<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of The Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999
or
[_] Transition report pursuant to section 13 or 15(d) of The Securities
Exchange Act of 1934 for the transition period from to
Commission File No. 0-21107
________________
TeleSpectrum Worldwide Inc.
---------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 23-2845501
---------- ----------
(State Or Other Jurisdiction Of (I.R.S. Employer
Incorporation Or Organization) Identification Number)
443 South Gulph Road, King of Prussia, PA 19406
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(Address of principal Executive Offices) (Zip Code)
610-878-7400
------------
(Registrant's Telephone Number, Including Area Code)
________________
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class)
________________
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No
________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of February 29, 2000 the aggregate market value of the common stock held by
non-affiliates of the registrant was $243,971,000. Such aggregate market value
was computed by reference to the closing sale price of the common stock as
reported on the Nasdaq National Market on such date. For purposes of making this
calculation only, the registrant has defined affiliates as including all
directors, executive officers and beneficial owners of more than five percent of
the common stock of the registrant.
As of February 29, 2000, there were 38,805,613 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Part III of
this Form 10-K Report: Proxy Statements for Registrant's 2000 Annual Meeting of
Stockholders - Items 10, 11, 12 and 13.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C>
Item 1. Business.................................................................................... 1
Item 2. Properties.................................................................................. 5
Item 3. Legal Proceedings........................................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......................................... 6
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters................... 6
Item 6. Selected Financial Data..................................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................. 20
Item 8. Financial Statements and Supplementary Data................................................. 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........ 21
PART III
Item 10. Directors and Executive Officers of the Registrant.......................................... 21
Item 11. Executive Compensation...................................................................... 21
Item 12. Security Ownership of Certain Beneficial Owners and Management.............................. 21
Item 13. Certain Relationships and Related Transactions.............................................. 21
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Report on Form 8-K.............................. 21
Index to Financial Statements and Schedule.................................................. F-1
</TABLE>
Cautionary Statement Concerning Forward-Looking Statements
We have made forward-looking statements in this Form 10-K including the
information concerning possible or assumed future results of our operations and
those preceded by, followed by or that include the words "anticipates,"
"believes," "expects," "intends" or similar expressions. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document, particularly under "Risk Factors", could affect our
future results and could cause those results to differ materially from those
expressed in our forward-looking statements:
. our significant debt service obligations;
. our need to obtain additional financing to pursue our business objectives;
. our increased debt restricting our ability to obtain financing or pursue
other business objectives;
. our profitability is sometimes dependent on one or more significant
clients;
. adverse effects on profitability if we do not maintain sufficient capacity
utilization;
. adverse effects on our company if we do not obtain and implement new or
enhanced technology;
. adverse effects on our profitability if we do not avoid high personnel
turnover;
. our reliance on telecommunications companies;
. fluctuations in quarterly operating results causing our stock price to
change; and
. events directly or indirectly relating to our company causing our stock
price to be volatile.
<PAGE>
TELESPECTRUM WORLDWIDE INC.
PART I
Item 1. Business
We began our operations when we completed our initial public offering in 1996
and on the same day acquired our six initial operating businesses. Through
acquisitions in 1996 and 1997 and our merger of International Data Response
Corporation in 1999, we expanded our capabilities beyond traditional
telemarketing and outsourced call center services. Today, in addition to our
primary telemarketing services, we are a leading provider of multi-channel
Customer Relationship Management solutions (or CRM) to large corporations and
high-growth technology companies. We provide our clients with a full service
menu of customer relationship management capabilities over interactive channels
so that their customers may interact with our representatives through the
telephone, e-mail, the Internet and facsimile. Our telemarketing and CRM
services currently include inbound and outbound telemarketing, inbound customer
service, interactive voice response, customer care, customer care consulting,
call center management and e-channel customer care.
During the first quarter of 2000, we retained an investment banker to raise
capital to assist in the strategic initiatives of our multi-channel CRM
services. In addition, we are evaluating alternative business growth strategies
surrounding multi-channel CRM solutions including, but not limited to,
independently operating and raising capital relative to these businesses.
Industry Overview
The telemarketing and multi-channel CRM industries in which we compete have
experienced significant change in recent years. Advances in computer and
telecommunications technology have assisted telemarketing and CRM companies to
more accurately identify and contact current and prospective customers, as well
as provide more accurate, timely and complete customer and product information
to the representatives providing services to the customer. Providers of
telemarketing and CRM services 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 operations, while at the same time better matching available
capacity to fluctuating client demand.
In the last few years the traditional customer service industry has changed from
offering traditional telephone based services to providing a full variety of
service solutions. The new ways in which companies interact with their
customers has spurred on the emergence of multi-channel CRM - the practice of
identifying, attracting and retaining customers to generate profitable revenue
growth for clients by providing a full range of interactive customer services.
The industry has responded with the technology and mechanisms to provide
solutions to clients for dealing with their customers throughout the customer
lifecycle by providing multiple channel capabilities. Thus, the customer is
serviced not only through the telephone, but also through email, the Internet
and facsimile.
In the CRM industry, a significant portion of CRM services are currently
performed by prospective clients' in-house operations. This provides a
significant outsourcing opportunity for CRM providers. We believe that the
market for CRM solutions will further increase due to the growth of the e-
channel service needs of brick and mortar companies as they extend their channel
reach into e-commerce and with the growth of their customer base, the increased
needs of e-commerce companies to service their customers through multiple
communication channels and particularly through the Internet.
Services Overview
We are currently positioned to take advantage of the rapidly growing market
presented by Internet technologies, the emerging customer care needs resulting
from the new ways in which companies interact with their customers, and the
expanding needs of e-commerce companies to respond to and service their
customers. In September 1999, we launched ChannelCare, our branded multi-
channel CRM platform. Through ChannelCare, we can deliver seamlessly integrated
business solutions. ChannelCare provides web-based sales and service, e-mail
response, web telephony, video and real-time chat and traditional customer
service solutions within a multi-channel contact environment.
In February 2000, we created eSatisfy.com, Inc., (e-Satisfy), a business-to-
business Internet company formed to measure, monitor and improve the customer
service experience. We created e-Satisfy by combining the business of our CRM
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advisory division, TARP, with that of Customer Insites, Inc., (CI), an Internet
satisfaction measurement company that we recently acquired. e-Satisfy
specializes in "cross channel" customer satisfaction measurement, targeting both
large brick and mortar companies, TARP's traditional customer base and emerging
e-commerce companies, CI's target customer base. e-Satisfy, with its multi-site
data collection, storage and feedback network, is uniquely positioned to offer
companies valuable measurement tools to compete in today's Internet-based
economy.
Our call centers continue to provide traditional forms of customer service to
our clients. These services include responding to customer calls via customer
service representatives (CSRs), interactive voice response services, call center
management and consulting services. Responding to customer calls involves the
processing of customer inquiries by CSRs. The customer will typically call a
toll-free "800" or "888" number which is routed to one of our centers. The
incoming call is identified by the number dialed and linked to the CSR that is
best trained and available to handle the call. At the same time, through the
latest computer telephony integration (CTI) technology, relevant customer and/or
product information is delivered to the CSRs computer screen, complete with
prompts and response text necessary to handle the inquiry. When the call is
completed, information gathered is stored and delivered back to the client's
central data files. Our interactive voice response services involve responding
to incoming customer calls via automated systems. Where required, these calls
are transferred to CSRs. Our consulting services involve conducting research
surveys that assess the effectiveness of a clients' customer service efforts.
Our call center management services involve running most aspects of a client's
call center, including recruiting and staffing the CSRs, managing the operations
and providing reports that analyze the performance of the client's call center.
We also provide business to consumer and business to business outbound
telemarketing services which are today also referred to as customer acquisition
services. These services involve the placing of telephone calls on behalf of
our clients, normally as part of our clients' efforts to sell their products or
services, or to obtain new customers. Our clients provide us with the list of
customers or prospective customers to be called. These lists consist of
individuals or businesses that have characteristics that would indicate that
they are potential purchasers of a client's products or services. Our
telemarketing sales representatives (TSRs) use prepared scripts when making the
calls. These scripts are either prepared by our client or us and contain
written questions and answers that are designed to assist the TSR in handling
these calls. We use our computerized call management systems to make these
calls. These systems have predictive dialers that automatically dial telephone
numbers, determine if live connections have been made and present connected
calls to our TSRs.
Information Technology
The growth of Internet usage and the increasing need to provide consistent,
personalized customer service for Internet users has driven convergence of the
traditional call center and the Internet. Our technology infrastructure and
ChannelCare technology platform are positioned to capitalize on this opportunity
by augmenting our traditional telephone based support capabilities with the
means to support customer web interactions such as e-mail, web chat, web
callback, Voice over the Internet, video, and fax.
The ChannelCare platform is based upon industry leading package software
technologies, including Siebel's Systems Call Center and e-business and Genesys'
Labs CTI and Internet Suite.
ChannelCare capabilities allow us to provide personalized, effective, and
efficient interactions between our CSRs and our clients' customers. For
example, we have the ability to analyze data about customers gathered over
multiple communication channels, and through intelligent contact routing, we can
direct customers to the CSR that is best able to provide personalized service
for their customer care needs. We can also service those customers through our
universal CSR capabilities, whereby any one CSR may service a customer through
the Internet, e-mail and the telephone, all at the same time. Our platform
further enables CSRs to share content, applications and graphical materials with
customers and collaborate with them through the Internet in real time. Through
web self-service, customers can create their own service requests to our CSRs
over the Internet. We also have the ability to use data that has been gathered
about our clients' customers to create targeted, personalized e-mail marketing
campaigns.
Our technology infrastructure supports our traditional call center functions and
the capabilities that can be delivered through ChannelCare. Our technology
infrastructure offers a highly scalable and reliable environment for processing
customer interactions. The infrastructure utilizes state-of-the-art
technologies from Hewlett Packard (Unix), Oracle, EMC, Cisco, and Microsoft.
The infrastructure allows us to seamlessly interact with our clients' systems
and to provide software solutions that are specifically tailored to our clients'
needs.
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With the addition of new, complimentary vendor technologies, continued
investment directed towards developing a proprietary e-business layer built on
top of our core vendor technologies, and the formation of strategic technology
partnerships, we will further enhance our technology capabilities already
available to our clients.
Competition
The telemarketing and CRM industries are intensely competitive. We compete with
numerous independent telemarketing and CRM firms as well as the in-house
operations of many of our existing or prospective clients. We compete for
telemarketing and CRM services based on quality, technological expertise,
customer service, price, value, range of service offerings, and available
capacity.
Most businesses that are significant consumers of telemarketing and CRM services
utilize more than one firm to outsource their business and often reallocate work
among various firms from time to time. Clients often request telemarketing and
CRM services to be provided on an individual project basis and we frequently are
required to compete for individual projects as they are initiated.
Sales and Marketing
As of December 31, 1999, we employed 21 sales personnel. Sales personnel are
compensated by salary and commissions based on sales performance.
We generally operate under short-term cancelable contractual relationships with
our telemarketing clients. Our CRM client contracts are generally for one to
three years. Our prices often include an initial fee, a base service charge and
separate charges for ancillary services. Service charges for telemarketing and
CRM services are based upon hourly rates or minute rates. Charges for other
services are normally assessed on a fee-for-service basis.
Targeted Industries
We target our marketing efforts toward clients in the following principal
industries:
Telecommunications
We provide customer acquisition services for major telecommunications companies
for their long distance, cellular and cable products and services. We also
provide customer acquisition services for regional telecommunications companies
for their advanced telephone features. We offer these clients telemarketing
services for their consumer and business customers. In addition, we answer
incoming customer service calls and provide customer care consulting services
for the telecommunications industry. The telecommunications industry provided
32% and 27% of our total revenues in 1999 and 1998, respectively.
Financial Services
We provide banks and other financial services clients with a wide range of
services, including:
. acquiring new customers;
. encouraging product use;
. encouraging balance transfers;
. regaining customers; and
. customer service.
The financial services industry provided 28% and 23% of our total revenues in
1999 and 1998, respectively.
Insurance
We work with large consumer insurance companies and their agents, complementing
their sales efforts by telemarketing products such as life and accidental death
and dismemberment insurance. In addition, we answer incoming customer service
and sales calls. As of December 31, 1999, we employed 327 licensed insurance
agents collectively holding state insurance licenses from 48 states. These
agents provide customer acquisition services for our clients. The insurance
industry provided 10% of our total revenues in 1999 and 1998.
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Pharmaceutical and Health Care
We provide our pharmaceutical clients with product support and customer service
for their business and consumer customers. We also perform customer care
consulting for clients in the health care industry.
Utilities
We provide large public and private utilities with the following services:
. deregulation education for consumers;
. customer service;
. consumer affairs services;
. collection efforts; and
. customer service surveys.
Consumer Products
We provide consumer products clients with customer service, order entry and new
customer acquisition services.
Technology
We provide product support and customer service for clients in the computer
hardware and software industry. We also provide business-to-business
telemarketing such as product sales, lead generation and customer qualification
and provide call center management services for technology clients.
Government
We provide government agencies and quasi-government agencies with a wide range
of services either directly or through strategic alliances. These services
include customer service and transaction processing.
In addition to the clients that we target in the foregoing industries, our CRM
initiatives through e-Satisfy and Channel Care are marketed towards traditional
brick and mortar companies and e-commerce companies. We target traditional
brick and mortar companies that own call centers or outsource voice support
services and are extending their channel reach into e-commerce, and we target e-
commerce companies that are experiencing high levels of growth, are developing
their baseline customer care capabilities and have limited owned call center or
e-care center infrastructures.
Personnel and Training
As of December 31, 1999, we employed approximately 9,065 individuals on a full-
time basis and 325 individuals on a part-time basis. TSRs and CSRs account for
approximately 7,085 employees of our total workforce of 9,390. Our ability to
hire, train and manage qualified employees is critical to our ability to provide
high quality services to our clients.
Government Regulation
Our sales practices are regulated at both the federal and state level. The
Federal Telephone Consumer Protection Act of 1991, 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. The FCC rules further require
telemarketers to have procedures in place to maintain lists of residential
customers who do not want to receive telephone solicitations.
The Federal Trade Commission regulates both general sales practices and
telemarketing specifically. Under the Federal Trade Commission 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. 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
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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 and the nature of the goods or services offered. The
regulations also require that telemarketers maintain records on various aspects
of their business.
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 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.
We are also affected by laws applicable to our client's businesses. For
example, "anti-slamming" legislation requires telecommunication carriers to
provide substantial verification from their customers that they have authorized
a change in the carrier of their telephone service. This legislation places
penalties on telecommunications carriers that do not obtain the required
verification. In addition, our 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 we currently
provide.
Violation of the rules and regulations applicable to telemarketing practices may
result in injunctions against certain operations, in monetary penalties or
disgorgement of profits; moreover, such violations may give rise to private
actions for damages. We believe we are in compliance with applicable rules and
regulations.
Item 2. Properties
Our corporate headquarters are located in 21,000 square feet of rented office
space in King of Prussia, Pennsylvania.
As of December 31, 1999 we operated the following material facilities:
Number Of
TelemarketingCenters Workstations
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Beckley, WV 220
Charleston, WV 240
Endicott, NY 240
Fayetteville, NC 116
Huntington, WV 240
Salisbury, NC 104
Scranton, PA 240
Steubenville, OH 180
Wheeling, WV 240
Winnipeg, Manitoba 218
Phoenix, AZ 180
Aliquippa, PA 180
Pittsburgh, PA 180
Duluth, MN 182
Fergus Falls, MN 114
Bemidji, MN 104
Milbank, SD 116
North Bay, Ontario 190
Toronto, Ontario 516
St. Catherine, Ontario 228
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4,028
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Customer Care Centers
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Annapolis, MD 200
Arlington, VA N/A
Linthicum, MD 136
London, U.K. N/A
Woodlawn, MD 347
Buffalo, NY 312
San Diego, CA 444
Chantilly, VA 66
Barbourville, KY 126
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King of Prussia, PA 105
Phoenix, AZ 250
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1,986
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Customer Care Managed Centers
- -----------------------------
White Plains, NY 50
Littleton, MA 77
Cheektowaga, NY 230
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357
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Total 6,371
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The customer care managed centers are not owned or leased by us, but are
operated as managed call centers for our clients.
Item 3. Legal Proceedings
We are from time to time involved in litigation incidental to our business. We
do not believe that the resolution of any existing litigation will result in a
material adverse effect on our business, results of operations, or financial
condition. See Note 8 to our Consolidated Financial Statements.
Item 4. Submission Of Matters To A Vote Of Security Holders
We did not submit any matters to a vote of security holders during the fourth
quarter of 1999.
PART II
Item 5. Market For The Registrant's Common Equity And Related Stockholder
Matters
Our common stock trades on the NASDAQ National Market under the symbol TLSP.
The following table sets forth, for the periods indicated, the high and low
closing sales price per share of our common stock, as reported on the NASDAQ
National Market, since 1997.
High Low
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1997
First Quarter $17.875 $10.375
Second Quarter 16.750 6.781
Third Quarter 9.000 4.250
Fourth Quarter 6.500 2.969
1998
First Quarter 7.250 2.750
Second Quarter 11.000 5.813
Third Quarter 9.125 3.625
Fourth Quarter 10.688 7.250
1999
First Quarter 12.000 7.938
Second Quarter 8.563 6.063
Third Quarter 8.375 5.250
Fourth Quarter 7.625 4.000
On February 29, 2000, the closing price for a share of common stock as reported
by the NASDAQ National Market was $7.94. We have not paid any dividends since
our inception. The declaration and payment of dividends in the future will be
determined by the board of directors in light of conditions then existing,
including our earnings, financial condition, bank covenants and capital
requirements.
Item 6. Selected Financial Data
The following selected financial data was derived in part from our consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.
During 1999 we began reporting operating expenses differently from the
historical presentation in order to be more consistent with industry practices.
The principal change relates to the components of two line items - Cost of
Services and Selling, General and Administrative. Cost of Services now reflects
only those costs that are directly associated with
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the operation of a call center. All other costs, including account management,
management information systems and human resources, are included in Selling,
General and Administrative. This reclassification has been made for all periods
presented.
TeleSpectrum Worldwide Inc.
Selected Financial Data
(continued)
<TABLE>
<CAPTION>
Period from
April 26, 1996
(Inception) to
Year Ended December 31 December 31,
-----------------------
1999(3) 1998 1997(2) 1996(1)
---- ---- ---- ----
(In thousands - except per share amounts)
<S> <C> <C> <C> <C>
Statements Of Operations:
Revenues $266,810 $167,428 $ 178,922 $ 53,154
-------- -------- --------- ---------
Operating Expenses:
Cost of services 195,573 130,406 154,846 33,010
Selling, general and administrative 53,898 41,785 41,793 14,058
Goodwill amortization (includes goodwill impairment charge
of $139,072 in 1997) 4,431 1,178 146,321/(2)/ 2,147
-------- -------- --------- ---------
Total operating expenses 253,902 173,369 342,960 49,215
-------- -------- --------- ---------
Operating income (loss) 12,908 (5,941) (164,038) 3,939
Interest (expense) income, net (7,026) (1,246) (1,876) 433
Investment gain - - 1,760 -
-------- -------- --------- ---------
Income (loss) from continuing operations before taxes 5,882 (7,187) (164,154) 4,372
Income tax benefit (expense) - 247 2,310 (1,693)
-------- -------- --------- ---------
Income (loss) from continuing operations $ 5,882 $ (6,940) $(161,844) $ 2,679
======== ======== ========= =========
Basic earnings (loss) per share from continuing operations $ 0.21 $ (0.27) $ (6.42) $ 0.15
======== ======== ========= =========
Diluted earnings (loss) per share from continuing operations $ 0.18 $ (0.27) $ (6.42) $ 0.15
======== ======== ========= =========
December 31,
--------------
1999 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ - $ 794 $ 774 $ 28,171
Working capital, including net assets of discontinued operations 13,912 16,702 20,655 49,373
Total assets 318,407 103,689 144,721 296,539
Long-term debt, less current maturities 113,846 2,876 3,800 4,199
Stockholders' equity 139,433 76,568 80,377 240,511
</TABLE>
_______________
(1) TeleSpectrum Worldwide Inc. was incorporated on April 26, 1996;
accordingly, there are no historical results prior to that date.
(2) Includes goodwill impairment charge of $139.1 million recorded in the
fourth quarter of 1997. See Note 2 to our Consolidated Financial
Statements.
(3) Results include the merger with IDRC from June 30, 1999. See Note 3 to our
Consolidated Financial Statements.
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TeleSpectrum Worldwide Inc.
Selected Financial Data
(continued)
Predecessor Companies (Initial Operating Businesses)
----------------------------------------------------
<TABLE>
<CAPTION>
Period from January 1,
1996
to August 12, Fiscal Year Ended
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Statements Of Operations:
SOMAR
Revenues $26,421 $31,900
Cost of services 21,406 25,048
Selling, general and administrative 3,817 5,162
Operating income 1,198 1,690
Net income 637 979
NBG
Revenues 11,311 12,829
Cost of services 7,686 8,572
Selling, general and administrative 1,645 2,115
Operating income 1,980 2,142
Net income 1,868 2,106
Reich
Revenues 14,558 12,253
Cost of services 8,550 7,836
Selling, general and administrative 1,466 2,534
Operating income 4,542 1,883
Net income 4,511 1,840
TeleSpectrum Maryland
Revenues 10,529 11,854
Cost of services 6,974 8,338
Selling, general and administrative 2,929 3,072
Operating income 626 444
Net income 497 278
</TABLE>
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TeleSpectrum Worldwide Inc.
Selected Financial Data
(continued)
Predecessor Companies (Initial Operating Businesses)
----------------------------------------------------
<TABLE>
<CAPTION>
At Fiscal Year End
1995
----
(in thousands)
<S> <C>
Balance Sheet Data:
SOMAR
Cash and cash equivalents $ 25
Working capital deficit (1,990)
Total assets 10,792
Long-term debt, including capital lease obligations, less current portion 1,639
Stockholders' equity 771
NBG
Cash and cash equivalents 700
Working capital 1,270
Total assets 4,234
Long-term debt, including capital lease obligations, less current portion 454
Stockholders' equity 2,254
Reich
Cash and cash equivalents 220
Working capital 821
Total assets 4,318
Long-term debt, including capital lease obligations, less current portion 371
Stockholders' equity 1,668
TeleSpectrum Maryland
Cash and cash equivalents 15
Working capital 37
Total assets 3,549
Long-term debt, including capital lease obligations, less current portion 57
Stockholders' equity 687
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Cautionary Statement Concerning Forward-Looking Statements
We have made forward-looking statements in this Form 10-K including the
information concerning possible or assumed future results of our operations and
those preceded by, followed by or that include the words "anticipates,"
"believes," "expects," "intends" or similar expressions. For those statements,
we claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. You should
understand that the following important factors, in addition to those discussed
elsewhere in this document, particularly under "Risk Factors", could affect our
future results and could cause those results to differ materially from those
expressed in our forward-looking statements:
. our significant debt service obligations;
. our need to obtain additional financing to pursue our business
objectives;
. our increased debt restricting our ability to obtain financing or
pursue other business objectives;
. our profitability is sometimes dependent on one or more significant
clients;
. adverse effects on profitability if we do not maintain sufficient
capacity utilization;
. adverse effects on our company if we do not obtain and implement new
or enhanced technology;
. adverse effects on our profitability if we do not avoid high personnel
turnover;
. our reliance on telecommunications companies;
. fluctuations in quarterly operating results causing our stock price to
change; and
. events directly or indirectly relating to our company causing our
stock price to be volatile.
Results of Operations
Background
We provide services to our customers through our Telemarketing and Customer Care
Segments. Customer Care encompasses our more traditional business line of
inbound customer service, customer care, and customer care consulting as well as
our more recent strategic initiatives into multi-channel Customer Relationship
Management ("CRM") including web-based sales and service, e-mail response, web
telephony, web chat, and fax.
