<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1996
REGISTRATION NO. 333-11745
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NCO GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 7322 23-2858652
- ---------------------------------------------------------------------------------------------------
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
1740 Walton Road
Blue Bell, Pennsylvania 19422-0987
Telephone (610) 832-1440
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael J. Barrist, President and Chief Executive Officer
NCO Group, Inc.
1740 Walton Road
Blue Bell, Pennsylvania 19422-0987
Telephone (610) 832-1440
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
Copies to:
Francis E. Dehel, Esquire Henry D. Kahn, Esquire
Blank Rome Comisky & McCauley Lawrence R. Seidman, Esquire
1200 Four Penn Center Plaza Piper & Marbury L.L.P.
Philadelphia, Pennsylvania 19103 36 South Charles Street
Telephone: (215) 569-5500 Baltimore, Maryland 21201
Telephone: (410) 539-2530
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1996
2,500,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by NCO
Group, Inc. ("NCO" or the "Company").
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Application has been made for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"NCOG."
See "Risk Factors" commencing on page 8 of this Prospectus for a
discussion of certain factors that should be considered by prospective
purchasers of the Common Stock offered hereby.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -------------------------------------------------------------------------------
Per Share ........ $ $ $
Total (3) ........ $ $ $
===============================================================================
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$1,150,000.
(3) The principal shareholders of the Company (the "Selling Shareholders")
have granted to the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Shareholders will be $ , $ , $ , and
$ , respectively. See "Principal and Selling Shareholders" and
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right
to reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor
at the office of Montgomery Securities on or about , 1996.
------
MONTGOMERY SECURITIES JANNEY MONTGOMERY SCOTT INC.
, 1996
<PAGE>
Six pictures depicting the Company's call center in Blue Bell, Pennsylvania,
the Company's call center in Buffalo, New York and the Company's computer
center in Blue Bell, Pennsylvania and an NCO telephone representative appear
here. A diagram depicting the accounts receivable recovery process also
appears here.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, contained
elsewhere in this Prospectus. The Company is a recently formed Pennsylvania
corporation. On September 3, 1996, the shareholders of NCO Financial Systems,
Inc. ("NCO Financial") exchanged each of their shares of NCO Financial for
one share of the Company, NCO Financial became a wholly-owned subsidiary of
the Company and NCO Financial's status as an S Corporation was terminated.
See "Dividend Policy and Prior S Corporation Status." Unless the context
otherwise requires, all references in this Prospectus to the "Company" or
"NCO" mean NCO Group, Inc. and its subsidiaries. Unless otherwise indicated,
all information in this Prospectus: (i) assumes no exercise of the
Underwriters' over-allotment option; (ii) gives effect to a proposed
46.56-for-one stock split effected in September 1996; and (iii) gives effect
to the Company's acquisition of Management Adjustment Bureau, Inc. ("MAB") on
September 5, 1996.
THE COMPANY
NCO is a leading provider of accounts receivable management and related
services utilizing an extensive teleservices infrastructure. The Company
develops and implements customized accounts receivable management solutions
for clients. From eight call centers located in six states, the Company
employs advanced workstations and sophisticated call management systems
comprised of predictive dialers, automated call distribution systems, digital
switching and customized computer software. Through efficient utilization of
technology and intensive management of human resources, the Company has
achieved rapid growth in recent years. Since April 1994, the Company has made
four acquisitions which have enabled it to increase its penetration of
existing markets, establish a presence in certain new markets and realize
significant operating efficiencies. In addition, the Company has leveraged
its infrastructure by offering additional services including telemarketing,
customer service call centers and other outsourced administrative services.
The Company believes that it is among the 20 largest accounts receivable
management companies in the United States.
The Company provides its services principally to educational
organizations, financial institutions, healthcare organizations,
telecommunications companies, utilities and government entities. In 1995, the
Company had over 5,000 clients, including Bell Atlantic Corporation, First
Union Corporation, George Washington University Hospital, NationsBank and the
University of Pennsylvania. For its accounts receivable management services,
the Company generates substantially all of its revenue on a contingency fee
basis. The Company seeks to be a low cost provider and as such its fees
typically range from 15% to 35% of the amount recovered on behalf of the
Company's clients, with a current average of approximately 24%. According to
the 1995 Top Collection Markets Survey published by the American Collectors
Association, Inc. ("ACA"), an industry trade group, the average fees realized
by the accounts receivable management companies surveyed were in the range of
30% to 43% depending upon the industries served. For many of its other
outsourced teleservices, the Company is paid on a fixed fee basis. While
NCO's contracts are relatively short-term, the Company seeks to develop
long-term relationships with its clients and works closely with them to
provide quality, customized solutions.
Increasingly, companies are outsourcing many non-core functions to focus
on revenue generating activities, reduce costs and improve productivity. In
particular, many corporations are recognizing the advantages of outsourcing
accounts receivable management and other teleservices as a result of numerous
factors including: (i) the increasing complexity of such functions; (ii)
changing regulations and increased competition in certain industries; and
(iii) the development of sophisticated call management systems requiring
substantial capital investment, technical capabilities and human resource
commitments. Consequently, receivables referred to third parties for
management and recovery in the United States have grown substantially from
approximately $43.7 billion in 1990 to approximately $79.0 billion in 1994,
according to estimates published by the ACA. While significant economies of
scale exist for large accounts receivable management companies, the industry
remains highly fragmented. Based on information obtained from the ACA, there
are currently approximately 6,300 accounts receivable management companies in
operation, the majority of which are small, local businesses. Given the
financial and competitive constraints facing these small companies and the
limited number of liquidity options for the owners of such businesses, the
Company believes that the industry will experience consolidation in the
future. See "Business -- Industry Background."
3
<PAGE>
The Company strives to be a cost-effective, client service driven provider
of accounts receivable management and other related teleservices to companies
with substantial outsourcing needs. The Company's business strategy
encompasses a number of key elements which management believes are necessary
to ensure quality service and to achieve consistently strong financial
performance. First, the Company focuses on the efficient utilization of its
technology and infrastructure to constantly improve productivity. The
Company's teleservices infrastructure enables it to perform large scale
accounts receivable management programs cost effectively and to rapidly and
efficiently integrate the Company's acquisitions. A second critical component
is NCO's commitment to client service. Management believes that the Company's
emphasis on designing and implementing customized accounts receivable
management programs for its clients provides it with a significant
competitive advantage. Third, the Company seeks to be a low cost provider of
accounts receivable management services by centralizing all administrative
functions and minimizing overhead at all branch locations. Lastly, the
Company is targeting larger clients which offer significant cross-selling
opportunities and have greater teleservices outsourcing requirements. See
"Business -- Business Strategy."
The Company seeks to continue its rapid expansion through both internal
and external growth. The Company intends to continue to take advantage of the
fragmented nature of the accounts receivable management industry by making
strategic acquisitions. Through selected acquisitions, the Company will seek
to serve new geographic markets, expand its presence in its existing markets
or add complementary services. In addition, the Company has experienced and
expects to continue to experience strong internal growth by continually
striving to increase its market share, expand its industry-specific market
expertise and develop and offer new value-added teleservices. The Company
regularly reviews various strategic acquisition opportunities and
periodically engages in discussions regarding such possible acquisitions.
Currently, the Company is not a party to any agreements, understandings,
arrangements or negotiations regarding any material acquisitions; however, as
the result of the Company's process of regularly reviewing acquisition
prospects, negotiations may occur from time to time if appropriate
opportunities arise. See "Acquisition History."
The Company's principal executive offices are located at 1740 Walton Road,
Blue Bell, Pennsylvania 19422, and its telephone number is (610) 832-1440.
SUMMARY OF RECENT OPERATING RESULTS
The Company's revenue for the nine months ended September 30, 1996 was $20.3
million on an actual basis and $29.4 million on a pro forma basis, compared to
revenue for the nine months ended September 30, 1995 of $9.0 million. For the
nine months ended September 30, 1996, operating income was $3.3 million on an
actual basis and $3.9 million on a pro forma basis, compared to operating
income of $1.2 million for the nine months ended September 30, 1995. The
increase in actual revenue and operating income was attributable to internal
growth and the acquisition of Eastern Business Services, Inc. ("Eastern") in
August 1995, the Trans Union Corporation Collections Division ("TCD") in
January 1996 and MAB in September 1996. Such operating information is
preliminary and subject to further review and possible revision by the
Company. The preliminary results for the nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" and "Pro Forma Consolidated
Financial Statements."
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ................ 2,500,000 shares
Common Stock to be outstanding after the Offering .. 6,713,447 shares (1)
Use of proceeds .................................... For repayment of bank debt incurred to finance
acquisitions, for payment of S Corporation
distributions, and for working capital and other
general corporate purposes, including possible
acquisitions.
Proposed Nasdaq National Market symbol ............. NCOG
</TABLE>
- ------
(1) Excludes: (i) 464,390 shares of Common Stock reserved for issuance under
the Company's 1995 Stock Option Plan, 1996 Stock Option Plan and 1996
Non-Employee Director Stock Option Plan; (ii) 240,591 shares of Common
Stock reserved for issuance upon the exercise of warrants granted or to
be granted by the Company to its lender; and (iii) 83,333 shares of
Common Stock reserved for issuance upon the conversion of the Company's
$1.0 million Convertible Note (at an assumed conversion price of $12.00
per share) issued as partial consideration for the MAB acquisition. See
"Acquisition History," "Management-- Stock Option Plans" and "Description
of Capital Stock -- Warrants and Convertible Note."
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1991 1992 1993 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Statement of Income Data:
Revenue ............... $ 3,792 $ 5,822 $ 7,445 $ 8,578
Operating costs and
expenses:
Payroll and related
expenses ......... 1,892 3,058 4,123 4,558
Selling, general and
administrative
expenses ......... 1,457 2,013 2,391 2,674
Depreciation and
amortization
expense .......... 40 95 141 215
---------- ---------- ---------- ----------
Income from operations 403 656 790 1,131
Other income (expense) (1) 15 11 (45)
---------- ---------- ---------- ----------
Income before income
taxes .............. 402 671 801 1,086
Pro forma provision for
income taxes (4) ... 160 268 320 434
---------- ---------- ---------- ----------
Pro forma net income
(4) ................ $ 242 $ 403 $ 481 $ 652
========== ========== ========== ==========
Pro forma net income
per share ..........
Pro forma weighted
average shares
outstanding ........
Operating Data:
Total value of accounts
referred ........... $178,529 $150,707 $199,108 $281,387
Average fee ........... 14.4% 16.9% 20.2% 22.5%
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------
1995 1995 1996
------------------------------ ---------- -----------------------------
Pro Pro
Actual Forma(1)(2) Actual Forma(2)(3)
-------------- ------------ ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue ............... $12,733 $34,509 $5,546 $12,543 $19,319
Operating costs and
expenses:
Payroll and related
expenses ......... 6,797 16,412 2,956 5,954 9,479
Selling, general and
administrative
expenses ......... 4,042 12,531 1,745 4,095 6,516
Depreciation and
amortization
expense .......... 348 1,529 116 423 833
-------------- ------------ ---------- -------------- -----------
Income from operations 1,546 4,037 729 2,071 2,491
Other income (expense) (180) (212) (73) (310) (19)
-------------- ------------ ---------- -------------- -----------
Income before income
taxes .............. 1,366 3,825 656 1,761 2,472
Pro forma provision for
income taxes (4) ... 546 1,659 262 704 1,053
-------------- ------------ ---------- -------------- -----------
Pro forma net income
(4) ................ $ 820 $2,166 $ 394 $ 1,057 $1,419
============== ============ ========== ============== ===========
Pro forma net income
per share .......... $ 0.17(5) $0.35 $ 0.22(5) $ 0.23
============== ============ ============== ===========
Pro forma weighted
average shares
outstanding ........ 4,745,229(5) 6,211,179 4,750,259(5) 6,216,209
============== ============ ============== ===========
Operating Data:
Total value of accounts
referred ........... $431,927 $1,134,000 $180,783 $373,499 $664,905
Average fee ........... 22.4% N/A 21.7% 24.0% 24.3%
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30, 1996
----------------------------------------------------- ----------------------------
Pro Forma
1991 1992 1993 1994 1995 Actual As Adjusted(6)
-------- -------- -------- -------- -------- ---------- --------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents ....... $ 355 $ 421 $ 562 $ 526 $ 805 $ 990 $ 9,515
Working capital ................. 179 362 445 473 812 2,458 11,600
Total assets .................... 1,546 2,177 2,449 4,106 7,873 14,655 35,263
Long-term debt, net of current
portion......................... 108 144 59 732 2,593 7,356 1,710
Shareholders' equity ............ 403 686 876 1,423 2,051 3,151 26,982
</TABLE>
6
<PAGE>
(1) Assumes that the acquisitions of MAB, TCD and Eastern occurred on January
1, 1995.
(2) Gives effect to: (i) the reduction of certain redundant operating costs
and expenses that were immediately identifiable at the time of the
acquisitions; (ii) the elimination of interest expense associated with
acquisition related debt assumed to be repaid with offering proceeds; and
(iii) the issuance of 1,715,950 shares of Common Stock (at an assumed
initial public offering price of $12.00 per share) which, net of
estimated underwriting commissions and offering expenses payable by the
Company, would be sufficient to repay acquisition related debt of $15.0
million and to fund the distribution of undistributed S Corporation
earnings (estimated at $3.0 million) through September 3, 1996, the
termination date of the Company's S Corporation status, to existing
shareholders of the Company. See Pro Forma Consolidated Financial
Statements.
(3) Assumes that the acquisition of MAB occurred on January 1, 1995.
(4) Prior to September 3, 1996, the Company operated as an S Corporation for
income tax purposes and accordingly was not subject to federal or state
income taxes. Accordingly, the historical financial statements do not
include a provision for federal and state income taxes for such periods.
Pro forma net income has been computed as if the Company had been fully
subject to federal and state income taxes for all periods presented. See
Note 12 of Notes to Pro Forma Consolidated Financial Statements.
(5) Assumes that the Company issued 250,000 shares of Common Stock (at an
assumed initial public offering price of $12.00 per share) to fund the
distribution of undistributed S Corporation earnings (estimated at $3.0
million) through September 3, 1996, the termination date of the Company's
S Corporation status, to existing shareholders of the Company.
(6) Gives effect to: (i) the MAB acquisition and (ii) the sale of the
2,500,000 shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $12.00 per share) and the
application of the net proceeds therefrom as set forth in "Use of
Proceeds."
7
<PAGE>
RISK FACTORS
Certain statements included in this Prospectus, including, without
limitation, statements regarding the anticipated growth in the amount of
accounts receivable placed for third-party management, the continuation of
trends favoring outsourcing of other administrative functions, the Company's
objective to grow through strategic acquisitions and its ability to realize
operating efficiencies upon the completion of the MAB acquisition and other
acquisitions that may occur in the future, the Company's ability to expand
its service offerings, and trends in the Company's future operating
performance, are forward-looking statements, and the factors discussed below
could cause actual results and developments to be materially different from
those expressed in or implied by such statements. Accordingly, in addition to
the other information contained in "Acquisition History -- Financial Impact
of Acquisitions," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the shares of Common Stock offered by this Prospectus.
RISKS ASSOCIATED WITH TCD AND MAB ACQUISITIONS
The TCD and MAB acquisitions were consummated in January 1996 and
September 1996, respectively. These entities had revenues of $7.5 million and
$13.0 million, respectively, in 1995 compared to the Company's revenue of
$12.7 million in 1995. The Company's efforts in integrating the TCD
acquisition are continuing and its efforts in integrating the MAB acquisition
are in the initial stages. Such integration will likely place significant
demands on the Company's management and infrastructure. There can be no
assurance that TCD's or MAB's businesses will be successfully integrated with
that of the Company, that the Company will be able to realize operating
efficiencies or eliminate redundant costs or that their businesses will be
operated profitably. Further, there can be no assurance that clients of the
acquired businesses will continue to do business with the Company or that the
Company will be able to retain key employees. Approximately $15.0 million of
the proceeds of this Offering will be used to repay indebtedness incurred in
the MAB, TCD, Eastern and B. Richard Miller, Inc. ("BRM"), acquisitions. See
"Use of Proceeds."
RISKS ASSOCIATED WITH RAPID GROWTH
The Company has experienced rapid growth over the past several years which
has placed significant demands on its administrative, operational and
financial resources. The Company seeks to continue such rapid growth which
could place additional demands on its resources. Future internal growth will
depend on a number of factors, including the effective and timely initiation
and development of client relationships, the Company's ability to maintain
the quality of services it provides to its clients and the recruitment,
motivation and retention of qualified personnel. Sustaining growth will also
require the implementation of enhancements to its operational and financial
systems and will require additional management, operational and financial
resources. There can be no assurance that the Company will be able to manage
its expanding operations effectively or that it will be able to maintain or
accelerate its growth, and any failure to do so could have a materially
adverse effect on the Company's business, results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
A primary element of the Company's growth strategy is to pursue strategic
acquisitions that expand or complement the Company's business. The Company
regularly reviews various strategic acquisition opportunities and
periodically engages in discussions regarding such possible acquisitions.
Currently, the Company is not a party to any agreements, understandings,
arrangements or negotiations regarding any material acquisitions; however, as
the result of the Company's process of regularly reviewing acquisition
prospects, negotiations may occur from time to time if appropriate
opportunities arise. There can be no assurance that the Company will be able
to identify additional acquisition candidates on terms favorable to the
Company or in a timely manner, enter into acceptable agreements or close any
such transactions. There can be no assurance that the Company will be able to
achieve its acquisition strategy, and any failure to do so could have a
materially adverse effect on the Company's business, financial condition,
results of operations and ability to sustain growth. In addition, the Company
believes that it will compete for attractive acquisition candidates with
other larger companies, consoli-
8
<PAGE>
dators or investors in the accounts receivable management industry. Increased
competition for such acquisition candidates could have the effect of
increasing the cost to the Company of pursuing this growth strategy or could
reduce the number of attractive candidates to be acquired. Future
acquisitions could divert management's attention from the daily operations of
the Company and otherwise require additional management, operational and
financial resources. Moreover, there is no assurance that the Company will
successfully integrate future acquisitions into its business or operate such
acquisitions profitably. Acquisitions may also involve a number of special
risks including: adverse short-term effects on the Company's operating
results; dependence on retaining key personnel; amortization of acquired
intangible assets and risks associated with unanticipated problems,
liabilities or contingencies. See "Business -- Growth Strategy."
The Company may require additional debt or equity financing for future
acquisitions, which may not be available on terms favorable to the Company,
if at all. To the extent the Company uses its capital stock for all or a
portion of the consideration to be paid for future acquisitions, dilution may
be experienced by existing shareholders, including the purchasers of Common
Stock in this Offering. In the event that the Company's capital stock does
not maintain sufficient value or potential acquisition candidates are
unwilling to accept the Company's capital stock as consideration for the sale
of their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to continue its acquisition program. If the
Company does not have sufficient cash resources or is not able to use its
capital stock as consideration for acquisitions, its growth through
acquisitions could be limited. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience
quarterly variations in revenues and net income as a result of many factors,
including the timing of clients' accounts receivable management programs, the
commencement of new contracts, the termination of existing contracts, costs
to support growth by acquisition or otherwise, the costs and timing of
completion of additional acquisitions, the effect of the change of business
mix on margins and the timing of additional selling, general and
administrative expenses to support new business. The Company's planned
operating expenditures are based on revenue forecasts, and if revenues are
below expectations in any given quarter, operating results would likely be
materially adversely affected. While the effects of seasonality on the
Company's business historically have been obscured by its rapid growth, the
Company's business tends to be slower in the third and fourth quarters of the
year due to the summer and holiday seasons. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the continued services and experience
of its senior management team, including Michael J. Barrist, President and
Chief Executive Officer. The loss of the services of Mr. Barrist or other
members of its senior management could have a materially adverse effect on
the Company. The Company has five-year employment contracts with Mr. Barrist
and certain other key executives. In addition, the Company has a $4.0 million
key person life insurance policy on Mr. Barrist. See "Management."
DEPENDENCE ON CERTAIN INDUSTRIES; CONTRACT RISKS
Most of the Company's revenues are derived from clients in the education,
financial services, healthcare, telecommunications and utilities industries.
A significant downturn in any of these industries or any trends to reduce or
eliminate the use of third-party accounts receivable management services
could have a materially adverse impact on the Company's business, results of
operations and financial condition. The Company enters into contracts with
most of its clients which define, among other things, fee arrangements, scope
of services and termination provisions. Clients may usually terminate such
contracts on 30 or 60 days notice. Accordingly, there can be no assurance
that existing clients will continue to use the Company's services at
historical levels, if at all. Under the terms of these contracts, clients are
not required to place accounts with the Company but do so on a discretionary
basis. In addition, substantially all of the Company's contracts are on a
contingent fee basis where the Company recognizes revenues only as accounts
are recovered. See "Business."
9
<PAGE>
COMPETITION
The accounts receivable management industry is highly competitive. The
Company competes with approximately 6,300 providers, including large national
corporations such as First Data Corporation, Payco American Corporation, CRW
Financial, Inc. and Union Corporation, and many regional and local firms.
Some of the Company's competitors have substantially greater resources, offer
more diversified services and operate in broader geographic areas than the
Company. In addition, the accounts receivable management services offered by
the Company are performed in-house by many businesses. Moreover, many larger
clients retain multiple accounts receivable management providers which
exposes the Company to continuous competition in order to remain a preferred
vendor. There can be no assurance that outsourcing of the accounts receivable
management function will continue or that the Company's clients which
currently outsource such services will not bring them in-house. The Company
also competes with other firms, such as SITEL Corporation, APAC Teleservices,
Inc. and Teletech Holdings, Inc., in providing teleservices. As a result of
these factors, there can be no assurance that competition from existing or
potential competitors will not have a materially adverse effect on the
Company's results of operations. See "Business - Competition."
RISK OF BUSINESS INTERRUPTION; RELIANCE ON COMPUTER AND TELECOMMUNICATIONS
INFRASTRUCTURE
The Company's success is dependent in large part on its continued
investment in sophisticated telecommunications and computer systems,
including predictive dialers, automated call distribution systems and digital
switching. The Company has invested significantly in technology in an effort
to remain competitive and anticipates that it will be necessary to continue
to do so in the future. Moreover, computer and telecommunication technologies
are evolving rapidly and are characterized by short product life cycles,
which requires the Company to anticipate technological developments. There
can be no assurance that the Company will be successful in anticipating,
managing or adopting such technological changes on a timely basis or that the
Company will have the capital resources available to invest in new
technologies. In addition, the Company's business is highly dependent on its
computer and telecommunications equipment and software systems, the temporary
or permanent loss of which, through casualty or operating malfunction, could
have a materially adverse effect on the Company's business. The Company's
business is materially dependent on service provided by various local and
long distance telephone companies. A significant increase in the cost of
telephone services that is not recoverable through an increase in the price
of the Company's services, or any significant interruption in telephone
services, could have a materially adverse impact on the Company. See
"Business - Operations."
DEPENDENCE ON LABOR FORCE
The accounts receivable management industry is very labor intensive and
experiences high personnel turnover. The Company experienced an annual
personnel turnover rate of approximately 38% for 1995. Many of the Company's
employees receive modest hourly wages and a portion of these employees are
employed on a part-time basis. A higher turnover rate among the Company's
employees would increase the Company's recruiting and training costs and
could adversely impact the quality of services the Company provides to its
clients. If the Company were unable to recruit and retain a sufficient number
of employees, it would be forced to limit its growth or possibly curtail its
operations. Growth in the Company's business will require it to recruit and
train qualified personnel at an accelerated rate from time to time. There can
be no assurance that the Company will be able to continue to hire, train and
retain a sufficient number of qualified employees. Additionally, an increase
in hourly wages, costs of employee benefits or employment taxes also could
materially adversely affect the Company. See "Business - Personnel and
Training."
GOVERNMENT REGULATION
The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. In particular, the
Company is subject to the federal Fair Debt Collection Practices Act which
establishes specific guidelines and procedures which debt collectors must
follow in communicating with consumer debtors, including the time, place and
manner of such communications. The Company is also subject to the Fair Credit
Reporting Act which regulates the consumer credit reporting industry and
which may impose liability on the Company to the extent that the adverse
credit information reported on a consumer to a credit
10
<PAGE>
bureau is false or inaccurate. The accounts receivable management business is
also subject to state regulation, and some states require that the Company be
licensed as a debt collection company. With respect to the other teleservices
offered by the Company, including telemarketing, the federal Telemarketing
and Consumer Fraud and Abuse Prevention Act of 1994 broadly authorizes the
Federal Trade Commission (the "FTC") to issue regulations prohibiting
misrepresentations in telemarketing sales. The FTC's telemarketing sales
rules prohibit misrepresentations of the cost, terms, restrictions,
performance or duration of products or services offered by telephone
solicitation and specifically address other perceived telemarketing abuses in
the offering of prizes and the sale of business opportunities or investments.
The federal Telephone Consumer Protection Act of 1991 (the "TCPA") limits the
hours during which telemarketers may call consumers and prohibits the use of
automated telephone dialing equipment to call certain telephone numbers. A
number of states also regulate telemarketing and some states have enacted
restrictions similar to the federal TCPA. The failure to comply with
applicable statutes and regulations could have a materially adverse effect on
the Company. There can be no assurance that additional federal or state
legislation, or changes in regulatory implementation, would not limit the
activities of the Company in the future or significantly increase the cost of
regulatory compliance.
Several of the industries served by the Company are also subject to
varying degrees of government regulation. Although compliance with these
regulations is generally the responsibility of the Company's clients, the
Company could be subject to a variety of enforcement or private actions for
its failure or the failure of its clients to comply with such regulations.
See "Business -- Government Regulation."
CONTROL BY PRINCIPAL SHAREHOLDERS
Immediately following this Offering, Michael J. Barrist will beneficially
own approximately 37.9% of the Common Stock (approximately 34.7% if the
Underwriters' over-allotment option is exercised in full), and together with
the other executive officers of the Company will beneficially own
approximately 60.8% (approximately 55.3% if the Underwriters' over-allotment
option is exercised in full). As a result of such voting concentration, Mr.
Barrist, together with other executive officers of the Company, will be able
to effectively control most matters requiring approval by the Company's
shareholders, including the election of directors. Such voting concentration
may have the effect of delaying, deferring or preventing a change in control
of the Company. See "Management" and "Principal and Selling Shareholders."
BENEFITS TO AFFILIATES; RELATED PARTY LEASES
The principal shareholders of the Company will realize substantial
benefits from the Offering. The Company will use approximately $3.0 million
of the net proceeds of the Offering to make distributions of S Corporation
earnings to shareholders of record on September 3, 1996, the date on which
the Company terminated its S Corporation status. See "Dividend Policy and
Prior S Corporation Status." The Company has entered into a distribution and
tax indemnification agreement with such shareholders which provides for,
among other things, an indemnification by the Company of such shareholders
for any losses or liabilities with respect to any additional taxes resulting
from the Company's operations during the period it was an S Corporation. See
"Certain Transactions -- Distribution and Tax Indemnification Agreement."
Such shareholders have also granted the Underwriters an over-allotment option
and will receive cash proceeds in the Offering in the event such option is
exercised. See "Underwriting." Additionally, the Company currently leases
four facilities in Blue Bell, Pennsylvania from limited partnerships
controlled by Mr. Barrist and the limited partners of which are the current
shareholders of the Company. While the Company believes that such leases are
on terms no less favorable to the Company than would have been obtained by
unaffiliated parties, there can be no assurance that conflicts of interest
will not arise in the future with respect to these leases. See "Certain
Transactions -- Real Estate Matters."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Common Stock. Application has been made for quotation of the Common Stock on
the Nasdaq National Market. There can be no assurance that a viable public
market for the Common Stock will develop or be sustained after the Offering
or that purchasers of the Common Stock will be able to resell their Common
Stock at prices equal to or greater than the initial public offering price.
The initial public offering price has been determined by negotiations among
the Company,
11
<PAGE>
the Selling Shareholders and the representatives of the Underwriters and may
not be indicative of the prices that may prevail in the public market after
the Offering is completed. Numerous factors, including announcements of
fluctuations in the Company's or its competitors' operating results and
market conditions for accounts receivable management, telemarketing industry
or business services stocks in general, the timing and announcement of
acquisitions by the Company or its competitors or government regulatory
action, could have a significant impact on the future price of the Common
Stock. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of the Company's Common Stock in the public market after the
Offering could adversely affect the market price of the Company's Common
Stock and could impair the Company's future ability to raise capital through
the sale of equity securities. Upon completion of the Offering, the Company
will have 6,713,447 shares of Common Stock outstanding. Of these shares, all
of the shares sold in the Offering will be available for resale in the public
market without restriction, except for any such shares which may be purchased
by affiliates of the Company. The Company's directors, executive officers and
existing shareholders have agreed, subject to certain limitations, not to
offer, sell or otherwise dispose of any shares of Common Stock for a period
of 180 days after the closing of the Offering without the prior written
consent of Montgomery Securities. Following the expiration of this 180-day
period, such persons will hold an aggregate of 4,213,447 outstanding shares
of Common Stock (3,838,447 shares if the over-allotment option is exercised
in full) which may be resold under Rule 144. The Company also has or expects
to have outstanding warrants to purchase 240,591 shares of Common Stock and a
$1.0 million Convertible Note convertible into 83,333 shares of Common Stock
(at an assumed conversion price of $12.00 per share) at any time on or before
September 5, 2001. The holder of the warrants has agreed, subject to certain
limitations, not to offer, sell or otherwise dispose of any shares of Common
Stock issuable upon exercise of the warrants for a period of 180 days after
the closing of the Offering without the prior written consent of Montgomery
Securities. The warrants are entitled to certain demand and piggy-back
registration rights following the completion of the Offering. In addition,
the Company intends, as soon as practicable after the consummation of the
Offering, to register approximately 464,390 shares of Common Stock reserved
for issuance to its employees, directors, consultants and advisors under the
Company's 1995 Stock Option Plan, 1996 Stock Option Plan and 1996
Non-Employee Director Stock Option Plan. Options to purchase an aggregate of
367,321 shares of Common Stock will be outstanding under all such plans upon
the consummation of the Offering. See "Management -- Stock Option Plans,"
"Description of Capital Stock -- Warrants and Convertible Note" and "Shares
Eligible for Future Sale."
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Articles of Incorporation (the
"Articles") and Bylaws (the "Bylaws") contain provisions which may be deemed
to be "anti-takeover" in nature in that such provisions may deter, discourage
or make more difficult the assumption of control of the Company by another
corporation or person through a tender offer, merger, proxy contest or
similar transaction. The Articles permit the Board of Directors to establish
the rights, preferences, privileges and restrictions of, and to issue, up to
5,000,000 shares of Preferred Stock without shareholder approval. The
Company's Bylaws also provide for the staggered election of directors to
serve for one-, two- and three-year terms, and for successive three-year
terms thereafter, subject to removal only for cause upon the vote of not less
than 65% of the shares of Common Stock represented at a shareholders'
meeting. Certain provisions of the Articles and Bylaws may not be amended
except by a similar 65% vote. In addition, the Company is subject to certain
anti-takeover provisions of the Pennsylvania Business Corporation Law. See
"Description of Capital Stock."
DILUTION
Purchasers of Common Stock in this Offering will experience immediate
dilution in net tangible book per share of Common Stock of $10.15 from the
initial public offering price per share. See "Dilution."
12
<PAGE>
ACQUISITION HISTORY
Since 1994, the Company has completed four strategic acquisitions which
have expanded its client base and geographic presence, increased its presence
in key industries and substantially increased its revenues and profitability.
A key element of the Company's growth strategy is to pursue selected
strategic acquisitions to serve new geographic markets or industries, expand
its presence in its existing markets or add complementary service
applications. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions. Currently, the Company is not a party to any agreements,
understandings, arrangements or negotiations regarding any material
acquisitions; however, as the result of the Company's process of regularly
reviewing acquisition prospects, negotiations may occur from time to time if
appropriate opportunities arise. A summary of the completed acquisitions
follows:
MANAGEMENT ADJUSTMENT BUREAU, INC.
On September 5, 1996, NCO purchased all of the outstanding stock of MAB
for $8.0 million in cash and a $1.0 million convertible note. The note is
convertible into the Company's Common Stock at any time after the Company's
initial public offering at the initial public offering price and bears
interest payable monthly at a rate of 8.0% per annum with principal due in
September 2001. MAB, based in Buffalo, New York, provides accounts receivable
management services, principally to the education, financial services,
telecommunications and utility industries. MAB's clients include NationsBank,
NYNEX, Marine Midland Bank and Boston Edison. MAB's revenues were $13.0
million for the year ended December 31, 1995 and $6.8 million for the six
months ended June 30, 1996. The Company will continue to operate MAB's
facilities in Buffalo and Denver, Colorado.
The Company has begun to realize operating efficiencies from the MAB
acquisition and has reduced compensation and related expenses associated with
MAB's principal shareholder, eliminated redundant collection and
administrative personnel, and begun to reduce selling, general and
administrative expenses to levels more consistent with NCO's current
operating results. NCO will also consolidate certain company-wide
administrative functions such as human resources and payroll administration
into MAB's Buffalo facility, resulting in the reduction of certain NCO
administrative costs.
TRANS UNION CORPORATION COLLECTIONS DIVISION
On January 3, 1996, NCO purchased certain assets of TCD for $4.8 million
in cash. TCD provided accounts receivable management services, principally to
the telecommunications, utility and healthcare industries from offices in
Pennsylvania, Ohio and Kansas. TCD's clients included Bell Atlantic
Corporation, Western Resources Corporation and Hutchinson Hospital
Corporation. TCD's revenues were $7.5 million for the year ended December 31,
1995. Promptly following the TCD acquisition, the Company reduced costs by
eliminating redundant collection and administrative personnel, closing one
office and reducing other selling, general and administrative expenses to
levels more consistent with NCO's current operating results.
EASTERN BUSINESS SERVICES, INC.
In August 1995, NCO purchased certain assets of Eastern for $1.6 million
in cash and the assumption of a non-interest bearing note payable in the
amount of $252,000 and certain other accounts payable in the amount of
$209,000. Eastern, based in Beltsville, Maryland, provided accounts
receivable management services, principally to the utility and healthcare
industries. Eastern's clients included Bell Atlantic Corporation and George
Washington University Hospital. Promptly following the Eastern acquisition,
the Company reduced costs by eliminating redundant collection and
administrative personnel and reducing selling, general and administrative
expenses to levels more consistent with NCO's current operating results.
B. RICHARD MILLER, INC.
In April 1994, NCO purchased certain assets of BRM for $1.0 million in
cash, the issuance by the Company of a $127,000 promissory note and the
issuance of 123,803 shares of Common Stock and an option to acquire 86,881
shares of Common Stock at an exercise price of $2.16 per share (which option
was exercised in 1995). In connection with the acquisition, BRM's principal
shareholder became an executive officer of the Com-
13
<PAGE>
pany. BRM, based in Ardmore, Pennsylvania, provided accounts receivable
management services, principally to the education industry. BRM's clients
included University of Pennsylvania, Rutgers University and Seton Hall
University. Promptly following the BRM acquisition, the Company reduced costs
by eliminating redundant collection and administrative personnel, closing
BRM's sole office and reducing other selling, general and administrative
expenses to levels more consistent with NCO's current operating results.
FINANCIAL IMPACT OF ACQUISITIONS
The Company financed the MAB, TCD, Eastern and BRM acquisitions with
borrowings from Mellon Bank, N.A. The bank recently increased the Company's
revolving credit facility from $7.0 million to $15.0 million to finance the
acquisition of MAB. The revolving credit facility currently bears interest at
the rate of prime plus 1.375%. The bank has issued a commitment letter to
further increase this facility to $25.0 million at an interest rate of LIBOR
plus 2.5% upon the completion of the Offering, provided that the Offering
results in minimum net proceeds to the Company of $24.0 million. The Company
granted the bank a warrant to acquire 175,531 shares of Common Stock at a
nominal exercise price in consideration for establishing the revolving credit
facility for acquisitions, and granted an additional warrant to purchase
46,560 shares of Common Stock at an exercise price equal to the initial
public offering price in consideration for increasing the revolving credit
facility to $15.0 million. The warrants are exercisable at any time after the
consummation of the Offering and prior to July 31, 2005. The Company also has
agreed to grant an additional warrant to purchase 18,500 shares of Common
Stock at an exercise price equal to the initial public offering price in
consideration for increasing the revolving credit facility to $25.0 million.
The acquisitions have been accounted for under the purchase method of
accounting for financial reporting purposes. These acquisitions have created
goodwill estimated at $14.5 million which is being amortized over a 15- to
25-year period resulting in amortization expense of approximately $749,000
annually.
Pro forma statements of income for the year ended December 31, 1995 and
the six months ended June 30, 1996 appearing elsewhere in this Prospectus
assume that the MAB, TCD and Eastern acquisitions had occurred on January 1,
1995 and January 1, 1996, respectively. Pro forma adjustments have been made
to reflect the elimination of certain expenses that were immediately
identifiable and promptly realized at the time of the acquisitions, including
the immediate elimination of certain redundant collection and administrative
personnel. These and other expense adjustments are summarized in the table
below and related footnotes.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1995 1996
-------------- ----------------
<S> <C> <C>
Redundant collection and administrative personnel $1,437,268 $ 407,400
MAB principal shareholder compensation (1) ...... 643,500 321,750
-------------- ----------------
Total payroll and related expense reductions 2,080,768 729,150
TCD occupancy costs (2) ......................... 260,300 --
Depreciation and amortization (3) ............... (379,216) (160,705)
-------------- ----------------
Total operating cost and expense adjustments $1,961,852 $ 568,445
============== ================
</TABLE>
- ------
(1) Reflects the reduction of the salary of MAB's principal shareholder (who
is no longer active in the day-to-day operations of MAB's business)
pursuant to an employment agreement.
(2) Reflects the difference between the Company's rent expense for the TCD
facilities pursuant to lease agreements entered into upon the acquisition
and the occupancy costs allocated to TCD by its parent prior to the
acquisition.
(3) Reflects additional amortization expense, assuming MAB, TCD, and Eastern
had been acquired at the beginning of the periods presented, partially
offset in the year ended December 31, 1995 by depreciation reductions
relating to assets not acquired by NCO as part of the TCD and Eastern
acquisitions.
14
<PAGE>
In each of the acquisitions, the Company acquired businesses with higher
cost structures than the Company. In the months following the acquisitions of
TCD, Eastern and BRM, the Company leveraged its existing infrastructure to
realize additional operating efficiencies in order to bring the cost
structure of acquired companies in line with NCO's current operating results.
These other cost savings include: (i) further reductions in payroll and
related expenses relating primarily to redundant collections and
administrative personnel, (ii) further reduction in rent and other facilities
costs, and (iii) reduction in certain expenses such as telephone, mailing and
data processing. While management believes it will realize similar cost
savings from the MAB acquisition, the Company's ability to achieve such cost
savings is uncertain and there can be no assurance that MAB's business will
be successfully integrated with that of the Company, or that the Company will
be able to realize operating efficiencies or eliminate redundant costs. See
"Risk Factors -- Risks Associated with TCD and MAB Acquisitions" and " --
Risks Associated with Future Acquisitions."
15
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 2,500,000 shares of Common Stock
offered by the Company hereby are estimated to be approximately $26.8 million
after deducting the estimated underwriting discounts and expenses of the
Offering and based on an assumed initial public offering price of $12.00 per
share. In the event the Underwriters' over-allotment option is exercised, the
Company will not receive any proceeds from the sale of Common Stock by the
Selling Shareholders.
Approximately $15.0 million of the net proceeds will be used to repay
outstanding debt under the Company's Credit Agreement with Mellon Bank, N.A.
The Company entered into the Credit Agreement in July 1995 to obtain working
capital and acquisition financing and to refinance certain existing debt. The
Credit Agreement, as amended, provides a revolving line of credit which
permits borrowings of up to $15.0 million at an interest rate equal to the
prime rate plus 1.375% (9.625% at August 31, 1996). The bank has issued a
commitment letter to increase this facility to $25.0 million at an interest
rate of LIBOR plus 2.5% upon the completion of the Offering provided that the
Offering results in minimum net proceeds to the Company of $24.0 million.
Borrowings under the Credit Agreement were used to fund the MAB, TCD and
Eastern acquisitions and to refinance indebtedness incurred in connection
with the BRM acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company also will use a portion of the net proceeds to make
distributions to shareholders of record on September 3, 1996, the date on
which the Company terminated its S Corporation status (the "S Corporation
Distributions"). The amount of the distributions will equal all undistributed
S Corporation earnings, estimated at $3.0 million as of September 3, 1996,
subject to final adjustment.
The Company intends to use the remaining net proceeds of $8.8 million for
working capital and other general corporate purposes, including future
acquisitions. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions. Currently, the Company is not a party to any agreements,
understandings, arrangements or negotiations regarding any material
acquisitions; however, as the result of the Company's process of regularly
reviewing acquisition prospects, negotiations may occur from time to time if
appropriate opportunities arise. Pending the uses described above, the
Company intends to invest its net proceeds in short-term, investment-grade
securities.
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
The Company historically was treated for federal and state income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and under Pennsylvania law. As a result of
the Company's status as an S Corporation, the Company's shareholders, rather
than the Company, were taxed directly on the earnings of the Company for
federal and certain state income tax purposes, whether or not such earnings
were distributed. The Company made cash distributions to the current
shareholders aggregating $658,000, $813,000, $1.1 million and $752,000 in
respect of the Company's S Corporation earnings for 1993, 1994 and 1995, and
for the six months ended June 30, 1996, respectively. On September 3, 1996
(the "Termination Date"), the Company terminated its status as an
S Corporation and thereupon became subject to federal and state income taxes at
applicable C Corporation rates.
The Company declared a distribution to existing shareholders in an
aggregate amount equal to the Company's undistributed S Corporation earnings
through the Termination Date, which are estimated at $3.0 million, subject to
final adjustment. The Company expects to pay the S Corporation Distributions
with a portion of the net proceeds of this Offering. See "Use of Proceeds."
The Company has also entered into a distribution and tax indemnification
agreement with its current shareholders with respect to taxes resulting from
the Company's operations during the period in which it was an S Corporation.
See "Certain Transactions--Distribution and Tax Indemnification Agreement."
Purchasers of shares of Common Stock in this Offering will not receive any of
the S Corporation Distributions or any distribution with respect to any
indemnification payment to the current shareholders.
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. In addition, the Company's Credit Agreement
prohibits the Company from paying cash dividends without the lender's prior
consent. The Company currently intends to retain future earnings to finance
its operations and fund the growth of its business. Any payment of future
dividends will be at the discretion of the Board of Directors of the Company
and will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that
the Company's Board of Directors deems relevant.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 the current portion of
long-term debt and capitalized lease obligations and the actual
capitalization of the Company and the pro forma, as adjusted, capitalization
of the Company which gives effect to: (i) the MAB acquisition and (ii) the
sale of the 2,500,000 shares of Common Stock in the Offering (at an assumed
initial public offering price of $12.00 per share), and the application of
the net proceeds therefrom as set forth in "Use of Proceeds." This table
should be reviewed in conjunction with the Company's historical and pro forma
financial statements and related notes appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
--------------------------
Pro Forma
Actual As Adjusted
--------- -------------
(In thousands)
<S> <C> <C>
Current portion of long-term debt and capitalized lease obligations $ 101 $ 270
========= =============
Long-term debt, net of current portion (1):
Revolving credit agreement .................................... $ 7,118 $ 323
Capitalized lease obligations ................................. 238 387
Convertible note payable ...................................... -- 1,000
--------- -------------
Total long-term debt and capitalized lease obligations ... 7,356 1,710
Shareholders' equity:
Preferred Stock, no par value, 5,000,000 shares authorized; no
shares issued or outstanding ................................ -- --
Common Stock, no par value, 25,000,000 shares authorized;
4,213,447 shares issued and outstanding, actual, 6,713,447
shares issued and outstanding, pro forma as adjusted (2) .... 537 26,756
Unexercised warrant (3) ....................................... 177 177
Unrealized gains on securities ................................ 48 48
Retained earnings (4) ......................................... 2,388 0
--------- -------------
Total shareholders' equity ............................... 3,150 26,981
--------- -------------
Total capitalization ..................................... $10,506 $28,691
========= =============
</TABLE>
- ------
(1) See Notes 7, 9 and 13 of Notes to Financial Statements for a description
of the terms of the Company's debt.
(2) Excludes: (i) an aggregate of 464,390 shares of Common Stock reserved for
issuance under the Company's 1995 Stock Option Plan, 1996 Stock Option
Plan and 1996 Non-Employee Director Stock Option Plan; (ii) 240,591
shares of Common Stock reserved for issuance upon the exercise of
warrants granted or to be granted to Mellon Bank, N.A.; and (iii) 83,333
shares of Common Stock reserved for issuance upon the conversion of the
Company's $1.0 million Convertible Note (at an assumed conversion price
of $12.00 per share). See "Acquisition History," "Management -- Stock
Option Plans" and "Description of Capital Stock -- Warrants and
Convertible Note."
(3) Reflects a warrant to purchase 175,531 shares of Common Stock at a
nominal exercise price issued by the Company to Mellon Bank, N.A. in July
1995.
(4) Pro forma as adjusted retained earnings are reduced for the estimated S
Corporation Distributions of $3.0 million but are partially offset by the
establishment of a deferred tax asset of $81,000, assuming the Company
converted from an S Corporation at June 30, 1996. S Corporation
Distributions in excess of retained earnings at June 30, 1996 are
deducted from Common Stock.
17
<PAGE>
DILUTION
At June 30, 1996, the net tangible book value of the Company was
approximately $(3.4) million, or $(0.80) per share of Common Stock. Net
tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding. The pro forma net tangible book value, after giving
effect to the MAB acquisition and the S Corporation Distributions but without
giving effect to the Offering would have been $(14.3) million, or $(3.40) per
share. After giving further effect to the sale by the Company of 2,500,000
shares of Common Stock in the Offering (assuming an initial public offering
price of $12.00 per share) and the application of the estimated net proceeds
therefrom after deducting estimated underwriting discounts and offering
expenses payable by the Company, the pro forma net tangible book value of the
Company at June 30, 1996 would have been approximately $12.4 million, or
$1.85 per share of Common Stock. This represents an immediate increase in the
pro forma net tangible book value of $5.25 per share of Common Stock to
existing shareholders and an immediate dilution in pro forma net tangible
book value of $10.15 per share of Common Stock to new investors. The
following table illustrates this dilution on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share ........................ $12.00
Net tangible book value per share at June 30, 1996 ................. $(0.80)
Pro forma adjustments for MAB acquisition and S Corporation
Distributions .................................................... (2.60)
---------
Pro forma net tangible book value per share before the Offering .... (3.40)
Increase per share attributable to new investors ................... 5.25
---------
Pro forma net tangible book value per share, as adjusted for the Offering 1.85
--------
Dilution per share to new investors ..................................... $10.15
========
</TABLE>
The following table sets forth, as of June 30, 1996, the number of shares
of Common Stock purchased from the Company, the total consideration paid and
the average price per share paid by the Company's existing shareholders and
by the new investors purchasing shares of Common Stock from the Company in
the Offering (before deducting estimated underwriting discounts and offering
expenses payable by the Company):
<TABLE>
<CAPTION>
Shares Purchased (1) Total Consideration
------------------------ --------------------------
Average Price
Number Percent Amount Percent Per Share
----------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 4,213,447 62.8% $ 537,326 1.8% $ 0.13
New investors ........ 2,500,000 37.2 30,000,000 98.2 12.00
----------- --------- ------------- --------- ---------------
Total .............. 6,713,447 100.0% $30,537,326 100.0%
=========== ========= ============= =========
</TABLE>
- ------
(1) Excludes: (i) an aggregate of 464,390 shares of Common Stock reserved for
issuance under the Company's 1995 Stock Option Plan, 1996 Stock Option
Plan and 1996 Non-Employee Director Stock Option Plan; (ii) 175,531
shares of Common Stock reserved for issuance to Mellon Bank, N.A. at a
nominal exercise price and 65,060 shares reserved for issuance pursuant
to warrants granted or to be granted with an exercise price equal to the
initial public offering price; and (iii) 83,333 shares of Common Stock
reserved for issuance upon the conversion of the Company's $1.0 million
Convertible Note (at an assumed conversion price of $12.00 per share).
See "Acquisition History," "Management -- Stock Option Plans" and
"Description of Capital Stock -- Warrants and Convertible Note."
18
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial and operating data of the Company for each of the
five years in the period ended December 31, 1995 are derived from the
financial statements of the Company which have been audited by Coopers &
Lybrand L.L.P., independent accountants. The selected financial and operating
data as of June 30, 1996 and for the six months ended June 30, 1995 and 1996
are derived from the unaudited financial statements of the Company and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results of
operations and financial position for such periods. The results for the six
months ended June 30, 1996 are not necessarily indicative of the results to
be expected for the full year. The following data should be read in
conjunction with the Company's actual and pro forma consolidated financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ------------------------------
Pro
Actual Forma(1)(2)
------- -------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue ............ $ 3,792 $ 5,822 $ 7,445 $ 8,578 $ 12,733 $ 34,509
Operating costs and
expenses:
Payroll and related
expenses ...... 1,892 3,058 4,123 4,558 6,797 16,412
Selling, general
and
administrative
expenses ...... 1,457 2,013 2,391 2,674 4,042 12,531
Depreciation and
amortization
expense ....... 40 95 141 215 348 1,529
----------- ----------- ----------- ----------- -------------- ------------
Income from
operations ...... 403 656 790 1,131 1,546 4,037
Other income (expense) (1) 15 11 (45) (180) (212)
----------- ----------- ----------- ----------- -------------- ------------
Income before income
taxes ........... 402 671 801 1,086 1,366 3,825
Pro forma provision for
income taxes (4) . 160 268 320 434 546 1,659
----------- ----------- ----------- ----------- -------------- ------------
Pro forma net income(4) $ 242 $ 403 $ 481 $ 652 $ 820 $ 2,166
=========== =========== =========== =========== ============== ============
Pro forma net income per
share ........... $ 0.17(5) $ 0.35 $ 0.22(5) $ 0.23
============== ============
Pro forma weighted
average shares
outstanding ..... 4,745,229(5) 6,211,179
============== ============
Operating Data:
Total value of accounts
referred ........ $178,529 $150,707 $199,108 $281,387 $ 431,927 $1,134,000
Average fee ........ 14.4% 16.9% 20.2% 22.5% 22.4% N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------------
1995 1996
----------- ------------------------------
Pro
Actual Forma(2)(3)
------ -----------
<S> <C> <C> <C>
Statement of Income Data:
Revenue ............ $ 5,546 $ 12,543 $ 19,319
Operating costs and
expenses:
Payroll and related
expenses ...... 2,956 5,954 9,479
Selling, general
and
administrative
expenses ...... 1,745 4,095 6,516
Depreciation and
amortization
expense ....... 116 423 833
----------- -------------- ------------
Income from
operations ...... 729 2,071 2,491
Other income (expense) (73) (310) (19)
----------- -------------- ------------
Income before income
taxes ........... 656 1,761 2,472
Pro forma provision for
income taxes (4) . 262 704 1,053
---------- ---------- ----------
Pro forma net income(4) $ 1,057 $ 1,419
========== ==========
Pro forma net income
per share ........... $ 0.22(5) $ 0.23
========= ==========
Pro forma weighted
average shares
outstanding ..... 4,750,259(5) 6,216,209
========== ==========
Operating Data:
Total value of accounts
referred ........ $ $180,783 $ 373,499 $ 664,905
Average fee ........ 21.7% 24.0% 24.3%
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30, 1996
------------------------------------------------ --------------------------
Pro Forma
1991 1992 1993 1994 1995 Actual As Adjusted(6)
------- ------- ------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents .......... $ 355 $ 421 $ 562 $ 526 $ 805 $ 990 $ 9,515
Working capital .................... 179 362 445 473 812 2,458 11,600
Total assets ....................... 1,546 2,177 2,449 4,106 7,873 14,655 35,263
Long-term debt, net of current
portion .......................... 108 144 59 732 2,593 7,356 1,710
Shareholders' equity ............... 403 686 876 1,423 2,051 3,151 26,982
</TABLE>
19
<PAGE>
(1) Assumes that the acquisitions of MAB, TCD and Eastern occurred on January
1, 1995.
(2) Gives effect to: (i) the reduction of certain redundant operating costs
and expenses that were immediately identifiable at the time of the
acquisitions; (ii) the elimination of interest expense associated with
acquisition related debt assumed to be repaid with offering proceeds; and
(iii) the issuance of 1,715,950 shares of Common Stock (at an assumed
initial public offering price of $12.00 per share) which, net of
estimated underwriting commissions and offering expenses payable by the
Company, would be sufficient to repay acquisition related debt of $15.0
million and to fund the distribution of undistributed S Corporation
earnings through the Termination Date (estimated at $3.0 million) to
existing shareholders of the Company. See Pro Forma Consolidated
Financial Statements.
(3) Assumes that the acquisition of MAB occurred on January 1, 1995.
(4) Prior to the Termination Date, the Company operated as an S Corporation
for income tax purposes and accordingly was not subject to federal or
state income taxes prior to such date. Accordingly, the historical
financial statements do not include a provision for federal and state
income taxes for such periods. Pro forma net income has been computed as
if the Company had been fully subject to federal and state income taxes
for all periods presented. See Note 12 of Notes to Pro Forma Consolidated
Financial Statements.
(5) Assumes that the Company issued 250,000 shares of Common Stock (at an
assumed initial public offering price of $12.00 per share) to fund the
distribution of undistributed S Corporation earnings (estimated at $3.0
million) through the Termination Date to existing shareholders of the
Company.
(6) Gives effect to: (i) the MAB acquisition and (ii) the sale of the
2,500,000 shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $12.00 per share) and the
application of the net proceeds therefrom as set forth in "Use of
Proceeds."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NCO is a leading provider of accounts receivable management and other
related services such as customer service call centers, telemarketing,
telephone-based auditing and other outsourced administrative services. In
1995, accounts receivable management services comprised more than 95% of the
Company's revenue; however, the Company expects other related services to
represent a greater portion of its business in the future. As a result of
rapid internal growth and selected strategic acquisitions, the Company's
revenue has grown from $7.4 million in 1993 to $34.5 million in 1995 on a pro
forma basis, giving effect to the Eastern, TCD and MAB acquisitions.
Currently, NCO operates eight call centers with 689 workstations in
Pennsylvania, New York, Maryland, Ohio, Kansas and Colorado.
The Company has historically generated substantially all of its revenue
from the recovery of delinquent accounts receivable on a contingency fee
basis. Contingency fees typically range from 15% to 35% of the amount
recovered on behalf of the Company's clients, but can range from 6% for the
management of accounts placed early in the recovery cycle to 50% for accounts
which have been serviced extensively by the client or by other third-party
providers. In addition, the Company generates revenue from fixed fees for
certain accounts receivable management and other related services. Revenue is
earned and recognized upon collection of the accounts receivable for
contingency fees and as work is performed for fixed fee services. Although
its average accounts receivable management fee has increased from 20.2% in
1993 to 24.0% for the six months ended June 30, 1996, the Company expects to
remain among the low cost providers of accounts receivable management
services; accordingly, the Company does not expect its average contingency
fee to increase materially in the future. The Company enters into contracts
with most of its clients which define, among other things, fee arrangements,
scope of services and termination provisions. Clients may usually terminate
such contracts on 30 or 60 days notice. In the event of termination, however,
clients typically do not withdraw accounts referred to the Company prior to
the date of termination, thus providing the Company with an ongoing stream of
revenue from such accounts which diminishes over time.
The Company's costs consist principally of payroll and related costs,
selling, general and administrative costs, and depreciation and amortization.
Payroll costs and related expenses consist of wages and salaries,
commissions, bonuses and benefits for all employees of the Company, including
management and administrative personnel. As the Company has grown, payroll
costs as a percentage of revenue have gradually declined. Selling, general
and administrative expenses, which include postage, telephone and mailing
costs, and other costs of collections as well as expenses which directly
support the operations of the business including facilities costs, equipment
maintenance, sales and marketing, data processing, professional fees and
other management costs, have remained relatively constant as a percentage of
revenue since 1993.
Since 1994, the Company has made four acquisitions which have had a
significant impact on the Company's financial condition and results of
operations. With the BRM, Eastern, TCD and MAB acquisitions, the Company has:
(i) increased its penetration of the utilities, healthcare, financial
services and telecommunications markets; (ii) established a presence in the
education and insurance markets; (iii) increased its base of national
clients; and (iv) expanded NCO's geographic presence by adding six offices in
six states. Pro forma revenues from these four acquired businesses accounted
for approximately 69.5% of the Company's pro forma revenue in 1995. With this
rapid increase in revenues, the Company has been able to achieve significant
economies of scale by eliminating certain redundant expenses, reducing the
workforce of the acquired companies, and in the case of BRM and TCD, closing
two offices. The Company regularly reviews various strategic acquisition
opportunities and periodically engages in discussions regarding such possible
acquisitions.
To date, all of the Company's acquisitions have been accounted for under
the purchase method of accounting with the results of the acquired companies
included in the Company's statements of income beginning on the date of
acquisition. In pursuing acquisitions, the Company typically seeks to serve
new geographic markets or industries, expand its presence in its existing
markets or add complementary services. Upon completion of an acquisition, the
Company immediately focuses on achieving operating efficiencies by
eliminating redundant expenses and reducing certain other expenses to levels
consistent with the Company's current operating results. Included elsewhere
in this prospectus are Pro Forma Consolidated Financial Statements which show
the effect
21
<PAGE>
of the Eastern, TCD and MAB acquisitions as if the results of each acquired
company had been included in the Company's statement of income throughout the
year ended December 31, 1995 and the six months ended June 30, 1996 and for
balance sheet purposes at June 30, 1996.
For the periods shown, the Company had been treated for federal and state
income tax purposes as an S Corporation. As a result, the Company's
shareholders, rather than the Company, were taxed directly on the earnings of
the Company for federal and certain state income tax purposes. The Company
terminated its status as an S Corporation effective September 3, 1996 and is
now subject to federal and state income taxes at applicable C Corporation
rates. Accordingly, the pro forma provision for income taxes assumes that the
Company was subject to federal and state income taxes for all prior periods.
RESULTS OF OPERATIONS
The following tables set forth income statement data on an historical and
pro forma basis as a percentage of revenue:
<TABLE>
<CAPTION>
Years Ended December 31, Six Months Ended June 30,
------------------------------------------ -------------------------------
1993 1994 1995 1995 1996
-------- -------- -------------------- -------- --------------------
Pro Pro
Actual Forma Actual Forma
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Payroll and related expenses 55.4 53.1 53.4 47.6 53.3 47.5 49.1
Selling, general and
administrative expenses . 32.1 31.2 31.7 36.3 31.5 32.6 33.7
Depreciation and
amortization expense .. 1.9 2.5 2.7 4.4 2.1 3.4 4.3
-------- -------- -------- -------- -------- -------- --------
Total .............. 89.4 86.8 87.8 88.3 86.9 83.5 87.1
-------- -------- -------- -------- -------- -------- --------
Income from operations ....... 10.6 13.2 12.2 11.7 13.1 16.5 12.9
Other income (expense) ....... 0.1 (0.5) (1.4) (0.6) (1.3) (2.5) (0.1)
-------- -------- -------- -------- -------- -------- --------
Income before income taxes ... 10.7 12.7 10.8 11.1 11.8 14.0 12.8
Pro forma provision for income
taxes ...................... 4.3 5.1 4.3 4.8 4.7 5.6 5.5
-------- -------- -------- -------- -------- -------- --------
Pro forma net income ......... 6.4% 7.6% 6.5% 6.3% 7.1% 8.4% 7.3%
======== ======== ======== ======== ======== ======== ========
</TABLE>
PRO FORMA COMPARED TO ACTUAL RESULTS OF OPERATIONS
Pro forma operating data for the year ended December 31, 1995 and the six
months ended June 30, 1996 assume that the MAB, TCD and Eastern acquisitions
were consummated at the beginning of the respective periods. Pro forma
adjustments have been made to reflect the elimination of certain expenses
that were immediately identifiable at the time of the acquisitions, including
the immediate elimination of certain redundant collection and administrative
personnel. See "Acquisition History -- Financial Impact of Acquisitions" and
"Notes to Pro Forma Consolidated Financial Statements." In each of the
acquisitions, the Company acquired businesses with higher cost structures
than the Company. In the months following the acquisitions of TCD, Eastern
and BRM, the Company leveraged its infrastructure to realize additional
operating efficiencies in order to bring the cost structure of acquired
companies in line with NCO's current operating results. These other cost
savings include: (i) further reductions in payroll and related expenses
relating primarily to redundant collections and administrative personnel,
(ii) further reduction in rent and other facilities costs, and (iii)
reduction in certain expenses such as telephone, mailing and data processing.
Management believes it will realize similar cost savings from the MAB
acquisition, although no assurances can be given that such cost savings will
be realized. Due to the higher cost structures of the acquired businesses and
the fact that all expected expense savings are not reflected in pro forma
adjustments, certain pro forma operating percentages compare unfavorably to
actual operating percentages for the periods under consideration.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenue. Revenue increased $7.0 million or 126.1% to $12.5 million for the
six-month period ended June 30, 1996 from $5.5 million for the comparable
period in 1995. Of this increase, $3.7 million was attributable to
22
<PAGE>
the TCD acquisition completed in January 1996, and $1.0 million was
attributable to the Eastern acquisition completed in August 1995.
Additionally, $973,000 of the increase was due to a full six months of
revenue in 1996 from a contract awarded to the Company by a government agency
in April 1995. Revenue from other related services, which became an area of
focus in 1996, increased $586,000 to $682,000 for the six months ended June
30, 1996 from $96,000 for the comparable period in 1995. The balance of the
revenue increase was attributable to the addition of new clients and a growth
in business from existing clients.
Payroll and related expenses. Payroll and related expenses increased $3.0
million to $6.0 million for the six months ended June 30, 1996 from $3.0
million for the comparable period in 1995, but decreased as a percentage of
revenue to 47.5% from 53.3%. The decrease in payroll and related expenses as
a percentage of revenue was primarily the result of spreading the relatively
fixed costs of management and administrative personnel over a larger revenue
base, as well as eliminating redundant administrative staff following the TCD
and Eastern acquisitions.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.4 million to $4.1 million for the six
months ended June 30, 1996, from $1.7 million for the comparable period in
1995, and also increased as a percentage of revenue to 32.6% from 31.5%. A
large percentage of the increase was due to the increased costs associated
with litigation management services performed by the Company on behalf of its
clients in states where the laws are more conducive to the utilization of the
legal process for the recovery of delinquent accounts. In addition, the
Company experienced increased costs as a result of a change in business mix
which required the increased use of national databases and credit reporting
services. These increases were offset in part by operating efficiencies
resulting from the TCD acquisition.
Depreciation and amortization. Depreciation and amortization increased to
$423,000 for the six months ended June 30, 1996 from $116,000 for the
comparable period in 1995. Of this increase, $233,000 was a result of the TCD
and Eastern acquisitions. The remaining $74,000 consisted of amortization of
deferred financing charges and depreciation resulting from capital
expenditures incurred in the ordinary course of business.
Other income (expense). Interest expense increased $309,000 for the six
months ended June 30, 1996 from the comparable period in 1995, primarily due
to increased borrowings associated with the acquisitions of TCD and Eastern.
Other income (expense) for the six months ended June 30, 1995, also included
a loss from the disposal of assets of $49,000.
Net income. Net income pro forma for taxes increased to $1.1 million for
the six months ended June 30, 1996 from $394,000 for the comparable period in
1995, a 168% increase. Net income pro forma for taxes includes a provision
for federal and state income taxes at an assumed rate of 40% for the six
months ended June 30, 1996 and 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased $4.2 million or 48.4% to $12.7 million in 1995
from $8.6 million in 1994. In 1995, the Company initiated a marketing program
targeted at larger, national accounts. As a result, the Company experienced
38% internal growth from the addition of new clients and growth in business
from existing clients. This growth includes approximately $1.3 million from a
contract with a governmental agency awarded in April 1995. In addition to
strong internal growth, approximately $808,000 of the increase in revenue was
attributable to the Eastern acquisition, and $437,000 was attributable to a
full year of operations of BRM in 1995 versus eight months in 1994. This was
partially offset by a decrease in revenue from outsourcing projects to
$259,000 in 1995 from $357,000 in 1994. Approximately $300,000 of revenue
from outsourcing projects in 1994 was from a one-time project completed in
the first quarter of 1994.
Payroll and related expenses. Payroll and related expenses increased $2.2
million to $6.8 million in 1995 from $4.6 million in 1994, and increased
slightly as a percentage of revenue to 53.4% from 53.1%. During the fourth
quarter of 1995, the Company hired a Vice President of Collection, as well as
20 additional telephone representatives necessary for two outsourcing
projects which did not generate revenue until the first quarter of 1996. In
addition, the one-time outsourcing project completed during the first quarter
of 1994 had lower payroll and related expenses as a percentage of revenue.
The increases in personnel were partially offset by spreading the relatively
fixed costs of the Company's management and administrative personnel over a
larger revenue base, as well as the elimination of redundant administrative
staff related to the Eastern acquisition.
23
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.3 million to $4.0 million in 1995, from
$2.7 million in 1994 and increased as a percentage of revenue to 31.7% from
31.2%. These increases were primarily due to higher data processing and
facilities costs in anticipation of growth and to allow for the rapid
assimilation of the TCD acquisition in the first quarter of 1996 without
having to purchase short-term administrative services from the parent company
of TCD during the post-acquisition transition.
Depreciation and amortization. Depreciation and amortization increased to
$348,000 in 1995 from $215,000 in 1994. Of this increase, $90,000 was
attributable to the Eastern and BRM acquisitions. The remaining $43,000
consisted of amortization of deferred financing charges and depreciation
resulting from capital expenditures incurred in the ordinary course of
business.
Other income (expense). Interest expense increased to $180,000 in 1995
from $72,000, primarily due to increased borrowings associated with the
Eastern and BRM acquisitions. The Company recorded a $49,000 loss from the
disposal of assets in 1995.
Net income. Net income pro forma for taxes increased to $820,000 for the
year ended December 31, 1995 from $652,000 in 1994, representing a 25.7%
increase. Net income pro forma for taxes includes a provision for federal and
state income taxes at an assumed rate of 40% for the years ended December 31,
1995 and 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenue. Revenue increased $1.2 million or 15.2% to $8.6 million in 1994
from $7.4 million in 1993. Of this increase, $959,000 was attributable to the
BRM acquisition completed in April 1994. The remainder of the increase was
due to the addition of new clients and from growth in business from existing
clients, partially offset by a reduction resulting from the completion of the
one-time client project in February 1994.
