<PAGE>
As filed with the Securities and Exchange Commission on September 11, 1996
Registration No. 333-2858652
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NCO GROUP, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
Pennsylvania 7322 23-2858652
- ------------------------------------ ------------------------------------- ------------------------------------
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
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
Baltimore, Maryland 21201
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. / /
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CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Proposed
maximum maximum Amount of
Title of securities Amount to be offering price aggregate registration
to be registered registered (1) per share (2) offering price (2) fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value...................... 2,875,000 $13.00 $37,375,000 $12,888
==================================================================================================================================
</TABLE>
(1) Includes 375,000 shares which the Underwriters have a right to
purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
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.
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<PAGE>
CROSS-REFERENCE TABLE
LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY PART I
OF FORM S-1
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Item No. Caption Location in Prospectus
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Item 1 Forepart of the Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover
of Prospectus Pages
Item 3 Summary Information, Risk Factors and Prospectus Summary, Risk Factors
Ratio of Earnings to Fixed Charges
Item 4 Use of Proceeds Use of Proceeds, Dividend Policy and
Prior S Corporation Status
Item 5 Determination of Offering Price Underwriting
Item 6 Dilution Dilution
Item 7 Selling Security Holders Principal and Selling Shareholders
Item 8 Plan of Distribution Underwriting
Item 9 Description of Securities to be Registered Dividend Policy and Prior S Corporation
Status, Capitalization, Description of
Capital Stock
Item 10 Interests of Named Experts and Counsel Not applicable
Item 11 Information with Respect to the Registrant
(a) Description of Business Prospectus Summary, Acquisition
History, Business
(b) Description of Property Business
(c) Legal Proceedings Business
(d) Market Price of and Dividends on the Dividend Policy and Prior S Corporation
Registrant's Common Equity and Related Status, Description of Capital Stock,
Stockholder Matters Underwriting
(e) Financial Statements Index to Financial Statements
(f) Selected Financial Data Selected Financial and Operating Data
(g) Supplementary Financial Information Not applicable
(h) Management's Discussion and Analysis of Management's Discussion and Analysis of
Financial Condition and Results of Financial Condition and Results
Operations of Operations
(i) Changes in and Disagreements with Not applicable
Accountants on Accounting and
Financial Disclosure
(j) Directors and Executive Officers Management
(k) Executive Compensation Management
(l) Security Ownership of Certain Principal and Selling Shareholders
Beneficial Owners and Management
(m) Certain Relationships and Related Certain Transactions
Transactions
Item 12 Disclosure of Commission Position on Not applicable
Indemnification for Securities Act Liabilities
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<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 SEPTEMBER 11, 1996
2,500,000 Shares
NCO GROUP, INC.
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 11 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.
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=============================================================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total (3)................................ $ $ $
=============================================================================================================================
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(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) Certain 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>
[Three 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 appear 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 and NCO Financial became a wholly-owned subsidiary of the
Company. 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 stock split to be 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 15
largest accounts receivable management companies in the United States.
The Company provides its services principally to mid- and large-size
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.
Such fees typically range from 15% to 35%, with a current average of
approximately 24%, which the Company believes is among the lowest in the
industry. 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.
-3-
<PAGE>
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 American Collectors Association, Inc. ("ACA"), an industry trade group.
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 were approximately 7,600 accounts
receivable management companies in operation in 1994, the majority of which were
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.
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 maintaining a low
cost structure. Lastly, the Company is targeting larger clients which offer
significant cross-selling opportunities and have greater teleservices
outsourcing requirements.
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's principal executive offices are located at 1740 Walton
Road, Blue Bell, Pennsylvania 19422, and its telephone number is (610) 832-1440.
-4-
<PAGE>
- -------------------------------------------------------------------------------
The Offering
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<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, 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 expected 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)
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<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1991 1992 1993 1994
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<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>
Six Months
Ended June 30,
- ------------------------------ ---------------------------------------------
1995 1995 1996
----------------------------- ------------- -------------------------------
Pro Pro
Actual Forma(1)(2) Actual Forma (2)(3)
------------- --------------- ------------- -----------------
$12,733 $34,509 $ 5,546 $12,543 $19,319
6,797 16,412 2,956 5,954 9,479
4,042 12,531 1,745 4,095 6,326
348 1,529 116 423 833
------------- --------------- ------------- ------------- -----------------
1,546 4,037 729 2,071 2,681
(180) (212) (73) (310) (19)
------------- --------------- ------------- ------------- -----------------
1,366 3,825 656 1,761 2,662
546 1,659 262 704 1,129
------------- --------------- ------------- ------------- -----------------
$ 820 $ 2,166 $ 394 $ 1,057 $ 1,533
============= =============== ============= ============= =================
$ 0.17(5) $ 0.35 $ 0.22(5) $ 0.25
============= =============== ============= =================
4,745,229(5) 6,211,179 4,750,259(5) 6,216,209
============= =============== ============= =================
$ 431,927 $1,134,000 $ 180,783 $ 373,499 $ 664,905
22.4% N/A 21.7% 24.0% 24.3%
<PAGE>
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December 31,
------------------------------------------------------------------
1991 1992 1993 1994 1995
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<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.................... $ 355 $ 421 $ 562 $ 526 $ 805
Working capital.............................. 179 362 445 473 812
Total assets................................. 1,546 2,177 2,449 4,106 7,873
Long-term debt, net of current portion....... 108 144 59 732 2,593
Shareholders' equity......................... 403 686 876 1,423 2,051
</TABLE>
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<CAPTION>
June 30, 1996
-------------------------------
Pro Forma
Actual As Adjusted (6)
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<S> <C>
$ 990 $ 9,515
2,458 11,600
14,655 35,263
7,356 1,710
3,151 26,982
</TABLE>
-6-
<PAGE>
- ------------
(1) Assumes that the acquisitions of MAB, the Trans Union Corporation
Collections Division and Eastern Business Services, Inc. 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, 1996.
(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 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 11 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>
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. 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 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 certain expenses, such as telephone, mailing, and
data processing, to levels 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 the Trans Union Corporation
Collections Division ("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,
reducing certain expenses such as rent, telephone, mailing and data processing,
and closing one office.
Eastern Business Services, Inc.
In August 1995, NCO purchased certain assets of Eastern Business Services, Inc.
("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
-8-
<PAGE>
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 certain expenses
such as telephone, mailing and data processing.
B. Richard Miller, Inc.
In April 1994, NCO purchased certain assets of B. Richard Miller, Inc. ("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 Company. 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, reducing certain expenses such as
telephone, mailing and data processing and closing BRM's sole office.
Financial Impact of Acquisitions
The Company financed the MAB, TCD, Eastern and BRM acquisitions with borrowings
from its bank. 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 Company also
expects 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.
-9-
<PAGE>
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<CAPTION>
Year Ended Six Months
December 31, Ended
1995 June 30, 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 --
Non-recurring MAB expenses (3)............................ -- 190,000
------------------ ------------------
Total selling, general and administrative
expense reductions.............................. 260,300 190,000
------------------ ------------------
Depreciation and amortization (4)......................... (379,216) (160,705)
------------------ ------------------
Total operating cost and expense
adjustments..................................... $1,961,852 $ 758,445
================== ==================
</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 current rent expense for
the TCD facilities and the rental costs allocated to TCD by its parent
prior to the acquisition.
(3) Reflects reversal of a non-recurring charge recorded by MAB to account
for potential losses relating to certain repayment guarantees made on
behalf of third parties.
(4) 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.
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."
-10-
<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 duplicative
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 BRM
acquisitions. See "Use of Proceeds."
Ability to Manage and Sustain 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."
-11-
<PAGE>
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. 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. In addition,
the Company believes that it will compete for attractive acquisition candidates
with other larger companies, consolidators 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 also
involve 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."
-12-
<PAGE>
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."
Competition
The accounts receivable management industry is highly competitive. The
Company competes with over 7,600 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
-13-
<PAGE>
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. 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 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
-14-
<PAGE>
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 39.9% of the Common Stock (approximately 36.4% if
the Underwriters' over-allotment option is exercised in full), and together with
the other executive officers of the Company will beneficially own approximately
62.9% (approximately 57.3% 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."
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, 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
-15-
<PAGE>
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."
-16-
<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 may use a portion of the net proceeds for 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 or
understandings regarding any material acquisitions; however, as the result of
the Company's process of reviewing possible acquisition prospects, negotiations
may occur from time to time if appropriate opportunities arise. The Company
intends to use the remainder of its net proceeds for working capital and other
general corporate purposes. 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,
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<PAGE>
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.
-18-
<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
expected 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.
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<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 per share.............................. $12.00
Net tangible book value per share at
June 30, 1996................................................. $ (0.80)
Pro forma adjustments............................................. (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>
-20-
<PAGE>
- --------
(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 expected 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."
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<PAGE>
SELECTED FINANCIAL AND OPERATING 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.
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<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share data)
<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
============= ==============
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>
Six Months
Ended June 30,
- ---------------------------------------------
1995 1996
- ------------- -------------------------------
Pro
Actual Forma (2)(3)
------------ -----------------
$ 5,546 $12,543 $19,319
2,956 5,954 9,479
1,745 4,095 6,326
116 423 833
- ------------- ------------ -----------------
729 2,071 2,681
(73) (310) (19)
- ------------- ------------ -----------------
656 1,761 2,662
262 704 1,129
- ------------- ------------ -----------------
$ 394 $ 1,057 $ 1,533
============= ============ =================
$ 0.22 (5) $ 0.25
============ =================
4,750,259 (5) 6,216,209
============ =================
$ 180,783 $ 373,499 $ 664,905
21.7% 24.0% 24.3%
<PAGE>
<TABLE>
<CAPTION>
June 30, 1996
December 31, -------------------
--------------------------------------------------------- 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>
-23-
<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, 1996.
(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 11 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."
-24-
<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%, 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
-25-
<PAGE>
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 Eastern, 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 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 32.7
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 86.1
---------- --------- --------- -------- --------- --------- ---------
Income from operations................. 10.6 13.2 12.2 11.7 13.1 16.5 13.9
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 13.8
Pro forma provision for income taxes....... 4.3 5.1 4.3 4.8 4.7 5.6 5.8
---------- --------- --------- -------- --------- --------- ---------
Pro forma net income................... 6.4% 7.6% 6.5% 6.3% 7.1% 8.4% 8.0%
========== ========= ========= ======== ========= ========= =========
</TABLE>
-26-
<PAGE>
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 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
-27-
<PAGE>
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.
Pro forma net income. Pro forma net income 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. Pro forma net income 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.
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
-28-
<PAGE>
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.
Pro forma net income. Pro forma net income increased to $820,000 for
the year ended December 31, 1995 from $652,000 in 1994, representing a 25.7%
increase. Pro forma net income 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.
-29-
<PAGE>
Pro forma net income. Pro forma net income increased to $652,000 for
the year ended December 31, 1994 from $481,000 in 1993, representing a 35.6%
increase. Pro forma net income includes a provision for federal and state income
taxes at an assumed rate of 40% for the years ended December 31, 1994 and 1993.
-30-
<PAGE>
Quarterly Results
The following table sets forth selected actual historical financial
data for the calendar quarters of 1994 and 1995, and for the first two calendar
quarters of 1996. This quarterly information is unaudited but has been prepared
on a basis consistent with the Company's audited financial statements presented
elsewhere herein and, in the Company's opinion, includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information for the quarters presented. The operating
results for any quarter are not necessarily indicative of results for any future
period.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------------------------
1994 1995 1996
-------------------------------------- ---------------------------------------- ----------------------
Mar. Jun. Sept. Dec. Mar. Jun. Sept. Dec. Mar. Jun.
31 30 30 31 31 30 30 31 31 30
-------------------------------------- ----------------------------------------- ---------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue......................$ 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>
-31-
<PAGE>
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.
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 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
-32-
<PAGE>
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
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 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 expects 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.
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.
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<PAGE>
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.
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.
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<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 15 largest accounts receivable management
companies in the United States.
The Company provides its services principally to mid- to large-size
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
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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 were approximately 7,600 accounts
receivable management companies in operation in 1994, the majority of which were
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:
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. To maintain a low cost structure,
the Company focuses on centralizing all administrative functions and minimizing
overhead at all branch locations. For example, 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
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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.
Expand Service Offerings. The Company regularly seeks to expand 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 existing and new
clients.
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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%, 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.
The following chart depicts the key steps of the recovery process:
[A diagram depicting the accounts receivable recovery process appears here.]
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<PAGE>
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.
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. 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
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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 an electric 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 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 a major Blue Cross plan 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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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.
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.
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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 (including MAB)
accounted for approximately 34.9% of the Company's revenue, with the City of
Philadelphia Water Revenue Bureau accounting for 5.2% of total revenue. In 1995,
the Company (including MAB) 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.
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 Assistance Agency
Mellon Bank, N.A. Medical Center of Delaware University of Pennsylvania
NationsBank, N.A. Franciscan Healthcare Seton Hall University
The Progressive George Washington University Penn State University
Corporation Hospital Rutgers University
United Healthcare Hutchinson Hospital Corporation University of Virginia
</TABLE>
<TABLE>
<CAPTION>
Telecommunications Utilities Government
- ----------------------------- ------------------------------------ ---------------------------------------------
<S> <C> <C>
Bell Atlantic Corporation New York State Electric & Gas Water Revenue Bureau, City of Philadelphia
NYNEX National Fuel Gas Distribution State of New Jersey Motor Vehicle Services
ATX Telecommunications Corporation
Frontier Cellular PECO Energy Company
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 salesmen 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
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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.
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 over 7,600 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.
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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.
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.
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Facilities
The Company operates eight leased facilities. The chart below
summarizes the Company's facilities:
<TABLE>
<CAPTION>
Location Approximate
of Facility Square Footage Function
- --------------------------------- ---------------------------- ---------------------------------------
<S> <C> <C>
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
</TABLE>
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.
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.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning the
Company's directors, executive officers and certain key employees:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------------------- ------------ ------------------------------------------------------
<S> <C> <C>
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......................... 36 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
</TABLE>
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 &
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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.
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.
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 Mr. Miller and an independent director, whose terms will expire at
the 1998 annual meeting of shareholders; Class III will consist of Mr. Piola and
an independent director, 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 at
least the two independent directors, and a Compensation Committee consisting of
Mr. Barrist and the two independent directors.
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.
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<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards (1)
------------------------------- ------------------
Securities
Name and Underlying All Other
Principal Position Year Salary Bonus Options (#) Compensation (2)
- --------------------------------- --------- ------------- ------------- ------------------ ----------------------
<S> <C> <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.
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<PAGE>
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.
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.
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<PAGE>
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, $200,000,
$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 under
the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors. This 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 modify, amend, suspend or
terminate these Plans, provided that such action may not 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
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<PAGE>
shares of Common Stock have been issued under the 1995 Plan and the 1996 Plan,
respectively. 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.
Additionally, the Compensation Committee may permit gifts of options to family
members. 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 1996, the Company granted options to purchase an aggregate
of 145,602 shares under the 1996 Plan at an exercise price equal to the initial
public offering price. Of these options, 48,534 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
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<PAGE>
completion of this Offering, the Company expects to appoint two outside
directors to the Board and to establish a Compensation Committee consisting of
Mr. Barrist and the two outside directors.
CERTAIN TRANSACTIONS
Real Estate Matters
The Company currently leases five 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 five 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. The Company believes that the terms of the
leases are no less favorable to the Company than would have been obtained by
unaffiliated parties. See "Business -- Facilities" and Note 9 of Notes to the
Financial Statements.
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 Termination
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
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<PAGE>
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.
-53-
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of September 5, 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; (iii)
each of the Named Executive Officers; and (iv) the Company's directors 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 Prior Percent After
Name of Beneficial Owner Number to the Offering the Offering (1)
- ------------------------------------------------- --------------- ---------------- ----------------------
<S> <C> <C> <C>
Michael J. Barrist (2)(3)(4).................... 2,681,856 63.6% 39.9%
Annette Barrist (2)(4).......................... 320,193 7.6 4.8
Charles C. Piola, Jr. (2)(5).................... 1,180,389 28.0 17.6
Bernard R. Miller (2)........................... 210,684 5.0 3.1
Mellon Bank, N.A................................ 222,091 5.0 3.2
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Joseph C. McGowan(2)(6)......................... 14,781 * *
All directors and executive officers
as a group (5 persons) (7)...................... 4,239,314 100.0% 62.9%
</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 36.4%, 15.8%, 2.9% and 4.3%, respectively, and all
directors and executive officers as a group will beneficially own 57.3% 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) 320,193 shares of Common Stock owned by Mrs. Barrist which Mr.
Barrist has the sole right to vote pursuant to an irrevocable proxy and (ii)
140,518 shares held in trust for the benefit of Mr. Piola's children 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.
(4) 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 September 5, 1996.
(7) Includes: (i) 320,193 shares of Common Stock owned by Mrs. Barrist which Mr.
Barrist has the sole right to vote pursuant to an irrevocable proxy, (ii)
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 (iii) an
aggregate of 25,867 shares issuable upon exercise of options which are
exercisable within 60 days of September 5, 1996.
-54-
<PAGE>
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 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.
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<PAGE>
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 intends 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
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<PAGE>
provide that actions by shareholders without a meeting must receive the
unanimous written consent of all shareholders. The Articles also permit the
Board 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
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<PAGE>
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 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
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<PAGE>
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.
-59-
<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.
-60-
<PAGE>
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
exercise 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
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<PAGE>
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 certified public
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 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report 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
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.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
NCO Group, Inc.
Pro Forma Consolidated Financial Statements:
Basis of Presentation F-1
Pro Forma Consolidated Balance Sheet as of June 30, 1996 F-2
Pro Forma Consolidated Statement of Income for the six months
ended June 30, 1996 F-3
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1995 F-4
Notes to Consolidated Pro Forma Financial Statements F-5
Historical Financial Statements:
Report of Independent Accountants F-7
Balance Sheets as of December 31, 1994 and 1995 and
June 30, 1996 (Unaudited) F-8
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-9
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-10
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-11
Notes to Financial Statements F-12
<PAGE>
INDEX TO FINANCIAL STATEMENTS, Continued
Management Adjustment Bureau, Inc.:
Report of Independent Accountants F-26
Balance Sheets as of December 31, 1994 and 1995 and
as of June 30, 1996 F-27
Statements of Income and Retained Earnings
for the three year period ended
December 31, 1995 and the six months ended
June 30, 1996 F-28
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-29
Notes to Financial Statements F-31
Trans Union Corporation Collections Division:
Report of Independent Auditors F-37
Statements of Net Assets as of December 31, 1994
and 1995 F-38
Statements of Operations for each of the three years
ended December 31, 1995 F-39
Statements of Cash Flows for each of the three years
ended December 31, 1995 F-40
Notes to Financial Statements F-41
<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 has been prepared
assuming the MAB acquisition occurred on January 1, 1996, and the Pro Forma
Consolidated Statement of Income 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. 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-1
<PAGE>
NCO GROUP, INC.
Pro Forma Consolidated Balance Sheet
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical
--------------------------------- Pro Forma
ASSETS NCO MAB(1) Adjustments Pro Forma
----------- ---------- --------------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 989,773 $ 475,354 $ 8,750,000 (6) $ 9,515,127
(300,000)(2)
(400,000)(3)
Available-for-sale securities 329,290 329,290
Accounts receivable, trade 2,830,610 1,234,393 4,065,003
Accounts receivable, purchased
Notes receivable 56,088 56,088
Prepaid expenses and other current assets 108,286 135,888 244,174
----------- ---------- ----------- -----------
Total current assets 4,257,959 1,901,723 8,050,000 14,209,682
Funds held in trust for clients:
Cash 2,089,714 1,393,938 3,483,652
Property and equipment, net 1,420,073 1,160,130 2,580,203
Other assets:
Goodwill, net of accumulated amortization 6,074,713 8,035,284 (2) 14,109,997
Covenants, net of accumulated amortization 217,708 217,708
Acquired account inventory, net 85,979 85,979
Deferred financing costs 243,879 243,879
Due from related party 33,811 33,811
Other assets 264,505 33,703 298,208
----------- ---------- ----------- -----------
Total other assets 6,886,784 67,514 8,035,284 14,989,582
----------- ---------- ----------- -----------
Total assets $14,654,530 $4,523,305 $16,085,284 $35,263,119
=========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Demand loan $ 400,000 $ (400,000)(3)
Long-term debt, current portion $ 42,333 60,000 $ 102,333
Capitalized lease obligations, current portion 59,128 108,459 167,587
Accounts payable 182,023 123,756 305,779
Accrued expenses 867,933 318,027 200,000 (2) 1,385,960
Accrued compensation and related expenses 550,423 550,423
Unearned revenue, net of related costs 98,092 98,092
----------- ---------- ----------- -----------
Total current liabilities 1,799,932 1,010,242 (200,000) 2,610,174
----------- ---------- ----------- -----------
Funds held in trust for clients 2,089,714 1,393,938 3,483,652
Deferred tax liability 219,000 (5) 219,000
Long-term liabilities:
Long-term debt, net of current portion 7,118,039 205,000 (15,000,000)(6) 323,039
8,000,000 (1)
Unearned revenue, net of related costs 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
Commitments and contingencies
Shareholders' equity:
Common stock 537,326 19,000 26,750,000 (6) 26,755,992
(19,000)(4)
(531,334)(5)(6)
Unexercised warrants 177,294 177,294
Unrealized gain on securities 48,475 48,475
Retained earnings 2,387,666 1,745,716 (1,745,716)(4) 0
(2,387,666)(5)(6)
----------- ---------- ----------- -----------
Total shareholders' equity 3,150,761 1,764,716 22,066,284 26,981,761
----------- ---------- ----------- -----------
Total liabilities and shareholders' equity $14,654,530 $4,523,305 $16,085,284 $35,263,119
=========== ========== =========== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-2
<PAGE>
NCO GROUP, INC.
Pro Forma Consolidated Statement of Income
for the six months ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------- Pro Forma
NCO MAB Adjustments Pro Forma
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $12,542,664 $6,776,290 $19,318,954
----------- ---------- ---------- -----------
Operating costs and expenses:
Payroll and related expenses 5,953,895 4,254,479 $ (729,150)(7) 9,479,224
Selling, general and administrative
expenses 4,094,626 2,421,714 (190,000)(8) 6,326,340
Depreciation and amortization expense 422,814 248,921 160,705 (9) 832,440
----------- ---------- ---------- -----------
Total operating costs and
expenses 10,471,335 6,925,114 (758,445) 16,638,004
----------- ---------- ---------- -----------
Income (loss) from operations 2,071,329 (148,824) 758,445 2,680,950
Other income (expense):
Interest and investment income 47,415 6,712 54,127
Interest expense (357,494) (30,262) 314,785 (10) (72,971)
----------- ---------- ---------- -----------
Income (loss) before taxes $ 1,761,250 $ (172,374) $1,073,230 2,662,106
=========== ========== ==========
Pro forma provision for income taxes 1,129,124 (11)
-----------
Pro forma net income $ 1,532,982
===========
Pro forma net income per share $ .25 (12)
-----------
Pro forma weighted average
shares outstanding 6,216,209
===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-3
<PAGE>
NCO GROUP, INC.
Pro Forma Consolidated Statement of Income
for the year ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------
Pro Forma
NCO MAB TCD Eastern Adjustments Pro Forma
----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue $12,732,597 $12,975,799 $7,467,000 $1,333,675 $34,509,071
----------- ----------- ---------- ---------- -----------
Operating costs and expenses:
Payroll and related expenses 6,797,338 7,909,785 3,125,000 660,617 $(2,080,768)(7) 16,411,972
Selling, general and administrative
expenses 4,042,342 4,138,523 3,840,000 770,742 (260,300)(13) 12,531,307
Depreciation and amortization expense 347,503 457,997 198,000 145,778 379,216 (9) 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
----------- ----------- ---------- ---------- ----------- -----------
Income (loss) from operations 1,545,414 469,494 304,000 (243,462) 1,961,852 4,037,298
----------- ----------- ---------- ---------- ----------- -----------
Other income (expense):
Interest and investment income 49,473 12,115 61,588
Interest expense (180,205) (26,802) (94,904) 252,609 (10) (49,302)
Loss on disposal of property and
equipment (49,082) (175,392) (224,474)
----------- ----------- ---------- ---------- ----------- -----------
Total other income (expense) (179,814) (190,079) (94,904) 252,609 (212,188)
----------- ----------- ---------- ---------- ----------- -----------
Income (loss) before taxes $ 1,365,600 $ 279,415 $ 304,000 $ (338,366) $ 2,214,461 3,825,110
=========== =========== ========== ========== ===========
Pro forma provision for income taxes 1,658,609 (11)
-----------
Pro forma net income $ 2,166,501
===========
Pro forma net income per share $ .35 (12)
===========
Pro forma weighted average shares
outstanding 6,211,179
===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-4
<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 costs related to the acquisition of $500,000.