On June 30, 1999 we completed mergers with International Data Response
Corporation ("IDRC") and CRW Financial, Inc. ("CRW"). The CRW merger was
recorded as a treasury stock transaction and accordingly, did not affect the
results of operations during 1999. The IDRC merger was accounted for as a
purchase, and accordingly the net tangible liabilities and results of operations
of IDRC have been included in our consolidated financial statements commencing
on June 30, 1999.
During the first quarter of 2000, we retained an investment banker to raise
capital for e-Satisfy.com, Inc. - a company formed by merging TARP, our CRM
advisory division, and Customer Insites, Inc., a company acquired in January
2000. The scope of the investment banker's engagement was then expanded to raise
additional capital to assist in the strategic initiatives of ChannelCare, our
multi-channel CRM platform. In addition, we are evaluating alternative business
growth strategies surrounding our multi-channel CRM solutions including, but not
limited to, independently operating and raising capital relative to these
businesses.
During 1999 we began reporting operating expenses differently from the
historical presentation in order to be more consistent with industry practices.
The principal change relates to the components of two line items - Cost of
Services and SG&A. Cost of Services now reflects only those costs that are
directly associated with the operation of a call center. All other costs,
including account management, management information systems and human
resources, are included in SG&A. This reclassification has been made for all
periods presented.
The following discussions should be read in conjunction with "Selected Financial
Data" and the Consolidated Financial Statements contained within this report on
Form 10-K.
10
<PAGE>
Comparison of the results of operations for 1999 to 1998.
<TABLE>
<CAPTION>
Results Of Operations
(Dollars In Millions)
----------------------------
Year Ended As A Year Ended As A
December 31, Percentage Of December 31, Percentage Of
1999 Revenues 1998 Revenues
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Telemarketing $177.8 67% $115.8 69%
Customer care 89.0 33 51.6 31
------ ----- ------ ----
Total revenues 266.8 100 167.4 100
Cost of services:
Telemarketing 133.3 50 96.4 58
Customer care 62.3 23 34.0 20
------ ----- ------ ----
Total cost of services 195.6 73 130.4 78
Selling, general and administrative 53.9 20 41.7 25
Amortization of goodwill 4.4 2 1.2 -
------ ----- ------ ----
Total operating expenses 253.9 95 173.3 103
------ ----- ------ ----
Operating income (loss) 12.9 5 (5.9) (3)
Interest expense, net (7.0) (3) (1.3) (1)
------ ----- ------ ----
Income (loss) before taxes 5.9 2 (7.2) (4)
Income tax benefit - - 0.2 -
------ ----- ------ ----
Income (loss) from continuing operations $ 5.9 2% $ (7.0) (4)%
====== ===== ====== ====
</TABLE>
Revenues
Our total revenues for 1999 were $266.8 million, representing an increase of 59%
from 1998. This increase is largely a result of increased hours provided by the
merger with IDRC or $72.0 million. Approximately 11% and 10% of 1999 and 1998
total revenue, respectively, was generated by services provided on behalf of a
client in the telecommunications industry. The majority of this revenue was
generated by the telemarketing segment.
Telemarketing Segment
Our telemarketing revenues were $177.8 million for 1999. These revenues
accounted for 67% of our total revenues for 1999 and represent an increase of
$62.0 million or 54% from telemarketing revenues of $115.8 million for 1998. The
increase in telemarketing revenues is primarily attributable to our merger with
IDRC which increased revenues by approximately $44.1 million and an increase in
fulfillment revenues of $7.2 million. Services initiated for new clients totaled
$4.8 million.
Customer Care Segment
Our customer care segment revenues were $89.0 million for 1999. These revenues
accounted for 33% of our total revenues for 1999 and increased by $37.4 million
or 72% from customer care revenues of $51.6 million for 1998. The increase in
revenues for 1999 was attributable to our merger with IDRC which increased
revenues by approximately $27.8 million and additional customer growth of $9.6
million reflecting increased capacity with the number of call centers, exclusive
of IDRC, going from 5 in 1998 to 10 in 1999.
Cost of Services
Our cost of services were $195.6 million for 1999 an increase of $65.2 million
or 50% from cost of services of $130.4 million for 1998. As a percentage of
total revenues, cost of services were 73% and 78% for 1999 and 1998,
respectively.
11
<PAGE>
Telemarketing Segment
Our telemarketing segment cost of services for 1999 were 75% and 83% of
telemarketing revenues in 1999 and 1998, respectively and increased by an
aggregate of $36.9 million or 38% from 1998. The lower operating cost margins
were due to lower administrative labor costs, slightly higher revenue per hour
and an overall lower cost per minute for long distance telephone. In addition,
1998 included costs related to call center closures totaling $1.3 million.
Customer Care Segment
Our customer care segment cost of services accounted for 70% and 66% of our
customer care revenues in 1999 and 1998, respectively and increased by $28.3
million or 83% from 1998. The increased operating cost margins were due to start
up costs incurred in opening new centers, lower revenue per hour due to
competitive pricing pressures, offset by lower overall cost per minute for long
distance telephone.
Selling, General and Administrative
SG&A expenses were $53.9 million for 1999, an increase of $12.2 million or 29%
from 1998. As a percentage of total revenue, SG&A expenses were 20% and 25% for
1999 and 1998, respectively. The major increases in the aggregate dollars year
over year are attributable to the IDRC merger and the associated duplicative
corporate facilities, overhead and travel costs of customer support, human
resources/payroll, marketing, accounting, general management and severance costs
incurred related to reductions in force to decrease redundant overhead. Bad debt
expense for 1999 was $6.8 million versus $2.3 million in 1998. In addition, we
incurred approximately $1.3 million in costs related to corporate overhead
reductions during 1998.
Amortization of Goodwill
Our goodwill amortization was $4.4 million for 1999 compared to $1.2 million in
1998. In 1999, additional costs totaling $152.3 million were added to goodwill,
due primarily to the merger with IDRC. Our amortization in 1998 consisted of the
amortization of goodwill associated with our customer care segment.
Interest Expense, net
We incurred net interest expense of $7.0 million for 1999 which represented an
increase of $5.7 million from 1998. This increase is due to the increased
borrowings under our credit facility and amortization of debt issuance costs
totaling $0.7 million in 1999.
Income Tax Benefit
There is no income tax provision for the year ended December 31, 1999. The 1998
income tax benefit from continuing operations represents the offset of the
provision for income taxes for discontinued operations. As of December 31, 1999
and 1998, we had a net operating loss carryforward of approximately $107.4
million and $22.5 million, respectively. In addition, as of December 31, 1999,
included in the net operating loss carryforward, is approximately $51.2 million
of operating loss carryforward, with a full valuation allowance, acquired from
IDRC in the June 30, 1999 merger. If we determine that the asset is realizable,
the full valuation allowance will be reflected as an adjustment to goodwill.
Also, as of December 31, 1999, we have approximately $111.3 million of future
income tax deductible amounts related to our 1997 goodwill impairment charge.
The goodwill impairment becomes deductible for income tax purposes over the next
12 years. Due to the uncertain realization of this deferred tax asset, we have
recorded a full valuation allowance.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
12
<PAGE>
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Early
adoption at the beginning of any quarter after issuance is permitted, but cannot
be applied retroactively. The provisions of the statement must be applied to
derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997.
We believe that the impact of adopting SFAS No. 133 on our financial statements
will not be material and have not yet determined the timing of adoption.
Comparison of the results of operations for 1998 to 1997.
<TABLE>
<CAPTION>
Results Of Operations
(Dollars In Millions)
---------------------------
Year Ended As A Year Ended As A
December 31, Percentage Of December 31, Percentage Of
1998 Revenues 1997 Revenues
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Telemarketing $115.8 69% $ 140.7 79%
Customer care 51.6 31 38.2 21
------ ---- ------- -----
Total revenues 167.4 100 178.9 100
Cost of services:
Telemarketing 96.4 58 127.1 71
Customer care 34.0 20 27.7 15
------ ---- ------- -----
Total cost of services 130.4 78 154.8 86
Selling, general and administrative 41.7 25 41.9 23
Amortization of goodwill 1.2 1 146.3 82
------ ---- ------- -----
Total operating expenses 173.3 104 343.0 191
------ ---- ------- -----
Operating loss (5.9) (3) (164.1) (92)
Investment gain -- -- 1.8 1
Interest expense, net (1.3) (1) (1.9) (1)
------ ---- ------- -----
Loss before taxes (7.2) (4) (164.2) (92)
Income tax benefit 0.2 -- 2.3 1
------ ---- ------- -----
Loss from continuing operations $ (7.0) (4)% $(161.9) (91)%
====== ==== ======= =====
</TABLE>
Our amortization of goodwill in 1997 includes a goodwill impairment charge of
$139.1 million. See Note 2 to our consolidated financial statements.
Revenues
Our total revenues for 1998 were $167.4 million, representing a decrease of 6%
from 1997. This decrease is largely a result of decreased calling hours.
Telemarketing Segment
Our telemarketing revenues were $115.8 million for 1998. These revenues
accounted for 69% of our total revenues for 1998 and represents a decrease of
$24.9 million or 18% from telemarketing revenues of $140.7 million for 1997. The
decrease in telemarketing revenues is principally attributable to the loss of a
large financial services client in 1997. Services initiated for new clients
totaled $28.8 million. The net decrease in revenues for 1998 was primarily the
result of a 20% reduction in calling hours in 1998 from 1997. Approximately 14%
of 1998 telemarketing revenue was generated by services provided on behalf of a
client in the telecommunications industry.
Customer Care Segment
Our customer care segment revenues were $51.6 million for 1998. These revenues
accounted for 31% of our total revenues for 1998 and increased by $13.4 million
or 35% from 1997. Of this increase, $3.2 million was the result of services
initiated for new clients. The remaining increase in revenues for 1998 was
primarily attributable to increased volume of customer service calls.
13
<PAGE>
Cost of Services
Our cost of services were $130.4 million for 1998, a decrease of $24.4 million
or 16% from cost of services of $154.8 million for 1997. As a percentage of
total revenues, cost of services were 78% and 86% for 1998 and 1997,
respectively.
Telemarketing Segment
Our telemarketing segment cost of services for 1998 were 83% of telemarketing
revenues and decreased by $30.7 million or 24% from 1997. Cost of services for
1998 and 1997 include $1.3 million and $9.3 million, respectively, of charges
related to call center closings. Excluding these call center closing charges,
our cost of services were 82% of telemarketing revenues for 1998 and 84% for
1997. The aggregate decrease in cost of services for 1998 was primarily
attributable to reduced volumes of calling hours.
Customer Care Segment
Our customer care segment cost of services accounted for 66% of our customer
care revenues for 1998 and increased by $6.3 million or 23% from 1997. Cost of
services for 1997 included $1.0 million related to the write-down of property
and equipment to fair value. Excluding charges relating to the write-down of
property and equipment to fair value, cost of services increased $7.3 million or
27% and as a percentage of customer care revenues decreased from 70% in 1997 to
66% in 1998. The increase in cost of services for 1998 was primarily
attributable to increased volume of customer service calls.
Selling, General and Administrative
SG&A expenses were $41.7 million for 1998, a decrease of $0.1 million from 1997.
As a percentage of total revenue, SG&A expenses were 25% in 1998 and 23% in
1997. SG&A expenses for 1998 and 1997 included $1.3 million of charges related
to corporate overhead reductions.
Amortization of Goodwill
Our goodwill amortization was $1.2 million for 1998 compared to $146.3 million
in 1997. We recorded a goodwill impairment charge of $139.1 million in the
fourth quarter of 1997. This charge represented all of the goodwill associated
with our telemarketing segment. Our amortization in 1998 consisted of the
amortization of goodwill associated with our customer care segment. Our
remaining goodwill balance of $26.8 million relates entirely to our customer
care segment. See Note 2 to our consolidated financial statements.
Investment Gain
In June 1997, we purchased the business of a product sampling company called FX
Direct, Inc. We realized a pre-tax gain of approximately $1.8 million when we
sold this business in October 1997 for $6.3 million. See note 3 to our
consolidated financial statements.
Interest Expense, net
We incurred net interest expense of $1.3 million for 1998 which represented a
decrease of $0.6 million from 1997. This decrease is due to reduced borrowings
under our credit facility during 1998.
Income Tax Benefit
The 1998 income tax benefit from continuing operations represents the offset of
the provision for income taxes for discontinued operations. The 1997 income tax
benefit is primarily a result of a tax refund for federal income taxes paid in
1996. As of December 31, 1998, we had a net operating loss carryforward of
approximately $22.5 million. Also, as of December 31, 1998, we had approximately
$117.9 million of future income tax deductible amounts related to our 1997
goodwill impairment charge. The goodwill impairment becomes deductible for
income tax purposes over the next 13 years. Due to the uncertain realization of
these deferred tax assets, we have recorded a full valuation allowance as of
December 31, 1998.
14
<PAGE>
Income from Discontinued Operations
We developed a plan in 1997 to sell our market research segment and our direct
mail and fulfillment segment. For 1998 and 1997, we have accounted for the
results of operations of the market research segment and direct mail and
fulfillment segment as discontinued operations. Income from discontinued
operations for 1998 and 1997 were $0.5 million and $1.4 million, net of tax,
respectively. Revenues for 1998 were $4.2 million, a decrease of $17.1 million
or 80% compared from 1997. Operating expenses for 1998 were $3.5 million, a
decrease of $15.5 million or 82% from 1997.
Liquidity and Capital Resources
Dollars in Millions
Cash Flows Provided By (Used In): Year Ended December 31,
- --------------------------------- -----------------------
1999 1998 1997
---- ---- ----
Operating Activities $ 2.4 $ (1.5) $ 4.8
Investing Activities (25.6) 28.1 (60.1)
Financing Activities 22.5 (26.6) 28.0
Year Ended December 31, 1999
The $2.4 million of cash provided by operating activities consisted of $5.9
million of net income and non cash items including depreciation and amortization
of $16.7 million and $6.8 million for bad debts, offset by working capital
requirements, including an increase in accounts receivable of $8.4 million,
prepaid expenses and other of $9.8 million, and a decrease in accounts payable
of $5.5 million and other liabilities of $2.4 million.
The $25.6 million of cash used in investing activities primarily consisted of
property and equipment purchases attributed to maintaining and enhancing our
technology platforms and costs related to new call centers.
The $22.5 million of net cash provided by financing activities primarily
consisted of borrowings related to long-term debt.
In connection with the mergers on June 30, 1999, we entered into $135.0 million
in new credit facilities consisting of Term A, Term B, Term C and working
capital revolver facilities (the "Credit Facilities") incurring costs of $5.0
million which are being amortized using the effective interest method over the
life of the Credit Facilities. The Company borrowed $20.0 million under the Term
A facility, $20.0 million under the Term B facility and $50.0 million under the
Term C facility. In addition, the Company can borrow the lesser of $45.0 million
or 85% of eligible receivables, as defined, under its working capital revolver
facility. The working capital revolver facility also provides for the issuance
of letters of credit subject to certain borrowing limits. There were no letters
of credits outstanding at December 31, 1999. At December 31, 1999 the Company
had $31.1 million in outstanding borrowings and $13.9 million available under
the working capital revolver facility. The unused portion of the working capital
revolver facility is subject to an annual fee of 0.50%. The Term A facility
matures December 31, 2001 and requires quarterly principal payments totaling
$8.0 million in 2000 and $10.0 million in 2001. The Term B facility matures
December 31, 2002 and requires quarterly principal payments totaling $0.3
million in 2000 and 2001, and a final payment of $19.3 million in 2002. The Term
C facility matures December 31, 2003 and requires quarterly principal payments
totaling $0.4 million in 2000 and 2001, $0.9 million in 2002 and $48.0 million
in 2003. All outstanding principal is due under the working capital revolver
facility on the maturity date, December 31, 2001.
The Company can elect at the time it makes borrowings to pay interest quarterly
at prime plus 1.75% or LIBOR plus 3.25% for the Term A and working capital
revolver facilities; prime plus 2.25% or LIBOR plus 3.75% for the Term B
facility and prime plus 2.75% or LIBOR plus 4.25% for the Term C facility.
Borrowings under the Credit Facilities are collateralized by substantially all
of the assets of the Company. The Credit Facilities require interest rate caps
and contain covenants, the most restrictive of which require the maintenance of
certain financial ratios, restrict future indebtedness, limit capital
expenditures and prohibit cash dividends.
The proceeds from the Credit Facilities were used to refinance $98.0 million in
principal and interest outstanding under the IDRC credit facilities and $10.9
million in principal, interest and early termination fees outstanding under the
Company's April 14, 1998 Secured Credit Facility (the "Secured Credit
Facility"). The remaining Credit Facilities proceeds were used in the mergers to
repay certain notes including accrued interest, redeem preferred stock and pay
transaction fees aggregating $9.7 million. At December 31, 1998, the Company had
no outstanding balance and $18.1
15
<PAGE>
million available under the Secured Credit Facility. During the twelve months
ended December 31, 1999 and 1998, the weighted average interest rate on
borrowings under the Secured Credit Facility was 9.6% and 8.8%, respectively.
We believe that our borrowings available under our $135.0 million Credit
Facilities will be sufficient to meet our operating and capital needs into 2000.
The amount of future capital expenditures will be highly dependent on future
revenue growth and our ability to raise capital. During the first quarter of
2000, we retained an investment banker to raise capital to assist in the
strategic initiatives of our multi-channel CRM solutions. In addition, we are
evaluating alternative business growth strategies surrounding multi-channel CRM
solutions including, but not limited to, independently operating and raising
capital relative to these businesses. We may not be able to obtain this capital
on terms acceptable to us, if at all.
Year Ended December 31, 1998
The $1.5 million of cash used in operating activities consisted of $0.1 million
used in continuing operations and $1.4 million used in discontinued operations.
Our net loss of $6.5 million was reduced by significant non-cash items including
depreciation and amortization.
The $28.1 million of cash provided by investing activities primarily consisted
of $37.8 million of proceeds from the sale of the market research segment and
direct mail and fulfillment segment, primarily offset by $9.1 million of
purchases of property and equipment.
The $26.6 million of net cash used in financing activities primarily consisted
of $29.0 million of net payments under our secured credit facility. In addition,
we received $2.0 million of proceeds from the exercise of stock options and sale
of common stock.
Year Ended December 31, 1997
The $4.8 million of cash provided by operating activities consisted of $0.1
million generated from continuing operations and $4.7 million generated from
discontinued operations. Our net loss of $160.5 million was offset by
significant non-cash items including amortization of goodwill, which was
primarily comprised of a $139.1 million goodwill impairment charge. See note 2
to the consolidated financial statements.
The $60.1 million of cash used in investing activities primarily consisted of
$26.3 million of purchases of property and equipment and $29.1 million used to
repay notes payable to sellers and other acquisition related liabilities.
Purchases of property and equipment included $10.6 million associated with the
development of six new call centers, $13.8 million related to capital
investments in technology upgrades and capital enhancements to existing call
centers, and $1.9 million related to capital investments associated with
development and enhancement of production and administrative infrastructure
projects. In addition, we used $1.2 million related to capital investments for
discontinued operations. As a result of the call center closings and
consolidation of facilities discussed above, as of December 31, 1997, we
recorded an impairment charge of $11.6 million of which $5.0 million related to
these 1997 additions. Other investing activities included $5.3 million for the
acquisition of an interactive voice response company. In addition, in June 1997
we used $4.5 million to invest in an ownership of a sampling business, which we
sold in October 1997 for $6.3 million resulting in a pre-tax gain of
approximately $1.8 million.
The net cash provided by financing activities primarily consisted of $29.0
million of net proceeds from borrowing under our credit facility dated January
24, 1997, as amended. In addition, we received $0.7 million of proceeds from
other long term debt and made payments on debt and capital lease obligations
totaling approximately $1.7 million.
Throughout 1997, we amended the credit facility several times as a result of
non-compliance due to our 1997 operating performance. On March 25, 1998, we were
notified by our primary lending institution, Mellon, that we were in default of
certain loan covenants of our credit facility. We repaid this facility on April
1, 1998, with the proceeds from the sale of our direct mail and fulfillment
segment.
16
<PAGE>
Year 2000
The Year 2000 issue results from the writing of computer programs using two
digits rather than four to define the applicable year. Because of this
programming convention, computer software, hardware or firmware may recognize a
date using "00" as the year 1900 rather than year 2000. This could result in
system failures, miscalculations or errors causing disruptions of operations or
other business problems, including, among others, a temporary inability to
process transactions or engage in other normal business activities.
Starting in 1998 and continuing in 1999 we undertook a comprehensive program,
including the hiring of an outside consulting firm, to address the Year 2000
issue with respect to the following:
. our information technology and operating systems, which include call
processing, network, server, security and application systems;
. our non-information technology systems that may contain embedded microchip
technology, which include buildings, plant, equipment and other
infrastructure systems; and
. the systems of our major vendors and telecommunication service providers
insofar as they relate to our business.
Our core business systems received Year 2000 compliant upgrades furnished by our
vendors. Such systems, were replaced, or were rewritten to be Year 2000
compliant.
Our comprehensive Year 2000 program also addressed the leap year issue. A year
is considered a leap year if it is divisible by 4, but is not divisible by 100,
unless the year is divisible by 400. Many technology and operating systems were
thought to have applied "the divisible by 4" and "not divisible by 100" rules
only. In the absence of applying the "divisible by 400" rule, systems could
erroneously determine that a certain year, such as 2000, was not a leap year.
Our Year 2000 program tested for this scenario.
As of November 1999 we completed our Year 2000 compliance program and continued
to monitor the program through the remainder of the year. As of December 31,
1999, we had spent approximately $1.5 million on the Year 2000 issue. Many of
our systems that required Year 2000 remediation or replacement also
simultaneously received performance upgrades or enhancements. Our costs do not
include costs related to these upgrades or enhancements. Because we have not
experienced material Year 2000 problems at the beginning of 2000 or any material
leap year issues after February 29, 2000, we do not expect future remediation
costs to be material to our consolidated position or results of operations.
Because our suppliers and clients were also impacted by Year 2000 issues in
1999, we received compliance information from many suppliers and clients in 1999
in order to assess the extent to which we may have been vulnerable to their
inability to remedy any issues in a timely manner. We have not experienced a
material adverse effect on our operations as of the beginning of 2000 as a
result of our suppliers' and clients' Year 2000 problems.
Although we have not experienced any material Year 2000 problems to date, there
is no guarantee that Year 2000 problems will not surface in the future. Given
our past experiences, we believe, however, that the probability and the material
impact of a Year 2000 problem on our business is unlikely. We believe that while
we may experience additional Year 2000 problems in the future, the probability
is that they will be encountered at different times. Therefore we have not
developed a comprehensive post-2000 contingency plan as we believe that any
issues that may arise may be promptly addressed.
Other Information - Risk Factors
You should consider the following risk factors that pertain to our company. The
realization of any of these risks could result in a material adverse affect on
our results of operations, financial condition, cash flows or business or the
market price of our common stock.
Keep these risk factors in mind when reading "forward-looking" statements
elsewhere in this Form 10-K. These are statements that relate to future events
and time periods or our expectations. Generally, the words "anticipates,"
"believes," "expects," "intends" and similar expressions identify
forward-looking statements. Forward-looking statements involve risks and
uncertainties, and future events and circumstances could differ significantly
from those anticipated in the forward-looking statements.
17
<PAGE>
We have significant debt service obligations.
