<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: June 30, 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: 8,220,000 shares of Common
Stock outstanding as of August 9, 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
June 30, 1999 and September 30, 1998........................... 3
Consolidated Statements of Operations for the
Three Months Ended June 30, 1999 and 1998...................... 4
Consolidated Statements of Operations for the
Nine Months Ended June 30, 1999 and 1998....................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 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............ 16
Item 5. Other Information.............................................. 16
Item 6. Exhibits and Reports on Form 8-K............................... 16
SIGNATURES.............................................................. 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(unaudited)
June 30, September 30,
ASSETS 1999 1998
------ ----------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,317,000 $ 4,179,000
Marketable securities 3,339,000 6,779,000
Accounts receivable, net of allowance
for doubtful accounts of $66,000 and
$37,000 14,752,000 10,739,000
Prepaid expenses and other current
assets 2,740,000 1,463,000
----------- -------------
Total current assets 27,148,000 23,160,000
----------- -------------
Property and equipment 11,666,000 10,530,000
Less - Accumulated depreciation and
amortization (7,661,000) (6,483,000)
----------- -------------
Net property and equipment 4,005,000 4,047,000
----------- -------------
OTHER ASSETS 132,000 128,000
----------- -------------
$31,285,000 $ 27,335,000
=========== =============
LIABILITIES AND June 30, September 30,
SHAREHOLDERS' EQUITY 1999 1998
-------------------- ----------- -------------
CURRENT LIABILITIES:
Accounts payable $ 2,223,000 $ 1,423,000
Accrued expenses 5,086,000 3,021,000
Deferred income taxes 554,000 554,000
----------- -------------
Total current liabilities 7,863,000 4,998,000
----------- -------------
DEFERRED INCOME TAXES 150,000 150,000
----------- -------------
SHAREHOLDERS' EQUITY:
Common stock 48,838,000 48,638,000
Common stock warrant and
options outstanding 462,000 450,000
Deferred compensation (168,000) ---
Accumulated deficit (25,860,000) (26,901,000)
----------- -------------
Total shareholders' equity 23,272,000 22,187,000
----------- -------------
$31,285,000 $ 27,335,000
=========== =============
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.
3
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For the Three Months Ended
June 30,
------------------------------------
1999 1998
--------------- --------------
REVENUES $20,627,000 $13,212,000
----------- -----------
OPERATING EXPENSES:
Cost of services 15,585,000 10,155,000
Selling, general and administrative 4,411,000 3,052,000
----------- -----------
Total operating expenses 19,996,000 13,207,000
----------- -----------
Operating income 631,000 5,000
INTEREST INCOME 72,000 145,000
----------- -----------
Income before income taxes 703,000 150,000
INCOME TAXES 264,000 54,000
----------- -----------
NET INCOME $ 439,000 $ 96,000
=========== ===========
BASIC INCOME PER COMMON SHARE $ .05 $ .01
=========== ===========
DILUTED INCOME PER COMMON SHARE $ .05 $ .01
=========== ===========
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,120,000 8,120,000
=========== ===========
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,416,000 8,264,000
=========== ===========
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.
4
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(unaudited)
For the Nine Months Ended
June 30,
---------------------------------
1999 1998
-------------- --------------
REVENUES $53,754,000 $37,796,000
----------- -----------
OPERATING EXPENSES:
Cost of services 40,679,000 28,451,000
Selling, general and administrative 11,657,000 9,228,000
----------- -----------
Total operating expenses 52,336,000 37,679,000
----------- -----------
Operating income 1,418,000 117,000
INTEREST INCOME 248,000 414,000
----------- -----------
Income before income taxes 1,666,000 531,000
INCOME TAXES 625,000 191,000
----------- -----------
NET INCOME $ 1,041,000 $ 340,000
=========== ===========
BASIC INCOME PER COMMON SHARE $ .13 $ .04
=========== ===========
DILUTED INCOME PER COMMON SHARE $ .13 $ .04
=========== ===========
SHARES USED IN COMPUTING BASIC
INCOME PER COMMON SHARE 8,120,000 8,120,000
=========== ===========
SHARES USED IN COMPUTING DILUTED
INCOME PER COMMON SHARE 8,316,000 8,318,000
=========== ===========
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
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
June 30,
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,041,000 $ 340,000
Adjustments to reconcile net income to net cash
used in operating activities-
Amortization of deferred compensation 32,000 --
Issuance of Common stock options for
services rendered 12,000 --
Depreciation and amortization 1,178,000 1,193,000
Deferred income taxes -- (30,000)
Changes in operating assets and liabilities -
Accounts receivable (4,013,000) (722,000)
Prepaid expenses and other current assets (1,277,000) (1,543,000)
Other assets (4,000) 14,000
Accounts payable and accrued expenses 2,865,000 (344,000)
------------ ------------
Net cash used in operating activities (166,000) (1,120,000)
------------ ------------
INVESTING ACTIVITIES:
Purchases of property and equipment (1,136,000) (1,113,000)
Purchases of marketable securities (7,007,000) (9,970,000)
Maturities of marketable securities 10,447,000 7,437,000
------------ ------------
Net cash provided by (used in) investing
activities 2,304,000 (3,646,000)
------------ ------------
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 2,138,000 (4,755,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,179,000 6,882,000
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,317,000 $ 2,127,000
============ ============
</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
<PAGE>
RMH TELESERVICES, INC. AND SUBSIDIARIES
---------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(unaudited)
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION:
- -----------------------------------------------
RMH Teleservices, Inc. and its 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 nine month periods ended June
30, 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 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 June 30,
-----------------------------------------------------------------------------------------
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 $439,000 8,120,000 $0.05 $96,000 8,120,000 $0.01
===== ====
Effect of dilutive
securities:
Stock warrants --- 142,000 --- 142,000
Stock options --- 112,000 --- 2,000
Restricted stock --- 42,000 --- ---
-------- --------- ------ ------- --------- ------
Diluted income per
Common share
Net income and
assumed conversion
of dilutive securities $439,000 8,416,000 $0.05 $96,000 8,264,000 $0.01
======== ========= ===== ======= ========= ====
<CAPTION>
For the Nine Months Ended June 30,
-----------------------------------------------------------------------------------------
1999 1998
-------------------------------------------- -------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic income per
Common share:
Net income $1,041,000 8,120,000 $0.13 $340,000 8,120,000 $0.04
===== ====
Effect of dilutive
securities:
Stock warrants --- 142,000 --- 142,000
Stock options --- 40,000 --- 56,000
Restricted stock --- 14,000 --- ---
-------- --------- ------ ------- --------- ------
Diluted income per
Common share:
Net income and
assumed conversion
of dilutive securities $1,041,000 8,316,000 $ 0.13 $ 340,000 8,318,000 $ 0.04
========== ========= ====== ========= ========= ======
</TABLE>
Options to purchase approximately 498,000 and 554,000 shares of Common stock
with an average exercise price of $ 3.72 and $3.75 were outstanding during the
three month periods ended June 30, 1999 and 1998, 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. Options to purchase approximately 589,000 and 481,000 shares of
Common stock with an average exercise price of $ 3.45 and $ 5.38 were
outstanding during the nine month periods ended June 30, 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 May 2009, were still outstanding as of
June 30, 1999.
8
<PAGE>
Note 3 - Major Customers and Concentration of Credit Risk:
- ----------------------------------------------------------
The Company is dependent on four large customers for a significant portion of
its revenues. These four customers accounted for 81.3% and 81.5% of revenues for
the three and nine month periods ended June 30, 1999 and 62.1% and 68.5% of
revenues for three and nine months ended June 30, 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
1.8% and 3.4% of revenues for the three and nine month periods ended June 30,
1999 and 6.4% of revenues for the nine month periods ended June 30, 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. The Company does not
require collateral or other securities to support customer receivables. The
Company's largest customer had an outstanding balance of $6,270,000 at June 30,
1999. The second, third and fourth largest of the Company's customers are
engaged in transactions with each other and represent a single credit risk to
the Company. At June 30, 1999, the accounts receivable from the customers that
represent a single credit risk were $3,178,000.
NOTE 4 - RESTRICTED STOCK
- -------------------------
During the three month period ended June 30, 1999, the Company issued 100,000
shares of restricted Common stock that it had previously agreed to award to its
Chief Executive Officer. The primary restriction is the officer's continued
employment over the five year period commencing on his original hire date with
the restrictions lapsing on 20,000 shares per year on each anniversary of his
hire date. The value of the stock ($200,000) was established by the market price
on the date of grant with deferred compensation recorded at that time. The
deferred compensation is presented as a reduction of shareholders' equity in the
accompanying consolidated balance sheet and is being amortized over the
restriction period.
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, New Brunswick, commenced operations in March 1999 with 200 seats, and
by July 31, 1999 had been expanded to 310 seats. The call center in Brantford,
Ontario began initial operations in July 1999 and has 250 seats. RMHTI has
received financial incentives from the provincial governments of Ontario and New
Brunswick totaling $2.0 million and expects to receive an additional $400,000.
These incentives offset various start-up, payroll, and operating costs and
capital expenditures associated with the new call centers. In the second and
third quarters of fiscal 1999, the Company incurred start-up and payroll costs
associated with these two new call centers totaling $550,000 and $522,000
respectively, which were offset against the financial incentives received from
the provincial governments of Ontario and New Brunswick. The remaining amounts
are primarily being amortized against payroll costs over the next three years
and will also be offset against additional start-up costs incurred in the fourth
quarter of fiscal 1999.
In the second quarter of fiscal 1999, the Company entered into a three-way
agreement with a long distance telecommunications provider and an independent
teleservices company. Under the agreement, the Company managed a call center on
behalf of the independent teleservices company, which specializes in Asian
language outbound teleservices, and managed an outbound telemarketing program
outsourced by the long distance provider to the independent teleservices
company. The Company was paid a fixed monthly fee to manage the call center, and
was paid based on sales and residuals to manage the outbound telemarketing
program. Subsequently, the original
10
<PAGE>
agreement was modified to a two-way agreement between the Company and the
independent teleservices company under which the Company will manage a call
center on behalf of the independent teleservices company and will be compensated
on a monthly fixed fee basis.
