<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999
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 and zip code)
(610) 520-5300
(Registrant's telephone number, including area code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 8,120,000 shares of Common
Stock outstanding as of April 30, 1999.
<PAGE>
RMH Teleservices, Inc. and Subsidiaries
INDEX TO FORM 10-Q
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets at
March 31, 1999 and September 30, 1998 .......................... 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 ..................... 4
Consolidated Statements of Operations for the
Six Months Ended March 31, 1999 and 1998 ....................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1999 and 1998 ....................... 6
Notes to Consolidated Financial Statements ..................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................. 16
Item 2. Changes in Securities and Use of Proceeds ...................... 16
Item 3. Defaults upon Senior Securities ................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ............ 17
Item 5. Other Information .............................................. 17
Item 6. Exhibits and Reports on Form 8-K ............................... 17
SIGNATURES............................................................... 18
2
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, September 30, LIABILITIES AND March 31, September 30,
ASSETS 1999 1998 SHAREHOLDERS' EQUITY 1999 1998
------ ------------ ------------ -------------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS: CURRENT LIABILITIES:
Cash and cash equivalents $5,444,000 $4,179,000 Accounts payable $2,481,000 $1,423,000
Marketable securities 4,354,000 6,779,000 Accrued expenses 4,488,000 3,021,000
Accounts receivable, net of Deferred income taxes 554,000 554,000
allowance for doubtful accounts of ------------ ------------
$57,000 and $37,000 13,035,000 10,739,000 Total current liabilities 7,523,000 4,998,000
Prepaid expenses and other current ------------ ------------
assets 3,687,000 1,463,000
------------ ------------
Total current assets 26,520,000 23,160,000 DEFERRED INCOME TAXES 150,000 150,000
------------ ------------ ------------ ------------
PROPERTY AND EQUIPMENT 11,061,000 10,530,000
Less - Accumulated depreciation and SHAREHOLDERS' EQUITY:
amortization (7,235,000) (6,483,000)
------------ ------------
Net property and equipment 3,826,000 4,047,000 Common stock 48,638,000 48,638,000
------------ ------------ Common stock warrant and
options outstanding 462,000 450,000
Accumulated deficit (26,299,000) (26,901,000)
OTHER ASSETS 128,000 128,000 ------------ ------------
------------ ------------
Total Shareholders' Equity 22,801,000 22,187,000
------------ ------------
$30,474,000 $27,335,000 $30,474,000 $27,335,000
============ ============ ============ ============
</TABLE>
The accompanying notes and the notes to the consolidated financial
statements included in the Registrant's Annual Report on Form 10-K are an
integral part of these consolidated financial statements.
3
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RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
REVENUES $ 17,290,000 $ 12,337,000
------------ ------------
OPERATING EXPENSES:
Cost of services 13,144,000 9,313,000
Selling, general and administrative 3,663,000 3,612,000
------------ ------------
Total operating expenses 16,807,000 12,925,000
------------ ------------
Operating income (loss) 483,000 (588,000)
INTEREST INCOME 69,000 121,000
------------ ------------
Income (loss) before income taxes (benefit) 552,000 (467,000)
INCOME TAXES (BENEFIT) 207,000 (168,000)
------------ ------------
NET INCOME (LOSS) $ 345,000 $ (299,000)
============ ============
BASIC INCOME (LOSS) PER COMMON SHARE $ .04 $ (.04)
============ ============
DILUTED INCOME (LOSS) PER COMMON SHARE $ .04 $ (.04)
============ ============
SHARES USED IN COMPUTING BASIC
INCOME (LOSS) PER COMMON SHARE 8,120,000 8,120,000
============ ============
SHARES USED IN COMPUTING DILUTED
INCOME (LOSS) PER COMMON SHARE 8,272,000 8,120,000
============ ============
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
4
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RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Six Months Ended
March 31,
---------------------------
1999 1998
------------ ------------
REVENUES $ 33,127,000 $ 24,584,000
------------ ------------
OPERATING EXPENSES:
Cost of services 25,094,000 18,296,000
Selling, general and administrative 7,246,000 6,176,000
------------ ------------
Total operating expenses 32,340,000 24,472,000
------------ ------------
Operating income 787,000 112,000
INTEREST INCOME 176,000 269,000
------------ ------------
Income before income taxes 963,000 381,000
INCOME TAXES 361,000 137,000
------------ ------------
NET INCOME $ 602,000 $ 244,000
============ ============
BASIC INCOME PER COMMON SHARE $ .07 $ .03
============ ============
DILUTED INCOME PER COMMON SHARE $ .07 $ .03
============ ============
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,120,000 8,120,000
============ ============
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,267,000 8,267,000
============ ============
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
5
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RMH TELESERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For The Six Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 602,000 $ 244,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Issuance of Common Stock options for
services rendered 12,000 --
Depreciation and amortization 752,000 770,000
Changes in operating assets and liabilities -
Accounts receivable (2,296,000) (4,000)
Prepaid expenses and other current assets (2,224,000) 188,000
Other assets -- (317,000)
Accounts payable and accrued expenses 2,525,000 (16,000)
----------- -----------
Net cash (used in) provided by operating
activities (629,000) 865,000
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (531,000) (980,000)
Purchases of marketable securities (5,089,000) (4,968,000)
Maturities of marketable securities 7,514,000 4,171,000
----------- -----------
Net cash provided by (used in) investing
activities 1,894,000 (1,777,000)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from refinanced equipment -- 19,000
Repayments on capitalized lease obligations -- (8,000)
----------- -----------
Net cash provided by financing activities -- 11,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,265,000 (901,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,179,000 6,882,000
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 5,444,000 $ 5,981,000
=========== ===========
</TABLE>
The accompanying notes and the notes to the consolidated financial statements
included in the Registrant's Annual Report on Form 10-K are an integral part of
these consolidated financial statements.
6
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RMH TELESERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
RMH Teleservices, Inc. and subsidiaries, ("RMH" or the "Company") provide
outbound and inbound teleservices to major corporations in the insurance,
financial services, telecommunications and membership services industries.
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and cash flows of
the Company. Operating results for the three and six month periods ended March
31, 1999 and 1998, are not necessarily indicative of the results that may be
expected for the full 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 Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.
NOTE 2 - EARNINGS PER SHARE
The Company has provided basic and diluted income per share pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." SFAS No. 128 requires dual presentation of basic and diluted earnings
per share. According to SFAS No. 128, basic earnings per share is calculated by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution from
the exercise or conversion of securities into Common stock, such as stock
options and warrants.
7
<PAGE>
The following is a reconciliation of the numerators and denominators of the
basic and diluted income per share computations:
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
--------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- ------------------------------------------------
Income Shares Per Share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------- ----------- ------ --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic income (loss)
per Common share:
Net income (loss) $345,000 8,120,000 $0.04 $(299,000) 8,120,000 $(0.04)
===== ======
Effect of dilutive
securities:
Stock warrants -- 142,000 -- --
Stock options -- 10,000 -- --
Diluted income (loss)
per Common share: -------- -------- ----- --------- --------- ------
Net income (loss) and
assumed conversion
of dilutive securities $345,000 8,272,000 $0.04 $(299,000) 8,120,000 $(0.04)
======== ========= ===== ========= ========= ======
<CAPTION>
For the Six Months Ended March 31,
--------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------- ------------------------------------------------
Income Shares Per Share Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------- ----------- ------ --------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic income per
Common share:
Net income $602,000 8,120,000 $0.07 $244,000 8,120,000 $0.03
===== =====
Effect of
dilutive securities:
Stock warrants -- 142,000 -- 142,000
Stock options -- 5,000 -- 5,000
-------- --------- ----- -------- ------- -----
Diluted income per
Common share:
Net income and
assumed conversion
of dilutive
securities $602,000 8,267,000 $0.07 $244,000 8,267,000 $0.03
======== ========= ===== ======== ========= =====
</TABLE>
8
<PAGE>
Warrants to purchase approximately 142,000 shares of Common Stock with an
exercise price of $0.01 and options to purchase approximately 679,600 shares of
Common stock with an average exercise price of $ 3.23 were outstanding during
the three months ended March 31, 1999, but were not included in the computation
of diluted income per Common share because the options' exercise prices were
greater than the average market price of the Common shares during the period.
Warrants to purchase approximately 142,000 shares of Common stock with an
exercise price of $ .01 per share and options to purchase approximately 632,600
shares of Common stock with an average exercise price of $3.79 were outstanding
during the three months ended March 31, 1998, but were not included in the
computation of diluted loss per Common share because the Company had a net loss
for the period and all outstanding warrants and options would have been
anti-dilutive. Options to purchase approximately 749,700 and 632,600 shares of
Common stock with an average exercise price of $ 3.12 and $ 3.79 were
outstanding during the six months ended March 31, 1999 and 1998, respectively,
but were not included in the computation of diluted income per Common share
because the options' exercise prices were greater than the average market price
of the Common shares during the respective period. The options, which expire at
various times through September 2008, were still outstanding as of March 31,
1999.
NOTE 3 - MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK:
The Company is dependent on three large customers for a significant portion of
its revenues. These three customers accounted for 42.3% and 49.3% of revenues
for the three and six months ended March 31, 1999 and 72.4% and 72.0% of
revenues for three and six months ended March 31, 1998. The loss of one or more
of these customers could have a materially adverse effect on the Company's
business.
The Company was affiliated with one of its customers. This customer represented
4.1% and 4.4% of revenues for the three and six months ended March 31, 1999 and
8.1% and 8.4% of revenues for the three and six months ended March 31, 1998.
Effective February 20, 1998, such customer transferred the line of business
producing such revenues to a new independent entity. While the Company continues
to do business with this new entity, there is no longer a related party
relationship with this entity.
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, 1999, the
accounts receivable from the customers that represent a single credit risk were
$3,234,000.
9
<PAGE>
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 which 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 provides 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, financial services,
telecommunications and membership 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) dependence on
the services of the Company's executive officers and other key operations and
technical personnel; (v) changes in the availability of qualified employees;
(vi) performance of automated call-processing systems and other technological
factors; (vii) the impact of the Year 2000 issues on the Company; (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 outsourcing provider of outbound and inbound
teleservices to major corporations in the insurance, financial services,
telecommunications and membership services 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 is the predominant business of the Company.
