parties acknowledge that Buyer may form
SOMAR Sub to acquire, own and operate the Business and the Purchased Assets and
that Buyer may assign its rights under the Agreement to such subsidiary although
Buyer shall not thereby be relieved of its obligations and liabilities
hereunder.
Background
----------
The Company is engaged in the business of providing outbound telemarketing
services. The Shareholder owns approximately 39% of the issued and outstanding
capital stock of the Company. The Buyer desires to purchase the Purchased
Assets (as defined herein), the Company desires the Purchased Assets to be sold,
and the Shareholder desires the Company to sell the Purchased Assets, all on the
terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Reference to Definitions. For convenience, certain terms used in this
------------------------
Agreement are listed in alphabetical order and defined or referred to in Section
23 (such terms as well as any other terms defined elsewhere in this Agreement
shall be equally applicable to both the singular and plural forms of the terms
defined).
2. Purchase and Sale of the Business and Assets.
--------------------------------------------
2.1 The Purchased Assets. The Company, subject to the terms and
--------------------
conditions of this Agreement, shall sell, transfer, convey and deliver to the
Buyer all of its right, title and interest in all of its Assets (collectively,
the "Purchased Assets") which are not Excluded Assets. The Purchased Assets
include, without limitation, all of the following assets:
(a) the Business;
(b) all rights in respect of the name SOMAR;
(c) the cash and cash equivalents of the Company, wherever located;
(d) the Company's accounts and notes receivable and rights to payment
from any party for products sold and/or services delivered prior to the Closing;
3
<PAGE>
(e) the tangible and intangible personal property of the Company,
however owned, leased, or held, including, without limitation, machinery,
equipment, furniture, fixtures, supplies, vehicles, inventory, supplies and
computer hardware and software;
(f) the interests of the Company under all Contracts related to the
Business;
(g) the Permits of the Company;
(h) the goodwill, going concern value, past and present customer and
supplier lists and Intellectual Property (including the goodwill
associated therewith) of the Company;
(i) the prepaid expenses of the Company;
(j) the books and records of the Company; except as excluded under
Section 2.2.; and
(k) real property or real property interests of the Company related
to the Business.
2.2 Excluded Assets. Notwithstanding anything to the contrary in
---------------
Section 2.1, the corporate seal, Charter Documents, bylaws, minute books and
other corporate records of the Company (the "Excluded Assets") shall not be
included in the Purchased Assets.
2.3 Assumed Liabilities. At the Closing, the Buyer shall assume and
-------------------
thereafter in due course timely pay and fully satisfy all obligations (the
"Assumed Liabilities"):
(a) incurred after the Closing under all Contracts and Permits which
are conveyed to the Buyer as Purchased Assets pursuant to the terms and
conditions hereof;
(b) any and all Liabilities relating to the Business that are
(i) reflected on the Interim Balance Sheet, (ii) incurred after the Interim
Balance Sheet Date in the ordinary course of business and in accordance with
Section 9.4 (but with the provisions of Section 9.4 applied as if the provisions
thereof had been in effect from the close of business on the Balance Sheet Date
through the Closing Date) and (iii) as set forth on the Disclosure Letter.
2.4 Excluded Liabilities. Except as expressly set forth in Section 2.3,
--------------------
the Buyer shall not, by virtue of its purchase of the Purchased Assets or
otherwise in connection with the Transactions, assume or become responsible for
any Liabilities (the "Excluded Liabilities") of the Company; including, without
limitation, (a) Liabilities for any taxes, other than for federal and state
income taxes owed by the Company for periods prior to the Closing Date,
(b) Liabilities relating to the violation of any Regulation, (c) tort
Liabilities, (d) Liabilities from claims arising under any Contract or Permit
not assumed by the Buyer hereunder; and (e) Liabilities for claims arising under
any Contract or Permit to the extent such claim is based on acts or omissions of
any person which occurred prior to the Closing.
4
<PAGE>
2.5 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by the Company to assign to the Buyer any Contract or
Permit included in the Purchased Assets which is by its terms or by Regulation
nonassignable without the consent of any other party or parties, unless such
consent or approval shall have been given, or as to which all the remedies for
the enforcement thereof available to the Company would not by Regulation pass to
the Buyer as an incident of the assignments provided for by this Agreement
(a "Non-Assignable Contract"). To the extent that any such consent or approval
in respect of, or a novation of, a Non-Assignable Contract shall not have been
obtained on or before the Closing Date, the Company and the Shareholder shall
continue to use reasonable efforts to obtain any such consent, approval or
novation after the Closing Date until such time as it shall have been obtained,
and the Company shall cooperate with the Buyer in any economically feasible
arrangement to provide that the Buyer shall receive the Company's benefits under
such Non-Assignable Contract, provided that Buyer shall undertake to pay or
satisfy the corresponding Liabilities under the terms of such Non-Assignable
Contract to the extent that the Buyer would have been responsible therefor if
such consent, approval or novation had been obtained.
2.6 Post-Closing Adjustment to Purchase Price. As soon as practicable,
-----------------------------------------
but in any event within 90 days after the Closing, the Buyer, shall deliver a
balance sheet of the Company audited by Arthur Andersen LLP, in accordance with
GAAP (applied in a manner consistent with the Audited Financial Statements)
(the "Closing Date Balance Sheet") as of the end of business on the day prior to
the Closing Date. If the shareholders' equity as shown on the Closing Date
Balance Sheet is less than the shareholders' equity as shown on the Company
Balance Sheet minus the transaction expenses associated with the Transactions
(such amount is referred to as the "Net Worth Deficiency"), within ten business
days after delivery of the Closing Balance Sheet to the Company, the Company
shall pay the Buyer by wire transfer of immediately available funds an amount
equal to the Net Worth Deficiency. Notwithstanding anything in this Section 2.6
to the contrary, if there is any Net Worth Deficiency and the Company disputes
any item contained on the Closing Date Balance Sheet, the Company shall notify
the Buyer in writing of each disputed item, and specify the amount thereof in
dispute within thirty business days after the delivery of the Closing Date
Balance Sheet. If the Buyer and the Company cannot resolve any such dispute
which would eliminate or reduce the amount of the Net Worth Deficiency, then
such dispute shall be resolved by an independent nationally recognized
accounting firm which is reasonably acceptable to the Buyer and the Company
(an "Independent Accounting Firm"). The determination of the Independent
Accounting Firm shall be made as promptly as practicable and shall be final and
binding on the parties, absent manifest error which error may only be corrected
by such Independent Accounting Firm. Any expenses relating to the engagement of
the Independent Accounting Firm shall be allocated between the Buyer and the
Company so that the Company's share of such costs shall be in the same
proportion that the aggregate amount of the disputed amounts submitted to the
Independent Accounting Firm that are unsuccessfully disputed by the Company
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such disputed amounts so submitted to the Independent Account Firm.
5
<PAGE>
2.7 Payments.
--------
(a) In addition to assuming the Assumed Liabilities, the aggregate
price to be paid by the Buyer to the Company (the "Purchase Price") for the
purchase of the Purchased Assets shall be the sum of (i) $50,000,000, (ii) the
1996 Contingent Payment and (iii) the 1997 Contingent Payment. The Buyer shall
pay $50,000,000 of the Purchase Price at the Closing by delivery of
(i) $25,000,000 by certified or bank check or by wire transfer of immediately
available funds pursuant to written instructions provided by the Company to the
Buyer and (ii) certificates to the Company or its designee (in such proportion
as set forth on Exhibit 2.7) representing such number of shares (the "Shares")
of the Buyer's common stock, no par value (the "Buyer Common Stock"), with an
aggregate acquisition stock value of $25,000,000 (the "Acquisition Stock
Value"). The Acquisition Stock Value has been determined based upon the Private
Percentage Interest, as defined in Section 2.8. The 1996 and 1997 Contingent
Payments shall be due and payable by Buyer to the Company in accordance with
Section 2.7(c).
(b) The 1996 Contingent Payment, if any, shall be equal to 50% of the
amount by which the EBIT of the SOMAR Sub for its fiscal year ending December
31, 1996 exceeds $4,300,000. The 1997 Contingent Payment, if any, shall be
equal to the lesser of (i) the product of the amount by which EBIT of the SOMAR
Sub (prior to any accruals for any Bonus Payment (as defined in Section 8.22))
for its fiscal year ending December 31, 1997 exceeds $17,300,000, multiplied
by 5, and minus any Bonus Payment, and (ii) $45,000,000.
For purposes hereof:
"EBIT" shall mean the Income From Operations of SOMAR Sub during the twelve
month fiscal year ending December 31, 1996 or December 31, 1997
(as applicable), as calculated in accordance with GAAP and in a manner
consistent (including the basis of presentation) with the audited financial
statements of the Company for the fiscal year ended December 31, 1995. For
purposes of this calculation and in order to present EBIT on a consistent
basis with the Company's EBIT for its fiscal year ended December 31, 1995,
EBIT for 1996 and 1997 will be adjusted for any of the following items:
(1) any expenses, charges and write-downs or any losses resulting
from the sale, conversion or other disposition of capital assets,
other than in the ordinary course of business, or inconsistent
with the past practice;
(2) any excess depreciation from assets as a result of the write-up
of any such asset's basis;
(3) any amortization of goodwill or other intangibles from the write-
up of such items;
(4) any management fees or allocations of overhead costs attributable
to the Buyer except for such fees or allocations attributable to
those administrative or other functions previously performed by
the Company to
6
<PAGE>
the extent that such fees or allocations do not exceed the cost
which the Company would incur in performing such services; and
(5) any changes in accounting policies, principals or new
pronouncements.
"SOMAR Sub" shall mean the subsidiary or other distinct operating unit of
Buyer that operates the Business and the Purchased Assets following the
Closing.
(c) As part of its annual audit, Buyer shall engage Arthur Andersen
LLP to calculate the EBIT of SOMAR Sub as soon as reasonably practical after
each of December 31, 1996 and December 31, 1997, and deliver to the Company and
the Buyer a statement (each an "EBIT Statement"), as soon as reasonably
practical after each of December 31, 1996 and December 31, 1997, but in no case
more than 90 days thereafter, indicating its calculation of EBIT for the
applicable preceding fiscal year. If the Company or the Buyer disputes any item
contained on an EBIT Statement, such person shall notify the other in writing of
each disputed item (collectively, the "Disputed Amounts") and specify the amount
thereof in dispute within twenty business days after the delivery of the
applicable EBIT Statement. If the Company and the Buyer cannot resolve any such
dispute within ten days thereafter, then such dispute shall be resolved by an
Independent Accounting Firm. The determination of the Independent Accounting
Firm shall be made as promptly as practical and shall be final and binding on
the parties, absent manifest error which error may only be corrected by such
Independent Accounting Firm. Any expenses relating to the engagement of the
Independent Accounting Firm shall be allocated between the Company and the Buyer
so that the Company's share of such costs shall bear the same proportion to the
total costs as the total of Disputed Amounts unsuccessfully contested by the
Company (as finally determined by the Independent Accounting Firm) bears to the
total of the Disputed Amounts so submitted to the Independent Accounting Firm.
With respect to the 1996 Contingent Payment, if any, within 10 business days
after the final determination of EBIT in accordance with this Section 2.7, the
Buyer shall deliver to the Company an amount equal to the 1996 Contingent
Payment by certified or bank check or by wire transfer of immediately available
funds pursuant to written instructions provided by the Company to the Buyer.
With respect to the 1997 Contingent Payment, if any, within 10 business days
after the final determination of EBIT in accordance with this Section 2.7, the
Buyer shall deliver certificates to the Company or its designees representing
such number of shares of Buyer Common Stock (the "Contingent Shares") with an
aggregate Fair Market Value in an amount equal to the 1997 Contingent Payment.
For purposes hereof, Fair Market Value shall be equal to average closing price
of the Buyer Common Stock for the ten trading days prior to the date of the EBIT
Statement as reported in The Wall Street Journal.
-----------------------
2.8 Percentage Interests.
--------------------
(a) Private Percentage. Subject to adjustment pursuant to
------------------
Section 2.8(b), after specifically giving effect to the acquisition by the Buyer
of those organizations listed on Exhibit 2.8 hereto (the "Initial Targets") and
the consummation of all of the transactions and corporate reorganizations
incident to such acquisitions (collectively, the "Acquisition Transactions"),
but
7
<PAGE>
prior to the offering of Buyer Common Stock pursuant to the Registration
Statement (the "Initial Public Offering"), the aggregate number of Shares
issuable in the full amount of the Acquisition Stock Value shall represent
17.09% (the "Somar Private Percentage") of the aggregate Buyer Common Stock that
will be outstanding immediately after the issuance of the Shares. The Somar
Private Percentage is equal to the percentage obtained from the division of
(i) the Acquisition Stock Value by (ii) the "Acquisition Base." The Acquisition
Base means the sum of (x) the Purchase Price (exclusive of the 1996 and 1997
Contingent Payments), (y) the aggregate purchase price (exclusive of any
contingent payments) which Buyer has agreed to pay the other Initial Targets
(other than the Company) at the closings of the acquisitions of the other
Initial Targets and (z) $5,000,000. The Somar Private Percentage has been
calculated on a basis consistent with the Private Percentages, each of which is
set forth opposite the name of each Initial Target on Exhibit 2.8.
(b) Adjustment to Percentages. The Somar Private Percentage shall be
-------------------------
subject to proportionate adjustments based upon the occurrence of any of
the following events:
(i) the failure of Buyer for any reason to consummate
the acquisition of any Initial Target prior to the consummation of the
Initial Public Offering; and
(ii) the issuance of any securities in connection with
the obtaining of financing, the proceeds of which are used to acquire any
Initial Target and/or any Additional Target (whether prior to or in
connection with the consummation of the Initial Public Offering).
With respect to any adjustment pursuant to Section 2.8(b)(i), the Somar
Private Percentage shall be adjusted by subtracting from the Acquisition
Base the purchase price (exclusive of any contingent payments) which would
have been payable by the Buyer at the closing of any Initial Target had
such Initial Target been acquired by Buyer. No adjustment to the Somar
Private Percentage shall be made pursuant to Section 2.8(b)(ii) unless the
Private Percentages and the percentage of the outstanding Buyer Common
Stock owned by CRW are likewise reduced on a proportionate basis.
2.9 Allocation of the Purchase Price. The Buyer and the Company shall
--------------------------------
mutually agree on the allocation of the Purchase Price among the Purchased
Assets; provided, that in no case shall more than $100,000 be allocated to any
noncompetition agreements or provisions. The Company and the Buyer shall
prepare their respective Federal, state and local tax returns employing the
allocation as mutually agreed pursuant to Section 2.7 and shall not take a
position in any tax proceeding or otherwise that is inconsistent with such
allocation. The Company and the Buyer shall give prompt notice to each other of
the commencement of any tax audit or the assertion of any proposed deficiency or
adjustment by any taxing authority or agency which challenges such allocation.
8
<PAGE>
3. Closing.
-------
3.1 Location; Date. The closing of the Transactions (the "Closing") shall
--------------
take place at the offices of the Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 on or before October 31, 1996 (the "Termination
Date") or such earlier date upon the satisfaction of (or waiver by the party
entitled to the benefit of) the conditions set forth in Sections 4 and 5, or at
such other place, date and time as the parties may agree in writing.
3.2 Closing Deliveries. In connection with the completion of the
------------------
Transactions contemplated in Section 2, at the Closing
(a) the Buyer shall deliver or cause to be delivered:
(i) the cash portion of the Purchase Price which is required to
be delivered to the Company at the Closing;
(ii) the certificates representing the Shares, registered in the
name of the Company or its designees;
(iii) executed copies of the Employment Agreements, the
Consulting Agreement and the Pledge Agreement; and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested
(b) the Company shall deliver or cause to be delivered:
(i) payment instructions regarding the cash portion of the
Purchase Price which is required to be delivered to the Company at the
Closing;
(ii) bills of sale and assignment and assumption agreements
transferring all of the Company's right, title and interest in and to
the Purchased Assets in form and substance satisfactory to the Buyer;
and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(v) executed copies of the Employment Agreements for each of Greg
Alcorn, William B. Edge, Kenneth Wiles, Jim Carroll, Bennie Callahan,
Jody Novacek and one additional unnamed account executive, the terms
of which, with the exception of Messrs. Alcorn, Carroll, Edge and
Wiles, shall be determined in the sole discretion of the Company.
9
<PAGE>
(c) the Shareholder shall deliver an executed copy of the Consulting
and Pledge Agreements.
4. Conditions to Buyer's Obligations.
----------------------------------
The obligations of Buyer to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Buyer:
4.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or threatened that prevents or that seeks to restrain the consummation,
or challenges the validity or legality, of the Transactions or that would limit
or affect adversely Buyer's acquisition of the Purchased Assets.
4.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Company and the Shareholder set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at such time and (b) the Company and the Shareholder shall have each
performed or tendered performance in all material respects of all covenants and
agreements contained in this Agreement required to be performed and complied
with by them at or prior to the Closing. The Company and the Shareholder shall
have delivered to the Buyer a certificate signed by the President of the Company
and the Shareholder, in form and substance reasonably satisfactory to counsel to
the Buyer, that the Company and the Shareholder have performed all covenants and
agreements to be performed by them under this Agreement and as regarding the
accuracy of its representations and warranties contained herein as of the
Closing Date.
4.3 Legal Opinion. The Company and the Shareholder shall have tendered a
-------------
legal opinion of Smith Helms Mulliss & Moore, L.L.P. counsel to the Company and
the Shareholder, that is reasonably acceptable to counsel to the Buyer;
4.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
4.5 Board Approval. The Transactions shall have been approved by the
--------------
Buyer's board of directors.
4.6 Financing. The Underwriting Agreement is executed respecting the
---------
offering of securities pursuant to the Registration Statement.
4.7 Required Tender. The Shareholder and the Company shall have tendered
---------------
or caused the tender of the items set forth in Section 3.2.
10
<PAGE>
5. Conditions to the Company's and Shareholder's Obligations.
---------------------------------------------------------
The obligations of the Company and the Shareholder to effect the Closing
shall be subject to the satisfaction at or prior to the Closing of the following
conditions, any one or more of which may be waived by such parties:
5.1 No Injunction. No Court Order or Litigation shall be pending or
-------------
threatened that prevents or that seeks to restrain the consummation, or
challenges the validity or legality, of Transactions.
5.2 Representations, Warranties and Agreements. The representations and
------------------------------------------
warranties of the Buyer set forth in this Agreement shall be true and complete
in all material respects as of the Closing Date as though made at such time and
the Buyer shall have performed or tendered performance in all material respects
of all covenants and agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing. The Buyer shall
have delivered a certificate signed by the President of the Buyer, in form and
substance reasonably satisfactory to counsel to the Company, that the Buyer has
performed all covenants and agreements to be performed by it under this
Agreement and as regarding the accuracy of its representations and warranties
contained herein as of the Closing Date.
5.3 Legal Opinion. The Buyer shall have tendered a legal opinion of
-------------
Morgan, Lewis & Bockius LLP, counsel to the Buyer, that is reasonably acceptable
to counsel to the Company.
5.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
5.5 Required Tender. The Buyer shall have tendered or caused the tender
---------------
of the items set forth in Section 3.2(a).
5.6 Financing. The Underwriting Agreement is executed with respect to the
---------
offering of securities pursuant to the Registration Statement, and the offering
of the securities described in the Registration Statement shall have been
completed.
5.7 Shareholder Approval. The shareholders of the Company shall have
--------------------
approved the Transactions.
6. Representations and Warranties of the Company and the Shareholder.
-----------------------------------------------------------------
The Company and the Shareholder hereby jointly and severally represent and
warrant to the Buyer that, except as set forth in a letter dated the date of
this Agreement, executed by the Company and the Shareholder, addressed and
delivered to the Buyer by the Company and the Shareholder within 14 days after
the date hereof and containing information required by this Agreement and
exceptions to the representations and warranties of the Company and the
Shareholder under this Agreement (the "Disclosure Letter"):
11
<PAGE>
6.1 Corporate Status. The Company is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of North
Carolina and is qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where it is required to be so qualified, except
where the failure to so qualify would not have a Material Adverse Effect.
6.2 Authorization. The Company has the requisite power and authority to
-------------
own its property and carry on its Business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by the Company have been duly authorized by all necessary corporate
action. The Shareholder has the requisite power, capacity, legal right and
authority to execute and deliver the Transaction Documents to which he is a
party and to perform the Transactions to be performed by him thereunder. Each
Transaction Document executed and delivered by the Company has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
Each Transaction Document to be executed and delivered by the Shareholder will
be duly executed and delivered by him and will constitute a valid and binding
obligation of him, enforceable against him in accordance with its terms.
6.3 Consents and Approvals. Except for the consents specified in the
----------------------
Disclosure Letter (the "Required Consents"), neither the execution or delivery
by the Company or the Shareholder of the Transaction Documents to which it or he
is a party, nor the performance of the Transactions to be performed by it or him
thereunder, will require any material filing, consent or approval, constitute a
material Default or cause any material payment obligation to arise under (a) any
Regulation or Court Order to which the Company or Shareholder is subject,
(b) the Charter Documents or bylaws of the Company or (c) any Contract,
Government Permit or other document to which the Company is a party or by which
its Business or Assets may be subject, which Default would have a Material
Adverse Effect on the Company.
6.4 Stock Ownership. The capital stock of the Company is owned by such
---------------
persons in such amounts as are set forth on Exhibit 2.7.
6.5 Financial Statements. The Disclosure Letter includes correct and
--------------------
complete copies of the Company's audited financial statements consisting of a
balance sheet of the Company as of December 31, 1993, 1994 and 1995 and the
related statements of income, and cash flows for the years then ended
(collectively, the "Audited Financial Statements"), each of which were (or by
the date of the Disclosure Letter will be) audited by the firm of Arthur
Andersen LLP. The Disclosure Letter also includes correct and complete copies of
the Company's unaudited financial statements consisting of a balance sheet of
the Company as of March 31, 1996 and the related statements of income and cash
flow for the 3 month period then ended (the "Unaudited Financial Statements,"
and together with the Audited Financial Statements, the "Financial Statements").
The Financial Statements of the Company are in all material respects consistent
with the books and records of the Company, and there are no material
transactions required by GAAP, applied on a consistent basis, to be recorded in
accounting records that have not been recorded in the accounting records
underlying such Financial Statements. The Financial Statements have been
12
<PAGE>
prepared in accordance with GAAP consistently applied and present fairly the
financial position and assets and liabilities of the Company as of the dates
thereof and its cash flows and the results of its operations for the years and
periods then ended, subject to normal recurring year-end adjustments and the
absence of notes in the case of the Unaudited Financial Statements. The balance
sheet of the Company as of December 31, 1995 that is included in the Financial
Statements is referred to herein as the "Company Balance Sheet" and the dates
thereof is referred to as the "Balance Sheet Date." The balance sheet of the
Company as of March 31, 1996 that is included in the Financial Statements are
referred to herein as the "Interim Balance Sheet" and the dates thereof is
referred to as the "Interim Balance Sheet Date."
6.6 Title to Assets and Related Matters. The Company has good and
-----------------------------------
marketable title to, valid leasehold interests in or valid licenses to use, all
of the Purchased Assets, free from any material Encumbrances. The use of the
Purchased Assets is not subject to any Encumbrances (other than those specified
in the preceding sentence), and such use does not materially encroach on the
property or rights of anyone else. All Purchased Assets are in the possession or
under the control of the Company and consist of all of the Assets (other than
the Excluded Assets) employed by the Company in connection with the Business as
it is now being operated. All of the tangible personal property included in the
Assets are in all material respects (a) in good working condition and reasonable
repair, subject to normal wear and tear, (b) usable in the ordinary course of
business and (c) in conformity with all applicable Regulations relating to its
construction, use and operation. Except for those items subject to the Personal
Property Leases, no Person other than the Company owns any vehicles, equipment
or other tangible assets located on the Real Property that are used by the
Company in the Business (other than immaterial items of personal property owned
by the employees of the Company) or that are necessary for the operation of the
Business.
6.7 Real Property. The Disclosure Letter describes all real estate used
-------------
in the operation of the Business as well as any other real estate that is in the
possession of or leased by the Company and the improvements (including buildings
and other structures) located on such real estate (collectively, the "Real
Property"), identifies which Real Property is owned and which is leased, and
lists any leases under which any such Real Property is possessed by the Company
or leased by the Company to others (the "Real Estate Leases"). To the knowledge
of the Company and the Shareholder, all of the buildings and structures included
in the Real Property are structurally sound in all material respects, and are
generally adequate for the present use of the Real Property by the Company in
conducting its Business. The Company has received no written notices and have no
reason to believe, that any governmental body having jurisdiction over any Real
Property intends to exercise the power of eminent domain or a similar power with
respect to all or any part of the Real Property. The Company has not received
any written notices from any governmental body, and has no reason to believe,
that any of the Real Property or any improvements erected or situate thereon, or
the uses conducted thereon or therein, violate any Regulations of any
governmental body having jurisdiction over such Real Property. The Company has
not received any notice from the holder of any mortgage, from any insurance
company which has issued a policy with respect to any of the Real Property or
from any board of fire underwriters (or other body exercising similar functions)
claiming any defects or
13
<PAGE>
deficiencies in any of the Real Property or suggesting or requesting the
performance of any repairs, alterations or other work to any of the Real
Property.
6.8 Certain Personal Property. The Company has delivered to the Buyer a
-------------------------
complete fixed asset schedule, describing and specifying the location of all
material items of tangible personal property that are included in the Company
Balance Sheet. Since the Balance Sheet Date, the Company has not (i) acquired
any items of tangible personal property that has, in any case, a carrying value
in excess of $25,000, or an aggregate carrying value in excess of $50,000 or
(ii) disposed of any items of tangible personal property (other than inventory)
that have, in any case, an initial carrying value in excess of $25,000, or an
initial aggregate carrying value in excess of $50,000.
6.9 Personal Property Leases. The Disclosure Letter lists all material
------------------------
assets and property (other than Real Property) that have been used by the
Company in the operation of the Business and that are possessed by the Company
under an existing lease, including all trucks, automobiles, forklifts,
machinery, equipment, furniture and computers, except for any lease under which
the aggregate annual payments are less than $5,000 (each, an "Immaterial
Lease"). The Disclosure Letter also lists the leases under which such assets and
property listed on the Disclosure Letter are possessed. All of such leases
(excluding "Immaterial Leases") are referred to herein as the "Personal Property
Leases."
6.10 Accounts Receivable. The accounts receivable of the Company are bona
-------------------
fide accounts receivable created in the ordinary course of business. The Company
has no reason to believe that such accounts receivable are not good and
collectible at the aggregate recorded amounts thereof (in each case, net of the
reserves for such items included in the Interim Balance Sheet). The Disclosure
Letter includes a correct and complete accounts and notes receivable aging of
the Company as of the Interim Balance Sheet Date reflecting the aggregate dollar
amount of all accounts and notes receivable due the Company which have been
outstanding for: 30 days or less; more than 30 but less than 61 days; more than
60 but less than 91 days; and more than 90 days.
6.11 Accounts Payable. All accounts payable as set forth on the Interim
----------------
Balance Sheet or arising since the date thereof have been incurred in the
ordinary course of business of the Company.
6.12 Liabilities. The Company does not have any material Liabilities, and
-----------
none of the Purchased Assets are subject to any material Liabilities, except
(a) as specifically disclosed on the Interim Balance Sheet, (b) Liabilities
incurred in the ordinary course since the Interim Balance Sheet Date, and
(c) Liabilities under any Contracts specifically disclosed on the Disclosure
Letter (or not required to be disclosed because of the term or amount involved)
that were not required under GAAP to have been specifically disclosed or
reserved for on the Interim Balance Sheet.
14
<PAGE>
6.13 Taxes. The Company has duly filed all material Federal, state,
-----
local, foreign and other material tax returns that are required to be filed and
that were due prior to the Closing Date, and have paid all taxes and assessments
shown as being due pursuant to such returns or pursuant to any assessment
received. To the knowledge of the Company and the Shareholder, all taxes and
other assessments and levies that the Company has been required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental authorities or are properly held by the Company
for such payment. To the knowledge of the Company and the Shareholder, there are
no material proceedings or other actions, nor is there any basis for any
material proceedings or other actions, for the assessment or collection of
additional taxes of any material kind for any period which remain open under the
applicable statute of limitations for examination of Federal income tax under
the Code for which returns have or should have been filed.
6.14 Subsidiaries. The Company does not own, directly or indirectly, any
------------
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
6.15 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) There is no material Litigation that is pending or, to the
knowledge of the Company or the Shareholder, threatened against or related to
the Company. There has been no Default under any Regulation applicable to the
Company, the Assets or the Business, including any Regulation relating to
pollution or protection of the environment, except for any Defaults that have
been cured without material cost or that would not have a Material Adverse
Effect, and the Company has not received any notice from any governmental entity
regarding any alleged Default under any Regulation except those that have been
cured without material cost or that would not have a Material Adverse Effect.
There has been no Default with respect to any Court Order applicable to the
Company.
(b) Without limiting the generality of Section 6.15(a), there has not
been any Environmental Condition (i) at any premises at which the Business of
the Company (or any predecessor of the Company) is currently conducted, (ii) at
any property owned, leased or operated at any time by the Company (or any
predecessor of the Company) or any Person controlled by any Affiliate of the
Company, or (iii) at any property at which wastes have been deposited or
disposed by or at the behest or direction of the Company (or any predecessor of
the Company) or any Person controlled by any Affiliate of the Company, nor has
the Company received written notice of any such Environmental Condition.
"Environmental Condition" means any condition or circumstance, including the
presence of Hazardous Substances, whether created by the Company (or any
predecessor of the Company) or any third party, at or relating to any such
property or premises that would (i) require abatement or correction under an
Environmental Law, (ii) give rise to any civil or criminal liability under an
Environmental Law, or (iii) create a public or private nuisance. "Environmental
Law" means all Regulations and Court Orders relating to pollution or protection
of the environment as well as any principles of common law under which a Person
may be held liable for the release or discharge of any materials into the
15
<PAGE>
environment.
(c) The Company has delivered to the Buyer correct and complete
copies of any written reports, studies or assessments in the possession or
control of the Company or the Shareholder that relate to any Environmental
Condition. Neither the Company nor the Shareholder knows of any other written
reports, studies or assessments, whether or not in the possession or control of
the Company or the Shareholder, that relate to any Environmental Condition.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) the Company has obtained and is in full compliance with all
Permits, all of which are listed on the Disclosure Letter along with their
respective expiration dates, that are required for the ownership of the Assets
or operation of the Business and Assets as currently operated by the Company,
(ii) all of the Permits are currently valid and in full force and (iii) the
Company has filed such timely and complete renewal applications as may be
required with respect to its Permits. To the knowledge of the Company and the
Shareholder, no revocation, cancellation or withdrawal of a Permit has been
threatened.
6.16 Contracts.
---------
(a) The Disclosure Letter lists each material Contract of the
following types to which the Company is a party or by which it is bound:
(i) Contracts with any present or former stockholder, director,
officer, employee, partner or consultant or with any Affiliate of the
Shareholder;
(ii) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third
party, in excess of $25,000 with respect to any one supplier or other
party;
(iii) Contracts to sell or supply products, inventory or other
property to, or to perform services for, a third party, that involve
an amount in excess of $25,000 with respect to any one customer or
other party;
(iv) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(v) Contracts limiting or restraining it from engaging or
competing in any lines or business with any Person;
(vi) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(vii) Contracts to lease to or to operate for any other party
any asset that
16
<PAGE>
involve an amount in excess of $25,000 in any individual case (other
than Real Property Leases and Personal Property Leases identified on
the Disclosure Letter);
(viii) Any material notes, debenture, bonds, conditional sale
agreements, equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other Contracts for the
borrowing or lending of money (including loans to or from officers,
directors, partners or stockholders or with Affiliates of the
Shareholder or any members of his immediate family), or agreements or
arrangements for a line of credit or for a guarantee of, or other
undertaking in connection with, the indebtedness of any other Person;
(ix) Contracts creating or recognizing any material Encumbrances
with respect to any Assets;
(x) Contracts with distributors, manufacturers sales
representatives or other sales agents;
(xi) Contracts which relate in whole or in part to any software,
technical assistance or other know-how or other Intellectual Property
right;
(xii) Contracts for any capital expenditure or leasehold
improvement in excess of $25,000; and
(xiii) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and
those described in any of (i) through (xii) above) not made in the
ordinary course of business of the Company or which are material to
the Business or the assets.
(b) The Company is not in Default under any material Contract. To
the knowledge of the Company and the Shareholder, the Company has not received
any written communication from, or given any written communication to, any other
party indicating that the Company or such other party, as the case may be, is in
Default under any material Contract. To the knowledge of the Company and the
Shareholder, none of the other parties to any such Contract to which the Company
is a party is in Default thereunder.
6.17 Insurance. The Disclosure Letter lists all policies or binders of
---------
insurance held by or on behalf of the Company or relating to the Business or any
of the Assets used in the Business, specifying with respect to each policy the
insurer, the type of insurance, the amount of the coverage, insured, the
expiration date, the policy number and any pending claims thereunder. There is
no material Default with respect to any such policy or binder, nor has there
been any failure to give any notice or present any claim under any such policy
or binder in a timely fashion or in the manner or detail required by the policy
or binder, except for any of the foregoing that would not, individually or in
the aggregate, have a Material Adverse Effect. There is no notice of nonrenewal
or cancellation with respect to, or disallowance of any claim under,
17
<PAGE>
any such policy or binder that has been received by the Company, except for any
of the foregoing that would not, individually or in the aggregate, have a
Material Adverse Effect.
6.18 Intellectual Property and Software Products. The Company neither
-------------------------------------------
currently uses nor has it previously used in the operation of its Business
(including in the development or marketing of products and services) any
Copyright, Patent or Trademark except for those listed on the Disclosure Letter.
Except as listed in the Disclosure Letter, the Company owns or has the lawful
right to use all Intellectual Property that is used or has been used in the
operation of its Business. All of the Intellectual Property listed in the
Disclosure Letter is owned by the Company free and clear of any Encumbrances,
or is used pursuant to an agreement that is described in the Disclosure Letter.
The Company does not infringe upon or unlawfully or wrongfully use any
Intellectual Property rights owned or claimed by another Person. The Company is
not in Default, nor has it received any notice of any claim of infringement or
any other claim or proceeding, with respect to any such Intellectual Property.
No current or former employee of the Company and no other Person owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, and including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
6.19 Employee Relations.
------------------
(a) Except as described in the Disclosure Letter, the Company is not
(a) a party to or otherwise bound by any collective bargaining or other type of
union agreement, (b) a party to, involved in or, to the knowledge of the Company
or the Shareholder, threatened by, any labor dispute or unfair labor practice
charge, or (c) currently negotiating any collective bargaining agreement, and
the Company has not experienced any work stoppage during the last three years.
The Disclosure Letter sets forth the names and current annual salary rates or
current hourly wages of all present employees of the Company with salary or
wages above $35,000 per year.
(b) The Company is in material compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice.
To the knowledge of the Company and the Shareholder, there are no material
outstanding claims against the Company (whether under Regulation, Contract,
policy, or otherwise) asserted by or on behalf of any present or former employee
or job applicant of the Company on account of or for (i) overtime pay, other
than overtime pay for work done in the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) any amount of
vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the current fiscal year,
(iv) any amount of severance pay or similar benefits, (v) unemployment insurance
benefits, (vi) workers' compensation or disability benefits, (vii) any violation
of any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including but not limited to The Workers
Adjustment and Retraining Act, (viii) any violation of any statute, ordinance,
order, rule or regulations relating to employee "whistleblower" or "right-to-
know" rights and protection, (ix) any violation of any statute, ordinance,
order, rule or regulations relating to the employment obligations of federal
contractors or subcontractors or (x) any
18
<PAGE>
violation of any Regulation relating to minimum wages or maximum hours of work,
and neither the Company nor the Shareholder is aware of any such claims which
have not been asserted. No Person (including any governmental body) has
asserted or threatened any claims against the Company under or arising out of
any Regulation relating to discrimination or occupational safety in employment
or employment practices.
6.20 ERISA.
-----
(a) The Disclosure Letter contains a complete list of all Benefit
Plans sponsored or maintained by the Company or under which the Company may be
obligated. The Company has delivered to the Buyer, to the extent applicable,
(i) accurate and complete copies of all Benefit Plan documents and all other
material documents relating thereto, including all summary plan descriptions,
summary annual reports and insurance contracts, (ii) accurate and complete
detailed summaries of all unwritten Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Benefit Plans for which financial statements or actuarial reports
are required or have been prepared and (iv) accurate and complete copies of all
annual reports for all Benefit Plans (for which annual reports are required)
prepared within the last three years. Each Benefit Plan providing benefits that
are funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the Benefit Plan in the Disclosure Letter.
(b) All Benefit Plans conform (and for the past six years have
conformed) to, and are being administered and operated (and for the past six
years have been administered and operated) in material compliance with, the
requirements of ERISA, the Code and all applicable Regulations. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to all Benefit Plans have been timely filed or delivered or an
extension for the delayed filing has been obtained from the Internal Revenue
Service or the Department of Labor. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Benefit Plans, that could subject the Company
to any penalty or tax imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified (or an application
for) is still pending determination has been timely filed with the Internal
Revenue Service, and such determination remains in effect and has not been
revoked. Copies of the most recent IRS determination letters, if any,
applicable to the Benefit Plans have been delivered to the Buyer. To the
knowledge of the Company, nothing has occurred since the date of any such
determination (if received) that would affect materially adversely such
qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under the Code or ERISA with respect
to any Benefit Plan.
(d) The Company does not sponsor or contribute to a defined benefit
plan subject to Title IV of ERISA, nor does it have a current or contingent
obligation to contribute to any multiemployer plan (as defined in Section 3(37)
of ERISA). The Company does not have any
19
<PAGE>
liability with respect to any employee benefit plan (as defined in Section 3(3)
of ERISA) other than with respect to the Benefit Plans. For purposes of this
Section 6.20(d), the term "Company" shall include any corporation that is a
member of any controlled group of corporations (as defined in Section 414(b) of
the Code) that includes the Company, any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with the Company, any organization (whether or not incorporated) that is a
member of an affiliated service group (as defined in Section 414(m) of the Code)
that includes the Company and any other entity required to be aggregated with
the Company pursuant to the regulations issued under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of the Company
threatened claims by or on behalf of any Benefit Plans, or by or on behalf of
any individual participants or beneficiaries of any Benefit Plans, alleging any
breach of fiduciary duty on the part of either Company or any of its officers,
directors or employees under ERISA or any applicable Regulation, or claiming
benefit payments other than those made in the ordinary operation of such plans,
nor is there, to the knowledge of the Company, any basis for any such claim. To
the knowledge of the Company, the Benefit Plans are not the subject of any
investigation, audit or action by the Internal Revenue Service, the Department
of Labor or the Pension Benefit Guaranty Corporation ("PBGC").
(f) The Company has made all required contributions under its Benefit
Plans on a timely basis, or such contributions are properly accrued on the
Company's Financial Statements.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of
Section 4976(b) of the Code) that would result in the imposition of a tax under
Section 4976(a) of the Code, (iii) any Benefit Plan that is a group health plan
(within the meaning of Section 4980B(g)(2) of the Code) complies, and in each
and every case has complied, with all of the material requirements of Section
4980B of the Code, ERISA, Title XXII of the Public Health Service Act and the
applicable provisions of the Social Security Act, and (iv) all Welfare Plans may
be amended or terminated by the Company at any time on or after the Closing
Date.
6.21 Absence of Certain Changes. Except as contemplated by this Agreement,
--------------------------
since the Balance Sheet Date, except as mutually agreed, the Company has
conducted its Business in the ordinary course and there has not been with
respect to the Company:
(a) any material adverse change in its Business, Assets or
Liabilities;
(b) any change or amendment in its Charter Documents;
20
<PAGE>
(c) any distribution or payment declared or made in respect of its
capital stock by way of dividend, purchase or redemption of shares or otherwise;
(d) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
(e) any sale, assignment or transfer of any material Assets, or any
additions to or transactions involving any material Assets, other than those
made in the ordinary course of business;
(f) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(g) any payment to any Affiliate of the Company;
(h) any change in the accounting policies followed by the Company or
the method of applying such principles; or
(i) any capital expenditure commitment involving in any individual
case, or series of related cases, more than (i) $25,000 or (ii) an amount that
would cause the sum of all such capital expenditure commitments to exceed
$50,000.
6.22 Customers. The Company has used its reasonable business efforts to
---------
maintain and currently maintains, good working relationships with all of its
customers. The Disclosure Letter contains a list of the names of each of the
five customers that, for the year ended December 31, 1995, were the largest
dollar volume customers of products and services sold and provided by the
Company. None of such customers has given the Company notice terminating,
cancelling or threatening to terminate or cancel any Contract or relationship
with the Company.
6.23 Finder's Fees. Except for Robinson Humphrey Company, Inc., whose fee
-------------
will be paid by the Company, no Person retained by the Company or the
Shareholder is or will be entitled to any commission or finder's or similar fee
in connection with the Transactions.
6.24 Purchase for Investment. The Company or its designees are acquiring
-----------------------
the Shares for investment purposes only and neither is acquiring them with an
intent to distribute or resell them in violation of applicable Federal or state
securities laws, except as such Shares may be distributed to the shareholders of
the Company listed on Exhibit 2.7.
6.25 Additional Information. The Disclosure Letter accurately lists the
----------------------
following:
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other financial
institution in which
21
<PAGE>
the Company maintains an account (whether checking, saving or otherwise), lock
box or safe deposit box, and the account numbers and names of the Persons having
signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of the Company;
(d) the names of all Persons holding powers of attorney from the
Company and a summary statement of the terms thereof; and
(e) all names under which the Company has conducted any Business or
which it has otherwise used at any time during the past five years.
6.26 Transactions with Affiliates. Except as set forth in the Disclosure
----------------------------
Letter, no affiliate of any shareholder or any member of his immediate family,
owns or has a controlling ownership interest in any corporation or other entity
that is a party to any Contract with respect to the Assets or Business.
6.27 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Company
or the Shareholder in this Agreement, the Disclosure Letter, the Exhibits to
this Agreement, any other Transaction Document or in any of the documents,
certificates and instruments delivered or to be delivered by the Company or the
Shareholder pursuant to this Agreement and the Company and the Shareholder has
not omitted to state any fact necessary to make statements made herein or
therein not materially misleading.
7. Representations and Warranties of the Buyer. The Buyer hereby represents
-------------------------------------------
and warrants to the Company and the Shareholder as follows:
7.1 Corporate. The Buyer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware. The
Buyer has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions to
be performed by it thereunder, and such execution, delivery and performance by
it have been duly authorized by all necessary corporate action.
7.2 Enforceability. The Transaction Documents to which the Buyer is a
--------------
party constitute valid and binding obligations of the Buyer, enforceable against
it in accordance with their terms.
7.3 Consents and Approvals. Neither the execution and delivery by the
----------------------
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which it is subject, (b) its Charter Documents or bylaws or (c) any
Contract, Permit or other document to which it is a party or by which its
22
<PAGE>
properties or other assets may be subject. Buyer has or will have by the
Closing obtained all consents, approvals, authorizations or orders of third
parties, including governmental authorities, necessary for the authorization,
execution and performance of this Agreement and the Transaction by the Buyer.