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 revenues 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 Nine Months Ended June 30, 1999 Compared to Three and Nine Months
- ---------------------------------------------------------------------------
Ended June 30, 1998
- -------------------
Revenues - Revenues increased to $20,627,000 and $53,754,000 for the three and
nine month periods ended June 30, 1999 from $13,212,000 and $37,796,000 for the
comparable periods in 1998. This represents revenue increases of 56.1% and 42.2%
for the three and nine month periods ended June 30, 1999, respectively, as
compared to the same periods in 1998. Of such increase in revenues,
approximately $6,337,000 and $13,400,000 were attributable to increased calling
volumes from existing clients, and $1,078,000 and $2,558,000 to new clients, for
the three and nine month periods ended June 30, 1999 and 1998, respectively.
Cost of Services - Cost of services increased to $15,585,000 and $40,679,000 for
the three and nine month periods ended June 30, 1999 from $10,155,000 and
$28,451,000 for the comparable periods in 1998. As a percentage of revenues,
cost of services in the three month period ended June 30, 1999 decreased to
75.6% from 76.9% in the comparable period in 1998. For the nine month period
ending June 30, 1999 cost of services increased as a percentage of revenue to
75.7% from 75.3% for the comparable period in 1998. The Company believes that
the increase in cost of services as a percentage of revenues for the nine month
period ended June 30, 1999 is attributable to pricing pressures as a result of
volume discounts offered. The corresponding decrease in the quarter ended June
30, 1999 is attributable to reduced operating costs in Canada offset by 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.
Selling, General and Administrative - Selling, general and administrative
expenses increased to $4,411,000 and $11,657,000 for the three and nine month
periods ended June 30, 1999 from $3,052,000 and $9,228,000 for the comparable
periods in 1998. As a percentage of revenues, selling, general and
administrative expenses decreased to 21.4% and 21.7% during the three and nine
month periods ended June 30, 1999, as compared to 23.1% and 24.4% for the
comparable periods in 1998. The percentage decrease was primarily the result of
better utilization of infrastructure and increasing revenues being serviced by
the Company's existing infrastructure. In addition, during the nine month period
ended June 30, 1998, the company incurred expenses of $335, 000 related to the
Company's settlement of certain litigation with an existing customer and the
legal costs incurred relating to such settlement.
Interest Income - Interest income for the three and nine month periods ended
June 30, 1999 and 1998, amounted to $72,000 and $248,000 and $145,000 and
$414,000 respectively, and was earned by investing the remaining proceeds of the
Company's initial public offering in marketable securities and cash equivalents.
Income Taxes - Income tax expense for the three and nine month periods ended
June 30, 1999 and 1998, was $264,000 and $625,000 and $54,000 and $191,000,
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
11
<PAGE>
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.
During the third quarter, the Company completed negotiations with PNC Bank to
establish an $8.0 million lease facility (the "PNC Lease Facility") and a $4.0
million credit facility ("Credit Line"). RMHTI also completed negotiations with
GATX Technology Finance Inc. for a $5.0 million CAD lease facility ("the "GATX
Lease Facility"). Under the terms of both lease facilities, leases must meet the
accounting definition of an operating lease with rent to be paid over a period
not to exceed sixty months. The Credit Line is a renewal of a March 21, 1997 PNC
credit facility. Under the terms of the Credit Line, outstanding balances bear
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 contains
financial covenants and certain restrictions on the Company's ability to incur
additional debt or dispose of its assets. As of June 30, 1999, the Company had
no borrowings outstanding on either the Credit Line, the PNC Lease Facility or
the GATX Lease Facility.
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 lease with rent to be paid over a period not to exceed sixty
months. The Company financed $5.5 million of equipment under this facility.
The Company's teleservices operations will continue to require significant
capital expenditures. Capital expenditures during the three and nine month
periods ended June 30, 1999, were $605,000 and $1,136,000 respectively as
compared to $133,000 and $1,120,000 for the three and nine month periods ended
June 30, 1998. The Company expects to allocate approximately $4.0 million for
capital equipment expenditures from its operating lease facilities 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 has incurred expenditure in connection with obtaining and servicing
a contract under which it will provide telemarketing services on behalf of a
third party. The Company expects to spend $2.2 million in fiscal 1999 and $1.6
million in fiscal 2000. Of the $2.2 million for fiscal 1999, $2.0 million has
been paid through July 31, 1999.
Net cash used in operating activities was $166,000 and $1,120,000 during the
nine month periods ended June 30, 1999 and 1998, respectively. The cash used in
operations in the nine month period ended June 30, 1999 resulted from an
increase in the Company's accounts receivable and prepaid expenses and other
assets offset by a decrease in its accounts payable and accrued expenses, and
the Company's net income for the period.
The Company believes that cash generated from operations, when available,
together with its cash and marketable securities and available credit under the
new credit and leasing agreements will be sufficient to finance its current
operations and planned capital equipment expenditures at least until June 30,
2000.
12
<PAGE>
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
not had any impact on the Company's financial statements as the Company has not
had any material "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 requires
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.
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 fourth quarter of fiscal 1999 and are scheduled to be
completed by mid-November 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 the 1999 calendar year.
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 60% complete with the vendor compliance documentation process that
includes use of vendor compliance documentation published on the Internet. A
similar process is in progress 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 be capable of creating output in either format as
required by the client. Accordingly, the Company is prepared for either
occurrence and believes that it will not be adversely affected by year format.
13
<PAGE>
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 calendar 1999. The
Company currently expects that the total costs to become Year 2000 compliant
will not exceed $750,000. Hardware costs to date have been 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.
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 completed by October 1999.
14
<PAGE>
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 June 30,
1999. All investments mature in one year or less.
Principal Amount Fair Value
---------------- ----------
(in thousands)
Assets
Cash equivalents:
Variable rate $ 634 $ 634
Average interest rate 4.92% 4.92%
Marketable Securities:
Fixed rate $ 3,400 $ 3,339
Average interest rate 4.94% 4.94%
-------- ---------
Total Investments $ 4,034 $ 3,973
======== ========
*Includes $26,000 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 July 30,
1999, the balance of these investments was approximately
$690,000 reflecting the use of approximately $7,646,000 for
general corporate purposes.
Item 3: Defaults upon Senior Securities
None.
Item 4: Submission of matters for a vote of Security Holders
None.
Item 5: Other Information
None.
Item 6: Exhibits and Reports on Form 8-K
a. Exhibits
10.1 $8.0 million Operating Lease Facility Agreement between
RMH Teleservices Inc. and PNC Leasing Corp. dated May
11, 1999.
10.2 Addendum to Master Lease Agreement between RMH
Teleservices Inc. and PNC Leasing Corp dated
May 28, 1999
10.3 First Amendment to Credit Agreement between RMH
Teleservices Inc., RMH Teleservices International Inc.
and PNC Bank, N.A dated May 28, 1999
10.4 Master Lease Agreement between RMH Teleservices
International Inc. and GATX Technology Finance Inc.
dated June 1, 1999
27.0 Financial Data Schedule
b. Reports on Form 8-K:
None
16
<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.
(Registrant)
DATED: August 11, 1999 BY: /s/ John A. Fellows
----------------------------
John A. Fellows
Chief Executive Officer
DATED: August 11, 1999 BY: /s/ Noah S. Asher
--------------------------
Noah S. Asher
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE>
SUMMARY OF TERMS AND CONDITIONS
Date: May 7, 1999
Term Sheet
Number: GCF99047
Lessee: RMH Teleservices, Inc. and/or RMH Teleservices International
("Lessee")
Guarantors: RMH Teleservices, Inc. (Guarantee Lease with RMH Teleservices
International)
Lessor: FNC Leasing Corp or its Designee ("Lessor")
Equipment: Description: Computer/Telecommunications Equipment, Software &
Office Furniture
(Individually "Item of Equipment" and collectively "Equipment")
Equipment Cost: Not Exceeding $8,000,000
Equipment Location: Equipment may be located at Lessee's
facilities in both the United States and Canada.
Prior to the Lease Commencement Date for any Item of Equipment,
any advances by Lessor to purchase such Equipment shall be made
in Lessor's sole discretion.
Lease
Structure: True Lease: It is intended that this transaction qualify as a
"true lease" for tax purposes; the Rent set forth assumes
availability to Lessor of depreciation deductions provided in
the Internal Revenue Code for five year (hardware); seven year
(furniture) and three year (software) property; Depreciation
deductions may be modified for leased equipment located in
Canada.
Net Lease: The lease will be a net financial lease, and all
fixed expenses associated with the possession, operation, and
control of the Equipment, including (but not limited to)
insurance, maintenance, and taxes, will be for the account of
the Lessee;
The Lessor will be the legal owner of the Equipment.
Term: Lease Term: Five years from the lease commencement date.
Lease Commencement Date: No later than April 1, 2000.
Interim Rental Term: The Interim Rental Term with respect to the
Equipment or Item of Equipment will be equal to the number of
days from funding of the Equipment or Item of Equipment to the
Lease Commencement Date.
Rent: Rent: Lessee shall make consecutive level payments, equal to a
percentage of Equipment Cost, payable monthly in advance, with
the first payment due on the Lease Commencement Date as follows:
60 months @ 1.958% May Commencement
60 months @ 1.955% June Commencement
60 months @ 1.944% September Commencement
60 months @ 1.934% December Commencement
MONTHLY RENTAL ($) = ABOVE FACTOR X EQUIPMENT COST
Interim Rent: Interim Rent for the Interim Rental will be
calculated using an interest rate equal to PNC Bank's Prime
Rate. Such Interim Rent will be due and payable monthly through
the Interim Rental Term.
Rent is based on current monthly market conditions. Any change
in those conditions will result in a change of the above Rent.