Payroll and related expenses. Payroll and related expenses increased
$436,000 to $4.6 million in 1994 from $4.1 million in 1993, but as a
percentage of revenue, decreased to 53.1% from 55.4%. Payroll and related
expenses as a percentage of revenue were lower in 1994 primarily as a result
of spreading the relatively fixed costs of the Company's management and
administrative personnel over a larger revenue base, as well as the
elimination of duplicative administrative staff related to the BRM
acquisition.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $283,000 to $2.7 million in 1994, from $2.4
million in 1993. As a percentage of revenue, selling, general and
administrative expenses decreased to 31.2% from 32.1%. During 1993, the
Company performed services under a one-time contract which had a lower cost
structure than the Company's core business; however, in 1994, the Company was
able to achieve economies of scale by spreading its fixed costs over a larger
revenue base. The Company also closed an office and eliminated duplicative
costs in connection with the BRM acquisition.
Depreciation and amortization. Depreciation and amortization increased to
$215,000 in 1994 from $141,000 in 1993. Of this increase, $61,000 was the
result of the BRM acquisition. The remaining $13,000 consisted of
depreciation resulting from capital expenditures incurred in the ordinary
course of business.
Other income (expense). Interest expense increased to $72,000 in 1994 from
$14,000 in 1993, primarily due to increased borrowings associated with the
BRM acquisition.
Net income. Net income pro forma for taxes increased to $652,000 for the
year ended December 31, 1994 from $481,000 in 1993, representing a 35.6%
increase. Net income pro forma for taxes includes a provision for federal and
state income taxes at an assumed rate of 40% for the years ended December 31,
1994 and 1993.
QUARTERLY RESULTS
The following table sets forth selected actual historical financial data
for the calendar quarters of 1994 and 1995, and for the first two calendar
quarters of 1996. This quarterly information is unaudited but has been
prepared on a basis consistent with the Company's audited financial
statements presented elsewhere herein and, in the Company's opinion, includes
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the information for the quarters presented. The
operating results for any quarter are not necessarily indicative of results
for any future period.
24
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------------- ------------------------------------------ --------------------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun.
31 30 30 31 31 30 30 31 31 30
--------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ..... $2,087 $2,147 $2,188 $2,156 $2,544 $3,002 $3,480 $3,707 $6,044 $6,499
Income from
operations . 431 173 280 247 244 485 496 320 915 1,156
Net income .. 436 160 262 228 227 429 460 250 760 1,001
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------------------------------
1994 1995 1996
------------------------------------------ ------------------------------------------ --------------------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun.
31 30 30 31 31 30 30 31 31 30
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(as a percentage of revenue)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ..... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Income from
operations . 20.7 8.0 12.8 11.5 9.6 16.2 14.3 8.6 15.1 17.8
Net income .. 20.9 7.4 12.0 10.6 8.9 14.3 13.2 6.7 12.6 15.4
</TABLE>
In the past, the Company has experienced quarterly fluctuations in
operating expenses. Due to the low revenue base of the Company at the time
these costs were incurred, the impact of these fluctuations was more
significant than if they had occurred at the Company's current revenue base.
For instance, the fourth quarter of 1995 included additional costs primarily
due to increases in data processing and facilities costs in anticipation of
growth and to allow for the rapid assimilation of the TCD acquisition. The
second quarter of 1994 included $94,000 of moving and acquisition costs
related to the BRM acquisition. The first quarter of 1994 included $300,000
of revenue related to the completion of a project which had a lower than
normal cost structure.
<PAGE>
The Company could experience quarterly variations in revenue and operating
income as a result of many factors, including the timing of clients'
referrals of accounts, the timing of acquisitions that may be effected in the
future, the timing of the hiring of personnel, the timing of additional
selling, general and administrative expenses incurred to support new business
and changes in the Company's revenue mix among its various service offerings.
In connection with certain contracts, the Company could incur costs in
periods prior to recognizing revenue under those contracts. In addition, the
Company must plan its operating expenditures based on revenue forecasts, and
a revenue shortfall below such forecast in any quarter would likely adversely
affect the Company's operating results for the quarter. While the effects of
seasonality of NCO's business have historically been obscured by its rapid
growth, the Company's business tends to be slower in the third and fourth
quarter of the year due to the summer and the holiday seasons.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash have historically been cash flow
from operations and bank borrowings. Cash has been used for acquisitions of
accounts receivable management companies and distributions to shareholders,
and for purchases of equipment and working capital to support the Company's
growth.
Cash provided by operating activities was $1.7 million, $2.0 million, $1.1
million, and $980,000 for the six months ended June 30, 1996, and for the
years 1995, 1994, and 1993, respectively. The increases in each period were
due to increases in net income before non-cash charges which were partially
offset by cash used for working capital during the six months ended June 30,
1996 and the calendar year 1994; and partially increased by decreases in
working capital for the years 1993 and 1995.
Cash used in investing activities was $5.3 million, $2.0 million, $1.1
million, and $135,000 for the six months ended June 30, 1996 and for the
years 1995, 1994, and 1993, respectively. In April 1994 the Company purchased
certain assets of BRM for consideration consisting in part of $1.0 million in
cash and the issuance of a $127,000 promissory note. In August 1995, the
Company purchased certain assets of Eastern for $1.6 million in cash and the
assumption of a non-interest bearing note payable of $252,000 and certain
other accounts payable in the amount of $209,000. In January 1996, the
Company purchased all the assets of TCD for $4.8 million in cash. In
September 1996, the Company purchased all the outstanding stock of MAB for
$8.0 million in
25
<PAGE>
cash and the issuance of a $1.0 million, five-year convertible note to the
principal shareholder of MAB. The note is convertible into the Common Stock
of the Company at the initial public offering price and bears interest
payable monthly at a rate of 8.0% per annum. The Company financed the cash
portion of these acquisitions with bank borrowings. These acquisitions
collectively resulted in goodwill estimated at $14.5 million, which is being
amortized at approximately $749,000 per year. See "Acquisition History."
Cash provided by financing activities was $3.8 million and $280,000 for
the six months ended June 30, 1996 and the year ended December 31, 1995,
respectively. Cash used in financing activities was $35,000 and $704,000 in
1994 and 1993, respectively. Bank borrowings have been the Company's primary
source of cash from financing activities and have been used for distributions
to shareholders and for acquisitions of accounts receivable management
companies. The Company borrowed from its bank $4.5 million, $2.4 million and
$1.0 million for the six months ended June 30, 1996 and the years 1995 and
1994, respectively. Distributions to shareholders were $752,000, $1.1
million, $813,000 and $658,000 for the six months ended June 30, 1996 and the
years 1995, 1994, and 1993, respectively. The Company expects to distribute
previously undistributed S Corporation earnings through the Termination Date
(which are expected to be approximately $3.0 million) using a portion of the
net proceeds of the Offering. See "Use of Proceeds" and "Dividend Policy and
Prior S Corporation Status."
In July 1995 the Company entered into a revolving credit agreement with
Mellon Bank, N.A. which provided for borrowings up to $7.0 million at an
interest rate equal to prime plus 1.375%, which was recently increased to
$15.0 million, to be utilized for working capital and strategic acquisitions.
The current outstanding principal balance under the revolving credit line is
$15.0 million. The revolving credit line is collateralized by substantially
all the assets of the Company and includes certain financial covenants such
as maintaining minimum working capital and net worth requirements and
includes restrictions on capital expenditures and distributions to
shareholders. The Company has received a commitment letter from its bank to
increase the revolving credit facility to $25.0 million and decrease the rate
of interest to 2.5% above LIBOR upon completion of the Offering provided that
the Company receives minimum net proceeds of $24.0 million from the Offering.
In connection with entering into the original revolving credit agreement,
the Company recorded deferred charges of approximately $135,000 relating
primarily to bank and legal fees. The Company also issued a warrant to the
bank exercisable for an aggregate of 175,531 shares of the Company's Common
Stock. The warrant expires on July 31, 2005 and is exercisable for nominal
consideration. The warrant has been capitalized on the balance sheet as
deferred charges and is being amortized over the four-year life of the credit
facility. In connection with the expansion of the line of credit in September
1996, the Company recorded deferred charges of $120,000 primarily relating to
bank charges and legal fees. In addition, the Company issued an additional
warrant to the bank for 46,560 shares of Common Stock. The Company also has
agreed to grant an additional warrant to purchase 18,500 shares of Common
Stock at an exercise price equal to the initial public offering price in
consideration for the increase in the revolving credit facility.
In addition to equipment financed under operating leases, capital
expenditures were $78,000, $298,000 and $426,000 in 1994, 1995 and the first
six months of 1996, respectively. In addition to equipment anticipated to be
financed under operating leases, the Company anticipates that capital
expenditures will be approximately $1,250,000 and $1,750,000 for 1996 and
1997, respectively, none of which is pursuant to a firm commitment.
The Company believes that funds generated from operations, together with
existing cash, the net proceeds from the Offering and available borrowings
under its revolving credit line will be sufficient to finance its current
operations and planned capital expenditure requirements and internal growth
at least through 1997. In addition, the Company believes it will have
sufficient funds to make selected acquisitions. However, the Company could
require additional debt or equity financing if it were to make any
significant acquisitions for cash. The Company has no current commitments or
agreements with respect to any acquisitions.
The Company will account for corporate income taxes in accordance with
Statement of Financial Accounting Standards No. 109 (SFAS No. 109). On the
Termination Date and upon application of SFAS No. 109, a net deferred tax
asset of $81,000, representing cumulative temporary differences, was recorded
in the financial statements.
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<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ("SFAS 123") "Accounting for
Stock-Based Compensation," which was adopted by the Company January 1, 1996.
SFAS 123 affords two acceptable methods to account for stock-based
compensation. Companies are encouraged, but are not required, to adopt the
fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per
share as if the company had applied the new method of accounting. The
accounting requirements of the new method are effective for all employee
awards granted after the beginning of the year of adoption. The Company has
elected the disclosure alternative allowed under SFAS 123 and has not
recorded expense pursuant to the fair value method. Adoption of the new
standard will have no effect on the Company's cash flows.
27
<PAGE>
BUSINESS
NCO is a leading provider of accounts receivable management and related
services utilizing an extensive teleservices infrastructure. The Company
develops and implements customized accounts receivable management solutions
for clients' delinquent and current accounts. From eight call centers located
in six states, the Company employs advanced workstations and sophisticated
call management systems comprised of predictive dialers, automated call
distribution systems, digital switching and customized computer software.
Through efficient utilization of its technology and intensive management of
human resources, the Company has achieved rapid growth in recent years. Since
April 1994, the Company has made four acquisitions which have enabled it to
increase its penetration of existing markets, establish a presence in certain
new markets and realize significant operating efficiencies. In addition, the
Company has leveraged its infrastructure by offering additional services
including telemarketing, customer service call centers and other outsourced
administrative services. The Company believes that it is among the 20 largest
accounts receivable management companies in the United States.
The Company provides its services principally to educational
organizations, financial institutions, healthcare organizations,
telecommunications companies, utilities and government entities. In 1995, the
Company provided services to such companies as Bell Atlantic Corporation,
First Union Corporation, George Washington University Hospital, NationsBank
and the University of Pennsylvania. The Company is paid on a contingency or
fixed fee basis and seeks to develop long-term relationships with its
clients.
INDUSTRY BACKGROUND
Increasingly, companies are outsourcing many non-core functions to focus
on revenue generating activities, reduce costs and improve productivity. In
particular, many large corporations are recognizing the advantages of
outsourcing accounts receivable management. This trend is being driven by a
number of industry-specific factors. First, the complexity of accounts
receivable management functions in certain industries has increased
dramatically in recent years. For example, with the increasing popularity of
HMOs and PPOs, healthcare institutions now face the challenge of billing not
only large insurance companies but also individuals who are required to pay
small, one-time co-payments. Second, changing regulations and increased
competition in certain industries such as utilities and telecommunications
have created new outsourcing opportunities. Third, the ability to implement
cost-effective specialized accounts receivable management, customer support
and telemarketing programs has improved dramatically in recent years with the
development of sophisticated call and information systems. These programs
require substantial capital investment, technical capabilities, human
resource commitments and extensive management supervision.
The emphasis on cost-effective outsourcing solutions, the increasing
sophistication of call center technology and the efficacy of third-party
intervention in the recovery process has resulted in the steady growth of the
accounts receivable management industry. Based on studies published by the
ACA, an industry trade group, it is estimated that receivables referred to
third parties for management and recovery in the United States increased from
approximately $43.7 billion in 1990 to approximately $79.0 billion in 1994.
The leading market segments within the overall accounts receivable management
market are healthcare organizations, financial institutions and utilities
which represented approximately 43%, 15% and 12%, respectively, or an
aggregate of 70%, of total industry referrals in 1994.
The accounts receivable management industry is highly fragmented. Based on
information obtained from the ACA, there are currently approximately 6,300
accounts receivable management companies in operation, the majority of which
are small local businesses. The Company believes that many small accounts
receivable management companies have insufficient capital to expand and
invest in call center technology and sophisticated workstations and are
unable to adequately meet the standards demanded by businesses seeking to
outsource their accounts receivable recovery function. In addition, there are
a limited number of options for owners of such businesses to obtain liquidity
or to sell their businesses. As a result, the Company believes that the
industry will experience consolidation in the future and that strategic
acquisition opportunities will continue to become available.
BUSINESS STRATEGY
The Company strives to be a cost-effective, client service driven provider
of accounts receivable management and other related teleservices to companies
with substantial outsourcing needs. To achieve this goal, the Company's
business strategy is based on the following key elements:
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<PAGE>
Efficient Utilization of Technology and Management Infrastructure to
Improve Productivity. Efficient use of technology and intensive management of
human resources enables the Company to provide cost-effective client
solutions and perform large scale accounts receivable management programs.
The Company has made a substantial investment in its teleservices
infrastructure and is committed to utilizing the best available technologies
to achieve operational efficiencies. This investment has enabled the Company
to rapidly and efficiently integrate the acquisitions it has made. For
example, in the TCD acquisition, the Company was able to reduce the workforce
of 148 employees by approximately 40% while maintaining the same revenue
base. The Company believes that its infrastructure is capable of supporting
additional growth internally or through acquisitions without commensurate
increases in costs.
Commitment to Client Service. NCO is committed to providing superior
service to its clients. The Company works closely with its clients to
identify particular needs, design appropriate recovery strategies and
implement customized accounts receivable management programs. The Company
maintains a client service department to promptly address client issues,
assigns dedicated field service representatives to assist larger clients and
offers clients the ability to electronically communicate with the Company and
monitor operational activity.
Offer Low Cost Solutions. The Company seeks to be a low cost provider of
accounts receivable management services by centralizing all administrative
functions and minimizing overhead at all branch locations. Specifically, the
Company has centralized such functions as payment processing, information
systems, accounting, sales and marketing and human resources.
Target Larger Clients. The Company continues to focus on expanding its
base of larger clients while at the same time continuing to pursue mid-size
prospects that have traditionally comprised the Company's client base. While
the Company's traditional clients have provided a stable revenue base, the
Company believes that larger clients offer significant cross-selling
opportunities as they continue to outsource more of their accounts receivable
management, customer support and telemarketing functions. The Company
believes that its size and increasing geographic diversity will help it to
obtain larger national clients.
GROWTH STRATEGY
In light of the increasing volume of accounts receivable referred for
third party management, the greater emphasis on the outsourcing of non-core
competencies by businesses and the fragmented nature of the industry, the
Company believes there are significant opportunities to expand its business.
The Company's growth strategy includes the following key elements:
Actively Pursue Strategic Acquisitions. The Company intends to take
advantage of the fragmented nature of the accounts receivable management
industry, along with opportunities in related industries, by making strategic
acquisitions. Through selected acquisitions, the Company will seek to serve
new geographic markets or industries, expand its presence in its existing
vertical markets or add complementary service applications. For example,
through the MAB acquisition, management believes that the Company will be
able to further its penetration of the education market and expand its
presence in the financial services market in the Midwest and Southern regions
of the United States. The Company evaluates acquisitions using numerous
criteria including size, management strength, service quality, industry
focus, diversification of client base, operating characteristics and the
ability to integrate the acquired businesses into the Company's operations
and eliminate redundant costs.
Increase Market Penetration. The Company believes that its long-standing
reputation as a quality provider of cost-effective accounts receivable
management services is one of its most significant competitive advantages and
intends to continue to build upon its reputation. The Company continually
strives to increase its share of its clients' accounts receivable management
business and to obtain new clients that have outsourced or are seeking to
outsource these services. In particular, the Company will continue to focus
on the education, financial services, healthcare, telecommunications and
utilities industries. These industries include many large corporations which
rely heavily on third-party providers for a substantial portion of their
accounts receivable management needs. In addition, the Company believes there
is significant opportunity for growth in certain new market segments, such as
the retail credit card and insurance industries, in which it can leverage its
accumulated business expertise and call center infrastructure.
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<PAGE>
Expand Service Offerings. The Company regularly seeks to leverage its
infrastructure by expanding the array of services offered to clients by
cross-selling existing services and by developing new value-added services
that strengthen its long-term relationship with existing clients. For
example, the Company has already begun providing other outsourced
administrative services such as customer service call centers, telemarketing,
telephone-based auditing and other administrative services outsourcing.
Substantially all of these services are presently provided to clients who
utilize NCO's accounts receivable management services; however, in the
future, the Company plans to market these services to both existing and new
clients.
ACCOUNTS RECEIVABLE MANAGEMENT SERVICES
The Company provides a wide range of accounts receivable management
services to its clients utilizing an extensive teleservices infrastructure.
Although most of the Company's accounts receivable management services to
date have focused on recovery of traditional delinquent accounts, the Company
does engage in the recovery of current receivables and early stage
delinquencies. The Company generates substantially all of its revenue from
the recovery of delinquent accounts receivable on a contingency fee basis. In
addition, the Company generates revenue from fixed fees for certain accounts
receivable management and other related services. Contingency fees typically
range from 15% to 35% of the amount recovered on behalf of the Company's
clients, but can range from 6% for the management of accounts placed early in
the accounts receivable cycle to 50% for accounts which have been serviced
extensively by the client or by third-party providers.
Recovery activities typically include the following:
Management Planning. The Company's approach to accounts receivable
management for each client is determined by a number of factors including
account size and demographics, the client's specific requirements and
management's estimate of the collectability of the account. The Company has
developed a library of standard processes for accounts receivable management
which is based upon its accumulated experience. The Company will integrate
these processes with its client's requirements to create a customized
recovery solution. In many instances, the approach will evolve and change as
the relationship with the client develops and both parties evaluate the most
effective means of recovering accounts receivable. The Company's standard
approach, which may be tailored to the specialized requirements of its
clients, defines and controls the steps that will be undertaken by the
Company on behalf of the client and the manner in which data will be reported
to the client. Through its systemized approach to accounts receivable
management, the Company removes most decision making from the recovery staff
and ensures uniform, cost-effective performance.
Once the approach has been defined, the Company electronically or manually
transfers pertinent client data into its information system. Once the
client's records have been established in the Company's system, the Company
commences the recovery process.
Skip Tracing. In cases where the customer's telephone number or address is
unknown, the Company systematically searches the United States Post Office
National Change of Address service, consumer data bases, electronic telephone
directories, credit agency reports, tax assessor and voter registration
records, motor vehicle registrations, military records and other sources. The
geographic expansion of banks, credit card companies, national and regional
telecommunications companies and managed healthcare providers along with the
mobility of consumers has increased the demand for locating the client's
customers. Once the Company has located the customer, the notification
process can begin.
Account Notification. The Company initiates the recovery process by
forwarding an initial letter which is designed to seek payment of the amount
due or open a dialogue with customers who cannot afford to pay at the current
time. This letter also serves as an official notification to each customer of
their rights as required by the federal Fair Debt Collection Practices Act.
The Company continues the recovery process with a series of mail and
telephone notifications. Telephone representatives remind the customer of
their obligation, inform them that their account has been placed for
collection with the Company and begin a dialogue to develop a payment
program.
Credit Reporting. At a client's request, the Company will electronically
report delinquent accounts to one or more of the national credit bureaus
where it will remain for a period of up to seven years. The denial of future
credit often motivates the payment of all past due accounts.
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<PAGE>
Litigation Management. When account balances are sufficient, the Company
will also coordinate litigation undertaken by a nationwide network of
attorneys that the Company utilizes on a routine basis. Typically, account
balances must be in excess of $1,000 to warrant litigation and the client is
asked to advance legal costs such as filing fees and court costs. Attorneys
are generally compensated on a contingency fee basis. The Company's
Collection Support staff manages the Company's attorney relationships and
facilitates the transfer of all necessary documentation.
Payment Process. After the Company receives payment from the customer, it
either remits the amount received net of its fee to the client or remits the
entire amount received to the client and bills the client for its services.
Activity Reports. Clients are provided with a system-generated set of
standardized or customized reports that fully describes all account activity
and current status. These reports are typically generated monthly, however,
the information included in the report and the frequency that the reports are
generated can be modified to meet the needs of the client.
Quality Tracking. The Company emphasizes quality control throughout all
phases of the accounts receivable management process. Some clients may
specify an enhanced level of supervisory review and others may request
customized quality reports. Large national credit grantors will typically
have exacting performance standards which require sophisticated capabilities
such as documented complaint tracking and specialized software to track
quality metrics to facilitate the comparison of the Company's performance to
that of its peers.
OTHER SERVICES
The Company selectively provides other related services which complement
its traditional accounts receivable management business and which leverage
its teleservices infrastructure. The Company believes that the following
services will provide additional growth opportunities for the Company.
Telemarketing. The Company provides telemarketing services for clients,
including lead generation and qualification and the actual booking of
appointments for a client's sales representatives.
Customer Service Call Center. The Company utilizes its communications and
information system infrastructure to supplement or replace the customer
service function of its clients. For example, the Company is currently
engaged by PECO Energy Company, a regional utility, to function as its
customer service department to field and respond to calls concerning new
services which the utility is beginning to develop and offer. In this manner,
the utility can focus on developing these services without investing the
resources to build the in-house infrastructure necessary to respond to
customer inquiries.
Accounts Receivable Outsourcing. The Company complements existing service
lines by offering adjunct billing services to clients as an outsourcing
option. Additionally, the Company can assist healthcare clients in the
billing and management of third party insurance.
Custom Designed Business Applications. The Company has the ability to
provide outsourced administrative and other back-office responsibilities
currently conducted by its clients. For example, the Company was recently
engaged by United Healthcare, a national health insurer, to assume all
administrative operations for its COBRA and individual conversion coverage,
including all responsibility for premium billing and payment processing,
customer service call center and policy fulfillment. The Company also was
engaged by Independence Blue Cross to audit its base of small business
employer accounts to determine if individuals insured through these accounts
were, in fact, employees.
OPERATIONS
Technology and Infrastructure. Over the past five years, the Company has
made a substantial investment in its call management systems such as
predictive dialers, automated call distribution systems, digital switching
and customized computer software. As a result, the Company believes it is
able to address accounts receivable management activities more reliably and
more efficiently than many other accounts receivable management companies.
The Company's systems also permit network access to enable clients to
electronically communicate with NCO and monitor operational activity on a
real-time basis.
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<PAGE>
NCO provides its accounts receivable management services through the
operation of eight state-of-the-art call centers which are electronically
linked through the MFS Datanet ATM Network. The Company utilizes two
Unix-based NCR 3455 computers which provide necessary redundancy (either
computer can operate the system in the event of the failure of the other) and
excess capacity for future growth. The computers are linked via network
servers to the Company's 689 workstations which consist of personal computers
and terminals that are linked to the microcomputers but do not have separate
processors.
The Company maintains a predictive dialer at each of its Blue Bell,
Pennsylvania and Cleveland, Ohio facilities to address its low balance, high
volume accounts. These systems scan the Company's database and simultaneously
initiate calls on all available telephone lines and determine if a live
connection is made. Upon determining that a live connection has been made,
the computer immediately switches the call to an available representative and
instantaneously displays the associated account record on the
representative's workstation. Calls that reach other signals, such as a busy
signal, telephone company intercept or no answer, are tagged for statistical
analysis and placed in priority recall queues or multiple-pass calling
cycles. The system also automates virtually all recordkeeping and follow-up
activities including letter and report generation. The Company's automated
method of operations dramatically improves the productivity of the Company's
collection staff.
The Company employs an eight person MIS staff led by a Vice President -
Chief Information Officer. The Company maintains disaster recovery
contingency plans and has implemented procedures to protect the loss of data
against power loss, fire and other casualty. The Company has implemented a
security system to protect the integrity and confidentiality of its computer
system and data and maintains comprehensive business interruption and
critical systems insurance on its telecommunications and computer systems.
Quality Assurance and Client Service. The Company's reputation for quality
service is critical to acquiring and retaining clients. Therefore, the
Company and its clients monitor the Company's representatives for strict
compliance with the clients' specifications and the Company's policies. The
Company regularly measures the quality of its services by capturing and
reviewing such information as the amount of time spent talking with clients'
customers, level of customer complaints and operating performance. In order
to provide ongoing improvement to the Company's telephone representatives'
performance and to assure compliance with the Company's policies and
standards, quality assurance personnel monitor each telephone representative
on a frequent basis and provide ongoing training to the representative based
on this review. The Company's information systems enable it to provide
clients with reports on a real-time basis as to the status of their accounts
and clients can choose to network with the Company's computer system to
access such information directly.
The Company maintains a client service department to promptly address
client issues and questions and alert senior executives of potential problems
that require their attention. In addition to addressing specific issues, a
team of client service representatives will contact accounts on a regular
basis in order to establish a close client rapport, determine the client's
overall level of satisfaction and identify practical methods of improving the
client's satisfaction.
CLIENT RELATIONSHIPS
The Company's client base currently includes over 5,000 companies in such
industries as education, financial services, healthcare, telecommunications
and utilities. The Company's 10 largest clients in 1995 accounted for
approximately 34.9% of the Company's revenue on a pro forma basis. In 1995,
the City of Philadelphia Water Revenue Bureau accounted for 5.2% of total
revenue on a pro forma basis and 14.1% on an actual basis. No other customer
accounted for more than 10% of the Company's actual revenue in 1995. In 1995,
the Company on a pro forma basis derived 31.2% of its referrals from
educational organizations, 21.3% from financial institutions, 19.7% from
healthcare organizations, 11.7% from telecommunications companies, 6.7% from
utilities and 5.3% from government entities.
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The following table sets forth a list of certain of the Company's key
clients:
<TABLE>
<CAPTION>
Financial Services Healthcare Education
-------------------------- ----------------------------------- --------------------------------
<S> <C> <C>
First Union Corporation Reimbursement Technologies, Inc. Pennsylvania Higher Education
Mellon Bank. N.A. Medical Center of Delaware Assistance Agency
NationsBank, N.A. Franciscan Healthcare University of Pennsylvania
The Progressive George Washington University Seton Hall University
Corporation Hospital Penn State University
United Healthcare Hutchinson Hospital Corporation Rutgers University
University of Virginia
Telecommunications Utilities Government
---------------------------- ---------------------------------- -----------------------------
Bell Atlantic Corporation New York State Electric & Gas Water Revenue Bureau, City
NYNEX National Fuel Gas Distribution of Philadelphia
ATX Telecommunications Corporation State of New Jersey Motor
Frontier Cellular PECO Energy Company Vehicle Services
Boston Edison Company
Western Resources Corporation
</TABLE>
The Company enters into contracts with most of its clients which define,
among other things, fee arrangements, scope of services and termination
provisions. Clients may usually terminate such contracts on 30 or 60 days
notice. In the event of termination, however, clients typically do not
withdraw accounts referred to the Company prior to the date of termination,
thus providing the Company with an ongoing stream of revenue from such
accounts which diminish over time. Under the terms of the Company's
contracts, clients are not required to place accounts with the Company but do
so on a discretionary basis.
SALES AND MARKETING
The Company utilizes a focused and highly professional direct selling
effort in which sales representatives personally cultivate relationships with
prospects and existing clients. The Company's sales effort consists of a 23
person direct sales force. Each sales representative is charged with
identifying leads, qualifying prospects and closing sales. When appropriate,
Company operating personnel will join in the sales effort to provide detailed
information and advice regarding the Company's operational capabilities.
Sales and operating personnel also work together to take advantage of
potential cross-selling opportunities. The Company supplements its direct
sales effort with print media and attendance at trade shows.
Many of the Company's prospective clients issue requests-for-proposals
("RFPs") as part of the contract award process. The Company retains a
technical writer for the purpose of preparing detailed, professional
responses to RFPs. In addition, the effect of the Company's direct sales
force in maintaining contact with the prospective client often allow them to
serve in an informal advisory capacity to the prospective client with respect
to the requirements of the RFP which the Company believes gives it a
competitive edge in responding to the RFP.
PERSONNEL AND TRAINING
The Company's success in recruiting, hiring and training a large number of
employees is critical to its ability to provide high quality accounts
receivable management, customer support and teleservices programs to its
clients. The Company seeks to hire personnel with previous experience in
accounts receivable management or as a telephone representative. NCO
generally offers competitive compensation and benefits and offers promotion
opportunities within the Company.
All Company personnel receive a comprehensive training course that
consists of a combination of classroom and practical experience. Prior to
customer contact, new employees receive one week of training in the Company's
operating systems, procedures and telephone techniques and instruction in
applicable federal and state regulatory requirements. Company personnel also
receive a wide variety of continuing professional education consisting of
both classroom and role playing sessions.
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As of June 30, 1996, the Company (including MAB) had a total of 577
full-time employees and 91 part- time employees, of which 547 were telephone
representatives. None of the Company's employees is represented by a labor
union. The Company believes that its relations with its employees are good.
COMPETITION
The accounts receivable management industry is highly competitive. The
Company competes with approximately 6,300 providers, including large national
corporations such as First Data Corporation, Payco American Corporation, CRW
Financial, Inc. and Union Corporation, and many regional and local firms.
Many of the Company's competitors have substantially greater resources, offer
more diversified services and operate in broader geographic areas than the
Company. In addition, the accounts receivable management services offered by
the Company, in many instances, are performed in-house. Moreover, many larger
clients retain multiple accounts receivable management and recovery providers
which exposes the Company to continuous competition in order to remain a
preferred vendor. The Company believes that the primary competitive factors
in obtaining and retaining clients are the ability to provide customized
solutions to a client's requirements, personalized service, sophisticated
call and information systems and price. The Company also competes with other
firms, such as SITEL Corporation, APAC TeleServices, Inc. and Teletech
Holdings, Inc., in providing teleservices.
REGULATION
The accounts receivable management industry is regulated both at the
federal and state level. The federal Fair Debt Collection Practices Act (the
"FDCPA") regulates any person who regularly collects or attempts to collect,
directly or indirectly, consumer debts owed or asserted to be owed to another
person. The FDCPA establishes specific guidelines and procedures which debt
collectors must follow in communicating with consumer debtors, including the
time, place and manner of such communications. Further, it prohibits
harassment or abuse by debt collectors, including the threat of violence or
criminal prosecution, obscene language or repeated telephone calls made with
the intent to abuse or harass. The FDCPA also places restrictions on
communications with individuals other than consumer debtors in connection
with the collection of any consumer debt and sets forth specific procedures
to be followed when communicating with such third parties for purposes of
obtaining location information about the consumer. Additionally, the FDCPA
contains various notice and disclosure requirements and prohibits unfair or
misleading representations by debt collectors. The Company is also subject to
the Fair Credit Reporting Act which regulates the consumer credit reporting
industry and which may impose liability on the Company to the extent that the
adverse credit information reported on a consumer to a credit bureau is false
or inaccurate. The accounts receivable management business is also subject to
state regulation. Some states require that the Company be licensed as a debt
collection company. Management believes that the Company currently holds
applicable licenses from all states where required.
With respect to the other teleservices offered by the Company, including
telemarketing, the federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994 (the "TCFAPA") broadly authorizes the Federal Trade
Commission (the "FTC") to issue regulations prohibiting misrepresentations in
telemarketing sales. The FTC's telemarketing sales rules prohibit
misrepresentations of the cost, terms, restrictions, performance or duration
of products or services offered by telephone solicitation and specifically
address other perceived telemarketing abuses in the offering of prizes and
the sale of business opportunities or investments. The federal Telephone
Consumer Protection Act of 1991 (the "TCPA") limits the hours during which
telemarketers may call consumers and prohibits the use of automated telephone
dialing equipment to call certain telephone numbers. A number of states also
regulate telemarketing. For example, some states have enacted restrictions
similar to the federal TCPA. From time to time, Congress and the states
consider legislation that would further regulate the Company's telemarketing
operations and the Company cannot predict whether additional legislation will
be enacted and, if enacted, what effect it would have on the telemarketing
industry and the Company's business.
Several of the industries served by the Company are also subject to
varying degrees of government regulation. Although compliance with these
regulations is generally the responsibility of the Company's clients, the
Company could be subject to a variety of enforcement or private actions for
its failure or the failure of its clients to comply with such regulations.
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The Company devotes significant and continuous efforts, through training
of personnel and monitoring of compliance, to ensure that it is in compliance
with all federal and state regulatory requirements. The Company believes that
it is in material compliance with all such regulatory requirements.
FACILITIES
The Company operates eight leased facilities. The chart below summarizes
the Company's facilities:
Location Approximate
of Facility Square Footage Function
---------------- -------------- -------------------------------------------
Denver, CO 4,800 Processing center
Hutchinson, KS 900 Processing center
Wichita, KS 10,000 Processing center
Beltsville, MD 4,700 Processing center
Buffalo, NY 30,000 Processing center
Cleveland, OH 7,000 Processing center
Blue Bell, PA 36,500 Corporate headquarters and processing center
Philadelphia, PA 5,700 Processing center
The leases of these facilities expire between 1997 and 2010, and most
contain renewal options. The Company believes that these facilities are
adequate for its current operations, but additional facilities may be
required to support growth. The Company believes that suitable additional or
alternative space will be available as needed on commercially reasonable
terms. In addition, the Company leases sales offices in Birmingham, Alabama
and Canton, Massachussetts.
The Company leases space in four buildings in Blue Bell, Pennsylvania from
three limited partnerships of which the existing shareholders of the Company
are limited partners and Michael J. Barrist is the sole shareholder of the
corporate general partners, pursuant to leases expiring between 1998 and
2000. See "Management -- Certain Transactions -- Leases."
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. Management believes that none of these legal
proceedings will have a materially adverse effect on the financial condition
or results of operations of the Company.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's directors, executive officers, certain key employees and persons
who will become directors of the Company following the consummation of the
Offering:
Name Age Position
--------------------- ----- --------------------------------------
Michael J. Barrist .. 35 Chairman of the Board, President and
Chief Executive Officer
Charles C. Piola, Jr. . 49 Executive Vice President and Director
Bernard R. Miller ... 49 Senior Vice President, Development and
Director
Steven L. Winokur ... 37 Vice President, Finance and Chief
Financial Officer
Joseph C. McGowan ... 43 Vice President, Operations
Stephen Elliott ..... 35 Vice President, Technology and Chief
Information Officer
Steven Leckerman .... 44 Vice President, Collection Operations
Eric S. Siegel ...... 40 Director
Allen F. Wise ....... 54 Director
Michael J. Barrist has served as Chairman of the Board, President and
Chief Executive Officer of NCO since purchasing the Company in 1986. Mr.
Barrist was employed by U.S. Healthcare Inc. from 1984 to 1986, most recently
as Vice President of Operations, and was employed by Gross & Company, a
certified public accounting firm, from 1980 through 1984. Mr. Barrist is a
certified public accountant.
Charles C. Piola, Jr. joined the Company in 1986 as Executive Vice
President, Sales and Marketing and has served as a director since that time.
Prior to joining NCO, Mr. Piola was the Regional Sales Manager for Trans
World Systems from 1983 to 1986 and IC Systems from 1979 to 1981, both
accounts receivable management companies.
Bernard R. Miller joined the Company as Senior Vice President of
Development in 1994 when NCO acquired BRM, a Philadelphia-based accounts
receivable management company owned principally by Mr. Miller. Mr. Miller
became a director in 1996. Prior to joining the Company, Mr. Miller served as
President and Chief Executive Officer of BRM since he founded it in 1980.
Steven L. Winokur joined the Company in December 1995 as Vice President,
Finance and Chief Financial Officer. Prior to that, Mr. Winokur acted as a
part-time consultant to the Company since 1986. From February 1992 to
December 1995, Mr. Winokur was the principal of Winokur & Associates, a
certified public accounting firm. From March 1981 to February 1992, Mr.
Winokur was a partner with Gross & Company, a certified public accounting
firm, where he most recently served as Administrative Partner. Mr. Winokur is
a certified public accountant.
Joseph C. McGowan joined the Company in 1990 as Vice President,
Operations. Prior to that, Mr. McGowan was Assistant Manager of the
Collections Department at Philadelphia Gas Works, a public utility, since
1975.
Stephen Elliott joined the Company in May 1996 as Vice President,
Technology and Chief Information Officer and provided consulting services to
the Company since May 1995. Prior to joining NCO, Mr. Elliott was employed by
Electronic Data Systems, a computer services company, since 1986, most
recently as Senior Account Manager.
36
<PAGE>
Steven Leckerman joined the Company in September 1995 as Vice President,
Collection Operations. From 1982 to September 1995, Mr. Leckerman was
employed by Allied Bond Corporation, a division of Union Corporation, an
accounts receivable management company, where he served as manager of dialer
and special projects.
Eric S. Siegel will become a director of the Company after the
consummation of the Offering. Mr. Siegel has been president of Siegel
Management Company, a management consulting firm, since 1983.
Allen F. Wise will become a director of the Company after the consummation
of the Offering. Mr. Wise became Chief Executive Officer of Coventry Healthcare,
a managed care company, in October 1996. Prior thereto, he was Executive Vice
President of United Healthcare Corporation since October 1994, President of Wise
Health Systems, a healthcare management company, from September 1993 to October
1994, Chief Executive Officer of Keystone Health Plan and Chief Operating
Officer of Independence Blue Cross from September 1991 to September 1993 and
Vice President of US Healthcare, Inc. from April 1985 to September 1991.
BOARD OF DIRECTORS
Within 90 days after completion of this Offering, the Company will expand
its Board of Directors from three to five members and will appoint two
independent directors to fill the vacancies created by the increase. The
Board will be divided into three classes: Class I will consist of Mr.
Barrist, whose term will expire at the 1997 annual meeting of shareholders;
Class II will consist of Messrs. Miller and Wise, whose terms will expire at
the 1998 annual meeting of shareholders; Class III will consist of Messrs.
Piola and Siegel, whose terms will expire at the 1999 annual meeting of
shareholders. Beginning with the 1997 annual meeting of shareholders,
directors whose terms are expiring will be elected by the shareholders to
serve for three year terms. The Company will also establish an Audit
Committee consisting of Messrs. Siegel and Wise, and a Compensation Committee
consisting of Messrs. Barrist, Siegel and Wise.
Audit Committee. The Audit Committee will make recommendations concerning
the engagement of independent public accountants; review with the independent
public accountants the plans for and scope of the audit, the audit procedures
to be utilized and the results of the audit; approve the professional
services provided by the independent public accountants; review the
independence of the independent public accountants; and review the adequacy
and effectiveness of the Company's internal accounting controls.
Compensation Committee. The Compensation Committee will make
recommendations to the Board of Directors concerning compensation for the
Company's executive officers; review general compensation levels for other
employees as a group; administer the Company's 1995 Stock Option Plan and
1996 Stock Option Plan; and take such other actions as may be required in
connection with the Company's compensation and incentive plans.
DIRECTOR COMPENSATION
The Company previously has not paid fees to its directors for their
services as directors. Upon completion of this Offering, each non-employee
director of the Company will receive an annual fee of $5,000 and a fee of
$500 for each meeting of the Board or Board committee attended, plus
reimbursement of expenses incurred in attending meetings; however, no
additional fee will be paid for committee meetings held the same day as Board
meetings. Non-employee directors will receive stock options pursuant to the
Company's 1996 Non-Employee Director Stock Option Plan and directors who are
also employees are eligible to participate in the Company's 1996 Stock Option
Plan. See "--Stock Option Plans".
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation earned by the Chief Executive Officer and the three next most
highly compensated executive officers of the Company whose aggregate salaries
and bonuses exceeded $100,000 (collectively, the "Named Executive Officers")
for services rendered in all capacities to the Company during 1995.
37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards (1)
------------------------ --------------
Securities All Other
Name and Underlying Compensation
Principal Position Year Salary Bonus Options (#) (2)
----------------------------- ------ ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Michael J. Barrist .......... 1995 $200,000 $242,641 -- $ 5,993
Chairman of the Board,
President and Chief Executive
Officer
Charles C. Piola, Jr. ....... 1995 200,000 135,714 -- 15,835
Executive Vice President and
Director
Bernard R. Miller ........... 1995 130,000 21,645 -- 5,955
Senior Vice President,
Development
Joseph C. McGowan ........... 1995 100,000 30,000 44,344 5,088
Vice President, Operations
</TABLE>
- ------
(1) The Company did not grant any restricted stock awards or stock
appreciation rights or make any long-term incentive plan payouts during
1995.
(2) Consists of premiums for disability policies paid by the Company of
$3,493, $13,335, $4,197 and $3,695 and the Company matching contribution
under the 401(k) Profit Sharing Plan of $2,500, $2,500, $1,758 and $1,393
for the benefit of Messrs. Barrist, Piola, Miller and McGowan,
respectively.
1995 Option Grants Table. The following table sets forth certain
information concerning stock options granted during 1995 to each of the Named
Executive Officers.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term (1)
-------------------------------------------------------------------- -------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees In Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
-------------------------- -------------- ----------------- ------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Barrist ....... -- -- -- -- -- --
Charles C. Piola, Jr. .... -- -- -- -- -- --
Bernard R. Miller ........ -- -- -- -- -- --
Joseph C. McGowan ........ 44,344 (2) 33.3% $2.73 6/1/05 76,133 192,937
</TABLE>
- ------
(1) Represents the difference between the market value of the Common Stock
for which the option may be exercised, assuming that the market value of
the Common Stock on the date of grant appreciates in value to the end of
the ten-year option term at annualized rates of 5% and 10%, respectively,
and the exercise price of the option. The potential realizable value of
the options based on the assumed initial public offering price of $12.00
per share will substantially exceed the potential realizable values shown
in the table.
(2) The options were granted on June 1, 1995 and become exercisable in three
equal annual installments beginning one year after the date of grant.
38
<PAGE>
Aggregated Option Exercises in 1995 and 1995 Year-End Option Values Table.
The following table sets forth certain information concerning the exercise of
options in 1995 and the number of unexercised options and the value of
unexercised options at December 31, 1995 held by the Named Executive
Officers.
AGGREGATED OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Value Options at December 31, 1995 December 31, 1995(1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------------- ---------------- -------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Michael J. Barrist ....... -- -- -- /-- -- /--
Charles C. Piola, Jr. .... -- -- -- /-- -- /--
Bernard R. Miller ........ 86,881 (2) $854,572 (2) -- /-- -- /--
Joseph C. McGowan ........ -- -- -- /44,344 -- / $411,069
</TABLE>
- ------
(1) There was no public trading market for the Common Stock as of December
31, 1995. Accordingly, these values have been calculated on the basis of
an assumed initial public offering price of $12.00 per share, less the
applicable exercise price.
(2) Mr. Miller purchased these shares for an aggregate exercise price of
$188,000 pursuant to the exercise of an option issued to him at the time
of the BRM acquisition. Because there was no public trading market for
the Common Stock as of the date of exercise, the value realized upon
exercise of this option was calculated on the basis of an assumed initial
public offering price of $12.00 per share, less the exercise price.
EMPLOYMENT AGREEMENTS
In September 1996, the Company entered into five-year employment
agreements with Messrs. Barrist, Piola, Miller, McGowan and Winokur pursuant
to which they are entitled to receive annual base salaries of $275,000,
$225,000, $150,000, $125,000 and $150,000, respectively, adjusted each year
in accordance with the Consumer Price Index. Mr. Barrist is entitled to
receive an annual bonus of $50,000 if the Company reaches performance goals
determined by the Board of Directors. He is also entitled to a bonus of
$100,000 if the Company's net income increases by 20% over the prior year and
a bonus equal to 5% of any increase in net income in excess of 20%, in each
case adjusted for dilution. Mr. Piola is eligible for an annual bonus of
$50,000, $75,000 or $100,000 if the Company's annual increase in net income
(adjusted for dilution) over the prior year exceeds 20%, 30% or 40%,
respectively. Messrs. Miller, McGowan and Winokur receive such annual bonuses
as are determined by the Board of Directors.
Each of the employment agreements provides that, in the event of the death
of the employee or the termination of employment by the Company other than
"for cause" (as defined in the agreements), the Company shall continue to pay
the employee's full compensation, including bonuses, for the balance of the
employment term. In addition to a non-disclosure covenant, each employment
agreement also contains a covenant-not-to compete with the Company for a
period of two years following the date that the Company ceases to pay the
employee any compensation pursuant to the terms of the agreement.
STOCK OPTION PLANS
In June 1995, the Company adopted, and the shareholders approved, the
Company's 1995 Stock Option Plan (the "1995 Plan"). In September 1996, the
Company adopted, and the shareholders approved, the 1996 Stock Option Plan
(the "1996 Plan") and the 1996 Non-Employee Director Stock Option Plan (the
"Director Plan" and collectively with the 1995 Plan and the 1996 Plan, the
"Plans"). The purpose of the Plans is to attract and retain employees,
non-employee directors, and independent consultants and contractors and to
provide additional incentive to them by encouraging them to invest in the
Common Stock and acquire an increased personal interest in the Company's
business. Payment of the exercise price for options granted under the Plans
may be made in cash, shares of Common Stock or a combination of both. All
options granted pursuant to the Plans are exercisable in accordance with a
vesting schedule which is set at the time of the issuance of the option and,
except as indicated below, may not be exercised more than ten years from the
date of grant. Options granted under the Plans will become immediately
exercisable upon a "change in control" as defined in the Plans.
1995 Plan and 1996 Plan. All officers, directors, key employees,
independent contractors and independent consultants of the Company or any of
its current or future parents or subsidiaries are eligible to receive options
39
<PAGE>
under the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors. The Board of Directors may
administer these Plans. The committee will select the optionees and will
determine the nature of the option granted, the number of shares subject to
each option, the option vesting schedule and other terms and conditions of
each option. The Board of Directors may amend or supplement these Plans and
outstanding options and may suspend or terminate these Plans, provided that
such action may not adversely affect outstanding options.
The Company has reserved 221,719 shares of Common Stock for issuance upon
the exercise of options granted under the 1995 Plan and 218,413 shares of
Common Stock for issuance upon the exercise of options granted under the 1996
Plan. Options to purchase an aggregate of 367,321 shares of Common Stock have
been issued under the 1995 Plan and the 1996 Plan. Options granted under
these Plans may be incentive stock options intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options
not intended to so qualify. These Plans require the exercise price of
incentive stock options to be at least equal to the fair market value of the
Common Stock on the date of the grant. In the case of options granted to a
shareholder owning, directly or indirectly, in excess of 10% of the Common
Stock, the option exercise price must be at least equal to 110% of the fair
market value of the Common Stock on the date of grant and such option may not
be exercised more than five years from the date of grant. The option price
for non-qualified options, at the discretion of the Compensation Committee,
may be less than the fair market value of the Common Stock on the date of
grant.
All unexercised options terminate three months following the date on which
an optionee's employment by, or relationship with, the Company or any parent
or subsidiary of the Company, terminates other than by reason of disability
or death (but not later than the expiration date) whether or not such
termination is voluntary. Any option held by an employee who dies or who
ceases to be employed because of disability must be exercised by the employee
or his representative within one year after the employee dies or ceases to be
an employee (but not later than the scheduled termination date). Options are
not transferable except to the decedent's estate in the event of death. No
additional options may be granted under the 1995 Plan and no option may be
granted under the 1996 Plan after August 2006.
In September and October 1996, the Company granted options to purchase an
aggregate of 189,946 shares under the 1995 Plan and the 1996 Plan at an
exercise price equal to the initial public offering price. Of these options,
63,315 will become exercisable on the first anniversary of the date of grant
and the remaining options will become exercisable in equal amounts on the
second and third anniversaries of the date of grant.
Director Plan. All non-employee directors automatically receive options
under the Director Plan. The Director Plan is administered by the Board of
Directors of the Company, including non-employee directors, who may modify,
amend, suspend or terminate the plan, other than the number of shares with
respect to which options are to be granted, the option exercise price, the
class of persons eligible to participate, or options previously granted.
The Company has reserved 24,258 shares of Common Stock for issuance upon
the exercise of options under the Director Plan. Options granted under the
Director Plan are not incentive stock options under Section 422 of the Code.
Each person who is first elected or appointed to serve as a non-employee
director of the Company is automatically granted options to purchase 1,000
shares of Common stock at the fair market value of the Common Stock on the
date of the grant. Immediately after the Company's 1997 annual meeting of
shareholders and at each annual meeting of shareholders thereafter, each
individual who is re-elected or continues as a non- employee director
automatically is granted an option to purchase 1,000 shares of Common stock
at the fair market value of the Common Stock on the date of the grant.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
Prior to the completion of the Offering, the Company did not have a
Compensation Committee and compensation decisions were made by Mr. Barrist.
Within 90 days after the completion of this Offering, the Company expects to
appoint Messrs. Siegel and Wise to the Board and to establish a Compensation
Committee consisting of Messrs. Barrist, Siegel and Wise.
40
<PAGE>
CERTAIN TRANSACTIONS
REAL ESTATE MATTERS
The Company currently leases four facilities in Blue Bell, Pennsylvania.
These facilities are leased from limited partnerships, in each case the
general partner of which is a corporation with Mr. Barrist as the sole
shareholder and the limited partners of which are the current shareholders of
the Company except that, in certain partnerships, an unaffiliated person is
also a limited partner. The leases for the four facilities provide for terms
expiring between 1998 and 2005, and provide for total base monthly rent
during 1996 of approximately $47,100. Under the facilities leases, the
Company paid the limited partnerships controlled by the Company's current
shareholders approximately $81,563, $297,500, $385,217, and $282,289 for the
years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1996, respectively. At one of the facilities, the Company has sublet the
space to an affiliate of the limited partnership owning the facility for a
monthly rent of $1,454, which is equal to the monthly rent paid by the
Company. While the Company believes that the terms of the leases are no less
favorable to the Company than would have been obtained by unaffiliated
parties, there can be no assurance that conflicts of interest will not arise
in the future with respect to these leases. See "Business -- Facilities" and
Note 9 of Notes to the Financial Statements. Any material transactions that
may arise in the future with respect to these leases or any other future
material transactions between the Company and its directors, executive
officers or principal shareholders will be subject to approval by the
Company's independent directors and will be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. .
The Company has made interest-free advances to the limited partnerships
for the purpose of making improvements to these facilities. The largest
aggregate amount of indebtedness outstanding during 1994 and 1995 and the six
months ended June 30, 1996 was $64,000, $100,000 and $249,820, respectively.
These advances were repaid in June 1996.
S CORPORATION DISTRIBUTIONS
At the Termination Date, the Company terminated its status as an S
Corporation. In connection therewith, the Company declared distributions in
an amount equal to the Company's undistributed S Corporation earnings as of
the Termination Date, estimated at $3.0 million, subject to adjustment. The
Company expects to pay the S Corporation Distributions with a portion of the
proceeds from this Offering. See "Use of Proceeds" and "Dividend Policy and
Prior S Corporation Status."
DISTRIBUTION AND TAX INDEMNIFICATION AGREEMENT
The Company has entered into a distribution and tax indemnification
agreement with its current shareholders which provides for: (i) the payment
of the S Corporation Distributions, (ii) the adjustment of the S Corporation
Distributions based on the final determination of the Company's actual
undistributed S Corporation earnings through the Termination Date, (iii) an
indemnification by the Company of the current shareholders for any losses or
liabilities with respect to any additional taxes (including interest,
penalties, legal and accounting fees and any additional taxes resulting from
any indemnification) resulting from the Company's operations during the
period in which it was an S Corporation (the "S Corporation Period") and (iv)
an indemnification by the current shareholders of the Company for the amount
of any tax refund received by the current shareholders due to a reduction in
their share of the Company's S Corporation taxable income for the S
Corporation Period less any taxes, interest or penalties imposed by any tax
authority on any distributions to the current shareholders with respect to
the S Corporation Period in excess of the current shareholder's share of
taxable income of the Company for the S Corporation Period. See "Dividend
Policy and Prior S Corporation Status."
LOAN TO BERNARD R. MILLER
In 1995, the Company loaned $135,888 to Bernard R. Miller at an interest
rate of 7.0% per year to enable him to exercise an option to purchase 86,881
shares of Common Stock, which option was issued to him in connection with the
BRM acquisition. This loan was repaid in May 1996.
41
<PAGE>
PROFESSIONAL SERVICES
The Company has paid consulting fees of $5,000, $49,000 and $40,000 to Siegel
Management Company for 1994, 1995 and 1996, respectively. The Company will pay a
fee to Siegel Management Company of $240,000 after the consummation of the
Offering for various consulting and advisory services rendered to the Company in
connection with the Offering. Eric S. Siegel, who will become a director of the
Company after the consummation of the Offering, is the President and owner of
Siegel Management Company. In 1996, Mr. Siegel received options to purchase
11,086 shares of Common Stock under the 1995 Plan at an exercise price equal to
the initial public offering price.
Joshua Gindin is the beneficial owner of approximately 8.2% of the
outstanding Common Stock of the Company, principally as a result of serving
as trustee or co-trustee of certain trusts which own Common Stock. See
"Principal and Selling Shareholders." Mr. Gindin provides legal services to
the Company. In 1995, Mr. Gindin also received options to purchase 11,086
shares of Common Stock under the 1995 Plan at an exercise price of $2.73 per
share.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 16, 1996, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby by: (i) each
person known by the Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's directors and nominees for
director; (iii) each of the Named Executive Officers; and (iv) the Company's
directors, nominees for director and executive officers as a group. Except as
otherwise indicated, to the knowledge of the Company, the beneficial owners of
the Common Stock listed below have sole investment and voting power with respect
to such shares.
<TABLE>
<CAPTION>
Beneficial Ownership
-----------------------------------------------
Percent After
Percent Prior the Offering
Name of Beneficial Owner Number to the Offering (1)
----------------------------------------------- ----------- --------------- --------------
<S> <C> <C> <C>
Michael J. Barrist (2)(3) ..................... 2,541,338 60.3% 37.9%
Annette Barrist (2)(4) ........................ 260,001 6.2 3.9
Charles C. Piola, Jr. (2)(5) .................. 1,180,389 28.0 17.6
Bernard R. Miller (2) ......................... 210,684 5.0 3.1
Eric S. Siegel ................................. - - -
Allen F. Wise .................................. - - -
Joseph C. McGowan(2)(6) ....................... 14,781 * *
Joshua Gindin (7) ............................. 344,923 8.2 5.1
230 South Broad Street
20th Floor
Philadelphia, PA 19102
Mellon Bank, N.A. ............................. 222,091 5.0 3.2
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
All directors, nominees for director
and executive officers as a group
(7 persons) (8) .............................. 4,098,796 96.7% 60.8%
</TABLE>
- ------
*Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option. In the
event that the Underwriters' over- allotment option is exercised in full,
Messrs. Barrist, Piola and Miller and Mrs. Barrist have agreed to sell
210,188, 117,562, 18,750 and 28,500 shares, respectively, and after the
Offering will beneficially own 34.7%, 15.8%, 2.9% and 3.4%, respectively,
and all directors and executive officers as a group will beneficially own
55.3% of the outstanding Common Stock.
(2) The address of such person is c/o NCO Group, Inc., 1740 Walton Road, Blue
Bell, Pennsylvania 19422-0987.
(3) Includes: (i) 260,001 shares of Common Stock owned by Mrs. Barrist which
Mr. Barrist has the sole right to vote pursuant to an irrevocable proxy
and (ii) 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family for which Mr. Barrist is a co-trustee. Excludes 140,518
shares held in trust for the benefit of Mr. Barrist's child, as to which
Mr. Barrist disclaims beneficial ownership. Mrs. Barrist is the mother of
Michael J. Barrist.
42
<PAGE>
(4) Excludes 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family, as to which Mrs. Barrist disclaims beneficial
ownership. Mrs. Barrist is the mother of Michael J. Barrist.
(5) Excludes 140,518 shares held in trust for the benefit of Mr. Piola's
children, as to which Mr. Piola disclaims beneficial ownership.
(6) Represents 14,781 shares issuable upon exercise of options which are
exercisable within 60 days of October 16, 1996.
(7) Includes (i) 140,518 shares held in trust for the benefit of Mr.
Barrist's child for which Mr. Gindin is a co-trustee, (ii) 60,192 shares
held in trust for the benefit of Mrs. Barrist's family for which Mr.
Gindin is a co-trustee, (iii) 140,518 shares held in trust for the
benefit of Mr. Piola's children for which Mr. Gindin is trustee and (iv)
3,695 shares issuable upon the exercise of options which are exercisable
within 60 days of October 16, 1996.
(8) Includes: (i) 260,001 shares of Common Stock owned by Mrs. Barrist which
Mr. Barrist has the sole right to vote pursuant to an irrevocable proxy,
(ii) 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family for which Mr. Barrist is a co-trustee, (iii) 140,518
shares held in trust for the benefit of Mr. Barrist's child for which an
executive officer of the Company is a co-trustee and (iv) an aggregate of
25,867 shares issuable upon exercise of options which are exercisable
within 60 days of October 16, 1996.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, no
par value, and 5,000,000 shares of Preferred Stock, no par value, issuable in
series, the relative rights, limitations and preferences of which may be
designated by the Board of Directors ("Preferred Stock"). As of the date of
this Prospectus, 4,213,447 shares of Common Stock were issued and outstanding
and held of record by five shareholders and no shares of Preferred Stock were
outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, the holders of Common
Stock are entitled, among other things, (i) to share ratably in dividends if,
when and as declared by the Board of Directors out of funds legally available
therefor; and (ii) in the event of liquidation, dissolution or winding-up of
the Company, to share ratably in the distribution of assets legally available
therefor, after payment of debts and expenses. The holders of Common Stock do
not have cumulative voting rights in the election of directors and have no
preemptive rights to subscribe for additional shares of capital stock of the
Company. All currently outstanding shares of the Common Stock are, and the
shares offered hereby, when sold in the manner contemplated by this
Prospectus will be, fully paid and nonassessable. The rights, preferences and
privileges of holders of Common Stock are subject to the terms of any series
of Preferred Stock which the Company may issue in the future.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the
provisions of the Company's Articles and limitations prescribed by law, the
Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares, to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative),
dividend rates, terms of redemption (including sinking fund provisions),
redemption prices, conversion rights and liquidation preferences of the
shares constituting any class or series of the Preferred Stock, in each case
without any further action or vote by the shareholders. The Company has no
current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares
43
<PAGE>
of the Preferred Stock pursuant to the Board of Directors' authority
described above may adversely affect the rights of the holders of Common
Stock. For example, Preferred Stock issued by the Company may rank prior to
the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of
Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
WARRANTS AND CONVERTIBLE NOTE
In July 1995, the Company issued a warrant (the "1995 Warrant") to
purchase 175,531 shares of Common Stock to Mellon Bank, N.A. pursuant to the
Company's Credit Agreement. The Company issued a warrant (the "1996 Warrant")
to purchase an additional 46,560 shares of Common Stock to Mellon Bank, N.A.
upon the amendment of the Credit Agreement in September 1996. The 1995
Warrant is exercisable at any time after the consummation of this Offering
and prior to July 31, 2005 at a nominal exercise price. The Company has
agreed to grant an additional warrant to purchase 18,500 shares of Common
Stock at an exercise per share price equal to the initial public offering
price in consideration of increasing the revolving credit facility to $25.0
million. The 1996 Warrant is exercisable at any time after the consummation
of the Offering and prior to July 31, 2005 at an exercise price equal to the
initial public offering price of the Common Stock. The number of shares of
Common Stock which may be acquired upon exercise of the 1995 Warrant and the
1996 Warrant (collectively, the "Warrants") and the exercise price are each
subject to adjustment in certain circumstances, including the sale by the
Company of Common Stock at a price per share less than the then current fair
market value of the Common Stock. The holder of the Warrants also has the
right to surrender the Warrants in exchange for shares of Common Stock having
an aggregate fair market value equal to the amount by which the aggregate
fair market value of all of the shares issuable upon exercise of the Warrants
exceeds the aggregate exercise price of the Warrants.
In connection with the Credit Agreement, the Company entered into a
Registration Rights Agreement granting Mellon Bank, N.A. and its transferees
(collectively, "Holders") the right to register the shares received upon
exercise of the Warrants under the Securities Act. Whenever the Company
proposes to register any shares of Common Stock at any time prior to July 31,
2005, the Company is required to give notice to the Holders of the proposed
registration and to include their shares in such registrations, subject to
certain conditions including the right of the underwriters of such offering
to limit the number of shares sold by the Holders if, in the underwriters'
opinion, the number of securities requested to be included in such
registration exceeds the number which can be sold without adversely affecting
the marketability of the offering. The Holders may also require the Company
to file up to two registration statements under the Securities Act with
respect to such shares. The Company is required to pay all registration
expenses (other than underwriting discounts), including the reasonable fees
of one counsel chosen by the Holders. The Holders have agreed to waive any
rights to register shares of Common Stock in this Offering.
As part of the purchase price for the MAB acquisition, the Company issued
a $1.0 million Convertible Note which is convertible into shares of Common
Stock at the initial public offering price at any time prior to maturity in
September 2001.
ANTI-TAKEOVER PROVISIONS
The Company's Articles and Bylaws contain several provisions intended to
limit the possibility of, or make more difficult, a takeover of the Company.
In addition to providing for a classified Board of Directors and the issuance
of Preferred Stock having terms established by the Board of Directors without
shareholder approval, the Articles provide that: (i) at least 65% of the
votes entitled to be cast by shareholders is required to approve amendments
to the Articles and Bylaws, unless at least a majority of the incumbent
directors on the Board of Directors has voted in favor of the amendment, in
which case only a majority of the votes cast by shareholders is required to
approve the amendment, (ii) directors can be removed only for cause and only
by a vote of at least 65% of the votes entitled to be cast by shareholders,
and (iii) the shareholders of the Company are not entitled to call special
meetings of the shareholders. In addition, the Articles provide that actions
by shareholders without a meeting must receive the unanimous written consent
of all shareholders. The Articles also permit the Board
44
<PAGE>
of Directors to oppose, in its sole discretion, a tender offer or other offer
for the Company's securities and to take into consideration all pertinent
issues. Should the Board of Directors determine to reject such an offer, it
may take any lawful action to accomplish its purpose, including, among other
things, advising shareholders not to accept the offer and commencing
litigation against the offeror. The Company's Bylaws establish procedures for
the nomination of directors by shareholders and the proposal by shareholders
of matters to be considered at meetings of the shareholders, including the
submission of certain information within the times prescribed in the Bylaws.
In addition, under the Pennsylvania Business Corporation Law of 1988, as
amended (the "BCL"), subject to certain exceptions, a business combination
between a Pennsylvania corporation and a person owning 20% or more of such
corporation's voting stock (an "interested person") may be accomplished only
if: (i) the business combination is approved by the corporation's directors
prior to the date on which such person acquired 20% or more of such stock or
if the board approved such person's acquisition of 20% or more of such stock
prior to such acquisition; (ii) the interested person owns shares entitled to
cast at least 80% of the votes all shareholders would be entitled to cast in
the election of directors, the business combination is approved by the vote
of shareholders entitled to cast a majority of votes that all stockholders
would be entitled to cast in an election of directors (excluding shares held
by the interested person), which vote may occur no earlier than three months
after the interested person acquired its 80% ownership, and the consideration
received by shareholders in the business combination satisfies certain
minimum conditions; (iii) the business combination is approved by the
affirmative vote of all outstanding shares of common stock; or (iv) the
business combination is approved by the vote of shareholders entitled to cast
a majority of the votes that all shareholders would be entitled to cast in
the election of directors (excluding shares held by the interested person),
which vote may occur no earlier than five years after the interested person
became an interested person. A corporation may exempt itself from this
provision by an amendment to its articles of incorporation that requires
shareholder approval. The Articles do not provide an exemption from this
provision. Pennsylvania has also adopted other anti-takeover legislation from
which the Company has elected to exempt itself in the Articles.
The BCL also provides that the directors of a corporation, in making
decisions concerning takeovers or any other matters, may consider, to the
extent that they deem appropriate, among other things, (i) the effects of any
proposed transaction upon any or all groups affected by such action,
including, among others, shareholders, employees, suppliers, customers and
creditors, (ii) the short-term and long-term interests of the corporation and
(iii) the resources, intent and conduct of the person seeking control.
The existence of the foregoing provisions of the Articles, Bylaws and BCL
may discourage other persons or companies from making a tender offer for, or
seeking to acquire, substantial amounts of the Company's Common Stock.
LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
As permitted by the BCL, the Company's Bylaws provide that a director
shall not be personally liable in such capacity for monetary damages for any
action taken, or any failure to take any action, unless the director breaches
or fails to perform the duties of his or her office under the BCL, and the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. These provisions of the Bylaws, however, do not apply to the
responsibility or liability of a director pursuant to any criminal statute,
or to the liability of a director for the payment of taxes pursuant to local,
Pennsylvania or federal law. These provisions offer persons who serve on the
Board of Directors of the Company protection against awards of monetary
damages for negligence in the performance of their duties.
The Bylaws also provide that every person who is or was a director or
executive officer of the Company, or of any corporation which he served as
such at the request of the Company, shall be indemnified by the Company to
the fullest extent permitted by law against all expenses and liabilities
reasonably incurred by or imposed upon him, in connection with any proceeding
to which he may be made, or threatened to be made, a party, or in which he
may become involved by reason of his being or having been a director or
executive officer of the Company, or of such other corporation, whether or
not he is a director or executive officer of the Company or such other
corporation at the time the expenses or liabilities are incurred. No
indemnification shall be provided, however, with respect to: liabilities
arising under Section 16(b) of the Securities Exchange Act of 1934, as
45
<PAGE>
amended, if a final unappealable judgment or award establishes that such
officer or director engaged in self- dealing, willful misconduct or
recklessness, for expenses or liabilities which have been paid directly to,
or for the benefit of, such person by an insurance carrier or for amounts
paid in settlement of actions without the written consent of the Board of
Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Mellon Bank,
N.A., Philadelphia, Pennsylvania.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have an aggregate of
6,713,447 shares of Common Stock outstanding. Of these shares, the 2,500,000
shares of Common Stock sold in this Offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act") unless purchased by "affiliates" of the Company, as that
term is defined in Rule 144 under the Securities Act. The remaining 4,213,447
shares of outstanding Common Stock will be "restricted securities", as that
term is defined in Rule 144 ("Restricted Shares"), and may be sold only in
accordance with an exemption from registration, such as the exemption
provided by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) one percent of the number of
shares of Common Stock then outstanding (approximately 67,134 shares
immediately after the Offering) or (ii) the average weekly trading volume of
the Common Stock in the over-the-counter market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions and notice requirements, and to
the availability of current public information about the Company. In
addition, a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least three years, is entitled to
sell such shares under Rule 144(k) without regard to the requirements
described above. Rule 144 also provides that affiliates of the Company who
are selling shares that are not Restricted Shares must nonetheless comply
with the same restrictions applicable to Restricted Shares with the exception
of the holding period requirement. The Securities and Exchange Commission has
published a notice of rule-making that, if adopted as proposed, would shorten
the two-year holding period under Rule 144 to one year and would shorten the
three-year holding period under Rule 144(k) to two years. The Company cannot
predict whether such amendments will be adopted.