7.4 Stock Ownership; Valuation. The total authorized capital stock of the
--------------------------
Buyer consists of 200,000,000 shares of Buyer Common Stock (of which 8,510,000
shares are issued and outstanding) and 5,000,000 shares of preferred stock, par
value $.01 per share (of which no shares are outstanding). All of the shares
are duly and validly authorized and issued, fully paid and non-assessable. Upon
completion of the Transactions at the Closing, the Company shall receive valid
title to all of the Shares, free and clear of all Encumbrances (other than
restrictions imposed generally by applicable securities laws), fully paid and
nonassessable.
7.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions, except for Legg Mason Wood Walker, Inc., which fee shall be paid
by Buyer.
7.6 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Buyer in
this Agreement, the Exhibits to this Agreement or in any of the documents,
certificates and instruments delivered or to be delivered by the Buyer pursuant
to this Agreement and the Buyer has not omitted to state any fact necessary to
make statements made herein or therein not materially misleading. There is no
action, claim, suit or proceeding pending, or to the Buyer's knowledge
threatened, by or against or affecting the Buyer in connection with or relating
to the Transactions or any action to be taken in connection herewith or
therewith or the consummation thereof.
8. Certain Agreements.
------------------
8.1 Access. Between the date of this Agreement and the Closing Date, the
------
Company and the Buyer shall (a) each give the other and its authorized
representatives and legal counsel reasonable access to all properties, books,
Contracts, Assets and records of the other, (b) permit the other to make
inspections thereof, and (c) cause its officers and its advisors to furnish the
other with such financial and operating data and other information with respect
to business and to discuss with the other and its authorized representatives and
legal counsel its affairs, all as each party may from time to time reasonably
request.
8.2 Regulatory Matters. The Company and the Buyer shall (a) file with
------------------
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the transactions and
(b) cooperate with each other as they may reasonably request in connection with
the foregoing.
8.3 Exclusivity. From the date hereof until the earlier of the Closing or
-----------
the termination of this Agreement, neither the Company nor the Shareholder or
any of their respective agents shall, directly or indirectly, solicit or
negotiate or enter into any agreement with
23
<PAGE>
any other Person, or provide any nonpublic information to any other Person, with
respect to or in furtherance of any proposal for a merger or business
combination involving, or acquisition of any interest in, or (except in the
ordinary course of business) sale of assets by, the Company, except for the
acquisition of the Purchased Assets by Buyer.
8.4 Update Disclosure Letter. Between the date hereof and the Closing
------------------------
Date, the Company and the Shareholder shall promptly disclose to Buyer in
writing any information set forth in the Disclosure Letter which is no longer
applicable and any information of the nature of that set forth in the Disclosure
Letter which arises after the date hereof and which would have been required to
be included in the Disclosure Letter if such information had been obtained on
the date of delivery thereof.
8.5 Best Efforts. Each party shall use their best efforts to cause all
------------
conditions to the performance of the parties hereto that are within its control
to be satisfied and the Transactions consummated within 90 days after the date
of this Agreement.
8.6 Financial Information. Until the Closing, the Company shall provide
---------------------
the Buyer, within 15 days after the end of each month, with an unaudited
consolidated balance sheet and income statement of the Company as of and for the
month then ended, prepared on the same basis as the Interim Financial
Statements, and certified as such by the chief financial officer of the Company.
8.7 Restrictive Covenants.
---------------------
(a) The Shareholder covenants that for the period ending four years
after the Closing Date, he will not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a partner, principal,
agent, representative, consultant or otherwise with or use or permit his name to
be used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Buyer at any time
during such period within any portion of the United States in the direct
marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Restricted Business"). It is recognized by the Buyer and the Shareholder that
the Restricted Business is and is expected to continue to be conducted
throughout the United States and that more narrow geographical limitations of
any nature on this non-competition covenant (and the non-solicitation covenant
set forth in Section 8.7(b)) are therefore not appropriate. The foregoing
restriction shall not be construed to prohibit the ownership by the Shareholder
as a passive investment of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
(b) The Shareholder further covenants that for the period ending four
years after the Closing Date, he will not, either directly or indirectly,
(i) call on or solicit any Person who or which within the past two years has
been a customer with respect to the Restricted Business
24
<PAGE>
with respect to the activities prohibited by Section 8.7(a) or (ii) solicit the
employment of any person who is employed by the Buyer during such period on a
full or part-time basis.
(c) The Shareholder recognizes and acknowledges that by reason of his
ownership of and employment by the Company he has had access to Confidential
Information relating to the Restricted Business. The Shareholder acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the Closing
Date to any person for any reason whatsoever, unless such information (a) is in
the public domain through no wrongful act of the Shareholder, (b) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (c) except as may be required by law.
(d) The Shareholder acknowledges that the restrictions contained in
this Section 8.7 are reasonable and necessary to protect the legitimate
interests of the Buyer, and that any violation will result in irreparable injury
to the Buyer.
(e) The Shareholder agrees that the Buyer shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 8.7, which rights
shall be cumulative and in addition to any other rights or remedies to which the
Buyer may be entitled. In the event that any of the provisions of this Section
8.7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) The covenants set forth in this Section 8 shall be in addition to
and not in limitation of any similar covenants set forth in the Consulting
Agreement between the Buyer or any of its Affiliates and the Shareholder.
8.8 Required Consents. The Company and the Shareholder shall use their
-----------------
best efforts to take, or cause to be taken, such action to execute and deliver,
or cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable to
obtain the Required Consents.
8.9 Release of Personal Guarantees. The Buyer shall cause all obligations
-------------------------------
of the Company which have been guaranteed by any shareholder of the Company to
either be retired or use its best efforts to arrange to have such guarantees
released (in the case of any debt which the Company is jointly liable with
others, however, only to the Company's proportionate portion of such liability);
provided, however, to the extent that the Company and the Buyer are unable to
- -------- -------
effectuate any such release, Buyer shall indemnify and holds harmless the
Shareholder from and against any liabilities, claims, demands, judgments,
losses, costs, damages or expenses whatsoever (including reasonable attorneys'
fees and disbursements incurred by them in connection therewith) that he may
sustain, suffer or incur and that result from, arise out of or
25
<PAGE>
relate to such guarantees.
8.10 Payment of Liabilities. The Company shall at the Closing, fully
----------------------
satisfy or cause to have been satisfied all material third party Liabilities and
obligations of the Company which are not also Assumed Liabilities.
8.11 Options and Warrants.
--------------------
(a) At or after the Closing, the Buyer shall grant options (each of
which shall be exercisable at a price per share equal to the Initial Public
Offering price) under its 1996 Equity Compensation Plan exercisable for at least
an aggregate of 90,000 shares of Buyer Common Stock. Such options shall be
granted to certain employees of the Company (other than Messrs. Alcorn, Carroll,
Edge and Virtue) and shall be subject to a three-year vesting period provided,
--------
however, that an option exercisable for at least 11,500 shares of Buyer Common
- -------
Stock shall be granted to Mr. Wiles at the Closing and such option shall not be
subject to any vesting period.
(b) At the Closing, the Buyer shall grant warrants exercisable for an
aggregate of 210,000 shares of Buyer Common Stock to Messrs. Alcorn, Carroll,
Edge, Virtue and Wiles in such denominations set forth on Exhibit 8.11 hereto
and pursuant to the terms of the warrant substantially in the form attached as
Exhibit 8.11A hereto.
8.12 Maintenance of SOMAR Sub. The Buyer shall cause the Purchased Assets
------------------------
to be held and operated solely by the SOMAR Sub except for such additions and
deletions which shall occur in the ordinary course of business.
8.13 Capital Expenditures. After the Closing, the Buyer shall make
--------------------
available to SOMAR Sub up to $14,000,000 for the purpose of meeting the capital
expenditure requirements of the Business as set forth in SOMAR Sub's annual
business plan, subject to periodic mutually agreeable revisions of which SOMAR
Sub shall use its best efforts to provide at least 60 days advance notice to
Buyer.
8.14 Board of Directors. At or prior to the consummation of the Initial
------------------
Public Offering, CRW shall cause Richard W. Virtue to be nominated to CRW
Subsidiary's board of directors and will vote its shares of Buyer Common Stock
to elect Mr. Virtue to such board at such time.
8.15 Approval of Transactions. Richard W. Virtue shall vote all of his
------------------------
shares of Company capital stock in favor of the Transactions and shall recommend
the approval of the Transactions to each other shareholder of the Company.
8.16 Employment, Consulting and Pledge Agreements. The parties hereto
--------------------------------------------
acknowledge that attached as Exhibit A hereto are the form of Employment
Agreements for Messrs. Alcorn, Carroll, Edge and Wiles, attached hereto as
Exhibit B hereto is the form of the Consulting Agreement and attached hereto as
Exhibit C is the Pledge Agreement.
8.17 CRW Market Research.
-------------------
26
<PAGE>
On or prior to the Closing, CRW shall wind down the operation of its Market
=====================================
Research Division and use its best efforts to make available the employees of
=============================================================================
such division for employment with The Response Center Inc., an Initial Target.
==============================================================================
8.18 Lock-Up Agreements. In connection with the Initial Public Offering,
------------------
for good and valuable consideration, the Company and each shareholder of the
Company who executes this Agreement (the "Company Shareholders") each hereby
irrevocably agree that for a period of 360 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except as contemplated in Section 2.7 hereto), directly or indirectly, any
shares of Buyer Common Stock or any securities convertible into or exercisable
or exchangeable for shares of Buyer Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Buyer Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Buyer Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities Inc. Neither the Company nor
any Company Shareholder, without the prior written consent of J.P. Morgan
Securities Inc., shall exercise any demand, mandatory, piggyback, optional or
any other registration rights, if any such rights exist, for a period of 360
days from the Effective Date, except as contemplated in Section 20.3(a). The
Company and each Company Shareholder agree that the foregoing shall be binding
upon their transferees, successors, assigns, heirs, and personal representatives
and shall benefit and be enforceable by the underwriters in the Initial Public
Offering. In furtherance of the foregoing, the Buyer and its transfer agent are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 8.18.
8.19 Custody Agreements and Underwriting Representations. In addition, in
---------------------------------------------------
connection with the exercise of the piggy-back registration rights set forth in
Section 20.3(a) of the Agreement, the Company shall enter into a customary
custody and power of attorney agreement with the underwriters of the Initial
Public Offering and provide such underwriters such representations, warranties
and indemnifications as are customarily given to underwriters by selling
stockholders, including representations in the underwriting agreement concerning
ownership of the Shares to be sold in the Initial Public Offering and the
accuracy of the information concerning the Company in its capacity as such
presented in the Registration Statement.
8.20 Repayment of Obligations. At or prior to the Closing, the Shareholder
------------------------
shall repay in full all obligations he has to the Company.
8.21 Affiliate Transactions. At or prior to the Closing, the Company shall
----------------------
cause all agreements, understandings and arrangements (collectively, "Affiliated
Arrangements") that it has with affiliated parties, including, without
limitation, The Development Group, Inc., Southern Alloy of America, Inc., SOMAR
Telemarketing Incorporated, Engineered Machine Technologies, Inc. and any
shareholder of the Company (collectively, the "Affiliates"), to be modified,
amended or otherwise altered, as necessary, so that Somar Sub's continuing
obligations under each Affiliated Arrangement will be
27
<PAGE>
no greater than they would otherwise be under an agreement with an unaffiliated
third party providing the same or substantially similar services. In addition,
at or prior to the Closing, the Company shall cause all amounts with respect to
any and all periods preceding the Closing which are either owing to the Company
from the Affiliates or owing from the Affiliates to the Company to be fully
satisfied.
8.22 Bonus Payment. The Buyer shall pay a bonus payment (the "Bonus
Payment") in an amount, if any, equal to the lesser of (i) the product of
10% of the amount by which EBIT of the SOMAR Sub for its fiscal year ending
December 31, 1997 exceeds $17,300,000, multiplied by five, and (ii) $5,000,000.
The Bonus Payment, if any, shall be paid within 10 business days after the final
determination of EBIT in accordance with Section 2.7 hereto, via the delivery of
checks by the Buyer to those employees of SOMAR Sub (as directed by Mr. Alcorn)
in an aggregate amount equal to the Bonus Payment.
9. Conduct of the Business Prior to the Closing.
--------------------------------------------
9.1 Operation in Ordinary Course. Between the date of this Agreement and
----------------------------
the Closing Date, the Company shall conduct its Business in all material
respects in the ordinary course and will use commercially reasonable efforts to
maintain all current business relationships related to its Business.
9.2 Business Organization. Between the date of this Agreement and the
---------------------
Closing Date, the Company shall use commercially reasonable efforts, to preserve
substantially intact its business organization and keep available the services
of the present officers and employees of the Company.
9.3 Corporate Organization. Between the date of this Agreement and the
----------------------
Closing Date, the Company shall not amend its Charter Document or bylaws and
shall not:
(a) be party to any merger, consolidation or other business
combination;
(b) sell, lease, license or otherwise dispose of any of its material
Assets relating to its Business (including, but not limited to rights with
respect to its Intellectual Property), except in the ordinary course of
business; or
(c) organize any subsidiary or acquire any equity securities of any
Person or any equity or ownership interest in any business.
9.4 Business Restrictions. Between the date of this Agreement (the
---------------------
Balance Sheet Date with respect to Section 9.4(a)) and the Closing Date, except
as mutually agreed, the Company shall not:
(a) declare, make or pay any dividends or other distributions other
than dividends limited to such an amount equal to the product of (i) the net
income of the Company between January 1, 1996 and the Closing Date multiplied by
(ii) the federal and state income tax rate applicable to the Company's
shareholders;
(b) borrow any funds or otherwise become subject to, whether directly
or by way of guarantee or otherwise, any indebtedness for borrowed money on the
Purchased Assets;
(c) create any material Encumbrance on any of its material Assets;
(d) except in the ordinary course of business, increase in any manner
the compensation of any director or officer or increase in any manner the
compensation of any class of employees;
(e) create or materially modify any bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan,
28
<PAGE>
arrangement or practice or any other employee benefit plan (as defined in
section 3(3) of ERISA);
(f) make any capital expenditure or acquire any property or assets
(other than raw materials and supplies) involving the Business for a cost in
excess of $50,000 in any one case or $100,000 in the aggregate;
(g) enter into any agreement that materially restricts the Company
from carrying on the Business;
(h) cancel any material debts of others or waive any material claims
or rights involving the Business; or
(i) act or omit from taking any action which would cause any of the
representations and warranties in Section 6 to be inaccurate.
9.5 Duty of Shareholder. The Shareholder shall cause the Company to take
-------------------
or refrain from taking such actions set forth elsewhere in this Section 9.
10. Survival of Representations; Indemnification.
--------------------------------------------
10.1 Survival of Representations, Etc. The representations and warranties
---------------------------------
given by the Company, the Shareholder and the Buyer under this Agreement shall
survive the Closing for a period ending thirty days after the delivery by
Buyer's independent accounting firm of its opinion regarding Buyer's financial
statements for the year ending December 31, 1997, except that all
representations and warranties contained in Sections 6.13 and 6.15 shall survive
the Closing for the period of the applicable statute of limitations plus any
extensions or waivers thereof.
10.2 Indemnification by the Shareholder and the Company. The Shareholder
--------------------------------------------------
and the Company, jointly and severally, hereby agree to indemnify and hold
harmless the Buyer, and its successors and assigns, (each, an "Indemnified Buyer
Party") from and against any and all Liabilities, claims, demands, judgments,
settlement payments, losses, costs, damages and expenses whatsoever (including
reasonable attorneys', consultants' and other professional fees and
disbursements of every kind, nature and description incurred by such Indemnified
Buyer Party in connection therewith) (collectively, "Damages") that such
Indemnified Buyer Party may sustain, suffer or incur that result from, arise out
of or relate to (a) any Excluded Liability, (b) any breach of or any inaccuracy
in any representation, warranty, covenant or agreement of the Company or the
Shareholder contained in this Agreement, including any breach of the obligation
to indemnify hereunder, or (c) any Liability or obligation of the Company or the
Shareholder involving taxes due and payable by, or imposed with respect to the
Company or the Shareholder for any taxable periods ending on or prior to the
Closing Date which are open to examination by the Internal Revenue Service
pursuant to any applicable statute of limitations under the Code (whether or not
such taxes have been due and payable).
10.3 Indemnification by the Buyer and CRW. The Buyer and CRW, jointly and
------------------------------------
severally, hereby agree to indemnify and hold harmless the Company and each of
the Company's shareholders, affiliates, officers, directors, employees, agents,
successors and assigns (the
29
<PAGE>
"Company's Indemnified Persons") from and against any Damages that any of the
Company's Indemnified Persons may sustain, suffer or incur that result from,
arise out of or relate to any breach of or inaccuracy in any representation,
warranty, covenant or agreement of the Buyer contained in this Agreement,
including any breach of the obligation to indemnify hereunder; provided,
--------
however, that the obligation of CRW to so indemnify and hold harmless the
- -------
Company and/or the Company's Indemnified Persons shall terminate as of the
Closing without the need of any further action by any party hereto.
10.4 Limitation on Liabilities.
-------------------------
(a) Notwithstanding anything in this Agreement to the contrary, an
indemnifying party shall not have any liability to an indemnified party in
respect of any claim for indemnification for the breach of any representation or
warranty contained herein (i) unless a claim with respect thereto is delivered
to the indemnifying party specifying the factual basis of the claim in
reasonable detail to the extent then known by the indemnifying party prior to
the termination of the survival period for such representation and warranty set
forth in Section 10.1 hereof and (ii) until the damages to the indemnified
party, after taking into account Section 10.4(a) hereof, exceed a cumulative
aggregate total of $100,000, but then only to the full extent of such Damages.
(b) In addition, the indemnification liability of the Company and the
Shareholder under Section 10.2 of this Agreement shall be limited to an
aggregate of $25,000,000 in the case of any claim or claims for breaches of
representations and warranties of the Company or the Shareholder made herein or
in any other Transaction Document.
10.5 Procedure for Claims.
--------------------
(a) An Indemnified Buyer Party or the Company or any Company's
Indemnified Person that desires to seek indemnification under any part of this
Section 10 (each, an "Indemnified Party") shall give notice (a "Claim Notice")
to each party responsible or alleged to be responsible for indemnification
hereunder (an "Indemnitor"). Such notice shall briefly explain the nature of
the claim and the parties known to be involved, and shall specify the amount
thereof. If the matter to which a claim relates shall not have been resolved as
of the date of the Claim Notice, the Indemnified Party shall estimate the amount
of the claim in the Claim Notice, but also specify therein that the claim has
not yet been liquidated (an "Unliquidated Claim"). If an Indemnified Party
gives a Claim Notice for an Unliquidated Claim, the Indemnified Party shall also
give a second Claim Notice (the "Liquidated Claim Notice") within 60 days after
the matter giving rise to the claim becomes finally resolved, and the Liquidated
Claim Notice shall specify the amount of the claim. Each Indemnitor to which or
whom a Claim Notice is given shall respond to any Indemnified Party that has
given a Claim Notice (a "Claim Response") within 30 days (the "Response Period")
after the later of (i) the date that the Claim Notice is given or (ii) if a
Claim Notice is first given with respect to an Unliquidated Claim, the date on
which the Liquidated Claim Notice is given. Any Claim Notice or Claim Response
shall be given in accordance with the notice requirements hereunder, and any
Claim Response shall specify whether or not the Indemnitor giving the Claim
Response disputes the claim described in the Claim Notice. If any Indemnitor
fails to give a Claim Response within the Response Period, such Indemnitor shall
be deemed not to dispute the claim described in the related Claim Notice. If
30
<PAGE>
any Indemnitor elects not to dispute a claim described in a Claim Notice,
whether by failing to give a timely Claim Response or otherwise, then the amount
of such claim shall be conclusively deemed to be an obligation of such
Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the applicable Response Period the amount to which
such Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 10, the Indemnitor and
the Indemnified Party shall seek to resolve such dispute through negotiations
and, if such dispute is not resolved within twenty days, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to 10%.
10.6 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 10 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or if so requested by such Indemnified Party, any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided, however, that such
Indemnified Party shall have the right to participate at its own expense in the
defense of such Action; and provided, further, that the Indemnitor shall not
consent to the entry of any judgment or enter into any settlement, except with
the written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any such Action or (b) grants the
claimant or plaintiff any injunctive relief against the Indemnified Party. Any
failure to give prompt notice under this Section 10.6 shall not bar an
Indemnified Party's right to claim indemnification under this Section 10, except
to the extent that an Indemnitor shall have been harmed by such failure.
10.7 Exceptions to Limitations. Nothing herein shall be deemed to limit or
-------------------------
restrict in any manner any rights or remedies which the Buyer has, or might
have, at law, in equity or otherwise, against either Company or the Shareholder
based on a willful misrepresentation or willful breach of warranty by either
Company or the Shareholder hereunder.
10.8 Effect of Investigation. Any claim for indemnification shall not be
-----------------------
invalid as a result of any investigation by or opportunity to investigate
afforded to Buyer.
10.9 Contingent Claims. Nothing herein shall be deemed to prevent an
-----------------
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made; provided, however, that any such potential or contingent claim or
demand must mature into an actual claim or demand not later than three years
after the Closing Date.
31
<PAGE>
11. Termination.
-----------
11.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
(a) by mutual written consent of the Buyer and the Company;
(b) by Buyer within 45 days after the date hereof if its due
diligence investigation and review of the Business, the Purchased Assets and the
prospects and obligations of the Company has resulted in the disclosure or
discovery of an event or matter which has resulted, or the Buyer has determined
would reasonably be likely to result, in a Material Adverse Effect; provided,
--------
however, that the Company shall have the right to contest Buyer's determination
- -------
that such event or matter has or would be reasonably likely to result in a
Material Adverse Effect. If the parties are unable to resolve any such dispute
regarding any such event or matter, the Company shall be entitled to submit such
determination to binding arbitration pursuant to Section 19(c) hereof.
(c) by the Company or by Buyer, if the Closing has not occurred by
the Termination Date; provided, however, that the right to terminate this
Agreement under this paragraph (b) of Section 11.1 shall not be available to any
party that has breached any of its covenants, representations or warranties in
this Agreement in any material respect (which breach has not been cured);
(d) by the Company or the Buyer, if there shall be any Regulation
that makes consummation of the Transactions illegal or otherwise prohibited or
if any Court Order enjoining the Company or the Buyer from consummating the
Transactions is entered and such Court Order shall become final and
nonappealable;
(e) by the Buyer, if the Company shall have breached any of its
covenants hereunder in any material respect or if the representations and
warranties of the Company contained in this Agreement or in any certificate or
other writing delivered by the Company pursuant hereto shall not be true and
correct in any material respect, except for such changes as are contemplated by
this Agreement, and, in either event, if such breach is subject to cure, the
Company has not cured such breach within 10 business days of the Buyer's notice
of an intent to terminate;
(f) by the Company, if the Buyer shall have breached any of its
covenants hereunder or if the representations and warranties of the Buyer
contained in this Agreement or in any certificate or other writing delivered by
the Buyer pursuant hereto shall not be true and correct, except for such changes
as are contemplated by this Agreement, and, in either event, if such breach is
subject to cure, the Buyer has not cured such breach within 10 business days of
the Company's notice of an intent to terminate; or
(g) by the Company in the event that filing of the Registration
Statement has not occurred by August 31, 1996, unless any delay in meeting such
filing date resulted from failure or inability of the Company or the Shareholder
to provide financial or other information necessary to enable such filing by
such date.
32
<PAGE>
11.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 11.1, any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party.
12. Payment of Expenses. Each party hereto shall pay their own expenses for
-------------------
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions; provided, however, that the
-------- -------
Buyer shall reimburse the Company for (i) the fees and expenses charged by
Arthur Andersen LLP in connection with its audit of the Company's financial
statements for the years ended December 31, 1993 and 1994 regardless of whether
the Transactions are consummated, (ii) up to $50,000 of the Company's legal
expenses if the Transactions are not consummated; (iii) the lesser of (A) one-
half of the fee paid to Robinson Humphrey Company, Inc. or (B) $400,000 if the
Transactions are consummated; (iv) an amount equal to fifty percent of all
accounting fees (not payable pursuant to clause (i) above) which have been
incurred by the Company in connection with the Transactions if the Transactions
are consummated; and (v) an amount equal to fifty percent of all legal fees
which have been incurred by the Company in connection with the Transactions if
the Transactions are consummated. The payments to be made by Buyer pursuant to
this Section 12 shall be made via wire transfer of immediately available funds
or via certified check at the Closing or within 15 business days after the
termination of this Agreement.
13. Contents of Agreement. This Agreement, together with the other Transaction
---------------------
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
14. Amendment, Parties in Interest, Assignment, Etc. This Agreement may be
------------------------------------------------
amended, modified or supplemented only by a written instrument duly executed by
each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. The parties hereto shall execute and deliver any and all
documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
15. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
33
<PAGE>
16. Remedies. The remedies provided by Section 10 shall constitute the
--------
exclusive remedies for the matters covered thereby. With respect to any matters
not covered by such Section, any party shall be entitled to such rights and
remedies as such party may have at law or in equity or otherwise for any breach
of this Agreement, including the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or diminished
by the remedies provided hereunder.
17. Notices. All notices that are required or permitted hereunder shall be in
-------
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto given in accordance with the foregoing notice procedures:
If to the Buyer:
443 S. Gulph Road
King of Prussia, PA 19406
FAX: 610-962-5109
Attention: J. Brian O'Neill, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Stephen M. Goodman, Esquire
If to the Company:
SOMAR, Inc.
118 South Main Street
Salisbury, NC 28144
FAX: 704-647-0154
Attention: Gregory M. Alcorn
with a required copy to:
Smith Helms Mulliss & Moore, L.L.P.
227 North Tryon Street
Charlotte, NC 28202
FAX: 704-334-8467
Attention: Michael S. Marr, Esquire
34
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18. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
19. Consent to Jurisdiction; Service of Process, etc.; Arbitration
--------------------------------------------------------------
(a) Each party hereto irrevocably and unconditionally (i) agrees that
any suit, action or other legal proceeding (collectively, "Suit") arising out of
this Agreement may be brought and adjudicated in the United States District
Court for the Eastern District of Pennsylvania or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of competent civil
jurisdiction in Montgomery County, Pennsylvania, (ii) consents and submits to
the non-exclusive jurisdiction of any such court for the purposes of any such
Suit and (iii) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it or he is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper.
(b) Each party hereto also irrevocably consents to the service of any
process, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 17 or by any other method provided or permitted under
applicable law. Each party hereto agrees that final judgment in any Suit (with
all right of appeal having either expired or been waived or exhausted) shall be
conclusive and that the Buyer shall be entitled to enforce such judgment in any
other jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and amount of
indebtedness arising from such judgment.
(c) If the parties are unable to resolve any dispute under Section
11.1(b) hereto, such dispute shall be submitted to arbitration in accordance
with the rules of the American Arbitration Association. Discovery shall be
allowed in accordance with the United States Federal Rules of Civil Procedure
which are applicable in the United States District Courts, in the Eastern
District of the Commonwealth of Pennsylvania. The arbitrators shall be required
to apply the contractual provisions hereof in deciding whether such event or
matter described in Section 11.1(b) would have a Material Adverse Effect and
shall not have any authority, by reason of this Agreement or otherwise, to
render a decision that is contrary to the mutual intent of the parties as set
forth in this Agreement. The decision of the arbitrators shall be final and
binding upon the parties and judgment upon such decision may be entered in any
court of competent jurisdiction. Any arbitration conducted pursuant to this
Section shall be held in Montgomery County, Pennsylvania before a panel of three
arbitrators, one selected by each of the Company and the Buyer and the third
selected by the other two arbitrators.
20. Securities Law Matters.
----------------------
20.1 Economic Risk; Sophistication.
-----------------------------
(a) The Company and each Company Shareholder represents and warrants
that it or he has not relied on any purchaser representative, or on the Buyer or
any other Company Shareholder, in connection with the acquisition of shares of
Buyer Common Stock hereunder. The Company and each Company Shareholder (i) has
such knowledge, sophistication and
35
<PAGE>
experience in business and financial matters that it or he is capable of
evaluating the merits and risks of an investment in the shares of Buyer Common
Stock, (ii) fully understands the nature, scope and duration of the limitations
on transfer contained in this Agreement and (iii) can bear the economic risk of
an investment in the shares of Buyer Common Stock and can afford a complete loss
of such investment. The Company and each Company Shareholder have had an
adequate opportunity to ask questions and receive answers from the officers of
the Buyer concerning any and all matters relating to the transactions described
herein including without limitation the background and experience of the
officers and directors of the Buyer, the plans for the operations of the
business of the Buyer, the business, operations and financial condition of the
Buyer, and any plans for additional acquisitions and the like. The Company and
the Company Shareholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
(b) The Company and each Company Shareholder further represents,
warrants, acknowledges and agrees that he or it (i) is acquiring the shares of
Buyer Common Stock under this Agreement for its or his own account, as principal
and not on behalf of other persons, and for investment and not with a view to
the resale or distribution of all or any part of such shares and (ii) will not
sell or otherwise transfer such shares unless, in the opinion of counsel who is
satisfactory to the Company, the transfer can be made without violating the
registration provisions of the 1933 Act, as amended, and the rules and
regulations promulgated thereunder.
(c) The Company and each Company Shareholder acknowledge that it or he
has received the prospectus included in the draft of the Registration Statement
delivered to it or him on or about May 21, 1996 and has had the opportunity to
discuss with the Buyer any questions or comments it or he has with respect to
the Buyer.
20.2 Restriction on Resale. The certificates evidencing the Buyer Common
---------------------
Stock to be received by the Company and the Company Shareholders hereunder will
bear a legend substantially in the form set forth below and containing such
other information as the Buyer may deem appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY
LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as counsel for
the Buyer reasonably determines are required under the applicable laws of any
state.
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<PAGE>
20.3 Piggyback Registration.
----------------------
(a) Right to Piggyback.
------------------
(i) In connection with the Initial Public Offering, the Company will
include in the Registration Statement (subject to the allocation provisions
below) such number of the Company's Registrable Securities with an aggregate
fair market value of $3,000,000 (based on the Initial Public Offering price).
No other Person shall have the right to include any Registrable Securities in
the Initial Public Offering pursuant to this Section 20.3(a).
(ii) At any time after Buyer's initial public offering, whenever Buyer
proposes to register any Buyer Common Stock under the Securities Act of 1933, as
amended, and the registration form to be used may be used for the registration
of Registrable Securities (such registration, together with the registration
identified in Section 20.3(a)(i), a "Piggyback Registration"), the Buyer will
give prompt written notice to all holders of Registrable Securities and will
include in such Piggyback Registration, subject to the allocation provisions
below, all Registrable Securities with respect to which the Buyer has received
written requests for inclusion within 20 days after the Buyer's mailing of such
notice.
(b) Piggyback Expenses. In all Piggyback Registrations, the Buyer
------------------
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Buyer, and the managing
underwriters advise the Buyer in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Buyer will allocate the securities to be included as follows: first, the
securities the Buyer proposes to sell on its own behalf; and second, Registrable
Securities requested to be included in such registration by the Selling
Stockholders, pro rata on the basis of the respective Registrable Securities
owned among the Selling Stockholders.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is initiated as an underwritten secondary registration on behalf of holders of
the Buyer's securities and the managing underwriters advise the Buyer in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Buyer will allocate the securities to be
included on a pro rata basis, based on the number of Registrable Securities
owned among the Selling Stockholders.
(e) Selection of Underwriters. The selection of investment banker(s)
-------------------------
and manager(s) and the other decisions regarding the underwriting arrangements
for the offering will be made by the Buyer.
37
<PAGE>
(f) Indemnification. The Buyer shall indemnify, to the extent
---------------
permitted by law, each Selling Stockholder against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Selling Stockholder expressly for use therein or by such
Stockholder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Buyer has
furnished such Selling Stockholder with a sufficient number of copies of the
same.
(g) Information. In connection with any registration statement in
-----------
which a Selling Stockholder is participating, each such holder will furnish to
the Buyer in writing such information as is reasonably requested by the Buyer
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, the Buyer, its directors and officers and each
person who controls the Buyer (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder specifically for use in preparing the registration statement.
21. Demand Registration.
-------------------
21.1 Requests for Registration. At any time after September 1, 1998 and
-------------------------
prior to December 31, 2000, the holders (the "Requesting Holders") of at least
fifty percent of the Contingent Shares, if any, may demand registration
(a "Demand Registration") under the 1933 Act of all or any portion of their
Contingent Shares. Such registration shall be on Form S-3 unless the Buyer is
unable pursuant to the rules and regulations of the Securities and Exchange
Commission to use such form, in which case the registration shall be on such
other available form reasonably acceptable to the Requesting Holders. In order
to accomplish such demand, such holders shall send written notice of the demand
to the Buyer, and such notice shall specify the number of Contingent Shares
sought to be registered. The Buyer shall not be required to file and cause to
become effective more than one registration statement at the demand of the
holders of Contingent Shares pursuant to this Section 21; provided, however,
that the Buyer shall only be required to proceed with a Demand Registration if
the number of Contingent Shares that the Requesting Holders shall have elected
to include in such Demand Registration has an aggregate fair market value in
excess of $5 million. Notwithstanding anything to the contrary set forth
herein, the Demand Registration rights provided for in this Agreement shall not
be transferrable to any Person other than to Messrs. Alcorn, Carroll, Edge,
Virtue and Wiles. The Demand Registration rights provided for in this Agreement
shall not be transferrable by Messrs. Alcorn, Carroll, Edge, Virtue or Wiles to
any other Person except in connection with any bona fide estate or family
planning transaction and thereafter shall not be transferable by any such
transferee.
21.2 Procedure. Within 10 days after receipt of such a demand, the Buyer
---------
shall give written notice of such requested registration to all other holders of
Contingent Shares and shall
38
<PAGE>
include in such registration, subject to the allocation provisions below, all
other Contingent Shares with respect to which the Buyer has received written
requests for inclusion within 20 days after the Buyer's mailing of such notice,
plus any securities of the Buyer that the Buyer chooses to include on its own
behalf.
21.3 Expenses. In a Demand Registration, the Buyer will pay the
--------
Registration Expenses, but the Underwriting Commissions will be shared by the
Buyer and those holders of Contingent Shares whose Contingent Shares are
included in the Demand Registration in proportion to any securities included on
their behalf. In addition, the Buyer shall pay the reasonable fees and expenses
of one counsel selected by the holders of the Contingent Shares.
21.4 Priority on Demand Registrations. If a Demand Registration is
--------------------------------
underwritten and the managing underwriters advise the Buyer in writing that in
their opinion the number of Contingent Shares requested to be included exceeds
the number that can be sold in such offering, at a price reasonably related to
the then fair market value, the Buyer will include in such Demand Registration
(i) first, the Contingent Shares requested to be included in such Demand
Registration, pro rata on the basis of the number of Contingent Shares owned,
(ii) second, any securities that the Buyer desires to include on its own behalf,
and (iii) third, the Registrable Securities requested to be included in such
Demand Registration upon the exercise of piggyback rights, pro rata on the basis
of the number of Registrable Securities owned.
21.5 Selection of Underwriters. If any Demand Registration is
-------------------------
underwritten, the selection of investment banker(s) and manager(s) and the other
decisions regarding the underwriting arrangements for the offering will be made
by the Buyer.
21.6 Restrictions on Demand Registrations. The Buyer will not be obligated
------------------------------------
to effect any Demand Registration during any period of time during which the
Buyer is in the process of preparing or has filed a registration statement to
register any securities on its own behalf under the 1933 Act or within six
months after the effective date of any such registration statement.
21.7 Registration Procedures. Whenever the holders of Contingent Shares
-----------------------
have requested registration pursuant to this Section 21, the Buyer will, as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such
Contingent Shares and use its best efforts to cause such
registration statement to become effective (provided that
before filing a registration statement or prospectus or any
amendments or supplements or term sheet thereto, the Buyer
will furnish each Requesting Holder, with copies of all such
documents proposed to be filed) as promptly as practical;
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective
for a period of not less than 120 days;
(c) furnish to each Requesting Holder such number of
copies of such registration statement, each amendment and
supplement thereto and the prospectus
39
<PAGE>
included in such registration statement (including each
preliminary prospectus and any term sheet associated
therewith), and such other documents as such Holder may
reasonably request in order to facilitate the disposition
of the Contingent Shares;
(d) use its best efforts to register or qualify such
Contingent Shares under such other securities or blue sky
laws of such jurisdictions as the managing underwriter(s)
may reasonably request;
(e) notify each Requesting Holder at any time when a
prospectus relating thereto is required to be delivered
under the 1933 Act within the period that the Buyer is
required to keep the registration statement effective of
the happening of any event as a result of which the
prospectus included in such registration statement, together
with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the
statement therein not misleading, and, at the request of any
such Requesting Holder, the Buyer will prepare a supplement
or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Contingent Shares such
prospectus will not contain an untrue statement of a material
fact or omit to state any fact necessary to make the statement
therein not misleading;
(f) cause all such Contingent Shares to be listed or
included on securities exchanges or trading systems on which
similar securities issued by the Buyer are then listed or
included;
(g) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other
customary actions as may be reasonably necessary to expedite
or facilitate the disposition of such Contingent Shares;
(h) obtain a "comfort" letter addressed to the Buyer
from its independent public accountants in customary form and
covering such matters of the type customarily covered by
"comfort" letters; and
(i) make available for inspection by any Requesting
Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney,
accountant or other agent retained by the Buyer or any
underwriter, all financial and other records, pertinent
corporate documents and properties of the Buyer, and cause
the Buyer's officers, directors and employees to supply all
information reasonably requested by the Requesting Holders
or any such underwriter, attorney, accountant or agent in
connection with such registration statement.
40
<PAGE>
21.8 Indemnification.
---------------
(a) In connection with any Demand Registration, the Buyer shall
indemnify, to the extent permitted by law, each Requesting Holder
(an "Indemnified Party") against all losses, claims, damages, liabilities and
expenses arising out of or resulting from any untrue or alleged untrue statement
of material fact contained in any registration statement, prospectus or
preliminary prospectus or associated term sheet or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Indemnified Party expressly for use therein or by any Indemnified
Party's failure to deliver a copy of the registration statement or prospectus or
any amendments or supplements thereto after the Buyer has furnished such
Indemnified Party with a sufficient number of copies of the same. In connection
with an underwritten offering, the Buyer will indemnify the underwriters, their
officers and directors, and each person who controls such underwriters (within
the meaning of the 1933 Act) to the same extent as provided above with respect
to the indemnification of any Indemnified Party.
(b) In connection with any Demand Registration, each Requesting
Holder shall furnish to the Buyer in writing such information as is reasonably
requested by the Buyer for use in any such registration statement or prospectus
and will indemnify, to the extent permitted by law, the Buyer, its directors and
officers and each person who controls the Buyer (within the meaning of the 1933
Act) against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact or any omission or
alleged omission of a material fact required to be stated in the registration
statement or prospectus or any amendment thereof or supplement thereto or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in information so furnished
in writing by such holder specifically for use in preparing the registration
statement. Notwithstanding the foregoing, the liability of a Requesting Holder
under this Section 21.8(b) shall be limited to an amount equal to the net
proceeds actually received by such Holder from the sale of Contingent Shares
covered by the registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any failure to give prompt notice shall deprive a party of
its right to indemnification hereunder only to the extent that such failure
shall have adversely affected the indemnifying party. If the defense of any
claim is assumed, the indemnifying party will not be subject to any liability
for any settlement made without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled, or elects
not, to assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
41
<PAGE>
21.9 Participation in Underwritten Registrations. No Requesting Holder
-------------------------------------------
may participate in any Demand Registration hereunder unless such holder
(a) agrees to sell such holder's securities on the basis provided in any
underwriting arrangements approved by the Buyer, and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
22. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all of
which shall constitute one and the same instrument. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
23. Definitions.
-----------
"1996 Contingent Payment" is defined in Section 2.7.
"1997 Contingent Payment" is defined in Section 2.7.
"Acquisition Base" is defined in Section 2.8.
"Acquisition Stock Value" is defined in Section 2.7.
"Acquisition Transactions" is defined in Section 2.8.
"Additional Targets" is defined in Section 2.8.
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this Agreement and the exhibits hereto.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by the Company.
"Audited Financial Statements" is defined in Section 6.5.
"Assumed Liabilities" is defined in Section 2.3.
"Balance Sheet Date" is defined in Section 6.5.
"Benefit Plans" means all employee benefit plans of the Company within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies, arrangements, practices, customs and understandings,
in each case whether formal or informal, that provide benefits so described in
ERISA Sections 3(1) or 3(2) to any present or former employee of the Company, or
present or former beneficiary, dependent or assignee of any such
42
<PAGE>
employee or former employee, including, without limitation, all incentive,
bonus, deferred compensation, vacation, holiday, medical, disability, share
purchase or other similar plans, policies, programs, practices or arrangements.
"Bonus Payment" is defined in Section 8.22.
"Business" means the entire existing business and the operations,
facilities and other Assets of the Company.
"Buyer" is defined above in the preamble.
"Buyer Common Stock" is defined in Section 2.7.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 3.1.
"Closing Date" means the date of the Closing.
"Closing Date Balance Sheet" is defined in Section 2.6.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" is defined the preamble.
"Company Balance Sheet" is defined in Section 6.5.
"Company's Indemnified Persons" is defined in Section 10.3.
"Confidential Information" means any confidential information or trade
secrets of the Business, including, without limitation, information and
knowledge pertaining to products and services offered, innovations, designs,
ideas, plans, trade secrets, proprietary information, know-how and other
technical information, advertising, distribution and sales methods and systems,
sales and profit figures, customer and client lists, and relationships with
dealers, distributors, wholesalers, customers, clients, suppliers and others who
have business dealings with the Business.
"Consulting Agreement" means the consulting agreement between the Buyer and
Richard W. Virtue entered into as of the Closing Date.
"Contingent Shares" is defined in Section 2.7(c).
"Contract" means any written contract, agreement, lease, plan, instrument
or other document or commitment, arrangement, undertaking, practice or
authorization that is binding on any Person or its property under applicable
law.
43
<PAGE>
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any Federal, state, local or foreign court or governmental or regulatory body or
arbitrator or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
"Demand Registration" is defined in Section 21.1.
"Disclosure Letter" is defined in Section 6.
"EBIT" is defined in Section 2.7.
"EBIT Statement" is defined in Section 2.7.
"Employment Agreement" means the Employment Agreement between the Buyer or
the Company and each of those Persons identified in Section 3.2(b)(v) entered
into as of the Closing Date.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest of
the Business.
"Environmental Condition" is defined in Section 6.15(b).
"Environmental Law" is defined in Section 6.15(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.4.
"Financial Statements" is defined in Section 6.5.
"First Round Acquisitions" means the initial round of acquisitions by the
Buyer of other parties.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products,
44
<PAGE>
explosives, alcohols or chemical solvents or polychlorinated biphenyls, (ii) any
substance, waste, material or product defined as hazardous, radioactive,
extremely hazardous or toxic under any Environmental Law, and (iii) asbestos,
asbestos-containing substances or urea formaldehyde insulation.