On December 10, 1998, RMH Teleservices International Inc. ("RMHTI"), a
wholly-owned subsidiary, was incorporated in the Province of New Brunswick,
Canada. The purpose of establishing this new subsidiary was to create a legal
entity to conduct the Company's business operations in Canada. In the second
quarter of fiscal 1999, RMHTI entered into leases for premises in Oromocto, New
Brunswick and Brantford, Ontario for new call centers. The call center in
Oromocto has 200 seats and commenced operations in March 1999. It is anticipated
that the call center in Brantford, which will have 250 seats, will open during
the third fiscal quarter of 1999. The Company has received financial incentives
from the provincial governments of Ontario and New Brunswick totaling $1.3
million and expects to receive an additional $700,000. These incentives offset
various start-up operating costs and capital expenditures associated with the
new call centers. In the second fiscal quarter of 1999, the Company incurred
start-up costs associated with these two new call centers totaling $550,000
which were offset against the grant money. The remaining $750,000 has been
deferred and will primarily be amortized against payroll costs over the next
three years and will also be offset against additional start-up costs incurred
in the third and fourth fiscal quarters.
10
<PAGE>
In the second quarter of fiscal 1999, the Company entered into a three-way
agreement with a long distance provider and an independent teleservices company.
Under the agreement, RMH will manage a call center on behalf of the independent
teleservices company, which specializes in Asian language outbound teleservices.
This independent company will solicit Asian-speaking residential customers in
the United States on behalf of the long distance provider in several Asian
languages including Japanese, Korean, Vietnamese, Tagalog, Cantonese and
Mandarin. RMH is compensated by the long distance provider on a per sale basis
and based on monthly long distance customer billing, and is also compensated by
the independent company on a monthly fee basis for managing the call center. RMH
is obligated to compensate the independent company on a per sale basis and on
monthly long distance customer billing and to provide certain call center
equipment.
The Company'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.
Results of Operations
Three and Six Months Ended March 31, 1999 Compared to Three and Six Months Ended
March 31, 1998
Revenues - Revenues increased to $17,290,000 and $33,127,000 for the three and
six month periods ended March 31, 1999 from $12,337,000 and $24,584,000 for the
comparable periods in 1998. This represents revenue increases of 40.1% and 34.8%
for the three and six month periods ended March 31, 1999, respectively, as
compared to the comparable periods in 1998. Of such increase in revenues,
approximately $3,726,000 and $7,381,000 were attributable to increased calling
volumes from existing clients, and $1,227,000 and $1,162,000 to new clients, for
the three and six month periods ended, respectively.
Cost of Services - Cost of services increased to $13,144,000 and $25,094,000 for
the three and six month periods ended March 31, 1999 from $9,313,000 and
$18,296,000 for the comparable periods in 1998. As a percentage of revenues,
cost of services increased to 76.0% and 75.8% for the three and six month
periods ended March 31, 1999, as compared to 75.5% and 74.4% for the comparable
periods in 1998. The Company believes that the increase in cost of services as a
percentage of revenues during the quarter is attributable to labor cost
pressures coupled with pricing pressures.
The Company anticipates that cost of services as a percentage of revenues may
increase during the year to the degree that large volume opportunities warrant
the Company offering appropriate pricing discounts, to the extent that the
Company requires a longer period of time to generate acceptable levels of
utilization at its call centers, and/or the Company experiences upward pressures
on hourly wages as a result of tighter or more competitive labor markets.
11
<PAGE>
Selling, General and Administrative - Selling, general and administrative
expenses increased to $3,663,000 and $7,246,000 for the three and six month
periods ended March 31, 1999 from $3,612,000 and $6,176,000 for the comparable
periods in 1998. As a percentage of revenues, selling, general and
administrative expenses decreased to 21.2% and 21.9% during the three and six
month periods ended March 31, 1999, as compared to 29.3% and 25.1% for the
comparable periods in 1998. During the three and six month periods ended March
31, 1998, $299,000 and $335,000 of selling and general administrative expenses
was a result of the Company's settlement of certain litigation with an existing
customer and the legal costs incurred relating to such settlement. The balance
of the percentage decrease was primarily the result of better utilization of
infrastructure and increasing revenues being serviced by the Company's existing
infrastructure.
Interest Income - Interest income for the three and six month periods ended
March 31, 1999 and 1998, amounted to $69,000 and $176,000 and $121,000 and
$269,000, respectively, and was earned by investing the remaining proceeds of
the Company's initial public offering in marketable securities and cash
equivalents.
Income Taxes (Benefit) - Income tax expense (benefit) for the three and six
month periods ended March 31, 1999 and 1998, was $207,000 and $361,000 and
$(168,000) and $137,000, respectively, and represents income taxes based upon an
effective tax rate of 37.5% in fiscal 1999 and 36.0% in fiscal 1998. 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 previously implemented in fiscal 1996.
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity have been cash flow
from operations and borrowings under its credit facilities. 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 its founders. The remaining
$8.3 million in proceeds has been, and will continue to be, used for working
capital and general corporate purposes.
On March 21, 1997, the Company entered into a new $4.0 million line of credit
facility (the "Credit Line") with PNC Bank (the "Bank"). The Credit Line
replaced the Company's former term loan and credit facility. The Credit Line
expired on April 1, 1999. The Company is completing its negotiations with the
Bank for the renewal of this credit line; and it is the Company's intention to
renew the Credit Line with terms comparable to those currently in place.
Outstanding balances bore interest at the Company's option at either the LIBOR
rate plus 95 basis points or at the Bank's prime rate minus 50 basis points. The
Credit Line contained financial covenants and certain restrictions on the
Company's ability to incur additional debt or dispose of its assets. As of March
31, 1999, the Company had no borrowings outstanding on the Credit Line.
Under a separate agreement dated February 22, 1997, with PNC Leasing
Corporation, the Company had up to $6.0 million available for purposes of
leasing call center equipment. The $6.0 million commitment expired on April 1,
1998, and required that such leases meet the accounting definition of an
operating lease with rent to be paid over a period not to exceed sixty months.
The Company financed $4.1 million of equipment under this facility. Under a
separate agreement dated March 10, 1998, with PNC Leasing Corporation, the
Company established an additional lease facility of $6.0 million available for
purposes of leasing call center equipment. The $6.0 million commitment expired
April 1, 1999, and required that such leases meet the accounting definition of
an operating
12
<PAGE>
lease with rent to be paid over a period not to exceed sixty months. As of March
31, 1999, the Company had financed $5.5 million of equipment under this
facility.
The Company is completing negotiations with the Bank to establish an additional
lease facility with size and terms similar to the lines established in each of
the two previous years described above.
Net cash used in operating activities was $629,000 during the six months ended
March 31, 1999 and net cash provided by operating activities was $865,000 during
the six months ended March 31, 1998. The cash used in operations in the fiscal
1999 period resulted from an increase in the Company's accounts receivable and
prepaid expenses and other assets coupled with a decrease in its accounts
payable and accrued expenses offset by the Company's net income for the period.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures during the six month period ended
March 31, 1999, were $531,000. The Company expects to allocate approximately
$6.0 million for capital equipment expenditures from an operating lease facility
currently under negotiation during the remainder of the fiscal year ending
September 30, 1999, primarily for call center capacity expansion and other
enhancements of technology used throughout its call center operations.
The Company believes that cash generated from operations, when available,
together with its cash and marketable securities and available credit under new
credit and leasing agreements will be sufficient to finance its current
operations and planned capital equipment expenditures at least until December
31, 1999.
Recent Accounting Pronouncements
Effective the first quarter of fiscal 1999, the Company was subject to the
provisions of SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130 has no
impact on the Company's financial statements as the Company has not had any
"comprehensive income" type earnings (losses).
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and require
that those enterprises report selected information about operating segments in
interim financial reports to stockholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. The Company will adopt SFAS No. 131 for its fiscal year ending
September 30, 1999 financial statements. Management believes that SFAS No. 131
will not have a material effect on the Company's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities," which is effective for fiscal years beginning after December 15,
1998 and provides guidance on the financial reporting of start-up activities and
organization costs. It requires costs of start-up activities to be charged to
expense as incurred. SOP 98-5 is required to be adopted for the Company's fiscal
year ending September 30, 2000. The adoption of this pronouncement is expected
to have no material impact on the Company's financial position or results of
operations.
13
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Year 2000 Readiness Disclosure
The year 2000 problem arises as a result of computer programs being written
using two digits rather than four digits to define the applicable year. In other
words, date-sensitive software, including those with embedded microprocessors,
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system and equipment failures or malfunctions causing
disruptions of operations, including among others, a temporary inability to
process calls, transactions and information, or engage in similar normal
business activities.
The Company's Internal Systems. The Company has evaluated its infrastructure as
it relates to information technology and has developed a plan to ensure its Year
2000 compliance. This plan includes, among other things, replacing certain
systems with new internally developed Year 2000 compliant systems and upgrading
the remaining software systems to be Year 2000 compliant. Year 2000 compliant
upgrades to the Company's predictive dialing equipment have been installed in
all call centers. These processes allow the Company to receive lead information,
make and receive calls, and produce reports on compliant and non-compliant date
formats. Modification and testing of all information and non-information systems
will extend into the third fiscal quarter of 1999 and are scheduled to be
completed by June 1999. The Company has replaced all non-compliant personal
computer workstations.
The Company is also in the process of evaluating its security systems,
copiers and other non-information technology infrastructure in which
non-compliant software or embedded microprocessors might exist. The Company
believes that all material components in this infrastructure will be Year 2000
compliant by the end of fiscal 1999.
Readiness of Third Parties. The Company has requested information from its
third-party vendors and clients on their Year 2000 readiness to determine the
extent to which their inability to be Year 2000 compliant will affect the
Company. This process has included identifying vendors and defining the
readiness of their products and services. The Company's primary focus as it
relates to vendors is on those that support the teleservices platform and
information technology platforms, followed by all others. The Company is
approximately 40% complete with the vendor compliance documentation process that
includes use of vendor compliance documentation published on the Internet. A
similar process will be followed with clients to assess their Year 2000
readiness. The Company's software is being modified to accept two-digit year or
four-digit century inputs, and will output in either format. Accordingly, the
Company is prepared for either occurrence and believes that it will not be
adversely affected by year format.