The Company's directors, executive officers and existing shareholders have
agreed, subject to certain limitations, not to offer, sell or otherwise
dispose of any shares of Common Stock for a period of 180 days after the
closing of the Offering without the prior written consent of Montgomery
Securities. Following the expiration of this 180-day period, such directors,
executive officers and existing shareholders and will hold an aggregate of
4,213,447 outstanding shares of Common Stock (3,838,447 shares if the
over-allotment option is exercised in full) which may be resold under Rule
144. The Company also has outstanding warrants to purchase 222,091 shares of
Common Stock and a $1.0 million Convertible Note convertible into 83,333
shares of Common Stock (at an assumed conversion price of $12.00 per share)
at any time on or before September 2001. The holder of the warrants has
agreed, subject to certain limitations, not to offer, sell or otherwise
dispose of any shares of Common Stock issuable upon exercise of the warrants
for a period of 180 days after the closing of the Offering without the prior
written consent of Montgomery Securities. The holder of the warrants is
entitled to certain demand and piggy-back registration rights following
completion of the Offering. In addition, the Company intends, as soon as
practicable after the consummation of the Offering, to register approximately
464,390 shares of Common Stock reserved for issuance to its employees,
directors, consultants and advisors under the Company's 1995 Plan, 1996 Plan
and Director Plan. Options to purchase an aggregate of 367,321 shares of
Common Stock will be outstanding under all such Plans upon the consummation
of the Offering.
Prior to this Offering, there has been no public market for the Company's
Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect market prices for the Common Stock and make it
more difficult for the Company to sell equity securities in the future at a
time and price which it deems appropriate.
46
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Janney Montgomery Scott Inc. (the
"Representatives"), have severally agreed, subject to the terms and
conditions in the underwriting agreement (the "Underwriting Agreement"), by
and among the Company, the Selling Shareholders and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated
below opposite their respective names, at the initial public offering price
less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock, if
they purchase any.
Number of
Underwriters Shares
- ------------ -----------
Montgomery Securities ........................................
Janney Montgomery Scott Inc ...................................
-----------
Total .................................................... 2,500,000
===========
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose initially to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $
per share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After
the initial public offering, the public offering price and other selling
terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
The Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 375,000 additional shares of Common Stock to
cover over-allotments, if any, at the same price per share as the initial
shares to be purchased by the Underwriters. To the extent that the
Underwriters exercise such over-allotment option, the Underwriters will be
committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, the Selling Shareholders and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the Underwriters'
over-allotment option) collectively will beneficially own an aggregate of
4,239,314 shares of Common Stock, have agreed that for a period of 180 days
after the effective date of the Offering they will not, without the prior
written consent of Montgomery Securities, directly or indirectly offer for
sale, sell, solicit an offer to sell, contract or grant an option to sell,
pledge, transfer, establish an open put equivalent position or otherwise
dispose of any shares of Common stock, options or warrants to acquire shares
of Common Stock. The Company has also agreed not to issue, offer, sell, grant
options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable with its
Common Stock for a period of 180 days after the effective date of the
Offering without the prior written consent of Montgomery Securities, subject
to limited exceptions and grants and exercises of stock options. The holder
of the warrants issued by the Company has also agreed not to offer, sell or
otherwise dispose of any shares of Common Stock issuable upon exer-
47
<PAGE>
cise of the warrants for a period of 180 days after the closing of the
Offering without the prior written consent of Montgomery Securities. In
evaluating any request for a waiver of the 180-day lock-up period, the
Underwriters will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common Stock, the size
of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. See "Shares
Eligible for Future Sale."
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the
number of shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company, the
Representatives and the Selling Shareholders. Among the factors to be
considered in such negotiations were the history of, and the prospects for,
the Company and the industry in which the Company competes, an assessment of
the Company's management, its financial condition, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of the economy and the securities markets at the time of the
Offering and the market prices of and demand for publicly traded common stock
of comparable companies in recent periods.
LEGAL MATTERS
An opinion will be rendered by the law firm of Blank Rome Comisky &
McCauley, Philadelphia, Pennsylvania, to the effect that the shares of Common
Stock offered by the Company and the Selling Shareholders hereby, when issued
and paid for as contemplated in this Prospectus, will be legally issued,
fully paid and non- assessable. Certain legal matters will be passed upon for
the Selling Shareholders by Blank Rome Comisky & McCauley, Philadelphia,
Pennsylvania. Certain legal matters will be passed upon for the Underwriters
by Piper & Marbury L.L.P., Baltimore, Maryland.
EXPERTS
The Company's and MAB's balance sheets as of December 31, 1994 and 1995
and the Company's statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995 and MAB's
statements of income and shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995 and the six months ended
June 30, 1996 included in this Prospectus, have been included herein in
reliance on the report of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The financial statements of Trans Union Corporation Collections Division at
December 31, 1994 and 1995 and for each of the three years in the period ended
December 31, 1995 included in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, filed as part of the
Registration Statement, does not contain all of the information included in
the Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement, including the
exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete and in each such instance,
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement for a more complete
description of the matters involved, and each such statement shall be deemed
48
<PAGE>
qualified in its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge
and copied at the offices of the Securities and Exchange Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials may be obtained at the prescribed rates from the
Commission's Public Reference Section at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The Commission maintains a Web Site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of such Web Site is http://www.sec.gov.
As a result of the Offering, the Company will be subject to the
information requirements of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). So long as the Company is subject to periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Securities and Exchange
Commission. The Company will furnish to its shareholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NCO Group, Inc.
Pro Forma Consolidated Financial Statements:
<S> <C>
Basis of Presentation ............................................................................. F-2
Pro Forma Consolidated Balance Sheet as of June 30, 1996 .......................................... F-3
Pro Forma Consolidated Statement of Income for the six months ended June 30, 1996 ................. F-4
Pro Forma Consolidated Statement of Income for the year ended December 31, 1995 ................... F-5
Notes to Consolidated Pro Forma Financial Statements .............................................. F-6
Historical Financial Statements:
Report of Independent Accountants ................................................................. F-8
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (Unaudited) ..................... F-9
Statements of Income for each of the three years in the period ended December 31, 1995 and the six
months ended June 30, 1995 and June 30, 1996 (Unaudited) ....................................... F-10
Statements of Shareholders' Equity for each of the years in the three year period ended December
31, 1995 and the six months ended June 30, 1996 (Unaudited) .................................... F-11
Statements of Cash Flows for each of the years in the three year period ended December 31, 1995 and
the six months ended June 30, 1995 and June 30, 1996 (Unaudited) ............................... F-12
Notes to Financial Statements ..................................................................... F-13
Management Adjustment Bureau, Inc.:
Report of Independent Accountants ................................................................. F-22
Balance Sheets as of December 31, 1994 and 1995 and as of June 30, 1996 ........................ F-23
Statements of Income and Retained Earnings for the three year period ended December 31, 1995 and
the six months ended June 30, 1996 ........................................................... F-24
Statements of Cash Flows for each of the years in the three year period ended December 31, 1995 and
the six months ended June 30, 1996 ............................................................. F-25
Notes to Financial Statements ..................................................................... F-27
Trans Union Corporation Collections Division:
Report of Independent Auditors .................................................................... F-31
Statements of Net Assets as of December 31, 1994 and 1995 ......................................... F-32
Statements of Operations for each of the three years ended December 31, 1995 ...................... F-33
Statements of Cash Flows for each of the three years ended December 31, 1995 ...................... F-34
Notes to Financial Statements ..................................................................... F-35
</TABLE>
F-1
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Pro Forma Consolidated Balance Sheet as of June 30, 1996 and the Pro
Forma Consolidated Statements of Income for the year ended December 31, 1995
and the six months ended June 30, 1996 are based on the historical financial
statements of NCO Group, Inc. (NCO), Management Adjustment Bureau, Inc.
(MAB), Trans Union Corporation Collections Division (TCD) and Eastern
Business Services, Inc. (Eastern). The Pro Forma Consolidated Balance Sheet
has been prepared assuming the MAB acquisition occurred on June 30, 1996. The
Pro Forma Consolidated Statement of Income for the six months ended June 30,
1996 and for the year ended December 31, 1995 has been prepared assuming the
MAB, TCD and Eastern acquisitions occurred on January 1, 1995. Additionally,
the Pro Forma Consolidated Financial Statements include adjustments relating
to NCO's conversion from an S Corporation effective September 3, 1996 (the
"Termination Date"). The Pro Forma Consolidated Statements of Income also
reflect the assumed issuance of 1,715,950 shares of Common Stock (at an
assumed initial public offering price of $12.00 per share), which, net of
estimated underwriting discounts and offering expenses payable by the
Company, would result in sufficient net proceeds to repay acquisition-related
debt and finance the distribution of all undistributed S Corporation earnings
through the Termination Date (estimated at $3.0 million, subject to final
adjustment.) These shares are assumed to have been issued, and the debt
repaid, at the beginning of the periods presented, and thus interest expense
attributable to such debt has been eliminated. The Pro Forma Consolidated
Balance Sheet reflects the assumed issuance of 2,500,000 shares of Common
Stock at June 30, 1996 (at an assumed initial public offering price of $12.00
per share, net of estimated underwriting discounts and offering expenses
payable by the Company) and the application of the net proceeds to repay
acquisition-related debt and finance the S Corporation distributions, with
the remaining net proceeds of approximately $8,750,000 added to working
capital.
The Pro Forma Consolidated Financial Statements do not purport to
represent what NCO's actual results of operations or financial position would
have been had the acquisitions occurred as of such dates, or to project NCO's
results of operations or financial position for any period or date, nor does
it give effect to any matters other than those described in the notes
thereto. In addition, the allocations of purchase price to the assets and
liabilities of MAB are preliminary and the final allocations may differ from
the amounts reflected herein. The unaudited Pro Forma Consolidated Financial
Statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus.
F-2
<PAGE>
NCO GROUP, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
----------------------------- Acquisition Offering Pro Forma
ASSETS NCO MAB Adjustments(1) Pro Forma Adjustments As Adjusted
------------- ------------ -------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents ......... $ 989,773 $ 475,354 $ (300,000)(2) $ 765,127 $ 8,750,000(6) $ 9,515,127
(400,000)(3)
Available-for-sale
securities .......... 329,290 329,290 329,290
Accounts receivable,
trade ............... 2,830,610 1,234,393 4,065,003 4,065,003
Accounts receivable,
purchased ...........
Notes receivable ....... 56,088 56,088 56,088
Prepaid expenses and
other current assets .. 108,286 135,888 244,174 244,174
----------- ----------- ------------ ----------- ------------- -----------
Total current assets . 4,257,959 1,901,723 (700,000) 5,459,682 8,750,000 14,209,682
Funds held in trust for
clients:
Cash .................... 2,089,714 1,393,938 3,483,652 3,483,652
Property and equipment,
net .................... 1,420,073 1,160,130 2,580,203 2,580,203
Other assets:
Goodwill, net of
accumulated
amortization ........ 6,074,713 8,035,284(2) 14,109,997 14,109,997
Covenants, net of
accumulated
amortization ........ 217,708 217,708 217,708
Acquired account
inventory, net ...... 85,979 85,979 85,979
Deferred financing costs 243,879 243,879 243,879
Due from related party . 33,811 33,811 33.811
Other assets ........... 264,505 33,703 298,208 298.208
----------- ----------- ------------ ----------- ------------- -----------
Total other assets ... 6,886,784 67,514 8,035,284 14,989,582 14,989,582
----------- ----------- ------------ ----------- ------------- -----------
Total assets ......... $14,654,530 $4,523,305 $ 7,335,284 $26,513,119 $ 8,750,000 $35,263,119
=========== =========== ============ =========== ============= ===========
<PAGE>
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Demand loan ............ $ 400,000 $ (400,000)(3)
Long-term debt, current
portion ............. $ 42,333 60,000 $ 102,333 $ 102,333
Capitalized lease
obligations,
current portion ..... 59,128 108,459 167,587 167,587
Accounts payable ....... 182,023 123,756 305,779 305,779
Accrued expenses ....... 867,933 128.027 200,000(2) 1,195,960 1,195,960
Accrued repayment
guarantee ........... 190,000 190,000 190,000
Accrued compensation and
related expenses .... 550,423 550,423 550,423
Unearned revenue, net of
related costs ....... 98,092 98,092 98,092
----------- ----------- ------------ ----------- ------------- -----------
Total current
liabilities ......... 1,799,932 1,010,242 (200,000) 2,610,174 2,610,174
----------- ----------- ------------ ----------- ------------- -----------
Funds held in trust for
clients ................ 2,089,714 1,393,938 3,483,652 3,483,652
Deferred tax liability ... 219,000(5) 219,000 219,000
Long-term liabilities:
Long-term debt, net of
current portion ..... 7,118,039 205,000 8,000,000(1) 15,323,039 $ (15,000,000)(6) 323,039
Unearned revenue, net of
related costs ....... 258,464 258,464 258,464
Convertible note ....... 1,000,000(1) 1,000,000
Capitalized lease
obligations, net of
current portion ..... 237,620 149,409 387,029 387.029
Commitments and
contingencies
Shareholders' equity:
Common stock ............ 537,326 19,000 (19,000)(4) 537,326 26,750,000 (6) 26,755,992
(531,334)(5)
Unexercised warrants ..... 177,294 177,294 177,294
Unrealized gain on
securities ............. 48,475 48,475 48,475
Retained earnings ........ 2,387,666 1,745,716 (1,745,716)(4) 2,468,666 (3,000,000)(5)
81,000 (5) 531,334
----------- ----------- ------------ ----------- ------------- -----------
Total shareholders'
equity ................. 3,150,761 1,764,716 (1,683,716) 3,231,761 23,750,000 26,981,761
----------- ----------- ------------ ----------- ------------- -----------
Total liabilities and
share holders' equity $14,654,530 $4,523,305 $ 7,335,284 $26,513,119 $ 8,750,000 $35,263,119
=========== =========== ============ =========== ============= ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-3
<PAGE>
NCO GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
------------------------------ Acquisition Offering Pro Forma
NCO MAB Adjustments Pro Forma Adjustments As Adjusted
------------- ------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue .................. $12,542,664 $6,776,290 $19,318,954 $ 9,318,954
Operating costs and expenses:
Payroll and related
expenses ............ 5,953,895 4,254,479 $ (321,750)(7) 9,479,224 9,479,224
(407,400)(8)
Selling, general and
administrative
expenses ............ 4,094,626 2,421,714 6,516,340 6,516,340(11)
Depreciation and
amortization expense . 422,814 248,921 160,705(9) 832,440 832,340
------------- ------------- -------------- ------------- -------------- ---------------
Total operating costs
and expenses ........ 10,471,335 6,925,114 (568,445) 16,828,004 16,828,004
------------- ------------- -------------- ------------- -------------- ---------------
Income (loss) from operations 2,071,329 (148,824) 568,445 2,490,950 2,490,950
Other income (expense):
Interest and investment
income .............. 47,415 6,712 54,127 54,127
Interest expense ....... (357,494) (30,262) (387,756) $314,785(10) (72,971)
------------- ------------- -------------- ------------- -------------- ---------------
Income (loss) before taxes . $ 1,761,250 $ (172,374) $ 568,445 2,157,321 $ 314,785 2,472,106
============= ============= ============== ============= ============== ===============
Pro forma provision for income
taxes .................. 1,053,124(12)
---------------
Pro forma net income ..... $ 1,418,982
===============
Pro forma net income per share $ 0.23(13)
---------------
Pro forma weighted average
shares outstanding ..... 6,216,209
===============
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-4
<PAGE>
NCO GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------------
Acquisition Offering Pro Forma
NCO MAB TCD Eastern(14) Adjustments Pro Forma Adjustments As Adjusted
----------- ---------- --------- ----------- -------------- ----------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .............. $12,732,597 $12,975,799 $7,467,000 $1,333,675 $ (643,500)(7) $34,509,071 $34,509,071
Operating costs and
expenses:
Payroll and related
expenses ........ 6,797,338 7,909,785 3,125,000 660,617 (1,437,268)(8) 16,411,972 16,411,972
(643,500)(7)
Selling, general and
administrative
expenses ........ 4,042,342 4,138,523 3,840,000 770,742 (260,300)(15) 12,531,307 12,531,307
Depreciation and
amortization
expense ......... 347,503 457,997 198,000 145,778 379,216 (9) 1,528,494 1,528,494
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Total operating
costs and
expenses ........ 11,187,183 12,506,305 7,163,000 1,577,137 (1,961,852) 30,471,773 30,471,773
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Income (loss) from
operations ........ 1,545,414 469,494 304,000 (243,462) 1,961,852 4,037,298 4,037,298
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Other income (expense):
Interest and
investment income . 49,473 12,115 61,588 61,588
Interest expense .. (180,205) (26,802) (94,904) (301,911) $252,609(10) (49,302)
Loss on disposal of
property and
equipment ....... (49,082) (175,392) (224,474) (224,474)
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Total other income
(expense) ..... (179,814) (190,079) (94,904) (464,797) 252,609 (212,188)
----------- ----------- ---------- ----------- -------------- ----------- ----------- ----------
Income (loss) before
taxes ........... $ 1,365,600 $ 279,415 $ 304,000 $ (338,366) $ 1,961,852 $ 3,572,501 $ 252,609 3,825,110
=========== =========== ========== =========== ============== =========== ============ ============
Pro forma provision
for income taxes . 1,658,609(12)
----------
Pro forma net income $2,166,501
==========
Pro forma net income
per share ....... $ 0.35(13)
==========
Pro forma weighted
average shares
outstanding ..... 6,211,179
==========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
To date, all of the Company's acquisitions have been accounted for under
the purchase method of accounting with the results of the acquired companies
included in the Company's statements of income beginning on the date of
acquisition.
(1) Gives effect to the acquisition of MAB, as if it occurred on June 30,
1996, for $8.0 million in cash and the issuance of a $1.0 million
convertible note payable to MAB's principal shareholder.
(2) Reflects goodwill estimated at $8,035,284 resulting from the excess
of the purchase price over the estimated fair market value of the net
assets acquired, including estimated direct closing costs related to
the acquisition of $300,000 and $200,000 related to termination of
employees and other items all assumed to have been accrued.
(3) Assumes that the $400,000 demand loan payable by MAB was repaid from
the available cash of MAB.
(4) Reflects the elimination of MAB's common stock and retained earnings
in accordance with purchase method accounting.
(5) On September 3, 1996, the Company terminated its S Corporation status
for federal income tax purposes and declared a distribution of the
Company's estimated undistributed S Corporation earnings through the
termination date (estimated at $3.0 million, subject to adjustment.)
The declaration also resulted in the elimination of the Company's
retained earnings and a charge of $531,334 to the common stock
account for the excess of the distribution over the Company's
retained earnings. A $219,000 net deferred tax liability was also
established based on the estimated book and tax differences of NCO
and MAB.
(6) Gives effect to the sale by the Company of 2,500,000 shares of Common
Stock in the Offering and the application of the estimated net
proceeds of $26.8 million to repay the outstanding debt of $15.0
million under the revolving credit facility and to pay the S
Corporation distributions (estimated at $3.0 million) to existing
shareholders of the Company, with the balance of $8.8 million added
to working capital.
(7) Reflects the reduction in salary of MAB's principal shareholder (who
is no longer active in the day- to-day operations of MAB's business),
pursuant to a new employment agreement, in the amount of $321,750 and
$643,500 for the six-months ended June 30, 1996 and the year ended
December 31, 1995, respectively.
(8) Reflects the elimination of payroll and related expenses of $407,400
and $1,437,268 for the six months ended June 30, 1996 and the year
ended December 31, 1995, respectively, relating to the elimination of
certain redundant collection and administration personnel costs
immediately identifiable at the time of the acquisitions.
(9) Reflects amortization expenses of $160,705 and $680,808 for the six
months ended June 30, 1996 and the year ended December 31, 1995,
respectively assuming MAB, TCD and Eastern had been acquired at the
beginning of the periods presented. In addition, reflects the
elimination of depreciation and amortization expense related to
assets not acquired by NCO as part of the acquisitions of TCD and
Eastern of $301,592 for the year ended December 31, 1995.
(10) Reflects the elimination of interest expenses on current and
long-term debt assumed to be repaid with the offering proceeds at the
beginning of the periods presented.
(11) Includes a non-recurring charge of $190,000 recorded by MAB to
account for potential losses relating to certain repayment guarantees
made on behalf of third parties.
F-6
<PAGE>
NOTES TO CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(12) Reflects estimated provision for income taxes, at an assumed rate of
40% after giving consideration to non-deductible goodwill expense,
assuming the Company had converted from an S Corporation to a C
Corporation at the beginning of the periods presented.
(13) Pro forma net income per share was computed by dividing the pro forma
net income for the year ended December 31, 1995 and for the six
months ended June 30, 1996 by the pro forma weighted average number
of shares outstanding. Pro forma weighted average shares outstanding
are based on the weighted average number of shares outstanding
including common share equivalents giving retroactive effect as of
January 1, 1995 to the 46.56 for one stock split and the issuance of
1,715,950 shares of common stock (at an assumed initial public
offering price of $12.00 per share) net of estimated underwriting
discounts and offering expenses payable by the Company, to result in
net proceeds sufficient to finance the estimated $3,000,000 S
Corporation distributions and repay $15,000,000 of acquisition -
related debt.
(14) Represents the results of operations prior to the acquisition of
Eastern in August 1995.
(15) Reflects the difference between the Company's rent expense for the
TCD facilities pursuant to lease agreements entered into upon the
acquisition and the occupancy costs allocated to TCD by its parent
prior to the acquisition.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
NCO Group, Inc.
Blue Bell, Pennsylvania
We have audited the accompanying balance sheets of NCO Group, Inc. as of
December 31, 1994 and 1995 and the related statements of income,
shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NCO Group, Inc. as of
December 31, 1994 and 1995 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 16, 1996, except as to
Notes 1, 2, 3, 7 and 13 for
which the date is September 30, 1996
F-8
<PAGE>
NCO GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
----------------------------- -------------
ASSETS 1994 1995 1996
------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 526,018 $ 804,550 $ 989,773
Available-for-sale securities ..................... 239,944 299,488 329,290
Accounts receivable, trade, net of allowance for
doubtful accounts of $7,400, $23,200 and
$64,554, respectively .......................... 603,176 1,394,801 2,830,610
Accounts receivable, purchased .................... 44,038 7,745
Notes receivable .................................. 64,000 100,000
Prepaid expenses and other current assets ......... 96,552 118,793 108,286
------------- ------------ -------------
Total current assets ......................... 1,573,728 2,725,377 4,257,959
------------- ------------ -------------
Funds held in trust for clients ..................... 746,989 1,228,889 2,089,714
Property and equipment, net ......................... 477,327 637,133 1,420,073
Other assets:
Goodwill, net of accumulated amortization ......... 940,387 2,636,271 6,074,713
Covenants, net of accumulated amortization ........ 217,708
Acquired account inventory, net ................... 244,499 138,623 85,979
Deferred financing costs .......................... 279,014 243,879
Other assets ...................................... 122,789 227,826 264,505
------------- ------------ -------------
Total other assets ........................... 1,307,675 3,281,734 6,886,784
------------- ------------ -------------
$4,105,719 $7,873,133 $14,654,530
============= ============ =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Long-term debt, current portion ................... $ 316,863 $ 46,171 $ 42,333
Capitalized lease obligations, current portion .... 59,128
Accounts payable .................................. 59,961 221,562 182,023
Accrued expenses .................................. 169,045 565,734 867,933
Accrued compensation and related expenses ......... 222,587 777,985 550,423
Unearned revenue, net of related costs ............ 332,671 302,384 98,092
------------- ------------ -------------
Total current liabilities .................... 1,101,127 1,913,836 1,799,932
------------- ------------ -------------
Funds held in trust for clients ..................... 746,989 1,228,889 2,089,714
Long-term liabilities:
Long-term debt, net of current portion ............ 732,333 2,592,906 7,118,039
Capitalized lease obligations, net of current
portion ........................................ 237,620
Unearned revenue, net of related costs ............ 102,586 86,155 258,464
Commitments and contingencies .......................
Shareholders' equity:
Common stock, no par value, 25,000,000 shares
authorized, 4,126,566, 4,213,447 and 4,213,447
shares issued and outstanding December 31, 1994
and 1995 and June 30, 1996, respectively ....... 349,326 537,326 537,326
Unexercised warrants .............................. 177,294 177,294
Retained earnings ................................. 1,086,053 1,378,261 2,387,666
Unrealized gain (loss) on securities .............. (12,695) 41,339 48,475
Notes receivable -- shareholder ................... (82,873)
------------- ------------ -------------
Total shareholders' equity ................... 1,422,684 2,051,347 3,150,761
------------- ------------ -------------
$4,105,719 $7,873,133 $14,654,530
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
NCO GROUP, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months Ended
For the Years Ended December 31, June 30,
----------------------------------------------- ------------------------------
1993 1994 1995 1995 1996
------------- ------------- -------------- ------------ --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue ........................ $7,444,982 $8,577,895 $12,732,597 $5,546,258 $12,542,664
Operating costs and expenses:
Payroll and related expenses . 4,122,528 4,558,351 6,797,338 2,956,773 5,953,895
Selling, general and
administrative expenses ... 2,390,741 2,673,521 4,042,342 1,744,785 4,094,626
Depreciation and amortization
expense ................... 141,497 215,117 347,503 115,869 422,814
------------- ------------- -------------- ------------ --------------
6,654,766 7,446,989 11,187,183 4,817,427 10,471,335
------------- ------------- -------------- ------------ --------------
Income from operations ......... 790,216 1,130,906 1,545,414 728,831 2,071,329
------------- ------------- -------------- ------------ --------------
Other income (expense):
Interest and investment income 24,135 26,735 49,473 24,560 47,415
Interest expense ............. (13,607) (71,588) (180,205) (48,305) (357,494)
Loss on disposal of property
and equipment ............. (49,082) (49,082)
------------- ------------- -------------- ------------ --------------
10,528 (44,853) (179,814) (72,827) (310,079)
------------- ------------- -------------- ------------ --------------
Net income ..................... $ 800,744 $1,086,053 $ 1,365,600 $ 656,004 $ 1,761,250
============= ============= ============== ============ ==============
Pro forma (unaudited):
Historical income before
income taxes .............. $ 800,744 $1,086,053 $ 1,365,600 $ 656,004 $ 1,761,250
Pro forma provision for income
taxes ..................... 320,000 434,000 546,000 262,000 704,000
------------- ------------- -------------- ------------ --------------
Pro forma net income ......... $ 480,744 $ 652,053 $ 819,600 $ 394,004 $ 1,057,250
============= ============= ============== ============ ==============
Pro forma net income per share $ 0.17 $ 0.22
============== ==============
Pro forma weighted average
shares outstanding ........ 4,745,229 4,750,259
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
NCO GROUP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-------------------------- Unrealized
Number Gains Notes
of Unexercised Retained (Losses) on Receivable
Shares Amount Warrants Earnings Securities Shareholder Total
----------- ----------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1993 ............ 4,002,763 $ 49,326 $ 670,728 $ 720,054
Net income ................. 800,744 800,744
Distributions to shareholders (658,106) (658,106)
Change in unrealized gains on
securities ................ $ 13,539 13,539
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, December 31, 1993 . 4,002,763 49,326 813,366 13,539 876,231
Issuance of common stock ... 123,803 300,000 300,000
Net income ................. 1,086,053 1,086,053
Distributions to shareholders (813,366) (813,366)
Change in unrealized losses on
securities ................ (26,234) (26,234)
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, December 31, 1994 . 4,126,566 349,326 1,086,053 (12,695) 1,422,684
Issuance of common stock ... 86,881 188,000 $ (135,888) 52,112
Warrants issued (Note 7) ... $177,294 177,294
Note repayments ............ 53,015 53,015
Net income ................. 1,365,600 1,365,600
Distributions to shareholders (1,073,392) (1,073,392)
Change in unrealized gains on
securities ................ 54,034 54,034
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, December 31, 1995 . 4,213,447 537,326 177,294 1,378,261 41,339 (82,873) 2,051,347
Note repayments ............ 82,873 82,873
Net income (unaudited) ..... 1,761,250 1,761,250
Distributions to shareholders
(unaudited) ............... (751,845) (751,845)
Change in unrealized gains
on securities (unaudited) . 7,136 7,136
----------- ----------- ------------- ------------- ------------ ------------- -------------
Balance, June 30, 1996
(unaudited) ............... 4,213,447 $537,326 $177,294 $ 2,387,666 $ 48,475 $3,150,761
=========== =========== ============= ============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
NCO GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
For the Years Ended December 31, June 30, (unaudited)
-------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 800,744 $ 1,086,053 $ 1,365,600 $ 656,004 $ 1,761,250
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation .................................. 141,497 171,378 199,123 83,065 150,008
Loss/(gain) on disposal of equipment .......... 49,082 49,082 (9,043)
Loss/(gain) on sale of securities ............. 9,001 4,421 2,877 2,609 (8,925)
Amortization of goodwill and covenants ........ 43,739 115,937 32,804 237,670
Amortization of deferred financing fees ....... 32,443 35,135
Provision for doubtful accounts ............... 3,903 3,808 3,808 33,000
Amortization of deferred rent ................. (59,100)
Other noncash credits ......................... (5,531)
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable, trade ................. (17,776) (41,675) (571,611) (566,168) (646,041)
Notes receivable ........................... (64,000) (36,000) 64,000 100,000
Acquired accounts inventory ................ 71,375 105,876 53,235 52,644
Accounts receivable, purchased ............. (44,038) 36,293 22,062 7,745
Prepaid expenses ........................... (5,728) (40,249) (22,241) (2,153) 10,507
Other assets ............................... (27,868) (40,112) (105,037) (4,695) (26,679)
Accounts payable ........................... 33,036 (123,094) 161,601 (39,539)
Accrued expenses ........................... 70,511 (214) 187,353 561,334 302,199
Accrued compensation and related expenses .. 51,755 555,398 (1,200) (227,562)
Unearned revenue ........................... 40,929 23,950 (46,718) (2,897) (31,982)
----------- ------------- ------------ ------------- -----------
Net cash provided by operating activities 979,715 1,103,192 2,033,784 950,890 1,700,387
----------- ------------- ------------ ------------- -----------
Cash flows from investing activities:
Purchase of property and equipment ................. (131,927) (77,999) (298,076) (88,439) (426,069)
Purchase of securities ............................. (29,187) (169,785) (107,643) (88,089) (53,307)
Proceeds from sales of securities .................. 26,466 143,613 99,256 69,640 39,566
Net cash paid for acquisitions ..................... (1,000,000) (1,729,244) (4,875,839)
----------- ------------- ------------ ------------- ------------
Net cash used in investing activities . (134,648) (1,104,171) (2,035,707) (106,888) (5,315,649)
----------- ------------- ------------ ------------- -------------
Cash flows from financing activities:
Issuance of notes payable .......................... 1,000,000
Repayment of notes payable ......................... (79,530) (222,084) (1,067,117) (185,040) (80,543)
Borrowings under credit agreement .................. 2,450,000 4,550,000
Payment of fees to acquire new debt ................ (134,163)
Issuance of common stock ........................... 105,127 52,112
Decrease in notes receivable -- shareholders ....... 33,604 82,873
Distributions to shareholders ...................... (658,106) (813,366) (1,073,392) (914,956) (751,845)
----------- ------------- ------------ ------------- -----------
Net cash provided by (used in) financing
activities .......................... (704,032) (35,450) 280,455 (1,047,884) 3,800,485
----------- ------------- ------------- ------------- -----------
Net increase (decrease) in cash ...................... 141,035 (36,429) 278,532 (203,882) 185,223
Cash and cash equivalents at beginning of year ....... 421,412 562,447 526,018 526,018 804,550
----------- ------------- ------------ ------------- -----------
Cash and cash equivalents at end of year ............. $ 562,447 $ 526,018 $ 804,550 $ 322,136 $ 989,773
=========== ============= ============ ============= ===========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................. $ 13,559 $ 71,588 $ 157,379 $ 48,653 $ 323,097
Noncash investing and financing activities:
Note receivable -- shareholder .................. 82,873 82,873
Fair value of assets acquired ................... 442,874 2,145,578 982,018
Liabilities assumed from acquisitions ........... 127,000 416,334
Warrants issued with debt ....................... 177,294
Property acquired under capital leases .......... 348,586
Common stock issued for acquisition ............. 300,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1995 ARE UNAUDITED)
NOTE 1. NATURE OF OPERATIONS:
NCO Group, Inc. (the "Company") is a leading provider of accounts
receivable management and related services utilizing an extensive
teleservices infrastructure. The Company's client base is comprised of
companies in the following industries: education, financial services,
healthcare, telecommunications, utilities and government entities.
Effective September 3, 1996, the Company reorganized its corporate
structure. At September 3, 1996, the shareholders of NCO Financial Systems,
Inc. contributed each of their shares of common stock in exchange for one
share of common stock of the Company, a recently formed corporation. The
Company effected a 46.56-for- one stock split in September 1996 and increased
the number of authorized shares to 5,000,000 shares of preferred stock and
25,000,000 shares of common stock. All per share and related amounts have
been adjusted to reflect the stock exchange and stock split.
Simultaneously with the contribution of the common stock of NCO Financial
Systems, Inc., two additional subsidiaries of NCO Group were formed. Prior to
September 3, 1996, NCO Financial Systems, Inc. was the only company within
NCO Group, Inc. to have operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION:
The Company generates revenues from contingency fees and contractual
services. Contingency fee revenue is recognized upon collection of funds on
behalf of clients. Contractual services revenue is deferred and recognized as
services are performed.
PROPERTY AND DEPRECIATION:
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is provided over the estimated useful life of each class of
assets using the straight-line method. Expenditures for maintenance and
repairs are charged to expense as incurred. Renewals and betterments are
capitalized. When property is sold or retired, the cost and related
accumulated depreciation are removed from the balance sheet and any gain or
loss on the transaction is included in the statement of income.
INCOME TAXES:
The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code and the Pennsylvania Tax Code. While this election was in
effect, no provision was made for income taxes by the Company since all
income is taxed directly to, and losses and tax credits utilized directly by,
the shareholders of the Company.
The Company terminated its S Corporation status on September 3, 1996. Upon
termination of its Subchapter S status, the Company adopted SFAS No. 109,
"Accounting for Income Taxes". This standard requires an asset and liability
approach that takes into account changes in tax rates when valuing the
deferred tax amounts to be reported in the balance sheet.
Upon termination of the S Corporation status and adoption of SFAS 109, the
Company recorded an estimated net deferred tax asset that will not have a
material impact on the financial statements. The net deferred tax asset
resulted primarily from differences in the treatment of unearned revenue and
acquired account inventory.
F-13
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
2. Summary of Significant Accounting Policies: - (Continued)
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. These financial
instruments potentially subject the Company to concentrations of credit risk.
At December 31, 1994 and 1995 and June 30, 1996, the Company had bank
deposits in excess of federally insured limits of approximately $500,000,
$1,276,000 and $2,514,474, respectively. The Company's cash deposits have
been placed with a large national bank to minimize risk and the cost
approximates fair value.
CREDIT POLICY:
The Company has two types of arrangements under which it collects its
contingency fee revenue. For certain clients the Company remits funds
collected on behalf of the client, net of the related contingency fees while,
for other clients, the Company remits gross funds, collected on behalf of
clients, and bills the client separately for its contingency fees. Management
carefully monitors its client relationships in order to minimize its credit
risk and generally does not require collateral. In the event of collection
delays from clients, management may at its discretion change from the gross
remittance method to the net remittance method.
INVESTMENT SECURITIES:
The Company accounted for marketable securities in accordance with
Statement of Financial Accounting Standards SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," for all periods presented. The
statement requires management to make a determination as to which of three
categories they will report their investments in: "held to maturity" which
are reported at amortized cost; "trading securities" which are reported at
fair value with changes in unrealized gains or losses included in current
earnings and "available for sale" securities which include all investments
not included in the above two categories and are reported at fair value with
changes in unrealized gains and losses reflected directly as a separate
component of shareholders' equity. Realized gains and losses on the sale of
securities are recognized using the specific identification method and
included in the statement of income.
ACCOUNTS RECEIVABLE PURCHASED:
Purchased accounts receivable portfolios are recorded at cost and
amortized, based upon a percentage of expected collections, over the
estimated life of the individual portfolios. The amortization rates are
reviewed periodically and adjusted based on the projected overall collection
performance of each portfolio.
ACQUIRED ACCOUNT INVENTORY:
Acquired account inventory consists of individual contracts with student
loan debtors that do not exceed three years. These accounts are periodically
reviewed by management for collectibility.
GOODWILL AND ACQUISITION COSTS:
Goodwill represents the excess of purchase price over the fair market
value of the net assets of the acquired business. Goodwill is amortized on a
straight-line basis over 15 years. The recoverability of goodwill is
periodically reviewed by the Company. In making such determination with
respect to goodwill, the Company evaluates the operating cash flows of the
underlying business which gave rise to such amount. Accumulated amortization
at December 31, 1994 and 1995 and June 30, 1996 totaled $43,739, $159,676 and
$377,553, respectively.
F-14
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
2. Summary of Significant Accounting Policies: - (Continued)
COVENANTS:
Non-compete covenants are based on an allocation of the purchase price of
$237,500 in connection with the acquisition of Trans Union Corporation
Collections Division (TCD) on January 3, 1996. The non-compete covenant is
being amortized on a straight-line basis over the term of the covenant which
is 5 years.
DEFERRED FINANCING COSTS:
Deferred financing costs relate to debt issuance costs incurred which are
capitalized and amortized over the term of the debt.
ESTIMATES UTILIZED IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS PER SHARE:
On September 3, 1996, the shareholders of NCO Financial Systems, Inc.
(Note 1) contributed each of their shares of common stock in exchange for one
share of the Company's common stock. The Company effected a 46.56-for-one
stock split in September 1996. All per share and related amounts contained in
these financial statements and notes have been adjusted to reflect the stock
exchange and stock split.
Pro forma net income per share was computed by dividing the pro forma net
income for the year ended December 31, 1995 and for the six-month period
ended June 30, 1996 by the pro forma weighted average number of shares
outstanding. Pro forma weighted average shares outstanding are based on the
weighted average number of shares outstanding including common equivalent
shares giving retroactive effect as of January 1, 1995 to the stock split.
All outstanding options and warrants have been treated as common equivalent
shares in calculating pro forma net income per share, using the treasury
stock method and an assumed initial public offering price of $12.00 per
share, only when their effect would be dilutive. The pro forma weighted
average number of shares outstanding have also been adjusted to include the
number of shares of common stock (250,000) that the Company would have needed
to issue at the assumed initial public offering price of $12.00 per share to
finance the distribution of undistributed S Corporation earnings through the
date on which the Company terminated its S Corporation status (estimated at
$3,000,000).
INTERIM FINANCIAL INFORMATION:
The interim financial information as of June 30, 1996 and for the six
months ended June 30, 1996 and 1995 has been prepared from the unaudited
financial records of the Company and in the opinion of management, reflects
all adjustments necessary for a fair presentation of the financial position
and results of operations and of cash flows for the respective interim
periods. All adjustments were of a normal and recurring nature.
3. ACQUISITIONS:
On January 3, 1996, the Company purchased certain assets of TCD for
$4,750,000 in cash. The purchase price was allocated based upon the estimated
fair market value of property, accounts receivable and an agreement not to
compete which resulted in goodwill in the amount of $3,681,000.
F-15
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
3. Acquisitions: - (Continued)
On August 1, 1995, the Company purchased certain assets of Eastern
Business Services, Inc. (Eastern) for approximately $2,041,000 comprised of
$1,625,000 in cash and $416,000 of liabilities assumed. The purchase price
was allocated primarily based upon the estimated fair market values of
accounts receivable and equipment purchased less notes payable and funds due
to clients which resulted in goodwill in the amount of $1,812,000.
On April 29, 1994 the Company purchased certain assets of B. Richard
Miller, Inc. (BRM) at a cost of $1,427,000, which was comprised of $1,000,000
in cash, common stock valued at $300,000 and a note payable to the seller of
$127,000. The purchase price was allocated based upon the estimated fair
market value of the acquired property and equipment and account inventory and
resulted in goodwill of $984,126.
The following summarizes unaudited pro forma results of operations for the
years ended December 31, 1994 and 1995 and the six months ended June 30,
1996, assuming the acquisitions (including the acquisition of MAB on
September 5, 1966) occurred as of the beginning of the respective periods.
June 30,
1994 1995 1996
------------- ------------- --------------
Net revenue ... $30,530,000 $34,509,000 $19,319,000
Income before
taxes ....... 3,001,000 3,825,000 2,472,000
4. MARKETABLE SECURITIES:
The Company has classified all of its securities as "available for sale"
and has recorded them at fair value and unrealized gains and losses as a
separate component of shareholders' equity.
Proceeds from the sale of investment securities were $26,466, $143,613 and
$99,256 for the years ended December 31, 1993, 1994 and 1995, respectively
and $69,640 and $39,566 for the six months ended June 30, 1995 and 1996,
respectively.
Unrealized Unrealized
Holding Holding Fair
Cost Gain Loss Value
----------- ------------ ------------ -----------
1994
------
Common stock ..... $162,342 $ 8,827 $ (18,650) 152,519
Corporate bonds ... 90,297 (2,872) 87,425
----------- ------------ ------------ -----------
$252,639 $ 8,827 $ (21,522) $239,944
=========== ============ ============ ===========
1995
-----
Common stock ...... $167,852 $41,475 $ (6,164) $203,163
Corporate bonds ... 90,297 6,028 96,325
----------- ------------ ------------ -----------
$258,149 $47,503 $ (6,164) $299,488
=========== ============ ============ ===========
1996
-----
Common stock ...... $190,518 $48,503 $ (1,971) $237,050
Corporate bonds ... 90,297 1,943 92,240
----------- ------------ ------------ -----------
$280,815 $50,446 $ (1,971) $329,290
=========== ============ ============ ===========
F-16
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
4. Marketable Securities: - (Continued)
Investment income, included in interest and investment income on the
statement of income, consisted of:
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
-------------------------------------- -----------------------
1993 1994 1995 1995 1996
----------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Realized gain on the sale of
available-for-sale securities .. $ 11,749 $ 12,217 $ 7,255 $11,535
Realized loss on the sale of
available- for-sale securities . $ (9,001) (16,170) (15,094) (9,864) (2,610)
Interest income .................. 7,497 5,142 7,035 3,517 3,517
Dividend income .................. 5,835 5,211 5,892 2,866 3,270
----------- ---------- ---------- --------- ----------
$ 4,331 $ 5,932 $ 10,050 $ 3,774 $15,712
=========== ========== ========== ========= ==========
</TABLE>
The fair values of marketable securities by contractual maturity are shown
below. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or repayment penalties
December 31, June 30,
----------------------- ----------
1994 1995 1996
--------- --------- ----------
Within one year ............. $20,425 $20,208
After one year but within 5
years ..................... $29,375 10,537 10,172
After 5 years but within 10
years ..................... 58,050 65,363 61,860
--------- --------- ----------
$87,425 $96,325 $92,240
========= ========= ==========
5. FUNDS HELD IN TRUST FOR CLIENTS:
In the course of the Company's regular business activities as a accounts
receivable management company, the Company receives clients' funds arising
from the collection of accounts placed with the Company. These funds are
placed in segregated cash accounts and are generally remitted to clients
within 30 days.
6. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
December 31, June 30
--------------------------- ------------
1994 1995 1996
----------- ----------- ------------
Leased assets ........... $ 324,414
Computer equipment ...... $726,099 $ 905,732 1,368,155
Furniture and fixtures .. 236,413 316,312 462,423
----------- ----------- ------------
962,512 1,222,044 2,154,992
Less accumulated
depreciation .......... 485,185 584,911 734,919
----------- ----------- ------------
$477,327 $ 637,133 $1,420,073
=========== =========== ============
Depreciation of property and equipment is calculated on a straight-line
basis over their estimated useful lives. Amounts charged to operations
amounted to $141,497, $171,378 and $199,123 for the years ended 1993, 1994
and 1995, respectively and $83,065 and $150,008 for the six months ended June
30, 1995 and 1996,
F-17
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
6. Property and Equipment: - (Continued)
respectively. Included in leased assets shown above for the six months ended
June 30, 1996 are capital leases with a gross amount of $324,414 and
accumulated depreciation of $17,429. The Company had not entered into any
capital lease transactions for the years ended December 31, 1994 and 1995.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
December 31, June 30,
---------------------------- -------------
1994 1995 1996
----------- ------------- -------------
<S> <C> <C> <C>
Revolving credit agreement, prime
plus 1.375%, due July 1999 ......... $2,450,000 $7,000,000
Non-interest bearing note acquired;
$225,750 face amount, payable in
monthly installments of $5,250
through July 1999
(less unamortized discount based on
imputed interest rate of 10%) ...... 189,077 160,372
Note payable, bank, prime plus 1.0%,
due April 1999 ...................... $ 662,500
Note payable, bank, prime plus 0.5%,
due March 1996 ...................... 250,000
Note payable, bank, 7.15%, due August
1995 ............................... 59,112
Subordinated seller note payable,
prime plus 1.5%, due August 1995 ... 77,584
---------- ------------- -------------
1,049,196 2,639,077 7,160,372
Less current portion ................. (316,863) (46,171) (42,333)
----------- ------------- -------------
$ 732,333 $2,592,906 $7,118,039
=========== ============= =============
</TABLE>
The following summarizes the Company's required debt payments for the next
five years:
1996 ................................................. $ 46,000
1997 ................................................. 46,000
1998 ................................................. 46,000
1999 ................................................. 2,501,000
2000 ................................................. --
------------
$2,639,000
============
In July 1995 the Company entered into a revolving credit agreement which
provides for borrowings up to $7,000,000 to be utilized for working capital
and qualified acquisition indebtedness of the Company. The line of credit is
collateralized by substantially all the assets of the Company. Proceeds from
the agreement were utilized to primarily refinance notes payable due to the
bank in the amount of approximately $850,000, and cash payments of $1,600,000
and $4,500,000 for the acquisition of Eastern and TCD, respectively (see Note
3).
The revolving credit agreement contains, among other provisions,
requirements for maintaining defined levels of working capital, net worth,
capital expenditures, various financial ratios and restrictions of
distributions to shareholders.
The Company recorded deferred charges of approximately $311,000 in
connection with the acquisition of the revolving credit agreement, which
consisted primarily of bank charges, legal fees and warrants issued to the
F-18
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
7. Long-Term Debt: - (Continued)
bank exercisable into an aggregate of 175,531 shares of the Company's common
stock. The warrants expire on July 31, 2005 and are only exercisable upon
certain events at a nominal exercise price. The bank had the right to put,
and the Company had the ability to call, the warrants during the twelve-month
period ending on July 31, 2001. However, these rights were eliminated as part
of the increase in the credit agreement in August 1996.
In August 1996 the credit agreement was increased to $15,000,000 to
provide financing for the acquisition of Management Adjustment Bureau, Inc.
and the bank received a warrant for 46,560 shares, exercisable at the initial
public offering price, as consideration. In addition, the bank agreed to
increase the credit agreement to $25,000,000 upon completion of the Company's
initial public offering (see Note 13) and will receive, as consideration, a
warrant for an additional 18,500 shares, exercisable at the initial public
offering price.
In connection with the acquisition of Eastern Business Services, the
Company assumed a noninterest-bearing note payable with an outstanding face
amount of $225,750 at December 31, 1995 and June 30, 1996.
Long-term debt is primarily variable in nature and is based on the prime
rate. Management estimates the carrying value of long-term debt approximates
fair value.
8. EMPLOYEE BENEFIT PLANS:
The Company has a savings plan under Section 401(k) of the Internal
Revenue Code (the "Plan"). The Plan allows all eligible employees to defer up
to 20% of their income on a pretax basis through contributions to the Plan.
The Company will match 25% of employee contributions for an amount up to 6%
of each employee's base salary. The charge to operations for the matching
contributions was $22,828, $23,536 and $30,027 for 1993, 1994 and 1995,
respectively and $14,819 and $20,525 for the six months ended June 30, 1995
and 1996. F-21 Notes to Financial Statements, Continued (Amounts and
disclosures for six months ended June 30, 1996 and 1995 are unaudited)
9. LEASES:
The Company has entered into various office lease agreements with limited
partnerships owned by shareholders of the Company. In addition, the Company
has made disbursements on behalf of the limited partnerships and has recorded
a note receivable of $64,000 and $100,000 at December 31, 1994 and 1995,
respectively. This note was repaid during the six-months ended June 30, 1996.
The Company leases certain equipment under agreements which are classified
as capital leases. The equipment leases have original terms ranging from 36
to 48 months, and have purchase options at the end of the original lease
term.
The Company also leases certain equipment under noncancelable operating
leases. Future minimum payments, by year and in the aggregate, under
noncancelable capital leases and operating leases with initial or remaining
terms of one year or more consist of the following at December 31, 1995:
1996 ................................................... $ 815,000
1997 ................................................... 758,000
1998 ................................................... 658,000
1999 ................................................... 640,000
2000 ................................................... 573,000
Thereafter ............................................. 1,975,000
$5,419,000
============
F-19
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
9. Leases: - (Continued)
Rent expense was $466,189, $305,308 and $463,916 for the years ended
December 31, 1993, 1994 and 1995, respectively and $466,453 and $194,162 for
the six months ended June 30, 1996 and 1995. The related party office lease
expense was $81,563, $297,500 and $385,217 for 1993, 1994 and 1995,
respectively and $201,825 and $282,289 for the six months ended June 30, 1995
and 1996, and provides for an escalation clause which takes effect in 1998.
The total amount of base rent payments is being charged to expense on the
straight-line method over the term of the lease.
10. STOCK OPTIONS:
The Company adopted a stock option plan (the Plan) in 1995 for its
employees. The Plan authorized 221,719 shares of the Company's common stock
to be issued pursuant to either incentive stock options or non-qualified
stock options. The option price for incentive stock options shall be equal to
at least fair market value, at the date of grant, whereas the option price
for non-qualified stock options may be less than fair market value. The
vesting period of options issued under either plan is at the discretion of
the Board of Directors. The maximum exercise period is ten years after the
date of grant. A summary of stock option activity since inception of the plan
is as follows:
Number of
Number of Option Price Shares
Options Per Share Exercisable
----------- -------------- -------------
Outstanding at January 1,
1995 .....................
Granted ............... 144,057 $2.73 144,057
Exercised .............
Expired ...............
---------- -------------- -------------
Outstanding at December 31,
1995 ..................... 144,057 2.73 144,057
Granted ...............
Exercised .............
Expired ...............
----------- -------------- -------------
Outstanding at June 30, 1996 144,057 $2.73 144,057
=========== ============== =============
As part of the purchase price for the acquisition of certain assets of B.
Richard Miller, Inc., 123,803 shares of the Company's common stock were
issued to BRM's principal shareholder, who also received an option to
purchase up to an additional 86,881 shares of the Company which was exercised
during 1995 at a cost of $188,000. As a result of the purchase of these
shares, a receivable of $82,873 was due from the seller as of December 31,
1995 which was subsequently repaid during the six month period ended June 30,
1996.
11. RECENT ACCOUNTING PRONOUNCEMENTS:
In October 1995, the FASB issued (SFAS No. 123), "Accounting for
Stock-Based Compensation", which is effective for the Company in 1996. SFAS
No. 123 requires Companies to either recognize compensation expense, based on
fair value of the stock-based compensation determined by an option pricing
model utilizing various assumptions regarding the underlying attributes of
the options and the Company's stock, or provide pro-forma disclosures and
continue to recognize compensation expense in accordance with Accounting
Practices Bulletin Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). The Company will adopt the provisions of SFAS No. 123 in its 1996
annual financial statements. The adoption of SFAS No. 123 had no effect on
the Company's cash flows.
In March 1995, the FASB issued (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of",
which was effective for the Company beginning January 1, 1996.
F-20
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements - (Continued)
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
11. Recent Accounting Pronouncements: - (Continued)
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment, based on the estimated future cash
flows, whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. SFAS No. 121 had no impact on the
financial statements upon adoption.
12. COMMITMENTS AND CONTINGENCIES:
The Company is party from time to time to various legal proceedings
incidental to its business. In the opinion of management none of these items
individually or in the aggregate would have a significant effect on the
financial position, results of operations, or cash flows of the Company.
13. SUBSEQUENT EVENTS:
The Company filed a registration statement in September 1996 with the
Securities and Exchange Commission in connection with a proposed initial
public offering of 2,500,000 shares of its common stock. The Company intends
to use the proceeds for repayment of bank debt incurred to finance
acquisitions, payment of S Corporation distributions, and for working capital
and other general corporate purposes, including possible acquisitions.
The Company purchased the common stock of Management Adjustment Bureau,
Inc. for $8,000,000 in cash and a $1,000,000 convertible note on September 5,
1996. The purchase price was allocated based upon the estimated fair market
value of the acquired assets and liabilities. Goodwill generated in this
acquisition will be amortized over 25 years. MAB provides accounts receivable
management to a variety of general businesses.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Management Adjustment Bureau, Inc.
We have audited the accompanying balance sheets of Management Adjustment
Bureau, Inc. as of December 31, 1994, 1995 and June 30, 1996, and the related
statements of income and retained earnings, and cash flows for each of the
three years in the period ended December 31, 1995 and the six months ended
June 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Management Adjustment
Bureau, Inc. as of December 31, 1994, 1995 and June 30, 1996, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and the six months ended June 30, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
Rochester, New York
August 20, 1996
F-22
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
Assets 1994 1995 1996
------ ------------ ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash ............................................ $ 413,088 $ 290,197 $ 475,354
Accounts receivable (less allowance for doubtful
accounts of $47,000, $80,420 and $92,808,
respectively) ................................ 924,551 1,308,511 1,234,393
Property held for sale .......................... 217,400
Loans receivable ................................ 57,623 56,088
Prepaid expenses ................................ 145,476 162,091 135,888
------------ ------------ ------------
Total current assets ......................... 1,483,115 2,035,822 1,901,723
------------ ------------ ------------
Funds held in trust for clients ................... 1,778,502 1,530,270 1,393,938
Property and equipment, net ....................... 1,005,664 1,319,614 1,160,130
Other assets:
Loan receivable ................................. 50,000 33,811
Cash value - officer's life insurance ........... 6,256 6,673 7,189
Deposits ........................................ 12,000 16,200 26,514
------------ ------------ ----------
Total other assets ........................... 68,256 22,873 67,514
------------ ------------ ----------
$4,335,537 $4,908,579 $4,523,305
============ ============ ==========
Liabilities and Retained Earnings
Current liabilities:
Line-of-credit .................................. $ 446,000 $ 400,000
Long-term debt, current portion ................. $ 252,176 271,456 168,459
Accounts payable ................................ 41,917 92,738 123,756
Accrued distribution ............................ 64,500
Accrued repayment guarantee ..................... 190,000
Accrued compensation ............................ 28,369 192,375 97,044
Accrued expenses ................................ 24,309 28,573 30,983
------------ ------------ ----------
Total current liabilities .................... 411,271 1,031,142 1,010,242
------------ ------------ ----------
Funds held in trust for clients ................... 1,778,502 1,530,270 1,393,938
Long-term debt .................................... 173,089 410,077 354,409
Retained earnings:
Common stock, no par value; Class A - authorized
200 shares; issued and outstanding 100 shares 19,000 19,000 19,000
Retained earnings ............................... 1,953,675 1,918,090 1,745,716
------------ ------------ ----------
Total retained earnings ...................... 1,972,675 1,937,090 1,764,716
------------ ------------ ----------
$4,335,537 $4,908,579 $4,523,305
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the
For the Years Ended Six Months
December 31, Ended
----------------------------------------------- -------------
June 30,
1993 1994 1995 1996
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues .................................... $9,281,629 $11,183,167 $12,975,799 $6,776,290
Operating costs and expenses:
Payroll and related expenses .............. 5,303,241 6,556,110 7,909,785 4,254,479
Selling, general and administrative
expenses ............................... 3,425,653 3,624,489 4,138,523 2,421,714
Depreciation and amortization ............. 165,006 300,158 457,997 248,921
------------- -------------- ------------- -------------
8,893,900 10,480,757 12,506,305 6,925,114
------------- -------------- ------------- -------------
Income (loss) from operations ............... 387,729 702,410 469,494 (148,824)
------------- -------------- ------------- -------------
Other income (expense):
Interest expense .......................... (28,856) (31,065) (26,802) (30,262)
Loss on disposal of assets ................ (72,389) (96,792)
Miscellaneous income ...................... 2,848 1,656 12,115 6,712
Property write-down ....................... (78,600)
------------- -------------- ------------- -----------
Total other expense ................... (98,397) (29,409) (190,079) (23,550)
------------- -------------- ------------- -------------
Net income (loss) ........................... 289,332 673,001 279,415 (172,374)
Retained earnings - beginning of year ....... 1,336,342 1,565,674 1,953,675 1,918,090
Distributions to shareholder ................ (60,000) (285,000) (315,000)
------------- -------------- ------------- -------------
Retained earnings - end of year ............. $1,565,674 $ 1,953,675 $ 1,918,090 $1,745,716
============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
For the Years Ended Months Ended
December 31, June 30,
---------------------------------------- --------------
1993 1994 1995 1996
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 289,332 $ 673,001 $ 279,415 $(172,374)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 165,006 300,158 457,997 248,921
Loss on disposal of assets 72,389 96,792
Property write-down 78,600
Provision for doubtful accounts 30,000 17,000 33,420 12,388
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable (352,768) 130,193 (417,380) 61,730
Decrease (increase) in prepaid
expenses 10,558 (109,889) (16,615) 26,203
Decrease (increase) in cash value
officer's life insurance 284 6,000 (417) (516)
Increase in deposits (12,000) (4,200) (10,314)
Increase (decrease) in accounts
payable (15,867) (35,367) 50,821 31,018
Increase (decrease) in accrued
expenses 123,436 (41,377) 103,770 97,079
Decrease in accrued profit
sharing contributions (175,000)
----------- ----------- ----------- --------------
Total adjustments (141,962) 254,718 382,788 466,509
----------- ----------- ----------- --------------
Net cash provided by operating
activities 147,370 927,719 662,203 294,135
----------- ----------- ----------- --------------
Cash flows from investing activities:
Proceeds from sale of equipment 42,695 5,800
Purchases of equipment (488,186) (371,172) (637,419) (89,437)
Repayment (issuance) of loans
receivable 117 (50,000) (7,623) (32,276)
Proceeds from sale of property 217,400
----------- ----------- ----------- --------------
Net cash provided by (used in)
investing activities (445,374) (421,172) (639,242) 95,687
----------- ----------- ----------- --------------
Cash flows from financing activities:
Repayment of loans (100,000) (193,324) (204,695) (561,719)
Proceeds from loan agreements 200,000 100,000 300,000 400,000
Payment of stock redemption note (70,007)
Proceeds from line-of-credit 150,000
Principal payments on capital leases (18,198) (47,428) (76,157) (42,946)
Distributions to shareholders (60,000) (285,000) (315,000)
----------- ----------- ----------- --------------
Net cash used in financing
activities (48,205) (425,752) (145,852) (204,665)
----------- ----------- ----------- --------------
Net increase (decrease) in cash (346,209) 80,795 (122,891) 185,157
Cash -- beginning of year 678,502 332,293 413,088 290,197
----------- ----------- ----------- --------------
Cash -- end of year $ 332,293 $ 413,088 $ 290,197 $ 475,354
=========== =========== =========== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
For the
Six
For the Years Ended Months Ended
December 31, June 30,
------------------------------------- --------------
1993 1994 1995 1996
---------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid for interest $36,975 $41,704 $ 43,042 $27,762
Cash paid for state income taxes $ 607 $15,715 $ 15,246
Noncash activities:
Capital lease obligations entered
into $89,139 $61,742 $237,121
Debt assumed for property held for
sale $296,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
Notes to Financial Statements
NOTE 1. NATURE OF OPERATIONS
Management Adjustment Bureau, Inc. ("MAB"), specializes in accounts
receivable management and liquidation, with a concentration of university,
guaranteed student loans, bank credit cards, utility, retail, commercial and
health care customers. MAB has principal operations in Buffalo, New York and
Denver, Colorado.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
MAB generates revenues from contingency fees and contractual services and
revenue is recognized upon collection of funds on behalf of clients.
CREDIT POLICY
MAB has two types of arrangements under which it collects its contingency
fee revenue. For certain clients, MAB remits funds collected on behalf of the
client, net of the related contingency fees while, for other clients, MAB
remits gross funds, collected on behalf of clients, and bills the client
separately for its contingency fees. Management carefully monitors its client
relationships in order to minimize its credit risk and generally does not
require collateral. In the event of collection delays from clients,
management may at its discretion change from the gross remittance method to
the net remittance method.
ESTIMATES UTILIZED IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed over the estimated useful lives of the assets which
range from three to thirty-nine years, using straight-line and accelerated
methods. When property is sold or retired, the cost and related accumulated
depreciation are removed from the balance sheet and any gain or loss on the
transaction is included in the statement of income.
INCOME TAXES
MAB has elected to be treated as an S-Corporation for tax purposes.
Accordingly, no provision will be made for income taxes by MAB since all
income will be taxed directly to the shareholder of MAB. State taxes which
are not significant are included in selling, general and administrative
expenses.
3. CONCENTRATION OF CREDIT RISK
At December 31, 1994, 1995 and June 30, 1996, MAB had bank deposits in
excess of federally insured limits of approximately $2,322,000, $1,662,000
and $1,614,070, respectively. MAB's cash deposits have been placed with a
large national bank to minimize risk.
4. LOANS RECEIVABLE
In 1994, MAB loaned a former shareholder $50,000. Interest is payable in
monthly installments of $333 at a fixed annual rate of eight percent. The
loan is due in full on or before September 1, 1996. The note is unsecured. In
1995, MAB also extended various miscellaneous loans to employees.
In 1996, MAB loaned $33,811 to a related party. The loan was assumed by
the shareholder in August 1996.
F-27
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements - (Continued)
5. FUNDS HELD IN TRUST FOR CLIENTS
In the course of MAB's regular business activities as an accounts
receivable management agency, MAB receives clients' funds arising from the
collection of accounts placed with MAB. These funds are placed in segregated
cash accounts and are generally remitted to clients within 30 days.
6. DEMAND LOANS
MAB has a $200,000 unsecured demand line-of-credit with a bank which
carries interest at the prime rate less .25%. The demand loan balance at
December 31, 1995 was $150,000. The demand loan balance was paid off in
January 1996, at which time MAB borrowed $400,000 through an unsecured note
from a related party. The related party note is due on demand and accrues
interest at nine percent per year.
MAB has an outstanding demand line-of-credit of $296,000 with PHH Real
Estate Services Corporation at December 31, 1995. The line-of-credit is
secured by an investment in real estate and due upon sale of the real estate.
In May 1996, the real estate was sold and the line-of-credit was repaid and
terminated.
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are as follows:
December 31,
----------------------------
June 30,
1994 1995 1996
------------ ------------ ------------
Computer equipment ...... $1,059,596 $1,341,432 $1,407,832
Furniture and fixtures .. 513,633 625,828 648,865
Capitalized leases ...... 150,881 388,002 388,002
------------ ------------ ------------
1,724,110 2,355,262 2,444,699
Less: Accumulated
depreciation ........... 718,446 1,035,648 1,284,569
------------ ------------ ------------
$1,005,664 $1,319,614 $1,160,130
============ ============ ============
Depreciation charged to operations amounted to approximately $165,006,
$300,158 and $457,997 in 1993, 1994 and 1995, respectively and $248,921 for
the six months ended June 30, 1996 and included amortization of capital
leases of approximately $-0-, $9,984 and $41,567 in 1993, 1994 and 1995,
respectively and $29,629 for the six months ended June 30, 1996.
F-28
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements - (Continued)
8. LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
June 30,
1994 1995 1996
----------- ----------- -----------
Bank debt:
Chemical Bank, collateralized by computer equipment. Monthly principal
<S> <C> <C> <C>
payments of $8,333 plus interest at 8.4% are due through April 1996. $ 133,333 $ 33,333
Chemical Bank, unsecured term loan. Monthly principal payments of
$5,000 plus interest at 8% are due through November 2000. ........... 295,000 $ 265,000
M & T Bank, collateralized by computer equipment payments of $1,195,
which include interest at 6.5%, are due through December 1996. ...... 206,676 106,979 54,593
----------- ----------- -----------
340,009 435,312 319,593
Capital Leases:
AT&T Credit Corporation, telephone leases. Monthly lease payments of
$3,084 and $2,039 which include interest and due through October
1998. ............................................................... 30,684 67,079 49,452
Steelcase Financial Services, office furniture lease. Monthly lease
payments of $2,000 for the first 20 months; $3,000 for the next 40
months, which include interest and are due through June 2002. ....... 164,394 153,823
Data General Corporation, lease collateralized by computer equipment
Monthly lease payments of $794, which include interest at 9.3%, are
due through May 1996. ............................................... 12,598 3,878
Data General Corporation, lease collateralized by an optical imaging
system Monthly payments of $2,758, which include interest at 7.1%,
are due through April, 1996. ........................................ 41,974 10,870
----------- -----------
85,256 246,221 203,275
----------- ----------- -----------
Total debt and capital leases ........................................ 425,265 681,533 522,868
Less: Current portion ................................................ (252,176) (271,456) (168,459)
----------- ----------- -----------
$ 173,089 $ 410,077 $ 354,409
=========== =========== ===========
</TABLE>
The fair value of debt approximates the carrying value.
Long-term debt and capital leases maturing during the next five years
ending December 31, is approximately as follows:
Debt Capital leases
---------- --------------
1996 .................................... $200,750 $ 84,627
1997 .................................... 60,000 59,757
1998 .................................... 60,000 40,172
1999 .................................... 60,000 32,280
2000 .................................... 54,562 32,280
Thereafter .............................. -- 48,420
----------
$435,312 297,536
==========
Less amounts representing interest ...... 51,315
--------------
Present value of net minimum lease
payments ............................... $246,221
==============
F-29
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements - (Continued)
The term loan agreement contains, among other provisions, requirements for
maintaining defined levels of working capital, net worth and various
financial ratios. MAB was in violation of covenants for which waivers were
obtained.
In May 1996, MAB established two unsecured lines-of-credit with a total
availability of $1,000,000. Each line-of-credit carries variable interest
based on the prime rate. One line-of-credit is collateralized by MAB's
accounts receivables and specific equipment.
9. COMMITMENTS AND CONTINGENCIES
MAB has operating leases for a building and automobiles which expire at
various dates through 2010 with renewal privileges in some instances. Total
rental expense under operating leases was approximately $344,500, $330,000
and $469,400 for 1993, 1994, and 1995, respectively and $227,500 for the six
months ended June 30, 1996.
Future minimum lease payments under operating leases through 2000 for the
years ending December 31, are approximately:
1996 ......................... $ 416,900
1997.......................... 346,600
1998.......................... 324,900
1999.......................... 305,100
2000.......................... 310,700
MAB is involved in various legal issues. In the opinion of MAB's
management, the ultimate cost individually or in the aggregate to resolve
these matters will not have a material adverse effect on MAB's financial
position, results of operations or cash flows beyond the reserves already
established. Included in these reserves is an amount for $190,000 for a
potential loss related to a specific contract. Management estimates the range
of potential losses is between $-0- and $380,000 for this specific contract.