"Indemnified Buyer Party" is defined in Section 10.2.
"Initial Public Offering" is defined in Section 2.8.
"Initial Targets" is defined in Section 2.8.
"Independent Accounting Firm" is defined in Section 2.6.
"Interim Balance Sheet" is defined in Section 6.5.
"Interim Balance Sheet Date" is defined in Section 6.5.
"Intellectual Property" means any Copyrights, Patents, Trademarks, know-
how, trade secrets (including, without limitation, all results of research and
development), product formulae, franchises, inventions, rights-to-use and other
industrial and intellectual property rights.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated which relates to the Business.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition, results of operations, liquidity, products,
competitive position, customers or customer relations of either Company.
"Net Worth Deficiency" is defined in Section 2.6.
"Non-Assignable Contracts" is defined in Section 2.5.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
"Patents" means all patents and patent applications.
"Permit" means any governmental permit, license, registration, certificate
of occupancy, approval and other authorization.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
45
<PAGE>
"Personal Property Leases" is defined in Section 6.9.
"Pledge Agreement" means the Pledge Agreement to be entered into by the
Buyer and Mr. Virtue at the Closing.
"Private Percentages" means the percentage of the outstanding Buyer Common
Stock which will be owned by the Initial Targets (on an aggregate basis with
respect to affiliated Initial Targets) after the consummation of the Acquisition
Transactions but prior to the consummation of the Initial Public Offering and
subject to the adjustments set forth in Section 2.8 hereto.
"Purchase Price" is defined in Section 2.7.
"Purchased Assets" is defined in Section 2.1.
"Real Estate Leases" is defined in Section 6.7.
"Real Property" is defined in Section 6.7.
"Registrable Securities" means (i) the shares of Buyer Common Stock issued
in Buyer's initial round of acquisitions and (ii) any securities issued or to be
issued with respect to such securities by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have been (A) effectively registered under the 1933 Act and disposed of in
accordance with the registration statement covering them, or (B) transferred
pursuant to Rule 144 promulgated under such Act (or any similar provision then
in force).
"Registration Expenses" means all expenses incident to the Buyer's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges or
electronic quotation systems on which similar securities issued by the Buyer are
then listed, and fees and disbursements of counsel for the Buyer and of all
independent certified public accountants, underwriters (other than Underwriting
Commissions) and other persons retained by the Buyer.
"Registration Statement" means the Buyer's Registration Statement on Form
S-1 to be filed with the Securities and Exchange Commission registering a
sufficient number of shares of Buyer's capital stock which, based on the minimum
estimated offering price of such shares (as set forth in the prospectus included
in such Registration Statement), upon consummation of the offering described in
the Registration Statement would yield net proceeds of at least $75,000,000,
subject to downward proportionate adjustment if any Initial Target is not
acquired by Buyer.
"Requesting Holder" is defined in Section 21.1.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory
46
<PAGE>
body, including those covering environmental, energy, safety, health,
transportation, bribery, recordkeeping, zoning, antidiscrimination, antitrust,
wage and hour, and price and wage control matters.
"Selling Stockholders" means registered holders of Registrable Securities
who request inclusion of all or a portion of their shares of Registrable
Securities in a Piggyback Registration pursuant to Section 20.
"Shareholder" is defined in the preamble.
"SOMAR Sub" is defined in Section 2.7.
"Termination Date" is defined in Section 3.1.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement and the Employment Agreements.
"Transactions" means the purchase and sale of the Purchased Assets, the
issuance of the Shares, and the consummation of the other transactions
contemplated by the Transaction Documents.
"Underwriting Commissions" means all underwriting discounts or commissions
relating to the public sale of securities of the Buyer.
47
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
TELESPECTRUM WORLDWIDE INC.
By: ---------------------------------------------
J. Brian O'Neill
Chairman
CRW FINANCIAL, INC.
By: ---------------------------------------------
J. Brian O'Neill
Chairman
SOMAR, INC.
By: --------------------------------------
Richard W. Virtue
Chairman
-----------------------------
Richard W. Virtue
Joinder: The following persons join in this Agreement solely for the purposes
- --------
set forth in Sections 8.18 and 20 of this Agreement and for no other purpose.
-----------------------------
Christopher Virtue
-----------------------------
Gregory Alcorn
-----------------------------
William B. Edge
-----------------------------
James Carroll
<PAGE>
-----------------------------
Kenneth Wiles
<PAGE>
EXHIBIT 10.05
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
CRW FINANCIAL, INC.
(a Delaware corporation),
TELESPECTRUM WORLDWIDE INC.
(a Delaware corporation),
THE RESPONSE CENTER, INC.
(a Pennsylvania corporation),
THE TAB HOUSE, INC.
(a Pennsylvania Corporation),
Patrick M. Baldasare,
Richard Raquet
and
Edward Olesky
Dated as of April 30, 1996,
as amended and restated May 21, 1996
- --------------------------------------------------------------------------------
<PAGE>
Section Page
- ------- ----
1. Reference to Definitions................................................ 1
------------------------
2. Purchase and Sale of the Business and Assets............................ 1
--------------------------------------------
3. Closing................................................................. 5
-------
4. Conditions to Buyer's Obligations....................................... 7
----------------------------------
5. Conditions to each Company's and each Shareholder's Obligations......... 9
----------------------------------------------------------------
6. Representations and Warranties of the Companies and the Shareholders.... 9
--------------------------------------------------------------------
7. Representations and Warranties of the Buyer............................. 20
-------------------------------------------
8. Certain Agreements...................................................... 21
------------------
9. Conduct of the Business Prior to the Closing............................ 24
--------------------------------------------
10. Survival of Representations; Indemnification............................ 26
--------------------------------------------
11. Termination............................................................. 29
-----------
12. Payment of Expenses..................................................... 30
-------------------
13. Contents of Agreement................................................... 30
---------------------
14. Amendment, Parties in Interest, Assignment, Etc......................... 30
-----------------------------------------------
15. Interpretation.......................................................... 31
--------------
16. Remedies................................................................ 31
--------
17. Notices................................................................. 31
-------
18. Governing Law........................................................... 32
-------------
19. Consent to Jurisdiction; Service of Process, etc........................ 32
-------------------------------------------------
20. Securities Law Matters.................................................. 33
----------------------
21. Counterparts............................................................ 35
------------
22. Definitions............................................................. 35
-----------
<PAGE>
Exhibits
- --------
A Form of Baldasare Employment Agreement
B Form of Raquet Employment Agreement
C Form of Pledge Agreement
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of April 30, 1996, as amended and
restated as of May 21, 1996, by and among TeleSpectrum Worldwide Inc., a
Delaware corporation ("Buyer"), CRW Financial, Inc., a Delaware corporation
("CRW"), The Response Center, Inc., a Pennsylvania corporation ("Response
Center"), The Tab House, Inc., a Pennsylvania corporation ("Tab House")
(Response Center together with Tab House, the "Companies or, individually,
"Company"), Patrick M. Baldasare, Richard Raquet and Edward Olesky. Messrs.
Baldasare, Raquet and Olesky are sometimes referred to together as the
"Shareholders". The parties acknowledge that Buyer may form one or more
subsidiaries to acquire, own and operate the Businesses and the Purchased Assets
and that Buyer may assign its rights under the Agreement to such subsidiaries
although Buyer shall not thereby be relieved of its obligations and liabilities
hereunder.
Background
----------
The Companies are engaged in the business of market research. At the
Closing the Shareholders will own all of the issued and outstanding capital
stock of each Company. The Buyer desires to purchase the Purchased Assets (as
defined herein), the Companies desire the Purchased Assets to be sold, and the
Shareholders desire to cause the Companies to sell the Purchased Assets, all on
the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Reference to Definitions. For convenience, certain terms used in this
------------------------
Agreement are listed in alphabetical order and defined or referred to in
Section 22 (such terms as well as any other terms defined elsewhere in this
Agreement shall be equally applicable to both the singular and plural forms of
the terms defined).
2. Purchase and Sale of the Business and Assets.
--------------------------------------------
2.1 The Purchased Assets. Each Company, subject to the terms and
--------------------
conditions of this Agreement, shall sell, transfer, convey and deliver to the
Buyer all of such Company's right, title and interest in all of its respective
Assets (collectively, the "Purchased Assets") which are not Excluded Assets.
The Purchased Assets include, without limitation, all of the following assets:
(a) the Business of each Company;
(b) the names Response Center and Tab House;
(c) subject to Section 9.4(a), the cash and cash equivalents of each
Company, wherever located;
<PAGE>
(d) each Company's accounts and notes receivable and rights to
payment from any party for products sold and/or services delivered prior to the
Closing;
(e) the tangible and intangible personal property of each Company,
however owned, leased, or held, including, without limitation, machinery,
equipment, furniture, fixtures, supplies, vehicles, inventory, supplies and
computer hardware and software;
(f) the interests of each Company under all Contracts related to the
Business (including, without limitation, all employment
agreements (except for Richard Raquet's) which are in effect as
of the Closing Date);
(g) the Permits of each Company;
(h) the goodwill, going concern value, past and present customer and
supplier lists and Intellectual Property (including the goodwill associated
therewith) of each Company;
(i) the prepaid expenses of each Company; and
(j) the books and records of each Company.
2.2 Excluded Assets. Notwithstanding anything to the contrary in
Section 2.1, the following Assets (the "Excluded Assets") shall not be included
in the Purchased Assets: the corporate seal, Charter Documents, bylaws, personal
effects, minute books and other corporate records of each Company.
2.3 Assumed Liabilities. At the Closing, the Buyer shall assume and
-------------------
thereafter in due course timely pay and fully satisfy all obligations (the
"Assumed Liabilities"):
(a) incurred after the Closing under all Contracts and Permits which
are conveyed to Buyer as Purchased Assets pursuant to the terms and conditions
hereof; and
(b) any and all Liabilities to the extent related to the Businesses
that are reflected on the balance sheets (the "Audited Balance Sheets") included
in the Audited Financial Statements (including the footnotes thereto) and/or
incurred after the date of the Audited Balance Sheets through the Closing Date
in the ordinary course of business or in accordance with Section 9.4 (but with
the provisions of Section 9.4 applied as if the provisions thereof had been in
effect from the close of business on the date of the Company Balance Sheets
through the Closing Date.)
2.4 Excluded Liabilities. Except as expressly set forth in Section 2.3,
--------------------
the Buyer shall not, by virtue of its purchase of the Purchased Assets or
otherwise in connection with the Transactions, assume or become responsible for
any Liabilities (the "Excluded Liabilities") of the Company; including, without
limitation, (a) Liabilities for any federal and state income taxes owed by the
Shareholders with respect to the Companies for periods prior to the Closing
Date, (b) Liabilities relating to any claims for health care or other welfare
benefits that are not
2
<PAGE>
contained on the Interim Balance Sheet or not incurred in the ordinary course of
business after the Interim Balance Sheet Date, (c) Liabilities relating to the
violation of any Regulation, (d) tort Liabilities, (e) Liabilities from claims
arising under any Contract or Permit not assumed by the Buyer hereunder; and
(f) Liabilities for claims arising under any Contract or Permit to the extent
such claim is based on wrongful acts or omissions of any person which occurred
prior to the Closing.
2.5 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by the Companies to assign to the Buyer pursuant to this
Agreement any Contract or Permit included in the Purchased Assets which is by
its terms or by Regulation nonassignable without the consent of any other party
or parties, unless such consent or approval shall have been given, or as to
which all the remedies for the enforcement thereof available to the Company
would not by Regulation pass to the Buyer as an incident of the assignments
provided for by this Agreement (a "Non-Assignable Contract"). To the extent
that any such consent or approval in respect of, or a novation of, a Non-
Assignable Contract shall not have been obtained on or before the Closing Date,
the Companies and the Shareholders shall continue to use commercially reasonable
efforts to obtain any such consent, approval or novation after the Closing Date
until such time as it shall have been obtained, and the Companies shall
cooperate with the Buyer in any economically feasible arrangement to provide
that the Buyer shall receive the applicable Company's benefits under such Non-
Assignable Contract, provided that Buyer shall undertake to pay or satisfy the
corresponding Liabilities under the terms of such Non-Assignable Contract to the
extent that the Buyer would have been responsible therefor if such consent,
approval or novation had been obtained.
2.6 Post-Closing Adjustment to Purchase Price. As soon as practicable,
-----------------------------------------
but in any event within 30 days after the Closing, the Buyer shall engage Arthur
Andersen LLP to prepare, in accordance with GAAP (applied in a manner consistent
with the Financial Statements), a balance sheet of each Company (the "Closing
Date Balance Sheets") as of the end of the business on the day prior to the
Closing Date and deliver (within 90 days after the Closing) the Closing Date
Balance Sheets and the Closing Date Statement (as defined below) to the Buyer
and the Companies. The Closing Date Statement shall set forth the aggregate
shareholders' equity as shown on the Closing Date Balance Sheets (the "Closing
Date Equity") and the Adjusted September 30 Equity (as defined below). If the
Closing Date Equity is less than the Adjusted September 30 Equity (such amount
is referred to as the "Net Worth Deficiency"), within ten business days after
delivery of the Closing Date Statement to the Companies, the Companies shall pay
the Buyer by wire transfer of immediately available funds an amount equal to the
Net Worth Deficiency. If the Closing Date Equity is greater than the Adjusted
September 30 Equity (such amount is referred to as the "Net Worth Excess"),
within ten business days after delivery of the Closing Date Statement to the
Companies, the Buyer shall pay the Companies by wire transfer of immediately
available funds an amount equal to the Net Worth Excess. The Adjusted September
30 Equity shall mean (x) the aggregate shareholders' equity as shown on the
Company's balance sheet as of September 30, 1995 (as adjusted to reflect the
valuation of the Company's marketable securities in accordance with GAAP, the
reserve of $32,468 in connection with a pending tax audit of the Companies by
the City of Philadelphia, Pennsylvania (the "Audit
3
<PAGE>
Reserve") and additional accruals for vacation expense of up to $40,310 (the
"Additional Vacation Accrual")), plus (y) the net income of the Company
(determined on an accrual basis) earned during the period from October 1, 1995
through March 31, 1996, minus (z) the sum of $455,000 and the distributions
which are permitted to be made by the Companies pursuant to Section 9.4(a)
hereto. Notwithstanding anything in this Section 2.6 to the contrary, if either
party disputes any item contained on the Closing Date Statement, such party
shall notify the other parties of each disputed item, and specify the amount
thereof in dispute within ten business days after the delivery of the Closing
Date Statement. If the Buyer and the Companies cannot resolve any such dispute,
then such dispute shall be resolved by an independent nationally recognized
accounting firm which is reasonably acceptable to the Buyer and the Companies
(the "Independent Accounting Firm"). The determination of the Independent
Accounting Firm shall be made as promptly as practicable and shall be final and
binding on the parties, absent manifest error which error may only be corrected
by such Independent Accounting Firm. Any expenses relating to the engagement of
the Independent Accounting Firm shall be allocated between the Buyer and the
Companies so that each party's share of such costs shall be in the same
proportion that the aggregate amount of the total disputed amounts submitted to
the Independent Accounting Firm that are unsuccessfully disputed by the parties
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such disputed amounts so submitted to the Independent Account Firm.
2.7 Payments. In addition to assuming the Assumed Liabilities, the
--------
aggregate price to be paid by the Buyer for the purchase of the Purchased Assets
shall be $14,500,000 (the "Purchase Price") which shall be allocated between the
Companies as set forth on Exhibit 2.7 hereto as delivered at or prior to the
Closing. The Buyer shall pay the Purchase Price at the Closing by delivery of
(i) $11,600,000 by certified or bank check or by wire transfer of immediately
available funds pursuant to written instructions provided by the Companies to
the Buyer and (ii) certificates to the Companies or their designees (in such
proportion as set forth on Exhibit 2.7) representing such number of shares (the
"Shares") of the Buyer's common stock, no par value (the "Buyer Common Stock"),
with an aggregate acquisition stock value of $2,900,000 (the "Acquisition Stock
Value"). The Acquisition Stock Value has been determined based upon the TRC
Private Percentage, as defined in Section 2.8.
2.8 Percentage Interests.
--------------------
(a) Private Percentage. Subject to adjustment pursuant to
Section 2.8(b), after specifically giving effect to the acquisition by the Buyer
of those organizations listed on Exhibit 2.8 hereto (the "Initial Targets") and
the consummation of all of the transactions and corporate reorganizations
incident to such acquisitions (collectively, the "Acquisition Transactions"),
but prior to the offering of Buyer Common Stock pursuant to the Registration
Statement (the "Initial Public Offering"), the aggregate number of Shares
issuable in the full amount of the Acquisition Stock Value shall represent 1.98%
(the "TRC Private Percentage") of the aggregate Buyer Common Stock that will be
outstanding immediately after the issuance of the Shares. The TRC Private
Percentage is equal to the percentage obtained from the division of (i) the
Acquisition Stock Value by (ii) the "Acquisition Base." The Acquisition Base
means the sum of (x) the
4
<PAGE>
Purchase Price, (y) the aggregate purchase price (exclusive of any contingent
payments) which Buyer has agreed to pay the other Initial Targets at the
closings of the acquisitions of the other Initial Targets and (z) $5,000,000.
The TRC has been calculated on a basis consistent with the Private Percentages,
each of which is set forth opposite the name of each Initial Target on
Exhibit 2.8.
(b) Adjustment to Percentages. The TRC Private Percentage shall be
-------------------------
subject to proportionate adjustments based upon the occurrence of any of the
following events:
(i) the acquisition by Buyer of any additional organizations
prior to the consummation of the Intial Public Offering (the "Additional
Targets");
(ii) the failure of Buyer for any reason to consummate the
acquisition of any Initial Target prior to the consummation of the Initial
Public Offering; and
(iii) the issuance of any securities in connection with the
obtaining of financing, the proceeds of which are used to acquire any
Initial Target and/or any Additional Target (whether prior to or in
connection with the consummation of the Initial Public Offering).
With respect to any adjustment pursuant to Sections 2.8(b)(i) and (ii), the TRC
Private Percentage shall be adjusted by adding to the Acquisition Base the
purchase price (exclusive of any contingent payments) payable by the Buyer at
the closing of any such acquisition pursuant to Section 2.8(b)(i) and, with
respect to any Initial Target not acquired by Buyer prior to the consummation of
the Initial Public Offering, subtracting from the Acquisition Base the purchase
price which would have been payable by the Buyer at the closing of any Initial
Target had such Initial Target been acquired by Buyer. No adjustment to the TRC
Private Percentage shall be made pursuant to Section 2.8(b)(iii) unless the
Private Percentages and the percentage of the outstanding Buyer Common Stock
owned by CRW are likewise reduced on a proportionate basis.
2.9 Allocation of the Purchase Price. The Purchase Price shall be
--------------------------------
allocated among the Purchased Assets as the parties shall mutually agree at or
prior to the Closing. The Companies and the Buyer shall prepare their
respective Federal, state and local tax returns employing such allocation and
shall not take a position in any tax proceeding or otherwise that is
inconsistent with such allocation. The Companies and the Buyer shall give
prompt notice to each other of the commencement of any tax audit or the
assertion of any proposed deficiency or adjustment by any taxing authority or
agency which challenges such allocation.
3. Closing.
-------
3.1 Location, Date. The closing of the Transactions (the "Closing") shall
--------------
take place at the offices of the Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 on or before October 31, 1996 (the "Termination
Date") or such earlier date upon the
5
<PAGE>
satisfaction of (or waiver by the party entitled to the benefit of) the
conditions set forth in Sections 4 and 5, or at such other place, date and time
as the parties may agree in writing. The date of the Closing is referred to as
the "Closing Date."
3.2 Closing Deliveries. In connection with the completion of the
------------------
Transactions contemplated in Section 2, at the Closing,
(a) the Buyer shall deliver or cause to be delivered:
(i) the cash portion of the Purchase Price which is required
to be delivered to the Companies at the Closing;
(ii) the certificates representing the Shares, registered in
the name of the Companies or their designees;
(iii) executed copies of the Employment Agreements and the
Pledge Agreement;
(iv) such other agreements, documents and instruments
(including an assumption agreement with respect to the Assumed
Liabilities) contemplated by this Agreement and such other items as
may be reasonably requested; and
(v) the amount of any state sales tax payable with respect to
the tangible Purchased Assets.
(b) the Companies shall deliver or cause to be delivered:
(i) payment instructions regarding the cash portion of the
Purchase Price which is required to be delivered to the Companies at
the Closing;
(ii) bills of sale and assignment agreements transferring all
of the Companies right, title and interest in and to the Purchased
Assets in form and substance satisfactory to the Buyer;
(iii) executed copies of the Pledge Agreement; and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(c) Messrs. Baldasare and Raquet shall each deliver his respective
executed counterpart of his Employment Agreement.
6
<PAGE>
4. Conditions to Buyer's Obligations.
----------------------------------
The obligations of Buyer to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Buyer:
4.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or threatened that prevents or that seeks to restrain the consummation,
or challenges the validity or legality, of the Transactions or that would
materially limit or affect adversely Buyer's acquisition of the Purchased
Assets.
4.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Companies and the Shareholders set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at such time and (b) the Companies and the Shareholders shall have
each performed or tendered performance in all material respects of all covenants
and agreements contained in this Agreement required to be performed and complied
with by them at or prior to the Closing. The Companies and the Shareholders
shall have delivered to the Buyer a certificate to the foregoing effect signed
by the President of each Company and each Shareholder, in form and substance
reasonably satisfactory to counsel to the Buyer.
4.3 Legal Opinion. The Companies and the Shareholders shall have tendered
-------------
a legal opinion of Blank Rome Comisky & McCauley, counsel to the Companies and
the Shareholders, that is reasonably acceptable to counsel to the Buyer;
7
<PAGE>
4.4 Financing. The Underwriting Agreement is executed respecting the
---------
offering of securities pursuant to the Registration Statement.
4.5. Audited Financial Statements; No Material Adverse Change.
--------------------------------------------------------
(a) The Shareholders shall have caused the Companies to deliver to the
Buyer correct and complete copies of financial statements consisting of balance
sheets of the Companies as at September 30, 1995 and the related statements of
income, retained earnings and cash flows for the period then ended, all of which
shall have been audited and reported on by Arthur Andersen LLP (the "Audited
Financial Statements"). Buyer shall pay the expense of preparing the Audited
Financial Statements.
(b) The financial position and assets and liabilities of each Company
as of the dates thereof and their cash flows and the results of their operations
for the periods then ended as presented in its Audited Financial Statements
shall not differ in any material respect from the Annual Financial Statements as
of September 30, 1995, except for (i) the adjustment to the Annual Financial
Statements as of September 30, 1995 to reflect the valuation of the Company's
marketable securities in accordance with GAAP, (ii) the Audit Reserve and
(iii) the Additional Vacation Accrual.
4.6 Required Tender. The Shareholders and the Companies shall have
---------------
tendered or caused the tender of the items set forth in Sections 3.2(a) and (b).
5. Conditions to each Company's and each Shareholder's Obligations.
----------------------------------------------------------------
The obligations of the Companies and the Shareholders to effect the Closing
shall be subject to the satisfaction at or prior to the Closing of the following
conditions, any one or more of which may be waived by such parties:
5.1 No Injunction. No Court Order or Litigation shall be pending or
-------------
threatened that prevents or that seeks to restrain the consummation, or
challenges the validity or legality, of the Transactions.
5.2 Representations, Warranties and Agreements. The representations and
------------------------------------------
warranties of the Buyer set forth in this Agreement shall be true and complete
in all material respects as of the Closing Date as though made at such time and
the Buyer shall have performed or tendered performance in all material respects
of all covenants and agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing. The Buyer shall
have delivered a certificate to the foregoing effect signed by the President of
the Buyer, in form and substance reasonably satisfactory to counsel to the
Companies.
5.3 Legal Opinion. The Buyer shall have tendered a legal opinion of
-------------
Morgan, Lewis & Bockius LLP, counsel to the Buyer, that is reasonably acceptable
to counsel to the Companies.
8
<PAGE>
5.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
5.5 Required Tender. The Buyer shall have tendered or caused the tender
---------------
of the items set forth in Section 3.2(a).
5.6 Financing. The Underwriting Agreement is executed with respect to the
---------
offering of securities pursuant to the Registration Statement.
6. Representations and Warranties of the Companies and the Shareholders. Each
--------------------------------------------------------------------
Company and each Shareholder hereby jointly and severally represents and
warrants to the Buyer that, except as set forth in a letter dated the date of
this Agreement, executed by each Company and each Shareholder, addressed and
delivered to Buyer by each Company and each Shareholder within 14 days after the
date hereof and containing information required by this Agreement and exceptions
to the representations and warranties of the Companies and the Shareholders
under this Agreement (the "Disclosure Letter"):
6.1 Corporate Status. Each Company is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and is qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where it is required to be so qualified,
except where the failure to so qualify would not have a material adverse effect.
The Charter Documents and bylaws of Response Center that have been delivered to
the Buyer are effective under applicable Regulations and are current, correct
and complete. Tab House is a corporation duly organized, validly existing and
in good standing under the laws of the Commonwealth of Pennsylvania and is
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where it is required to be so qualified, except where the
failure to so qualify would not have a material adverse effect. The Charter
Documents and bylaws of Tab House that have been delivered to the Buyer are
effective under applicable Regulations and are current, correct and complete in
all material respects.
6.2 Authorization. Each Company has the requisite power and authority to
-------------
own its property and carry on its Business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by each Company have been duly authorized by all necessary corporate
action. Each Shareholder has the requisite power, capacity, legal right and
authority to execute and deliver the Transaction Documents to which he is a
party and to perform the Transactions to be performed by him thereunder. Each
Transaction Document executed and delivered by each Company has been duly
executed and delivered by such Company and constitutes a valid and binding
obligation of such Company, enforceable against it in accordance with its terms.
Each Transaction Document to be executed and delivered by each Shareholder will
be duly executed and delivered by him and will constitute a valid and binding
obligation of him, enforceable against him in accordance with its terms.
9
<PAGE>
6.3 Consents and Approvals. Except for the consents specified in the
----------------------
Disclosure Letter (the "Required Consents"), neither the execution or delivery
by either Company or either Shareholder of the Transaction Documents to which it
or she is a party, nor the performance of the Transactions to be performed by it
or him thereunder, will require any filing, consent or approval, constitute a
Default or cause any payment obligation to arise under (a) any Regulation or
Court Order to which such Company or Shareholder is subject, (b) the Charter
Documents or bylaws of either Company or (c) any Contract, Permit or other
document to which either Company is a party or by which its Business or Assets
may be subject.
6.4 Stock Ownership. At Closing, the Shareholders will own all of the
---------------
issued and outstanding capital stock of each Company.
6.5 Financial Statements. The Disclosure Letter includes correct and
--------------------
complete copies of each Company's unaudited financial statements consisting of a
balance sheet of each Company as of September 30, 1993, 1994 and 1995 and the
related statements of income, retained earnings and cash flows for the years
then ended (collectively, the "Annual Financial Statements"). The Disclosure
Letter also includes correct and complete copies of each Company's unaudited
financial statements consisting of a balance sheet of each Company as of the end
of the period ended March 31, 1996 and the related statements of income and cash
flow for the period then ended (the "Interim Financial Statements," and together
with the Annual Financial Statements, the "Financial Statements"). The
Financial Statements of each Company are consistent with the books and records
of such Company, and there are no material transactions required by GAAP to be
recorded in accounting records that have not been recorded in the accounting
records underlying such Financial Statements, except any adjustments to the
Financial Statements to reflect the valuation of the Company's marketable
securities in accordance with GAAP, the Audit Reserve and the Additional
Vacation Accrual. The Financial Statements have been prepared in accordance
with GAAP consistently applied and present fairly the financial position and
assets and liabilities of each Company as of the dates thereof and its cash
flows and the results of its operations for the years and periods then ended,
subject to normal recurring year-end adjustments and the absence of notes in the
case of the Unaudited Financial Statements. The balance sheets of the Companies
as of September 30, 1995 that are included in the Annual Financial Statements
are referred to herein as the "Company Balance Sheets" and the dates thereof is
referred to as the "Balance Sheet Date." The balance sheets of the Companies as
of March 31, 1996 that are included in the Financial Statements are referred to
herein as the "Interim Company Balance Sheets" and the dates thereof is referred
to as the "Interim Balance Sheet Date." The Audited Financial Statements will
be prepared in accordance with GAAP consistently applied and present accurately
the financial position and assets and liabilities of the Companies as of the
date thereof and their cash flows and the results of their operations for the
period then ended. The Audited Financial Statements shall become part of the
Disclosure Letter after their completion.
6.6 Title to Assets and Related Matters. Each Company has good and valid
-----------------------------------
title to, valid leasehold interests in or valid licenses to use, all of its
respective Purchased Assets, free from any Encumbrances. The use of the
Purchased Assets is not subject to any Encumbrances (other than those specified
in the preceding sentence), and such use does not materially encroach
10
<PAGE>
on the property or rights of anyone else. All Purchased Assets are in the
possession or under the control of the Companies and consist of all of the
Assets necessary to operate the Businesses as now being operated. All of the
tangible personal property included in the Assets (a) is in good working
condition and reasonable repair, subject to normal wear and tear, (b) is usable
in the ordinary course of business and (c) conforms in all material respects
with all applicable Regulations relating to its construction, use and operation.
Except for those items subject to the Personal Property Leases, no Person other
than the Companies own any vehicles, equipment or other tangible assets located
on the Real Property that are used by the Companies in the Businesses (other
than immaterial items of personal property owned by the employees of the
Companies) or that are necessary for the operation of the Businesses.
6.7 Real Property. The Disclosure Letter describes all real estate used
-------------
in the operation of the Businesses as well as any other real estate that is in
the possession of or leased by the Companies and the improvements (including
buildings and other structures) located on such real estate (collectively, the
"Real Property"), identifies which Real Property is owned and which is leased,
and lists any leases under which any such Real Property is possessed by the
Companies or leased by the Companies to others (the "Real Estate Leases"). The
Disclosure Letter also describes any other real estate previously owned, leased
or otherwise operated by the Companies and the time periods of any such
ownership, lease or operation. To the knowledge of each Company and each
Shareholder, all of the buildings and structures included in the Real Property
are structurally sound, and all of the heating, ventilating, air conditioning,
plumbing, sprinkler, electrical and drainage systems, elevators and roofs, and
all other fixtures, equipment and systems at or serving such Real Property are
generally in good condition, repair and working order and are generally adequate
for the present use of the Real Property by the Companies in conducting their
respective Businesses, and to the knowledge of the Companies and the
Shareholders there is no condition which will result in the termination of the
present access from the Real Property to such utility services and other
facilities. The Companies have received no notices, oral or written, and have
no reason to believe, that any governmental body having jurisdiction over any
Real Property intends to exercise the power of eminent domain or a similar power
with respect to all or any part of the Real Property. Neither Company has
received any notices, oral or written, from any governmental body, and has any
reason to believe, that any of the Real Property or any improvements erected or
situate thereon, or the uses conducted thereon or therein, violate any
Regulations of any governmental body having jurisdiction over such Real
Property. The Companies have not received any notice from the holder of any
mortgage, from any insurance company which has issued a policy with respect to
any of the Real Property or from any board of fire underwriters (or other body
exercising similar functions) claiming any defects or deficiencies in any of the
Real Property or suggesting or requesting the performance of any repairs,
alterations or other work to any of the Real Property, except for certain
improvements necessary for such Real Property to obtain a Certificate of
Occupancy.
6.8 Certain Personal Property. The Companies have delivered to the Buyer
-------------------------
a complete fixed asset schedule, describing and specifying the location of all
items of tangible personal property that are included in the Company Balance
Sheets. Except as listed on the Disclosure Letter, since the Balance Sheet
Date, the Companies have not (i) acquired any items of tangible
11
<PAGE>
personal property that has, in any case, a carrying value in excess of $25,000,
or an aggregate carrying value in excess of $50,000 or (ii) disposed of any
items of tangible personal property (other than inventory) that have, in any
case, an initial carrying value in excess of $25,000, or an initial aggregate
carrying value in excess of $50,000.
6.9 Personal Property Leases. The Disclosure Letter lists all assets and
------------------------
property (other than Real Property) that have been used in the operation of the
Businesses and that are possessed by the Companies under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $5,000 (each, an "Immaterial Lease"). The Disclosure Letter also
lists the leases under which such assets and property listed on the Disclosure
Letter are possessed. All of such leases (excluding "Immaterial Leases") are
referred to herein as the "Personal Property Leases."
6.10 Accounts Receivable. The accounts receivable of each Company are bona
-------------------
fide accounts receivable created in the ordinary course of business and are not
subject to defenses, set-offs or counterclaims and are good and collectible at
the aggregate recorded amounts thereof (in each case, net of the reserves for
such items included in the Interim Company Balance Sheets). The Disclosure
Letter includes a correct and complete accounts and notes receivable aging of
the Companies as of the Interim Balance Sheet Date reflecting the aggregate
dollar amount of all accounts and notes receivable due the Companies which have
been outstanding for: 30 days or less; more than 30 but less than 61 days; more
than 60 but less than 91 days; and more than 90 days.
6.11 Accounts Payable. All accounts payable as set forth on the Interim
----------------
Company Balance Sheets or arising since the date thereof have been incurred in
the ordinary course of business.
6.12 Price Guarantees. The Disclosure Letter sets forth all price
----------------
guarantees made by the Companies.
6.13 Liabilities. The Companies do not have any Liabilities, and none of
-----------
the Purchased Assets are subject to any Liabilities, except (a) as specifically
disclosed in the Disclosure Letter or on the Interim Company Balance Sheets,
(b) Liabilities incurred in the ordinary course since the Interim Balance Sheet
Date or in accordance with Section 9.4, and (c) Liabilities under any Contracts
specifically disclosed on the Disclosure Letter (or not required to be disclosed
because of the term or amount involved) that were not required under GAAP to
have been specifically disclosed or reserved for on the Interim Company Balance
Sheets.
6.14 Taxes. The Companies have duly filed all Federal, state, local,
-----
foreign and other tax returns that are required to be filed and that were due
prior to the Closing Date, and have paid all taxes and assessments shown as
being due pursuant to such returns or pursuant to any assessment received. All
taxes and other assessments and levies that the Companies have been required by
law to withhold or to collect have been duly withheld and collected and have
been
12
<PAGE>
paid over to the proper governmental authorities or are properly held by the
Companies for such payment. Except for a pending audit from the City of
Philadelphia (as disclosed in the Disclosure Letter), there are no proceedings
or other actions, nor to the knowledge of the Companies and Shareholders is
there any basis for any proceedings or other actions, for the assessment or
collection of additional taxes of any kind for any period for which returns have
or should have been filed.
6.15 Subsidiaries. Except for the marketable securities reflected in the
------------
Company Balance Sheets, neither Company owns, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
6.16 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) There is no Litigation that is pending or, to the knowledge of
either Company or either Shareholder, threatened against or related to either
Company. There has been no Default under any Regulation applicable to either
Company, the Assets or the Businesses, including any Regulation relating to
pollution or protection of the environment, except for any Defaults that have
been cured without material cost or that would not have a Material Adverse
Effect, and neither Company has received any notices from any governmental
entity regarding any alleged Default under any Regulation except those that have
been cured without material cost or that would not have a Material Adverse
Effect. There has been no Default with respect to any Court Order applicable
either Company.
(b) Without limiting the generality of Section 6.16(a), to the
knowledge of Companies and Shareholders, there has not been any Environmental
Condition (i) at any premises at which the Businesses of the Companies (or any
predecessor of either Company) is currently conducted, (ii) at any property
owned, leased or operated at any time by either Company (or any predecessor of
either Company) or any Person controlled by any Affiliate of either Company, or
(iii) at any property at which wastes have been deposited or disposed by or at
the behest or direction of either Company (or any predecessor of either Company)
or any Person controlled by any Affiliate of either Company, nor has either
Company received written notice of any such Environmental Condition.
"Environmental Condition" means any condition or circumstance, including the
presence of Hazardous Substances, whether created by either Company (or any
predecessor of either Company) or any third party, at or relating to any such
property or premises that would (i) require abatement or correction under an
Environmental Law, (ii) give rise to any civil or criminal liability under an
Environmental Law, or (iii) create a public or private nuisance. "Environmental
Law" means all Regulations and Court Orders relating to pollution or protection
of the environment as well as any principles of common law under which a Person
may be held liable for the release or discharge of any materials into the
environment.
(c) The Companies have delivered to the Buyer correct and complete
copies of any written reports, studies or assessments in the possession or
control of either Company or either Shareholder that relate to any Environmental
Condition. Neither any Company or any Shareholder knows of any other written
reports, studies or assessments, whether or not in the
13
<PAGE>
possession or control of either Company or either Shareholder, that relate to
any Environmental Condition.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) each Company has obtained and is in full compliance with all
Permits, all of which are listed on the Disclosure Letter along with their
respective expiration dates, that are required for the ownership of the Assets
or operation of the Business and Assets as currently operated by such Company,
(ii) all of the Permits are currently valid and in full force and (iii) each
Company has filed such timely and complete renewal applications as may be
required with respect to its Permits. To the knowledge of each Company and each
Shareholder, no revocation, cancellation or withdrawal of a Permit has been
threatened.
6.17 Contracts.
---------
(a) The Disclosure Letter lists each Contract of the following types
to which either Company is a party or by which it is bound:
(i) Contracts with any present or former stockholder, director,
officer, employee, partner or consultant or with any Affiliate of
either Shareholder;
(ii) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third
party, in excess of $10,000 with respect to any one supplier or other
party;
(iii) Contracts to sell or supply products, inventory or other
property to, or to perform services for, a third party, that involve
an amount in excess of $10,000 with respect to any one customer or
other party;
(iv) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(v) Contracts limiting or restraining it from engaging or
competing in any lines or business with any Person;
(vi) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(vii) Contracts to lease to or to operate for any other party
any asset that involve an amount in excess of $10,000 in any
individual case (other than Real Estate Leases and Personal Property
Leases identified on the Disclosure Letter);
(viii) Any notes, debenture, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including
14
<PAGE>
loans to or from officers, directors, partners or stockholders or with
Affiliates of either Shareholder or any members of her immediate
families), or agreements or arrangements for a line of credit or for a
guarantee of, or other undertaking in connection with, the
indebtedness of any other Person;
(ix) Contracts creating or recognizing any Encumbrances with
respect to any Assets;
(x) Contracts with distributors, manufacturers sales
representatives or other sales agents;
(xi) Contracts which relate in whole or in part to any software,
technical assistance or other know-how or other Intellectual Property
right;
(xii) Contracts for any capital expenditure or leasehold
improvement in excess of $10,000; and
(xiii) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and
those described in any of (i) through (xii) above) not made in the
ordinary course of business or which are material to the Business or
the assets.
(b) Neither Company is in Default under any Contract. To the
knowledge of each Company and each Shareholder, neither Company has received any
communication from, or given any communication to, any other party indicating
that such Company or such other party, as the case may be, is in Default under
any Contract. To the knowledge of each Company and each Shareholder, none of
the other parties to any such Contract to which a Company is a party is in
Default thereunder.
6.18 Insurance. The Disclosure Letter lists all policies or binders of
---------
insurance held by or on behalf of the Companies or relating to the Business or
any of the Assets, specifying with respect to each policy the insurer, the type
of insurance, the amount of the coverage, insured, the expiration date, the
policy number and any pending claims thereunder. There is no Default with
respect to any such policy or binder, nor has there been any failure to give any
notice or present any claim under any such policy or binder in a timely fashion
or in the manner or detail required by the policy or binder, except for any of
the foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that has been
received by either Company, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
6.19 Intellectual Property and Software Products. Neither Company
-------------------------------------------
currently uses nor has it previously used in the operation of its Business
(including in the development or marketing of products and services) any
Copyright, Patent or Trademark except for those listed on the
15
<PAGE>
Disclosure Letter. To the knowledge of Companies and Shareholders, each Company
owns or has the lawful right to use all Intellectual Property that is used or
has been used in the operation of its Business. All of the Intellectual
Property listed in the Disclosure Letter is owned by the Companies free and
clear of any Encumbrances, or is used pursuant to an agreement that is described
in the Disclosure Letter. Neither Company infringes upon or unlawfully or
wrongfully uses any Intellectual Property rights owned or claimed by another
Person. Neither Company is in Default, nor has it received any notice of any
claim of infringement or any other claim or proceeding, with respect to any such
Intellectual Property. No current or former employee of either Company and no
other Person owns or has any proprietary, financial or other interest, direct or
indirect, in whole or in part, and including any right to royalties or other
compensation, in any of the Intellectual Property, or in any application
therefor.
6.20 Employee Relations.
------------------
(a) Neither Company is (a) a party to or otherwise bound by any
collective bargaining or other type of union agreement, (b) a party to, involved
in or, to the knowledge of either Company or either Shareholder, threatened by,
any labor dispute or unfair labor practice charge, or (c) currently negotiating
any collective bargaining agreement, and neither Company has experienced any
work stoppage during the last three years. The Disclosure Letter sets forth the
names and current annual salary rates or current hourly wages of all present
employees of each Company.
(b) Each Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. There are no
outstanding claims against either Company (whether under Regulation, Contract,
policy, or otherwise) asserted by or on behalf of any present or former employee
or job applicant of such Company on account of or for (i) overtime pay, other
than overtime pay for work done in the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) any amount of
vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the current fiscal year,
(iv) any amount of severance pay or similar benefits, (v) unemployment insurance
benefits, (vi) workers' compensation or disability benefits, (vii) any violation
of any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including but not limited to The Workers
Adjustment and Retraining Act, (viii) any violation of any statute, ordinance,
order, rule or regulations relating to employee "whistleblower" or "right-to-
know" rights and protection, (ix) any violation of any statute, ordinance,
order, rule or regulations relating to the employment obligations of federal
contractors or subcontractors or (x) any violation of any Regulation relating to
minimum wages or maximum hours of work, and neither the Company nor the
Shareholder is aware of any such claims which have not been asserted. No Person
(including any governmental body) has asserted or threatened any claims against
either Company under or arising out of any Regulation relating to discrimination
or occupational safety in employment or employment practices.
16
<PAGE>
6.21 ERISA.
-----
(a) The Disclosure Letter contains a complete list of all Benefit
Plans sponsored or maintained by each Company or under which such Company may be
obligated to contribute. The Companies have delivered to the Buyer, to the
extent applicable, (i) accurate and complete copies of all Benefit Plan
documents and all other material documents relating thereto, including all
summary plan descriptions, summary annual reports and insurance contracts,
(ii) accurate and complete detailed summaries of all unwritten Benefit Plans,
(iii) accurate and complete copies of the most recent financial statements and
actuarial reports with respect to all Benefit Plans for which financial
statements or actuarial reports are required or have been prepared and
(iv) accurate and complete copies of all annual reports for all Benefit Plans
(for which annual reports are required) prepared within the last three years.
Each Benefit Plan providing benefits that are funded through a policy of
insurance is indicated by the word "insured" placed by the listing of the
Benefit Plan in the Disclosure Letter.