Of such costs, $300,000 are assumed to have been paid upon closing and the
remaining $200,000 are 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. In addition, 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 acquisition.
F-5
<PAGE>
Notes to Consolidated
Pro Forma Financial Statements, Continued
(Unaudited)
(8) Reversal of 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.
(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) 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.
(12) 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 and 1996 to the
46.56 for 1 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.
(13) Reflects the difference between the Company's current rent expense for the
TCD facility and the rental costs allocated to TCD by its parent prior to
the acquisition.
F-6
<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 LLP
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 5, 1996
F-7
<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-8
<PAGE>
NCO GROUP, INC.
Statements of Income
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30, (unaudited)
-------------------------------------------- -------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<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 $ .17 $ .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-9
<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 $ (13,588) 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-10
<PAGE>
NCO GROUP, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
Year 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-11
<PAGE>
NCO GROUP, INC.
Notes to Financial Statements
(Amounts and disclosures for the six months
ended June 30, 1996 and 1995 are unaudited)
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 intends to effect a 46.56 for 1 stock
split in September 1996 and will increase 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 proposed 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.
F-12
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
2. Summary of Significant Accounting Policies, continued:
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.
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.
F-13
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
2. Summary of Significant Accounting Policies, continued:
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.
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.
F-14
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
2. Summary of Significant Accounting Policies, continued:
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 intends to
effect a 46.56 for 1 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 proposed 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.
F-15
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
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.
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 2,662,000
F-16
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
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.
<TABLE>
<CAPTION>
Unrealized Unrealized
Holding Holding Fair
Cost Gain Loss Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
F-17
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for 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
<TABLE>
<CAPTION>
December 31, June 30,
--------------------- -------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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.
F-18
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
6. Property and Equipment:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
--------------------------- ----------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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, respectively. Included in the computer
equipment shown above for the six months ended June 30, 1996 are
capital leases with a gross amount of $348,586 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.
F-19
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
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
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 ending June 30:
1997 $ 42,000
1998 54,000
1999 59,000
2000 7,005,000
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).
F-20
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
7. Long-Term Debt, continued:
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 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
<PAGE>
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. Leased capital assets are included in computer
equipment.
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 June
30, 1996 (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Years Ended June 30, Leases Leases Totals
--------------------- ------------- --------------- ---------------
<S> <C> <C> <C>
1997 $ 86,216 $ 746,495 $ 832,711
1998 86,216 661,050 747,266
1999 86,216 617,881 704,097
2000 74,113 595,822 669,935
2001 37,431 416,462 453,893
Future years 573,750 573,750
------------- --------------- ---------------
Total minimum lease payments 370,192 $ 3,611,460 $ 3,981,652
=============== ===============
Amounts representing interest 73,444
-------------
Present value of net minimum 296,748
payments
Current portion 59,128
-------------
$ 237,620
=============
</TABLE>
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.
F-22
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
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:
<TABLE>
<CAPTION>
Number of
Number of Option Price Shares
Options Per Share Exercisableble
--------- ----------- --------------
<S> <C> <C> <C>
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
======= ====== =======
</TABLE>
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.
F-23
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
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. 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 to various legal proceedings incidental to its
business. Certain claims, suits, and complaints arising in the ordinary
course of business have been filed or are pending against the Company.
In the opinion of management, all such matters are adequately covered
by insurance or, if not covered, are without merit or are of such kind,
or involve such amounts, as would not have a significant effect on the
financial position, results of operations, or cash flows of the
Company, if disposed of unfavorably.
13. Subsequent Events:
The Company intends to file 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.
F-24
<PAGE>
Notes to Financial Statements, Continued
(Amounts and disclosures for six months ended
June 30, 1996 and 1995 are unaudited)
13. Subsequent Events, continued:
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. MAB
provides accounts receivable management to a variety of general
businesses.
F-25
<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-26
<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 expenses 117,178 220,948 318,027
---------- ---------- ----------
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-27
<PAGE>
Management Adjustment Bureau, Inc.
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
For the Years Ended
December 31, Months
---------------------------------------------- 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-28
<PAGE>
Management Adjustment Bureau, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended For the Six
December 31, Months Ended
------------------------------------------ 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-29
<PAGE>
Management Adjustment Bureau, Inc.
Statements of Cash Flows, continued
<TABLE>
<CAPTION>
For the
For the Years Ended Six
December 31, Months Ended
-------------------------------------------- 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-30
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements
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.
F-31
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements
2. Summary of Significant Accounting Policies - continued
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.
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.
F-32
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements
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:
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
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-33
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements
8. Long-Term Debt
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------- June
1994 1995 1996
---------- --------- -----------
<S> <C> <C> <C>
Chemical Bank, collateralized by computer equipment. Monthly principal
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
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
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
--------- --------- ---------
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 maturing during the next five years ending December 31, is
approximately as follows:
1996 $ 271,500
1997 107,440
1998 91,160
1999 85,340
2000 82,440
F-34
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements
8. Long-Term Debt - 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 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.
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.
F-35
<PAGE>
Management Adjustment Bureau, Inc.
Notes to Financial Statements
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-36
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
[This Page Intentionally Left Blank]
<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 the
years then ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 16, 1996
1
F-37
<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.
2
F-38
<PAGE>
Trans Union Corporation
Collections Division
Statements of Operations
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1993 1994 1995
------------------------------------------------------------
<S> <C> <C> <C>
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
============================================================
</TABLE>
See accompanying notes.
3
F-39
<PAGE>
Trans Union Corporation
Collections Division
Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year 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.
4
F-40
<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.
5
F-41
<PAGE>
Trans Union Corporation
Collections Division
Notes to Financial Statements (continued)
(In Thousands)
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.
6
F-42
<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.
7
F-43
<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
Acquisition History..................................... 8
Risk Factors............................................ 11
Use of Proceeds......................................... 17
Dividend Policy and Prior S Corporation Status.......... 17
Capitalization.......................................... 19
Dilution................................................ 20
Selected Financial and Operating Data................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................ 25
Business................................................ 35
Management.............................................. 46
Certain Transactions.................................... 52
Principal and Selling Shareholders...................... 54
Description of Capital Stock............................ 55
Shares Eligible for Future Sale......................... 58
Underwriting............................................ 60
Legal Matters........................................... 61
Experts................................................. 62
Additional Information.................................. 62
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
II-1
<PAGE>
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.
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.
II-2
<PAGE>
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 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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- --------------------------------------------------------------------------
<S> <C>
*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 Agreement of Lease for MAB Facility.
10.9 Software License Agreement and Software Purchase Agreement, by and
between the Company and CR Software, Inc., relating to computer software
(CRS Credit Bureau Reporting Software) and computer hardware.
*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 Warrant Agreement, dated September 5, 1996, by and between the
Company and Mellon Bank, N.A.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- --------------------------------------------------------------------------
<S> <C>
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.
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.
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 to
be 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.
</TABLE>
- --------
* To be filed by amendment.
(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
II-5
<PAGE>
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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Blue Bell,
Pennsylvania, on September 10, 1996.
NCO GROUP, INC.
By: /s/ Michael J. Barrist
-------------------------------------------
Michael J. Barrist,
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael J. Barrist and Steven L. Winokur,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution or resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documentation in connection therewith, as well as any related registration
statement (or amendment thereto) filed pursuant to Rule 462(b) promulgated under
the Securities Act of 1933 with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to enable NCO
Group, Inc. to comply with the provisions of the Securities Act of 1933 and all
requirements of the Securities and Exchange Commission, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Michael J. Barrist
- ------------------------- Chairman of the Board, September 10, 1996
Michael J. Barrist President and Chief Executive
Officer (principal executive
officer)
/s/ Charles C. Piola, Jr.
- ------------------------- Executive Vice President and September 10, 1996
Charles C. Piola, Jr. Director
/s/ Steven L. Winokur
- ------------------------- Vice President of Finance, September 10, 1996
Steven L. Winokur Chief Financial Officer and
Treasurer (principal financial
and accounting officer)
/s/ Bernard R. Miller
- ------------------------- Senior Vice President, September 10, 1996
Bernard R. Miller Development and Director
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
*1.1 Form of Underwriting Agreement.
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.
Asset Purchase Agreement dated December 8, 1995 by and between the
2.2 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 Agreement of Lease for MAB Facility.
10.9 Software License Agreement and Software Purchase Agreement, by and
between the Company and CR Software, Inc., relating to computer software
(CRS Credit Bureau Reporting Software) and computer hardware.
*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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
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 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.
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.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Ernst & Young L.L.P.
23.3 Consent of Blank Rome Comisky & McCauley (included in the opinion to
be 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.
</TABLE>
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* To be filed by amendment.
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into this ___ day of
July, 1996, by and among NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation
or its assignee or nominee ("Buyer"); and CRAIG COSTANZO and ANDREW J. BOYUKA,
as Trustee of the SUSAN E. COSTANZO Grantor Trust and the CHRISTOPHER A.
COSTANZO Grantor Trust (collectively "Sellers") who collectively own all the
capital stock of MANAGEMENT ADJUSTMENT BUREAU, INC., a New York corporation
("MAB")
WITNESSETH:
A. MAB is engaged in the accounts collection business
and related businesses (the "Business").
B. Buyer and Sellers desire to enter into an agreement with each other
providing that Sellers will sell, assign, transfer and deliver to Buyer all of
the issued and outstanding capital stock of MAB (the "Capital Stock") in
exchange for the consideration hereinafter set forth.
NOW THEREFORE, Buyer and Sellers, in consideration of the mutual
covenants and agreements hereinafter set forth, and intending to be
legally bound, hereby agree as follows:
1. Transaction.
1.1 Upon payment of the Purchase Price (as
hereinafter defined) and upon satisfaction of the provisions of
<PAGE>
Section 10 of this Agreement, on the Closing Date (as hereinafter defined),
Sellers shall transfer and deliver the Capital Stock to Buyer. The certificates
representing the Capital Stock shall be duly endorsed in blank (or accompanied
by appropriate instruments of transfer satisfactory in form and substance to
counsel to Buyer) and shall have affixed thereto all applicable security
transfer tax stamps (if such are required).
1.2 Upon delivery of the Capital Stock in
compliance with the terms and conditions of this Agreement, and upon the
satisfaction of the provisions of Section 9 hereof, on the Closing Date, Buyer
shall deliver the Purchase Price (as hereinafter defined) to Sellers.
1.3 On the Closing Date, MAB shall assign to
Mary Anne Costanzo all of the rights under, and Mary Anne Costanzo shall assume
all of the obligations under, the automobile lease for the car leased by MAB for
Mary Anne Costanzo.
2. Purchase Price and Payment.
The purchase price (the "Purchase Price") for the Capital Stock shall
be $9,000,000.
The Purchase Price shall be paid as follows:
(a) $50,000 having heretofore been paid by Buyer as its deposit (the
"Deposit"). The Deposit shall continue to be held in escrow by Buyer's counsel,
Joshua Gindin ("escrowee"), until the Closing Date. In the event that Buyer does
not complete Closing (as hereinafter defined) for any reason, other than a
reason permitted in this Agreement, the Deposit shall be released by
2
<PAGE>
escrowee to Sellers as Sellers' liquidated damages hereunder.
(b) $7,950,000 shall be paid at Closing by wire transfer (Federal
Funds) or certified or bank cashier's check, at Sellers option.
(c) $1,000,000 in the form of a convertible note (the "Note"). The Note
shall bear interest at the rate of 8% per annum, with monthly payments of
interest only during a term of five (5) years. The Note shall be convertible by
Sellers, in whole or in part, to stock of Buyer only upon an initial public
offering ("IPO") of Buyer's stock, to be convertible at the IPO price, during
the term of the Note. The Note shall be in form reasonably satisfactory to
Sellers and Buyer. In the event that the Net Worth (as hereinafter defined) is
less than the amount required in this Agreement, the principal amount of the
Note shall be reduced in an amount equal to the shortfall. (d) Schedule 2(d)
sets forth the allocation of the Purchase Price. Sellers and Buyer each agree to
respect the allocation set forth in said Schedule for tax purposes and to cause
all tax returns and other documents filed with the Internal Revenue Service or
any other tax collection agency to be consistent with such allocations.
(d) Schedule 2(d) sets forth the allocation of the Purchase Price.
Sellers and Buyer each agree to respect the allocation set forth in said
Schedule for tax purposes and to cause all tax returns and other documents filed
with the Internal Revenue Service or any other tax collection agency to be
consistent with such allocations.
3. Representations and Warranties of Sellers. Sellers hereby represent
and warrant to Buyer that:
3.1 MAB is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. Schedule 3.1 sets
forth the jurisdictions in which MAB is
3
<PAGE>
duly qualified and in good standing as a foreign corporation to do business. MAB
has the corporate power to and is authorized to own and lease its properties and
to carry on the Business in the places where such properties are now owned,
leased or operated or the Business is now conducted.
3.2 The authorized capital of MAB, and the issued and
outstanding shares of MAB are set forth on Schedule 3.2. All of the issued
shares are fully paid for and non-assessable, and are referred to herein as
Capital Stock. There are no outstanding options, rights, warrants or agreements
to purchase or acquire shares of Capital Stock or securities convertible into
Capital Stock.
3.3 The Articles of Incorporation of MAB, certified by the
Secretary of the State of New York, and the copy of the By-laws of MAB certified
as correct by its Secretary, to be delivered to Buyer on or before the Closing
Date, are true and complete and they have not been modified, rescinded or
repealed.
3.4 Sellers are the sole legal and beneficial owners of all of
the issued and outstanding shares of Capital Stock, free and clear of all liens,
charges, security interests and encumbrances. This Agreement is valid and
binding on Sellers in accordance with its terms, except as such enforcement may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereinafter in effect relating to creditor's rights and (ii) the
discretion of the appropriate court with respect to specific performance,
injunctive relief or other forms
4
<PAGE>
of equitable remedies ("Enforceability Limitations"), and Sellers have full
power to convey clear and marketable title to Capital Stock free of any liens,
charges, pledges, security interests, encumbrances or agreements of any nature
whatsoever. Sellers have not entered into, nor are they bound by, any agreement
or understanding pursuant to which they have agreed to sell Capital Stock, or
any portion thereof, or any interest therein, or pursuant to which any third
party has any present or future right to acquire Capital Stock or any part
thereof or any interest therein.
3.5 Set forth on Schedule 3.5 hereto is a true and correct
list and description of all client lists, contracts, agreements or
understandings pursuant to which MAB has agreed to render services, including,
but not limited to collection and related services to its clients, businesses or
individuals (collectively, the "Contracts") Such list will include all customers
of MAB as of the Closing Date. True and correct copies of the Contracts with
MAB's ten (10) largest clients will be delivered to Buyer or its counsel during
the Due Diligence Period (as hereinafter defined) and originals thereof at
Closing. Each of the Contracts is valid, binding and in full force and effect;
and MAB and, to the knowledge of Sellers, each other party thereto has performed
in all material respects all of the provisions thereof required to be performed
by each and neither MAB nor, to the knowledge of Sellers, any other party
thereto is or will with the passage of time, by giving notice or otherwise, be
in material
5
<PAGE>
default in any respect under the terms thereof. Except as set forth on Schedule
3.5 none of the Contracts will be affected by the execution and delivery of this
Agreement or the consummation of the transactions contemplated herein.
3.6 Set forth on Schedule 3.6 is a true and complete list as
of the date hereof of all computer equipment used in the conduct of the Business
including, but not limited to, hardware, software and related items and
accessories, of every type (the "Computer Equipment") and the original cost,
depreciation and book value of each item of the Computer Equipment. The Computer
Equipment listed on Schedule 3.6 consists of items of a quality useable in the
ordinary course of business of the Business as presently conducted by MAB, the
whole or partial loss of or damage to which is covered by insurance, subject to
applicable deductibles and coverage limits.
3.6.1 Except as et forth on Schedule 3.6.1, all of the
Computer Equipment is owned by MAB free and clear of all liens, encumbrances,
security interests, pledges or agreements of any nature whatsoever. To the
extent that any of the Computer Equipment is leased or held by MAB pursuant to
other arrangements, true and correct copies of all contracts, agreements or
other documents regarding such leases or other arrangements will be delivered to
counsel to Buyer or to Buyer during the Due Diligence Period and originals
thereof at Closing. Each of such contracts, agreements and understandings, is
valid, binding and in full force and effect and, to the knowledge of Sellers, is
not subject to any
6
<PAGE>
pending right of set off or counterclaim; and MAB and, to the knowledge of
Sellers, each other party thereto has performed in all material respects all of
the provisions thereof required to be performed by each and neither MAB nor, to
the knowledge of Sellers, any other party thereto is or will with the passage of
time, by giving notice or otherwise, be in material default in any respect under
the terms thereof. Except as set forth on Schedule 3.6.1, none of such
contracts, agreements or understandings will be affected by the execution and
delivery of this Agreement or the consummation of the transactions contemplated
herein.
3.6.2 During the Due Diligence Period, to the extent not a
violation of any license agreement to which MAB is a party, MAB shall make
available to Buyer source codes for all of the software used or held for use in
the Business in order to permit Buyer to commence preparation of its computer
equipment for the transition and transfer of information of the Business to
Buyer.
3.6.3 Set forth on Schedule 3.6.3 is a true and correct list
of all insurance policies, contracts, agreements and understandings regarding
the maintenance and repair of and anything else relating to the Computer
Equipment. A true and correct copy of each such insurance policies, contract,
agreement and understanding will be delivered to counsel to Buyer or to Buyer
during the Due Diligence Period and originals thereof at Closing. Each of such
contracts, agreements and understandings is in full force and effect and, to the
knowledge of Sellers, is not subject to any
7
<PAGE>
pending right of set off or counterclaim; and MAB and, to the knowledge of
Sellers, each other party thereto has performed in all material respects all of
the provisions thereof required to be performed by each. Except as set forth on
Schedule 3.6.3, none of such contracts, agreements or understandings will be
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated herein.
3.7 Set forth on Schedule 3.7 is a true and complete list as
of the date hereof of all furniture, fixtures, equipment (excluding the Computer
Equipment), and all other personal property of every type used or held for use
in the Business (the "Personal Property"), together with the original cost,
depreciation and book value of each such item of the Personal Property. The
Personal Property listed on Schedule 3.7 consists of items of a quality useable
in the ordinary course of business of the Business as presently conducted by
MAB, the whole or partial loss of or damage to which is covered by insurance
subject to applicable deductibles and coverage limits.
Except as set forth on Schedule 3.7 all of the Personal Property is
owned by MAB free and clear of all liens, encumbrances, security interests,
pledges or agreements of any nature whatsoever. To the extent that any of the
Personal Property is leased or held by MAB pursuant to other arrangements, true
and correct copies of all contracts, agreements or other documents regarding
such leases or other arrangements as well as written summaries of such oral
leases or agreements will be delivered to counsel to Buyer or to
8
<PAGE>
Buyer during the Due Diligence Period and originals thereof at Closing. Each of
such contracts, agreements and understandings is valid, binding and in full
force and effect and, to the knowledge of Sellers, is not subject to any pending
right of set off or counterclaim; and MAB and, to the knowledge of Sellers, each
other party thereto has performed in all material respects, all of the
provisions thereof required to be performed by each. Except as set forth in
Schedule 3.7, none of such contracts, agreements or understandings will be
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated herein.
3.8 Set forth on Schedule 3.8 is a true and correct list of
all material contracts, agreements or understandings by and between MAB and any
other party thereto and not otherwise set forth on any Schedule to this
Agreement. True and correct copies of each such written agreement, as well as
written summaries of each such oral agreement will be delivered to counsel to
Buyer or to Buyer during the Due Diligence Period and originals thereof at
Closing. Each of such contracts, agreements and understandings is valid, binding
and in full force and effect and to the knowledge of Sellers, is not subject to
any pending right of set off or counterclaim; and MAB and, to the knowledge of
Sellers, each other party thereto has performed in all material respects all of
the provisions thereof required to be performed by each and neither MAB nor, to
the knowledge of Sellers, any other party thereto, is or will with the passage
of time, by giving notice or otherwise, be in
9
<PAGE>
material default in any respect under the terms thereof. Except as set forth on
Schedule 3.8, none of such contracts, agreements or understandings will be
affected by the execution and delivery of this Agreement or the consummation of
the transactions contemplated herein.
3.9 Attached to Schedule 3.9 is a true and correct copy of all
real estate leases between MAB and its respective landlords including, but not
limited to its office leases in Buffalo, New York and Englewood, Colorado. Such
leases are valid, and enforceable in accordance with their terms, except as may
be limited by Enforceability Limitations. To the knowledge of Sellers, the
property covered by said leases is in a state of reasonable maintenance and
repair. There are no pending actions, claims, proceedings or hearings presently
regarding such leases, and MAB has not received notice of any such actions,
claims, proceedings or hearings. MAB does not occupy any other office or other
space.
3.10 MAB does not have any equity or other interest in any
entity, corporate or otherwise, or any warrant or option to acquire any such
interest.
3.11 MAB has delivered to Buyer (i) its audited financial
statements for the years 1994 and 1995 (the "Audited Statements") and (ii) its
unaudited financial statements dated April 30, 1996 (the "April Statement"); the
Audited Statements and the April Statement (collectively the "Statements") (i)
are in accordance with the books and records of MAB and (ii) present
10
<PAGE>
fairly the combined financial results of operations for the periods indicated.
The Statements have been prepared in accordance with generally accepted
accounting principals consistently applied, except as set forth therein. The net
worth of MAB as of April 30, 1996 and as reflected in the April Statement but
after the Authorized Withdrawal (as hereinafter defined) is $1,791,731.18 (the
"Net Worth").
3.12 All of MAB's accounts receivable arose in the ordinary
course of business, are current and collectible (net of allowance for doubtful
accounts), and, to the knowledge of Sellers, are not subject to any pending
right of set off or counterclaim, and MAB has rendered all services giving rise
to each such account receivable.
3.13 To the knowledge of Sellers, except as set forth on
Schedule 3.13, MAB has no liability or obligation of any nature, including,
without limitation, contingent liabilities, potential liabilities, except the
Guaranty Loans (as hereinafter defined), obligations to employees (with respect
to vacation, vacation pay and other fringe benefits) other than (i) liabilities
and obligations reflected or reserved for in the Statements, (ii) liabilities
and obligations disclosed or exempt from disclosure due to its immateriality in
this Agreement or (iii) liabilities and obligations incurred between April 30,
1996 and the Closing Date in the ordinary course of its business.
3.14 Since April 30, 1996 MAB's business has been operated in
the ordinary course and there has not been, except as
11
<PAGE>
set forth on Schedule 3.14, and except i8n the ordinary course of business: (i)
any material adverse change in the financial condition, results of operations,
liabilities or assets including, but not limited to, accounts receivable, of the
Business of MAB from that shown on the April Statement of MAB; (ii) any damage,
destruction or loss, whether covered by insurance or not, materially and
adversely affecting the properties or business or assets of MAB; (iii) any
capital expenditure by MAB exceeding $25,000 (iv) any change in accounting
methods or principles (including, without limitation, any change in depreciation
or amortization policies or rates used by Sellers or MAB with respect to the
Business or any of MAB's assets; (v) revaluation by Sellers or MAB of any of the
assets of MAB; (vi) any declaration, setting aside or payment of any dividend or
distribution in respect of Capital Stock or any indirect redemption, purchase or
other acquisition of any Capital Stock; (vii) any increase in any loan from any
party or in the compensation payable or to become payable by MAB to its
officers, key employees or agents or any increase in any bonus, insurance,
pension or other beneficial plan, payment or arrangements made to, for or with
any of such officers, key employees or agents; (viii) any material commitment
made or entered into; (ix) sale or transfer of MAB's assets; (x) any amendment
or termination of any major contract to which MAB is a party and which relates
to or affects the Business or its assets; (xi) waiver or release of any right or
claim of MAB relating to or affecting the Business or any of MAB's assets; (xii)
mortgage, pledge, grant of a lien, security interest or other encumbrance of any
MAB asset;
12
<PAGE>
(xiii) discharge or satisfaction of any lien or encumbrance or payment of any
liability or obligation (absolute or contingent) other than current liabilities
or the current portion of long term liabilities either shown on the MAB
Statements or incurred in the ordinary course of business of the Business since
May 1, 1996; and (iv) any other event or condition of any character pertaining
to and materially and adversely affecting the assets or the Business of MAB.