As of December 31, 1999, we had approximately $118.5 million of outstanding
senior debt under our $135 million senior debt facility. Under all of our
outstanding debt instruments, we are required to make monthly interest payments
and minimum principal payments totaling $16.4 million in 2000, $43.7 million in
2001, $20.5 million in 2002 and up to $48.4 million in 2003. Our credit
agreement with our lenders imposes numerous financial covenants that we will
need to meet in order to avoid a default under this agreement. These covenants
include:
[_] maintaining a minimum level of earnings as it relates to interest and other
charges;
[_] maintaining minimum EBITDA levels as it relates to levels of debt;
[_] limiting capital expenditures; and
[_] limiting dividends.
If we are unable to service our debt or meet our other contractual obligations,
our lenders may take certain actions that could limit our operations and require
immediate repayment. Our internally generated cash flow or other available
financing might not be sufficient to sustain operations if this were to occur.
If these sources are not sufficient, we will be required to seek additional debt
or equity financing and this financing may not be available on acceptable terms.
We need to obtain additional financing to pursue our business objectives.
We will need to raise significant amounts of additional capital to take
advantage of the market opportunities that we have identified for our
multi-channel CRM business. We may have to agree to offer third parties
significant equity interests in this business to raise this required capital. We
may not be able to obtain this capital on terms acceptable to us, if at all. We
would have to postpone this business opportunity if a sufficient amount of
capital is not available.
Our increased debt restricts our ability to obtain financing or pursue other
business objectives.
Our debt restricts our ability to obtain other financing and pursue other
business objectives. This will be magnified if our general credit rating
deteriorates. We may find it more difficult to:
[_] obtain additional financing over and above our $135 million credit
facility;
[_] make acquisitions;
[_] enter into strategic relationships;
[_] make capital expenditures;
[_] respond to business opportunities;
[_] address competitive pressures or adverse industry developments; and
[_] withstand economic downturns.
Our profitability is sometimes dependent on one or more significant clients.
Approximately 11% and 10% of our revenues for the years ended December 31, 1999
and 1998, respectively, were generated from one client in the telecommunications
industry. We may in the future develop relationships with clients that represent
a large concentration of revenues. These types of relationships are often
cancelable by the client upon relatively short notice. We may be materially
adversely affected by any unexpected termination or non-renewal of such a
relationship.
Our profitability will be adversely affected if we do not maintain sufficient
capacity utilization.
Our profitability is substantially dependent upon our ability to use our call
center capacity at efficient levels. Capacity utilization is a term that
identifies how much of a call center's workstations are being used to perform
services. Low capacity utilization at a call center reduces profitability. This
occurs because costs are being incurred for employees and
18
<PAGE>
other overhead costs at a time when revenue is not being produced by these
employees and workstations. We have in the past experienced periods of low
capacity utilization and have sometimes accepted less profitable client
engagements to fill this capacity. We have also experienced, and may experience
in the future, at least short-term, excess capacity when we open a new call
center or terminate or complete a large client program.
We will be adversely affected if we do not obtain and implement new or enhanced
technology.
We must continue to make significant investments in technology to remain
competitive. This is particularly true in our multi-channel CRM business. We may
not be successful in anticipating continuing technological changes or in
implementing new or enhanced technology.
Our profitability will be adversely affected if we do not avoid high personnel
turnover.
Our industry is very labor intensive and has experienced high personnel
turnover. Many of our employees receive modest hourly wages. A higher turnover
rate among our employees would increase our recruiting and training costs and
decrease our productivity. Our insurance product sales and technology-based
inbound customer service require specifically trained employees. We may not be
able to continue to hire, train and retain a sufficient labor force of qualified
employees.
We rely heavily on telecommunications companies and our business will be
adversely affected if our telecommunications costs increase or our service is
interrupted.
Our business is heavily dependent upon service provided by various local and
long distance telephone companies. Telecommunications costs are one of our most
significant expenses. Our results of operations will be materially adversely
affected by any significant increases in the cost of telephone services that is
not recoverable through an increase in the price of our services, or any
significant interruption in telephone services.
Our quarterly operating results will fluctuate and this will cause our stock
price to change.
We expect that our quarterly operating results will fluctuate due to many
factors, a number of which are beyond our control. We believe that
period-to-period comparisons of our historical results may not be meaningful.
You should not rely on these historical results as an indication of our future
results. Our results of operations in future periods may not meet the
expectations of analysts and investors, in which case the price of our common
stock would likely decrease. Factors which may also have an impact on our
operating results include:
[_] our ability to retain existing clients and attract new clients;
[_] the timing of our clients' marketing campaigns and customer service
programs;
[_] the timing of additional selling, general and administrative expenses
incurred to acquire and support such new business;
[_] changes in our revenue mix among our various service offerings;
[_] the introduction of new or enhanced services and products;
[_] price competition;
[_] our ability to upgrade and develop our information technology systems;
technical difficulties, system downtime or Internet brownouts;
[_] government regulations;
[_] general economic conditions and economic conditions specific to the
teleservices industry; and
[_] seasonality in our business, particularly during the months of August and
December.
19
<PAGE>
Events directly or indirectly relating to our company will cause our stock price
to be volatile.
The market prices of our common stock have been highly volatile. This volatility
may adversely affect the price of our common stock in the future. Factors that
could cause such volatility include:
[_] the volume of trading in our stock;
[_] our quarterly operating results;
[_] deviations in results of operations from analyst estimates;
[_] changes in general conditions in the economy;
[_] developments within the teleservices industry; and
[_] other developments affecting us or our competitors.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
In connection with the merger of IDRC on June 30, 1999, we refinanced $10.5
million of our $20.0 million Secured Credit Facility debt and acquired $118.6
million in senior debt under the new $135.0 million Credit Facilities. The
increased level of long-term debt increases our exposure to interest rate risk.
We pay interest to the Credit Facilities banks based on a floating interest
rate, either the prime rate or LIBOR. Based on the outstanding balance under the
Credit Facilities at December 31, 1999, we would be required to pay an
additional $1.2 million in interest annually for every 1.0% increase in the
average prime rate or LIBOR. To reduce the risk associated with a large increase
in interest rates, we have in place two derivative financial instruments known
as interest rate caps each with notional amounts of $29.5 million. Under the
terms of the interest rate cap agreements, we would receive quarterly cash
payments when the 3-month LIBOR rate at the end of any quarter exceeded 7.5%.
The payment would be determined by multiplying the difference between the actual
LIBOR rate and 7.5% by the notional amounts of $29.5 million which decrease over
time. The interest rate cap agreements expire on September 30, 2002. These
interest rate caps are required under the terms of the $135.0 million Credit
Facilities, which dictates that we establish and maintain three year interest
rate caps at 200 basis points above the three-month LIBOR rate with notional
amounts not less than 66.0% of the term loan balance. The three-month LIBOR
interest rate was approximately 6.0% at December 31, 1999.
Foreign Currency Risk
We have subsidiaries in Canada and the United Kingdom, which are subject to
foreign currency fluctuations. As currency rates change, translation of income
statements of these subsidiaries from local currencies to U.S. dollars affects
year-over-year comparability of our operating results. Gains and losses on
translation are recorded as a separate component of stockholders' equity.
Approximately $17.9 million of the Credit Facilities proceeds have been loaned
to our Canadian subsidiary (acquired in the June 30, 1999 merger with IDRC). The
loan proceeds have been converted to Canadian dollars. Under the terms of the
Credit Facilities agreement, large principal payments due in the years 2002 and
2003 may require conversion of all or a portion of our Canadian dollar loan to
U.S. dollars. An unfavorable change in the Canadian dollar exchange rate at the
time of the conversion could cause a foreign currency exchange loss. At this
time, we do not believe that such a conversion would be required. The other
foreign subsidiaries are limited in their operations and the level of investment
by the parent company so that risk of foreign currency fluctuations is not
expected to be material.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference to pages F-1
through F-21 and page S-2 of this document.
20
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Certain information required by Part III is omitted from the Report by virtue of
the fact that we will file with the Securities and Exchange Commission a
definitive proxy statement relating to our Annual Meeting of Stockholders
pursuant to Regulation 14A (the "Proxy Statement") not later than 120 days after
the end of the fiscal year covered by this Report, and certain information to be
included therein is incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant.
The information concerning our directors required by this Item is
incorporated by reference to the information contained in the Proxy Statement
under the caption "Election of Directors."
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to
the information contained in the Proxy Statement under the captions "Election of
Directors," "Executive Compensation" and "Compensation Pursuant to Plans."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference to
the information contained in the Proxy Statement under the captions "Election of
Directors" and "Principal Stockholders" and "Security Ownership of Management."
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated by reference to
the information contained in the Proxy Statement under the caption "Certain
Transactions."
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Report On Form 8-K
(a) Documents filed as part of this report:
1. Financial Statements.
The financial statements listed in the accompanying Table of Contents to
Financial Statements and Financial Statement Schedules at page F-1 are
filed as part of this Form 10-K.
2. Financial Statement Schedule.
The financial statement schedule listed in the accompanying Table of
Contents to Financial Statements and Financial Statement Schedule at
page F-1 is filed as part of this Form 10-K.
All other schedules have been omitted because they are not applicable,
or not required, or the information is disclosed in the Financial
Statements or notes thereto.
3. Exhibits. (See (c) below)
(b) Report on Form 8-K
21
<PAGE>
There were no reports on Form 8-K filed by us during the fourth
quarter of the fiscal year ended December 31, 1999.
(c) Exhibits.
The following is a list of exhibits filed as part of this annual
report on Form 10-K. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous
filing is indicated in parentheses.
Exhibit
Number Description
------- -----------
3.01 Restated Certificate of Incorporation of TeleSpectrum Worldwide
Inc. is incorporated by reference to exhibit 3.01 of our
Registration Statement on Form S-1 (File No. 333-04349).
3.02 Bylaws of TeleSpectrum Worldwide Inc. are incorporated by reference
to exhibit 3.02 of our Registration Statement on Form S-1 (File No.
333-04349).
10.01 Employment Agreement dated as of March 18, 1998, between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.08 to our 1997 Annual Report on Form 10-K.
10.02 Subscription Agreement dated as of March 18, 1998 between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.09 to our 1997 Annual Report on Form 10-K.
10.03 Stock Option Agreement dated as of March 18, 1998 between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.10 (a) to our 1997 Annual Report on Form
10-K.
10.04 Stock Option Agreement dated as of March 18, 1998 between
TeleSpectrum Worldwide Inc. and Keith E. Alessi is incorporated by
reference to exhibit 10.10 (b) to our 1997 Annual Report on Form
10-K.
10.05 TeleSpectrum Worldwide Inc. Amended and Restated 1996 Equity
Compensation Plan. *
10.06 Agreement and Plan of Merger dated as of January 14, 1999 by and
among TeleSpectrum Worldwide Inc., International Data Response
Corporation, McCown De Leeuw & Co. III, L.P., McCown De Leeuw & Co.
Offshore (Europe) III, L.P., McCown De Leeuw & Co. III, (Asia) L.P.
and The Gamma Fund LLC is incorporated by reference to Exhibit 2.1
of our Current Report on Form 8-K filed on January 26, 1999.
10.07 Amendment No. 1 to Agreement and Plan of Merger dated as of
February 26, 1999 by and among TeleSpectrum Worldwide Inc.,
International Data Response Corporation, McCown De Leeuw & Co. III,
L.P., McCown De Leeuw & Co. Offshore (Europe) III, L.P., McCown De
Leeuw & Co. III, (Asia) L.P. and The Gamma Fund LLC is incorporated
by reference to Exhibit 10.10 of our Registration Statement on Form
S-4 (File No. 333-80251).
10.08 Amendment No. 2 to Agreement and Plan of Merger dated as of May 13,
1999 by and among TeleSpectrum Worldwide Inc., International Data
Response Corporation, McCown De Leeuw & Co. III, L.P., McCown De
Leeuw & Co. III, (Asia) L.P. and The Gamma Fund LLC is incorporated
by reference to Exhibit 10.15 of our Registration Statement on Form
S-4 (File No. 333-80251).
10.09 Agreement and Plan of Merger and Reorganization, dated as of
September 3, 1998 by and among CRW Financial, Inc., TeleSpectrum
Worldwide Inc., and CRW Acquisition Corp. is incorporated by
reference to Exhibit 10.13 of our Registration Statement on Form S-
4 (File No. 333-80251).
10.10 Amendment No. 1 to Agreement and Plan of Merger and Reorganization,
dated as of December 30, 1998 by and among CRW Financial, Inc.,
TeleSpectrum Worldwide Inc., and CRW Acquisition Corp. is
incorporated by reference to Exhibit 10.14 of the Company's
Registration Statement on Form S-4 (File No. 333-80251).
11.11 Employment Agreement dated as of January 1, 2000, between
TeleSpectrum Worldwide Inc. and Jill A. Ward. *
11.12 Employment Agreement dated as of January 1, 2000, between
TeleSpectrum Worldwide Inc. and James A. Carroll. *
11.13 Employment Agreement dated as of January 1, 2000, between
TeleSpectrum Worldwide Inc. and Michael Burke. *
22
<PAGE>
11.14 Employment Agreement dated as of January 1, 2000, between
TeleSpectrum Worldwide Inc. and Francis J. Pennella. *
11.15 Employment Agreement dated as of January 1, 2000, between
TeleSpectrum Worldwide Inc. and Paul J. Grinberg. *
11.16 Employment Agreement dated as of June 30, 1999 between
TeleSpectrum Worldwide Inc. and Jeffrey E. Stiefler. *
23.01 Consent of Arthur Andersen LLP. *
24.01 Power of Attorney (included as part of the Signature Page)
27.01 Financial Data Schedule. *
_________________
* Filed herewith
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TeleSpectrum Worldwide Inc.
Date: March 10, 2000 By: /s/ PAUL J. GRINBERG
------------------------------------
Paul J. Grinberg
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Each person, in so signing also makes, constitutes and appoints Keith E.
Alessi, Chief Executive Officer, President and Director of TeleSpectrum
Worldwide Inc., and Paul J. Grinberg, Executive Vice President and Chief
Financial Officer of TeleSpectrum Worldwide Inc. and each of them acting alone,
as his true and lawful attorneys-in-fact, in his name, place and stead, to
execute and cause to be filed with the Securities and Exchange Commission any or
all amendments to the report.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/S/ KEITH E. ALESSI Chief Executive Officer, March 10, 2000
- ----------------------------------------
Keith E. Alessi President and Director,
(Principal Executive Officer)
/S/ PAUL J. GRINBERG Executive Vice President and March 10, 2000
- ----------------------------------------
Paul J. Grinberg Chief Financial Officer
(Principal Financial and
Accounting Officer)
/S/ JEFFREY E. STIEFLER Chairman of the Board and March 10, 2000
- ----------------------------------------
Jeffrey E. Stiefler Director
/S/ JOSEPH V. DEL RASO Director March 10, 2000
- ----------------------------------------
Joseph V. Del Raso
/S/ ROBERT B. HELLMAN, JR. Director March 10, 2000
- ----------------------------------------
Robert B. Hellman, Jr.
/S/ MICHAEL E. JULIAN Director March 10, 2000
- ----------------------------------------
Michael E. Julian
/S/ DAVID L. KRIEGEL Director March 10, 2000
- ----------------------------------------
David L. Kriegel
/S/ J. BRIAN O'NEILL Director March 10, 2000
- ----------------------------------------
J. Brian O'Neill
/S/ RICHARD W. VIRTUE Director March 10, 2000
- ----------------------------------------
Richard W. Virtue
</TABLE>
24
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
PART II--FINANCIAL INFORMATION
TABLE OF CONTENTS
ITEM 8. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REGISTRANT
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
Report of Independent Public Accountants.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998...................................... F-3
For the years ended December 31, 1999, 1998 and 1997:
Consolidated Statements of Operations.......................................................... F-4
Consolidated Statements of Stockholders' Equity................................................ F-5
Consolidated Statements of Cash Flows.......................................................... F-6
Notes to Consolidated Financial Statements........................................................ F-7
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Public Accountants........................................................... S-1
Schedule II--Valuation and Qualifying Accounts for the
Years Ended December 31, 1999, 1998 and 1997..................................................... S-2
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeleSpectrum Worldwide Inc.:
We have audited the accompanying consolidated balance sheets of TeleSpectrum
Worldwide Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States. 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 TeleSpectrum Worldwide Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 9, 2000
F-2
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------
ASSETS 1999 1998
------ --------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ -- $ 794
Accounts receivable, net of allowance for doubtful
accounts of $5,117 and $2,851..................................................... 72,879 36,859
Prepaid expenses and other.......................................................... 5,809 2,307
--------- ---------
Total current assets..................................................... 78,688 39,960
PROPERTY, PLANT AND EQUIPMENT, net.................................................... 59,455 35,430
GOODWILL AND OTHER INTANGIBLES, net of accumulated
amortization of $7,134 and $2,703................................................... 174,703 26,786
OTHER ASSETS.......................................................................... 5,561 1,513
--------- ---------
Total assets............................................................. $ 318,407 $ 103,689
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt................................................ $ 16,411 $ 820
Cash overdraft...................................................................... 4,912 1,658
Accounts payable.................................................................... 9,305 7,058
Accrued expenses.................................................................... 10,756 2,006
Accrued telecommunication expenses.................................................. 3,150 969
Accrued costs for closed call centers............................................... 4,622 809
Accrued compensation................................................................ 10,381 5,081
Deferred revenue.................................................................... 3,688 2,512
Other current liabilities........................................................... 1,551 2,345
--------- ---------
Total current liabilities................................................ 64,776 23,258
LONG-TERM DEBT, net of current maturities............................................. 113,846 2,876
OTHER NONCURRENT LIABILITIES.......................................................... 352 987
COMMITMENTS AND CONTINGENCIES (see Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no
shares issued or outstanding...................................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 39,558,746
shares issued and 32,612,163 shares outstanding at December 31, 1999,
and 25,771,449 shares issued and outstanding at December 31, 1998................. 396 258
Additional paid-in capital.......................................................... 338,848 240,176
Common stock purchase warrants...................................................... 7,840 --
Due from stockholders............................................................... (952) --
Deferred compensation............................................................... (163) (363)
Accumulated deficit................................................................. (157,404) (163,286)
Treasury stock, 6,946,583 shares at cost............................................ (48,810) --
Cumulative currency translation adjustment.......................................... (322) (217)
--------- ---------
Total stockholders' equity............................................... 139,433 76,568
--------- ---------
Total liabilities and stockholders' equity............................... $ 318,407 $ 103,689
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES............................................................. $266,810 $167,428 $ 178,922
-------- -------- ---------
OPERATING EXPENSES:
Cost of services................................................... 195,573 130,406 154,846
Selling, general and administrative................................ 53,898 41,785 41,793
Goodwill amortization (includes goodwill impairment
charge of $139,072 in 1997 - see Note 2).......................... 4,431 1,178 146,321
-------- -------- ---------
Total operating expenses................................ 253,902 173,369 342,960
-------- -------- ---------
Operating income (loss)................................. 12,908 (5,941) (164,038)
INTEREST INCOME...................................................... 944 71 414
INTEREST EXPENSE..................................................... (7,970) (1,317) (2,290)
INVESTMENT GAIN (see Note 3)......................................... -- -- 1,760
-------- -------- ---------
Income (loss) from continuing
operations before income taxes...................... 5,882 (7,187) (164,154)
INCOME TAX BENEFIT................................................... -- 247 2,310
-------- -------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS............................. 5,882 (6,940) (161,844)
INCOME FROM DISCONTINUED OPERATIONS
(net of income taxes of $247 and $910 - see Note 3)................ -- 479 1,369
-------- -------- ---------
NET INCOME (LOSS).................................................... $ 5,882 $ (6,461) $(160,475)
======== ======== =========
BASIC EARNINGS (LOSS) PER SHARE (Note 2):
Continuing operations.............................................. $ 0.21 $ (0.27) $ (6.42)
Discontinued operations............................................ -- 0.02 0.06
-------- -------- ---------
NET INCOME (LOSS) PER SHARE.......................................... $ 0.21 $ (0.25) $ (6.36)
======== ======== =========
DILUTED EARNINGS (LOSS) PER SHARE (Note 2):
Continuing operations.............................................. $ 0.18 $ (0.27) $ (6.42)
Discontinued operations............................................ -- 0.02 0.06
-------- -------- ---------
NET INCOME (LOSS) PER SHARE.......................................... $ 0.18 $ (0.25) $ (6.36)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common
Common Stock Additional Stock Due
------------ Paid-In Purchase from
Shares Amount Capital Warrants Stockholders
------------ ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................................... 25,213,074 $252 $236,678 $ -- $ --
Issuance of options to purchase common stock.............. -- -- 508 -- --
Comprehensive loss:
Net loss................................................. -- -- -- -- --
Cumulative currency translation adjustment............... -- -- -- -- --
Total comprehensive loss................................
---------- ------ -------- ----- ---------
Balance, December 31, 1997.................................. 25,213,074 252 237,186 -- --
Exercise of common stock options.......................... 330,411 4 1,496 -- --
Issuance of common stock below fair market value.......... 227,964 2 824 -- --
Issuance of options to purchase common stock below fair
market value............................................ -- -- 670 -- --
Amortization of deferred compensation................... -- -- -- -- --
Comprehensive income (loss):
Net loss............................................... -- -- -- -- --
Cumulative currency translation adjustment................ -- -- -- -- --
Total comprehensive loss.................................
---------- ------ -------- ----- ---------
Balance, December 31, 1998.................................. 25,771,449 258 240,176 -- --
Exercise of common stock options........................... 345,010 3 1,580 -- --
CRW merger................................................. 5,173,186 52 48,567 -- --
IDRC merger................................................ 8,269,101 83 46,911 7,840 (952)
Partial release of escrowed shares......................... -- -- 1,614 -- --
Amortization of deferred compensation...................... -- -- -- -- --
Comprehensive income
Net income................................................ -- -- -- -- --
Cumulative currency translation adjustment................ -- -- -- -- --
Total comprehensive income.................................