Management is not aware of any other legal proceedings.
10. PROFIT SHARING PLAN
MAB has a profit sharing plan with a 401(k) feature covering all qualified
employees. MAB's contribution to this plan is a 50% match on the first 4%
contributed by employees. MAB contributed $47,732, $50,531, and $50,805 in
1993, 1994, and 1995, respectively, to the Plan. MAB contributed $40,242 to
the Plan for the six month period ended June 30, 1996.
11. MAJOR CUSTOMER
MAB had revenues from a major customer of approximately 9% and 10% for the
years ended December 31, 1994 and 1995, respectively and 13% for the six
month period ended June 30, 1996.
During August 1996, MAB was notified that it will not continue to provide
certain services to this customer.
12. STOCK PURCHASE AGREEMENT
In July 1996, the shareholder received a letter of intent from NCO
Financial Systems to purchase MAB. MAB is currently pursuing the sale.
F-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TRANS UNION CORPORATION:
We have audited the accompanying statements of net assets of the Trans
Union Corporation Collections Division (the Collections Division) as of
December 31, 1994 and 1995, and the related statements of operations and cash
flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the management of the
Collections Division and Trans Union Corporation. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 1, the accompanying statements of net assets,
operations, and cash flows include the assets, liabilities, revenues,
expenses, and cash flows which are specifically identifiable with the
Collections Division, as well as certain allocated expenses. These financial
statements may not necessarily reflect the assets and liabilities and results
of operations and cash flows of the Collections Division had it been operated
as a stand-alone entity.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of the Collections Division as of
December 31, 1994 and 1995, and the results of its operations and cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 16, 1996
F-31
<PAGE>
TRANS UNION CORPORATION
COLLECTIONS DIVISION
STATEMENTS OF NET ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ................................ $ 2,671 $ 1,733
Accounts receivable -- Trade, net of allowances of $20 in
1994 and 1995 ......................................... 931 614
Prepaid expenses and other current assets ................ 18 11
--------- ---------
Total current assets ....................................... 3,620 2,358
Fixed assets:
Equipment ................................................ 1,449 1,162
Leasehold improvements ................................... 13 --
Furniture and fixtures ................................... 261 302
Capitalized leased assets ................................ -- --
--------- -------
1,723 1,464
Less: Accumulated depreciation and amortization .......... (1,457) (1,245)
--------- -------
266 219
Deposits ................................................... -- 10
--------- ---------
Total assets ............................................... 3,886 2,587
Liabilities
Accounts payable and accrued liabilities ................... 379 393
Current portion of capital lease obligation ................ -- --
Debtor payments owed clients ............................... 357 256
--------- ---------
Total liabilities .......................................... 736 649
--------- ---------
Net assets ................................................. $ 3,150 $ 1,938
========= =========
</TABLE>
See accompanying notes.
F-32
<PAGE>
TRANS UNION CORPORATION
COLLECTIONS DIVISION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
For the Years Ended December 31,
-----------------------------------
1993 1994 1995
--------- -------- --------
Revenue
Service revenues .................... $7,770 $7,537 $7,467
Expenses
Salaries and employee benefits ...... 3,746 3,090 2,888
Payroll and other taxes ............. 297 283 237
Depreciation and amortization ....... 324 287 198
Repairs and maintenance ............. 182 170 163
Corporate office charges ............ 62 124 117
Communications ...................... 521 438 391
Selling, general, and administrative 3,279 2,926 3,174
Other (income) expenses, net ........ 98 2 (5)
--------- -------- --------
Total expenses ...................... 8,509 7,320 7,163
--------- -------- --------
Operating income (loss) ............. $ 739) $ 217 $ 304
========= ======== ========
See accompanying notes.
F-33
<PAGE>
TRANS UNION CORPORATION
COLLECTIONS DIVISION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------
1993 1994 1995
--------- -------- ---------
<S> <C> <C> <C>
Operating activities
Operating income (loss) ..................................... $ (739) $ 217 $ 304
Adjustments to reconcile operating income to net cash
provided by operating activities:
Depreciation and amortization .......................... 324 287 198
(Gain) loss on fixed asset disposition ................. 87 -- (5)
Provision for losses on accounts receivable ............ -- 1 5
Decrease (increase) in accounts receivable ............. 42 (184) 312
(Increase) decrease in prepaid expenses, other assets,
and deposits ......................................... 12 1 (3)
Increase (decrease) in accounts payable and accrued
liabilities .......................................... 46 (40) 14
(Decrease) increase in debtor payments owed clients .... 61 (6) (101)
--------- -------- ---------
Net cash provided by (used in) operating activities ......... (167) 276 724
Investing activities
Purchases of fixed assets ................................... (119) (85) (165)
Proceeds from sale of fixed assets .......................... -- -- 15
--------- -------- ---------
Net cash used in investing activities ....................... (119) (85) (150)
Financing activities
Net (distributions) contributions to parent company ......... 1,086 1,709 (1,512)
Principal payments under capital lease obligations .......... (19) (50) --
--------- -------- ---------
Net cash (used in) provided by financing activities ......... 1,067 1,659 (1,512)
--------- -------- ---------
Net (decrease) increase in cash and cash equivalents ........ 781 1,850 (938)
Cash and cash equivalents at beginning of year .............. 40 821 2,671
--------- -------- ---------
Cash and cash equivalents at end of year .................... $ 821 $2,671 $ 1,733
========= ======== =========
</TABLE>
See accompanying notes.
F-34
<PAGE>
TRANS UNION CORPORATION
COLLECTIONS DIVISION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS AND BASIS OF PRESENTATION
The Trans Union Corporation Collections Division (the Collections Division)
is a business unit of Trans Union Corporation (TUC) that provides various
collection services. TUC is a wholly owned subsidiary of Marmon Industrial
Corporation (MIC), and its ultimate parent company is Marmon Holdings, Inc.
Substantially all of the stock of Marmon Holdings, Inc. is owned, directly or
indirectly, by trusts for the benefit of the lineal descendants of Nicholas
J. Pritzker, deceased, and entities controlled by such trusts.
The Collections Division provides third-party debt collection services within
the health care, utilities, and insurance markets. The principal markets are
located in the states of Ohio, Pennsylvania, and Kansas.
These financial statements present the historical assets, liabilities,
revenues, expenses, and cash flows directly related to the operations of the
Collections Division during the period presented. These financial statements
are not necessarily indicative of the financial position and results of
operations which would have occurred had the Collections Division been
operated as an independent company; specifically, the financial statements do
not include a provision for contingencies or income taxes. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
TUC and its Collections Division are part of a group that files a
consolidated tax return. There is no tax-sharing agreement for allocating
income taxes to the Collections Division. Accordingly, the financial
statements do not reflect any income tax expense or benefit.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Service revenues are recognized when debtor payments are received.
FIXED ASSETS
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the related assets
beginning in the month following acquisition.
CASH AND CASH EQUIVALENTS
The Collections Division considers cash and cash equivalents to consist of
cash on hand and all highly liquid debt instruments purchased with a maturity
of three months or less, if any.
MIC provides a centralized cash management function; accordingly, the
Collections Division does not maintain separate operating cash accounts, and
its cash disbursements and the majority of its collections of client revenues
are settled to the TUC and MIC cash concentrator accounts. Therefore, certain
parent company transactions are deemed to be cash transactions for purposes
of the statement of cash flows.
3. RELATED PARTY TRANSACTIONS
TUC provides certain common general management services to the Collections
Division including accounting, legal, and cash management services. The
amount charged to the Collections Division for these services totaled $62,
$124, and $117 for the years ended December 31, 1993, 1994, and 1995,
respectively.
F-35
<PAGE>
TRANS UNION CORPORATION
COLLECTIONS DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. PROFIT-SHARING AND EMPLOYEE SAVING PLANS
The Collections Division employees are part of a MIC mixed savings and
profit-sharing plan. All employees with at least one year of continuing
service are eligible for participation in the plan. Each participant's
contribution is matched in part by MIC up to a maximum of 6% of the
participant's annual compensation. Employee savings plans expense was
approximately $151, $194, and $139 for the years ended December 31, 1993,
1994, and 1995, respectively.
5. LEASES
As lessee, the Collections Division shares leased office facilities with TUC
and leased equipment under noncancelable operating lease agreements expiring
January 31, 2005. Total rent expense under such operating leases based on a
square foot allocation for the office facilities and actual usage for office
equipment was $146, $171, and $162 for the years ended December 31, 1993,
1994, and 1995, respectively. A summary by year of future minimum lease
payments that would be allocable to the Collections Division under
noncancelable operating leases as of December 31, 1995, is shown below.
Year ending December 31:
1996 $139
1997 72
1998 70
1999 70
2000 70
2001 and beyond 164
-----
$585
=====
6. MAJOR CUSTOMERS
Bell Atlantic represented more than 10% of the combined revenue of the
Collections Division or $1,216, $1,423, and $1,586 for the years ended
December 31, 1993, 1994, and 1995, respectively.
F-36
<PAGE>
================================================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction where such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has been no change in the affairs of the Company,
or that information contained herein is correct as of any time, subsequent to
the date hereof.
------
TABLE OF CONTENTS
------
Page
--------
Prospectus Summary ................................ 3
Risk Factors ...................................... 8
Acquisition History ............................... 13
Use of Proceeds ................................... 16
Dividend Policy and Prior S Corporation Status .... 16
Capitalization .................................... 17
Dilution .......................................... 18
Selected Financial and Operating Data ............. 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 21
Business .......................................... 28
Management ........................................ 36
Certain Transactions .............................. 41
Principal and Selling Shareholders ................ 42
Description of Capital Stock ...................... 43
Shares Eligible for Future Sale ................... 46
Underwriting ...................................... 47
Legal Matters ..................................... 48
Experts ........................................... 48
Additional Information ............................ 48
Index to Financial Statements ..................... F-1
Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
2,500,000 SHARES
[COMPANY LOGO]
COMMON STOCK
------
PROSPECTUS
------
MONTGOMERY SECURITIES
JANNEY MONTGOMERY SCOTT INC.
, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses in connection with the
issuance and distribution of the securities being registered, all of which
are being borne by the Registrant.
Securities and Exchange Commission Registration Fee.. $ 12,888
National Association of Securities Dealers, Inc. Fee 4,238
Nasdaq Listing Fee ................................. 34,284
Printing and Engraving Expenses .................... 100,000
Accounting Fees and Expenses ....................... 350,000
Legal Fees and Expenses ............................ 300,000
Blue Sky Qualification Fees and Expenses ........... 25,000
Transfer Agent and Registrar Fees and Expenses ..... 10,000
Consulting Fee ..................................... 240,000
Miscellaneous ...................................... 73,590
-----------
Total ............................................. $1,150,000
===========
The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. fee
and the Nasdaq listing fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741 through 1750 of Subchapter D, Chapter 17, of the
Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"),
contain provisions for mandatory and discretionary indemnification of a
corporation's directors, officers and other personnel, and related matters.
Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed
circumstances against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with an action or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a party by reason of his being a
representative, director or officer of the corporation or serving at the
request of the corporation as a representative of another corporation,
partnership, joint venture, trust or other enterprise, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful.
Under Section 1743, indemnification is mandatory to the extent that the
officer or director has been successful on the merits or otherwise in defense
of any action or proceeding if the appropriate standards of conduct are met.
Section 1742 provides for indemnification in derivative actions except in
respect of any claim, issue or matter as to which the person has been
adjudged to be liable to the corporation unless and only to the extent that
the proper court determines upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for the expenses that the court
deems proper.
Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as
authorized in the specific case upon a determination that the representative
met the applicable standard of conduct, and such determination will be made
by the board of directors (i) by a majority vote of a quorum of directors not
parties to the action or proceeding; (ii) if a quorum is not obtainable, or
if obtainable and a majority of disinterested directors so directs, by
independent legal counsel; or (iii) by the shareholders.
II-1
<PAGE>
Section 1745 provides that expenses (including attorney's fees) incurred
by an officer, director, employee or agent in defending a civil or criminal
action or proceeding may be paid by the corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or
on behalf of such person to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the
corporation.
Section 1746 provides generally that, except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by
a court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
BCL shall not be deemed exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding that office.
Section 1747 grants to a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred
by him or her in his or her capacity as officer or director, whether or not
the corporation would have the power to indemnify him or her against the
liability under Subchapter 17D of the BCL.
Section 1748 and 1749 extend the indemnification and advancement of
expenses provisions contained in Subchapter 17D of the BCL to successor
corporations in fundamental changes and to representatives serving as
fiduciaries of employee benefit plans.
Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL, shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs and personal representative of such person.
For information regarding provisions under which a director or officer of
the Company may be insured or indemnified in any manner against any liability
which he or she may incur in his or her capacity as such, reference is made
to the Company's Articles of Incorporation and Bylaws, copies of which are
filed as Exhibits 3.1 and 3.2, respectively, which provide in general that
the Company shall indemnify its officers and directors to the fullest extent
authorized by law.
Reference is also made to Section 11 of the Underwriting Agreement filed
as Exhibit 1.1 to this Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Company's purchase of certain assets of B. Richard
Miller, Inc. in April, 1994, the Company issued 123,803 shares of Common
Stock to the seller. In addition, Bernard Miller, the principal shareholder
of the seller, received an option to purchase up to an additional 86,881
shares of Common Stock, which option was exercised in 1995. These
transactions were made in reliance on the exemption from the registration
requirements provided by Section 4(2) of the Securities Act.
In July 1995, the Company issued a warrant to purchase an aggregate of
175,531 shares of the Company's Common Stock to Mellon Bank, N.A. in
connection with its Credit Agreement. The warrant expires on July 31, 2005
and provides for exercise at a nominal price. The Company issued a warrant to
purchase an additional 46,560 shares of Common Stock to Mellon Bank, N.A.
upon the amendment of the Credit Agreement in September 1996. This warrant
expires on July 31, 2005 and provide for an exercise price per share equal to
the initial pubic offering price. All of the warrants were issued in reliance
upon the exemption from the registration requirements provided by Section
4(2) of the Securities Act.
Pursuant to the Company's 1995 Stock Option Plan, in June, 1995 and
September, 1996, respectively, the Company issued options to purchase an
aggregate of 367,321 shares of Common Stock to certain executive officers and
key employees. All of the options were issued in connection with such
employee's employment with the Company and no cash or other consideration was
received by the Company in exchange for such options. The options were issued
in reliance upon the exemption from the registration requirements provided by
Rule 701 under the Securities Act.
In September 1996, the Company issued one share of Common Stock of the
Company in exchange for each outstanding share of common stock of NCO
Financial and NCO Financial became a wholly-owned subsidiary of the Company.
The stock was issued without registration under the Securities Act in
reliance upon Rule 145(a)(2) promulgated under the Securities Act and the
interpretations thereunder.
II-2
<PAGE>
In September 1996, the Company acquired all of the outstanding stock of
MAB. As part of the purchase price, the Company issued a Convertible Note in
the aggregate principal amount of $1.0 million. This note is convertible into
83,333 shares of Common Stock at the assumed initial public offering price of
$12.00 per share. The note was issued in reliance on the exemption from the
registration requirements provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
--------------- ------------
<S> <C>
*1.1 Form of Underwriting Agreement (draft of September 3, 1996).
2.1 Stock Purchase Agreement, by and among the Company; and Craig Costanzo and Andrew J. Boyuka, as Trustee
of the Susan E. Costanzo Grantor Trust and Christopher A. Costanzo Grantor Trust, relating to the acquisition
of MAB.
2.2 Asset Purchase Agreement dated December 8, 1995 by and between the Company and Trans Union Corporation.
*3.1 The Company's amended and restated Articles of Incorporation.
*3.2 The Company's amended and restated Bylaws.
*4.1 Specimen of Common Stock Certificate.
*5.1 Opinion of Blank Rome Comisky & McCauley.
*10.1 Employment Agreement, dated September 1, 1996, between the Company and Bernard R. Miller.
*10.2 Employment Agreement, dated September 1, 1996, between the Company and Michael J. Barrist.
*10.3 Employment Agreement, dated September 1, 1996, between the Company and Charles C. Piola, Jr.
*10.4 Employment Agreement, dated September 1, 1996, between the Company and Joseph C. McGowan.
*10.5 Employment Agreement, dated September 1, 1996, between the Company and Steven L. Winokur.
10.6 Agreements of Lease dated May 9, 1995, as amended, between the Company and 1710-20 Sentry East
Associates, L.P., relating to the offices located at 1710 Walton Road, Blue Bell, Pennsylvania.
10.7 Agreements of Lease dated July 1, 1993 between the Company and 1740 Sentry East Associates, L.P.,
relating to the offices located at 1740 Walton Road, Blue Bell, Pennsylvania.
*10.8 Lease Agreement by and between The Uniland Partnership, L.P. and Management Adjustment Bureau, Inc.,
as amended by First Amendment to Lease, dated December 10, 1994, as further amended by Second Amendment
to Lease, dated December 10, 1994.
10.9 Software License Agreement and Software Purchase Agreement, by and between the Company and CRSoftware,
Inc., relating to computer software (CRS Credit Bureau Reporting Software) and computerhardware.
*10.10 Amended and Restated 1995 Stock Option Plan.
*10.11 1996 Stock Option Plan.
*10.12 1996 Non-Employee Director Stock Option Plan.
10.13 Amended and Restated Credit Agreement by and among the Company, its subsidiaries and Mellon Bank, N.A.,
dated September 5, 1996.
10.14 Amended and Restated Security Agreement, dated September 5, 1996, by and among the Company, its subsidiaries
and Mellon Bank, N.A.
10.15 Warrant Agreement, dated July 28, 1995, by and between the Company and Mellon Bank, N.A. and Amendment
dated September 5, 1996.
10.16 1996 Warrant Agreement, dated September 5, 1996, by and between the Company and Mellon Bank, N.A.
10.17 Amended and Restated Registration Rights Agreement, dated September 5, 1996, by and between the Company
and Mellon Bank, N.A.
10.18 Amended and Restated Limited Guaranty Agreement, dated September 5, 1996, made by Michael J. Barrist,
Charles C. Piola, Jr., Annette H. Barrist and Bernard R. Miller in favor of Mellon Bank, N.A.
</TABLE>
- ------
*Filed herewith.
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
--------------- ------------
<S> <C>
10.19 Amended and Restated Stock Pledge Agreement, dated September 5, 1996 made by Michael J. Barrist, Charles
C. Piola, Jr., Annette H. Barrist, and Bernard R. Miller, in favor of Mellon Bank, N.A.
10.20 Stock Pledge Agreement, dated as of September 5, 1996 made by NCO of New York, Inc. in favor of Mellon
Bank, N.A.
10.21 Convertible Note dated September 1, 1996, made by the Company in the principal amount of $1,000,000,
as partial payment of the purchase price for the acquisition of MAB.
10.22 Distribution and Tax Indemnification Agreement
*10.23 Irrevocable Proxy Agreement by and between Michael J. Barrist and Annette H. Barrist.
*10.24 Common Stock Purchase Warrant for 175,531 shares issued to Mellon Bank, N.A.
*10.25 Common Stock Purchase Warrant for 46,560 shares issued to Mellon Bank, N.A.
*10.26 Commitment Letter dated September 6, 1996 issued by Mellon Bank, N.A.
*10.27 Indemnification Agreement by and between NCO Financial Systems, Inc., Management Adjustment Bureau,
Inc. and Craig Costanzo.
21.1 Subsidiaries of the Registrant.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Ernst & Young LLP.
*23.3 Consent of Blank Rome Comisky & McCauley (included in the opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney of directors and officers (included on Page II-5).
27.1 Financial Data Schedules.
*99.1 Consent of Eric Siegel to be named as a director.
*99.2 Consent of Allen Wise to be named as a director.
</TABLE>
- ------
*Filed herewith.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14
above, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(b) The undersigned hereby undertakes:
(1) to provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser;
(2) that for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective; and
(3) that for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Blue Bell,
Pennsylvania, on October 16, 1996.
NCO GROUP, INC.
By:
---------------------------------
/s/ Michael J. Barrist
Michael J. Barrist,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Barrist Chairman of the Board, October 16 , 1996
- ---------------------------------- President and Chief Executive
Michael J. Barrist Officer (principal executive
officer)
*
- ---------------------------------- Executive Vice President and October 16, 1996
Charles C. Piola, Jr. Director
/s/ Steven L. Winokur Vice President of Finance, October 16, 1996
- ---------------------------------- Chief Financial Officer and
Steven L. Winokur Treasurer (principal financial
and accounting officer)
*
- ---------------------------------- Senior Vice President, October 16, 1996
Bernard R. Miller Development and Director
*By: /s/ Michael J. Barrist
- ---------------------------------
Michael J. Barrist
Power of Attorney
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
---------- ------------ --------
<S> <C> <C>
*1.1 Form of Underwriting Agreement (draft of September 3, 1996).
2.1 Stock Purchase Agreement, by and among the Company; and Craig Costanzo and Andrew J.
Boyuka, as Trustee of the Susan E. Costanzo Grantor Trust and Christopher A.
Costanzo Grantor Trust, relating to the acquisition of MAB.
2.2 Asset Purchase Agreement dated December 8, 1995 by and between the Company and Trans
Union Corporation.
*3.1 The Company's amended and restated Articles of Incorporation.
*3.2 The Company's amended and restated Bylaws.
*4.1 Specimen of Common Stock Certificate.
*5.1 Opinion of Blank Rome Comisky & McCauley.
*10.1 Employment Agreement, dated September 1, 1996, between the Company and Bernard R.
Miller.
*10.2 Employment Agreement, dated September 1, 1996, between the Company and Michael J.
Barrist.
*10.3 Employment Agreement, dated September 1, 1996, between the Company and Charles C.
Piola, Jr.
*10.4 Employment Agreement, dated September 1, 1996, between the Company and Joseph C.
McGowan.
*10.5 Employment Agreement, dated September 1, 1996, between the Company and Steven L.
Winokur.
10.6 Agreements of Lease dated May 9, 1995, as amended, between the Company and 1710-20
Sentry East Associates, L.P., relating to the offices located at 1710 Walton Road, Blue Bell,
Pennsylvania.
10.7 Agreements of Lease dated July 1, 1993 between the Company and 1740 Sentry East
Associates, L.P., relating to the offices located at 1740 Walton Road, Blue Bell, Pennsylvania.
*10.8 Lease Agreement by and between The Uniland Partnership, L.P. and Management
Adjustment Bureau, Inc., as amended by First Amendment to Lease, dated December 10,
1994, as further amended by Second Amendment to Lease, dated December 10, 1994.
10.9 Software License Agreement and Software Purchase Agreement, by and between the
Company and CRSoftware, Inc., relating to computer software (CRS Credit Bureau
Reporting Software) and computerhardware.
*10.10 Amended and Restated 1995 Stock Option Plan.
*10.11 1996 Stock Option Plan.
*10.12 1996 Non-Employee Director Stock Option Plan.
10.13 Amended and Restated Credit Agreement by and among the Company, its subsidiaries and
Mellon Bank, N.A., dated September 5, 1996.
10.14 Amended and Restated Security Agreement, dated September 5, 1996, by and among the
Company, its subsidiaries and Mellon Bank, N.A.
10.15 Warrant Agreement, dated July 28, 1995, by and between the Company and Mellon Bank,
N.A. and Amendment dated September 5, 1996.
10.16 1996 Warrant Agreement, dated September 5, 1996, by and between the Company and
Mellon Bank, N.A.
10.17 Amended and Restated Registration Rights Agreement, dated September 5, 1996, by and
between the Company and Mellon Bank, N.A.
10.18 Amended and Restated Limited Guaranty Agreement, dated September 5, 1996, made by
Michael J. Barrist, Charles C. Piola, Jr., Annette H. Barrist and Bernard R. Miller
in favor of Mellon Bank, N.A.
</TABLE>
- ------
*Filed herewith.
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page
---------- ------------ --------
<S> <C> <C>
10.19 Amended and Restated Stock Pledge Agreement, dated September 5, 1996 made by Michael
J. Barrist, Charles C. Piola, Jr., Annette H. Barrist, and Bernard R. Miller, in
favor of Mellon Bank, N.A.
10.20 Stock Pledge Agreement, dated as of September 5, 1996 made by NCO of New York, Inc.
in favor of Mellon Bank, N.A.
10.21 Convertible Note dated September 1, 1996, made by the Company in the principal
amount of $1,000,000, as partial payment of the purchase price for the acquisition
of MAB.
10.22 Distribution and Tax Indemnification Agreement
*10.23 Irrevocable Proxy Agreement by and between Michael J. Barrist and Annette H.
Barrist.
*10.24 Common Stock Purchase Warrant for 175,531 shares issued to Mellon Bank, N.A.
*10.25 Common Stock Purchase Warrant for 46,560 shares issued to Mellon Bank, N.A.
*10.26 Commitment Letter dated September 6, 1996 issued by Mellon Bank, N.A.
*10.27 Indemnification Agreement by and between NCO Financial Systems, Inc., Management
Adjustment Bureau, Inc. and Craig Costanzo.
21.1 Subsidiaries of the Registrant.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Ernst & Young LLP.
*23.3 Consent of Blank Rome Comisky & McCauley (included in the opinion filed as Exhibit
5.1 hereto).
24.1 Power of Attorney of directors and officers (included on Page II-5).
27.1 Financial Data Schedules.
*99.1 Consent of Eric Siegel to be named as a director.
*99.2 Consent of Allen Wise to be named as a director.
</TABLE>
- ------
*Filed herewith.
<PAGE>
Draft dated 9/3/96
2,500,000 Shares
NCO GROUP, INC.
Common Stock
UNDERWRITING AGREEMENT
__________, 1996
MONTGOMERY SECURITIES
JANNEY MONTGOMERY SCOTT INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. NCO Group, Inc., a Pennsylvania
corporation (the "Company"), proposes to issue and sell 2,500,000 shares of its
authorized but unissued Common Stock (the "Common Stock") to the several
underwriters named in Schedule A annexed hereto (the "Underwriters"), for whom
you are acting as Representatives. Said aggregate of 2,500,000 shares are herein
called the "Firm Common Shares." In addition, certain stockholders of the
Company named in Schedule B annexed hereto (the "Selling Stockholders") propose
to grant to the Underwriters an option to purchase up to 375,000 additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 5
hereof. The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares."
You have advised the Company and the Selling Stockholders that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and each of the Selling Stockholders hereby
confirm their respective agreements with respect to the purchase of the Common
Shares by the
<PAGE>
Underwriters as follows:
SECTION 2. Representations and Warranties of the Company and
the Selling Stockholders. The Company and each of the Selling Stockholders (with
the exception of Annette Barrist) severally represent and warrant to the several
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-___)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
Company has prepared and has filed or proposes to file prior to the
effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you two signed copies of such registration statement and
amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form
of final prospectus, (ii) a final prospectus in accordance with Rules
430A and 424(b) of the Rules and Regulations. As filed, such amendment
and form of final prospectus, or such final prospectus, shall include
all Rule 430A Information and, except to the extent that you shall
agree in writing to a modification, shall be in all substantive
respects in the form furnished to you prior to the date and time that
this Agreement was executed and delivered by the parties hereto, or, to
the extent not completed at such date and time, shall contain only such
specific additional information and other changes (beyond that
contained in the latest Preliminary Prospectus) as the Company shall
have previously advised you in writing would be included or made
therein.
The term "Registration Statement" as used in this Agreement
shall mean such registration statement at the time such registration
statement becomes effective and, in the event any post-effective
amendment thereto becomes effective prior to the First Closing Date (as
hereinafter defined), shall also mean such registration statement as so
amended; provided, however, that such term shall also include (i) all
Rule 430A Information deemed to be included in such registration
statement at the time such registration statement becomes effective as
provided by Rule 430A of the Rules and Regulations and (ii) any
registration statement filed pursuant to 462(b) of the Rules and
Regulations relating to the Common Shares. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean either (i) the prospectus relating to the Common Shares in the
form in which it is first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or (ii) if no filing pursuant to
Rule 424(b) of the Rules and Regulations is required, shall mean the
form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Common Shares and
the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the Rules
and Regulations.
<PAGE>
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at
the time the Registration Statement becomes effective, and at all times
subsequent thereto up to and including each Closing Date hereinafter
mentioned, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, will contain all material statements
and information required to be included therein by the Act and the
Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from
any Preliminary Prospectus, the Registration Statement, the Prospectus
or any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
any Underwriter, directly or through the Representatives, specifically
for use in the preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Registration Statement. The
Company and each of its subsidiaries have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own and lease their properties and
conduct their respective businesses as described in the Prospectus; the
Company owns all of the outstanding capital stock of its subsidiaries
free and clear of all claims, liens, charges and encumbrances; the
Company and each of its subsidiaries are in possession of and operating
in compliance with all authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective
businesses, all of which are valid and in full force and effect; the
Company and each of its subsidiaries are duly qualified to do business
and in good standing as foreign corporations in each jurisdiction in
which the ownership or leasing of properties or the conduct of their
respective businesses requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect upon the Company or the subsidiary; and no
proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such
power and authority or qualification.
<PAGE>
(d) The Company has an authorized and outstanding capital
stock as set forth under the heading "Capitalization" in the
Prospectus; the issued and outstanding shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable,
have been issued in compliance with all federal and state securities
laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and
conform to the description thereof contained in the Prospectus. All
issued and outstanding shares of capital stock of each subsidiary of
the Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, neither the Company nor any
subsidiary has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth
in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options
and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully
paid and nonassessable, and will conform to the description thereof
contained in the Prospectus. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale
of the Common Shares by the Company pursuant to this Agreement. No
stockholder of the Company has any right which has not been waived to
require the Company to register the sale of any shares owned by such
stockholder under the Act in the public offering contemplated by this
Agreement. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and
sale of the Common Shares to be sold by the Company or the transfer and
sale of the Common Shares to be sold by the Selling Stockholders as
contemplated herein.
(f) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company in accordance with its terms. The making and performance of
this Agreement by the Company and the consummation of the transactions
herein contemplated will not violate any provisions of the articles of
incorporation or bylaws, or other organizational documents, of the
Company or any of its subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of
its respective properties may be bound or affected, any statute or any
authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental
body applicable to the Company or any of its subsidiaries or any of its
respective properties. No consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws
applicable to the public offering of the Common Shares by the several
Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
<PAGE>
(g) Coopers & Lybrand, who have expressed their opinion with
respect to the financial statements and schedules of the Company and
Management Adjustment Bureau, Inc. ("MAB") filed with the Commission as
a part of the Registration Statement and included in the Prospectus and
in the Registration Statement, are independent accountants as required
by the Act and the Rules and Regulations. Ernst & Young LLP, who have
expressed their opinion with respect to the financial statements and
schedules of Trans Union Corporation Collections Division ("TCD") filed
with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and
Regulations.
(h) The financial statements and schedules of the Company, and
the related notes thereto, included in the Registration Statement and
the Prospectus present fairly the financial position of the Company as
of the respective dates of such financial statements and schedules, and
the results of operations and changes in financial position of the
Company for the respective periods covered thereby. The financial
statements and schedules of MAB, and the related notes thereto,
included in the Registration Statement and the Prospectus present
fairly the financial position of MAB as of the respective dates of such
financial statements and schedules, and the results of operations and
changes in financial position of MAB for the respective periods covered
thereby. The financial statements and schedules of TCD, and the related
notes thereto, included in the Registration Statement and the
Prospectus present fairly the financial position of TCD as of the
respective dates of such financial statements and schedules, and the
results of operations and changes in financial position of TCD for the
respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis as certified by the
independent accountants named in subsection 2(g). No other financial
statements or schedules are required to be included in the Registration
Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Financial and
Operating Data" fairly present the information set forth therein on the
basis stated in the Registration Statement.
<PAGE>
(i) The pro forma consolidated financial statements and other
pro forma financial information of the Company included in the
Prospectus have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements, have
been properly compiled on the pro forma basis described therein, and,
in the opinion of the Company, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions or circumstances referred to
therein.
(j) Except as disclosed in the Prospectus, and except as to
defaults which individually or in the aggregate would not be material
to the Company, neither the Company nor any of its subsidiaries is in
violation or default of any provision of its articles of incorporation
or bylaws, or other organizational documents, or is in breach of or
default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which it is a party or by
which it or any of its properties are bound; and there does not exist
any state of facts which constitutes an event of default on the part of
the Company or any such subsidiary as defined in such documents or
which, with notice or lapse of time or both, would constitute such an
event of default.
(k) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so
described in the Prospectus are accurate and complete; all such
contracts are in full force and effect on the date hereof; and neither
the Company nor any of its subsidiaries, nor to the best of the
Company's knowledge, any other party is in breach of or default under
any of such contracts.
(l) There are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge,
threatened to which the Company or any of its subsidiaries is or may be
a party or of which property owned or leased by the Company or any of
its subsidiaries is or may be the subject, or related to environmental
or discrimination matters, which actions, suits or proceedings might,
individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material
adverse change in the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company and its
subsidiaries; and no labor disturbance by the employees of the Company
or any of its subsidiaries exists or is imminent which might be
expected to affect adversely such condition, properties, business,
results of operations or prospects. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
<PAGE>
(m) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in
the financial statements hereinabove described (or elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are
not materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or
as proposed to be conducted.
(n) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i) the
Company and its subsidiaries have not incurred any material liabilities
or obligations, indirect, direct or contingent, or entered into any
material verbal or written agreement or other transaction which is not
in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company and its subsidiaries;
(ii) the Company and its subsidiaries have not sustained any material
loss or interference with their respective businesses or properties
from fire, flood, windstorm, accident or other calamity, whether or not
covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and
the Company and its subsidiaries are not in default in the payment of
principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock (other than upon the sale
of the Common Shares hereunder) or indebtedness material to the Company
and its subsidiaries (other than in the ordinary course of business);
and (v) there has not been any material adverse change in the condition
(financial or otherwise), business, properties, results of operations
or prospects of the Company and its subsidiaries.
(o) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; the expiration of any trademarks, trade
names, patent rights, mask works, copyrights, licenses, approvals or
governmental authorizations would not have a material adverse effect on
the condition (financial or otherwise), business, results of operations
or prospects of the Company or its subsidiaries; and the Company has no
knowledge of any material infringement by it or its subsidiaries of
trademark, trade name rights, patent rights, mask works, copyrights,
licenses, trade secret or other similar rights of others, and there is
no claim being made against the Company or its subsidiaries regarding
trademark, trade name, patent, mask work, copyright, license, trade
secret or other infringement which could have a material adverse effect
on the condition (financial or otherwise), business, results of
operations or prospects of the Company and its subsidiaries.
<PAGE>
(p) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations
of the jurisdictions in which it is conducting business, including,
without limitation, the federal Fair Debt Collection Practices Act, the
federal Fair Credit Reporting Act, the federal Telemarketing and
Consumer Fraud and Abuse Prevention Act of 1994, the federal Telephone
Consumer Protection Act of 1991, related state and local statutes and
regulations and all applicable local, state and federal environmental
laws and regulations; except where failure to be so in compliance would
not materially adversely affect the condition (financial or otherwise),
business, results of operations or prospects of the Company and its
subsidiaries.
(q) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have
paid all taxes shown as due thereon; and the Company has no knowledge
of any tax deficiency which has been or might be asserted or threatened
against the Company or its subsidiaries which could materially and
adversely affect the business, operations or properties of the Company
and its subsidiaries.
(r) The Company is not, and will not become as a result of the
consummation of the transactions contemplated by this Agreement and
application of the net proceeds therefrom as described in the
Prospectus, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended and the rules and
regulations of the Commission thereunder.
(s) The Company has not distributed and will not distribute
prior to the First Closing Date any offering material in connection
with the offering and sale of the Common Shares other than the
Prospectus, the Registration Statement and the other materials
permitted by the Act.
(t) Each of the Company and its subsidiaries maintain
insurance of the types and in the amounts generally deemed adequate for
its business, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is
in full force and effect.
<PAGE>
(u) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof.
(v) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected
to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Common Shares.
(w) The Recapitalization (as defined in the Prospectus) has
been consummated pursuant to the terms described therein.
(x) The agreements necessary to effect the acquisition of MAB
have been duly authorized, executed and delivered by each of the
parties thereto and constitute the valid, legal and binding agreements
of each such party, and the acquisition of all of the capital stock of
MAB by the Company and the related transactions contemplated thereby
have been consummated pursuant to the terms described in the
Prospectus.
SECTION 3. Representations, Warranties and Covenants of the Selling
Stockholders.
(a) Each of the Selling Stockholders represents and warrants
to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has, and on the Second
Closing Date hereinafter mentioned will have, good and
marketable title to the Common Shares proposed to be sold by
such Selling Stockholder hereunder on such Closing Date and
full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all voting trust arrangements,
liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and
payment for such Common Shares hereunder, the Underwriters
will acquire good and marketable title thereto, free and clear
of all liens, encumbrances, equities, claims, restrictions,
security interests, voting trusts or other defects of title
whatsoever.
<PAGE>
(ii) Such Selling Stockholder has executed and
delivered a Power of Attorney and caused to be executed and
delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Stockholders Agreement") and
in connection herewith such Selling Stockholder further
represents, warrants and agrees that such Selling Stockholder
has deposited in custody, under the Stockholders Agreement,
with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be
sold hereunder by such Selling Stockholder, for the purpose of
further delivery pursuant to this Agreement. Such Selling
Stockholder agrees that the Common Shares to be sold by such
Selling Stockholder on deposit with the Agent are subject to
the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated, except as
provided in this Agreement or in the Stockholders Agreement,
by any act of such Selling Stockholder, by operation of law,
by the death or incapacity of such Selling Stockholder or by
the occurrence of any other event. If the Selling Stockholder
should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares
hereunder, the documents evidencing Common Shares then on
deposit with the Agent shall be delivered by the Agent in
accordance with the terms and conditions of this Agreement as
if such death, incapacity or other event had not occurred,
regardless of whether or not the Agent shall have received
notice thereof. This Agreement and the Stockholders Agreement
have been duly executed and delivered by or on behalf of such
Selling Stockholder and the form of such Stockholders
Agreement has been delivered to you.
(iii) The performance of this Agreement and the
Stockholders Agreement and the consummation of the
transactions contemplated hereby and by the Stockholders
Agreement will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of its
properties is bound, any statute, or any judgment, decree,
order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its
properties.
(iv) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or
resale of the Common Shares.
<PAGE>
(v) Each Preliminary Prospectus and the Prospectus,
insofar as it has related to such Selling Stockholder has
conformed in all material respects to the requirements of the
Act and the Rules and Regulations and has not included any
untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were
made; and neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, as it
relates to such Selling Stockholder, will include any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) Annette Barrist represents and warrants to the several
Underwriters that she is not aware that any of the representations or
warranties set forth in Section 2 above is untrue or inaccurate in any
material respect.
(c) Each of the Selling Stockholders agrees with the Company
and the Underwriters not to offer to sell, sell or contract to sell or
otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable for any shares of Common Stock, for a
period of 180 days after the first date that any of the Common Shares
are released by you for sale to the public, without the prior written
consent of either Montgomery Securities or each of the Representatives,
which consent may be withheld at the sole discretion of Montgomery
Securities or each of the Representatives, as the case may be.
SECTION 4. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Stockholders that the information set forth (i)
on the cover page of the Prospectus with respect to price, underwriting
discounts and commissions and terms of offering and (ii) under "Underwriting" in
the Prospectus was furnished to the Company by and on behalf of the Underwriters
for use in connection with the preparation of the Registration Statement and the
Prospectus and is correct in all material respects. The Representatives
represent and warrant that they have been authorized by each of the other
Underwriters as the Representatives to enter into this Agreement on its behalf
and to act for it in the manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, (i) the Company agrees to issue
and sell to the Underwriters 2,500,000 Firm Common Shares. The Underwriters
agree, severally and not jointly, to purchase from the Company the number of
Firm Common Shares described below. The purchase price per share to be paid by
the several Underwriters to the Company shall be $___ per share.
<PAGE>
The obligation of each Underwriter to the Company shall be to purchase
from the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to __________ the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, after
4:30 P.M. Washington D.C. time, the fourth) full business day following the
first date that any of the Common Shares are released by you for sale to the
public, as you shall designate by at least 48 hours prior notice to the Company
(the "First Closing Date"); provided, however, that if the Prospectus is at any
time prior to the First Closing Date recirculated to the public, the First
Closing Date shall occur upon the later of the third or fourth, as the case may
be, full business day following the first date that any of the Common Shares are
released by you for sale to the public or the date that is 48 hours after the
date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or
on behalf of the Company to you, for the respective accounts of the Underwriters
against payment by you, for the accounts of the several Underwriters, of the
purchase price therefor by a wire transfer of immediately available funds to an
account designated by the Company. The certificates for the Firm Common Shares
shall be registered in such names and denominations as you shall have requested
at least two full business days prior to the First Closing Date, and shall be
made available for checking and packaging on the business day preceding the
First Closing Date at a location in New York, New York, as may be designated by
you. Time shall be of the essence, and delivery at the time and place specified
in this Agreement is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Selling Stockholders hereby grant an option to the several
Underwriters to purchase, severally and not jointly, up to an aggregate of
375,000 Optional Common Shares at the purchase price per share to be paid for
the Firm Common Shares, for use solely in covering any over-allotments made by
you for the account of the Underwriters in the sale and distribution of the Firm
Common Shares. The option granted hereunder may be exercised at any time (but
not more than once) within 30 days after the first date that any of the Common
Shares are released by you for sale to the public, upon notice by you to the
Agent setting forth the aggregate number of Optional Common Shares as to which
the Underwriters are exercising the option, the names and denominations in which
the certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. If the option granted hereby is
exercised for less than the maximum number of Optional Common Shares being
offered by the Selling Stockholders, the respective number of Optional Common
Shares to be sold by each of the Selling Stockholders listed on Schedule B
annexed hereto shall be determined on a pro rata basis in accordance with the
number of shares set forth opposite their names on Schedule B hereto, adjusted
by you in such manner as to avoid fractional interests. Such time of delivery
(which may not be earlier than the First Closing Date), being herein referred to
as the "Second Closing Date," shall be determined by you, but if at any time
other than the First Closing Date shall not be earlier than three nor later than
five full business days after delivery of such notice of exercise. The number of
Optional Common Shares to be purchased by each Underwriter shall be determined
by multiplying the number of Optional Common Shares to be sold by the Selling
Stockholders pursuant to such notice of exercise by a fraction, the numerator of
which is the number of Firm Common Shares to be purchased by such Underwriter as
set forth opposite its name in Schedule A and the denominator of which is
375,000 (subject to such adjustments to eliminate any fractional share purchases
as you in your discretion may make). Certificates for the Optional Common Shares
will be made available for checking and packaging on the business day preceding
the Second Closing Date at a location in New York, New York, as may be
designated by you. Delivery of certificates for the Optional Common Shares shall
be made by or on behalf of the Selling Stockholders to you, for the respective
accounts of the Underwriters with respect to the Optional Common Shares to be
sold by the Selling Stockholders against payment by you, for the accounts of the
several Underwriters, of the purchase price therefor by a wire transfer of
immediately available funds to an account designated by the Agent. At any time
before lapse of the option, you may cancel such option by giving written notice
of such cancellation to the Agent. If the option is cancelled or expires
unexercised in whole or in part, the Company will deregister under the Act the
number of Option Shares as to which the option has not been exercised.
<PAGE>
You have advised the Company and the Selling Stockholders that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Common Shares as soon
after the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the final prospectus.
SECTION 6. Covenants of the Company. The Company covenants and
agrees that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, to become effective. If the Registration Statement has
become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations, the Company will file
the Prospectus, properly completed, pursuant to the applicable
paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such
timely filing. The Company will promptly advise you in writing (i) of
the receipt of any comments of the Commission, (ii) of any request of
the Commission for amendment of or supplement to the Registration
Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose. If the Commission shall enter any
such stop order at any time, the Company will use its best efforts to
obtain the lifting of such order at the earliest possible moment. The
Company will not file any amendment or supplement to the Registration
Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus of which you have not been
furnished with a copy a reasonable time prior to such filing or to
which you reasonably object or which is not in compliance with the Act
and the Rules and Regulations.
<PAGE>
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
necessary or advisable to enable the several Underwriters to continue
the distribution of the Common Shares and will use its best efforts to
cause the same to become effective as promptly as possible. The Company
will fully and completely comply with the provisions of Rule 430A of
the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event
occurs, as a result of which the Prospectus, including any amendments
or supplements, would include an untrue statement of a material fact,
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or if it is
necessary at any time to amend the Prospectus, including any amendments
or supplements, to comply with the Act or the Rules and Regulations,
the Company will promptly advise you thereof and will promptly prepare
and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an
amendment or supplement which will effect such compliance and will use
its best efforts to cause the same to become effective as soon as
possible; and, in case any Underwriter is required to deliver a
prospectus after such nine-month period, the Company upon request, but
at the expense of such Underwriter, will promptly prepare such
amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance
with the requirements of Section 10(a)(3) of the Act.
<PAGE>
(d) As soon as practicable, but not later than 45 days after
the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule
158(c) of the Rules and Regulations), the Company will make generally
available to its security holders an earnings statement (which need not
be audited) covering a period of 12 consecutive months beginning after
the effective date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to
in Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon
as available and in such quantities as you and the Selling Stockholders
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you designate, will comply with such laws and will
continue such qualifications, registrations and exemptions in effect so
long as reasonably required for the distribution of the Common Shares.
The Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be
subject to taxation as a foreign corporation. The Company will advise
you promptly of the suspension of the qualification or registration of
(or any such exemption relating to) the Common Shares for offering,
sale or trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company, with your cooperation, will use its best efforts to obtain the
withdrawal thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon
of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
<PAGE>
(h) During the period of 180 days after the first date that
any of the Common Shares are released by you for sale to the public,
without the prior written consent of either Montgomery Securities or
each of the Representatives (which consent may be withheld at the sole
discretion of the Montgomery Securities or the Representatives, as the
case may be), the Company will not other than pursuant to outstanding
stock options and warrants disclosed in the Prospectus issue, offer,
sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security.
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or
register its Common Stock for sale in non-issuer transactions under (or
obtain exemptions from the application of) the Blue Sky laws of the
State of California (and thereby permit market making transactions and
secondary trading in the Company's Common Stock in California), will
comply with such Blue Sky laws and will continue such qualifications,
registrations and exemptions in effect for a period of five years after
the date hereof.
(k) The Company will use its best efforts to designate the
Common Stock for quotation as a national market system security on the
NASD Automated Quotation System.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Stockholders agree to pay in such proportions as they may agree upon among
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel and the Company's independent accountants, (v) all costs
and expenses incurred in connection with the preparation, printing, filing,
shipping and distribution of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the Blue Sky memorandum,
(vi) all filing fees, attorneys' fees and expenses incurred by the Company or
the Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws, (vii) the filing fee
of the National Association of Securities Dealers, Inc., and (viii) all other
fees, costs and expenses referred to in Item 13 of the Registration Statement.
The Underwriters may deem the Company to be the primary obligor with respect to
all costs, fees and expenses to be paid by the Company and by the Selling
Stockholders. Except as provided in this Section 7, Section 9 and Section 11
hereof, the Underwriters shall pay all of their own expenses, including the fees
and disbursements of their counsel (excluding those relating to qualification,
registration or exemption under the Blue Sky laws and the Blue Sky memorandum
referred to above). This Section 7 shall not affect any agreements relating to
the payment of expenses between the Company and the Selling Stockholders.
<PAGE>
The Selling Stockholders will pay (directly or by reimbursement) all
fees and expenses incident to the performance of their obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholders; (ii) any fees and expenses of the Agent; and (iii) all expenses
and taxes incident to the sale and delivery of the Common Shares to be sold by
such Selling Stockholders to the Underwriters hereunder.
The Company and the Selling Stockholders will pay the premium or
premiums on the policy of insurance referred to in Section 11(f) below.
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. (or, in the case of a registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the
Common Shares, not later than 10 P.M.), Washington, D.C. Time, on the
date of this Agreement, or at such later time as shall have been
consented to by you; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and
Regulations, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or shall
be pending or, to the knowledge of the Company, the Selling
Stockholders or you, shall be contemplated by the Commission; and any
request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied with
to your satisfaction.
<PAGE>
(b) You shall be satisfied that since the respective dates as
of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital
stock (other than pursuant to the exercise of outstanding options and
warrants disclosed in the Prospectus) of the Company or any of its
subsidiaries or any material change in the indebtedness (other than in
the ordinary course of business) of the Company or any of its
subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the
Company or any of its subsidiaries, which is not in the ordinary course
of business (or which could result in a material reduction in the
future earnings of the Company and its subsidiaries), (iii) no loss or
damage (whether or not insured) to the property of the Company or any
of its subsidiaries shall have been sustained which materially and
adversely affects the condition (financial or otherwise), business,
results of operations or prospects of the Company and its subsidiaries,
(iv) no legal or governmental action, suit or proceeding affecting the
Company or any of its subsidiaries which is material to the Company and
its subsidiaries or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or
threatened, and (v) there shall not have been any material change in
the condition (financial or otherwise), business, management, results
of operations or prospects of the Company and its subsidiaries which
makes it impractical or inadvisable in the judgment of the
Representatives to proceed with the public offering or purchase the
Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives
of the Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Blank Rome Comisky & McCauley,
counsel for the Company and the Selling Stockholders,
addressed to the Underwriters and dated the First Closing
Date, or the Second Closing Date (in the latter case with
respect to the Selling Stockholders only), as the case may be,
to the effect that:
<PAGE>
(1) Each of the Company and its subsidiaries
has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to
do business as a foreign corporation and is in good
standing in all other jurisdictions where the
ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify
would not have a material adverse effect on the
Company and its subsidiaries, and has full corporate
power and authority to own its properties and conduct
its business as described in the Registration
Statement;
(2) The authorized, issued and outstanding
capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus; all
necessary and proper corporate proceedings have been
taken in order to authorize validly such authorized
Common Stock; all outstanding shares of Common Stock
(including the Firm Common Shares and any Optional
Common Shares) have been duly and validly issued, are
fully paid and nonassessable, have been issued in
compliance with federal and state securities laws,
were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or
purchase any securities and conform to the
description thereof contained in the Prospectus;
without limiting the foregoing, there are no
preemptive or other rights to subscribe for or
purchase any of the Common Shares to be sold by the
Company hereunder;
(3) All of the issued and outstanding shares
of the Company's subsidiaries have been duly and
validly authorized and issued, are fully paid and
nonassessable and are owned beneficially by the
Company free and clear of all liens, encumbrances,
equities, claims, security interests, voting trusts
or other defects of title whatsoever;
(4) The certificates evidencing the Common
Shares to be delivered hereunder are in due and
proper form under Pennsylvania law, and when duly
countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement,
the Common Shares represented thereby will be duly
authorized and validly issued, fully paid and
nonassessable, will not have been issued in violation
of or subject to any preemptive rights or other
rights to subscribe for or purchase securities and
will conform in all respects to the description
thereof contained in the Prospectus;
<PAGE>
(5) Except as disclosed in or specifically
contemplated by the Prospectus, to the best of such
counsel's knowledge, there are no outstanding
options, warrants or other rights calling for the
issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of
the Company or any security convertible into or
exchangeable for capital stock of the Company;
(6) (a) The Registration Statement has become
effective under the Act, and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued
and no proceedings for that purpose have been
instituted or are pending or contemplated by the
Commission; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the
Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus
and each amendment or supplement thereto (except for
the financial statements and schedules included
therein as to which such counsel need express no
opinion) comply as to form in all material respects
with the requirements of the Act and the Rules and
Regulations;
(c) To the best of such counsel's knowledge,
there are no franchises, leases, contracts,
agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as
required;
(d) To the best of such counsel's knowledge,
there are no legal or governmental actions, suits or
proceedings pending or threatened against the Company
which are required to be described in the Prospectus
which are not described as required; and
<PAGE>
(7) The Company has full right, power and
authority to enter into this Agreement and to sell
and deliver the Common Shares to be sold by it to the
several Underwriters; this Agreement has been duly
and validly authorized by all necessary corporate
action by the Company, has been duly and validly
executed and delivered by and on behalf of the
Company, and is a valid and binding agreement of the
Company enforceable in accordance with its terms,
except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting
creditors' rights generally and except as to those
provisions relating to indemnity or contribution for
liabilities arising under the Act as to which no
opinion need be expressed; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any
court, regulatory, administrative or other
governmental body is required for the execution and
delivery of this Agreement by the Company or the
consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are
in full force and effect under the Act and such as
may be required under applicable Blue Sky laws in
connection with the purchase and distribution of the
Common Shares by the Underwriters and the clearance
of such offering with the NASD;
(8) The execution and performance of this
Agreement and the consummation of the transactions
herein contemplated will not conflict with, result in
the breach of, or constitute, either by itself or
upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other
instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of its or
their property may be bound or affected which is
material to the Company and its subsidiaries, or
violate any of the provisions of the articles of
incorporation or bylaws, or other organizational
documents, of the Company or any of its subsidiaries
or, so far as is known to such counsel, violate any
statute, judgment, decree, order, rule or regulation
of any court or governmental body having jurisdiction
over the Company or any of its subsidiaries or any of
its or their property;
(9) Neither the Company nor any subsidiary
is in violation of its articles of incorporation or
bylaws, or other organizational documents, or to the
best of such counsel's knowledge, in breach of or
default with respect to any provision of any
agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known
to such counsel to which the Company or any such
subsidiary is a party or by which it or any of its
properties may be bound or affected, except where
such default would not materially adversely affect
the Company and its subsidiaries; and, to the best of
such counsel's knowledge, the Company and its
subsidiaries are in compliance with all laws, rules,
regulations, judgments, decrees, orders and statutes
of any court or jurisdiction to which they are
subject, except where noncompliance would not
materially adversely affect the Company and its
subsidiaries;
<PAGE>
(10) To the best of such counsel's
knowledge, no holders of securities of the Company
have rights which have not been waived to the
registration of shares of Common Stock or other
securities, because of the filing of the Registration
Statement by the Company or the offering contemplated
hereby;
(11) To the best of such counsel's
knowledge, this Agreement and the Stockholders
Agreement have been duly authorized, executed and
delivered by or on behalf of each of the Selling
Stockholders; the Agent has been duly and validly
authorized to act as the custodian of the Common
Shares to be sold by each such Selling Stockholder;
and the performance of this Agreement and the
Stockholders Agreement and the consummation of the
transactions herein contemplated by the Selling
Stockholders will not result in a breach of, or
constitute a default under, any indenture, mortgage,
deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other
agreement or instrument to which any of the Selling
Stockholders is a party or by which any of the
Selling Stockholders or any of their properties may
be bound, or violate any statute, judgment, decree,
order, rule or regulation known to such counsel of
any court or governmental body having jurisdiction
over any of the Selling Stockholders or any of their
properties; and to the best of such counsel's
knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative
agency or other governmental body is required for the
execution and delivery of this Agreement or the
Stockholders Agreement or the consummation by the
Selling Stockholders of the transactions contemplated
by this Agreement, except such as have been obtained
and are in full force and effect under the Act and
such as may be required under the rules of the NASD
and applicable Blue Sky laws;
(12) To the best of such counsel's
knowledge, the Selling Stockholders have full right,
power and authority to enter into this Agreement and
the Stockholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing
Date by such Selling Stockholders hereunder and good
and marketable title to such Common Shares so sold,
free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting
trusts, or other defects of title whatsoever, has
been transferred to the Underwriters (whom counsel
may assume to be bona fide purchasers) who have
purchased such Common Shares hereunder; and
<PAGE>
(13) To the best of such counsel's
knowledge, this Agreement and the Stockholders
Agreement are valid and binding agreements of each of
the Selling Stockholders in accordance with their
terms except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting
creditors' rights generally and except with respect
to those provisions relating to indemnities or
contributions for liabilities under the Act, as to
which no opinion need be expressed.
(14) No transfer taxes are required to be
paid in connection with the sale and delivery of the
Common Shares to the Underwriters hereunder.
(15) The Recapitalization (as defined in the
Prospectus) has been consummated pursuant to the
terms described therein.
(16) The agreements necessary to effect the
acquisition of MAB have been duly authorized,
executed and delivered by each of the parties thereto
and constitute the valid, legal and binding
agreements of each such party, and the acquisition of
all of the capital stock of MAB by the Company and
the related transactions contemplated thereby have
been consummated pursuant to the terms described in
the Prospectus.
In rendering such opinion, such counsel may rely, as to
matters of local law, on opinions of local counsel, and as to matters
of fact, on certificates of the Selling Stockholders and of officers of
the Company and of governmental officials, in which case their opinion
is to state that they are so doing and that the Underwriters are
justified in relying on such opinions or certificates and copies of
said opinions or certificates are to be attached to the opinion. Such
counsel shall also include a statement to the effect that nothing has
come to such counsel's attention that would lead such counsel to
believe that either at the effective date of the Registration Statement
or at the applicable Closing Date the Registration Statement or the
Prospectus, or any such amendment or supplement, contains any untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading;
(ii) Such opinion or opinions of Piper & Marbury
L.L.P., counsel for the Underwriters dated the First Closing
Date or the Second Closing Date, as the case may be, with
respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating
to this Agreement, the validity of the Common Shares, the
Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company and the
Selling Stockholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with
such opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.
<PAGE>
(iii) A certificate of the Company executed by the
President and the chief financial or accounting officer of the
Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of
the Company set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the conditions on its part to be performed or
satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or
any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and to the
best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or contemplated under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; in his opinion and to
the best of his knowledge, the Registration Statement
and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated
therein regarding the Company and its subsidiaries;
and neither the Registration Statement nor the
Prospectus nor any amendment or supplement thereto
includes any untrue statement of a material fact or
omits to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading;
(4) Since the initial date on which the
Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
<PAGE>
(5) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, there has not been
any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company and its subsidiaries; and no legal or
governmental action, suit or proceeding is pending or
threatened against the Company or any of its
subsidiaries which is material to the Company and its
subsidiaries, whether or not arising from
transactions in the ordinary course of business, or
which may adversely affect the transactions
contemplated by this Agreement; since such dates and
except as so disclosed, neither the Company nor any
of its subsidiaries has entered into any verbal or
written agreement or other transaction which is not
in the ordinary course of business or which could
result in a material reduction in the future earnings
of the Company or incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital
stock; and the Company has not declared or paid any
dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of
record on a date prior to the First Closing Date or
Second Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or
other calamity (whether or not insured).
(iv) On the Second Closing Date, a certificate, dated
such Closing Date and addressed to you, signed by or on behalf
of each of the Selling Stockholders to the effect that the
representations and warranties of such Selling Stockholder in
this Agreement are true and correct, as if made at and as of
the Second Closing Date, and such Selling Stockholder has
complied with all the agreements and satisfied all the
conditions on his part to be performed or satisfied prior to
the Second Closing Date.
(v) On the date before this Agreement is executed and
also on the First Closing Date and the Second Closing Date a
letter addressed to you, as Representatives of the
Underwriters, from Coopers & Lybrand, independent accountants,
the first one to be dated the day before the date of this
Agreement, the second one to be dated the First Closing Date
and the third one (in the event of a Second Closing) to be
dated the Second Closing Date, in form and substance
satisfactory to you.
<PAGE>
(vi) On or before the First Closing Date, letters
from each of the Selling Stockholders, each holder of one
percent or more of the Company's Common Stock and each
director and officer of the Company, in form and substance
satisfactory to you, confirming that for a period of 180 days
after the first date that any of the Common Shares are
released by you for sale to the public, such person will not
directly or indirectly sell or offer to sell or otherwise
dispose of any shares of Common Stock or any right to acquire
such shares without the prior written consent of either
Montgomery Securities or each of the Representatives, which
consent may be withheld at the sole discretion of Montgomery
Securities or each of the Representatives, as the case may be.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Piper & Marbury L.L.P., counsel for the Underwriters. The Company shall
furnish you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request. Any certificate signed by
any officer of the Company and delivered to the Representatives or to counsel
for the Underwriters shall be deemed to be a representation and warranty by the
Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholders without liability on
the part of any Underwriter, the Company or the Selling Stockholders except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by you and them in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company
and the Selling Stockholders will use your, its and their best efforts to cause
the Registration Statement to become effective, to prevent the issuance of any
stop order suspending the effectiveness of the Registration Statement and, if
such stop order be issued, to obtain as soon as possible the lifting thereof.
<PAGE>
SECTION 11. Indemnification. (a) The Company and each of the Selling
Stockholders, jointly and severally, agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders contained herein or any
failure of the Company or the Selling Stockholders to perform their respective
obligations hereunder or under law; and will reimburse each Underwriter and each
such controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, however, that neither the
Company nor the Selling Stockholders will be liable in any such case to the
extent that any such loss, claim, damage, liability or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with the information furnished to the Company pursuant to Section 4
hereof.
The Company and the Selling Stockholders may agree, as among themselves
and without limiting the rights of the Underwriters under this Agreement, as to
the respective amounts of such liability for which they each shall be
responsible. In no event, however, shall the liability of any Selling
Stockholder for indemnification under this Section 11(a) exceed the sum of (i)
the proceeds received by such Selling Stockholder from the Underwriters in the
offering and (ii) the portion of the S Corporation Distributions (as defined in
the Prospectus) received by the Selling Stockholder from the Company. In
addition to its other obligations under this Section 11(a), the Company and the
Selling Stockholders agree that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or omission, or
any inaccuracy in the representations and warranties of the Company or the
Selling Stockholders herein or failure to perform its obligations hereunder, all
as described in this Section 11(a), it will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Selling Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company or the Selling Stockholders may otherwise have.
<PAGE>
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholders and each person, if any, who controls the
Company or any Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Stockholder or controlling
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its other
obligations under this Section 11(b), each Underwriter severally agrees that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 11(b)
which relates to information furnished to the Company pursuant to Section 4
hereof, it will reimburse the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Underwriters' obligation to reimburse
the Company (and, to the extent applicable, each officer, director, controlling
person or Selling Stockholder) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company (and, to the extent applicable, each
officer, director, controlling person or Selling Stockholder) shall promptly
return it to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments which are not made to the Company within 30 days of a request for
reimbursement, shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability which
such Underwriter may otherwise have.
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Representatives in the case of paragraph (a),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
<PAGE>
(d) If the indemnification provided for in this Section 11 is required by
its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company, the
Selling Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as the total
price paid to the Company and to the Selling Stockholders (and, in the case of
the Selling Stockholders, including the amount of the S Corporation
Distributions received by them), respectively, for the Common Shares sold by
them to the Underwriters (net of underwriting commissions but before deducting
expenses) bears to the total price to the public set forth on the cover of the
Prospectus, and in the case of the Underwriters as the underwriting commissions
received by them bears to the total price to the public set forth on the cover
of the Prospectus. The relative fault of the Company, the Selling Stockholders
and the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or the
alleged inaccurate representation and/or warranty relates to information
supplied by the Company, the Selling Stockholders or the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in subparagraph (c) of this Section 11, any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in subparagraph (c) of
this Section 11 with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this subparagraph (d); provided,
however, that no additional notice shall be required with respect to any action
for which notice has been given under subparagraph (c) for purposes of
indemnification. The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 11 were determined solely by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 11, no Underwriter shall be required to contribute
any amount in excess of the amount of the total underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 11 are several in proportion to their respective underwriting
commitments and not joint.
<PAGE>
(e) It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Sections 11(a) and 11(b) hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so. Such an
arbitration would be limited to the operation of the interim reimbursement
provisions contained in Sections 11(a) and 11(b) hereof and would not resolve
the ultimate propriety or enforceability of the obligation to reimburse expenses
which is created by the provisions of such Sections 11(a) and 11(b) hereof.
(f) [Language on insurance to follow.]
SECTION 12. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders except for the expenses to be paid by the
Company and the Selling Stockholders pursuant to Section 7 hereof and except to
the extent provided in Section 11 hereof.
<PAGE>
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice
to you and the Selling Stockholders or by you by notice to the Company
and the Selling Stockholders at any time prior to the time this
Agreement shall become effective as to all its provisions, and any such
termination shall be without liability on the part of the Company or
the Selling Stockholders to any Underwriter (except for the expenses to
be paid or reimbursed by the Company and the Selling Stockholders
pursuant to Sections 7 and 9 hereof and except to the extent provided
in Section 11 hereof) or of any Underwriter to the Company or the
Selling Stockholders (except to the extent provided in Section 11
hereof).
<PAGE>
(b) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall
have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or California authorities, (ii) if an
outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to
affect adversely the marketability of the Common Shares, (iii) if any
adverse event shall have occurred or shall exist which makes untrue or
incorrect in any material respect any statement or information
contained in the Registration Statement or Prospectus or which is not
reflected in the Registration Statement or Prospectus but should be
reflected therein in order to make the statements or information
contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or
there shall have been any development or prospective development
involving particularly the business or properties or securities of the
Company or any of its subsidiaries or the transactions contemplated by
this Agreement, which, in the reasonable judgment of the
Representatives, may materially and adversely affect the Company's
business or earnings and makes it impracticable or inadvisable to offer
or sell the Common Shares. Any termination pursuant to this subsection
(b) shall without liability on the part of any Underwriter to the
Company or the Selling Stockholders or on the part of the Company or
the Selling Stockholders to any Underwriter (except for expenses to be
paid or reimbursed by the Company and the Selling Stockholders pursuant
to Sections 7 and 9 hereof and except to the extent provided in Section
11 hereof.
(c) This Agreement shall also terminate at 5:00 P.M.,
California time, on the tenth full business day after the Registration
Statement shall have become effective if the initial public offering
price of the Common Shares shall not then as yet have been determined
as provided in Section 5 hereof. Any termination pursuant to this
subsection (c) shall without liability on the part of any Underwriter
to the Company or the Selling Stockholders or on the part of the
Company or the Selling Stockholders to any Underwriter (except for
expenses to be paid or reimbursed by the Company and the Selling
Stockholders pursuant to Sections 7 and 9 hereof and except to the
extent provided in Section 11 hereof).
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver. If
one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the Second Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one or
more of the Selling Stockholders to sell and deliver as referred to in this
Section, either you or the Company shall have the right to postpone the Second
Closing Date for a period not exceeding seven business days in order that the
necessary changes in the Registration Statement, Prospectus and any other
documents, as well as any other arrangements, may be effected.
<PAGE>
SECTION 16. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in writing
and, if sent to the Representatives shall be mailed, delivered or telegraphed
and confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: Mr. Frank M. Dunlevy, with a copy to Piper & Marbury L.L.P., 36 S.
Charles Street, Baltimore, Maryland 21201, Attention, Henry D. Kahn, Esquire;
and if sent to the Company or the Selling Stockholders shall be mailed,
delivered or telegraphed and confirmed to the Company at 1740 Walton Road, Blue
Bell, Pennsylvania 19422-0987, Attention: Mr. Michael J. Barrist with a copy to
Blank Rome Comisky & McCauley, 1200 Four Penn Center Plaza, Philadelphia,
Pennsylvania 19103, Attention: Francis E. Dehel, Esquire. The Company, the
Selling Stockholders or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 19. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
<PAGE>
SECTION 20. Partial Unenforceability. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholders pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action. Any action taken under this Agreement by any of the
Attorneys-in-fact will be binding on all the Selling Stockholders.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholders and
the several Underwriters including you, all in accordance with its terms.