3.15 All Federal and New York State Corporation Income Tax
Returns, Employer's Quarterly Federal Income Tax Return, Employer's General
Federal Unemployment Tax Return, of MAB and, to the knowledge of Sellers, any
and all other federal and state unemployment insurance returns, state and city
personal income tax withholding returns, city corporation income tax returns,
business personal property tax returns state and/or city sales tax returns
relating to the Business or any of MAB's assets required by law to be filed
under the laws of any jurisdiction, domestic or foreign, have been duly and
timely filed and correctly set forth the tax position of MAB relating to the
Business and MAB's assets, and all taxes, fees or other governmental charges of
any nature required to be paid by MAB due for all periods prior to and including
December 31, 1995 have been paid or provided for in the Statements of MAB.
Complete and correct copies of such returns and reports and a complete and
correct list of all other elections, consents, statements and forms filed with
any taxing authority by MAB relating to the Business or its assets for its last
three (3)
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<PAGE>
fiscal years will be delivered to Buyer by MAB during the Due Diligence Period,
and for all prior years, on Buyer's request. Sellers and MAB have no knowledge
of any taxes or any assessment of deficiency or additional tax or other
governmental charge with respect to MAB relating to the Business or MAB's
assets, or any knowledge of any completed, pending or threatened tax audit or
investigation with respect to any thereof, by any taxing or other authority. In
addition, MAB shall make available to Buyer payroll and earnings records of all
employees of MAB.
3.16 Schedule 3.16 contains a list of the trade-marks,
service marks and trade names (whether registered, common law or registration
applied for) owned by MAB or any other persons with respect to the Business and
of the assignments, licenses or agreements of any kind relating to such
trademarks, service marks or trade names to which MAB is a party and which
relate to and/or encumber such trademarks, service marks or trade names. To the
extent that any of the trademarks, service marks or trade names are owned by any
person other than MAB, there does not exist any restriction or any limitation on
such other person's right to transfer any of such trademarks, service marks or
trade names to Buyer hereunder. MAB and/or any such other person own such
trademarks, service marks and trade names free and clear of all liens, charges,
security interests and encumbrances and pay no royalty to anyone relating
thereto. To the best of the knowledge of Sellers, MAB owns or possesses all
trademarks, service marks and trade names which are necessary for the conduct of
the Business as
14
<PAGE>
it is presently conducted. Neither Sellers nor MAB has any knowledge of, and
neither Sellers nor MAB has received any notice of, any conflict with the
asserted rights of with respect to any of such trademarks, service marks, trade
names or other intangible property owned by MAB or by any other person related
or affiliated to MAB. Upon completion of Closing, Buyer shall, subject to rights
of other parties holding rights to the same or similar names in states other
than New York and Colorado, have sole and exclusive right to use the name
"Management Adjustment Bureau".
3.17 Schedule 3.17 describes all material intangible property,
other than that set forth on Schedule 3.16 used or held for use in the Business.
3.18 Except as disclosed on Schedule 3.18, to the knowledge of
Sellers, with respect to the Business, MAB is not in material violation of any
statute, law, ordinance, rule, regulation, order, writ, injunction, decree or
judgment of any court or other governmental body, department, instrumentality,
agency or subdivision; to the knowledge of Sellers, MAB holds and has at all
times held all material licenses, permits, authorizations, consents, approvals,
orders, registrations and qualifications necessary for the lawful conduct of the
Business pursuant to all applicable statutes, laws, ordinances rules and
regulations of all governmental bodies, departments, instrumentalities, agencies
and subdivisions having, asserting or claiming jurisdiction over MAB or any part
of the Business. Schedule 3.18 constitutes a true and complete list of all
material
15
<PAGE>
licenses, permits, authorizations, consents, approvals, orders, registrations
and qualifications related to conduct of the Business held by MAB. Except as set
forth on Schedule 3.18, the execution, delivery and performance of this
Agreement by Sellers and MAB will not conflict with, constitute a default under,
permit any party to accelerate any right under, require consent, approval or
waiver by any party under, or result in the creation of any lien upon any of the
properties or assets of MAB pursuant to the certificate of incorporation or
by-laws of MAB or any indenture, mortgage, lease, agreement or other instrument
to which MAB is a party or by which any of its properties or assets may be bound
(except that consent may be required under certain of the agreements, leases or
under certain business licenses), or any statute, law, ordinance, rule or
regulation, or any order, writ, injunction, decree or judgment now in effect of
any court or other governmental body, department, instrumentality, agency or
subdivision having asserting or claiming jurisdiction.
3.19 Except as set forth on Schedule 3.19, the assets of MAB,
generally or as specifically referred to herein, on the Closing Date
(collectively referred to herein as the "Assets") will constitute all the
assets, property, property rights and contractual rights which MAB has found
necessary to conduct the Business as presently being conducted by MAB. Except as
set forth on Schedule 3.19, MAB has good and marketable title to the Assets free
and clear of all claims, liens, charges, security interests and encumbrances.
16
<PAGE>
3.20 Except as disclosed on Schedule 3.20, provided for or
specifically set forth in this Agreement, the other Schedules hereto or the
Statements of MAB, MAB is not obligated for, nor are any of the Assets subject
to, any material liabilities or adverse obligations, absolute or contingent,
asserted or unasserted.
3.21 Except as set forth on Schedule 3.21, MAB is not indebted
to Sellers or to any of its officers, directors or employees, other then Mary
Anne Costanzo as disclosed in this Agreement, (or to members of their immediate
families) or to any of their affiliates in any amount whatsoever.
3.22 Schedule 3.22 sets forth a brief description of all
employment and labor union contracts, executive employment contracts, executive
compensation agreements, agency agreements, consulting agreements, management
agreements, bonus or profit sharing plans, group insurance or other employee
benefit plans of MAB. Each of such contracts, agreements, understandings and
commitments is valid and binding in accordance with its terms except as may be
limited by Enforceability Limitations and is in full force and effect and, to
the knowledge of Sellers, is not subject to any pending right of set off or
counterclaim; and MAB and, to the knowledge of Sellers, each other party thereto
has performed in all material respect, all obligations required to be performed
thereunder by each, and neither MAB nor, to the knowledge of Sellers, any other
party thereto is or will with the passage of time, by giving notice, or
otherwise, be default in any material
17
<PAGE>
respect under the terms thereof. True and correct copies of each of such
contracts, agreements or understandings will be delivered to counsel to Buyer or
to Buyer during the Due Diligence Period and originals thereof at Closing.
3.23 Schedule 3.23 contains a brief description of all claims,
litigation, arbitration, legal or other proceedings in which MAB or any of its
officers, directors, or employees is now engaged or threatened in connection
with the Business and the affairs, properties or the Assets of MAB;
3.24 Schedule 3.24 is a true and correct copy of all insurance
policies in force and effect in respect of the Business, properties, or the
Assets of MAB.
3.25 Schedule 3.25 is a true and complete list as the date
hereof of: (i) all banks, trust companies and savings and loan associations in
which MAB maintains an account or safe deposit vault and (ii) the names of all
persons authorized to draw thereon.
3.26 With respect to any contract, agreement, plan or
arrangement which is an Employee Benefit Plan as described by Section 3(3) of
the Employee Retirement Income Security Act of 1974 as amended ("ERISA"),
maintained by MAB or to which MAB contributes:
3.26.1 As to each such plan which is a "Pension Plan" within
the meaning of ERISA Section 3(2), each such Pension Plan is qualified under
Section 401(a) of the Internal Revenue Code of 1986 as amended, and complies in
all material respects with ERISA; no such pension plan has an "accumulated
funding deficiency"
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as defined in Section 302(a) (2) of ERISA; no "reportable event", within the
meaning of 4043(b) of ERISA, has occurred with respect to any such pension plan;
no such plan is presently engaged in any non-exempt "prohibited transactions"
within the meaning of 4975 (c) of the Internal Revenue Code of 1986 as amended;
and all contributions required to be made by MAB shall have been made or accrued
for in the full amount required pursuant to the terms of each such plan or any
other contract or agreement requiring contributions thereto.
3.26.2 As to all such Employee Benefit Plans, all disclosures
to participants in such plans, and all filings respecting such plans required by
ERISA to have been provided or filed have been so provided or filed; and such
plans have been administered in accordance with their terms.
3.26.3 MAB is not a party to or bound by any multi-employer
pension plan or multi-employer profit sharing plan.
3.27 Schedule 3.27 sets forth the names of the officers,
directors and other key personnel of MAB
3.28 References on any Schedule or to any document,
instrument, contract or agreement which Sellers or MAB shall not have provided
to Buyer a copy of or, if oral a written summary thereof, shall not be deemed
for any purposes of this Agreement to be a disclosure of any term, provision or
statement of fact of, or relating to, such document, instrument, contract or
agreement unless and until a copy of such document, instrument, contract or
agreement has been provided to Buyer.
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3.29 No representations or warranties made by Sellers in this
Agreement or in any final financial document, written certificate or Schedule
prepared by Sellers or MAB to be furnished to Buyer pursuant hereto, or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained therein not
misleading.
3.30 The representations and warranties of Sellers and MAB
herein contained shall be true on and as of the Closing Date with the same force
and effect as if made on and as of that date, except to the extent that the
facts and conditions upon which such representations and warranties are based
are expressly required or permitted to be changed by the terms of this
Agreement. The foregoing representations and warranties shall survive the
consummation on the Closing Date of the transactions contemplated by this
Agreement for a period of eighteen (18) months following the Closing Date.
4. Representations, Warranties and Obligations of Buyer. Buyer
represents and warrants to Sellers that:
4.1 Buyer is a corporation duly organized and in good standing
under the laws of the Commonwealth of Pennsylvania and has full power to execute
and deliver this Agreement and the agreements to be executed and delivered in
connection with this Agreement (including, without limitation, the Note) and to
consummate the transactions contemplated herein and therein. This
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Agreement and the agreements to be executed and delivered in connection with
this Agreement (including, without limitation, the Note) have been duly
authorized, executed and delivered by Buyer and constitute legal, valid and
binding obligations of Buyer enforceable, in accordance with its and their
terms. Copies of the resolutions of the Board of Directors of Buyer authorizing
the execution and delivery of this Agreement and the agreements to be executed
and delivered in connection with this Agreement (including, without limitation,
the Note) will be delivered to Sellers upon the execution and delivery of this
Agreement.
4.2 The execution, delivery and performance of this Agreement
and the agreements to be executed and delivered in connection with this
Agreement (including, without limitation, the Note) by Buyer will not materially
conflict with, constitute a default under, require consent, approval or waiver
by any other party under, or result in the creation of any lien upon any of the
properties or assets of Buyer pursuant to the certificate of incorporation,
other charter document or by-law of Buyer or any indenture, mortgage, lease,
agreement or other instrument to which Buyer is a party or by which any of its
properties or assets may be bound, or any statute, law, ordinance, rule or
regulation, or any order, writ, injunction, decree or judgment now in effect of
any court or other governmental body, department, instrumentality, agency or
subdivision having, asserting or claiming jurisdiction. Buyer is not aware of
any fact which could prevent Buyer from concluding its purchase of Capital Stock
or its payment therefor as
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described in Section 1.
4.3 No representations or warranties made by Buyer in this
Agreement or in any written document prepared by Buyer and furnished to Sellers
pursuant hereto, or in connection with the transaction contemplated hereby,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements or facts
contained therein not misleading.
4.4 The representations and warranties of Buyer herein
contained shall be true on the Closing Date with the same force and effect as if
made on and as of that date. The foregoing representations and warranties shall
survive the consummation on the Closing Date of the transactions contemplated by
this Agreement for a period of eighteen (18) months following the Closing Date.
4.5 On or before July 31, 1996 Buyer shall furnish Sellers
with written evidence of Buyer having obtained financing, in an amount not less
than $8,000,000, in order to complete the transaction contemplated hereunder. In
the event that Buyer is unable to obtain such financing, Buyer or Sellers may
terminate this Agreement in writing without any recourse to the other and the
Deposit shall be returned to Buyer.
5. Access, Information and Documents.
5.1 For a period of thirty (30) days following the execution
and delivery of this Agreement by Sellers and MAB to Buyer (the "Due Diligence
Period"), Buyer may, through its representatives, accountants and attorneys make
such investigation
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of the properties and of the financial and legal condition of MAB as it may deem
necessary or advisable. Sellers will cause MAB to make available to such persons
all books, records and other data as Buyer may reasonably request. During the
Due Diligence Period Buyer may terminate this Agreement in writing for any
reason whatsoever, in its sole discretion, without any liability to Sellers.
Upon such termination escrowee shall return the Deposit to Buyer.
5.2 Craig Costanzo will cooperate with Buyer at its request
and expense, subject to Buyer's prior approval, on and after the Closing Date in
furnishing information, evidence, testimony and other assistance in connection
with any actions, proceedings, arrangements or disputes relating to adjustment
of federal income and other taxes of MAB for all periods prior to the Closing
Date and in connection with any other actions, proceedings, arrangements or
disputes involving MAB or based upon or arising out of any of its contracts,
assets commitments, acts or omissions which were in effect or occurred on or
prior to the Closing Date. Craig Costanzo shall have the right to participate in
any such proceedings and, if he so chooses, to assume and control the defense of
such proceedings at his sole expense.
6. Closing Date. "Closing" referred to in this Agreement shall be at
10:00 a.m., on September 5, 1996. Closing shall be at the offices of Buyer's
counsel, Joshua Gindin, Esquire. The effective date of Closing shall be
September 1, 1996. In the event that Buyer is in the process of an IPO on the
Closing Date, Buyer shall, in its sole discretion, have the right to postpone
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Closing for up to thirty (30) days.
7. Covenants of Sellers. Sellers covenant and agree that, without the
prior written consent of Buyer first having been obtained, from the date hereof
to the Closing Date:
7.1 MAB will not:
7.1.1 Take any action or step or engage in any transaction or
incur any liability or obligation (absolute or contingent) except in the
ordinary course of business and consistent with current practices and procedures
of MAB.
7.1.2 Increase the annual rate of compensation payable or to
become payable to any officer or employee; make any advances, loans, pensions,
severance pay, death benefits, distributions (Sub "S" bonus, special or out of
its ordinary practice) or other payment or arrangement with respect to any
present or former shareholder, officer, director or employee; or voluntarily
make any material balance sheet changes to the April Statement or the Net Worth,
except in the ordinary course of business and consistent with current practices
and procedures of MAB. The foregoing notwithstanding, Sellers shall be permitted
to withdraw up to $241,924 for previously taxed income from MAB (the "Authorized
Withdrawal") prior to Closing, and at Closing, an existing debt of MAB to Mary
Anne Costanzo, in the amount of $400,000, shall be repaid without any reduction
of the Purchase Price.
7.1.3 Amend its corporate charter or by-laws or any agreement
listed on any Schedule hereto except in the ordinary
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course of business and consistent with current practices and
procedures of MAB.
7.1.4 Do any act, or omit to do any act, or permit any act or
omission to act which will cause a breach or default of any right, contract,
commitment or obligation of MAB.
7.1.5 Issue, sell, retire or redeem any shares of Capital
Stock or grant any option, warrant or right to any person, firm or corporation
to purchase or otherwise acquire any Capital Stock or any interest therein.
7.1.6 Make or declare any dividend, distribution or payment in
respect of its Capital Stock.
7.1.7 Amend, modify or change the Contracts, leases, client
agreements, vendor agreements or any other obligation, contract or agreement by
which it is bound and obligated, including, but not limited to any payment terms
thereunder except for any non-material amendments or modifications in the
ordinary course of business consistent with current practices and procedures of
MAB.
7.1.8 Make any changes in or to the Assets, the Personal
Property and the Computer Equipment.
7.2 MAB will:
7.2.1 Maintain all contracts, agreements and understandings
listed on all Schedules hereto including, but not limited to the Contracts, in
good standing and shall not by any act or omission to act, except as MAB
reasonably determines is in the best interest of the Business, surrender, modify
adversely, forfeit
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or fail to comply with the conditions of or renew the regular terms of any of
them or cause or give reason to any other party thereto to institute any
proceedings for the cancellation or modification thereof.
7.2.2 Maintain the Assets, the Personal Property and the
Computer Equipment in good working order and repair and maintain and pay all
premiums under all insurance policies relating thereto.
7.2.3 Use its best efforts to preserve its business
organization intact, to keep available to Buyer the services of its present
employees, and to preserve for Buyer the present goodwill and advantageous
relationships of MAB with all persons or entities having business dealings with
MAB.
7.2.4 Maintain its books, accounts and records in the usual,
regular and ordinary manner and on a basis consistent with prior years.
8. Covenants of Craig Costanzo and Mary Anne Costanzo.
8.1 Craig Costanzo, Chief Executive Officer of MAB and his
wife, Mary Anne Costanzo, an employee of MAB, acknowledge that the Business of
MAB is national in character and that it is presently conducted throughout the
United States and that Buyer intends after the Closing Date to continue to
conduct the Business throughout the United States. In order that Buyer may have
and enjoy the full benefit of ownership of Capital Stock and the assets of MAB,
including the good will of the Business, Craig Costanzo and Mary Anne Costanzo,
in consideration of an allocated portion of the
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Purchase Price being paid to them, covenant and agree with and for the benefit
of Buyer, its successors and assigns and its affiliates, that they shall not,
for a period of five (5) years from the Closing Date (the "Covenant Term"), and
so long as Buyer is not in default of the Note, directly or indirectly, and no
person, corporation, firm, partnership or other entity related to them and over
which they exercise control (whether as a stockholder, affiliate, holder of debt
or equity securities, consultant, partner or otherwise) or with which they are
affiliated, anywhere in the United States, conduct business involving or
connected with the business engaged in by MAB including, without limitation an
accounts collection business or any business related thereto or any other
business in which MAB is engaged as of the Closing Date; or any business
competitive with any of the foregoing. For purposes of this Section 8 each of
the following activities, without limitation, shall be deemed to constitute
conducting business: to engage in, work with, have an interest in (other than
interests of less than 5% in companies with securities traded either on the New
York Stock Exchange or the American Stock Exchange or traded over-the-counter
and quoted on NASDAQ), advise, manage, operate, lend money to (other than
interests of less than 5% in companies with securities traded either on the New
York Stock Exchange or the American Stock Exchange or traded over-the-counter
and quoted on NASDAQ), guarantee the debts or obligations of, or permit one's
name or any part thereof to be used in connection with an enterprise or
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endeavor, either individually, in partnership or in conjunction with any person
or persons firm, association, company or corporation, whether as principal,
director, agent, shareholder, partner, employee, consultant or in any other
manner whatsoever. The foregoing shall not be construed as a prohibition on
Craig Costanzo's ability to teach for or participate in American Collectors'
Association activities.
8.2 Craig Costanzo and Mary Anne Costanzo covenant and agree
that, during the Covenant Term and for a period of two (2) years thereafter
(after which time the restrictions in this Section 8.2 shall not apply), and so
long as Buyer is not in default of the Note, they will not directly or
indirectly, and no person corporation, firm, partnership or other entity related
to them and over which they exercise control (whether as a stockholder,
affiliate, holder of debt or equity securities, consultant, partner or
otherwise) or with which they are affiliated will (a) enter into any agreement
or understanding, written or oral, relating to the services of any person who is
known or should be known to be then employed or to have been employed within the
preceding one (1) year, by MAB and/or Buyer, or (b) solicit the business of,
enter into any written or oral agreement with or otherwise deal with any
customers of MAB and/or Buyer who were such at any time during the Covenant
Term, except on behalf of businesses in which such party would then be permitted
to engage directly without violating subsection 8.1 hereof.
8.3 The scope and effect of the covenants contained
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in this Section 8 shall be as broad as may be permitted pursuant to the
provisions of applicable law. To the extent that the language of said covenants
may restrict competition in a larger area or for a longer time, or both, than
permitted-by applicable law, that portion thereof shall be ineffective, but the
provisions of said covenants shall nevertheless remain effective with respect to
the largest area and for the longest period of time as shall be permitted by
applicable law.
8.4 Section 8 shall be governed by and construed in accordance
with the law of the Commonwealth of Pennsylvania applicable to contracts as
though this Agreement was entered into and is entirely to be performed in the
Commonwealth of Pennsylvania.
8.5 The parties acknowledge and agree that the extent of
damages to Buyer in the event of a breach by Craig Costanzo and Mary Anne
Costanzo of the covenants and agreements contained in Section 8 would be
impossible to ascertain and that there is and will be available to Buyer no
adequate monetary damages or other remedy at law to compensate it in the event
of any such breach; consequently, Craig Costanzo and Mary Anne Costanzo agree
that in the event of a breach of any such covenant, in addition to any other
relief to which Buyer is or may be entitled, Buyer shall be entitled to enforce
any or all of such covenants by injunctive or other equitable relief, including
the remedy of specific performance, ordered by any court of competent
jurisdiction.
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9. Conditions Precedent to Buyer's Obligation to Close. The obligation
of Buyer to consummate the transaction contemplated by this Agreement shall be
subject to the satisfaction on or prior to the Closing Date of the following
conditions:
9.1 The representations and warranties of Sellers contained in
this Agreement or in any Schedule annexed to this Agreement shall be true in all
material respects on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date, except
to the extent that the facts and conditions upon which such representations and
warranties are based are expressly required or permitted to be changed by the
terms of this Agreement, and Sellers and MAB shall deliver to Buyer a
certificate to that effect on the Closing Date.
9.2 Sellers and MAB shall have duly performed all obligations,
covenants and agreements undertaken by them herein and complied with all terms
and conditions applicable to them, respectively, hereunder to be performed and
complied with at or prior to the Closing Date.
9.3 MAB, at its expense, shall furnish to Buyer a favorable
opinion of its counsel, addressed to Buyer, dated as of the Closing Date, to the
effect that:
9.3.1 This Agreement has been duly executed and delivered by
Sellers and is enforceable against Sellers in accordance with its terms.
9.3.2 MAB is a corporation duly organized and
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in good standing under the laws of the State of New York and is duly qualified
to do business in the jurisdictions set forth on Schedule 3.1.
9.3.3 The authorized capital of MAB is as set forth in Section
3.2 hereof and Sellers own all Capital Stock of record and that Capital Stock
has been validly issued and is fully paid and non-assessable.
9.3.4 The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not violate any
provision of MAB's Articles of Incorporation or By-laws.
9.3.5 To the knowledge of such counsel, there is no
litigation, arbitration, legal or other proceeding in which MAB or any of its
officers or directors is now engaged or threatened which would affect its
ability to complete this transaction.
9.4 The Contracts and any other business contacts, agreements,
understandings and the Assets of MAB shall not be adversely affected in any
material way by the execution of this Agreement and the consummation of the
transactions contemplated hereby.
9.5 There shall have been delivered to Buyer at or prior to
the Closing Date: (i) certificates of good standing with respect to MAB issued
by the Secretary of the State of New York and any other state in which MAB is
qualified to do business; and (ii) the documents required to be delivered
pursuant to the provisions
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of Sections 3.3, 3.6.2, 3.8, 3.9, 3.11, 3.15, 3.22 and 3.24.
9.6 There shall be no effective injunction or restraining
order of any nature issued by any court of competent jurisdiction which shall
direct that this Agreement or the transactions contemplated herein not be
consummated.
9.7 MAB shall have delivered to Buyer all of its corporate
books and records, including, without limitation, stock certificate and ledger
books, minute books, corporate seal, contracts, agreements, leases and insurance
policies.
9.8 The resignations, dated the Closing Date, of all of the
officers and directors of MAB shall have been delivered to Buyer.
9.9 Michael Noah shall have entered into an employment
agreement (the "Employment Agreement") with Buyer. The Employment Agreement
shall have a term of five (5) years and shall have terms and conditions similar
to his employment agreement with MAB. The Employment Agreement shall be in form
reasonably satisfactory to Buyer and Michael Noah.
9.10 MAB shall deliver to Buyer, at Closing, "reviewed"
financial statements for the months of January through and including June, 1996.
9.11 MAB shall deliver its written certification to Buyer,
certifying and warranting that, except as disclosed on the Statements and the
statement required at 9.10 above, (i) all payments due to clients and vendors of
the Business as of the Closing Date have been remitted to such clients and
vendors except
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in the ordinary course of business; (ii) all clients of the Business have been
paid in full and are not owed any money as of the Closing Date except in the
ordinary course of business; and (iii) to its knowledge, all liabilities of MAB,
including potential liabilities of MAB regarding Texas and Colorado Guaranty
Student Loans (the "Guaranty Loans"), have been disclosed to Buyer.