Rent will be fixed on the Lease Commencement Date.
<PAGE>
RMH Teleservices, Inc.
Proposal No.: GCF99047
End of
Term Options: Purchase Option: At the expiration of the Lease Term or any
renewal thereof, Lessee may, with 120 days prior written notice,
purchase all (but not less than all) the Equipment for its then
Fair Market Value.
Renewal Option: At the expiration of the Lease Term, Lessee may,
with 120 days prior written notice, renew the lease of all (but
not less than all) the Equipment for its then Fair Market Rental
Value.
Return Option: At the expiration of the Lease Term, Lessee may,
with 120 days prior written notice, return the Equipment to a
site designated by the Lessor. Any cost associated with
dismantling and transporting the Equipment shall be for the
Lessee's account.
Fees: Documentation: $500.00 per lease schedule.
Expenses: All costs and expenses incurred by the Lessor shall be
reimbursed by the Lessee at closing and otherwise on demand.
Reporting
Requirements: Lessee shall provide Lessor with financial information as
Lessor may request.
Covenants: (a) Cross-default with existing PNC Bank covenants, if any.
(b) right of survivorship of financial covenants if PNC Bank
loan covenants are released.
Lease
Documents: Lease Documents in form and substance satisfactory to the Lessor
must be executed and delivered.
Miscellaneous: Funding Expiration Date: Willingness by Lessor to consider
funding items of Equipment on the terms described above will
expire on April 1, 2000.
Proposal Deposit: A Proposal Deposit in the amount of $8,000.00
is due and payable with the accepted copy of this Term Sheet.
Said deposit will be held without interest by Lessor and
will be applied pro rata to the rental payments due, net of any
fees and expenses incurred by the Lessor which shall be for the
account of the Lessee. In the event Lessor provides a
confirmation of the proposed transaction and Lessee does not
close the transaction for any reason, Lessor will retain the
Proposal Deposit.
Proposal Expiration Date: May 14, 1999.
This Summary of Terms and Conditions is not a commitment or an offer to lease
and does not create any obligation on the part of the Lessor. This outline is
only a brief description of the principal terms of the suggested lease financing
and is intended for discussion purposes only.
1
<PAGE>
Exhibit 10.2
ADDENDUM TO MASTER LEASE AGREEMENT
----------------------------------
This Addendum to Master Lease Agreement dated March 3, 1997 by and between
PNC Leasing Corp ("Lessor") and RMH Teleservices, Inc. ("Lessee") Lease No. 1008
(the "Master Lease") and to all Schedules thereto in effect as of the date
hereof (collectively the "Schedules") is dated as of the 28 day of May, 1999.
WHEREAS, Lessor and Lessee, having entered into the Master Lease and the
Schedules, desire to amend them as provided for herein;
WHEREAS, Lessor and Lessee desire to set forth these changes in writing as
required by the Master Lease.
NOW THEREFORE, intending to be legally bound hereby, Lessor and Lessee
agree as follows:
1. Master Lease. Section 21 of the Master Lease entitled "Incorporation of
Covenants by Reference" is hereby modified and amended to provide that upon the
termination any existing credit facility, loan or extension of credit between
PNC Bank and Lessee, only the financial covenants of the various covenants
relating to any such credit facility, loan or extension of credit as set forth
in any of the Loan Documents relating thereto shall survive such termination and
remain as "Incorporated Provisions" under the Master Lease.
2. Schedules. The Schedules and each of them are hereby modified to provide
that the notice provisions in the following sections: 11 -- Return of Equipment,
12 -- Renewal and 13 -- Purchase Option, relating to notice required from Lessee
to Lessor under each of the aforesaid sections is amended from 180 days to 120
days.
<PAGE>
3. Capitalized Terms. Unless otherwise defined herein, all capitalized
terms used herein shall have the meaning as set forth in the Master Lease or the
Schedules.
4. Acknowledgment. Lessor and Lessee hereby acknowledge and agree that
except as specifically provided for in this Addendum, the Master Lease and the
Schedules remain unchanged and in full force and effect.
WITNESS the due execution hereof by the duly authorized representative of
the parties hereto as of the date and year first above written.
ATTEST/WITNESS PNC LEASING CORP -- Lessor
By: [ILLEGIBLE] By: [ILLEGIBLE]
------------------------ -------------------------
Title: Vice President Title: Vice Pres.
------------------------ -------------------------
ATTEST/WITNESS RMH TELESERVICES, INC. -- Lessee
By: [ILLEGIBLE] By: [ILLEGIBLE]
----------------- -------------------
EVP, CFO
<PAGE>
Exhibit 10.3
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement ("Amendment"), dated May 28, 1999,
is entered into by and among PNC Bank, National Association ("Bank"), RMH
Teleservices, Inc. ("Borrower"), and RMH Teleservices International, Inc.
("Surety").
Background
A. Borrower and Bank are parties to a certain letter agreement, dated March
21, 1997 (as amended from time to time, "Credit Agreement"), pursuant to which
Bank established for the benefit of Borrower a line of credit in the maximum
aggregate principal amount of Four Million Dollars ($4,000,000), as evidenced by
that certain Committed Line of Credit Note, dated March 21, 1997, executed by
Borrower in favor of Bank ("Note"). Capitalized terms used but not otherwise
defined in this Amendment shall have the meanings given to such terms in the
Credit Agreement.
B. Bank and Borrower desire to modify the terms and conditions of the
Credit Agreement as more fully set forth herein.
Terms and Conditions
NOW, THEREFORE, with the foregoing background hereinafter incorporated by
reference, the parties hereto, intending to be legally bound, hereby covenant
and agree as follows:
1. Extension of Term. The "Expiration Date" of the Line of Credit is
extended to and shall be April 1, 2000.
2. Representations and Warranties. The Credit Agreement is hereby amended
by deleting Subsections 7(b) and 7(h) in their entirety and replacing them with
the following:
(b) There are no actions, suits, proceedings, or governmental
investigations pending or, to the knowledge of the Borrower,
threatened against the Borrower or any Subsidiary which could
reasonably be expected to result in a material adverse change in its
business, assets, operations, financial condition or results of
operations and there is no basis known to the Borrower or its
executive officers or directors for any such action, suit, proceedings
or investigation.
(h) Borrower has no subsidiaries (meaning an entity fifty percent (50%) or
more of the capital stock of which is owned by Borrower directly or
indirectly through one or more other subsidiaries) other than
Teleservices
<PAGE>
Management Company, a Delaware corporation, Teleservices Technology
Company, a Delaware corporation, and RMH Teleservices International, Inc.,
a Canadian corporation (collectively, "Subsidiaries") and that Borrower is
not a subsidiary of any other entity.
3. Representations and Warranties. The Credit Agreement is hereby amended
by adding Subsection 7(i) as follows:
(i) Borrower has reviewed the areas within its business and operations
which could be adversely affected by, and have developed or is
developing a program to address on a timely basis, the risk that
certain computer applications used by such Borrower may be unable to
recognize and perform properly sensitive functions prior to and after
December 31, 1999 ("Year 2000 Problem"). The Year 2000 Problem is not
reasonably expected to materially adversely affect Borrower's
business, assets, operations, financial conditions or results of
operation.
4. Reporting. Exhibit "A" to the Credit Agreement is hereby amended by
adding Subsections 1(c) and 1(d) as follows:
(c) Within forty five (45) days after each fiscal month end, a
capacity report detailing the revenues and gross profits for each calling
center of Borrower for the fiscal month then ended, substantially in the
form attached hereto and made part hereof as Exhibit "B".
(d) Within forty five (45) days after each fiscal quarter end, a
compliance certificate in the form attached hereto and made a part hereof
as Exhibit "C" from the Chief Financial Officer on behalf of Borrower.
5. Financial Covenants. Exhibit "A" to the Credit Agreement is hereby
amended by deleting Section II in its entirety and replacing it with the
following:
II. Financial Covenants.
(a) Minimum Tangible Net Worth. Borrower shall have and maintain at
all times, on a consolidated basis for Consolidated Group, a Tangible Net
Worth of not less than $22,187,000 which existed as of September 30, 1998
through September 29, 1999. As of September 30, 1999, and as of the end of
each fiscal year thereafter, Borrower shall have and maintain at all times,
on a consolidated basis for Consolidated Group, a Tangible Net Worth of not
less than the sum of the minimum Tangible Net Worth requirement for the
immediately preceding fiscal year plus twenty five percent (25%) of net
income (but in no event less than zero) for the fiscal year then ending
plus one hundred percent (100%) of
Page 2
<PAGE>
the proceeds net of costs of issuance of new equity issues for the fiscal
year then ending. The new minimum Tangible Net Worth requirement in effect
as of each fiscal year end shall be maintained as of December 31, March 31
and June 30 of the following fiscal year.
For purposes hereof, "Tangible Net Worth" means stockholders' equity
in Borrower plus subordinated debt less any advances to third parties and
all items properly classified as intangibles, all as determined in
accordance with GAAP.
(b) Operating Lease Measurement. Borrower shall have and maintain, on
a consolidated basis for Consolidated Group, an Interest Coverage Ratio,
measured quarterly (on a rolling four quarter basis) at the end of each
fiscal quarter, of not less than: 1.50:1 as of fiscal quarter end June 30,
1999; 1.60:1 as of fiscal quarter end September 30, 1999, and as of each
fiscal quarter end thereafter.
For purposes hereof, "Operating Lease Measurement" means the ratio of
(i) EBITDA plus total operating lease payments to (ii) interest expense
plus total operating lease payments.
For purposes hereof, "EBITDA" shall mean for any period, Borrower's
earnings less interest income plus interest expense plus income tax
expenses, plus depreciation expenses plus amortization expenses, all as
determined in accordance with GAAP.