---------- ------ -------- ----- ---------
Balance, December 31, 1999.................................. 39,558,746 $396 $338,848 $7,840 $ (952)
========== ==== ======== ======== ============
<CAPTION>
Cumulative
Retained Currency Total
Deferred Earnings Treasury Translation Stockholders'
Compensation (Deficit) Stock Adjustment Equity
------------- ----------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997.................................... $ -- $ 3,650 $ -- $ (69) $ 240,511
Issuance of options to purchase common stock.............. -- -- -- -- 508
Comprehensive loss:
Net loss................................................ -- (160,475) -- --
Cumulative currency translation adjustment................ -- -- -- (167)
Total comprehensive loss................................ (160,642)
--------- -------- ------- ------ --------
Balance, December 31, 1997.................................. -- (156,825) -- (236) 80,377
Exercise of common stock options............................ -- -- -- -- 1,500
Issuance of common stock below fair market value............ -- -- -- -- 826
Issuance of options to purchase common stock below fair
market value............................................... (670) -- -- -- --
Amortization of deferred compensation...................... 307 -- -- -- 307
Comprehensive income (loss):
Net loss.................................................. -- (6,461) -- --
Cumulative currency translation adjustment.................. -- -- -- 19
Total comprehensive loss................................... (6,442)
---------- --------- -------- ------- --------
Balance, December 31, 1998.................................. (363) (163,286) -- (217) 76,568
Exercise of common stock options........................... -- -- -- -- 1,583
CRW merger................................................. -- -- (48,810) -- (191)
IDRC merger................................................ -- -- -- -- 53,882
Partial release of escrowed shares......................... -- -- -- -- 1,614
Amortization of deferred compensation...................... 200 -- -- -- 200
Comprehensive income:
Net income................................................ -- 5,882 -- --
Cumulative currency translation adjustment................ -- -- -- (105)
Total comprehensive income................................. 5,777
---------- --------- -------- ------- --------
Balance, December 31, 1999.................................. $ (163) $(157,404) $(48,810) $(322) $ 139,433
========== ========= ======== ======= ========
</TABLE>
F-5
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................................. $ 5,882 $ (6,461) $(160,475)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization............................................... 12,285 8,532 8,183
Goodwill amortization (includes impairment charge
of $139,072 in 1997 -- see Note 2)...................................... 4,431 1,178 146,321
Provision for call center closings.......................................... -- -- 10,275
Investment gain............................................................. -- -- (1,760)
Provision for bad debts..................................................... 6,800 2,325 881
Deferred tax benefit........................................................ -- -- (2,268)
Issuance of options to purchase common stock for services................... -- -- 508
Non-cash compensation....................................................... 320 633 --
Other items, net............................................................ 500 468 529
Changes in the following, net of acquisitions:
Accounts receivable....................................................... (8,421) (1,824) (9,976)
Income tax receivable..................................................... -- 2,912 532
Prepaid expenses and other................................................ (9,798) (739) 1,371
Accounts payable.......................................................... (5,466) 1,832 (1,829)
Accrued expenses.......................................................... (1,284) (4,211) 3,778
Accrued telecommunication expenses........................................ (1,318) -- --
Accrued costs for closed call centers..................................... (947) (1,130) --
Accrued compensation...................................................... 610 (3,833) 4,264
Deferred revenue.......................................................... 1,125 1,165 (638)
Other liabilities......................................................... (2,360) (999) 371
Net operating activities of discontinued operations....................... -- (1,351) 4,702
--------- -------- ---------
Net cash provided by (used in) operating activities................... 2,359 (1,503) 4,769
--------- -------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment........................................... (26,414) (9,099) (26,297)
Business acquisition and mergers (see Note 3)................................. 965 -- (5,327)
Payments of notes payable to sellers and acquisition liabilities.............. -- (1,930) (29,100)
Proceeds from sale of investment.............................................. -- -- 6,262
Proceeds from sale of assets.................................................. -- 1,908 --
Proceeds from sale of discontinued operations................................. -- 37,750 --
Purchase of investment........................................................ -- (500) (4,502)
Payments of deferred transaction costs........................................ (174) -- --
Net investing activities of discontinued operations........................... -- -- (1,165)
--------- -------- ---------
Net cash (used in) provided by investing activities................... (25,623) 28,129 (60,129)
--------- -------- ---------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options....................................... 1,463 1,500 --
Proceeds from sale of common stock............................................ -- 500 --
Net borrowings (payments) on secured credit facility.......................... -- (29,000) 29,000
Cash overdraft................................................................ 3,254 1,658 --
Borrowings under long-term debt............................................... 130,796 -- 720
Payments of debt.............................................................. (112,118) (349) (445)
Payments of capital lease obligations......................................... (734) (915) (1,312)
Payment for treasury stock.................................................... (191) -- --
--------- -------- ---------
Net cash provided by (used in) financing activities................... 22,470 (26,606) 27,963
--------- -------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................... (794) 20 (27,397)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................... 794 774 28,171
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......................................... $ -- $ 794 $ 774
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
1. NATURE OF BUSINESS:
-------------------
TeleSpectrum Worldwide Inc. and subsidiaries ("TeleSpectrum" or the "Company")
was incorporated in Delaware on April 26, 1996 and provides services to its
customers through its Telemarketing and Customer Care Segments. Customer Care
encompasses the Company's more traditional business line of inbound customer
service, customer care, and customer care consulting as well as our more recent
strategic initiatives into multi-channel Customer Relationship Management
("CRM") including Web-based sales and service, e-mail response, Web telephony,
Web chat and fax. Telemarketing encompasses direct sales initiated by the
Company on behalf of its clients. On August 12, 1996, the Company completed its
initial public offering and, concurrent with the offering, the Company began
material operations with the acquisition of the net assets of a number of
businesses. In December 1997, the Company committed to a plan to dispose of its
Market Research Segment and Direct Mail and Fulfillment Segment. The results of
operations of the Market Research Segment and Direct Mail and Fulfillment
Segment have been accounted for as discontinued operations (see Note 3). As
discussed further in Note 3, the Company completed mergers with International
Data Response Corporation ("IDRC") and CRW Financial, Inc. ("CRW") on June 30,
1999.
2. SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Principles of Consolidation
- ---------------------------
The accompanying financial statements include the accounts of TeleSpectrum
Worldwide Inc. and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated.
Use of Estimates
- -----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
- --------------------
The Company recognizes revenues on telemarketing programs as services are
performed, generally based on hours incurred. For certain of these programs,
revenues are reduced for estimated customer cancellations. Customer care
revenue is recognized on a per hour basis or at the time calls are answered on a
per minute basis. The Company recognizes all other revenues as the services are
performed.
F-7
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
Due to varying billing cycles, the Company has customers for which services have
been performed and no billing has been created ("Unbilled Receivables"). At
December 31, 1999 and 1998, Unbilled Receivables totaled $11,323,000 and
$5,280,000, respectively.
Recently Issued Accounting Standards
- ------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Early
adoption at the beginning of any quarter after issuance is permitted, but cannot
be applied retroactively. The provisions of the statement must be applied to
derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997.
The Company believes that the impact of adopting SFAS No. 133 on its financial
statements will not be material and has not determined the timing of adoption.
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 December 31, 1998,
cash and cash equivalents consisted primarily of investments in money market
accounts.
Property, Plant and Equipment
- ------------------------------
Property, plant 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 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-8
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
Capitalized Software Development Costs
- --------------------------------------
The Company capitalizes both acquired and internally developed or modified
software used as an integral part of the operations of the Company, in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company
capitalizes certain internal and external costs directly associated with
developing or modifying the internal use software, which begins with the
application development stage and ends when the project is substantially
complete and ready for its intended use. Amounts capitalized as of December 31,
1999 and 1998, were $13,470,000 and $3,100,000, respectively, and are included
in the Consolidated Balance Sheets in property, plant and equipment. Such costs
are amortized on a straight-line basis over the estimated useful life, usually
3-5 years.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income tax assets
and liabilities are determined based on differences between the financial
reporting and income tax basis of assets and liabilities measured using enacted
income tax rates and laws that are expected to be in effect when the differences
reverse. The Company recognizes valuation allowances for a deferred tax asset
if the realizability of some portion or all of the deferred tax asset is
uncertain.
Currency Translation
- --------------------
The accounts of the international subsidiaries are translated in accordance with
SFAS No. 52, "Foreign Currency Translation," which requires that assets and
liabilities of international operations be translated using the exchange rate in
effect at the balance sheet date. The results of operations are translated at
average exchange rates during the year. The effects of exchange rate
fluctuations in translating assets and liabilities of international operations
into U.S. dollars are accumulated and reflected as a cumulative currency
translation adjustment in the consolidated statements of stockholders' equity.
Transaction gains or losses are included in net income. There were no material
transaction gains or losses for the periods presented.
Goodwill Impairment
- -------------------
The Company elected to change its method of measuring goodwill impairment under
Accounting Principles Board ("APB") Opinion No. 17 "Intangible Assets," from an
undiscounted cash flow approach to a fair value method based on a discounted
cash flow approach effective December 31, 1997. The Company believes the change
to the fair value method based on a discounted cash flow approach is preferable
in that such method most closely approximates the fair value of goodwill and the
related measurement of goodwill impairment.
As a result of this change, whenever events or circumstances have occurred that
indicate an impairment may have occurred, the Company will estimate the future
discounted cash flow of the business segment to which goodwill relates. When
such estimate of the future discounted cash flows, net of the estimated fair
value of the net tangible assets, is less than the carrying amount of goodwill,
the difference is charged to operations. For purposes of determining future
discounted cash flows of the business segments to which goodwill relates, the
Company, based upon historical results, current projections and internal
earnings targets, determines the projected
F-9
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
operating cash flows, net of income taxes, of the individual business segment.
These projected future cash flows are then discounted at a rate corresponding to
the Company's estimated cost of capital. In the fourth quarter of 1997, the
Company concluded that due to the significant decline in the growth in the
telemarketing industry and the reduced growth prospects of the Company, a
permanent impairment of the goodwill established in August 1996 when the Company
began material operations with the acquisition of the net assets of a number of
businesses (see Note 1), associated with the Telemarketing Segment had occurred
and a goodwill impairment charge of $139,072,000 was recorded. As of December
31, 1999, the remaining net goodwill associated thereto of $25,605,000 relates
entirely to the Customer Care Segment and is being amortized on a straight-line
basis over 25 years. The additional net goodwill and other intangibles of
$149,098,000 at December 31, 1999 relates almost entirely to the IDRC merger
(see Note 3).
Impairment of Long Lived Assets
- -------------------------------
The Company accounts for possible impairments of long-lived assets in accordance
with SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets to
be held and used by the Company be reviewed for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If changes in circumstances indicate that the carrying
amount of an asset that an entity expects to hold and use may not be
recoverable, future cash flows expected to result from the use of the asset and
its disposition must be estimated. If the undiscounted value of the future cash
flows is less than the carrying amount of the asset, an impairment will be
recognized. Based on these evaluations, there were no adjustments to the
carrying value of the long-lived assets in 1999 and 1998 (see Note 5).
Earnings Per Share ("EPS")
- --------------------------
The Company reports earnings per share in accordance with SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires a dual presentation of "basic" and
"diluted" EPS on the face of the statements of operations. Basic EPS is computed
by dividing net income (loss) by the weighted average number of shares of common
stock outstanding for the period. Diluted EPS includes the effect, if any, from
the potential exercise or conversion of securities, such as stock options, which
would result in the issuance of shares of common stock.
The table below sets forth the reconciliation of the income (loss) available to
common stockholders and the weighted average number of shares outstanding used
to compute basic and diluted earnings (loss) per share (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ---------
<S> <C> <C> <C>
Income (loss) available to common
stockholders before adjustments used
in computing basic earnings per share................... $5,882 $(6,461) $(160,475)
Additional goodwill amortization from
contingent shares....................................... (210) -- --
------ ------- ---------
Income (loss) available to common
stockholders used in computing
diluted earnings per share.............................. $5,672 $(6,461) $(160,475)
====== ======= =========
</TABLE>
F-10
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
<TABLE>
<S> <C> <C> <C>
Shares used in computing basic
earnings (loss) per share............................... 28,587 25,528 25,213
Dilutive effect of options and warrants.................. 3,176 -- --
------ ------ ------
Shares used in computing diluted
earnings (loss) per share............................... 31,763 25,528 25,213
====== ====== ======
</TABLE>
Fair Value of Financial Instruments
- -----------------------------------
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the accompanying financial statements at the fair value due to the
short-term nature of those instruments. The carrying amount of the credit
facilities, long-term debt and capitalized lease obligations approximates fair
value at the balance sheet dates.
Reclassifications
- ------------------
During 1999, the Company began reporting operating expenses differently from the
historical presentation in order to be more consistent with industry practices.
The principal change relates to the components of two line items - Cost of
Services and SG&A. Cost of Services now reflects only those costs that are
directly associated with the operation of a call center. All other costs
including account management, management information systems and human resources
are included in SG&A. This reclassification has been made for all periods
presented.
In addition, certain other prior period amounts have been reclassified to
conform with the current year presentation.
3. ACQUISITION, MERGERS AND DIVESTITURES:
--------------------------------------
Acquisition
- -----------
In March 1997, the Company completed its acquisition of the interactive voice
response division of Voice FX Corporation for $5,327,000 in cash, including
transaction costs. The division, renamed TeleSpectrum FX ("FX (IVR)"), provides
interactive voice response solutions within the interactive promotion and direct
response marketplace. The effective date of the FX (IVR) acquisition was March
1, 1997.
IDRC Merger
- -----------
On January 14, 1999, the Company and IDRC entered into a merger agreement which
was amended on February 26, 1999 and May 13, 1999 and consummated on June 30,
1999. Under this agreement, each of the holders of outstanding shares of IDRC
common stock, options and warrants to purchase IDRC common stock were entitled
to receive their pro rata portion of an aggregate of 9,200,000 shares of
TeleSpectrum common stock and options and warrants exercisable for 2,500,000
shares of TeleSpectrum common stock. In addition, the IDRC preferred stock was
exchanged for $6,000,000 of cash, plus all accrued and unpaid dividends of
$1,400,000. The majority stockholders of IDRC invested the proceeds from the
exchange of their IDRC preferred stock of $4,873,000 for a term note with the
Company. This note is payable one year from the closing and bears interest at
10.0%. The merger was accounted for as a purchase and, accordingly,
F-11
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
the net tangible liabilities and results of operations of IDRC have been
included in the consolidated financial statements as of June 30, 1999.
The total purchase price of IDRC was $58,700,000 which consisted of (in
thousands):
<TABLE>
<S> <C>
Issuance of 8,269,101 shares of TeleSpectrum common stock, valued
at $7.119 per share, with 6,449,349 shares discounted 10% due
to lock up and escrow restrictions of twelve and fifteen months................... $54,275
Issuance of options to purchase 930,903 shares of TeleSpectrum
common stock, valued at between $2.300 and $5.320 per option
with an average value of $5.141 (all options are
discounted 10% due to lock up and escrow
restrictions of twelve and fifteen months)....................................... 4,307
Issuance of warrants to purchase 2,247,038 shares of TeleSpectrum
common stock, valued at $3.136 per warrant....................................... 7,047
Issuance of warrants to purchase 252,962 shares of TeleSpectrum
common stock, valued at $3.136 per warrant, to IDRC option holders............... 793
Value of shares and options held in escrow......................................... (9,164)
Transaction costs.................................................................. 1,442
-------
Total purchase price............................................................... $58,700
=======
</TABLE>
Based on a preliminary allocation of the purchase price, the application of the
purchase method resulted in approximately $148,711,000 in excess purchase price
over the estimated fair value of the net tangible liabilities acquired of
$90,011,000, which includes accruals by IDRC in the second quarter related to
closed centers and bad debt reserves. A preliminary analysis completed by
TeleSpectrum, resulted in the excess purchase price being assigned to intangible
assets consisting of $1,002,000 for assembled workforce, $14,079,000 for
customer relationships, and $133,630,000 for goodwill. Intangible assets are
amortized on a straight-line basis over their estimated useful lives of 7 years
for assembled workforce, 15 years for customer relationships and 25 years for
goodwill.
The Company has substantially completed its plans to consolidate certain
facilities and departments and has estimated the costs of non-cancelable lease
commitments and severance at $1,539,000. This liability is reflected in the net
tangible liabilities acquired. During 1999, approximately $329,000 was charged
against this reserve. Upon completion of the integration, any adjustments to the
original estimates will be reflected as an adjustment to the purchase price.
Of the shares of TeleSpectrum common stock issuable to the holders of IDRC
common stock and options, an aggregate 1,730,977 shares/options were placed in
escrow, as required by the merger agreement, to secure the indemnification
obligations of the IDRC security holders to the Company. The term of the escrow
is for 15 months and is governed by an indemnity escrow agreement. These shares
represent "contingent consideration" and in accordance with APB No. 16 will not
be reflected as part of the purchase price until the contingency is
determinable. At closing, IDRC had a contingent liability related to a claim by
certain of its shareholders. On July 19, 1999, this claim
F-12
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
was settled for $1,907,000 the majority of which was satisfied with 275,153
shares being released from the escrow.
CRW Merger
- ----------
On June 30, 1999, TeleSpectrum and CRW completed a merger agreement whereby each
outstanding share of CRW common stock (7,296,454 shares) was exchanged for
5,173,186 shares of TeleSpectrum common stock valued at $38,799,000. In
addition, each outstanding CRW option/warrant to purchase shares of CRW common
stock was exchanged for an option to purchase 1,499,079 shares of TeleSpectrum
common stock valued at $9,820,000. Transaction costs related to this transaction
amounted to $191,000. For financial reporting purposes, the Company treated the
exchange of shares of TeleSpectrum common stock for shares of CRW common stock
as a treasury stock transaction. The transaction did not have an effect on
TeleSpectrum net income but did effect its net income per share.
Pro Forma Merger Summary
- ------------------------
The following unaudited pro forma summary combines the consolidated results of
operations of TeleSpectrum, IDRC and CRW as if the mergers had occurred as of
the beginning of the year presented after giving effect to certain adjustments
including amortization of the purchase price in excess of net tangible
liabilities acquired, interest expense, a reduction in officer compensation
expense, consulting fees, and center fixed operating costs (rent, utilities,
phones, and call center management salaries/benefits) on centers shut down in
accordance with the merger agreement. This pro forma summary is not necessarily
indicative of the results of operations that would have occurred if
TeleSpectrum, IDRC and CRW had been combined during such periods. Moreover, the
pro forma summary is not intended to be indicative of the results of operations
to be attained in the future.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1999 1998
--------- --------
(in thousands, except
per share amounts)
<S> <C> <C>
Net revenues..................................... $342,759 $327,506
Loss from continuing operations.................. (20,997) (30,250)
Basic and diluted net loss per common share...... $ (0.68) $ (0.99)
</TABLE>
Other
- -----
During October 1996, the Company acquired its consulting business, Technical
Assistance Research Programs, Inc. ("TARP"). The agreement allowed for potential
earnouts to be paid to prior owners based upon future performance. During
October 1999 the Company signed an agreement and a non-interest bearing note to
pay $3,200,000 in installments ending July 2001 to settle these earnout
provisions. This note was discounted to $2,852,000 and is reflected as goodwill
which is being amortized on a straight-line basis over the remaining life of the
original TARP goodwill.
F-13
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
Divestitures
- ------------
On June 30, 1997, the Company purchased substantially all of the assets and
assumed certain liabilities of FX Direct, Inc. ("FX Direct"). On October 3,
1997, the Company sold its investment in FX Direct for $6,262,000 in cash. The
Company applied the proceeds from the sale to repay borrowings on the secured
credit facility and recorded a pre-tax gain of $1,760,000.
In December 1997, the Company committed to a plan to dispose of its Market
Research Segment and Direct Mail and Fulfillment Segment. As required by APB
Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
a Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," the Company has accounted for
the results of operations and net assets of the Market Research Segment and
Direct Mail and Fulfillment Segment as discontinued operations.
In January 1998, the Company sold substantially all of the assets and
liabilities of the Market Research Segment for approximately $15,000,000, which
resulted in a loss of approximately $907,000, which was recorded as of December
31, 1997. The proceeds from this sale were used to repay borrowings on the
secured credit facility.
In March 1998, the Company sold substantially all of the assets and liabilities
of the Direct Mail and Fulfillment Segment for approximately $23,000,000 in cash
and up to $4,000,000 in contingent payments based on future performance of the
segment, beginning in 1999. The sale of this segment did not result in a
significant gain or loss. The proceeds from this sale were used to repay
borrowings on the secured credit facility.
The following table summarizes the operating results of the discontinued
operations (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1998 1997
------ --------
<S> <C> <C>
Revenues......................................... $4,189 $21,304
Operating expenses............................... 3,463 19,025
------ -------
Income before income taxes....................... 726 2,279
Income tax provision............................. 247 910
------ -------
Income from discontinued operations.............. $ 479 $ 1,369
====== =======
</TABLE>
4. SUPPLEMENTAL CASH FLOW INFORMATION:
-----------------------------------
For the years ended December 31, 1999, 1998 and 1997 the Company paid interest
and income taxes as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Interest paid............................ $4,569 $1,018 $1,933
</TABLE>
F-14
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
-----------------------------------------------------
DECEMBER 31, 1999
-----------------
<TABLE>
<S> <C> <C> <C>
Taxes paid............................ $ -- $ -- $1,180
</TABLE>
In March 1997, the Company settled the earn-out agreement with the seller of one
of the Initial Operating Businesses under which the Company paid $25,000,000 in
March 1997 and agreed to pay $600,000 in equal installments, of which, the
Company has paid $100,000, $300,000 and $200,000 in 1999, 1998 and 1997,
respectively.
The following table displays the net noncash assets that were acquired as a
result of the business acquisition and merger described in Note 3 (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 1997
IDRC Merger Acquisition
----------- -----------
<S> <C> <C>
Non-cash assets (liabilities):
Current assets.................................................... $ 33,719 $ 321
Property and equipment............................................ 10,295 176
Other assets...................................................... 2,006 6
Goodwill and other intangibles.................................... 148,711 5,256
Current liabilities............................................... (29,443) (432)
Debt.............................................................. (109,805) --
--------- ---------
Net noncash assets acquired.................................. 55,483 5,327
Plus: Common stock issued.......................................... (54,275) --
Options and warrants issued to IDRC shareholders.................. (12,147) --
Value of shares and options held in escrow........................ 9,164 --
Cost of registering common stock.................................. 810 --
--------- ---------
Cash (acquired) paid for business acquisitions, net................. $ (965) $ 5,327
========= =========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT:
------------------------------
A summary of property, plant and equipment at December 31, 1999 and 1998 follows
(in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
Useful Lives 1999 1998
------------ -------- --------
<S> <C> <C> <C>
Telemarketing and computer equipment............................ 3 - 7 years $ 45,752 $ 30,373
Furniture and fixtures.......................................... 5 - 7 years 14,330 10,433
Software........................................................ 3 years 14,600 5,645
Building........................................................ 40 years 3,043 2,402
Leasehold improvements.......................................... 3 - 7 years 10,051 4,038
Land............................................................ 546 406
-------- --------
88,322 53,297
Less accumulated depreciation and amortization.................. (28,867) (17,867)
-------- --------
$ 59,455 $ 35,430
======== ========
</TABLE>
F-15
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
-----------------------------------------------------
DECEMBER 31, 1999
-----------------
The carrying value of property and equipment under capital lease obligations
included above amounted to $3,075,000 and $3,558,000 at December 31, 1999 and
1998, respectively. Assets under capitalized leases are generally collateralized
by the equipment under lease. Depreciation and amortization was $11,541,000,
$8,532,000 and $8,183,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
In the third and fourth quarters of 1997, the Company closed or committed to a
plan to close fifteen call centers and recorded a non-cash write-down of
$8,336,000 related to certain call center property and equipment as required by
SFAS No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The property and equipment charges are included as a
reduction of the carrying value of property, plant and equipment. The impaired
assets include telemarketing and computer equipment, furniture and fixtures and
leasehold improvements.
F-16
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
-----------------------------------------------------
DECEMBER 31, 1999
-----------------
6. INCOME TAXES:
-------------
The components of income (loss) from continuing operations before income taxes
are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
------ ------- ---------
<S> <C> <C> <C>
Domestic............................................ $6,453 $(5,435) $(157,385)
Foreign............................................. (571) (1,752) (6,769)
------ ------- ---------
$5,882 $(7,187) $(164,154)
====== ======= =========
</TABLE>
The components of the income tax benefit (provision) are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ -- $ -- $1,600
State................................................. -- -- --
Foreign............................................... -- -- (200)
----- ----- ------
-- -- 1,400
----- ----- ------
Deferred:
Federal............................................... -- -- --
State................................................. -- -- --
Foreign............................................... -- -- --
----- ----- ------
-- -- --
----- ----- ------
Total benefit (provision).............................. $ -- $ -- $1,400
===== ===== ======
</TABLE>
The 1997 income tax benefit is a result of a tax refund, for federal income
taxes paid in 1996, resulting from 1997 operating losses.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Continuing operations................... $ -- $ 247 $2,310
Discontinued operations................. -- (247) (910)
------------- -------- ------
$ -- $ -- $1,400
============= ======== ======
</TABLE>
F-17
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
-----------------------------------------------------
DECEMBER 31, 1999
-----------------
The reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate from continuing operations is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Statutory federal income tax rate (benefit).......... 34.0% (34.0)% (34.0)%
State income taxes, net of federal tax benefit....... 4.7 -- --
Impact of foreign subsidiaries subject to
higher tax rates.................................... -- -- 0.1
Operating loss and other items not currently
deductible, not tax benefited....................... -- 28.5 28.0
Utilization of net operating loss carryforward....... (23.4) -- --
Nondeductible expenses............................... (15.3) 2.1 4.5
----- ------ ------
-- % (3.4)% (1.4)%
===== ====== ======
</TABLE>
Deferred taxes are determined based upon the estimated future tax effects of
differences between the financial statement and income tax bases of assets and
liabilities given the provisions of the enacted tax laws. The tax effect of
temporary differences that give rise to deferred taxes at December 31, 1999 and
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................................ $ 42,536 $ 7,636
Goodwill impairment............................................ 37,846 40,090
Accruals and reserves not currently deductible................. 4,280 4,467
Other.......................................................... 3,334 164
-------- --------
87,996 52,357
-------- --------
Deferred tax liabilities:
Book/tax difference of property, plant and equipment........ (2,006) (3,735)
Other....................................................... (1,575) (36)
-------- --------
(3,581) (3,771)
-------- --------
84,415 48,586
Less valuation allowance................................... (84,415) (48,586)
-------- --------
Net deferred tax asset ..................................... $ -- $ --
======== ========
</TABLE>
Due to the uncertain realization of the deferred tax asset, the Company has
provided a full valuation allowance at December 31, 1999 and 1998. The
Company has a net operating loss carryforward of approximately $107,422,000,
which begins to expire in 2012. Included in the net operating loss
carryforward is approximately $51,174,000 of operating loss carryforward, with
a full valuation allowance, acquired from IDRC in the June 30, 1999 merger.