Very truly yours,
NCO GROUP, INC.
By:
---------------------------------------
Michael J. Barrist, President
<PAGE>
SELLING STOCKHOLDERS
By:
---------------------------------
(Attorney-in-fact)
By:
---------------------------------
(Attorney-in-fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
JANNEY MONTGOMERY SCOTT INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By MONTGOMERY SECURITIES
By:
---------------------------------------
Partner
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
- --------------------- ------------------
Montgomery Securities ................
Janney Montgomery Scott Inc.......
---------
TOTAL ......................
=========
<PAGE>
[SCHEDULE B
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholders
- ---------------------------------- ------------------
---------
TOTAL ......................
=========]
<PAGE>
SCHEDULE C
__________, 19__
PRICE DETERMINATION AGREEMENT
Referring to Section 5 of the Underwriting Agreement dated
__________, 19__, among the Company, the Selling Stockholders and the
Underwriters as therein defined with respect to the purchase and sale of the
Common Shares, we hereby confirm our agreement that the initial public offering
price of the Common Shares shall be $_____ per share; that the underwriting
discount shall be $_____ per share; and that the purchase price to be paid by
the several Underwriters for the Common Shares to be purchased from the Company
and the Selling Stockholders shall be $_____ per share.
This Agreement may be executed in various counterparts which
together shall constitute one and the same Agreement.
MONTGOMERY SECURITIES
JANNEY MONTGOMERY SCOTT INC.
By Montgomery Securities
Acting on behalf of the several Underwriters named in Schedule
A to the Underwriting Agreement
By
---------------------------------------
Partner
NCO GROUP, INC.
By
---------------------------------------
Michael J. Barrist, President
SELLING STOCKHOLDERS
By
---------------------------------------
Acting on behalf of the
Selling Stockholders
<PAGE>
EXHIBIT 3.1
NCO GROUP, INC.
Amended and Restated
Articles of Incorporation
The Articles of Incorporation of NCO Group, Inc. are hereby
amended and restated in their entirety to read as follows:
Article 1. Name. The name of the corporation is NCO Group, Inc. (the
"Corporation").
Article 2. Registered Office. The location and address of the
registered office of the Corporation in this Commonwealth is:
1740 Walton Road
Blue Bell, PA 19422
Article 3. Purpose. The Corporation is incorporated under the
Pennsylvania Business Corporation Law of 1988, as it may be amended from time to
time, for the following purposes:
To have unlimited power to engage in or do any lawful act
concerning any or all lawful businesses for which corporations
may be incorporated under the Pennsylvania Business
Corporation Law of 1988, as amended from time to time,
including without limitation, to provide accounts receivable
management and related services.
Article 4. Term. The term for which the Corporation is to exist is
perpetual.
Article 5. Authorized Capital Stock. The Corporation shall have the
authority to issue an aggregate of 30,000,000 shares of capital stock which
shall be divided into 25,000,000 shares of Common Stock, no par value, as more
fully described in Section 5(a) below, and 5,000,000 shares of Preferred Stock,
no par value, as more fully described in Section 5(b) below.
(a) Common Stock. Each holder of record of Common Stock
shall have the right to one vote for each share of Common Stock
registered in their name on the books of the Corporation.
(b) Preferred Stock. The shares of Preferred Stock may be
divided and issued from time to time in one or more series as may be determined
by the Board of Directors of the Corporation, each such series to be distinctly
designated and to consist of the number of shares determined by the Board of
Directors. The Board of Directors of the Corporation is hereby expressly vested
with authority to adopt resolutions to issue the shares, to fix the number of
shares, to change the number of shares constituting any
<PAGE>
class or series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions, if any, of Preferred Stock, and
each class or series thereof, in each case without approval of the shareholders.
The authority of the Board of Directors with respect to each class or series of
Preferred Stock shall include, without limiting the generality of the foregoing,
the determination of the following:
(1) The number of shares constituting that class or
series and the distinctive designation of that class or series;
(2) The dividend rate on the shares of that class or
series, whether dividends shall be cumulative, and, if so, from which
date or dates;
(3) Whether that class or series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights;
(4) Whether that class or series shall have
conversion privileges (including rights to convert such class or series
into the capital stock of the Corporation or any other entity) and, if
so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(5) Whether or not shares of that class or series
shall be redeemable and whether or not the Corporation or the holder
(or both) may exercise the redemption right, including the terms of
redemption (including any sinking fund provisions), the date or dates
upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions;
(6) The rights of the shares of that class or series
in the event of voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; and
(7) Any other relative rights, preferences and
limitations of that class or series as may be permitted or required by
law.
The number of shares, voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions, if any, of any class or series of Preferred Stock which may be
designated by the Board
-2-
<PAGE>
of Directors may differ from those of any and all other class or
series at any time outstanding.
(c) Increase in Authorized Preferred Stock. Except as
otherwise provided by law or in a resolution or resolutions establishing any
particular series of Preferred Stock, the aggregate number of authorized shares
of Preferred Stock may be increased by an amendment to these Amended and
Restated Articles of Incorporation approved solely by the holders of Common
Stock and of any series of Preferred Stock which is entitled pursuant to its
voting rights designated by the Board of Directors to vote thereon, if at all,
voting together as a class.
Article 6. Cumulative Voting. The shareholders of the Corporation shall
not be entitled to cumulate their votes in the election of directors.
Article 7. Special Meetings of Shareholders. The shareholders of the
Corporation shall not be entitled to call a special meeting of the shareholders
of the Corporation.
Article 8. Actions By Consent of Shareholders. No action may be
authorized by the shareholders of the Corporation without a meeting by less than
unanimous written consent.
Article 9. Non-Applicability of Certain Provisions of the Pennsylvania
Business Corporation Law. The provisions contained in Subchapters E (Control
Transactions), G (Control- Share Acquisitions), H (Disgorgement by Certain
Controlling Shareholders Following Attempts to Acquire Control), I (Severance
Compensation for Employees Terminated Following Certain Control- Share
Acquisitions) and J (Business Combination Transactions - Labor Contracts) of
Chapter 25 of the Pennsylvania Business Corporation Law, as it may be amended,
shall not be applicable to the Corporation. The provisions of Section 2538 of
the Pennsylvania Business Corporation Law, as it may be amended, shall not be
applicable to the Corporation, unless at least a majority of the incumbent
directors (as defined herein) on the Board of Directors shall determine that
Section 2538, subject to such exceptions, limitations and modifications as such
incumbent directors may provide, shall be applicable. The term "incumbent
director", as used herein, shall mean any director of the Corporation on the
date hereof and any other director whose election or appointment by the Board of
Directors of the Corporation, or whose nomination for election by the
shareholders of the Corporation, was approved by a vote of at least a majority
of the directors then in office who either were directors on the date hereof or
whose election or appointment or nomination for election was previously so
approved.
-3-
<PAGE>
Article 10. Power of Board to Oppose Certain Transactions.
(a) The Board of Directors, if it deems it advisable, may
oppose a tender offer or other offer for the Corporation's securities, whether
the offer is in cash or in securities of a corporation or otherwise. In
considering whether to oppose an offer, the Board of Directors may, but it is
not legally obligated to, consider any pertinent issues. By way of illustration,
but not of limitation, the Board of Directors may, but shall not be legally
obligated to, consider any and all of the following:
(1) Whether the offer price is acceptable based on the
historical and present operating results or financial conditions of the
Corporation;
(2) Whether a more favorable price could be obtained for
the Corporation's securities in the future;
(3) The effects of any proposed transaction upon any or all
groups affected by such action, including among others, shareholders,
employees, suppliers, customers and creditors of the Corporation and
its subsidiaries and on the communities served by the Corporation and
its subsidiaries;
(4) The reputation and business practices of the offeror
and its management and affiliates as they would affect the employees,
suppliers and customers of the Corporation and its subsidiaries and the
future value of the Corporation's stock;
(5) The value of the securities, if any, which the offeror
is offering in exchange for the Corporation's securities, based on an
analysis of the worth of the Corporation as compared to the corporation
or other entity whose securities are being offered; and
(6) Any antitrust or other legal and regulatory issues that
are raised by the offer.
If the Board of Directors determines that an offer should be rejected, it may
take any lawful action to accomplish its purpose including, but not limited to,
any and all of the following: advising shareholders not to accept the offer;
commencing litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the Corporation's securities
and/or the offeror's securities; selling or acquiring any assets; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; selling or otherwise issuing any debt
securities
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(including debt securities convertible into equity securities) or options
therefor; acquiring a company to create an antitrust or other regulatory problem
for the offeror; and obtaining a more favorable offer from another individual or
entity.
(b) If the Board of Directors determines to sell the
Corporation or any subsidiary to a third party, or to merge or consolidate the
Corporation or any subsidiary with a third party, the Board of Directors shall
not be legally obligated to create an auction and may negotiate with only one
acquirer.
Article 11. Removal of Directors. The entire Board of Directors, or a
class of the Board, or any individual director may be removed from office only
for cause (as defined herein) and only by the affirmative vote of shareholders
entitled to cast at least sixty-five percent (65%) of the votes entitled to be
cast by all shareholders at any annual or regular election of directors or of
such class of directors. The foregoing shall not be deemed to limit the right of
the Board of Directors, without shareholder approval, to declare vacant the
office of any director for any proper cause. The term "cause," as used herein,
shall refer only to one of the following events: (1) conviction of the director
of a felony; (2) declaration by order of court that the director is of unsound
mind; or (3) gross abuse of trust which is proved by clear and convincing
evidence to have been committed in bad faith.
Article 12. Amendments to Articles of Incorporation. The shareholders
of the Corporation shall not be entitled to propose an amendment to the Articles
of Incorporation of the Corporation. Any amendment to, or repeal of, any
provision of the Articles of Incorporation of the Corporation which has not
previously received the approval of at least a majority of the incumbent
directors (as defined in Article 9) on the Board of Directors shall require for
adoption the affirmative vote of the shareholders entitled to cast at least
sixty-five percent (65%) of the votes entitled to be cast by all shareholders at
any duly convened annual or special meeting of the shareholders, in addition to
any other approval which is required by law, the Articles of Incorporation of
the Corporation, the Bylaws of the Corporation, or otherwise.
Article 13. Amendments to Bylaws. The Bylaws of the Corporation may be
amended or repealed without shareholder approval by a majority of the incumbent
directors (as defined in Article 9), subject to any other approval which is
required by law, the Articles of Incorporation, the Bylaws of the Corporation,
or otherwise. Any amendment to, or repeal of, any provision of the Bylaws of the
Corporation which has not previously received the approval of at least a
majority of the incumbent directors on the Board of Directors shall require for
adoption the affirmative vote of the shareholders entitled to cast at least
sixty-five percent
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(65%) of the votes entitled to be cast by all shareholders at any duly convened
annual or special meeting of the shareholders, in addition to any other approval
which is required by law, the Articles of Incorporation of the Corporation, the
Bylaws of the Corporation, or otherwise.
Article 14. Severability. In the event that all, some or any part of
any provision contained in these Amended and Restated Articles of Incorporation
shall be found by any court of competent jurisdiction to be illegal, invalid or
unenforceable (as against public policy or otherwise), such provision shall be
enforced to the fullest extent permitted by law and shall be construed as if it
had been narrowed only to the extent necessary so as not to be invalid, illegal
or unenforceable; the validity, legality and enforceability of the remaining
provisions of these Amended and Restated Articles of Incorporation shall
continue in full force and effect and shall not be affected or impaired by such
illegality, invalidity or unenforceability of any other provision (or any part
or parts thereof) of the Amended and Restated Articles of Incorporation.
Article 15. Headings. Article headings and the ordering of paragraphs
area for convenience of reference only and shall not be construed to alter,
amend or otherwise affect the meaning, intent or effect of the provisions of
these Amended and Restated Articles of Incorporation.
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EXHIBIT 3.2
NCO GROUP, INC.
Amended and Restated Bylaws
These Bylaws are supplemental to the Pennsylvania Business
Corporation Law as the same shall from time to time be in
effect.
ARTICLE I. SHAREHOLDERS.
Section 101. Place of Shareholders' Meetings. All meetings of the
shareholders shall be held at such place or places, inside or outside the
Commonwealth of Pennsylvania, as determined by the Board of Directors from time
to time.
Section 102. Annual Shareholders' Meeting. The annual meeting of the
shareholders for the election of directors and the transaction of such other
business as may properly come before such meeting shall be held at such time and
place as determined by the Board of Directors. Any business which is a proper
subject for shareholder action may be transacted at the annual meeting,
irrespective of whether the notice of said meeting contains any reference
thereto, except as otherwise provided by applicable law.
Section 103. Special Meetings of Shareholders. Special
meetings of the shareholders may be called at any time by the Board
of Directors or the Chairman of the Board or the Chief Executive
Officer.
Section 104. Conduct of Shareholders' Meetings. The Chairman of the
Board shall preside at all shareholders' meetings. In the absence of the
Chairman of the Board, the Chief Executive Officer shall preside or, in his or
her absence, any officer designated by the Board of Directors shall preside. The
officer presiding over the shareholders' meeting may establish such rules and
regulations for the conduct of the meeting as he or she may deem to be
reasonably necessary or desirable for the orderly and expeditious conduct of the
meeting. Unless the officer presiding over the shareholders' meeting otherwise
requires, shareholders need not vote by ballot on any questions.
ARTICLE II. DIRECTORS.
Section 201. Management by Board of Directors. The business
and affairs of the Corporation shall be managed by its Board of
Directors. The Board of Directors may exercise all such powers of
the Corporation and do all such lawful acts and things as are not
by statute, regulation, the Amended and Restated Articles of
<PAGE>
Incorporation or these Amended and Restated Bylaws directed or required to be
exercised or done by the shareholders.
Section 202. Nomination for Directors and Submission of
Proposals.
(a) Nominations for directors to be elected may be made at a
meeting of shareholders only by (i) the Board of Directors (or any committee
thereof), or (ii) a shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the procedure set forth
in Section 202(b) of these Bylaws. Business may be conducted at a meeting of the
shareholders of the Corporation only if such business (i) was specified in the
notice of meeting (or any supplement thereto) given by the Board of Directors,
(ii) is otherwise properly brought before the meeting by the Board of Directors,
or (iii) is otherwise properly brought before the meeting by a shareholder of
the Corporation in accordance with the procedure set forth in Section 202(b) of
these Bylaws. Notwithstanding the foregoing, at any time prior to the election
of directors at a meeting of shareholders, the Board of Directors may designate
a substitute nominee to replace any bona fide nominee who was nominated as set
forth above and who, for any reason, becomes unavailable for election as a
director.
(b) Beginning with the annual meeting of the shareholders to
be held in 1997, nominations by shareholders for directors to be elected, or
proposals by shareholders to be considered, at a meeting of shareholders and
which have not been previously approved by the Board of Directors must be
submitted to the Secretary of the Corporation in writing, either by personal
delivery, nationally-recognized express mail or United States mail, postage
prepaid, not later than (i) with respect to an election to be held, or a
proposal to be considered, at an annual meeting of shareholders, the latest date
upon which shareholder proposals must be submitted to the Corporation for
inclusion in the Corporation's proxy statement relating to such meeting pursuant
to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or other
applicable rules or regulations under the federal securities laws or, if no such
rules apply, at least ninety (90) days prior to the date one year from the date
of the immediately preceding annual meeting of shareholders, and (ii) with
respect to an election to be held, or a proposal to be considered, at a special
meeting of shareholders, the close of business on the tenth day following the
date on which notice of such meeting is first given to shareholders. Each such
nomination or proposal shall set forth: (i) the name and address of the
shareholder making the nomination or proposal and the person or persons
nominated, or the subject matter of the proposal submitted; (ii) a
representation that the shareholder is a holder of record of capital stock of
the Corporation
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entitled to vote at such meeting and intends to appear in person or by proxy at
the meeting to vote for the person or persons nominated, or the proposal
submitted; (iii) a description of all arrangements and understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination was made, or the proposal
was submitted, by the shareholder; (iv) such other information regarding each
nominee proposed by such shareholder as would be required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had the nominee been nominated by the Board of Directors; and (v) the
consent of each nominee to serve as a director of the Corporation if so elected.
All late nominations and proposals shall be rejected.
Section 203. Number and Classification of Directors. The Board of
Directors shall consist of not less than three (3) and not more than seven (7)
directors. Effective upon completion of the Corporation's initial public
offering of securities under the federal Securities Act of 1933, as amended, the
directors shall be divided into three (3) classes, as nearly equal in number as
possible, known as Class I, consisting of not more than two (2) directors; Class
II, consisting of not more than two (2) directors; and Class III, consisting of
not more than three (3) directors. The initial directors of Class I shall serve
until the annual meeting of shareholders to be held in 1997. At the 1997 annual
meeting of the shareholders, the directors of Class I shall be elected for a
term of three (3) years and, after expiration of such term, shall thereafter be
elected every three (3) years for three (3) year terms. The initial directors of
Class II shall serve until the annual meeting of the shareholders to be held in
1998. At the 1998 annual meeting of the shareholders, the directors of Class II
shall be elected for a term of three (3) years and, after the expiration of such
term, shall thereafter be elected every three (3) years for three (3) year
terms. The initial directors of Class III shall serve until the annual meeting
of shareholders to be held in 1999. At the 1999 annual meeting of the
shareholders, the directors of Class III shall be elected for a term of three
(3) years and, after the expiration of such term, shall thereafter be elected
every three (3) years for three (3) year terms. The number of directors to be
elected, subject to the foregoing limits, shall be determined from time to time
by the Board of Directors. Each director shall serve until his or her successor
shall have been elected and shall qualify, even though his or her term of office
as herein provided has otherwise expired, except in the event of his or her
earlier resignation, removal or disqualification.
Section 204. Vacancies in the Board of Directors. Subject to
the rights of the holders of any series of the Corporation's
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Preferred Stock then outstanding, vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of directors, shall be filled
by the affirmative vote of at least a majority of the remaining members of the
Board, even though less than a quorum, and each person so elected shall be a
director until his successor is elected by the shareholders. Any director
elected to fill a vacancy in the Board of Directors shall become a member of the
same class of directors in which the vacancy existed; but if the vacancy is due
to an increase in the number of directors, a majority of the members of the
Board of Directors shall designate such directorship as belonging to Class I,
Class II or Class III so as to maintain the three (3) classes of directors as
nearly equal in number as possible. Each director so elected shall hold office
for the unexpired term of the class to which he has been elected, and thereafter
until his or her successor shall have been duly elected and qualified, except in
the event of his or her earlier resignation, removal or disqualification.
Section 205. Resignations of Directors. Any director may
resign at any time. Such resignation shall be in writing, but the
acceptance thereof shall not be necessary to make it effective.
Section 206. Compensation of Directors. No director shall be entitled
to any salary as such, but the Board of Directors may fix, from time to time, a
reasonable annual fee for acting as a director and a reasonable fee to be paid
each director for his or her services in attending meetings of the Board or
committees thereof.
Section 207. Regular Meetings. Regular meetings of the Board of
Directors shall be held on such day, at such hour, and at such place, consistent
with applicable law, as the Board shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting. The Board of
Directors shall meet for reorganization at the first regular meeting following
the annual meeting of shareholders at which the directors are elected. Notice
need not be given of regular meetings of the Board of Directors which are held
at the time and place designated by the Board of Directors. If a regular meeting
is not to be held at the time and place designated by the Board of Directors,
notice of such meeting, which need not specify the business to be transacted
thereat and which may be either oral or written, shall be given by the Secretary
to each member of the Board at least twenty-four hours before the time of the
meeting.
Section 208. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the Chief Executive
Officer and shall be called whenever a majority of the members of the Board so
request in writing. A special meeting of the Board of Directors shall be deemed
to be any meeting other
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than the regular meeting of the Board of Directors. Notice of the time and place
of every special meeting, which need not specify the business to be transacted
thereat and which may be either oral or written, shall be given by the Secretary
to each member of the Board at least twenty-four hours before the time of such
meeting.
Section 209. Reports and Records. The reports of officers and
committees and the records of the proceedings of all committees shall be filed
with the Secretary of the Corporation and presented to the Board of Directors,
if practicable, at its next regular meeting. The Board of Directors shall keep
complete records of its proceedings in a minute book kept for that purpose. When
a director shall request it, the vote of each director upon a particular
question shall be recorded in the minutes.
Section 210. Committees. The following committees of the Board of
Directors may be established by the Board of Directors in addition to any other
committee the Board of Directors may in its discretion establish: (a) Executive
Committee; (b) Audit Committee; and (c) Compensation Committee.
Section 211. Executive Committee. The Executive Committee shall consist
of at least two (2) directors. Meetings of the Committee may be called at any
time by the Chairman of the Executive Committee and shall be called whenever two
or more members of the Committee so request in writing. The Executive Committee
shall have and exercise the authority of the Board of Directors in the
management of the business of the Corporation between the dates of regular
meetings of the Board.
Section 212. Audit Committee. The Audit Committee shall consist of at
least two (2) directors, a majority of which shall be independent. Meetings of
the Audit Committee may be called at any time by the Chairman of the Audit
Committee and shall be called whenever two or more members of the Committee so
request in writing. The Audit Committee shall have the following authority,
powers and responsibilities:
(a) To recommend each year to the Board the independent
accountants to audit the annual financial statements of the Corporation and its
consolidated subsidiaries and to review the fees charged for such audits or for
special engagements given to such accountants;
(b) To meet with the independent accountants, Chief Executive
Officer, Chief Financial Officer and any other Corporation executives as the
Audit Committee deems appropriate at such times as the Audit Committee shall
determine to review: (i) the scope of the audit plan; (ii) the Corporation's
financial state-
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ments; (iii) the results of external and internal audits; (iv) the effectiveness
of the Corporation's system of internal controls; (v) any limitations imposed by
Corporation personnel on the independent public accountants; and (vi) such other
matters as the Audit Committee shall deem appropriate;
(c) To report to the entire Board at such time as the Audit
Committee shall determine; and
(d) To take such other action as the Audit Committee shall
deem necessary or appropriate to assure that the interests of the Company are
adequately protected.
Section 213. Compensation Committee. The Compensation Committee shall
consist of at least two (2) directors. Meetings of the Committee may be called
at any time by the Chairman of the Committee and shall be called whenever two or
more members of the Committee so request in writing. The Committee shall review
compensation of executive officers and make recommendations to the Board of
Directors regarding executive compensation and shall have such other duties as
the Board of Directors prescribes.
Section 214. Appointment of Committee Members. The Board of Directors
shall appoint or shall establish a method of appointing the members of the
Executive, Audit and Compensation Committees and of any other committee
established by the Board of Directors, and the Chairman of each such committee,
to serve until the next annual meeting of shareholders.
Section 215. Organization and Proceedings. Each committee of the Board
of Directors shall effect its own organization by the appointment of a Secretary
and such other officers, except the Chairman, as it may deem necessary. The
Secretary of the Executive Committee shall be the Secretary of the Corporation,
but the Secretary of the Audit and Compensation Committees and of any other
committee need not be the Secretary of the Corporation. A record of the
proceedings of all committees shall be kept by the Secretary of such committee
and filed and presented as provided in Section 209 of these Bylaws.
Section 216. Committees. In the absence or disqualification of any
member of any committee established by the Board of Directors, the members
thereof who are present at any meeting of such committee and are not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another director to act at such meeting in the place of such
absent or disqualified member.
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Section 217. Absentee Participation in Meetings. A director may
participate in a meeting of the Board of Directors or a meeting of a committee
established by the Board of Directors by use of a conference telephone or
similar communications equipment, by means of which all persons participating in
the meeting can hear each other.
ARTICLE III. OFFICERS.
Section 301. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary, a Treasurer, and such other officers and assistant
officers as the Board of Directors may from time to time deem advisable. Except
for the Chairman of the Board, Chief Executive Officer, President, Secretary and
Treasurer, the Board may refrain from filling any of the said offices at any
time and from time to time. The same individual may hold any two or more
offices. The following officers shall be elected by the Board of Directors at
the time, in the manner and for such terms as the Board of Directors from time
to time shall determine: Chairman of the Board, Chief Executive Officer,
President, Secretary, and Treasurer. The Chairman of the Board may appoint such
other officers and assistant officers as he may deem advisable provided such
officers or assistant officers have a title no higher than Vice President, who
shall hold office for such periods as the Chairman of the Board shall determine.
Any officer may be removed at any time, with or without cause, and regardless of
the term for which such officer was elected.
Section 302. Chairman of the Board. The Chairman of the Board shall be
a member of the Board of Directors and shall preside at the meetings of the
Board and perform such other duties as may be prescribed by the Board of
Directors.
Section 303. Chief Executive Officer. The Chief Executive Officer shall
have general supervision of all of the departments and business of the
Corporation; he or she shall prescribe the duties of the other officers and
employees and see to the proper performance thereof. The Chief Executive Officer
shall be responsible for having all orders and resolutions of the Board of
Directors carried into effect. The Chief Executive Officer shall execute on
behalf of the Corporation and may affix or cause to be affixed a seal to all
authorized documents and instruments requiring such execution, except to the
extent that signing and execution thereof shall have been delegated to some
other officer or agent of the Corporation by the Board of Directors or by the
Chief Executive Officer. The Chief Executive Officer shall be a member of the
Board of Directors. In the absence or disability of the Chairman of the Board or
his or her refusal to act, the Chief
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Executive Officer shall preside at meetings of the Board. In general, the Chief
Executive Officer shall perform all the duties and exercise all the powers and
authorities incident to his or her office or as prescribed by the Board of
Directors.
Section 304. President. The President shall perform such duties as are
incident to his or her office or prescribed by the Board of Directors or the
Chief Executive Officer. In the event of the absence or disability of the Chief
Executive Officer or his or her refusal to act, the President shall perform the
duties and have the powers and authorities of the Chief Executive Officer. The
President shall execute on behalf of the Corporation and may affix or cause to
be affixed a seal to all authorized documents and instruments requiring such
execution, except to the extent that signing and execution thereof shall have
been delegated to some other officer or agent of the Corporation by the Board of
Directors or the President.
Section 305. Vice Presidents. The Vice Presidents shall perform such
duties, do such acts and be subject to such supervision as may be prescribed by
the Board of Directors, the Chief Executive Officer or the President. In the
event of the absence or disability of the Chief Executive Officer and the
President or their refusal to act, the Vice Presidents, in the order of their
rank, and within the same rank in the order of their seniority, shall perform
the duties and have the powers and authorities of the Chief Executive Officer
and President, except to the extent inconsistent with applicable law.
Section 306. Secretary. The Secretary shall act under the supervision
of the Chief Executive Officer and President or such other officer as the Chief
Executive Officer or President may designate. Unless a designation to the
contrary is made at a meeting, the Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all of the
proceedings of such meetings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required by these Bylaws or
otherwise. The Secretary shall keep a seal of the Corporation, and, when
authorized by the Board of Directors, Chief Executive Officer or the President,
cause the seal to be affixed to any documents and instruments requiring it. The
Secretary shall perform such other duties as may be prescribed by the Board of
Directors, Chief Executive Officer, President or such other supervising officer
as the Chief Executive Officer or President may designate.
Section 307. Treasurer. The Treasurer shall act under the
supervision of the Chief Executive Officer and President or such
other officer as the Chief Executive Officer or President may
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designate. The Treasurer shall have custody of the Corporation's funds and such
other duties as may be prescribed by the Board of Directors, Chief Executive
Officer, President or such other supervising officer as the Chief Executive
Officer or President may
designate.
Section 308. Assistant Officers. Unless otherwise provided by the Board
of Directors, each assistant officer shall perform such duties as shall be
prescribed by the Board of Directors, Chief Executive Officer, President or the
officer to whom he or she is an assistant. In the event of the absence or
disability of an officer or his or her refusal to act, his or her assistant
officers shall, in the order of their rank, and within the same rank in the
order of their seniority, have the powers and authorities of such officer.
Section 309. Compensation. Unless otherwise provided by the Board of
Directors or the Compensation Committee, the salaries and compensation of all
officers and assistant officers, except the Chairman of the Board, Chief
Executive Officer and President, shall be fixed by or in the manner designated
by the Chief Executive Officer.
Section 310. General Powers. The officers are authorized to do and
perform such corporate acts as are necessary in the carrying on of the business
of the Corporation, subject always to the directions of the Board of Directors.
ARTICLE IV. PERSONAL LIABILITY AND INDEMNIFICATION.
Section 401. Personal Liability of Directors.
(a) A director of this Corporation shall not be personally
liable, as such, for monetary damages for any action taken, or any failure to
take any action, unless:
(i) the director has breached or failed to perform
the duties of his office under Chapter 17, Subchapter B of the Pennsylvania
Business Corporation Law of 1988 (which, as amended from time to time, is
hereafter called the Business Corporation Law); and
(ii) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
(b) This Section 401 shall not apply to a director's liability
for monetary damages to the extent prohibited by Section 1713(b) of the Business
Corporation Law.
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Section 402. Mandatory Indemnification. The Corporation shall, to the
fullest extent permitted by applicable law, indemnify its directors and officers
who were or are a party or are threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether or not such action, suit or proceeding
arises or arose by or in the right of the Corporation or other entity) by reason
of the fact that such director or officer is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, general partner, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise (including
service with respect to employee benefit plans), against expenses (including,
but not limited to, reasonable attorneys' and investigation fees and costs),
judgments, fines (including excise taxes assessed on a person with respect to
any employee benefit plan) and amounts paid in settlement actually and
reasonably incurred by such director or officer in connection with such action,
suit or proceeding, except as otherwise provided in Section 404 hereof. Persons
who were directors or officers of the Corporation prior to the date this Section
is approved by members of the Corporation, but who do not hold such office on or
after such date, shall not be covered by this Section 402. A director or officer
of the Corporation entitled to indemnification under this Section 402 is
hereafter called a "person covered by Section 402 hereof".
Section 403. Expenses. Expenses incurred by a person covered by Section
402 hereof in defending a threatened, pending or completed civil or criminal
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation, except as otherwise provided in Section 404.
Section 404. Exceptions. No indemnification under Section 402 or
advancement or reimbursement of expenses under Section 403 shall be provided to
a person covered by Section 402 hereof: (a) with respect to expenses or the
payment of profits arising from the purchase or sale of securities of the
Corporation in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended; (b) if a final unappealable judgment or award establishes that
such director or officer engaged in intentional misconduct or a transaction from
which the director or officer derived an improper personal benefit; (c) for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, and amounts paid in settlement) which have been paid directly
to, or for the benefit of, such person by an
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insurance carrier under a policy of officers' and directors' liability insurance
whose premiums are paid for by the Corporation or by an individual or entity
other than such director or officer; and (d) for amounts paid in settlement of
any threatened, pending or completed action, suit or proceeding without the
written consent of the Corporation, which written consent shall not be
unreasonably withheld. The Board of Directors of the Corporation is hereby
authorized, at any time by resolution, to add to the above list of exceptions
from the right of indemnification under Section 402 or advancement or
reimbursement of expenses under Section 403, but any such additional exception
shall not apply with respect to any event, act or omission which occurred prior
to the date that the Board of Directors in fact adopts such resolution. Any such
additional exception may, at any time after its adoption, be amended,
supplemented, waived or terminated by further resolution of the Board of
Directors of the Corporation.
Section 405. Continuation of Rights. The indemnification and
advancement or reimbursement of expenses provided by, or granted pursuant to,
this Article IV shall continue as to a person who has ceased to be a member,
director or officer of the Corporation, and shall inure to the benefit of the
heirs, executors and administrators of such person.
Section 406. General Provisions.
(a) The term "to the fullest extent permitted by applicable
law", as used in this Article IV shall mean the maximum extent permitted by
public policy, common law or statute. Any person covered by Section 402 hereof
may, to the fullest extent permitted by applicable law, elect to have the right
to indemnification or to advancement or reimbursement of expenses, interpreted,
at such person's option; (i) on the basis of the applicable law on the date this
Section was approved by the shareholders; or (ii) on the basis of the applicable
law in effect at the time of the occurrence of the event, act or omission giving
rise to the action, suit or proceeding, or (iii) on the basis of the applicable
law in effect at the time indemnification is sought.
(b) The right of a person covered by Section 402 hereof to be
indemnified or to receive an advancement or reimbursement of expenses pursuant
to Section 403 (i) may be enforced as a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Corporation and such person;
(ii) to the fullest extent permitted by applicable law, is intended to be
retroactive and shall be available with respect to events, acts or omissions
occurring prior to the adoption hereof; and (iii) shall
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continue to exist after the rescission or restrictive modification (as
determined by such person) of any provision of this Article IV with respect to
events, acts and omissions occurring before such rescission or restrictive
modification is adopted.
(c) If a request for indemnification or for the advancement or
reimbursement of expenses pursuant hereto is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation together with all supporting information reasonably requested by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim (plus interest at the
prime rate announced from time to time by the Corporation's primary lending
bank) and, if successful in whole or in part, the claimant shall be entitled
also to be paid the expenses (including, but not limited to, attorneys' and
investigation fees and costs) of prosecuting such claim. Neither the failure of
the Corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action that
indemnification of or the advancement or reimbursement of expenses to the
claimant is proper in the circumstances, nor an actual determination by the
Corporation (including its Board of Directors or independent legal counsel) that
the claimant is not entitled to indemnification or to the reimbursement or
advancement of expenses, shall be a defense to the action or create a
presumption that the claimant is not so entitled.
(d) The indemnification and advancement or reimbursement of
expenses provided by, or granted pursuant to, this Article IV shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement or reimbursement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
(e) Nothing contained in this Article IV shall be construed to
limit the rights and powers the Corporation possesses under Chapter 17,
Subchapter D of the Business Corporation Law, or otherwise, including, but not
limited to, the powers to purchase and maintain insurance, create funds to
secure or insure its indemnification obligations, and any other rights or powers
the Corporation may otherwise have under applicable law.
(f) The provisions of this Article IV may, at any time (and
whether before or after there is any basis for a claim for indemnification or
for the advancement or reimbursement of expenses pursuant hereto), be amended,
supplemented, waived, or
-12-
<PAGE>
terminated, in whole or in part, with respect to any person covered by Section
402 hereof by a written agreement signed by the Corporation and such person.
(g) The Corporation shall have the right to appoint the
attorney for a person covered by Section 402 hereof, provided such appointment
is not unreasonable under the circumstances.
Section 407. Optional Indemnification. The Corporation may, to the
fullest extent permitted by applicable law, indemnify, and advance or reimburse
expenses for, persons in all situations other than that covered by Section 402.
ARTICLE V. SHARES OF CAPITAL STOCK.
Section 501. Authority to Sign Share Certificate. Every share
certificate of the Corporation shall be signed by the Chairman, Chief Executive
Officer or the President and by the Secretary or one of the Assistant
Secretaries. If the certificate is signed by a transfer agent or registrar, the
signature of any officer of the Corporation on the certificate may be facsimile,
engraved or printed.
Section 502. Lost or Destroyed Certificates. Any person claiming a
share certificate to be lost, destroyed or wrongfully taken shall receive a
replacement certificate if such shareholder: (a) requests such replacement
certificate before the Corporation has notice that the shares have been acquired
by a bona fide purchaser; (b) files with the Corporation an indemnity bond
deemed sufficient by the Board of Directors; and (c) satisfies any other
reasonable requirements fixed by the Board of Directors.
ARTICLE VI. GENERAL.
Section 601. Fiscal Year. The fiscal year of the Corporation
shall be determined by the Board of Directors.
Section 602. Record Date. The Board of Directors may fix any time prior
to the date of any meeting of shareholders as a record date for the
determination of shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be not more than
ninety (90) days prior to the date of the meeting of shareholders. The Board of
Directors may fix any time whatsoever (whether or not the same is more than
ninety (90) days) prior to the date for the payment of any dividend or
distribution, or the date for the allotment of rights, or the date when any
change or conversion or exchange of shares will be made or will go into effect,
as a record date for the determination
-13-
<PAGE>
of the shareholders entitled to receive payment of any such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect to any such change, conversion or exchange of shares.
Section 603. Emergency Bylaws. In the event of any emergency resulting
from an attack on the United States, a nuclear disaster or another catastrophe
as a result of which a quorum cannot be readily assembled and during the
continuance of such emergency, the following Bylaw provisions shall be in
effect, notwithstanding any other provisions of these Bylaws.
(a) A meeting of the Board of Directors or of any committee
thereof may be called by any officer or director upon one hour's notice to all
persons entitled to notice whom, in the sole judgment of the notifier, it is
feasible to notify;
(b) The director or directors in attendance at the meeting of
the Board of Directors or of any committee thereof shall constitute a quorum;
and
(c) These Bylaws may be amended or repealed, in whole or in
part, by a majority vote of the directors attending any meeting of the Board of
Directors, provided such amendment or repeal shall only be effective for the
duration of such emergency.
Section 604. Severability. If any provision of these Bylaws is illegal
or unenforceable as such, such illegality or unenforceability shall not affect
any other provision of these Bylaws and such other provisions shall continue in
full force and effect.
ARTICLE VII. AMENDMENTS.
Section 701. Amendment or Repeal by the Board of Directors. Except as
provided by applicable law, these Bylaws may be amended or repealed, in whole or
in part, by a majority vote of the incumbent directors (as defined herein) on
the Board of Directors. The term "incumbent director", as used herein, shall
mean any director of the Corporation on the date hereof and any other director
whose election or appointment by the Board of Directors of the Corporation, or
whose nomination for election by the shareholders of the Corporation, was
approved by a vote of at least a majority of the directors then in office who
either were directors on the date hereof or whose election or appointment or
nomination for election was previously so approved.
Section 702. Amendment or Repeal by Shareholders. These Bylaws may be
amended or repealed, in whole or in part, by
-14-
<PAGE>
shareholders as follows: (i) in the case of an amendment or repeal which has
previously received the approval of at least a majority of the incumbent
directors (as defined herein) on the Board of Directors, by a majority of the
votes cast by shareholders at any duly convened annual or special meeting of the
shareholders; and (ii) in the case of an amendment or repeal which has not
previously received the approval of at least a majority of the incumbent
directors of the Board of Directors, by the affirmative vote of the shareholders
entitled to cast at least sixty-five percent (65%) of the votes entitled to be
cast by all shareholders at any duly convened annual or special meeting of the
shareholders. This Section 702 may be amended or repealed, in whole or in part,
only by the affirmative vote of the shareholders entitled to cast at least
sixty-five percent (65%) of the votes entitled to be cast by all shareholders at
any duly convened annual or special meeting of the shareholders. The term
"incumbent director", as used herein, shall mean any director of the Corporation
on the date hereof and any other director whose election or appointment by the
Board of Directors of the Corporation, or whose nomination for election by the
shareholders of the Corporation, was approved by a vote of at least a majority
of the directors then in office who either were directors on the date hereof or
whose election or appointment or nomination for election was previously so
approved.
Section 703. Recording Amendments. The text of all amendments to these
Bylaws shall be attached hereto, and a notation of the date of its adoption and
a notation of whether it was adopted by the directors or the shareholders shall
be made in Section 802 hereof.
ARTICLE VIII. ADOPTION OF BYLAWS AND RECORD OF AMENDMENTS THERETO.
Section 801. Adoption and Effective Date. These Bylaws have been
adopted and approved by the Board of Directors of the Corporation on September
27, 1996 and by the shareholders of the Corporation on September 27, 1996. These
Bylaws shall be effective as of September 27, 1996.
Section 802. Amendments to Bylaws.
Section Amended Date Amended Adopted By
- --------------- ------------ ----------
-15-
<PAGE>
NCO GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
NUMBER SHARES
--------------- ---------------
| | | |
| | | |
| | | |
--------------- ---------------
COMMON STOCK SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 628858102
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
======================== NCO GROUP, INC. ========================
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.
The shares represented by this certificate are issued and held subject to all of
the restrictions, conditions and provisions set forth in the Articles of
Incorporation of the Corporation, to all of which the holder hereof agrees by
the acceptence of this certificate.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and facsimile signatures of its
duly authorized officers.
Dated:
NCO GROUP, INC.
CORPORATE
SEAL
1996
PENNSYLVANIA
/s/ /s/
- --------------------------- ------------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder TRANSFER AGENT &
Services, L.L.C. REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
NCO GROUP, INC.
The Corporation will furnish to any shareholder upon request and
without charge, a full or summary statement of the designations, voting rights,
preferences, limitations and special rights of the shares of each
class or series capital stock authorized to be issued so far as they have been
fixed and determined and the authority of the board of directors to fix and
determine the designations, voting rights, preferences, limitations and special
rights of the classes and series of shares of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________Custodian________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ________________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _______________________________________ hereby
sell, assign and transfer
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
| |
| |
| |
--------------------------------------
unto
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
-------------------------------------------
Attorney
- ----------------------------------------------------------------------
to transfer the said shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated,
-----------------------
-----------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 5.1
(215) 569-5500
October 16, 1996
NCO Group, Inc.
1740 Walton Road
Blue Bell, PA 19422-0987
Re: NCO Group, Inc.. Registration Statement
on Form S-1 (File No. 333-11745 )
-----------------------------------------
Gentlemen:
We have acted as counsel to NCO Group, Inc. (the "Company") in
connection with the Registration Statement on Form S-1 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, relating to (i) the offer
and sale by the Company of 2,500,000 shares of Common Stock, no par value (the
"Common Stock") and (ii) the offer and sale by the Selling Shareholders named in
the Registration Statement ("Selling Shareholders") of up to 375,000 shares of
Common Stock to be purchased at the option of the Underwriters to cover
over-allotments, if any. This opinion is furnished pursuant to the requirements
of Item 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the following
documents: (i) the Company's Amended and Restated Articles of Incorporation and
Bylaws, (ii) resolutions adopted by the Board of Directors relating to the
Offering, (iii) the Company's minute book and stock records books since the date
of incorporation of NCO Group, Inc. and (iv) the Registration Statement, as
amended. We have not performed any independent investigation other than the
document examination described. We have assumed and relied, as to questions of
fact and mixed questions of law and fact, on the truth, completeness,
authenticity and due authorization of all certificates, documents and records
examined and the genuineness of all signatures. This
<PAGE>
NCO Group, Inc.
October 16, 1996
Page 2
opinion is limited to the laws of the Commonwealth of Pennsylvania.
Based upon and subject to the foregoing, we are of the opinion that (i)
the shares of Common Stock of the Company which are being offered and sold by
the Company pursuant to the Registration Statement, when sold in the manner and
for the consideration contemplated by the Registration Statement, will be
legally issued, fully paid and non-assessable, and (ii) the shares of Common
Stock of the Company which are being offered and sold by the Selling
Shareholders pursuant to the Registration Statement are legally issued, fully
paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus, which is part of the Registration Statement.
Sincerely,
/s/ Blank Rome Comisky & McCauley
---------------------------------
BLANK ROME COMISKY & McCAULEY
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the _____ day of _____________ 1996,
between NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation with its
principal offices at 1740 Walton Road, Blue Bell, PA 19422 (the "Company") and
BERNARD R. MILLER, an individual residing at 1723 Country Club Drive, Cherry
Hill, N.J., (the "Employee").
In consideration of their mutual promises and covenants set forth
herein, and intending to be legally bound hereby, the Company and the Employee
agree as follows:
1. Employment. The Company hereby employs the Employee and
the Employee accepts such employment on the terms and conditions
hereinafter set forth.
2. Term. The term of this Agreement shall be for a period
of five (5) years commencing on the date hereof (the "Term").
3. Duties. The Employee is engaged hereunder as the Company's Senior
Vice President with his duties including, but not being limited to, heading and
advising on general planning and development strategies for the Company, and
such other or further duties and services of a similar nature as may be
reasonably required of him or assigned to him by the Company's Chief Executive
Officer or Board of Directors. Employee shall at all times be subject to the
supervision of the President and Board of Directors of the Company.
The Employee shall devote his full business time, attention, energies
and best efforts to the performance of his duties hereunder and to the promotion
of the business and interests of the Company and of any corporate subsidiaries
or affiliated companies.
4. Compensation; Benefits; and Expenses.
(a) Compensation. In addition to the items set forth below,
the Employee's compensation for the services to be provided by him pursuant to
this Agreement is set forth on the attached Exhibit "A".
(b) Benefits. The Employee shall be entitled to
participate in all insurance, vacation and other fringe benefit
1
<PAGE>
programs of the Company to the extent and on the same terms and conditions as
are accorded to other executive employees of the Company. As part of the above,
the Employee's benefits shall include disability insurance (75% of the Base
Salary)commencing as of June 1, 1994, with respect to life insurance, in
addition to the Company's rights as set forth at paragraph 5 below, the Company
agrees to pay up to $1,500 per quarter (three (3) month period) toward any
additional life insurance owned or beneficially owned by the Employee upon
presentation by the Employee of premium invoices to the Company and the company
shall receive the right to the equity held in such policy, with the death
benefit payable to the Employee or the Employee's designated beneficiaries net
of such equity in the policy. The Employee and the Company agree that the sole
tax implication of this Agreement is that the Company shall include the
"economic benefit" of such policy annually in the Employee's compensation.
Furthermore, the Employee shall receive a car leased by the Company, to the
Employee's reasonable satisfaction.
(c) Business Expenses. The Company will pay, or reimburse the
Employee for, all ordinary and reasonable out-of-pocket business expenses
incurred by the Employee in connection with his performance of services
hereunder during the employment term in accordance with the Company's expense
authorization and approval procedures then in effect upon presentation to the
Company of an itemized account and written proof of such expenses. All expenses
related to the operation of the Employee's car shall be covered by the Company.
(d) Entire Compensation. The compensation provided for
in this Agreement is in full payment of the services to be rendered
by the Employee to the Company hereunder.
5. Insurance. The Company, in its sole discretion and at its own
expense, may apply for and procure in its own name and for its own benefit or
the benefit of the Employee key man or buy-sell life insurance on the life of
the Employee in any amount or amounts considered advisable by the Company, and
the Employee shall submit to any medical or other examination and execute and
deliver such application or other instrument as may be reasonably necessary to
effectuate such insurance. The Company shall also have the right to assume any
insurance policies of the Employee in existence at the time employment hereunder
commences. At such time as the
2
<PAGE>
Employee's employment is terminated or if the Employee ceases to be a
shareholder in the Company, the Employee shall have the right to purchase from
the Company any insurance policies at such policy's cash surrender value, owned
in whole or in part by the Company on the life or health of the Employee.
6. Death or Total Disability of the Employee.
(a) Death. In the event of the death of the Employee during
the Term of this Agreement or any extension thereof, compensation payments shall
continue in accordance with the provisions of paragraph 8 of this Agreement.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Employee, the Company shall have the
right to terminate the Employee's employment hereunder by giving the Employee
thirty (30) days' written notice thereof. The foregoing notwithstanding,
compensation payments shall continue in accordance with the provisions of
paragraph 8 of this Agreement, provided that if the Employee, during any period
of disability, including after termination of this Agreement, receives any
periodic payments representing lost compensation under any health and accident
policy or under any salary continuation insurance policy, the premiums for which
have been paid by the Company, the amount of the Base Salary that the Employee
would be entitled to receive from the Company shall be decreased by the amounts
of such payments.
The term "Total Disability," when used herein, shall mean a
mental, emotional or physical condition which rendered the Employee for a period
of six (6) consecutive months, during the Term of this Agreement, unable or
incompetent to carry out, on a substantially full-time basis, the job
responsibilities he held or tasks that he was assigned at the time the
disability was incurred. The Employee agrees, in the event of any dispute as to
the determination made pursuant to this paragraph, to submit to a physical or
other examination by a licensed physician selected by the Company, the cost of
which examination shall be paid by the Company.
7. Termination of Employment. In addition to termination pursuant to
paragraph 6 above, the Company, following prior written notice to the Employee,
may discharge the Employee and thereby terminate his employment hereunder for
the following reasons: (a) ("for cause") (i) habitual intoxication; (ii) refusal
to submit to treatment of an existing drug addiction; (iii) conviction of a
felony; (iv) willful misconduct by the Employee in connection with the
performance of his duties; (v) dishonesty, fraud or misappropriation of funds
of the Company; (vi) insubordination or refusal to comply with a lawful
directive of the Chief Executive Officer of the Company or his designee; or
(vii) the Employee's breach of this Agreement in any manner or respect which is
committed in bad faith and without reasonable belief that such action is in the
best interest of the Company.
3
<PAGE>
8. Payment Upon Termination. If the Employee dies during the Term, or
if this Agreement is terminated by the Company for any reason other than the
causes set forth in paragraph 7 hereof, the Company shall continue to pay the
Employee's full compensation, including bonuses, for the balance of the Term.
Such compensation shall be paid to the Employee, or his widow, or, if she is not
then living, to the Employee's estate. If the Employee is terminated for any
reason set forth in Section 7 hereof or if the Employee voluntarily terminates
his employment, he shall receive no further compensation except such amounts as
shall have accrued as of the date of termination.
9. Non-Disclosure. The Employee recognizes and acknowledges that he
will have access to certain confidential information of the Company and that
such information constitutes valuable, special and unique property of the
Company. The Employee agrees that he will not, for any reason or purpose
whatsoever, during or after the term of his employment, disclose any of such
confidential information to any party without express authorization of the
Company, except as necessary in the ordinary course of performing his duties
hereunder.
10. Noncompetition. The Employee agrees that during the term of this
Agreement and any extension thereof, and for a period of two (2) years after the
Company ceases to pay the Employee any compensation pursuant to the terms of
this Agreement, the Employee shall not, unless acting pursuant hereto or with
the prior written consent of the Board of Directors of the Company, directly or
indirectly:
(a) solicit business from or perform services for, any person,
company or other entity which at any time during the Employee's employment by
the Company is a client or customer of the Company if such business or services
are of the same general character as those engaged in or performed by the
Company;
(b) solicit for employment or in any other fashion hire
any of the employees of the Company;
(c) own, manage, operate, finance, join, control or
participate in the ownership, management, operation, financing or control of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with any business or enterprise engaged
in the business of debt collection or any other business engaged in by the
Company or any of its affiliates in all those geographic areas in which the
Company or any of its affiliates does business;
4
<PAGE>
(d) use or permit his name to be used in connection with any
business or enterprise engaged in the business of debt collection or any other
business engaged in by the Company or any of its affiliates in all those
geographic area in which the Company or any of its affiliates does business; or
(e) use the name of the Company or any name similar thereto,
but nothing in this clause shall be deemed, by implication, to authorize or
permit use of such name after expiration of the period covered by this
paragraph.
In the event that any provisions of this paragraph should ever be adjudicated to
exceed the time, geographic, service or product limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service or
product limitations permitted to applicable law.
11. Equitable Relief; Survival.
(a) The Employee acknowledges that the restrictions contained
in paragraphs 9 and 10 hereof are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of any provisions of those paragraph will result
in irreparable injury to the Company. The Employee also acknowledges that the
Company shall be entitled to temporary and permanent injunctive relief, without
the necessity of proving actual damages, and to an equitable accounting of all
earnings, profits and other benefits arising from any such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which the Company may be entitled. In the event of any such violation, the
Company shall be entitled to commence and action for temporary and permanent
injunctive relief and other equitable relief in any court of competent
jurisdictions and Employee further irrevocably submits to the jurisdiction of
any Pennsylvania court of Federal court sitting in the Eastern District of
Pennsylvania over any suit, action or proceeding arising out of or relating to
paragraphs 8 or 9. The Employee hereby waives, to the fullest extent permitted
by law, any objection that he may now or hereafter have to such jurisdiction or
to the venue of any such suit, action or proceeding brought in such a court and
any claim that such suit, action or proceeding has been brought in any
inconvenient forum. Effective
5
<PAGE>
service of process may be made upon the Employee by mail under the notice
provisions contained in paragraph 14 hereof.
(b) Survival of Covenants. The provisions of paragraphs
8, 9 and 10 shall survive the termination of this Agreement.
12. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Employment Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to any other remedy given hereunder or now or hereafter existing at law
or in equity. No delay or omission by the Company in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by the
Company from time to time and as often as may be deemed expedient or necessary
by the Company in its sole discretion.
13. Enforceability. If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
14. Notices. All notices, request, demands, claims and other
communications hereunder will be in writing. Any notices, requests, demands,
claims or communications hereunder shall be deemed fully given if such are sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Company: 1740 Walton Road
Blue Bell, PA 19422
with copy to: Joshua Gindin, Esquire
230 S. Broad St., 20th Floor
Philadelphia, PA 19102
6
<PAGE>
If to the Employee: 1723 Country Club Drive
Cherry Hill, NJ 08003
Any party hereto may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, facsimile, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party hereto
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties hereto
notice in the manner herein set forth.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Pennsylvania.
16. Indemnification: The Company shall indemnify the Employee and hold
him harmless for all acts or decisions made by him in good faith while
performing services for the Company. the Company shall pay all expenses
including attorney's fees, actually and necessarily incurred by the Employee in
connection with the defense of any act, suit or proceeding and in connection
with any related appeal including the cost of court settlements.
17. Contents of Agreement; Amendment and Assignment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and supersedes and is instead of all other employment
arrangement between the Employee and the Company. This agreement cannot be
changed, modified or terminated except upon written amendment duly executed by
the parties hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors
7
<PAGE>
and assigns of the parties hereto, except that the duties and responsibilities
of the Employee hereunder are of a personal nature and shall not be assignable
in whole or in part by the Employee.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.
Attest: NCO Financial Systems, Inc.
[SEAL] BY:
--------------------------
Michael Barrist, President
Witness: The Employee:
--------------------------- -----------------------------
Bernard R. Miller
8
<PAGE>
EXHIBIT "A"
COMPENSATION
A. Base Salary: The Employee shall be paid a base salary of One
Hundred Thirty Five Thousand Dollars ($135,000) per year (the
"Base Salary"), to be adjusted each year in accordance with
the Consumer Price Index ("CPI") in effect for such year,
payable in installments, in arrears, in accordance with the
Company's regular payroll practices, but not less often than
monthly.
B. Bonus: The Employee shall, in addition to the Base Salary,
receive an annual bonus as shall be determined by the
Company's Board of Directors.
C. Stock Option Plan: The Employee shall participate in such
Stock Option Plan or Plans as shall be determined by the
Company's Board of Directors.
9
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the _____ day of _____________ 1996,
between NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation with its
principal offices at 1740 Walton Road, Blue Bell, PA 19422 (the "Company") and
MICHAEL BARRIST, an individual, residing at 280 Kerry Lane, Blue Bell, PA 19422,
(the "Executive").
In consideration of their mutual promises and covenants set forth
herein, and intending to be legally bound hereby, the Company and the Executive
agree as follows:
1. Employment. The Company hereby employs the Executive and
the Executive accepts such employment on the terms and conditions
hereinafter set forth.
2. Term. The term of this Agreement shall be for a period
of five (5) years commencing on the date hereof (the "Term").
3. Duties. The Executive is engaged hereunder as the
Company's President and Chief Executive Officer. During the Term
the Executive shall devote his full business time to the operations
of the Company and shall perform duties customarily incident to
such offices and all other duties the Board of Directors of the
Company may from time to time assign to him.
4. Compensation; Benefits; and Expenses.
(a) Compensation. In addition to the items set forth below,
the Executive's compensation for the services to be provided by him pursuant to
this Agreement is set forth on the attached Exhibit "A".
(b) Benefits. The Executive shall be entitled to participate
in all insurance, vacation and other fringe benefit programs of the Company to
the extent and on the same terms and conditions as are accorded to other
executive employees of the Company. In addition, the Executive shall be entitled
to such other benefits as may be commensurate with his status as President and
Chief Executive Officer of the Company. Furthermore, the Executive shall receive
a car leased by the Company, to the Executive's reasonable satisfaction and the
Company shall make available, from time-to-time and as needed, as the Executive,
in
1
<PAGE>
his sole discretion may determine, a four (4) wheel drive vehicle, selected by
the Executive.
(c) Business Expenses. The Company will pay, or reimburse the
Executive for, all ordinary and reasonable out-of-pocket business expenses
incurred by the Executive in connection with his performance of services
hereunder during the employment term in accordance with the Company's expense
authorization and approval procedures then in effect upon presentation to the
Company of an itemized account and written proof of such expenses. All expenses
related to the operation of the Executive's cars shall be covered by the
Company.
(d) Entire Compensation. The compensation provided for
in this Agreement is in full payment of the services to be rendered
by the Executive to the Company hereunder.
5. Insurance. The Company, in its sole discretion and at its own
expense, may apply for and procure in its own name and for its own benefit or
the benefit of the Executive key man or buy-sell life insurance on the life of
the Executive in any amount or amounts considered advisable by the Company, and
the Executive shall submit to any medical or other examination and execute and
deliver such application or other instrument as may be reasonably necessary to
effectuate such insurance. The Company shall also have the right to assume any
insurance policies of the Executive in existence at the time employment
hereunder commences. At such time as the Executive's employment is terminated or
if the Executive ceases to be a shareholder in the Company, the Executive shall
have the right to purchase from the Company any insurance policies at such
policy's cash surrender value, owned in whole or in part by the Company on the
life or health of the Executive.
6. Death or Total Disability of the Executive.
(a) Death. In the event of the death of the Executive during
the Term of this Agreement or any extension thereof, compensation payments shall
continue in accordance with the provisions of paragraph 8 of this Agreement.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Executive, the Company shall have the
right to terminate the Executive's employment hereunder by giving the Executive
thirty (30) days'
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written notice thereof. The foregoing notwithstanding, compensation payments
shall continue in accordance with the provisions of paragraph 8 of this
Agreement, provided that if the Executive, during any period of disability,
including after termination of this Agreement, receives any periodic payments
representing lost compensation under any health and accident policy or under any
salary continuation insurance policy, the premiums for which have been paid by
the Company, the amount of the Base Salary that the Executive would be entitled
to receive from the Company shall be decreased by the amounts of such payments.
The term "Total Disability," when used herein, shall mean a
mental, emotional or physical condition which rendered the Executive for a
period of twelve (12) consecutive months, during the Term of this Agreement,
unable or incompetent to carry out, on a substantially full-time basis, the job
responsibilities he held or tasks that he was assigned at the time the
disability was incurred. The Executive agrees, in the event of any dispute as to
the determination made pursuant to this paragraph, to submit to a physical or
other examination by a licensed physician selected by the Company, the cost of
which examination shall be paid by the Company.
7. Termination of Employment. In addition to termination pursuant to
paragraph 6 above, the Company, following prior written notice to the Employee,
may discharge the Employee and thereby terminate his employment hereunder for
the following reasons: (a) ("for cause") (i) habitual intoxication; (ii) refusal
to submit to treatment of an existing drug addiction; (iii) conviction of a
felony; (iv) willful misconduct by the Employee in connection with the
performance of his duties; (v) dishonesty, fraud or misappropriation of funds
of the Company; (vi) insubordination or refusal to comply with a lawful
directive of the Chief Executive Officer of the Company or his designee; or
(vii) the Employee's breach of this Agreement in any manner or respect which is
committed in bad faith and without reasonable belief that such action is in the
best interest of the Company.
8. Payment Upon Termination. If the Employee dies during the Term, or
if this Agreement is terminated by the Company for any reason other than the
causes set forth in paragraph 7 hereof, the Company shall continue to pay the
Employee's full compensation, including bonuses, for the balance of the Term.
Such compensation shall be paid to the Employee, or his widow, or, if she is not
then living, to the Employee's estate. If the Employee is terminated for any
reason set forth in Section 7 hereof or if the Employee voluntarily terminates
his employment, he shall receive no further compensation except such amounts as
shall have accrued as of the date of termination.
9. Non-Disclosure. The Executive recognizes and acknowledges that he
will have access to certain confidential information of the Company and that
such information constitutes valuable, special and unique property of the
Company. The Executive agrees that he will not, for any reason or purpose
whatsoever, during or after the term of his employment, disclose any of such
confidential information to any party without express authorization of the
Company, except as necessary in the ordinary course of performing his duties
hereunder.
10. Noncompetition. The Executive agrees that during the
term of this Agreement and any extension thereof, and for a period
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<PAGE>
of two (2) years after the Company ceases to pay the Executive any compensation
pursuant to the terms of this Agreement, the Executive shall not, unless acting
pursuant hereto or with the prior written consent of the Board of Directors of
the Company, directly or indirectly:
(a) solicit business from or perform services for, any person,
company or other entity which at any time during the Executive's employment by
the Company is a client or customer of the Company if such business or services
are of the same general character as those engaged in or performed by the
Company;
(b) solicit for employment or in any other fashion hire
any of the employees of the Company;
(c) own, manage, operate, finance, join, control or
participate in the ownership, management, operation, financing or control of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with any business or enterprise engaged
in the business of debt collection or any other business engaged in by the
Company or any of its affiliates in all those geographic areas in which the
Company or any of its affiliates does business;
(d) use or permit his name to be used in connection with any
business or enterprise engaged in the business of debt collection or any other
business engaged in by the Company or any of its affiliates in all those
geographic area in which the Company or any of its affiliates does business; or
(e) use the name of the Company or any name similar thereto,
but nothing in this clause shall be deemed, by implication, to authorize or
permit use of such name after expiration of the period covered by this
paragraph.
In the event that any provisions of this paragraph should ever be adjudicated to
exceed the time, geographic, service or product limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service or
product limitations permitted to applicable law.
4
<PAGE>
11. Equitable Relief; Survival.
(a) The Executive acknowledges that the restrictions contained
in paragraphs 9 and 10 hereof are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of any provisions of those paragraph will result
in irreparable injury to the Company. The Executive also acknowledges that the
Company shall be entitled to temporary and permanent injunctive relief, without
the necessity of proving actual damages, and to an equitable accounting of all
earnings, profits and other benefits arising from any such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which the Company may be entitled. In the event of any such violation, the
Company shall be entitled to commence and action for temporary and permanent
injunctive relief and other equitable relief in any court of competent
jurisdictions and Executive further irrevocably submits to the jurisdiction of
any Pennsylvania court of Federal court sitting in the Eastern District of
Pennsylvania over any suit, action or proceeding arising out of or relating to
paragraphs 9 or 10. The Executive hereby waives, to the fullest extent permitted
by law, any objection that he may now or hereafter have to such jurisdiction or
to the venue of any such suit, action or proceeding brought in such a court and
any claim that such suit, action or proceeding has been brought in any
inconvenient forum. Effective service of process may be made upon the Executive
by mail under the notice provisions contained in paragraph 14 hereof.
(b) Survival of Covenants. The provisions of paragraphs
8, 9 and 10 shall survive the termination of this Agreement.
12. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Employment Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to any other remedy given hereunder or now or hereafter existing at law
or in equity. No delay or omission by the Company in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by the
Company from time to time and as often as may be deemed expedient or necessary
by the Company in its sole discretion.
5
<PAGE>
13. Enforceability. If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
14. Notices. All notices, request, demands, claims and other
communications hereunder will be in writing. Any notices, requests, demands,
claims or communications hereunder shall be deemed fully given if such are sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Company: 1740 Walton Road
Blue Bell, PA 19422
with copy to: Joshua Gindin, Esquire
230 S. Broad St., 20th Floor
Philadelphia, PA 19102
If to the Executive: 280 Kerry Lane
Blue Bell, PA 19422
Any party hereto may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, facsimile, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party hereto
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties hereto
notice in the manner herein set forth.
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<PAGE>
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of
conflicts) of the Commonwealth of Pennsylvania.
16. Indemnification: The Company shall indemnify the Executive and hold
him harmless for all acts or decisions made by him in good faith while
performing services for the Company. The Company shall pay all expenses
including attorney's fees, actually and necessarily incurred by the Executive in
connection with the defense of any act, suit or proceeding and in connection
with any related appeal including the cost of court settlements.
17. Contents of Agreement; Amendment and Assignment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and supersedes and is instead of all other employment
arrangement between the Executive and the Company. This agreement cannot be
changed, modified or terminated except upon written amendment duly executed by
the parties hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and
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<PAGE>
responsibilities of the Executive hereunder are of a personal nature and shall
not be assignable in whole or in part by the Executive.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.
Attest: NCO Financial Systems, Inc.
______________________[SEAL] BY:
-----------------------------
Charles C. Piola, Jr.
Executive Vice President
Witness: The Executive:
--------------------------- -----------------------------
Michael Barrist
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<PAGE>
EXHIBIT "A"
COMPENSATION
A. Base Salary: The Executive shall be paid a base salary of Two
Hundred Seventy Five Thousand Dollars ($275,000) per year (the
"Base Salary"), to be adjusted each year in accordance with
the Consumer Price Index ("CPI") in effect for such year,
payable in installments, in arrears, in accordance with the
Company's regular payroll practices, but not less often than
monthly.
B. Bonus: In addition to the Base Salary, the Executive shall be
entitled to receive an annual bonus as follows:
(a) $50,000 if the Company reaches it performance goals
as reasonably determined by its Board of Directors; or
(b) $100,000 if the Company achieves a twenty percent (20%)
growth in its "net income" (adjusted for dilution) (as
indicated in the Company's annual financial statements) over
the previous year; and
(c) An amount equal to five percent (5%) of the increased net
income of the Company, in excess of twenty percent (20%) as
determined in (b) above.
C. Stock Option Plan: The Executive shall participate in such
Stock Option Plan or Plans as shall be determined by the
Company's Board of Directors.
9
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the _____ day of _____________ 1996,
between NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation with its
principal offices at 1740 Walton Road, Blue Bell, PA 19422 (the "Company") and
CHARLES C. PIOLA, JR., an individual residing at 339 Barnhill Road, West
Chester, PA 19382, (the "Employee").
In consideration of their mutual promises and covenants set forth
herein, and intending to be legally bound hereby, the Company and the Employee
agree as follows:
1. Employment. The Company hereby employs the Employee and
the Employee accepts such employment on the terms and conditions
hereinafter set forth.
2. Term. The term of this Agreement shall be for a period
of five (5) years commencing on the date hereof (the "Term").
3. Duties. The Employee is engaged hereunder as the Company's Executive
Vice President, Sales and Marketing, with his duties including, but not being
limited to, heading the Company's sales and marketing department and advising on
general sales, marketing and business development planning strategies for the
Company, and such other or further duties and services of a similar nature as
may be reasonably required of him or assigned to him by the Company's Chief
Executive Officer or Board of Directors. Employee shall at all times be subject
to the supervision of the Board of Directors of the Company.
The Employee shall devote his full business time, attention, energies
and best efforts to the performance of his duties hereunder and to the promotion
of the business and interests of the Company and of any corporate subsidiaries
or affiliated companies.
4. Compensation; Benefits; and Expenses.
(a) Compensation. In addition to the items set forth below,
the Employee's compensation for the services to be provided by him pursuant to
this Agreement is set forth on the attached Exhibit "A".
(b) Benefits. The Employee shall be entitled to
participate in all insurance, vacation and other fringe benefit
programs of the Company to the extent and on the same terms and
1
<PAGE>
conditions as are accorded to other executive employees of the Company. In
addition, the Employee shall receive a car leased by the Company, to the
Employee's reasonable satisfaction.