6. Negative Covenants. Exhibit "A" to the Credit Agreement is hereby
amended by deleting Subsections 111(b) and Ill (e) in their entirety and
replacing them with the following:
(b) Borrower will not, nor suffer or permit any Subsidiary to, create,
incur, guarantee, endorse (except endorsements in the course of
collection), assume or suffer to exist any indebtedness, except: (i)
indebtedness to the Bank, (ii) open account trade debt incurred in the
ordinary course of business, (iii) other indebtedness disclosed on the
Borrower's latest Financial Statements which have been provided to the Bank
prior to the date of this letter, (iv) purchase money indebtedness
(including capitalized lease obligations) incurred for the acquisition of
fixed assets, limited in amount to $500,000 at any time outstanding in the
aggregate for Borrower and all Subsidiaries, (v) indebtedness of Borrower
to Subsidiaries, as evidenced by that certain Subordinated Promissory Note,
dated September 30,1996, executed by Borrower to Teleservices Management
Company in the original principal amount of $37,448,600 and that certain
Subordinated Promissory Note, dated October 16, 1997 executed by Borrower
to Teleservices Technology Company in the original principal amount to of
$1,010,000, provided such indebtedness is subordinated to the indebtedness
of Borrower to Bank,
Page 3
<PAGE>
subject to payment terms and subordination provisions acceptable to Lender,
in its sole discretion, or (vi) indebtedness of Borrower to Her Majesty the
Queen in right of the Province of New Brunswick, as requested by the
Minister of Economic Development, Tourism and Culture ("MEDTC") in a
principal amount not to exceed $2,000,000 (Canadian Dollars), such amount
to be forgiven at the rate of $5,000 (Canadian dollars) (plus accrued
interest) for each new full time employee position established by Borrower
at the Canadian facility, pursuant to the terms of that certain Loan
Agreement, dated March 31, 1999, by and between Borrower and MEDTC, with
the remaining principal balance and accrued but unpaid interest to be due
and payable on March 31,2003; provided that Borrower shall make no monetary
repayment to MEDTC for such indebtedness prior to the above listed maturity
date.
(e) Borrower will not, nor suffer or permit any Subsidiary to, make or
have outstanding any loans or advances to or otherwise extend credit to any
person, firm or corporation, except: (i) accounts receivable in the
ordinary course of business and other than advances by the Subsidiaries to
Borrower, (ii) certain loans from Borrower to its employees, limited in
amount to $300,000 at any time outstanding in the aggregate, (iii) certain
loans from Borrower to Surety, limited in an amount to $2,000,000 at any
time outstanding in the aggregate, or (iv) as otherwise permitted in
subsection (b) above. Borrower specifically agrees, without limitation,
that Borrower will not make or suffer or permit to exist or be outstanding
any loans or advances to any Subsidiary, and Borrower hereby represents to
Bank that there are no outstanding loans or advances to any Subsidiary as
of the date hereof.
7. Negative Covenants. Exhibit "A" to the Credit Agreement is hereby
amended by adding Subsection III(f) as follows:
(f) Subject to Subsection (a) above, Borrower and each of its
subsidiaries will not incur, create or assume any commitment to make any
direct or indirect payment, whether rent or otherwise, under any lease
rental or other arrangement for the use of real or personal property,
except for: (i) operating leases with Bank or its affiliates, or (ii)
operating leases with other parties so long as the aggregate outstanding
obligations, direct or indirect, due or to become due, under all such
leases does not exceed $3,000,000.
8. Restrictive Covenants in Other Agreements. Exhibit "A" to Credit
Agreement is hereby amended by adding Section IV as follows:
IV. Restrictive Covenants in Other Agreements.
In the event that Borrower shall enter into or otherwise become
subject to
Page 4
<PAGE>
or suffer to exist any agreement pertaining to indebtedness for borrowed
money which contains covenants or restrictions that are more restrictive on
it than the covenants and restrictions contained in this letter, each and
every such covenant and restriction shall be deemed incorporated herein by
reference as fully as if set forth herein. If and to the extent that any
such covenant or restriction shall be inconsistent with or otherwise be in
conflict with any covenant or restriction set forth herein (other than by
reason of its being more restrictive), this Agreement shall govern. No
amendment of modification to, or waiver of, any of such covenants or
related terms by any of the parties thereto shall be effective to amend,
modify, or waive the effectiveness of such covenants and related terms as
incorporated by reference herein without the consent of Bank. Borrower
hereby agrees that it shall promptly deliver to Bank full, correct and
complete copies of any such agreements and related documents.
9. Year 2000 Covenant. Exhibit "A" to Credit Agreement is hereby amended by
adding Section V as follows:
V. Year 2000 Covenant
Borrower hereby agrees to take all action necessary to assure that all
times the computer-based systems utilized by Borrower and each of its
subsidiaries, if any, are able to effectively interpret, process and
manipulate data, including dates before, on and after December 31, 1999. At
Bank's request, Borrower shall provide to Bank assurance satisfactory to
Bank that the computer-based systems utilized by Borrower and each of its
subsidiaries, if any, are able to recognize and perform without error
functions involving dates before, on and after December 31, 1999.
10. Surety. Contemporaneously herewith, Surety shall execute and deliver to
Bank a Guaranty and Suretyship Agreement ("Surety Agreement"), pursuant to which
Surety shall unconditionally guarantee, as surety, all of the obligations of
Borrower to Bank.
11. Representations and Warranties. Borrower and Surety represents and
warrants to Bank that:
(a) the execution and delivery by Borrower and Surety of this
Amendment and performance by each of them of the transactions contemplated
herein (i) are and will be within the corporate powers of Borrower and
Surety, as applicable, (ii) have been authorized by all necessary corporate
action of Borrower and Surety, as applicable, and (iii) are not and will
not be in contravention of any order of any court or other agency of
government, of law or any other indenture, agreement or undertaking to
which Borrower or Surety is a party or by which the property of Borrower or
Surety is bound, or be in conflict with, or result in a breach of or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement
Page 5
<PAGE>
or undertaking or result in the imposition of any lien, charge or
incumbrance of any nature on any of the properties of Borrower or Surety;
(b) this Amendment and any other agreements, instruments or documents
executed and/or delivered in connection herewith, shall be valid, binding
and enforceable against Borrower and Surety in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles;
(c) all warranties and representations contained in the Credit
Agreement and all related agreements, instruments and documents are true
and correct as of the date hereof; and
(d) no Event of Default as defined under the Note and no event which,
with the passage of time, giving of notice or both would become an Event of
Default as defined under the Note, has occurred or is existing.
12. Conditions to Closing. Bank's obligation to enter into this Amendment
is subject to the following conditions having been satisfied in full to Bank's
satisfaction:
(a) Execution and delivery of this Amendment to Bank;
(b) Execution and delivery of the Surety Agreement by Surety to Bank;
(c) Delivery of such other documentation or documents as Bank may
reasonable require;
(d) No Event of Default as defined under the Note and no event which,
with the passage of time, giving of notice or both would become an Event of
Default as defined under the Note, has occurred or is existing; and
(e) Payment or reimbursement to Bank for all legal and other expenses
incurred by Bank to analyze, prepare and negotiate and conclude this
Amendment and all related agreements and transactions described herein.
13. Reaffirmation by Borrower. Borrower ratifies and reaffirms all of its
obligations to Bank under the Credit Agreement and related agreements,
instruments and documents and agrees that the same are owing to Bank without
defense, setoff, claim or counterclaim, of any nature. Borrower hereby ratifies,
restates and reasserts each of the representations and warranties, and each of
the covenants, whether affirmative or negative, contained in the Credit
Agreement and all related agreements, instruments and documents and acknowledges
and agrees that all such representations and warranties, and covenants are
incorporated herein by reference and made part hereof.
Page 6
<PAGE>
14. No Waiver by Bank. This Amendment does not and shall not be deemed to
constitute a waiver by Bank of any breach or violation of any representation,
warranty or covenant made or agreed to by Borrower under the Credit Agreement as
amended hereby, and all of Bank's claims and rights resulting from any such
breach or misrepresentation by Borrower, are expressly reserved by Bank. This
Amendment does not obligate Bank to agree to any further extension or any other
modification of the Credit Agreement nor does it constitute a waiver of any
other rights or remedies of Bank.
15. Incorporation. This Amendment shall amend, and is incorporated into and
made part of, the Credit Agreement. All reference to the Credit Agreement shall
mean the Credit Agreement as amended hereby. To the extent that any term or
provision of this Amendment is or may be deemed expressly inconsistent with any
term or provision in the Credit Agreement, the terms and provisions hereof shall
control. Except as expressly amended by this Amendment, all of the terms and
conditions of the Credit Agreement continue unchanged and remain in full force
and effect.
16. No Modification. No modification hereof or of any agreement referred to
herein shall be binding or enforceable unless in writing and signed on behalf of
the party against whom enforcement is sought.
17. Successor and Assigns. This Amendment will be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
18. Governing Law. This Amendment shall be governed by, and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
19. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Signature by facsimile shall also bind the parties hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Page 7
<PAGE>
IN WITNESS WHEREOF, the parties, intending to be legally bound, hereto have
executed this Amendment as of the date first above written.
Bank:
PNC Bank, National Association
By: /s/ [ILLEGIBLE]
--------------------------
Name: ILLEGIBLE
Title: Vice President
BORROWER:
RMH Teleservices, Inc.
By: /s/ Noah Asher
--------------------------
Name: Noah Asher
Title: EVP & CFO
Attest: /s/ [ILLEGIBLE]
----------------------
Name:
Title:
SURETY:
RMH Teleservices International, Inc.
By: /s/ [ILLEGIBLE]
--------------------------
Name:
Title:
Attest: /s/ [ILLEGIBLE]
----------------------
Name:
Title:
Page 8
<PAGE>
Exhibit 10.4
[LOGO]
DUPLICATE
GATX Technology Finance Inc.