If the Company determines that this asset is realizable, the full valuation
allowance will be reflected as an adjustment to goodwill.
F-18
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
-----------------------------------------------------
DECEMBER 31, 1999
-----------------
LONG-TERM DEBT:
- ---------------
Long-term debt at December 31, 1999 and 1998 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Term A loan with bank, principal payable in quarterly installments of $2,000,000
commencing March 2000 and increasing to $2,500,000 in March 2001; bearing interest at
prime plus 1.750% or Eurodollar plus 3.250% payable quarterly, through December 2001,
when all remaining principal and interest is due and payable. At December 31, 1999,
the interest rate was 8.875%................................................................ $118,000 $ --
Term B loan with bank, principal payable in quarterly installments of $62,500
commencing March 2000 increasing to $4,750,000 in March 2002 and increasing to
$5,000,000 in December 2002; bearing interest at prime plus 2.250% or Eurodollar plus
3.750% payable quarterly, through December 2002, when all remaining principal and
interest is due and payable. At December 31, 1999, the interest rate was 9.375% ........... 19,750 --
Term C loan with bank, principal payable in quarterly installments of $100,000
commencing March 2000 increasing to $200,000 in March 2002, increasing to $250,000 in
September 2002, increasing to $11,000,000 in March 2003, and increasing to
$15,000,000 in December 2003; bearing interest at prime plus 2.750% or Eurodollar
plus 4.250% payable quarterly, through December 2003, when all remaining principal
and interest is due and payable. At December 31, 1999, the interest rate was 9.875% ....... 49,700 --
Working capital revolver with bank, interest at prime plus 1.750%
or Eurodollar plus 3.250% payable quarterly, due December 2001 when all remaining
principal and interest is due and payable. At December 31, 1999, the weighted
average interest rate was 9.070%........................................................... 31,096 --
Note payable to an agency of the Canadian government, principal payable in monthly,
installments of $35,000, beginning in October 1999, no interest, through December
2001, collateralized by certain equipment................................................... 823 --
Note payable to a County Economic Development Council, payable in monthly installments
of $4,600, including interest at 4.375%, through December 2000, when all remaining
principal and interest is due and payable, collateralized by certain equipment.............. 59 --
Note payable to stockholders, principal and interest payable in June 2000; bearing
interest at 10%............................................................................. 4,873 --
Note payable to former principals of TARP, noninterest-bearing, discounted to
$2,900,000, principal and imputed interest of $500,000 payable in January 2000,
$1,200,000 in June 2000, and $1,466,000 in July 2001........................................ 2,852 --
Note payable in monthly principal and interest payments of
$8,500 through March 2008, bearing interest at 8.50%, secured
by equipment................................................................................ 601 650
Other notes payable.......................................................................... 21 206
Capital lease obligations (see Note 8)....................................................... 2,482 2,840
--------- ------
130,257 3,696
Less current maturities............................................................. (16,411) (820)
-------- ------
$113,846 $2,876
======== ======
</TABLE>
F-19
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
The aggregate principal requirements for the five years subsequent to December
31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000.......................................... $ 16,411
2001.......................................... 43,695
2002.......................................... 20,520
2003.......................................... 48,390
2004.......................................... 412
Thereafter.................................... 829
--------
$130,257
========
</TABLE>
In connection with the mergers on June 30, 1999, the Company entered into $135.0
million in new credit facilities consisting of Term A, Term B, Term C and
working capital revolver facilities (the "Credit Facilities") incurring costs of
$5.0 million which are being amortized using the effective interest method over
the life of the Credit Facilities. For the year ended December 31, 1999, debt
issuance cost amortization was $744,000. The Company borrowed $20.0 million
under the Term A facility, $20.0 million under the Term B facility and $50.0
million under the Term C facility. In addition, the Company can borrow the
lesser of $45.0 million or 85% of eligible receivables, as defined, under its
working capital revolver facility. The working capital revolver facility also
provides for the issuance of letters of credit subject to certain borrowing
limits. There were no letters of credit outstanding as of December 31, 1999.
At December 31, 1999, the Company had $13.9 million available under the working
capital revolver facility. The unused portion of the working capital revolver
facility is subject to an annual fee of 0.50%.
Borrowings under the Credit Facilities are collateralized by substantially all
of the assets of the Company. The Credit Facilities require interest rate caps
and contain covenants, the most restrictive of which require the maintenance of
certain financial ratios, restrict future indebtedness, limit capital
expenditures and prohibit cash dividends. As of December 31, 1999, the Company
was in compliance with all its debt covenants.
The proceeds from the Credit Facilities were used to refinance $98.0 million in
principal and interest outstanding under the IDRC credit facilities and $10.9
million in principal, interest and early termination fees outstanding under the
Company's April 14, 1998 Secured Credit Facility. The remaining Credit
Facilities proceeds were used in the mergers to repay certain notes including
accrued interest, redeem preferred stock and pay transaction fees aggregating
$9.7 million. At December 31, 1998, the Company had no outstanding balance and
$18.1 million available under the Secured Credit Facility. During the year
ended December 31, 1999 and 1998, the weighted average interest rate on
borrowings under the then existing credit facilities was 9.6% and 8.8%,
respectively.
8. COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Company leases facilities and equipment under capital and non-cancelable
operating leases through November 2007. Interest rates on the capital leases
range from 4% to 14%. Rent expense under operating leases for the years ended
December 31, 1999, 1998 and 1997 was $6,652,000, $4,078,000 and $4,835,000,
respectively.
F-20
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
Future minimum lease payments as of December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------------- ------------
<S> <C> <C>
2000....................................................... $ 736 $ 7,825
2001....................................................... 435 6,579
2002....................................................... 371 5,079
2003....................................................... 371 4,323
2004....................................................... 371 3,818
Thereafter................................................. 559 6,664
------ -------
Total minimum lease payments............................... 2,843 $34,288
=======
Less amount representing interest......................... (361)
------
Present value of future minimum lease payments............. 2,482
Less current maturities.................................. (688)
------
$1,794
======
</TABLE>
On March 18, 1998, the Company entered into an employment contract with its CEO
and President which expires in March 2001. The contract provides for annual
compensation of $200,000 per year, plus a potential for a bonus. The Company
entered into a subscription agreement whereby this executive acquired 227,964
shares of the Company's common stock for $500,000 and was granted options to
purchase 2,000,000 shares of common stock at $3.29 per share. The options will
vest over three to five years with accelerated vesting for 500,000 options based
on the achievement of certain performance objectives, as defined. The Company
recorded compensation expense of $327,000, which represents the difference
between the stock purchase price and the fair market value of the stock on the
effective date of the stock subscription agreement. In addition, the Company
will record compensation expense of $670,000 over the vesting period of the
options to purchase 2,000,000 shares of common stock which represents the
difference between the fair market value of the stock on the grant date and the
option exercise price of $3.29.
The Company has entered into an employment agreement with a senior executive
which expires in June 2001. The agreement provides for annual minimum
compensation of $100,000 plus bonuses.
In July 1998, the Company commenced litigation in Federal court against Parcel
Consultants Incorporated d/b/a/ NTC ("NTC"). The Company filed suit as part of
its efforts to collect approximately $4,742,000 of accounts receivable for
telemarketing services performed on behalf of NTC. NTC filed a counter suit
against the Company alleging breach of contract and fraud. The Company believes
that NTC's claims against the Company are without merit. On February 26, 1999,
NTC filed for reorganization under Chapter 11 of the Federal Bankruptcy Code.
The Company has fully reserved for all amounts due from NTC.
In connection with the Company's strategic launch of ChannelCare, its branded
multi-channel Customer Relationship Management platform, the Company has
partnered with certain vendors to supply the technology components necessary to
implement our strategy. The Company has made purchase commitments with two such
vendors totaling approximately, $4.0 million and $4.5 million, respectively.
F-21
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
The Company is party to various claims and other matters arising in the ordinary
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.
9. OPTIONS AND WARRANTS:
--------------------
On May 17, 1996, the Company adopted, the 1996 Equity Compensation Plan, (the
"Plan"). The Plan was subsequently amended on May 28, 1997 and May 12, 1999 to
increase the number of shares available for grant. A committee of the Board of
Directors administers and awards grants under the Plan at its sole discretion.
The Plan reserves up to 10,000,000 shares of common stock for issuance in
connection with the exercise and/or grant of incentive stock options, and
nonqualified stock options, restricted stock, stock appreciation rights and
performance units to key employees, officers, directors, independent contractors
and consultants.
The following table summarizes option activity under the Plan:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Price Price
Shares Per Share Per Share
---------- ------------- -------------
<S> <C> <C> <C>
Balance outstanding, December 31, 1996.................... 1,409,490 $15.00 $15.00
Granted at fair market value............................ 2,050,510 4.25- 14.38 8.70
Granted above fair market value......................... 2,310,490 6.25 6.25
Cancelled............................................... (2,582,657) 4.25- 15.00 13.84
----------- ------------ ------
Balance outstanding, December 31, 1997.................... 3,187,833 4.25- 6.25 5.55
Granted at fair market value............................ 723,500 3.31- 9.81 4.53
Granted above fair market value......................... 75,000 6.25 6.25
Granted below fair market value......................... 2,000,000 3.29 3.29
Exercised............................................... (330,411) 3.29- 6.25 4.54
Cancelled............................................... (432,816) 3.31- 8.94 4.89
----------- ------------ ------
Balance outstanding, December 31, 1998.................... 5,223,106 3.29- 9.81 4.67
Granted at fair market value............................ 1,333,250 4.13- 11.50 7.07
Granted in the IDRC merger (see Note 3)................. 930,903 1.45- 14.46 2.54
Granted in the CRW merger (see Note 3).................. 820,669 1.37- 14.10 3.75
Exercised............................................... (345,010) 1.45- 6.25 4.26
Cancelled............................................... (111,040) 3.31- 7.75 5.35
----------- ------------ ------
Balance outstanding, December 31, 1999.................... 7,851,878 $1.37- 14.46 $ 4.74
=========== ============ ======
</TABLE>
F-22
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
Summary information about the Company's stock options outstanding at December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Balance Weighted Weighted
Outstanding at Average Average Exercisable at Weighted
Range of December 31, Exercise Contractual December 31, Average
Exercise Price 1999 Price Life in years 1999 Exercise Price
-------------- -------------- -------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1 - $3 1,467,894 $ 1.71 9.5 1,458,894 $ 1.72
3 - 5 3,146,738 3.59 8.2 1,549,296 3.71
5 - 7 1,923,561 6.21 7.0 1,682,979 6.20
7 - 9 1,069,178 7.89 9.4 69,260 8.79
9 - 11 69,313 9.62 9.3 52,646 9.57
11 - 13 50,000 11.50 9.1 -- 11.50
13 - 15 125,194 14.26 9.5 125,194 14.26
--------- ------ --- --------- ------
7,851,878 $ 4.74 8.4 4,938,269 $ 4.37
========= ====== === ========= ======
</TABLE>
In March 1998, the Company granted options to purchase 500,000 shares of common
stock under the Plan and options to purchase 1,500,000 shares of common stock
outside of the Plan to its CEO and President (see Note 8).
In the first quarter of 1998, the vesting of 1,168,699 options was accelerated
based on the occurrence of certain events. The remaining unvested options will
vest over one to four years.
In September 1997, the Company exchanged new options for options that were
granted in August 1996 and February 1997. The exercise price for the new options
was $6.25 per share. The exercise price for the new options was less than the
exercise price of the previously granted options, but exceeded the market price
of the stock on the date of grant of the new options.
In September 1997, the Company granted options to purchase 150,000 shares of the
Company's common stock at $6.25 per share under the Plan to an independent
contractor. The options become fully exercisable over a two-year period and
expire in August 2006. The Company recorded the $508,000 fair value of these
options as a charge to operations in 1997.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations in accounting for its employee
stock options because the alternative fair value accounting provided for under
SFAS No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB No. 25, if the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the date
of the grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share required by
SFAS No. 123 has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
determination of the fair value of the options noted above was estimated at the
date of grant using a Black-Scholes option pricing model with the following
F-23
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
weighted-average assumptions for the years ended December 31, 1999, 1998 and
1997: risk free interest rate of 6.0%, 5.7%, and 6.3%, respectively, dividend
yield of 0%, volatility factor of the expected market price of the Company's
common stock of 75%, and an expected life of the options of six years.
The weighted average fair value of employee stock options granted during the
periods presented is as follows:
<TABLE>
<CAPTION>
Weighted Average Fair Value
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Granted at fair market value.................. $ 4.98 $3.14 $3.00
Granted above fair market value............... $ -- $1.95 $2.77
Granted below fair market value............... $ -- $2.60 $ --
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information is as follows (in thousands - except for earnings per share):
<TABLE>
<CAPTION>
Weighted Average Fair Value
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ -------------- --------------
<S> <C> <C> <C>
Pro forma net income (loss)............................. $4,208 $(11,455) $(162,021)
Pro forma basic earnings (loss) per share............... $ 0.15 $ (0.45) $ (6.43)
Pro forma diluted earnings (loss) per share............. $ 0.13 $ (0.45) $ (6.43)
</TABLE>
On June 30, 1999, the Company granted warrants to purchase 2,500,000 shares of
the Company's common stock at $6.50 per share in connection with the IDRC merger
(see Note 3). These warrants were valued at their estimated fair value of
$7,840,000 and were included in the total purchase price of IDRC. The warrants
are exercisable for ten years. No warrants were exercised as of December 31,
1999.
On June 30, 1999, the Company granted warrants to purchase 678,410 shares of the
Company's common stock at $1.50 per share in connection with the CRW merger (see
Note 3). These warrants were valued at their estimated fair value of $4,638,000
and were included in the cost of treasury stock acquired in the CRW merger. The
warrants are exercisable for ten years. No warrants were exercised as of
December 31, 1999.
In April 1997, the Company granted warrants to purchase 1,500,000 shares of the
Company's common stock at a price of $12.25 per share in lieu of a certain
earnout agreement with one of the Initial Operating Businesses. Effective
December 31, 1997, 1,000,000 of these warrants were cancelled as certain vesting
criteria, as defined, were not met. The warrants are exercisable for ten years.
No warrants were exercised as of December 31, 1999.
The Company issued warrants to purchase 593,400 shares of common stock to the
former principals of the Initial Operating Businesses at $15.00 per share.
These warrants were valued at their estimated fair value of $2,077,000 and were
included in the purchase price of the Initial
F-24
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
Operating Business. The warrants are exercisable for ten years. No warrants were
exercised as of December 31, 1999.
10. EMPLOYEE RETIREMENT SAVINGS PLAN:
---------------------------------
On January 1, 1997, the Company adopted a defined contribution 401(k) Savings
Plan (the "Savings Plan"). Employees who have met certain eligibility
requirements, as defined, may contribute up to 15% of their pre-tax gross wages,
subject to certain restrictions. The Savings Plan provides for Company matching
contributions of 25% of the first 6% of employee contributions to the Savings
Plan, which vest 25% per year over a four-year period. The expense for the year
ended December 31, 1999, 1998 and 1997 under the Savings Plan was $189,000,
$171,000 and $290,000, respectively.
When the Company merged with IDRC it had an existing defined contribution 40l
(k) Savings Plan (the "IDRC Plan"). This plan has been maintained for existing
IDRC employees. Employees who have met certain eligibility requirements, as
defined, may contribute up to 15% of their pre-tax gross wages, subject to
certain restrictions. The IDRC Plan provided for matching contributions of 50%
of the first 3% of employee contributions to the IDRC Plan, which vests 25% per
year over a four-year period. The expense for the six months ended December 31,
1999 under the IDRC Plan was $58,000.
11. RELATED-PARTY TRANSACTIONS:
---------------------------
CRW Financial, Inc.
- -------------------
The Company subleases a 21,000 square foot office building in King of Prussia,
Pennsylvania, from CRW which was a former shareholder of the Company and as
discussed in Note 3, was merged with the Company on June 30, 1999. The sublease
commenced on May 9, 1996, and requires monthly base rent payments through
September 30, 2004, of approximately $42,000. Total rent expense for the six
months ended December 31, 1999 and years ended December 31, 1998 and 1997, was
approximately $252,000, $430,000 and $444,000, respectively.
AffiniCorp USA, Inc.
- --------------------
On September 25, 1998, the Company purchased 19.4% of the outstanding common
stock of AffiniCorp, USA, Inc. ("AffiniCorp") for $500,000. AffiniCorp develops
and manages enhancement products for credit card issuers. As of December 31,
1999, the Company has a $3,347,000 receivable from AffiniCorp recorded in
current assets. During 1999, the Company recorded a reserve for all amounts
invested in or due from AffiniCorp.
As of December 31, 1999, the Company had a $475,000 note receivable due July
2004, bearing interest at 3% and collateralized by a residence from one of its
senior officers. This note was paid in full in January 2000.
12. CONCENTRATIONS OF CREDIT:
-------------------------
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of accounts receivable. Concentrations of
credit risk with respect to accounts receivable are limited due to the number of
customers comprising the Company's customer base
F-25
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
and their dispersion across different industries and geographies. The Company
does not require collateral or other securities to support customer receivables.
The Company performs periodic reviews of its clients' financial condition to
reduce collection risk.
The Company does not believe significant credit risk exists at December 31,
1999.
The following table summarizes those customers with revenue or accounts
receivable in excess of 10% of total revenue for the years ended December 31,
1999, 1998 and 1997, or total receivables as of December 31, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
Revenues Accounts Receivable
----------------------------- ---------------------
Year Ended Year Ended
December 31, December 31,
----------------------------- ---------------------
1999 1998 1997 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Customer 1 11% 10% --% --% 23%
Customer 2 --% --% --% 17% --%
Customer 3 --% --% --% --% 13%
Customer 4 --% --% 19% --% --%
</TABLE>
The following table summarizes those industries with revenue in excess of 10% of
total revenue for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Revenues
--------------------------------------
Year Ended December 31,
--------------------------------------
1999 1998 1997
----------- ------------ -----------
<S> <C> <C> <C>
Telecommunications....................................... 32% 27% 29%
Financial Services....................................... 28% 23% 40%
Insurance................................................ 10% 10% --
</TABLE>
13. SEGMENTS:
---------
The Company classifies its continuing operations into two segments:
Telemarketing and Customer Care. The operating segments are managed separately
because each operating segment represents a strategic business unit that offers
different services. The accounting policies of the operating segments are the
same as described in the summary of significant accounting policies (see Note
2). The business segments are described in further detail below. Segment assets
include amounts specifically identified to Telemarketing and Customer Care
segments. Corporate assets consist primarily of property and equipment and the
goodwill and other intangibles related to the IDRC merger, which will be
allocated to the business segments after evaluations are completed by
management.
The Telemarketing Segment provides both business-to-consumer and business-to-
business telemarketing services--primarily direct sales initiated by the Company
on behalf of its clients.
The Customer Care Segment provides customer service expertise to its clients.
The Company's customer service expertise includes the more traditional inbound
services of customer care
F-26
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
support, typically through toll-free telephone numbers, for activities such as
responses to clients' customer service inquiries, catalogue sales and electronic
order processing and consulting services to a wide range of clients. In
addition, Customer Care includes our more recent strategic initiatives into
multi-channel Customer Relationship Management including Web-based sales and
service, e-mail response, Web telephony, Web chat and fax.
Corporate operations include the selling, general and administrative functions
of the Company.
The results of operations of the Market Research Segment and Direct Mail and
Fulfillment Segment have been accounted for as discontinued operations (see Note
3).
As discussed in Note 2, during 1999, the Company began reporting operating
expenses differently from the historical presentation in order to be more
consistent with industry practices. The principal change relates to the
components of two line items - Cost of Services and SG&A. Cost of Services now
reflects only those costs that are directly associated with the operation of a
call center. All other costs including account management, management
information systems and human resources are included in SG&A. This
reclassification has been made for all periods presented.
Business segment information is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Telemarketing......................................... $177,835 $115,776 $ 140,719
Customer Care......................................... 88,975 51,652 38,203
-------- -------- ---------
Total............................................ $266,810 $167,428 $ 178,922
======== ======== =========
OPERATING INCOME (LOSS):
Telemarketing (includes goodwill
impairment charge of $139,072 in 1997)............. $ 44,567 $ 19,340 $(125,499)
Customer Care......................................... 25,492 16,504 3,254
Corporate............................................. (57,151) (41,785) (41,793)
-------- -------- ---------
Total............................................ $ 12,908 $ (5,941) $(164,038)
======== ======== =========
TOTAL ASSETS:
Telemarketing......................................... $ 81,298 $ 45,995 $ 53,779
Customer Care......................................... 78,019 47,499 47,718
Corporate............................................. 159,090 10,195 6,825
-------- -------- ---------
Total continuing operations...................... 318,407 103,689 108,322
Discontinued Operations............................... -- -- 36,399
-------- -------- ---------
Total............................................ $318,407 $103,689 $ 144,721
======== ======== =========
DEPRECIATION AND AMORTIZATION:
Telemarketing (includes goodwill
impairment charge of $139,072 in 1997)............. $ 5,361 $ 4,995 $ 150,679
Customer Care........................................... 4,124 3,634 3,244
Corporate............................................... 7,231 1,081 581
-------- -------- ---------
Total............................................ $ 16,716 $ 9,710 $ 154,504
======== ======== =========
</TABLE>
F-27
<PAGE>
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
---------------------------------------------
<TABLE>
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Telemarketing......................................... $ 12,197 $ 2,401 $ 18,206
Customer Care......................................... 12,365 3,093 6,057
Corporate............................................. 1,852 3,605 2,034
-------- -------- ---------
Total............................................ $ 26,414 $ 9,099 $ 26,297
======== ======== =========
</TABLE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- ---------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues....................................... $47,925 $46,615 $86,471 $85,799
Gross profit................................... 14,699 13,751 22,460 20,327
Operating income (loss)........................ 4,914 (196) 4,538 3,652
Net income (loss).............................. $ 4,742 $ (940) $ 1,746 $ 334
Basic earnings (loss) per
common share................................. $ 0.18 $ (0.04) $ 0.06 $ 0.01
Diluted earnings (loss) per
common share................................. $ 0.17 $ (0.04) $ 0.05 $ 0.01
</TABLE>
15. SUBSEQUENT EVENTS:
------------------
During the first quarter of 2000 the Company retained an investment banker to
raise capital for e-Satisfy.com - a company formed by merging TARP, a wholly
owned subsidiary of the Company and Customer Insites, Inc., a company acquired
in January 2000. The scope of the investment banker's engagement was then
expanded to raise additional capital to assist in the strategic initiatives of
ChannelCare, the Company's multi-channel CRM platform. In addition, the Company
is evaluating alternative business growth strategies in connection with multi-
channel CRM solutions including, but not limited to, independently operating and
raising capital relative to these businesses.