(b) All Benefit Plans conform (and at all times have conformed) to,
and are being administered and operated (and at all times have been administered
and operated) in material compliance with, the requirements of ERISA, the Code
and all other applicable Regulations. No penalty will be incurred with regard
to the timely filing or delivery of returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all Benefit Plans.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any of the Benefit
Plans, that could subject either Company to any penalty or tax imposed under the
Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code
has been determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. To the knowledge of
either Company or either Shareholder, nothing has occurred since the date of
any such determination that would affect adversely such qualification or
exemption, or result in the imposition of excise taxes or income taxes on
unrelated business income under the Code or ERISA with respect to any Benefit
Plan.
(d) Neither Company has a defined benefit plan subject to Title IV of
ERISA, nor does it have a current or contingent obligation to contribute to any
multiemployer plan (as defined in Section 3(37) of ERISA). Neither Company has
any liability with respect to any employee benefit plan (as defined in
Section 3(3) of ERISA) other than with respect to the Benefit Plans. For
purposes of this Section 6.22(d), the term "Company" shall include any
corporation that is a member of any controlled group of corporations (as
defined in Section 414(b) of the Code) that includes each Company, any trade
or business (whether or not incorporated) that is under common control (as
defined in Section 414(c) of the Code) with either Company, any organization
(whether or not incorporated) that is a member of an affiliated service group
(as defined in Section 414(m) of theCode) that includes either Company and any
other entity required to be aggregated with such Company pursuant to the
regulations issued under Section 414(o) of the Code.
17
<PAGE>
(e) There are no pending or, to the knowledge of either Company or
either Shareholder, threatened claims by or on behalf of any Benefit Plans, or
by or on behalf of any individual participants or beneficiaries of any Benefit
Plans, alleging any breach of fiduciary duty on the part of either Company or
any of its officers, directors or employees under ERISA or any other applicable
Regulation, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of either the Company or
the Shareholder, any basis for any such claim. To the knowledge of either
Company or either Shareholder, the Benefit Plans are not the subject of any
investigation or audit by the Internal Revenue Service, the Department of Labor
or the Pension Benefit Guaranty Corporation ("PBGC").
(f) Each Company has made all required contributions under its
Benefit Plans, including the payment of any premiums payable to the PBGC and
other insurance premiums on a timely basis, or such contributions are properly
accrued on such Company's Financial Statements.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of
Section 4976(b) of the Code) that would result in the imposition of a tax under
Section 4976(a) of the Code, (iii) any Benefit Plan that is a group health plan
(within the meaning of Section 4980B(g)(2) of the Code) complies, and in each
and every case has complied, with all of the material requirements of
Section 4980B of the Code, ERISA, Title XXII of the Public Health Service Act
and the applicable provisions of the Social Security Act, and (iv) all Welfare
Plans may be amended or terminated by the Company at any time on or after the
Closing Date.
6.22 Corporate Records. The minute books of each Company contain complete
-----------------
and correct copies of its Charter Documents and bylaws and of all minutes of
meetings, resolutions and other proceedings of its Board of Directors and
stockholders. The stock record book of each Company is complete and correct.
6.23 Absence of Certain Changes. Except as contemplated by this Agreement,
--------------------------
since the Balance Sheet Date, except as mutually agreed, each Company has
conducted its Business in the ordinary course and there has not been with
respect to such Company:
(a) any Material Adverse Effect with respect to its Business, Assets
or Liabilities;
(b) any change or amendment in its Charter Documents;
(c) any distribution or payment declared or made in respect of its
capital stock by way of dividend, purchase or redemption of shares or otherwise;
18
<PAGE>
(d) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
(e) any sale, assignment or transfer of any material Assets, or any
additions to or transactions involving any material Assets, other than those
made in the ordinary course of business;
(f) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(g) any payment to any Affiliate of such Company;
(h) any change in the accounting policies followed by such Company or
the method of applying such principles; or
(i) any capital expenditure commitment involving in any individual
case, or series of related cases, more than (i) $25,000 or (ii) an amount that
would cause the sum of all such capital expenditure commitments to exceed
$50,000.
6.24 Customers. Each Company has used its reasonable business efforts to
---------
maintain and currently maintains, good working relationships with all of its
customers. The Disclosure Letter contains a list of the names of each of the
five customers that, for the year ended December 31, 1995, were the largest
dollar volume customers of products and services sold and provided by each
Company. None of such customers has given either Company notice terminating,
cancelling or threatening to terminate or cancel any Contract or relationship
with such Company.
6.25 Finder's Fees. No Person retained by the Company or Shareholders is
-------------
or will be entitled to any commission or finder's or similar fee in connection
with the Transactions, except for Siegel Management Company, which fee shall be
paid by the Companies.
6.26 Purchase for Investment. The Companies are acquiring the Shares for
-----------------------
investment purposes only and are not acquiring them with an intent to distribute
or resell them in violation of applicable Federal or state securities laws,
except to Shareholders or a liquidating trust for the benefit of the
Shareholders.
6.27 Additional Information. The Disclosure Letter accurately lists the
----------------------
following:
(a) the names of all officers and directors of each Company;
(b) the names and addresses of every bank or other financial
institution in which each Company maintains an account (whether checking, saving
or otherwise), lock box or safe
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deposit box, and the account numbers and names of the Persons having signing
authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of each Company;
(d) the names of all Persons holding powers of attorney from each
Company and a summary statement of the terms thereof; and
(e) all names under which each Company has conducted any Business or
which it has otherwise used at any time during the past five years.
6.28 Transactions with Affiliates. No affiliate of any Shareholder or any
----------------------------
member of her immediate family, owns or has a controlling ownership interest in
any corporation or other entity that is a party to any Contract with respect to
the Assets or Business.
6.29 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by either
Company or Shareholders in this Agreement, the Disclosure Letter or in any of
the documents, certificates and instruments delivered or to be delivered by
either Company or Shareholders pursuant to this Agreement and each Company and
each Shareholder has not omitted to state any fact necessary to make statements
made herein or therein not materially misleading.
7. Representations and Warranties of the Buyer. The Buyer hereby represents
-------------------------------------------
and warrants to each Company and each Shareholder as follows:
7.1 Corporate. The Buyer is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of Delaware. The
Buyer has the requisite power and authority to execute and deliver the
Transaction Documents to which it is a party and to perform the Transactions to
be performed by it thereunder, and such execution, delivery and performance by
it have been duly authorized by all necessary corporate action.
7.2 Enforceability. The Transaction Documents to which the Buyer (or its
--------------
designee) is or will be a party constitute and will constitute valid and binding
obligations of the Buyer (or its designee), enforceable against it in accordance
with their terms.
7.3 Consents and Approvals. Neither the execution and delivery by the
----------------------
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which it is subject, (b) its Charter Documents or bylaws or (c) any
Contract, Permit or other document to which it is a party or by which its
properties or other assets may be subject.
20
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7.4 Stock Ownership; Valuation. The total authorized capital stock of the
--------------------------
Buyer consists of 200,000,000 shares of Buyer Common Stock (of which 8,510,000
shares are issued and outstanding) and 5,000,000 shares of preferred stock, par
value $.01 per share (of which no shares are outstanding). All of the shares
are duly and validly authorized and issued, fully paid and non-assessable. Upon
completion of the Transactions at the Closing, the Companies shall receive valid
title to all of the Shares, free and clear of all Encumbrances (other than
restrictions imposed generally by applicable securities laws). The TRC Private
Percentage has been calculated on a basis which is consistent with the
calculation of the Private Percentages of the other Initial Targets.
7.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions, except for Legg Mason Wood Walker, Inc., which fee shall be paid
by Buyer.
7.6 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Buyer in
this Agreement, the Exhibits to this Agreement or in any of the documents,
certificates and instruments delivered or to be delivered by the Buyer pursuant
to this Agreement and the Buyer has not omitted to state any fact necessary to
make statements made herein or therein not materially misleading.
8. Certain Agreements.
------------------
8.1 Access. Between the date of this Agreement and the Closing Date, each
------
of Buyer and the Companies shall (a) give the other party and its authorized
representatives and legal counsel reasonable access to all properties, books,
Contracts, Assets and records of the Companies, (b) permit each party to make
inspections thereof, and (c) cause its officers and its advisors to furnish each
party with such financial and operating data and other information with respect
to the Business of the Companies and to discuss with each party and its
authorized representatives and legal counsel the affairs of the Companies, all
as such other party may from time to time reasonably request.
8.2 Regulatory Matters. The Companies and the Buyer shall (a) file with
------------------
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the transactions and (b)
cooperate with each other as they may reasonably request in connection with the
foregoing.
8.3 Exclusivity. From the date hereof until the earlier of the Closing or
-----------
the termination of this Agreement, neither Company nor the Shareholders or any
of their respective agents shall, directly or indirectly, solicit or negotiate
or enter into any agreement with any other Person, or provide any nonpublic
information to any other Person, with respect to or in furtherance of any
proposal for a merger or business combination involving, or acquisition of any
interest in, or (except in the ordinary course of business) sale of assets by,
the Companies, except for the acquisition of the Purchased Assets by Buyer.
21
<PAGE>
8.4 Update Disclosure Letter. Between the date hereof and the Closing
------------------------
Date, the Companies and the Shareholders shall promptly disclose to Buyer in
writing any information set forth in the Disclosure Letter which is no longer
applicable and any information of the nature of that set forth in the Disclosure
Letter which arises after the date hereof and which would have been required to
be included in the Disclosure Letter if such information had been obtained on
the date of delivery thereof.
8.5 Best Efforts. Each party shall use their best efforts to cause all
------------
conditions to the performance of the parties hereto that are within its control
to be satisfied and the Transactions consummated within 90 days after the date
of this Agreement.
8.6 Financial Information. Until the Closing, each Company shall provide
---------------------
the Buyer, within 15 days after the end of each month with an unaudited
consolidated balance sheet and income statement of such Company as of and for
the month then ended, prepared on the same basis as the Interim Financial
Statements referred to in Section 6.5, and certified as such by the chief
financial officer of such Company (commencing with the Company's April 30, 1996
balance sheet and income statement being delivered by May 15, 1996) .
8.7 Restrictive Covenants.
---------------------
(a) Patrick M. Baldasare covenants that for the period ending five
years after the Closing Date, he will not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a partner, principal,
agent, representative, consultant or otherwise with or use or permit his name to
be used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Buyer at any time
during such period within any portion of the United States in the direct
marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research business (the
"Restricted Business"). It is recognized by the Buyer and Mr. Baldasare that
the Restricted Business is and is expected to continue to be conducted
throughout the United States and that more narrow geographical limitations of
any nature on this non-competition covenant (and the non-solicitation covenant
set forth in Section 8.7(b)) are therefore not appropriate. The foregoing
restriction shall not be construed to prohibit the ownership by Mr. Baldasare as
a passive investment of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
(b) Mr. Baldasare further covenants that for the period ending five
years after the Closing Date, he will not, either directly or indirectly, (i)
call on or solicit any Person who or which within the past two years has been a
customer with respect to the Restricted Business with respect to the activities
prohibited by Section 8.7(a) or (ii) solicit the employment of any person who is
employed by the Buyer during such period on a full or part-time basis.
22
<PAGE>
(c) Mr. Baldasare recognizes and acknowledges that by reason of his
ownership of and employment by the Companies he has had access to Confidential
Information relating to the Restricted Business. Mr. Baldasare acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the Closing
Date to any person for any reason whatsoever, unless such information (a) is in
the public domain through no wrongful act of such Shareholder, (b) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (c) except as may be required by law.
(d) Mr. Baldasare acknowledges that the restrictions contained in
this Section 8.7 are reasonable and necessary to protect the legitimate
interests of the Buyer, and that any violation will result in irreparable injury
to the Buyer.
(e) Mr. Baldasare agrees that the Buyer shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 8.7, which rights
shall be cumulative and in addition to any other rights or remedies to which the
Buyer may be entitled. In the event that any of the provisions of this Section
8.7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) Notwithstanding anything to the contrary set forth in Sections
8.7(a) or (b) to the contrary, if Mr. Baldasare's employment with the Buyer (or
its designee) is terminated by the Buyer (or its designee) without cause (as
defined in Mr. Baldasare's employment agreement with the Buyer (or its
designee)) or if Mr. Baldasare terminates his employment with the Buyer (or its
designee) due to a breach by Buyer (or its designee) of any of the material
terms and conditions of such employment agreement and, in either of such cases,
such five year period set forth in Sections 8.7(a) and (b) shall each be reduced
to a period ending two years from the date of termination of Mr. Baldasare's
employment.
(g) The covenants set forth in this Section 8 shall be in addition to
and not in limitation of any similar covenants set forth in any employment
agreement between the Buyer or any of its Affiliates and Mr. Baldasare.
8.8 Required Consents. Each Company and each Shareholder shall use their
-----------------
commercially reasonable efforts to take, or cause to be taken, such action to
execute and deliver, or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all things necessary,
proper or advisable to obtain the Required Consents.
8.9 Release of Personal Guarantees. The Buyer shall cause all obligations
-------------------------------
of the Company which have been guaranteed by any Shareholder to either be
retired or use its best efforts to arrange to have such guarantees released;
provided, however, to the extent that the
- -------- -------
23
<PAGE>
Company and the Buyer are unable to effectuate any such release, Buyer shall
indemnify and hold harmless each Shareholder from and against any liabilities,
claims, demands, judgments, losses, costs, damages or expenses whatsoever
(including reasonable attorneys' fees and disbursements incurred by them in
connection therewith) that he may sustain, suffer or incur and that result from,
arise out of or relate to such guarantees.
8.10 Options and Warrants.
--------------------
(a) At or after the Closing, the Buyer shall grant options (each of
which shall be exercisable at a price per share equal to the Initial Public
Offering price) under its 1996 Equity Compensation Plan exercisable for at least
an aggregate of 26,100 shares of Buyer Common Stock. Such options shall be
granted to certain employees of the Companies and shall be subject to a three-
year vesting period, except for options granted to Messrs. Baldasare, Racquet
and Olesky (which shall be exercisable for at least 11,887, 1,020 and 143 shares
of Buyer Common Stock, respectively) which shall not be subject to any vesting
period.
(b) At the Closing, the Buyer shall grant a warrant to each
Shareholder exercisable for that number shares of Buyer Common Stock set forth
on Exhibit 8.10 and pursuant to the other terms of the warrant substantially in
the form attached as Exhibit 8.10A hereto.
8.11 Health Plan. The Buyer shall establish a group health plan for the
-----------
benefit of the Companies' former employees who become employees of the Buyer on
the Closing Date. Such group health plan shall provide comparative (to
Companies' current health plan) benefits for such individuals (and their
dependents) and shall not include any pre-existing exclusion or limitation
provisions.
8.12 CRW Market Research. On or prior to the Closing, CRW shall wind
-------------------
down the operation of its Market Research Division and use its best efforts to
make available the employees of such division for employment with the Response
Center.
8.13 Lock-Up Agreements. In connection with the Initial Public Offering,
------------------
for good and valuable consideration, the Company and each Shareholder each
hereby irrevocably agree that for a period of 360 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except as contemplated in Section 2.7 hereto), directly or indirectly, any
shares of Buyer Common Stock or any securities convertible into or exercisable
or exchangeable for shares of Buyer Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Buyer Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Buyer Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities Inc. Neither the Company nor
any Company Shareholder, without the prior written consent of J.P. Morgan
Securities Inc., shall exercise any demand, mandatory, piggyback, optional or
any other registration rights, if any such rights exist, for a period of 360
days from the Effective Date. Each Company and each Shareholder agree that the
foregoing shall be binding upon their
24
<PAGE>
transferees, successors, assigns, heirs, and personal representatives and shall
benefit and be enforceable by the underwriters in the Initial Public Offering.
In furtherance of the foregoing, the Buyer and its transfer agent, are hereby
authorized to decline to make any transfer of securities if such transfer would
constitute a violation or breach of this Section 8.13.
9. Conduct of the Business Prior to the Closing.
--------------------------------------------
9.1 Operation in Ordinary Course. Between the date of this Agreement and
----------------------------
the Closing Date, each Company shall conduct its Business in all material
respects in the ordinary course and to use commercially reasonable efforts to
maintain all current business relationships.
9.2 Business Organization. Between the date of this Agreement and the
---------------------
Closing Date, each Company shall use commercially reasonable efforts, to
preserve substantially intact its business organization and keep available the
services of the present officers and employees of such Company.
9.3 Corporate Organization. Between the date of this Agreement and the
----------------------
Closing Date, neither Company shall amend its Charter Document or bylaws and
shall not:
(a) issue, sell or otherwise dispose of any of its capital stock, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its capital stock;
(b) reclassify, split up or otherwise change its capital stock;
(c) be party to any merger, consolidation or other business
combination;
(d) sell, lease, license or otherwise dispose of any of its Assets
(including, but not limited to rights with respect to its Intellectual
Property), except in the ordinary course of business; or
(e) organize any subsidiary or acquire any equity securities of any
Person or any equity or ownership interest in any business.
9.4 Business Restrictions. Between the date of this Agreement (the
---------------------
Balance Sheet Date with respect to Section 9.4(a)) and the Closing Date, except
as mutually agreed, neither Company shall:
(a) declare, make or pay any dividends or other distributions other
than the following: (i) $455,000 distributed prior to the date of this
Agreement; (ii) distributions to Shareholders at the highest applicable federal
and state tax rates made to satisfy taxes due on net income (determined on an
accrual basis) for the period October 1, 1995 through March 31, 1996; and (iii)
dividends or bonuses limited to an amount equal to the net income (determined on
an accrual basis) of the Company between April 1, 1996 and the day prior to the
Closing Date;
25
<PAGE>
(b) except in the ordinary course of business, borrow any funds or
otherwise become subject to, whether directly or by way of guarantee or
otherwise, any indebtedness for borrowed money;
(c) create any material Encumbrance on any of its material Assets;
(d) except in the ordinary course of business, increase in any manner
the compensation of any director or officer or increase in any manner the
compensation of any class of employees;
(e) create or materially modify any bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
(f) with the prior consent of Buyer, which consent will not
unreasonably be withheld, make any capital expenditure or acquire any property
or assets (other than raw materials and supplies) for a cost in excess of
$50,000 in any one case or $100,000 in the aggregate;
(g) enter into any agreement that materially restricts the Company
from carrying on the Business;
(h) cancel any material debts of others or waive any material claims
or rights; or
(i) act or omit from taking any action which would cause any of the
representations and warranties in Section 6 to be inaccurate.
9.5 Duty of Shareholders. The Shareholders shall cause each Company to
--------------------
take or refrain from taking such actions set forth elsewhere in this Section 9.
10. Survival of Representations; Indemnification.
--------------------------------------------
10.1 Survival of Representations, Etc. The representations and warranties
---------------------------------
given by each Company, each Shareholder and the Buyer under this Agreement shall
survive the Closing for a period of two years after the Closing Date, except
that all representations and warranties contained in Sections 6.14, 6.21 and 7.4
shall survive the Closing for the period of the applicable statute of
limitations plus any extensions or waivers thereof.
10.2 Indemnification by the Shareholders and the Companies. The Companies,
-----------------------------------------------------
jointly and severally, and the Shareholders, severally and not jointly in
accordance with their percentage ownership interests in the Companies, hereby
agree to indemnify and hold harmless the Buyer, and its successors and assigns
(each, an "Indemnified Buyer Party") from and against any and all Liabilities,
claims, demands, judgments, settlement payments, losses, costs, damages and
expenses whatsoever (including reasonable attorneys', consultants' and other
professional fees and disbursements of every kind, nature and description
incurred by such Indemnified Buyer Party in connection therewith) (collectively,
"Damages") that such Indemnified Buyer Party may sustain, suffer or incur that
result from, arise out of or relate to (a) any Excluded Liability, (b)
26
<PAGE>
any breach of or any inaccuracy in any representation, warranty, covenant or
agreement of any Company or either Shareholder contained in this Agreement,
including any breach of the obligation to indemnify hereunder, or (c) any
Liability or obligation of either Shareholder involving federal and state income
taxes due and payable by, or imposed with respect to, either Shareholder for any
all taxable periods ending on or prior to the Closing Date (whether or not such
taxes have been due and payable).
10.3 Indemnification by the Buyer. The Buyer hereby agrees to indemnify
----------------------------
and hold harmless each Company (each, an "Indemnified Seller Party") from and
against any Damages that any Indemnified Seller Party may sustain, suffer or
incur that result from, arise out of or relate to (i) any breach of or
inaccuracy in any representation, warranty, covenant or agreement of the Buyer
contained in this Agreement, including any breach of the obligation to indemnify
hereunder or (ii) Buyer's failure to satisfy, perform or pay any Assumed
Liability.
10.4 Limitation on Liabilities.
-------------------------
(a) Notwithstanding anything in this Agreement to the contrary, an
indemnifying party shall not have any liability to an indemnified party in
respect of any claim for indemnification for the breach of any representation or
warranty contained herein (i) unless a claim with respect thereto is delivered
to the indemnifying party specifying the factual basis of the claim in
reasonable detail to the extent then known by the indemnifying party prior to
the termination of the survival period for such representation and warranty set
forth in Section 10.1 hereof and (ii) until the damages to the indemnified
party, after taking into account Section 10.4(a) hereof, exceed a cumulative
aggregate total of $100,000, but then to the full extent of such Damages.
(b) In addition, the indemnification liability of: (i) the Companies
under Section 10.2 of this Agreement shall be limited to an aggregate of
$5,000,000, (ii) Mr. Baldasare under Section 10.2 of this Agreement shall be
limited to an aggregate of $4,554,545, (iii) Mr. Raquet under Section 10.2 of
this Agreement shall be limited to an aggregate of $390,910, and (iv) Mr. Olesky
under Section 10.2 of this Agreement shall be limited to an aggregate of
$54,545, in the case of any claim or claims for breaches of representations and
warranties of either Company or any Shareholder made herein or in any other
Transaction Document.
(c) In addition, in pursuing the indemnification liability of the
Companies and the Shareholders under Section 10.2 of this Agreement, the Company
shall first resort to the Pledged Shares, valued as set forth in the Pledge
Agreement.
10.5 Procedure for Claims.
--------------------
(a) An Indemnified Buyer Party or an Indemnified Seller Party that
desires to seek indemnification under any part of this Section 10 (each, an
"Indemnified Party") shall give notice (a "Claim Notice") to each party
responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor"). Such notice shall briefly explain the nature of the claim and
the parties known to be involved, and shall specify the amount thereof. If the
matter to which a claim relates shall not have been resolved as of the date of
the Claim Notice, the Indemnified Party shall estimate the amount of the claim
in the Claim Notice, but also specify therein that the
27
<PAGE>
claim has not yet been liquidated (an "Unliquidated Claim"). If an Indemnified
Party gives a Claim Notice for an Unliquidated Claim, the Indemnified Party
shall also give a second Claim Notice (the "Liquidated Claim Notice") within 60
days after the matter giving rise to the claim becomes finally resolved, and the
Liquidated Claim Notice shall specify the amount of the claim. Each Indemnitor
to which or whom a Claim Notice is given shall respond to any Indemnified Party
that has given a Claim Notice (a "Claim Response") within 30 days (the "Response
Period") after the later of (i) the date that the Claim Notice is given or (ii)
if a Claim Notice is first given with respect to an Unliquidated Claim, the date
on which the Liquidated Claim Notice is given. Any Claim Notice or Claim
Response shall be given in accordance with the notice requirements hereunder,
and any Claim Response shall specify whether or not the Indemnitor giving the
Claim Response disputes the claim described in the Claim Notice. If any
Indemnitor fails to give a Claim Response within the Response Period, such
Indemnitor shall be deemed not to dispute the claim described in the related
Claim Notice. If any Indemnitor elects not to dispute a claim described in a
Claim Notice, whether by failing to give a timely Claim Response or otherwise,
then the amount of such claim shall be conclusively deemed to be an obligation
of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the applicable Response Period the amount to which
such Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 10, the Indemnitor and
the Indemnified Party shall seek to resolve such dispute through negotiations
and, if such dispute is not resolved within twenty days, the Indemnified Party
may pursue whatever legal remedies may be available for recovery of the Damages
claimed from any Indemnitor. If any Indemnitor fails to pay all or part of any
indemnification obligation when due, then such Indemnitor shall also be
obligated to pay to the applicable Indemnified Party interest on the unpaid
amount for each day during which the obligation remains unpaid at an annual rate
equal to 10%.
10.6 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 10 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or if so requested by such Indemnified Party, any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided, however, that such
Indemnified Party shall have the right to participate at its own expense in the
defense of such Action; and provided, further, that the Indemnitor shall not
consent to the entry of any judgment or enter into any settlement, except with
the written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any such Action or (b) grants the
claimant or plaintiff any injunctive relief against the Indemnified Party. Any
failure to give prompt notice under this Section 10.6 shall not bar an
Indemnified Party's right to claim indemnification under this Section 10, except
to the extent that an Indemnitor shall have been harmed by such failure.
28
<PAGE>
10.7 Exceptions to Limitations. Nothing herein shall be deemed to limit or
-------------------------
restrict in any manner any rights or remedies which the Buyer has, or might
have, at law, in equity or otherwise, against either Company or either
Shareholder based on a willful misrepresentation or willful breach of warranty
by either Company or either Shareholder hereunder.
10.8 Effect of Investigation. Any claim for indemnification shall not be
-----------------------
invalid as a result of any investigation by or opportunity to investigate
afforded to Buyer.
10.9 Contingent Claims. Nothing herein shall be deemed to prevent an
-----------------
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made; provided, however, that any such potential or contingent claim or
demand must mature into an actual claim or demand not later than three years
after the Closing Date.
10.10 Security for Indemnification. As security for their
----------------------------
indemnification obligations, under this Section 10, the Companies and the
Shareholders agree to pledge certain of the Buyer's shares issuable hereunder
pursuant to the Pledge Agreement attached hereto as Exhibit C.
10.11 Accounts Receivable. If the Companies or Shareholders indemnify
-------------------
Buyer with respect to a breach of the representations and warranties in Section
6.10 relating to the collection of accounts receivable, Buyer shall,
concurrently with its receipt of such indemnification, assign to the applicable
Company all of its title to, and the right to collect on, the accounts
receivable in question.
10.12 Prompt Payment. In the event that any party is required to make
--------------
any payment under this Section 10, such party shall promptly pay the Indemnified
Party the amount so determined. If there should be a dispute as to the amount
or manner of determination of any indemnity obligation owed under this Section
10, the Indemnitor shall, nevertheless, pay when due such portion, if any, of
the obligation as shall not be subject to dispute. The portion in dispute shall
be paid upon a final and non-appealable resolution of such dispute. Upon the
payment in full of any claim, the Indemnitor shall be subrogated to the rights
of the Indemnified Party against any person with respect to the subject matter
of such claim.
10.13 Taxes and Insurance. Any indemnification payment hereunder shall
-------------------
take into account (a) any tax benefit to the Indemnified Party resulting from
the loss giving rise to such payment net of any tax cost to such Indemnified
Party resulting from the receipt of such payment and (b) any insurance proceeds
or other third party reimbursement actually received.
10.14 Siegel Management. The Companies and the Shareholders have
-----------------
retained Siegel Management Company ("SMC") as an advisor, and the Buyer, and
Companies and Shareholders agree that SMC's fee shall be paid at closing from
sales proceeds. The parties hereto acknowledge that SMC shall not be liable to
the Buyer, the Companies or the Shareholders in connection with SMC's services
to the Companies and Shareholders.
29
<PAGE>
10.15 Subsequent Events. Notwithstanding anything to the contrary set
-----------------
forth herein, neither Company nor any Shareholder shall have any obligation to
indemnify the Buyer for the breach of any representation or warranty contained
herein with respect to any event which occurs after the delivery of the
Disclosure Letter by the Companies and the Shareholders if (i) the Disclosure
Letter is updated to reflect the specific nature and date of occurrence of such
event and its relationship to any representation or warranty contained herein
and (ii) the Buyer elects to close the Transactions despite the occurrence of
such event.
11. Termination.
-----------
11.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
(a) by mutual written consent of the Buyer and the Companies;
(b) by Buyer within 60 days after the date hereof if its due
diligence investigation and review of the Businesses, the Purchased Assets and
the prospects and obligations of each Company shall not have been completed to
its sole satisfaction;
(c) by either Company or by Buyer, if the Closing has not occurred by
the Termination Date; provided, however, that the right to terminate this
Agreement under this paragraph (b) of Section 11.1 shall not be available to any
party that has breached any of its covenants, representations or warranties in
this Agreement in any material respect (which breach has not been cured);
(d) by either Company or the Buyer, if there shall be any Regulation
that makes consummation of the Transactions illegal or otherwise prohibited or
if any Court Order enjoining such Company or the Buyer from consummating the
Transactions is entered and such Court Order shall become final and
nonappealable;
(e) by the Buyer, if either Company shall have breached in any
material respect any of its covenants hereunder or if the representations and
warranties of either Company contained in this Agreement or in any certificate
or other writing delivered by such Company pursuant hereto shall not be true and
correct in any material respect, except for such changes as are contemplated by
this Agreement, and, in either event, if such breach is subject to cure, such
Company has not cured such breach within 10 business days of the Buyer's notice
of an intent to terminate;
(f) by either Company, if the Buyer shall have breached in any
material respect any of its covenants hereunder or if the representations and
warranties of the Buyer contained in this Agreement or in any certificate or
other writing delivered by the Buyer pursuant hereto shall not be true and
correct in any material respect, except for such changes as are contemplated by
this Agreement, and, in either event, if such breach is subject to cure, the
Buyer has not cured such breach within 10 business days of a Company's notice of
an intent to terminate; and
(g) by the Companies, if the Registration Statement has not been
filed by August 31, 1996 or if the Closing has not taken place on or prior to
the Termination Date.
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<PAGE>
(h) by either Company if the value of the Buyer Common Stock (based
upon the price per share to be paid by the underwriters in the Initial Public
Offering) issuable to the Companies at the Closing is less than $2,900,000.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 11.1, any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party.
12. Payment of Expenses. Each party hereto shall pay their own expenses for
-------------------
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions; provided, however, that the
-------- -------
Buyer shall pay the expenses incurred by the Companies'' independent public
accounting firm in connection with the Transactions and up to $100,000 of the
Companies' legal expenses if the Transactions are consummated.
13. Contents of Agreement. This Agreement, together with the other Transaction
---------------------
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
14. Amendment, Parties in Interest, Assignment, Etc. This Agreement may be
------------------------------------------------
amended, modified or supplemented only by a written instrument duly executed by
each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. The parties hereto shall execute and deliver any and all
documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
15. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
16. Remedies. The remedies provided by Section 10 shall constitute the
--------
exclusive remedies for all matters under this Agreement, except (i) as provided
in Section 8.7 and (ii) any party shall be entitled to the right to seek
specific performance in connection with any breach of this Agreement, none of
which rights or remedies shall be affected or diminished by the remedies
provided hereunder.
31
<PAGE>
17. Notices. All notices that are required or permitted hereunder shall be in
-------
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto given in accordance with the foregoing notice procedures:
If to the Buyer:
CRW Acquisition Corp.
443 S. Gulph Road
King of Prussia, PA 19406
FAX: 610-962-5109
Attention: J. Brian O'Neill, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Stephen M. Goodman, Esquire
If to the Company:
6908-10 Market Street
Sixth Floor
Upper Darby, PA 19082
Attention: Patrick M. Baldasare, President
If to Shareholders:
Patrick M. Baldasare Edward Olesky
24 Aldwyn Lane 11 Firethorn Drive
Villanova, PA 19085 Collegeville, PA 19426
Richard Raquet
400 Timber Circle
Wayne, PA 19087
32
<PAGE>
with a required copy to:
Alan L. Zeiger, Esquire
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
FAX 215-569-5555
18. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
19. Consent to Jurisdiction; Service of Process, etc.
-------------------------------------------------
(a) Each party hereto irrevocably and unconditionally (i) agrees that
any suit, action or other legal proceeding (collectively, "Suit") arising out of
this Agreement may be brought and adjudicated in the United States District
Court for the Eastern District of Pennsylvania or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of competent civil
jurisdiction in Montgomery County, Pennsylvania, (ii) consents and submits to
the non-exclusive jurisdiction of any such court for the purposes of any such
Suit and (iii) waives and agrees not to assert by way of motion, as a defense or
otherwise in any such Suit, any claim that it or he is not subject to the
jurisdiction of the above courts, that such Suit is brought in an inconvenient
forum or that the venue of such Suit is improper.
(b) Each party hereto also irrevocably consents to the service of any
process, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 17 or by any other method provided or permitted under
applicable law. Each party hereto agrees that final judgment in any Suit (with
all right of appeal having either expired or been waived or exhausted) shall be
conclusive and that the Buyer shall be entitled to enforce such judgment in any
other jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and amount of
indebtedness arising from such judgment.
20. Securities Law Matters.
----------------------
20.1 Economic Risk; Sophistication.
-----------------------------
(a) The Company and each Shareholder represents and warrants that it
or he has not relied on any purchaser representative, or on the Buyer or any
other Shareholder, in connection with the acquisition of shares of Buyer Common
Stock hereunder. The Company and each Shareholder (i) has such knowledge,
sophistication and experience in business and financial matters that it or he is
capable of evaluating the merits and risks of an investment in the shares of
Buyer Common Stock, (ii) fully understands the nature, scope and duration of the
limitations on transfer contained in this Agreement and (iii) can bear the
economic risk of an investment in the shares of Buyer Common Stock and can
afford a complete loss of such investment. The Company and each Shareholder
have had an adequate opportunity to ask questions and receive
33
<PAGE>
answers from the officers of the Buyer concerning any and all matters relating
to the transactions described herein including without limitation the background
and experience of the officers and directors of the Buyer, the plans for the
operations of the business of the Buyer, the business, operations and financial
condition of the Buyer, and any plans for additional acquisitions and the like.
The Company and the Shareholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
(b) The Company and each Shareholder further represents, warrants,
acknowledges and agrees that he or it (i) is acquiring the shares of Buyer
Common Stock under this Agreement for its or his own account, as principal and
not on behalf of other persons, and for investment and not with a view to the
resale or distribution of all or any part of such shares and (ii) will not sell
or otherwise transfer such shares unless, in the opinion of counsel who is
satisfactory to the Company, the transfer can be made without violating the
registration provisions of the 1933 Act, as amended, and the rules and
regulations promulgated thereunder.
(c) The Shareholders and the Companies acknowledge that they have
carefully reviewed the prospectus included in the draft of the Registration
Statement delivered to them by the Buyer on or about May 18, 1996 and have had
the opportunity to discuss with the Buyer any questions or comments they have
with respect to such prospectus.
20.2 Restriction on Resale. The certificates evidencing the Buyer Common
---------------------
Stock to be received by the Company and the Shareholders hereunder will bear a
legend substantially in the form set forth below and containing such other
information as the Buyer may deem appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY
LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as counsel for
the Buyer reasonably determines are required under the applicable laws of any
state.
20.3 Piggyback Registration.
----------------------
(a) Right to Piggyback. At any time after Buyer's initial public
------------------
offering, whenever the Buyer proposes to register any Buyer Common Stock under
the Securities Act of 1933, as amended (the "1933 Act"), and the registration
form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Buyer will give prompt written notice to all
holders of Registrable Securities and will include in such Piggyback
34
<PAGE>
Registration, subject to the allocation provisions below, all Registrable
Securities with respect to which the Buyer has received written requests for
inclusion within 20 days after the Buyer's mailing of such notice.
(b) Piggyback Expenses. In all Piggyback Registrations, the Buyer
------------------
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the Underwriting
Commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Buyer, and the managing
underwriters advise the Buyer in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Buyer will allocate the securities to be included as follows: first, the
securities the Buyer proposes to sell on its own behalf; and second, Registrable
Securities requested to be included in such registration by the Selling
Stockholders, pro rata on the basis of the respective Registrable Securities
owned among the Selling Stockholders.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is initiated as an underwritten secondary registration on behalf of holders of
the Buyer's securities and the managing underwriters advise the Buyer in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Buyer will allocate the securities to be
included on a pro rata basis, based on the number of Registrable Securities
owned among the Selling Stockholders.
(e) Selection of Underwriters. The selection of investment banker(s)
-------------------------
and manager(s) and the other decisions regarding the underwriting arrangements
for the offering will be made by the Buyer.
(f) Indemnification. The Buyer shall indemnify, to the extent
---------------
permitted by law, each Selling Stockholder (and each such Selling Stockholder's
successors and assigns) against all losses, claims, damages, liabilities and
expenses arising out of or resulting from any untrue or alleged untrue statement
of material fact contained in any registration statement, prospectus or
preliminary prospectus or associated term sheet or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Selling Stockholder expressly for use therein or by such
Stockholder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Buyer has
furnished such Selling Stockholder with a sufficient number of copies of the
same; provided, however, that the liability of each such Selling Stockholder to
-------- -------
so indemnify shall be limited to an amount equal to the net proceeds which such
Selling Stockholder received in connection with the applicable Piggyback
Registration.
(g) Information. In connection with any registration statement in
-----------
which a Selling Stockholder is participating, each such holder will furnish to
the Buyer in writing such
35
<PAGE>
information as is reasonably requested by the Buyer for use in any such
registration statement or prospectus and will indemnify, to the extent permitted
by law, the Buyer, its directors and officers and each person who controls the
Buyer (within the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement or prospectus or any amendment
thereof or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in information so furnished in writing by such holder specifically for
use in preparing the registration statement. Until the later of three years
after the effectiveness of the Registration Statement or until the Companies or
the Shareholders no longer own any of the Shares, the Buyer shall use its best
efforts to comply with the current public information requirements of Rule
144(c) promulgated under the 1933 Act.
21. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all of
which shall constitute one and the same instrument. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
22. Definitions.
-----------
"Acquisition Base" is defined in Section 2.8.
"Acquisition Transactions" is defined in Section 2.8.
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this Agreement and the exhibits hereto.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by the Companies.
"Assumed Liabilities" is defined in Section 2.3.
"Audited Balance Sheets" is defined in Section 2.3.
"Audited Financial Statements" is defined in Section 4.5.
"Balance Sheet Date" is defined in Section 6.5.
"Benefit Plans" means all employee benefit plans of each Company within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies, arrangements, practices, customs and understandings,
in each case whether formal or informal, that provide benefits of economic value
to any present or former employee of the Company, or present or former
beneficiary, dependent or assignee of any such employee or former employee,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, medical, disability, share purchase or other similar plans,
policies, programs, practices or arrangements.
36
<PAGE>
"Business" means the entire existing business and the operations,
facilities and other Assets of the Companies.
"Buyer" is defined above in the preamble.
"Buyer Common Stock" is defined in Section 2.7.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies" is defined the preamble.
"Company Balance Sheets" is defined in Section 6.5.
"Confidential Information" means any confidential information or trade
secrets of the Business, including, without limitation, information and
knowledge pertaining to products and services offered, innovations, designs,
ideas, plans, trade secrets, proprietary information, know-how and other
technical information, advertising, distribution and sales methods and systems,
sales and profit figures, customer and client lists, and relationships with
dealers, distributors, wholesalers, customers, clients, suppliers and others who
have business dealings with the Business.
"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is or may be binding on any Person or its property under
applicable law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any Federal, state, local or foreign court or governmental or regulatory body or
arbitrator or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
37
<PAGE>
"Disclosure Letter" is defined in Section 6.
"Employment Agreement" means the Employment Agreement between the Buyer (or
its designee) and each of Patrick M. Baldasare and Richard Raquet entered into
as of the Closing Date, in substantially the forms attached as Exhibits A and B.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 6.16(b).
"Environmental Law" is defined in Section 6.16(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.4.
"Financial Statements" is defined in Section 6.5.
"First Round Acquisitions" means the initial round of acquisitions by the
Buyer of other parties.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law, and (iii)
asbestos, asbestos-containing substances or urea formaldehyde insulation.
"Indemnified Buyer Party" is defined in Section 10.2.
"Indemnified Seller Party" is defined in Section 10.4.
"Interim Balance Sheet" is defined in Section 6.5.
"Interim Balance Sheet Date" is defined in Section 6.5.
"Intellectual Property" means any Copyrights, Patents, Trademarks, know-
how, trade secrets (including, without limitation, all results of research and
development), product formulae, franchises, inventions, rights-to-use and other
industrial and intellectual property rights.
38
<PAGE>
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition, results of operations, liquidity, products,
competitive position, customers or customer relations of either Company.
"Non-Assignable Contracts" is defined in Section 2.5.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
"Patents" means all patents and patent applications.
"Permit" means any governmental permit, license, registration, certificate
of occupancy, approval and other authorization.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Personal Property Leases" is defined in Section 6.9.
"Pledge Agreement" means the Pledge Agreement between the Buyer and each
Shareholder entered into as of the Closing Date, in substantially the form
attached as Exhibit C.
"Private Percentages" means the percentage of the outstanding Buyer Common
Stock which will be owned by the Initial Targets (on an aggregate basis with
respect to affiliated Initial Targets) after the consummation of the Acquisition
Transactions but prior to the consummation of the Initial Public Offering and
subject to the adjustments set forth in Section 2.8 hereto.
"Purchase Price" is defined in Section 2.7.
"Purchased Assets" is defined in Section 2.1.
"Real Estate Leases" is defined in Section 6.7.
"Real Property" is defined in Section 6.7.
"Registrable Securities" means (i) the shares of Buyer Common Stock issued
in Buyer's initial round of acquisitions and (ii) any securities issued or to be
issued with respect to such
39
<PAGE>
securities by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such securities
will cease to be Registrable Securities when they have been (A) effectively
registered under the 1933 Act and disposed of in accordance with the
registration statement covering them, or (B) transferred pursuant to Rule 144
promulgated under such Act (or any similar provision then in force).
"Registration Expenses" means all expenses incident to the Buyer's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges or
electronic quotation systems on which similar securities issued by the Buyer are
then listed, and fees and disbursements of counsel for the Buyer and of all
independent certified public accountants, underwriters (other than Underwriting
Commissions) and other persons retained by the Buyer.
"Registration Statement" means the Buyer's Registration Statement on Form
S-1 to be filed with the Securities and Exchange Commission registering a
sufficient number of shares of Buyer's capital stock which, based on the minimum
estimated offering price of such shares (as set forth in the prospectus included
in such Registration Statement), upon consummation of the offering described in
the Registration Statement would yield net proceeds sufficient for Buyer to
consummate the First Round Acquisitions.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Selling Stockholders" means registered holders of Registrable Securities
who request inclusion of all or a portion of their shares of Registrable
Securities in a Piggyback Registration pursuant to Section 20.
"Shareholders" is defined in the preamble.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Employment Agreements and
the Pledge Agreement.
"Transactions" means the purchase and sale of the Purchased Assets, the
issuance of the Shares, and the consummation of the other transactions
contemplated by the Transaction Documents.
40
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
TELESPECTRUM WORLDWIDE INC.
/s/ J. Brian O'Neill
By: ________________________________________
J. Brian O'Neill
Chairman of the Board
CRW FINANCIAL INC.
/s/ J. Brian O'Neill
By: ________________________________________
J. Brian O'Neill
Chairman of the Board
THE RESPONSE CENTER, INC.