(c) Business Expenses. The Company will pay, or reimburse the
Employee for, all ordinary and reasonable out-of-pocket business expenses
incurred by the Employee in connection with his performance of services
hereunder during the employment term in accordance with the Company's expense
authorization and approval procedures then in effect upon presentation to the
Company of an itemized account and written proof of such expenses. All expenses
related to the operation of the Employee's car shall be covered by the Company.
(d) Entire Compensation. The compensation provided for
in this Agreement is in full payment of the services to be rendered
by the Employee to the Company hereunder.
5. Insurance. The Company, in its sole discretion and at its own
expense, may apply for and procure in its own name and for its own benefit or
the benefit of the Employee key man or buy-sell life insurance on the life of
the Employee in any amount or amounts considered advisable by the Company, and
the Employee shall submit to any medical or other examination and execute and
deliver such application or other instrument as may be reasonably necessary to
effectuate such insurance. The Company shall also have the right to assume any
insurance policies of the Employee in existence at the time employment hereunder
commences. At such time as the Employee's employment is terminated or if the
Employee ceases to be a shareholder in the Company, the Employee shall have the
right to purchase from the Company any insurance policies at such policy's cash
surrender value, owned in whole or in part by the Company on the life or health
of the Employee.
6. Death or Total Disability of the Employee.
(a) Death. In the event of the death of the Employee during
the Term of this Agreement or any extension thereof, compensation payments shall
continue in accordance with the provisions of paragraph 8 of this Agreement.
(b) Total Disability. In the event of the Total
Disability (as that term is hereinafter defined) of the Employee,
the Company shall have the right to terminate the Employee's
employment hereunder by giving the Employee thirty (30) days'
2
<PAGE>
written notice thereof. The foregoing notwithstanding, compensation payments
hereunder shall continue in accordance with the provisions of paragraph 8 of
this Agreement, provided that if the Employee, during any period of disability,
including after termination of this Agreement, receives any periodic payments
representing lost compensation under any health and accident policy or under any
salary continuation insurance policy, the premiums for which have been paid by
the Company, the amount of the Base Salary that the Employee would be entitled
to receive from the Company shall be decreased by the amounts of such payments.
The term "Total Disability," when used herein, shall mean a
mental, emotional or physical condition which rendered the Employee for a period
of six (6) consecutive months, during the Term of this Agreement, unable or
incompetent to carry out, on a substantially full-time basis, the job
responsibilities he held or tasks that he was assigned at the time the
disability was incurred. The Employee agrees, in the event of any dispute as to
the determination made pursuant to this paragraph, to submit to a physical or
other examination by a licensed physician selected by the Company, the cost of
which examination shall be paid by the Company.
7. Termination of Employment. In addition to termination pursuant to
paragraph 6 above, the Company, following prior written notice to the Employee,
may discharge the Employee and thereby terminate his employment hereunder for
the following reasons: (a) ("for cause") (i) habitual intoxication; (ii) refusal
to submit to treatment of an existing drug addiction; (iii) conviction of a
felony; (iv) willful misconduct by the Employee in connection with the
performance of his duties; (v) dishonesty, fraud or misappropriation of funds
of the Company; (vi) insubordination or refusal to comply with a lawful
directive of the Chief Executive Officer of the Company or his designee; or
(vii) the Employee's breach of this Agreement in any manner or respect which is
committed in bad faith and without reasonable belief that such action is in the
best interest of the Company.
8. Payment Upon Termination. If the Employee dies during the Term, or
if this Agreement is terminated by the Company for any reason other than the
causes set forth in paragraph 7 hereof, the Company shall continue to pay the
Employee's full compensation, including bonuses, for the balance of the Term.
Such compensation shall be paid to the Employee, or his widow, or, if she is not
then living, to the Employee's estate. If the Employee is terminated for any
reason set forth in Section 7 hereof or if the Employee voluntarily terminates
his employment, he shall receive no further compensation except such amounts as
shall have accrued as of the date of termination.
9. Non-Disclosure. The Employee recognizes and acknowledges that he
will have access to certain confidential information of the Company and that
such information constitutes valuable, special and unique property of the
Company. The Employee agrees that he will not, for any reason or purpose
whatsoever, during or after the term of his employment, disclose any of such
confidential information to any party without express authorization of the
Company, except as necessary in the ordinary course of performing his duties
hereunder.
10. Noncompetition. The Employee agrees that during the term of this
Agreement and any extension thereof, and for a period of
3
<PAGE>
two (2) years after the Company ceases to pay the Employee any compensation
pursuant to the terms of this Agreement, the Employee shall not, unless acting
pursuant hereto or with the prior written consent of the Board of Directors of
the Company, directly or indirectly:
(a) solicit business from or perform services for, any person,
company or other entity which at any time during the Employee's employment by
the Company is a client or customer of the Company if such business or services
are of the same general character as those engaged in or performed by the
Company;
(b) solicit for employment or in any other fashion hire any of
the employees of the Company;
(c) own, manage, operate, finance, join, control or
participate in the ownership, management, operation, financing or control of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with any business or enterprise engaged
in the business of debt collection or any other business engaged in by the
Company or any of its affiliates in all those geographic areas in which the
Company or any of its affiliates does business;
(d) use or permit his name to be used in connection with any
business or enterprise engaged in the business of debt collection or any other
business engaged in by the Company or any of its affiliates in all those
geographic area in which the Company or any of its affiliates does business; or
(e) use the name of the Company or any name similar thereto,
but nothing in this clause shall be deemed, by implication, to authorize or
permit use of such name after expiration of the period covered by this
paragraph.
In the event that any provisions of this paragraph should ever be adjudicated to
exceed the time, geographic, service or product limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service or
product limitations permitted to applicable law.
4
<PAGE>
11. Equitable Relief; Survival.
(a) The Employee acknowledges that the restrictions contained
in paragraphs 9 and 10 hereof are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of any provisions of those paragraph will result
in irreparable injury to the Company. The Employee also acknowledges that the
Company shall be entitled to temporary and permanent injunctive relief, without
the necessity of proving actual damages, and to an equitable accounting of all
earnings, profits and other benefits arising from any such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which the Company may be entitled. In the event of any such violation, the
Company shall be entitled to commence and action for temporary and permanent
injunctive relief and other equitable relief in any court of competent
jurisdictions and Employee further irrevocably submits to the jurisdiction of
any Pennsylvania court of Federal court sitting in the Eastern District of
Pennsylvania over any suit, action or proceeding arising out of or relating to
paragraphs 8 or 9. The Employee hereby waives, to the fullest extent permitted
by law, any objection that he may now or hereafter have to such jurisdiction or
to the venue of any such suit, action or proceeding brought in such a court and
any claim that such suit, action or proceeding has been brought in any
inconvenient forum. Effective service of process may be made upon the Employee
by mail under the notice provisions contained in paragraph 14 hereof.
(b) Survival of Covenants. The provisions of paragraphs
8, 9 and 10 shall survive the termination of this Agreement.
12. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Employment Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to any other remedy given hereunder or now or hereafter existing at law
or in equity. No delay or omission by the Company in exercising any right,
remedy or power hereunder or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by the
Company from time to time and as often as may be deemed expedient or necessary
by the Company in its sole discretion.
13. Enforceability. If any provision of this Agreement shall
be invalid or unenforceable, in whole or in part, then such
5
<PAGE>
provision shall be deemed to be modified or restricted to the extent and in the
manner necessary to render the same valid and enforceable, or shall be deemed
excised from this Agreement, as the case may require, and this Agreement shall
be construed and enforced to the maximum extent permitted by law, as if such
provision had been originally incorporated herein as so modified or restricted,
or as if such provision had not been originally incorporated herein, as the case
may be.
14. Notices. All notices, request, demands, claims and other
communications hereunder will be in writing. Any notices, requests, demands,
claims or communications hereunder shall be deemed fully given if such are sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Company: 1740 Walton Road
Blue Bell, PA 19422
with copy to: Joshua Gindin, Esquire
230 S. Broad St., 20th Floor
Philadelphia, PA 19102
If to the Employee: 339 Barnhill Road
West Chester, PA 19382
Any party hereto may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, facsimile, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party hereto
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties hereto
notice in the manner herein set forth.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Pennsylvania.
16. Indemnification: The Company shall indemnify the Employee and hold
him harmless for all acts or decisions made by
6
<PAGE>
him in good faith while performing services for the Company. the Company shall
pay all expenses including attorney's fees, actually and necessarily incurred by
the Employee in connection with the defense of any act, suit or proceeding and
in connection with any related appeal including the cost of court settlements.
17. Contents of Agreement; Amendment and Assignment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and supersedes and is instead of all other employment
arrangement between the Employee and the Company. This agreement cannot be
changed, modified or terminated except upon written amendment duly executed by
the parties hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and responsibilities of the Employee hereunder are of a personal
nature and shall not be assignable in whole or in part by the Employee.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.
Attest: NCO Financial Systems, Inc.
[SEAL] BY:
- ---------------------------- -----------------------------
Michael Barrist, President
Witness:
- ---------------------------- -----------------------------
Charles C. Piola, Jr.
7
<PAGE>
EXHIBIT "A"
COMPENSATION
A. Base Salary: The Employee shall be paid a base salary of Two
Hundred Thousand Dollars ($200,000) per year (the "Base
Salary"), to be adjusted each year in accordance with the
Consumer Price Index ("CPI") in effect for such year, payable
in installments, in arrears, in accordance with the Company's
regular payroll practices, but not less often than monthly.
B. Bonus: In addition to the Base Salary, the Employee shall be
entitled to receive an annual bonus. The annual bonus shall
be based upon the Company's annual increase in "net income"
(adjusted for dilution) as follows:
(i) Twenty percent (20%) growth in net income - $50,000; (ii)
Thirty percent (30%) growth in net income -
$75,000; or
(iii) Forty percent (40%) growth in net income - $10,000.
C. Stock Option Plan: The Employee shall participate in such
Stock Option Plan or Plans as shall be determined by the
Company's Board of Directors.
8
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated this ____ day of ______, 1996 is made between NCO
FINANCIAL SYSTEMS, INC., whose address is 1740 Walton Road, Blue Bell, PA 19422
referred to as the "Company" and JOSEPH C. MCGOWAN, an individual, residing at
627 West Wiltshire Drive, Wallingford, PA 19086 (the "Employee").
In consideration of their mutual promises and covenants set forth
herein, and intending to be legally bound hereby, the Company and the Employee
agree as follows:
1. Employment. The Company hereby employs the Employee as
the Company's Vice President of Operations and the Employee hereby
accepts such employment in accordance with the terms and conditions
of this contract.
2. Duties of the Employee. As Vice President of Operations, the
Employee shall be in charge of the Company's collection operations, and shall
have full authority and responsibility, subject to the general direction,
approval and control of the Company's Executive Officers and Board of Directors,
for formulating general collection policies, procedures and such other or
further duties and services of a similar nature as may be reasonably required of
him or assigned to him by the Company's Executive Officers or Board of
Directors. The Employee shall at all times be subject to the supervision of the
Executive Officers and Board of Directors of the Company.
The Employee shall devote his full business time, attention, energies
and best efforts to the performance of his duties hereunder and to the promotion
of the business and interests of the Company and of any corporate subsidiaries
or affiliated companies.
3. Term of Employment. The term of employment shall begin on the date
hereof and continue for a term of five (5) years (the "Term"). The Company shall
have the option, subject to the Employee's consent, to extend the Term for such
additional periods as the Company may determine from time to time.
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<PAGE>
4. Compensation; Benefits; and Expenses.
(a) Compensation. In addition to the items set forth
below, the Employee's compensation for the services to be provided
by him pursuant to this Agreement is set forth on the attached
Exhibit "A."
(b) Benefits. The Employee shall be entitled to participate in
all insurance, vacation and other fringe benefit programs of the Company to the
extent and on the same terms and conditions as are accorded to other management
employees of the Company. Furthermore, the Employee shall receive a car leased
by the Company, to the Employee's reasonable satisfaction.
(c) Business Expenses. The Company will pay, or reimburse the
Employee for, all ordinary and reasonable out-of-pocket business expenses
incurred by the Employee in connection with his performance of services
hereunder during the employment term in accordance with the Company's expense
authorization and approval procedures then in effect upon presentation to the
Company of an itemized account and written proof of such expenses. All expenses
related to the operation of the Employee's car shall be covered by the Company.
(d) Entire Compensation. The compensation provided for
in this Agreement is in full payment of the services to be rendered
by the Employee to the Company hereunder.
5. Insurance. The Company may, in its sole discretion and at its own
expense, apply for and procure in its own name and for its own benefit or the
benefit of the Employee key man life insurance on the life of the Employee in
any amount or amounts considered advisable by the Company, and the Employee
shall submit to any medical or other examination and execute and deliver such
application or other instrument as may be reasonably necessary to effectuate
such insurance. The Company shall also have the right to assume any insurance
policies of the Employee in existence at the time employment hereunder
commences. At such time as the Employee's employment is terminated, the Employee
shall have the right to purchase from the Company any insurance policies at such
policy's cash surrender value, owned in whole or in part by the Company on the
life or health of the Employee.
2
<PAGE>
6. Death or Total Disability of the Employee.
(a) Death. In the event of the death of the Employee during
the Term of this Agreement or any extension thereof, compensation payments shall
continue in accordance with the provisions of paragraph 8 of this Agreement.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Employee, the Company shall have the
right to terminate the Employee's employment hereunder by giving the Employee
thirty (30) days' written notice thereof. The foregoing notwithstanding,
compensation payments shall continue in accordance with the provisions of
paragraph 8 of this Agreement, provided that if the Employee, during any period
of disability, including after termination of this Agreement, receives any
periodic payments representing lost compensation under any health and accident
policy or under any salary continuation insurance policy, the premiums for which
have been paid by the Company, the amount of the Base Salary that the Employee
would be entitled to receive from the Company shall be decreased by the amounts
of such payments.
The term "Total Disability," when used herein, shall mean a
mental, emotional or physical condition which rendered the Employee for a period
of six (6) consecutive months, during the Term of this Agreement, unable or
incompetent to carry out, on a substantially full-time basis, the job
responsibilities he held or tasks that he was assigned at the time the
disability was incurred. The Employee agrees, in the event of any dispute as to
the determination made pursuant to this paragraph, to submit to a physical or
other examination by a licensed physician selected by the Company, the cost of
which examination shall be paid by the Company.
7. Termination of Employment. In addition to termination pursuant to
paragraph 6 above, the Company, following prior written notice to the Employee,
may discharge the Employee and thereby terminate his employment hereunder for
the following reasons: (a) ("for cause") (i) habitual intoxication; (ii) refusal
to submit to treatment of an existing drug addiction; (iii) conviction of a
felony; (iv) willful misconduct by the Employee in connection with the
performance of his duties; (v) dishonesty, fraud or misappropriation of funds
of the Company; (vi) insubordination or refusal to comply with a lawful
directive of the Chief Executive Officer of the Company or his designee; or
(vii) the Employee's breach of this Agreement in any manner or respect which is
committed in bad faith and without reasonable belief that such action is in the
best interest of the Company.
8. Payment Upon Termination. If the Employee dies during the Term, or
if this Agreement is terminated by the Company for any reason other than the
causes set forth in paragraph 7 hereof, the Company shall continue to pay the
Employee's full compensation, including bonuses, for the balance of the Term.
Such compensation shall be paid to the Employee, or his widow, or, if she is not
then living, to the Employee's estate. If the Employee is terminated for any
reason set forth in Section 7 hereof or if the Employee voluntarily terminates
his employment, he shall receive no further compensation except such amounts as
shall have accrued as of the date of termination.
3
<PAGE>
9. Non-Disclosure. The Employee recognizes and acknowledges that he has
and will have access to certain confidential information of the Company and that
such information constitutes valuable, special and unique property of the
Company. The Employee agrees that he will not, for any reason or purpose
whatsoever, during or after the Term of his employment and any extension
thereof, disclose any of such confidential information to any party without
express authorization of the Company, except as necessary in the ordinary course
of performing his duties hereunder.
10. Noncompetition. The Employee agrees that during the Term of this
Agreement and any extension thereof, and for a period of two (2) years after the
Company ceases to pay the Employee any compensation pursuant to the terms of
this Agreement, the Employee shall not, unless acting pursuant hereto or with
the prior written consent of the Board of Directors of the Company, directly or
indirectly:
(a) solicit business from or perform services for, any person,
company or other entity which at any time during the Employee's employment by
the Company was a client or customer of the Company if such business or services
are of the same general character as those engaged in or performed by the
Company. The foregoing notwithstanding, this restriction is not intended to stop
the Employee from working for a competitor of the Company which has the same
clients and customers as the Company, provided that the Employee does not
interfere with the business relationship of the Company with such clients and
customers;
(b) solicit for employment or in any other fashion hire
any of the employees of the Company; or
(c) use the name of the Company or any name similar thereto,
but nothing in this clause shall be deemed, by implication, to authorize or
permit use of such name after expiration of the period covered by this
paragraph.
In the event that any provisions of this paragraph should ever be adjudicated to
exceed the time, geographic, service or product limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service or
product limitations permitted to applicable law.
4
<PAGE>
11. Equitable Relief; Survival.
(a) The Employee acknowledges that the restrictions contained
in paragraphs 9 and 10 hereof are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of any provisions of those paragraphs will
result in irreparable injury to the Company. The Employee also acknowledges that
the Company shall be entitled to temporary and permanent injunctive relief,
without the necessity of proving actual damages, and to an equitable accounting
of all earnings, profits and other benefits arising from any such violation,
which rights shall be cumulative and in addition to any other rights or remedies
to which the Company may be entitled. In the event of any such violation, the
Company shall be entitled to commence and action for temporary and permanent
injunctive relief and other equitable relief in any court of competent
jurisdictions and Employee further irrevocably submits to the jurisdiction of
any Pennsylvania court of Federal court sitting in the Eastern District of
Pennsylvania over any suit, action or proceeding arising out of or relating to
paragraphs 9 or 10. The Employee hereby waives, to the fullest extent permitted
by law, any objection that he may now or hereafter have to such jurisdiction or
to the venue of any such suit, action or proceeding brought in such a court and
any claim that such suit, action or proceeding has been brought in any
inconvenient forum. Effective service of process may be made upon the Employee
by mail under the notice provisions contained in paragraph 14 hereof.
(b) Survival of Covenants. The provisions of paragraphs
8, 9 and 10 shall survive the termination of this Agreement.
12. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Agreement is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder or now or hereafter existing at law or in equity.
No delay or omission by the Company in exercising any right, remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company
from time to time and as often as may be deemed expedient or necessary by the
Company in its sole discretion.
5
<PAGE>
13. Enforceability. If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
14. Notices. All notices, request, demands, claims and other
communications hereunder will be in writing. Any notices, requests, demands,
claims or communications hereunder shall be deemed fully given if such are sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Company: 1740 Walton Road
Blue Bell, PA 19422
with copy to: Joshua Gindin, Esquire
230 S. Broad St., 20th Floor
Philadelphia, PA 19102
If to the Employee: 627 W. Wiltshire Drive
Wallingford, PA 19086
Any party hereto may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, facsimile, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party hereto
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties hereto
notice in the manner herein set forth.
6
<PAGE>
15. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of
conflicts) of the Commonwealth of Pennsylvania.
16. Indemnification: The Company shall indemnify the Employee and hold
him harmless for all acts or decisions made by him in good faith while
performing services for the Company. The Company shall pay all expenses
including attorney's fees, actually and necessarily incurred by the Employee in
connection with the defense of any act, suit or proceeding and in connection
with any related appeal including the cost of court settlements.
17. Contents of Contract; Amendment and Assignment. This Agreement sets
forth the entire understanding between the parties hereto with respect to the
subject matter hereof and supersedes and is instead of all other employment
arrangement between the Employee and the Company. This Agreement cannot be
changed, modified or terminated except upon written amendment duly executed by
the parties hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and responsibilities of the Employee hereunder are of a personal
nature and shall not be assignable in whole or in part by the Employee.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.
The Company:
Attest: NCO Financial Systems, Inc.
______________________[SEAL] BY:__________________________
Michael Barrist, President
Witness: The Employee:
- --------------------------- -----------------------------
Joseph C. McGowan
7
<PAGE>
EXHIBIT "A"
COMPENSATION
A. Base Salary: The Employee shall be paid a base salary of One
Hundred Twenty Five Thousand Dollars ($125,000) per year (the
"Base Salary"), to be adjusted each year in accordance with
the Consumer Price Index ("CPI") in effect for such year,
payable in installments, in arrears, in accordance with the
Company's regular payroll practices, but not less often than
monthly.
B. Bonus: The Employee shall, in addition to the Base Salary,
receive an annual bonus as shall be determined by the
Company's Board of Directors.
C. Stock Option Plan: The Employee shall participate in such
Stock Option Plan or Plans as shall be determined by the
Company's Board of Directors.
8
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the _____ day of _____________ 1996,
between NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation with its
principal offices at 1740 Walton Road, Blue Bell, PA 19422 (the "Company") and
STEVEN L. WINOKUR, an individual, residing at 203 Carpenter Lane, Ambler, PA
19002, (the "Employee").
In consideration of their mutual promises and covenants set forth
herein, and intending to be legally bound hereby, the Company and the Employee
agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee
accepts such employment on the terms and conditions hereinafter set forth.
2. Term. The term of this Agreement shall be for a period of five (5)
years commencing on the date hereof (the "Term").
3. Duties. The Employee is engaged hereunder to perform the duties of
Vice President, Finance and Chief Financial Officer of the Company with his
duties and services as may be reasonably required of him or assigned to him by
the Company's Chief Executive Officer or Board of Directors. Employee shall, at
all times be subject to the supervision of the President and Board of Directors
of the Company.
The Employee shall devote his full business time, attention, energies
and best efforts to the performance of his duties hereunder and to the promotion
of the business and interests of the Company and of any corporate subsidiaries
or affiliated companies.
4. Compensation; Expenses.
(a) Base Salary. The Employee shall be paid a salary at the
rate of not less than One Hundred Fifty Thousand Dollars ($150,000) per year
(the "Base Salary"). The Base Salary shall be paid in installments, in arrears,
in accordance with the Company's regular payroll practices but not less often
than monthly.
(b) Bonus. The Employee shall receive such bonus or bonuses as
the Board of Directors of the Company determine from time to time.
1
<PAGE>
(c) Benefits. The Employee shall be entitled to participate in
the Company's Stock Option Plan and all insurance, vacation and other benefit
programs of the Company to the extent and on the same terms and conditions as
are accorded to other executive employees of the Company. Furthermore, the
Employee shall receive a car leased by the Company, to the Employee's reasonable
satisfaction.
(d) Business Expenses. The Company will pay, or reimburse the
Employee for (i) all ordinary and reasonable out-of-pocket business expenses
incurred by the Employee in connection with his performance of services
hereunder, and (ii) all professional education classes and seminars and
professional license fees, during the initial term and any extension thereof.
The Employee shall follow the Company's expense authorization and approval
procedures then in effect, including presentation to the Company of an itemized
account and written proof of such expenses. All expenses related to the
operation of the Employee's car shall be covered by the Company.
(e) Entire Compensation. The compensation provided for
in this Agreement is in full payment of the services to be rendered
by the Employee to the Company hereunder.
5. Insurance. The Company may, in its sole discretion and at its own
expense, apply for and procure in its own name and for its own benefit or the
benefit of the Employee key man life insurance on the life of the Employee in
any amount or amounts considered advisable by the Company, and the Employee
shall submit to any medical or other examination and execute and deliver such
application or other instrument as may be reasonably necessary to effectuate
such insurance. The Company shall, subject to the Employee's prior written
approval, also have the right to assume any insurance policies of the Employee
in existence at the time employment hereunder commences. At such time as the
Employee's employment is terminated, the Employee shall have the right to
purchase from the Company any insurance policies at such policy's cash surrender
value, owned in whole or in part by the Company on the life or health of the
Employee.
6. Death or Total Disability of the Employee.
(a) Death. In the event of the death of the Employee
2
<PAGE>
during the Term of this Agreement or any extension thereof, compensation
payments shall continue in accordance with the provisions of paragraph 8 of this
Agreement.
(b) Total Disability. In the event of the Total Disability (as
that term is hereinafter defined) of the Employee, the Company shall have the
right to terminate the Employee's employment hereunder by giving the Employee
thirty (30) days' written notice thereof. The foregoing notwithstanding,
compensation payments hereunder shall continue in accordance with the provisions
of paragraph 8 of this Agreement, provided that if the Employee, during any
period of disability, including after termination of this Agreement, receives
any periodic payments representing lost compensation under any health and
accident policy or under any salary continuation insurance policy, the premiums
for which have been paid by the Company, the amount of the Base Salary that the
Employee would be entitled to receive from the Company shall be decreased by the
amounts of such payments.
The term "Total Disability," when used herein, shall mean a
mental, emotional or physical condition which rendered the Employee for a period
of six (6) consecutive months, during the Term of this Agreement, unable or
incompetent to carry out, on a substantially full-time basis, the job
responsibilities he held or tasks that he was assigned at the time the
disability was incurred. The Employee agrees, in the event of any dispute as to
the determination made pursuant to this paragraph, to submit to a physical or
other examination by a licensed physician selected by the Company, the cost of
which examination shall be paid by the Company.
7. Termination of Employment. In addition to termination pursuant to
paragraph 6 above, the Company, following prior written notice to the Employee,
may discharge the Employee and thereby terminate his employment hereunder for
the following reasons: (a) ("for cause") (i) habitual intoxication; (ii) refusal
to submit to treatment of an existing drug addiction; (iii) conviction of a
felony; (iv) willful misconduct by the Employee in connection with the
performance of his duties; (v) dishonesty, fraud or misappropriation of funds
of the Company; (vi) insubordination or refusal to comply with a lawful
directive of the Chief Executive Officer of the Company or his designee; or
(vii) the Employee's breach of this Agreement in any manner or respect which is
committed in bad faith and without reasonable belief that such action is in the
best interest of the Company.
8. Payment Upon Termination. If the Employee dies during the Term, or
if this Agreement is terminated by the Company for any reason other than the
causes set forth in paragraph 7 hereof, the Company shall continue to pay the
Employee's full compensation, including bonuses, for the balance of the Term.
Such compensation shall be paid to the Employee, or his widow, or, if she is not
then living, to the Employee's estate. If the Employee is terminated for any
reason set forth in Section 7 hereof or if the Employee voluntarily terminates
his employment, he shall receive no further compensation except such amounts as
shall have accrued as of the date of termination.
9. Non-Disclosure. The Employee recognizes and acknowledges that he
will have access to certain confidential information of the Company and that
such information constitutes valuable, special and
3
<PAGE>
unique property of the Company. The Employee agrees that he will not, for any
reason or purpose whatsoever, during or after the term of his employment,
disclose any of such confidential information to any party without express
authorization of the Company, except as necessary in the ordinary course of
performing his duties hereunder.
10. Noncompetition. The Employee agrees that during the term of this
Agreement and any extension thereof, and for a period of two (2) years after his
employment ceases, the Employee shall not, unless acting pursuant hereto or with
the prior written consent of the Board of Directors of the Company, directly or
indirectly:
(a) solicit business from or perform services for, any person,
company or other entity which at any time during the Employee's employment by
the Company is a client or customer of the Company if such business or services
are of the same general character as those engaged in or performed by the
Company;
(b) solicit for employment or in any other fashion hire
any of the employees of the Company;
(c) own, manage, operate, finance, join, control or
participate in the ownership, management, operation, financing or control of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with any business or enterprise engaged
in the business of debt collection or any other business engaged in by the
Company or any of its affiliates in all those geographic areas in which the
Company or any of its affiliates does business;
(d) use or permit his name to be used in connection with any
business or enterprise engaged in the business of debt collection or any other
business engaged in by the Company or any of its affiliates in all those
geographic area in which the Company or any of its affiliates does business; or
(e) use the name of the Company or any name similar thereto,
but nothing in this clause shall be deemed, by implication, to authorize or
permit use of such name after expiration of the period covered by this
paragraph.
4
<PAGE>
In the event that any provisions of this paragraph should ever be adjudicated to
exceed the time, geographic, service or product limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service or
product limitations permitted to applicable law. Furthermore, the above
restrictions shall be waived by the Company in the event that the Employee is
dismissed as a result of a merger or other business combination by the Company.
The foregoing restrictions are not intended in any way to restrict the
Employee's ability to resume his professional practice as a Certified Public
Accountant after his employment by the Company ceases, provided, however, that
he shall not provide services to any company in the debt collection business or
other business in which the Company was engaged at the time employment ceases.
11. Equitable Relief; Survival.
(a) The Employee acknowledges that the restrictions contained
in paragraphs 9 and 10 hereof are, in view of the nature of the business of the
Company, reasonable and necessary to protect the legitimate interests of the
Company, and that any violation of any provisions of those paragraph will result
in irreparable injury to the Company. The Employee also acknowledges that the
Company shall be entitled to temporary and permanent injunctive relief, after
proving actual damages, and to an equitable accounting of all earnings, profits
and other benefits arising from any such violation, which rights shall be
cumulative and in addition to any other rights or remedies to which the Company
may be entitled. In the event of any such violation, the Company shall be
entitled to commence an action for temporary and permanent injunctive relief and
other equitable relief in any court of competent jurisdictions and Employee
further irrevocably submits to the jurisdiction of any Pennsylvania court of
Federal court sitting in the Eastern District of Pennsylvania over any suit,
action or proceeding arising out of or relating to paragraphs 9 or 10. The
Employee hereby waives, to the fullest extent permitted by law, any objection
that he may now or hereafter have to such jurisdiction or to the venue of any
such suit, action or proceeding brought in such a court and any claim that such
suit, action or proceeding has been brought in any inconvenient forum. Effective
service of process may be made upon
5
<PAGE>
the Employee by mail under the notice provisions contained in
paragraph 14 hereof.
(b) Survival of Covenants. The provisions of paragraphs
8, 9 and 10 shall survive the termination of this Agreement.
12. Remedies Cumulative; No Waiver. No remedy conferred upon the
Company by this Agreement is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder or now or hereafter existing at law or in equity.
No delay or omission by the Company in exercising any right, remedy or power
hereunder or existing at law or in equity shall be construed as a waiver
thereof, and any such right, remedy or power may be exercised by the Company
from time to time and as often as may be deemed expedient or necessary by the
Company in its sole discretion.
13. Enforceability. If any provision of this Agreement shall be invalid
or unenforceable, in whole or in part, then such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law, as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
14. Notices. All notices, request, demands, claims and other
communications hereunder will be in writing. Any notices, requests, demands,
claims or communications hereunder shall be deemed fully given if such are sent
by registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below:
If to the Company: 1740 Walton Road
Blue Bell, PA 19422
with copy to: Joshua Gindin, Esquire
230 S. Broad St., 20th Floor
Philadelphia, PA 19102
6
<PAGE>
If to the Employee: 203 Carpenter Lane
Ambler, PA 19002
with copy to: Sarah Ford, Esquire
Ford Narducci & Roeberg
583 Skippack Pike, Ste 200
Blue Bell, PA 19422
Any party hereto may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party hereto
may change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties hereto
notice in the manner herein set forth.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the
Commonwealth of Pennsylvania.
16. Indemnification: The Company shall indemnify the Employee and hold
him harmless for all acts or decisions made by him in good faith while
performing services for the Company. the Company shall pay all expenses
including attorney's fees, actually and necessarily incurred by the Employee in
connection with the defense of any act, suit or proceeding and in connection
with any related appeal including the cost of court settlements.
17. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Venue shall be in Montgomery County, Pennsylvania. Judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Each party shall bear its costs of arbitration, including
attorney's fees, expert fees and costs.
7
<PAGE>
18. Contents of Agreement; Amendment and Assignment. This Agreement
sets forth the entire understanding between the parties hereto with respect to
the subject matter hereof and supersedes and is instead of all other employment
arrangement between the Employee and the Company. This agreement cannot be
changed, modified or terminated except upon written amendment duly executed by
the parties hereto. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, representatives, successors and assigns of the parties hereto, except
that the duties and responsibilities of the Employee hereunder are of a personal
nature and shall not be assignable in whole or in part by the Employee.
IN WITNESS WHEREOF, this Agreement has been executed by the parties on
the date first above written.
Attest: NCO Financial Systems, Inc.
______________________[SEAL] BY:__________________________
Michael Barrist, President
Witness: The Employee:
--------------------------- -----------------------------
Steven L. Winokur
8
<PAGE>
LEASE AGREEMENT
THE UNILAND PARTNERSHIP, L.P.
AND
MANAGEMENT ADJUSTMENT BUREAU, INC.
Date: ____________
Lease No. 2235-F
- --------------------------------------------------------------------------------
Paragraph Item Page
1 Leased Premises .......................................... 1
2 Term ..................................................... 1
3 Rent ..................................................... 1
4 Construction of Premises ................................. 2
5 Delays in Construction ................................... 2
6 Possession ............................................... 3
7 Early Entry .............................................. 4
8 Use ...................................................... 4
9 Subletting ............................................... 5
10 Maintenance .............................................. 6
11 Utilities ................................................ 8
12 Additional Rent .......................................... 8
13 Insurance ................................................11
14 Indemnity ................................................12
15 Compliance With Laws .....................................13
16 Landlord's Access ........................................13
17 Condemnation .............................................14
18 Improvements .............................................15
19 Destruction ..............................................15
20 Continuous Occupancy .....................................16
21 Right to Perform .........................................16
22 Tenant Default and Right of Reentry ......................17
23 Landlord's Notice ........................................19
24 Access Road ..............................................19
25 Subordination ............................................19
26 Method of Notice .........................................20
27 Attorneys Expenses .......................................21
28 Telephone Service ........................................21
29 Jury Waiver ..............................................21
30 Invalidity ...............................................21
31 Advanced Rent ............................................21
32 Succession ...............................................22
33 Rules and Regulations ....................................22
34 Quiet Enjoyment ..........................................22
35 Financing Cooperation ....................................22
36 Financial Statement ......................................22
37 Arbitration ..............................................22
38 Signature ................................................23
39 Parking ..................................................23
40 Jurisdiction .............................................23
41 No Recording .............................................24
42 Paragraph Captions .......................................24
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this _____ day of _______________ , 1994 by
and between THE UNILAND PARTNERSHIP, L.P., a New York Limited Partnership,
University Corporate Centre, 100 Corporate Parkway, Suite 500, Amherst, New York
14226, hereinafter called "Landlord," and MANAGEMENT ADJUSTMENT BUREAU, INC., a
New York Corporation, 120 Pineview Drive, Amherst, New York 14228, hereinafter
called "Tenant."
FIRST: LEASED PREMISES. Landlord leases to Tenant and Tenant hereby
takes office space comprising approximately TWENTY FIVE THOUSAND SIX HUNDRED
SIXTY SEVEN (25,667) square feet ("Leased Premises") that being the entire
Building located at the Dodge Home Centre, Dodge" "and Sweet Home Road,
Amherst, New York, and more specifically designated on a plan attached hereto
and designated as Schedule "A" and made a part hereof.
SECOND: TERM. The term hereof shall commence on the first day of the
month following Tenant's acceptance of the Leased Premises pursuant to paragraph
"SIXTH" herein, and continue for a period of FIFTEEN (15) years.
THIRD: RENT.
a) The total base rent shall be FOUR MILLION ONE HUNDRED SIXTY
TWO THOUSAND ONE HUNDRED FIFTY and 00/100 ($4,162,150.00) DOLLARS,
payable as follows:
b) on or before the signing of the Lease as the first months
rent the sum of TWENTY ONE THOUSAND FIVE HUNDRED THIRTY FOUR and 58/100
($21,534.58) DOLLARS and on the first day of the second month of the
tenancy and on the first day of each and every calendar month
thereafter through the sixtieth month of the
-1-
<PAGE>
tenancy, Tenant shall pay to landlord the sum of TWENTY ONE THOUSAND
FIVE-HUNDRED THIRTY FOUR and 58/100 ($21,534.58) DOLLARS.
C) On the first day of the sixty-first through one hundred
twentieth month of the tenancy, Tenant shall pay to Landlord the sum of
TWENTY THREE THOUSAND TWO HUNDRED SIXTY SEVEN and 08/100 ($23,267.08)
DOLLARS.
d) on the first day of the one hundred twenty first through one
hundred eightieth month of the tenancy, Tenant shall pay to Landlord the
sum of TWENTY FOUR THOUSAND FIVE HUNDRED SIXTY SEVEN and 50/100
($24,567.50) DOLLARS.
e) All rents shall be paid to Landlord or authorized agent at
University Corporate Centre, 100 Corporate Parkway, Suite 500, Amherst,
New York 14226, or at such other places as may be designated by Landlord
from time to time. All rents payable in United States funds.
FOURTH: CONSTRUCTION OF LEASED PREMISES. Landlord within thirty
(30) days of the execution of this Lease, shall file all necessary
documentation and drawings with the Town of Amherst in order to commence
the Town of Amherst approval process required for the construction of the
Leased Premises. Landlord, within one hundred twenty (120) days after the
receipt of all necessary Town of Amherst approvals, shall cause the Leased
Premises to be built and completed pursuant to Schedule "B" attached hereto
and made a part hereof. The Leased Premises shall be constructed in a good
and workmanlike manner. Landlord warrants that the improvements to the
Leased Premises will be constructed with new materials of good quality and
in accordance with all the currently existing laws, ordinances and
statutes of the municipal or State governments.
FIFTH: DELAYS IN CONSTRUCTION. In the event that all Schedule "B"
improvements have not been completed within one hundred twenty (120) days after
the receipt by Landlord of all necessary Town of Amherst approvals Tenant shall
have the right but not the obligation to enter into possession of such portions
as may
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be ready for occupancy and Landlord shall diligently proceed so as to place the
Leased Premises in conformance with Schedule "B" within one hundred eighty (180)
days after the receipt by Landlord of all necessary Town of Amherst approvals.
During such period of partial occupancy, the rent to be paid hereunder shall be
apportioned as to include only that floor space actually occupied by Tenant. For
the purposes of apportionment of rent under this Paragraph and Paragraph
"SEVENTH" only, it is agreed that the space shall be annually let for TEN and
06/100 ($10.06) DOLLARS per square foot. No entering into possession by Tenant
of any portion of the Leased Premises under the provisions of this paragraph
shall constitute waiver of Landlord's obligation to complete unfinished items of
construction or to correct defective work so as to bring the improvements in
accordance with Schedule "B". If Landlord is unable to deliver possession of
total Leased Premises within two hundred forty (240) days after the receipt by
Landlord of all necessary Town of Amherst approvals, either party may terminate
this Lease without any claim for damages and all advanced rents and security
deposits shall be refunded by Landlord to Tenant.
SIXTH: POSSESSION. The entire Leased Premises shall be considered ready
for possession and Tenant shall accept the entire Leased Premises when:
(A) The Leased Premises has been substantially completed in
accordance with Schedule "B"; and
(B) Ten (10) days' notice has been provided to Tenant that the
Leased Premises will be ready for occupancy by Tenant.
(C) When the above conditions are deemed satisfied, Tenant
shall execute and deliver to Landlord within five (5) days of delivery of the
Leased Premises the acknowledgement of possession statement, attached to Lease
and delineated as Schedule "C" and made a part hereof.
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SEVENTH: EARLY ENTRY. Tenant shall accept Leased Premises whenever
deemed ready for possession, as described in paragraph "SIXTH" herein, and shall
pay prorated rent for said early occupancy based on an annual rental of TEN and
06/100 ($10.06) DOLLARS per square foot until the commencement of the Lease
Term. Landlord shall allow Tenant early entrance on the Leased Premises to
prepare Leased Premises for the installation of Tenant's fixtures and equipment.
Tenant shall obtain prior written consent of Landlord, which consent shall not
be unreasonably withheld, and Tenant shall obey all reasonable restrictions of
Landlord and shall prepare Leased Premises in a manner so as not to interfere
with Landlord's construction of Leased Premises. Upon Tenant's early entry onto
the Leased Premises, all terms and conditions of this Lease shall apply as if
the Lease Term had commenced except as otherwise stated herein.
EIGHTH: USE. The Leased Premises shall be used and occupied by Tenant
as office space and for no other purpose. Tenant shall not cause excess odor,
vibration, fumes, noise and/or nuisance within or beyond the confines of the
Leased Premises and its use shall not result in the deterioration of the Leased
Premises or the Building in which the Leased Premises is located. In addition,
Tenant warrants and represents the following:
a. Tenant shall place waste and refuse matter in the
receptacle provided by Tenant. Tenant shall deposit only acceptable commercial
waste in the aforesaid receptacle. Said acceptable commercial waste shall not
include; Hazardous waste; Pathological waste; Industrial waste; Asbestos waste;
Tires; Batteries; Oil and any wastes packed in drums or drums themselves; and
any other wastes deemed unacceptable on any future date by any appropriate
governmental authority or Landlord's waste hauler.
1. Tenant shall indemnify and hold Landlord harmless from
all costs and expense, including but not limited to, reasonable attorneys fees,
charges, fines and penalties for Tenants deposit of any unacceptable waste in
the waste receptacle.
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b. Tenant shall, at all times hereunder, comply with all
applicable Federal, State and local environmental, land use, zoning, health,
safety and sanitation laws, ordinances, codes, rules and regulations and
interpretations and orders of regulatory and administrative authorities with
respect thereto, and shall obtain and comply with any and all approvals,
registrations or permits required thereunder. Without limiting the generality of
the foregoing, Tenant shall duly comply with all requirements the New York State
Environmental Conservation Law and the regulations promulgated thereunder.
Tenant at Landlord's direction shall promptly undertake and diligently pursue to
completion the appropriate and legally authorized remedial and clean-up action
in the event any release by Tenant of oil or Hazardous waste or substances, upon
or into the Leased Premises, the Building in which the Leased Premises is
located, or the surrounding land area.
1. Tenant shall provide Landlord with copies of any
notification of releases of oil or Hazardous wastes or substances which are
given by, or on behalf of the Tenant to any Federal, State or local agencies or
authorities with respect to the Leased Premises.
2. Tenant shall defend, indemnify, and hold harmless the
Landlord, its employees, agents, officers and directors from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs or
expenses in relation to the release of any oil or Hazardous wastes or substances
upon the Leased Premises, and by Tenant, in the Building in which the Leased
Premises is located, or the surrounding land area.
3. Tenant shall furnish to Landlord at Landlord's written
request, written certification of its compliance with this Paragraph "EIGHTH".
Such certification shall list all hazardous wastes or substances and the
quantities thereof used on the Leased Premises for the past year.
NINTH: SUBLETTING. Provided Tenant remains financially and legally
responsible for all the terms and conditions of this
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Lease, Tenant may sublet the Leased Premises or assign the Lease with Landlord's
prior written consent which consent shall not be unreasonably withheld.
Notwithstanding the above, prior to Tenant offering Leased Premises for
sublease, Tenant shall give Landlord written notice of its desire to sublet the
Lease Premises. Landlord shall have thirty (30) days from the receipt of said
notice to notify Tenant of its desire to terminate the Lease and take possession
of the Leased Premises as of the date the sublease would have commenced, but in
no event later than ninety (90) days from the date of Tenant's notice to
Landlord.
TENTH: MAINTENANCE. Subject to Paragraph "TWELFTH" responsibility of
the respective parties for maintenance and repairs to the Leased Premises shall
be determined as follows:
A) Landlord shall, except for Tenant's negligence, replace the
structural portion of the Leased Premises and the Building including;
the roof structure, exterior walls (excluding window glass, painting
and sealing), foundation, floor slab (excluding floor finishing such
as tile, carpeting and the like). Same shall be done at Landlord's sole
cost and expense except if damage to the structure was caused by
Tenant's negligence, in which case, Tenant shall be responsible for the
cost. Landlord shall be responsible for structural maintenance,
however, this shall be done at Tenant's sole cost and expense.
B) Landlord throughout the term of the Lease and any renewal
thereof shall maintain and repair the exterior portions of the Leased
Premises and the Building, including but not limited to, the roof
repairs, caulking, painting and sealing of window glass, walls and
floors.
C) Landlord shall throughout the term of the Lease and any
renewal thereof maintain the exterior grounds of the Building and
Leased Premises including but not limited to landscape and shrubbery
maintenance and replacement when necessary; lawn care including lawn
spraying and service and replanting when necessary; maintaining
including sealing, patching, resurfacing and snow
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plowing removal when necessary of the pedestrian walks, parking lots,
driveways and access roads.
D) Landlord shall throughout the term of the Lease and any
renewal thereof, maintain the Complex Areas of the Leased Premises,
including but not limited to the external lighting, storm and sanitary
sewer and water lines, curbing, sealing, patching, resurfacing, and
snow removal of the pedestrian walkways, parking lots, driveways and
access roads; landscape and shrubbery maintenance and replacement when
necessary; lawn care including lawn spraying and service, and
replanting when necessary.
E) Landlord shall maintain all electrical systems to the
Building. Landlord shall be responsible for the maintenance of
electrical systems up to the Leased Premises. Tenant is responsible for
the maintenance of electrical systems from the exterior perimeter wall
to all areas throughout the Leased Premises. Tenant shall be
responsible for the replacement of all incandescent and fluorescent
light bulbs which are located within the Leased Premises on an as
needed basis.
F) Tenant shall, throughout the term of the Lease and any
renewal thereof, maintain, repair, and replace when necessary, all
mechanical and electrical systems operating in the Leased Premises.
Such maintenance, repair, and replacement shall include but not be
limited to routine, scheduled, and periodic maintenance and cleaning
and the recommended replacement of all filters.
G) Tenant shall, throughout the term of the Lease or any
renewal thereof, maintain and repair the interior portions of the
Leased Premises, including, but not limited to, interior walls and wall
finishings; carpeting and other floor finishings; ceiling, tile;
lavatories and fixtures therein, and the like, and shall surrender same
in as good a condition as received, normal wear and tear excepted.
H) Tenant shall throughout the term of the Lease and any
renewal thereof continue to operate, so far as in its power, utility
services to the Leased Premises (heat, electricity
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and the like) in sufficient amount to prevent damage to the Leased
Premises or deterioration thereof.
I) All maintenance, repairs, and alterations required by
Tenant or Landlord under this Lease shall be done immediately as needed
and in a good and workmanlike manner. Each Party shall comply with
federal, state, and local governments' laws, rules, orders and
ordinances, and regulations at any time issued or enforced applicable
to the Leased Premises. Tenant shall not make any structural
alteration to the Leased Premises without prior written consent of
Landlord, which consent shall not be unreasonably withheld.
ELEVENTH: UTILITIES. Tenant agrees that it shall be responsible for the
payment of all utilities, including water, gas, electricity, heat or other
services delivered to the Leased Premises; Landlord shall provide separate
metering for all services, which Landlord shall bill Tenant for on a prorated
basis. Landlord shall not be responsible for failure of, or lack of, water, gas,
electricity, or other fuel, except for Landlord's negligence or Landlord's
failure to perform the covenants of this Lease on its part to be performed.
TWELFTH: ADDITIONAL RENT.
A. General Provisions.
As additional rent hereunder, Tenant shall pay to Landlord its
proportionate share of the following, defined as follows:
(1) As to those items which effect the Leased Premises only,
(Landlord's cost of all items referenced in Paragraph "10" (B-D) herein)
Tenant's proportionate share shall be one hundred (100%) percent.
(2) As to those items which effect multiple structures of Landlord
including the Building, Tenant's floor space in relation to the floor space for
all the affected buildings shall
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be the factor in determining Tenant's proportionate share of these
so-called "Complex Area" charges.
B. INSURANCE.
(1) Landlord's cost of Fire and Extended Coverage Insurance premiums
and Landlord's Public Liability Insurance premiums. Landlord shall, at the
request of the Tenant, provide an explanation of any premium increase hereunder.
C. TAXES.
(1) Landlord's cost of all state, municipal and local taxes (except
gift, estate, inheritance, succession, and income taxes, if any, on the
interest of the Landlord) assessments, levies and other charges general and
special ordinary and extraordinary, in whatever name, nature and kind, (except
as specified above) that are or may be during the term hereof, or any renewal,
(beginning with the commencement of the term hereof) levied, assessed, imposed
or charged on the Leased Premises and all of which may be levied, assessed,
imposed, or charged on or against the leasehold estate hereby created during the
term hereof. The taxes, assessments, levies and other charges, shall be paid in
the name of the Landlord, and Landlord shall pay the same as specified above
whether such taxes or charges become due and payable during the term hereof or
any renewal, or subsequent to the expiration or sooner termination hereof;
however, Tenant shall be liable for taxes pro-rated only until the date of
termination of this Lease. If, at any time during the term of this Lease, the
present method of taxation or assessment shall be changed so that the whole or
any part of the taxes, assessments, levies or charges now levied, assessed and
imposed on the real estate hereby demised and improvements thereon, shall be
transferred to the rentals received from such real property in whole or in
part, or against such rentals in whole or in part, and if partly on such real
estate and partly on such rentals, Tenant shall pay such proportionate share of
taxes and assessments, levied and assessed on such rentals as shall
proportionately relieve the taxes and assessments on such real estate, it being
the intention of the parties hereto that
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Landlord shall receive the rents reserved herein without deduction of taxes
(except gift, estate, inheritance, succession, and income taxes on the interest
of the Landlord), assessments, levies, or charges in respect to the real estate
and improvements and also on such rentals. Tenant shall have the right, at its
own expense, to contest any taxes or assessments in the name of Landlord and
Landlord shall cooperate in any proceedings arising out of Tenant's exercise of
this right.
D. MAINTENANCE.
(1) The Landlord's maintenance responsibilities referenced in Paragraph
"TENTH" subparagraphs B through E herein.
E. BUILDING AND COMPLEX AREAS.
(1) Landlord's cost of maintaining and repairing all structural
portions within the Building as provided in Paragraph "10" (a) herein.
(2) Utility expense for electrical service to the external
portions of the Building and Complex areas for external lighting, deep-dock
pumps and other exterior use; water and sprinkler service expense of the
Building.
(3) All items of maintenance required of Landlord under this Lease for
the Complex areas as provided in Paragraph "10" (D) herein.
F. BILLING.
(1) The amounts required to be paid by the Tenant to the Landlord,
under this Paragraph "TWELFTH" hereof, may at the option of the Landlord, be
estimated for a full Lease year and billed monthly in advance at the rate of
one-twelfth (1/12th) of such estimate. The Landlord shall make an adjustment
based upon actual costs within ninety (90) days of the end of each Lease year.
Any monies due and owing to landlord following the end of the Lease year
reconciliation shall be paid by Tenant to Landlord within thirty (30) days of
the date of billing any such monies due and owing Tenant following the end of
the Lease year reconciliation shall be credit by landlord against the next
future installments of additional rent owed by Tenant to Landlord.
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(2) All additional rent due and owing under this Paragraph "TWELFTH"
shall be paid by Tenant to Landlord within twenty (20) days following the date
of the billing by Landlord for same. Landlord shall bill Tenant monthly for
additional rent expenses.
F. DISPUTE RESOLUTION.
(1) In the event that Tenant disputes any additional rent billed,
Tenant must nonetheless pay same to Landlord within the time provided herein or
be in default of the Lease. The propriety of such billing shall not be a defense
to any action taken by Landlord for Tenant's failure to pay any additional rent
as provided herein. In the event Tenant disputes any additional rent billed and
timely paid by Tenant, Landlord shall in good faith diligently review the
disputed item with Tenant within forty five (45) days of written notification by
Tenant of the specific dispute. If the parties cannot come to an agreement, the
dispute shall be resolved as provided for in this Lease. In the event Tenant
then is owed a credit for additional rent, Landlord shall credit same against:
First: Any additional rent due and owing by tenant; Second: Base rent due and
owing by Tenant. Said Tenant's credit shall be issued by Landlord at the next
rental billing period following such determination. Tenant waives its right to
dispute or challenge any additional rent, billing or charge rendered longer than
thirteen (13) months prior to Tenant's notification of Landlord of the specific
dispute as provided herein.
THIRTEENTH: INSURANCE. Tenant, at its expense, shall maintain the
following:
LIABILITY: TWO MILLION DOLLAR ($2,000,000.00) combined single limit of
comprehensive general liability coverage which coverage may be provided under
Tenant's excess or umbrella liability policy.
CONTENTS: Tenant shall carry fire and extended coverage insurance
adequate to insure its improvements, betterments
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and contents. Tenant shall provide Landlord with a certificate of insurance
providing proof of such insurance. This certificate shall provide for a ten (10)
day written notice to Landlord in the event of cancellation or material change
of coverage. This insurance may be provided as part of the blanket coverage by
Tenant. Tenant shall provide Landlord with a certificate of insurance showing
Landlord as additional insured. The certificate shall provide for a ten (10) day
written notice to Landlord in the event of cancellation or material change of
coverage. This insurance may be provided as part of blanket coverage by Tenant.
FOURTEENTH: INDEMNIFICATION. Landlord shall not be liable for and
Tenant agrees to indemnify, defend, and forever hold harmless Landlord, its
agents, servants, and employees from and against claims, damages, costs
(including but not limited to court costs and attorneys fees) resulting from,
injury or damage to Tenant, its agents, servants, or employees or any other
person(s) claiming through Tenant, unless such liabilities shall result solely
from an act or omission of the Landlord, its agents, servants, or employees.
Landlord and Tenant hereby release one another from all liability for any loss
or damage to real property. This release is conditioned upon the inclusion in
the respective policies of insurance an endorsement or provision stating that
such release will not adversely affect said policies or prejudice any right of
the insured to recover thereunder. Landlord and Tenant agree that their
respective insurance policies will include the aforesaid provision or
endorsement so long as the same is obtainable without extra cost, or if extra
costs should be charged, so long as the party for whose benefit the clause is
obtained shall pay for such extra costs. If extra costs shall be chargeable
therefor, the party so affected shall advise the other of the amount of extra
costs and the other party, at its election, may pay the same or decline to so
pay, in which event the release from liability given to said party by this
section shall be deemed to be withdrawn.
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FIFTEENTH: COMPLIANCE WITH LAWS. From and after entering into
possession, subject to Landlord's duties and obligations to repair as contained
in Paragraph "TENTH," Tenant shall comply with all statutes, ordinances, and
requirements of all municipal, state, and federal authorities now in force, or
which may hereafter be in force, pertaining to the Leased Premises, occasioned
by the use of the Leased Premises by Tenant. The notice of a violation by
Landlord or any governmental or quasi-governmental agency to Tenant or the
commencement or pendency of any municipal, state, or Federal proceeding alleging
a violation which would affect the use of the Leased Premises shall, at the
option of the Landlord, and subject to the notice provisions of Paragraph
"TWENTY-SECOND" be deemed a breach hereof, providing, however, the notice of
such violation or the commencement of such proceedings shall not be a breach
hereof, if:
A) Tenant immediately takes action to comply with such statute,
ordinance or other requirements, or
Tenant, in good faith, contests such proceeding to a final
determination and thereafter complies with such order as may issue. (In any such
contest, Tenant will take such action(s), including deposit of security, as may
be reasonably necessary to prevent a forfeiture of Landlord's title.)
Notwithstanding this Paragraph "FIFTEENTH," if after Tenant has been found to be
in violation of any statute, ordinance, or requirement of any municipal, state
or federal authority now in force, or hereinafter in force, pertaining to
Tenant's use of the Leased Premises, and Tenant fails to immediately correct the
same, Landlord shall have the right to take whatever action necessary to place
Leased Premises in compliance with any statute, ordinance, and requirement of
all municipal, state, and federal authorities now in force or which hereinafter
may be in force and to charge Tenant the costs thereof as additional rent for
this action.
SIXTEENTH: LANDLORD'S ACCESS. Tenant shall permit Landlord, or
Landlord's agent, at reasonable times and upon
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reasonable notice, to enter upon the Leased Premises for the purpose of
inspecting the same and will permit Landlord, at any time within one hundred
twenty (120) days prior to the expiration of Lease, to place upon the Leased
Premises any usual "To Let" or "For Lease" signs and at reasonable times and
upon reasonable notice permit persons desiring to lease the same to inspect the
Leased Premises thereafter. Landlord shall, at the time permitted by this Lease,
have the right to enter Leased Premises for the purpose of making repairs or
structural changes to said Leased Premises or Building commonly known as
Building located at the Sweet Home Centre, Dodge and Sweet Home Roads, Amherst,
New York. Any such repairs or structural changes will be made with reasonable
dispatch and in a manner to interfere as little as possible with Tenant's use
and enjoyment of the Leased Premises.
SEVENTEENTH: CONDEMNATION.
(A) In the event that an area of twent-five percent (25%) or more of
the Leased Premises and which materially affects Tenant's ability to conduct its
intended business shall be taken, or access to the Leased Premises shall be
taken in any proceeding by the public authorities, by condemnation or by deed in
or be acquired for public or quasi-public purposes, the Tenant shall have the
option of terminating this Lease, in which case any unearned rent shall be
refunded to the Tenant. The said option to terminate shall be exercisable by
written notice given by the Tenant to the Landlord not later than sixty (60)
days following notice to the Tenant by Landlord of such condemnation of
acquisition. In the event that less than twenty-five percent (25%) of the area
of the Leased Premises or more, providing same does not materially affect
Tenant's ability to conduct its intended business or if Tenant does not elect to
terminate this Lease, then the Landlord shall restore the Leased Premises to the
end that the Leased Premises shall be restored so far as practicable to the
condition existing immediately prior to such taking, and the rent and additional
rent shall be reduced in the same proportion that
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the amount of floor area in the Building is reduced by such condemnation or
other proceedings, or by such acquisition.
(B) In the event of a condemnation of more than eighty percent (80%) of
the Building in which the Leased Premises or eighty (80%) percent of the
building, or in the event of any termination of this Lease by virtue of
condemnation as provided in Paragraph (A) of this Paragraph "SEVENTEENTH" this
Lease shall terminate and the Tenant shall not be entitled to any part of the
award or awards made, provided, however, that Tenant may make a claim for loss
of Tenant's fixtures, loss of business and relocation expenses.
(C) Anything contained in Subparagraphs (A) and (B) of this Paragraph
"SEVENTEENTH" to the contrary notwithstanding, the Landlord shall not be
required to repair or rebuild the Leased Premises during the last year of the
original term or the last year of any renewal term thereof.
EIGHTEENTH: IMPROVEMENTS. Title to any and all improvements by Tenant
made to the Leased Premises during the term hereof shall vest in Landlord, as of
the end of the term of this Lease or any earlier termination. Tenant may, upon
termination hereof, remove all its trade fixtures but shall repair or pay for
repairs necessary for damages to the Leased Premises occasioned by removal.
NINETEENTH: DESTRUCTION. In the event of a partial destruction of the
Leased Premises, from any cause, the tenancy shall continue with rent
proportionately abated. Landlord shall forthwith repair the same, provided that
such repairs can be made within ninety (90) days from the partial destruction of
Leased Premises under existing governmental laws and regulation, but such
partial destruction shall not terminate this Lease. Tenant shall be entitled to
a proportionate reduction of rent while such repairs are being made. If such
repairs cannot be made within said ninety (90) days, Landlord shall, within
twenty (20) of the partial
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destruction notify Tenant that repairs cannot be completed within
ninety (90) days, and within five (5) days after such notification, Tenant
shall, at its option, notify Landlord of its intent to remain upon Leased
Premises or cancel this Lease, and if Tenant remains, Landlord shall have one
hundred fifty (150) days from that date to complete repair, rent to be
proportionately reduced as aforesaid. Repairs which cannot be completed within
one hundred fifty (150) days, shall be done only with the election of both
Landlord and Tenant. If such partial damage is due to the fault or negligence of
Tenant, Tenant's servants, employees, agents, visitors or licensees, the damages
shall be repaired by Landlord, but there will be no apportionment of rent. In
the event that the Building is destroyed to an extent more than one half (1/2)
of the replacement costs thereof, either Landlord or Tenant may terminate this
Lease. Notwithstanding the above, Landlord shall have no obligation to repair
Leased Premises at any time within the last year of the Lease or the last year
of any extension or renewal thereof.
TWENTIETH: CONTINUOUS OCCUPANCY: Tenant shall with thirty (30) days
written notice to Landlord, be able to vacate but not abandon the Leased
Premises at any time during the term hereof. In the event that a receiver shall
be appointed to take over the business of Tenant, or in the event that Tenant
shall make a general assignment for the benefit of creditors, or Tenant shall
take or suffer any action under any insolvency or bankruptcy act, provided in
the case of an involuntary bankruptcy, such action shall not be vacated within
sixty (60) consecutive days and from the filing of such an insolvency or
bankruptcy action, the same shall constitute a breach of this Lease by Tenant.
TWENTY-FIRST: RIGHT TO PERFORM. If a notice of any lien be filed
against the Leased Premises for, or purporting to be for, labor or material
alleged to have been furnished, or to be furnished to, or for any party hereto,
at the Leased Premises or
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for utilities or other services provided to the Leased Premises on behalf of
Tenant, and if such party shall fail to take such action as shall cause such
lien to be removed from the record by discharge, deposit or bonding
proceedings, within fifteen (15) days after such party received notice of the
filing of such lien, any other party may pay the amount of such lien or
discharge the same by deposit or by bonding proceedings, and in the event of
such deposit or bondings proceedings, such other party may require the lienor
to prosecute an appropriate action to enforce the lienor's claim. (In such
case, any party may pay any judgment recovered on such claim.) Any amount paid
or expense incurred by Landlord or Tenant pursuant to this Paragraph "TWENTY-
FIRST" be added to, or deducted from, succeeding rental payments as may be
appropriate.
TWENTY-SECOND: TENANT DEFAULT AND RIGHT OF REENTRY. In the event of any
breach of this Lease by Tenant, Landlord, besides other rights and remedies it
may have, shall have the immediate right of reentry and may remove all persons
and property from the Leased Premises. Such property may be moved and stored in
a public warehouse or elsewhere at the cost of, and for the account of, Tenant.
Should Landlord elect to reenter, or should it take possession pursuant to legal
proceedings or any notice provided by law, it may either terminate this Lease or
may, from time to time, without terminating this Lease, relet said Leased
Premises or any part thereof for such term or terms (which may be for a term
extending beyond the term of this Lease) and at such rental or rentals and upon
such terms and conditions as Landlord, in its sole discretion, may deem
advisable, with the right to alter or repair Leased Premises upon such
reletting. In the event of such reletting without termination, Tenant shall be
immediately liable to pay to Landlord, in addition to any other amounts then due
hereunder at the option of Landlord, either:
(A) the cost and expense of such reletting and such alterations and/or
repairs and any amount which the rent reserved herein for the period of such
reletting, but not beyond the term
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hereof, exceeds the amount agreed to be paid as rent for such period, or;
(B) rents received by Landlord from such reletting shall be applied
first to the repayment of indebtedness other than rent due hereunder, second to
cost and expenses of reletting and alterations or repairs, and third to the
payment of rent due and unpaid hereunder, and the residue, if any, shall be held
by Landlord and applied in payment of future rent as the same may become due and
payable. Tenant shall be credited only with rent actually received by Landlord.
Tenant shall, in such event, pay any deficiency between the amount due from
Tenant to Landlord and the amount credited. No such reentry or taking possession
by Landlord shall be construed as an election to terminate this Lease unless
written notice of such intention is given, or unless termination be declared by
a Court of competent jurisdiction. Notwithstanding any such reletting without
termination, Landlord may, at any time thereafter, elect to terminate this Lease
on account of such previous breach. Should Landlord at any time terminate this
Lease for any breach, in addition to any other remedy it may have, it may
recover from Tenant all damages it may incur by reason of such breach, and
including the worth at the time of such termination of the excess, if any, of
the amount of said rent and charges equivalent to the rent reserved for over the
then reasonable value of the Leased Premises for the remainder of the term.
Notwithstanding this Paragraph "TWENTY-SECOND," and as a condition precedent to
the exercise of any remedy under this Lease by Landlord:
(C) Landlord shall give Tenant notice in writing of Tenant's failure to
pay rent and/or real estate taxes and other, if any, obligations satisfied by
payment of money, and if Tenant shall pay the same within ten (10) days of
receipt of said notice, Tenant shall not be in default or breach of this
Lease;
(D) Landlord shall give Tenant notice in writing of any other default
or breach which cannot be corrected by the payment of money, and if Tenant shall
correct the same within ten
-18-
<PAGE>
(10) days of receipt of said notice, Tenant shall not be in default or breach
hereunder provided, however, if the breach or default is such that it may not be
corrected within said ten (10) day period, but Tenant commences to correct the
same within said period and diligently continues to correct same, Tenant shall
not be in default or breach hereof.
TWENTY-THIRD: LANDLORD'S NOTICE. In any breach of the Lease by
Landlord, Tenant shall be bound by the same notice requirements as the Landlord
in Paragraph "TWENTY-SECOND."
TWENTY-FOURTH: ACCESS ROAD. Landlord grants to Tenant the right of
non-exclusive ingress and egress along the private road delineated as Area "C"
in Schedule "A." Such road shall be for the use and enjoyment of ingress and
egress and installation of utilities and services by owners, lawful occupants
and tenants of Landlord, and Tenant shall not obstruct such access road.
Landlord grants to Tenant the right of non-exclusive ingress and egress through
Area "B" (parking areas) delineated in Schedule "A." The right of nonexclusive
ingress and egress shall be for the use and enjoyment for ingress and egress and
installation of utilities and services by owners, lawful occupants and tenants
of Landlord, and Landlord shall not obstruct such Area "B". Providing Tenant is
not in default of the terms and conditions of this Lease, and a mortgagee shall
foreclose on any mortgage affecting the Leased Premises, access road, or any
premises enjoying the use of said road, the use and enjoyment by Tenant by the
right of way for ingress and egress shall not be disturbed by said action to
foreclose said mortgage. Tenant shall execute any document required by Landlord
to enforce the terms and conditions of this paragraph provided said does not
diminish Tenant's rights hereunder.
TWENTY-FIFTH: SUBORDINATION. This Lease shall be subject and
subordinate at all times to the lien of the mortgages
-19-
<PAGE>
or any Lease covering the Leased Premises, given in connection with an
Industrial Revenue Bond financing now on the Leased Premises, and all advances
made or thereafter to be made upon the security thereof; subject and subordinate
to the lien of any future mortgage or mortgages including purchase money
mortgages, or future Lease or Leases given as part of an Industrial Revenue Bond
financing which may be a lien upon the Leased Premises, provided, however, that
any such mortgage or mortgages, or such Lease or Leases, shall provide that in
any foreclosure proceeding, Tenant will not be made a party thereunder and in
any sale in such foreclosure proceeding, this Lease shall remain undisturbed and
in full force and effect provided Tenant is not in default thereunder.
TWENTY-SIXTH: METHOD OF NOTICE. Any notice or demand which, under the
terms of this Lease or under any statute, must or may be given or made by the
parties hereto shall be in writing and shall be given or made by mailing the
same by certified or registered mail addressed to the respective parties at the
following addresses:
In the case of Tenant, to: With a copy to:
MANAGEMENT ADJUSTMENT _____________________________
BUREAU, INC. _____________________________
120 Pineview Drive _____________________________
Amherst, New York 14228 _____________________________
In .the case of Landlord, to: With a copy to:
UNILAND DEVELOPMENT COMPANY Parrino, Cooper, Butler & Dobson
100 Corporate Parkway 135 Delaware Avenue, Suite 405
Suite 500 Buffalo, New York 14202
Amherst, New York 14226 ATTN: Arthur F. Dobson, Jr.