F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TeleSpectrum Worldwide Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of TeleSpectrum Worldwide
Inc. and subsidiaries included in this Form 10-K and have issued our report
thereon dated February 9, 2000. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The accompanying
financial statement schedule is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/S/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 9, 2000
S-1
<PAGE>
Schedule II
TELESPECTRUM WORLDWIDE INC. AND SUBSIDIARIES
--------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
----------------------------------------------------
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
December 31, Cost and Other December 31,
Description 1998 Expenses Accounts Deductions 1999
- --------------------------- ------------ -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $2,851 $6,800 $16,398 $(20,932)/1/ $5,117
Closed call center minimum
lease commitment
reserve $ 809 $ -- $ 3,014 $ (1,120)/2/ $2,703
Severance reserve $ -- $ 401 $ 2,400 $ (882)/2/ $1,919
<CAPTION>
Balance at Charged to Charged to Balance at
December 31, Cost and Other December 31,
Description 1997 Expenses Accounts Deductions 1998
- --------------------------- ------------ -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 969 $2,325 $ -- $ (443)/1/ $2,851
Closed call center minimum
lease commitment
reserve $1,939 $ 360 $ -- $ (1,490)/2/ $ 809
Closed call center severance
reserve $ 263 $ 994 $ -- $ (1,257)/2/ $ --
<CAPTION>
Balance at Charged to Charged to Balance at
January 1, Cost and Other December 31,
Description 1997 Expenses Accounts Deductions 1997
- --------------------------- ------------ -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 519 $ 881 $ -- $ (431)/1/ $ 969
Closed call center minimum
lease commitment
reserve $ -- $1,939 $ -- $ -- $1,939
Closed call center severance
reserve $ -- $1,293 $ -- $ (1,030)/2/ $ 263
</TABLE>
/1/ Write-off of amounts previously reserved.
/2/ Cash payments related to minimum lease commitments and employee severance
for closed call centers.
S-2
<PAGE>
TELESPECTRUM WORLDWIDE INC.
1996 EQUITY COMPENSATION PLAN
-----------------------------
The purpose of the Telespectrum Worldwide Inc. 1996 Equity Compensation
Plan (the "Plan") is to provide (i) designated key employees (including
employees who are also officers or directors) of Telespectrum Worldwide Inc.
(the "Company") and its subsidiaries, (ii) independent contractors and
consultants who perform valuable services for the Company or its subsidiaries
and (iii) non-employee members of the Board of Directors of the Company (the
"Board") with the opportunity to receive grants of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock and
performance units. The Company believes that the Plan will cause the
participants to contribute materially to the growth of the Company, thereby
benefitting the Company's shareholders, and will align the economic interests of
the participants with those of the shareholders.
Effective May 12, 1999, the Plan is amended and restated to (i) increase
the number of shares authorized by the Plan subject to shareholder approval;
(ii) provide for discretionary grants of non-qualified stock options to non-
employee directors in lieu of formula grants for grants made after September 4,
1998; (iii) expand the types of awards that may be granted for substituted stock
options to include other equity awards such as warrants; (iv) ensure that
treatment for qualified performance-based compensation pursuant to section
162(m) of the Code is available for certain awards under the Plan; (v) modify
the amendment provision of the Plan to reflect current statutory shareholder
approval requirements; and (vi) make other necessary and conforming changes to
the Plan.
1. Administration
--------------
(a) The Plan shall be administered and interpreted by a committee (the
"Committee"), which shall consist of not less than two persons appointed by the
Board. Prior to the Effective Date specified in Section 23(b), the Board may
exercise any power or authority of the Committee under the Plan and, in such
case, any reference to the Committee hereunder shall be deemed to include the
Board as a whole.
On and after the Effective Date set forth in Section 23(b), the Committee
shall consist of two or more persons appointed by the Board, all of whom shall
be "non-employee directors" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934 (the "Exchange Act") and "outside directors" as defined
under section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and related Treasury regulations.
(b) Except as provided in Section 6, the Committee shall have the sole
authority to (i) determine the individuals to whom grants shall be made under
the Plan, (ii) determine the type, size and terms of the grants 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,
1
<PAGE>
including the criteria for exercisability and the acceleration of exercisability
and (iv) deal with any other matters arising under the Plan.
(c) The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
the conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interest in the Plan or in any
awards granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company, not as a fiduciary, and in
keeping with the objectives of the Plan and need not be uniform as to similarly
situated individuals.
2. Grants
------
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 and Section 6 ("Nonqualified Stock Options")(Incentive
Stock Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 7 ("Restricted Stock"),
stock appreciation rights as described in Section 8 ("SARs"), and performance
units as described in Section 9 ("Performance Units") (hereinafter collectively
referred to as "Grants"). All Grants shall be subject to the terms and
conditions set forth herein and to such other terms and conditions consistent
with this Plan as the Committee deems appropriate and as are specified in
writing by the Committee to the individual in a grant instrument (the "Grant
Instrument") or an amendment to the Grant Instrument. The Committee shall
approve the form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
--------------------------
(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company ("Company Stock") that may be issued under
the Plan is 10,000,000 shares, and the maximum aggregate number of shares of
Company Stock that shall be subject to Grants made under the Plan to any
individual during any calendar year shall be 500,000 shares. The shares may be
authorized but unissued shares of Company Stock or reacquired shares of Company
Stock, including shares purchased by the Company on the open market for purposes
of the Plan. If and to the extent Options or SARs granted under the Plan
terminate, expire, or are canceled, forfeited, exchanged or surrendered without
having been exercised or if any shares of Restricted Stock or Performance Units
are forfeited, the shares subject to such Grants shall again be available for
purposes of the Plan.
(b) If there is any change in the number or kind of shares of Company Stock
outstanding (i) by reason of a stock dividend, spin off, recapitalization, stock
split, or
2
<PAGE>
combination or exchange of shares, (ii) by reason of a merger, reorganization or
consolidation in which the Company is the surviving corporation, (iii) by reason
of a reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of a
spinoff or the Company's payment of an extraordinary dividend or distribution,
the maximum number of shares of Company Stock available for Grants, the maximum
number of shares of Company Stock that any individual participating in the Plan
may be granted in any year, the number of shares covered by outstanding Grants,
the kind of shares issued under the Plan, and the price per share or the
applicable market value of such Grants may appropriately adjusted by the
Committee to reflect any increase or decrease in the number of, or change in the
kind or value of, issued shares of Company Stock to preclude the enlargement or
dilution of rights and benefits under such Grants; provided, however, that any
fractional shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.
4. Eligibility for Participation
-----------------------------
(a) Prior to the Effective Date specified in Section 23(b), members of the
Board who are not employees of the Company or any of its subsidiaries ("Non-
Employee Directors") shall be eligible to participate in the Plan, but shall not
be eligible to receive Incentive Stock Options. After the Effective Date
specified in Section 23(b), Non-Employee Directors shall be eligible to receive
Grants only under Section 6 of the Plan. Any independent contractors or
consultants who perform valuable services to the Company or any of its
subsidiaries ("Consultants") shall be eligible to participate in the Plan, but
shall not be eligible to receive Incentive Stock Options.
(b) The Committee shall select the Employees, Non-Employee Directors and
Consultants to receive Grants and shall determine the number of shares of
Company Stock subject to a particular Grant in such manner as the Committee
determines. Employees, Consultants and Non-Employee Directors who receive
Grants under this Plan shall hereinafter be referred to as "Grantees".
5. Granting of Options
-------------------
(a) Number of Shares. The Committee shall determine the number of shares
----------------
of Company Stock that will be subject to each Grant of Options.
(b) Type of Option and Price.
------------------------
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422 of the
Code or Nonqualified Stock Options that are not intended so to qualify or any
combination of
3
<PAGE>
Incentive Stock Options and Nonqualified Stock Options, all in accordance with
the terms and conditions set forth herein.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal to,
greater than, or less than the Fair Market Value (as defined below) of a share
of such Stock on the date the Option is granted; provided, however, that (x) the
Exercise Price of an Incentive Stock Option shall be equal to, or greater than,
the Fair Market Value of a share of Company Stock on the date the Incentive
Stock Option is granted and (y) an Incentive Stock Option may not be granted to
an Employee who, at the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of the
Company or any parent or subsidiary of the Company, unless the Exercise Price
per share is not less than 110% of the Fair Market Value of Company Stock on the
date of grant.
(iii) If the Company Stock is traded in a public market, then the
Fair Market Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or the
Nasdaq National Market, the last reported sale price thereof on the relevant
date or (if there were no trades on that date) the latest preceding date upon
which a sale was reported, or (y) if the Company Stock is not principally traded
on such exchange or market, the mean between the last reported "bid" and "asked"
prices of Company Stock on the relevant date, as reported on Nasdaq or, if not
so reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines. If the Company Stock is not traded in a public market or
subject to reported transactions or "bid" or "ask" quotations as set forth
above, the Fair Market Value per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each Option.
-----------
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.
(d) Exercisability of Options. Options shall become exercisable in
-------------------------
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The
Committee may accelerate the exercisability of any or all outstanding Options at
any time for any reason.
(e) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by the Company as an Employee, Consultant or member of
the Board.
4
<PAGE>
In the event that a Grantee ceases to be employed by the Company for any reason
other than a "disability", death, or "termination for cause", any Option which
is otherwise exercisable by the Grantee shall terminate unless exercised within
90 days of the date on which the Grantee ceases to be employed by the Company
(or within such other period of time as may be specified by the Committee), but
in any event no later than the date of expiration of the Option term. Any of the
Grantee's Options that are not otherwise exercisable as of the date on which the
Grantee ceases to be employed by the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the Company on
account of a "termination for cause" by the Company, any Option held by the
Grantee shall terminate as of the date the Grantee ceases to be employed by the
Company.
(iii) In the event the Grantee ceases to be employed by the Company
because the Grantee is "disabled", any Option which is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date on
which the Grantee ceases to be employed by the Company (or within such other
period of time as may be specified by the Committee, but in any event no later
than the date of expiration of the Option term. Any of the Grantee's Options
which are not otherwise exercisable as of the date on which the Grantee ceases
to be employed by the Company shall terminate as of such date.
(iv) If the Grantee dies while employed by the Company or within 90
days after the date on which the Grantee ceases to be employed on account of a
termination of employment specified in Section 5(e)(i) above (or within such
other period of time as may be specified by the Committee), any Option that is
otherwise exercisable by the Grantee shall terminate unless exercised within one
year after the date on which the Grantee ceases to be employed by the Company
(or within such other period of time as may be specified by the Committee), but
in any event no later than the date of expiration of the Option term. Any of
the Grantee's Options that are not otherwise exercisable as of the date on which
the Grantee ceases to be employed by the Company shall terminate as of such
date.
(v) For purposes of this Section 5(e) and Sections 6, 7, 8 and 9:
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations.
(B) "Employed by the Company" shall mean employment as an Employee,
Consultant or member of the Board (so that, for purposes of exercising
Options and SARs and satisfying conditions with respect to Restricted Stock
and Performance Units, a Grantee shall not be considered to have terminated
employment until the Grantee ceases to be an Employee, Consultant and
member of the Board), unless the Committee determines otherwise.
5
<PAGE>
(C) "Disability" shall mean a Grantee's becoming disabled within the
meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean, except to the extent specified
otherwise by the Committee, a finding by the Committee that the Grantee has
breached his or her employment or service contract with the Company, or has
been engaged in disloyalty to the Company, including, without limitation,
fraud, embezzlement, theft, commission of a felony or proven dishonesty in
the course of his or her employment or service, or has disclosed trade
secrets or confidential information of the Company to persons not entitled
to receive such information. In the event a Grantee's employment is
terminated for cause, in addition to the immediate termination of all
Grants, the Grantee shall automatically forfeit all Option shares for any
exercised portion of an Option for which the Company has not yet delivered
the share certificates, upon refund by the Company of the Exercise Price
paid by the Grantee for such shares.
(f) Exercise of Options. A Grantee may exercise an Option that has become
-------------------
exercisable, in whole or in part, by delivering a notice of exercise to the
Company with payment of the Exercise Price. The Grantee shall pay the Exercise
Price for an Option as specified by the Committee (x) in cash, (y) with the
approval of the Committee, by delivering shares of Company Stock owned by the
Grantee owned by the Grantee for the period necessary to avoid a charge to the
Company's earnings for financial reporting purposes (including Company Stock
acquired in connection with the exercise of an Option, subject to such
restrictions as the Committee deems appropriate) and having a Fair Market Value
on the date of exercise equal to the Exercise Price or (z) except with respect
to Options granted under Section 6 and held by persons who are then Non-Employee
Directors by such other method as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board or any successor regulation of the agency than responsible
for administering margin regulations pertaining to securities brokers. Non-
Employee Directors who hold Options granted under Section 6 may make payment
through a broker in accordance with procedures permitted by Regulation T. The
Grantee shall pay the Exercise Price and the amount of any withholding tax due
(pursuant to Section 11) at the time of exercise. Shares of Company Stock shall
not be issued upon exercise of an Option until the Exercise Price is fully paid
and any required withholding is made.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option shall
---------------------------------
provide that, if the aggregate Fair Market Value of the stock on the date of the
grant with respect to which Incentive Stock Options are exercisable for the
first time by a Grantee during any calendar year, under the Plan or any other
stock option plan of the Company or a parent or subsidiary, exceeds $100,000,
then the option, as to the excess, shall be treated as a Nonqualified Stock
Option. An Incentive Stock Option shall not be granted to any person who is not
an Employee of the Company or a parent or subsidiary (within the meaning of
section 424(f) of the Code).
6
<PAGE>
6. Option Grants to Non-Employee Directors
---------------------------------------
This Section 6 shall apply to any grant of an Option to a Non-Employee
Director after the Effective Date specified in Section 23(b).
(a) Initial Grant. Each Non-Employee Director who first becomes a member
-------------
of the Board after the Effective Date specified in Section 23(b) shall receive a
grant of a Nonqualified Stock Option to purchase 2,500 shares of Company Stock
on the date as of which he or she first becomes a member of the Board.
(b) Annual Grants. On each date that the Company holds its annual meeting
-------------
of shareholders, commencing with the 1997 annual meeting, each Non-Employee
Director who is in office immediately after the annual election of directors
(other than a director who is first elected to the Board at such meeting) shall
receive a grant of a Nonqualified Stock Option to purchase 2,500 shares of
Company Stock. The date of grant of each such annual Grant shall be the date of
the annual meeting of the Company's shareholders.
(c) Exercise Price. The Exercise Price per share of Company Stock subject
--------------
to an Option granted under this Section 6 shall be equal to the Fair Market
Value of a share of Company Stock on the date of grant.
(d) Option Term and Exercisability. The term of each Option granted
------------------------------
pursuant to this Section 6 shall be ten years. Options granted under this
Section 6 shall be fully exercisable as of the date of grant.
(e) Payment of Exercise Price.
-------------------------
(i) The Exercise Price for an Option granted under this Section 6
shall be paid in cash. The Grantee shall pay the Exercise Price and the amount
of any withholding tax due at the time of exercise. Shares of Company Stock
shall not be issued upon exercise of an Option until the Exercise Price is fully
paid and any required withholding is made.
(ii) A Grantee may exercise an Option granted under this Section 6 by
delivering to the Committee a notice of exercise as described below, with
accompanying payment of the Exercise Price in accordance with Subsection (i)
above. The notice of exercise may instruct the Company to deliver shares of
Company Stock due upon the exercise of the Option to any registered broker or
dealer designated by the Committee in lieu of delivery to the Grantee. Such
instructions shall designate the account into which the shares are to be
deposited.
(f) Applicability of Plan Provisions. Except as otherwise provided in this
--------------------------------
Section 6, Nonqualified Stock Options granted to Non-Employee Directors shall be
subject to the provisions of this Plan applicable to Nonqualified Stock Options
granted to other persons,
7
<PAGE>
provided however that (i) if an event described in Section 3(b) occurs,
appropriate adjustments, as described in that Section, shall be made
automatically, (ii) with respect to the provisions of Section 5(e), the
Committee shall not have discretion to modify the terms of such provisions in
the Grant Instrument, and (iii) in the event of a Change of Control (as defined
in Section 15), the provisions of Section 16 shall apply to Options granted
pursuant to this Section 6, except that the Committee shall not have discretion
under Section 16(c) to modify the automatic provisions of that Section.
(g) Administration. The provisions of this Section 6 are intended to
--------------
operate automatically and not require administration. To the extent that any
administrative determinations are required, any determinations with respect to
the provisions of this Section 6 shall be made by the members of the Board who
are not eligible to receive Grants under this Section 6, but in no event shall
such determinations affect the eligibility of Grantees, the determination of the
Exercise Price, the timing of the Grants or the number of shares subject to
Options granted hereunder. If at any time there are not sufficient shares
available under the Plan to permit an automatic Grant as described in this
Section 6, the Grant shall be reduced pro rata (to zero, if necessary) so as not
to exceed the number of shares then available under the Plan.
(h) Discretionary Grants. Effective September 4, 1998, the Board may make
--------------------
discretionary Grants of Nonqualified Stock Options to Non-Employee Directors in
accordance with the terms of the Plan, and effective September 5, 1998, the
provisions of Sections 6(a) through 6(d) shall no longer apply. The provisions
of Section 6(g) shall not apply to such discretionary Grants and the Board shall
have the full power and authority reserved for the Committee under the Plan to
administer the Grants. Options granted pursuant to Sections 6(a) and 6(b) shall
continue to be administered in accordance with the terms of the applicable Grant
Instrument. Options granted pursuant to this Section 6(h) shall become
exercisable in accordance with such terms and conditions, consistent with the
Plan, as may be determined by the Board and specified in the Grant Instrument or
an amendment to the Grant Instrument. The Board may accelerate the
exercisability of any or all outstanding Options granted pursuant to this
Section 6(h) at any time for any reason.
7. Restricted Stock Grants
-----------------------
The Committee may issue shares of Company Stock to an Employee, Non-
Employee Director (but only before the Effective Date specified in Section
23(b)) or Consultant under a Grant of Restricted Stock, upon such terms as the
Committee deems appropriate. The following provisions are applicable to
Restricted Stock:
(a) General Requirements. Shares of Company Stock issued pursuant to
--------------------
Restricted Stock Grants may be issued for consideration or for no consideration
as determined by the Committee. The Committee may establish conditions under
which restrictions on shares of Restricted Stock shall lapse over a period of
time or according to such other criteria as the
8
<PAGE>
Committee deems appropriate. The period of time during which the Restricted
Stock will remain subject to restrictions will be designated in the Grant
Instrument as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of shares
----------------
of Company Stock to be issued pursuant to a Restricted Stock Grant and the
restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed by the
-------------------------
Company (as defined in Section 5(e)) during a period designated in the Grant
Instrument as the Restriction Period, or if other specified conditions are not
met, the Restricted Stock Grant shall terminate as to all shares covered by the
Grant as to which the restrictions have not lapsed, and those shares of Company
Stock must be immediately returned to the Company. The Committee may, however,
provide for complete or partial exceptions to this requirement as it deems
appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
--------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 12(a). Each certificate for a share of Restricted Stock
shall contain a legend giving appropriate notice of the restrictions in the
Grant. The Grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee, in its sole discretion, may determine
that the Company will not issue certificates for shares of Restricted Stock
until all restrictions on such shares have lapsed, or that the Company will
retain possession of certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
--------------------------------------
determines otherwise, during the Restriction Period, the Grantee shall have the
right to vote shares of Restricted Stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted Stock
---------------------
shall lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Restricted Stock Grants, that the restrictions shall
lapse without regard to any Restriction Period.
8. Stock Appreciation Rights
-------------------------
(a) General Requirements. The Committee may grant stock appreciation
--------------------
rights ("SARs") to any Grantee separately or in tandem with any Option (for all
or a portion of the
9
<PAGE>
applicable Option). Tandem SARs may be granted either at the time the Option is
granted or at any time thereafter while the Option remains outstanding;
provided, however, that, in the case of an Incentive Stock Option, SARs may be
granted only at the time of the Grant of the Incentive Stock Option. The
Committee shall establish the base amount of the SAR at the time the SAR is
granted. Unless the Committee determines otherwise, the base amount of each SAR
shall be equal to the per share Exercise Price of the related Option or, if
there is no related Option, the Fair Market Value of a share of Company Stock as
of the date of Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs granted to
-----------
a Grantee that shall be exercisable during a specified period shall not exceed
the number of shares of Company Stock that the Grantee may purchase upon the
exercise of the related Option during such period. Upon the exercise of an
Option, the SARs relating to the Company Stock covered by such Option shall
terminate. Upon the exercise of SARs, the related Option shall terminate to the
extent of an equal number of shares of Company Stock.
(c) Exercisability. An SAR shall be exercisable during the period
--------------
specified by the Committee in the Grant Instrument and shall be subject to such
vesting and other restrictions as may be specified in the Grant Instrument. The
Committee, in its sole discretion, may accelerate the exercisability of any or
all outstanding SARs at any time for any reason. SARs may only be exercised
while the Grantee is employed by the Company or during the applicable period
after termination of employment as described in Section 5(e). A tandem SAR
shall be exercisable only during the period when the Option to which it is
related is also exercisable. After the Effective Date specified in Section
23(b), no SAR may be exercised for cash by an officer or director of the Company
who is subject to Section 16 of the Exchange Act, except in accordance with Rule
16b-3 under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
-------------
receive in settlement of such SARs an amount equal to the value of the stock
appreciation for the number of SARs exercised, payable in cash, Company Stock or
a combination thereof. The stock appreciation for an SAR is the amount by which
the Fair Market Value of the underlying Company Stock on the date of exercise of
the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
---------------
appreciation in an SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee deems
appropriate. For purposes of calculating the number of shares of Company Stock
to be received, shares of Company Stock shall be valued at their Fair Market
Value on the date of exercise of the SAR. If shares of Company Stock are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
9. Performance Units
-----------------
10
<PAGE>
(a) General Requirements. The Committee may grant performance units
--------------------
("Performance Units") to a Grantee. Each Performance Unit shall represent the
right of the Grantee to receive an amount based on the value of the Performance
Unit, if performance goals established by the Committee are met. A Performance
Unit shall be based on the Fair Market Value of a share of Company Stock or on
such other measurement base as the Committee deems appropriate. The Committee
shall determine the number of Performance Units to be granted and the
requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units are
----------------------------------------
granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
-----------------------------------------
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met and the amount, if
any, to be paid with respect to the Performance Units. Payments with respect to
Performance Units shall be made in cash, in Company Stock, or in a combination
of the two, as determined by the Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed by the
-------------------------
Company (as defined in Section 5(e)) during a Performance Period, or if other
conditions established by the Committee are not met, the Grantee's Performance
Units shall be forfeited. The Committee may, however, provide for complete or
partial exceptions to this requirement as it deems appropriate.
10. Qualified Performance-Based Compensation.
----------------------------------------
(a) Designation as Qualified Performance-Based Compensation. The Committee
-------------------------------------------------------
may determine that Performance Units, Nonqualified Stock Options with an
exercise price that is less than Fair Market Value ("Discounted Options") or
Restricted Stock granted to an Employee shall be considered "qualified
performance-based compensation" under section 162(m) of the Code. The
provisions of this Section 10 shall apply to Grants of Discounted Options,
Performance Units and Restricted Stock that are to be considered "qualified
performance-based compensation" under section 162(m) of the Code.