MASTER LEASE AGREEMENT
NO. 1833
--------------
================================================================================
This Master Lease Agreement ("Lease Agreement") is made as of the 1st day of
June, 1999, between GATX TECHNOLOGY FINANCE INC. of 150 King Street W., Sun Life
Centre, Suite 2411, Toronto, Ont. M5H 1J9 (the "Lessor") and RMH TELESERVICES
INTERNATIONAL INC. having its principal offices at Oromocto Business Complex,
281 Restigouche Road, Oromocto, New Brunswick E2V 2H2 (the "Lessee")
TERMS AND CONDITIONS
1. DEFINITIONS.
"Lease Order shall refer to that document wherein Lessor agrees to lease to
Lessee and Lessee agrees to lease from Lessor certain Equipment. Each Lease
Order shall be signed and submitted by Lessee to Lessor and, when so submitted,
shall constitute a firm irrevocable offer by Lessee to lease the Equipment
identified on the Lease Order subject to the terms of the Lease Order and this
Lease Agreement which, if accepted by Lessor by signing and returning to Lessee
one copy of the same within thirty (30) days of the date of the Lease Order
shall be deemed a duly executed and in force Lease Order.
"Initial Term" shall mean the period beginning on the Commencement Date and
continuing for the number of months set forth in each Lease Order.
"Equipment" shall mean the equipment identified in a duly executed and in
force Lease Order and all related replacements, parts, additions, software,
accessories, alterations and repairs incorporated therein or affixed thereto,
together with any items included on the related Lease Order including, but not
limited to, training, maintenance, license agreements, etc.
"Software" shall mean a computer program in any data, program description,
media or supporting documentation provided by a licensor as part of the
transaction.
"Delivery and Acceptance Date" shall mean the date that the Equipment
listed on the related Lease Order is accepted at Lessee's premises, such date
being specified in the related Delivery and Acceptance Receipt. Unless expressly
agreed otherwise by the parties or Lessee notifies Lessor in writing that the
Equipment has been rejected, the Equipment must be accepted within seven (7)
days after the delivery date, and if not accepted by such time the Delivery and
Acceptance Date shall be deemed to be seven (7) days after the delivery date.
"Commencement Date" means, as to the Equipment designated on any Lease
Order, where the Delivery and Acceptance Date for such Equipment tails on the
first day of the month, that date, or, in any other case, the first day of the
month or calendar quarter if so provided in the Lease Order, following the
Delivery and Acceptance Date, unless otherwise agreed by the parties.
"Progress Payment Rider" shall refer to that document wherein the seller of
the Equipment requires payment prior to the commencement of a Lease Order and
Lessee agrees to make payments prior to the commencement of a Lease Order.
2. NET LEASE.
THIS LEASE AGREEMENT TOGETHER WITH EACH LEASE ORDER CONSTITUTES A NET LEASE
AND LESSEE'S AGREEMENT TO PAY RENT AND ANY OTHER OBLIGATIONS HEREUNDER AND UNDER
ANY APPLICABLE LEASE ORDERS SHALL BE ABSOLUTE AND UNCONDITIONAL AND SHALL NOT BE
SUBJECT TO ANY ABATEMENT, REDUCTION, SET-OFF, DEFENSE, COUNTERCLAIM,
INTERRUPTION, DEFERMENT OR RECOUPMENT FOR ANY REASON WHATSOEVER. Lessor and
Lessee will enter into one or more Lease Orders pursuant to this Lease Agreement
Subject to the terms and conditions of this Lease Agreement and a duly executed
and in force Lease Order, Lessor agrees to lease to Lessee and Lessee agrees to
lease from Lessor the Equipment described in each Lease Order. This Lease
Agreement is a master lease and each Lease Order is subject to the terms of this
Lease Agreement. Each Lease Order shall be treated as a separate lease with
respect to the Equipment covered by such Lease Order. In the event of any
conflict between the language of this Lease Agreement and any Lease Order
entered into pursuant hereto, the language of the Lease Order shall prevail with
respect to that Lease Order and the Equipment covered thereby. NO EQUIPMENT
SHALL BE DEEMED LEASED HEREUNDER UNLESS IT IS THE SUBJECT OF A DULY EXECUTED AND
IN FORCE LEASE ORDER.
3. TERM.
The term of this Lease Agreement shall commence on the date set forth above
and shall continue in effect for the Initial Term of any Lease Order and any
extended term as provided herein.
The term of each lease as to any items of Equipment designated on any Lease
Order shall commence on the Delivery and Acceptance Date for such Equipment, and
shall continue for the Initial Term and any extended term provided herein.
(CONTINUED ON THE FOLLOWING 4 PAGES)
================================================================================
IN WITNESS WHEREOF, the parties have executed this Lease Agreement effective as
of the date first above written.
<TABLE>
<S> <C>
LESSOR: GATX TECHNOLOGY FINANCE INC. LESSEE: RMH TELESERVICES INTERNATIONAL INC.
Signature: /s/ DAVID P. CARDEW Signature: /s/ NOAH ASHER
--------------------------- ---------------------------
By: DAVID P. CARDEW By: NOAH ASHER
--------------------------- ---------------------------
(Print Name) (Print Name)
Title: VICE PRESIDENT Title: EVP & CFO
--------------------------- ---------------------------
Date: 06/02/99 Date: June 1, 1999
--------------------------- ---------------------------
</TABLE>
<PAGE>
DUPLICATE
4. RENTAL. Rental shall begin to accrue on the Delivery and Acceptance Date and
Lessee shall pay to Lessor, as rental for the Equipment during the Initial Term,
the rent set forth in the respective Lease Order, which shall be due and payable
in advance on the first day of each calendar month or quarter as specified in
the Lease Order during such Initial Term plus any extended term (each date being
hereinafter called a `Rent Payment Date"), unless modified by a Progress Payment
Rider. If the Delivery and Acceptance Date of any Equipment shall be other than
the first day of the month, Lessee shall make an initial payment based on the
Delivery and Acceptance Date in an amount equal to the fraction of the rent as
specified in the related Lease Order for each day from the Delivery and
Acceptance Date to (but not including) the Commencement Date. Rent shall be paid
to Lessor at the address set forth above or at any other place as Lessor shall
designate in writing, or if to an Assignee of Lessor, at such place as such
Assignee shall designate in writing, and shall be paid free and clear of all
claims, [ILLEGIBLE] or setoffs against Lessor or such Assignee. Whenever any
payment by Lessee (of rent or otherwise) is past due hereunder for more than
seven (7) days, Lessee shall pay to Lessor, as additional rent, interest on such
amount until and including the date of payment, at the lesser of 1.5% per month
(18% per annum) or the maximum allowable rate of interest permitted by law.
5. TAXES. Lessee covenants to promptly report, file, pay and indemnify and hold
Lessor harmless with respect to any and all Taxes, as hereinafter defined. The
term "Taxes' as used herein shall mean all taxes (including sales, use, excise,
personal property, ad valorem, stamp, documentary and other taxes), and all
other governmental fees, charges and assessments (general or special) due,
assessed or levied by any foreign, federal, state, provincial, county or local
government or taxing authority, and any penalties, fines or interest thereon,
which are imposed against, upon or relating to the Equipment or the use,
registration, rental, shipment, transportation, delivery, ownership or operation
thereof, and on or relating to the lease thereof including the rentals or
receipts due under this Lease Agreement, but shall not include any taxes solely
based upon or measured by the income of Lessor. Lessee will, upon request by
Lessor, submit to Lessor written evidence of Lessee's payment of all Taxes due
hereunder. Any tax returns filed by Lessee shall show Lessor as the owner of the
Equipment.
6. INSTALLATION, USE, MAINTENANCE AND INSPECTION OF EQUIPMENT.
(a) Lessee shall pay all installation, transportation, rigging, unpacking
and repacking, drayage, handling and insurance charges on the Equipment upon
delivery to Lessee and upon redelivery to Lessor upon the expiration or earlier
termination of the Initial Term or any extension thereof, to such destination as
is specified by Lessor within Canada ("Return Location"). Lessee shall furnish
appropriate installation facilities for the Equipment. Lessee represents and
warrants that: (i) it has selected all Equipment based on its own judgment and
expressly disclaims any reliance upon statements made by Lessor; and (ii) as of
the Delivery and Acceptance Date, as between Lessee and Lessor, Lessee shall
have unconditionally accepted such Equipment. Lessee shall execute and deliver
to Lessor a Delivery and Acceptance Receipt which shall be conclusive evidence
that, without limitation, Lessee finds the Equipment complete, in good working
order and condition and satisfactory for its requirements.
(b) Lessee shall comply with all laws, regulations and orders of any
governmental branch or agency which relates to the installation, use, possession
or operation of the Equipment, and shall use the Equipment in the regular course
of its business only, within its normal capacity, without abuse.
(c) Lessee, at its own expense, shall maintain the Equipment in good
operating condition, repair and appearance, and protect the same from
deterioration other than normal wear and tear, and shall enter into, and keep in
force a maintenance agreement with the manufacturer of the Equipment. Lessee
shall cause the manufacturer to keep the Equipment in good and efficient working
order, less normal wear and tear in full compliance and in accordance with the
provisions of such maintenance agreement and shall furnish evidence of such
agreement to Lessor upon request. During Lessee's normal business hours, Lessee
shall provide the manufacturers field engineering representatives with access to
the equipment to install engineering changes necessary to keep the Equipment at
currently announced engineering change levels. Upon deinstallation of any
Equipment, Lessee shall provide Lessor evidence from the manufacturer stating
the Equipment is at currently announced engineering change levels and is
qualified for the manufacturers maintenance agreement. The Equipment shall be
returned in the same operating order, repair, condition and appearance as on the
Delivery and Acceptance Date, reasonable wear and tear excepted.
(d) During Lessee's normal business hours, upon prior written notice to
Lessee and subject to Lessee's reasonable security procedures, Lessee shall
permit Lessor or its designee to inspect the Equipment, Lessee's equipment log
and maintenance records.