/s/ Patrick M. Baldasare
By: ________________________________________
Name: Patrick M. Baldasare
Title: President
THE TAB HOUSE, INC.
/s/ Patrick M. Baldasare
By: ________________________________________
Name: Patrick M. Baldasare
Title: President
/s/ Patrick M. Baldasare
____________________________________________
Patrick M. Baldasare
/s/ Richard Raquet
____________________________________________
Richard Raquet
/s/ Edward Olesky
____________________________________________
Edward Olesky
<PAGE>
EXHIBIT 10.6
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
TELESPECTRUM WORLDWIDE INC.
(a Delaware corporation)
CRW FINANCIAL, INC.,
(a Delaware corporation),
NBG SERVICES, INC.,
(a Massachusetts corporation),
William F. Rhatigan,
and
Michael J. Gallant
Dated as of May 3, 1996,
and amended and restated on May 21, 1996
- --------------------------------------------------------------------------------
<PAGE>
Section Page
- ------- ----
1. Reference to Definitions.......................................... -1-
------------------------
2. Purchase and Sale of the Business and Assets...................... -1-
--------------------------------------------
3. Closing........................................................... -5-
-------
4. Conditions to Buyer's Obligations................................. -6-
---------------------------------
5. Conditions to the Company's and each Shareholder's Obligations.... -7-
--------------------------------------------------------------
6. Representations and Warranties of the Company and the Shareholders -8-
------------------------------------------------------------------
7. Representations and Warranties of the Buyer...................... -19-
-------------------------------------------
8. Certain Agreements............................................... -20-
------------------
9. Conduct of the Business Prior to the Closing.
--------------------------------------------
10. Survival of Representations; Indemnification..................... -25-
--------------------------------------------
11. Termination...................................................... -28-
-----------
12. Payment of Expenses.............................................. -29-
-------------------
13. Contents of Agreement............................................ -29-
---------------------
14. Amendment, Parties in Interest, Assignment, Etc.................. -29-
-----------------------------------------------
15. Interpretation................................................... -29-
--------------
16. Remedies......................................................... -29-
--------
17. Notices.......................................................... -30-
-------
18. Governing Law.................................................... -31-
-------------
19. Consent to Jurisdiction; Service of Process, etc................. -31-
------------------------------------------------
20. Securities Law Matters........................................... -31-
----------------------
21. Counterparts..................................................... -34-
------------
22. Definitions...................................................... -34-
-----------
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made as of May 3, 1996, and amended and
restated on May 21, 1996, by and among TeleSpectrum Worldwide Inc., a Delaware
corporation ("Buyer"), CRW Financial, Inc., a Delaware corporation ("CRW"), NBG
Services, Inc., a Massachusetts corporation (the "Company") and William F.
Rhatigan and Michael J. Gallant (the "Shareholders"). The parties acknowledge
that Buyer may form a subsidiary to acquire, own and operate the Business and
the Purchased Assets and that Buyer may assign its rights under the Agreement to
such subsidiary although Buyer shall not thereby be relieved of its obligations
and liabilities hereunder.
Background
----------
The Company is engaged in the business of outbound telemarketing services.
The Shareholders own all of the issued and outstanding capital stock of the
Company. The Buyer desires to purchase the Purchased Assets (as defined
herein), the Company desires the Purchased Assets to be sold, and the
Shareholders desire to cause the Company to sell the Purchased Assets, all on
the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of and reliance on the respective
representations, warranties and covenants contained herein and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Reference to Definitions. For convenience, certain terms used in this
------------------------
Agreement are listed in alphabetical order and defined or referred to in Section
22 (such terms as well as any other terms defined elsewhere in this Agreement
shall be equally applicable to both the singular and plural forms of the terms
defined).
2. Purchase and Sale of the Business and Assets.
--------------------------------------------
2.1 The Purchased Assets. The Company, subject to the terms and
--------------------
conditions of this Agreement, shall sell, transfer, convey and deliver to the
Buyer all of its right, title and interest in all of its Assets which are not
Excluded Assets (collectively, the "Purchased Assets") . The Purchased Assets
include, without limitation, all of the following assets:
(a) the Business;
(b) the name NBG Services;
(c) the cash and cash equivalents of the Company, wherever located;
(d) the Company's accounts and notes receivable and rights to payment
from any party for products sold and/or services delivered prior to the Closing;
<PAGE>
(e) the tangible and intangible personal property owned by the
Company, however owned, leased, or held, including, without limitation,
machinery, equipment, furniture, fixtures, supplies, vehicles, inventory,
supplies and computer hardware and software;
(f) the interests of the Company under all Contracts related to the
Business;
(g) the Permits of the Company;
(h) the goodwill, going concern value, past and present customer and
supplier lists and Intellectual Property (including the goodwill associated
therewith) of the Company;
(i) the prepaid expenses of the Company; and
(j) the financial books and records of the Company.
After the Closing, Buyer shall provide the Company with reasonable access to any
of such Purchased Assets.
2.2 Excluded Assets. Notwithstanding anything to the contrary in Section
---------------
2.1, the following Assets (the "Excluded Assets") shall not be included in the
Purchased Assets:
(a) the corporate seal, Charter Documents, bylaws, minute books and
other corporate records of the Company and any rights to any refunds associated
with any and all workers' compensation insurance;
2.3 Assumed Liabilities. At the Closing, the Buyer shall assume and
-------------------
thereafter in due course timely pay and fully satisfy all obligations (the
"Assumed Liabilities"):
(a) incurred or otherwise arising after the Closing under all
Contracts and Permits which are conveyed to Buyer as Purchased Assets pursuant
to the terms and conditions hereof;
(b) any and all Liabilities relating exclusively to the Business that
are reflected on the Company Balance Sheet and any and all Liabilities incurred
after the date of the Balance Sheets in the ordinary course of business and in
accordance with Section 9.4 (but with the provisions of Section 9.4 applied as
if the provisions thereof had been in effect from the close of business on the
date of the Company Balance Sheet through the Closing Date.)
2.4 Excluded Liabilities. Except as expressly set forth in Section 2.3,
--------------------
the Buyer shall not, by virtue of its purchase of the Purchased Assets or
otherwise in connection with the Transactions, assume or become responsible for
any Liabilities (the "Excluded Liabilities") of the Company; including, without
limitation, (a) Liabilities for any taxes, other than for federal and state
income taxes owed by the Company for periods prior to the Closing Date, (b)
Liabilities relating to any claims for health care or other welfare benefits not
reflected on the Company
-2-
<PAGE>
Balance Sheet, (c) Liabilities relating to the violation of any Regulation, (d)
tort Liabilities, (e) Liabilities from claims arising under any Contract or
Permit not assumed by the Buyer hereunder; and (f) Liabilities for claims
arising under any Contract or Permit to the extent such claim is based on acts
or omissions of any person which occurred prior to the Closing.
2.5 Consent of Third Parties. Nothing in this Agreement shall be
------------------------
construed as an attempt by the Company to assign to the Buyer pursuant to this
Agreement any Contract or Permit included in the Purchased Assets which is by
its terms or by Regulation nonassignable without the consent of any other party
or parties, unless such consent or approval shall have been given, or as to
which all the remedies for the enforcement thereof available to the Company
would not by Regulation pass to the Buyer as an incident of the assignments
provided for by this Agreement (a "Non-Assignable Contract"). To the extent
that any such consent or approval in respect of, or a novation of, a Non-
Assignable Contract shall not have been obtained on or before the Closing Date,
the Company and the Shareholders shall continue to use commercially reasonable
efforts to obtain any such consent, approval or novation after the Closing Date
until such time as it shall have been obtained, and the Company shall cooperate
with the Buyer in any economically feasible arrangement to provide that the
Buyer shall receive the Company's benefits under such Non-Assignable Contract,
provided that Buyer shall undertake to pay or satisfy the corresponding
Liabilities under the terms of such Non-Assignable Contract to the extent that
the Buyer would have been responsible therefor if such consent, approval or
novation had been obtained.
2.6 Post-Closing Adjustment to Purchase Price. As soon as practicable,
-----------------------------------------
but in any event within 90 days after the Closing, the Company shall engage
Arthur Andersen LLP (at the Buyer's expense) to prepare, in accordance with GAAP
(applied in a manner consistent with the Audited Financial Statements), a
balance sheet of the Company (the "Closing Date Balance Sheet") as of the end of
the business on the day prior to the Closing Date. If the shareholders' equity
as shown on the Closing Date Balance Sheet is less than the shareholders' equity
as shown on the Company Balance Sheet (such amount is referred to as the "Net
Worth Deficiency"), within thirty business days after delivery of the Closing
Balance Sheet to the Company, the Company shall pay the Buyer by wire transfer
of immediately available funds an amount equal to the Net Worth Deficiency.
Notwithstanding anything in this Section 2.6 to the contrary, if there is any
Net Worth Deficiency and the Company disputes any item contained on the Closing
Date Balance Sheet, the Company shall notify the Buyer in writing of each
disputed item, and specify the amount thereof in dispute within thirty business
days after the delivery of the Closing Date Balance Sheet. If the Buyer and the
Company cannot resolve any such dispute which would eliminate or reduce the
amount of the Net Worth Deficiency, then such dispute shall be resolved by an
independent nationally recognized accounting firm which is reasonably acceptable
to the Buyer and the Company (an "Independent Accounting Firm"). The Buyer and
the Company shall each have the opportunity to submit written statements setting
forth their position with respect to each such disputed item within five days
after the selection of the Independent Accounting Firm. The determination of
the Independent Accounting Firm shall be made as promptly as practicable and
shall be final and binding on the parties, absent manifest error which error may
only be corrected by such Independent Accounting Firm. Any expenses relating to
the
-3-
<PAGE>
engagement of the Independent Accounting Firm shall be allocated between the
Buyer and the Company so that the Company's share of such costs shall be in the
same proportion that the aggregate amount of the disputed amounts submitted to
the Independent Accounting Firm that are unsuccessfully disputed by the Company
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such disputed amounts so submitted to the Independent Account Firm.
2.7 Payments. In addition to assuming the Assumed Liabilities, the
--------
aggregate price to be paid by the Buyer (the "Purchase Price") for the purchase
of the Purchased Assets shall be the sum of (A) $25,375,000 (the "Closing
Purchase Price"), (B) the Contingent Payment and (C) $1,387,000 (the "Additional
Closing Payment"). The Buyer shall pay the Purchase Price at the Closing by
delivery of (i) $12,687,500 and the Additional Closing Payment to the Company in
cash by certified or bank check or by wire transfer of immediately available
funds pursuant to written instructions provided by the Company, (ii)
certificates to the Company and/or its designees (in such proportion as set
forth on Exhibit 2.7) representing such number of shares (the "Shares") of the
Buyer's common stock, $.01 par value (the "Buyer Common Stock"), with an
aggregate acquisition stock value equal to $12,687,500 (the "Acquisition Stock
Value") and (iii) the Promissory Note in substantially the form attached as
Exhibit A hereto.
2.8 Percentage Interests.
--------------------
(a) Private Percentage. Subject to adjustment pursuant to Section
------------------
2.8(b), after specifically giving effect to the acquisition by the Buyer of
those organizations listed on Exhibit 2.8 hereto (the "Initial Targets") and the
consummation of all of the transactions and corporate reorganizations incident
to such acquisitions (collectively, the "Acquisition Transactions"), but prior
to the offering of Buyer Common Stock pursuant to the Registration Statement
(the "Initial Public Offering"), the aggregate number of Shares issuable in the
full amount of the Acquisition Stock Value shall represent 8.68% (the "NBG
Private Percentage") of the aggregate Buyer Common Stock that will be
outstanding immediately after the issuance of the Shares. The NBG Private
Percentage is equal to the percentage obtained by dividing (i) the Acquisition
Stock Value by (ii) the "Acquisition Base." The Acquisition Base means the sum
of (x) the sum of the Closing Purchase Price plus the Additional Closing Price,
(y) the aggregate purchase price (exclusive of any contingent payments) which
Buyer has agreed to pay the Initial Targets (other than the Company) at the
closings of the acquisitions of the Initial Targets (other than the Company) and
(z) $5,000,000. The NBG Private Percentage has been calculated on a basis
consistent with the Private Percentages, each of which is set forth opposite the
name of each Initial Target on Exhibit 2.8.
(b) Adjustment to Percentages. The NBG Private Percentage shall be
-------------------------
subject to proportionate adjustments based upon the occurrence of any of
the following events:
(i) the acquisition by Buyer of any additional organizations
prior to the consummation of the Initial Public Offering (the "Additional
Targets");
-4-
<PAGE>
(ii) the failure of Buyer for any reason to consummate the
acquisition of any Initial Target prior to the consummation of the Initial
Public Offering; and
(iii) the issuance of any securities in connection with the
obtaining of financing, the proceeds of which are used to acquire any
Initial Target and/or any Additional Target (whether prior to or in
connection with the consummation of the Initial Public Offering).
With respect to any adjustment pursuant to Sections 2.8(b)(i) and (ii), the NBG
Private Percentage shall be adjusted by adding to the Acquisition Base the
purchase price payable (exclusive of any contingent payment) by the Buyer at the
closing of any such acquisition pursuant to Section 2.8(b)(i) and, with respect
to any Initial Target not acquired by Buyer prior to the consummation of the
Initial Public Offering, subtracting from the Acquisition Base the purchase
price which would have been payable by the Buyer at the closing of any Initial
Target had such Initial Target been acquired by Buyer. No adjustment to the NBG
Private Percentage shall be made pursuant to Section 2.8(b)(iii) unless the
Private Percentages and the percentage of the outstanding Buyer Common Stock
owned by CRW are likewise reduced on a proportionate basis.
2.9 Allocation of the Purchase Price. The Purchase Price shall be
--------------------------------
allocated among the Purchased Assets as mutually agreed by the parties at or
prior to the Closing. The Company and the Buyer shall prepare their respective
Federal, state and local tax returns employing such allocation and shall not
take a position in any tax proceeding or otherwise that is inconsistent with
such allocation. The Company and the Buyer shall give prompt notice to each
other of the commencement of any tax audit or the assertion of any proposed
deficiency or adjustment by any taxing authority or agency which challenges such
allocation.
3. Closing.
-------
3.1 Location; Date. The closing of the Transactions (the "Closing") shall
--------------
take place at the offices of the Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103 on or before October 31, 1996 (the "Termination
Date") or such earlier date promptly upon the satisfaction of (or waiver by the
party entitled to the benefit of) the conditions set forth in Sections 4 and 5,
or at such other place, date and time as the parties may agree in writing.
3.2 Closing Deliveries. In connection with the completion of the
------------------
Transactions contemplated in Section 2, at the Closing
(a) the Buyer shall deliver or cause to be delivered:
(i) the cash portion of the Purchase Price which is required to
be delivered to the Company at the Closing;
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<PAGE>
(ii) the certificates representing the Shares, registered in the
name of the Company or its designees;
(iii) copies of the Employment Agreements executed by Buyer and
Company Sub; and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested
(b) the Company shall deliver or cause to be delivered:
(i) payment instructions regarding the cash portion of the
Purchase Price which is required to be delivered to the Company at the
Closing;
(ii) bills of sale and assignment and assumption agreements
transferring all of the Company's right, title and interest in and to
the Purchased Assets in form and substance satisfactory to the Buyer;
and
(iv) such other agreements, documents and instruments
contemplated by this Agreement and such other items as may be
reasonably requested.
(c) each Shareholder shall deliver his respective executed counterpart
of his Employment Agreement.
4. Conditions to Buyer's Obligations.
----------------------------------
The obligations of Buyer to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the following conditions, any one or
more of which may be waived by Buyer:
4.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or threatened that prevents or that seeks to restrain the consummation,
or challenges the validity or legality, of the Transactions or that would limit
or have a materially adverse affect on the Buyer's acquisition of the Purchased
Assets.
4.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Company and the Shareholders set forth in this Agreement
shall be true and correct in all material respects as of the Closing Date as
though made at such time and (b) the Company and the Shareholders shall have
each performed or tendered performance in all material respects of all covenants
and agreements contained in this Agreement required to be performed and complied
with by them at or prior to the Closing. The Company and the Shareholders shall
have delivered to the Buyer a certificate signed by the President of the Company
and each Shareholder, in form and substance reasonably satisfactory to counsel
to the Buyer, that the Company and the Shareholders have performed all covenants
and agreements to be performed
-6-
<PAGE>
by them under this Agreement and that all of its representations and warranties
contained herein are true and complete as of the Closing Date.
4.3 Legal Opinion. The Company and the Shareholders shall have tendered a
-------------
legal opinion of Abrams, Roberts, Klickstein & Levy, counsel to the Company and
the Shareholders, that is reasonably acceptable to counsel to the Buyer.
4.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
4.5 Financing. An underwriting agreement is executed with J.P. Morgan &
---------
Co. and others respecting the sale of securities covered by the Registration
Statement, and the proceeds from sale of such securities pursuant to such
underwriting agreement shall have been received by the Buyer.
4.6 Required Tender. The Shareholders and the Company shall have tendered
---------------
or caused the tender of the items set forth in Section 3.2
4.7 Audited Financial Statements; No Material Adverse Change.
--------------------------------------------------------
(a) The Shareholders shall have caused the Company to deliver to the
Buyer correct and complete copies of financial statements consisting of a
balance sheet of the Company as at December 31, 1995 and the related statement
of income, retained earnings and cash flows for the period then ended, all of
which shall have been audited and reported on by Arthur Anderson LLP (the
"Audited Financial Statements"). Buyer shall pay the expense of preparing the
Audited Financial Statements.
(b) The financial position and assets and liabilities of the Company
and its cash flows and the results of its operations as presented in the Audited
Financial Statements shall not differ in any material respect from the Annual
Financial Statements as of December 31, 1995.
5. Conditions to the Company's and each Shareholder's Obligations.
---------------------------------------------------------------
The obligations of the Company and each of the Shareholders to effect the
Closing shall be subject to the satisfaction at or prior to the Closing of the
following conditions, any one or more of which may be waived by such parties:
5.1 No Court Order or Litigation. No Court Order or Litigation shall be
----------------------------
pending or threatened that prevents or that seeks to restrain the consummation,
or challenges the validity or legality, of the Transactions or the Initial
Public Offering.
5.2 Representations, Warranties and Agreements. The representations and
------------------------------------------
warranties of the Buyer set forth in this Agreement shall be true and complete
in all material respects as of
-7-
<PAGE>
the Closing Date as though made at such time and the Buyer shall have performed
or tendered performance in all material respects of all covenants and agreements
contained in this Agreement required to be performed and complied with by it at
or prior to the Closing. The Buyer shall have delivered a certificate signed by
the President of the Buyer, in form and substance reasonably satisfactory to
counsel to the Company, that the Buyer has performed all covenants and
agreements to be performed by it under this Agreement and that all of its
representations and warranties contained herein are true and complete as of the
Closing Date.
5.3 Legal Opinion. The Buyer shall have tendered a legal opinion of
-------------
Morgan, Lewis & Bockius LLP, counsel to the Buyer, that is reasonably acceptable
to counsel to the Company.
5.4 Regulatory Approvals. All Permits, if any, necessary for the
--------------------
consummation of Buyer's acquisition of the Purchased Assets shall have been
obtained and shall be in full force and effect.
5.5 Required Tender. The Buyer shall have tendered or caused the tender
---------------
of the items set forth in Section 3.2(a).
5.6 Financing. An underwriting agreement is executed with J.P. Morgan &
---------
Co. and others respecting the sale of securities covered by the Registration
Statement, and proceeds of at least $75,000,000 from the sale of such securities
pursuant to such underwriting agreement shall have been received by the Buyer.
6. Representations and Warranties of the Company and the Shareholders. The
------------------------------------------------------------------
Company and each Shareholder hereby jointly and severally represent and warrant
to the Buyer that, except as set forth in a letter dated the date of this
Agreement, executed by the Company and each Shareholder, addressed and delivered
to Buyer by the Company and each Shareholder within 14 days after the date
hereof and containing information required by this Agreement and exceptions to
the representations and warranties of the Company and the Shareholders under
this Agreement (the "Disclosure Letter"):
6.1 Corporate Status. The Company is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and is qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where it is required to be so qualified,
except where the failure to so qualify would not have a material adverse effect.
6.2 Authorization. The Company has the requisite power and authority to
-------------
own its property and carry on its Business as currently conducted, and to
execute and deliver the Transaction Documents to which it is a party and to
perform the Transactions to be performed by it. Such execution, delivery and
performance by the Company have been duly authorized by all necessary corporate
action. Each Shareholder has the requisite power, capacity, legal right and
authority to execute and deliver the Transaction Documents to which he is a
party and to perform the Transactions to be performed by him thereunder. This
Agreement has been duly
-8-
<PAGE>
executed and delivered by the Company and each Shareholder and constitutes a
valid and binding obligation of the Company and each Shareholder, enforceable
against each in accordance with its terms. Each other Transaction Document to
be executed and delivered by the Company will be duly executed and delivered by
the Company and will constitute a valid and binding obligation of the Company,
enforceable against it in accordance with its terms. Each Transaction Document
to be executed and delivered by each Shareholder will be duly executed and
delivered by him and will constitute a valid and binding obligation of him,
enforceable against him in accordance with its terms.
6.3 Consents and Approvals. Except for the consents specified in the
----------------------
Disclosure Letter (the "Required Consents"), neither the execution or delivery
by the Company or either Shareholder of the Transaction Documents to which it or
he is a party, nor the performance of the Transactions to be performed by it or
him thereunder, will require any filing, consent or approval, constitute a
Default or cause any payment obligation to arise under (a) any Regulation or
Court Order to which the Company or Shareholder is subject, (b) the Charter
Documents or bylaws of the Company or (c) any Contract, Permit or other document
to which the Company is a party or to which the Business or Assets may be
subject.
6.4 Stock Ownership. The Shareholders own all of the issued and
---------------
outstanding capital stock of the Company.
6.5 Financial Statements. The Disclosure Letter includes correct and
--------------------
complete copies of the Company's unaudited financial statements consisting of a
balance sheet of the Company as of December 31, 1993, 1994 and 1995 and the
related statements of income, retained earnings and cash flows for the years
then ended (collectively, the "Annual Financial Statements"). The Disclosure
Letter also includes correct and complete copies of the Company's unaudited
financial statements consisting of a balance sheet of the Company as of the end
of the period ended March 31, 1996 and the related statements of income and cash
flow for the period then ended (the "Interim Financial Statements" and, together
with the Annual Financial Statements, the "Financial Statements"). The
Financial Statements of the Company are consistent with the books and records of
the Company, and there are no material transactions required by GAAP to be
recorded in accounting records that have not been recorded in the accounting
records underlying such Financial Statements. The Financial Statements have
been prepared in accordance with GAAP consistently applied and present fairly
the financial position and assets and liabilities of the Company as of the dates
thereof and its cash flows and the results of its operations for the years and
periods then ended, subject to normal recurring year-end adjustments and the
absence of notes in the case of the Interim Financial Statements. The balance
sheet of the Company as of December 31, 1995 that is included in the Financial
Statements is referred to herein as the "Company Balance Sheet" and the date
thereof is referred to as the "Balance Sheet Date." The balance sheet of the
Company as of March 31, 1996 that is included in the Financial Statements is
referred to herein as the "Interim Balance Sheet" and the date thereof is
referred to as the "Interim Balance Sheet Date."
-9-
<PAGE>
6.6 Title to Assets and Related Matters. The Company has good and
-----------------------------------
marketable title to, valid leasehold interests in or valid licenses to use, all
of the Purchased Assets, free from any Encumbrances. The use of the Purchased
Assets is not subject to any Encumbrances (other than those specified in the
preceding sentence), and such use does not materially encroach on the property
or rights of anyone else. All Purchased Assets are in the possession or under
the control of the Company and consist of all of the Assets necessary to operate
the Business as now being operated. All of the tangible personal property
included in the Assets (a) is in good working condition and reasonable repair,
subject to normal wear and tear, (b) is usable in the ordinary course of
business and (c) conforms in all material respects with all applicable
Regulations relating to its construction, use and operation. Except for those
items subject to the Personal Property Leases, no Person other than the Company
owns any vehicles, equipment or other tangible assets located on the Real
Property that are used by the Company in the Business (other than immaterial
items of personal property owned by the employees of the Company) or that are
necessary for the operation of the Business.
6.7 Real Property. The Disclosure Letter describes all real estate used
-------------
in the operation of the Business as well as any other real estate that is in the
possession of or leased by the Company and the improvements (including buildings
and other structures) located on such real estate (collectively, the "Real
Property"), identifies which Real Property is owned and which is leased, and
lists any leases under which any such Real Property is possessed by the Company
or leased by the Company to others (the "Real Estate Leases"). The Disclosure
Letter also describes any other real estate previously owned, leased or
otherwise operated by the Company and the time periods of any such ownership,
lease or operation. To the knowledge of the Company and each Shareholder, all
of the buildings and structures included in the Real Property are structurally
sound, and all of the heating, ventilating, air conditioning, plumbing,
sprinkler, electrical and drainage systems, elevators and roofs, and all other
fixtures, equipment and systems at or serving such Real Property are generally
in good condition, repair and working order and are generally adequate for the
present use of the Real Property by the Company in conducting its Business, and
there is no condition which will result in the termination of the present access
from the Real Property to such utility services and other facilities. The
Company has received no notices, oral or written, and have no reason to believe,
that any governmental body having jurisdiction over any Real Property intends to
exercise the power of eminent domain or a similar power with respect to all or
any part of the Real Property. The Company has not received any notices, oral
or written, from any governmental body, and has no reason to believe, that any
of the Real Property or any improvements erected or situate thereon, or the uses
conducted thereon or therein, violate any Regulations of any governmental body
having jurisdiction over such Real Property. The Company has not received any
notice from the holder of any mortgage, from any insurance company which has
issued a policy with respect to any of the Real Property or from any board of
fire underwriters (or other body exercising similar functions) claiming any
defects or deficiencies in any of the Real Property or suggesting or requesting
the performance of any repairs, alterations or other work to any of the Real
Property.
6.8 Certain Personal Property. The Company has delivered to the Buyer a
-------------------------
complete fixed asset schedule, describing and specifying the location of all
items of tangible personal
-10-
<PAGE>
property that are included in the Company Balance Sheet. Since the Balance
Sheet Date, the Company has not (i) acquired any items of tangible personal
property that has, in any case, a carrying value in excess of $25,000, or an
aggregate carrying value in excess of $50,000 or (ii) disposed of any items of
tangible personal property (other than inventory) that have, in any case, an
initial carrying value in excess of $25,000, or an initial aggregate carrying
value in excess of $50,000.
6.9 Personal Property Leases. The Disclosure Letter lists all assets and
------------------------
property (other than Real Property) that have been used in the operation of the
Business and that are possessed by the Company under an existing lease,
including all trucks, automobiles, forklifts, machinery, equipment, furniture
and computers, except for any lease under which the aggregate annual payments
are less than $5,000 (each, an "Immaterial Lease"). The Disclosure Letter also
lists the leases under which such assets and property listed on the Disclosure
Letter are possessed. All of such leases (excluding Immaterial Leases) are
referred to herein as the "Personal Property Leases."
6.10 Accounts Receivable. The accounts receivable of the Company are bona
-------------------
fide accounts receivable created in the ordinary course of business and are not
subject to defenses, set-offs or counterclaims and are good and collectible at
the aggregate recorded amounts thereof (in each case, net of the reserves for
such items included in the Interim Balance Sheet). The Disclosure Letter
includes a correct and complete aging of accounts and notes receivable of the
Company as of the Interim Balance Sheet Date reflecting the aggregate dollar
amount of all accounts and notes receivable due the Company which have been
outstanding for: 30 days or less; more than 30 but less than 61 days; more than
60 but less than 91 days; and more than 90 days.
6.11 Inventory. All inventory of the Company consists of items useable or
---------
saleable in the ordinary course and is valued on the Company's books and records
at the lower of cost or fair market value. The inventory records for the
Company that have been delivered to the Buyer or made available for inspection
by the Buyer are accurate with respect to the data contained therein.
6.12 Accounts Payable. All accounts payable as set forth on the Interim
----------------
Balance Sheet or arising since the date thereof have been incurred in the
ordinary course of business.
6.13 Price Guarantees. The Disclosure Letter sets forth all express price
----------------
guarantees made by the Company.
6.14 Liabilities. The Company does not have any Liabilities, and none of
-----------
the Purchased Assets is subject to any Liabilities, except (a) as specifically
disclosed on the Interim Balance Sheet, (b) Liabilities incurred in the ordinary
course since the Interim Balance Sheet Date, and (c) Liabilities under any
Contracts specifically disclosed on the Disclosure Letter (or not required to be
disclosed because of the term or amount involved) that were not required under
GAAP to have been specifically disclosed or reserved for on the Interim Balance
Sheet.
-11-
<PAGE>
6.15 Taxes. The Company has duly filed all Federal, state, local,
-----
foreign and other tax returns that are required to be filed and that were due
prior to the Closing Date, and has paid all taxes and assessments shown as being
due pursuant to such returns or pursuant to any assessment received. All taxes
and other assessments and levies that the Company has been required by law to
withhold or to collect have been duly withheld and collected and have been paid
over to the proper governmental authorities or are properly held by the Company
for such payment. There are no proceedings or other actions, nor is there any
basis for any proceedings or other actions, for the assessment or collection of
additional taxes of any kind for any period for which returns have or should
have been filed.
6.16 Subsidiaries. The Company does not own, directly or indirectly, any
------------
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust, joint venture or other legal entity.
6.17 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) there is no Litigation that is pending or, to knowledge of the
Company or either Shareholder, threatened against or related to the Company.
There has been no Default under any Regulation applicable to the Company, the
Assets or the Business, including any Regulation relating to pollution or
protection of the environment, except for any Defaults that have been cured
without material cost or that would not have a Material Adverse Effect, and the
Company has not received any notice from any governmental entity regarding any
alleged Default under any Regulation except those that have been cured without
material cost or that would not have a Material Adverse Effect. There has been
no Default with respect to any Court Order applicable to the Company.
(b) Without limiting the generality of Section 6.17(a), there has not
been any Environmental Condition (i) at any premises at which the Business of
the Company (or any predecessor of the Company) is currently conducted, (ii) at
any property owned, leased or operated at any time by the Company (or any
predecessor of the Company) or any Person controlled by any Affiliate of the
Company, or (iii) at any property at which wastes have been deposited or
disposed by or at the behest or direction of the Company (or any predecessor of
the Company) or any Person controlled by any Affiliate of the Company, nor has
the Company received written notice of any such Environmental Condition.
"Environmental Condition" means any condition or circumstance, including the
presence of Hazardous Substances, whether created by the Company (or any
predecessor of the Company) or any third party, at or relating to any such
property or premises that would (i) require abatement or correction under an
Environmental Law, (ii) give rise to any civil or criminal liability under an
Environmental Law, or (iii) create a public or private nuisance. "Environmental
Law" means all Regulations and Court Orders relating to pollution or protection
of the environment as well as any principles of common law under which a Person
may be held liable for the release or discharge of any materials into the
environment.
-12-
<PAGE>
(c) The Company has delivered to the Buyer correct and complete
copies of any written reports, studies or assessments in the possession or
control of the Company or either Shareholder that relate to any Environmental
Condition. Neither the Company nor any Shareholder knows of any other written
reports, studies or assessments, whether or not in the possession or control of
the Company or either Shareholder, that relate to any Environmental Condition.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) the Company has obtained and is in full compliance with all
Permits, all of which are listed on the Disclosure Letter along with their
respective expiration dates, that are required for the ownership of the Assets
or operation of the Business and Assets as currently operated by the Company,
(ii) all of the Permits are currently valid and in full force and (iii) the
Company has filed such timely and complete renewal applications as may be
required with respect to its Permits. To the knowledge of the Company and each
Shareholder, no revocation, cancellation or withdrawal of a Permit has been
threatened.
6.18 Contracts.
---------
(a) The Disclosure Letter lists each Contract of the following types
to which the Company is a party or by which it is bound:
(i) Contracts with any present or former stockholder, director,
officer, employee, partner or consultant or with any Affiliate of
either Shareholder;
(ii) Contracts for the purchase of, or payment for, supplies or
products, or for the performance of services, from or by a third
party, in excess of $10,000 with respect to any one supplier or other
party;
(iii) Contracts to sell or supply products, inventory or other
property to, or to perform services for, a third party, that involve
an amount in excess of $10,000 with respect to any one customer or
other party;
(iv) Contracts to sell any product or provide any service to a
governmental or regulatory body;
(v) Contracts limiting or restraining it from engaging or
competing in any lines or business with any Person;
(vi) Contracts with any customer providing for a volume refund,
retrospective price adjustment or price guarantee;
(vii) Contracts to lease to or to operate for any other party
any asset that involve an amount in excess of $10,000 in any
individual case (other than Real Estate Leases and Personal Property
Leases identified on the Disclosure Letter);
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<PAGE>
(viii) Any notes, debenture, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or
lending of money (including loans to or from officers, directors,
partners or stockholders or with Affiliates of either Shareholder or
any members of his immediate family), or agreements or arrangements
for a line of credit or for a guarantee of, or other undertaking in
connection with, the indebtedness of any other Person;
(ix) Contracts creating or recognizing any Encumbrances with
respect to any Assets;
(x) Contracts with distributors, manufacturers sales
representatives or other sales agents;
(xi) Contracts which relate in whole or in part to any software,
technical assistance or other know-how or other Intellectual Property
right;
(xii) Contracts for any capital expenditure or leasehold
improvement in excess of $10,000; and
(xiii) Any other Contracts (other than those that may be
terminated on not more than 30 days' notice without Liability and
those described in any of (i) through (xii) above) not made in the
ordinary course of business or which are material to the Business or
the assets.
(b) The Company is not in Default under any Contract. To the
knowledge of the Company and each Shareholder, the Company has not received any
communication from, or given any communication to, any other party indicating
that the Company or such other party, as the case may be, is in Default under
any Contract. To the knowledge of the Company and each Shareholder, none of the
other parties to any such Contract to which the Company is a party is in Default
thereunder.
6.19 Insurance. The Disclosure Letter lists all policies or binders of
---------
insurance held by or on behalf of the Company or relating to the Business or any
of the Assets, specifying with respect to each policy the insurer, the type of
insurance, the amount of the coverage, insured, the expiration date, the policy
number and any pending claims thereunder. There is no Default with respect to
any such policy or binder, nor has there been any failure to give any notice or
present any claim under any such policy or binder in a timely fashion or in the
manner or detail required by the policy or binder, except for any of the
foregoing that would not, individually or in the aggregate, have a Material
Adverse Effect. There is no notice of nonrenewal or cancellation with respect
to, or disallowance of any claim under, any such policy or binder that has been
received by the Company, except for any of the foregoing that would not,
individually or in the aggregate, have a Material Adverse Effect.
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<PAGE>
6.20 Intellectual Property and Software Products. The Company neither
-------------------------------------------
currently uses nor has it previously used in the operation of its Business
(including in the development or marketing of products and services) any
Copyright, Patent or Trademark except for those listed on the Disclosure Letter.
Except as listed in the Disclosure Letter, the Company owns or has the lawful
right to use all Intellectual Property that is used or has been used in the
operation of its Business. All of the Intellectual Property listed in the
Disclosure Letter is owned by the Company free and clear of any Encumbrances,
or is used pursuant to an agreement that is described in the Disclosure Letter.
The Company does not infringe upon or unlawfully or wrongfully use any
Intellectual Property rights owned or claimed by another Person. The Company is
not in Default, nor has it received any notice of any claim of infringement or
any other claim or proceeding, with respect to any such Intellectual Property.
No current or former employee of the Company and no other Person owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, and including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
6.21 Employee Relations.
------------------
(a) Except as described in the Disclosure Letter, the Company is not
(a) a party to or otherwise bound by any collective bargaining or other type of
union agreement, (b) a party to, involved in or, to the knowledge of the Company
or either Shareholder, threatened by, any labor dispute or unfair labor practice
charge, or (c) currently negotiating any collective bargaining agreement, and
the Company has not experienced any work stoppage during the last three years.
The Disclosure Letter sets forth the names and current annual salary rates or
current hourly wages of all present employees of the Company.
(b) The Company is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. There are no
outstanding claims against the Company (whether under Regulation, Contract,
policy, or otherwise) asserted by or on behalf of any present or former employee
or job applicant of the Company on account of or for (i) overtime pay, other
than overtime pay for work done in the current payroll period, (ii) wages or
salary for any period other than the current payroll period, (iii) any amount of
vacation pay or pay in lieu of vacation time off, other than vacation time off
or pay in lieu thereof earned in or in respect of the current fiscal year, (iv)
any amount of severance pay or similar benefits, (v) unemployment insurance
benefits, (vi) workers' compensation or disability benefits, (vii) any violation
of any statute, ordinance, order, rule or regulation relating to plant closings,
employment terminations or layoffs, including but not limited to The Workers
Adjustment and Retraining Act, (viii) any violation of any statute, ordinance,
order, rule or regulations relating to employee "whistleblower" or "right-to-
know" rights and protection, (ix) any violation of any statute, ordinance,
order, rule or regulations relating to the employment obligations of federal
contractors or subcontractors or (x) any violation of any Regulation relating to
minimum wages or maximum hours of work, and neither the Company nor either
Shareholder is aware of any such claims which have not been asserted. No Person
(including any governmental body) has asserted or threatened any claims against
the Company under or arising out of any Regulation relating to discrimination or
occupational safety
-15-
<PAGE>
in employment or employment practices.
6.22 ERISA.
-----
(a) The Disclosure Letter contains a complete list of all Benefit
Plans sponsored or maintained by the Company or under which the Company may be
obligated. The Company has delivered to the Buyer, to the extent applicable,
(i) accurate and complete copies of all Benefit Plan documents and all other
material documents relating thereto, including all summary plan descriptions,
summary annual reports and insurance contracts, (ii) accurate and complete
detailed summaries of all unwritten Benefit Plans, (iii) accurate and complete
copies of the most recent financial statements and actuarial reports with
respect to all Benefit Plans for which financial statements or actuarial reports
are required or have been prepared and (iv) accurate and complete copies of all
annual reports for all Benefit Plans (for which annual reports are required)
prepared within the last three years. Each Benefit Plan providing benefits that
are funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the Benefit Plan in the Disclosure Letter.
(b) All Benefit Plans conform (and at all times have conformed) to,
and are being administered and operated (and at all times have been administered
and operated) in material compliance with, the requirements of ERISA, the Code
and all other applicable Regulations. All returns, reports and disclosure
statements required to be made under ERISA and the Code with respect to all
Benefit Plans have been timely filed or delivered. There have not been any
"prohibited transactions," as such term is defined in Section 4975 of the Code
or Section 406 of ERISA involving any of the Benefit Plans, that could subject
the Company to any penalty or tax imposed under the Code or ERISA.
(c) Any Benefit Plan that is intended to be qualified under Section
401(a) of the Code and exempt from tax under Section 501(a) of the Code has been
determined by the Internal Revenue Service to be so qualified, and such
determination remains in effect and has not been revoked. To the knowledge of
the Company or either Shareholder, nothing has occurred since the date of any
such determination that would affect adversely such qualification or exemption,
or result in the imposition of excise taxes or income taxes on unrelated
business income under the Code or ERISA with respect to any Benefit Plan.
(d) The Company does not have a defined benefit plan subject to Title
IV of ERISA, nor does it have a current or contingent obligation to contribute
to any multiemployer plan (as defined in Section 3(37) of ERISA). The Company
does not have any liability with respect to any employee benefit plan (as
defined in Section 3(3) of ERISA) other than with respect to the Benefit Plans.
For purposes of this Section 7.22(d), the term "Company" shall include any
corporation that is a member of any controlled group of corporations (as defined
in Section 414(b) of the Code) that includes the Company, any trade or business
(whether or not incorporated) that is under common control (as defined in
Section 414(c) of the Code) with the Company, any organization (whether or not
incorporated) that is a member of an affiliated service group (as defined in
Section 414(m) of the Code) that includes the Company and any other entity
-16-
<PAGE>
required to be aggregated with the Company pursuant to the regulations issued
under Section 414(o) of the Code.
(e) There are no pending or, to the knowledge of the Company or
either Shareholder, threatened claims by or on behalf of any Benefit Plans, or
by or on behalf of any individual participants or beneficiaries of any Benefit
Plans, alleging any breach of fiduciary duty on the part of either Company or
any of its officers, directors or employees under ERISA or any other applicable
Regulation, or claiming benefit payments other than those made in the ordinary
operation of such plans, nor is there, to the knowledge of the Company or the
Shareholder, any basis for any such claim. To the knowledge of the Company or
either Shareholder, the Benefit Plans are not the subject of any investigation,
audit or action by the Internal Revenue Service, the Department of Labor or the
Pension Benefit Guaranty Corporation ("PBGC").
(f) The Company has made all required contributions under its Benefit
Plans, including the payment of any premiums payable to the PBGC and other
insurance premiums on a timely basis, or such contributions are properly accrued
on the Company's Financial Statements.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan"),
(i) each Welfare Plan for which contributions are claimed as deductions under
any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the material requirements of Section 4980B of the
Code, ERISA, Title XXII of the Public Health Service Act and the applicable
provisions of the Social Security Act, and (iv) all Welfare Plans may be amended
or terminated by the Company at any time on or after the Closing Date.
6.23 Absence of Certain Changes. Except as contemplated by this Agreement,
--------------------------
since the Balance Sheet Date, except as mutually agreed, the Company has
conducted its Business in the ordinary course and there has not been with
respect to the Company:
(a) any material adverse change in its Business, Assets or
Liabilities;
(b) any change or amendment in its Charter Documents;
(c) any distribution or payment declared or made in respect of its
capital stock by way of dividend, purchase or redemption of shares or otherwise;
(d) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in any
employment or consulting arrangement;
-17-
<PAGE>
(e) any sale, assignment or transfer of any material Assets, or any
additions to or transactions involving any material Assets, other than those
made in the ordinary course of business;
(f) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held;
(g) any payment to any Affiliate of the Company;
(h) any change in the accounting policies followed by the Company or
the method of applying such principles; or
(i) any capital expenditure commitment involving in any individual
case, or series of related cases, more than (i) $25,000 or (ii) an amount that
would cause the sum of all such capital expenditure commitments to exceed
$50,000.
6.24 Customers. The Company has used its reasonable business efforts to
---------
maintain and currently maintains, good working relationships with all of its
customers. The Disclosure Letter contains a list of the names of each of the
five customers that, for the year ended December 31, 1995, were the largest
dollar volume customers of products and services sold and provided by the
Company. None of such customers has given the Company notice terminating,
cancelling or threatening to terminate or cancel any Contract or relationship
with the Company.
6.25 Finder's Fees. Except for Advest, Inc., whose fee will be paid by the
-------------
Company, no Person retained by the Company or either Shareholder is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
6.26 Purchase for Investment. The Company or its designees are acquiring
-----------------------
the Shares for investment purposes only and neither is acquiring them with an
intent to distribute or resell them in violation of applicable Federal or state
securities laws.