ATTN: DIRECTOR OF PROPERTIES _____________________________
or such other address as each of the parties hereto may from time to time
designate by notice to the other.
-20-
<PAGE>
TWENTY-SEVENTH: ATTORNEY EXPENSES. If either party shall at any time be
in default hereunder and if either party shall institute an action or summary
proceeding against the offending party based upon such default, then the losing
party will reimburse the prevailing party for the expense of attorney's fees and
disbursements thereby incurred by the prevailing party, so far as the same are
reasonable in amount. Also, so long as Tenant shall be a tenant hereunder, the
amount of such expenses shall be deemed to be "additional rent" hereunder and
shall be due from Tenant to Landlord on the first day of the month following the
incurring of such respective expenses.
TWENTY-EIGHTH: TELEPHONE SERVICE. Telephone service to and throughout
the Leased Premises shall be the responsibility of the Tenant. Notwithstanding
provisions of Paragraph "TENTH," maintenance of telephone wiring and equipment
within the Leased Premises shall be the responsibility of the Tenant for the
term of the Lease. Installation of wiring and equipment shall comply with all
local ordinances and regulations of the New York State Fire Underwriters.
TWENTY-NINTH: JURY WAIVER. In the event that Landlord must proceed by
summary proceeding to enforce any provision of the Lease, Tenant and Landlord
hereby waive whatever right they may have to a jury trial with regard to any
issues of law or fact in said proceeding.
THIRTIETH: INVALIDITY. The invalidity or unenforceability of any
provisions of this Lease shall in no way affect the validity or enforceability
of any other provision hereof. No failure of Landlord to enforce any term hereof
shall be deemed to be a waiver.
THIRTY-FIRST: ADVANCED RENT. With the execution of this Lease, Tenant
shall pay to Landlord the sum of TWENTY FOUR THOUSAND
-21-
<PAGE>
FIVE HUNDRED SIXTY SEVEN and 50/100 ($24,567.50) DOLLARS as advanced
rent. In the event the Tenant faithfully performs all terms and conditions of
this Lease, said advanced rent shall be applied to the last month of the
original Lease Term.
THIRTY-SECOND: SUCCESSION. This Lease is binding upon and inures to the
benefit of the heirs, assigns, and successors in interest to the parties.
THIRTY-THIRD: RULES AND REGULATIONS. Tenant agrees to comply with all
reasonable rules and regulations which the Landlord may establish from time to
time for the protection and welfare of the Tenant, the Building, and all other
tenants and occupants thereof.
THIRTY-FOURTH: QUIET ENJOYMENT. Landlord shall, at all times during the
term of this Lease, allow Tenant quiet enjoyment of said Leased Premises.
THIRTY-FIFTH: FINANCING COOPERATION. Tenant will use its best efforts
to cooperate with Landlord in satisfying reasonable requirements of Landlord's
mortgagee, including the execution of the attached Estoppel Certificate,
Schedule "D" attached hereto and made a part hereof, provided same does not
materially alter the terms and conditions of this Lease.
THIRTY-SIXTH: FINANCIAL STATEMENT. Tenant shall furnish to Landlord
within ninety (90) days of the close of each fiscal year during the term of this
Lease, a financial statement. This statement shall be for the confidential use
of Landlord's mortgagee only and for no other purpose.
THIRTY-SEVENTH: ARBITRATION. Any dispute between Landlord and Tenant
arising out of the provisions of this Lease, excepting the payment of rent,
taxes, mechanic's liens, deposits
<PAGE>
and the like, shall be submitted to arbitration in such a manner as the parties
may agree upon, or if they cannot agree, in accordance with the rules of the
American Arbitration Association.
THIRTY-EIGHTH: SIGNAGE. Landlord reserves the right to maintain
uniformity and conformity for all exterior signs including window signage of all
tenants of the Building and/or complex in which the Leased Premises are located.
Landlord reserves the right to maintain uniformity and conformity for all
interior signs. Landlord at Tenant's request, shall provide Tenant with
specifications for its signage and Tenant may, at its own expense, construct or
install a sign in accordance with the aforesaid specifications. All requests for
permission to erect, apply, and/or install signage must be made in writing to
the Landlord and include a graphic illustration of the proposed sign. Landlord
shall respond within fifteen (15) days to Tenant's request with either approval
or disapproval of the proposed signage.
THIRTY-NINTH: PARKING. Landlord shall provide car parks for Tenant
within the confines of the parking lot shown as Area "B" on Schedule "A" located
at the Sweet Home Centre, Dodge and Sweet Home Roads, Amherst, New York.
Landlord reserves the right, throughout the term of this Lease, to assign
Tenant specific on site car parks. In the event that the Leased Premises is
expanded, Landlord shall provide a corresponding expansion of the parking area
based on a ratio of six (6) car parks per one thousand (1,000) square feet of
floor area so expanded.
FORTIETH: JURISDICTION. The parties agree that venue for any judicial
action shall be the County of Erie, State of New York. If either party does not
maintain an office or residence in the County of Erie, State of New York, the
time of the commencement of any action under this Lease, then such party hereby
designates the Secretary of State for the State of New York as its agent for
-23-
<PAGE>
the service of process. Any matters involving this Lease shall be governed by
the laws of the State of New York.
FORTY-FIRST: NO RECORDING. Neither this Lease nor any memorandum
thereof shall be recorded.
FORTY-SECOND: PARAGRAPH CAPTIONS. Paragraph headings set forth herein
are for the convenience of the parties only, and the same shall not be deemed
to limit or expand the terms and conditions set forth herein.
IN WITNESS WHEREOF, the parties hereto have affixed their hands and
seals the day and year first above mentioned.
THE UNILAND PARTNERSHIP, L.P.
By: _____________________________________
MANAGEMENT ADJUSTMENT BUREAU, INC.
By: _____________________________________
-24-
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this _____ day of ______________ 1994 before me, the subscriber,
personally appeared NANCY R. DOBSON, Executive Vice President in THE UNILAND
PARTNERSHIP, L.P., a New York Limited Partnership doing business under the laws
of the State of New York, and she acknowledged to me that she has executed the
within Lease Agreement as such Executive Vice President acting on behalf of such
partnership.
________________________________
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this _______ day of ____________________ 1994 personally appeared
________________________________ of MANAGEMENT ADJUSTMENT BUREAU, INC. said
corporation being named above, deposes and says that he resides at__________
_____________________________ ___________________________ and that he is an
officer of said corporation, the corporation described in and who executed the
foregoing Lease Agreement; that he knows the seal of said Corporation, that the
seal affixed to said Instrument is such Corporate seal; that it was affixed by
the Order of the Board of Directors of said Corporation and that he signed h__
name thereto by like order.
__________________________________
<PAGE>
SCHEDULE C
Tenant shall, on its own stationery, provide to Landlord upon
acceptance or possession of the premises, the following:
"To Whom It May Concern:
On __________________________ 1994, MANAGEMENT ADJUSTMENT BUREAU, INC.
entered into a Lease Agreement with THE UNILAND PARTNERSHIP, L.P., for
approximately TWENTY FIVE THOUSAND SIX HUNDRED SIXTY SEVEN (25,667) square feet
of office space located at the Sweet Home Centre, Dodge and Sweet Home Roads,
Amherst, New York. On the _____ day of _____________ 1994, Landlord tendered and
Tenant accepted possession of premises.
It is agreed by the parties that the Lease Agreement dated
_______________________, 1994 commences on the first day of ________________
1994, and terminates on the _____ day of ______________ 19__.
<PAGE>
SCHEDULE D
TENANT ESTOPPEL LETTER
___________________________________
___________________________________
___________________________________
___________________________________
Gentlemen:
The undersigned, a Tenant under a lease dated _______________________
(the "Lease") between the undersigned and THE UNILAND PARTNERSHIP, L.P.
(Landlord) for space comprising TWENTY FIVE THOUSAND SIX HUNDRED SIXTY SEVEN
(25,667) square feet ("Leased Premises") in the Building located at the Sweet
Home Centre, Dodge and Sweet Home Roads, Amherst, New York (the "Property"),
understands that the Landlord is about to mortgage the Property to
_______________________________________________ , in connection with which the
Landlord's interest in the Lease may be collaterally assigned to the mortgagee.
The undersigned provides the following information to the best of its
knowledge with respect to the Lease:
(a) The undersigned has accepted possession of the Leased
Premises and has commenced paying rent under the Lease.
(b) The remaining term of the Lease, including any option or
renewal term, is ___________________, expiring on ____________________________.
(c) The annual base rent being paid is $________________.
(d) The amount of any advance rent held by Landlord or any
other party is $___________________.
(e) The date through which rent has been paid is
_______________________, 19__.
(f) There are no outstanding defaults, notices of default,
claims or offsets arising out of its leasehold.
(g) The Lease has not been modified or amended as of this
date.
(h) The undersigned has not received notice of any prior
assignment of the Landlord's interest under the Lease.
MANAGEMENT ADJUSTMENT BUREAU, INC.
Dated: __________________________ BY: _______________________________
<PAGE>
FIRST AMENDMENT TO LEASE
BY AND BETWEEN
THE UNILAND PARTNERSHIP, L.P.
AND
MANAGEMENT ADJUSTMENT BUREAU, INC.
DATED: 12/10/94
Lease No. 2235-F
<PAGE>
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO LEASE dated the 10th day of December 1994, by and
between THE UNILAND PARTNERSHIP, L.P., a New York Limited Partnership,
University Corporate Centre, 100 Corporate Parkway, Suite 500, Amherst, New York
14226, hereinafter called "Landlord" and MANAGEMENT ADJUSTMENT BUREAU, INC. a
New York Corporation, with offices located at 120 Pineview Drive, Amherst, New
York 14226 hereinafter called "Tenant."
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated the
5th day of August, 1994 for TWENTY FIVE THOUSAND SIX HUNDRED SIXTY SEVEN
(25,667) square feet of office and space located at the Sweet Home Centre, Dodge
andSweet Home Road, Amherst, New York; and
WHEREAS, Landlord and Tenant are desirous of increasing the Leased
Premises by an additional FOUR THOUSAND (4,000) square feet making the total
Leased Premises TWENTY NINE THOUSAND SIX HUNDRED SIXTY SEVEN (29,667) square
feet ("Revised Leased Premises").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree that the Lease Agreement, dated the 5th day of August,
1994, between the parties shall be amended as follows:
FIRST: Paragraph "FIRST: LEASED PREMISES". Landlord leases to Tenant
and Tenant hereby takes office space comprising approximately TWENTY NINE
THOUSAND SIX HUNDRED SIXTY SEVEN (29,667) square feet in a building located at
the Sweet Home Centre, Dodge and Sweet Home Roads, Amherst, New York and more
specifically designated on a plan attached hereto and designated as Schedule
"AA" and made a part hereof.
<PAGE>
SECOND: Paragraph "THIRD: RENT." Upon the commencement of this First
Amendment to Lease Term, Tenant shall pay rent to the Landlord as follows:
A) On the first day of the first month of this First Amendment to Lease
Term, the sum of TWENTY FOUR THOUSAND EIGHT HUNDRED NINETY and 58/100
($24,890.58) DOLLARS and on the first day of the second month of the tenancy and
on the first day of each and every calendar month thereafter through the
sixtieth month of the tenancy, Tenant shall pay to Landlord the sum of TWENTY
FOUR THOUSAND EIGHT HUNDRED NINETY and 58/100 ($24,890.58) DOLLARS.
B) On the first day of the sixty-first through one hundred twentieth
month of the tenancy, Tenant shall pay to Landlord the sum of TWENTY SIX
THOUSAND EIGHT HUNDRED NINETY THREE and 08/100 ($26,893.08) DOLLARS.
C) on the first day of the one hundred twenty first through one hundred
eightieth month of the tenancy, Tenant shall pay to Landlord the sum of TWENTY
EIGHT THOUSAND THREE HUNDRED NINETY SIX and 17/100 ($28,396.17) DOLLARS.
All payments to be made in United States funds.
THIRD: Paragraphs "THIRD: CONSTRUCTION OF LEASED PREMISES" and "FOURTH:
DELAYS IN CONSTRUCTION" shall be amended as follows: Schedule "B" shall be
changed to Schedule "BB". All other terms and conditions of these paragraphs
shall remain the same.
FOURTH: Paragraph "THIRTIETH: ADVANCED RENT" shall be amended as
follows: Landlord acknowledges receipt of TWENTY FOUR THOUSAND FIVE HUNDRED
SIXTY SEVEN and 50/100 ($24,567.50) DOLLARS advanced rent from Tenant. Upon the
signing of this First Amendment to Lease an additional advanced rent of THREE
THOUSAND EIGHT HUNDRED TWENTY EIGHT and 67/100 ($3,828.67) DOLLARS is due making
the total advanced rent TWENTY EIGHT THOUSAND THREE HUNDRED NINETY SIX and
17/100 ($28,396.17) DOLLARS. In the event that Tenant faithfully performs all
terms and conditions of the Lease Agreement and any extensions or renewals
thereof, said advanced rent shall be applied to the last month of the term.
-2-
<PAGE>
FIFTH: Except as specifically amended herein, the terms and conditions
of the Lease Agreement between the parties entered into on or about the 5th day
of August, 1994 shall continue in full force and effect throughout the renewal
term.
IN WITNESS WHEREOF, the parties have affixed their hands and seals the
day and year first above written.
THE UNILAND PARTNERSHIP, L.P.
By: Nancy R. Dobson
-------------------------------------
MANAGEMENT ADJUSTMENT BUREAU, INC.
By: Michael Noah - President
-------------------------------------
-3-
<PAGE>
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this 10th day of December, 1994, personally appeared NANCY R.
DOBSON, Executive Vice President in THE UNILAND PARTNERSHIP, L.P., a New York
Limited Partnership doing business under the laws of the State of New York, and
she acknowledged to me that she has executed the within First Amendment to Lease
as such Executive Vice President acting on behalf of such partnership.
Barbara A. Carter
---------------------------
NOTARY PUBLIC
My commission expires 3/30/96
STATE OF NEW YORK )
) SS.
COUNTY OF ERIE )
On this 10th day of November, 1994, before me, the subscriber
personally appeared Michael Noah of MANAGEMENT ADJUSTMENT BUREAU, INC. the
Corporation being named above, deposes and says that he/she resides at Amherst,
New York, that he/she is an officer of said corporation, the corporation
described in and who executed the foregoing First Amendment to Lease; that
he/she knows the seal of said corporation, that the seal affixed to said
Instrument is such corporate seal; that it was affixed by the order of the Board
of Directors of said Corporation and that he/she signed his/her name thereto by
like order.
Robert J. Nelson
-----------------------------
ROBERT J. NELSON
Notary Public, State of New York
Qualified in Erie County
My Commission Expires Sept 30, 1995
<PAGE>
SECOND AMENDMENT TO LEASE
BY AND BETWEEN
THE UNILAND PARTNERSHIP, L.P.
AND
MANAGEMENT ADJUSTMENT BUREAU, INC.
DATED: As of 12/10/94
Lease No. 2235-F
<PAGE>
SECOND AMENDMENT TO LEASE
SECOND AMENDMENT TO LEASE dated as of the 10th day of December, 1994,
by and between THE UNILAND PARTNERSHIP, L.P., a New York Limited Partnership,
University Corporate Centre, 100 Corporate Parkway, Suite 500, Amherst, New York
14226, hereinafter called "Landlord", and MANAGEMENT ADJUSTMENT BUREAU, INC., a
New York Corporation, with offices located at 55 Dodge Road, Amherst, New York
14228, and a mailing address of P.O. Box 1166, Buffalo, New York 14240
hereinafter called "Tenant."
WHEREAS, Landlord and Tenant entered into a Lease Agreement dated the
5th day of August, 1994 for TWENTY FIVE THOUSAND SIX HUNDRED SIXTY SEVEN
(25,667) square feet of office and space located at the Sweet Home Centre, Dodge
and Sweet Home Road, Amherst, New York; and
WHEREAS, Landlord and Tenant are desirous of increasing the Leased
Premises by an additional FOUR THOUSAND (4,000) square feet making the total
Leased Premises TWENTY NINE THOUSAND SIX HUNDRED SIXTY SEVEN (29,667) square
feet ("Revised Leased Premises").
WHEREAS, in order to implement such desire Landlord and Tenant
previously executed a First Amendment to Lease dated December 10, 1994 which
they now want to supersede with this Second Amendment to Lease.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree that the Lease Agreement, dated the 5th day of August,
1994, between the parties shall be amended as follows:
FIRST: Paragraph "FIRST: LEASED PREMISES". Landlord leases to Tenant
and Tenant hereby takes office space comprising approximately TWENTY NINE
THOUSAND SIX HUNDRED SIXTY SEVEN (29,667) square feet in a building located
at the Sweet Home Centre, Dodge and Sweet Home Roads, Amherst, New York and
more specifically designated on a plan attached hereto and designated as
Schedule "AA" and made a part hereof.
<PAGE>
SECOND: Paragraph "THIRD: RENT." Any reference to the dollar figure of
the total base rent shall be deleted and subparagraph a) shall read as follows:
a) The Base Rent due under the Lease shall be payable as
follows:
A) On the first day of the first month of this First Amendment
to Lease Term, the sum of TWENTY FOUR THOUSAND EIGHT HUNDRED NINETY AND 58/100
($24,890.58) DOLLARS and on the first day of the second month of the tenancy and
on the first day of each and every calendar month thereafter through the
sixtieth month of the tenancy, Tenant shall pay to Landlord the sum of TWENTY
FOUR THOUSAND EIGHT HUNDRED NINETY and 58/100 ($24,890.58) DOLLARS.
B) On the first day of the sixty-first through one hundred
twentieth month of the tenancy, Tenant shall pay to Landlord the sum of TWENTY
SIX THOUSAND EIGHT HUNDRED NINETY THREE and 08/100 ($26,893.08) DOLLARS.
C) On the first day of the one hundred twenty first through
one hundred eightieth month of the tenancy, Tenant shall pay to Landlord the sum
of TWENTY EIGHT THOUSAND THREE HUNDRED NINETY SIX AND 17/100 ($28,396.17)
DOLLARS.
D) All rents shall be paid to Landlord or authorized agent at
University Corporate Centre, 100 Corporate Parkway, Suite 500, Amherst, New York
14226, or at such other places as may be designated by Landlord from time to
time. All rents payable in United States funds.
THIRD: Paragraphs "FOURTH: CONSTRUCTION OF LEASED PREMISES," "FIFTH:
DELAYS IN CONSTRUCTION" and "SIXTH: POSSESSION" shall be amended as follows:
Schedule "B" shall be changed to Schedule "BB". All other terms and conditions
of these paragraphs shall remain the same.
FOURTH: Paragraph "THIRTY-FIRST: ADVANCED RENT" shall be amended as
follows: Landlord acknowledges receipt of TWENTY FOUR THOUSAND FIVE HUNDRED
SIXTY SEVEN and 50/100 ($24,567.50) DOLLARS advanced rent from Tenant. Upon the
signing of the First
<PAGE>
Amendment to Lease an additional advanced rent of THREE THOUSAND EIGHT HUNDRED
TWENTY EIGHT AND 67/100 ($3,828.67) DOLLARS was received by Landlord making the
total advanced rent TWENTY EIGHT THOUSAND THREE HUNDRED NINETY SIX and 17/100
($28,396.17) DOLLARS. In the event that Tenant faithfully performs all terms and
conditions of the Lease Agreement and any extensions or renewals thereof, said
advanced rent shall be applied to the last month of the term.
FIFTH: Except as specifically amended herein, the terms and conditions
of the Lease Agreement between the parties entered into on or about the 5th day
of August, 1994 is ratified, confirmed and approved and shall continue in full
force and effect throughout the renewal term.
This Second Amendment of Lease is executed and delivered to clarify as
of December 10, 1994 the agreement of the parties. As such it supersedes and
replaces the First Amendment of Lease.
IN WITNESS WHEREOF, the parties have affixed their hands and seals the
day and year first above written.
THE UNILAND PARTNERSHIP, L.P.
By: __________________________________
General Partner
MANAGEMENT ADJUSTMENT BUREAU, INC.
By: __________________________________
President
<PAGE>
STATE OF NEW YORK )
COUNTY OF ERIE )
On this _____ day of __________________, 1995, personally appeared CARL
MONTANTE, General Partner of THE UNILAND PARTNERSHIP, L.P., a New York Limited
Partnership doing business under the laws of the State of New York, and he
acknowledged to me that he has executed the within Second Amendment to Lease as
such General Partner acting on behalf of such partnership.
____________________________________
STATE OF NEW YORK )
COUNTY OF ERIE )
On this _____ day of ______________________, 1995, before me, the
subscriber personally appeared Michael Noah of MANAGEMENT ADJUSTMENT BUREAU,
INC. the Corporation being named above, deposes and says that he resides at
Amherst, New York, that he is the President of the corporation, the corporation
described in and which executed the foregoing Second Amendment to Lease; and
that he signed his name thereto by order of the board of directors of said
corporation.
__________________________________
<PAGE>
Exhibit 10.10
NCO GROUP, INC.
AMENDED AND RESTATED
1995 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this Amended and Restated 1995 Stock Option Plan (the
"Plan") is to provide additional incentive to officers, key employees and
directors of, and important consultants to, NCO Group, Inc., a Pennsylvania
corporation (the "Company"), and each present or future parent or subsidiary
corporation, by encouraging them to invest in shares of the Company's common
stock, no par value ("Common Stock"), and thereby acquire a proprietary interest
in the Company and an increased personal interest in the Company's continued
success and progress.
2. Aggregate Number of Shares
221,719 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee (defined in Section 4(a)),
deems in its sole discretion to be similar circumstances, the aggregate number
and kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Committee.
Reacquired shares of the Company's Common Stock, as well as unissued shares, may
be used for the purpose of this Plan. Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan. The Plan as amended and
restated reflects the appropriate adjustments with respect to the 46.56-for-1
stock split effected in September 1996.
3. Class of Persons Eligible to Receive Options
All officers, key employees and directors of, and important consultants
to, the Company and any present or future Company parent or subsidiary
corporation are eligible to receive an option or options under this Plan,
provided, however, that Incentive Stock Options (defined in Section 5(a)) may be
issued only to persons who are employees of the Company or any subsidiary
corporation. The individuals who shall, in fact, receive an option or options
shall be selected by the Committee, in its sole discretion, except as otherwise
specified in Section 4 hereof. No individual may receive options under this Plan
for more than 90% of the total number of shares of the Company's Common Stock
authorized for issuance under this Plan.
<PAGE>
4. Administration of Plan
(a) Prior to the registration of the Company's Common Stock
under Section 12 of the Securities Exchange Act of 1934, this Plan shall be
administered by the Company's Board of Directors and, after such registration,
by the Compensation Committee ("Committee") appointed by the Company's Board of
Directors provided, however, that at the option of the Board of Directors, the
Plan may be administered by the Board of Directors of the Corporation at any
time and from time to time. The Committee shall consist of a minimum of two and
a maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Committee or of the Board of Directors for any
reason to be composed solely of Non-Employee Directors shall not prevent an
option from being considered granted under this Plan. The Committee shall, in
addition to its other authority and subject to the provisions of this Plan,
determine which individuals shall in fact be granted an option or options,
whether the option shall be an Incentive Stock Option or a Non-Qualified Stock
Option (as such terms are defined in Section 5(a)), the number of shares to be
subject to each of the options, the time or times at which the options shall be
granted, the rate of option exercisability, and, subject to Section 5 hereof,
the price at which each of the options is exercisable and the duration of the
option. The term "Committee", as used in this Plan and the options granted
hereunder, refers to the Board of Directors prior to the registration of the
Company's Common Stock under Section 12 of the Securities Exchange Act of 1934
and, after such registration, to the Committee or to the Board of Directors, if
the Board elects to administer the Plan as provided above.
(b) The Committee shall adopt such rules for the conduct of
its business and administration of this Plan as it considers desirable. A
majority of the members of the Committee shall constitute a quorum for all
purposes. The vote or written consent of a majority of the members of the
Committee on a particular matter shall constitute the act of the Committee on
such matter. The Committee shall have the right to construe the Plan and the
options issued pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
<PAGE>
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either
Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified
Stock Options granted pursuant to Section 5(c) hereof, as determined by the
Committee. An "Incentive Stock Option" is an option which satisfies all of the
requirements of Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option"
is an option which either does not satisfy all of those requirements or the
terms of the option provide that it will not be treated as an Incentive Stock
Option. The Committee may grant both an Incentive Stock Option and a
Non-Qualified Stock Option to the same person, or more than one of each type of
option to the same person. The option price for Incentive Stock Options issued
under this Plan shall be equal at least to the fair market value (as defined
below) of the Company's Common Stock on the date of the grant of the option,
provided, however, that if an Incentive Stock Option is granted to an individual
who, at the time the option is granted, is deemed to own more than 10 percent of
the total combined voting power of all classes of stock of the Company or any
subsidiary corporation of the Company as more fully set forth in Section
422(b)(6) of the Code (after giving effect to the ownership attribution rules of
422(c)(5) of the Code) (a "10% Shareholder"), such option shall comply with the
provisions of Section 422(c)(5) of the Code, including without limitation,
requirements that the option price shall not be less than 110 percent of the
fair market value, as determined by the Committee in accordance with its
interpretation of the requirements of Section 422 of the Code and the
regulations thereunder, of the Company's Common Stock on the date of grant of
the option, and such option shall not be exercisable after the expiration of
five years from the date the option is granted. The option price for
Non-Qualified Stock Options issued under this Plan may, in the sole discretion
of the Committee, be less than the fair market value of the Common Stock on the
date of the grant of the option. The fair market value of the Company's Common
Stock on any particular date shall mean the last reported sale price of a share
of the Company's Common Stock on any stock exchange on which such stock is then
listed or admitted to trading, or on the Nasdaq National Market or Nasdaq
SmallCap Market, on such date, or if no sale took place on such day, the last
such date on which a sale took place, or if the Common Stock is not then quoted
on the Nasdaq National Market or the Nasdaq SmallCap Market, or listed or
admitted to trading on any stock exchange, the average of the bid and asked
prices in the over-the-counter market on such date, or if none of the foregoing,
a price determined in good faith by the Committee to equal the fair market value
per share of the Common Stock.
<PAGE>
(b) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Incentive Stock Options issued to officers and key
employees pursuant to this Plan shall be issued substantially in the form set
forth in Appendix I hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Incentive Stock Options shall not be exercisable after the
expiration of ten years (five years in the case of 10% Shareholders) from the
date such options are granted, unless terminated earlier under the terms of the
option. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422(b) of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422(b) of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other
key employees pursuant to this Plan shall be issued substantially in the form
set forth in Appendix II hereof, which form is hereby incorporated by reference
and made a part hereof, and shall contain substantially the terms and conditions
set forth therein. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to directors and
important consultants pursuant to this Plan shall be issued substantially in the
form set forth in Appendix III hereof, which form is hereby incorporated by
reference and made a part hereof, and shall contain substantially the terms and
conditions set forth therein. Non-Qualified Stock Options shall expire ten years
after the date they are granted, unless terminated earlier under the option
terms. At the time of granting a Non-Qualified Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix II or Appendix III for any particular optionee.
(d) Neither the Company nor any of its current or future
parent, subsidiaries or affiliates, nor their officers, directors, shareholders,
stock option plan committees, employees or agents shall have any liability to
any optionee in the event (i) an option granted pursuant to Section 5(b) hereof
does not qualify as an "Incentive Stock Option" as that term is used in Section
422(b) of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
<PAGE>
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from the date the Plan is adopted by the Board of
Directors of the Company. The Board of Directors reserves the right at any time,
and from time to time, to amend or supplement this Plan and outstanding options
granted under the Plan in any way, or to suspend or terminate the Plan,
effective as of such date, which date may be either before or after the taking
of such action, as may be specified by the Board of Directors; provided,
however, that such action shall not adversely affect holders of options granted
under the Plan prior to the actual date on which such action occurred. If an
amendment or supplement of this Plan is required by the Code or the regulations
thereunder to be approved by the shareholders of the Company in order to permit
the granting of "Incentive Stock Options" (as that term is defined in Section
422(b) of the Code and regulations thereunder) pursuant to the amended or
supplemented Plan, such amendment or supplement shall also be approved by the
shareholders of the Company in such manner as is prescribed by the Code and the
regulations thereunder. If the Board of Directors voluntarily submits a proposed
amendment, supplement, suspension or termination for shareholder approval, such
submission shall not require any future amendments, supplements, suspensions or
terminations (whether or not relating to the same provision or subject matter)
to be similarly submitted for shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors, subject however to approval by the holders
of the Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ of the Company or any affiliated or subsidiary corporation or
interfere in any way with the rights of the Company or any affiliated or
subsidiary corporation to terminate his employment in any way.
<PAGE>
(b) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director or consultant the right to
continue as a director of, or consultant to, the Company or any affiliated or
subsidiary corporation or interfere in any way with the rights of the Company or
any affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
(c) Corporate action constituting an offer of stock for sale
to any person under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the such person, regardless of when the option is actually delivered
to such person or acknowledged or agreed to by him.
(d) The terms "parent corporation" and "subsidiary
corporation" as used throughout this Plan, and the options granted pursuant to
this Plan, shall (except as otherwise provided in the option form) have the
meaning that is ascribed to that term when contained in Section 422(b) of the
Code and the regulations thereunder, and the Company shall be deemed to be the
grantor corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to
also refer to the corresponding provisions of any future United States revenue
law.
(f) The use of the masculine pronoun shall include the
feminine gender whenever appropriate.
<PAGE>
APPENDIX I
INCENTIVE STOCK OPTION
To:
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Name
---------------------------------------------------------------------------
Address
Date of Grant:
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You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, no par value ("Common Stock"), of
NCO Group, Inc., a Pennsylvania corporation (the "Company") at a price of
$_________ per share pursuant to the Company's Amended and Restated 1995 Stock
Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years (five years in the case of 10% Shareholders, as defined in the Plan)
from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date your employment is terminated
<PAGE>
(whether such termination be voluntary or involuntary) after the Change of
Control (but in no event later than the Scheduled Termination Date), and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances) and your vesting date may
accelerate accordingly. A "Change of Control" shall be deemed to have occurred
upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death, in which case your option will
terminate one year from the date of termination of employment due to disability
or death (but in no event later than the Scheduled Termination Date). After the
date your employment is terminated, as aforesaid, you may exercise this option
only for the number of shares which you had a right to purchase and did not
<PAGE>
purchase on the date your employment terminated. If you are employed by a
Company subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your employment is
terminated for: (i) criminal conduct; or (ii) willful misconduct or gross
negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee. This option reflects
the appropriate adjustments with respect to the 46.56-for-1 stock split effected
in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
<PAGE>
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
<PAGE>
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422(b)
of the Code and the regulations thereunder. In the event this option is in any
way inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
<PAGE>
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
By:
-----------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- -------------------------------- ------------------------
(Signature) (Date)
<PAGE>
APPENDIX II
NON-QUALIFIED STOCK OPTION FOR OFFICERS AND OTHER KEY EMPLOYEES
To:
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Name
---------------------------------------------------------------------------
Address
Date of Grant:
-----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, no par value ("Common Stock"), of
NCO Group, Inc., a Pennsylvania corporation (the "Company") at a price of
$__________ per share pursuant to the Company's 1995 Amended and Restated Stock
Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date your employment is terminated
(whether such termination be voluntary or involuntary) after the Change of
Control (but in no event later than the Scheduled Termination Date), and
<PAGE>
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances) and your vesting date may
accelerate accordingly. A "Change of Control" shall be deemed to have occurred
upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death, in which case your option will
terminate one year from the date of termination of employment due to disability
or death (but in no event later than the Scheduled Termination Date). After the
date your employment is terminated, as aforesaid, you may exercise this option
only for the number of shares which you had a right to purchase and did not
purchase on the date your employment terminated. If you are employed by a
Company subsidiary corporation, your employment shall be deemed to have
<PAGE>
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your employment is
terminated for: (i) criminal conduct; or (ii) willful misconduct or gross
negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee. This option reflects
the appropriate adjustments with respect to the 46.56-for-1 stock split effected
in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
<PAGE>
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
<PAGE>
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
<PAGE>
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
By:
---------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- ---------------------------------- ------------------------
(Signature) (Date)
<PAGE>
APPENDIX III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
To:
----------------------------------------------------------------------------
Name
----------------------------------------------------------------------------
Address
Date of Grant:
-----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, no par value ("Common Stock"), of
NCO Group, Inc., a Pennsylvania corporation (the "Company") at a price of
$__________ per share pursuant to the Company's 1995 Amended and Restated Stock
Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
<PAGE>
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date your employment is terminated
(whether such termination be voluntary or involuntary) after the Change of
Control (but in no event later than the Scheduled Termination Date), and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances) and your vesting date may
accelerate accordingly. A "Change of Control" shall be deemed to have occurred
upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the
members of the board of directors of the Company;
2. A change within a twelve-month period in the holders of
more than 50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control"
by the Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease for any reason to be a
director of, or consultant to, the Company or a subsidiary corporation (whether
by death, disability, resignation, removal, failure to be reappointed, reelected
or otherwise, or the expiration of any consulting arrangement, and regardless of
whether the failure to continue as a director or consultant was for cause or
without cause or otherwise), but in no event later than ten years from the date
<PAGE>
this option is granted. After the date you cease to be a director or consultant,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date you ceased to be a director or
consultant. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
a director of, or consultant to, the Company or another subsidiary corporation.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your directorship or
consultancy is terminated for: (i) criminal conduct; or (ii) willful misconduct
or gross negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee. This option reflects
the appropriate adjustments with respect to the 46.56-for-1 stock split effected
in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
<PAGE>
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
<PAGE>
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422(b) of the
Code and the regulations thereunder.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
<PAGE>
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
By:
----------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- --------------------------------------- -----------------------
(Signature) (Date)
<PAGE>
Exhibit 10.11
NCO GROUP, INC.
1996 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1996 Stock Option Plan (the "Plan") is to provide
additional incentive to officers, key employees and directors of, and important
consultants to, NCO Group, Inc., a Pennsylvania corporation (the "Company"), and
each present or future parent or subsidiary corporation, by encouraging them to
invest in shares of the Company's common stock, no par value ("Common Stock"),
and thereby acquire a proprietary interest in the Company and an increased
personal interest in the Company's continued success and progress.
2. Aggregate Number of Shares
218,413 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan. Notwithstanding the
foregoing, in the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee (defined in Section 4(a)),
deems in its sole discretion to be similar circumstances, the aggregate number
and kind of shares which may be issued under this Plan shall be appropriately
adjusted in a manner determined in the sole discretion of the Committee.
Reacquired shares of the Company's Common Stock, as well as unissued shares, may
be used for the purpose of this Plan. Common Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan. No adjustment shall be
made with respect to the 46.56-for-1 stock split effected in September 1996.
3. Class of Persons Eligible to Receive Options
All officers, key employees and directors of, and important consultants
to, the Company and any present or future Company parent or subsidiary
corporation are eligible to receive an option or options under this Plan,
provided, however, that Incentive Stock Options (defined in Section 5(a)) may be
issued only to persons who are employees of the Company or any subsidiary
corporation. The individuals who shall, in fact, receive an option or options
shall be selected by the Committee, in its sole discretion, except as otherwise
specified in Section 4 hereof. No individual may receive options under this Plan
for more than 90% of the total number of shares of the Company's Common Stock
authorized for issuance under this Plan.
<PAGE>
4. Administration of Plan
(a) Prior to the registration of the Company's Common Stock
under Section 12 of the Securities Exchange Act of 1934, this Plan shall be
administered by the Company's Board of Directors and, after such registration,
by the Compensation Committee ("Committee") appointed by the Company's Board of
Directors provided, however, that at the option of the Board of Directors, the
Plan may be administered by the Board of Directors of the Corporation at any
time and from time to time. The Committee shall consist of a minimum of two and
a maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Committee or of the Board of Directors for any
reason to be composed solely of Non-Employee Directors shall not prevent an
option from being considered granted under this Plan. The Committee shall, in
addition to its other authority and subject to the provisions of this Plan,
determine which individuals shall in fact be granted an option or options,
whether the option shall be an Incentive Stock Option or a Non-Qualified Stock
Option (as such terms are defined in Section 5(a)), the number of shares to be
subject to each of the options, the time or times at which the options shall be
granted, the rate of option exercisability, and, subject to Section 5 hereof,
the price at which each of the options is exercisable and the duration of the
option. The term "Committee", as used in this Plan and the options granted
hereunder, refers to the Board of Directors prior to the registration of the
Company's Common Stock under Section 12 of the Securities Exchange Act of 1934
and, after such registration, to the Committee or to the Board of Directors, if
the Board elects to administer the Plan as provided above.
(b) The Committee shall adopt such rules for the conduct of
its business and administration of this Plan as it considers desirable. A
majority of the members of the Committee shall constitute a quorum for all
purposes. The vote or written consent of a majority of the members of the
Committee on a particular matter shall constitute the act of the Committee on
such matter. The Committee shall have the right to construe the Plan and the
options issued pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee or the Board of Directors
shall be liable for any act or omission (whether or not negligent) taken or
omitted in good faith, or for the exercise of an authority or discretion granted
in connection with the Plan to a Committee or the Board of Directors, or for the
acts or omissions of any other members of a Committee or the Board of Directors.
Subject to the numerical limitations on Committee membership set forth in
Section 4(a) hereof, the Board of Directors may at any time appoint additional
members of the Committee and may at any time remove any member of the Committee
with or without cause. Vacancies in the Committee, however caused, may be filled
by the Board of Directors, if it so desires.
<PAGE>
5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either
Incentive Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified
Stock Options granted pursuant to Section 5(c) hereof, as determined by the
Committee. An "Incentive Stock Option" is an option which satisfies all of the
requirements of Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations thereunder, and a "Non-Qualified Stock Option"
is an option which either does not satisfy all of those requirements or the
terms of the option provide that it will not be treated as an Incentive Stock
Option. The Committee may grant both an Incentive Stock Option and a
Non-Qualified Stock Option to the same person, or more than one of each type of
option to the same person. The option price for Incentive Stock Options issued
under this Plan shall be equal at least to the fair market value (as defined
below) of the Company's Common Stock on the date of the grant of the option,
provided, however, that if an Incentive Stock Option is granted to an individual
who, at the time the option is granted, is deemed to own more than 10 percent of
the total combined voting power of all classes of stock of the Company or any
subsidiary corporation of the Company as more fully set forth in Section
422(b)(6) of the Code (after giving effect to the ownership attribution rules of
422(c)(5) of the Code) (a "10% Shareholder"), such option shall comply with the
provisions of Section 422(c)(5) of the Code, including without limitation,
requirements that the option price shall not be less than 110 percent of the
fair market value, as determined by the Committee in accordance with its
interpretation of the requirements of Section 422 of the Code and the
regulations thereunder, of the Company's Common Stock on the date of grant of
the option, and such option shall not be exercisable after the expiration of
five years from the date the option is granted. The option price for
Non-Qualified Stock Options issued under this Plan may, in the sole discretion
of the Committee, be less than the fair market value of the Common Stock on the
date of the grant of the option. The fair market value of the Company's Common
Stock on any particular date shall mean the last reported sale price of a share
of the Company's Common Stock on any stock exchange on which such stock is then
listed or admitted to trading, or on the Nasdaq National Market or Nasdaq
SmallCap Market, on such date, or if no sale took place on such day, the last
such date on which a sale took place, or if the Common Stock is not then quoted
on the Nasdaq National Market or the Nasdaq SmallCap Market, or listed or
admitted to trading on any stock exchange, the average of the bid and asked
prices in the over-the-counter market on such date, or if none of the foregoing,
a price determined in good faith by the Committee to equal the fair market value
per share of the Common Stock.
<PAGE>
(b) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Incentive Stock Options issued to officers and key
employees pursuant to this Plan shall be issued substantially in the form set
forth in Appendix I hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Incentive Stock Options shall not be exercisable after the
expiration of ten years (five years in the case of 10% Shareholders) from the
date such options are granted, unless terminated earlier under the terms of the
option. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix I for any particular optionee, provided that the option as
amended or supplemented satisfies the requirements of Section 422(b) of the Code
and the regulations thereunder. Each of the options granted pursuant to this
Section 5(b) is intended, if possible, to be an "Incentive Stock Option" as that
term is defined in Section 422(b) of the Code and the regulations thereunder. In
the event this Plan or any option granted pursuant to this Section 5(b) is in
any way inconsistent with the applicable legal requirements of the Code or the
regulations thereunder for an Incentive Stock Option, this Plan and such option
shall be deemed automatically amended as of the date hereof to conform to such
legal requirements, if such conformity may be achieved by amendment.
(c) Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to officers and other
key employees pursuant to this Plan shall be issued substantially in the form
set forth in Appendix II hereof, which form is hereby incorporated by reference
and made a part hereof, and shall contain substantially the terms and conditions
set forth therein. Subject to the authority of the Committee set forth in
Section 4(a) hereof, Non-Qualified Stock Options issued to directors and
important consultants pursuant to this Plan shall be issued substantially in the
form set forth in Appendix III hereof, which form is hereby incorporated by
reference and made a part hereof, and shall contain substantially the terms and
conditions set forth therein. Non-Qualified Stock Options shall expire ten years
after the date they are granted, unless terminated earlier under the option
terms. At the time of granting a Non-Qualified Stock Option hereunder, the
Committee may, in its discretion, amend or supplement any of the option terms
contained in Appendix II or Appendix III for any particular optionee.
(d) Neither the Company nor any of its current or future
parent, subsidiaries or affiliates, nor their officers, directors, shareholders,
stock option plan committees, employees or agents shall have any liability to
any optionee in the event (i) an option granted pursuant to Section 5(b) hereof
does not qualify as an "Incentive Stock Option" as that term is used in Section
422(b) of the Code and the regulations thereunder; (ii) any optionee does not
obtain the tax treatment pertaining to an Incentive Stock Option; or (iii) any
option granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
<PAGE>
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration
of ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan and outstanding options granted under the
Plan in any way, or to suspend or terminate the Plan, effective as of such date,
which date may be either before or after the taking of such action, as may be
specified by the Board of Directors; provided, however, that such action shall
not adversely affect holders of options granted under the Plan prior to the
actual date on which such action occurred. If an amendment or supplement of this
Plan is required by the Code or the regulations thereunder to be approved by the
shareholders of the Company in order to permit the granting of "Incentive Stock
Options" (as that term is defined in Section 422(b) of the Code and regulations
thereunder) pursuant to the amended or supplemented Plan, such amendment or
supplement shall also be approved by the shareholders of the Company in such
manner as is prescribed by the Code and the regulations thereunder. If the Board
of Directors voluntarily submits a proposed amendment, supplement, suspension or
termination for shareholder approval, such submission shall not require any
future amendments, supplements, suspensions or terminations (whether or not
relating to the same provision or subject matter) to be similarly submitted for
shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Common Stock in the manner as prescribed in the Code and the
regulations thereunder. Options may be granted under this Plan prior to
obtaining shareholder approval, provided such options shall not be exercisable
until shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any employee the right to continue in
the employ of the Company or any affiliated or subsidiary corporation or
interfere in any way with the rights of the Company or any affiliated or
subsidiary corporation to terminate his employment in any way.
<PAGE>
(b) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director or consultant the right to
continue as a director of, or consultant to, the Company or any affiliated or
subsidiary corporation or interfere in any way with the rights of the Company or
any affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
(c) Corporate action constituting an offer of stock for sale
to any person under the terms of the options to be granted hereunder shall be
deemed complete as of the date when the Committee authorizes the grant of the
option to the such person, regardless of when the option is actually delivered
to such person or acknowledged or agreed to by him.
(d) The terms "parent corporation" and "subsidiary
corporation" as used throughout this Plan, and the options granted pursuant to
this Plan, shall (except as otherwise provided in the option form) have the
meaning that is ascribed to that term when contained in Section 422(b) of the
Code and the regulations thereunder, and the Company shall be deemed to be the
grantor corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to
also refer to the corresponding provisions of any future United States revenue
law.
(f) The use of the masculine pronoun shall include the
feminine gender whenever appropriate.
<PAGE>
APPENDIX I
INCENTIVE STOCK OPTION
To:
---------------------------------------------------------------------------
Name
---------------------------------------------------------------------------
Address
Date of Grant:
----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, no par value ("Common Stock"), of
NCO Group, Inc., a Pennsylvania corporation (the "Company") at a price of
$__________ per share pursuant to the Company's 1996 Stock Option Plan
(the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years (five years in the case of 10% Shareholders, as defined in the Plan)
from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
<PAGE>
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date your employment is terminated
(whether such termination be voluntary or involuntary) after the Change of
Control (but in no event later than the Scheduled Termination Date), and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances) and your vesting date may
accelerate accordingly. A "Change of Control" shall be deemed to have occurred
upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death, in which case your option will
terminate one year from the date of termination of employment due to disability
or death (but in no event later than the Scheduled Termination Date). After the
date your employment is terminated, as aforesaid, you may exercise this option
only for the number of shares which you had a right to purchase and did not
<PAGE>
purchase on the date your employment terminated. If you are employed by a
Company subsidiary corporation, your employment shall be deemed to have
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your employment is
terminated for: (i) criminal conduct; or (ii) willful misconduct or gross
negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee. No adjustment shall be
made with respect to the 46.56-for-1 stock split effected in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
<PAGE>
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
<PAGE>
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422(b)
of the Code and the regulations thereunder. In the event this option is in any
way inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
<PAGE>
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
By:
-----------------------------------
<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- ------------------------------------- ---------------------------
(Signature) (Date)
<PAGE>
APPENDIX II
NON-QUALIFIED STOCK OPTION FOR OFFICERS AND OTHER KEY EMPLOYEES
To:
----------------------------------------------------------------------------
Name
----------------------------------------------------------------------------
Address
Date of Grant:
-----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, no par value ("Common Stock"), of
NCO Group, Inc., a Pennsylvania corporation (the "Company") at a price of
$___________ per share pursuant to the Company's 1996 Stock Option Plan (the
"Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date your employment is terminated
(whether such termination be voluntary or involuntary) after the Change of
Control (but in no event later than the Scheduled Termination Date), and
<PAGE>
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances) and your vesting date may
accelerate accordingly. A "Change of Control" shall be deemed to have occurred
upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death, in which case your option will
terminate one year from the date of termination of employment due to disability
or death (but in no event later than the Scheduled Termination Date). After the
date your employment is terminated, as aforesaid, you may exercise this option
only for the number of shares which you had a right to purchase and did not
purchase on the date your employment terminated. If you are employed by a
Company subsidiary corporation, your employment shall be deemed to have
<PAGE>
terminated on the date your employer ceases to be a Company subsidiary
corporation, unless you are on that date transferred to the Company or another
Company subsidiary corporation. Your employment shall not be deemed to have
terminated if you are transferred from the Company to a Company subsidiary
corporation, or vice versa, or from one Company subsidiary corporation to
another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your employment is
terminated for: (i) criminal conduct; or (ii) willful misconduct or gross
negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee. No adjustment shall be
made with respect to the 46.56-for-1 stock split effected in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
<PAGE>
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
<PAGE>
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
<PAGE>
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
By:
-----------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- -------------------------------- -----------------------------
(Signature) (Date)
<PAGE>
APPENDIX III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
To:
----------------------------------------------------------------------------
Name
----------------------------------------------------------------------------
Address
Date of Grant:
-----------------------------------------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, no par value ("Common Stock"), of
NCO Group, Inc., a Pennsylvania corporation (the "Company") at a price of $ per
share pursuant to the Company's 1996 Stock Option Plan (the "Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to two years
from the date of grant, your option may be exercised for up to 33 1/3% of the
total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted for any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Each
succeeding year thereafter, your option may be exercised for up to an additional
33 1/3% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted for any
change in the outstanding shares of the Common Stock of the Company by reason of
a stock dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the
Committee deems in its sole discretion to be similar circumstances). Thus, this
option is fully exercisable on and after three years after the date of grant,
except if terminated earlier as provided herein. No fractional shares shall be
issued or delivered. This option shall terminate and is not exercisable after
ten years from the date of its grant (the "Scheduled Termination Date"), except
if terminated earlier as hereafter provided.
<PAGE>
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date your employment is terminated
(whether such termination be voluntary or involuntary) after the Change of
Control (but in no event later than the Scheduled Termination Date), and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion to be similar circumstances) and your vesting date may
accelerate accordingly. A "Change of Control" shall be deemed to have occurred
upon the happening of any of the following events:
1. A change within a twelve-month period in a majority of the members
of the board of directors of the Company;
2. A change within a twelve-month period in the holders of more than
50% of the outstanding voting stock of the Company; or
3. Any other event deemed to constitute a "Change of Control" by the
Committee.
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). Any assignment of stock shall be
in a form and substance satisfactory to the Secretary of the Company, including
guarantees of signature(s) and payment of all transfer taxes if the Secretary
deems such guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease for any reason to be a
director of, or consultant to, the Company or a subsidiary corporation (whether
by death, disability, resignation, removal, failure to be reappointed, reelected
or otherwise, or the expiration of any consulting arrangement, and regardless of
whether the failure to continue as a director or consultant was for cause or
without cause or otherwise), but in no event later than ten years from the date
<PAGE>
this option is granted. After the date you cease to be a director or consultant,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date you ceased to be a director or
consultant. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
a director of, or consultant to, the Company or another subsidiary corporation.
Notwithstanding any other provision of the Option, the Committee shall
have the right to cancel this Option without notice if your directorship or
consultancy is terminated for: (i) criminal conduct; or (ii) willful misconduct
or gross negligence materially detrimental to the Company.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee. No adjustment shall be
made with respect to the 46.56-for-1 stock split effected in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
<PAGE>
(b) Until this option and the optioned shares are approved
and/or registered with such federal, state and local regulatory bodies or
agencies and securities exchanges as the Company may deem necessary or
desirable; or
(c) During any period of time in which the Company deems that
the exercisability of this option, the offer to sell the shares optioned
hereunder, or the sale thereof, may violate a federal, state, local or
securities exchange rule, regulation or law, or may cause the Company to be
legally obligated to issue or sell more shares than the Company is legally
entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay
(which may include payment through the surrender of Common Stock, unless
prohibited by the Committee) (i) all federal, state and local income tax
withholding required to be withheld by the Company in connection with the option
exercise and (ii) the employee's portion of other federal, state and local
payroll and other taxes due in connection with the option exercise.
(e) Until the Company has completed a public offering of its
Common Stock registered under the Securities Act of 1933, as amended, or has
registered any of its Common Stock under the Securities Exchange Act of 1934, as
amended.
The following two paragraphs shall be applicable if, on the
date of exercise of this option, the Common Stock to be purchased pursuant to
such exercise has not been registered under the Securities Act of 1933, as
amended, and under applicable state securities laws, and shall continue to be
applicable for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
<PAGE>
(b) The certificates for Common Stock to be issued to the
optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422(b) of the
Code and the regulations thereunder.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
<PAGE>
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
By:
---------------------------
I hereby acknowledge receipt of a copy of the foregoing stock option
and of the Plan as of the date of grant set forth above, hereby acknowledge that
this stock option grant discharges any promise (either verbal or written) of the
Company made on or prior to the date of grant to give me a stock option, and,
having read it, hereby signify my understanding of, and my agreement with, its
terms and conditions. In consideration of the grant, I hereby release any claim
I may have against the Company with respect to any promise of a stock option
grant or other equity interest in the Company.
- --------------------------------------- --------------------
(Signature) (Date)
<PAGE>
EXHIBIT 10.12
NCO GROUP, INC.
1996 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose of Plan
The purpose of the 1996 Stock Option Plan for Non-Employee
Directors (the "Plan") contained herein is to enhance the ability of NCO Group,
Inc. a Pennsylvania corporation (the "Company") to attract, retain and motivate
members of its Board of Directors and to provide additional incentive to members
of its Board of Directors by encouraging them to invest in shares of the Company
's common stock and thereby acquire a proprietary interest in the Company and an
increased personal interest in the Company's continued success and progress, to
the mutual benefit of directors, employees and shareholders.
2. Aggregate Number of Shares
24,258 shares of the Company's common stock, no par value
("Common Stock"), shall be the aggregate number of shares which may be issued
under this Plan. Notwithstanding the foregoing, in the event of any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the Board
of Directors deems in its sole discretion to be similar circumstances, the
aggregate number and kind of shares which may be issued under this Plan shall be
appropriately adjusted in a manner determined in the sole discretion of the
Board of Directors. Reacquired shares of the Company's Common Stock, as well as
unissued shares, may be used for the purpose of this Plan. Common Stock of the
Company subject to options which have terminated unexercised, either in whole or
in part, shall be available for future options granted under this Plan. No
adjustment shall be made with respect to the 46.56-for-1 stock split effected in
September 1996.
3. Participation
Each director of the Company at the close of business on the
effective date ("Effective Date") of the Plan who is not an employee of the
Company or any Company subsidiary corporation shall be automatically granted an
option to purchase 1,000 shares of the Company's Common Stock (such figure to be
subject to adjustment for the same events described in Section 2 hereof).
Thereafter, each person who is not an employee of the Company or any Company
subsidiary corporation on the date of grant of an option hereunder and who is
(i) appointed as a director by the Board of Directors to fill any vacancy on the
Board (an "Appointment"); (ii) elected or reelected as a director of the Company
at any annual or special meeting of shareholders of the Company; or (iii)
continues as a
<PAGE>
director of the Company as of the date of the annual or special meeting of
shareholders of the Company at which directors of the Company are elected or
reelected shall, as of the date of such Appointment ("Appointment Date") or each
such annual or special meeting of shareholders, as the case may be,
automatically be granted an option to purchase 1,000 shares of the Company's
Common Stock (such figure to be subject to adjustment for the same events
described in Section 2 hereof); provided, however, that no director shall
receive an option or options under this Plan to purchase more than 1,000 shares
of the Company's Common Stock in any calendar year (such figure to be subject to
adjustment for the same events described in Section 2 hereof); and provided,
further, however that if at any time there are insufficient shares then be
available for grant under this Plan to all persons who are to receive a option
on such date, then each such person shall automatically be granted an option to
purchase such lower number of shares as shall be equal to the number of shares
as shall then available (if any) for grant under this Plan divided by the number
of persons who are to receive an option on such date, subject, however, to the
provisions of Section 6 hereof. The Effective Date, the Appointment Date, or the
election or reelection of directors at an annual or special meeting of
shareholders after the Effective Date of the Plan, as the case may be, shall
constitute the grant of the option and the date of the grant of such option to
each such director.
4. Administration of Plan
This Plan shall be administered by the Board of Directors of
the Company. The Board of Directors of the Company shall adopt such rules for
the conduct of its business and administration of this Plan as it considers
desirable. A majority of the members of the Board of Directors of the Company
shall constitute a quorum for all purposes. The vote or written consent of a
majority of the members of the Board of Directors of the Company on a particular
matter shall constitute the act of the Board of Directors of the Company on such
matter. The Board of Directors of the Company shall have the exclusive right to
construe the Plan and the options issued pursuant to it, to correct defects and
omissions and to reconcile inconsistencies to the extent necessary to effectuate
the purpose of this Plan and the options issued pursuant to it, and such action
shall be final, binding and conclusive upon all parties concerned. No member of
the Board of Directors of the Company shall be liable for any act or omission
(whether or not negligent) taken or omitted in good faith, or for the exercise
of any authority or discretion granted in connection with the Plan to the Board
of Directors, or for the acts or omissions of any other members of the Board of
Directors.
-2-
<PAGE>
5. Non-Qualified Stock Options, Option Price and Term
(a) Options issued pursuant to this Plan shall be
non-qualified stock options. A non-qualified stock option is an option which
does not satisfy the requirements of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). The option price for the non-qualified stock
options issued under this Plan shall be equal to the fair market value, as
determined by the Board of Directors of the Company, of the Company's Common
Stock on the date of the grant of the option. The fair market value of the
Company's Common Stock on any particular date shall mean the last reported sale
price of a share of the Company's Common Stock on any stock exchange on which
such stock is then listed or admitted to trading, or on the Nasdaq National
Market or Nasdaq SmallCap Market, on such date, or if no sale took place on such
day, the last such date on which a sale took place, or if the Common Stock is
not then quoted on the Nasdaq National Market or Nasdaq SmallCap Market, or
listed or admitted to trading on any stock exchange, the average of the bid and
asked prices in the over-the-counter market on such date, or if none of the
foregoing, a price determined in good faith by the Board of Directors to equal
the fair market value per share of the Common Stock.
(b) Options issued pursuant to this Plan shall be issued substantially
in the form set forth in Appendix I hereof, which form is hereby incorporated by
reference and made a part hereof, and shall contain substantially the terms and
conditions set forth therein. Options shall expire ten years after the date they
are granted, unless terminated earlier as provided herein.
6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the
expiration of ten years from and after the date this Plan is approved by the
shareholders of the Company. The Board of Directors of the Company reserves the
right at any time, and from time to time, to amend or supplement this Plan in
any way, or to suspend or terminate it, effective as of such date, which date
may be either before or after the taking of such action, as may be specified by
the Board of Directors of the Company. If the Board of Directors voluntarily
submits a proposed amendment, supplement, suspension or termination for
shareholder approval, such submission shall not require any future amendments,
supplements (whether or not relating to the same provision or subject matter),
suspensions or terminations to be similarly submitted for shareholder approval.
7. Effectiveness of Plan
-3-
<PAGE>
This Plan shall become effective on the date of its adoption
by the Company's Board of Directors, subject however to approval by the holders
of the Company's Common Stock.
8. General Conditions
(a) Nothing contained in this Plan or any option granted
pursuant to this Plan shall confer upon any director the right to continue as a
director of the Company or interfere in any way with the rights of the Company
to terminate him as a director.
(b) Corporate action constituting an offer of stock for sale
to any director under the terms of the options to be granted hereunder shall be
deemed complete as of the Effective Date, the Appointment Date, or the date of
the annual or special meeting of shareholders at which directors of the Company
are elected or reelected, as the case may be, regardless of when the option is
actually delivered to the director or acknowledged or agreed to by him.
(c) The term "subsidiary corporation" as used throughout this
Plan shall mean a corporation in which the Company owns, directly or indirectly,
shares of stock representing fifty percent or more of the outstanding voting
power of all classes of stock of such corporation at the time of the granting of
an option under this Plan.
(d) The use of the masculine pronoun shall include the
feminine gender whenever appropriate.
-4-
<PAGE>
APPENDIX I
NON-QUALIFIED STOCK OPTION
To:
-------------------------------------------------------------------------
Name
-------------------------------------------------------------------------
Address
Date:
-------------------------------
You are hereby granted an option, effective as of the date hereof, to
purchase shares of common stock, no par value per share ("Common Stock"), of NCO
Group, Inc., a Pennsylvania corporation (the "Company"), at a price of
$____________ per share pursuant to the Company's 1996 Stock Option Plan for
Non-Employee Directors (the "Plan").
Your option may first be exercised on and after the earlier to occur of
(i) one year from the date of its grant or (ii) a "change in control" of the
Company, as hereinafter defined, but not before that time. On and after the
earlier to occur of (i) one year from the date your option is granted or (ii) a
"change in control" of the Company, and prior to ten years from the date of its
grant, your option may be exercised in whole, or from time to time in part, for
up to the total whole number of shares then subject to the option minus the
number of shares previously purchased by exercise of the option (as
appropriately adjusted for stock dividends, stock splits and what the Board of
Directors of the Company deems in its sole discretion to be similar
circumstances). No fractional shares shall be issued or delivered. This option
shall terminate and is not exercisable after the expiration of ten years from
the date of its grant, except if terminated earlier as hereafter provided.
For purposes of your option, a "change in control" of the Company shall
have been deemed to conclusively occur when any of the following events shall
have occurred without your prior written consent:
(1) a change in the constituency of the Company's Board of Directors
with the result that individuals (the "Incumbent Directors") who are members of
the Board on the date the Plan is approved by the Company's shareholders cease
for any reason to constitute at least a majority of the Board of Directors,
provided that any individual who is elected or appointed to the Board of
Directors after shareholder approval of the Plan and whose nomination for
election or appointment was unanimously approved by the Incumbent Directors
shall be considered an Incumbent Director
-5-
<PAGE>
beginning on the date of his or her election to the Board of
Directors.
(2) a person or group acting in concert as described in Section
13(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
proposes to hold or acquire beneficial ownership within the meaning of Rule
13(d)(3) promulgated under the Exchange Act of a number of voting shares of the
Company which constitutes either (i) more than fifty percent of the shares which
voted in the election of directors of the Company at the shareholders' meeting
immediately preceding such determination or (ii) more than thirty percent of the
Company's outstanding voting shares. The term "proposes to hold or acquire"
shall mean when a person or group acting in concert has (A) the right to acquire
or merge (whether such right is exercisable immediately or only after the
passage of time or upon the receipt of such regulatory approvals as is required
by applicable law) pursuant to an agreement, arrangement or understanding
(whether or not in writing) or upon the exercise or conversion of rights,
exchange rights, warrants or options or otherwise; (B) commenced a tender or
exchange offer with respect to the voting shares of the Company or securities
convertible or exchangeable into voting shares of the Company; or (C) the right
to vote pursuant to any agreement, arrangement or understanding (whether or not
in writing); provided, however, that such person or group acting in concert
shall not be deemed to have acquired such shares if the agreement, arrangement
or understanding to vote such securities arises solely from a revocable proxy
given in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations of the Exchange Act
and is not also then reportable on Schedule 13D under the Exchange Act or any
comparable or successor report. For purposes of this provision any person or
group existing on the date the Plan is approved by shareholders shall be
excluded from the definition of "a person or group acting in concert."
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Board of Directors) certificates representing shares
of Common Stock of the Company, which will be valued by the Secretary of the
Company at the fair market value per share of the Company's Common Stock (as
determined in accordance with the Plan) on the date of delivery of such
certificates to the Company, accompanied by an assignment of the stock to the
Company; or (c) (unless prohibited by the Board of
-6-
<PAGE>
Directors) any combination of cash and Common Stock of the Company valued as
provided in clause (b). Any assignment of stock shall be in a form and substance
satisfactory to the Secretary of the Company, including guarantees of
signature(s) and payment of all transfer taxes if the Secretary deems such
guarantees necessary or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease to be a director of the
Company or a subsidiary corporation (whether by death, disability, resignation,
removal, failure to be reelected or otherwise and regardless of whether the
failure to continue as a director was for cause or otherwise), but in no event
later than ten years from the date this option is granted. After the date you
cease to be a director, you may exercise this option only for the number of
shares which you had a right to purchase and did not purchase on the date you
ceased to be a director. If you are a director of a subsidiary corporation, your
directorship shall be deemed to have terminated on the date such company ceases
to be a subsidiary corporation, unless you are also a director of the Company or
another subsidiary corporation, or on that date became a director of the Company
or another subsidiary corporation. Your directorship shall not be deemed to have
terminated if you cease being a director of the Company or a subsidiary
corporation but are or concurrently therewith become a director of the Company
or another subsidiary corporation.
If you die while a director of the Company or a subsidiary corporation,
executor or administrator, as the case may be, may, at any time within three
months after the date of your death (but in no event later than ten years from
the date this option is granted), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
directorship with the Company or a subsidiary corporation is terminated by
reason of your becoming disabled, you or your legal guardian or custodian may at
any time within three months after the date of such termination (but in no event
later than ten years from the date this option is granted), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Board of Directors deems in its sole
discretion to be similar circumstances, the number and kind of shares subject to
this option and the option price of such shares shall be
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<PAGE>
appropriately adjusted in a manner to be determined in the sole discretion of
the Board of Directors. No adjustment shall be made with respect to the
46.56-for-1 stock split effected in September 1996.
This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of exercise of this
option during any period of time in which the Company deems, in its sole
discretion, that such delivery may not be consummated without violating a
federal, state, local or securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan is approved by the shareholders;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable;
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue;
(d) Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Board of Directors) (i) all federal, state and local income tax withholding
required to be withheld by the Company in connection with the option exercise
and (ii) your portion of other federal, state and local payroll and other taxes
due in connection with the option exercise; or
(e) Until the Company has completed a public offering of its Common
Stock registered under the Securities Act of 1933, as amended, or has registered
any of its Common Stock under the Securities Exchange Act of 1934, as amended.
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<PAGE>
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that
he will acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to
the optionee hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under
applicable state securities laws. The shares have been acquired for
investment and may not be offered, sold, transferred, pledged or
otherwise disposed of without an effective registration statement under
the Securities Act of 1933, as amended, and under any applicable state
securities laws or an opinion of counsel acceptable to the Company that
the proposed transaction will be exempt from such registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
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<PAGE>
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422(b) of the
Code and the regulations thereunder.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
Commonwealth of Pennsylvania.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions.
NCO GROUP, INC.
(SEAL)
By:
--------------------------------
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<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and, having read it hereby signify my understanding of, and my agreement with,
its terms and conditions.
- -------------------------------- ------------------------------------
date signature
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<PAGE>
Exhibit 10.23
Draft 10/16/96
IRREVOCABLE PROXY AGREEMENT
The undersigned, Annette H. Barrist ("Annette"), hereby irrevocably
constitutes and appoints Michael J. Barrist ("Michael") as her attorney and
proxy, with full power of substitution in the premises, to vote all shares of
the outstanding capital stock of NCO Group, Inc, a Pennsylvania corporation
("Company"), which Annette is entitled to vote at any time on or after the date
hereof (the "Shares"). Michael shall have the right to vote all of such Shares
as Michael, in his sole and absolute discretion, shall determine. Without
limiting the foregoing in any manner whatsoever, Michael shall have the power to
vote on any matter relating to the Company for which a shareholder vote is
required or sought including, but not limited to, the right to vote with respect
to any recapitalization, reorganization, merger, consolidation, sale of assets
or properties, increases or decreases in capital stock, reduction of stated
capital, amendment to the certificate of incorporation or bylaws and election or
removal of directors. Michael also is hereby authorized to vote such shares at
any meeting, whether annual or special, and also to vote or otherwise act with
respect to such shares in connection with any action by consent in lieu of a
meeting or any other act which a shareholder may take.
In addition to and in furtherance of the powers set forth herein,
Annette hereby appoints Michael as her true and lawful attorney-in-fact with
full power and authority in her name, place and stead, to do and perform all
other acts with respect to the proxy granted above and to exercise or perform
any act, power, duty, right, or obligation in connection with, arising from, or
relating to such proxy. Michael's power hereunder includes, but is not limited
to, the power to waive notice of any meeting, to execute any and all documents
in connection with the voting of such Shares, including, but not limited to, any
consents, demands, waivers or the giving of proxies, to exercise any and all
voting powers which may be exercised by Annette as a shareholder in the Company,
and in general, to do all other acts, deeds and matters whatsoever with respect
to the voting of the Shares as fully and effectually to all intents and purposes
as Annette could do in her own proper person if personally present, giving to
said attorney power to make and substitute under his attorney an attorney or
attorneys for all the purposes herein described, hereby ratifying and confirming
all that the said attorney or substitute or substitutes shall do by virtue
hereof; provided, however, that nothing herein shall be deemed to give Michael
the power to sell, assign, dispose of, pledge, hypothecate or otherwise transfer
the Shares.