(e) Prior to delivery of any Equipment, the obligations of Lessor may be
suspended to the extent that Lessor is hindered or prevented from complying
therewith because of labor disturbances, acts of God, fire, storms, accidents,
failure of the manufacturer to deliver any Equipment, governmental regulations
or any cause whatsoever not within the control of Lessor.
7. RELOCATION. Lessee shall not move or permit to be moved any Equipment from
the location set forth in the applicable Lease Order without the prior written
consent of Lessor, which will not be unreasonably withheld; provided however, in
no event shall any Equipment be moved to a location outside Canada. Risk of loss
and all costs and expenses incurred in connection with any movement of Equipment
shall be the responsibility of Lessee.
8. ALTERATIONS AND MODIFICATIONS. Lessee shall not make modifications,
alterations or additions to Equipment (other than normal operating accessories
or controls) without the prior written consent of Lessor, which consent shall
not be unreasonably withheld. Notwithstanding the foregoing, Lessee shall be
entitled to acquire and install, at Lessee's expense, such additional features
or options ("Modifications") which (I) will not impair the originally intended
function or use of the Equipment in which the Modifications are installed, (ii)
will not require removal of any part of the Equipment, (iii) will not interfere
with Lessee's ability to obtain and maintain the maintenance contract required
by Paragraph 6(c), and (iv) the addition of which will not have an adverse
impact upon the value of the underlying Equipment or Lessors rights therein.
Such Modifications shall be of the type which are readily installed and removed
without damage to the Equipment so as to restore the Equipment to the condition
in which it existed prior to the installation of such Modifications provided,
however, that if Lessor so agrees in writing, Lessee shall not be required to
remove such Modifications. Any Modifications not so removed shall become the
property of Lessor. All Modifications must qualify for the manufacturers
maintenance agreement and be maintained in accordance with Paragraph 6(c)
hereof. Lessee hereby grants to Lessor the right and opportunity to first submit
or match the last proposal for the lease, financing or supply of any
Modification.
9. SOFTWARE. Lessee and Lessor acknowledge that the Equipment may contain or
include a description of certain Software in which Lessor and Lessee may have no
ownership or other proprietary rights. Where required by the Software owner,
manufacturer or distributor, Lessee shall enter into a license or other
agreement for the use of such Software. Any Software agreement shall be separate
and distinct from this Lease Agreement and any Lease Order, and Lessor and
Assignee shall not have any obligations thereunder, but shall have the right to
require Lessee to terminate Lessee's use of the Software if an Event of Default
shall occur and shall be continuing hereunder. In the event rent specified in a
Lease Order includes an amount attributable to the financing by Lessor of
Lessee's fee for use of Software, Lessee agrees that such amount shall be deemed
rent and subject to all the provisions of this Lease Agreement. Upon termination
of this Lease Agreement for reasons other than default, Lessee hereby assigns to
Lessor, to the extent assignable, any and all rights and obligations relating to
software and applicable software licenses.
10. OWNERSHIP, SECURITY INTEREST. It is expressly understood that the Equipment
is, and shall at all times remain, personal property of Lessor. Lessee shall
have no right, title or interest in the Equipment except as expressly provided
herein. If requested by Lessor, Lessee will obtain, prior to delivery of any
Equipment, a certificate satisfactory to Lessor from all parties with a real
property interest in the premises where the Equipment shall be located, waiving
any claim with respect to the Equipment. If Lessor supplies Lessee with labels,
plates or other markings stating that the Equipment is owned by Lessor, Lessee
shall attach same in a prominent place on the Equipment Lessee shall cause to be
filed and recorded at such times and in such places as Lessor may reasonably
request, all such instruments, including without limitation financing statements
under applicable personal property security legislation, with respect to some or
all of the Equipment, in the various states or provinces where the Equipment or
Lessee's principal place of business may be located; the filing of any such
instrument shall be for informational purposes only and shall not imply that
Lessor has less than full legal and beneficial ownership of the Equipment.
Lessee authorizes Lessor to file a copy of the Master Lease or any Lease Order
or invoice as a financing statement. Lessee agrees to reimburse Lessor for all
recording and filing fees.
11. ASSIGNMENT OR SUBLETTING BY LESSEE. LESSEE SHALL NOT ASSIGN, TRANSFER,
PLEDGE OR OTHERWISE DISPOSE OF THIS LEASE AGREEMENT, ANY LEASE [ILLEGIBLE] OR
ANY OF ITS RIGHTS THEREUNDER NOR SUBLEASE OR LEND ANY OF THE EQUIPMENT TO ANY
OTHER PERSON WITHOUT THE PRIOR WRITTEN CONSENT OF [ILLEGIBLE]. ANY PURPORTED
ASSIGNMENT, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THIS LEASE AGREEMENT, ANY
LEASE ORDER OR ANY OF LESSEE'S RIGHTS THEREUNDER, OR ANY PURPORTED SUBLEASE OR
LENDING OF THE EQUIPMENT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, AT LESSOR'S
OPTION, SHALL BE VOID AND OF NO EFFECT. FOR THE PURPOSES OF THIS PARAGRAPH 11,
ANY PURPORTED SALE OR OTHER TRANSFER OF A CONTROLLING OWNERSHIP INTEREST OF
Page 2 of 5
<PAGE>
DUPLICATE
LESSEE (WHETHER IN ONE TRANSACTION OR SERIES OF RELATED TRANSACTIONS) SHALL BE
DEEMED AN ASSIGNMENT OF THE LESSEE'S RIGHTS HEREUNDER REQUIRING THE PRIOR
WRITTEN CONSENT OF THE LESSOR. As to any permitted assignment or sublease, the
following conditions shall apply:
(a) Lessee shall remain fully liable for all payments due under each Lease
Order and remain the primary obligor for all remaining obligations under this
Lease Agreement and any Lease Orders hereunder.
(b) Lessee shall give Lessor at least thirty (30) days written notice of
the location of the Equipment and the identity of the assignee or sublessee
prior to the installation at assignee's or sublessee's premises. Lessee shall be
responsible for ensuring that all such instruments, including without limitation
financing change statements under applicable personal property [ILLEGIBLE]
legislation, are filed or recorded in respect of any assignment or subletting so
as not to impair the to perfection or priority of Lessor's position.
(c) Any sublessee's interest in any permitted sublease hereunder shall be
subordinate to the interests of Lessor or any Assignee of Lessor.
12. DISCLAIMER OF WARRANTIES.
(a) LESSEE ACKNOWLEDGES THAT LESSOR IS NOT THE MANUFACTURER OF THE
EQUIPMENT, NOR THE AGENT OF THE MANUFACTURER AND THAT LESSOR HAS MADE NO
REPRESENTATIONS, WARRANTIES OR COVENANTS OF ANY KIND, EXPRESS OR IMPLIED
STATUTORY OR OTHERWISE, AS TO ANY MATTER WHATEVER, INCLUDING BUT NOT LIMITED TO:
THE DESIGN, CONDITION OR PERFORMANCE OF THE EQUIPMENT, ITS MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP
OF THE EQUIPMENT. FURTHER, LESSOR MAKES NO WARRANTIES WITH RESPECT TO THE
CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY LAW,
RULE, REGULATION, CONTRACT OR PURCHASE ORDER, OR WITH RESPECT TO PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT MATTERS OR "YEAR 2000" COMPLIANCE. LESSOR
EXPRESSLY DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES. AS TO LESSOR,
LESSEE LEASES THE EQUIPMENT "AS IS, WHERE IS".
(b) LESSEE AGREES THAT LESSOR SHALL NOT BE LIABLE TO THE LESSEE FOR ANY
CLAIM, LOSS OR DAMAGE, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR OTHERWISE,
INCLUDING WITHOUT LIMITATION, LOSS OF PROFIT, LOSS OF BUSINESS, OR OTHER
FINANCIAL LOSS, WHICH MAY BE CAUSED, DIRECTLY OR INDIRECTLY, BY THE EQUIPMENT,
THE INADEQUACY OF THE EQUIPMENT FOR ANY PURPOSE OR ANY USE THEREOF, BY ANY
DEFICIENCY OR DEFECT THEREIN, OR BY ANY INCIDENT WHATSOEVER IN CONNECTION
THEREWITH, ARISING IN STRICT LIABILITY, NEGLIGENCE, CONTRACT, TORT OR OTHERWISE,
OR IN ANY WAY RELATING TO OR ARISING OUT OF THE EQUIPMENT, THIS LEASE AGREEMENT
OR ANY LEASE ORDER. THE LESSEE AGREES THAT IT WILL, IRRESPECTIVE OF ANY SUCH
CLAIM, LOSS, DAMAGE OR EXPENSE, CONTINUE TO PAY SUCH MONTHLY RENTAL CHARGES AND
OTHER SUMS AS MAY COME DUE UNDER ANY LEASE ORDER HEREUNDER.
13. ASSIGNMENT OF MANUFACTURER'S WARRANTIES. Lessor hereby assigns to Lessee, to
the extent assignable, all manufacturer's warranties, service agreements and
patent indemnities with respect to the Equipment, if any, for the purpose of
making appropriate claims against the manufacturer, provided that the Lessor
shall retain at all times the right to be protected by these warranties,
agreements and indemnities as the owner of the Equipment. The Lessee's sole
remedy for the breach of any such warranty, indemnification or service agreement
shall be against the manufacturer, and not against Lessor or any Assignee of
Lessor, nor shall any such breach have any effect whatsoever on the rights and
obligations of either party with respect to this Lease Agreement. Lessor will,
upon request by Lessee and at Lessee's sole expense, cooperate with Lessee in
the enforcement of any benefit provided in any such warranties, service
agreements and patent indemnities.