6.27 Additional Information. The Disclosure Letter accurately lists the
----------------------
following:
(a) the names of all officers and directors of the Company;
(b) the names and addresses of every bank or other financial
institution in which the Company maintains an account (whether checking, saving
or otherwise), lock box or safe deposit box, and the account numbers and names
of the Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of the Company;
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<PAGE>
(d) the names of all Persons holding powers of attorney from the
Company and a summary statement of the terms thereof; and
(e) all names under which the Company has conducted any Business or
which it has otherwise used at any time during the past five years.
6.28 Transactions with Affiliates. No affiliate of any Shareholder or any
----------------------------
member of his immediate family, owns or has a controlling ownership interest in
any corporation or other entity that is a party to any Contract with respect to
the Assets or Business.
6.29 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Company
or either Shareholder in this Agreement, the Disclosure Letter, the Exhibits to
this Agreement, any other Transaction Document or in any of the documents,
certificates and instruments delivered or to be delivered by the Company or
either Shareholder pursuant to this Agreement and the Company and each
Shareholder have not omitted to state any fact necessary to make statements made
herein or therein not materially misleading.
7. Representations and Warranties of the Buyer. The Buyer hereby represents
-------------------------------------------
and warrants to the Company and each Shareholder as follows:
7.1 Corporate Status and Organization. The Buyer is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. The Buyer has the requisite power and authority to execute and
deliver the Transaction Documents to which it is a party and to perform the
Transactions to be performed by it thereunder, and such execution, delivery and
performance by it have been duly authorized by all necessary corporate action.
7.2 Enforceability. The Transaction Documents to which the Buyer is a
--------------
party constitute valid and binding obligations of the Buyer, enforceable against
it in accordance with their terms.
7.3 Consents and Approvals. Neither the execution and delivery by the
----------------------
Buyer of the Transaction Documents to which it is a party, nor the performance
of the Transactions to be performed by it thereunder, will require any filing,
consent or approval or constitute a Default under (a) any Regulation or Court
Order to which it is subject, (b) its Charter Documents or bylaws or (c) any
Contract, Permit or other document to which it is a party or by which its
properties or other assets may be subject.
7.4 Stock Ownership; Valuation. The total authorized capital stock of the
--------------------------
Buyer consists of 200,000,000 shares of Buyer Common Stock (of which 8,510,000
shares are issued and outstanding) and 5,000,000 shares of preferred stock, par
value $.01 per share (of which no shares are outstanding). All of the shares
are duly and validly authorized and issued, fully paid and non-assessable. Upon
completion of the Transactions at the Closing, the Company or its designees
shall receive valid title to all of the Shares, free and clear of all
Encumbrances (other
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<PAGE>
than restrictions imposed generally by applicable securities laws).
7.5 Finder's Fees. No Person retained by the Buyer is or will be entitled
-------------
to any commission or finder's or similar fee in connection with the
Transactions, except for Legg Mason Wood Walker, Inc., which fee shall be paid
by Buyer.
7.6 Full Disclosure. There are and will be no materially misleading
---------------
misstatements in any of the representations and warranties made by the Buyer in
this Agreement or in any of the documents, certificates and instruments
delivered or to be delivered by the Buyer pursuant to this Agreement and the
Buyer has not omitted to state any fact necessary to make statements made herein
or therein not materially misleading.
8. Certain Agreements.
------------------
8.1 Access. Between the date of this Agreement and the Closing Date, the
------
Company shall (a) give Buyer and its authorized representatives and legal
counsel reasonable access to all properties, books, Contracts, Assets and
records of the Company, (b) permit Buyer to make inspections thereof, and (c)
cause its officers and its advisors to furnish the Buyer with such financial and
operating data and other information with respect to the Business of the Company
and to discuss with the Buyer and its authorized representatives and legal
counsel the affairs of the Company, all as Buyer may from time to time
reasonably request.
8.2 Regulatory Matters. The Company and the Buyer shall (a) file with
------------------
applicable regulatory authorities any applications and related documents
required to be filed by them in order to consummate the Transactions and (b)
cooperate with each other as they may reasonably request in connection with the
foregoing.
8.3 Exclusivity. From the date hereof until the earlier of the Closing or
-----------
the termination of this Agreement, neither the Company nor either Shareholder or
any of their respective agents shall, directly or indirectly, solicit or
negotiate or enter into any agreement with any other Person, or provide any
nonpublic information to any other Person, with respect to or in furtherance of
any proposal for a merger or business combination involving, or acquisition of
any interest in, or (except in the ordinary course of business) sale of assets
by, the Company, except for the acquisition of the Purchased Assets by Buyer.
8.4 Update Disclosure Letter. Between the date hereof and the Closing
------------------------
Date, the Company and the Shareholders shall promptly disclose to Buyer in
writing any information set forth in the Disclosure Letter which is no longer
applicable and any information of the nature of that set forth in the Disclosure
Letter which arises after the date hereof and which would have been required to
be included in the Disclosure Letter if such information had been obtained on
the date of delivery thereof.
8.5 Best Efforts. Each party shall use their best efforts to cause all
------------
conditions to the performance of the parties hereto that are within its control
to be satisfied and the Transactions
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<PAGE>
consummated within 90 days after the date of this Agreement.
8.6 Financial Information. Until the Closing, the Company shall provide
---------------------
the Buyer, within 15 days after the end of each month, with an unaudited
consolidated balance sheet and income statement of the Company as of and for the
month then ended, prepared on the same basis as the interim financial statements
referred to in Section 7.5, and certified as such by the chief financial officer
of the Company.
8.7 Restrictive Covenants.
---------------------
(a) Each Shareholder covenants that for the period ending five years
after the Closing Date, he will not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a partner, principal,
agent, representative, consultant or otherwise with or use or permit his name to
be used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Buyer at any time
during such period within any portion of the United States in the direct
marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Restricted Business"). It is recognized by the Buyer and each Shareholder that
the Restricted Business is, and is expected to continue to be, conducted
throughout the United States and that more narrow geographical limitations of
any nature on this non-competition covenant (and the non-solicitation covenant
set forth in Section 8.7(b)) are therefore not appropriate. The foregoing
restriction shall not be construed to prohibit the ownership by a Shareholder as
a passive investment of not more than five percent (5%) of any class of
securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
(b) Each Shareholder further covenants that for the period ending
five years after the Closing Date, he will not, either directly or indirectly,
(i) call on or solicit any Person who or which within the past two years has
been a customer with respect to the Restricted Business with respect to the
activities prohibited by Section 8.7(a) or (ii) solicit the employment of any
person who is employed by the Buyer during such period on a full or part-time
basis.
(c) Each Shareholder recognizes and acknowledges that by reason of
his ownership of and employment by the Company he has had access to Confidential
Information relating to the Restricted Business. Each Shareholder acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the Closing
Date to any person for any reason whatsoever, unless such information (a) is in
the public domain through no wrongful act of such Shareholder, (b) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (c) except as may be required by law.
(d) Each Shareholder acknowledges that the restrictions contained in
this Section 8.7 are reasonable and necessary to protect the legitimate
interests of the Buyer, and that any
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<PAGE>
violation will result in irreparable injury to the Buyer.
(e) Each Shareholder agrees that the Buyer shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 8.7, which rights
shall be cumulative and in addition to any other rights or remedies to which the
Buyer may be entitled. In the event that any of the provisions of this Section
8.7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) The covenants set forth in this Section 8 shall be in addition to
and not in limitation of any similar covenants set forth in any employment
agreement between the Buyer or any of its Affiliates and either Shareholder.
8.8 Required Consents. The Company and each Shareholder shall use their
-----------------
best efforts to take, or cause to be taken, such action to execute and deliver,
or cause to be executed and delivered, such additional documents and instruments
and to do, or cause to be done, all things necessary, proper or advisable to
obtain the Required Consents.
8.9 Release of Personal Guarantees. The Buyer shall cause all obligations
-------------------------------
of the Company which have been guaranteed by any Shareholder to either be
retired or use its best efforts to arrange to have such guarantees released;
provided, however, to the extent that the Company and the Buyer are unable to
- -------- -------
effectuate any such release, Buyer shall indemnify and holds harmless each
Shareholder from and against any liabilities, claims, demands, judgments,
losses, costs, damages or expenses whatsoever (including reasonable attorneys'
fees and disbursements incurred by them in connection therewith) that he may
sustain, suffer or incur and that result from, arise out of or relate to such
guarantees.
8.10 Maintenance of Company Sub. The Buyer shall cause the Purchased
--------------------------
Assets to be held and operated by the Company Sub through at least December 31,
1996 except for such additions and deletions which shall occur in the ordinary
course of business.
8.11 Board of Directors. At or prior to the consummation of the Initial
------------------
Public Offering, CRW shall cause William F. Rhatigan to be nominated to the
Buyer's board of directors and will vote its shares of Buyer Common Stock to
elect Mr. Rhatigan to such board at such time.
8.12 CRW Market Research. On or prior to the Closing, CRW shall wind sown
-------------------
the operation of its Market Research Division and use its best efforts to make
available the employees of such division for employment with The Response Center
Inc., an Initial Target.
-22-
<PAGE>
8.13 Options.
-------
(a) At or after the Closing, the Buyer shall grant options (each
of which shall be exercisable at a price per share equal to the Initial Public
Offering price) under its 1996 Equity Compensation Plan exercisable for at least
an aggregate of 75,000 shares of Buyer Common Stock. Such options shall be
granted to certain employees of the Company Sub (other than Messrs. Gallant and
Rhatigan) and shall be subject to a three-year vesting period.
(b) At the Closing, the Buyer shall grant a warrant to each
Shareholder exercisable for 56,250 shares of Buyer Common Stock and pursuant to
the other terms of the warrant substantially in the form attached as Exhibit
8.13 hereto.
8.14 Employment Agreements. The parties hereto acknowledge that
---------------------
attached as Exhibits B and C hereto are the form of Employment Agreements for
the Shareholders.
8.15 Lock-Up Agreements. In connection with the Initial Public
------------------
Offering, for good and valuable consideration, the Company and each Shareholder
hereby irrevocably agrees that for a period of 360 days after the date of the
effectiveness (the "Effective Date") of the Registration Statement, as the same
may be amended, not to (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of
(except as contemplated in Section 2.7 hereto), directly or indirectly, any
shares of Buyer Common Stock or any securities convertible into or exercisable
or exchangeable for shares of Buyer Common Stock, or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Buyer Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Buyer Common Stock or such other securities, in cash or otherwise without the
prior written consent of J.P. Morgan Securities Inc. Neither the Company nor
either Shareholder, without the prior written consent of J.P. Morgan Securities
Inc., shall exercise any demand, mandatory, piggyback, optional or any other
registration rights, if any such rights exist, for a period of 360 days from the
Effective Date. In furtherance of the foregoing, the Buyer and its transfer
agent, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Section 8.15. The
Company and each Shareholder agree that the foregoing shall be binding upon
their transferees, successors, assigns, heirs, and personal representatives and
shall benefit and be enforceable by the underwriters in the Initial Public
Offering. In furtherance of the foregoing, the Buyer and its transfer agent are
hereby authorized to decline to make any transfer of securities if such transfer
would constitute a violation or breach of this Section 8.15.
8.16 Custody Agreements and Underwriting Representations. In
---------------------------------------------------
addition, in connection with the exercise of the Piggyback Registration rights
set forth in Section 20.3(a) of the Agreement, the Company shall enter into a
customary custody and power of attorney agreement with the underwriters of the
Initial Public Offering and provide such underwriters such representations,
warranties and indemnifications as are customarily given to underwriters by
selling stockholders, including representations in the underwriting agreement
concerning
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<PAGE>
ownership of the Shares to be sold in the Initial Public Offering and the
accuracy of the information concerning the Company presented in the Registration
Statement.
9. Conduct of the Business Prior to the Closing.
--------------------------------------------
9.1 Operation in Ordinary Course. Between the date of this Agreement and
----------------------------
the Closing Date, the Company shall conduct its Business in all material
respects in the ordinary course and to use commercially reasonable efforts to
maintain all current business relationships.
9.2 Business Organization. Between the date of this Agreement and the
---------------------
Closing Date, the Company shall use commercially reasonable efforts, to preserve
substantially intact its business organization and keep available the services
of the present officers and employees of the Company.
9.3 Corporate Organization. Between the date of this Agreement and the
----------------------
Closing Date, the Company shall not amend its Charter Document or bylaws and
shall not:
(a) issue, sell or otherwise dispose of any of its capital stock, or
create, sell or otherwise dispose of any options, rights, conversion rights or
other agreements or commitments of any kind relating to the issuance, sale or
disposition of any of its capital stock;
(b) reclassify, split up or otherwise change its capital stock;
(c) be party to any merger, consolidation or other business
combination;
(d) sell, lease, license or otherwise dispose of any of its Assets
(including, but not limited to rights with respect to its Intellectual
Property), except in the ordinary course of business; or
(e) organize any subsidiary or acquire any equity securities of any
Person or any equity or ownership interest in any business.
9.4 Business Restrictions. Between the date of this Agreement (the
---------------------
Balance Sheet Date with respect to Section 9.4(a)) and the Closing Date, except
as mutually agreed, the Company shall not:
(a) declare, make or pay any dividends or other distributions other
than dividends limited to an amount reasonably estimated to equal the product of
(i) the taxable income of the Company between January 1, 1996 and the Closing
Date multiplied by (ii) the highest individual federal and state income tax
rates;
(b) except in the ordinary course, borrow any funds or otherwise
become subject to, whether directly or by way of guarantee or otherwise, any
indebtedness for borrowed money;
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<PAGE>
(c) create any material Encumbrance on any of its material Assets;
(d) except in the ordinary course of business, increase in any manner
the compensation of any director or officer or increase in any manner the
compensation of any class of employees;
(e) create or materially modify any bonus, deferred compensation,
pension, profit sharing, retirement, insurance, stock purchase, stock option, or
other fringe benefit plan, arrangement or practice or any other employee benefit
plan (as defined in section 3(3) of ERISA);
(f) except as set forth in the Disclosure Letter, make any capital
expenditure or acquire any property or assets (other than raw materials and
supplies) for a cost in excess of $50,000 in any one case or $100,000 in the
aggregate;
(g) enter into any agreement that materially restricts the Company
from carrying on the Business;
(h) cancel any material debts of others or waive any material claims
or rights; or
(i) act or omit from taking any action which would cause any of the
representations and warranties in Section 6 to be inaccurate.
9.5 Duty of Shareholders. The Shareholders shall cause the Company to
--------------------
take or refrain from taking such actions set forth elsewhere in this Section 9.
10. Survival of Representations; Indemnification.
--------------------------------------------
10.1 Survival of Representations, Etc. The representations and warranties
---------------------------------
given by the Company, each Shareholder and the Buyer under this Agreement shall
survive the Closing for a period of two years after the Closing Date, except
that all representations and warranties contained in Sections 6.15 and 6.17
shall survive the Closing for the period of the applicable statute of
limitations plus any extensions or waivers thereof.
10.2 Indemnification by the Shareholders and the Company. The Shareholders
---------------------------------------------------
and the Company, jointly and severally, hereby agree to indemnify and hold
harmless the Buyer, and its successors and assigns, (each, an "Indemnified Buyer
Party") from and against any and all Liabilities, claims, demands, judgments,
settlement payments, losses, costs, damages and expenses whatsoever (including
reasonable attorneys', consultants' and other professional fees and
disbursements of every kind, nature and description incurred by such Indemnified
Buyer Party in connection therewith) (collectively, "Damages") that such
Indemnified Buyer Party may sustain, suffer or incur that result from, arise out
of or relate to (a) any Excluded Liability, (b) any breach of or any inaccuracy
in any representation, warranty, covenant or agreement of the Company or either
Shareholder contained in this Agreement, including any breach of the obligation
to indemnify hereunder, (c) any Liability or obligation of the Company involving
an Environmental Condition or which otherwise relates to, or involves a claim,
Liability or obligation which arises out of or is based upon, any Environmental
Law, to the extent that such
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<PAGE>
Liability or obligation relates to or arises out of, in whole or in part, any
activity occurring, condition existing, omission to act or other matter existing
prior to the Closing Date, or (d) any Liability or obligation of the Company or
either Shareholder involving taxes due and payable by, or imposed with respect
to the Company or either Shareholder for all taxable periods ending on or prior
to the Closing Date (whether or not such taxes have been due and payable).
10.3 Indemnification by the Buyer. The Buyer hereby agrees to indemnify
----------------------------
and hold harmless the Company and the Shareholders (each, an "Indemnified Seller
Party") from and against any Damages that any Indemnified Seller Party may
sustain, suffer or incur that result from, arise out of or relate to (a) any
Assumed Liability or (b) any breach of or inaccuracy in any representation,
warranty, covenant or agreement of the Buyer contained in this Agreement,
including any breach of the obligation to indemnify hereunder.
10.4 Limitation on Liabilities.
-------------------------
(a) Notwithstanding anything in this Agreement to the contrary, an
indemnifying party shall not have any liability to an indemnified party in
respect of any claim for indemnification for the breach of any representation or
warranty contained herein (i) unless a claim with respect thereto is delivered
to the indemnifying party specifying the factual basis of the claim in
reasonable detail to the extent then known by the indemnifying party prior to
the termination of the survival period for such representation and warranty set
forth in Section 10.1 hereof and (ii) until the damages to the indemnified
party, after taking into account Section 10.4(a) hereof, exceed a cumulative
aggregate total of $100,000, but then to the full extent of such Damages.
(b) In addition, the indemnification liability of the Company and the
Shareholders under Section 10.2 of this Agreement shall be limited to an
aggregate of $12,375,000 in the case of any claim or claims for breaches of
representations and warranties of the Company or either Shareholder made herein
or in any other Transaction Document.
10.5 Procedure for Claims.
--------------------
(a) An Indemnified Buyer Party or an Indemnified Seller Party that
desires to seek indemnification under any part of this Section 10 (each, an
"Indemnified Party") shall give notice (a "Claim Notice") to each party
responsible or alleged to be responsible for indemnification hereunder (an
"Indemnitor"). The Indemnified Party shall briefly explain the nature of the
claim and the parties known to be involved, and shall specify the amount
thereof. If the matter to which a claim relates shall not have been resolved as
of the date of the Claim Notice, the Indemnified Party shall estimate the amount
of the claim in the Claim Notice, but also specify therein that the claim has
not yet been liquidated (an "Unliquidated Claim"). If an Indemnified Party
gives a Claim Notice for an Unliquidated Claim, the Indemnified Party shall also
give a second Claim Notice (the "Liquidated Claim Notice") within 60 days after
the matter giving rise to the claim becomes finally resolved, and the Liquidated
Claim Notice shall specify the amount of the claim. Each Indemnitor to which or
whom a Claim Notice is given shall respond (a "Claim Response") to any
Indemnified Party that has given a Claim Notice within 30 days (the "Response
Period") after the later of (i) the date that the Claim Notice is given or (ii)
if a Claim Notice is first given with respect to an Unliquidated Claim, the date
on which the Liquidated
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Claim Notice is given. Any Claim Notice or Claim Response shall be given in
accordance with the notice requirements hereunder, and any Claim Response shall
specify whether or not the Indemnitor giving the Claim Response disputes the
claim described in the Claim Notice. If any Indemnitor fails to give a Claim
Response within the Response Period, such Indemnitor shall be deemed not to
dispute the claim described in the related Claim Notice. If any Indemnitor
elects not to dispute a claim described in a Claim Notice, whether by failing to
give a timely Claim Response or otherwise, then the amount of such claim shall
be conclusively deemed to be an obligation of such Indemnitor.
(b) If any Indemnitor shall be obligated to indemnify an Indemnified
Party hereunder, such Indemnitor shall pay to such Indemnified Party within 30
days after the last day of the applicable Response Period the amount to which
such Indemnified Party shall be entitled. If there shall be a dispute as to the
amount or manner of indemnification under this Section 10, the Indemnitor and
the Indemnified Party shall seek to resolve such dispute through negotiations
and, if such dispute is not resolved within twenty days after the Claim
Response, the Indemnified Party may pursue whatever legal remedies may be
available for recovery of the Damages claimed from any Indemnitor. If any
Indemnitor fails to pay all or part of any indemnification obligation when due,
then such Indemnitor shall also be obligated to pay to the applicable
Indemnified Party interest on the unpaid amount for each day during which the
obligation remains unpaid at an annual rate of 10%.
10.6 Third Party Claims. An Indemnified Party that desires to seek
------------------
indemnification under any part of this Section 10 with respect to any actions,
suits or other administrative or judicial proceedings (each, an "Action") that
may be instituted by a third party shall give each Indemnitor prompt notice of a
third party's institution of such Action. After such notice, any Indemnitor
may, or, if so requested by such Indemnified Party any Indemnitor shall,
participate in such Action or assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Party; provided, however, that such
Indemnified Party shall have the right to participate at its own expense in the
defense of such Action; and provided, further, that the Indemnitor shall not
consent to the entry of any judgment or enter into any settlement, except with
the written consent of such Indemnified Party (which consent shall not be
unreasonably withheld), that (a) fails to include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any such Action or (b) grants the
claimant or plaintiff any injunctive relief against the Indemnified Party. Any
failure to give prompt notice under this Section 10.6 shall not bar an
Indemnified Party's right to claim indemnification under this Section 10, except
to the extent that an Indemnitor shall have been harmed by such failure.
10.7 Exceptions to Limitations. Nothing herein shall be deemed to limit or
-------------------------
restrict in any manner any rights or remedies which the Buyer has, or might
have, at law, in equity or otherwise, against the Company or either Shareholder
based on a willful misrepresentation or willful breach of warranty by the
Company or either Shareholder hereunder.
10.8 Effect of Investigation. Any claim for indemnification shall not be
-----------------------
invalid as a result of any investigation by or opportunity to investigate
afforded to Buyer.
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10.9 Contingent Claims. Nothing herein shall be deemed to prevent an
-----------------
Indemnified Party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the specific basis for
any such potential or contingent claim to the extent then feasible and the
Indemnified Party has reasonable grounds to believe that such a claim or demand
may be made; provided, however, that any such potential or contingent claim or
demand must mature into an actual claim or demand not later than three years
after the Closing Date.
10.10 Set-off. The Company and the Shareholders shall have the right
-------
to set-off any actual principal or interest due to either of them under the
Promissory Note against any amount which may be owing by them pursuant to this
Section 10.
11. Termination.
-----------
11.1 Grounds for Termination. This Agreement may be terminated at any time
-----------------------
prior to the Closing Date:
(a) by mutual written consent of the Buyer and the Company;
(b) by Buyer within 30 days after the date hereof if its due
diligence investigation and review of the Business, the Purchased Assets and the
prospects and obligations of the Company shall not have been completed to its
sole satisfaction;
(c) by the Company or by Buyer, if the Closing has not occurred by
the Termination Date; provided, however, that the right to terminate this
Agreement under this paragraph (c) of Section 11.1 shall not be available to any
party that has breached any of its covenants, representations or warranties in
this Agreement in any material respect (which breach has not been cured);
(d) by the Company or the Buyer, if there shall be any Regulation
that makes consummation of the Transactions illegal or otherwise prohibited or
if any Court Order enjoining the Company or the Buyer from consummating the
Transactions is entered and such Court Order shall become final and
nonappealable;
(e) by the Buyer, if the Company shall have breached any of its
covenants hereunder or if the representations and warranties of the Company
contained in this Agreement or in any certificate or other writing delivered by
the Company pursuant hereto shall not be true and correct in any material
respect, except for such changes as are contemplated by this Agreement, and, in
either event, if such breach is subject to cure, the Company has not cured such
breach within 10 business days of the Buyer's notice of an intent to terminate;
(f) by the Company, if the Buyer shall have breached any of its
covenants hereunder or if the representations and warranties of the Buyer
contained in this Agreement or in any certificate or other writing delivered by
the Buyer pursuant hereto shall not be true and correct, except for such changes
as are contemplated by this Agreement, and, in either event, if such breach is
subject to cure, the Buyer has not cured such breach within 10 business days of
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the Company's notice of an intent to terminate.
(g) by the Company in the event that filing of the Registration
Statement has not occurred by August 31, 1996, unless any delay in meeting such
filing date resulted from failure or inability of the Company or the
Shareholders to provide financial or other information necessary to enable such
filing by such date.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
Section 11.1, any party may pursue any legal or equitable remedies that may be
available if such termination is based on a breach of another party.
12. Payment of Expenses. Each party hereto shall pay their own expenses for
-------------------
lawyers, accountants, consultants, investment bankers, brokers, finders and
other advisors with respect to the Transactions; provided, however, that the
-------- -------
Buyer shall pay the expenses incurred by the Company's independent public
accounting firm in connection with the Transactions and up to $100,000 of the
Companies' legal expenses if the Transactions are consummated.
13. Contents of Agreement. This Agreement, together with the other Transaction
---------------------
Documents, sets forth the entire understanding of the parties hereto with
respect to the Transactions and supersedes all prior agreements or
understandings among the parties regarding those matters.
14. Amendment, Parties in Interest, Assignment, Etc. This Agreement may be
------------------------------------------------
amended, modified or supplemented only by a written instrument duly executed by
each of the parties hereto. If any provision of this Agreement shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
heirs, legal representatives, successors and permitted assigns of the parties
hereto. Any term or provision of this Agreement may be waived at any time by
the party entitled to the benefit thereof by a written instrument duly executed
by such party. The parties hereto shall execute and deliver any and all
documents and take any and all other actions that may be deemed reasonably
necessary by their respective counsel to complete the Transactions.
15. Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (a) references to the plural include the singular, the singular the
plural, and the part the whole, (b) "or" has the inclusive meaning frequently
identified with the phrase "and/or" and (c) "including" has the inclusive
meaning frequently identified with the phrase "but not limited to." The section
and other headings contained in this Agreement are for reference purposes only
and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and
exhibit references are to this Agreement unless otherwise specified. Each
accounting term used herein that is not specifically defined herein shall have
the meaning given to it under GAAP.
16. Remedies. The remedies provided by Section 10 shall constitute the
--------
exclusive remedies for the matters covered thereby. With respect to any matters
not covered by such Section, any party shall be entitled to such rights and
remedies as such party may have at law or in equity or otherwise for any breach
of this Agreement, including the right to seek specific performance,
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<PAGE>
rescission or restitution, none of which rights or remedies shall be affected or
diminished by the remedies provided hereunder.
17. Notices. All notices that are required or permitted hereunder shall be in
-------
writing and shall be sufficient if personally delivered or sent by mail,
facsimile message or Federal Express or other delivery service. Any notices
shall be deemed given upon the earlier of the date when received at, or the
third day after the date when sent by registered or certified mail or the day
after the date when sent by Federal Express to, the address or fax number set
forth below, unless such address or fax number is changed by notice to the other
party hereto given in accordance with the foregoing notice procedures:
If to the Buyer or CRW:
443 S. Gulph Road
King of Prussia, PA 19406
FAX: 610-962-5109
Attention: J. Brian O'Neill, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
FAX: 215-963-5299
Attention: Stephen M. Goodman, Esquire
If to the Company or any Shareholder:
NBG Services, Inc.
1 Broadway
12th Floor
Cambridge, MA 02142
FAX: 617-576-6141
Attention: William F. Rhatigan or
Michael J. Gallant (as applicable)
with a required copy to:
Abrams, Roberts, Klickstein & Levy
265 Franklin Street
Boston, MA 02110
FAX: 617-261-1566
Attention: Barry C. Klickstein, Esquire
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<PAGE>
18. Governing Law. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
its provisions concerning conflict of laws.
19. Consent to Jurisdiction; Service of Process, etc.
-------------------------------------------------
(a) Each party hereto irrevocably and unconditionally (i) agrees that
any suit, action or other legal proceeding (collectively, "Suit") arising out of
this Agreement may be brought and adjudicated in the United States District
Court for the Eastern District of Pennsylvania or the District of Massachusetts,
(ii) consents and submits to the non-exclusive jurisdiction of any such court
for the purposes of any such Suit and (iii) waives and agrees not to assert by
way of motion, as a defense or otherwise in any such Suit, any claim that it or
he is not subject to the jurisdiction of the above courts, that such Suit is
brought in an inconvenient forum or that the venue of such Suit is improper.
(b) Each party hereto also irrevocably consents to the service of any
process, pleadings, notices or other papers in a manner permitted by the notice
provisions of Section 17 or by any other method provided or permitted under
applicable law. Each party hereto agrees that final judgment in any Suit (with
all right of appeal having either expired or been waived or exhausted) shall be
conclusive and that the Buyer shall be entitled to enforce such judgment in any
other jurisdiction of the world by suit on the judgment, a certified or
exemplified copy of which shall be conclusive evidence of the fact and amount of
indebtedness arising from such judgment.
20. Securities Law Matters.
----------------------
20.1 Economic Risk; Sophistication.
-----------------------------
(a) The Company and each Shareholder represents and warrants that it
or he has not relied on any purchaser representative, or on the Buyer or any
other Shareholder, in connection with the acquisition of shares of Buyer Common
Stock hereunder. The Company and each Shareholder (i) has such knowledge,
sophistication and experience in business and financial matters that it or he is
capable of evaluating the merits and risks of an investment in the shares of
Buyer Common Stock, (ii) fully understands the nature, scope and duration of the
limitations on transfer contained in this Agreement and (iii) can bear the
economic risk of an investment in the shares of Buyer Common Stock and can
afford a complete loss of such investment. The Company and each Shareholder
have had an adequate opportunity to ask questions and receive answers from the
officers of the Buyer concerning any and all matters relating to the
transactions described herein including without limitation the background and
experience of the officers and directors of the Buyer, the plans for the
operations of the business of the Buyer, the business, operations and financial
condition of the Buyer, and any plans for additional acquisitions and the like.
The Company and the Shareholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
(b) The Company and each Shareholder further represents, warrants,
acknowledges and agrees that he or it (i) is acquiring the shares of Buyer
Common Stock under this Agreement for its or his own account, as principal and
not on behalf of other persons, and for investment
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<PAGE>
and not with a view to the resale or distribution of all or any part of such
shares and (ii) will not sell or otherwise transfer such shares unless, in the
opinion of counsel who is satisfactory to the Company, the transfer can be made
without violating the registration provisions of the 1933 Act, as amended, and
the rules and regulations promulgated thereunder.
(c) The Company and each Shareholder acknowledge that it or he has
carefully reviewed the prospectus contained in the draft of the Registration
Statement dated May 17, 1996 delivered to it or him by the Buyer on or about May
18, 1996 and has had the opportunity to discuss with the Buyer any questions or
comments it or he has with respect to such prospectus.
20.2 Restriction on Resale. The certificates evidencing the Buyer Common
---------------------
Stock to be received by the Shareholders hereunder will bear a legend
substantially in the form set forth below and containing such other information
as the Buyer may deem appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY
STATE SECURITIES OR BLUE SKY LAWS. SUCH SHARES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE 1933 ACT AND ANY STATE SECURITIES OR BLUE SKY
LAWS, UNLESS, IN THE OPINION (WHICH SHALL BE IN FORM AND SUBSTANCE
SATISFACTORY TO THE CORPORATION) OF COUNSEL SATISFACTORY TO THE
CORPORATION, SUCH REGISTRATION IS NOT REQUIRED.
In addition, such certificates shall also bear such other legends as counsel for
the Buyer reasonably determines are required under the applicable laws of any
state.
20.3 Piggyback Registration.
----------------------
(a) Right to Piggyback.
------------------
(i) In connection with the Initial Public Offering, the
Company may include in the Registration Statement such number of the Company's
Registrable Securities with an aggregate fair market value of $5,000,000 (based
on the Initial Public Offering price). No other Person shall have the right to
include any Registrable Securities in the Initial Public Offering pursuant to
this Section 20.3(a).
(ii) At any time after the Initial Public Offering, whenever
Buyer proposes to register any Buyer Common Stock under the Securities Act of
1933, as amended, and the registration form to be used may be used for the
registration of Registrable Securities (such registration, together with the
registration identified in Section 20.3(a)(i), a "Piggyback Registration"), the
Buyer will give prompt written notice to all holders of Registrable Securities
and will include in such Piggyback Registration, subject to the allocation
provisions below, all
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Registrable Securities with respect to which the Buyer has received written
requests for inclusion within 20 days after the Buyer's mailing of such notice.
(b) Piggyback Expenses. In all Piggyback Registrations, the Buyer
------------------
will pay the Registration Expenses related to the Registrable Securities of the
Selling Stockholders, but the Selling Stockholders will pay the underwriting
commissions related to their Registrable Securities.
(c) Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
is an underwritten primary registration on behalf of the Buyer, and the managing
underwriters advise the Buyer in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Buyer will allocate the securities to be included as follows: first, the
securities the Buyer proposes to sell on its own behalf; and second, Registrable
Securities requested to be included in such registration by the Selling
Stockholders, pro rata on the basis of the respective Registrable Securities
owned among the Selling Stockholders.
(d) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is initiated as an underwritten secondary registration on behalf of holders of
the Buyer's securities and the managing underwriters advise the Buyer in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering, at a price
reasonably related to fair value, the Buyer will allocate the securities to be
included on a pro rata basis, based on the number of Registrable Securities
owned among the Selling Stockholders.
(e) Selection of Underwriters. The selection of investment banker(s)
-------------------------
and manager(s) and the other decisions regarding the underwriting arrangements
for any offering will be made by the Buyer.
(f) Indemnification. The Buyer shall indemnify, to the extent
---------------
permitted by law, each Selling Stockholder against all losses, claims, damages,
liabilities and expenses arising out of or resulting from any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or associated term sheet or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as the
same are caused by or contained in any information furnished in writing to the
Buyer by such Selling Stockholder expressly for use therein.
(g) Information. In connection with any registration statement in
-----------
which a Selling Stockholder is participating, each such holder will furnish to
the Buyer in writing such information as is reasonably requested by the Buyer
for use in any such registration statement or prospectus and will indemnify, to
the extent permitted by law, the Buyer, its directors and officers and each
person who controls the Buyer (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged omission of
a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such holder
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<PAGE>
specifically for use in preparing the registration statement.
21. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be binding as of the date first written above, and all of
which shall constitute one and the same instrument. Each such copy shall be
deemed an original, and it shall not be necessary in making proof of this
Agreement to produce or account for more than one such counterpart.
22. Definitions.
-----------
"Acquisition Base" is defined in Section 2.8.
"Acquisition Stock Value" is defined in Section 2.7.
"Acquisition Transactions" is defined in Section 2.8.
"Action" is defined in Section 10.6.
"Additional Closing Payment" is defined in Section 2.7.
"Additional Targets" is defined in Section 2.8.
"Affiliates" means, with respect to a particular party, persons or entities
controlling, controlled by or under common control with that party, as well as
the officers, directors and majority-owned entities of that party and of its
other Affiliates.
"Agreement" means this agreement and the exhibits hereto.
"Annual Financial Statements" is defined in Section 6.5.
"Assets" means all of the assets, properties, goodwill and rights of every
kind and description, real and personal, tangible and intangible (including
goodwill), wherever situated and whether or not reflected in the most recent
Financial Statements, that are owned or possessed by the Company.
"Audited Financial Statements" is defined in Section 4.7.
"Assumed Liabilities" is defined in Section 2.3.
"Balance Sheet Date" is defined in Section 2.5.
"Benefit Plans" means all employee benefit plans of the Company within the
meaning of Section 3(3) of ERISA and any related or separate Contracts, plans,
trusts, programs, policies, arrangements, practices, customs and understandings,
in each case whether formal or informal, that provide benefits of economic value
to any present or former employee of the Company, or present or former
beneficiary, dependent or assignee of any such employee or former employee,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, medical, disability, share purchase or other similar plans,
policies, programs, practices or
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arrangements.
"Business" means the entire existing business and the operations,
facilities and other Assets of the Company.
"Buyer" is defined above in the preamble.
"Buyer Common Stock" is defined in Section 2.7.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Claim Notice" is defined in Section 10.5.
"Claim Response" is defined in Section 10.5.
"Closing" is defined in Section 3.1.
"Closing Date" means the date of the Closing.
"Closing Date Balance Sheet" is defined in Section 2.6.
"Closing Purchase Price" is defined in Section 2.7.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" is defined the preamble.
"Company Balance Sheet" is defined in Section 6.5.
"Company Sub" is defined in Section 2.7.
"Confidential Information" means any confidential information or trade
secrets of the Business, including, without limitation, information and
knowledge pertaining to products and services offered, innovations, designs,
ideas, plans, trade secrets, proprietary information, know-how and other
technical information, advertising, distribution and sales methods and systems,
sales and profit figures, customer and client lists, and relationships with
dealers, distributors, wholesalers, customers, clients, suppliers and others who
have business dealings with the Business.
"Contingent Payment" means the amount, if any, payable by Buyer under the
Promissory Note.
"Contract" means any written or oral contract, agreement, lease, plan,
instrument or other document or commitment, arrangement, undertaking, practice
or authorization that is or may be
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<PAGE>
binding on any Person or its property under applicable law.
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Court Order" means any judgment, decree, injunction, order or ruling of
any Federal, state, local or foreign court or governmental or regulatory body or
arbitrator or authority that is binding on any Person or its property under
applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of
an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration.
"Disclosure Letter" is defined in Section 6.
"Effective Date" is defined in Section 8.15.
"Employment Agreement" means the Employment Agreement between the Buyer and
each Shareholder entered into as of the Closing Date.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability or voting, defect of title or other claim, charge
or encumbrance of any nature whatsoever on any property or property interest.
"Environmental Condition" is defined in Section 6.17(b).
"Environmental Law" is defined in Section 6.17(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" is defined in Section 2.2.
"Excluded Liabilities" is defined in Section 2.4.
"Financial Statements" is defined in Section 6.5.
"GAAP" means United States generally accepted accounting principles.
"Hazardous Substances" means (i) any gasoline, fuel oil or any other
petroleum products, explosives, alcohols or chemical solvents or polychlorinated
biphenyls, (ii) any substance, waste, material or product defined as hazardous,
radioactive, extremely hazardous or toxic under any Environmental Law, and
(iii) asbestos, asbestos-containing substances or urea formaldehyde insulation.
"Immaterial Leases" is defined in Section 6.9.
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"Indemnified Party" is defined in Section 10.5.
"Indemnified Buyer Party" is defined in Section 10.2.
"Indemnified Seller Party" is defined in Section 10.3.
"Indemnitor" is defined in Section 10.5.
"Independent Accounting Firm" is defined in Section 2.6.
"Initial Public Offering" is defined in Section 2.8.
"Initial Targets" is defined in Section 2.8.
"Intellectual Property" means any Copyrights, Patents, Trademarks, know-
how, trade secrets (including, without limitation, all results of research and
development), product formulae, franchises, inventions, rights-to-use and other
industrial and intellectual property rights.
"Interim Balance Sheet" is defined in Section 6.5.
"Interim Balance Sheet Date" is defined in Section 6.5.
"Interim Financial Statements" is defined in Section 6.5.
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any Person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Liquidated Claim Notice" is defined in Section 10.5.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business,
Assets, financial condition, results of operations, liquidity, products,
competitive position, customers or customer relations of either Company.
"NBG Private Percentage" is defined in Section 2.8.
"Net Worth Deficiency" is defined in Section 2.6.
"Non-Assignable Contracts" is defined in Section 2.5.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent in nature and, where relevant, amount with
past practices.
"Patents" means all patents and patent applications.
-37-
<PAGE>
"Permit" means any governmental permit, license, registration, certificate
of occupancy, approval and other authorization.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Personal Property Leases" is defined in Section 6.9.
"Piggyback Registration" is defined in Section 20.3.
"Private Percentages" means the percentage of the outstanding Buyer Common
Stock which will be owned by the Initial Targets (on an aggregate basis with
respect to affiliated groups of Initial Targets) other than the Company after
the consummation of the Acquisition Transactions but prior to the consummation
of the Initial Public Offering and subject to the adjustments set forth in
Section 2.8 hereto.
"Promissory Note" means the promissory note of Buyer to be delivered to the
Company at the Closing in substantially the form attached hereto as Exhibit A.
"Purchase Price" is defined in Section 2.7.
"Purchased Assets" is defined in Section 2.1.
"Real Estate Leases" is defined in Section 6.7.
"Real Property" is defined in Section 6.7.
"Registrable Securities" means (i) the shares of Buyer Common Stock issued
in the Acquisition Transactions, (ii) the shares of Buyer Common Stock, if any,
issued pursuant to the Promissory Note, and (iii) any securities issued or to be
issued with respect to such securities by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when they
have been (A) effectively registered under the 1933 Act and disposed of in
accordance with the registration statement covering them, or (B) transferred
pursuant to Rule 144 promulgated under such Act (or any similar provision then
in force).
"Registration Expenses" means all expenses incident to the Buyer's
performance of or compliance with this Agreement, including without limitation
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery expenses,
expenses and fees for listing the securities to be registered on exchanges or
electronic quotation systems on which similar securities issued by the Buyer are
then listed, and fees and disbursements of counsel for the Buyer and of all
independent certified public accountants, underwriters (other than underwriting
commissions) and other persons retained by the Buyer.
"Registration Statement" means the Buyer's Registration Statement on
Form S-1 to be
-38-
<PAGE>
filed with the Securities and Exchange Commission registering a sufficient
number of shares of Buyer's capital stock which, based on the minimum estimated
offering price of such shares (as set forth in the prospectus included in such
Registration Statement), upon consummation of the offering described in the
Registration Statement would yield net proceeds of at least $75,000,000.
"Regulation" means any statute, law, ordinance, regulation, order or rule
of any Federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Required Consents" is defined in Section 6.3.
"Response Period" is defined in Section 10.5.
"Selling Stockholders" means registered holders of Registrable Securities
who request inclusion of all or a portion of their shares of Registrable
Securities in a Piggyback Registration pursuant to Section 20.
"Shareholders" is defined in the preamble.
"Shares" is defined in Section 2.7.
"Suit" is defined in Section 19.
"Termination Date" is defined in Section 3.1.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement (including all amendments and
restatements), the Employment Agreements, and the Promissory Note.
"Transactions" means the purchase and sale of the Purchased Assets, the
issuance of the Shares, and the consummation of the other transactions
contemplated by the Transaction Documents.
"Unliquidated Claim" is defined in Section 10.5.
-39-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
TELESPECTRUM WORLDWIDE INC.
By: /s/ J. Brian O'Neill
-----------------------------------------
J. Brian O'Neill
Chairman
CRW FINANCIAL, INC.
By: /s/ J. Brian O'Neill
-----------------------------------------
J. Brian O'Neill
Chairman
NBG SERVICES, INC.
By: /s/ William F. Rhatigan
-----------------------------------------
Name: William F. Rhatigan
Title: President
SHAREHOLDERS
/s/ William F. Rhatigan
-----------------------------------------
William F. Rhatigan
/s/ Michael J. Gallant
-----------------------------------------
Michael J. Gallant
<PAGE>
Exhibit 10.7
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between [NEW
HARRIS, Inc.,] a Delaware corporation (the "Company"), TeleSpectrum Worldwide
Inc., a Delaware corporation ("Parent"), and Edward M. Idzik (the "Employee").
RECITALS
--------
The Employee is currently the President of Harris Direct Marketing, Inc.
("Harris") and Harris Fulfillment, Inc. (together with Harris, the "Sellers").