9.12 A general release of all claims Sellers may have up to
the Closing Date against MAB and its directors, officers, agents and employees,
in form and substance satisfactory to Buyer's counsel.
9.13 MAB, at MAB's cost, shall obtain and deliver to Buyer, at
least ten (10) days prior to the Closing Date, Uniform Commercial Code searches
from each state and county that MAB has an office, confirming that except as has
been previously disclosed to Buyer, MAB's property, including the Personal
Property, the Computer Equipment and the Assets are free and clear of all liens
and encumbrances.
9.14 All bank documentation necessary to transfer control over
all bank accounts and safety deposit boxes of MAB to a named representative of
Buyer.
10. Conditions Precedent to Seller's Obligation to Close. The
obligation of Sellers to consummate the transaction contemplated by this
Agreement shall be subject to the satisfaction on or prior to the Closing Date
of the following conditions:
10.1 The representations and warranties of Buyer
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contained in this Agreement shall be true in all material respects on and as of
the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date, and Buyer shall deliver to
Seller a certificate to that effect on the Closing Date.
10.2 Buyer shall have duly performed all obligations,
covenants and agreements undertaken by it herein and complied with all terms and
conditions applicable to it, hereunder to be performed and complied with at or
prior to the Closing Date.
10.3 Buyer, at its expense, shall furnish to Sellers a
favorable opinion of its counsel, addressed to Sellers, dated as of the Closing
Date, to the effect that:
10.3.1 This Agreement and the agreements to be executed and
delivered by Buyer in connection with this Agreement have been duly authorized
by the Directors of Buyer and are duly and properly executed by its officers and
are a valid and enforceable against Buyer in accordance with their terms.
10.3.2 Buyer is a corporation duly organized and in good
standing under the laws of the Commonwealth of Pennsylvania.
10.3.3 The execution and delivery of this Agreement and the
agreements to be executed and delivered in connection with this Agreement
(including, without limitation, the Note) and the consummation of the
transactions contemplated hereby do not violate any provision of Buyer's
Articles of Incorporation or By-laws or any agreement or other restriction to
which Buyer is
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a party or by which it is bound.
10.3.4 To the knowledge of such counsel, there is no
litigation, arbitration, legal or other proceeding in which Buyer or any of its
officers or directors is now engaged or threatened which would affect its
ability to complete this transaction.
10.4 There shall be no effective injunction or restraining
order of any nature issued by any court of competent jurisdiction which shall
direct that this Agreement or the transactions contemplated herein not be
consummated.
11. Indemnifications.
11.1 Sellers' Indemnification of Buyer. At all times after the
Closing Date, Sellers shall indemnify Buyer and its successors and assigns, and
hold each such person or entity harmless from and against any and all losses,
costs, expenses, liabilities, claims, demands, damages, settlements, and
judgments of every nature (including the defense or investigation thereof and
reasonable attorneys' fees incurred) ("Losses") resulting from or arising out of
or in connection with: (a) the inaccuracy of any warranty or representation made
by Sellers and MAB pursuant to this Agreement provided, however, that Sellers
shall have no liability under this Section 11.1(a) until the aggregate Losses
under this Section 11.1(a) exceed, and only to the extent in excess of,
$100,000; (b) the non-performance, partial or total, of any covenant of Sellers
or MAB hereunder or under any agreement contract or understanding entered into
by MAB and referred to
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herein including, but not limited to those referred to in Sections 3.5, 3.6.2
and 3.22,; and (c) any and all federal and state income and all other tax
liabilities, including all disallowed deductions or expenses taken in connection
with the Business and for any other taxes which may become due in connection
with the change of any law affecting filings prior to the effective date of
Closing. Without limiting the foregoing, it is expressly agreed that diminution
in the value of Capital Stock by reason of any of the foregoing shall be deemed
a Loss for purposes of this indemnification. Sellers may assume the defense of
any such matter provided that Buyer may be represented by its own counsel,
selected by Buyer, at Buyer's expense.
11.2 Buyer's Indemnification of Sellers. At all times after
the date hereof, Buyer shall indemnify Sellers, their heirs successor and
assigns, and hold each such person harmless from and against any and all losses,
costs, expenses, liabilities, claims, demands, damages, settlements and
judgments of every nature (including the defense or investigation thereof and
reasonable attorneys' fees incurred) resulting from or arising out of or in
connection with: (a) the inaccuracy of any warranty or representation made by
Buyer pursuant to this Agreement; (b) the non-performance, partial or total, of
any covenant of Buyer in this Agreement, and the agreements to be executed and
delivered by Buyer in connection with this Agreement (including, without
limitation, the Note); and (c) operation of the Business and/or the use of the
Assets after the Closing Date. Buyer may assume the defense of any such matters
provided that Sellers may be represented by their own counsel, selected by
Sellers, at Sellers' expense.
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11.3 Buyer's rights under this Agreement with respect to the
representations, warranties, indemnification provisions and other covenants by
Sellers, shall be limited to enforcement (but not to recoverable damages) of the
provisions of this Section 11.
12. Agreements of Sellers and Buyer to be Performed After the Closing
Date. Sellers and Buyer agree that after the Closing Date hereunder:
12.1 From time to time, upon request of the other, each will
execute and deliver such additional instruments of transfer, assignment and
further assurance and do such other things as are necessary or desirable to
consummate the transactions contemplated hereby.
12.2 Each will fully cooperate with the other in the defense
of any claim for tax or otherwise, arising from facts occurring prior to or
after the Closing Date. Sellers shall be responsible for the preparation of tax
returns for all periods ending on or prior to the Closing Date and shall be
entitled to any refunds attributable to taxes paid for such periods and shall be
obligated for payment of any amounts due thereunder.
12.3 Sellers shall deliver to Buyer, within sixty (60) days
following Closing, an "audited" final financial statement for the applicable
months of 1996 (January through and including the month of Closing) prepared by
Brock, Schechter & Polakoff, LLP. Except as herein provided, the final financial
statement shall reflect a net worth of the Business of not less than the Net
Worth.
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13. Brokers. Each party represents to the other that such party has not
employed or retained any broker or finder in connection with the transactions
contemplated herein except M. Kaulkin & Associates, Inc. (the "Broker"). Sellers
shall be responsible for payment of the commission due the Broker. Buyer agrees
to provide such assistance as Sellers may request from time-to-time in
negotiating the commission due the Broker.
14. Miscellaneous.
14.1 This Agreement and the confidentiality agreements signed
by the parties or their respective agents or representatives constitute the
entire understanding and agreement between the parties hereto with respect to
the transaction contemplated herein and supersedes all prior or contemporaneous
agreements with respect to such subject matter, including, without limitation,
the Letter of Intent dated June 19, 1996. This Agreement may be modified or
amended only in writing signed by each of the parties hereto.
14.2 Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered in person or sent by
Certified Mail, Return Receipt Requested, postage prepaid, or by facsimile, or
delivered by overnight delivery service, to the party to receive such notice
addressed as follows:
If to Buyer: 1740 Walton Road
Blue Bell, PA 19422
With copy to: Joshua Gindin, Esquire
1700 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
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If to Sellers: 331 Wellingwood Drive
East Amherst, NY 14051
With copy to: Harry G. Meyer, Esquire
1800 One M & T Plaza
Buffalo, NY 14203
or to such other address as either party shall by notice give to
the other.
14.3 This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts entered into entirely to be performed in the Commonwealth of
Pennsylvania.
14.4 No remedy conferred by any of the specific provisions of
this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every remedy give
hereunder or now or hereafter existing, at law or inequity by statute or
otherwise. The election of any one or more remedies by either party shall not
constitute a waiver of the right to pursue other available remedies.
14.5 This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns.
14.6 This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
14.7 The parties hereto agree that this Agreement may be
executed and delivered via facsimile with original documents
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being executed and delivered subsequently.
14.8 Captions and section headings used herein are for
convenience only and are not a part of this Agreement and shall not be used in
construing it.
14.9 If any provision of this Agreement is held to be
unenforceable for any reason it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the fullest extent possible.
14.10 In order to expedite the execution of this Agreement,
the parties agree to sign this Agreement without all Schedules required herein
being completed and attached. The Schedules shall be completed and attached to
this Agreement on or before the end of the Due Diligence Period.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
Attest: BUYER:
NCO FINANCIAL SYSTEMS, INC.
________________________[SEAL] By: /s/ Bernard Miller
---------------------------
Bernie Miller
Senior Vice President
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Witness: SELLERS:
/s/ Craig Costanzo
- --------------------------- -------------------------------
Craig Costanzo
/s/ Andrew J. Boyuka, Trustee
- ---------------------------- --------------------------------
Andrew J. Boyuka,
Trustee of the
Susan E. Costanzo Grantor Trust
/s/ Andrew J. Boyuka, Trustee
- ---------------------------- --------------------------------
Andrew J. Boyuka,
Trustee of the
Christopher A. Costanzo Grantor Trust
Witness:
/s/ Mary Anne Costanzo
- ----------------------------- --------------------------------
Mary Anne Costanzo
41
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Exhibit 2.2
ASSET PURCHASE AGREEMENT
This Agreement, made this 8th day of December, 1995, by and
between NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation ("Buyer") and
TRANS UNION CORPORATION, a Delaware corporation ("Seller").
W I T N E S S E T H:
Seller operates a third party consumer accounts collection
business (the "Business"). The Seller maintains offices for the Business in
Hutchinson and Wichita, Kansas; North Olmstead, Ohio; and Springfield,
Pennsylvania and has sales representatives in Jackson, Mississippi and
Birmingham, Alabama. Seller desires to sell, assign and transfer to Buyer and
Buyer desires to purchase from Seller substantially all of the assets of the
Business including, but not limited to, accounts receivable client files,
including client contracts, client lists, operating and certain real estate
(specifically mentioned in paragraph 4 of this Agreement) leases of the
Business, office equipment, furniture, fixtures, fixed assets, supplies,
supplier lists, books and records of the Business and such other assets and
rights as are more fully described herein.
<PAGE>
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing and of the mutual covenants contained herein and intending to be
legally bound hereby, agree as follows:
1. Purchase and Sale, Excluded Assets. Subject to the terms
of this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to purchase
from Seller, the assets and rights relating to Seller's Business as follows:
1.1 All client lists, client files and any other
information regarding clients of the Business in the possession of Seller.
1.2 All of Seller's equipment, machinery, furniture,
fixtures, signs and other fixed assets, supplies and other assets owned by
Seller and used in connection with the Business (the "Equipment") as more
specifically described in Schedule 1.2 hereof.
1.3 All oral or written contracts ("Contracts")
including, but not limited to, collection services contracts with clients of the
Business, insurance contracts that Buyer wishes to assume and continue and such
specific employee arrangements as shall be determined by and identified by Buyer
on Schedule 1.3 hereof.
(2)
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1.4 All operating and real estate (as provided in
paragraph 4) leases of the Business.
1.5 All of the Seller's goodwill in the Business.
1.6 All books and records, including but not limited
accounting books, of the Business.
1.7 Accounts receivable of the Business of not less than
$819,000 (the "Accounts Receivable"). The Accounts Receivable shall be net of a
bad debt allowance which is consistent with methodology previously used by
Seller for bad debt allowances. Seller warrants that it is not aware of any
receivables that are uncollectible in excess of the stated allowances.
1.8 The Accounts Receivable, personal property, the
Equipment, Contracts, operating leases, real estate leases (as provided in
paragraph 4) and such other assets of Seller as shown to Buyer on Seller's
Audited Financial Statements for 1993 and 1994 and Reviewed Financial Statements
for 1995 and represented as being included in this transaction herein or to be
purchased by Buyer hereunder are hereinafter sometimes collectively referred to
as the "Assets".
(3)
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1.9 All of the Assets shall be sold and assigned to
Buyer free and clear of any liens, security interests or other encumbrances of
any kind or nature except as is otherwise disclosed hereon or as is more fully
described on Schedule 1.9 hereof.
1.10 This sale does not include cash on hand, accounts
payable of the Business, notes payable or any other intangible assets not
otherwise referred to in this paragraph 1.
2. Purchase Price and Payment.
2.1 The purchase price (the "Purchase Price") for the
Assets shall be $4,750,000, and shall be allocated as follows:
Client lists and files, Contracts
and Goodwill $_________
Equipment, Furniture,
and Accounts Receivable $_________
2.2 The Purchase Price shall be paid as follows:
(a) $50,000 as a deposit (the "Deposit") upon
execution hereof, to be held by Buyer's counsel in escrow until closing or the
termination hereof in accordance with the terms of this Agreement;
(b) $4,700,000 shall be paid at Closing (as
hereinafter defined) by certified or bank cashier's check or by wire transfer.
(4)
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2.3 Seller and Buyer agree to respect the allocations
set forth in Paragraph 2.1 hereof for tax purposes and to cause all tax returns
and other documents filed with the Internal Revenue Service or any other tax
collection agency to be consistent with such allocation.
3. Use of Seller's Name. In connection with the transition
of the Business from Seller to Buyer, Buyer shall, for a period of one (1) year
following Closing, have the right to advise customers of the Business that Buyer
is the successor in interest of Seller or that it was "formerly known as Trans
Union Corporation." During said one (1) year period, Buyer shall have the right
to use the Seller's name where reasonably required in order to assure a smooth
transition of the Business.
4. Premises Leases. Subject to Landlord's approval where
required by a premises lease, Buyer shall sublease Seller's office space for its
Wichita, Kansas and North Olmstead, Ohio offices at a gross rent of $15.50 per
square foot and at a gross rent of $12.50 per square foot, respectively. Such
subleases shall have a term of five (5) years following the Closing Date (as
hereinafter defined) but may be terminated by Buyer upon ninety (90) days prior
written notice to Seller before Closing and one hundred eighty (180) days
written notice after Closing. Buyer and Seller agree that Buyer shall vacate the
Seller's Springfield, Pennsylvania office not later than February 28, 1996.
(5)
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Attached hereto as Schedules 4A and 4B are copies of the leases for the Wichita
and North Olmstead offices.
5. Conditions Precedent to Closing. Closing hereunder shall
be, and is subject to, and conditioned upon the following:
5.1 The receipt by Buyer of Seller's "audited"
financial statements for the years 1993 and 1994, "reviewed" financial
statements for the months, January through and including September, 1995, on or
before November 28, 1995 and a final audited financial statement for 1995 on or
before February 28, 1996.
5.2 The parties hereto shall work together to determine
which of Sellers employees will become employee's of Buyer, subject to Buyer's
sole determination, and Seller shall assist in obtaining written consent to the
transfer from employees, as may be required. The parties further agree that
between the date this transaction is made public and march 31, 1996, Seller
shall be prohibited from hiring any employees of the Business without the prior
written consent of Buyer.
5.3 The oral or written representations and warranties
of Seller and of Buyer shall be true, complete and accurate in all material
respects on and as of the Closing Date to the same extent and with the same
force and effect as if made on that date and Buyer and Seller shall each have
performed all covenants and agreements required under this Agreement to be
performed prior to Closing.
(6)
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5.4 Buyer obtaining Uniform Commercial Code searches
from each state and county that Seller has an office which indicate that the
Assets are free and clear of all liens and encumbrances.
6. Access to Information; Confidentiality.
(a) Seller has granted Buyer a sixty (60) day due
diligence period effective October 24, 1995 (the "due Diligence Period"). During
the Due Diligence Period, Seller shall permit Buyer and its employees, agents,
counsel and accountants and other representatives, from the date hereof to the
Closing Date, to have access upon reasonable notice in a manner not disruptive
of Seller's business during normal business hours, at Seller's main and branch
offices, to all books, records, client lists, client files, other information
regarding clients, supplier lists, financial and accounting records, and all
other books and records relating to the Seller's business, and the properties
and the Assets of the Seller being sold hereunder. During the Due Diligence
Period, upon request by Buyer, Seller shall use its best efforts to provide
Buyer with file layouts and such other computer information to permit Buyer to
commence preparation for the transfer of the Business. Seller shall be
responsible for any cost of obtaining such layouts, not to exceed $25,000. Until
the Closing Date, or in the event of the termination of this Agreement without
consummation of the transactions contemplated hereby, Buyer will hold
confidential and not make use of any information obtained from the Seller.
(7)
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If this Agreement is terminated, promptly after such termination, all documents,
work papers or other written material obtained from Seller, or its
representatives, under this Agreement and not theretofore made public (including
all copies thereof) shall be returned to Seller. During the Due Diligence
Period, Buyer may terminate this Agreement only if Buyer discovers that any
financial information previously given to it by Seller that is material to
Buyer's decision regarding this transaction is materially untrue or inaccurate.
Upon such termination, the Deposit shall be returned to Buyer.
(b) The foregoing to the contrary notwithstanding, Buyer
has disclosed to Seller and Seller acknowledges that it is aware that Buyer has
entered into an agreement with CRW Financial, Inc. ("CRW") whereby CRW and Buyer
intend to combine their businesses in the early part of 1996. CRW is a publicly
held company and accordingly the audited/reviewed financial statements of
Seller, prepared by Ernest Young, may be used in publicly disclosed documents,
including but not limited to SEC filings, state securities filings, from 10 Q,
form 10K, form 8K, and documents related to the public sale of securities
(Prospectus). Seller hereby authorizes Buyer's use of Seller's information as
described above. Buyer hereby agrees to pay any cost associated with Ernest &
Young permitting their opinion to be used in such public documents, as well as
the reasonable cost of any outside counsel hired by Seller to review said
documents.
(8)
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7. Seller's Representations, Warranties and Agreements.
Seller hereby represents and warrants to Buyer as follows:
7.1 Seller is a corporation duly organized and existing
and subsisting in good standing under the laws of the state of Delaware and has
the corporate power and authority to conduct the Business and own the Assets.
Seller has not operated the Business under any name other than Seller's
corporate name. Seller has good and marketable title to each and all of the
Assets, free and clear of all liens, security interests, pledges, restrictions
and encumbrances whatsoever except as is otherwise disclosed and acceptable to
Buyer.
7.2 Seller has the corporate power to sell, assign,
transfer and deliver the Assets; the execution, delivery and performance of this
Agreement by Seller has been duly authorized by Board of Directors and in
accordance with Seller's Bylaws; and this Agreement constitutes the valid and
binding obligation of Seller in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency or other laws of general
application relating to or affecting the enforcement of creditor's rights and
except as specific enforceability may be limited by the principles of equity.
(9)
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7.3 The consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not conflict with
or result in a breach or default under Seller's Articles of Incorporation or
By-laws or any agreement or other instrument to which Seller is a party or by
which it is bound, or under any provision of any applicable law, regulation,
statute or ordinance or any order, of any court or other governmental agency.
7.4 Seller has not negotiated or entered into any other
contract or agreement to sell, encumber by lien, hypothecate, or otherwise
dispose of any of the Assets.
7.5 Schedule 7.5 constitutes a true, correct and
complete list of all Seller's client lists and client files owned by Seller
and/or used by it in connection with the Business.
7.6 Except to the extent reflected in Schedule 7.6
attached hereto, all furniture, fixtures, machinery, and office and systems to
be purchased and sold hereunder are and will be on the Closing Date in good
working order, reasonable wear and tear excepted, and at Closing, Seller shall
have good and marketable title to all of the Assets to be sold herein, subject
to no liens, liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, including, without limitation, tax
(10)
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liabilities due or to become due except as is otherwise disclosed and acceptable
to Buyer.
7.7 Schedule 7.7 is a true, correct and complete list of
all material Contracts to which Seller is a party or by which Seller is bound.
Seller has delivered to Buyer a true and correct copy of each of such Contracts
which is in writing and a written description of the pertinent terms of each
material oral Contract. Schedule 7.7 shall also contain a notation regarding the
assignability of each such Contract, and where required, shall obtain written
approval of assignment to Buyer. Other than Contracts requiring written approval
of assignment, the assignment of all Contracts in connection herewith is
permissible and shall not cause a default thereunder.
7.8 There is no litigation or proceedings pending, or
threatened to the knowledge of Seller, relating to the Business, or any of the
Assets; Seller has no knowledge of any basis for any such action which might
materially and adversely affect the Business or the Assets being sold hereunder
or the consummation of the transactions contemplated herein; and there is no
outstanding judgment, decree or order against Seller which affects Seller or the
Business or the Assets. Seller shall, immediately, notify Buyer of any fact or
matter which may adversely affect the Business, the Assets and Seller's
ownership thereof which arises prior to Closing. The foregoing notwithstanding,
(11)
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Seller acknowledges that there are two (2) class action suits against Seller
and the Business as well as other actions which may be pending in the normal
course of Seller's operation of the Business. These liabilities are not the
responsibility of Buyer.
7.9 Except as set forth on Schedule 7.9, Seller is not a
party to any written contracts of employment in connection with the Business;
and Seller is not a party to any collective bargaining agreements which effect
the Business.
7.10 Except as set forth on Schedule 7.10, Seller does
not have and none of its employees are covered by any bonus, deferred
compensation, pension, profit-sharing, retirement, insurance, stock purchase,
stock option or other fringe benefit plan, scheme, arrangement or practice, or
any other employment plan, whether formal or informal which may effect Buyer or
the Business.
7.11 The Assets (fixed assets and other tangible) owned
or leased by the Seller in connection with the Business and all aspects of the
Business are and will continue to be adequately insured against fire, casualty
and liability to the Closing Date. Buyer and Seller acknowledge that Seller self
insures the Assets, and therefore, Seller shall assume all risk of loss related
to damage to the Assets until Closing.
(12)
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7.12 Seller has, to the best of its knowledge, operated
the Business in compliance with all applicable Federal, state and local laws,
ordinances and regulations, including, but not limited to the Federal Fair Debt
Collection Practices Act. Seller has not, except as disclosed in Schedule 7.12
in connection with the use, ownership or operation of the Business or the
Assets, received any notice of any suspected or claimed violation of any law,
regulation or ordinance.
7.13 All trade creditors of the Business hall be paid in
full prior to or with a portion of the Purchase Price at Closing. Further,
except as set forth on Schedule 7.13, all clients of the business shall be
remitted to and paid in full as of the Closing. Arrangements acceptable to Buyer
shall be made at Closing regarding clients listed on Schedule 7.13.
7.14 Seller has all necessary permits, licenses and
authorizations required for the ownership of the Assets and the operation of the
Business in all jurisdictions in which it is doing business ("Licenses"); and
all Licenses are listed on Schedule 7.14 hereto, are in full force and effect as
of the date hereof and will continue to be in full force and effect through the
Closing Date, and copies of all such Licenses will be delivered to Buyer within
seven (7) days before Closing. It is hereby acknowledged by the parties that
Schedule 7.14 is for informational purposes only and that the Licenses are not
being assigned to Buyer together with the Assets.
(13)
<PAGE>
7.15 All Federal, state and local taxes relating to the
Business or the Assets have been or by the Closing Date will be paid to the
extent due except to the extent the same are being contested in good faith by
Seller with adequate reserves therefore.
7.16 To the best knowledge of Seller, since September 30,
1995 there has been no material adverse change in, or condition which might
materially adversely affect, the Business (financial or otherwise), or the
properties, Assets or business prospects of the Business.
7.17 The representations or warranties of Seller in this
Agreement do not contain and will not contain any untrue statement or omit or
will omit to state a material fact necessary to make the statements therein not
misleading. Seller's representations and warranties contained in this Agreement
shall be true and correct at the time of Closing as though such representations
and warranties were made on and as of such Closing Date.
8. Buyer's Representations and Warranties. Buyer represents
and warrants to Seller as follows:
8.1 Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Pennsylvania.
(14)
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8.2 The execution and delivery of this Agreement to the
Seller and the purchase of the Assets and Business have been duly authorized by
Buyer's Board of Directors and this Agreement constitutes the valid and binding
obligation of Buyer enforceable against it in accordance with its terms except
as such enforceability may be limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditor's
rights and except as specific enforceability may be limited by principles of
equity.
8.3 Certified copies of resolutions of the Board of
Directors of Buyer authorizing the transactions set forth in this Agreement,
together with a copy of each of Buyer's Articles of Incorporation and By-laws
certified by Buyer's Secretary, and a good standing certificate issued by the
Secretary of State of Pennsylvania dated within twenty (20) days of Closing will
be provided on the date of Closing hereinabove specified.
8.4 The consummation of the transactions contemplated by
this Agreement and compliance with the provisions hereof will not conflict with
or result in a breach or default under Buyer's Articles of Incorporation or
by-laws, or any agreement to which Buyer is a party or by which it is bound, or
any provision of law, order of any court or other governmental agency.