Cost of Year 2000 Compliance. The Company has incurred minimal costs to
date in addressing the Year 2000 issue. The Year 2000 evaluation, modification
and testing that has been undertaken to date has not had a material effect on
the Company's ability to deliver reports and other output on a timely basis.
However, the Company anticipates that the Year 2000 project could affect
development of internal systems nearing the latter part of fiscal 1999. The
Company currently expects that the total costs to become Year 2000 compliant
will not exceed $750,000. Hardware costs are projected to be approximately
$300,000, software costs are projected to be approximately $250,000, and
consulting and testing costs are projected to be approximately $200,000. New
capital equipment, which the Company will require, will be either purchased or
financed under the Company's new operating lease line. The remaining costs will
be financed out of operating working capital.
14
<PAGE>
Risks Associated with the Year 2000. The extent of the Company's Year 2000
exposure, the costs of achieving Year 2000 compliance and the time period within
which the Company believes it will achieve Year 2000 compliance are based on
management's knowledge to date and its best estimates. The Company is not aware,
at this time, of any internal or third-party vendor Year 2000 non-compliance
that will not be fixed by the end of December 1999 and that will materially
affect the Company. However, these estimates were derived using numerous
assumptions, and some risks that the Company faces include: the failure of
internal information systems; the failure of third parties to provide services,
such as electricity and telecommunication services and a slow down in clients'
ability to make payments. There can be no assurance that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel, the ability to identify and
correct all Year 2000 impacted areas, the ability of third party vendors and
clients to be Year 2000 compliant and other similar uncertainties.
Contingency Plans. The Company believes that the most reasonably likely
worst case scenario, other than the loss of telecommunications and power, is
loss of the dialers which will prevent the Company from generating revenue. It
is reasonable to assume that some interruptions related to specific campaigns
and applications may result. The Company is in the process of developing
contingency plans. Such plans are expected to be developed by July 1999.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments with high credit quality issuers
and limits the amount of credit exposure with any one issuer. The Company is
averse to principal loss and ensures the safety and preservation of its invested
funds by limiting default risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in only the safest and highest
credit quality securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer, guarantor or depository. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
The table below represents principal (or notional) amounts and related weighted
average interest rates for the Company's investment portfolio as of March 31,
1999. All investments mature in one year or less.
Principal Amount Fair Value
---------------- ----------
(in thousands)
Assets
Cash equivalents:
Variable rate $ 50 $ 50
Average interest rate 4.84% 4.84%
Marketable Securities:
Fixed rate $4,450 $4,354
Average interest rate 4.91% 4.91%
------ ------
Total Investments $4,500* $4,404
====== ======
*Includes $31,000 of unaccrued interest to be received at maturity.
15
<PAGE>
PART II: OTHER INFORMATION
Item 1: Legal Proceedings
None.
Item 2: Changes in Securities and Use of Proceeds
a. None.
b. None.
c. The Company has not sold any securities that were not
registered under the Securities Act
d. The Company's Registration Statement on Form S-1 (File
No. 333-07501) (the "Registration Statement") was
declared effective by the Commission on September 18,
1996. Pursuant to the Registration Statement, the
Company registered an aggregate of 3,220,000 shares of
Common Stock, with no par value. All of the shares
registered by the Registration Statement were sold at
$12.50 per share, realizing aggregate proceeds of
$40,250,000 and net aggregate proceeds of $36,317,000
(after deduction of underwriters' discounts, commissions
and other offering expenses of $3,933,000). None of
these expenses were paid to directors, officers, general
partners or their associates or to 10% shareholders of
the Company. Of the net proceeds of the offering,
$15,300,000 were used to repay indebtedness and
$6,000,000 were used to pay a special bonus to Raymond
J. Hansell and MarySue Lucci, the Company's founders and
owners of in excess of 10% of the Common Stock. The
amount of $6,400,000 was used to fund the redemption of
Series B Preferred Stock by Advanta Partners LP, an
owner of 10% or more of the Common Stock, and the amount
of $281,000 to fund the redemption of Series B Preferred
Stock by Glengar International Investments Limited. The
remainder of the proceeds were invested in short-term
investments pending their withdrawal for general
corporate purposes. At April 30, 1999, the balance of
these investments was approximately $2,395,000
reflecting the use of approximately $5,941,000 for
general corporate purposes.
Item 3: Defaults upon Senior Securities
None.
16
<PAGE>
Item 4: Submission of Matters to a Vote of Security Holders
On February 23, 1999, the Company held its Annual
Meeting of Shareholders at which the holders of the
Company's Common Stock voted in an election of two
members of the Company's Board of Directors to three
year terms expiring at the Company's 2002 Annual Meeting
of Shareholders. The total number of shares of Common
Stock represented at the Annual Meeting were 7,575,222,
constituting a quorum. Both nominees of the Board of
Directors were re-elected. The following is a report of
the votes cast at the Annual Meeting for each nominee
for director.
------------------------------------------------------
Nominee Name Votes For Withheld Authority
------------ --------- ------------------
------------------------------------------------------
John A. Fellows 7,541,972 33,250
------------------------------------------------------
Derek Lubner 7,511,118 64,104
------------------------------------------------------
At the Meeting, the shareholders also approved a
proposal to ratify the choice of Arthur Anderson LLP as
the Company's independent auditors for the fiscal year
ending September 30, 1999. The following is a report of
the votes cast with respect to this proposal.
--------------------------------------------------------
Votes For Votes Against Abstain
--------- ------------- -------
--------------------------------------------------------
7,569,422 3,200 2,600
--------------------------------------------------------
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
a. 10.1 - Agreement: Loan of CAN $2MM from the Province of
New Brunswick, Canada
10.2 - Agreement: Loan forgiveness from the Province of
New Brunswick, Canada
10.3 - Agreement: Grant of CAN $1MM from the Province of
Ontario, Canada
27.0 - Financial Data Schedule
b. Reports on Form 8-K:
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RMH Teleservices, Inc.
DATED: May 11, 1999 BY: /s/ John A. Fellows
----------------------------
John A. Fellows
Chief Executive Officer
DATED: May 11, 1999 BY: /s/ Noah S. Asher
--------------------------
Noah S. Asher
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
18
<PAGE>
Exhibit 10.1
THIS LOAN AGREEMENT made as of this 31st day of March, 1999.
BETWEEN: HER MAJESTY THE QUEEN IN RIGHT
OF THE PROVINCE OF NEW
BRUNSWICK, as represented by the
Minister of Economic Development,
Tourism and Culture, (hereinafter called
the "Minister"),
OF THE FIRST PART
A N D: RMH TELESERVICES INC., a body
corporate, duly incorporated under and
by virtue of the laws of the
Commonwealth of Pennsylvania, United
States of America, and having its
registered office at 40 Morris Avenue
Bryn Mawr, Delaware County,
Pennsylvania, United States of America,
(hereafter called the "Corporation"),
OF THE SECOND PART
WHEREAS under the authority of Order-in-Council 98-783 made pursuant
to the Economic Development Act, Acts of New Brunswick, 1975, Chapter E-1 .11,
the Minister has made or has agreed to make a loan to the Corporation in the
amount of up to $2,000,000.00, subject to the terms and conditions set forth
herein, for the purpose of assisting the Corporation to finance a portion of the
capital cost of establishing a call centre service bureau (hereinafter called
the "Facility"), in the Province of New Brunswick;
AND WHEREAS the parties did enter into a certain Forgiveness
Agreement (hereinafter called the "Forgiveness Agreement") bearing even date
herewith in relation to the aforesaid loan.
<PAGE>
-2-
NOW THEREFORE THIS AGREEMENT WITNESSETH that, in consideration of
the Minister making the aforesaid loan to the Corporation and in consideration
of the sum of Ten Dollars ($10.00) paid by each of the parties hereto to the
other of them, the receipt whereof by each of them is hereby acknowledged and in
consideration of the mutual covenants and agreements herein contained, the
parties hereto agree as follows:
1. For the purposes of this Agreement, "Principal Sum" means the aforesaid loan
of up to $2,000,000.00, or that portion of the loan that has been advanced by
the Minister to the Corporation under this Agreement.
2. Subject to the provisions of this Agreement, the Principal Sum shall be
advanced by and at the discretion of the Minister upon the terms and conditions
and with the limitations and restrictions set forth and contained in that
certain letter from the Minister to the Corporation dated February 10, 1999
(hereinafter called the "Letter of Offer'), a copy of which letter is annexed
hereto as Schedule "A".
3. Notwithstanding anything else contained in this Agreement, the Corporation
acknowledges that the Minister shall not be called upon, nor shall the Minister
be required to advance all or any portion of the Principal Sum:
(a) until this Agreement and each of the other documents and
agreements required by the Minister in connection with the said loan
have been fully executed;
(b) until all the terms and conditions set forth under the heading
"Prior Conditions" contained in the Letter of Offer have been fully
satisfied in the opinion of the Minister, or
<PAGE>
-3-
(c) if or while the Corporation is then in default under this
Agreement or under any other agreement or security which the
Corporation may have entered into with or granted to the Minister.
4. The Principal Sum shall bear interest at the rate of six percent (6%) per
annum, calculated half-yearly, not in advance, as well after as before maturity,
and both before and after default, with interest at the aforesaid rate on
amounts which are past due, until paid.
5. The Corporation does hereby covenant and agree that the Principal Sum and ail
portions thereof shall be used solely for the purpose of assisting the
Corporation to finance a portion of the capital cost of establishing the
Facility in the Province of New Brunswick, as a call centre service bureau, and
for no other purpose.
6. Subject to the provisions of this Agreement and the Forgiveness Agreement,
the Corporation agrees to pay or repay to the Minister, at the office of the
Minister in the City of Fredericton, New Brunswick, or at such other place as
the Minister may from time to time direct, the Principal Sum and all interest
thereon, calculated at the rate and in the manner set forth in Clause 4 hereof,
shall become due and be paid by the Corporation to the Minister on the 31 day of
March, 2003.
7. The Corporation may, at any time when not in default of any of its
obligations contained in this Agreement, prepay the Principal Sum and the
interest thereon, in whole or in part, without any bonus or penalty whatsoever.