<PAGE>
In addition to the powers and discretion herein specially given and
conferred upon said attorney, and notwithstanding any usage or custom to the
contrary, Michael shall have the full power, right and authority to do, perform
and to cause to be done and performed all such acts, deeds and matters as
Michael, in his sole discretion, shall deem reasonable, necessary or proper, to
carry out the intent and purposes of this Agreement as fully, effectually and
absolutely as if he were the absolute owner and possessor of the Shares.
Michael, or any substitute, shall not be liable for any mistake of fact or error
of judgment hereunder, or for any acts or omissions of any kind hereunder,
unless caused by his own gross negligence or willful misconduct.
The proxy and power of attorney conferred hereby is irrevocable to the
full extent permitted by law and is coupled with an interest including, without
limitation, that defined in Section 1759(d) of the Pennsylvania Business
Corporation Law of 1988, as amended. This proxy and power of attorney revokes
any other proxy and power of attorney granted by the undersigned at any time
with respect to the Shares and shall continue in effect until terminated by the
mutual agreement of Annette and Michael.
In the event of Annette's death, disability or incompetency, from
whatever cause, the proxy and power of attorney conferred hereby shall not
thereby be revoked. This Agreement shall be binding on the parties hereto and
their heirs, executors, personal representatives, administrators, successors and
assign.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have executed this Agreement this ______ day of ____________, 1996.
------------------------
Annette H. Barrist
-------------------------
Michael J. Barrist
COMMONWEALTH OF PENNSYLVANIA :
: SS
COUNTY OF :
Before me, the undersigned, a Notary Public within and for the County
of ______________, Commonwealth of Pennsylvania, personally appeared Annette H.
Barrist and Michael J. Barrist, known to me to be the persons whose names are
subscribed to the within instrument, and acknowledged that they executed the
same for the purposes therein contained.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
________ day of ___________, 1988.
-------------------------
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT
OF NCO GROUP, INC. ("COMPANY") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
PLEDGED, SOLD, ASSIGNED OR TRANSFERRED (i) UNTIL (A) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAW OR (B) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL
TO THE HOLDER OF SUCH WARRANT (PROVIDED SUCH OTHER COUNSEL IS REASONABLY
SATISFACTORY TO THE COMPANY) THAT SUCH WARRANT MAY BE PLEDGED, SOLD, ASSIGNED OR
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAW.
Right to Purchase up to 3,770 Shares of
Common Stock of NCO Group, Inc.
NCO GROUP, INC.
COMMON STOCK PURCHASE WARRANT
NCO Group, Inc. a Pennsylvania corporation (the "Company"), hereby
certifies that, for value received, Mellon Bank, N.A. ("Bank") is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time upon the occurrence of an Exercise Event before 5:00 p.m.,
Philadelphia time, on July 31, 2005 up to 3,770 fully paid and nonassessable
shares of Common Stock, without par value, of the Company at a purchase price
per share of $.01 (such purchase price per share as further adjusted from time
to time as herein provided is referred to herein as the "Purchase Price"). The
number and character of such shares of Common Stock and the Purchase Price are
subject to further adjustment as provided herein.
This Common Stock Purchase Warrant (the "Warrant") replaces the Common
Stock Purchase Warrant evidencing the right to purchase shares of Common Stock
of the Company, issued pursuant to a certain Warrant Agreement (the "Agreement")
dated as of July 28, 1995, among the Company and Bank and subject to the
Registration Rights Agreement, copies of which agreement are on file at the
principal office of the Company, and the holder of this Warrant shall be
entitled to all of the benefits of the Agreement and the Registration Rights
Agreement, as provided therein. If any term of this Warrant conflicts with any
term of the Warrant Agreement, the terms of this Warrant shall be controlling.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
<PAGE>
(a) The term "Common Stock" includes (i) the Company's Common
Stock, without par value, as authorized on the date of the Agreement,
(ii) any other capital stock of any class or classes (however
designated) of the Company, authorized on or after such date, the
holders of which shall have the right, without limitation as to amount,
either to all or to a share of the balance of current dividend and
liquidating dividends after the payment of dividends and distributions
on any shares entitled to preference and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency), and (iii) any other securities into which or for which
any of the securities described in (i) or (ii) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
(b) The term "Company" shall include any corporation which
shall succeed or assume the obligations of the Company hereunder.
(c) The term "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable, with or without payment of additional
consideration in cash or property, for additional shares of Common
Stock, either immediately or upon the occurrence of a specified date or
a specified event.
(d) The term "Current Market Price" shall mean, in respect of
any share of Common Stock on any date herein specified, the higher of
(a) the appraised value per share of Common Stock as at such date, or
if there shall then be a public market for the Common Stock, (b) the
average of the daily market prices for 15 consecutive trading days
commencing 20 days before such date. The daily market price for each
such trading days shall be (i) the closing sale price on such date or,
if there is no such sale price, the average of the last reported
closing bid and asked prices on such day in the over-the-counter
market, as furnished by the National Association of Securities Dealers
Automatic Quotation System or the National Quotation Bureau, Inc., (ii)
if neither such corporation at the time is engaged in the business of
reporting such prices, as furnished by a similar firm then engaged in
such business, or (iii) if there is no such firm, as furnished by any
member of the NASD selected mutually by Bank and the
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<PAGE>
Company or, if they cannot agree upon such selection, as selected by
two such members of the NASD, one of which shall be selected by Bank
and one of which shall be selected by company.
(e) The term "Exercise Event" shall mean any of (i) a Change
in Control, (ii) a Qualified Disposition, or (iii) a Qualified IPO
(each as defined in the Agreement).
(f) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrants at
any time shall be entitled to receive, or shall have received, on the
exercise of the Warrants, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other Securities
pursuant to Section 3 or otherwise.
(g) The term "Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares
thereof is to be determined, all issued shares of Common Stock, except
shares then owned or held by or for the account of the Company thereof,
and shall include all shares issuable in respect of outstanding scrip
or any certificates representing fractional interests in shares of
Common Stock.
(h) The Term "Registration Rights Agreement" shall mean that
certain Amended and Restated Registration Rights Agreement dated as of
September 5, 1996 among the Company and Bank.
All capitalized terms used herein without specific definition shall have
the meanings assigned to such terms in the Agreement.
1. Right to Put Warrants.
1.1 During the twelve-month period ending on July 31, 2001 (the "Put
Period"), each of the holders of the Warrants shall have the right to sell to
the Company, at the Repurchase Price determined pursuant to Section 2.6 of the
Agreement, any or all of the Warrants.
1.2 A holder of Warrants shall give the Company at least thirty (30)
days prior written notice (which notice shall be irrevocable, except for an
Event of Force Majeure) of its intention to exercise any right of sale (the "Put
Notice") and
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<PAGE>
shall specify in such notice the number of Warrants to be sold and may specify
in such notice a proposed date of sale. The closing of any repurchase of the
Warrants pursuant to this Section 1 shall take place at the offices of the
Company at 10:00 A.M. local time on a Business Date (the "Put Closing Date")
which shall not be later than the latest to occur of (i) the date specified in
the Put Notice and (ii) the date five Business Days after a final determination
of the Repurchase Price.
On or prior to the Put Closing Date, the Company shall deliver a
certified or bank cashier's check to each holder of the Warrants being
repurchased, in an amount equal to the Repurchase Price for its pro-rata share
of the Warrants being repurchased, or shall transfer such amount by wire
transfer of immediately available funds to any account specified in writing by
such holder.
Bank's rights under Section 1 of this Warrant shall terminate upon the
closing of a Qualified IPO (as defined in the Warrant Agreement).
2. Right to Call Warrants.
2.1 During the twelve-month period ending on July 31 2001 (the "Call
Period"), the Company shall have the right to repurchase from each of the
holders of the Warrants, on a pro-rata basis, at the Repurchase Price determined
pursuant to Section 2.6 of the Agreement, any or all of the Warrants.
2.2 The Company shall give each of the holders of the Warrants at least
thirty (30) days prior written notice (which notice shall be irrevocable, except
for an Event of Force Majeure) of its intention to exercise any right of sale
(the "Call Notice") and shall specify in such notice the number of Warrants to
be repurchased and may specify in such notice a proposed date of sale. The
closing of any repurchase of the Warrants shall take place at the offices of the
Company at 10:00 A.M. local time on a Business Date (the "Call Closing Date")
which shall not be later than the latest to occur of (i) the date specified in
the Call Notice and (ii) the date five Business Days after a final
determination of the Repurchase Price.
On or prior to the Call Closing Date, the Company shall deliver a
certified or bank cashier's check to each holder of the Warrants being
repurchased, in an amount equal to the Repurchase Price for its pro-rata share
of the Warrants being repurchased, or shall transfer such amount by wire
transfer of immediately available funds to any account specified in writing by
such holder.
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<PAGE>
The Company's rights under Section 2 of this Warrant shall terminate
upon the closing of a Qualified IPO (as defined in the Warrant Agreement).
3. Exercise of Warrant.
3.1 Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect.
3.2 Partial Exercise. This Warrant may be exercised in part (in lots of
1,000 or, if this Warrant is then exercisable for a lesser amount, in such
lesser amount) by surrender of this Warrant in the manner and at the place
provided in subsection 3.1 except that the amount payable by the holder on such
partial exercise shall be the amount obtained by multiplying (a) the number of
shares of Common Stock designated by the holder in the subscription at the end
hereof by (b) the Purchase Price then in effect. On any such partial exercise
the Company at its expense will forthwith issue and deliver to or upon the order
of the holder hereof a new Warrant or Warrants of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes) may request, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
3.3 Right to Convert Warrant.
(a) In addition to and without limiting the right of the
holder of this Warrant, such holder shall have the right (the
"Conversion Right") to convert this warrant or any portion thereof into
shares of Common Stock as provided in this subsection at any time or
from time to time prior to its expiration upon the occurrence of an
Exercise Event. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (which number and
kind of shares for the purposes of this subsection shall mean the
shares of Common Stock of the Company and which shares of Common Stock
are sometimes referred to in this subsection as the "Converted Warrant
Shares"), the Company shall deliver to the registered
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<PAGE>
holder of this Warrant, without payment by such holder of any exercise
price or any cash or other consideration, that number of shares of
Common Stock equal to the number obtained by multiplying the number of
shares of Common Stock for which the Conversion Right is being
exercised at any time by a fraction, (i) the numerator of which shall
be a number equal to the difference between (x) the Purchase Price in
effect at such time and (y) the Fair Market Value (as defined below) of
a single share of Common Stock and (ii) the denominator of which shall
be the Fair Market Value of a single share of Common Stock, determined
in each case as of the close of business on the Conversion Date (as
defined below). No fractional shares shall be issued upon exercise of
the Conversion Right, and if the number of shares to be issued in
accordance with the foregoing formula is other than a whole number, the
Company shall pay to the registered holder of this Warrant an amount in
cash equal to the Fair Market Value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the
Warrant by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that such holder
thereby intends to exercise the Conversion Right and indicating the
number of shares of Common Stock subject to this Warrant which are
being surrendered in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together
with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), but not later than the
expiration date of this Warrant. Certificates for the shares of Common
Stock issuable upon exercise of the Conversion Right, together with a
check in payment of any fractional share and, in the case of a partial
exercise, a new warrant evidencing the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be
delivered to the registered holder of this Warrant within twenty (20)
days following the Conversion Date.
(c) For purposes of this Warrant, the "Fair Market Value" of a
share of Common Stock as of a particular date (the "Valuation Date")
shall mean:
(i) Current Market Price;
(ii) except as provided in (iii) below, if the Company's
Common Stock is not quoted as set forth in (i), then as determined in
good faith by the
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<PAGE>
Company's Board of Directors upon a review of all relevant factors. If
the Company and the holder of the Warrant disagree as to the
determination of Fair Market Value, the Company and the holder of the
Warrant shall engage an independent, third-party investment banking
firm or other appraiser to determine the valuation of the Company. The
cost of such valuation shall be borne by the Company; or
(iii) If the Valuation Date is the date on which the Company's
Common Stock is first sold to the public by the Company in a firm
commitment public offering under the Securities Act of 1933, as amended
(the "1933 Act"), then the initial public offering price (before
deducting commissions, discounts or expenses) at which the Common Stock
is sold in such offering.
3.4 Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof
acknowledge in writing its continuing obligation to afford to such
holder any rights to which such holder shall continue to be entitled
after such exercise in accordance with the provisions of this Warrant.
If the holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to such
holder any such rights.
3.5 No Rights as Stockholder. This Warrant does not entitle
the holder hereof to any voting rights or other rights as a stockholder
of the Company prior to its exercise.
4. Delivery of Stock Certificate, etc. on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part and in any event within 10
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes, but not income taxes of the holder) will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which such holder shall be
entitled on such exercise, plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash value to such fraction multiplied by
the then Current Market Value of one full share, together with any other stock
or other securities and property (including cash, where applicable) to which
such holder is entitled upon such exercise pursuant to Section 1 or otherwise.
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<PAGE>
5. Adjustments.
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 5. The Company shall give each holder notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1 Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, additional shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then, (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Purchase Price shall be
adjusted to equal (A) the Purchase Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
5.2 Certain Other Distributions. If at any time the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
(a) any shares of its stock or any other securities or
property of any nature whatsoever (other than cash, Convertible
Securities or additional shares of Common Stock), or
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<PAGE>
(b) any warrants or other rights to subscribe for or purchase
any shares of its stock or any other securities or property of any
nature whatsoever (other than cash, Convertible Securities or
additional shares of Common Stock),
the holder shall be entitled to receive such dividends or distributions as if
the holder has exercised the Warrant. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value or from no
par value to par value) into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by Company to the holders of its
Common Stock of such shares of such other class of stock within the meaning of
this Section 5.2 and, if the outstanding shares of Common Stock shall be changed
into a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 5.2.
5.3 Issuance of Additional Shares of Common Stock.
(a) If at any time the Company shall (except as hereinafter
provided) issue or sell any additional shares of Common Stock in
exchange for consideration in an amount per additional share of Common
Stock less than the Fair Market Value at the time the additional shares
of Common Stock are issued, then (i) the Purchase Price as to the
number of shares for which this Warrant is exercisable prior to such
adjustment shall be reduced to a price determined by dividing (A) an
amount equal to the sum of (x) the number of shares of Common Stock
Outstanding immediately prior to such issue or sale multiplied by the
then existing Purchase Price, plus (y) the consideration, if any,
received by the Company upon such issue or sale, by (B) the total
number of shares of Common Stock Outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the product
obtained by multiplying the Purchase Price in effect immediately prior
to such issue or sale by the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issue or sale and
dividing the product thereof by the Purchase Price resulting from the
adjustment made pursuant to clause (i) above.
(b) If at any time the Company (except as hereinafter
provided) shall issue or sell any additional shares of Common Stock in
exchange for consideration in an
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amount per additional share of Common Stock which is less than the Fair
Market Value at the time the additional shares of Common Stock are
issued, the adjustment required under this Section 5.3 shall be made in
accordance with the formula in paragraph (a) above which results in the
lower Purchase Price following such adjustment. The provisions of
paragraph (a) of Section 5.3 shall not apply to any issuance of
additional shares of Common Stock for which an adjustment is provided
under Section 5.1 or 5.2. No adjustment of the number of shares of
Common Stock for which this Warrant shall be exercisable shall be made
under paragraph (a) of Section 5.3 upon the issuance of any additional
shares of Common Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon
the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrant or
other rights therefor) pursuant to Section 5.4 or Section 5.3.
5.4 Issuance of Warrants or Other Rights. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any additional shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Warrants or other right or upon conversion or exchange of such
Convertible Securities shall be less than the Fair Market Value immediately
prior to the time of such issue or sale, then the number of shares for which
this Warrant is exercisable and the Purchase Price shall be adjusted as provided
in Section 5.3 on the basis that the maximum number of additional shares of
Common Stock issuable pursuant to all such warrants or other rights or necessary
to effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued and outstanding and the Company shall have received
all of the consideration payable therefor, if any, as of the date of the actual
issuance of the number of Shares for which this Warrant is exercisable and such
warrants or other rights. No further adjustments of the Purchase Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such warrants or other rights or upon the actual
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issue of such Common Stock upon such conversion or exchange of such
Convertible Securities.
5.5 Issuance of Convertible Securities. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Fair Market Value immediately prior to the time
of such issue or sale, then the number of Shares for which this Warrant is
exercisable and the Purchase Price shall be adjusted as provided in Section 5.3
on the basis that the maximum number of additional shares of Common Stock
necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding and the Company
shall have received all of the consideration payable therefor, if any, as of the
date of actual issuance of such Convertible Securities. No adjustment of the
number of Shares for which this Warrant is exercisable and the Purchase Price
shall be made under this Section 5.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5.4. No further adjustments of the number of Shares for
which this Warrant is exercisable and the Purchase Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the number of
Shares for which this Warrant is exercisable and the Purchase Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the number of Shares for which this Warrant is exercisable and
the Purchase Price shall be made by reason of such issue or sale.
5.6 Superseding Adjustment. If, at any time after any adjustment of
the number of shares of Common Stock for which this Warrant is exercisable and
the Purchase Price shall have been made pursuant to Section 5.4 or Section 5.5
as the result of any issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such
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warrants or rights, or the right of conversion or exchange
with respect to all or a portion of such other Convertible Securities,
as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the additional shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of additional shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion of exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities; whereupon a new adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the
Purchase Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
5.7 Other Provisions Applicable to Adjustments Under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Purchase Price provided for in this Section 5:
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(a) Computation of Consideration. To the extent that any
additional shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any additional
shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by Company therefor
shall be the amount of the cash received by Company therefor, or, if
such additional shares of Common Stock or Convertible Securities are
offered by Company for subscription, the subscription price, or, if
such additional shares of Common Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation,
discounts or expenses paid or incurred by Company for and in the
underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided,
the amount of such consideration shall be deemed to be the fair value
of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any
additional shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase such additional
shares of Common Stock or Convertible Securities shall be issued in
connection with any merger in which Company issues any securities, the
amount of consideration therefor shall be deemed to be the fair value,
as determined in good faith by the Board of Directors of the Company,
of such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be
attributable to such additional shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The
consideration for any additional shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by Company for issuing
such warrants or other rights plus the additional consideration payable
to the Company upon exercise of such warrants or other rights. The
consideration for any additional shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be
consideration received by Company for issuing warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible
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<PAGE>
Securities, plus the additional consideration, if any, payable to
Company upon the exercise of the right of conversion or exchange in
such Convertible Securities. In case of the issuance at any time of any
additional shares of Common Stock or Convertible Securities in payment
or satisfaction of any dividends upon any class of stock other than
Common Stock, the Company shall be deemed to have received for such
additional shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied.
(b) When Adjustments to be Made. The adjustments required by
this Section 5 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 5.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than $.0001 of
the shares of Common Stock for which this Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon
as such adjustment, together with other adjustments required by this
Section 5 and not previously made, would result in a minimum adjustment
or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 5, fractional interests in Common Stock shall be taken into
account to the nearest 1000th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and
any
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such adjustment previously made in respect thereof shall be rescinded
and annulled.
5.8 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets.
(a) In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common
Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets,
shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including Warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of the Common Stock of the Company, then
each holder shall have the right thereafter, to receive, upon exercise
of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition
of assets by any holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In
case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company
and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution
of the Board of Directors of the Company) in order to provide for
adjustments of shares of the Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 5. For
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purposes of this Section 5.8, "common stock of the successor
or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any
other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants
or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 5.8 shall similarly apply to
successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
(b) In the event of any dissolution of the Company following
the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property
(including cash, where applicable) receivable by the holders of the
Warrants after the effective date of such dissolution pursuant to this
Section 5 to a bank or trust company, as trustee for the holder or
holders of the Warrants.
5.9 Certain Limitations. Notwithstanding anything herein to the
contrary, after any and all adjustments required by the provisions of this
Section 5 are made, the Purchase Price shall not be less than the par value per
share of Common Stock.
6. Record Date as Date of Issue or Sale; Treasury Stock.
(a) In the event that at any time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common
Stock or Convertible Securities, or (ii) to subscribe for or purchase
Common Stock or Convertible Securities then such record date shall be
deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
(b) The number of shares of Common Stock outstanding at any
given time shall not include shares
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owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of
Common Stock for the purposes of Section 5.
7. No Dilution or Impairment. The Company will not by an action, including,
without limitation, by amending its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of such action as may be necessary or appropriate in order to protect the
rights of the holders of the Warrants against dilution or other impairment, but
only as provided herein. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant and (c) will use its best effects to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable
Company to perform its obligations under this Warrant.
Upon the request of the holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to the holder, the continuing validity of this Warrant and the obligations of
the Company hereunder.
8. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock issuable on the exercise of the
Warrants, the Company at its expense will compute such adjustment or
readjustment in accordance with the terms of the Warrants and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. If requested by
the Holder hereof, the Company will provide an accountant's certificate
verifying the accuracy of the adjustments. The Company will forthwith mail a
copy of each such certificate of each holder of a Warrant, and will, on the
written request at any time of any holder of a Warrant, furnish to such holder a
like certificate setting forth the Purchase Price at the time in effect and
showing how it was calculated.
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9. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up, and (iii) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least 10 days prior to the date specified in such notice on which any
such action is to be taken. Notwithstanding the foregoing, failure to give such
notice or any defect in such notice shall not effect the validity or legality
of any such transaction.
10. Reservation of Stock, etc. Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock from time
to time issuable on the exercise of the Warrants.
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11. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant and Warrants of
like tenor, calling in the aggregate on the face or faces thereof from the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
12. Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. Negotiability, etc. This Warrant is issued upon the following terms, to
all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) Upon (and not before) the occurrence of an Exercise Event,
title to this Warrant may be transferred by endorsement (by the holder
hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument
transferrable by endorsement and delivery; and
(b) subject to (a) above, any person in possession of this
Warrant properly endorsed is authorized to represent himself as
absolute owner hereof and is empowered to transfer absolute title
thereto by endorsement and delivery hereof to a bona fide purchaser
hereof for value; each prior taker or owner waives and renounces all of
his equities or rights in this Warrant in favor of each such bona fide
purchase, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby.
14. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
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<PAGE>
15. Miscellaneous. This Warrant and any term hereof may be changed,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. Any covenant or provision hereof may be omitted or waived with the
written consent of the holder or holders of at least fifty percent (50%) of the
Common Stock issued and issuable upon exercise of the Warrant. This Warrant
shall be construed and enforced in accordance with and governed by the laws of
the Commonwealth of Pennsylvania. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant is being executed as an instrument under sale. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
16. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Philadelphia time, July 31, 2005.
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IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
NCO GROUP, INC.
BY: /S/ Michael J. Barrist
--------------------------------
Name: Michael J. Barrist
Title: President
[Corporate Seal)
Attest:
By: /s/ Joshua Gindin
------------------------
Name: Joshua Gindin
Title: Secretary
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FORM OF SUBSCRIPTION
[To be signed only on exercise of Warrant]
TO NCO GROUP, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, __________
shares of Common Stock of NCO GROUP, INC. and herewith makes payment of
$_________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ________________, whose address is
______________________,
Dated:
_____________________________
(Signature must conform to
name of holder as specified
on the face of the Warrant)
_____________________________
(Address)
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________________ the right represented by the within Warrant to
purchase __________ shares of Common Stock of NCO GROUP, INC. to which the
within Warrant relates, and appoints ___________ Attorney to transfer such right
on the books of NCO GROUP, INC. with full power of substitution in the premises.
Dated:
_____________________________
(Signature must conform to
name of holder as specified
on the face of the Warrant)
_____________________________
(Address)
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NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT OF NCO GROUP, INC. ("COMPANY") HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY
NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED (i) UNTIL (A) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAW OR (B) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY
OR COUNSEL TO THE HOLDER OF SUCH WARRANT (PROVIDED SUCH OTHER COUNSEL IS
REASONABLY SATISFACTORY TO THE COMPANY) THAT SUCH WARRANT MAY BE PLEDGED, SOLD,
ASSIGNED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAW.
Right to Purchase up to 1,000 Shares of Common Stock of
NCO Group, Inc.
NCO GROUP, INC.
COMMON STOCK PURCHASE WARRANT
NCO Group, Inc. a Pennsylvania corporation (the "Company"), hereby
certifies that, for value received, Mellon Bank, N.A. ("Bank") is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time upon the occurrence of an Exercise Event before 5:00 p.m.,
Philadelphia time, on July 31, 2005 up to 1,000 fully paid and nonassessable
shares of Common Stock, without par value, of the Company at a purchase price
per share equal to either: i) the offering price of the shares of the Company's
common stock to be offered in a Qualified IPO to occur on or before December 31,
1996 (after giving effect to any stock split declared in connection with any
Qualified IPO) or ii) if the Company does not conduct a Qualified IPO on or
before December 31, 1996, then $181.80 (such purchase price per share as further
adjusted from time to time as herein provided is referred to herein as the
"Purchase Price"). The number and character of such shares of Common Stock and
the Purchase Price are subject to further adjustment as provided herein.
This Warrant is the Common Stock Purchase Warrant (the "Warrant")
evidencing the right to purchase shares of Common Stock of the Company, issued
pursuant to a certain Warrant Agreement (the "Agreement") dated as of September
5, 1996, among the Company and Bank and subject to the Registration Rights
Agreement, copies of which agreement are on file at the principal office of the
Company, and the holder of this Warrant shall be entitled to all of the benefits
of the Agreement and the Registration Rights Agreement, as provided therein. If
any term of this Warrant conflicts with any term of the Warrant Agreement, the
terms of this Warrant shall be controlling.
<PAGE>
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Common Stock" includes (i) the Company's Common
Stock, without par value, as authorized on the date of the Agreement,
(ii) any other capital stock of any class or classes (however
designated) of the Company, authorized on or after such date, the
holders of which shall have the right, without limitation as to amount,
either to all or to a share of the balance of current dividend and
liquidating dividends after the payment of dividends and distributions
on any shares entitled to preference and the holders of which shall
ordinarily, in the absence of contingencies, be entitled to vote for
the election of a majority of directors of the Company (even though the
right so to vote has been suspended by the happening of such a
contingency), and (iii) any other securities into which or for which
any of the securities described in (i) or (ii) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
(b) The term "Company" shall include any corporation which
shall succeed or assume the obligations of the Company hereunder.
(c) The term "Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable, with or without payment of additional
consideration in cash or property, for additional shares of Common
Stock, either immediately or upon the occurrence of a specified date or
a specified event.
(d) The term "Current Market Price" shall mean, in respect of
any share of Common Stock on any date herein specified, the higher of
(a) the appraised value per share of Common Stock as at such date, or
if there shall then be a public market for the Common Stock, (b) the
average of the daily market prices for 15 consecutive trading days
commencing 20 days before such date. The daily market price for each
such trading days shall be (i) the closing sale price on such date or,
if there is no such sale price, the average of the last reported
closing bid and asked prices on such day in the over-the-counter
market, as furnished by the National Association of Securities Dealers
Automatic Quotation System or the National Quotation Bureau, Inc., (ii)
if neither such corporation at the time
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is engaged in the business of reporting such prices, as
furnished by a similar firm then engaged in such business, or (iii) if
there is no such firm, as furnished by any member of the NASD selected
mutually by Bank and the Company or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which
shall be selected by Bank and one of which shall be selected by
company.
(e) The term "Exercise Event" shall mean any of (i) a Change
in Control (as defined in the Agreement), (ii) a Qualified Disposition
(as defined in the Agreement), or (iii) a Qualified IPO (as defined in
the Agreement), except the Qualified IPO to be conducted by the Company
on or before December 31, 1996.
(f) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other
person (corporate or otherwise) which the holders of the Warrants at
any time shall be entitled to receive, or shall have received, on the
exercise of the Warrants, in lieu of or in addition to Common Stock, or
which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or other Securities
pursuant to Section 3 or otherwise.
(g) The term "Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares
thereof is to be determined, all issued shares of Common Stock, except
shares then owned or held by or for the account of the Company thereof,
and shall include all shares issuable in respect of outstanding scrip
or any certificates representing fractional interests in shares of
Common Stock.
(h) The Term "Registration Rights Agreement" shall mean that
certain Amended and Restated Registration Rights Agreement dated as of
even date herewith among the Company and Bank.
All capitalized terms used herein without specific definition shall
have the meanings assigned to such terms in the Agreement.
1. Right to Put Warrants.
1.1 During the twelve-month period ending on July 31, 2001 (the "Put
Period"), each of the holders of the Warrants shall have the right to sell to
the Company, at the
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Repurchase Price determined pursuant to Section 2.6 of the Agreement,
any or all of the Warrants.
1.2 A holder of Warrants shall give the Company at least thirty (30)
days prior written notice (which notice shall be irrevocable, except for an
Event of Force Majeure) of its intention to exercise any right of sale (the "Put
Notice") and shall specify in such notice the number of Warrants to be sold and
may specify in such notice a proposed date of sale. The closing of any
repurchase of the Warrants pursuant to this Section 1 shall take place at the
offices of the Company at 10:00 A.M. local time on a Business Date (the "Put
Closing Date") which shall not be later than the latest to occur of (i) the
date specified in the Put Notice and (ii) the date five Business Days after a
final determination of the Repurchase Price.
On or prior to the Put Closing Date, the Company shall deliver a
certified or bank cashier's check to each holder of the Warrants being
repurchased, in an amount equal to the Repurchase Price for its pro-rata share
of the Warrants being repurchased, or shall transfer such amount by wire
transfer of immediately available funds to any account specified in writing by
such holder.
Bank's rights under Section 1 of this Warrant shall terminate upon the
closing of a Qualified IPO (as defined in the Warrant Agreement).
2. Right to Call Warrants.
2.1 During the twelve-month period ending on July 31, 2001 (the "Call
Period"), the Company shall have the right to repurchase from each of the
holders of the Warrants, on a pro-rata basis, at the Repurchase Price determined
pursuant to Section 2.6 of the Agreement, any or all of the Warrants.
2.2 The Company shall give each of the holders of the Warrants at least
thirty (30) days prior written notice (which notice shall be irrevocable, except
for an Event of Force Majeure) of its intention to exercise any right of sale
(the "Call Notice") and shall specify in such notice the number of Warrants to
be repurchased and may specify in such notice a proposed date of sale. The
closing of any repurchase of the Warrants shall take place at the offices of the
Company at 10:00 A.M. local time on a Business Date (the "Call Closing Date")
which shall not be later than the latest to occur of (i) the date specified in
the Call Notice and (ii) the date five Business Days after a final determination
of the Repurchase Price.
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On or prior to the Call Closing Date, the Company shall deliver a
certified or bank cashier's check to each holder of the Warrants being
repurchased, in an amount equal to the Repurchase Price for its pro-rata share
of the Warrants being repurchased, or shall transfer such amount by wire
transfer of immediately available funds to any account specified in writing by
such holder.
The Company's rights under Section 2 of this Warrant shall terminate
upon the closing of a Qualified IPO (as defined in the Warrant Agreement).
3. Exercise of Warrant.
3.1 Full Exercise. This Warrant may be exercised in full by the holder
hereof by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect.
3.2 Partial Exercise. This Warrant may be exercised in part (in lots of
1,000 or, if this Warrant is then exercisable for a lesser amount, in such
lesser amount) by surrender of this Warrant in the manner and at the place
provided in subsection 3.1 except that the amount payable by the holder on such
partial exercise shall be the amount obtained by multiplying (a) the number of
shares of Common Stock designated by the holder in the subscription at the end
hereof by (b) the Purchase Price then in effect. On any such partial exercise
the Company at its expense will forthwith issue and deliver to or upon the order
of the holder hereof a new Warrant or Warrants of like tenor, in the name of the
holder hereof or as such holder (upon payment by such holder of any applicable
transfer taxes) may request, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock for which such Warrant or
Warrants may still be exercised.
3.3 Right to Convert Warrant.
(a) In addition to and without limiting the right of the
holder of this Warrant, such holder shall have the right (the
"Conversion Right") to convert this warrant or any portion thereof into
shares of Common Stock as provided in this subsection at any time or
from time to time prior to its expiration upon the occurrence of an
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Exercise Event. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (which number and
kind of shares for the purposes of this subsection shall mean the
shares of Common Stock of the Company and which shares of Common Stock
are sometimes referred to in this subsection as the "Converted Warrant
Shares"), the Company shall deliver to the registered holder of this
Warrant, without payment by such holder of any exercise price or any
cash or other consideration, that number of shares of Common Stock
equal to the number obtained by multiplying the number of shares of
Common Stock for which the Conversion Right is being exercised at any
time by a fraction, (i) the numerator of which shall be a number equal
to the difference between (x) the Purchase Price in effect at such time
and (y) the Fair Market Value (as defined below) of a single share of
Common Stock and (ii) the denominator of which shall be the Fair Market
Value of a single share of Common Stock, determined in each case as of
the close of business on the Conversion Date (as defined below). No
fractional shares shall be issued upon exercise of the Conversion
Right, and if the number of shares to be issued in accordance with the
foregoing formula is other than a whole number, the Company shall pay
to the registered holder of this Warrant an amount in cash equal to the
Fair Market Value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the
Warrant by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that such holder
thereby intends to exercise the Conversion Right and indicating the
number of shares of Common Stock subject to this Warrant which are
being surrendered in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together
with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"), but not later than the
expiration date of this Warrant. Certificates for the shares of Common
Stock issuable upon exercise of the Conversion Right, together with a
check in payment of any fractional share and, in the case of a partial
exercise, a new warrant evidencing the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be
delivered to the registered holder of this Warrant within twenty (20)
days following the Conversion Date.
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(c) For purposes of this Warrant, the "Fair Market Value" of a
share of Common Stock as of a particular date (the "Valuation Date")
shall mean:
(i) Current Market Price;
(ii) except as provided in (iii) below, if the Company's
Common Stock is not quoted as set forth in (i), then as determined in
good faith by the Company's Board of Directors upon a review of all
relevant factors. If the Company and the holder of the Warrant disagree
as to the determination of Fair Market Value, the Company and the
holder of the Warrant shall engage an independent, third-party
investment banking firm or other appraiser to determine the valuation
of the Company. The cost of such valuation shall be borne by the
Company; or
(iii) If the Valuation Date is the date on which the Company's
Common Stock is first sold to the public by the Company in a firm
commitment public offering under the Securities Act of 1933, as
amended (the "1933 Act"), then the initial public offering price
(before deducting commissions, discounts or expenses) at which the
Common Stock is sold in such offering.
3.4 Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
3.5 No Rights as Stockholder. This Warrant does not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company
prior to its exercise.
4. Delivery of Stock Certificate, etc. on Exercise. As soon as practicable
after the exercise of this Warrant in full or in part and in any event within 10
days thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes, but not income taxes of the holder) will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct, a
certificate or certificates for the
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number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which such holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which such holder would otherwise be entitled,
cash value to such fraction multiplied by the then Current Market Value of one
full share, together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to Section 1 or otherwise.
5. Adjustments.
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give each holder notice of any event described
below which requires an adjustment pursuant to this Section 5 at the time of
such event.
5.1 Stock Dividends, Subdivisions and Combinations. If at any time the
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, additional shares of Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then, (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Purchase Price shall be
adjusted to equal (A) the Purchase Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
5.2 Certain Other Distributions. If at any time the Company shall take
a record of the holders of its Common
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Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(a) any shares of its stock or any other securities or
property of any nature whatsoever (other than cash, Convertible
Securities or additional shares of Common Stock), or
(b) any warrants or other rights to subscribe for or purchase
any shares of its stock or any other securities or property of any
nature whatsoever (other than cash, Convertible Securities or
additional shares of Common Stock),
the holder shall be entitled to receive such dividends or distributions as if
the holder has exercised the Warrant. A reclassification of the Common Stock
(other than a change in par value, or from par value to no par value or from no
par value to par value) into shares of Common Stock and shares of any other
class of stock shall be deemed a distribution by Company to the holders of its
Common Stock of such shares of such other class of stock within the meaning of
this Section 5.2 and, if the outstanding shares of Common Stock shall be changed
into a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 5.2.
5.3 Issuance of Additional Shares of Common Stock.
(a) If at any time the Company shall (except as hereinafter
provided) issue or sell any additional shares of Common Stock in
exchange for consideration in an amount per additional share of Common
Stock less than the Fair Market Value at the time the additional shares
of Common Stock are issued, then (i) the Purchase Price as to the
number of shares for which this Warrant is exercisable prior to such
adjustment shall be reduced to a price determined by dividing (A) an
amount equal to the sum of (x) the number of shares of Common Stock
Outstanding immediately prior to such issue or sale multiplied by the
then existing Purchase Price, plus (y) the consideration, if any,
received by the Company upon such issue or sale, by (B) the total
number of shares of Common Stock Outstanding immediately after such
issue or sale; and (ii) the number of shares of Common Stock for which
this Warrant is exercisable shall be adjusted to equal the product
obtained by multiplying the Purchase Price in effect immediately prior
to such issue or sale by the number of shares of
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Common Stock for which this Warrant is exercisable immediately prior to
such issue or sale and dividing the product thereof by the Purchase
Price resulting from the adjustment made pursuant to clause (i) above.
(b) If at any time the Company (except as hereinafter
provided) shall issue or sell any additional shares of Common Stock in
exchange for consideration in an amount per additional share of Common
Stock which is less than the Fair Market Value at the time the
additional shares of Common Stock are issued, the adjustment required
under this Section 5.3 shall be made in accordance with the formula in
paragraph (a) above which results in the lower Purchase Price following
such adjustment. The provisions of paragraph (a) of Section 5.3 shall
not apply to any issuance of additional shares of Common Stock for
which an adjustment is provided under Section 5.1 or 5.2. No adjustment
of the number of shares of Common Stock for which this Warrant shall be
exercisable shall be made under paragraph (a) of Section 5.3 upon the
issuance of any additional shares of Common Stock which are issued
pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such adjustment
shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Convertible Securities (or
upon the issuance of any warrant or other rights therefor) pursuant to
Section 5.4 or Section 5.3.
5.4 Issuance of Warrants or Other Rights. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any additional shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Warrants or other right or upon conversion or exchange of such
Convertible Securities shall be less than the Fair Market Value immediately
prior to the time of such issue or sale, then the number of shares for which
this Warrant is exercisable and the Purchase Price shall be adjusted as provided
in Section 5.3 on the basis that the maximum number of additional shares of
Common Stock issuable pursuant to all such warrants or other rights or necessary
to effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been
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issued and outstanding and the Company shall have received all of the
consideration payable therefor, if any, as of the date of the actual issuance of
the number of Shares for which this Warrant is exercisable and such warrants or
other rights. No further adjustments of the Purchase Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities upon
exercise of such warrants or other rights or upon the actual issue of such
Common Stock upon such conversion or exchange of such Convertible Securities.
5.5 Issuance of Convertible Securities. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Fair Market Value immediately prior to the time
of such issue or sale, then the number of Shares for which this Warrant is
exercisable and the Purchase Price shall be adjusted as provided in Section 5.3
on the basis that the maximum number of additional shares of Common Stock
necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding and the Company
shall have received all of the consideration payable therefor, if any, as of the
date of actual issuance of such Convertible Securities. No adjustment of the
number of Shares for which this Warrant is exercisable and the Purchase Price
shall be made under this Section 5.5 upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights
pursuant to Section 5.4. No further adjustments of the number of Shares for
which this Warrant is exercisable and the Purchase Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities and, if any issue or sale of such Convertible Securities
is made upon exercise of any warrant or other right to subscribe for or to
purchase any such Convertible Securities for which adjustments of the number of
Shares for which this Warrant is exercisable and the Purchase Price have been or
are to be made pursuant to other provisions of this Section 5, no further
adjustments of the number of Shares for which this Warrant is exercisable and
the Purchase Price shall be made by reason of such issue or sale.
5.6 Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which
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this Warrant is exercisable and the Purchase Price shall have been made pursuant
to Section 5.4 or Section 5.5 as the result of any issuance of warrants, rights
or Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the additional shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of additional shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion of exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities; whereupon a new adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the
Purchase Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
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5.7 Other Provisions Applicable to Adjustments Under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Purchase Price provided for in this Section 5:
(a) Computation of Consideration. To the extent that any
additional shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any additional
shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by Company therefor
shall be the amount of the cash received by Company therefor, or, if
such additional shares of Common Stock or Convertible Securities are
offered by Company for subscription, the subscription price, or, if
such additional shares of Common Stock or Convertible Securities are
sold to underwriters or dealers for public offering without a
subscription offering, the initial public offering price (in any such
case subtracting any amounts paid or receivable for accrued interest or
accrued dividends and without taking into account any compensation,
discounts or expenses paid or incurred by Company for and in the
underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided,
the amount of such consideration shall be deemed to be the fair value
of such consideration at the time of such issuance as determined in
good faith by the Board of Directors of the Company. In case any
additional shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase such additional
shares of Common Stock or Convertible Securities shall be issued in
connection with any merger in which Company issues any securities, the
amount of consideration therefor shall be deemed to be the fair value,
as determined in good faith by the Board of Directors of the Company,
of such portion of the assets and business of the nonsurviving
corporation as such Board in good faith shall determine to be
attributable to such additional shares of Common Stock, Convertible
Securities, warrants or other rights, as the case may be. The
consideration for any additional shares of Common Stock issuable
pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by Company for issuing
such warrants or other rights plus the additional consideration payable
to the Company upon exercise of such warrants or other
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rights. The consideration for any additional shares of Common Stock
issuable pursuant to the terms of any Convertible Securities shall be
consideration received by Company for issuing warrants or other rights
to subscribe for or purchase such Convertible Securities, plus the
consideration paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities, plus the
additional consideration, if any, payable to Company upon the exercise
of the right of conversion or exchange in such Convertible Securities.
In case of the issuance at any time of any additional shares of Common
Stock or Convertible Securities in payment or satisfaction of any
dividends upon any class of stock other than Common Stock, the Company
shall be deemed to have received for such additional shares of Common
Stock or Convertible Securities a consideration equal to the amount of
such dividend so paid or satisfied.
(b) When Adjustments to be Made. The adjustments required by
this Section 5 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 5.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than $.0001 of
the shares of Common Stock for which this Warrant is exercisable
immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as
aforesaid) which is postponed shall be carried forward and made as soon
as such adjustment, together with other adjustments required by this
Section 5 and not previously made, would result in a minimum adjustment
or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 5, fractional interests in Common Stock shall be taken into
account to the nearest 1000th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a
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dividend or distribution or subscription or purchase rights and shall
thereafter and before the distribution to stockholders thereof, legally
abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
5.8 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets.
(a) In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common
Stock of the Company), or sell, transfer or otherwise dispose of all or
substantially all its property, assets or business to another
corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets,
shares of common stock of the successor or acquiring corporation, or
any cash, shares of stock or other securities or property of any nature
whatsoever (including Warrants or other subscription or purchase
rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or
distributed to the holders of the Common Stock of the Company, then
each holder shall have the right thereafter, to receive, upon exercise
of this Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition
of assets by any holder of the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such event. In
case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company
and all the obligations and liabilities hereunder, subject to such
modifications as may be
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deemed appropriate (as determined by resolution of the Board of
Directors of the Company) in order to provide for adjustments of shares
of the Common Stock for which this Warrant is exercisable which shall
be as nearly equivalent as practicable to the adjustments provided for
in this Section 5. For purposes of this Section 5.8, "common stock of
the successor or acquiring corporation" shall include stock of such
corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is
not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event and
any warrants or other rights to subscribe for or purchase any such
stock. The foregoing provisions of this Section 5.8 shall similarly
apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
(b) In the event of any dissolution of the Company following
the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property
(including cash, where applicable) receivable by the holders of the
Warrants after the effective date of such dissolution pursuant to this
Section 5 to a bank or trust company, as trustee for the holder or
holders of the Warrants.
5.9 Certain Limitations. Notwithstanding anything herein to the
contrary, after any and all adjustments required by the provisions of this
Section 5 are made, the Purchase Price shall not be less than the par value per
share of Common Stock.
6. Record Date as Date of Issue or Sale; Treasury Stock.
(a) In the event that at any time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common
Stock or Convertible Securities, or (ii) to subscribe for or purchase
Common Stock or Convertible Securities then such record date shall be
deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
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declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(b) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of Section
5.
7. No Dilution or Impairment. The Company will not by an action, including,
without limitation, by amending its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of such action as may be necessary or appropriate in order to protect the
rights of the holders of the Warrants against dilution or other impairment, but
only as provided herein. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any stock receivable on the
exercise of this Warrant above the amount payable therefor on such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
stock on the exercise of this Warrant and (c) will use its best effects to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable
Company to perform its obligations under this Warrant.
Upon the request of the holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to the holder, the continuing validity of this Warrant and the obligations of
the Company hereunder.
8. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock issuable on the exercise of the
Warrants, the Company at its expense will compute such adjustment or
readjustment in accordance with the terms of the Warrants and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. If requested by
the Holder hereof, the Company will provide an accountant's certificate
verifying the accuracy of the adjustments. The Company will forthwith mail a
copy of each such certificate of each holder of a Warrant, and will, on the
-17-
<PAGE>
written request at any time of any holder of a Warrant, furnish to such holder a
like certificate setting forth the Purchase Price at the time in effect and
showing how it was calculated.
9. Notices of Record Date, etc. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any divided or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of the
Company to or consolidation or merger of the Company with or into any
other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up, and (iii) the amount and character of any stock or other securities,
or rights or options with respect thereto, proposed to be issued or granted, the
date of such proposed issue or grant and the persons or class of persons to whom
such proposed issue or grant is to be offered or made. Such notice shall be
mailed at least 10 days prior to the date specified in such notice on which any
such action is to be taken. Notwithstanding the foregoing, failure to give such
notice or any defect in such notice shall not effect the validity or legality of
any such transaction.
10. Reservation of Stock, etc. Issuable on Exercise of Warrants. The
Company will at all times reserve and keep
-18-
<PAGE>
available, solely for issuance and delivery on the exercise of the Warrants, all
shares of Common Stock from time to time issuable on the exercise of the
Warrants.
11. Exchange of Warrants. On surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant and Warrants of
like tenor, calling in the aggregate on the face or faces thereof from the
number of shares of Common Stock called for on the face or faces of the Warrant
or Warrants so surrendered.
12. Replacement of Warrants. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Warrant and,
in the case of any such loss, theft or destruction of any Warrant, on delivery
of an indemnity agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender and
cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
13. Negotiability, etc. This Warrant is issued upon the following terms, to
all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) Upon (and not before) the occurrence of an Exercise Event,
title to this Warrant may be transferred by endorsement (by the holder
hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument
transferrable by endorsement and delivery; and
(b) subject to (a) above, any person in possession of this
Warrant properly endorsed is authorized to represent himself as
absolute owner hereof and is empowered to transfer absolute title
thereto by endorsement and delivery hereof to a bona fide purchaser
hereof for value; each prior taker or owner waives and renounces all of
his equities or rights in this Warrant in favor of each such bona fide
purchase, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby.
14. Notices, etc. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company
-19-
<PAGE>
an address, then to, and at the address of, the last holder of this Warrant who
has so furnished an address to the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. Any covenant or provision hereof may be omitted or waived with the
written consent of the holder or holders of at least fifty percent (50%) of the
Common Stock issued and issuable upon exercise of the Warrant. This Warrant
shall be construed and enforced in accordance with and governed by the laws of
the Commonwealth of Pennsylvania. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant is being executed as an instrument under sale. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
16. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Philadelphia time, July 31, 2005.
-20-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
NCO GROUP, INC.
BY: /S/ Michael J. Barrist
--------------------------------
Name: Michael J. Barrist
Title: President
[Corporate Seal)
Attest:
By: /s/ Joshua Gindin
------------------------
Name: Joshua Gindin
Title: Secretary
-21-
<PAGE>
FORM OF SUBSCRIPTION
[To be signed only on exercise of Warrant]
TO NCO GROUP, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, __________
shares of Common Stock of NCO GROUP, INC. and herewith makes payment of
$_________ therefor, and requests that the certificates for such shares be
issued in the name of, and delivered to ________________, whose address is
______________________,
Dated:
_____________________________
(Signature must conform to
name of holder as specified
on the face of the Warrant)
_____________________________
(Address)
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________________ the right represented by the within Warrant to
purchase __________ shares of Common Stock of NCO GROUP, INC. to which the
within Warrant relates, and appoints ___________ Attorney to transfer such right
on the books of NCO GROUP, INC. with full power of substitution in the premises.
Dated:
_____________________________
(Signature must conform to
name of holder as specified
on the face of the Warrant)
_____________________________
(Address)
-22-
<PAGE>
[LOGO]
Mellon Growth Finance
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
September 6, 1998
Mr. Michael J. Barrist
NCO Group, Inc. & Subsidiaries
1740 Walton Road
Blue Bell, PA 19422-0987
Via Facsimile/(610) 941-7778
RE: NCO Group, Inc. & Subsidiaries ("NCO")/Financing Proposal
Dear Mike:
Mellon Bank, N.A. (Mellon) is pleased to inform you that it is prepared to
commit to the establishment of a $25MM revolving credit. Such commitment is
subject to the terms and conditions outlined herein and in the attached Outline
of Terms, and to the execution and delivery of documentation satisfactory to
Mellon and its counsel.
If the offer evidenced by this letter and the attached Outline of Terms is
acceptable, please indicate your acceptance by signing and returning the
enclosed copy of this letter and the attachments. This commitment will be
effective upon receipt of (1) your check for $50,000.00, and (2) the signed
letter, by which you accept this commitment and agree to issue to Mellon, on or
before November 15, 1996, a warrant to purchase 397.33 (pre-split) shares of NCO
common stock as described in the attached Outline of Terms.
This offer will expire on September 10, 1996, unless previously accepted in the
manner evidenced above.
If this offer is accepted but this transaction does not close on or before
November 15, 1996, Mellon's commitment will expire.
We look forward to concluding this transaction and appreciate the opportunity of
presenting this proposal.
Very truly yours,
/s/ Liz A. Mellace
- -----------------------------
Liz A. Mellace
Assistant Vice President
<PAGE>
NCO Group, Inc. & Subsidiaries
September 6, 1996
Page 2
AGREED AND ACCEPTED BY:
/s/ Michael J. Barrist
- --------------------------------------------
NCO Group, Inc. & Subsidiaries
September 6, 1996
- ------------------
Date
cc: W.M. Means
Enclosure
<PAGE>
MELLON BANK, N.A.
NCO GROUP, INC. & SUBSIDIARIES
OUTLINE OF TERMS
Borrower: NCO Group, Inc. & Subsidiaries (NCO)
Loan Facility: $25,000,000 Revolving Line of Credit
Purpose: Acquisition financing and working capital.
Facility Fee: Closing fee of $100,000. $50,000 upon the
acceptance of a commitment, with the remainder
at closing. As additional consideration for
extending this commitment, NCO shall issue an
additional warrant to Mellon to purchase 397.33
(pre-split) shares of NCO common stock at the
IPO price. If there is no IPO within 6 months
of closing, the shares will be issued at 1.5X
the latest (Coopers & Lybrand) valuation. NCO
shall also provide Mellon with one Demand
Registration for these shares, not to be
executed less than 12 months after the company's
IPO. The warrant shall be issued to Mellon on
the earlier of (i) the closing date, or (ii) if
the transaction contemplated by this commitment
is not completed, November 15, 1996. All
expenses of the registration shall be paid by
NCO.
Commitment Fee: 3/8% on the unused portion of the Revolver,
payable monthly in arrears.
Collateral: All borrowings will be secured by (1) a blanket
lien on all business assets of NCO (excluding
cash held for clients), including but not
limited to accounts receivable, inventory,
general intangibles, and equipment now owned and
hereafter acquired, (2) a stock pledge of NCO
subsidiaries, and (3) an assignment of $2MM in
keyman life insurance on Michael Barrist {(1)
and (2) above shall also apply to acquired
properties}.
Interest Rate: Mellon Prime rate or 30 day Libor + 250 basis
points.
Term: Four years.
Amortization: Interest only, payable monthly.
<PAGE>
NCO Group, Inc. & Subsidiaries
Proposed Outline of Terms
Financial Covenants: Borrowings shall be subject to the following
covenants:
1. Interest Coverage, defined as EBIT divided by
interest expense, to be maintained at a
minimum of 4.0x.
This requirement will be tested on a quarterly
basis.
2. Total Debt to EBITDA shall not exceed 2.5x.
This requirement will be tested on a quarterly
basis. (Current quarter EBITDA annualized.)
3. NCO shall maintain a Minimum Net Worth equal
to 90% of the post IPO net worth plus 90% of
quarterly net income with no credit for
losses. This figure will be adjusted for all
equity issues.
4. NCO shall maintain a Current Ratio of 0.5 to
1.0 at all times. The bank revolver will be
considered a current liability for purposes of
this test.
Other Conditions:
1. Annual audited financial statements of NCO completed by a Big 6
accounting firm, accompanied by all accountant's management
letters within 90 days of the close of NCO's fiscal year end
(NCO shall require management letters with all annual audits);
NCO's annual budget to be provided within 45 days after the
start of each fiscal year.
2. Monthly internal consolidating financial statements of NCO
within 30 days of each month end.
3. NCO shall be required to be in compliance with all the
appropriate Federal, State and County environmental and other
regulations governing the business of NCO, now and in the
future.
4. NCO shall provide an accounts receivable aging according to
Mellon's request within 30 days of each month end.
5. NCO shall provide an accounts payable aging report according to
Mellon's request within 30 days of each month end.
2
<PAGE>
NCO Group, Inc. & Subsidiaries
Proposed Outline of Terms
6. Capital expenditures (excludes acquisitions) shall not exceed
$2,000,000 in any rolling four quarter period; NCO can carry
forward a maximum of $750,000 in unspent capital expenditures
per rolling four quarter period into future years. All leases,
excluding real estate and car leases, shall be assumed to be
capital leases for purposes of CAPEX calculations. Purchase
money financing is permitted and will count toward the total.
7. NCO shall not materially alter the nature of its business as
presently conducted.
8. All closing costs relating to the proposed facility, including
but not limited to legal expenses will be borne by NCO, whether
or not the transaction closes. Mellon shall obtain competitive
bids from 3 approved law firms reasonably acceptable to Mellon
and NCO and award the legal work with respect to this
transaction to a mutually agreed upon firm.
9. NCO shall submit a quarterly covenant compliance certificate
certified by the Chief Financial Officer.
10. NCO shall covenant that it will not incur, create, assume, or
permit to exist any additional indebtedness, except as permitted
for capital lease purchases in #6 above.
11. NCO shall provide Mellon evidence of insurance on all inventory
and equipment of NCO and shall have Mellon named as loss payee.
12. NCO shall have no outstanding loans or advances or pledge any
guarantees to third parties, including unconsolidated
subsidiaries but not including consolidated subsidiaries, in
excess of $50,000 at any point in time. This requirement
excludes an outstanding note to the 1710/20, 1730 and 1740
Sentry East Assoc. limited partnerships totaling $250,000.
13. NCO must maintain net trade A/R plus cash at a minimum level of
50% of Mellon debt.
14. Michael Barrist will remain with NCO in his capacity as
President/CEO during the term of the Mellon facility unless a
replacement is hired that is reasonably satisfactory to Mellon
Bank.
15. Acquisitions exceeding $5,000M in any rolling 12 month period,
or acquisitions of companies that are not cash flow (EBITDA)
positive after recasting for unusual expense items will be
subject to Mellon's approval. All acquisitions shall be in the
same or similar line of business and show historical and pro
forma covenant compliance. Mellon may require third
3
<PAGE>
NCO Group, Inc. & subsidiaries
Proposed Outline of Terms
party verification of due diligence process on acquisitions
subject to Mellon's approval.
16. Seller financing must be structured as unsecured, fully and
permanently subordinate to Mellon debt in both principal and
interest repayments, with no financial covenants; a permanent
stand still provision shall apply in the event of a default on
Mellon's debt. Current principal and interest payments may be
made on seller debt as long as NCO is in full compliance with
Mellon agreements.
17. NCO shall cap 30 day Libor at 9.5% for $3million for two years.
18. NCO shall not pay any dividends during the term of the Mellon
facility.
Conditions of Lending:
The credit facility will be available to NCO upon its fulfillment of
such conditions as shall be satisfactory to Mellon. Such conditions
shall include, without limitation, the following:
1 Deliver to Mellon for its benefit a Security Agreement which
shall be satisfactory to Mellon.
2. Mellon shall have received all other documents, instruments and
proceedings which it reasonably requests and all such documents,
instruments and proceedings shall be satisfactory to Mellon.
3. No adverse change shall occur in the financial condition of NCO
as reflected in the financial Statements dated 6/30/96.
4. There shall be no adverse change in the business products or
prospects of NCO prior to the loan closing.
5 NCO shall (i) have raised a minimum of $24 million of net
proceeds in an IPO, and (ii) have cash after repayment of
Mellon outstandings and the company's final S-Corp. distribution
of at least $8 million.
NCO shall covenant to:
1. Maintain its existence and its franchises and continue in full
force and effect all authorizations and approvals required to
conduct its business.
2. Pay its taxes and discharge its liabilities,
4
<PAGE>
NCO Group, Inc. & Subsidiaries
Proposed Outline of Terms
3. Comply with all agreements to which it is party and by which it
is bound and comply with all laws and regulations applicable to
it.
Defaults:
All amounts outstanding under the credit facility shall
become immediately due and payable if any one or more of
the following events or conditions occur:
1. NCO fails to pay interest or principal installment when due or
fails to pay any other amount to Mellon when due.
2. NCO fails to perform or comply with any term or condition of the
credit facility or the Security Agreement to be delivered to
Mellon.
3. NCO fails to pay any other indebtedness for borrowed money when
due beyond any applicable grace.
4. NCO voluntarily seeks protection under any bankruptcy or
insolvency law or becomes the subject of any involuntary
proceedings under any such law.
5. Any change in majority ownership of NCO.
Regulatory Requirements:
Performance by Mellon of its obligations and commitments hereunder
shall be subject to any applicable requirement of the Board of
Governors of the Federal Reserve System or any other regulatory
authority of competent jurisdiction.
Loan Documentation:
The terms and conditions specified herein represent the principal terms
and conditions which will be incorporated into appropriate loan
documentation by such terms and conditions and are not intended to be
an exhaustive description of the loan documentation which will contain
additional provisions acceptable to NCO and Mellon.
5
<PAGE>
NCO Group, Inc. & Subsidiaries
Proposed Outline of Terms
Fees and Expenses:
The reasonable fees and out-of-pocket expenses of special counsel to
Mellon incurred without limitation in connection with the preparation
hereof and the negotiation, preparation and closing of the loan
documentation and credit facility, as well as post closing fees and
expenses which may be required due to any future amendments to the loan
agreement, shall be for the account of NCO.
Agreed and Accepted:
NCO Group, Inc. & Subsidiaries
BY: /s/ Michael J. Barrist September 6, 1996
--------------------------------------- -------------------
Date
---------------------------------------
Title
6
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made this _____ day of
September, 1996 by and between NCO FINANCIAL SYSTEMS, INC., a Pennsylvania
Corporation ("NCO") with a principal place of business at 1740 Walton Road, Blue
Bell, Pennsylvania, 19422, MANAGEMENT ADJUSTMENT BUREAU, INC. ("MAB"), a New
York corporation and CRAIG COSTANZO ("Costanzo") an individual with an address
of 331 Wellingwood, East Amherst, N.Y. 14051.
BACKGROUND
A. On or about July 18, 1996, NCO executed a certain stock purchase
agreement ("Stock Purchase Agreement") with Craig Costanzo pursuant to which NCO
agreed to purchase 100% of the stock of MAB.
B. On or about August 5, 1994, MAB had executed a certain lease
agreement (as amended, hereinafter collectively "Lease Agreement") with THE
UNILAND PARTNERSHIP, L.P., a New York Limited Partnership ("Uniland"), pursuant
to which MAB leased from Uniland certain real property located in Amherst, New
York. In connection with the Lease Agreement, Costanzo executed a certain
Guarantee Agreement ("Guarantee") pursuant to which Costanzo agreed to guarantee
the obligations of MAB under the Lease Agreement.
C. In connection with the Stock Purchase Agreement, Costanzo and NCO
agreed to use their best efforts to obtain a release of Costanzo's obligations
under the Guarantee. Although
<PAGE>
under no legal obligation to do so, NCO submitted a certain assignment
and assumption of guarantee agreement to Uniland on August 28, 1996, a copy of
which is attached hereto as Exhibit "A" and incorporated by reference herein
("Assumption Agreement").
D. Uniland has advised NCO and Costanzo that as of the date of the
closing under the Stock Purchase Agreement, it is not in a position to execute
the Assumption Agreement.
E. NCO assigned certain of its rights and obligations under the Stock
Purchase Agreement to NCO of New York, Inc. pursuant to the terms of a certain
assignment agreement dated _____________________, 1996.
F. Costanzo and NCO are desirous of consummating and closing the Stock
Purchase Agreement while agreeing to continue to use their best efforts to
obtain Uniland's consent to the terms and conditions contained in the Assumption
Agreement.
NOW, THEREFORE, with the foregoing background being incorporated by
reference, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. NCO and Costanzo agree that for a period of 180 days following the
execution of this Agreement, they shall continue to use their best efforts to
cause Uniland to execute the Assumption Agreement.
2. NCO agrees to pay Costanzo a sum not to exceed Ten Thousand Dollars
within ten (10) days of a presentation of
2
<PAGE>
invoices for legal fees incurred by Costanzo for estate planning matters.
3. NCO agrees to submit an application for an irrevocable letter of
credit in favor of Costanzo in an amount not to exceed $300,000.00 pursuant to
the terms of the (i) Application for Standby Letter of Credit and (ii) Letter of
Credit Agreement both of which are attached hereto as Exhibit "B" (collectively
"Letter of Credit").
4. During the remaining term of the Lease Agreement, NCO and MAB agree
to indemnify and hold Costanzo harmless for all costs, damages, attorneys fees,
liabilities and expenses incurred by Costanzo arising out of or relating to any
claim made against Costanzo under the Guarantee; provided, however, that
Costanzo agrees to look to the Letter of Credit in the first instance to satisfy
NCO's and MAB's obligations hereunder. Costanzo acknowledges that NCO's and
MAB's obligation hereunder shall be limited solely to any claims made against
Costanzo under the Guarantee and shall not include an indemnification of any
other claims which may be made against Costanzo by Uniland or any other party.
5. Costanzo acknowledges and agrees that NCO may alter, amend, or
modify the Assumption Agreement without the prior written consent of Costanzo;
provided, however, that NCO may not modify paragraph 12 of the Assumption
Agreement without the express written consent of Costanzo (which consent shall
not be unreasonably withheld).
3
<PAGE>
6. Costanzo and NCO acknowledge and confirm that the terms of paragraph
1 constitute an agreement to use the parties "best efforts" and shall in no way
constitute a legal and binding obligation on either party to take any action
with respect to the Assumption Agreement other than to continue to request that
Uniland execute the same and to entertain (in NCO's and Costanzo's sole and
absolute discretion) any modifications which Uniland may request.
7. NCO agrees that if Uniland fails to release Costanzo from his
obligations under the Guarantee prior to the expiration of the Letter of Credit
then, NCO shall cause a replacement letter of credit(s) to be issued until the
earlier of (i) the date on which Uniland executes the Assumption Agreement or
(ii) expiration of the term of the Lease Agreement. If Uniland executes the
Assumption Agreement then, Costanzo agrees to return to NCO the original Letter
of Credit then outstanding and to execute such other documents as may be
necessary to release NCO of its obligations to post the Letter of Credit
hereunder.
8. This Agreement constitutes the entire understanding and agreement
among the parties with respect to the subject matter hereof. This Agreement
shall be governed by the laws of the State of New York. This Agreement shall be
binding upon and enure to the benefit of the parties and their respective
successors and assigns. No modification of this Agreement shall be effective
unless in writing and signed by authorized
4
<PAGE>
representatives of the parties. No party has been induced to enter into this
Agreement by any fact, representation, or a matter that is not expressly
described in this Agreement.
9. This Agreement may be executed in one or more counterpart copies,
all of which shall be deemed to constitute a single original instrument. If any
term or provision of this Agreement shall be determined by a Court of competent
jurisdiction to be unenforceable, such determination shall not effect or impair
the enforceability the remaining terms and provisions of this Agreement. Each
party to this Agreement has taken all requisite corporate action to execute,
deliver, and perform under this Agreement.
10. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
ANY RIGHT EITHER OF THEN MAY HAVE BY A TRIAL BY JURY IN RESPECT TO ANY
LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY COURSE OF CONDUCT,
DEALING, STATEMENT, OR ACTIONS OF ANY OF THE PARTIES, INCLUDING THE RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, AGENTS OR ATTORNEYS. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR ALL PARTIES TO ENTER INTO THIS AGREEMENT.
The parties hereto have executed this Agreement as of the date first
set forth above.
NCO FINANCIAL SYSTEMS
By: _______________________________
Michael J. Barrist, President
Attest: ___________________________
Joshua Gindin
5
<PAGE>
MANAGEMENT ADJUSTMENT BUREAU, INC.
By: _________________________________
Michael J. Barrist
Attest: _____________________________
Joshua Gindin
_____________________________________
Craig Costanzo
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-11745) of our report dated February 16, 1996, except for notes 1,2,3,7
and 13 for which the date is September 30, 1996 on our audits of the financial
statements of NCO Group, Inc. as of December 31, 1994 and 1995 and for the
three years in the period ended December 31, 1995. We also consent to the
inclusion of our report dated August 20, 1996 on our audits of the financial
statements of Management Adjustment Bureau, Inc. as of December 31, 1994, 1995
and June 30, 1996 and for the three years in the period ended December 31,
1995 and the six months ended June 30, 1996. We also consent to the reference
to our firm under the caption "Experts" and "Selected Financial and Operating
Data."
/s/ Coopers & Lybrand, L.L.P.
- -----------------------------
Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 16, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 16, 1996, with respect to the financial
statements of the Trans Union Corporation Collections Division included in
Amendment No. 1 to the Registration Statement (Form S-1) and related Prospectus
of NCO Group, Inc. for the registration of 2,875,000 shares of its common
stock.
/s/ Ernst & Young LLP
-----------------------
Ernst & Young LLP
Chicago, Illinois
October 17, 1996
<PAGE>
Exhibit 99.1
CONSENT OF PERSON
NAMED AS A DIRECTOR
The undersigned hereby consents to being named as a person to become a
director of NCO Group, Inc. (the "Company") in the Company's Registration
Statement on Form S-1, relating to the registration for sale of 2,875,000 shares
of the Company's common stock, and in all amendments thereto filed with the
Securities and Exchange Commission.
/s/ Eric Siegel
---------------
Dated: October 16, 1996
<PAGE>
Exhibit 99.2
CONSENT OF PERSON
NAMED AS A DIRECTOR
The undersigned hereby consents to being named as a person to become a
director of NCO Group, Inc. (the "Company") in the Company's Registration
Statement on Form S-1, relating to the registration for sale of 2,875,000 shares
of the Company's common stock, and in all amendments thereto filed with the
Securities and Exchange Commission.
/s/ Allen Wise
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Dated: October 17, 1996