(15)
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8.5 There is no litigation or proceedings pending, or
threatened to the knowledge of Buyer, nor does Buyer know of any basis for such
action which would materially or adversely affect Buyer's ability or right to
perform any of its obligations hereunder or consummate the transactions
contemplated herein.
8.6 All financial documentation provided by Buyer to
Seller in connection with this transaction are true and correct.
8.7 Buyer's business operation is in good standing and
economically stable. Buyer is not aware of any fact or matter which could
materially and adversely affect the business or the assets of Buyer.
8.8 The representations and warranties of Buyer in this
Agreement do not contain and will not contain any untrue statement or omit or
will omit to state a material fact necessary to make the statements therein not
misleading. Buyer's representations and warranties contained in this Agreement
shall be true and correct at the time of Closing as though such representations
and warranties were made on and as of such Closing Date.
(16)
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9. Covenants of Seller Regarding Conduct of Business Pending
Closing. Seller covenants and agrees that until Closing, regarding the Business,
unless otherwise agreed to in writing by Buyer, Seller and its officers and
directors, where required shall:
9.1 Continue the operation of the Business in the
ordinary course consistent with current business practices, and will not engage
in any sale or enter into any transaction other than in the ordinary course of
Seller's business.
9.2 Maintain its current insurance coverages in full
force and effect insuring the Assets and the Business to be sold to Buyer
pursuant to this Agreement; and Seller shall promptly notify Buyer in writing of
any loss, damage and/or claim regarding any Asset or the Business.
9.3 Not enter into any contract, agreement, lease or
commitment pertaining to the Business without the prior consent of Buyer.
9.4 Use their best efforts to preserve the business of
the Business and to maintain all equipment, machinery, records and files related
thereto in good working order and condition; and shall use its and their best
efforts to keep available for Buyer all of the present employees of the Business
and to preserve for the benefit of the Buyer the goodwill of clients, customers,
(17)
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suppliers and others having business relationships with Seller in connection
with the Business.
9.5 Seller shall maintain its furniture, fixtures,
equipment and machinery in good working order and repair through the Closing
Date, ordinary wear and tear excepted, and Seller shall not dispose of any items
of tangible property without the prior written consent of Buyer.
9.6 Maintain or increase its present business hours, but
not reduce its business hours from the level currently maintained.
10. Restrictive Covenant.
10.1 Seller covenants and agrees that, for a period of
five (5) years from the Closing Date, Seller shall not, directly or indirectly,
anywhere in the United States, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected with as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise any business engaged in the debt
collection business or interfere in any manner with the business operated by
Buyer, including Buyer's operation of the Business.
(18)
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10.2 The restrictions set forth in subparagraph 10.1
above, notwithstanding, Seller shall be permitted to continue its credit bureau
business. If, at any time, Seller acquires a credit bureau business which
includes as part of its business a debt collection business, the restriction set
forth in subparagraph 10.1 above shall apply and Seller shall not be permitted
to operate such debt collection business including during the period that Seller
is attempting to sell that business to Buyer or a third party as herein
provided. Buyer shall, during the five (5) year restriction period, have a right
of first refusal to purchase the collection business portion of any credit
bureau business acquired by Seller. If Buyer does not purchase such collection
business, Seller shall be required to sell the collection business portion of
any acquired credit bureau to a third party or terminate and close the debt
collection part of the acquired business. Furthermore, Seller shall be permitted
to continue to market its letter series, known as "Collets," in connection with
its credit bureau business only. Collets is a collection letter series sold by
Seller to its customers. Collets shall not be used as a vehicle for third party
collection services but does constitute a letter coming from Seller to consumers
asking them to pay a creditor an outstanding balance, or a letter from a
creditor to the customer which is facilitated by Seller. Seller's involvement in
the collection of accounts through the Collets process shall be no more than
that required to comply with the Fair Debt Collection Practices Act.
(19)
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10.3 Seller agrees that the remedy at law for any breach
of the foregoing paragraph will be inadequate and that Buyer will be entitled to
temporary or permanent injunctive relief in respect to a breach of the covenant
and specific performance in respect to a breach of the right of first refusal,
without the necessity of proving actual damage to Buyer. Nothing herein shall be
construed as prohibiting Buyer from pursuing any other remedies available to it
for such breach or threatened breach including the recovery of damages from
Seller. If the period or the scope of any of the foregoing restrictions should
be adjudged unreasonable in any court or arbitration proceeding, then the period
of time shall be reduced by such number of months or the scope shall be reduced
by the elimination of such portion thereof as is deemed unreasonable so that the
foregoing provisions may be enforceable during such period of time and such
scope as is adjudged to be reasonable.
10.4 The provisions of this paragraph 10 and each
subparagraph hereof shall be considered severable and the invalidity or
unenforceability of any part thereof shall not affect the validity or
enforceability of the remaining portions or provisions of this paragraph or this
Agreement.
(20)
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11. Liabilities. Except as specifically set forth in this
Agreement and except with respect to Contracts assigned to and assumed by Buyer,
Buyer is not assuming any obligations or liabilities of Seller, whether related
to the Business or otherwise, and Seller shall promptly pay, satisfy or
discharge all such liabilities.
12. Indemnification.
(a) Seller shall indemnify, defend and hold harmless
Buyer, its successors and assigns, from, against and in respect of:
(i) any loss, damage, expense or deficiency that
Buyer may incur and any claim that may be made against Buyer arising out of or
resulting from: (A) any misrepresentation, breach or incorrectness of any
representation or warranty made by Seller herein, or the omission from any such
representation or warranty of any statement of fact necessary to make such
representation or warranty not misleading; (B) nonfulfillment of any agreement
on the part of the Seller; (C) any misrepresentation in or omission from any
certificate or other instrument furnished or to be furnished to the Buyer under
this Agreement; (D) any act or omission of Seller before Closing regarding any
obligation under any of the Contracts of Seller assumed by Buyer hereunder or
otherwise relating to the Business or to any of the Assets transferred to Buyer
at Closing under this Agreement; (E) the claims of all or any creditors or
clients of Seller and for any of the obligations or liabilities of Seller
previously or hereafter asserted against Buyer or the Assets of Seller acquired
by Buyer under this Agreement for any and all periods prior to Closing; and
(21)
<PAGE>
(ii) all actions, suits, proceedings, demands
assessments, judgments, attorney's fees, costs and expenses incident
to any of the foregoing.
(b) Buyer shall indemnify, defend and hold harmless
the Seller, its successors and assigns, from, against and in respect of any
loss, damage, expense or deficiency that any of them may incur and any claim
that may be made against any of them arising out of or resulting from any act or
omission of Buyer after Closing. This indemnification shall include all actions,
suits, proceedings, demands assessments, judgments, attorney's fees, costs and
expenses incident to any of the foregoing.
13. Closing Date. Closing hereunder shall be held no earlier
than January 3, 1996 (hereinafter after referred to as the "Closing" or the
"Closing Date") at the offices of Joshua Gindin, Esquire, 1700 Two Logan Square,
Philadelphia, Pennsylvania, or such other date, time and place upon which Seller
and Buyer may jointly agree.
14. Delivery of Documents. At Closing, the parties shall
deliver documents, instruments and other materials for the
transactions provided for herein as follows:
(22)
<PAGE>
14.1 Seller shall execute and/or deliver to Buyer:
a. A Bill of Sale and Assignment transferring the
Assets, which Bill of Sale and Assignment shall warrant title to Buyer free and
clear of all liens and encumbrances of every kind and nature.
b. A list of all employees, their rates of pay,
including base pay, and any incentive, commission or bonus plans, and setting
forth all employee benefits, if any.
c. An Incumbency Certificate for Seller's Officers.
d. Certified Resolutions of Seller's Board of
Directors authorizing the sale of the Assets and the execution and delivery of
this Agreement and all other documents and instruments required to be delivered
hereunder.
e. A copy of Seller's Articles of Incorporation and
By-laws certified by Seller's Secretary or Assistant Secretary.
f. A Good Standing Certificate for Seller issued by
the Secretary of State of each state in which Seller is authorized to do
business and dated within twenty (20) days of Closing.
(23)
<PAGE>
g. A Certificate executed by Seller's President and
attested by Seller's Secretary or Assistant Secretary, stating that all of the
representations and warranties made by Seller are true and correct as of the
Closing Date; and
h. Such other documents and instruments as Buyer
and its counsel may reasonably require.
14.2 Buyer shall deliver or cause to be delivered to
Seller:
a. Buyer's certified or bank cashier's check or
wire transfer in the amount of the Purchase Price, subject to any adjustments
pursuant to paragraph 2.2(a) above.
b. An Incumbency Certificate and Certified
Resolutions of Buyer's Board of Directors authorizing the purchase of the Assets
and the execution and delivery of this Agreement and all other documents and
instruments required to be delivered hereunder.
c. Such other documents and instruments as Buyer is
required to deliver to Seller under this Agreement.
(24)
<PAGE>
15. Survival Representations, Warranties and Agreements. All
representations, warranties and agreements provided for in this Agreement shall
survive the Closing Date for a period of three (3) years, except that the
condition precedent requiring audited 1995 financial statements, as set forth in
paragraph 5.2 and the covenants set forth in paragraph 10 hereof shall survive
for the period set forth therein.
16. Brokers. Each of the parties represents and warrants to
the other that all negotiations to this Agreement and the transactions
contemplated hereby have been carried on between them directly and without the
intervention of any other party, and no other third party has or could have any
valid claim against either of the parties for a brokerage commission, finder's
fee or other like payment.
17. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be sufficiently given only if personally
delivered or mailed by certified or registered mail, return receipt requested,
or by facsimile, or delivered by overnight delivery service, to the party to
receive notice at the address set forth below for such party or to such other
address as any party shall, by ten (10) days prior notice, direct.
(25)
<PAGE>
If to Seller 555 West Adams
Chicago, IL 60661
Attn: David Emery
With a copy to: Oscar Marquis, Esquire
555 West Adams
Chicago, IL 60661
If to Buyer: NCO Financial Systems, Inc.
1740 Walton Road
Blue Bell, PA 19422
Attention: Michael Barrist,
President
With a copy to: Joshua Gindin, Esquire
1700 Two Logan Square
Philadelphia, PA 19103
18. Further Assurances. Each party shall, upon the
reasonable request of the other party, take such action and execute and deliver
such documents as may be reasonably necessary or appropriate to effectuate the
terms of this Agreement and consummate the transactions contemplated hereby.
19. Applicable Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the
Commonwealth of Pennsylvania.
20. Benefit. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns; provided, however, that this Agreement
shall not be assigned by either party without the prior written consent of the
other. The foregoing notwithstanding, in the event that Buyer and CRW
(26)
<PAGE>
complete their business combination prior to the Closing Date, Buyer shall have
the right to assign its rights and obligations under this Agreement to CRW
without the required written consent of Seller.
21. Entire Agreement; Amendment. This Agreement, contains
the entire understanding between the parties hereto, no other representations,
warranties or covenants having induced any party to execute this Agreement, and
this Agreement is intended to, and shall, supersede all prior or contemporaneous
agreements, whether oral or in writing, with respect to the subject matter
hereof. This Agreement may not be amended or modified in any manner except by a
written agreement duly executed on behalf of the party to be charged.
22. Responsibility for Costs.
22.1 Each of the parties hereto shall be responsible for
all costs and expenses incurred by each of them in connection with the
negotiation of this Agreement and the consummation of the transactions
contemplated hereby, including, but not limited to, attorneys' and accountants'
fees.
22.2 In the event of a lawsuit by either party to enforce
the provisions of this Agreement, the prevailing party shall be entitled to
recover reasonable costs, expenses and attorneys' fees from the other party.
(27)
<PAGE>
23. Headings. The paragraph headings of this Agreement are
for convenience of reference only and do not form a part of the terms and
conditions of this Agreement or give full notice thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year written above.
Buyer:
Attest: (Seal) NCO FINANCIAL SERVICES, INC.
______________________________ By:_____________________________
Title_________________________ Michael Barrist, President
Seller:
Attest: (Seal) TRANS UNION CORPORATION
______________________________ By:_____________________________
Title_________________________
(28)
<PAGE>
Exhibit 10.6
1710-20 SENTRY EAST ASSOCIATES L.P.
AND
NCO Financial System, Inc
(D.B.A. The Sentry Group)
OFFICE PREMISES LEASE
<PAGE>
TABLE OF CONTENTS
1. INTERPRETATION
1.1 Defined Terms - General
1.2 Defined Terms - Operating Costs and Taxes
1.3 Number, Gender and Joint and Several Liability
1.4 Procedure for Approval
1.5 Divisions
1.6 Entire Agreement
1.7 Reasonableness
1.8 Nature of the Lease
2. DEMISE AND TERM
2.1 Demise-Premises
2.2 Licenses
2.3 Term
2.4 Surrender on Termination
2.5 Holding Over
3. RENT
3.1 Items of Rent
3.2 General
3.3 Final Determination of Certain Items of Rent
3.4 Insufficient Funds
3.5 Deposit
4. USE OF PREMISES
4.1 Use
4.2 Waste and Nuisance
4.3 Extraordinary Equipment
4.4 Fire Prevention and Energy Conservation
4.5 Exterior Appearance of Premises
5. LIMITATION OF LIABILITIES
5.1 Unavoidable Delay
5.2 Limitation of Landlord's Liability
5.3 Indemnity
6. TAXES
6.1 Landlord's Taxes
6.2 Tenant's Taxes
6.3 Assessment Appeals
7. INSURANCE
7.1 Landlord's Insurance
7.2 Tenant's Insurance
<PAGE>
8. OPERATION, SERVICES, MAINTENANCE, REPAIR AND ACCESS BY
LANDLORD
8.1 Quiet Enjoyment
8.2 Standard of Operation
8.3 Services to Premises
8.4 Services to Building
8.5 Additional Services
8.6 Extra Operating Costs
8.7 Maintenance and Repair
8.8 Access by Landlord
9. MAINTENANCE, REPAIR AND IMPROVEMENTS BY TENANT
9.1 Maintenance of Premises
9.2 Leasehold Improvements
9.3 Liens
9.4 Removal of Leasehold Improvements - Term
9.5 Removal of Leasehold Improvements - Expiration of
Term
10. TRANSFERS BY TENANT
10.1 Successors to Tenant
10.2 Licenses, Franchises and Concessions
10.3 Assignment or Subletting
10.4 Change in Control
10.5 Advertising of Premises
11. TRANSFER BY LANDLORD, SUBORDINATION AND ATTORNMENT
11.1 Transfer by Landlord
11.2 Subordination and Attornment
11.3 Estoppel Certificates
12. TERMINATION AND RENT ABATEMENT
12.1 Termination by Tenant
12.2 Termination by Landlord
12.3 Abatement of Rent
13. LANDLORD'S REMEDIES
13.1 Default and Re-Entry
13.2 Re-letting and Sale of Personalty
13.3 Right of Landlord to Remedy
13.4 Bankruptcy of Tenant
13.5 Interest
13.6 Costs
13.7 Confession of Judgment for Rent
13.8 Confession of Judgment for Possession
14. REGULATIONS
14.1 Purpose
14.2 Observance
14.3 Enforcement
15. MISCELLANEOUS
15.1 Exhibiting Premises
15.2 Name of Building
15.3 Relocation
15.4 Notice
15.5 Compliance with Laws, etc
<PAGE>
15.6 Governing Law and Severability
15.7 Recordation
15.8 Condemnation
15.9 Rider
Schedule "A" Legal Description
Schedule "B" Floor Plan
Schedule "C" Regulations
<PAGE>
THIS LEASE MADE in duplicate this _____ day of
_______________, 199____
1710-20 SENTRY EAST ASSOCIATES, L.P.
(the "Landlord")
of the FIRST PART,
- and -
NCO Financial System, Inc.
(D.B.A. The Sentry Group)
(the "Tenant")
of the SECOND PART,
WHEREBY the parties agree as follows:
<PAGE>
ARTICLE I
INTERPRETATION
1.1 Defined Terms - General. In this lease:
"Building" means that certain building known as 1710 Walton Road, Blue Bell, Pa.
19422 located on the Land.
"Common Areas" means those parts of the Project designated by the Landlord for
common use by the Landlord and the tenants of the Project, including without
limitation, the landscaped portions of the Project, the public sidewalks and the
landscaped portions of the streets adjacent to the Project, the Delivery
Facilities, and Parking Facilities, if any.
"Common Service Areas" means those parts of the Project, whether or not within
the Building, designated by the Landlord which provide services to the Project;
"Cost of Utilities" means the cost of electricity and other utilities supplied
to tenants of premises in the Building as determined by the Landlord who in
making its determination shall take into account the readings of any electrical
check meters installed by the Tenant;
"Delivery Facilities" means those portions of the Project designated by the
Landlord as facilities for common use by the Landlord and tenants of the Project
for deliveries;
"Expert" means any architect, engineer, land surveyor, chartered accountant, or
other professional consultant, as the case may be, appointed by the Landlord and
qualified in the opinion of the Landlord to perform the particular function;
"Expiration of the Term" means the termination of this lease by either passage
of time or operation of any of its provisions;
"Fixed Rent" means the amount payable under section 3.1(a);
"Insurance" means coverage with respect to the following risks in amounts equal,
in the case of the Landlord, to those maintained by prudent owners of like
buildings and, in the case of the Tenant, to those maintained by prudent tenants
of like premises:
(a) comprehensive general liability;
(b) all risks coverage;
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(c) in the case of the Landlord:
(i) boiler and machinery; and
(ii) loss of rental income by reason of damage; and
(d) in the case of the Tenant, comprehensive
general liability;
and in the case of the Landlord, such other coverage as the Landlord may require
to maintain and in the case of the Tenant, such other coverage as the Landlord
may require, in each case having regard to the risks which are customarily
insured against by prudent landlords and tenants of like premises;
"Landlord's Cost" means with respect to any cost incurred by the Landlord the
actual amount thereof and a fee on account of management and overhead, said fee
to be equal to the amount the Landlord might reasonably pay to a third party for
the administration and management of the Building.
"Leasehold Improvements" means the fixtures and improvements made by or on
behalf of the Tenant in the Premises;
"Notice" has the meaning set forth in section 15.4;
"Parking Facility", if any, means those portions of the Project designated by
the Landlord for parking;
"Premises" means the portion of the Building, excluding its exterior, outlined
in red on the floor plan attached to, and forming part of, this lease, currently
known as suite 200.
"Prime" means the rate of interest from time to time announced by Mellon Bank,
N.A. as its prime rate;
"Project" means the improvements constructed on the Land including the Building,
the Common Areas (whether on or adjacent to the Land), the Parking Facility, if
any, and any other building;
"Land" means the land as described in Schedule "A" attached hereto.
"Rent" means the amounts payable by the Tenant to the Landlord under this lease;
"Term" means the term of this lease as specified in section 2.3 and any
permitted overholding; and
"Unavoidable Delay" means any event, beyond the control of the party affected
thereby which prevents the fulfillment by such party of any obligation hereunder
and not caused by such
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party and not avoidable by the exercise of reasonable effort or foresight by
such party.
1.2 Defined Terms - Operating Costs and Taxes. For the purpose of calculating
the Proportionate Share of Operating Costs and Taxes:
"Fiscal Year" means a calendar year provided that the Landlord may by Notice
specify an annual date upon which each subsequent Fiscal Year is to begin, in
which event the Fiscal Year which would otherwise be current when such annual
date first occurs thereafter shall terminate on the preceding day;
"Operating Costs and Taxes" means for a Fiscal Year the aggregate costs paid or
payable by the Landlord in accordance with generally accepted accounting
principles applied in the real estate management industry on account of Taxes,
Insurance and the operation, management, maintenance and repair of the Building
and on a proportionate basis as hereinafter provided, the Land, the Common
Areas, the Common Service Areas and those costs associated with Condominium
Association Fees, together with a charge, the annual cost of which for the
purpose of this Lease shall be deemed to be management fees paid by the Landlord
for the administration and management of the Building and the Land, and, if the
Landlord itself manages the Building and the Land, a fee equal to the amount the
Landlord might reasonably pay to a third party for the administration and
management of the Building and the Land. Without limiting the generality of the
foregoing, Operating Costs and Taxes shall also include the cost amortized at
Prime of all capital improvements made after the Building is substantially
completed, which (i) have the effect of reducing the costs which would otherwise
be included in Operating Costs and Taxes, or (ii) are required by any competent
governmental authority. Operating Costs and Taxes shall exclude the following:
(i) costs directly recoverable from tenants or
insurers;
(ii) debt service, depreciation or other costs of a
capital nature and interest on any of the
foregoing, except as hereinafter provided;
(iii) costs of procuring any lease; and
(iv) income, corporate and other taxes of a personal
nature of the Landlord to the extent not
imposed in lieu of Taxes.
The proportion of Operating Costs and Taxes attributable to the Land, Common
Areas and the Common Service Areas shall be allocated equitably by the Landlord
to all buildings forming part of the Project and will be based to the extent
possible
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on the respective aggregate areas of Rentable Space in the Building and all
other buildings forming part of the Project. If at any time there are unoccupied
premises in the Building, the Landlord may make an equitable adjustment of the
amount of Operating Costs and Taxes by reason of the fact that unoccupied
premises result in lower costs in order that the tenants of the occupied
premises will bear the actual amount of the Operating Costs and Taxes attributed
to their respective premises;
"Taxes" means all taxes and other charges imposed by any lawful authority
against the Land and any improvements thereon or upon the Landlord in respect
thereof and all costs relating to any appeal thereof, and includes (without
limiting the generality of the foregoing) any Rental Taxes;
"Proportionate Share" means the ratio, the numerator of which is the Rentable
Space of the Premises and the denominator of which is the aggregate Rentable
Space of the Building (exclusive of any storage areas);
"Rentable Space" whether in the case of a whole floor of the Building or in the
case of premises comprising part of a floor of the Building shall be determined
by the Landlord's architect or land surveyor according to the American National
Standard for measuring floor area in office buildings as established by the
Builders Owners and Managers Association International and in effect as of the
date of commencement of the Term;
"Rental Taxes" means any tax or duty imposed upon the Landlord which is measured
or based in whole or in part directly upon the Rent payable under this lease or
services provided by the Landlord whether existing at the date hereof imposed by
any governmental authority.
1.3 Number, Gender and Joint and Several Liability. The necessary grammatical
changes required to make the provisions of this lease apply in the plural sense
where the Tenant comprises more than one entity and to corporations,
associations, partnerships or individuals, male or female, shall be assumed as
though in each case fully expressed. If the Tenant is more than one person or
entity its liability shall be joint and several. If the Tenant is a partnership
each person who is or becomes a member of the partnership or any successor
partnership shall be jointly and severally liable.
1.4 Procedure for Approval. Any request for approval shall be requested by
Notice and in the absence of reply given by Notice not later than 15 days after
Notice of the request has been received, or such other period of time as is
otherwise expressly provided in this lease, the approval shall be deemed to have
been given unless the approval may by the terms of
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<PAGE>
this lease be withheld in the discretion of the party whose approval is
requested. Each approval shall be in writing unless by operation of the
preceding sentence it is deemed to have been given. If either party withholds
its approval it shall give Notice of its reason unless the approval may by the
terms of this lease be withheld in its discretion.
1.5 Divisions. All references in this lease to articles, sections and other
subdivisions are to those in this lease.
1.6 Entire Agreement. This lease and the regulations imposed by the Landlord
pursuant to section 14.1 constitute the entire agreement between the Landlord
and the Tenant concerning the subject matter of this lease. This lease may only
be amended by an agreement in writing signed by the parties hereto.
1.7 Reasonableness. The Landlord and the Tenant shall, except as otherwise
expressly provided in this lease, each act reasonably, having regard to the fact
that they are the owner and a tenant, respectively, of a good quality office
building, in the exercise and the enforcement of their respective rights under
this lease. Each right shall be exercisable and enforceable from time to time,
except as aforesaid.
1.8 Nature of the Lease. This lease is a completely net lease to the Landlord
and accordingly, except as otherwise expressly provided in this lease, the
Landlord has no obligations to the Tenant with respect to either the Premises,
the Building, the Common Areas, the Common Service Areas, the Parking Facility,
or if any, the Project.
ARTICLE II
DEMISE AND TERM
2.1 Demise-Premises. The Landlord hereby leases the Premises to the Tenant and
the Tenant hereby leases and accepts the Premises from the Landlord, (being
2,850 square feet of Rentable Space and currently known as suite 200) to have
and to hold during the Term, subject to the terms of this lease.