(b) Performance Goals. When Discounted Options, Performance Units or
-----------------
Restricted Stock that are to be considered "qualified performance-based
compensation" are granted, the Committee shall establish in writing (i) the
objective performance goals that must be met in order for Discounted Options to
be granted, restrictions on the Restricted Stock to lapse or amounts to be paid
under the Performance Units, (ii) the Performance Period during
11
<PAGE>
which the performance goals must be met, (iii) the threshold, target and maximum
amounts that may be paid if the performance goals are met, and (iv) any other
conditions, including without limitation provisions relating to death,
disability, other termination of employment or Change of Control, that the
Committee deems appropriate and consistent with the Plan and section 162(m) of
the Code. The performance goals may relate to the Employee's business unit or
the performance of the Company and its subsidiaries as a whole, or any
combination of the foregoing. The Committee shall use objectively determinable
performance goals based on one or more of the following criteria: stock price,
earnings per share, net earnings, operating earnings, return on assets,
shareholder return, return on equity, growth in assets, unit volume, sales,
market share, or strategic business criteria consisting of one or more
objectives based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the performance
----------------------
goals in writing either before the beginning of the Performance Period or during
a period ending no later than the earlier of (i) 90 days after the beginning of
the Performance Period or (ii) the date on which 25% of the Performance Period
has been completed, or such other date as may be required or permitted under
applicable regulations under section 162(m) of the Code. The performance goals
shall satisfy the requirements for "qualified performance-based compensation,"
including the requirement that the achievement of the goals be substantially
uncertain at the time they are established and that the goals be established in
such a way that a third party with knowledge of the relevant facts could
determine whether and to what extent the performance goals have been met. The
Committee shall not have discretion to increase the amount of compensation that
is payable upon achievement of the designated performance goals.
(d) Maximum Payment. Subject to the limitations of Section 3(a), if
---------------
Discounted Options, Restricted Stock, or Performance Units measured with respect
to the fair market value of Company Stock, are granted, not more than 500,000
shares of Company Stock may be granted to an Employee under the Discounted
Options, Performance Units or Restricted Stock for any Performance Period. If
Performance Units are measured with respect to other criteria, the maximum
amount that may be paid to an Employee with respect to a Performance Period is
$1 million.
(e) Announcement of Grants. The Committee shall certify and announce the
----------------------
results for each Performance Period to all Grantees immediately following the
announcement of the Company's financial results for the Performance Period. If
and to the extent that the Committee does not certify that the performance goals
have been met, the grants of Discounted Options, Restricted Stock and
Performance Units for the Performance Period shall be forfeited.
11. Withholding of Taxes
--------------------
12
<PAGE>
(a) Required Withholding. All Grants under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid
in cash, or from other wages paid to the Grantee, any federal, state or local
taxes required by law to be withheld with respect to such Grants. In the case of
Options and other Grants paid in Company Stock, the Company may require the
Grantee or other person receiving such shares to pay to the Company the amount
of any such taxes that the Company is required to withhold with respect to such
Grants, or the Company may deduct from other wages paid by the Company the
amount of any withholding taxes due with respect to such Grants.
(b) Election to Withhold Shares. A Grantee may elect to satisfy the
---------------------------
Company's income tax withholding obligation with respect to an Option, SAR,
Restricted Stock or Performance Units paid in Company Stock by having shares
withheld up to an amount that does not exceed the Grantee's maximum marginal tax
rate for federal (including FICA), state and local tax liabilities. The
election must be in a form and manner prescribed by the Committee and shall be
subject to the prior approval of the Committee. If the Grantee is a director or
officer who is subject to Section 16 of the Exchange Act, the election must be
made in compliance with Rule 16b-3 under the Exchange Act.
12. Transferability of Grants
-------------------------
(a) Only the Grantee or his or her authorized representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, with respect to Grants other than
Incentive Stock Options, if permitted under Rule 16b-3 of the Exchange Act (to
the extent applicable) and if permitted in any specific case by the Committee in
its sole discretion, pursuant to a qualified domestic relations order (as
defined under the Code or Title I of the ERISA or the regulations thereunder).
When a Grantee dies, the representative or other person entitled to succeed to
the rights of the Grantee ("Successor Grantee") may exercise such rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her
right to receive the Grant under the Grantee's will or under the applicable laws
of descent and distribution.
(b) Notwithstanding the foregoing, the Committee may provide, in a Grant
Instrument, that a Grantee may transfer Nonqualified Stock Options to his or her
children, grandchildren or spouse or to one or more trusts for the benefit of
such family members or to partnerships in which such family members are the only
partners (a "Family Transfer"), provided that the Grantee receives no
consideration for a Family Transfer and the Nonqualified Stock Options
transferred in a Family Transfer continue to be subject to the same terms and
conditions that were applicable to such Nonqualified Stock Options immediately
prior to the Family Transfer.
13
<PAGE>
13. Right of First Refusal
----------------------
Prior to the Effective Date specified in Section 23(b), if at any time an
individual desires to sell, encumber, or otherwise dispose of shares of Company
Stock distributed to him under this Plan, the individual shall first offer the
shares to the Company by giving the Company written notice disclosing: (a) the
name of the proposed transferee of the Company Stock; (b) the certificate number
and number of shares of Company Stock proposed to be transferred or encumbered;
(c) the proposed price; (d) all other terms of the proposed transfer; and (e) a
written copy of the proposed offer. Within 60 days after receipt of such
notice, the Company shall have the option to purchase all or part of such
Company Stock at the then current Fair Market Value (as defined in Section 5(b))
and may pay such price in installments over a period not to exceed four years,
at the discretion of the Committee.
In the event the Company does not exercise the option to purchase Company
Stock, as provided above, the individual shall have the right to sell, encumber,
or otherwise dispose of his shares of Company Stock on the terms of the transfer
set forth in the written notice to the Company, provided such transfer is
effected within 15 days after the expiration of the option period. If the
transfer is not effected within such period, the Company must again be given an
option to purchase, as provided above.
On and after the Effective Date specified in Section 23(b), the Company
shall have no further right to purchase shares of Company Stock under this
Section, and its limitations shall be null and void.
Notwithstanding the foregoing, the Committee may require that a Grantee
execute a stockholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan, in which case the provisions of this Section 13 and Section 14 below shall
not apply to such Company Stock.
14. Purchase by the Company
-----------------------
Prior to the Effective Date specified in Section 23(b), if a Grantee ceases
to be employed by the Company, the Company shall have the right to purchase all
or part of any Company Stock distributed to him under this Plan at its then
current Fair Market Value (as defined in Section 5(b)); provided, however, that
such repurchase shall be made in accordance with applicable accounting rules to
avoid adverse accounting treatment.
15. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) As a result of any transaction, any one stockholder, other than an
existing stockholder as of the effective date of the Plan (or his beneficiary or
estate), becomes a
14
<PAGE>
beneficial owner, directly or indirectly, of securities of the Company
representing more than 40% of the common stock of the Company or the combined
voting power of the Company's then outstanding securities;
(b) A liquidation or dissolution of the Company or sale (other than a
transfer to a subsidiary) of all or substantially all of the Company's assets
occurs;
(c) On or after the Effective Date specified in Section 23(b), any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the voting power of the then outstanding securities of the Company;
(d) The shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger or consolidation of the Company with another corporation where the
shareholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to 50% or more of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), or where the members of the Board,
immediately prior to the merger or consolidation, would not, immediately after
the merger or consolidation, constitute a majority of the board of directors of
the surviving corporation, (ii) the sale or other disposition of all or
substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company;
(e) Any person has commenced a tender offer or exchange offer for 50%
or more of the voting power of the then outstanding shares of the Company; or
(f) At least a majority of the Board does not consist of individuals
who were elected, or nominated for election, by the directors in office at the
time of such election or nomination.
16. Consequences of a Change of Control
-----------------------------------
(a) Upon a Change of Control (i) the Company shall provide each Grantee
with outstanding Grants written notice of such Change of Control, (ii) all
outstanding Options and SARs shall automatically accelerate and become fully
exercisable, (iii) the restrictions and conditions on all outstanding Restricted
Stock shall immediately lapse, and (iv) Grantees holding Performance Units shall
receive a payment in settlement of such Performance Units, in an amount
determined by the Committee, based on the Grantee's target payment for the
Performance Period and the portion of the Performance Period that precedes the
Change of Control.
15
<PAGE>
(b) In addition, upon a Change of Control described in Section 15(d)(i)
where the Company is not the surviving corporation (or survives only as a
subsidiary of another corporation), all outstanding Options and SARs shall be
assumed by, or replaced with comparable options or rights by, the surviving
corporation.
(c) Notwithstanding the foregoing, subject to subsection (d) below, in the
event of a Change of Control, the Committee may take one or both of the
following actions: the Committee may (i) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in cash
or Company Stock as determined by the Committee, in an amount equal to the
amount by which the then Fair Market Value of the shares of Company Stock
subject to the Grantee's outstanding Options and SARs exceeds the Exercise Price
of the Options or the base amount of the SARs, as applicable, and (ii) terminate
any or all outstanding Options and SARs at such time as the Committee deems
appropriate. Such surrender shall take place as of the date of the Change of
Control or such other date as the Committee may specify, and, in the case of an
Option or SAR held by a Grantee who is subject to Section 16(b) of the Exchange
Act, any such surrender or payment shall be made on such date as the Committee
shall determine consistent with Rule 16b-3 under the Exchange Act.
(d) Notwithstanding anything in the Plan to the contrary, in the event of a
Change of Control, the Committee shall not have the right to take actions
described in the Plan (including without limitation actions described in
Subsection (c) above) that would make the Change of Control ineligible for
pooling of interest accounting treatment or that would make the Change of
Control ineligible for desired tax treatment if, in the absence of such right,
the Change of Control would qualify for such treatment and the Company intends
to use such treatment with respect to the Change of Control.
17. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that the Board shall not amend the Plan without shareholder
approval if such approval is required in order for Incentive Stock Options
granted or to be granted under the Plan to meet the requirements of section 422
of the Code or such approval is required in order to exempt compensation under
the Plan from the deduction limit under section 162(m) of the Code.
(b) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date unless terminated earlier
by the Board or unless extended by the Board with the approval of the
shareholders.
(c) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 24(b).
16
<PAGE>
The termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant. Whether or not the Plan has
terminated, an outstanding Grant may be terminated or amended under Section
24(b) or may be amended by agreement of the Company and the Grantee consistent
with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
18. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
19. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Consultant or other person
to any claim or right to be granted a Grant under this Plan, except as provided
in Section 6. Neither this Plan nor any action taken hereunder shall be
construed as giving any individual any rights to be retained by or in the employ
of the Company or any other employment rights.
20. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
21. Requirements for Issuance of Shares
-----------------------------------
No Company Stock shall be issued or transferred in connection with any
Grant hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Grant made to any Grantee hereunder on such Grantee's undertaking in writing
to comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable as a
result of any applicable law, regulation or official interpretation thereof and
certificates representing such shares may be legended to reflect any such
restrictions. Certificates representing shares of Company Stock issued under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be applicable under such
17
<PAGE>
laws, regulations and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
22. Headings
--------
Section headings are for reference only. In the event of a conflict
between a title and the content of a Section, the content of the Section shall
control.
23. Effective Date of the Plan.
--------------------------
(a) Plan Effective Date. Subject to the approval of the Company's
-------------------
shareholders, this Plan shall be effective on May 17, 1996.
(b) Effective Date of Section 16 and Section 162(m) Provisions. The
----------------------------------------------------------
provisions of the Plan that refer to, or are applicable to persons subject to,
Section 16 of the Exchange Act or Section 162(m) of the Code shall be effective,
if at all, upon the initial registration of the Company Stock under Section
12(g) of the Exchange Act, and shall remain effective thereafter for so long as
such stock is so registered.
24. Miscellaneous
-------------
(a) Substitute Grants. The Committee may make a Grant or other equity
-----------------
award to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant made by such
corporation ("Substituted Stock Incentives"). The terms and conditions of the
substitute grant may vary from the terms and conditions required by the Plan and
from those of the Substituted Stock Incentives. The Committee shall prescribe
the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs and
-------------------
the obligations of the Company to issue or transfer shares of Company Stock
under Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation.
The Committee may also adopt rules regarding the withholding of taxes on
payments to Grantees. The Committee may, in its sole discretion, agree to limit
its authority under this Section.
(c) Ownership of Stock. A Grantee or Successor Grantee shall have no
------------------
rights as a shareholder with respect to any shares of Company Stock covered by a
Grant until the shares
18
<PAGE>
are issued or transferred to the Grantee or Successor Grantee on the stock
transfer records of the Company.
(d) Governing Law. The validity, construction, interpretation and effect
-------------
of the Plan and Grant Instruments issued under the Plan shall exclusively be
governed by and determined in accordance with the law of the Commonwealth of
Pennsylvania.
19
<PAGE>
EXHIBIT 11.11
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of this 1st day of January, 2000 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and Jill A.
Ward (the "Employee").
RECITALS
--------
WHEREAS, 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) During the term of the Employee's employment under this Agreement (the
"Employment Term"), the Employee shall be the President of Inbound Telemarketing
and Customer Care of the Company and shall perform such duties consistent with
such office as described in the Company's Bylaws (a copy of which has been
furnished to the Employee) and as are assigned by the Company's Chief Executive
Officer or his designees and the Company's Board of Directors (the "Board").
(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. All prior arrangements or agreements
between the Company (and any of its predecessors or subsidiaries) and Employee
relating to employment or severance are hereby terminated.
2. Term. The Employment Term shall begin on the date hereof and, unless
----
terminated earlier pursuant to the terms of this Agreement, continue until
December 31, 2000; provided that the Employment Term shall automatically renew
for successive one year periods unless a notice of non-renewal is provided by
the Company not less than 30 days prior to the then applicable scheduled
expiration date.
3. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for her services
to the Company during the Employment Term shall be $250,000 (such amounts are
referred to herein as the "Salary"), which the Company shall pay to the Employee
in equal proportional installments in accordance with the normal payroll
policies of the Company.
<PAGE>
(b) The Employee shall be eligible to receive annual bonuses (such amounts
are referred to herein as the "Bonus") in such amounts as approved by the
Compensation Committee of the Board of Directors and participate in such bonus
programs as are established for executive officers of the Company.
(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 Company.
(d) All amounts payable by the Company under Sections 3(a) and (b) and the
Fringe Benefits allowed under Section 3(e) shall be subject to proration based
upon the number of days in each such year that the Employee was employed by the
Company hereunder.
4. 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, Bonus, if any, and Fringe Benefits 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 4(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 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, Bonus, if any, 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, if any, and Fringe Benefits that have accrued through the date of
termination. 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 and reasonable directives of any
Designated Officer or the Board, (iii) substantial and willful misconduct, (iv)
-2-
<PAGE>
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 Chief Executive Officer or 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.
(d) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time by giving the Company 60 days' notice of the
termination date. Under such circumstances, the Company shall not have any
further liability or obligation to the Employee, except that the Employee shall
receive any unpaid Salary, Bonus, if any, and Fringe Benefits that have accrued
through the date of termination, net of any liabilities that the Employee may
have to the Company.
5. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause, or determined not to have the
Employment Term continue for a successive one year period, at any time by giving
the Employee 30 days' notice of the termination date or its non-renewal
election. In the event of a termination of the Employment Term pursuant to this
Section 5 or election not to continue the Employment Term for a successive one
year period and subject to Section 9 hereof, the Company shall continue to pay
to the Employee the Salary and continue to provide the Fringe Benefits listed in
paragraph (a) of Exhibit A hereto for a period ending one year after the date of
any such termination or election. The Salary to be paid and the Fringe Benefits
to be provided under this Section 5 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 the form attached as Exhibit "B" hereto 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, which release shall not affect the
Employee's right to indemnification, if any, for actions taken within the scope
of his employment. The parties hereto acknowledge that the Termination
Compensation to be provided under this Section 5 is to be provided in
consideration for the above-specified release.
6. 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 first
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
-3-
<PAGE>
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, customer retention, interactive voice
response and any other business engaged in by the Company that Employee is
directly involved with at the end of the Employment Term (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 6(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 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, 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 6(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 acknowledges that the restrictions contained in this
Section 6 are reasonable and necessary to protect the legitimate interests of
the Company, and that any violation will result in irreparable injury to the
Company.
(d) 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 6, 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 6
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.
7. 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 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
-4-
<PAGE>
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 7.
8. 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 his possession immediately upon request and in any event
upon the completion of her employment by the Company.
9. Remedies. The Employee 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 Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. In addition, the Company shall be
entitled to cease paying Employee any Termination Compensation if the Employee
engages in any activities restricted by Section 6 hereof regardless of the
enforceability of Section 6 under applicable law.
-5-
<PAGE>
10. General.
-------
(a) Governing Law. This Agreement is made and entered into in the
-------------
Commonwealth of Pennsylvania, and shall in all respects be interpreted, enforced
and governed by and under the laws of the Commonwealth.
(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, and any such entity to which the Company assigns its rights
hereunder.
(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 to the Employee at the address then on record with the Company and, if
to the Company, as follows:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
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.
-6-
<PAGE>
(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.
TELESPECTRUM WORLDWIDE INC.
By: /s/ Keith E. Alessi
----------------------------------------
Keith E. Alessi, Chief Executive Officer
and President
/s/ Jill A. Ward
----------------------------------------
Jill A. Ward
-7-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance and short-term and long-term disability 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 consistent with the Plan parameters.
(c) Term life insurance and SERP participation on a basis commensurate
with the Company's other senior officers.
(d) Eligibility to continue 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 and upon
receipt of proper accounting of expenses.
(f) Paid holidays in accordance with the Company's policies
(g) Paid vacation of four weeks per year.
-8-
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
-9-
<PAGE>
EXHIBIT 11.12
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of this 1st day of January, 2000 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and James
A. Carroll (the "Employee").
RECITALS
--------
WHEREAS, 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) During the term of the Employee's employment under this Agreement (the
"Employment Term"), the Employee shall be the Executive Vice President -
Outbound Telemarketing of the Company and shall perform such duties consistent
with such office as described in the Company's Bylaws (a copy of which has been
furnished to the Employee) and as are assigned by the Company's Chief Executive
Officer or his designees (collectively and including the Chief Executive
Officer, the "Designated Officer") and the Company's Board of Directors (the
"Board").
(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. The Company and Employee each
acknowledge that the Consulting Agreement between such parties dated February 3,
1998 was terminated effective June 30, 1999.
2. Term. The Employment Term shall begin on the date hereof and, unless
----
terminated earlier pursuant to the terms of this Agreement, continue until
December 31, 2000; provided that the Employment Term shall automatically renew
for successive one year periods unless a notice of non-renewal is provided by
the Company not less than 30 days prior to the then applicable scheduled
expiration date.
3. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his services
to the Company shall be $265,000 (such amounts are referred to herein as the
"Salary"), which the Company shall pay to the Employee in equal proportional
installments in accordance with the normal payroll policies of the Company.
<PAGE>
(b) The Employee shall be eligible to receive annual bonuses (such amounts
are referred to herein as the "Bonus") in such amounts as approved by the
Compensation Committee of the Board of Directors and participate in such bonus
programs as are established for executive officers of the Company.
(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 Company.
(d) All amounts payable by the Company under Sections 3(a) and (b) and the
Fringe Benefits allowed under Section 3(e) shall be subject to proration based
upon the number of days in each such year that the Employee was employed by the
Company hereunder.
4. 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, Bonus, if any, 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 4(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 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, if any, 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, if any, and Fringe Benefits that have accrued through the date of
termination. 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 and reasonable directives of any
Designated Officer or the Board, (iii) substantial and willful misconduct, (iv)
-2-
<PAGE>
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 Chief Executive Officer or 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.
(d) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time by giving the Company 60 days' notice of the
termination date. Under such circumstances, the Company shall not have any
further liability or obligation to the Employee, except that the Employee shall
receive any unpaid Salary, Bonus, if any, and Fringe Benefits that have accrued
through the date of termination, net of any liabilities that the Employee may
have to the Company. In addition, the Company will continue to provide the
Fringe Benefits listed in paragraph (a) of Exhibit B hereto for a period ending
22 months after the date of any such termination or election.
5. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause, or determined not to have the
Employment Term continue for a successive one year period, at any time by giving
the Employee 30 days' notice of the termination date or its non-renewal
election. Subject to Section 9 hereof, in the event of a termination of the
Employment Term pursuant to this Section 5 or election not to continue the
Employment Term for a successive one year period, the Company shall continue to
provide the Salary for a period ending six months after the date of any such
termination or election and provide the Fringe Benefits listed in paragraph (a)
of Exhibit A hereto for a period ending 22 months after the date of any such
termination or election. The Salary and Fringe Benefits to be provided under
this Section 5 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 the form attached as Exhibit "B" hereto 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, which release shall not affect the Employee's right to
indemnification, if any, for actions taken within the scope of his employment.
The parties hereto acknowledge that the Termination Compensation to be provided
under this Section 5 is to be provided in consideration for the above-specified
release.
6. 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 first
anniversary of the date of such termination of employment hereunder (the
"Restricted Period"), he will not, directly or indirectly,
-3-
<PAGE>
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,
customer retention, interactive voice response and any other business engaged in
by the Company that Employee is directly involved with at the end of the
Employment Term (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 6(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 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 6(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 acknowledges that the restrictions contained in this
Section 6 are reasonable and necessary to protect the legitimate interests of
the Company, and that any violation will result in irreparable injury to the
Company.
(d) 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 6, 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 6
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.
7. 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
-4-
<PAGE>
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 7.
8. 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.
9. Remedies. The Employee 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 Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. In addition, the Company shall be
entitled to cease paying Employee any Termination Compensation if the Employee
engages in any activities restricted by Section 6 hereof regardless of the
enforceability of Section 6 under applicable law.
-5-
<PAGE>
10. General.
-------
(a) Governing Law. This Agreement is made and entered into in the
-------------
Commonwealth of Pennsylvania, and shall in all respects be interpreted, enforced
and governed by and under the laws of the Commonwealth.
(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, and any such entity to which the Company assigns its rights
hereunder.
(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 to the Employee at the address then on record with the Company and, if
to the Company, as follows:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
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.
-6-
<PAGE>
(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.
TELESPECTRUM WORLDWIDE INC.
By: /s/ Keith E. Alessi
------------------------------------------
Keith E. Alessi, Chief Executive Officer
and President
/s/ James A. Carroll
------------------------------------------
James A. Carroll
-7-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance and short-term and long-term disability 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 consistent with the Plan parameters.
(c) Term life insurance and SERP participation on a basis commensurate
with the Company's other senior officers.
(d) Eligibility to continue 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 and upon
receipt of proper accounting of expenses.
(f) Paid holidays in accordance with the Company's policies
(g) Paid vacation of four weeks per year.
(h) An automobile allowance of $1,000 per month.
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
-9-
<PAGE>
EXHIBIT 11.13
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of this 1st day of January 2000 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and Michael
Burke (the "Employee").
RECITALS
--------
WHEREAS, 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) During the term of the Employee's employment under this Agreement (the
"Employment Term"), the Employee shall be the Executive Vice President - Sales
of the Company and shall perform such duties consistent with such office as
described in the Company's Bylaws (a copy of which has been furnished to the
Employee) and as are assigned by the Company's Chief Executive Officer or his
designees (collectively and including the Chief Executive Officer, the
"Designated Officer") and the Company's Board of Directors (the "Board"). In
addition, Employee shall also serve as the Chief Executive Officer of the
Company's TARP division until the Company hires a new employee to fill such
capacity.
(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.
2. Term. The Employment Term shall begin on the date hereof and, unless
----
terminated earlier pursuant to the terms of this Agreement, continue until
December 31, 2000; provided that the Employment Term shall automatically renew
for successive one year periods unless a notice of non-renewal is provided by
the Company not less than 30 days prior to the then applicable scheduled
expiration date.
3. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his services
to the Company during the Employment Term shall be $200,000 (such amounts are
referred to herein as the "Salary"), which the Company shall pay to the Employee
in equal proportional installments in accordance with the normal payroll
policies of the Company.
<PAGE>
(b) The Employee shall be eligible to receive annual bonuses (such amounts
are referred to herein as the "Bonus") in such amounts as approved by the
Compensation Committee of the Board of Directors. For 1999 and 2000, Employee's
Bonus opportunity shall be as set forth on Exhibit "C" hereto.
(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 Company.
(d) All amounts payable by the Company under Sections 3(a) and (b) and the
Fringe Benefits allowed under Section 3(e) shall be subject to proration based
upon the number of days in each such year that the Employee was employed by the
Company hereunder.
4. 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, Bonus, if any, 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 4(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 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, if any, 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, if any, and Fringe Benefits that have accrued through the date of
termination. 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 and reasonable directives of any
Designated Officer or the Board, (iii) substantial and willful misconduct, (iv)
-2-
<PAGE>
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 Chief Executive Officer or 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.
(d) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time by giving the Company 60 days' notice of the
termination date. Under such circumstances, the Company shall not have any
further liability or obligation to the Employee, except that the Employee shall
receive any unpaid Salary, Bonus, if any, and Fringe Benefits that have accrued
through the date of termination, net of any liabilities that the Employee may
have to the Company.
5. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause, or determined not to have the
Employment Term continue for a successive one year period, at any time by giving
the Employee 30 days' notice of the termination date or its non-renewal
election. Subject to Section 9 hereof, in the event of a termination of the
Employment Term pursuant to this Section 5 or election not to continue the
Employment Term for a successive one year period, the Company shall continue to
pay to the Employee the Salary and continue to provide the Fringe Benefits
listed in paragraph (a) of Exhibit A hereto for a period ending one year after
the date of any such termination or election. The Salary to be paid and the
Fringe Benefits to be provided under this Section 5 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 the form attached as Exhibit
"B" hereto 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, which
release shall not affect the Employee's right to indemnification, if any, for
actions taken within the scope of his employment. The parties hereto acknowledge
that the Termination Compensation to be provided under this Section 5 is to be
provided in consideration for the above-specified release.
6. 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 first
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
-3-
<PAGE>
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, customer retention, interactive voice
response and any other business engaged in by the Company that Employee is
directly involved with at the end of the Employment Term (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 6(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 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 6(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 acknowledges that the restrictions contained in this
Section 6 are reasonable and necessary to protect the legitimate interests of
the Company, and that any violation will result in irreparable injury to the
Company.
(d) 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 6, 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 6
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.
7. 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
-4-
<PAGE>
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 7.
8. 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.
9. Remedies. The Employee 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 Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. In addition, the Company shall be
entitled to cease paying Employee any Termination Compensation if the Employee
engages in any activities restricted by Section 6 hereof regardless of the
enforceability of Section 6 under applicable law.
-5-
<PAGE>
10. General.
-------
(a) Governing Law. This Agreement is made and entered into in the
-------------
Commonwealth of Pennsylvania, and shall in all respects be interpreted, enforced
and governed by and under the laws of the Commonwealth.
(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, and any such entity to which the Company assigns its rights
hereunder.
(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 to the Employee at the address then on record with the Company and, if
to the Company, as follows:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
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.
-6-
<PAGE>
(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.
TELESPECTRUM WORLDWIDE INC.
By: /s/ Keith E. Alessi
-----------------------------------------
Keith E. Alessi, Chief Executive Officer
and President
/s/ Michael Burke
-----------------------------------------
Michael Burke
-7-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance and short-term and long-term disability 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 consistent with the Plan parameters.
(c) Term life insurance and SERP participation on a basis commensurate
with the Company's other senior officers.
(d) Eligibility to continue 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 and upon
receipt of proper accounting of expenses.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
(h) A monthly car allowance of $500.
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
-9-
<PAGE>
EXHIBIT C
The Employee's Bonus opportunity for 1999 shall be based on the overall
performance of the Company's TARP division, Employee's performance as the
Executive Vice President of Sales of the Company and the Company as a whole and
shall be in such amount, if any, as determined by the Compensation Committee of
the Company in its sole discretion.
The Employee's Bonus for 2000 shall be based on the total revenue of the
Company, as set forth in its audited financial statements for the year ending
December 31, 2000 in accordance with the following chart:
Total Revenue Amount of Bonus
- ------------- ---------------
$360 million to $400 million $50,000
$400 million to $410 million $75,000
Above $410 million An amount equal to 0.3% multiplied by the
amount which revenue exceeds $410 million
-10-
<PAGE>
EXHIBIT 11.14
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of this 1st day of January, 2000 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and Francis
J. Pennella (the "Employee").
RECITALS
--------
WHEREAS, 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) During the term of the Employee's employment under this Agreement (the
"Employment Term"), the Employee shall be the Executive Vice President - Human
Resources and Secretary of the Company and shall perform such duties consistent
with such office as described in the Company's Bylaws (a copy of which has been
furnished to the Employee) and as are assigned by the Company's Chief Executive
Officer or his designees (collectively and including the Chief Executive
Officer, the "Designated Officer") and the Company's Board of Directors (the
"Board").
(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.
2. Term. The Employment Term shall begin on the date hereof and, unless
----
terminated earlier pursuant to the terms of this Agreement, continue until
December 31, 2000; provided that the Employment Term shall automatically renew
for successive one year periods unless a notice of non-renewal is provided by
the Company not less than 30 days prior to the then applicable scheduled
expiration date.
3. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his services
to the Company during the Employment Term shall be $200,000 (such amounts are
referred to herein as the "Salary"), which the Company shall pay to the Employee
in equal proportional installments in accordance with the normal payroll
policies of the Company.
<PAGE>
(b) The Employee shall be eligible to receive annual bonuses (such amounts
are referred to herein as the "Bonus") in such amounts as approved by the
Compensation Committee of the Board of Directors and participate in such bonus
programs as are established for executive officers of the Company.
(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 Company.
(d) All amounts payable by the Company under Sections 3(a) and (b) and the
Fringe Benefits allowed under Section 3(e) shall be subject to proration based
upon the number of days in each such year that the Employee was employed by the
Company hereunder.
4. 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, Bonus, if any, 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 4(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 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, if any, 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, if any, and Fringe Benefits that have accrued through the date of
termination. 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 and reasonable directives of any
Designated Officer or the Board, (iii) substantial and willful misconduct, (iv)
-2-
<PAGE>
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 Chief Executive Officer or 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.
(d) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time by giving the Company 60 days' notice of the
termination date. Under such circumstances, the Company shall not have any
further liability or obligation to the Employee, except that the Employee shall
receive any unpaid Salary, Bonus, if any, and Fringe Benefits that have accrued
through the date of termination, net of any liabilities that the Employee may
have to the Company.
5. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause, or determined not to have the
Employment Term continue for a successive one year period, at any time by giving
the Employee 30 days' notice of the termination date or its non-renewal
election. Subject to Section 9 hereof, in the event of a termination of the
Employment Term pursuant to this Section 5 or election not to continue the
Employment Term for a successive one year period, the Company shall continue to
pay to the Employee the Salary and continue to provide the Fringe Benefits
listed in paragraph (a) of Exhibit A hereto for a period ending one year after
the date of any such termination or election. In addition, Employee shall be
entitled to outplacement services at the cost of the Company. The Salary to be
paid and the Fringe Benefits to be provided under this Section 5 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 the form attached as Exhibit
"B" hereto 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, which
release shall not affect the Employee's right to indemnification, if any, for
actions taken within the scope of his employment. The parties hereto acknowledge
that the Termination Compensation to be provided under this Section 5 is to be
provided in consideration for the above-specified release.
6. 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 first
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,
-3-
<PAGE>
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, customer
retention, interactive voice response and any other business engaged in by the
Company that Employee is directly involved with at the end of the Employment
Term (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 6(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 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 6(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 acknowledges that the restrictions contained in this
Section 6 are reasonable and necessary to protect the legitimate interests of
the Company, and that any violation will result in irreparable injury to the
Company.
(d) 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 6, 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 6
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.
7. 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
-4-
<PAGE>
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 7.
8. 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.
9. Remedies. The Employee 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 Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. In addition, the Company shall be
entitled to cease paying Employee any Termination Compensation if the Employee
engages in any activities restricted by Section 6 hereof regardless of the
enforceability of Section 6 under applicable law.
-5-
<PAGE>
10. General.
-------
(a) Governing Law. This Agreement is made and entered into in the
-------------
Commonwealth of Pennsylvania, and shall in all respects be interpreted, enforced
and governed by and under the laws of the Commonwealth.
(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, and any such entity to which the Company assigns its rights
hereunder.
(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 to the Employee at the address then on record with the Company and, if
to the Company, as follows:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
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.
-6-
<PAGE>
(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.
TELESPECTRUM WORLDWIDE INC.
By: /s/ Keith E. Alessi
----------------------------------------
Keith E. Alessi, Chief Executive Officer
and President
/s/ Francis J. Pennella
----------------------------------------
Francis Pennella
-7-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance and short-term and long-term disability 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 consistent with the Plan parameters.
(c) Term life insurance and SERP participation on a basis commensurate
with the Company's other senior officers.
(d) Eligibility to continue 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 and upon
receipt of proper accounting of expenses.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
(h) A monthly car allowance of $500.00
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
-9-
<PAGE>
EXHIBIT 11.15
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of this 1st day of January, 2000 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and Paul J.
Grinberg (the "Employee").
RECITALS
--------
WHEREAS, 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) During the term of the Employee's employment under this Agreement (the
"Employment Term"), the Employee shall be the Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company and shall perform such
duties consistent with such office as described in the Company's Bylaws (a copy
of which has been furnished to the Employee) and as are assigned by the
Company's Chief Executive Officer or his designees (collectively and including
the Chief Executive Officer, the "Designated Officer") and the Company's Board
of Directors (the "Board").
(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.
2. Term. The Employment Term shall begin on the date hereof and, unless
----
terminated earlier pursuant to the terms of this Agreement, continue until
December 31, 2000; provided that the Employment Term shall automatically renew
for successive one year periods unless a notice of non-renewal is provided by
the Company not less than 30 days prior to the then applicable scheduled
expiration date.
3. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his services
to the Company during the Employment Term shall be $245,000 (such amounts are
referred to herein as
-1-
<PAGE>
the "Salary"), which the Company shall pay to the Employee in equal proportional
installments in accordance with the normal payroll policies of the Company.
(b) The Employee shall be eligible to receive annual bonuses (such amounts
are referred to herein as the "Bonus") in such amounts as approved by the
Compensation Committee of the Board of Directors and participate in such bonus
programs as are established for executive officers of the Company.
(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 Company.
(d) All amounts payable by the Company under Sections 3(a) and (b) and the
Fringe Benefits allowed under Section 3(e) shall be subject to proration based
upon the number of days in each such year that the Employee was employed by the
Company hereunder.
4. 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, Bonus, if any, 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 4(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 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, if any, 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, if any, and Fringe Benefits that have accrued through the date of
termination. For purposes of this Agreement, "cause" shall mean the Employee's
(i) breach (other
-2-
<PAGE>
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 and reasonable directives of any Designated Officer or 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 Chief
Executive Officer or 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.
(d) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time by giving the Company 60 days' notice of the
termination date. Under such circumstances, the Company shall not have any
further liability or obligation to the Employee, except that the Employee shall
receive any unpaid Salary, Bonus, if any, and Fringe Benefits that have accrued
through the date of termination, net of any liabilities that the Employee may
have to the Company.
5. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Employment Term without cause, or determined not to have the
Employment Term continue for a successive one year period, at any time by giving
the Employee 30 days' notice of the termination date or its non-renewal
election. Subject to Section 9 hereof, in the event of a termination of the
Employment Term pursuant to this Section 5 or election not to continue the
Employment Term for a successive one year period, the Company shall continue to
pay to the Employee the Salary and continue to provide the Fringe Benefits
listed in paragraph (a) of Exhibit A hereto for a period ending one year after
the date of any such termination or election. The Salary to be paid and the
Fringe Benefits to be provided under this Section 5 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 the form attached as Exhibit
"B" hereto 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, which
release shall not affect the Employee"s right to indemnification, if any, for
actions taken within the scope of his employment. The parties hereto acknowledge
that the Termination Compensation to be provided under this Section 5 is to be
provided in consideration for the above-specified release.
6. 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 first
anniversary of the date of such
-3-
<PAGE>
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, customer retention, interactive voice
response and any other business engaged in by the Company that Employee is
directly involved with at the end of the Employment Term (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 6(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 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 6(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 acknowledges that the restrictions contained in this
Section 6 are reasonable and necessary to protect the legitimate interests of
the Company, and that any violation will result in irreparable injury to the
Company.
(d) 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 6, 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 6
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.
7. 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
-4-
<PAGE>
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 7.
8. 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.
9. Remedies. The Employee 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 Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. In addition, the Company shall be
entitled to cease
-5-
<PAGE>
paying Employee any Termination Compensation if the Employee engages in any
activities restricted by Section 6 hereof regardless of the enforceability of
Section 6 under applicable law.
10. General.
-------
(a) Governing Law. This Agreement is made and entered into in the
-------------
Commonwealth of Pennsylvania, and shall in all respects be interpreted, enforced
and governed by and under the laws of the Commonwealth.
(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, and any such entity to which the Company assigns its rights
hereunder.
(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 to the Employee at the address then on record with the Company and, if
to the Company, as follows:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
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.
-6-
<PAGE>
(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.
TELESPECTRUM WORLDWIDE INC.
By: /s/ Keith E. Alessi
----------------------------------------
Keith E. Alessi, Chief Executive Officer
and President
/s/ Paul J. Grinberg
----------------------------------------
Paul J. Grinberg
-7-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance and short-term and long-term disability 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 consistent with the Plan parameters.
(c) Term life insurance and SERP participation on a basis commensurate
with the Company's other senior officers.
(d) Eligibility to continue 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 and upon
receipt of proper accounting of expenses.
(f) Paid holidays in accordance with the Company's policies
(g) Paid vacation of four weeks per year.
-8-
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
-9-
<PAGE>
EXHIBIT 11.16
AGREEMENT WITH CHAIRMAN
-----------------------
This Agreement is made as of this 30th day of June 1999 between
TeleSpectrum Worldwide Inc., a Delaware corporation (the "Company"), and Jeffrey
E. Stiefler (the "Chairman").
RECITALS
--------
WHEREAS, the Chairman and International Data Response Corporation ("IDRC")
previously entered into an employment agreement dated July 1, 1996;
WHEREAS, pursuant to the transactions contemplated by the Agreement and
Plan of Merger among the Company, IDRC and certain stockholders of IDRC dated
January 14, 1999, IDRC shall become a wholly-owned subsidiary of the Company;
and
WHEREAS, the Company desires to retain the Chairman, and the Chairman
desires to provide services to the Company, upon the amended and restated 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. Engagement.
----------
(a) During the term of the Chairman's engagement under this Agreement (the
"Term"), the Chairman shall, for an average of one day per week during the Term,
perform such duties consistent with such office as described in the Company's
Bylaws and as are assigned by the Company's Board of Directors (the "Board").
The Chairman shall perform his duties at Company-provided office space located
in Rancho Santa Fe, California.
(b) Chairman 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 Chairman from executing this Agreement and performing fully
his duties and responsibilities hereunder.
2. Term. The Term shall begin on the date hereof and, unless terminated
----
earlier pursuant to the terms of this Agreement, continue until June 30, 2001.
3. Compensation for Employment.
---------------------------
<PAGE>
(a) The basic annual rate of compensation of the Chairman for his services
to the Company during the first six months of the Term shall be $200,000 and
thereafter shall be at the annual rate of $100,000 (such amounts are referred to
herein as the "Salary"), which the Company shall pay to the Chairman in equal
installments in accordance with the normal payroll policies of the Company.
(b) The Chairman shall be eligible to receive annual bonuses (such amounts
are referred to herein as the "Bonus") in such amounts as approved by the
Compensation Committee of the Board of Directors.
(c) On the date hereof, the Company shall grant Chairman a stock option
(the "Stock Option") to purchase 250,000 shares of the Company's common stock,
par value $.01 per share (the "Common Stock"). The Stock Option will vest in
three equal amounts (each representing 33.33% of the shares underlying such
option) on June 30, 2000, June 30, 2001 and June 30, 2002, be exercisable at a
price par share equal to the fair market value on the date of grant. The Stock
Option will include such terms as contained in the form of Grant Letter attached
as "Exhibit A" hereto.
(d) The Company shall provide the Chairman with the fringe benefits that
were offered by IDRC to its employees on June 29, 1999, as specified on Exhibit
"B" (the "Fringe Benefits"), until such time as the terms and conditions of the
Fringe Benefits are changed by the Company. At such time as the terms and
conditions of the Fringe Benefits offered to former IDRC employees prior to June
30, 1999 are changed by the Company, the Company shall provide the Chairman with
fringe benefits that are equivalent to the fringe benefits provided to the
senior executive officers of the Company.
4. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Chairman becomes totally disabled (as
----------------
defined below), the Company may terminate the Term by notice to the Chairman,
and as of the termination date, the Company shall have no further liability or
obligation to the Chairman hereunder except as follows: the Chairman shall
receive (i) unpaid Salary, Bonus, if any, 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 Chairman shall be deemed to be "totally disabled" if the
Chairman 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 4(a), the Chairman shall submit to a physical
examination by a licensed physician mutually satisfactory to the Company and the
Chairman, the cost of such examination to be paid by the Company, and the
determination of such physician shall be determinative.
-2-
<PAGE>
(b) Death. If the Chairman dies, this Agreement shall terminate on the
-----
date of death, and thereafter the Company shall not have any further liability
or obligation to the Chairman, his executors, administrators, heirs, assigns or
any other person claiming under or through his except that the Chairman's estate
shall receive any unpaid Salary, Bonus, if any, and Fringe Benefits that have
accrued through the date of termination.
(c) Cause. The Company may terminate the Term for "cause" by giving the
-----
Chairman 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
Chairman, except that the Chairman shall receive any unpaid Salary, Bonus, if
any, and Fringe Benefits that have accrued through the date of termination. For
purposes of this Agreement, "cause" shall mean the Chairman'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 and reasonable 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
Chairman 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
Chairman may take such remedial action, and (B) the Chairman shall not have
taken such specified remedial action within such specified reasonable time.
(d) Resignation. The Chairman shall have the right to terminate the Term
-----------
at any time by giving the Company 60 days' notice of the termination date. Under
such circumstances, the Company shall not have any further liability or
obligation to the Chairman, except that the Chairman shall receive any unpaid
Salary, Bonus, if any, and Fringe Benefits that have accrued through the date of
termination, net of any liabilities that the Chairman may have to the Company.
5. Termination With Compensation. The Company shall have the right to
-----------------------------
terminate the Term without cause at any time by giving the Chairman 30 days'
notice of the termination date. In the event of a termination of the Term
pursuant to this Section 5, the Company shall continue to pay to the Chairman
the Salary and continue to provide the Fringe Benefits listed in paragraph (a)
of Exhibit B hereto for a period ending one year after the date of any such
termination. The Salary to be paid and the Fringe Benefits to be provided under
this Section 5 are referred to herein as the "Termination Compensation." The
Chairman shall not be entitled to any Termination Compensation unless the
Chairman 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 Chairman 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, which release shall not affect the
Chairman's right to indemnification, if any, for actions taken within the scope
of his
-3-
<PAGE>
employment. The parties hereto acknowledge that the Termination Compensation to
be provided under this Section 5 is to be provided in consideration for the
above-specified release.
6. Agreement Not to Compete.
------------------------
(a) The Chairman covenants that for the period beginning on the
termination of Chairman's employment hereunder and ending on the first
anniversary of the date of such termination of employment hereunder, 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 telemarketing or teleservices industry
("Business"). It is recognized by the Chairman 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 6(b)) are
therefore not appropriate. The foregoing restriction shall not be construed to
prohibit the ownership by Chairman 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 Chairman further covenants that for the period beginning on the
termination of Chairman's employment hereunder and ending on the second
anniversary of the date of such termination of employment hereunder, 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 6(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 Chairman recognizes and acknowledges that by reason of his
employment by the Company he will have access to Company Information (as defined
in Section 8) relating to the Business. The Chairman acknowledges that such
Company Information is a valuable and unique asset and covenants that he will
not disclose any such Company 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 Chairman, (ii) has been rightfully received from a
third party without restriction and without breach of this Agreement or (iii) is
required by law.
(d) The Chairman acknowledges that the restrictions contained in this
Section 6 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 Chairman 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 6,
-4-
<PAGE>
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 6 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.
7. Inventions, Designs and Product Developments. All inventions, innovations,
--------------------------------------------
designs, ideas and product developments, developed or conceived by the Chairman,
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
Chairman's right, title and interest therein, shall be the exclusive property of
the Company. The Chairman hereby assigns, transfers and conveys to the Company
all of his right, title and interest in and to any and all such Developments.
The Chairman 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 Chairman 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 Chairman for all
reasonable expenses incurred by his in compliance with the provisions of this
Section 7.
8. Confidential Information.
------------------------
(a) The Chairman 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 Chairman or which he is
authorized to disclose, is referred to collectively as the "Company
Information." During and after the Term, the Chairman 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.
-5-
<PAGE>
(b) All Company Information developed, created or maintained by the
Chairman, alone or with others while employed by the Company, and all Company
Information maintained by the Chairman thereafter, shall remain at all times the
exclusive property of the Company. The Chairman 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.
9. Remedies. The Chairman 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 Chairman's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy.
10. General.
-------
(a) Governing Law. This Agreement is made and entered into in the
-------------
Commonwealth of Pennsylvania, and shall in all respects be interpreted, enforced
and governed by and under the laws of the Commonwealth.
(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, and any such entity to which the Company assigns its rights
hereunder.
(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 Chairman hereunder are of a
personal nature and shall not be assignable in whole or in part by the Chairman.
(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 CHAIRMAN:
Mr. Jeffrey E. Stiefler
17037 El Mirador
P.O. Box 2689
Rancho Santa Fe, CA 92067
-6-
<PAGE>
TO THE COMPANY:
443 S. Gulph Road
King of Prussia, PA 19406
Fax: 610-962-5109
Attn: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
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
--------
Chairman'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.
TELESPECTRUM WORLDWIDE INC.
By:__________________________________________
Keith E. Alessi, Chairman, Chief Executive
Officer and President
______________________________________
JEFFREY E. STIEFLER
<PAGE>
EXHIBIT A
Form of Grant Letter
<PAGE>
EXHIBIT B
FRINGE BENEFITS
---------------
(a) Health insurance
(b) Short-term and long-term disability
(c) Eligibility to participate in a 401(k) savings plan
(d) Term life insurance
(e) Eligibility to participate in a stock option plan
(f) Reimbursement, in accordance with the Company's policies and upon
receipt of proper documentation, of reasonable expenses for the monthly fee of a
mobile telephone and for any business telephone calls made on the Chairman's
personal telephone
(g) Paid holidays in accordance with the Company's policies
(h) A monthly allowance of $2,500 for the reimbursement of all reasonable
expenses incurred in commuting between Chairman's residence and the Company's
offices, in accordance with the Company's policies and upon receipt of proper
documentation of such expenses.
(i) A monthly allowance of $2,500 for the rental and related expenses
associated with the lease of local housing for the Chairman, in accordance with
the Company's policies and upon receipt of proper documentation of such
expenses.
(j) A monthly automobile allowance of $1,200 in accordance with the
Company's policies and upon receipt of proper documentation of such expenses.
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 (File No. 333-52545), (File No. 333-52837)
and (File No. 333-52895).
/s/ Arthur Andersen LLP
-----------------------
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