14. INDEMNIFICATION. Lessee agrees that it will defend, indemnify and hold
Lessor harmless against any and all claims, demands, liabilities, obligations,
losses, damages, injuries, penalties, actions, costs and expenses, including
reasonable attorney's fees, of whatever kind and nature arising out of or in
connection with the possession, use, condition (including, but not limited to,
latent and other defects, whether or not discoverable by Lessor or Lessee),
operation, ownership by Lessor, selection, delivery, leasing or return of any
item of Equipment leased hereunder, regardless of where, how and by whom
operated, or any failure on the part of Lessee to accept the Equipment or
otherwise to perform or comply with the provisions of this Lease Agreement or
any Lease Order, except for Lessors gross negligence or willful misconduct. The
indemnities and assumptions of liabilities and obligations herein provided for
shall continue in full force and effect notwithstanding the expiration or
termination of the Initial Term, any renewal or extension thereof, or of any
Lease Order or this Lease Agreement
15. ASSIGNMENT BY LESSOR. LESSOR MAY ASSIGN OR TRANSFER THIS LEASE AGREEMENT OR
ANY LEASE ORDER HEREUNDER OR LESSOR'S INTEREST IN THE EQUIPMENT OR GRANT A
SECURITY INTEREST THEREIN TO ONE OR MORE ASSIGNEES WITHOUT NOTICE TO LESSEE. Any
Assignee of Lessor shall have all of the rights but none of the obligations of
Lessor hereunder unless expressly agreed in writing, and Lessee agrees that it
will not assert against any Assignee any defense or counterclaim that Lessee may
have against Lessor, Lessee shall have no greater obligations to any Assignee
than it had to Lessor at the time of assignment, and such assignment shall not
limit or otherwise restrict the rights afforded Lessee hereunder. Lessee hereby
(i) consents to such assignments and/or grants, (ii) agrees to promptly execute
and deliver an Acknowledgment and Consent of Assignment and such further
acknowledgments, agreements, certificates and other instruments as may be
reasonably requested by Lessor or Assignee to effect such assignments and/or
grants. Lessee acknowledges that any assignment or transfer by Lessor made in
accordance with the provisions of this paragraph shall not materially change
Lessee's duties or obligations under this Lease Agreement nor materially
increase the burdens or risks imposed on Lessee. In the event of an assignment,
all references herein to Lessor shall be deemed to include Assignee.
Notwithstanding any such assignment: (i) Lessor shall not be relieved of any of
its obligations hereunder; and (ii) the rights of Lessee to quiet enjoyment and
possession of the Equipment shall not be impaired so long as Lessee is not in
default under this Lease Agreement.
16. QUIET POSSESSION AND ENJOYMENT. Lessor covenants that so long as Lessee is
not in default hereunder, neither Lessor nor any Assignee will disturb Lessee's
quiet possession and enjoyment of the Equipment, subject to and in accordance
with the provisions of this Lease Agreement and the applicable Lease Order.
17. DAMAGE, DESTRUCTION OR LOSS.
(a) Upon delivery of the Equipment to Lessee until the Equipment is
redelivered to Lessor, Lessee shall bear the entire risk of loss, damage, or
destruction with respect to the Equipment resulting from any cause whatsoever.
(b) If any Equipment becomes damaged beyond repair, lost, stolen, destroyed
or permanently rendered unfit, or in the event of any condemnation or taking by
any governmental authority (any such occurrence being hereinafter referred to as
an "Event of Loss", then Lessee shall promptly notify Lessor and shall do either
of the following within thirty (30) days after the occurrence of an Event of
Loss:
(i) At its expense, promptly replace the affected Equipment with like
or better replacement equipment of identical make, model, configuration,
capacity and condition, in good repair, free and clear of all liens, in
which case any such replacement equipment shall become the property of
Lessor and for all purposes of this Lease Agreement shall be deemed to be
the Equipment which it replaced; or
(ii) Terminate the Lease Order with respect to the affected Equipment
and pay to Lessor on the next payment date, an amount equal to the present
value of the remaining rental payments discounted by five percent (5%),
plus the fair market value in continued use of the Equipment.
18. INSURANCE. Lessee shall, at its expense, insure the Equipment against all
risks and in such amounts as Lessor shall reasonably require (but not less than
the full replacement value) with carriers reasonably acceptable to Lessor, shall
maintain a loss payable endorsement in favor of Lessor and its assigns affording
to Lessor and its assigns such additional protection as Lessor and its assigns
shall reasonably require, and Lessee shall maintain liability insurance
reasonably satisfactory to Lessor and its assigns. All such insurance policies
shall name Lessee, Lessor and its assigns as additional insureds and shall name
Lessor and its assigns as loss payee(s), and shall provide that insurance
coverage shall not be canceled or altered without at least thirty (30) days
prior written notice to Lessor and Assignee, and that no breach of warranty by
Lessor shall invalidate such insurance with respect to any additional insured.
Lessee shall promptly furnish appropriate evidence of such insurance to Lessor
and any Assignee.
19. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and warrants to
Lessor and any Assignees on the date hereof and on the date of each Lease Order
that (i) the execution and performance of this Lease Agreement and all Lease
Orders are duly authorized and this Lease Agreement and the Lease Orders
constitute legal, valid and binding obligations of Lessee enforceable in
accordance with their terms; (ii) the performance under the Lease Agreement and
all Lease Orders by Lessee will not result in any breach, default or violation
of Lessees articles of incorporation or by-laws, if applicable, or partnership
agreement, if applicable, or any agreement to which Lessee is a party; (iii)
Lessee is in good standing duly organized, and validly existing in its
jurisdiction of incorporation or organization and in any jurisdiction(s) in
which any of the Equipment is to be located; (iv) there are no actions, suits or
Page 3 of 5
<PAGE>
DUPLICATE
proceedings pending or threatened, before any court, agency, or arbitrator which
will, if determined adversely to Lessee, materially adversely affect its ability
to perform its obligations under this Lease Agreement or any Lease Order; and
(v) any and all information with respect to Lessee heretofore furnished to
Lessor was, when furnished, true and complete.
20. FINANCIAL STATEMENTS, ETC.. During the term of this Lease Agreement, Lessee
shall furnish to Lessor and any Assignee Lessee's audited balance sheet, income
statement and statement of cash flows for its most recent fiscal year, within
ninety days and quarterly statements within forty-five days, all prepared in
accordance with generally accepted accounting principles consistently applied,
and, from time to time, such other information concerning the Equipment as
Lessor or any Assignee may reasonably request.
21. DEFAULT. The occurrence of any of the following events shall constitute an
"Event of Default" hereunder and under each Lease Order entered into pursuant
hereto:
(a) Lessee shall fail to pay any installment of rent or other charge due
under this Lease Agreement or any Lease Order thereunder within ten (10) days
after the same is due and payable;
(b) Lessee attempts to move, sell, assign, transfer, encumber, dispose of,
sublet or lend any of the Equipment without the prior written consent of Lessor;
(c) Except for defaults covered by Paragraph (a) above, Lessee shall fail
to perform or observe any covenant, condition or agreement to be performed or
observed by it hereunder or under any Lease Order and such failure continues
unremedied for fifteen (15) days after notice thereof to Lessee by Lessor;
(d) Any representation or warranty made by Lessee in this Lease Agreement,
any Lease Order, or in any document or certificate made or furnished to Lessor
in connection herewith or pursuant hereto shall prove to be false at any time in
any material respect;
(e) Lessee ceases doing business as a going concern; makes an assignment
for the benefit of creditors; admits in writing its inability to pay its debts
as they become due; files an assignment in bankruptcy; is adjudicated to be
bankrupt or insolvent; seeks for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar arrangement under
any present or future statute, law or regulation or files an answer admitting
the material allegations of a petition filed against it in any such proceeding;
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of it or of all or any substantial part of its assets or properties,
or if it or its shareholders shall take any action to effect a dissolution or
liquidation and, in the case of any such proceeding not being instituted by
Lessee, such proceeding is not dismissed or vacated within thirty (30) days.
22. REMEDIES. Upon the occurrence of any Event of Default and at any time
thereafter, Lessor may, with or without terminating this Lease Agreement, do any
one or more of the following:
(a) Proceed by appropriate court action to enforce performance by Lessee of
the applicable terms of this Lease Agreement or any Lease Order;
(b) Declare immediately payable all sums due and to become due hereunder
for the full term of any and all Lease Orders under this Lease Agreement;
(c) If the Lease Order provides for a Stipulated Loss Value or other fixed
value of the Equipment, recover (i) any then accrued and unpaid rent plus
interest thereon at the late payment rate, (ii) the Stipulated Loss Value or
other fixed value, at Lessors option, of the Equipment as of the rent payment
date immediately preceding Lessee's date of default, and (iii) all commercially
reasonable costs and expenses incurred by Lessor in any repossession, recovery,
storage, repair, sale, release or other disposition of the Equipment including
reasonable attorney's fees and costs incurred in connection therewith or
otherwise resulting from Lessee's default;
(d) If the Lease Order does not provide for a Stipulated Loss Value or
other fixed value for the Equipment, recover from Lessee damages, not as a
penalty, but herein liquidated for all purposes and in an amount equal to the
sum of (i) any then accrued and unpaid Rent plus interest thereon at the Late
Payment Rate, (ii) the present value of all remaining Rent contracted to be paid
over the unexpired portion of the Initial Term or any extended term, discounted
at an interest rate of five percent (5%) per annum plus prepayment penalty fees,
(iii) all commercially reasonable costs and expenses incurred by Lessor in any
repossession, recovery, storage, or repair, sale, re-lease or other disposition
of the Equipment, including reasonable attorney's fees and costs incurred in
connection therewith or otherwise resulting from Lessee's default and (iv) the
fair market residual value in continued use at the time of default of the
Equipment determined by Lessor;
(e) Re-lease or sell any or all of the Equipment at a public or private
sale, with the privilege of becoming the purchaser or Lessee thereof, on such
terms and notice as Lessor shall deem reasonable, and thereafter Lessor shall
apply the proceeds derived therefrom as follows, Lessee remaining liable for any
deficiency: First, to reimburse Lessor for all costs and expenses incurred by
Lessor in any repossession, recovery, storage, repair, sale, re-lease or other
disposition of the Equipment, including reasonable attorney's fees, commissions
and brokers fees and costs incurred in connection therewith or otherwise
resulting from Lessee's default; second, to pay Lessor any amounts owing
hereunder, third, to reimburse Lessee for any payment paid hereunder as a result
of Lessee's default; and fourth, any surplus remaining thereafter to Lessor;
(f) Take immediate possession of any or all of such Equipment wherever
situated, and for such purpose, enter upon any premises (by summary proceedings
or otherwise) where the Equipment is located without prejudice to any other
remedy or claim referred to herein; and
(g) Exercise any other right or remedy which may be available to it under
the Uniform Commercial Code or any other applicable law.