2.2 Licenses. The Landlord hereby grants to the Tenant throughout the Term and
subject to control by the Landlord, a non-exclusive license, revocable at any
time upon Notice by the Landlord:
(a) to use those parts of the Common Areas giving
access to the Premises and the Parking
Facility, if any;
(b) to have its name displayed on the main lobby
directory board for the Building, on the floor
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<PAGE>
lobby directory board on each floor on which the Premises are
located and on the main door to the Premises, all such signs
to be under the exclusive control of the Landlord and to
conform to the uniform pattern of identification signs for
tenants of the Building prescribed by the Landlord; and
(c) if the Premises constitute one or more full floors of the
Building, to have a sign displaying the name of the Tenant in
the elevator lobby of each such floor provided that the design
of the sign has been approved by the Landlord.
2.3 Term. The Term shall be ten (10) years beginning January 1, 1996 at 12:00
Midnight and ending the last day of December, 2005 at 5:00 PM.
2.4 Surrender on Termination. Forthwith upon the Expiration of the Term, the
Tenant shall vacate and deliver up possession of the Premises in a broom clean
condition and in good and substantial repair in accordance with the Tenant's
obligation under this lease to repair the Premises, but subject to the Tenant's
rights and obligations in respect of removal in accordance with sections 9.4 and
9.5. At the same time the Tenant shall surrender to the Landlord at the place
then fixed for the payment of Rent all keys and other devices which provide
access to the Premises, the Building or any part thereof and shall inform the
Landlord of all combinations to locks, safes and vaults, if any, in the
Premises.
2.5 Holding Over. If the Tenant shall continue to occupy the Premises at the
expiration of this lease with or without the consent of the Landlord and without
any further written agreement the Tenant shall be a monthly tenant at two
hundred (200%) of the monthly Fixed Rent herein reserved for the last year of
the Term and otherwise on the terms and conditions herein set forth, except as
to the length of tenancy.
ARTICLE III
RENT
3.1 Items of Rent. The tenant shall pay to the Landlord:
(a) $45,600.00 per annum in 12 equal Installments
of $3,800.00 each based on the rate of $16.00 per square foot
per annum of Rentable Space.
(b) the Proportionate Share of Operating Costs and
Taxes over Base Year 1995;
(i) any additional services and equipment agreed to
be provided by the Landlord at the request of
the Tenant;
(c) the amount, if any, by which the Operating
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Costs and Taxes attributed to the Premises by the
Landlord exceeds the Proportionate Share of Operating
Costs and Taxes if such excess is occasioned by the
use or improvement of the Premises.
3.2 General. All amounts payable by the Tenant to the Landlord under this lease
shall be deemed to be Rent. The Tenant shall pay Rent without abatement,
deduction or set-off, except as expressly provided, in lawful money of the
United States to such person and at such address as the Landlord may advise. The
Tenant shall pay items of Rent of a recurring nature in advance on the first day
of each month of the Term and shall pay other items of Rent within 15 days of
the delivery of an invoice therefor. The Landlord shall estimate and may
re-estimate, items of Rent of a recurring and variable nature for each Fiscal
Year and advise the Tenant thereof. If the Commencement Date is not the first
day of a month or if the Expiration of the Term does not occur on the last day
of a month, Rent for the partial month shall be pro-rated on a per diem basis.
3.3 Final Determination of Certain Items of Rent. The Landlord shall within 180
days after the end of each Fiscal Year provide to the Tenant a statement (the
"Statement") setting out in detail the Proportionate Share of Operating Costs
and Taxes and such other items of Rent of a recurring and variable nature for
such Fiscal Year. If the aggregate monthly Installments on account thereof paid
during such Fiscal Year differ from the actual amount thereof set forth in the
Statement, the Tenant shall pay or the Landlord shall refund the difference
within 30 days after the Statement is provided. The Tenant may within the 60 day
period after the Statement is provided examine the books and records of the
Landlord relating to the Project. The Tenant may by Notice given within such 60
day period but not otherwise dispute the Statement whereupon the matter shall be
finally resolved by an Expert. If the Expert determines that the amount payable
by the Tenant has been overstated by more than three percent(3%) the Landlord
shall pay the fee of the Expert.
If the Expert determines that the amount payable by the Tenant has not been
overstated by three percent (3%) or more the Tenant shall pay such fee. Any
adjustment required to any previous payment made by the Tenant or the Landlord
by reason of any such determination shall be made forthwith and shall bear
interest at a rate equal to Prime plus one percent (1%) per annum from the date
the actual overpayment or underpayment is made.
3.4 Insufficient Funds. The Tenant agrees that if any of the Tenant's cheques
are returned for lack of sufficient funds, the Tenant shall pay to the Landlord
upon receipt of the Landlord's invoice for same, a minimum administrative fee
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of not less than Fifty Dollars ($50.00).
3.5 Deposit. The Landlord acknowledges receipt of the Deposit in the amount of
$00.00 prior to the execution of this lease, which sum shall be deposited in an
account of Landlords choice. The Deposit shall be applied as a security deposit
for the due performance by the Tenant of all the covenants and obligations on
its part herein contained, the Landlord hereby reserving unto itself at its sole
discretion the right to apply such sum to any damages resulting from any default
by the Tenant of any of its covenants and obligations hereunder or towards the
payment or reduction of any claim of the Landlord against the Tenant including
monthly Rent. If the Deposit hereunder shall be applied in accordance with the
provisions hereof, the Tenant covenants to provide sufficient funds to ensure
that the Deposit remains at the level herein before indicated within ten (10)
days of receipt of the Landlord's Notice therefor. Provided the Tenant is not
then in default under the lease and provided that the Tenant has not, in any
way, damaged the Premises, the Landlord shall, within thirty (30) days of the
Tenant's vacating the Premises, return to the Tenant the balance of the security
deposit referred to in section 3.5. Landlord shall be under no obligation to
refund any interest that may have accrued on said deposit.
ARTICLE IV
USE OF PREMISES
4.1 Use. The Premises shall be used for general office purposes only and not for
any other purpose without the prior written consent of the Landlord, which
consent may be withheld at the discretion of the Landlord, the Tenant shall not
permit any part of the Premises to be occupied by any person other than the
Tenant and its employees and any subtenant permitted under section 10.3 and the
employees of such subtenant.
4.2 Waste and Nuisance. The Tenant shall not commit or permit any waste or
damage to the Premises or any manner of use causing annoyance to other tenants
of the Project.
4.3 Extraordinary Equipment. The Tenant shall not install any equipment which
might affect the capacity of either the structure or the basic systems of the
Building.
4.4 Fire Prevention and Energy Conservation. The Tenant shall comply with the
requirements of the Landlord with respect to fire prevention and, with respect
to the Premises, energy conservation.
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4.5 Exterior Appearance of Premises. The Tenant shall keep the exterior
appearance of the Premises tidy and business-like and shall not erect any sign
or other like object within the Premises which is visible from the exterior of
the Premises.
ARTICLE V
LIMITATION OF LIABILITIES
5.1 Unavoidable Delay. Except as herein otherwise expressly provided, if and
whenever and to the extent that either the Landlord and the Tenant shall be
prevented, delayed or restricted in the fulfillment of any obligations hereunder
in respect of the supply or provision of any service or utility, the making of
any repair, the doing of any work or any other thing (other than the payment of
Rent) by Unavoidable Delay, the time for fulfillment of such obligation shall be
extended during the period in which such circumstance operates to prevent, delay
or restrict fulfillment thereof, and the other party to this Lease shall not be
entitled to compensation for any inconvenience, nuisance or discomfort thereby
occasioned nor shall Rent abate.
5.2 Limitation of Landlord's Liability. The Landlord shall only be liable for
any personal injury or death suffered by the Tenant or any person in its employ
who may be upon the Premises or for the loss or any damage to any property
located within the Premises of the Tenant or of any employee of the Tenant if
caused by the actual fault or negligence of the Landlord. It is expressly
understood and agreed by Tenant that none of Landlord's covenants, undertakings
or agreements are made or intended as personal covenants, undertakings or
agreements by Landlord or its partners, and any liability for damages or breach
or nonperformance by Landlord or for damages caused by or arising from any other
action whatsoever, shall be collectable only out of Landlord's interest in the
Project and no personal liability is assumed by, nor at any time by be asserted
against, Landlord or its partners or any of its or their officers, agents,
employees, legal representatives, successors or assigns, if any, all such
liability, being expressly waived released by Tenant.
5.3 Indemnity. The Tenant and the Landlord shall each indemnify and save the
other harmless in respect of:
(a) all claims and liabilities arising from any act or omission of
the indemnitor or any person for whose conduct the indemnitor
is responsible and the costs incurred by the indemnitee in
connection with any action pertaining thereto; and
(b) any damage suffered by the indemnitee by reason
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of the breach by the indemnitor of any of its obligations
under this lease and the costs incurred by the indemnitee in
connection with any action pertaining thereto.
ARTICLE VI
TAXES
6.1 Landlord's Taxes. The Landlord shall pay before delinquency the Taxes
relating to the Building.
6.2 Tenant's Taxes. The Tenant shall pay before delinquency all taxes and other
charges imposed by any lawful authority against the Tenant or any sub-tenant,
licensee or occupant of the premises which if not paid would constitute either a
lien on either the Land or the Building or a liability of the Landlord.
6.3 Assessment Appeals. The Tenant shall not conduct any appeal from any
governmental assessment or determination of the value of the Land, the Building
or the Premises.
ARTICLE VII
INSURANCE
7.1 Landlord's Insurance. The Landlord shall maintain Insurance with respect to
its interest in the Building, the Common Areas and the Parking Facility, if any.
Such insurance shall include, if available, a waiver of any right of subrogation
with respect to property insurance only, against the Tenant.
7.2 Tenant's Insurance. The Tenant shall maintain Insurance with respect to its
interest in the Premises, the Leasehold Improvements and all operations of the
Tenant in and from the Premises in the amounts and forms as specified below. The
Tenant shall at the request of the Landlord provide the Landlord with
certificates of such insurance. If both the Landlord and the Tenant have claims
to be indemnified under any such insurance, the indemnity shall be applied first
to the settlement of the claim of the Landlord and the balance to the settlement
of the claim of the Tenant. Such insurance shall include the Landlord and any
Mortgagee designated by Notice by the Landlord as named insureds as their
interests may appear and, if available, shall contain a cross-liability clause
protecting the Landlord in respect of claims by the Tenant as if the Landlord
were separately insured and a provision prohibiting the insurer from materially
altering or canceling the coverage without first giving the Landlord at least 30
days' prior written notice thereof. Such insurance shall include, if available,
a waiver of any right of subrogation with respect to property insurance only,
against
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the Landlord.
(a) Liability Insurance. Tenant shall provide on or before it enters
the Demised Premises and shall keep in force during the term, for the benefit of
Landlord and Tenant, liability insurance against any liability occasioned by any
occurrence in or about the Demised Premises or any appurtenance thereto. Such
policy is to be written in a combined single limit of at least $1,000,000 for
injury or death to one or more than one person arising from any one occurrence
and with respect to property damages. In addition, Tenant shall maintain and
provide a $2,000,000 umbrella policy on terms which Landlord shall specify.
(b) Fire Insurance. Tenant shall insure and keep its equipment,
personal property and all leasehold improvements benefitting the Demised
Premises or elsewhere on the Real Estate insured against damage by fire, water
damage and other casualties and risks covered by "All Risk" and extended
coverage insurance. Landlord shall not carry insurance of any kind on Tenant's
property, and, except as provided by law or by reason of its fault or its breach
of any of its obligations hereunder, shall not be obligated to repair any damage
thereto or replace the same.
(c) Worker's Compensation. Tenant shall maintain Worker's
Compensation insurance, insuring against and satisfying Tenant's obligations and
liabilities under the applicable Worker's Compensation laws. Tenant shall also
maintain Employers Liability Insurance in the amount of at least $1,000,000.
ARTICLE VIII
OPERATION, SERVICES, MAINTENANCE,
REPAIR AND ACCESS BY LANDLORD
8.1 Quiet Enjoyment. The Landlord covenants with the Tenant for quiet enjoyment.
8.2 Standard of Operation. The Landlord shall operate and manage the Building,
the Land, the Common Areas, the Common Service Areas and the Parking Facility,
if any, to the standard of a good quality office building, subject to the
limitations arising from the design of the Building and its basic systems.
8.3 Services to Premises. The Landlord shall provide the following services to
the Premises:
(a) heat, ventilation and air conditioning as
required for the comfortable use and occupancy
of the Premises during the normal business
hours as determined by the Landlord from time
to time (and being, at the date of this lease,
8:00 a.m. to 6:00 p.m. Monday to Friday except
on legal or statutory holidays);
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(b) electrical power for lighting and office
equipment;
(c) replacement of tubes and ballasts;
(d) janitorial services;
8.4 Services to Building. The Landlord shall provide for the Tenant and others
the following services:
(a) elevators;
(b) washroom facilities on each floor of the
Building on which the Premises are located;
(c) heat, ventilation, air conditioning, lighting,
and janitorial service in the appropriate
interior portions of the Common Areas;
(d) snow removal and landscape maintenance for the
appropriate exterior portions of the Common
Areas;
(e) exterior window washing at such intervals as
landlord deems appropriate;
(f) garbage removal; and
(g) janitorial services for the appropriate
interior portions of the Common Areas.
8.5 Additional Services. The Landlord, if it shall from time to time so elect,
shall have the exclusive right, by way of Additional Services, to provide or
have its designated agents or contractors provide any janitorial or cleaning
services to the Premises required by the Tenant which are additional to those
required to be provided by the Landlord under section 8.3, including the
Additional Services which the Landlord agrees to provide by arrangement and to
supervise the moving of furniture or equipment of the Tenant and the making of
repairs or alterations conducted within the Premises, and to supervise or make
deliveries to the Premises. The cost of Additional Services (including the
Landlord's administration fee) provided to the Tenant, whether the Landlord
shall be obligated hereunder or shall elect to provide them as Additional
Services, shall be paid to the Landlord by the Tenant from time to time promptly
upon receipt of invoices therefor from the Landlord. The cost of Additional
Services charged directly to the Tenant and other tenants shall be credited in
computing Operating Costs and Taxes to the extent that they would otherwise have
been included.
8.6 Extra Operating Costs. Upon request by the Tenant, the Landlord may agree
from time to time to arrange for extra
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heating, ventilating and air conditioning supply, electrical supply or for the
supply of other services to the Premises above those normally provided to
tenants of the Building or outside of normal business hours. The Tenant will pay
to the Landlord in the manner in which Operating Costs and Taxes are paid from
time to time hereunder any and all additional costs and expenses of the Landlord
which may arise in respect of the use by the Tenant of the Premises for business
hours that do not coincide with normal business hours for the Building generally
or that may arise in respect of extra heating, ventilating and air conditioning
supply, electrical supply and other services which are arranged to be provided
to the Tenant as a result of its activities over and above those normally
provided to the tenants of the Building or outside of normal business hours,
plus an administration fee equal to fifteen percent (15%) of each component
thereof. The Landlord reserves the right to install at the Tenant's expense
meters to check the Tenant's consumption of electricity, water or other
utilities.
8.7 Maintenance and Repair. The Landlord shall maintain and repair the
following:
(a) the Building and its basic systems but not the
Premises or the premises of other tenants;
(b) the structural elements of the Premises; and
(c) the Common Areas, the Common Service Areas and the Parking
Facility, if any, except where such maintenance and repair is
required due to the negligence of the Tenant or those for whom
the Tenant is in law responsible, in which circumstances the
Tenant shall be liable for the cost of such maintenance and
repair.
8.8 Access by Landlord. The Landlord may enter the Premises in order:
(a) to perform its obligations hereunder;
(b) to install, maintain and repair equipment
within or about the Premises for the supply of
services to other premises in the Building;
(c) to make repairs or alterations to the Building;
(d) to take such steps as the Landlord may deem
necessary for the safety or preservation of the
Project; and
(e) to inspect the state of repair of the Premises.
Prior to the exercise of this right the Landlord whenever
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possible shall consult with the Tenant in order to minimize inconvenience to the
Tenant and in its exercise of this right, shall observe the security
requirements of the Tenant.
8.9 Interruption of Services. Landlord shall have no responsibility or liability
to Tenant, nor shall there be any abatement for rent for any failure to supply
any of said services and facilities that Landlord has agreed to supply hereunder
during such period as such services and facilities are out of order, undergoing
repair or if prevented by labor disorders, strikes, accidents or other causes
beyond Landlord's control. If Landlord, in its sole discretion, deems it
advisable or convenient to interrupt any of said services to make repairs,
alterations or improvements or because of labor disturbances, strikes, accidents
or causes beyond Landlord's control, Landlord may, after prior written notice to
Tenant, do so for the period that Landlord deems expedient and advisable without
any abatement in rent or other liability to Tenant.
ARTICLE IX
MAINTENANCE, REPAIR AND IMPROVEMENTS BY TENANT
9.1 Maintenance of Premises. The Tenant shall maintain and repair the Premises
and the Leasehold Improvements.
9.2 Leasehold Improvements. The Tenant may make Leasehold Improvements provided
that:
(a) the Tenant shall furnish the Landlord with
professionally prepared plans and
specifications therefor;
(b) Such plans and specifications shall be approved
by the Landlord and, at its election, any
Expert;
(c) the Tenant shall advise the Landlord of the
identity of its contractors and tradesmen and
their respective labor affiliations;
(d) the Landlord shall either (i) approve any
contractors proposed by the Tenant to perform
any work which may affect the structure, the
walls or the systems of the Building or (ii)
require that any such work be performed by
either the Landlord or its contractors in which
case the Tenant shall pay the Landlord's Cost
on account thereof; the Landlord may refuse to
allow the contractors and tradesmen of the
Tenant access to the Building if their labor
affiliations may conflict with those of the
Landlord or those employed by it or if they are
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not competent;
(e) the Tenant shall produce evidence satisfactory to the Landlord
as to the existence of all necessary permits and sufficient
insurance coverage; including, but not limited to, Waivers of
Liens filed on behalf of the Landlord;
(f) the Tenant shall pay the Landlord's Cost on account of the
fees of any Expert appointed to review the plans and
specifications, whether or not the work proceeds;
(g) construction of the Leasehold Improvements
shall be performed in accordance with the plans
and specifications submitted to the Landlord
and, where applicable, approved by the
Landlord, subject to any conditions or
regulations imposed by the Landlord and in a
good and workmanlike and expeditious manner
using good quality materials;
(h) the Landlord may inspect construction as it proceeds (the onus
being on the Tenant to advise the Landlord whenever any phase
has been completed so that an inspection can be made); and
(i) if the Tenant fails to observe any of the requirements of this
section the Landlord may require that construction stop and
that the Premises be restored to their prior condition failing
which the Landlord may do so and the Tenant shall pay the
Landlord's Cost on account thereof.
Upon installation of any Leasehold Improvements, such Leasehold Improvements
shall become the property of the Landlord and shall not be removed by the Tenant
except as hereinafter provided.
9.3 Liens. If any lien under applicable mechanics lien statutes of the
Commonwealth of Pennsylvania, as amended from time to time, or any successor
statute is registered against the title to the Building and such lien relates to
material, labor or any service alleged to have been provided to the Tenant, the
Tenant shall upon Notice by the Landlord cause such lien to be discharged within
5 days after such Notice has been given. If the Tenant shall fail to cause any
such lien to be discharged, as aforesaid, then in addition to any other rights
or remedy of the Landlord, the Landlord may (but shall not be so obligated)
discharge same by paying the amount claimed to be due into Court or directly to
any such lien
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claimant and the amount so paid by the Landlord and all costs and expenses,
including reasonable Attorneys' fees, incurred for the discharge of such lien
shall be due and payable by the Tenant to the Landlord as Rent upon receipt of
the Landlord's invoice for same.
9.4 Removal of Leasehold Improvements - Term. The Tenant may remove Leasehold
Improvements either upon the exercise of its rights under, and upon the terms
of, section 9.2 or with the approval of the Landlord which may be withheld in
its discretion.
9.5 Removal of Leasehold Improvements - Expiration of Term. The Landlord may
upon not less than 30 days' Notice (except in the case of default and re-entry
in which case no prior Notice need be given) require the Tenant before the
Expiration of the Term to remove some or all Leasehold Improvements and to
restore the Premises to their original condition, the cost of which shall be
borne exclusively by the Tenant. Upon the Expiration of the Term, all Leasehold
Improvements (including carpeting and light fixtures) and all personal property
of the Tenant remaining in the Premises shall become the property of the
Landlord.
ARTICLE X
TRANSFERS BY TENANT
10.1 Successors to Tenant. This lease shall inure to the benefit of and be
binding upon the executors, administrators, successors and assigns of the
Tenant, subject to the limitations of this Article.
10.2 Licenses, Franchises and Concessions. The Tenant shall not suffer or permit
any part of the Premises to be used or occupied by any persons other than the
Tenant, any subtenants permitted under section 10.3 and the employees of the
Tenant and any such permitted subtenant, or suffer or permit any part of the
Premises to be used or occupied by any licensee, franchisee or concessionaire,
or suffer or permit any persons to be upon the Premises other than the Tenant,
such permitted subtenants and their respective employees, customers and others
having lawful business with them.
10.3 Assignment or Subletting. The Tenant may assign this lease or sublet the
Premises in whole or in part provided that:
(a) the Tenant shall by Notice first offer to surrender this lease
in respect of the whole or the part of the Premises (the
"Subject Area") which the Tenant wishes to assign or sublet.
Such offer shall be made not less than 60 days prior to the
date on which the Tenant proposes
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that the surrender be effective. The Landlord
shall have a period of 15 days after any such
offer is made to accept or to decline by
Notice;
(b) if the Landlord accepts the offer of the Tenant
to surrender the whole or any part of the
Premises pursuant to subsection (a) of this
section, the Tenant shall do so upon the date
specified in its Notice. If part of the
Premises is to be surrendered, the Rent
attributable by the Landlord thereto shall be
apportioned by the Landlord and paid to the
date of surrender and the Rent for the
remainder of the Premises shall thereafter
abate and become adjusted in accordance with
such attribution. The Landlord shall perform
all work required to separate the surrendered
part from the remainder and to make such part
capable of separate use and the Tenant shall
pay the Landlord's Cost on account thereof.
The provisions of section 9.5 shall apply to
the surrendered part of the Premises;
(c) if the Landlord declines such offer or does not respond within
the aforesaid period, the Tenant may within the next 180 day
period either assign this lease or sublet the Subject Area
provided that:
(i) the Tenant shall have received a bona fide
written offer;
(ii) the Tenant shall have provided to the Landlord a true
copy of such offer and adequate information to enable
the Landlord to assess the credit worthiness,
reputation and business of the proposed assignee or
subtenant;
(iii) the Tenant shall have obtained the approval of
the Landlord to such assignment or sublease
(which may be withheld in its discretion and
for any reason);
(iv) the Tenant shall assign or sublet, as the case
may be, only upon the terms of the offer
provided to the Landlord; and
(v) the proposed subtenant or assignee shall have agreed with the
Landlord to observe and perform all the obligations of the
Tenant under this lease with respect to the Premises or the
Subject Area;
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(d) if within the aforesaid 180 day period the Tenant has not
assigned this lease or sublet the Subject Area, the provisions
of subsection (a) of this section shall again apply; and
(e) the Tenant shall pay the Landlord's Cost on account of any
request for approval and, if applicable, the preparation of
the implementing documentation, in such form as may be
acceptable to the Landlord;
(f) Notwithstanding any assignment or subletting, the Tenant shall
remain jointly and severally liable on this lease and shall
not be relieved from performing any of the terms, covenants
and conditions of this lease.
10.4 Change in Control. Any change in the effective control of the Tenant
(including, without limitation, changes in the shareholders, directors, partners
or officers of the Tenant) shall be deemed to be an assignment of the Premises
to which the provisions of Section 10.3 shall apply. The Tenant shall provide to
the Landlord the information described in Section 10.3(c)(ii) with respect to
the person or persons to whom control is passing.
10.5 Advertising of Premises. The Tenant shall not advertise or allow the
Premises to be advertised as being available for lease without the approval by
the Landlord of the form and content of such advertisement which shall not
mention any financial terms.
ARTICLE XI
TRANSFER BY LANDLORD, SUBORDINATION AND ATTORNMENT
11.1 Transfer by Landlord. This lease shall enure to the benefit of and be
binding upon the successors and assigns of the Landlord. If the Landlord
transfers or leases the Building, or any part thereof, and to the extent that
the transferee or lessee becomes liable to perform the obligations of the
Landlord hereunder, the Landlord shall thereupon no longer be liable.