<PAGE>
-4-
8. The Corporation does hereby covenant and agree with the Minister to observe,
perform and satisfy each and every of those terms, conditions undertakings,
agreements, restrictions, requirements, duties and obligations on the
Corporation's part to be observed, performed or satisfied that are set forth,
contained or referred to in the Letter of Offer, including, without limitation,
those terms, conditions, undertakings, agreements, restrictions, requirements,
duties and obligations set forth, contained or referred to in the Letter of
Offer under the headings `Terms and Conditions", "Security and Documentation",
"Prior Conditions", and "Requirements".
9. As a continuing collateral security for the payment of the Principal Sum and
interest and other moneys payable pursuant to this Agreement, the Corporation
shall execute and deliver to the Minister a demand promissory note in the amount
of $2,000,000.00, bearing interest calculated at the rate and in the manner set
forth in Clause 4 hereof, which promissory note shall be in a form satisfactory
to the Minister, it being understood and agreed that payments made on the
aforesaid promissory note or under this Agreement shall be credited against the
other.
10. The Corporation represents and warrants to the Minister that:
(a) the Corporation is a corporation legally incorporated, duly
organized and validly existing, in good standing under the laws of
the jurisdiction of its incorporation and is qualified to carry on
its business in all jurisdictions where the nature of its business
or the character of its properties make such qualification
necessary;
(b) the borrowing of money by the Corporation and the execution,
delivery and performance of this Agreement and the security set
forth in Clause 9 of this Agreement are within the corporate powers
and capacities of the
<PAGE>
-5-
Corporation and have been duly authorized by proper corporate
proceedings;
(c) there are no actions, suits or proceedings pending or to the
knowledge of the Corporation threatened against or adversely
affecting the Corporation in any court or before or by any federal,
provincial, municipal or other governmental department, commission,
board, bureau or agency, Canadian or foreign which might materially
affect the financial condition of the Corporation or the title to
its property or assets;
(d) the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement, the execution
and delivery to the Minister of the security set forth in Clause 9
of this Agreement, and the compliance with the covenants, terms,
provisions and conditions of this Agreement will not conflict with
or result in a breach of any of the terms or provisions of the
constating documents or by-laws of the Corporation, any resolution
of the directors or shareholders of the Corporation, any laws of
Canada, or the Province of New Brunswick governing the Corporation,
or any agreement or instrument to which the Corporation is now a
party or which purports to be binding on the Corporation or its
property and assets;
(e) this Agreement and all other deeds, documents or instruments to
be delivered pursuant to this Agreement will, when executed and
delivered, constitute valid and binding obligations of the
Corporation enforceable against it in accordance with their
respective terms, except as may be limited by other deeds, documents
or instruments delivered pursuant to this Agreement, or by
applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting the enforcement of creditors' rights;
(f) the borrowing of money under this Agreement and the execution
and delivery of this Agreement do not require the consent or
approval of, or registration of any other party including
shareholders of the Corporation;
<PAGE>
-6-
(g) all balance sheets, earnings statements and other financial
data, which have been or shall be furnished to the Minister to
induce the Minister to enter this Agreement or otherwise in
connection with this Agreement have been or will be prepared in
accordance with generally accepted accounting principles (which
means, with respect to the Corporation, generally accepted
accounting principles consistently followed through prior fiscal
periods as given effect to in previous audited financial statements
of the Corporation) and do or will fairly present the financial
condition and the results of the operations of the Corporation, and
all other information, certificates, schedules, reports and other
papers and data furnished by the Corporation are or will be at the
time they are so furnished, accurate and complete in all material
respects; and
(h) no material adverse change has occurred in the business or
condition of the Corporation since the Corporation applied to the
Minister for the aforesaid loan.
11. The Principal Sum and all interest thereon, together with all other moneys
payable pursuant to this Agreement shall, at the option of the Minister, become
immediately due and payable and any security from time to time held by the
Minister for the payment thereof (including the security set forth in Clause 9
hereof) shall, at the option of the Minister, become immediately enforceable in
each and every of the following events:
(a) if the Corporation fails to make any of the payments in the
amount or amounts and at the time or times specified in this
Agreement, and such failure shall continue for thirty (30) days;
(b) if the Corporation fails to perform or observe any of the
covenants contained in this Agreement or in any of the security
delivered or held by the Minister pursuant to this Agreement and
such failure shall continue for a
<PAGE>
-7-
period of thirty (30) days;
(c) if there shall occur an "Act of Default" as set forth, defined,
mentioned or constituted in the Letter of Offer;
(d) if in the opinion of the Minister, the Corporation shall fail to
establish the Facility as a call centre service bureau facility
within a reasonable time, or having so established the Facility,
ceases or threatens to cease to carry on or to continue to carry on
full time commercial operation of the Facility as a call centre
service bureau;
(e) if any information, representation, warranty, certificate,
statement or report given or made by or on behalf of the Corporation
to the Minister or to any of his representatives in connection with
this Agreement or in connection with the Principal Sum or any
advances in respect of the Principal Sum is false, erroneous or
misleading in any material respect when given;
(f) if the Minister is called upon by any financial institution to
honour or to make payment under or in respect of any guarantee given
by the Minister on, before or after the date of this Agreement
relating to the repayment of all or any part of any loan or credit
made or extended by such financial institution to or in favour of
the Corporation;
(g) if any indebtedness of the Corporation to any party other than
the Minister in excess of $100,0000.00 becomes due prior to the
stated maturity date;
(h) if the Corporation becomes insolvent or bankrupt or subject to
the provisions of the Winding-Up Act or the Bankruptcy and
Insolvency Act (Canada) or goes into liquidation, either voluntarily
or under an order of a court of competent jurisdiction or makes a
general assignment for the benefit of its creditors or otherwise
acknowledges itself insolvent;
(i) if the Corporation abandons all or any part of its undertaking
and property and assets or threatens to
<PAGE>
-8-
commit any act of bankruptcy;
(j) if the Minister, in good faith, believes that the ability of the
Corporation to pay any of its obligations to the Minister or to
perform any of the covenants contained in this Agreement is
impaired;
(k) if without the written consent of the Minister, the Corporation
removes any part of its undertaking and property and assets from
time to time located at the Facility out of the Province of New
Brunswick, other than inventory in the process of shipping to
customers;
(l) if any execution, sequestration, extent, or any other process of
any court becomes enforceable against the Corporation or if a
distress or analogous process is levied on the property `and assets
of the Corporation; and
(m) if the Corporation shall permit any amount which has been
admitted as due by the Corporation or is not disputed to be due by
it and forms or is capable of being made a ,charge on any of the
property and assets of the Corporation to remain unpaid for ten (10)
days after the amounts are due.
12. The Corporation covenants that it will execute or cause to be made, done or
executed, all further and lawful acts, deeds, things, devices, conveyances and
assurances whatsoever for effecting the purposes and intent of this Agreement as
counsel for the Minister shall reasonably advise or request.
13. The Corporation covenants and agrees to pay to the Minister, when due, all
service fees, application assessment fees, legal fees and other fees imposed
from time to time upon the Corporation in relation to the aforesaid loan
pursuant to the provisions of the said Economic Development Act or any of the
regulations made under the said Act.
<PAGE>
-9-
14. The Minister may from time to time appropriate any moneys received by the
Minister from the Corporation or from the proceeds of security by the
Corporation in or towards payment of the liabilities intended to be secured as
the Minister in his sole discretion may see fit and the Corporation shall not
have the right to require any other appropriation.
15. All notices, demands, reports and other documents required, mentioned,
permitted or contemplated under this Agreement shall be sufficiently given, made
or received if in writing and served personally, or if mailed postage prepaid by
registered mail at any post office in Canada at the address shown below or at
such other address or addresses as the party or parties to whom such notice,
demand, report or other document is directed shall have last notified the party
or Parties giving the writing or document, in accordance with the provisions of
this Clause:
(a) if directed to the Minister, to:
Minister of Economic Development, Tourism and Culture
P.0. Box 6000
Centennial Building
Fredericton, N. B.
E3B 5HI
(b) if directed to the Corporation, to:
RMH Teleservices Inc.
40 Morris Avenue
Bryn Mawr, PA.
U.S.A.
19010
and any such notice, demand, report or other document mailed as aforesaid shall
be deemed to have been given, made or received by the party to whom it is
directed on the third (3rd) business day following the mailing thereof.
<PAGE>
-10-
16. It is agreed and understood that in the event of any discrepancy or conflict
between the provisions of this Agreement (without reference to Schedule "A"
hereto annexed) and the provisions of the Letter of Offer, the provisions of
this Agreement (without reference to said Schedule "A") shall prevail.
17. This Agreement and all other agreements, security and documents to be
delivered in connection with this agreement shall be governed by and construed
in accordance with the applicable laws of the Province of New Brunswick and of
Canada.
18. This Agreement shall be binding on and enure to the benefit of the
Corporation, the Minister and their respective successors and assigns, except
that the Corporation shall not, without the prior consent of the Minister,
assign any rights or obligations with respect to this Agreement. The Minister
may transfer, assign or grant participation in its rights and obligations with
respect to this Agreement or any other agreement contemplated to any lending
institution which it considers to be financially responsible.
19. Any provision of this Agreement which is or becomes prohibited or
unenforceable in any jurisdiction shall not invalidate or impair the remaining
provisions of this Agreement which shall be deemed severable from the prohibited
or unenforceable provision and any prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable that provision in any
other jurisdiction.
20. No amendment, supplement or waiver of any provision of this Agreement or any
other agreements provided for or contemplated, nor any consent to any departure
by the Corporation, shall in any event be effective
<PAGE>
-11-
unless it shall be in writing and signed by the Minister and, with respect to
any amendment or supplement, the Corporation, then the waiver or consent shall
be effective only in the specific instance for the specific purpose for which it
has been given.
21. No waiver or act or omission of the Minister shall extend to or be taken in
any manner whatsoever to affect any subsequent event of default or breach by the
Corporation of any provision of this Agreement or the results or the rights
resulting from it.
22. Time shall be of the essence of this Agreement.
23. This Agreement shall remain in full force and effect `until the payment and
performance in full of all of the Corporation's obligations under this
Agreement.