Parent has agreed to acquire substantially all of the Sellers' assets and
business pursuant to the Asset Purchase Agreement dated as of April 5, 1996, as
amended as of May 14 and May 20, 1996, by and among the Parent, CRW Financial,
Inc., a Delaware corporation, the Sellers, Employee and Bruce Schorle (the
"Purchase Agreement"). The Purchase Agreement includes the Supplemental
Agreement to the Purchase Agreement, dated as of April 6, 1996, as amended on
May 14, 1996. It is a condition precedent to the consummation of the
transactions contemplated by the Purchase Agreement that the Company and the
Employee enter into this Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
(a) The Company hereby employs the Employee and the Employee hereby
accepts such employment as the President of the Company. During the term of the
Employee's employment under this Agreement (the "Employment Term"), the Employee
shall perform such duties as are assigned by the Board of Directors of the
Company (the "Board"). In addition, the Employee from time to time shall
perform such duties for Parent as are assigned from time to time by the Parent's
Board of Directors and Employee shall be a member of the Senior Executive
Operating Committee of such Board which is intended to be the primary non-Board
Operating Committee of Parent and to include officers of each of the Parent's
principal operating units.
(b) Employee represents to the Company that he is not subject or a
party to any employment agreement, non-competition covenant, non-disclosure
agreement or any other agreement, covenant, understanding or restriction of any
nature which would prohibit Employee from executing this Agreement and
performing fully his duties and responsibilities hereunder, or which would in
any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to Employee by the
Company. Except for periodic travel incident to Employee's position with the
Company and as required
<PAGE>
from time to time by Parent, Employee shall not be required to perform his
primary duties hereunder outside a 35 square mile radius of his current primary
office.
2. Performance.
-----------
The Employee shall devote his entire business efforts to the performance of
his duties hereunder; provided, however, that the Employee may engage in
personal investment activities so long as they do not interfere with the
performance of his duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
_____________, 2000, unless terminated prior thereto in accordance with Sections
5 or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $275,000
(such amount is referred to herein as the "Salary"), which the Company shall pay
to the Employee in equal installments in accordance with the normal payroll
policies of the Company. The Salary and Bonus may be adjusted upward on an
annual basis as the Board may approve, in its sole discretion, but the Salary
and Bonus shall not be decreased.
(b) The Employee shall receive an annual bonus (payable in semi-annual
installments on the first regular pay date after each January 1 and July 1,
commencing January 1997) during the Employment Term in an amount equal to
$225,000 (such amount is referred to herein as the "Bonus").
(c) During the Employment Term, the Company shall provide the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits") in such levels that are
provided to the senior officers of the Parent's other operating units and that
are not materially less than the level provided by the Sellers during the full
twelve months prior to the date of this Agreement.
(d) Subject to Section 6, all amounts payable by the Company under
this Section 4 shall be subject to proration based upon the number of days in
each year that the Employee was employed by the Company hereunder.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as
----------------
defined below), the Company may terminate the Employment Term by notice to the
Employee, and as of the termination date, the Company shall have no further
liability or obligation to the Employee hereunder except as follows: the
Employee shall receive (i) any unpaid Salary, Bonus
-2-
<PAGE>
and Fringe Benefits that have accrued through the date of termination; and (ii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits. For the purposes hereof, the Employee shall be deemed to be
"totally disabled" if the Employee is considered totally disabled under the
disability insurance policy maintained by the Company for the Employee's benefit
and in effect at that time. In the event of any dispute under this Section 5(a),
the Employee shall submit to a physical examination by a licensed physician
mutually satisfactory to the Company and the Employee, the cost of such
examination to be paid by the Company, and the determination of such physician
shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall
-----
terminate on the date of death, and thereafter the Company shall not have any
further liability or obligation to the Employee, his executors, administrators,
heirs, assigns or any other person claiming under or through his except that the
Employee's estate shall receive any unpaid Salary, Bonus and Fringe Benefits
that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause"
-----
by giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary and
Fringe Benefits that have accrued through the date of termination, net of any
liabilities that the Employee may have to the Company. For purposes of this
Agreement, "cause" exclusively shall mean the failure of the Employee to (i)
observe or perform (other than by reason of illness, injury or incapacity) any
of the material terms or provisions of this Agreement, (ii) the failure to
comply fully with the lawful directives of the Board or the President, (iii)
conviction of a felony or other crime involving moral turpitude, (iv)
misappropriation of funds or (v) habitual insobriety which interferes with the
performance of Employee's duties hereunder. In the case of a termination for
"cause," the notice of termination shall specify the basis for the Company's
determination of "cause"; provided, however, that in the case of conduct
-------- -------
described in clauses (i), (ii) and (v) above, such conduct shall not constitute
"cause" for the purposes of this paragraph (c) unless (A) the Board shall have
given the Employee notice setting forth with specificity (1) the conduct deemed
to constitute "cause," (2) reasonable action that would remedy the objectionable
conduct, and (3) a reasonable time (not less than 5 days) within which the
Employee may take such remedial action, and (B) the Employee shall not have
taken such specified remedial action within such specified reasonable time.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time by giving the Employee
30 days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Employee the Salary and Bonus and provide the
Fringe Benefits listed in paragraph (a) on Exhibit A through _______________,
2000, and as of such date, the Company shall not have any further liability or
obligation to the Employee. The Salary and Bonus to be paid and Fringe Benefits
to be provided under this Section 6 are referred to herein as the "Termination
Compensation." The Employee shall not be entitled to any Termination
Compensation unless
-3-
<PAGE>
the Employee executes and delivers to the Company after a notice of termination
a release in a form satisfactory to the Company in its sole discretion by which
the Employee releases the Company from any obligations and liabilities of any
type whatsoever, except for the Company's obligations with respect to the
Termination Compensation. The parties hereto acknowledge that the Termination
Compensation to be provided under this Section 6 is to be provided in
consideration for the above-specified release. The Company's obligations under
this Section 6 shall be reduced by and to the extent of any earnings from a
source other than the Company that are received by or accrued for the benefit of
the Employee during the remainder of the Employment Term; provided, however,
-------- -------
that such obligations shall only be so reduced by any such earnings if the
Company, upon written request from the Employee, grants a waiver of its rights
under Section 7 hereunder.
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), he will not, directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as a partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company or the
Parent at any time during such period within any portion of the United States in
the direct marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Business"). It is recognized by the Employee and the Company that the Business
is and is expected to continue to be conducted throughout the United States and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenant set forth in Section 7(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Employee as a passive investment of not more than five
percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant
to the Securities Exchange Act of 1934.
(b) The Employee further covenants that during the Restricted Period,
he will not, either directly or indirectly, (i) call on or solicit any person
who or which has been a customer of the Company with respect to the activities
prohibited by Section 7(a) or (ii) solicit the employment of any person who is
employed by the Company during such period on a full or part-time basis.
(c) The Employee recognizes and acknowledges that by reason of his
ownership of and employment by the Company he has had access to Confidential
Information relating to the Business. The Employee acknowledges that such
Confidential Information is a valuable and unique asset and covenants that he
will not disclose any such Confidential Information after the date hereof to any
person for any reason whatsoever, unless such
-4-
<PAGE>
-4-
information (i) is in the public domain through no wrongful act of Employee,
(ii) has been rightfully received from a third party without restriction and
without breach of this Agreement or (iii) except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in this
Section 7 are reasonable and necessary to protect the legitimate interests of
the Parent and the Company, and that any violation will result in irreparable
injury to the Parent and the Company.
(e) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) The covenants set forth in this Section 7 are in consideration for
the Employee's employment hereunder and for the transactions set forth in the
Purchase Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by his in compliance with the provisions of
this Section 8.
-5-
<PAGE>
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by his or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7, 8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by
-------------
the laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term
-------
"Company" shall be deemed to include any incorporated or unincorporated entities
that are controlled, directly or indirectly, by the Company through ownership,
agreement or otherwise.
-6-
<PAGE>
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement
-------
shall be in writing and shall be deemed to have been given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, or when sent by Federal Express or other overnight
delivery service, addressed as follows:
TO EMPLOYEE:
Mr. Edward Idzik
1227 Denbigh Lane
Radnor, PA 19087
with a copy to:
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, PA 19107
Attention: Barry S. Wildstein
TO THE COMPANY OR PARENT:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
-7-
<PAGE>
(e) Entire Agreement; Modification. This Agreement constitutes the
------------------------------
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term
--------
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be
------
construed to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or
-8-
<PAGE>
application and shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(i) Guaranty. Parent hereby unconditionally guarantees the full,
---------
prompt and faithful payment of all the payments and the full, prompt and
faithful performance of all the other
obligations of Company pursuant to this Agreement, however created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing, or due or to become due, subject, in each case, to any and
all defenses which the Company or Parent may have to any such payment or
performance or hereunder.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
[NEW HARRIS, INC.]
By:__________________________
Chairman of the Board
TELESPECTRUM WORLDWIDE INC.
By:__________________________
Chairman of the Board
_____________________________
EDWARD M. IDZIK
-9-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee and the Employee's dependents, with
the same benefits generally provided to the Company's most senior executive
employees from time to time during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance.
(d) The following split dollar life insurance policies:
American General Life Insurance Company -- Policy #A10124032L
The Guardian -- Policy #3708572
The Manufacturers Life Insurance Company -- Policy #51785590
(e) Eligibility to participate in any employee stock option plan
maintained by the Company during the Employment Term.
(f) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of his duties.
(g) At least 8 paid holidays in accordance with the Company's policies.
(h) Paid vacation of six weeks per year.
(i) Two mobile cellular phones including basic monthly service fees.
(j) Disability insurance covering at least 60% of the Employee's Salary
and Bonus with benefits payable for the Employee's life.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between [NEW
TELESPECTRUM, Inc.,] a Delaware corporation (the "Company"), and Karen
Schweitzer (the "Employee").
RECITALS
--------
The Employee is currently employed by TeleSpectrum, Inc. ("TeleSpectrum").
The Company's parent company, TeleSpectrum Worldwide Inc., a Delaware
corporation ("Parent"), has agreed to acquire substantially all of
TeleSpectrum's assets and business pursuant to the Asset Purchase Agreement
dated as of April 10, 1996, as amended and restated as of May 20, 1996, by and
among the Parent, TeleSpectrum, TeleSpectrum Training Services, Inc.
("Training"), Employee and Sherry Paterra (the "Purchase Agreement"). It is a
condition precedent to the consummation of the transactions contemplated by the
Purchase Agreement that the Company and the Employee enter into this Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
(a) The Company hereby employs the Employee and the Employee hereby accepts
such employment. During the term of the Employee's employment under this
Agreement (the "Employment Term"), the Employee shall be one of the senior
executive officers of the Company and shall perform such duties as are assigned
by the Company's Board of Directors. In addition, the Employee from time to
time shall perform such duties for Parent as are assigned from time to time by
the Parent's Board of Directors and Employee shall be a member of the Senior
Executive Operating Committee of such Board which is intended to be the primary
non-Board Operating Committee of Parent and to include officers of each of the
Parent's principal operating units. Except for periodic travel incident to
Employee's position with the Company and as required from time to time by the
Parent, Employee shall not be required to perform her primary duties hereunder
outside a 35 square mile radius of her current primary office.
(b) Employee represents to the Company that she is not subject or a party
to any employment agreement, non-competition covenant, non-disclosure agreement
or any other agreement, covenant, understanding or restriction of any nature
which would prohibit Employee from executing this Agreement and performing fully
her duties and responsibilities hereunder, or which would in any manner,
directly or indirectly, limit or affect the duties and responsibilities which
may now or in the future be assigned to Employee by the Company.
<PAGE>
2. Performance.
-----------
The Employee shall devote her entire business efforts to the performance of
her duties hereunder; provided, however, that the Employee may engage in
personal investment activities so long as they do not interfere with the
performance of her duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
_____________, 2000, unless terminated prior thereto in accordance with Sections
5 or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for her
employment services to the Company during the Employment Term shall be $160,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall be eligible to receive an annual bonus in an amount
equal to at least $150,000 (such amount, as adjusted from time to time, is
referred to herein as the "Bonus") as follows: (i) up to $37,500 as determined
by the Company's Board of Directors based upon the Employee's overall
contributions to the Company and the Parent, which shall include, without
limitation, Employee's cooperation with other senior officers and other
employees of both Parent and Parent's other operating units; and (ii) $112,500
upon the achievement by the Company of earnings before deductions for interest,
taxes, depreciation and amortization, as calculated in accordance with U.S.
generally accepted accounting principles ("EBITDA"), in 1996 of $1,500,000, and
with respect to 1997, 1998, 1999 and 2000, the achievement of EBITDA equal to
100% of the Company's projected EBITDA in such year as set forth in the
Company's annual business plan for such year. The EBITDA in any such year is
referred to as the "Target EBITDA." In addition, the Employee shall be entitled
to receive an additional bonus in each year hereunder as follows:
(i) $50,000 if the EBITDA in such year exceeds the Target EBITDA by
$500,000;
(ii) an amount equal to 15% of the amount by which EBITDA exceeds the
sum of the Target EBITDA plus $500,000; and
(iii)an amount equal to 5% of the amount by which EBITDA exceeds the
sum of the Target EBITDA plus $1,500,000.
All amounts payable by the Company under this Section 4 shall be subject to
proration based upon the number of days in each such year that the Employee was
employed by the Company hereunder.
-2-
<PAGE>
(c) During the Employment Term, the Company shall provide the Employee with
fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits") at such levels that are
provided to the senior officers of the Parent's other operating units; provided,
--------
however, that such level shall not be materially less than the level provided to
- -------
Employee by TeleSpectrum and/or Training during the full twelve months prior to
the date of this Agreement.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee,
and as of the termination date, the Company shall have no further liability or
obligation to the Employee hereunder except as follows: the Employee shall
receive (i) any unpaid Salary and Fringe Benefits and Bonus, if any, that have
accrued through the date of termination; and (ii) whatever benefits that she may
be entitled to receive under any then existing disability benefit plans of the
Company, including any such plans included in the Fringe Benefits. For the
purposes hereof, the Employee shall be deemed to be "totally disabled" if the
Employee is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any
such plan, under applicable Social Security regulations. In the event of any
dispute under this Section 5(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation to the Employee, her executors, administrators, heirs,
assigns or any other person claiming under or through her except that the
Employee's estate shall receive any unpaid Salary and Fringe Benefits and Bonus,
if any, that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary and
Fringe Benefits and Bonus, if any, that have accrued through the date of
termination, net of any liabilities that the Employee may have to the Company.
For purposes of this Agreement, "cause" shall mean the failure of the Employee
to (i) observe or perform (other than by reason of illness, injury or
incapacity) any of the material terms or provisions of this Agreement, (ii) the
failure to comply fully with the lawful directives of the Board or the
President, (iii) dishonesty, (iv) willful misconduct, (v) material neglect of
the Company's business, (vi) conviction of a felony or other crime involving
moral turpitude, (vii) misappropriation of funds or (viii) habitual insobriety.
In the case of a termination for "cause," the notice of termination shall
specify the basis for the Company's determination of "cause"; provided, however,
-------- -------
the in the case of conduct described in clauses (i), (ii) and (v) above, such
conduct shall not constitute "cause" for the purposes of this paragraph (c)
unless (A) the Board
-3-
<PAGE>
shall have given the Employee notice setting forth with specificity (1) the
conduct deemed to constitute "cause," (2) reasonable action that would remedy
the objectionable conduct, and (3) a reasonable time (not less than 5 days)
within which the Employee may take such remedial action, and (B) the Employee
shall not have taken such specified remedial action within such specified
reasonable time.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time by giving the Employee
30 days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Employee the Salary through the end of the
Employment Term, and as of the termination date, the Company shall not have any
further liability or obligation to the Employee. The Salary to be paid under
Section 6 are referred to herein as the "Termination Compensation." The
Employee shall not be entitled to any Termination Compensation unless the
Employee executes and delivers to the Company after a notice of termination a
release in a form satisfactory to the Company in its sole discretion by which
the Employee releases the Company from any obligations and liabilities of any
type whatsoever, except for the Company's obligations with respect to the
Termination Compensation. The parties hereto acknowledge that the Termination
Compensation to be provided under this Section 6 is to be provided in
consideration for the above-specified release. The Company's obligations under
this Section 6 shall be reduced by and to the extent of any earnings from a
source other than the Company that are received by or accrued for the benefit of
the Employee during the remainder of the Employment Term; provided, however,
-------- -------
that such obligations shall only be so reduced by any such earnings if the
Company, upon written request from the Employee, grants a waiver of its rights
under Section 7 hereunder.
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), she will not, directly or indirectly, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation, control or financing of, or be connected as a partner, principal,
agent, representative, consultant or otherwise with or use or permit her name to
be used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company or the
Parent at any time during such period within any portion of the United States in
the direct marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail and customer retention (the "Business"). It is
recognized by the Employee and the Company that the Business is and is expected
to continue to be conducted throughout the United States and that more narrow
geographical limitations of any nature on this non-competition covenant (and the
non-solicitation covenant set forth in Section 7(b)) are therefore not
appropriate. The foregoing restriction shall not be construed to prohibit the
ownership by Employee as a passive investment of not more than five percent (5%)
of any class of securities of any corporation which is engaged in any of the
foregoing businesses having a class of securities registered pursuant to the
Securities Exchange Act of 1934.
-4-
<PAGE>
(b) The Employee further covenants that during the Restricted
Period, she will not, either directly or indirectly, (i) call on or solicit any
person who or which has been a customer of the Company with respect to the
activities prohibited by Section 7(a) or (ii) solicit the employment of any
person who is employed by the Company during such period on a full or part-time
basis.
(c) The Employee recognizes and acknowledges that by reason of
her ownership of and employment by Training, TeleSpectrum and the Company she
has had access to Confidential Information relating to the Business. The
Employee acknowledges that such Confidential Information is a valuable and
unique asset and covenants that she will not disclose any such Confidential
Information after the date hereof to any person for any reason whatsoever,
unless such information (i) is in the public domain through no wrongful act of
Employee, (ii) has been rightfully received from a third party without
restriction and without breach of this Agreement or (iii) except as may be
required by law.
(i) The Employee acknowledges that the restrictions contained
in this Section 7 are reasonable and necessary to protect the legitimate
interests of the Parent and the Company, and that any violation will result in
irreparable injury to the Parent and the Company.
(ii) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(iii) The covenants set forth in this Section 7 shall be in
addition to not in limitation of any similar covenants set forth in the Purchase
Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during her employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of her right, title and
interest in and to any such Developments. The Employee shall disclose fully, as
soon as practicable and in writing, all material Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the
-5-
<PAGE>
Company any and all instruments, documents and papers, give evidence and do any
and all other acts that, in the opinion of counsel for the Company, are or may
be necessary or desirable to document such transfer or to enable the Company to
file and prosecute applications for and to acquire, maintain and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by her in compliance with the provisions of this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which she is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not
(i) use or exploit in any manner the Company Information for himself or any
person, partnership, association, corporation or other entity other than the
Company, (ii) remove any Company Information, or any reproduction thereof, from
the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by her or
others, that are in her possession immediately upon request and in any event
upon the completion of her employment by the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7,8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
-6-
<PAGE>
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term
-------
"Company" shall be deemed to include any incorporated or unincorporated entities
that are controlled, directly or indirectly, by the Company through ownership,
agreement or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
TO EMPLOYEE:
Ms. Karen Schweitzer
[insert address]
with a copy to:
Lee Benedict, Esquire
TO THE COMPANY:
[NEWCO, Inc.]
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
-7-
<PAGE>
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement: Modification. This Agreement constitutes the
------------------------------
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
NEWCO, INC.
By: __________________________
Chairman of the Board
______________________________
KAREN SCHWEITZER
-8-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee, with the same benefits generally
provided to the Company's most senior executive employees from time to time
during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance.
(d) Eligibility to participate in any employee stock option plan
maintained by the Company during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of her duties.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made as of the ____ day of April, 1996 between [NEW
REICH, Inc.,] a Delaware corporation (the "Company"), and Morton M. Reich (the
"Employee").
RECITALS
--------
The Employee is currently the President of each of DialDirect, Inc., a
Pennsylvania corporation, InsureDirect, Inc., a Pennsylvania corporation,
DialDirect Telemarketing, Ltd., a Pennsylvania corporation, TRG/Communications,
Inc., a Pennsylvania corporation and The Reich Group, Inc. (collectively, the
"Sellers"). The Company's parent company, TeleSpectrum Worldwide Inc. (the
"Parent"), has agreed to acquire substantially all of the Sellers' assets and
business pursuant to the Asset Purchase Agreement dated as of April 5, 1996, as
amended and restated as of May 20, 1996, by and among the Parent, the Sellers,
and the Employee (the "Purchase Agreement"). It is a condition precedent to the
consummation of the transactions contemplated by the Purchase Agreement that the
Company and the Employee enter into this Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
(a) The Company hereby employs the Employee and the Employee hereby accepts
such employment as the President of the Company. During the term of the
Employee's employment under this Agreement (the "Employment Term"), the Employee
shall be the principal operating officer of the Company and shall have operating
control through at least December 31, 1996, so long as he conducts his duties
and operates the Company in a manner consistent with past practice, and shall
perform such duties reasonably assigned from time to time by the Board of
Directors of the Company (the "Board") consistent with the types of duties and
responsibilities typically performed by a person serving as President and Chief
Executive Officer of businesses similar to the Company. In addition, for up to
ten hours per week, the Employee shall perform such duties for Parent as are
reasonably determined from time to time by the Parent's Board of Directors and
Employee shall be a member of the Senior Executive Operating Committee of such
Board which is intended to be the primary non-Board Operating Committee of
Parent and to include officers of each of the Parent's principal operating
units. The Employee shall use his best efforts to cooperate with other members
of the management teams of Parent and Parent's principal operating units in a
cordial and gentlemanly fashion. Employee shall not be required to relocate
outside the Philadelphia region.
<PAGE>
(b) Employee represents to the Company that he is not subject or a party to
any employment agreement, non-competition covenant, non-disclosure agreement or
any other agreement, covenant, understanding or restriction of any nature which
would prohibit Employee from executing this Agreement and performing fully his
duties and responsibilities hereunder, or which would in any manner, directly or
indirectly, limit or affect the duties and responsibilities which may now or in
the future be assigned to Employee by the Company.
2. Performance.
-----------
The Employee shall devote his entire business efforts to the performance of
his duties hereunder; provided, however, that the Employee may engage in
personal investment activities so long as they do not interfere with the
performance of his duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
December 31, 1999, unless terminated prior thereto in accordance with Sections 5
or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $300,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall be eligible to receive an annual bonus in an amount
equal to at least $200,000 (such amount, as adjusted from time to time, is
referred to herein as the "Bonus") as follows: (i) up to $50,000 as determined
by the Company's Board of Directors based upon the Employee's overall
contributions to the Company and the Parent, which shall include, without
limitation, Employee's cooperation with other senior officers and other
employees of both Parent and Parent's other operating units; and (ii) $150,000
upon the achievement by the Company of its projected revenues and operating
income as set forth in the Company's annual budget for such year; subject to
proration based upon the number of days this Agreement was in effect during each
such year that the Employee was employed hereunder.
(c) During the Employment Term, the Company shall provide the Employee with
fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
-2-
<PAGE>
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee,
and as of the termination date, the Company shall have no further liability or
obligation to the Employee hereunder except as follows: the Employee shall
receive (i) any unpaid Salary and Fringe Benefits and Bonus, if any, that have
accrued through the date of termination; and (ii) whatever benefits that he may
be entitled to receive under any then existing disability benefit plans of the
Company, including any such plans included in the Fringe Benefits. For the
purposes hereof, the Employee shall be deemed to be "totally disabled" if the
Employee is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any
such plan, under applicable Social Security regulations. In the event of any
dispute under this Section 5(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation hereunder to the Employee, his executors,
administrators, heirs, assigns or any other person claiming under or through him
except that the Employee's estate shall receive any unpaid Salary and Fringe
Benefits and Bonus, if any, that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee hereunder, except that the Employee shall receive any unpaid
Salary and Fringe Benefits and Bonus, if any, that have accrued through the date
of termination, net of any liabilities that the Employee may have to the
Company. For purposes of this Agreement, "cause" shall mean (i) the failure of
the Employee to observe or perform (other than by reason of illness, injury or
incapacity) any of the material terms or provisions of this Agreement, (ii)
subject to the provisions of Section 1(a) hereof, the failure to comply with the
lawful directives of the Board or the Parent, (iii) dishonesty regarding Company
affairs, (iv) willful misconduct, (v) material neglect of the Company's
business, (vi) conviction of a felony or other crime involving moral turpitude,
(vii) misappropriation of funds or (viii) habitual insobriety. In the case of a
termination for "cause," the notice of termination shall specify the basis for
the Company's determination of "cause"; provided, however, that in the case of
-------- -------
conduct described in clauses (i), (ii) and (v) above, such conduct shall not
constitute "cause" for the purposes of this paragraph (c) unless (A) the Board
shall have given the Employee notice setting forth with specificity (1) the
conduct deemed to constitute "cause," (2) reasonable action that would remedy
the objectionable conduct, and (3) a reasonable time (not less than 5 days)
within which the Employee may take such remedial action, and (B) the Employee
shall not have taken such specified remedial action within such specified
reasonable time.
-3-
<PAGE>
(d) Conversion to Consulting Agreement. The Company and the Employee shall
----------------------------------
each have the right at any time after January 1, 1998, by notice to the other
party, to elect to terminate the Employment Term (and as of the termination
date, neither party shall have any further liability or obligation to the other
hereunder except that the Employee shall receive any unpaid Salary and Fringe
Benefits and Bonus, if any, that have accrued through the date of termination,
net of any liabilities that the Employee may have to the Company) and whereupon
the Consulting Agreement attached as Exhibit B hereto shall automatically become
operative without the need for any further action by any party hereto.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time after January 1, 1997 by
giving the Employee 30 days' notice of the termination date. Under such
circumstances, the Company shall continue to pay to the Employee the Salary
through the end of the Employment Term, and as of the termination date, the
Company shall not have any further liability or obligation to the Employee
hereunder. The Salary to be paid under Section 6 are referred to herein as the
"Termination Compensation." The Employee shall not be entitled to any
Termination Compensation unless the Employee executes and delivers to the
Company after a notice of termination a release in a form satisfactory to the
Company in its sole discretion by which the Employee releases the Company from
any obligations and liabilities of any type whatsoever, except for the Company's
obligations with respect to the Termination Compensation and any other
obligation under any other agreement to which the Employee and the Company are
parties not related to the Employee's employment by the Company. The parties
hereto acknowledge that the Termination Compensation to be provided under this
Section 6 is to be provided in consideration for the above-specified release.
Notwithstanding such termination, the Company shall extend, through the
Employment Term, the exercise period of any vested stock option that the
Employee may have been granted.
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the termination
of the later of Employee's employment hereunder or his consulting arrangement
with the Company pursuant to the Consulting Agreement attached as Exhibit B
hereto and ending on the second anniversary of the date of such termination of
employment hereunder (the "Restricted Period"), he will not, without the prior
written consent of the Company, directly or indirectly, own, manage, operate,
control, finance or participate in the ownership, management, operation, control
or financing of, or participate as a partner, principal, agent, representative,
consultant or otherwise with or use or permit his name to be used in connection
with, any business or enterprise engaged directly or indirectly in competition
with the business conducted by the Company or the Parent at any time during such
period within any portion of the United States in the direct marketing business
which includes inbound and outbound telemarketing, fulfillment, direct mail and
customer retention (the "Business"). It is recognized by the Employee and the
Company that the Business is and is expected to continue to be conducted
throughout the United States and that more narrow geographical limitations of
any nature on this non-competition covenant (and the non-solicitation covenant
set forth in Section 7(b)) are therefore not appropriate. The foregoing
-4-
<PAGE>
restriction shall not be construed to prohibit the Employee from (i) owning a
passive investment of not more than five percent (5%) of any class of securities
of any corporation engaged in any of the foregoing businesses having a class of
securities registered pursuant to the Securities Exchange Act of 1934, or (ii)
engaging in any business in which the Business is ancillary to the business
conducted by the Employee.
(b) The Employee further covenants that during the Restricted Period, he
will not, either directly or indirectly, (i) call on or solicit any person who
or which has been a customer of the Company with respect to the activities
prohibited by Section 7(a) or (ii) solicit the employment of any person who is
employed by the Company in connection with the Business during such period on a
full or part-time basis.
(c) The Employee recognizes and acknowledges that by reason of his
ownership of and employment and/or retention by Sellers and the Company he has
had access to Confidential Information relating to the Business. The Employee
acknowledges that such Confidential Information is a valuable and unique asset
and covenants that he will not disclose any such Confidential Information after
the date hereof to any person for any reason whatsoever, unless such information
(i) is in the public domain through no wrongful act of Employee, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in this
Section 7 are reasonable and necessary to protect the legitimate interests of
the Parent and the Company, and that any violation will result in irreparable
injury to the Parent and the Company.
(e) The Employee agrees that the Company shall be entitled to preliminary
and permanent injunctive relief, without the necessity of proving actual
damages, as well as an equitable accounting of all earnings, profits and other
benefits arising from any violation of this Section 7, which rights shall be
cumulative and in addition to any other rights or remedies to which the Company
may be entitled. In the event that any of the provisions of this Section 7
should ever be adjudicated to exceed the time, geographic, product or service,
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
(f) The covenants set forth in this Section 7 shall be in addition to not
in limitation of any similar covenants set forth in the Purchase Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term and
that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's
-5-
<PAGE>
right, title and interest therein, shall be the exclusive property of the
Company. The Employee hereby assigns, transfers and conveys to the Company all
of his right, title and interest in and to any and all such Developments. The
Employee shall disclose fully, as soon as practicable and in writing, all
Developments to the Board. At any time and from time to time, upon the request
of the Company, the Employee shall execute and deliver to the Company any and
all instruments, documents and papers, give evidence and do any and all other
acts that, in the opinion of counsel for the Company, are or may be necessary or
desirable to document such transfer or to enable the Company to file and
prosecute applications for and to acquire, maintain and enforce any and all
patents, trademark registrations or copyrights under United States or foreign
law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by his in compliance with the provisions of this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by his or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7, 8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
-6-
<PAGE>
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
To the Employee:
Mr. Morton M. Reich
The Reich Group, Inc.
1635 Market Street, 2nd Floor
Philadelphia, PA 19103
with a copy to:
Cozen and O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103
Fax: 215-663-2013
Attn: E. Gerald Riesenbach, Esquire
-7-
<PAGE>
To the Company:
CRW Financial, Inc.
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
with a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or
-8-
<PAGE>
application and shall not invalidate or render unenforceable such provision in
any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
NEW REICH, INC.
By:________________________________
Name:
Title:
MORTON M. REICH
___________________________________
-9-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee, with the same benefits generally
provided to the Company's most senior executive employees from time to time
during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance.
(d) Eligibility to participate in any employee stock option plan
maintained by the Company during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee
in the course of his duties.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of 4 weeks per year.
<PAGE>
CONSULTING AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 199_ between
[REICH SUB, Inc.,] a Delaware corporation (the "Company"), and Mort Reich (the
"Consultant").
RECITALS
--------
On the date hereof, the Company and the Consultant have terminated their
respective rights and obligations under the Employment Agreement dated as of
______________, 1996, subject to and in consideration of the execution and
delivery of this Agreement.
The Company desires to retain the Consultant, and the Consultant desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Consultancy.
-----------
(a) The Company hereby retains the Consultant and the Consultant hereby
accepts such retention as a business consultant to the Company. During the term
of this Agreement, the Consultant shall perform such tasks as are assigned by
the Board of Directors of the Company (the "Board").
(b) Consultant represents to the Company that he is not subject or a
party to any employment agreement, non-competition covenant, non-disclosure
agreement or any other agreement, covenant, understanding or restriction of any
nature which would prohibit Consultant from executing this Agreement and
performing fully his duties and responsibilities hereunder, or which would in
any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to Consultant by the
Company.
2. Performance.
-----------
The Consultant shall devote a minimum of ____________ to the business of
the Company, as and when requested by the Board.
3. Term.
----
The Term shall begin on the date hereof and shall continue until December
31, 1999, unless terminated prior thereto upon delivery of 30 days prior notice
by any party hereto.
<PAGE>
4. Compensation. The basic rate paid by the Company to the Consultant for his
------------
services to the Company during the Term shall be _________ (such amount is
referred to herein as the "Fees"), which the Company shall pay to the Consultant
on a monthly basis, and reimbursement, in accordance with the Company's
policies, upon proper accounting, of reasonable expenses and disbursements
incurred by the Consultant in the course of his duties ("Reimbursements").
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Consultant becomes totally disabled (as
----------------
defined below), the Company may terminate the Term by notice to the Consultant,
and as of the termination date, the Company shall have no further liability or
obligation to the Consultant hereunder that the Consultant shall receive any
unpaid Fees and Reimbursements that have accrued through the date of
termination. For the purposes hereof, the Consultant shall be deemed to be
"totally disabled" if the Consultant is considered totally disabled under any
group disability plan maintained by the Company and in effect at that time, or
in the absence of any such plan, under applicable Social Security regulations.
In the event of any dispute under this Section 5(a), the Consultant shall submit
to a physical examination by a licensed physician mutually satisfactory to the
Company, and the Consultant, the cost of such examination to be paid by the
Comapny, and the determination of such physician shall be determinative.
(b) Death. If the Consultant dies, this Agreement shall terminate on the
-----
date of death, and thereafter the Company shall not have any further liability
or obligation to the Consultant, his executors, administrators, heirs, assigns
or any other person claiming under or through his except that the Consultant's
estate shall receive any unpaid Fees and Reimbursements that have accrued
through the date of termination.
(c) Cause. The Company may terminate the Term for "cause" by giving the
-----
Consultant 30 days' notice of the termination date, and as of the termination
date, the Company shall not have any further liability or obligation to the
Consultant, except that the Consultant, shall receive any unpaid Fees and
Reimbursements that have accrued through the date of termination, net of any
liabilities that the Consultant may have to the Company. For purposes of this
Agreement, "cause" shall mean the failure of the Consultant to observe or
perform (other than by reason of illness, injury or incapacity) any of the
material terms or provisions of this Agreement, conviction of a felony or other
crime involving moral turpitude, or habitual insobriety.
6. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Consultant, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Term or during his
employment by the Company prior to the commencement of the Term and that relate
to the actual or planned business activities of the Company (collectively, the
"Developments") and all of the Consultant's right, title and interest
-2-
<PAGE>
therein, shall be the exclusive property of the Company. The Consultant hereby
assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Consultant shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Consultant
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the
Consultants for all reasonable expenses incurred by his in compliance with the
provisions of this Section 8.
7. Confidential Information.
------------------------
(a) The Consultant has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Consultant or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Term, the Consultant shall not (i) use or
exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Consultant, alone or with others while retained by the Company, and all Company
Information maintained by the Consultant thereafter, shall remain at all times
the exclusive property of the Company. The Consultant shall return to the
Company all Company Information, and reproductions thereof, whether prepared by
his or others, that are in his possession immediately upon request and in any
event upon the completion of his retention by the Company.
8. Remedies.
--------
The Consultant expressly acknowledges that the remedy at law for any breach
of Sections 6,7 and 8 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Consultant's
obligations
<PAGE>
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
9. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 6,7,8 and 9, the term "Company"
-------
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Consultant hereunder are of a
personal nature and shall not be assignable in whole or in part by the
Consultant.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
TO CONSULTANT:
Mr. Mort Reich
[insert address]
with a copy to:
TO THE COMPANY:
[CRW SUB, Inc.]
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
-4-
<PAGE>
With a copy to:
Morgan, Lewis & Brockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement: Modification. This Agreement constitutes the
------------------------------
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Term and of the
--------
Consultant's retention by the Company, this Agreement shall continue to bind the
parties for so long as any obligations remain under the terms of this Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
[REICH SUB, INC.]
By: ___________________________
Chairman of the Board
_______________________________
MORT REICH
-5-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between [NEW
RESPONSE CENTER, INC.] a Delaware corporation (the "Company"), TeleSpectrum
Worldwide Inc., a Delaware corporation (the "Parent"), and Patrick M. Baldasare
(the "Employee").
RECITALS
--------
The Employee is currently employed by The Response Center, Inc. ("Response
Center"). Parent has agreed to acquire substantially all of Response Center's
assets and business pursuant to the Asset Purchase Agreement dated as of April
30, 1996, as amended and restated as of May 20, 1996, by and among the Parent,
The Response Center, Inc., The Tab House, Inc., Employee and Richard Raquet and
Edward Olesky (the "Purchase Agreement"). It is a condition precedent to the
consummation of the transactions contemplated by the Purchase Agreement that the
Company and the Employee enter into this Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
(a) The Company hereby employs the Employee and the Employee hereby accepts
such employment. During the term of the Employee's employment under this
Agreement (the "Employment Term"), the Employee shall the President of the
Company and shall perform such duties consistent with such office as are
assigned by the Company's Board of Directors. Employee shall be responsible for
the day-to-day business operations and affairs of the Company. In addition, the
Employee from time to time shall perform such duties for Parent consistent with
his status as one of the senior officers of one of the Parent's operating units
as are assigned from time to time by the Parent's Board of Directors and
Employee shall be a member of the Senior Executive Operating Committee of such
Board which is intended to be the primary non-Board Operating Committee of
Parent and to include officers of each of the Parent's principal operating
units. Except for periodic travel incident to Employee's duties hereunder,
Employee shall not be required to perform his duties hereunder outside a 35 mile
radius of the Company's current principal office.
(b) Employee represents to the Company that he is not subject or a party to
any employment agreement, non-competition covenant, non-disclosure agreement or
any other agreement, covenant, understanding or restriction of any nature which
would prohibit Employee from executing this Agreement and performing fully his
duties and responsibilities hereunder, or
<PAGE>
which would in any manner, directly or indirectly, limit or affect the duties
and responsibilities which may now or in the future be assigned to Employee by
the Company.
(c) During the Employment Term, the Company shall be operated under the
names "Response Center" and/or "The Tab House" and/or "The WATS House," or any
derivative thereof.
2. Performance.
-----------
The Employee shall devote his full-time business efforts to the performance
of his duties hereunder; provided, however, that the Employee may engage in
personal investment activities so long as they do not interfere with the
performance of his duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
December 31, 1999, unless terminated prior thereto in accordance with Sections 5
or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $195,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
Upon the expiration of the automobile lease attached as Exhibit B hereto, the
Salary shall be increased to $220,000.
(b) The Company shall establish a bonus pool (the "Bonus Pool") for the
benefit of the Company's employees (including the Employee) for the fiscal years
ending December 31, 1997, 1998 and 1999 equal to 20% of the amount by which the
Company's EBITDA (as defined below) for each such year exceeds 120% of the
Company's EBITDA for the immediately preceding fiscal year. Within 30 days
after completion by Arthur Andersen LLP or any successor independent public
accounting firm (the "Accounting Firm") of its annual audit of the Company's
financial statements, Parent shall calculate the Bonus Pool applicable to the
preceding year and deliver a statement (the "Bonus Pool Statement") which sets
forth in reasonable detail its calculation of the Bonus Pool. The Employee
shall have 15 days to dispute any item included on the Bonus Pool Statement.
Within five business days after the earlier to occur of (i) the Employee's
provision of notice to the Parent that it does not dispute any item included on
the Bonus Pool Statement or (ii) the fifteenth day after the delivery to the
Employee of the Bonus Pool Statement, the Bonus Pool shall be due and payable by
the Company in accordance with the allocation described below. If the Employee
and Parent are unable to resolve any dispute with respect to such calculation,
the dispute shall be resolved by the Accounting Firm whose resolution shall be
final and binding on the parties, absent manifest error which error may only be
corrected by such firm. Employee shall have the authority to allocate all
amounts included in any Bonus
-2-
<PAGE>
Pool to the Company's employees (including Employee); provided, however, that if
-------- -------
Richard Raquet was employed by the Company on the last day of the prior fiscal
year, Employee shall allocate to Mr. Raquet from the Bonus Pool at least an
amount equal to 7.8% of the Bonus Pool and, provided further, however, that if
---------------- -------
Employee is no longer employed by the Company on the date such Bonus Pool is
determined, then the allocation of the Bonus Pool shall be made by the board of
directors of the Company, but, in such event, Mr. Raquet shall receive at least
7.8% of any Bonus Pool (or, if Mr. Raquet was not employed by the Company on the
last day of the prior fiscal year, such lesser amount determined on a pro rata
basis based upon the number of days during such year that Mr. Raquet was so
employed). For purposes hereof:
"EBITDA" shall mean the Company's earnings before deductions for any
interest, taxes, depreciation and amortization for the applicable fiscal
year, as calculated in accordance with U.S. generally accepted accounting
principles, excluding:
(1) any such expenses, charges and write-downs or any losses
resulting from the sale, conversion or other disposition of capital
assets, other than in the ordinary course of business or consistent
with past practice;
(2) any management fees or allocations of overhead costs attributable
to the Parent except for such fees or allocations attributable to
those administrative or other functions previously performed by the
Response Center to the extent that such fees or allocations do not
exceed the cost by which the Company or the Acquired Companies would
incur by performing such services internally or contracting such
services on an arms length basis from an unrelated party;
(3) any payments or accruals made or incurred other than in the
ordinary course of business; and
(4) any bonus payments to the Company's employees.
In addition, EBITDA of the Company shall include the EBITDA (on a pro forma
basis for purposes of all EBITDA calculations) of any entities which are
acquired by the Company and which are engaged in the market research business.
(c) During the Employment Term, the Company shall provide the Employee with
fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits") at such levels that are
provided to the senior officers of the Parent's other operating units; provided,
--------
however, that such level shall not be materially less than the level provided to
- -------
Employee by the Response Center during the full twelve months prior to the date
of this Agreement.
-3-
<PAGE>
(d) All amounts payable by the Company under this Section 4 shall be
subject to proration based upon the number of days in each such year that the
Employee was employed by the Company hereunder.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee,
and as of the termination date, the Company shall have no further liability or
obligation to the Employee hereunder except as follows: the Employee shall
receive (i) any unpaid Salary and Fringe Benefits and Bonus, if any, that have
accrued through the date of termination; and (ii) whatever benefits that he may
be entitled to receive under any then existing disability benefit plans of the
Company, including any such plans included in the Fringe Benefits. For the
purposes hereof, the Employee shall be deemed to be "totally disabled" if the
Employee is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any
such plan, under applicable Social Security regulations. In the event of any
dispute under this Section 5(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation to the Employee, his executors, administrators, heirs,
assigns or any other person claiming under or through his except that the
Employee's estate shall receive any unpaid Salary and Fringe Benefits and Bonus,
if any, that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary and
Fringe Benefits and Bonus, if any, that have accrued through the date of
termination, net of any liabilities that the Employee may have to the Company
arising from Employee's employment hereunder. For purposes of this Agreement,
"cause" shall mean the failure of the Employee to (i) observe or perform (other
than by reason of illness, injury or incapacity) any of the material terms or
provisions of this Agreement, (ii) the failure to comply fully with the lawful
directives of the Board or the President, (iii) dishonesty which results in
material harm to the Company, (iv) willful misconduct which results in material
harm to the Company, (v) material neglect of the Company's business, (vi)
conviction of a felony or other crime involving moral turpitude, (vii)
misappropriation of funds or (viii) habitual insobriety. In the case of a
termination for "cause," the notice of termination shall specify the basis for
the Company's determination of "cause"; provided, however, the in the case of
-------- -------
conduct described in clauses (i), (ii) and (v) above, such conduct shall not
constitute "cause" for the purposes of this paragraph (c) unless (A) the Board
shall have given the Employee notice setting forth with specificity (1) the
conduct deemed to constitute "cause," (2) reasonable action that would remedy
the objectionable conduct, and (3) a reasonable time (not less than 5 days)
within
-4-
<PAGE>
which the Employee may take such remedial action, and (B) the Employee shall not
have taken such specified remedial action within such specified reasonable time.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time by giving the Employee
30 days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Employee the Salary and those Fringe Benefits
listed in paragraphs (a)(c)(e)(h) and (i) of Exhibit A through the end of the
Employment Term, and as of the termination date, the Company shall not have any
further liability or obligation to the Employee. In addition, Mr. Baldasare
shall be entitled to receive, for the year in which he is terminated, at least
the same percentage of the Bonus Pool as he received the prior year or if Mr.