11.2 Subordination and Attornment. The Tenant shall upon Notice:
(a) subordinate this lease to any mortgage of the
Building or the Land to the intent that this
lease and all the interest of the Tenant in the
Premises shall be subject thereto as fully as
if such mortgage had been executed and
registered and the money thereby secured had
been advanced before the execution and delivery
of this lease; and
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(b) agree to attorn to any mortgagee under such
mortgage;
11.3 Estoppel Certificates. The Tenant shall certify in writing to the Landlord
or as it may direct that this lease is unmodified and in full force and effect
(or if modified, stating the modifications and that this lease is in full force
and effect as modified), the dates to which Rent has been paid, whether or not
there is any existing default on the part of the Landlord of which the Tenant
has notice and any other requested information pertaining to the performance by
the Landlord and the Tenant of their respective obligations hereunder. The
Tenant shall provide such statement within Ten (10) days after written Notice
from the Landlord requesting same. Any such statement may be conclusively relied
upon by any purchaser or mortgagee of the Building or Land.
ARTICLE XII
TERMINATION AND RENT ABATEMENT
12.1 Termination by Tenant. If the Premises or any other part of the Building,
the Parking Facility, if any, the Common Areas or the Common Service Areas are
damaged and the Landlord is thereby unable to fulfil its obligations to the
Tenant and if in the opinion of an Expert, which opinion shall be given not more
than 45 days after the date of such damage, the damage cannot be repaired within
a 180 day period (employing normal construction methods without overtime or
other premium unless the Landlord otherwise instructs the Expert) then the
Tenant may by Notice given not more than 15 days after receipt by the Tenant of
the opinion of the Expert (whose fee shall be payable by the Tenant) terminate
this lease with effect as of the date on which such Notice is given.
12.2 Termination by Landlord. If any part of the Building, the Parking Facility,
if any, the Common Areas or the Common Service Areas is damaged and the Landlord
is thereby unable to fulfil its obligations to the Tenant or to any other tenant
of the Project and if in the opinion of an Expert, which opinion shall be given
not more than 45 days after the date of the damage, the damage cannot be
repaired within a 180 day period (employing normal construction methods without
overtime or other premium), then the Landlord may by Notice given not more than
15 days after receipt by the Landlord of the opinion of the Expert, terminate
this lease with effect either (i) as of the date on which such Notice is given,
if the Premises have been materially damaged, or (ii) if the Premises have not
been so damaged, then as of the date stipulated by the Landlord in its Notice,
which shall be not less than 60 days after the date on which it is given.
12.3 Abatement of Rent. If the Premises are damaged to the extent that they are
incapable, notwithstanding a reasonable
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amount of inconvenience to the Tenant, of being used by the Tenant for their
intended purpose and if the damage has not been caused by any act or omission of
either the Tenant or those for whom it is responsible, Rent shall abate with
effect as of the date of the damage in proportion to the area of the Premises so
damaged until either:
(a) the Landlord and the Tenant, each acting
diligently, have completed their respective
obligations to repair; or
(b) the first to occur of (i) the date the proceeds
of any loss of rental income insurance
attributable to the damage are no longer
available for application on account of the
abatement of the Rent payable under this lease
and the rent payable under any other leases of
premises in the Building affected by the same
event of damage or (ii) the period of time
during which such proceeds would have been
available if the Landlord had performed its
obligation to maintain the coverage described
in part (c)(ii) of the definition of Insurance
has expired.
ARTICLE XIII
LANDLORD'S REMEDIES
13.1 Default and Re-Entry. If (i) the Tenant shall fail to make any payment of
Rent as and when same is due to be paid hereunder and such failure to pay shall
continue for five (5) days or (ii) the Tenant fails to observe or perform any of
its other obligations hereunder after Notice specifying the default and a period
to cure has been given, then the Tenant shall be deemed to be in default and the
Landlord may at any time thereafter re-enter the Premises and terminate this
lease. In the event that rent is not paid by the 5th day of the month, a two
hundred ($200.00) dollar late charge shall apply.
Notwithstanding anything contained in this lease to the contrary, in the event
the Tenant fails to pay any item of Rent when same is due to be paid hereunder
or fails to perform any other obligations hereunder, more than twice in any
twelve (12) month period, then there shall be no obligation on the part of the
Landlord to give the Tenant written Notice and the Landlord shall be entitled to
proceed without notice in accordance with the Landlord's rights pursuant to
Article XIII hereof.
13.2 Re-letting and Sale of Personalty. Whenever the Landlord becomes entitled
to re-enter upon the Premises under any provision of this lease the Landlord in
addition to all
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other rights it may have, shall have the right, but shall not be obligated, as
agent of the Tenant to enter the Premises and re-let them (for a term or terms
shorter or longer than the balance of the Term, granting reasonable concessions
in connection therewith) and to receive the Rent therefor and as the agent of
the Tenant to take possession of any furniture or other property thereon and to
sell the same at public or private sale without Notice and to apply the proceeds
thereof and any Rent derived from re-letting the Premises upon account of the
Rent due and to become due under this lease and the Tenant shall be liable to
the Landlord for the deficiency, if any.
13.3 Right of Landlord to Remedy. If the Tenant defaults hereunder, the Landlord
may proceed to remedy the default, including the making of any payments due or
alleged to be due by the Tenant to third parties, and the Tenant shall pay on
demand the Landlord's cost, plus interest on account thereof, all without
prejudice to the Landlord's rights and remedies for such default by the Tenant.
13.4 Bankruptcy of Tenant. If a substantial portion of the property of the
Tenant on the Premises is seized or taken in execution or attachment by a
creditor of the Tenant or if the Tenant makes an assignment for the benefit of
creditors or if a receiver-manager is appointed to control the conduct of the
business on or from the Premises or if the Tenant becomes bankrupt or insolvent
or takes the benefit of any act now or hereafter in force for bankrupt or
insolvent debtors or if an order is made for the winding-up of the Tenant, the
next ensuing 3 months' rent immediately will become due and payable as
accelerated rent and the Landlord may re-enter and take possession of the
Premises as if the Tenant were holding over and this lease shall forthwith be
terminated upon Notice by the Landlord to this effect. Accelerated rent will be
recoverable by the Landlord in the same manner as the Rent hereby reserved.
13.5 Interest. The Tenant shall pay to the Landlord interest at a rate equal to
Prime plus 5% per annum on all arrears of Rent and on any payment made by
Landlord for the benefit or on behalf of Tenant.
13.6 Costs. If legal action is brought by Landlord by reason of any default by
Tenant hereunder and a default is established, the Tenant shall pay all costs
incurred therefor, including reasonable attorney fees. The Tenant shall also be
responsible for, and shall pay to the Landlord, including, without limitation
reasonable compensation for all time expended by the Landlord's own personnel,
reasonable attorney fees and all other costs of any kind whatsoever arising from
or incurred as a result of any default of the Tenant or any enforcement by the
Landlord of any of the Tenant's obligations under this lease or any other
agreement or obligation of the
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Tenant to the Landlord whether or not related to the Premises. The Tenant agrees
that if the Tenant remains in default under this lease after receiving Notice as
required pursuant to this lease the Landlord shall be entitled to receive from
the Tenant and the Tenant shall pay a minimum administration fee of not less
than Fifty Dollars ($50.00) per day to the Landlord which the Tenant
acknowledges as being reasonable compensation for time expended by the
Landlord's personnel in enforcing any of the Landlord's rights pursuant to this
lease after the giving of such Notice, it being clearly understood that the
payment or demand for such agreed reasonable compensation shall not be in lieu
of and shall be in addition to any other fees, costs, compensations due to the
Landlord as a result of the Tenant's default pursuant to this lease or pursuant
to law or any order of court.
13.7 Confession of Judgment for Rent. Tenant hereby authorizes and empowers any
prothonotary or attorney of any court of record (the "Attorney") to appear for
Tenant in any actions which may be brought for any Rent due hereunder including
accelerated Rent and any other sums which may become due and payable hereunder
for the balance of the Term and therein confess Judgement against Tenant for all
or any part of the Rent and any other sums due hereunder: and for interest and
costs, together with an attorney's commission of ten percent (10%) or $20,000.00
whichever is greater.
13.8 Confession of Judgment for Possession. Tenant hereby authorizes and
empowers any prothonotary or attorney to appear for Tenant in any action brought
for possession hereunder and therein confess judgment in ejectment in any
competent court against Tenant and all persons claiming under Tenant for the
recovery by Landlord of possession of the Premises, for which a copy of this
lease shall, verified by an affidavit, be a sufficient warrant. Thereafter, if
Landlord so desires, a writ of execution or of possession may issue forthwith,
without any prior writ or proceedings whatsoever. Such authority shall not be
exhausted by one exercise thereof and if such action shall thereafter, for any
reason, be terminated and possession of the Premises remain in or be restored to
Tenant, Landlord may, upon any subsequent default by Tenant, confess judgment in
ejectment to recover possession of the Premises, and the termination for any
reason of any such prior actions shall not prevent, hinder or prejudice the
right and power of Landlord to bring subsequent actions as set forth in this
paragraph. If such action is commenced, Landlord shall be entilteled to a
judgement for Attorney's commission of ten percent (10%) of rents due or
$20,000.00, whichever is greater.
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ARTICLE XIV
REGULATIONS
14.1 Purpose. The Landlord may by Notice impose regulations, from time to time,
for the orderly operation of the Building, the Common Areas and the Parking
Facility, if any, the present regulations are attached hereto as Schedule "C" to
this lease.
14.2 Observance. The Tenant shall observe and shall cause those for whom it is
responsible to observe the regulations.
14.3 Enforcement. The Landlord shall enforce the regulations against all
occupants of the Building but in doing so will not be obligated to commence any
legal proceedings or be held liable for any claims by the Tenant or other
tenants arising out of the failure of the Landlord to commence legal proceedings
for any breach of regulations.
ARTICLE XV
MISCELLANEOUS
15.1 Exhibiting Premises. The Landlord may exhibit the Premises to prospective
purchasers, prospective mortgagees and, during the last 6 months of the Term,
prospective tenants.
15.2 Name of Building. The Landlord may designate the name of the Building and
the Project and upon not less than 30 days' Notice may change the name of either
the Building or the Project. The Tenant shall only refer to the Building and the
Project by their designated names and shall only use such names as its business
address.
15.3 Relocation. The Landlord and Tenant agreed that at any time during the Term
and any renewal thereof, the Landlord shall have the right, upon providing the
Tenant at least thirty (30) days' prior written Notice, to relocate the Tenant
to other premises within the Building of approximately the same size, quality
and interior design as the Premises provided, however, that the Tenant shall
have the right to approve such new space, which approval shall not be
unreasonably withheld. The Tenant shall give written Notice to the Landlord of
its approval or disapproval of such new space within ten (10) days of the
receipt of the Landlord's notice requesting the Tenant to relocate. The Landlord
shall pay the Tenant's direct moving costs only provided the Tenant shall
provide the Landlord with reasonable evidence of such costs. The relocation
shall be effective on the date stated in the Landlord's notice and the Tenant
shall complete its move in one (1) weekend. In the event the Landlord relocates
the Tenant to such new space, this lease and each and all of its terms,
covenants and conditions shall remain in full force and effect and be deemed
applicable to such new space save and except:
(i) the Right of First Refusal, if any, if the new
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space is located on a different floor than the
original Premises; and
(ii) the location and size of the Premises which
shall be in accordance with the appropriate
floor plan.
Upon the relocation taking place, the Fixed Rent per square foot for the new
space shall be the same Fixed Rent per square foot as for the Premises and the
lease will be amended accordingly. If the Tenant reasonably refuses to approve
such new space, the Landlord shall have the right to terminate this lease by
written Notice given to the Tenant within ten (10) days following the Landlord's
receipt of the Tenant's Notice disapproving such new space, which termination
shall be effective sixty (60) days after the date of the original Notice.
15.4 Notice. Any Notice to be given pursuant to this lease shall be in writing
and shall be deemed to have been given if signed by or on behalf of the party
giving Notice and delivered or mailed by registered prepaid post to the other
party as follows:
(a) to the Landlord at:
1740 Walton Road
Att: Michael Barrist
Blue Bell, PA 19422
with copy to:
Mr.Joshua Gindin, Esq.
1700 Two Logan Square
18th and Arch Streets
Philadelphia, Pa 19103
and
(b) to the Tenant at
NCO Financial System, Inc
1740 Walton Road
Blue Bell, Pa 19422
Any Notice so given shall be deemed to have been given, if delivered, on the
first business day following the date of such delivery or, if mailed, on the
third business day following the date of such mailing. Either party may by
Notice change its address. During any interruption, threatened interruption or
substantial delay in postal services, all Notices shall be delivered.
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15.5 Compliance with Laws, etc. The Landlord and the Tenant shall at all times
in the performance of their respective obligations under this lease comply with
all laws, by-laws, regulations and orders of any competent authority and with
the requirements of any insurer of the interest of the Landlord in the Project.
15.6 Governing Law and Severability. This lease shall be governed by and
construed in accordance with the laws in force in the State in which the Project
is located. The Landlord and the Tenant agree that all of the provisions of this
lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate section
hereof. Should any provision or provisions of this lease be illegal or not
enforceable, it or they shall be considered separate and severable from the
lease and its remaining provisions shall remain in force and be binding upon the
parties hereto as though the said provision or provisions had never been
included.
15.7 Recordation. The Tenant may record this Lease with the prior written
approval of the Landlord, which approval the Landlord may withhold in its
discretion. If the Landlord provides such approval, the Tenant shall not record
this Lease but shall prepare and have executed by the parties hereto a short
form of lease approved by the Landlord for the purpose only of enabling notice
of this Lease to be recorded without affecting the respective rights and
obligations of the parties hereunder. The Tenant shall pay the Landlord's Cost
incurred in connection with such recordation and, for greater certainty, shall
pay the cost of any necessary survey plan of the Premises.
15.8 Condemnation. If at any time during the Term the interest of the Tenant
under this lease or the whole or any part of either the Premises or any other
part of the Building shall be taken by any lawful power or authority by the
right of condemnation or eminent domain, the Landlord may at its option, give
Notice to the Tenant terminating this lease on the date when the Tenant or
Landlord is required to yield up possession thereof to the condemning authority.
Upon such termination, or upon termination by operation of law, as the case may
be, the Tenant shall immediately surrender the Premises and all its interest
therein, the Rent shall abate and be apportioned to the date of termination, the
Tenant shall forthwith pay to the Landlord the apportioned Rent, all other
amounts which may be due to the Landlord up to the date of termination, and the
provisions of section 2.4 shall apply. The Tenant shall have no claim upon the
Landlord for the value of its property or the unexpired Term of this lease, but
the parties shall each be entitled to separately advance their claims for
compensation for the loss of their respective interests in the Premises and the
parties shall each be entitled to receive and retain such compensation as may be
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awarded to each respectively. If an award of compensation made to the Landlord
specifically includes an award for the Tenant, the Landlord will account
therefor to the Tenant. In this Section the word "condemnation" shall include a
sale by the Landlord to an authority with powers of condemnation, in lieu of or
under threat of condemnation.
15.9 Hazardous Substances; Wastes.
(a) Tenant will not, and will not permit any other occupant of the
Premises to store, generate, treat or dispose any Hazardous Substances or Wastes
on or about the Premises or the Building, and hereunder shall promptly cure any
such condition. Tenant's obligations hereunder shall serve the expiration or
sooner termination of this Lease;
(b) Tenant hereby represents and warrants that Tenant has not been
identified in any litigation, proceeding or investigation as a responsible party
or potentially responsible party for any liability for disposal or release of
any Hazardous Substances or Wastes; and
(c) For the purposes hereof: (i) "Hazardous Substances" shall mean any
flammable explosives, radioactive materials, asbestos, unreaformaldehyde,
hazardous wastes, toxic substances or any other elements or compounds designated
as a "hazardous substance", "pollutant" or "contaminant" in the
CComprehensiveEnvironmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9600 et. seg or in the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6991 et. seg. or any other applicable Federal, state or local law or
regulation and (ii) "Wastes" shall mean any hazardous wastes, residual wastes,
solid wastes or other wastes as those terms are defined in the applicable
Federal, state or local laws or regulations.
15.10 Rider. The Rider attached hereto as Schedule "D" forms a part of this
Lease.
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<PAGE>
IN WITNESS WHEREOF the Landlord and the Tenant have executed this
lease under their respective seals.
Dated ________________________________________________, 199__.
1710-20 Sentry East Associates, L.P.
by: /s/ Michael J. Barrist
-------------------------------------
__________________________ Michael J. Barrist, President
Attest 1710-20 Sentry East Inc. The
General Partner
"LANDLORD"
by: /s/ Michael J. Barrist, President
-------------------------------------
__________________________
Attest "TENANT"
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<PAGE>
Schedule "A"
Legal Description
Unit 1710-1720 in Sentry Park East Condominium together with an undivided 40.440
percent interest in and to the common elements of the Condominium as described
in that certain Declaration of Condominium of Sentry Park East Condominium dated
June 30, 1993 as recorded in Deed Book 5046, page 2030,
Montgomery County, Pennsylvania.
<PAGE>
SCHEDULE "C"
REGULATIONS
Pursuant to Section 14.1 the Landlord hereby imposes the following regulations:
1. Deliveries of building materials, major pieces of equipment and
furniture and bulky goods shall only be made by prior arrangement with
the Building management and through the Delivery Facilities.
2. The Tenant shall only use the Building key system and shall obtain all
keys and cards providing access to the Building, the Parking Facility,
if any and the Premises from the Landlord. No additional locks shall be
installed on the doors to the Premises.
3. No bicycles or other vehicles shall be brought into the Building.
4. No inflammable oils or other dangerous materials shall be kept in the
Building.
5. The Common Areas shall not be obstructed.
6. The Tenant shall provide the Landlord with the names of all persons
entitled to enter the Premises outside normal business hours. The
Landlord shall only be required to allow access to the Premises by such
persons.
7. The Tenant shall not install any power or water consuming machinery and
equipment, except normal office equipment, without the approval of the
Landlord and, if required by the Landlord, shall connect such machinery
and equipment to separate meters.
8. If required by the Landlord, the Tenant shall arrange for pest control.
9. The Tenant shall not remove or alter the Building standard window
coverings or except with the approval of the Landlord install any
additional window coverings.
10. The Tenant shall keep all window blinds down so as to prevent direct
sunlight from penetrating the Premises.
11. The Landlord may restrict canvassing or peddling in the Building.
12. The Tenant shall maintain with the Landlord current lists of the names
and license plate numbers of each employee using the Parking Facility,
if any and shall cause its employees to affix to their automobiles
whatever manner of identification the Landlord may require.
<PAGE>
13. The Tenant shall observe the directions of the Landlord as to parking
locations in the Parking Facility, if any according to automobile size.
14. The Tenant shall leave the Premises in a condition suitable for the
performance by the Landlord of its janitorial services.
<PAGE>
1710-20 SENTRY EAST ASSOCIATES L.P.
AND
NCO Financial System, Inc
OFFICE PREMISES LEASE
<PAGE>
TABLE OF CONTENTS
1. INTERPRETATION
1.1 Defined Terms - General
1.2 Defined Terms - Operating Costs and Taxes
1.3 Number, Gender and Joint and Several Liability
1.4 Procedure for Approval
1.5 Divisions
1.6 Entire Agreement
1.7 Reasonableness
1.8 Nature of the Lease
2. DEMISE AND TERM
2.1 Demise-Premises
2.2 Licenses
2.3 Term
2.4 Surrender on Termination
2.5 Holding Over
3. RENT
3.1 Items of Rent
3.2 General
3.3 Final Determination of Certain Items of Rent
3.4 Insufficient Funds
3.5 Deposit
4. USE OF PREMISES
4.1 Use
4.2 Waste and Nuisance
4.3 Extraordinary Equipment
4.4 Fire Prevention and Energy Conservation
4.5 Exterior Appearance of Premises
5. LIMITATION OF LIABILITIES
5.1 Unavoidable Delay
5.2 Limitation of Landlord's Liability
5.3 Indemnity
6. TAXES
6.1 Landlord's Taxes
6.2 Tenant's Taxes
6.3 Assessment Appeals
7. INSURANCE
7.1 Landlord's Insurance
7.2 Tenant's Insurance
8. OPERATION, SERVICES, MAINTENANCE, REPAIR AND ACCESS BY
LANDLORD
8.1 Quiet Enjoyment
8.2 Standard of Operation
8.3 Services to Premises
8.4 Services to Building
8.5 Additional Services
<PAGE>
8.6 Extra Operating Costs
8.7 Maintenance and Repair
8.8 Access by Landlord
9. MAINTENANCE, REPAIR AND IMPROVEMENTS BY TENANT
9.1 Maintenance of Premises
9.2 Leasehold Improvements
9.3 Liens
9.4 Removal of Leasehold Improvements - Term
9.5 Removal of Leasehold Improvements - Expiration of
Term
10. TRANSFERS BY TENANT
10.1 Successors to Tenant
10.2 Licenses, Franchises and Concessions
10.3 Assignment or Subletting
10.4 Change in Control
10.5 Advertising of Premises
11. TRANSFER BY LANDLORD, SUBORDINATION AND ATTORNMENT
11.1 Transfer by Landlord
11.2 Subordination and Attornment
11.3 Estoppel Certificates
12. TERMINATION AND RENT ABATEMENT
12.1 Termination by Tenant
12.2 Termination by Landlord
12.3 Abatement of Rent
13. LANDLORD'S REMEDIES
13.1 Default and Re-Entry
13.2 Re-letting and Sale of Personalty
13.3 Right of Landlord to Remedy
13.4 Bankruptcy of Tenant
13.5 Interest
13.6 Costs
13.7 Confession of Judgment for Rent
13.8 Confession of Judgment for Possession
14. REGULATIONS
14.1 Purpose
14.2 Observance
14.3 Enforcement
15. MISCELLANEOUS
15.1 Exhibiting Premises
15.2 Name of Building
15.3 Relocation
15.4 Notice
15.5 Compliance with Laws, etc
15.6 Governing Law and Severability
15.7 Recordation
15.8 Condemnation
15.9 Rider
Schedule "A" Legal Description
Schedule "B" Floor Plan
Schedule "C" Regulations
<PAGE>
THIS LEASE MADE in duplicate this _____ day of_______________, 199____
1710-20 SENTRY EAST ASSOCIATES, L.P.
(the "Landlord")
of the FIRST PART,
- and -
NCO Financial System, Inc.
(the "Tenant")
of the SECOND PART,
WHEREBY the parties agree as follows:
<PAGE>
ARTICLE I
INTERPRETATION
1.1 Defined Terms - General. In this lease:
"Building" means that certain building known as 1710 Walton Road, Blue Bell, Pa.
19422 located on the Land.
"Common Areas" means those parts of the Project designated by the Landlord for
common use by the Landlord and the tenants of the Project, including without
limitation, the landscaped portions of the Project, the public sidewalks and the
landscaped portions of the streets adjacent to the Project, the Delivery
Facilities, and Parking Facilities, if any.
"Common Service Areas" means those parts of the Project, whether or not within
the Building, designated by the Landlord which provide services to the Project;
"Cost of Utilities" means the cost of electricity and other utilities supplied
to tenants of premises in the Building as determined by the Landlord who in
making its determination shall take into account the readings of any electrical
check meters installed by the Tenant;
"Delivery Facilities" means those portions of the Project designated by the
Landlord as facilities for common use by the Landlord and tenants of the Project
for deliveries;
"Expert" means any architect, engineer, land surveyor, chartered accountant, or
other professional consultant, as the case may be, appointed by the Landlord and
qualified in the opinion of the Landlord to perform the particular function;
"Expiration of the Term" means the termination of this lease by either passage
of time or operation of any of its provisions;
"Fixed Rent" means the amount payable under section 3.1(a);
"Insurance" means coverage with respect to the following risks in amounts equal,
in the case of the Landlord, to those maintained by prudent owners of like
buildings and, in the case of the Tenant, to those maintained by prudent tenants
of like premises:
(a) comprehensive general liability;
(b) all risks coverage;
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<PAGE>
(c) in the case of the Landlord:
(i) boiler and machinery; and
(ii) loss of rental income by reason of damage; and
(d) in the case of the Tenant, comprehensive
general liability;
and in the case of the Landlord, such other coverage as the Landlord may require
to maintain and in the case of the Tenant, such other coverage as the Landlord
may require, in each case having regard to the risks which are customarily
insured against by prudent landlords and tenants of like premises;
"Landlord's Cost" means with respect to any cost incurred by the Landlord the
actual amount thereof and a fee on account of management and overhead, said fee
to be equal to the amount the Landlord might reasonably pay to a third party for
the administration and management of the Building.
