<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: MARCH 31, 1997
Commission File Number 0-21333
RMH TELESERVICES, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2250564
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
40 MORRIS AVENUE, BRYN MAWR, PA 19010
(Address of principal executive offices)
(610) 520-5300
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all report(s) required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------ ------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 8,120,000 shares of Common
Stock outstanding at April 24, 1997.
<PAGE> 2
INDEX TO FORM 10-Q
RMH Teleservices, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets,
March 31, 1997 and September 30, 1996 ............................. 1
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 and the six months
ended March 31, 1997 and 1996 ..................................... 2
2
Consolidated Statements of Cash Flows for the
six months ended March 31, 1997 and 1996 .......................... 4
Notes to Consolidated Financial Statements ........................ 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............... 14
</TABLE>
<PAGE> 3
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,307,000 $ 10,047,000
Accounts receivable, net of allowance
for doubtful accounts of $26,000
and $10,000 6,916,000 5,549,000
Prepaid expenses and other assets 852,000 327,000
Deferred income taxes 1,112,000 1,112,000
------------ ------------
Total current assets 19,187,000 17,035,000
------------ ------------
PROPERTY AND EQUIPMENT 8,823,000 8,894,000
Less - accumulated depreciation and
amortization (4,086,000) (3,438,000)
------------ ------------
Net property and equipment 4,737,000 5,456,000
------------ ------------
OTHER ASSETS 95,000 64,000
------------ ------------
$ 24,019,000 $ 22,555,000
============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capitalized lease
obligations $ 22,000 $ 46,000
Accounts payable 957,000 1,682,000
Accrued expenses 2,952,000 2,409,000
------------ ------------
Total current liabilities 3,931,000 4,137,000
------------ ------------
CAPITALIZED LEASE OBLIGATIONS -- 2,000
------------ ------------
DEFERRED INCOME TAXES 100,000 100,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common Stock 48,638,000 48,638,000
Common Stock warrant outstanding 450,000 450,000
Accumulated deficit (29,100,000) (30,772,000)
------------ ------------
Total shareholders' equity 19,988,000 18,316,000
------------ ------------
$ 24,019,000 $ 22,555,000
============ ============
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
1
<PAGE> 4
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1997 1996
---- ----
<S> <C> <C>
REVENUES $11,322,000 $ 7,506,000
----------- -----------
OPERATING EXPENSES:
Cost of services 7,580,000 5,309,000
Selling, general and administrative 2,437,000 1,545,000
----------- -----------
Total operating expenses 10,017,000 6,854,000
----------- -----------
Operating income 1,305,000 652,000
INTEREST INCOME (EXPENSE) 102,000 (71,000)
----------- -----------
Income before income taxes 1,407,000 581,000
INCOME TAXES 506,000 --
----------- -----------
NET INCOME $ 901,000 $ 581,000
=========== ===========
NET INCOME PER SHARE $ .11
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 8,262,000
===========
(NOTE 4)
PRO FORMA DATA:
INCOME BEFORE INCOME TAXES AS REPORTED $ 581,000
PRO FORMA INCOME TAXES (NOTE 3) 190,000
-----------
PRO FORMA NET INCOME $ 391,000
===========
PRO FORMA NET INCOME PER SHARE (NOTE 4) $ .08
===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,642,000
===========
(NOTE 4)
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
2
<PAGE> 5
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, March 31,
1997 1996
---- ----
<S> <C> <C>
REVENUES $ 21,071,000 $ 14,784,000
------------ ------------
OPERATING EXPENSES:
Cost of services 14,202,000 10,436,000
Selling, general and administrative 4,469,000 3,120,000
------------ ------------
Total operating expenses 18,671,000 13,556,000
------------ ------------
Operating income 2,400,000 1,228,000
INTEREST INCOME (EXPENSE) 212,000 (146,000)
------------ ------------
Income before income taxes 2,612,000 1,082,000
INCOME TAXES 940,000 --
------------ ------------
NET INCOME $ 1,672,000 $ 1,082,000
============ ============
NET INCOME PER SHARE $ .20
============
WEIGHTED AVERAGE SHARES OUTSTANDING 8,262,000
============
(NOTE 4)
PRO FORMA DATA:
INCOME BEFORE INCOME TAXES AS REPORTED $ 1,082,000
PRO FORMA INCOME TAXES (NOTE 3) 390,000
------------
PRO FORMA NET INCOME $ 692,000
============
PRO FORMA NET INCOME PER SHARE (NOTE 4) $ .15
============
WEIGHTED AVERAGE SHARES OUTSTANDING 4,642,000
============
(NOTE 4)
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report on Form 10-K are an integral part of these
consolidated financial statements.
3
<PAGE> 6
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended
March 31, March 31,
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,672,000 $ 1,082,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 648,000 508,000
Changes in operating assets and liabilities -
Accounts receivable (1,367,000) 534,000
Prepaid expenses and other assets (525,000) (111,000)
Other assets (31,000) 47,000
Accounts payable and accrued expenses (182,000) (1,163,000)
------------ ------------
Net cash provided by operating activities 215,000 897,000
------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (587,000) (976,000)
------------ ------------
FINANCING ACTIVITIES:
Proceeds of assets refinanced 658,000 --
Net repayments on lines of credit -- (975,000)
Repayments on capitalized lease obligations (26,000) (224,000)
Proceeds from long term borrowings -- 1,205,000
Repayment of long term borrowings -- (230,000)
------------ ------------
Net cash provided by (used in)
financing activities 632,000 (224,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 260,000 (303,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 10,047,000 322,000
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 10,307,000 $ 19,000
============ ============
</TABLE>
The accompanying notes and the notes in the financial statements included in the
Registrant's Annual Report Form 10-K are an integral part of these consolidated
financial statements.
4
<PAGE> 7
RMH TELESERVICES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The consolidated financial statements have been prepared by the Registrant
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC") and, in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial
position and results of operations. Operating results for the three and six
month periods ended March 31, 1997 and 1996, are not necessarily indicative of
the results that may be expected for the complete fiscal year. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Registrant's Annual Report on Form
10-K for the year ended September 30, 1996.
RMH Teleservices, Inc. (the Company) provides outbound and inbound teleservices
to major corporations, such as those in the insurance, financial services and
telecommunications industries. The Company was founded in 1983 by two
individuals (the Founders). On May 24, 1996, the Company completed a leveraged
recapitalization (the Recapitalization) pursuant to which a portion of the
Common Stock owned by the Founders was redeemed and two investors (the
Investors) purchased Preferred and Common Stock (see Note 2). These transactions
were accounted for as a sale of newly issued stock by the Company and a
redemption of previously outstanding shares. Accordingly, the historical bases
of the Company's assets and liabilities have been retained.
NOTE 2 - RECAPITALIZATION & INITIAL PUBLIC OFFERING OF COMMON STOCK:
On May 24, 1996, the Company authorized (i) 20,000,000 shares of Common Stock,
no par value, consisting of 10,000,000 shares of Class A Voting Common Stock
(the Class A Common) and 10,000,000 shares of Class B Non-Voting Common Stock
(the Class B Common), and (ii) 10,000,000 shares of Preferred Stock, of which
1,000,000 shares were designated as Series A Preferred Stock (the Series A
Preferred) and 6,500,000 shares were designated as Series B Preferred Stock (the
Series B Preferred). The previously outstanding Common Stock was converted into
10,000,000 shares of Class A Common. All references in the accompanying
financial statements to the number of Common shares have been retroactively
restated to reflect the recapitalization.