24. This Agreement, the security set forth in Clause 9 hereof, and the
Forgiveness Agreement constitute the entire agreement between the parties with
regard to matters dealt with herein and therein, and cancel and supersede any
prior agreements, undertakings, declarations or representations, written or
verbal, in respect of such matters.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their respective officers duly authorized in that behalf as of the
day and year first above written.
<PAGE>
-12-
SIGNED, SEALED AND DELIVERED ) HER MAJESTY THE QUEEN IN
in the presence of: ) RIGHT OF THE PROVINCE OF
) NEW BRUNSWICK
)
)
/s/ Maryse Collette ) /s/ [ILLEGIBLE]
- --------------------------- ) ---------------------------------
) Minister of Economic Development,
) Tourism and Culture
)
) RMH TELESERVICES INC.
)
)
/s/ [ILLEGIBLE] ) /s/ [ILLEGIBLE]
- --------------------------- ) ---------------------------------
<PAGE>
Exhibit 10.2
THIS FORGIVENESS AGREEMENT made this 31st day of March, 1999.
BETWEEN: HER MAJESTY THE QUEEN IN RIGHT
OF THE PROVINCE OF NEW BRUNSWICK, as
represented by the Minister of Economic
Development, Tourism and Culture,
(hereinafter called the "Minister'),
OF THE FIRST PART
A N D: RMH TELESERVICES INC., a body
corporate, duly incorporated under and
by virtue of the laws of the
Commonwealth of Pennsylvania, United
States of America, and having its
registered office at 40 Moms Avenue
Bryn Mawr, Delaware County,
Pennsylvania, United States of America,
(hereafter called the "Corporation"),
OF THE SECOND PART
WHEREAS under the authority of Order-in-Council 98-783 made pursuant
to the Economic Development Act, Acts of New Brunswick, 1975, Chapter E-1.11,
the Minister has made or has agreed to make a loan to the Corporation in the
amount of up to $2,000,000.00, subject to the temis and conditions set forth
herein, for the purpose of assisting the Corporation to finance a portion of the
capital cost of establishing a call centre service bureau (hereinafter called
the "Facility"), in the Province of New Brunswick;
AND WHEREAS the Minister and the Corporation have, in respect of the
Loan and the repayment thereof, entered into a certain Loan Agreement
(hereinafter called the "Loan Agreement") bearing even date herewith;
<PAGE>
-2-
AND WHEREAS under the authority of the said Order-in-Council, the
Minister has also been authorized to enter into this Agreement with the
Corporation.
NOW THEREFORE THIS INDENTURE WITNESSETH that in consideration of the
sum of Ten Dollars ($10.00) in lawful money of Canada paid by each of the
parties to the other of them, the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1.In this Agreement:
(a) "Calculation Period" means the period of time commencing on the
1st day of April, 1999 and ending
(i) on the 31st day of March, 2003 or
(ii) on the date that the Principal Sum becomes immediately
due and payable pursuant to the provisions of Clause 11
of the Loan Agreement,
whichever date referred to in paragraphs (i) and (ii) shall first
occur;
(b) "Facility Employees" means those employees of the Corporation
who are engaged by the Corporation to work at the Facility except
those:
(i) who are not ordinarily resident in New Brunswick;
(ii) employees who normally work less than 20 hours per week;
and
(iii) employees who are officers, directors or shareholders of
the Corporation;
<PAGE>
-3-
(c) "Interest" means the interest on the Principal Sum determined
and calculated at the rate and in the manner set forth in the Loan
Agreement;
(d) "Letter of Offer means that certain letter from the Minister to
the Corporation dated February 10, 1999, a copy of which is attached
as Schedule UAD to the Loan Agreement;
(e) "Number of Full Time Equivalent Jobs" means the lesser of 400,
and the quotient obtained by dividing by 5,460 hours, the Number of
Paid Hours worked or performed at the Facility by the Facility
Employees during the Calculation Period;
(f) "Number of Paid Hours" means the number of hours worked or
performed at the Facility by the Facility Employees during the
Calculation Period for which the Facility Employees have been fully
paid; Provided that for the purposes of any calculation under this
Agreement to determine the Number of Paid Hours, the aggregate
number of hours that can be worked or performed by a particular
Facility Employee and by all other Facility Employees, while
replacing or substituting for or filling the position of that
particular Facility Employee, shall not exceed 5,460 hours during
the Calculation Period;
(g) "Principal Sum" means the principal of the Loan, or that portion
of the Loan that is advanced by the Minister to the Corporation
under the Loan Agreement.
2. Subject always to the provisions of this Agreement, the parties hereto agree
that the Principal Sum and Interest outstanding under the Loan Agreement shall
be respectively reduced and forgiven as follows:
(a) the Principal Sum shall be reduced and forgiven by the amount of:
<PAGE>
-4-
(i) 2,000,000.00; or
(ii) the amount equal to the product obtained by multiplying
$5,000.00 by the aggregate of:
(A) the Number of Full Time Equivalent Jobs created and
maintained at the Facility by the Corporation during the
Calculation Period, and
(B) the number, if any, by which the Number of Full Time
Equivalent Jobs is increased, as verified and approved
by the Minister, pursuant to the provisions of the
Letter of Offer;
whichever amount referred to in subparagraph (i) and (ii) of this
paragraph (a) is the lesser amount; and
(b) Interest shall be reduced and forgiven by the amount equal to
the amount of Interest which is attributable to that portion of the
Principal Sum that is forgiven and reduced pursuant to paragraph (a)
of this Clause 2.
3. That portion of the Principal Sum and Interest that is not forgiven pursuant
to the provisions of Clause 2 of this Agreement shall become due and payable by
the Corporation to the Minister on the 31 ~ day of March, 2003, or on such
earlier date as the Principal Sum and Interest may become payable pursuant to
the provisions of the Loan Agreement.
4. The parties do hereby acknowledge and agree that the provisions of Clause 2
of this Agreement are conditional upon the Principal Sum or Interest, or any
part thereof, not becoming payable under the Loan Agreement prior to the 31 day
of March, 2002, it being further acknowledged and agreed that in the event the
Principal Sum or Interest, or any part thereof, becomes payable under the Loan
Agreement prior to the 31 day of March, 2002, the provisions of
<PAGE>
-5-
Clause 2 of this Agreement shall be deemed at all material times to have been
null and void from the outset and of no force or effect whatsoever, and the full
amount of the Principal Sum and Interest shall be or become payable by the
Corporation to the Minister in accordance with the provisions of the Loan
Agreement.
5. The Corporation agrees to provide to the Minister, when due, the written
Employment Reports referred to in the letter of Offer, which Employment Reports
shall be in the form and shall contain the information and data set forth in the
Letter of Offer or as otherwise required by the Minister from time to time.
6. The Corporation shall grant to the Minister, or his agents and
representatives, at all reasonable times during the term of the Loan, access to
all of the books and records of the Corporation, and the Minister and his agents
and representatives shall have the right to inspect such books and records of
the Corporation and to make extracts therefrom and to conduct such examination
thereof as the Minister may consider necessary.
7. The Corporation shall provide to the Minister in addition to the requirements
set forth in Clause 5 and 6 of this Agreement, such information, statistics and
data respecting the business and operations of the Facility as the Minister may
from time to time consider necessary for the purposes of this Agreement and any
calculations made or to be made pursuant to this Agreement.
8. Except to the extent that the provisions of this Agreement affect or may
affect the amount of the Principal Sum and Interest payable or to become payable
by the Corporation to the Minister under the Loan Agreement, the Loan Agreement
shall continue in full force and effect, and each and every term,
<PAGE>
-6-
provision, condition, covenant, promise and agreement set forth and contained in
the Loan Agreement is hereby ratified and confirmed.
9. It is agreed and understood that in the event of any discrepancy or conflict
between the provisions of this Agreement and the provisions of the Letter of
Offer, the provisions of this Agreement shall prevail.
10. This Agreement shall not be assignable by the Corporation.
11. Time shall be of the essence of this Agreement.
12. In this Agreement, a word in the singular includes the plural, and a word in
the plural includes the singular.
13. This Agreement shall be governed in all respects by the laws of the Province
of New Brunswick.
This Agreement shall enure to the benefit of and be the parties
hereto and their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have causea presents to be
duly executed on the day and year first above written.
SIGNED, SEALED AND DELIVERED ) HER MAJESTY THE QUEEN
in the presence of: ) IN RIGHT OF THE PROVINCE
) OF NEW BRUNSWICK
)
)
/s/ Maryse Collette ) /s/ [ILLEGIBLE]
- --------------------------- ) ---------------------------------
) Minister of Economic Development,
) Tourism and Culture
<PAGE>
-7-
)
) RMH TELESERVICES INC.
)
)
/s/ [ILLEGIBLE] ) /s/ [ILLEGIBLE]
- --------------------------- ) ---------------------------------
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10.3
[LOGO OMITTED] PAGE 1
<S> <C> <C>
Human Resources Developpement des OFFICIAL USE - RESERVE A L'ADMINISTRATION
Development Canada ressources humaines Canada ---------------------------------------------
100 FILE NUMBER 101 OPTIONS/SA/SSA
N DE DOSSIER
U16857-1 > 739
TRANSITIONAL JOBS FUND-SCHEDULE A ---------------------------------------------
FONDS TRANSITOIRE POUR LA CREATION DEMPLOIS-ANNEXE A 102 RESP RC 103 BIDGET RC
- -------------------------------------------------------------------------------- CR DORIGINE CR DU BUDGET
1 NAME OF RECIPIENT-NOM DU BENEFICIAIRE 3551 > 3551
---------------------------------------------
RMH TELESERVICES INTERNATIONAL INC. 104 1-ORIGINAL 105 AMEND NO 106 REASON
2-AMENDMENT/MOD N DE LA CODE
3-CORRECTION MOD CODE DE
4-RENEWAL/RENOUV MOTIF
> 1 > >
- ------------------------------------------------------------------------------------------------------------------------------
2 LEGAL NAME OF RECIPIENT (IF DIFFERENT FROM ABOVE) NOM LEGAL DU BENEFICIAIRE (SIL EST DEFFERENT DU PRECEDENT)
- ------------------------------------------------------------------------------------------------------------------------------
3 MAILING ADDRESS-ADRESSE POSTALE 4 AREA CODE TELEPHONE NO
IND REG N DE TELEPHONE
1 EATON MARKET SQUARE, 2ND FLOOR 519 - 7516530
- ------------------------------------------------------------------------------------------------------------------------------
5 CITY/TOWN-VILLE 6 7 POSTAL CODE 8 AREA CODE FAX NO
PROVINCE CODE POSTAL IND. REG. N DE TELEPHONE
BRANTFORD ONT N3T6C8
- ------------------------------------------------------------------------------------------------------------------------------
9 NAME OF CONTACT PERSON-NOM DE LA PERSONNE RESSOURCE 10 TELEPHONE NO (if different from above)
N DE TEL (eff est different du precedent)
MIKE SCHARFF 610-5262800
</TABLE>
- --------------------------------------------------------------------------------
11 OBJECTIVE I DESCRIPTION OF ACTIVITIES/EXPECTED RESULTS/LIST OF PARTNERS AND
THEIR CONTRIBUTIONS OBJECTIF/DESCRIPTION DES ACTIVITES/RESULTATS
ATTENDUS/LISTE DES PARTENAIRES AINSI QUE LEURS CONTRIBUTIONS. (THIS SECTION
IS MEANT AS AN EXECUTIVE SUMMARY. IF A MORE DETAILED PROPOSAL IS REQUIRED,
PLEASE ATTACH CETTE SECTION SERT A FOURNIR UN SOMMAIRE DES ACTIVITES. SI UNE
PROPOSITION PLUS DETAILLEE EST NECESSAIRE, VEUILLEZ LA JOINDRE.