Baldasare is terminated prior to the determination of the first Bonus Pool, at
least 91.09% of the Bonus Pool. The Salary to be paid under Section 6 are
referred to herein as the "Termination Compensation." The Employee shall not be
entitled to any Termination Compensation unless the Employee executes and
delivers to the Company after a notice of termination a release in a form
satisfactory to the Company in its sole discretion by which the Employee
releases the Company from any obligations and liabilities of any type
whatsoever, except for the Company's obligations with respect to the Termination
Compensation. The parties hereto acknowledge that the Termination Compensation
to be provided under this Section 6 is to be provided in consideration for the
above-specified release. The Company's obligations under this Section 6 shall
be reduced by and to the extent of any earnings from a source other than the
Company that are received by or accrued for the benefit of the Employee during
the remainder of the Employment Term; provided, however, that such obligations
-------- -------
shall only be so reduced by any such earnings if the Company, upon written
request from the Employee, grants a waiver of its rights under Section 7
hereunder. The Employee shall not be required to mitigate damages or the amount
of any payment provided for under this Agreement by seeking other employment or
otherwise.
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), he will not, directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as a partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company or the
Parent at any time during such period within any portion of the United States in
the direct marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Business"). It is recognized by the Employee and the Company that the Business
is and is expected to continue to be conducted throughout the United States and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenant set forth in Section 7(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Employee as a passive investment of not more than five
percent (5%) of any
-5-
<PAGE>
class of securities of any corporation which is engaged in any of the foregoing
businesses having a class of securities registered pursuant to the Securities
Exchange Act of 1934.
(b) The Employee further covenants that during the Restricted Period,
he will not, either directly or indirectly, (i) call on or solicit any person
who or which has been a customer of the Company with respect to the activities
prohibited by Section 7(a) or (ii) solicit the employment of any person who is
employed by the Company during such period on a full or part-time basis.
(c) The Employee recognizes and acknowledges that by reason of his
ownership of and employment by Response Center and the Company he has had access
to Confidential Information relating to the Business. The Employee acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the date
hereof to any person for any reason whatsoever, unless such information (i) is
in the public domain through no wrongful act of Employee, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in this
Section 7 are reasonable and necessary to protect the legitimate interests of
the Parent and the Company, and that any violation will result in irreparable
injury to the Parent and the Company.
(e) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) The covenants set forth in this Section 7 shall be in addition to
not in limitation of any similar covenants set forth in the Purchase Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest
-6-
<PAGE>
in and to any and all such Developments. The Employee shall disclose fully, as
soon as practicable and in writing, all material Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by his in compliance with the provisions of
this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or any reproduction thereof, from the
possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7, 8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred
-7-
<PAGE>
upon the Company by the preceding sentence shall not be exclusive of, but shall
be in addition to, any other rights or remedies which the Company may have at
law, in equity or otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession shall be
a material breach of this Agreement.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
TO EMPLOYEE:
Mr. Patrick M. Baldasare
24 Aldwyn Lane
Villanova, PA 19085
with a copy to:
Alan L. Zeiger, Esquire
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
-8-
<PAGE>
TO THE COMPANY OR PARENT:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or
-9-
<PAGE>
application and shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(i) Guaranty. Parent hereby unconditionally guarantees the full, prompt
---------
and faithful payment of all the payments and the full, prompt and faithful
performance of all the other obligations of Company pursuant to this Agreement,
however created, arising or evidenced, whether direct or indirect, absolute or
contingent, or now or hereafter existing, or due or to become due, subject, in
each case, to any and all defenses which the Company or Parent may have to any
such payment or performance or hereunder.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
NEWCO, INC.
By:__________________________
Chairman of the Board
CRW ACQUISITION CORP.
By:__________________________
Chairman of the Board
_____________________________
Patrick M. Baldasare
-10-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee and his family, with the same
benefits generally provided to the Company's and Parent's most senior executive
employees from time to time during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance and disability insurance.
(d) Eligibility to participate in any employee stock option plan maintained
by the Parent during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of his duties.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of six weeks per year.
(h) Payment of the automobile lease payments with respect to the lease
attached as Exhibit B and the cost of insurance on such automobile.
(i) At such times that the Company or the Parent determines that Employee,
pursuant to the rules and regulations of the Securities and Exchange Commission,
is an executive officer of Parent, indemnification protection and liability
insurance on the same terms as Parent's other executive officers.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between [NEW
SOMAR, Inc.,] a Delaware corporation (the "Company"), TeleSpectrum Worldwide
Inc., a Delaware corporation ("Parent") and Gregory M. Alcorn (the "Employee").
RECITALS
--------
The Employee is currently the President and Chief Operating Officer of
SOMAR, Inc. (the "Seller"). The Company has agreed to acquire substantially all
of the Seller's assets and business pursuant to the Asset Purchase Agreement
dated as of April 26, 1996, as amended and restated as of May 20, 1996, by and
among the Parent, the Seller, and Richard W. Virtue (the "Purchase Agreement").
It is a condition precedent to the consummation of the transactions contemplated
by the Purchase Agreement that the Company and the Employee enter into this
Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. During the term of the Employee's employment under this
----------
Agreement (the "Employment Term"), the Employee shall be the President of the
Company and shall perform such duties consistent with such office as are
assigned by the Company's Board of Directors. Employee shall be responsible for
the day-to-day business operations and affairs of the Company. In addition, the
Employee from time to time shall perform such duties for Parent consistent with
his status as one of the senior officers of one of the Parent's operating units
as are assigned from time to time by the Parent's Board of Directors and
Employee shall be a member of the Senior Executive Operating Committee of such
Board which is intended to be the primary non-Board Operating Committee of
Parent and to include officers of each of the Parent's principal operating
units. Except for periodic travel incident to Employee's duties hereunder,
Employee shall not be required to perform his duties hereunder outside a 35 mile
radius of the Company's current principal office.
(b) Employee represents to the Company that he is not subject or a party to
any employment agreement, non-competition covenant, non-disclosure agreement or
any other agreement, covenant, understanding or restriction of any nature which
would prohibit Employee from executing this Agreement and performing fully his
duties and responsibilities hereunder, or which would in any manner, directly or
indirectly, limit or affect the duties and responsibilities which may now or in
the future be assigned to Employee by the Company.
<PAGE>
2. Performance.
-----------
The Employee shall devote his entire business efforts to the performance of
his duties hereunder; provided, however, that the Employee may engage in
personal investment and charitable activities so long as they do not interfere
with the performance of his duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
_____________, 2000, unless terminated prior thereto in accordance with Sections
5 or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $195,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall be eligible to receive an annual bonus in an amount
up to $195,000 (such amount, as adjusted from time to time, is referred to
herein as the "Bonus"). Of the annual Bonus, $97,500 shall be payable upon the
achievement by the Company of EBIT in 1996 of $_________, and with respect to
1997, 1998, 1999 and 2000, the achievement of EBIT equal to 100% of the
Company's projected EBIT in such year as set forth in the Company's annual
business plan for such year. (Such projected EBIT in any such year is referred
to as the "Target EBIT.") The remainder of the Bonus in any year shall be
payable in an amount equal to 10% of the amount by which EBIT exceeds the Target
EBIT, limited to $97,500 in the aggregate.
"EBIT" shall mean the Income From Operations of the Company as calculated
in accordance with GAAP and, with respect to 1996, in a manner consistent
(including the basis of presentation) with the audited financial statements
of the Seller for the fiscal year ended December 31, 1995. For purposes of
this calculation and in order to present EBIT on a consistent basis with
the Seller's EBIT for its fiscal year ended December 31, 1995, EBIT will be
adjusted for any of the following items:
(1) any expenses, charges and write-downs or any losses resulting
from the sale, conversion or other disposition of capital assets,
other than in the ordinary course of business, or inconsistent
with the past practice;
(2) any excess depreciation from assets as a result of the write-up
of any such asset's basis;
-2-
<PAGE>
(3) any amortization of goodwill or other intangibles from the write-
up of such items;
(4) any management fees or allocations of overhead costs attributable
to the Buyer except for such fees or allocations attributable to
those administrative or other functions previously performed by
the Company to the extent that such fees or allocations do not
exceed the cost which the Company would incur in performing such
services; and
(5) any changes in accounting policies, principals or new
pronouncements.
(c) During the Employment Term, the Company shall provide the Employee with
fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits") at such levels that are
provided to the senior officers of the Parent's other operating units; provided,
--------
however, that such level shall not be materially less than the level provided to
- -------
Employee by the Seller during the full twelve months prior to the date of this
Agreement.
(d) All amounts payable by the Company under this Section 4 shall be
subject to proration based upon the number of days in each such year that the
Employee was employed by the Company hereunder.
(e) The Company shall reimburse the Employee for those expenses that are
incurred by him in connection with the performance of his duties under this
Agreement, are reasonably related to the Company's business or that have been
approved in writing by the Chairman of the Company's Board of Directors.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee,
and as of the termination date, the Company shall have no further liability or
obligation to the Employee hereunder except as follows: the Employee shall
receive (i) unpaid Salary, Fringe Benefits and Bonus, if any, that have accrued
through the date of termination; and (ii) whatever benefits that he may be
entitled to receive under any then existing disability benefit plans of the
Company, including any such plans included in the Fringe Benefits. For the
purposes hereof, the Employee shall be deemed to be "totally disabled" if the
Employee is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any
such plan, under applicable Social Security regulations. In the event of any
dispute under this Section 5(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
-3-
<PAGE>
(b) Death. If the Employee dies, this Employment Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation to the Employee, his executors, administrators, heirs,
assigns or any other person claiming under or through his except that the
Employee's estate shall receive any unpaid Salary, Fringe Benefits and Bonus, if
any, that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary,
Fringe Benefits and Bonus, if any, that have accrued through the date of
termination, net of any liabilities that the Employee may have to the Company.
For purposes of this Agreement, "cause" shall mean the Employee's (i) breach of
(other than by reason of illness, injury or incapacity) of any of the material
terms or provisions of this Agreement, (ii) the willful and substantial failure
to comply fully with the lawful directives of the Board, (iii) substantial and
willful misconduct, (iv) material neglect of the Company's business, (v)
conviction of a felony or other crime involving moral turpitude, (vi)
misappropriation of funds or (vii) habitual abuse of alcohol, narcotics or other
controlled substances. In the case of a termination for "cause," the notice of
termination shall specify the basis for the Company's determination of "cause";
provided, however, the in the case of conduct described in clauses (i), (ii),
- -------- -------
(iii) and (iv) above, such conduct shall not constitute "cause" for the purposes
of this paragraph (c) unless (A) the Board shall have given the Employee notice
setting forth with specificity (1) the conduct deemed to constitute "cause," (2)
reasonable action that would remedy the objectionable conduct, and (3) a
reasonable time (not less than 5 days) within which the Employee may take such
remedial action, and (B) the Employee shall not have taken such specified
remedial action within such specified reasonable time.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time by giving the Employee
30 days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Employee the Salary and continues to provide the
Fringe Benefits listed in paragraph (a) of Exhibit A hereto through the end of
the Employment Term, and as of the termination date, the Company shall not have
any further liability or obligation to the Employee. The Salary to be paid and
the Fringe Benefits to be provided under this Section 6 are referred to herein
as the "Termination Compensation." The Employee shall not be entitled to any
Termination Compensation unless the Employee executes and delivers to the
Company after a notice of termination a release in a form satisfactory to the
Company in its sole discretion by which the Employee releases the Company from
any obligations and liabilities of any type whatsoever under this Agreement,
except for the Company's obligations with respect to the Termination
Compensation. The parties hereto acknowledge that the Termination Compensation
to be provided under this Section 6 is to be provided in consideration for the
above-specified release. The Company's obligations under this Section 6 shall
be reduced by and to the extent of any income earned by the Employee through
employment with an employer other than the Company that is received by or
accrued for the benefit of the Employee during the remainder of the Employment
Term; provided, however, that
-------- -------
-4-
<PAGE>
such obligations shall only be so reduced by any such earnings if the Company,
upon written request from the Employee, grants a waiver of its rights under
Section 7 hereunder.
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), he will not, directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as a partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company or the
Parent at any time during such period within any portion of the United States in
the direct marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Business"). It is recognized by the Employee and the Company that the Business
is and is expected to continue to be conducted throughout the United States and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenant set forth in Section 7(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Employee as a passive investment of not more than five
percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant
to the Securities Exchange Act of 1934.
(b) The Employee further covenants that during the Restricted Period,
he will not, either directly or indirectly, (i) call on or solicit any person
who or which has been a customer of the Company with respect to the activities
prohibited by Section 7(a) or (ii) solicit the employment of any person who is
employed by the Company during such period on a full or part-time basis.
(c) The Employee recognizes and acknowledges that by reason of his
ownership of and employment by the Seller and the Company he has had access to
Confidential Information relating to the Business. The Employee acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the date
hereof to any person for any reason whatsoever, unless such information (i) is
in the public domain through no wrongful act of Employee, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in this
Section 7 are reasonable and necessary to protect the legitimate interests of
the Parent and the Company, and that any violation will result in irreparable
injury to the Parent and the Company.
-5-
<PAGE>
(e) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7 should ever be adjudicated to exceed the time, geographic, product or
service, or other limitations permitted by applicable law in any jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, product or service, or other limitations permitted by
applicable law.
(f) The covenants set forth in this Section 7 shall be in addition to
not in limitation of any similar covenants set forth in the Purchase Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all material and substantial
Developments to the Board. At any time and from time to time, upon the request
of the Company, the Employee shall execute and deliver to the Company any and
all instruments, documents and papers, give evidence and do any and all other
reasonable acts that, in the opinion of counsel for the Company, are or may be
necessary or desirable to document such transfer or to enable the Company to
file and prosecute applications for and to acquire, maintain and enforce any and
all patents, trademark registrations or copyrights under United States or
foreign law with respect to any such Developments or to obtain any extension,
validation, re-issue, continuance or renewal of any such patent, trademark or
copyright. The Company will be responsible for the preparation of any such
instruments, documents and papers and for the prosecution of any such
proceedings and will reimburse the Employee for all reasonable expenses incurred
by his in compliance with the provisions of this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets,
-6-
<PAGE>
customer or product information or technical or business information of the
Company. All such information, other than any information that is in the public
domain through no act or omission of the Employee or which he is authorized to
disclose, is referred to collectively as the "Company Information." During and
after the Employment Term, the Employee shall not (i) use or exploit in any
manner the Company Information for himself or any person, partnership,
association, corporation or other entity other than the Company, (ii) remove any
Company Information, or any reproduction thereof, from the possession or control
of the Company or (iii) treat Company Information otherwise than in a
confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by his or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7, 8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered
-7-
<PAGE>
or certified mail, postage prepaid, return receipt requested, or when sent by
Federal Express or other overnight delivery service, addressed as follows:
TO EMPLOYEE:
Mr. Gregory M. Alcorn
[insert address]
with a copy to:
TO THE COMPANY:
[NEW SOMAR]
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or
-8-
<PAGE>
application and shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(i) Guaranty. Parent hereby unconditionally guarantees the full, prompt
---------
and faithful payment of all the payments and the full, prompt and faithful
performance of all the other obligations of Company pursuant to this Agreement,
however created, arising or evidenced, whether direct or indirect, absolute or
contingent, or now or hereafter existing, or due or to become due, subject, in
each case, to any and all defenses which the Company or Parent may have to any
such payment or performance or hereunder.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
NEWCO, INC.
By:__________________________
Chairman of the Board
TELESPECTRUM WORLDWIDE INC.
By:__________________________
Chairman of the Board
_____________________________
GREGORY M. ALCORN
-9-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee, with the same benefits generally
provided to the Company's most senior executive employees from time to time
during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance.
(d) Eligibility to participate in any employee stock option plan maintained
by the Company during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of the monthly fee of a mobile telephone and charges for any
business telephone calls made on the Employee's personal telephone.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between [NEW
NBG Services, Inc.,] a Delaware corporation (the "Company"), TeleSpectrum
Worldwide Inc., a Delaware corporation ("Parent") and Michael J. Gallant (the
"Employee").
RECITALS
--------
The Employee is currently the President and Chief Operating Officer of NBG
Services, Inc. (the "Seller"). The Parent has agreed to acquire substantially
all of the Seller's assets and business pursuant to the Asset Purchase Agreement
dated as of May 3, 1996, and amended and restated on May 20, 1996, by and among
CRW Financial, Inc., the Parent, the Seller, Employee and William F. Rhatigan
(the "Purchase Agreement"). It is a condition precedent to the consummation of
the transactions contemplated by the Purchase Agreement that the Company and the
Employee enter into this Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. During the term of the Employee's employment under this
----------
Agreement (the "Employment Term"), the Employee shall be the President of the
Company and shall perform such duties consistent with such office as are
assigned by the Company's Board of Directors. In addition, after January 1,
1997 the Employee from time to time shall perform such duties for Parent
consistent with his status as one of the senior officers of one of the Parent's
operating units as are assigned from time to time by the Parent's Board of
Directors. Employee shall be a member of the Senior Executive Operating
Committee of such Board which is intended to be the primary non-Board Operating
Committee of Parent and to include officers of each of the Parent's principal
operating units. Except for periodic travel incident to Employee's duties
hereunder, Employee shall not be required to perform his duties hereunder
outside a 35 mile radius of the Company's current principal office.
(b) Employee represents to the Company that he is not subject or a party to
any employment agreement, non-competition covenant, non-disclosure agreement or
any other agreement, covenant, understanding or restriction of any nature which
would prohibit Employee from executing this Agreement and performing fully his
duties and responsibilities hereunder, or which would in any manner, directly or
indirectly, limit or affect the duties and responsibilities which may now or in
the future be assigned to Employee by the Company.
-1-
<PAGE>
2. Performance.
-----------
The Employee shall devote his entire business efforts to the performance of
his duties hereunder; provided, however, that the Employee may engage in
personal investment and charitable activities so long as they do not interfere
with the performance of his duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
[Closing Date], 2000, unless terminated prior thereto in accordance with
Sections 5 or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $250,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall receive an annual bonus during the Employment Term
in an amount equal to $150,000 (such amount is referred to herein as the
"Bonus") payable within 30 days after the end of each calendar year. In
addition, during the Employment Term, Employee shall be entitled to participate
in any additional bonus programs sponsored by the Parent for its executive
officers.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as
----------------
defined below), the Company may terminate the Employment Term by notice to the
Employee, and as of the termination date, the Company shall have no further
liability or obligation to the Employee hereunder except as follows: the
Employee shall receive (i) any unpaid Salary, Bonus and Fringe Benefits that
have accrued through the date of termination; and (ii) whatever benefits that he
may be entitled to receive under any then existing disability benefit plans of
the Company, including any such plans included in the Fringe Benefits. For the
purposes hereof, the Employee shall be deemed to be "totally disabled" if the
Employee is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any
such plan, under applicable Social Security regulations. In the event of any
dispute under this Section 5(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall
-----
terminate on the date of death, and thereafter the Company shall not have any
further liability or obligation to the Employee, his executors, administrators,
heirs, assigns or any other person claiming under or
-2-
<PAGE>
through him except that the Employee's estate shall receive any unpaid Salary,
Bonus and Fringe Benefits that have accrued through the date of termination.
(c) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary,
Bonus, and Fringe Benefits that have accrued through the date of termination,
net of any liabilities that the Employee may have to the Company. For purposes
of this Agreement, "cause" shall mean the Employee's (i) breach (other than by
reason of illness, injury or incapacity) of any of the material terms or
provisions of this Agreement, (ii) the willful and substantial failure to comply
fully with the lawful directives of the Board, (iii) substantial and willful
misconduct, (iv) material neglect of the Company's business, (v) conviction of a
felony or other crime involving moral turpitude, (vi) misappropriation of funds
or (vii) habitual abuse of alcohol, narcotics or other controlled substances.
In the case of a termination for "cause," the notice of termination shall
specify the basis for the Company's determination of "cause"; provided, however,
-------- -------
the in the case of conduct described in clauses (i), (ii), (iii) and (iv) above,
such conduct shall not constitute "cause" for the purposes of this paragraph
(c) unless (A) the Board shall have given the Employee notice setting forth with
specificity (1) the conduct deemed to constitute "cause," (2) reasonable action
that would remedy the objectionable conduct, and (3) a reasonable time (not less
than 5 days) within which the Employee may take such remedial action, and
(B) the Employee shall not have taken such specified remedial action within such
specified reasonable time.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time by giving the Employee
30 days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Employee the Salary and Bonus through [Closing
Date], 2000, and as of the termination date, the Company shall not have any
further liability or obligation to the Employee. The Salary and Bonus to be
paid under Section 6 are referred to herein as the "Termination Compensation."
The Employee shall not be entitled to any Termination Compensation unless the
Employee executes and delivers to the Company after a notice of termination a
release in a form satisfactory to the Company in its sole discretion by which
the Employee releases the Company from any obligations and liabilities of any
type whatsoever, except for the Company's obligations with respect to the
Termination Compensation. The parties hereto acknowledge that the Termination
Compensation to be provided under this Section 6 is to be provided in
consideration for the above-specified release. The Company's obligations under
this Section 6 shall be reduced by and to the extent of any earnings from a
source other than the Company that are received by or accrued for the benefit of
the Employee through _____________, 2000; provided, however, that such
-------- -------
obligations shall only be so reduced by any such earnings if the Company, upon
written request from the Employee, grants a waiver of its rights under
Section 7 hereunder.
-3-
<PAGE>
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), he will not, directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as a partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company or the
Parent at any time during such period within any portion of the United States in
the direct marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Business"). It is recognized by the Employee and the Company that the Business
is and is expected to continue to be conducted throughout the United States and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenant set forth in Section 7(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Employee as a passive investor of not more than five
percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant
to the Securities Exchange Act of 1934.
(b) The Employee further covenants that during the Restricted
Period, he will not, either directly or indirectly, (i) call on or solicit any
person who or which has been a customer of the Company with respect to the
activities prohibited by Section 7(a) or (ii) solicit the employment of any
person who is employed by the Company during such period on a full or part-time
basis.
(c) The Employee recognizes and acknowledges that by reason of his
ownership of and employment by the Seller and the Company he has had access to
Confidential Information relating to the Business. The Employee acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the date
hereof to any person for any reason whatsoever, unless such information (i) is
in the public domain through no wrongful act of Employee, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in
this Section 7 are reasonable and necessary to protect the legitimate interests
of the Parent and the Company, and that any violation will result in irreparable
injury to the Parent and the Company.
(e) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7
-4-
<PAGE>
should ever be adjudicated to exceed the time, geographic, product or service,
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
(f) The covenants set forth in this Section 7 shall be in addition
to not in limitation of any similar covenants set forth in the Purchase
Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by him in compliance with the provisions of
this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not
(i) use or exploit in any manner the Company Information for himself or any
person, partnership, association, corporation or other entity other than the
Company, (ii) remove any Company Information, or
-5-
<PAGE>
any reproduction thereof, from the possession or control of the Company or
(iii) treat Company Information otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by his or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment with the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7, 8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
-6-
<PAGE>
TO EMPLOYEE:
Mr. Michael J. Gallant
[insert address]
with a copy to:
Abrams, Roberts, Klickstein & Levy
265 Franklin Street
Boston, MA 02110
FAX: 617-261-1566
Attention: Barry C. Klickstein, Esquire
TO THE COMPANY:
[NEW NBG]
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the
------------------------------
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such
-7-
<PAGE>
invalidity or unenforceability shall not affect any other provisions or
applications of this Agreement which can be given effect without the invalid or
unenforceable provision or application and shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(i) Guaranty. Parent hereby unconditionally guarantees the full, prompt
---------
and faithful payment of all the payments and the full, prompt and faithful
performance of all the other obligations of Company pursuant to this Agreement,
however created, arising or evidenced, whether direct or indirect, absolute or
contingent, or now or hereafter existing, or due or to become due, subject, in
each case, to any and all defenses which the Company or Parent may have to any
such payment or performance or hereunder.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
NEW NBG, INC.
By:__________________________
Chairman of the Board
TELESPECTRUM WORLDWIDE INC.
By:__________________________
Chairman of the Board
_____________________________
MICHAEL J. GALLANT
-8-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee, with the same benefits generally
provided to the Company's most senior executive employees from time to time
during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance.
(d) Eligibility to participate in any employee stock option plan
maintained by the Company during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of his duties, including the monthly fee of a mobile telephone and
charges for any business telephone calls.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company") and William
F. Rhatigan (the "Employee").
RECITALS
--------
The Employee is currently the Chairman and Chief Executive Officer of NBG
Services, Inc. (the "Seller"). The Company has agreed to acquire substantially
all of the Seller's assets and business pursuant to the Asset Purchase Agreement
dated as of May 3, 1996, and amended and restated on May 20, 1996 by and among
the Company, CRW Financial, Inc., the Seller, Employee and Michael J. Gallant
(the "Purchase Agreement"). It is a condition precedent to the consummation of
the transactions contemplated by the Purchase Agreement that the Company and the
Employee enter into this Agreement.
The Company desires to employ the Employee, and the Employee desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. During the term of the Employee's employment under this
----------
Agreement (the "Employment Term"), the Employee shall be the President of the
Company's telemarketing division and shall perform such duties consistent with
such office as are assigned by the Company's Board of Directors. Employee shall
be a member of the Senior Executive Operating Committee of such Board which is
intended to be the primary non-Board Operating Committee of the Company and to
include officers of each of the Company's principal operating units. Except for
periodic travel incident to Employee's duties hereunder, Employee shall not be
required through January 1, 1997 to perform his duties hereunder outside a 35
mile radius of the Company's principal office. Thereafter, upon the mutual
consent of the Company and the Employee, except for periodic travel incident to
Employee's duties hereunder, Employee shall not be required to perform his
duties hereunder outside a 35 mile radius of the Seller's current principal
office.
(b) Employee represents to the Company that he is not subject or a party to
any employment agreement, non-competition covenant, non-disclosure agreement or
any other agreement, covenant, understanding or restriction of any nature which
would prohibit Employee from executing this Agreement and performing fully his
duties and responsibilities hereunder, or which would in any manner, directly or
indirectly, limit or affect the duties and responsibilities which may now or in
the future be assigned to Employee by the Company.
<PAGE>
2. Performance.
-----------
The Employee shall devote his entire business efforts to the performance of
his duties hereunder; provided, however, that the Employee may engage in
personal investment and charitable activities so long as they do not interfere
with the performance of his duties hereunder.
3. Term.
----
The Employment Term shall begin on the date hereof and shall continue until
[Closing Date], 2000, unless terminated prior thereto in accordance with
Sections 5 or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $250,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall receive an annual bonus during the Employment Term
in an amount equal to $150,000 (such amount is referred to herein as the
"Bonus") payable within 30 days after the end of each calendar year. In
addition, during the Employment Term, Employee shall be entitled to participate
in any additional bonus programs sponsored by the Company for its executive
officers.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee,
and as of the termination date, the Company shall have no further liability or
obligation to the Employee hereunder except as follows: the Employee shall
receive (i) any unpaid Salary, Bonus and Fringe Benefits that have accrued
through the date of termination; and (ii) whatever benefits that he may be
entitled to receive under any then existing disability benefit plans of the
Company, including any such plans included in the Fringe Benefits. For the
purposes hereof, the Employee shall be deemed to be "totally disabled" if the
Employee is considered totally disabled under any group disability plan
maintained by the Company and in effect at that time, or in the absence of any
such plan, under applicable Social Security regulations. In the event of any
dispute under this Section 5(a), the Employee shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Employee, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation to the Employee, his executors, administrators, heirs,
assigns or any other person claiming under or through him except that the
Employee's estate shall receive any unpaid Salary, Bonus and Fringe Benefits
that have accrued through the date of termination.
<PAGE>
(c) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary,
Bonus, and Fringe Benefits that have accrued through the date of termination,
net of any liabilities that the Employee may have to the Company. For purposes
of this Agreement, "cause" shall mean the Employee's (i) breach (other than by
reason of illness, injury or incapacity) of any of the material terms or
provisions of this Agreement, (ii) the willful and substantial failure to comply
fully with the lawful directives of the Board, (iii) substantial and willful
misconduct, (iv) material neglect of the Company's business, (v) conviction of a
felony or other crime involving moral turpitude, (vi) misappropriation of funds
or (vii) habitual abuse of alcohol, narcotics or other controlled substances.
In the case of a termination for "cause," the notice of termination shall
specify the basis for the Company's determination of "cause"; provided, however,
-------- -------
that in the case of conduct described in clauses (i), (ii), (iii) and (iv)
above, such conduct shall not constitute "cause" for the purposes of this
paragraph (c) unless (A) the Board shall have given the Employee notice setting
forth with specificity (1) the conduct deemed to constitute "cause," (2)
reasonable action that would remedy the objectionable conduct, and (3) a
reasonable time (not less than 5 days) within which the Employee may take such
remedial action, and (B) the Employee shall not have taken such specified
remedial action within such specified reasonable time.
6. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause at any time by giving the Employee
30 days' notice of the termination date. Under such circumstances, the Company
shall continue to pay to the Employee the Salary and Bonus through [Closing
Date], 2000, and as of the termination date, the Company shall not have any
further liability or obligation to the Employee. The Salary and Bonus to be
paid under Section 6 are referred to herein as the "Termination Compensation."
The Employee shall not be entitled to any Termination Compensation unless the
Employee executes and delivers to the Company after a notice of termination a
release in a form satisfactory to the Company in its sole discretion by which
the Employee releases the Company from any obligations and liabilities of any
type whatsoever, except for the Company's obligations with respect to the
Termination Compensation. The parties hereto acknowledge that the Termination
Compensation to be provided under this Section 6 is to be provided in
consideration for the above-specified release. The Company's obligations under
this Section 6 shall be reduced by and to the extent of any earnings from a
source other than the Company that are received by or accrued for the benefit of
the Employee through _____________, 2000; provided, however, that such
-------- -------
obligations shall only be so reduced by any such earnings if the Company, upon
written request from the Employee, grants a waiver of its rights under Section 7
hereunder.
-3-
<PAGE>
7. Agreement Not to Compete.
------------------------
(a) The Employee covenants that for the period beginning on the
termination of Employee's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), he will not, directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as a partner, principal, agent,
representative, consultant or otherwise with or use or permit his name to be
used in connection with, any business or enterprise engaged directly or
indirectly in competition with the business conducted by the Company at any time
during such period within any portion of the United States in the direct
marketing business which includes inbound and outbound telemarketing,
fulfillment, direct mail, customer retention and market research (the
"Business"). It is recognized by the Employee and the Company that the Business
is and is expected to continue to be conducted throughout the United States and
that more narrow geographical limitations of any nature on this non-competition
covenant (and the non-solicitation covenant set forth in Section 7(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Employee as a passive investor of not more than five
percent (5%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses having a class of securities registered pursuant
to the Securities Exchange Act of 1934.
(b) The Employee further covenants that during the Restricted Period,
he will not, either directly or indirectly, (i) call on or solicit any person
who or which has been a customer of the Company with respect to the activities
prohibited by Section 7(a) or (ii) solicit the employment of any person who is
employed by the Company during such period on a full or part-time basis.
(c) The Employee recognizes and acknowledges that by reason of his
ownership of and employment by the Seller and the Company he has had access to
Confidential Information relating to the Business. The Employee acknowledges
that such Confidential Information is a valuable and unique asset and covenants
that he will not disclose any such Confidential Information after the date
hereof to any person for any reason whatsoever, unless such information (i) is
in the public domain through no wrongful act of Employee, (ii) has been
rightfully received from a third party without restriction and without breach of
this Agreement or (iii) except as may be required by law.
(d) The Employee acknowledges that the restrictions contained in this
Section 7 are reasonable and necessary to protect the legitimate interests of
the Company, and that any violation will result in irreparable injury to the
Company.
(e) The Employee agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of this Section 7, which rights shall
be cumulative and in addition to any other rights or remedies to which the
Company may be entitled. In the event that any of the provisions of this
Section 7
-4-
<PAGE>
should ever be adjudicated to exceed the time, geographic, product or service,
or other limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic, product or service, or other limitations permitted by applicable
law.
(f) The covenants set forth in this Section 7 shall be in addition to
not in limitation of any similar covenants set forth in the Purchase Agreement.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by him in compliance with the provisions of
this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Employee or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Employment Term, the Employee shall not (i)
use or exploit in any manner the Company Information for himself or any person,
partnership, association, corporation or other entity other than the Company,
(ii) remove any Company Information, or
-5-
<PAGE>
any reproduction thereof, from the possession or control of the Company or (iii)
treat Company Information otherwise than in a confidential manner.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by his or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment with the Company.
10. Remedies.
--------
The Employee expressly acknowledges that the remedy at law for any breach
of Sections 7, 8 and 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to the remainder of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
11. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the Commonwealth of Pennsylvania.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
-6-
<PAGE>
TO EMPLOYEE:
Mr. William F. Rhatigan
[insert address]
with a copy to:
Abrams, Roberts, Klickstein & Levy
265 Franklin Street
Boston, MA 02110
FAX: 617-261-1566
Attention: Barry C. Klickstein, Esquire
TO THE COMPANY:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this
-7-
<PAGE>
Agreement which can be given effect without the invalid or unenforceable
provision or application and shall not invalidate or render unenforceable such
provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
TELESPECTRUM WORLDWIDE INC.
By:__________________________
Chairman of the Board
_____________________________
WILLIAM F. RHATIGAN
-8-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee, with the same benefits generally
provided to the Company's most senior executive employees from time to time
during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Term life insurance.
(d) Eligibility to participate in any employee stock option plan maintained
by the Company during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of his duties, including the monthly fee of a mobile telephone and
charges for any business telephone calls.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
<PAGE>
CONSULTING AGREEMENT
--------------------
This Agreement is made as of the ____ day of __________, 1996 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and Richard
W. Virtue (the "Consultant").
RECITALS
--------
The agreement by the parties to the terms and conditions of this Agreement
is a condition precedent to the closing of the transactions contemplated by the
Asset Purchase Agreement, dated as of April 26, 1996, as amended and restated as
of May 20, 1996, by and among SOMAR, Inc., a North Carolina corporation
("SOMAR"), Richard W. Virtue, CRW Financial, Inc. and the Company.
The Company desires to retain the Consultant, and the Consultant desires to
provide services to the Company, upon the terms and conditions hereinafter set
forth.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Consultancy.
-----------
(a) The Company hereby retains the Consultant and the Consultant hereby
accepts such retention as a business consultant to the Company. During the term
of this Agreement, the Consultant shall perform such tasks as are assigned by
the Chief Executive Officer of the Company.
(b) The Consultant represents to the Company that he is not subject or a
party to any employment agreement, non-competition covenant, non-disclosure
agreement or any other agreement, covenant, understanding or restriction of any
nature which would prohibit the Consultant from executing this Agreement and
performing fully his duties and responsibilities hereunder, or which would in
any manner, directly or indirectly, limit or affect the duties and
responsibilities which may now or in the future be assigned to the Consultant by
the Company.
2. Performance.
-----------
The Consultant hereby agrees to devote the requisite time, attention and
efforts to promote and further the business of the Company and to fulfill his
duties under this Agreement.
<PAGE>
3. Term.
----
The Term shall begin on the date hereof and shall continue until the third
anniversary of the date hereof (the "Term"), unless terminated prior thereto
upon delivery of 30 days prior notice by any party hereto.
4. Compensation. The basic annual rate paid by the Company to the Consultant
------------
for his services to the Company during the Term shall be $150,000 (such amount
is referred to herein as the "Fees"), which the Company shall pay to the
Consultant on a monthly basis, and reimbursement, in accordance with the
Company's policies, upon proper accounting, of reasonable expenses and
disbursements incurred by the Consultant in the course of his duties
("Reimbursements"). During the term of this Agreement, the Consultant shall not
be entitled to receive any directors' fees from the Company on account of his
service as a director of the Company other than reimbursement of expenses.
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Consultant becomes totally disabled (as
----------------
defined below), the Company may terminate the Term by notice to the Consultant,
and as of the termination date, the Company shall have no further liability or
obligation to the Consultant hereunder, except that the Consultant shall receive
any unpaid Fees and Reimbursements that have accrued through the date of
termination. For the purposes hereof, the Consultant shall be deemed to be
"totally disabled" if the Consultant is considered totally disabled under any
group disability plan maintained by the Company and in effect at that time, or
in the absence of any such plan, under applicable Social Security regulations.
In the event of any dispute under this Section 5(a), the Consultant shall submit
to a physical examination by a licensed physician mutually satisfactory to the
Company and the Consultant, the cost of such examination to be paid by the
Company, and the determination of such physician shall be determinative.
(b) Death. If the Consultant dies, this Agreement shall terminate on the
-----
date of death, and thereafter the Company shall not have any further liability
or obligation to the Consultant, his executors, administrators, heirs, assigns
or any other person claiming under or through his estate, except that the
Consultant's estate shall receive any unpaid Fees and Reimbursements that have
accrued through the date of termination.
(c) Cause. The Company may terminate the Term for "cause" by giving the
-----
Consultant 30 days notice of the termination date, and as of the termination
date, the Company shall not have any further liability or obligation to the
Consultant, except that the Consultant shall receive any unpaid Fees and
Reimbursements that have accrued through the date of termination, net of any
liabilities that the Consultant may have to the Company. For purposes of this
Agreement, "cause" shall mean the failure of the Consultant to observe or
perform (other than by reason of illness, injury or incapacity) any of the
material terms or
2
<PAGE>
provisions of this Agreement, conviction of a felony or other crime involving
moral turpitude, or habitual insobriety.
6. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Consultant, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Term or during his
employment by the Company prior to the commencement of the Term and that relate
to the actual or planned business activities of the Company (collectively, the
"Developments") and all of the Consultant's right, title and interest therein,
shall be the exclusive property of the Company. The Consultant hereby assigns,
transfers and conveys to the Company all of his right, title and interest in and
to any and all such Developments. The Consultant shall disclose fully, as soon
as practicable and in writing, all Developments to the Board. At any time and
from time to time, upon the request of the Company, the Consultant shall execute
and deliver to the Company any and all instruments, documents and papers, give
evidence and do any and all other acts that, in the opinion of counsel for the
Company, are or may be necessary or desirable to document such transfer or to
enable the Company to file and prosecute applications for and to acquire,
maintain and enforce any and all patents, trademark registrations or copyrights
under United States or foreign law with respect to any such Developments or to
obtain any extension, validation, re-issue, continuance or renewal of any such
patent, trademark or copyright. The Company will be responsible for the
preparation of any such instruments, documents and papers and for the
prosecution of any such proceedings and will reimburse the Consultant for all
reasonable expenses incurred by him in compliance with the provisions of this
Section 6.
7. Confidential Information.
------------------------
(a) The Consultant has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer or product information or technical or business information of
the Company. All such information, other than any information that is in the
public domain through no act or omission of the Consultant or which he is
authorized to disclose, is referred to collectively as "Company Information."
During and after the Term, the Consultant shall not (i) use or exploit in any
manner Company Information for himself or any person, partnership, association,
corporation or other entity other than the Company, (ii) remove any Company
Information, or any reproduction thereof, from the possession or control of the
Company or (iii) treat Company Information otherwise than in a confidential
manner.
(b) All Company Information developed, created or maintained by the
Consultant, alone or with others while retained by the Company, and all Company
Information maintained by the Consultant thereafter, shall remain at all times
the exclusive property of the Company.
3
<PAGE>
The Consultant shall return to the Company all Company Information, and
reproductions thereof, whether prepared by him or others, that are in his
possession immediately upon request and in any event upon the completion of his
retention by the Company.
8. Remedies.
--------
The Consultant expressly acknowledges that the remedy at law for any breach
of Sections 6 and 7 hereof will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Consultant's
obligations under these provisions without the necessity of proving the actual
damage to the Company or the inadequacy of a legal remedy. Subject to the
remainder of this Section 8, the rights conferred upon the Company by the
preceding sentence shall not be exclusive of, but shall be in addition to, any
other rights or remedies which the Company may have at law, in equity or
otherwise.
9. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the State of Delaware.
(b) Company. For purposes of Sections 6, 7 and 8, the term "Company" shall
-------
be deemed to include any incorporated or unincorporated entities that are
controlled, directly or indirectly, by the Company through ownership, agreement
or otherwise.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Consultant hereunder are of a
personal nature and shall not be assignable in whole or in part by the
Consultant.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
TO CONSULTANT:
Richard W. Virtue
[insert address]
with a copy to:
4
<PAGE>
TO THE COMPANY:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chairman of the Board
With a copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
Fax: 215-963-5299
Attn: Stephen M. Goodman, Esquire
(e) Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Term and of the
--------
Consultant's retention by the Company, this Agreement shall continue to bind the
parties for so long as any obligations remain under the terms of this Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable
5
<PAGE>
provision or application and shall not invalidate or render unenforceable such
provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
TELESPECTRUM WORLDWIDE INC.
By:_________________________
Chairman of the Board
_____________________________
RICHARD VIRTUE
6
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
registration statement.
Philadelphia, PA ARTHUR ANDERSON LLP
May 22, 1996
<PAGE>
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I, William F. Rhatigan, hereby consent to the use, in the Registration
Statement of Form S-1 of TeleSpectrum Worldwide Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
WILLIAM F. RHATIGAN
Boston, Massachusetts
May 22, 1996
<PAGE>
EXHIBIT 99.02
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I, Richard W. Virtue, hereby consent to the use, in the Registration
Statement on Form S-1 of TeleSpectrum Worldwide Inc., a Delaware corporation
(the "Company"), to which this consent is filed as an exhibit included therein,
of my name as a person about to become a Director of the Company.
RICHARD W. VIRTUE
Salisbury, North Carolina
May 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-26-1996
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,225
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,225
<CURRENT-LIABILITIES> 2,425
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> (210)
<TOTAL-LIABILITY-AND-EQUITY> 2,225
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (200)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (200)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