5
<PAGE> 8
Common Stock Redemption
On May 24, 1996, the Company redeemed 8,500,000 shares of Class A Common for
$20,136,521, as follows:
<TABLE>
<S> <C>
Cash payment $16,001,646
Final redemption price adjustment (paid in August 1996) 436,980
Issuance of 6%, $3,000,000 subordinated note
payable to Founders (the "Founders' Note") 2,022,639
Issuance of 1,000,000 shares of 6%, Series A Preferred 524,450
Deferred tax liability for difference in basis of
Founders' Note 476,831
Transaction costs 673,975
-----------
$20,136,521
===========
</TABLE>
On May 23, 1996, the Company distributed $4,600,000 of accounts receivable to
the Founders as a Subchapter S distribution of previously taxed income. The
Company is collecting these receivables on behalf of the Founders.
The Founders' Note initially had a face amount of $3,000,000 and was
subordinated to all other liabilities. The face amount of the Founders' Note was
increased to $4,000,000 due to the achievement of certain financial goals as
defined in the note. The Founders' Note bore interest at an annual rate of 6%,
payable quarterly, and was due in two equal installments on May 24, 2003 and
2004. Upon the completion of the Company's initial public offering, the
Founders' Note was satisfied through the issuance of 320,000 shares of Common
Stock at the offering price.
The Series A Preferred had 1,000,000 shares outstanding, a face amount of
$1,000,000 and, upon completion of the Company's initial public offering, the
Series A Preferred was converted into 80,000 shares of Common Stock at the
offering price.
Sale of Preferred and Common Stock
On May 24, 1996, the Company issued Preferred and Common Stock for $9,500,000 to
the Investors, as follows:
<TABLE>
<S> <C>
Series B Preferred Stock $3,783,059
Class A Voting Common Stock 3,278,666
Class B Non-Voting Common Stock 2,438,275
----------
$9,500,000
==========
</TABLE>
6
<PAGE> 9
The Company issued 6,500,000 shares of Series B Preferred for an aggregate of
$6,500,000 or $1.00 per share. Upon completion of the Company's initial public
offering, the Series B Preferred was redeemed for $6,500,000 plus accrued
dividends of $182,356.
The Company issued 1,720,427 shares of Class A Common and 1,279,573 shares of
Class B Common for an aggregate of $3,000,000 or $1.00 per share. The Common
Stock was valued at $1.91 per share based on the relative estimated fair values
of the Series B Preferred and Class A and B Common Stock issued to the
Investors. The Class B Common shares were converted into an equal number of
Class A Common shares upon the completion of the initial public offering and the
division of Common Stock between two classes was eliminated.
Initial Public Offering of Common Stock
On September 18, 1996, the Company completed an initial public offering of 3.22
million shares of Common Stock, raising net proceeds of approximately $36.3
million.
NOTE 3 - INCOME TAXES:
Prior to May 24, 1996, the Company was an S Corporation for Federal and
Pennsylvania income tax purposes and, accordingly, income was passed through to
the shareholders and taxed at the individual level. The Company was not an S
Corporation in New Jersey and, therefore, the Company paid income taxes on its
taxable income in that state. The S Corporation status was terminated on May 24,
1996. The pro forma data in the consolidated Statements of Operations provides
information as if the Company had been treated as a C Corporation for income tax
purposes for the three and six month periods ended March 31, 1996, based on the
tax laws in effect during the period presented. For the three and six month
periods ended March 31, 1997, the Company had been fully subject to federal and
state income taxes.
NOTE 4 - EARNINGS PER SHARE:
The earnings per share are based upon the weighted average number of common
shares and common share equivalents, if applicable, during each of the periods
presented. Pro forma earnings per share for the three and six month periods
ended March 31, 1996, assume the recapitalization and respective number of
shares were outstanding throughout the quarter.
NOTE 5 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company is dependent on several large customers for a significant portion of
its revenues. Four customers accounted for 79.4% and 83.4% and 78.8% and 83.0%
of revenues for the three and six month periods ended March 31, 1997 and 1996,
respectively. The loss of one or more of these customers could have a materially
adverse effect on the Company's business. During the three and six month periods
ended March 31, 1997 and 1996, revenues from customers within the insurance
industry accounted for 72.3% and 76.7% and 68.0% and 70.0% of revenues,
respectively.
7
<PAGE> 10
As a result of the issuance of the Common Stock to one of the Investors (see
Note 2), the Company is now affiliated with one of its customers. This customer
represented 7.1% and 6.8% and 10.8% and 13.1% of revenues for the three and six
month periods ended March 31, 1997 and 1996, respectively.
Concentration of credit risk is limited to accounts receivable and is subject to
the financial conditions of the Company's customers. Three of the Company's
largest customers are engaged in transactions with each other and represent a
single credit risk to the Company. The Company does not require collateral or
other securities to support customer receivables. At March 31, 1997, the
accounts receivable from the customers that represent a single credit risk were
$5,098,545.
8
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor for Forward-Looking Statements
From time-to-time, the Company may publish statements that are not historical
facts but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters. The Private
Securities Litigation Reform Act of 1995 provided a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from the anticipated results
or other expectations expressed in the Company's forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of the Company's business include, but are not limited to: (i)
reliance on principal client relationships in the insurance and financial
services industries; (ii) fluctuations in quarterly results of operations due to
the timing of clients' telemarketing campaigns, the timing of opening new call
centers and expansion of existing call centers and changes in competitive
conditions affecting the telemarketing industry; (iii) difficulties of managing
growth profitably; (iv) pressure on gross margins as a result of the ability of
certain clients to negotiate pricing discounts (v) dependence on the services of
the Company's executive officers and other key operations and technical
personnel; (vi) changes in the availability of qualified employees (vii)
performance of automated call-processing systems and other technological
factors; (viii) reliance on independent long-distance companies; (ix) changes in
government regulations affecting the teleservices and telecommunications
industries; (x) competition from other outside providers of teleservices and
in-house telemarketing operations of existing and potential clients; and (xi)
competition from providers of other marketing formats, such as direct mail and
emerging strategies such as interactive shopping and marketing over the
Internet.
Overview
The Company is a leading provider of outbound and inbound teleservices to major
corporations, such as those in the insurance, financial services and
telecommunications industries. Founded in 1983, the Company opened its first
call center in 1985 to support the marketing efforts of its consulting
customers. At the present time, outbound business-to-consumer teleservices has
become the predominant business of the Company.
RMH's results of operations in any single interim period should not be viewed as
an indication of future results of operations. The Company may experience
quarterly variations in net revenue and operating income as a result of the
timing of clients' telemarketing campaigns, the commencement and expiration of
contracts, the amount of new business generated by the Company, the timing of
additional selling, general and administrative expenses to acquire and support
such new business and changes in the Company's revenue mix among its various
customers.