A termination hereunder shall occur only upon notice by Lessor and only as
to such Equipment as Lessor specifically elects to terminate and this Lease
Agreement and all Lease Orders hereunder shall continue in full force and effect
as to the remaining Equipment, if any. No remedy referred to in this Paragraph
22 is intended to be exclusive, but each shall be cumulative and in addition to
any other remedy referred to above or otherwise available to Lessor at law or in
equity. No express or implied waiver by Lessor of any default shall constitute a
waiver of any other default by Lessee or a waiver of any of Lessors rights.
23. LOSS OF ANTICIPATED TAX BENEFITS. Lessee acknowledges that unless otherwise
agreed to in writing by Lessor, Lessor intends to claim all available tax
benefits of ownership with respect to the Equipment (the `Tax Benefits'),
including, but not limited to, capital cost allowances as provided in the Income
Tax Act (Canada) (the `Tax Act'), with respect to each item of Equipment for
each of Lessors taxation years during the Initial Term and any extended or
renewal term. Notwithstanding anything herein to the contrary, if Lessor shall
not be entitled to, or shall be subject to recapture of the Tax Benefits as a
result of any act, omission or misrepresentation of Lessee, Lessee shall pay to
Lessor upon demand an amount sufficient to reimburse Lessor for such loss,
together with any related interest and penalties, based on the highest marginal
corporate income tax rate prevailing at the time of such loss, regardless of
whether Lessor or any member of a consolidated group of which Lessor is also a
member is then subject to any increase in tax as a result of such loss of Tax
Benefits. Lessee has not made, and does not hereby make, any representation or
warranty as to the tax consequences of Lessors entering into or performing this
Lease Agreement, any Lease Order or any other transactional document(s), or with
respect to the tax attributes of the Equipment or the tax character of this
Lease Agreement.
24. TERMINATION. Each Lease Order, with respect to all but not less than all of
the Equipment covered thereby, may be terminated by either party at the end of
the Initial Term or any renewal or extended term thereof provided written notice
of termination of a Lease Order is given between one hundred eighty days and
ninety days prior to the termination of the Lease Order. If proper notice of
termination is not given, or if the Equipment is not returned to Lessor as
notified, the term of the Lease Order shall be extended on the same terms and
conditions for six months. Thereafter, the Lease Order as so extended may be
terminated by either party at the end of any calendar month by giving the other
party ninety days prior written notice.
25. GENERAL
(a) This Lease Agreement and any Lease Order hereunder shall in all
respects be governed by, and construed in accordance with, the laws of the
Province of Ontario, including all matters of construction, validity and
performance, and the federal laws of Canada applicable in Ontario. Lessee hereby
consents and irrevocably attorns to the jurisdiction of the courts of the
Province of Ontario for all disputes relating to the construction,
interpretation, enforcement and performance of this Lease Agreement or any Lease
Order, hereby waiving all defenses based on venue or convenience of forum or
service of process outside of such jurisdiction and consenting to service by
mail pursuant to subsection 25(c) hereof.
(b) This Lease Agreement and all Lease Orders constitute the entire
agreement between Lessee and Lessor with respect to the Equipment covered
thereby and supersede any prior or contemporaneous agreements or understandings
relating thereto. No covenant, condition or other term or provision hereof or of
any Lease Order may be waived, changed, amended or modified except by a written
agreement signed by both Lessor and Lessee.
(c) All notices, consents or requests desired or required to be given
hereunder shall be in writing and shall be mailed, via certified mail, return
receipt requested, to the address of the party set forth on the first page
hereof or to such other address as such party shall have designated by a proper
notice.
(d) This Lease Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective permitted successors and assigns.
(e) Paragraph headings are for convenience of reference only and shall not
be construed as part of this Lease Agreement.
(f) It is expressly understood that all of the Equipment shall be and
remain personal property of the Lessor notwithstanding the manner in which the
same may be attached or affixed to realty, and Lessee shall do all acts and
execute all documents necessary to insure that the Equipment remains personal
property.
Page 4 of 5
<PAGE>
DUPLICATE
(g) All agreements, representations and warranties contained in this Lease
Agreement, any Lease Order, and in any document delivered pursuant hereto or in
connection herewith shall be for the benefit of Lessor and any Assignee and
shall survive the execution and delivery, and the expiration or other
termination, of this Lease Agreement and any Lease Order.
(h) Time is of the essence of this Lease Agreement and each Lease Order.
(i) Lessee shall, upon request of Lessor, perform all such other acts and
execute and deliver to Lessor all such other documents which Lessor deems
reasonably necessary to implement the provisions of this Lease Agreement or any
Lease Order.
(j) This Lease Agreement and any Lease Order may be executed in one or more
counterparts, each of which shall be deemed an original, but there shall be only
one executed original of each Lease Order which shall be marked "Original" (the
"Original") and all other counterparts shall be marked "Duplicate". To the
extent, if any, that a Lease Order constitutes chattel paper (as such term is
defined in applicable personal property security legislation) no security
interest in the Lease Order may be created through the transfer or possession of
any counterpart other than the Original of the Lease Order accompanied by an
Original or certified copy of the Lease Agreement.
(k) The parties have expressly requested that this agreement be drawn up in
the English language. Les parties ont expressement demande que cette convention
soit redigee en langue anglaise.
(l) All references to dollar amounts in this Lease Agreement, any Lease
Order and any related document shall, unless otherwise expressly indicated, be
read as referring to lawful currency of Canada.
FOR USE IN CANADA ONLY
Page 5 of 5
<PAGE>
DUPLICATE
ADDENDUM NO. 1
TO
MASTER LEASE AGREEMENT NO. 1833
This Addendum modifies, supplements and amends Master Lease Agreement No. 1833
(the "Lease") dated as of June 1, 1999, between GATX TECHNOLOGY FINANCE INC.
("Lessor) and RMH TELESERVICES INTERNATIONAL INC. ("Lessee") except as otherwise
defined herein, or as the context may otherwise require, capitalized terms shall
have the meanings assigned to them in the Lease. The terms of this Addendum
shall be deemed a part of the Lease and incorporated by this reference into each
Lease Order; provided, however, that any express language contained in a Lease
Order contrary to the terms of the Addendum shall control and be deemed to
supercede the language of this Addendum.
1. DEFINITIONS.
First paragraph, replace "thirty (30) days" with "seven (7) days"
2. NET LEASE.
At the end of the first sentence, add "provided however, that nothing contained
in this Lease Agreement shall impair the right of the Lessee to bring an
independent action against the Lessor or any Assignee with respect to any claim
it may have in connection herewith."
4. RENTAL.
In the last sentence, replace "lesser with "rate"; and delete everything after
"(18% per annum)."
6. INSTALLATION, USE, MAINTENANCE AND INSPECTION OF EQUIPMENT.
Subparagraph 6(c), second sentence; Delete "manufacturer to keep the" and,
insert after equipment, "to be kept".
8. ALTERATION AND MODIFICATIONS.
In the last sentence, delete ", financing or supply"
10. OWNERSHIP, SECURITY INTEREST.
In the fifth sentence, replace "Lessee" with "Lessor.
11. ASSIGNMENT OR SUBLETTING BY LESSEE.
At the end of the first sentence add "not to be unreasonably witheld."
20. FINANCIAL STATEMENT, ETC...
In the first sentence, after "Lessee's" add "Parent Company's".
<PAGE>
DUPLICATE
21. DEFAULT.
Subparagraph 21(a), after "payable" add "and such failure continues for 10 days
after notice thereof to Lessee by Lessor;
Subparagraph 21(e), after "seeks for itself any" delete "reorganization,
arrangement, composition, readjustment,".
22. REMEDIES.
Subparagraph 22(e), in the first sentence, replace "Lessor shall deem" with "is
commercially".
Subparagraph 22(g), replace "the Uniform Commercial Code" with "Personal
Property security legislation".
23. LOSS OF ANTICIPATED TAX BENEFITS.
Insert the word "deliberate" between "any" and "act".
24. TERMINATION.
At the end of the second sentence, replace "six months" with "on a month to
month basis."
In the third sentence, replace "ninety" days with "sixty" days.
25. GENERAL.
Subparagraph 25(i), after "other" insert "reasonable".
RMH TELESERVICES INTERNATIONAL INC.
LESSEE
By: /s/ NOAH ASHER
-------------------------
Title: EVP & CEO
-----------------------
GATX TECHNOLOGY FINANCE INC.
LESSOR
By: /s/ DAVID R. CARDEW
--------------------------
Title: VICE PRESIDENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 6,317,000
<SECURITIES> 3,339,000
<RECEIVABLES> 14,818,000
<ALLOWANCES> 66,000
<INVENTORY> 0
<CURRENT-ASSETS> 27,148,000
<PP&E> 11,666,000
<DEPRECIATION> 7,661,000
<TOTAL-ASSETS> 31,285,000
<CURRENT-LIABILITIES> 7,863,000
<BONDS> 0
0
0
<COMMON> 48,838,000
<OTHER-SE> (25,566,000)
<TOTAL-LIABILITY-AND-EQUITY> 31,285,000
<SALES> 0
<TOTAL-REVENUES> 53,754,000
<CGS> 0
<TOTAL-COSTS> 52,336,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,666,000
<INCOME-TAX> 625,000
<INCOME-CONTINUING> 1,041,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,041,000
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