RMH Teleservices International Inc. is seeking to establish a call centre
operation in Brantford to conduct outbound and inbound teleservice functions.
Implementation of the centre encompasses 2 phases. HRDC participation will cover
the initial start up phase under TJF which will include the establishment of a
200 outbound work station operation employing 200 persons.
Activities include technical equipment acquisition exclusive to call centre
operation, purchase of work stations from Canadian suppliers, other officer
furniture & equipment, travel costs & expenses, company legal & accounting start
up costs, costs of staff recruiting, orientation of Canadian management team
plus other administrative project start up costs including travel.
Expected results: approximately 150 full time jobs plus an anticipated 50 part
time jobs (division of full time & part time jobs will be subject to the start
up needs of of the project)
The entire cost to establish the call centre in Brantford is approximately
$12,056,564. HRD participation will occur in 2 stages of over fiscal years
1998/99 and 1999/2000. Under TJF the current start up phase costs are estimated
at $2, 085,564 and HRDC contribution at $1,000,000.
Financial Partner: PNC Bank/Bank of Montreal $1,085,564
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
12 LOCATION OF ACL1VR1Y - LIEU DE LACTIVITE 13 DURATION OF PROJECT-DUREE DU PROJET
14 D-J M Y-A 15 D-J M Y-A
BRANTFORD FROM 01-03-1999 TO 30-06-1999
DE A
- ------------------------------------------------------------------------------------------------------------------------------------
16 17 D-J M Y-A 18 D-J M Y-A 19 D-J M Y-A 20 D-J M Y-A
FUNDING PERIOD
PERIODEDEFINANCEMENT FROM 01-03-1999 TO 31-03-1999 AND FROM TO
DE A ET DE A
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICIAL USE - RESERVE A LADMINISTRATION - CMS - SGM
- ------------------------------------------------------------- ----------------------------------------------------------------------
140 FINANCIAL CODE CMS CONSTIT. FUTURE YEAR 1 FUTURE YEAR 2
CODE FINANCIER CURRENT YEAR AMOUNT CR TYPE CODS COMMITMENT AMOUNT CR COMMITMENT AMOUNT CR
ALLOT PROJECT LINE OBJECT MONTANT POUR L'ANNEE CT GENRE CODS MONTANT ENGAGE POUR CT MONTANT ENGAGE POUR CT
AFF. PROJET ART.D'EXEC COURANTE SGM GRC LANNEE A VENIR LANNEE 2 A VENIR
SGM CIRC
- ------------------------------------------------------------------------------------------------------------------------------------
09 5200 U07
- ------------------------------------------------------------------------------------------------------------------------------------
141 SIGNATURE D-J M Y-A
AGREEMENT VERIFICATION
VERIFICATION DE LACCORD
- ------------------------------------------------------------------------------------------------------------------------------------
OFFICIAL USE-RESERVE A LADMINISTRATION-MIS-SIG
- ------------------------------------------------------------------------------------------------------------------------------------
150 ORIG. 151 CORRESP 152 PROV. 153 HRDC 154 155 156 157 158 YR OF 159 SPECIAL
TYPE LANG RIDING OFFICER CONSTIT NOC SIC ACTIVITY OPERATION INT GR
GENRE LANG DE CIRC AGENT DE CIRC CHP CTI ACTIVITE ANNEE DE GR DINT
DORG CORRESP PROV DRHC FONCT SPECIAL
- ------------------------------------------------------------------------------------------------------------------------------------
10 E K007 028 U07 6623 7790
- ------------------------------------------------------------------------------------------------------------------------------------
100 NATIONAL SPARES 101 REGIONAL SPARES 102 HRCC SPARES
CODES (RESERVE A LAC) CODES (RESERVE AU BUREAU REGIONAL) CODES (RESERVES AUX CRHC)
A B C D A B C D E F A B C
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE 2
------------------------
FILE NUMBER-N DE DOSSIER
U 1 6 8 5 7 - 1
------------------------
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
21 HRDC CONTRIBUTION FOR THIS FUNDING PERIOD - CONTRIBUTION DE DRHC POUR LA PERIODE DE FINANCEMENT
- -------------------------------------------------------------------------------------------------------------------------------
22 SALARY COSTS 23
FRAIS SALARIAUX 5220
- -------------------------------------------------------------------------------------------------------------------------------
24 OVERHEAD COSTS EXCLUDING CAPITAL COSTS 25
FRAIS GENERAUX EXCLUANT LES FRAIS D'IMMOBILISATION 5269
- -------------------------------------------------------------------------------------------------------------------------------
26 CAPITAL COSTS 27
FRAIS D'IMMOBILISATION 5270
- -------------------------------------------------------------------------------------------------------------------------------
----------------------------------------
TOTAL HRDC CONTRIBUTION FOR THIS FUNDING PERIOD 28 5200
CONTRIBUTION TOTALE DE DRHC POUR LA PEROIDE DE FINANCEMENT
----------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL PROJECT COST DISTRIBUTION - REPARTITION DES COUTS DU PROJET COMPLET AMOUNT PERCENTAGE
MONTANT POURCENTAGE
- -------------------------------------------------------------------------------------------------------------------------------
OTHER FEDERAL DEPT/AGENCY 30 31
1 - AUTRES AGENCES/MINISTERES FEDERAUX %
- -------------------------------------------------------------------------------------------------------------------------------
PROVINCIAL/TERRITORIAL 32 33
2 - PROVINCE/TERRITOIRE %
- -------------------------------------------------------------------------------------------------------------------------------
OTHER LEVELS OF GOVT 34 35
3 - AUTRE PALIERS DE GOUVERNEMENT %
- -------------------------------------------------------------------------------------------------------------------------------
PRIVATE SECTOR 36 37
4 - SECTEUR PRIVE 1,085,564.00 52.05%
- -------------------------------------------------------------------------------------------------------------------------------
ORGANIZATIONS 38 39
5 - ORGANISMES %
- -------------------------------------------------------------------------------------------------------------------------------
OTHER 40 41
6 - AUTRE %
- -------------------------------------------------------------------------------------------------------------------------------
HRDC 42 43
7 - DRHC 1,000,000.00 47.95%
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL 44 45
2,085,564.00 100.00%
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
46 DIRECT JOB CREATION INDIRECT JOB
EXPECTED RESULTS - RESULTATS PREVUS CREATION DIRECTE CREATION
D'EMPLOIS CREATION INDIRECTE
D'EMPLOIS
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERMANENT FULL TIME JOBS 47 48
NOMBRE DEMPLOIS PERMANENTS A TEMPS PLEIN 150
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PERMANENT PART TIME JOBS 49 50
NOMBRE DEMPLOIS PERMANENTS A TEMPS PARTIEL 50
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SEASONAL JOBS 51 52
NOMBRE DEMPLOI SAISONNIERS
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SHORT-TERM JOBS 53 54
NOMBRE DEMPLOIS DE COURTE DUREE (TEMPORAIRES)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
FOR AMENDMENTS ONLY - POUR MODIFICATIONS SEULEMENT
- -------------------------------------------------------------------------------------------------------------------------------
REASON FOR AMENDMENT
RAISON DE LA MODIFICATION [] INCREASE [] DECREASE
AUGMENTATION DIMINUTION
-------------------------------------------
MONTANT $
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
55 INITIALS OF SIGNATORES TO THE AGREEMENT-INITIALES DES SIGNATAIRES DE L'ACCORD
/S/ Michael J. Scharff 3-10-99
- ------------------------------------------------------------------------------------------------------------------------------------
EMPLOYER/COORDINATOR/GROUP DATE EMPLOYER/COORDINATOR/GROUP DATE COMISSION DATE
EMPLOYEUR/COORDONNATEUR/GROUPE EMPLOYEUR/COORDONNATEUR/GROUPE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
The information you provide is collected under the auspices of Human Resources Development for the purpose of administering
Trainsition Jobs Fund. The information collected will be subject to the Access to Information Act. The information will be placed in
Program Record Number HRDC-HRI 293. Les renseignements fournis dans le present document sont recuelilie sous rautorite de
Developpement des ressources humaines aux fine de l'administration du fonds transitoire pour le creation d'emplois. Les
renselgnements obtenus saront aujets a la Loi d'acces a l'information. Les renseignemente obtenus seront conserves dans le dossier
de programme DRHC-IRH 293.
- ------------------------------------------------------------------------------------------------------------------------------------
EMP 5162 (01-97)8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[LOGO OMITTED] ---------------
HUMAN RESOURCES DEVELOPPEMENT DES FILE NUMBER
DEVELOPMENT CANADA ressources humaines Canada SCHEDULE D-ANNEXE D N DE DOSSIER
U16857-1
- ------------------------------------------------------------------------------------------------------------------------------------
1 NAME OF EMPLOYER/COORDINATOR-NOM DU BENEFICIAIRE
RMH TELESERVICES INTERNATIONAL INC.