9
<PAGE> 12
Results of Operations
Revenues - Revenues increased to $11,322,000 and $21,071,000 for the three and
six month periods ended March 31, 1997, from $7,506,000 and $14,784,000 for the
comparable periods in 1996. This represents revenue increases of 50.8% and 42.5%
for the three and six month periods ended March 31, 1997, respectively, as
compared to the comparable periods in 1996. Of such increase in revenues,
approximately $3,378,000 and $5,483,000 were attributable to increased calling
volumes from existing clients and $410,000 and $804,000 to new clients for the
three and six month periods, respectively. To meet the demands of increased call
volumes, the Company added a new 130-workstation call center in Delran, NJ
during the three month period ended March 31, 1997, and plans to open one
additional call center by July 1, 1997.
Cost of Services - Cost of Services increased to $7,580,000 and $14,202,000 for
the three and six month periods ended March 31, 1997, from $5,309,000 and
$10,436,000 for the comparable periods in 1996. As a percentage of revenues,
cost of services decreased to 66.9% and 67.4% for the three and six month
periods ended March 31, 1997, as compared to 70.7% and 70.6% for the comparable
periods in 1996. This decrease was the result of spreading fixed costs over a
larger revenue base, lower long distance telephone and health care costs in the
three month period ended March 31, 1997, coupled with greater utilization of the
call centers on a quarter to quarter comparative basis. The Company anticipates
that cost of services, as a percentage of revenue, may increase during the
remainder of the year to the degree that large volume opportunities warrant
appropriate pricing discounts.
Selling, General and Administrative - Selling, general and administrative
expenses increased to $2,437,000 and $4,469,000 for the three and six month
periods ended March 31, 1997, from $1,545,000 and $3,120,000 for the comparable
periods in 1996. As a percentage of revenues, selling, general and
administrative expenses increased to 21.5% and 21.2% during the three and six
months ended March 31, 1997, as compared to 20.6% and 21.1% for the comparable
periods in 1996. The dollar increase was primarily the result of increased
staffing and operating costs required to support the growth in the Company's
revenues and continued expansion into inbound teleservices.
Interest Income (Expense) - Interest income for the three and six month periods
ended March 31, 1997, amounted to $102,000 and $212,000, respectively, and was
earned by investing the remaining proceeds of the Company's initial public
offering in short term cash equivalents. Interest expense for the three and six
month periods ended March 31, 1996, was $71,000 and $146,000 resulting primarily
from the interest charged on borrowings incurred to finance both equipment
purchases and working capital needs.
10
<PAGE> 13
Income Tax Expense - Income tax expense for the three and six month periods
ended March 31, 1997, was $506,000 and $940,000 and represents income taxes
based upon an effective tax rate of 36%. This tax rate is reflective of both the
Federal tax rate in effect and those State tax rates in effect where the Company
does business coupled with certain tax planning strategies implemented in fiscal
1996. Prior to May 24, 1996, the Company was an S Corporation for Federal and
Pennsylvania income tax purposes and, accordingly, income was passed through to
the shareholders and taxed at the individual level. The S Corporation status was
terminated on May 24, 1996. The pro forma data in the consolidated Statements of
Operations provides information as if the Company had been treated as a C
Corporation for income tax purposes for the three month period ended March 31,
1996, based on the tax laws in effect during the period presented.
11
<PAGE> 14
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity have been cash flow
from operations and borrowings under its credit facilities. These funds,
combined with borrowings under capitalized lease obligations, have provided the
liquidity to finance the growth of the Company.
On May 24, 1996, the Company completed a leverage recapitalization (the
"Recapitalization"), which included the purchase of a significant equity
interest in the Company by Advanta Partners, LP ("Advanta Partners"). See Note 2
to the Registrant's Consolidated Financial Statements for the three and six
month periods ended March 31, 1997.
In conjunction with the Recapitalization, the Company distributed to Raymond J.
Hansell and MarySue Lucci (the "Founders") $4.6 million of accounts receivable.
As part of the Recapitalization, the Company also distributed $16.4 million in
cash, $1.0 million in Series A Preferred Stock, and a 6% subordinated note to
the Founders in the initial principal amount of $3.0 million, (which was
subsequently increased by $1.0 million) all for the redemption of an aggregate
of 8,500,000 shares of Common Stock owned by the Founders. In addition, Advanta
Partners and Glengar International Investors Limited invested $9.5 million in
Series B Preferred Stock and Class A and Class B Common Stock.
On September 24, 1996, the Company completed an initial public offering and
raised net proceeds of approximately $36.3 million. The Company used
approximately $27.9 million of these proceeds to repay all bank indebtedness,
redeem its Series B Preferred Stock and pay certain one-time Special Bonuses to
the Founders. The remaining $9.5 million in proceeds will be used for working
capital and general corporate purposes. Upon completion of the Company's initial
public offering, the Founders exchanged the Series A Preferred Stock and the
Founders' Note for 400,000 shares of Common Stock.
On March 21, 1997, the Company entered into a new $4 million line of credit
facility (the "Credit Line") with PNC Bank (the "Bank"). The Credit Line
replaces the Company's former Term Loan and Credit Facility originated in
conjunction with the Recapitalization. The Credit Line expires on April 1, 1998,
or such later date, if extended by the Bank, and outstanding balances bear
interest either at the Company's option of the LIBOR rate plus 95 basis points
or at the prime rate minus one-half. The credit line is secured by all of the
assets of the Company and contains financial covenants and certain restrictions
on the Company's ability to incur additional debt or dispose of its assets. As
of March 31, 1997, the Company had no draws outstanding on the Credit Line.
This Credit Line compares favorably with the former Term Loan and Credit
Facility which bore interest at either the LIBOR rate plus 250 to 300 basis
points or the prime rate plus 100 to 150 basis points and required on annual fee
of $15,000 and an annual commitment fee of one-half of 1% on the average unused
portion of the Revolver. Although total borrowing capability is $4 million under
the Company's Credit Line versus $6 million under its former revolver, the
Company believes that the existing line will be sufficient to finance its
current operations at least through the end of September 30, 1998.
12
<PAGE> 15
Under a separate agreement dated February 22, 1997, with PNC Leasing
Corporation, the Company has up to $6 million available for purposes of leasing
call center equipment. The $6 million commitment expires on December 31, 1997,
and requires that such leases meet the accounting definition of an operating
lease with rent to be paid over a period not to exceed sixty months. As of March
31, 1997, the Company had not financed any equipment purchases under this
facility.
Net cash provided by operating activities was $215,000 and $897,000 during the
six month periods ended March 31, 1997 and 1996, respectively. The cash provided
by operations in the 1997 period resulted from the Company's net income growth
plus non-cash depreciation charges offset by the growth in its accounts
receivable.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures, during the six month period ended
March 31, 1997, was $587,000. The Company expects to allocate approximately $3.0
million on capital expenditures during the remainder of the fiscal year ending
September 30, 1997, primarily for the addition of one new call center which may
be designed to meet the technological needs of both inbound and outbound
teleservices, capacity expansion and other enhancements of technology used
throughout its call center operations. Should the Company further expedite its
call center expansion plans, it anticipates that each additional center would
cost approximately $1.2 million.
During the six months ended March 31, 1997, the Company chose to finance
approximately $859,000 of additional capital expenditures through an operating
lease agreement with its former bank. In addition, in April of 1997, the Company
financed approximately $1,190,000 of new call center and other equipment with
PNC Leasing Corporation. At the end of each respective lease term and at the
Company's option, the Company may acquire the specific equipment at the current
fair market value. In the future, the Company will continue to evaluate the
benefits and costs of leasing such equipment and may decide to finance future
capital expenditures by utilizing the remaining $4,810,000 available from PNC
Leasing Corporation.
The Company believes that funds generated from operations, together with the
remaining proceeds of its initial public offering, available credit under the
credit facility and leasing agreement, will be sufficient to finance its current
operations and planned capital expenditures at least through the end of
September 30, 1998.
13
<PAGE> 16
PART II
OTHER INFORMATION
Item 1: Legal Proceedings
(a) None.
Item 2: Changes in Securities
(b) None.
(c) The Company has not sold any securities that
were not registered under the Securities Act
Item 3: Defaults upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Security Holders
A. An annual meeting of the shareholders of the Company was held on
February 28, 1997. The total shares eligible to vote on the record date
were 8,120,000.
B. At the meeting:
1. Election of Directors
The bylaws of the Company provide for a Board of Directors
consisting of three classes, with each class being as equal in
number as possible. The Board of Directors nominated Messrs.
William A. Rosoff and David P. Madigan to be elected Directors
and to serve a three-year term expiring at the annual meeting
in the year 2000. The results of that election were as
follows:
<TABLE>
<CAPTION>
WITHHOLD
YES AUTHORITY
--- ---------
<S> <C> <C>
William A. Rosoff 6,348,879 23,990
David P. Madigan 6,348,254 24,615
</TABLE>
The term of office of the Company's Class B directors, MarySue
Lucci and Mitchell Hollin, and Class C directors, Raymond
Hansell, Herbert Kurtz, and Derek Lubner, continued after the
meeting.
14
<PAGE> 17
2. Ratification of Independent Auditors
The selection of Arthur Andersen LLP as the Company's
independent auditors for fiscal 1997 was approved by the
affirmative vote holders of shares representing a majority of
the votes represented by the shares present in person or
represented by proxy at the meeting and entitled to vote
thereon. The votes cast on this proposal are as follows:
<TABLE>
<CAPTION>
YES NO ABSTAIN
--- -- -------
<S> <C> <C> <C>
For the ratification of Arthur
Andersen LLP 6,363,624 4,200 5,045
</TABLE>
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits
10 - PNC $4,000,000 Committed Line of
Credit
27 - Financial Data Schedule
b. Reports on From 8-K
None.
15
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RMH Teleservices, Inc.
DATE: May 8, 1997 BY: /s/ Raymond J. Hansell
---------------------------
Raymond J. Hansell
Chief Executive Officer
DATE: May 8, 1997 BY: /s/ Richard C. Altus
-------------------------
Richard C. Altus
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 1
EXHIBIT 10
COMMITTED LINE OF CREDIT NOTE PNCBANK
$4,000,000.00 March 21, 1997
FOR VALUE RECEIVED, RMH Teleservices, Inc. (the "BORROWER"), with an address at
40 Morris Avenue, Bryn Mawr, Pennsylvania 19040, promises to pay to the order of
PNC BANK, NATIONAL ASSOCIATION (the "BANK"), in lawful money of the United
States of America in immediately available funds at its offices located at 1600
Market Street, Philadelphia, Pennsylvania 19103, or at such other location as
the Bank may designate from time to time, the principal sum of FOUR MILLION
DOLLARS ($4,000,000.00) (the "FACILITY") or such lesser amount as may be
advanced to or for the benefit of the Borrower under the Letter Agreement
referred to in Section 6 hereof together with interest accruing on the
outstanding principal balance from the date hereof, as provided below:
1. INTEREST RATES AND CALCULATION OF INTEREST. Amounts outstanding
hereunder shall accrue interest as set forth in the Letter Agreement.
2. ADVANCES. The Borrower may borrow, repay and reborrow hereunder until the
Expiration Date, subject to the terms and conditions of this Note and the Loan
Documents (as defined herein). The "EXPIRATION DATE" shall mean April 1, 1998,
or such later date as may be designated by the Bank by written notice from the
Bank to the Borrower. The Borrower acknowledges and agrees that in no event will
the Bank be under any obligation to extend or renew the Facility or this Note
beyond the initial Expiration Date. In no event shall the aggregate unpaid
principal amount of advances under this Note exceed the face amount of this
Note. A request for advance made by telephone must be promptly confirmed in
writing by such method as the Bank may require. The Borrower authorizes the Bank
to accept telephonic requests for advances, and the Bank shall be entitled to
rely upon the authority of any person providing such instructions. The Borrower
hereby indemnifies and holds the Bank harmless from and against any and all
damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses) which may arise or be created by the acceptance of
such telephone requests or making such advances. The Bank will enter on its
books and records, which entry when made will be presumed correct, the date and
amount of each advance, as well as the date and amount of each payment made by
the Borrower.
3. PAYMENT TERMS. Borrower shall pay accrued interest on the unpaid principal
balance of the Loans in arrears: (a) monthly on the first day of each month with
respect to interest accruing at other than the Euro-Rate Option (as defined in
the Letter Agreement), (b) on the last day of the related Euro-Rate Interest
Period (as defined in the Letter Agreement) with respect to interest accruing at
the Euro-Rate Option, and (c) for all Loans, at maturity (including by reason of
acceleration) of this Note, and after maturity, on demand until paid in full.
The outstanding principal balance and any accrued but unpaid interest shall be
due and payable on the Expiration Date.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
4. DEFAULT RATE. Upon maturity, whether by acceleration, demand or otherwise,
and at the option of the Bank upon the occurrence of any Event of Default (as
hereinafter defined) and during the continuance thereof, this Note shall bear
interest at a rate per annum (based on a year of 360 days and actual days
elapsed) which shall be two (2) percentage points in excess of the interest rate
in effect from time to time under this Note but not more than the maximum rate
allowed by law (the "DEFAULT RATE"). The Default Rate shall continue to apply
whether or not judgment shall be entered on this Note.
5. PREPAYMENT. The indebtedness evidenced by this Note may be prepaid in whole
or in part at any time without penalty.
6. OTHER LOAN DOCUMENTS. This Note is issued in connection with Letter Agreement
(the "Letter Agreement") of even date between Bank and Borrower, the terms of
which are incorporated herein by reference (the "LOAN DOCUMENTS"), and is
secured by the property described in the Loan Documents (if any) and by such
other collateral as previously may have been or may in the future be granted to
the Bank to secure this Note.