- ------------------------------------------------------------------------------------------------------------------------------------
2.0 ADDITIONAL CONDITONS - CONDITIONS SUPPLEMENTAIRES
It is recognized that the entire project costs for the establishment of a call
centre in Brantford is expected to be $12, 056/564.00 for the outbound services
of the operation. HRD contribution under TJF will cover the initial the initial
start up the operation. Contribution costs are not to exceed $1,000,000.00 as
outlined in Schedule A.
The employer has been approved, prior to the agreement start date of March 1st,
1999, to proceed with purchase of technical equipment, work stations, plus other
administrative overhead costs necessary to the opening of the operation in
Brantford.
Environmental assessments remain the responsibility of the landlord, Laing
Properties, the employer however will ensure that any environmental issues that
relate directly to the operation of the call centre are the responsibility of
RMH Teleservices International Inc.
Receipts and invoices charged to the project are to be provided upon claim
submission. Reimbursement will be at 50% and not to exceed the project total
costs of $1,000,000.00 Human Resources Development Canada may withhold 10% or
$100,000.00 as the final payment to ensure that job creation is well underway.
The employer will advertise its vacancies with the Human Resources Centre in
addition to any other relevant publications or agencies in order to fill its
human resource needs. The Human Resources Centre and its partner agency, Brant
County Employment Services, will assist the employer in its recruiting efforts.
Names and Social Insurance Numbers of those hired will be provided to the Human
Resources Centre. Employment practices shall follow Ontario Employment Labour
Statutes and Regulations including Human Rights legislation.
It is understood that the employer is responsible for all wages and employment
related costs of Canadian employees during this start up phase. The employer
shall adhere to recognized accepted principles of accounting. The accounting
process will be handled through a computerized system and payment of wages
through a Canadian entity.
RIAH Teleservices International Inc. agrees to recognize Canada as a financial
contributor and further agrees to publish acknowledgment through any publication
produced by this project, including media releases and promotional material
intended for public distribution.
The project requires a final narrative within 1 month of the completion of the
project duration. It is anticipated that the report will be presented to the
HRDC in July 1999. The report to include activities of the employer during the
project period from 01 March 1999 to 30 June 1999.
A minimum 2 monitoring visits will occur throughout the duration of the project.
- ------------------------------------------------------------------------------------------------------------------------------------
3 INITIALS OF SIGNATORIES TO THE AGREEMENT-INITIALES DES SIGNATAIRES DE L'ACCORD
/S/ MICHAEL J. SCHARFF 3/10/99
- ------------------------------------------------------------------------------------------------------------------------------------
EMPLOYER/COORDINATOR DATE EMPLOYER/COORDINATOR DATE COMMISSION/DEPARTMENT DATE
EMPLOYEUR/COORDONNATEUR EMPLOYER/COORDONNATEUR COMMISSION/MINISTERE
- ------------------------------------------------------------------------------------------------------------------------------------
EMP 5161(04-97)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[LOGO OMITTED]
HUMAN RESOURCES DEVELOPPEMENT DES FILE NUMBER
<S> <C> <C>
DEVELOPMENT CANADA ressources humaines Canada
File no. U16857-1
Options/S.S.A./S.A. 739
THESE ARTICLES OF AGREEMENT ARE MADE AS OF THE 01 day of MARCH________, 1999
BETWEEN: Her Majesty the Queen in Right of Canada, as represented by the Minister of Human
Resources DEVELOPMENT (hereinafter referred to as "CANADA")
HUMAN RESOURCES DEVELOPMENT CANADA
----------------------------------
</TABLE>
AND RMH TELESERVICES INTERNATIONAL INC.
-----------------------------------
(hereinafter referred to as the "RECIPIENT"
1 EATON MARKET SQUARE, BRANTFORD, ONTARIO
-----------------------------------------
WHEREAS the RECIPIENT proposes to carry out the project described in Schedule A
hereto and has applied to the COMMISSION for financial assistance towards the
costs of the project;
AND WHEREAS CANADA wishes to make a contribution towards the costs of the
project under its Transitional Jobs Fund program; CANADA and the RECIPIENT agree
as follows:
1.0 AGREEMENT
1.1 The following documents and any amendments thereto form the agreement
between the CANADA and the RECIPIENT:
a) these Articles of Agreement;
b) the document attached hereto as Schedule A ENTITLED "Project";
2.0 INTERPRETATION
2.1 Unless the context requires otherwise, the expressions listed below
have the following meanings for the purposes of this agreement:
a) "funding period" means the period described in Schedule A,
Page 1, Box 16 entitled "Funding Period";
b) "PROJECT" MEANS THE ACTIVITIES DESCRIBED In Schedule A;
3.0 CONTRIBUTION
3.1 Subject to the terms and conditions of this agreement, CANADA agrees
to make a CONTRIBUTION to the RECIPIENT of an amount equal to the
lesser of: a) N/A % of the eligible costs or b) the contribution
amount set out In Schedule A, Page 2, Box 28.
3.2 Notwithstanding section 31, CANADA may, in its absolute discretion,
reduce the amount of Its commitment under paragraph 31(b) if
a) the funding period extends into more than one fiscal year of
Canada (April 1 of one year to March 31 of the following
year), and
b) In the plan approved by the Treasury Board for any fiscal year
during the funding period following the first fiscal year,
there IS a reduction In the estimate of the amount of
financial assistance to be PAID out for that fiscal year for
the purpose of IMPLEMENTING Transitional Jobs Fund.
3.3 Where, pursuant to section 3.2, CANADA INTENDS to reduce the amount of
ITS commitment under paragraph 31, it shall give the RECIPIENT 30 days
notice of its intention to do so.
3.4 Where, as a resuit of a reduction In funding under sectIon 3.2, the
RECIPIENT Is unable or unwilling to complete the Project, the
RECIPIENT may, upon notice to CANADA, terminate the agreement
4.0 ELIGIBLE COSTS
4.1 For the purposes of this agreement, "eligible costs" means the following
costs:
a) employee wages and related employment taxes and benefits.
b) overhead costs, and
c) capital costs.
(Attach the approved budget as an annex to Schedule A.)
-4-
<PAGE>
4.2 For greater certainty, "eligible costs" do not Include the following costs:
a) training costs
b) depreciation on fixed assets
c) the cost of purchase of motor vehicles
d) club memberships
e) bonuses
f) fines or penalties
g) directors' fees or honoraria
h) entertainment costs
4.3 Costs are eligible only If they are, in the opinion of CANADA, directly
related to the Project and reasonable.
5.0 TERMS OF PAYMENT
(Delete "monthly" or "quarterly", as appropriate)
5.1 Subject to sections 5.2 to 5.10, to CANADA may make monthly/quarterly
advances of its contribution covering the RECIPIENT's estimated financial
requirements for each month/quarter of the funding period.
5.2 The estimate of the RECIPIENT's financial requirements will be based upon a
forecast of its cash flow requirements, satisfactory in form and detail,
submitted to CANADA by the RECIPIENT.
5.3 If there is a variance between the cash flow requirements and the actual
expenditures for any given month/quarter exceeding 15%, the RECIPIENT shall
furnish CANADA with a revised forecast of cash flow requirements.
5.4 Before making the advance for the third month/quarter and each
month/quarter thereafter, the RECIPIENT shall furnish CANADA with a
satisfactory accounting of the contribution for the month/quarter ending
one month/quarter prior to the month/quarter for which the advance In
question is to be paid.
5.5 CANADA may withhold final payment of up to 10% of its total contribution
until the Project has been completed. Final payment will be made following:
a) receipt and verification of a claim for the balance due, and
b) receipt of the information on job creation referred to in section 7.3
whIch the RECIPIENT is required to turn over to CANADA and
c) if required by CANADA, receipt of any auditor's report or other report
that may be required to be submitted by the RECIPIENT under the terms
of this agreement.
5.6 verification by CANADA or the claim for the balance due under paragraph 5.5
a) may include,, if deemed advisable by CANADA, the conduct of an audit by
CANADA of the RECIPIENT's books and records to verify the amount of the
costs for which the RECIPIENT has claimed payment under the agreement.
5.7 Where quarterly advances are being made to the RECIPIENT under section 5.1,
CANADA may, at any time and in its absolute discretion, by notice, alter
the frequency of such advance payments and change them to a monthly basis.
5.8 Any interest earned on advances of CANADA's contribution shall be accounted
for by the RECIPIENT. Such interest shall be deemed to be part payment of
the contribution and shall be taken into account In the calculation of the
final payment by CANADA, or repayment by the RECIPIENT, as may be
appropriate in the circumstances.
5.9 In the event payments made to the RECIPIENT (Including any Interest earned
on advances that Is deemed to be part payment of the contribution under
section 5.8) exceed the amounts to which the RECIPIENT is properly entitled
under this agreement, the amount of such excess is a debt owing to CANADA
and shall be promptly repaid to CANADA upon receipt of notice to do so.
5.10 CANADA may withhold payment of any claim or advance pending the completion
of an audit of the RECIPIENT's books and records conducted either by CANADA
or by an Independent auditor pursuant to paragraph 6.1(i).
6.0 OBLIGATIONS OF THE RECIPIENT
6.1 The RECIPIENT shall:
a) carry out and complete the Project In a diligent and professional
manner, using qualified personnel;
b) demonstrate to the satisfaction of CANADA that the carrying out of the
Project will cause no harm, or only minimal harm to the environment;
c) comply with all environmental protection laws and Implement any
mitigative measures that have been identified as being required to
ensure that the project will not cause significant harm to the
environment;
d) upon request of CANADA, produce any certificates, licenses and other
authorizations required for the carrying out of the Project In respect
of the rules relating to the environment;
e) keep proper books of accounts and records, in accordance with generally
accepted business and accounting practices, of the financial
management of the Project, Including payroll records of staff of the
RECIPIENT employed in carrying out the Project and records of all
other Project expenditures and revenues including funding for Project
costs received from other sources;
-5-
<PAGE>
f) make the books, accounts and records referred to in paragraph
e) available at all reasonable times for inspection and audit
by the representatives of CANADA who shall be permitted to
take copies and extracts from such books and records;
g) furnish CANADA with such additional Information as it may
require with reference to such books and records,
h) preserve the books and records referred to In paragraph e) and
keep them available for audit and inspection by
representatives of CANADA for a period of two (2) years
following the end of the funding period;
i) whenever CANADA deems it necessary and so requests the
RECIPIENT In writing, retain the services of a duly qualified
accountant approved by CANADA to carry out an audit of the
books and records relating to the Project. The audit report
shall certify:
i) the total actual expenditures on the eligible costs
to date,
ii) the total payments of CANADA's CONTRIBUTION TO DATE,
INCLUDING the amount of Interest that has accrued on
any advances of the contribution,
iii) that all expenditures, except as noted In the report,
were In accordance with this agreement; and
j) within 30 days after completion of the audit report referred
to in paragraph I), provide a copy of it to CANADA
7.0 REPORTS AND INFORMATION
7.1 The RECIPIENT shall, upon request, provide CANADA with progress
reports, satisfactory In scope and detail, concerning the progress of
the Project.