7. EVENTS OF DEFAULT. The occurrence of any of the following events will be
deemed to be an "EVENT OF DEFAULT" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note within 3 days after
notice is given by Bank that the same is due; (ii) the occurrence of any event
of default or default and the lapse of any notice or cure period under any Loan
Document or any other debt, liability or obligation to the Bank of any Obligor;
(iii) the filing by or against any Obligor of any proceeding in bankruptcy,
receivership, insolvency, reorganization, liquidation, conservatorship or
similar proceeding (and, in the case of any such proceeding instituted against
any Obligor, such proceeding is not dismissed or stayed within 60 days of the
commencement thereof, provided that the Bank shall not be obligated to advance
additional funds during such period); (iv) any assignment by any Obligor for the
benefit of creditors, or any levy, garnishment, attachment or similar proceeding
is instituted against any property of any Obligor held by or deposited with the
Bank; (v) a default with respect to any other indebtedness of any Obligor for
borrowed money, if the effect of such default is to cause or permit the
acceleration of such debt; (vi) the commencement of any foreclosure or
forfeiture proceeding, execution or attachment against any collateral securing
the obligations of any Obligor to the Bank; (vii) the entry of a final judgment
against any Obligor and, unless any lien shall attach on any Obligor's property
by reason of such judgment or any levy or execution thereon, the failure of such
Obligor to discharge the judgment within 60 days of the entry thereof; (viii)
any material adverse change in the business, assets, operations, financial
condition or results of operations of any Obligor; (ix) the Borrower ceases
doing business as a going concern; (x) the revocation or attempted revocation,
in whole or in part, of any guarantee by any Guarantor; (xi) the death or legal
incompetency of any individual Obligor or, if any Obligor is a partnership, the
death or legal incompetency of any individual general partner; (xii) any
representation or warranty made by any Obligor to the Bank in any Loan Document,
or any other documents now or in the future securing the obligations of any
Obligor to the Bank, is false, erroneous or misleading in any material respect;
or (xiii) the failure of any Obligor to observe or perform any covenant or other
agreement with the Bank contained in any Loan Document or any other documents
now or in the future securing the obligations of any Obligor to the Bank,
subject to any applicable notice or grace periods. As used herein, the term
"OBLIGOR" means any Borrower and any Guarantor, and the term "GUARANTOR" means
any guarantor of the obligations of the Borrower to the Bank existing on the
date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall be under no
further obligation to make advances hereunder; (b) if an Event of Default
specified in clause (iii) or (iv) above shall occur, the outstanding principal
<PAGE> 2
balance and accrued interest hereunder together with any additional amounts
payable hereunder shall be immediately due and payable without demand or notice
of any kind; (c) if any other Event of Default shall occur, the outstanding
principal balance and accrued interest hereunder together with any additional
amounts payable hereunder, at the option of the Bank and without demand or
notice of any kind, may be accelerated and become immediately due and payable;
(d) at the option of the Bank, this Note will bear interest at the Default Rate
from the date of the occurrence of the Event of Default; and (e) the Bank may
exercise from time to time any of the rights and remedies available to the Bank
under the Loan Documents or under applicable law.
8. POWER TO CONFESS JUDGMENT. THE BORROWER HEREBY EMPOWERS ANY ATTORNEY OF ANY
COURT OF RECORD, AFTER THE OCCURRENCE OF ANY EVENT OF DEFAULT HEREUNDER, TO
APPEAR FOR THE BORROWER AND, WITH OR WITHOUT COMPLAINT FILED, CONFESS JUDGMENT,
OR A SERIES OF JUDGMENTS, AGAINST THE BORROWER IN FAVOR OF THE BANK OR ANY
HOLDER HEREOF FOR THE ENTIRE PRINCIPAL BALANCE OF THIS NOTE, ALL ACCRUED
INTEREST AND ALL OTHER AMOUNTS DUE HEREUNDER, TOGETHER WITH COSTS OF SUIT AND
REASONABLE ATTORNEYS' FEES, AND FOR DOING SO THIS NOTE OR A COPY VERIFIED BY
AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE BORROWER HEREBY FOREVER WAIVES AND
RELEASES ALL ERRORS IN SAID PROCEEDINGS AND ALL RIGHTS OF APPEAL AND ALL RELIEF
FROM ANY AND ALL APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE
OR HEREAFTER ENACTED. INTEREST ON ANY SUCH JUDGMENT SHALL ACCRUE AT THE DEFAULT
RATE.
NO SINGLE EXERCISE OF THE FOREGOING POWER TO CONFESS JUDGMENT, OR A SERIES OF
JUDGMENTS, SHALL BE DEEMED TO EXHAUST THE POWER, WHETHER OR NOT ANY SUCH
EXERCISE SHALL BE HELD BY ANY COURT TO BE INVALID, VOIDABLE, OR VOID, BUT THE
POWER SHALL CONTINUE UNDIMINISHED AND IT MAY BE EXERCISED FROM TIME TO TIME AS
OFTEN AS THE BANK SHALL ELECT UNTIL SUCH TIME AS THE BANK SHALL HAVE RECEIVED
PAYMENT IN FULL OF THE DEBT, INTEREST AND COSTS.
9. RIGHT OF SETOFF. In addition to all liens upon and rights of setoff against
the money, securities or other property of the Borrower given to the Bank by
law, the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
10. MISCELLANEOUS. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power, nor shall the Bank's action or inaction
impair any such right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all costs and expenses incurred by the Bank in the
enforcement of its rights in this Note and in any security therefor, including
without limitation reasonable fees and expenses of the Bank's counsel. If any
provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect. The Borrower and
all other makers and indorsers of this Note hereby forever waive presentment,
protest, notice of dishonor and notice of non-payment. The Borrower also waives
all defenses based on suretyship or impairment of collateral. If this Note is
executed by more than one Borrower, the obligations of such persons or entities
hereunder will be joint and several. This Note shall bind the Borrower and its
heirs, executors, administrators, successors and assigns, and the benefits
hereof shall inure to the benefit of the Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court for the county or judicial district where the Bank's office
indicated above is located, and consents that all service of process be sent by
nationally recognized overnight courier service directed to the Borrower at the
Borrower's address set forth herein and service so made will be deemed to be
completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
11. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
THE BORROWER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE CONFESSION OF JUDGMENT AND WAIVER OF JURY TRIAL, AND
HAS BEEN ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
RMH TELESERVICES, INC.
Attest: /s/ Nancy M. Manger By: /s/ Richard Altus
-------------------------------- ---------------------------
Print Name: Nancy M. Manger Print Name: Richard Altus
---------------------------- --------------------
Title: Exec. Assist. Title: CFO
--------------------------------- -------------------------
-2-
<PAGE> 3
March 21, 1997
Mr. Richard Altus
RMH Teleservices, Inc.
40 Morris Avenue
Bryn Mawr, PA 19010
RE: $4,000,000.00 COMMITTED LINE OF CREDIT; LETTER OF CREDIT
Dear Mr. Altus:
We are pleased to inform you that PNC Bank, National Association (the "Bank")
has approved your request for the credit facilities described herein for RMH
Teleservices, Inc. (the "Borrower"). We look forward to this opportunity to help
you meet the financing needs of your business. As your primary bank, we want to
supply all your banking needs. All the details regarding these credit facilities
are outlined in the following sections of this letter.
1. Line of Credit and Use of Proceeds. The first credit
facility is a committed revolving line of credit under which
the Borrower may request and the Bank, subject to the terms
and conditions of this letter, will make advances to the
Borrower from time to time until the Expiration Date, in an
amount in the aggregate at any time outstanding not to
exceed $4,000,000.00 (the "Line of Credit"). The
"Expiration Date" means April 1, 1998, or such later date as
may be designated by the Bank by written notice to the
Borrower. Advances may be used for working capital or other
general business purposes of the Borrower.
2. Interest Rate Options for the Line of Credit. Principal
outstanding under the Line of Credit shall bear interest at
a rate per annum selected by Borrower from the interest rate
options set forth below (each, an "Option"), it being
understood that Borrower may select different Options to
apply simultaneously to different portions of principal of
the Line of Credit and may select up to eight (8) different
interest periods to apply simultaneously to different
portions of principal of the Line of Credit bearing interest
under the Euro-Rate Option as set forth below. There are no
required interest periods for principal bearing interest
under the Base Rate Option:
<PAGE> 4
RMH Teleservices, Inc.
March 21, 1997
Page 2
i. Base Rate Option. A rate of interest per annum
(computed on the basis of a year of 360 days and the actual
number of days elapsed) equal to rate of interest announced
from time to time by Bank at its principal office as its prime
rate, which rate may not be the lowest interest rate then
being charged commercial borrowers by Bank (the "Prime Rate")
minus one-half of one (.5) percentage point. If and when the
Prime Rate changes, the rate of interest on principal of the
Line of Credit bearing interest under the Base Rate Option
will change automatically without notice to Borrower,
effective on the date of any such change.
ii. Euro-Rate Option. For the Euro-Rate Interest
Period selected and the amount of principal of the Line of
Credit selected, a rate of interest per annum (computed on the
basis of a year of 360 days and the actual number of days
elapsed) equal to the sum of (a) the Euro-Rate plus (b)
ninety-five (95) basis points. For the purpose hereof, the
following terms shall have the following meanings:
"Euro-Rate" shall mean, with respect to the principal
of any amount of the Facility bearing interest under
the Euro-Rate Option for any Euro-Rate Interest
Period, the interest rate per annum determined by
Bank at or about 11:00 a.m. (eastern time) two (2)
Business Days prior to the commencement of a
Euro-Rate Interest Period by dividing (the resulting
quotient rounded upward to the nearest 1/16th of 1%
per annum) (i) the rate of interest determined by
Bank in accordance with its usual procedures (which
determination shall be conclusive absent manifest
error) to be the eurodollar rate two (2) Business
Days prior to the first day of such Euro-Rate
Interest Period for an amount comparable to such
principal amount and having a borrowing date and a
maturity comparable to such Euro-Rate Interest Period
by (ii) a number equal to 1.00 minus the Euro-Rate
Reserve Percentage.
"Euro-Rate Interest Period" shall mean the period
one, two, three, four or six months selected by
Borrower commencing on the date on which a Euro-Rate
Option is elected to commence; provided, that if a
Euro-Rate Interest Period would end on a day which is
not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the
succeeding calendar month in which case the Euro-Rate
Interest Period shall end on the next preceding
<PAGE> 5
RMH Teleservices, Inc.
March 21, 1997
Page 3
Business Day. In no event shall any Euro-Rate
Interest Period end on a day after the Expiration
Date.
"Euro-Rate Reserve Percentage" shall mean the maximum
effective percentage in effect on such day which is
applicable to Bank as prescribed by the Board of
Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements
(including, without limitation, supplemental,
marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred
to as "Eurocurrency liabilities").
"Business Day" shall mean a day, other than a
Saturday or Sunday, on which Bank is open for
business.
If Bank reasonably determines (which determination shall be final and
conclusive) that, by reason of circumstances affecting the interbank
eurodollar market generally, deposits in dollars (in the applicable
amounts) are not being offered to banks in the interbank eurodollar
market for the selected term, or adequate means do not exist for
ascertaining the Euro- Rate, then Bank shall give notice thereof to
Borrower. Thereafter, until Bank notifies Borrower that the
circumstances giving rise to such suspension no longer exist (which
notice Bank agrees to promptly provide after such circumstances no
longer exist), (a) the availability of the Euro-Rate Option shall be
suspended, and (b) the interest rate for all principal then bearing
interest under the Euro-Rate Option shall be converted to the Base Rate
Option at the expiration of the then current Euro-Rate Interest
Period(s).
In addition, if, after the date of this Agreement, Bank shall determine
(which determination shall be final and conclusive) that any enactment,
promulgation or adoption of or any change in any applicable law, rule
or regulation, or any change in the interpretation or administration
thereof by a governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or
compliance by Bank with any guideline, request or directive (whether or
not having the force of law) of any such authority, central bank or
comparable agency, which, in each case, occurs after the date hereof,
shall make it unlawful or impossible for Bank to make or maintain or
fund loans under the Euro-Rate Option, Bank shall notify Borrower. Upon
receipt of such notice, until Bank notifies Borrower that the
circumstances giving rise to such determination no longer apply, (a)
the availability of the Euro-Rate Option shall be suspended, and (b)
the interest rate on all principal then bearing interest under the
Euro-Rate
<PAGE> 6
RMH Teleservices, Inc.
March 21, 1997
Page 4
Option shall be converted to the Base Rate Option either (i) on the
last day of the then current Euro-Rate Interest Period(s) if Bank may
lawfully continue to maintain principal under the Euro-Rate Option to
such day, or (ii) immediately if Bank may not lawfully continue to
maintain principal under the Euro-Rate Option.
Subject to the other terms and conditions of this Agreement, at the end
of each interest period Borrower may renew the Option applicable to
such principal or convert such principal to a different Option. If no
notice of conversion or renewal is received by Bank, Borrower shall be
deemed to have converted such principal to the Base Rate Option.
Borrower shall notify Bank of each election of an interest rate Option,
each conversion from one interest rate Option to another, the amount of
principal then outstanding to be allocated to each interest rate Option
and the relevant interest periods. Any such election shall be promptly
confirmed in writing by such method as Bank may require. Borrower shall
indemnify Bank against all liabilities, losses or expenses (including
loss of margin, any loss or expense incurred in liquidating or
employing deposits from third parties and any loss or expense incurred
in connection with funds acquired by Bank to fund or maintain principal
of the Line of Credit bearing interest under the Euro-Rate Option)
which Bank sustains or incurs as a consequence of any attempt by
Borrower to revoke (expressly, by later inconsistent notices or
otherwise) in whole or in part any notice given to Bank to request,
convert, renew or prepay any such principal. If Bank sustains or incurs
any such loss, it shall notify Borrower of the amount determined by
Bank to be necessary to indemnify Bank for such loss or expense (which
determination may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as Bank deems
appropriate). Such amount shall be due and payable by Borrower ten (10)
days after such notice is given.
3. Repayment of Line of Credit. Subject to the terms and conditions of
this letter, the Borrower may borrow, repay and reborrow under the Line
of Credit until the Expiration Date, on which date the outstanding
principal balance and any accrued but unpaid interest shall be due and
payable. Interest will be due and payable as set forth in the Note.
4. Note. The obligation of the Borrower to repay loans under
the Line of Credit shall be evidenced by a promissory note
(the "Note") in form and content satisfactory to the Bank.
<PAGE> 7
RMH Teleservices, Inc.