7.2 The RECIPIENT shall, upon request, arrange for representatives of
CANADA to have access to the site or sites where the Project
activities are being carried out to monitor their progress.
7.3 The RECIPIENT shall provide CANADA with the following Information 30
days following the completion of the agreement and one year after the
termination of the project:
a) number of direct permanent, full-time jobs,
b) number of direct permanent part-time jobs,
c) number of direct seasonal jobs,
d) number of short-term jobs.
8.0 PUBLICITY
8.1 The RECIPIENT shall ensure that in any and all communication
activities, publications, advertising and press releases referring to
the Project, include an appropriate acknowiedgement, In terms
satisfactory to CANADA, of CANADA's role in creating sustainable jobs
and its contribution. The RECIPIENT shall notify CANADA in advance of
any and all such communication activities, publications, advertising
and press releases.
9.0 DISPOSITION OF ASSETS
9.1 The RECIPIENT shall PRESERVE ANY ASSETS ACQUIRED WITH the contribution
and use them for the purposes of the Project DURING the FUNDING PERIOD
UNLESS:
a) CANADA authorizes their disposition;
b) replacement of assets subject to wear is necessary;
c) assets which have become outdated require replacement.
9.2 The RECIPIENT agrees that at the end of the funding period, or upon
termination of this agreement, if earlier, and if directed to do so by
CANADA, any assets referred to in section 9.1 that have been preserved
by it shall be
a) sold at fair market value and that the funds realized from
such sale be applied to the eligible costs of the Project to
offset its contribution to the eligible costs of the Project;
b) turned over to another person or organization designated or
approved by CANADA; or
c) disposed of In such other manner as may be determined by
CANADA.
10.0 DEFAULT
10.1 The following constitute Events of Default:
a) the RECIPIENT becomes bankrupt or Insolvent, goes into
receivership, or takes the benefit of any statute from time to
time being in force relating to bankrupt or insolvent debtors;
b) an order is made or resolution passed for the winding up of
the RECIPIENT, or the RECIPIENT is dissolved;
c) the RECIPIENT Is in breach of the performance of. or
compliance with, any term, condition or obligation on its part
to be observed or performed pursuant to this agreement;
-6-
<PAGE>
d) the RECIPIENT has submitted false or misleading information to
CANADA;
e) in the opinion of CANADA, the RECIPIENT has failed to proceed
diligently with the Project;
f) in the opinion of CANADA, there is a material adverse change
In risk in the RECIPIENT's ability to carry out the Project.
10.2 If
a) an Event of Default specified In paragraph 10.1 (a) or (b) has
occurred; or
b) an Event of Default specified In paragraph 10.1 (c), (d), (E)
or (f) has occurred and has not been remedied within 15 days
of receipt by the RECIPIENT of written notice of default, or a
plan satisfactory to CANADA to remedy such Event of Default
has not been put Into place within such time period;
CANADA may, In addition to any remedies otherwise available,
Immediately terminate by written notice any obligation to make any
further contribution to the RECIPIENT. All eligible costs up to the
date of termination will be paid by CANADA, however.
10.3 In the event CANADA gives the RECIPIENT written notice of default
pursuant to paragraph 10.2(b), CANADA may suspend any further payment
under this agreement until the end of the period given to the
RECIPIENT to remedy the Event of Default.
10.4 The fact that CANADA refrains from exercising a remedy it Is entitled
to exercise under this agreement shall not be considered to be a
waiver of such right and, furthermore, partial or limited exercise of
a right conferred upon CANADA shall not prevent CANADA In any way from
later exercising any other right or remedy under this agreement or
other applicable law.
11.0 NEPOTISM
11.1 Notwithstanding section 3, no contribution shall be paid In respect of
the wages paid to any employee who is a member of the immediate family
of the RECIPIENT, or, if the RECIPIENT is a corporation or
unincorporated association, who is a member of the family of an
officer or a director of the corporation or unincorporated
association, unless CANADA Is satisfied that the hiring of the
employee was not the result of favouritism by reason of the employee's
membership in the immediate family of the RECIPIENT or officer or
director of the RECIPIENT, as the case may be.
11.2 For the purposes of subsection (1), "immediate family" means father,
mother, step-father, step-mother, fosterparent, brother, SISTER,
SPOUSE (INCLUDING COMMON LAW SPOUSE), child (Including child of common
law spouse), step-child, ward, father-in-law, mother-in-law, or
relative permanently residing with the RECIPIENT, officer or director,
as the case may be.
12.0 EARLY TERMINATION
12.1 CANADA may terminate this agreement at any time without cause upon not
less than 30 days written notice of INTENTION TO TERMINATE.
12.2 In the event of a termination notice being given by the RECIPIENT
under section 3.4 or by CANADA under section 12.1
a) the RECIPIENT shall make no further commitments in relation to
the Project and shall cancel or otherwise reduce, to the
extent possible, the amount of any outstanding commitments in
relation thereto;
b) all eligible costs incurred by the RECIPIENT up to the date of
termination will be paid by CANADA, including Its costs of,
and incidental to, the cancellation of obligations incurred by
it as a consequence of the termination of the agreement;
provided always that payment and reimbursement under this
paragraph shall only be made to the extent that it is
established to the satisfaction of CANADA that the costs
mentioned herein were actually incurred by the RECIPIENT and
the same are reasonable and properly attributable to the
termination of the agreement; and
c) the amount of any contribution funds which remain unspent
shall be promptly repaid to CANADA, and such amount shall be a
debt due to CANADA.
12.3 The RECIPIENT shall negotiate all contracts related to the Project,
including subcontracts and employment contracts on terms that will
enable the RECIPIENT to cancel same upon conditions and terms which
will minimize to the extent possible THEIR CANCELLATION COSTS IN the
event of a termination of this agreement, and generally the RECIPIENT
shall cooperate with CANADA and do everything reasonably within its
power at all times to minimize and reduce the amount of CANADA's
obligations in the event of early termination hereunder.
13.0 GENERAL
13.1 This agreement may be amended by the mutual consent of the parties. To
be valid, any amendment to this agreement shall be in writing and
signed by the parties.
13.2 The RECIPIENT shall not assign this agreement or any part thereof or
any payments to be made thereunder without the written permission of
CANADA and any assignment made without that permission is void and of
no effect.
13.3 No member of the House of Commons shall be admitted to any share or
part of this agreement or to any benefit to arise therefrom.
13.4 The management, supervision and control of the Project are the sole
and absolute responsibility of the RECIPIENT. The RECIPIENT is not in
any way authorized to make a promise, agreement or contract on behalf
of CANADA. The RECIPIENT shall be solely responsible for any and all
payments and deductions required by law to be made including those
required for Canada Pension Plan, employment insurance, workers'
compensation and income tax. The parties hereto declare that nothing
in this agreement shall be construed as creating a partnership or
agency relationship between them.
-7-
<PAGE>
13.5 The RECIPIENT shall disclose to CANADA without delay any fact or event
that the RECIPIENT Is aware of from time to time which may compromise
the RECIPIENT's chances of success In carrying out the Project either
immediately or In the long term
13.6 The RECIPIENT shall obtain, prior to the commencement of any Project
activity, all permits, licenses, consents and other authorizations
that are deemed necessary to permit the carrying out of the Project,
and the Project shall be executed in compliance with all laws, by-laws
and regulations.
13.7 The RECIPIENT shall both during and following the term of this
agreement Indemnify and save CANADA harmless from and against all
claims, losses, damages, costs, expenses and other actions made,
sustained, brought, threatened to be brought or prosecuted, In any
manner based upon, occasioned by or attributable to any Injury or
death of a person, or loss or damage to property caused or alleged to
be caused by any wilful or negligent act, omission or delaly on the
part of the RECIPIENT or its employees or agents, participating
employers or participants In connection with anything purported to be
or required to be provided by or done by the RECIPIENT pursuant to
this agreement or done otherwise in connection with the Project. This
provision shall survive the termination of this agreement.
13.8 It is a term of this agreement that no lndMdual, for whom the post-
employment provisions of the "Conflict of Interest and Post-Employment
Code for Public Office Holders" or the "Conflict of Interest and Post-
Employment Code for the Public Service" apply, shall derive any direct
benefit from this agreement unless that Individual is in compliance
with the applicable post-employment provisions.
13.9 This agreement, including Schedule A, attached hereto, constitutes the
entire agreement between the parties with respect to the subject
matter hereof and supersedes all previous agreements between the
parties.
13.10 This agreement is binding upon the RECIPIENT and its successors and
assigns.
Signed this_______day of___________
For the COMMISSION:
- --------------------------------------------------------------------------------
(Signature) (Position) (Date)
For the RECIPIENT
/S/ MICHAEL J SCHAFF EXECUTIVE VICE PRESIDENT 3/10/99
- --------------------------------------------------------------------------------
(Signature) (Position) (Date)
- --------------------------------------------------------------------------------
(Signature) (Position) (Date)
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 5,444,000
<SECURITIES> 4,354,000
<RECEIVABLES> 13,035,000
<ALLOWANCES> 57,000
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0
0
<COMMON> 48,638,000
<OTHER-SE> (25,837,000)
<TOTAL-LIABILITY-AND-EQUITY> 30,474,000
<SALES> 0
<TOTAL-REVENUES> 33,127,000
<CGS> 0
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