March 21, 1997
Page 5
5. Letter of Credit. Bank has heretofore issued for Borrower's
account an Irrevocable Standby Letter of Credit, a copy of
which is attached hereto as Exhibit "B" (the "Letter of
Credit"), and, in connection therewith, has executed and
delivered to Bank a Reimbursement Agreement dated March ___,
1997 (the "Reimbursement Agreement"). Borrower hereby
confirms all of its obligations to Bank in connection
therewith and, in addition to the terms of the Reimbursement
Agreement, agrees to comply with the provisions hereof which
are applicable to the Letter of Credit.
6. Covenants. Unless compliance is waived in writing by the
Bank or until payment in full and termination of the Line of
Credit and surrender and/or expiration of the Letter of
Credit and payment in full of all reimbursement obligations
as set forth in the Reimbursement Agreement:
(a) The Borrower will promptly submit to the Bank such information
relating to the Borrower's affairs, including budgets and
forecasts as requested, as the Bank may reasonably request.
(b) The Borrower will not make, suffer or permit any change
in the nature of its business as carried on as of the
date of this letter.
(c) The Borrower will comply with the financial, reporting
and other covenants included in Exhibit "A" hereto.
All financial covenants will be calculated on a
consolidated basis for the Borrower and its
consolidated Subsidiaries (herein, the "Consolidated
Group"), and all financial statements shall be
consolidated financial statements for the Consolidated
Group. Borrower represents to Bank that Borrower's
fiscal year is October 1 - September 30.
7. Representations and Warranties. To induce the Bank to
extend the Line of Credit and the Letter of Credit and upon
the making of any advance to the Borrower under the Line of
Credit, the Borrower represents and warrants as follows:
(a) The Borrower's latest financial statements provided to
the Bank are true, complete and accurate in all
material respects and fairly present the financial
condition, assets and liabilities, whether accrued,
absolute, contingent or otherwise, of the Consolidated
Group, and the results of the Consolidated Group's
operations for the period specified therein. The
Borrower's financial statements have been prepared in
accordance with generally accepted accounting
principles consistently applied from period to period
subject in the case of interim statements to normal
year-end adjustments. Since the date of the latest
financial statements provided
<PAGE> 8
RMH Teleservices, Inc.
March 21, 1997
Page 6
to the Bank, neither the Borrower nor any Subsidiary (as
defined in Section 7(h) hereof) has suffered any damage,
destruction or loss which has materially adversely affected
its business, assets, operations, financial condition or
results of operations.
(b) There are no actions, suits, proceedings or governmental
investigations pending or, to the knowledge of the Borrower,
threatened against the Borrower or any Subsidiary which could
reasonably be expected to result in a material adverse change
in its business, assets, operations, financial condition or
results of operations and there is no basis known to the
Borrower or its executive officers or directors for any such
action, suit, proceedings or investigation.
(c) The Borrower and each Subsidiary has filed all returns
and reports that are required to be filed by it in
connection with any federal, state or local tax, duty
or charge levied, assessed or imposed upon it or its
property, including unemployment, social security and
similar taxes and all of such taxes have been either
paid or adequate reserve or other provision has been
made therefor.
(d) Borrower and each Subsidiary is duly organized, validly
existing and in good standing under the laws of the
state of its incorporation or organization and has the
power and authority to own and operate its assets and
to conduct its business as now or proposed to be
carried on, and is duly qualified, licensed and in good
standing to do business in all jurisdictions where its
ownership of property or the nature of its business
requires such qualification or licensing and the
failure to be so qualified would have a material
adverse effect on the Borrower's or such Subsidiary's
financial condition.
(e) The Borrower has full power and authority to enter into
the transactions provided for in this Letter Agreement
and has been duly authorized to do so by all necessary
and appropriate action and when executed and delivered
by the Borrower, this Letter Agreement and the other
loan documents executed and delivered pursuant hereto
will constitute the legal, valid and binding
obligations of, the Borrower enforceable in accordance
with their terms, except as may be limited by
bankruptcy or similar laws or equitable principles
affecting the enforcement of creditors' rights
generally.
(f) There does not exist any default or violation by the
Borrower or any Subsidiary of or under any of the
terms, conditions or obligations of: (i) its
organizational documents; (ii) any indenture, mortgage,
deed of trust, franchise, permit, contract, agreement,
or other instrument to which it is a party or by which
it is bound; or
<PAGE> 9
RMH Teleservices, Inc.
March 21, 1997
Page 7
(iii) any law, regulation, ruling, order, injunction, decree,
condition or other requirement applicable to or imposed upon
the Borrower or such Subsidiary by any law or by any
governmental authority, court or agency where the failure to
comply with which would have a material adverse effect on
Borrower's or such Subsidiary's financial condition.
(g) Except for Permitted Liens identified in Exhibit "A" hereto,
there re no liens or security interests in any of Borrower's
or any Subsidiary's assets or properties.
(h) Borrower has no subsidiaries (meaning an entity 50% or more of
the capital stock of which is owned by Borrower directly or
indirectly through one or more other subsidiaries) other than
Teleservices Management Company and Teleservices Technology
Company (the "Subsidiaries") and that Borrower is not a
subsidiary of any other entity.
8. Fees and Expenses. (a) Borrower shall, concurrently with
the execution hereof, pay to the Bank a non-refundable
Commitment Fee for the Line of Credit of $11,000.00. In the
event that the Bank in its discretion agrees to renew the
Line of Credit for an additional one (1) year period past
April 1, 1998 on the identical terms hereof, including
without limitation as to rate of interest, financial and
other covenants, the maximum loan amount and the security
designated herein, Bank agrees that no additional Commitment
Fee will be assessed by it in connection with such renewal.
(b) The Borrower will reimburse the Bank for the
Bank's out-of-pocket expenses incurred or to be incurred in conducting
UCC, title and other public record searches. The Borrower shall also
reimburse the Bank for the Bank's expenses in documenting and closing
this transaction, including Bank's attorneys' fees in an amount not to
exceed $3,000 plus out-of-pocket costs and expenses.
9. Depository. The Borrower will establish and maintain at the
Bank the Borrower's primary depository accounts.
10. Additional Provisions. Before the first advance under the Line of
Credit, the Borrower agrees to sign and deliver to the Bank the Note
and other required documents and such other instruments and documents
as the Bank may reasonably request, such as certified resolutions,
incumbency certificates or other evidence of authority. In addition,
Borrowers' Counsel shall deliver a written opinion addressed to the
Bank in a form satisfactory to the Bank. The Bank will not be obligated
to make any advance under the Line of Credit if any Event of Default
(as defined in the Note) or event which with
<PAGE> 10
RMH Teleservices, Inc.
March 21, 1997
Page 8
the passage of time, provision of notice or both would constitute an
Event of Default under the Note shall have occurred. Upon any Event of
Default, Borrower will pay to Bank, in addition to all principal,
interest and other amounts owing, cash in an amount equal to the face
amount of the Letter of Credit, to be held by Bank as security for
Borrower's reimbursement obligations in connection therewith.
Prior to execution of the final documents, the Bank may terminate this letter if
a material adverse change occurs with respect to the Borrower, or any other
person or entity connected in any way with the Line of Credit or the Letter of
Credit, or if the Borrower fails to comply with any of the terms and conditions
of this letter, or if the Bank reasonably determines that any of the conditions
cannot be met.
This letter is governed by the laws of Commonwealth of Pennsylvania. No
modification or waiver of any of the terms of this letter will be valid and
binding unless agreed to in writing by the Bank. When accepted, this letter and
the other documents described herein, including the Reimbursement Agreement,
will constitute the entire agreement between the Bank and the Borrower
concerning the Line of Credit and the Letter of Credit, and shall replace all
prior understandings, statements, negotiations and written materials relating to
the Line of Credit and the Letter of Credit.
Thank you for giving PNC Bank this opportunity to work with your business. We
look forward to other ways in which we may be of service to your business or to
you personally.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Signature
----------------------------------
Title: Vice President
-------------------------------
<PAGE> 11
RMH Teleservices, Inc.
March 21, 1997
Page 9
ACCEPTANCE
With the intent to be legally bound hereby, the above terms and conditions are
hereby agreed to and accepted this 21st day of March, 1997.
BORROWER:
RMH Teleservices, Inc.
By: /s/ Richard Altus
----------------------------------
Attest: /s/ Nancy M. Manger
------------------------------
<PAGE> 12
EXHIBIT "A"
ADDITIONAL COVENANTS:
I. Reporting.
The Borrower will deliver to the Bank:
(a) Financial Statements for each fiscal year, commencing with fiscal
year ending September 30, 1997, within 120 days after fiscal year end, audited
and certified without qualification as to scope of audit or going concern
matters by an independent certified public accountant acceptable to the Bank.
"Financial Statements" means the consolidated and consolidating balance sheet
and statements of income and cash flows for the Consolidated Group prepared in
accordance with generally accepted accounting principles in effect from time to
time ("GAAP") applied on a consistent basis (subject in the case of interim
statements to normal year-end adjustments).
(b) Within five (5) days after the filing thereof, a copy of Borrower's
quarterly 10-Q filing with the Securities and Exchange Commission.
II. Financial Covenants.
(a) The Borrower shall have and maintain, on a consolidated basis for
the Consolidated Group, a tangible net worth equal to or greater than
$17,000,000.00 as of September 30, 1996. As of September 30, 1997, and as of the
end of each fiscal year thereafter, Borrower will have and maintain a tangible
net worth of not less than the sum of the then prior fiscal year end minimum
tangible net worth plus fifty (50%) percent of net income for the fiscal year
then ended plus 100% of the proceeds, net of costs of issuance, of new equity
issues for the fiscal year then ended. "Tangible Net Worth" means stockholders'
equity in the Borrower less any advances to third parties and all items properly
classified as intangibles, in accordance with GAAP.
(b) The Borrower shall maintain at the end of each fiscal quarter, on a
consolidated basis for the Consolidated Group, a Fixed Charge Coverage Ratio of
at least 1.10 to 1. "Fixed Charge Coverage Ratio" means net income plus
depreciation plus amortization plus Unfunded Capital Expenditures minus
dividends, divided by the sum of Current Maturities of long term debt plus
interest expense, all for the four (4) fiscal quarters then ended. "Current
Maturities" means the current principal maturities of all indebtedness for
borrowed money (including but not limited to capitalized lease obligations)
having an original term of one year or more, but excluding the Line of Credit.
"Unfunded Capital Expenditures" means
<PAGE> 13
capital expenditures made from the Borrower's funds other than borrowed funds
(other than from advances under the Line of Credit).
III. Negative Covenants.
(a) The Borrower will not, nor suffer or permit any Subsidiary to,
create, assume, incur or suffer to exist any mortgage, pledge, encumbrance,
security interest, lien or charge of any kind upon any of its property, now
owned or hereafter acquired, or acquire or agree to acquire any kind of property
under conditional sales or other title retention agreements; provided, however,
that the foregoing restrictions shall not prevent the Borrower or any Subsidiary
from (herein, "Permitted Liens"):
(i) incurring liens for taxes, assessments or governmental
charges or levies which shall not at the time be due and
payable or can thereafter be paid without penalty or are being
contested in good faith by appropriate proceedings diligently
conducted and with respect to which it has created adequate
reserves;
(ii) making pledges or deposits to secure obligations
under workers' compensation laws or similar
legislation;
(iii) granting liens or security interests in favor
of the Bank;
(iv) granting purchase money liens in the assets acquired with
the proceeds of, and as security for, purchase money
indebtedness permitted to be incurred pursuant to subpart
(b)(iv) hereof; or
(v) maintaining that certain lease dated November 29, 1996
heretofore entered into with Chase Equipment Leasing, Inc.
relative to Borrower's lease of specific equipment pursuant
thereto.
(b) The Borrower will not, nor suffer or permit any Subsidiary to,
create, incur, guarantee, endorse (except endorsements in the course of
collection), assume or suffer to exist any indebtedness, except (i) indebtedness
to the Bank, (ii) open account trade debt incurred in the ordinary course of
business, (iii) other indebtedness disclosed on the Borrower's latest Financial
Statements which have been provided to the Bank prior to the date of this
letter, or (iv) purchase money indebtedness (including capitalized lease
obligations) incurred for the acquisition of fixed assets, limited in amount to
$250,000 at any time outstanding in the aggregate for Borrower and all
Subsidiaries.
(c) The Borrower will not, nor suffer or permit any Subsidiary to,
liquidate, merge or consolidate with any person, firm, corporation or other
entity other than a merger of one or both Subsidiaries into Borrower or into
each other, or sell, lease, transfer or otherwise dispose of all or any part of
its property or assets, whether now owned or hereafter acquired, other than
sales of inventory in the ordinary course of business and disposition of
equipment
<PAGE> 14
which in Borrower's reasonable judgment are no longer used or useable in the
operation of Borrower's or such Subsidiary's business in the ordinary course
thereof.
(d) The Borrower will not, nor suffer or permit any Subsidiary to, make
acquisitions of all or substantially all of the property or assets of any
person, firm, corporation or other entity.
(e) The Borrower will not, nor suffer or permit any Subsidiary to, make
or have outstanding any loans or advances to or otherwise extend credit to any
person, firm or corporation, except accounts receivable in the ordinary course
of business and other than advances by the Subsidiaries to Borrower. Borrower
specifically agrees, without limitation, that Borrower will not make or suffer
or permit to exist or be outstanding any loans or advances to any Subsidiary,
and Borrower hereby represents to Bank that there are no outstanding loans or
advances to any Subsidiary as of the date hereof.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,307,000
<SECURITIES> 0
<RECEIVABLES> 6,942,000
<ALLOWANCES> 26,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,187,000
<PP&E> 8,823,000
<DEPRECIATION> 4,086,000
<TOTAL-ASSETS> 24,019,000
<CURRENT-LIABILITIES> 3,931,000
<BONDS> 0
0
0
<COMMON> 48,638,000
<OTHER-SE> (29,100,000)
<TOTAL-LIABILITY-AND-EQUITY> 24,019,000
<SALES> 0
<TOTAL-REVENUES> (11,322,000)
<CGS> 0
<TOTAL-COSTS> 10,017,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,407,000)
<INCOME-TAX> (506,000)
<INCOME-CONTINUING> (901,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (901,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