"Leasehold Improvements" means the fixtures and improvements made by or on
behalf of the Tenant in the Premises;
"Notice" has the meaning set forth in section 15.4;
"Parking Facility", if any, means those portions of the Project designated by
the Landlord for parking;
"Premises" means the portion of the Building, excluding its exterior, outlined
in red on the floor plan attached to, and forming part of, this lease, currently
known as suite 1720.
"Prime" means the rate of interest from time to time announced by Mellon Bank,
N.A. as its prime rate;
"Project" means the improvements constructed on the Land including the Building,
the Common Areas (whether on or adjacent to the Land), the Parking Facility, if
any, and any other building;
"Land" means the land as described in Schedule "A" attached hereto.
"Rent" means the amounts payable by the Tenant to the Landlord under this lease;
"Term" means the term of this lease as specified in section 2.3 and any
permitted overholding; and
"Unavoidable Delay" means any event, beyond the control of the party affected
thereby which prevents the fulfillment by such party of any obligation hereunder
and not caused by such
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<PAGE>
party and not avoidable by the exercise of reasonable effort or foresight by
such party.
1.2 Defined Terms - Operating Costs and Taxes. For the purpose of calculating
the Proportionate Share of Operating Costs and Taxes:
"Fiscal Year" means a calendar year provided that the Landlord may by Notice
specify an annual date upon which each subsequent Fiscal Year is to begin, in
which event the Fiscal Year which would otherwise be current when such annual
date first occurs thereafter shall terminate on the preceding day;
"Operating Costs and Taxes" means for a Fiscal Year the aggregate costs paid or
payable by the Landlord in accordance with generally accepted accounting
principles applied in the real estate management industry on account of Taxes,
Insurance and the operation, management, maintenance and repair of the Building
and on a proportionate basis as hereinafter provided, the Land, the Common
Areas, the Common Service Areas and those costs associated with Condominium
Association Fees, together with a charge, the annual cost of which for the
purpose of this Lease shall be deemed to be management fees paid by the Landlord
for the administration and management of the Building and the Land, and, if the
Landlord itself manages the Building and the Land, a fee equal to the amount the
Landlord might reasonably pay to a third party for the administration and
management of the Building and the Land. Without limiting the generality of the
foregoing, Operating Costs and Taxes shall also include the cost amortized at
Prime of all capital improvements made after the Building is substantially
completed, which (i) have the effect of reducing the costs which would otherwise
be included in Operating Costs and Taxes, or (ii) are required by any competent
governmental authority. Operating Costs and Taxes shall exclude the following:
(i) costs directly recoverable from tenants or
insurers;
(ii) debt service, depreciation or other costs of a
capital nature and interest on any of the
foregoing, except as hereinafter provided;
(iii) costs of procuring any lease; and
(iv) income, corporate and other taxes of a personal
nature of the Landlord to the extent not
imposed in lieu of Taxes.
The proportion of Operating Costs and Taxes attributable to the Land, Common
Areas and the Common Service Areas shall be allocated equitably by the Landlord
to all buildings forming part of the Project and will be based to the extent
possible
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<PAGE>
on the respective aggregate areas of Rentable Space in the Building and all
other buildings forming part of the Project. If at any time there are unoccupied
premises in the Building, the Landlord may make an equitable adjustment of the
amount of Operating Costs and Taxes by reason of the fact that unoccupied
premises result in lower costs in order that the tenants of the occupied
premises will bear the actual amount of the Operating Costs and Taxes attributed
to their respective premises;
"Taxes" means all taxes and other charges imposed by any lawful authority
against the Land and any improvements thereon or upon the Landlord in respect
thereof and all costs relating to any appeal thereof, and includes (without
limiting the generality of the foregoing) any Rental Taxes;
"Proportionate Share" means the ratio, the numerator of which is the Rentable
Space of the Premises and the denominator of which is the aggregate Rentable
Space of the Building (exclusive of any storage areas);
"Rentable Space" whether in the case of a whole floor of the Building or in the
case of premises comprising part of a floor of the Building shall be determined
by the Landlord's architect or land surveyor according to the American National
Standard for measuring floor area in office buildings as established by the
Builders Owners and Managers Association International and in effect as of the
date of commencement of the Term;
"Rental Taxes" means any tax or duty imposed upon the Landlord which is measured
or based in whole or in part directly upon the Rent payable under this lease or
services provided by the Landlord whether existing at the date hereof imposed by
any governmental authority.
1.3 Number, Gender and Joint and Several Liability. The necessary grammatical
changes required to make the provisions of this lease apply in the plural sense
where the Tenant comprises more than one entity and to corporations,
associations, partnerships or individuals, male or female, shall be assumed as
though in each case fully expressed. If the Tenant is more than one person or
entity its liability shall be joint and several. If the Tenant is a partnership
each person who is or becomes a member of the partnership or any successor
partnership shall be jointly and severally liable.
1.4 Procedure for Approval. Any request for approval shall be requested by
Notice and in the absence of reply given by Notice not later than 15 days after
Notice of the request has been received, or such other period of time as is
otherwise expressly provided in this lease, the approval shall be deemed to have
been given unless the approval may by the terms of
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<PAGE>
this lease be withheld in the discretion of the party whose approval is
requested. Each approval shall be in writing unless by operation of the
preceding sentence it is deemed to have been given. If either party withholds
its approval it shall give Notice of its reason unless the approval may by the
terms of this lease be withheld in its discretion.
1.5 Divisions. All references in this lease to articles, sections and other
subdivisions are to those in this lease.
1.6 Entire Agreement. This lease and the regulations imposed by the Landlord
pursuant to section 14.1 constitute the entire agreement between the Landlord
and the Tenant concerning the subject matter of this lease. This lease may only
be amended by an agreement in writing signed by the parties hereto.
1.7 Reasonableness. The Landlord and the Tenant shall, except as otherwise
expressly provided in this lease, each act reasonably, having regard to the fact
that they are the owner and a tenant, respectively, of a good quality office
building, in the exercise and the enforcement of their respective rights under
this lease. Each right shall be exercisable and enforceable from time to time,
except as aforesaid.
1.8 Nature of the Lease. This lease is a completely net lease to the Landlord
and accordingly, except as otherwise expressly provided in this lease, the
Landlord has no obligations to the Tenant with respect to either the Premises,
the Building, the Common Areas, the Common Service Areas, the Parking Facility,
or if any, the Project.
ARTICLE II
DEMISE AND TERM
2.1 Demise-Premises. The Landlord hereby leases the Premises to the Tenant and
the Tenant hereby leases and accepts the Premises from the Landlord, (being
15,000 square feet of Rentable Space and currently known as suite 1720) to have
and to hold during the Term, subject to the terms of this lease.
2.2 Licenses. The Landlord hereby grants to the Tenant throughout the Term and
subject to control by the Landlord, a non-exclusive license, revocable at any
time upon Notice by the Landlord:
(a) to use those parts of the Common Areas giving
access to the Premises and the Parking
Facility, if any;
(b) to have its name displayed on the main lobby
directory board for the Building, on the floor
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<PAGE>
lobby directory board on each floor on which the Premises are
located and on the main door to the Premises, all such signs
to be under the exclusive control of the Landlord and to
conform to the uniform pattern of identification signs for
tenants of the Building prescribed by the Landlord; and
(c) if the Premises constitute one or more full floors of the
Building, to have a sign displaying the name of the Tenant in
the elevator lobby of each such floor provided that the design
of the sign has been approved by the Landlord.
2.3 Term. The Term shall be ten (10) years beginning January 1, 1996 at 12:00
Midnight and ending the last day of December, 2005 at 5:00 PM.
2.4 Surrender on Termination. Forthwith upon the Expiration of the Term, the
Tenant shall vacate and deliver up possession of the Premises in a broom clean
condition and in good and substantial repair in accordance with the Tenant's
obligation under this lease to repair the Premises, but subject to the Tenant's
rights and obligations in respect of removal in accordance with sections 9.4 and
9.5. At the same time the Tenant shall surrender to the Landlord at the place
then fixed for the payment of Rent all keys and other devices which provide
access to the Premises, the Building or any part thereof and shall inform the
Landlord of all combinations to locks, safes and vaults, if any, in the
Premises.
2.5 Holding Over. If the Tenant shall continue to occupy the Premises at the
expiration of this lease with or without the consent of the Landlord and without
any further written agreement the Tenant shall be a monthly tenant at two
hundred (200%) of the monthly Fixed Rent herein reserved for the last year of
the Term and otherwise on the terms and conditions herein set forth, except as
to the length of tenancy.
ARTICLE III
RENT
3.1 Items of Rent. The tenant shall pay to the Landlord:
(a) Years 1 -5: $217,500.00 per annum in 12 equal
installments of $18,125.00 each based on the rate of $14.50
per square foot of Rentable Space.
Years 6 -10: $232,500.00 per annum in 12 equal
installments of $19,375.00 each based on the rate of
$15.50 per square foot of Rentable Space.
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<PAGE>
(b) the Proportionate Share of Operating Costs and
Taxes;
(c) the Cost of Utilities supplied to the Premises;
(d) the Landlord's Cost on account of the
following:
(i) the replacement of tubes and ballasts in the
Premises;
(ii) the installation and any change of the name of
the Tenant on the main lobby directory board on
which the Tenant has its name and on the main
door to the Premises;
(iii) any additional services and equipment agreed to
be provided by the Landlord at the request of
the Tenant;
(e) the amount, if any, by which the Operating Costs and
Taxes attributed to the Premises by the Landlord
exceeds the Proportionate Share of Operating Costs and
Taxes if such excess is occasioned by the use or
improvement of the Premises.
3.2 General. All amounts payable by the Tenant to the Landlord under this lease
shall be deemed to be Rent. The Tenant shall pay Rent without abatement,
deduction or set-off, except as expressly provided, in lawful money of the
United States to such person and at such address as the Landlord may advise. The
Tenant shall pay items of Rent of a recurring nature in advance on the first day
of each month of the Term and shall pay other items of Rent within 15 days of
the delivery of an invoice therefor. The Landlord shall estimate and may
re-estimate, items of Rent of a recurring and variable nature for each Fiscal
Year and advise the Tenant thereof. If the Commencement Date is not the first
day of a month or if the Expiration of the Term does not occur on the last day
of a month, Rent for the partial month shall be pro-rated on a per diem basis.
3.3 Final Determination of Certain Items of Rent. The Landlord shall within 180
days after the end of each Fiscal Year provide to the Tenant a statement (the
"Statement") setting out in detail the Proportionate Share of Operating Costs
and Taxes and such other items of Rent of a recurring and variable nature for
such Fiscal Year. If the aggregate monthly Installments on account thereof paid
during such Fiscal Year differ from the actual amount thereof set forth in the
Statement, the Tenant shall pay or the Landlord shall refund the difference
within 30 days after the Statement is provided. The Tenant may within the 60 day
period after the Statement is provided examine the books and records of the
Landlord relating to the Project. The Tenant may by Notice given within such 60
day period but not otherwise dispute the Statement whereupon the matter shall be
finally resolved by an Expert. If the Expert determines that the amount payable
by the Tenant has been overstated by more than three percent(3%)
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<PAGE>
the Landlord shall pay the fee of the Expert.
If the Expert determines that the amount payable by the Tenant has not been
overstated by three percent (3%) or more the Tenant shall pay such fee. Any
adjustment required to any previous payment made by the Tenant or the Landlord
by reason of any such determination shall be made forthwith and shall bear
interest at a rate equal to Prime plus one percent (1%) per annum from the date
the actual overpayment or underpayment is made.
3.4 Insufficient Funds. The Tenant agrees that if any of the Tenant's cheques
are returned for lack of sufficient funds, the Tenant shall pay to the Landlord
upon receipt of the Landlord's invoice for same, a minimum administrative fee of
not less than Fifty Dollars ($50.00).
3.5 Deposit. The Landlord acknowledges receipt of the Deposit in the amount of
$00.00 prior to the execution of this lease, which sum shall be deposited in an
account of Landlords choice. The Deposit shall be applied as a security deposit
for the due performance by the Tenant of all the covenants and obligations on
its part herein contained, the Landlord hereby reserving unto itself at its sole
discretion the right to apply such sum to any damages resulting from any default
by the Tenant of any of its covenants and obligations hereunder or towards the
payment or reduction of any claim of the Landlord against the Tenant including
monthly Rent. If the Deposit hereunder shall be applied in accordance with the
provisions hereof, the Tenant covenants to provide sufficient funds to ensure
that the Deposit remains at the level herein before indicated within ten (10)
days of receipt of the Landlord's Notice therefor. Provided the Tenant is not
then in default under the lease and provided that the Tenant has not, in any
way, damaged the Premises, the Landlord shall, within thirty (30) days of the
Tenant's vacating the Premises, return to the Tenant the balance of the security
deposit referred to in section 3.5. Landlord shall be under no obligation to
refund any interest that may have accrued on said deposit.
ARTICLE IV
USE OF PREMISES
4.1 Use. The Premises shall be used for general office purposes only and not for
any other purpose without the prior written consent of the Landlord, which
consent may be withheld at the discretion of the Landlord, the Tenant shall not
permit any part of the Premises to be occupied by any person other than the
Tenant and its employees and any subtenant permitted
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<PAGE>
under section 10.3 and the employees of such subtenant.
4.2 Waste and Nuisance. The Tenant shall not commit or permit any waste or
damage to the Premises or any manner of use causing annoyance to other tenants
of the Project.
4.3 Extraordinary Equipment. The Tenant shall not install any equipment which
might affect the capacity of either the structure or the basic systems of the
Building.
4.4 Fire Prevention and Energy Conservation. The Tenant shall comply with the
requirements of the Landlord with respect to fire prevention and, with respect
to the Premises, energy conservation.
4.5 Exterior Appearance of Premises. The Tenant shall keep the exterior
appearance of the Premises tidy and business-like and shall not erect any sign
or other like object within the Premises which is visible from the exterior of
the Premises.
ARTICLE V
LIMITATION OF LIABILITIES
5.1 Unavoidable Delay. Except as herein otherwise expressly provided, if and
whenever and to the extent that either the Landlord and the Tenant shall be
prevented, delayed or restricted in the fulfillment of any obligations hereunder
in respect of the supply or provision of any service or utility, the making of
any repair, the doing of any work or any other thing (other than the payment of
Rent) by Unavoidable Delay, the time for fulfillment of such obligation shall be
extended during the period in which such circumstance operates to prevent, delay
or restrict fulfillment thereof, and the other party to this Lease shall not be
entitled to compensation for any inconvenience, nuisance or discomfort thereby
occasioned nor shall Rent abate.
5.2 Limitation of Landlord's Liability. The Landlord shall only be liable for
any personal injury or death suffered by the Tenant or any person in its employ
who may be upon the Premises or for the loss or any damage to any property
located within the Premises of the Tenant or of any employee of the Tenant if
caused by the actual fault or negligence of the Landlord. It is expressly
understood and agreed by Tenant that none of Landlord's covenants, undertakings
or agreements are made or intended as personal covenants, undertakings or
agreements by Landlord or its partners, and any liability for damages or breach
or nonperformance by Landlord or for damages caused by or arising from any other
action whatsoever, shall be collectable only out of Landlord's interest in the
Project and no personal liability is assumed by, nor at any time by be asserted
against, Landlord or its partners or any of its or their officers, agents,
employees, legal representatives,
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<PAGE>
successors or assigns, if any, all such liability, being expressly waived
released by Tenant.
5.3 Indemnity. The Tenant and the Landlord shall each indemnify and save the
other harmless in respect of:
(a) all claims and liabilities arising from any act or omission of
the indemnitor or any person for whose conduct the indemnitor
is responsible and the costs incurred by the indemnitee in
connection with any action pertaining thereto; and
(b) any damage suffered by the indemnitee by reason of the breach
by the indemnitor of any of its obligations under this lease
and the costs incurred by the indemnitee in connection with
any action pertaining thereto.
ARTICLE VI
TAXES
6.1 Landlord's Taxes. The Landlord shall pay before delinquency the Taxes
relating to the Building.
6.2 Tenant's Taxes. The Tenant shall pay before delinquency all taxes and other
charges imposed by any lawful authority against the Tenant or any sub-tenant,
licensee or occupant of the premises which if not paid would constitute either a
lien on either the Land or the Building or a liability of the Landlord.
6.3 Assessment Appeals. The Tenant shall not conduct any appeal from any
governmental assessment or determination of the value of the Land, the Building
or the Premises.
ARTICLE VII
INSURANCE
7.1 Landlord's Insurance. The Landlord shall maintain Insurance with respect to
its interest in the Building, the Common Areas and the Parking Facility, if any.
Such insurance shall include, if available, a waiver of any right of subrogation
with respect to property insurance only, against the Tenant.
7.2 Tenant's Insurance. The Tenant shall maintain Insurance with respect to its
interest in the Premises, the Leasehold Improvements and all operations of the
Tenant in and from the Premises in the amounts and forms as specified below. The
Tenant shall at the request of the Landlord provide the
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<PAGE>
Landlord with certificates of such insurance. If both the Landlord and the
Tenant have claims to be indemnified under any such insurance, the indemnity
shall be applied first to the settlement of the claim of the Landlord and the
balance to the settlement of the claim of the Tenant. Such insurance shall
include the Landlord and any Mortgagee designated by Notice by the Landlord as
named insureds as their interests may appear and, if available, shall contain a
cross-liability clause protecting the Landlord in respect of claims by the
Tenant as if the Landlord were separately insured and a provision prohibiting
the insurer from materially altering or canceling the coverage without first
giving the Landlord at least 30 days' prior written notice thereof. Such
insurance shall include, if available, a waiver of any right of subrogation with
respect to property insurance only, against the Landlord.
(a) Liability Insurance. Tenant shall provide on or before it enters
the Demised Premises and shall keep in force during the term, for the benefit of
Landlord and Tenant, liability insurance against any liability occasioned by any
occurrence in or about the Demised Premises or any appurtenance thereto. Such
policy is to be written in a combined single limit of at least $1,000,000 for
injury or death to one or more than one person arising from any one occurrence
and with respect to property damages. In addition, Tenant shall maintain and
provide a $2,000,000 umbrella policy on terms which Landlord shall specify.
(b) Fire Insurance. Tenant shall insure and keep its equipment,
personal property and all leasehold improvements benefitting the Demised
Premises or elsewhere on the Real Estate insured against damage by fire, water
damage and other casualties and risks covered by "All Risk" and extended
coverage insurance. Landlord shall not carry insurance of any kind on Tenant's
property, and, except as provided by law or by reason of its fault or its breach
of any of its obligations hereunder, shall not be obligated to repair any damage
thereto or replace the same.
(c) Worker's Compensation. Tenant shall maintain Worker's
Compensation insurance, insuring against and satisfying Tenant's obligations and
liabilities under the applicable Worker's Compensation laws. Tenant shall also
maintain Employers Liability Insurance in the amount of at least $1,000,000.
ARTICLE VIII
OPERATION, SERVICES, MAINTENANCE,
REPAIR AND ACCESS BY LANDLORD
8.1 Quiet Enjoyment. The Landlord covenants with the Tenant for quiet enjoyment.
8.2 Standard of Operation. The Landlord shall operate and manage the Building,
the Land, the Common Areas, the Common Service Areas and the Parking Facility,
if any, to the
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standard of a good quality office building, subject to the limitations arising
from the design of the Building and its basic systems.
8.3 Services to Premises. The Landlord shall provide the following services to
the Premises:
(a) heat, ventilation and air conditioning as
required for the comfortable use and occupancy
of the Premises during the normal business
hours as determined by the Landlord from time
to time (and being, at the date of this lease,
8:00 a.m. to 6:00 p.m. Monday to Friday except
on legal or statutory holidays);
(b) electrical power for lighting and office
equipment;
(c) replacement of tubes and ballasts;
(d) janitorial services;
8.4 Services to Building. The Landlord shall provide for the Tenant and others
the following services:
(a) elevators;
(b) washroom facilities on each floor of the
Building on which the Premises are located;
(c) heat, ventilation, air conditioning, lighting,
and janitorial service in the appropriate
interior portions of the Common Areas;
(d) snow removal and landscape maintenance for the
appropriate exterior portions of the Common
Areas;
(e) exterior window washing at such intervals as
landlord deems appropriate;
(f) garbage removal; and
(g) janitorial services for the appropriate
interior portions of the Common Areas.
8.5 Additional Services. The Landlord, if it shall from time to time so elect,
shall have the exclusive right, by way of Additional Services, to provide or
have its designated agents or contractors provide any janitorial or cleaning
services to the Premises required by the Tenant which are additional to those
required to be provided by the Landlord under section 8.3, including the
Additional Services which the Landlord agrees to provide by arrangement and to
supervise the
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moving of furniture or equipment of the Tenant and the making of repairs or
alterations conducted within the Premises, and to supervise or make deliveries
to the Premises. The cost of Additional Services (including the Landlord's
administration fee) provided to the Tenant, whether the Landlord shall be
obligated hereunder or shall elect to provide them as Additional Services, shall
be paid to the Landlord by the Tenant from time to time promptly upon receipt of
invoices therefor from the Landlord. The cost of Additional Services charged
directly to the Tenant and other tenants shall be credited in computing
Operating Costs and Taxes to the extent that they would otherwise have been
included.
8.6 Extra Operating Costs. Upon request by the Tenant, the Landlord may agree
from time to time to arrange for extra heating, ventilating and air conditioning
supply, electrical supply or for the supply of other services to the Premises
above those normally provided to tenants of the Building or outside of normal
business hours. The Tenant will pay to the Landlord in the manner in which
Operating Costs and Taxes are paid from time to time hereunder any and all
additional costs and expenses of the Landlord which may arise in respect of the
use by the Tenant of the Premises for business hours that do not coincide with
normal business hours for the Building generally or that may arise in respect of
extra heating, ventilating and air conditioning supply, electrical supply and
other services which are arranged to be provided to the Tenant as a result of
its activities over and above those normally provided to the tenants of the
Building or outside of normal business hours, plus an administration fee equal
to fifteen percent (15%) of each component thereof. The Landlord reserves the
right to install at the Tenant's expense meters to check the Tenant's
consumption of electricity, water or other utilities.
8.7 Maintenance and Repair. The Landlord shall maintain and repair the
following:
(a) the Building and its basic systems but not the
Premises or the premises of other tenants;
(b) the structural elements of the Premises; and
(c) the Common Areas, the Common Service Areas and the Parking
Facility, if any, except where such maintenance and repair is
required due to the negligence of the Tenant or those for whom
the Tenant is in law responsible, in which circumstances the
Tenant shall be liable for the cost of such maintenance and
repair.
8.8 Access by Landlord. The Landlord may enter the Premises in order:
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(a) to perform its obligations hereunder;
(b) to install, maintain and repair equipment
within or about the Premises for the supply of
services to other premises in the Building;
(c) to make repairs or alterations to the Building;
(d) to take such steps as the Landlord may deem
necessary for the safety or preservation of the
Project; and
(e) to inspect the state of repair of the Premises.
Prior to the exercise of this right the Landlord whenever possible shall consult
with the Tenant in order to minimize inconvenience to the Tenant and in its
exercise of this right, shall observe the security requirements of the Tenant.
8.9 Interruption of Services. Landlord shall have no responsibility or liability
to Tenant, nor shall there be any abatement for rent for any failure to supply
any of said services and facilities that Landlord has agreed to supply hereunder
during such period as such services and facilities are out of order, undergoing
repair or if prevented by labor disorders, strikes, accidents or other causes
beyond Landlord's control. If Landlord, in its sole discretion, deems it
advisable or convenient to interrupt any of said services to make repairs,
alterations or improvements or because of labor disturbances, strikes, accidents
or causes beyond Landlord's control, Landlord may, after prior written notice to
Tenant, do so for the period that Landlord deems expedient and advisable without
any abatement in rent or other liability to Tenant.
ARTICLE IX
MAINTENANCE, REPAIR AND IMPROVEMENTS BY TENANT
9.1 Maintenance of Premises. The Tenant shall maintain and repair the Premises
and the Leasehold Improvements.
9.2 Leasehold Improvements. The Tenant may make Leasehold Improvements provided
that:
(a) the Tenant shall furnish the Landlord with
professionally prepared plans and
specifications therefor;
(b) Such plans and specifications shall be approved
by the Landlord and, at its election, any
Expert;
(c) the Tenant shall advise the Landlord of the
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identity of its contractors and tradesmen and
their respective labor affiliations;
(d) the Landlord shall either (i) approve any
contractors proposed by the Tenant to perform
any work which may affect the structure, the
walls or the systems of the Building or (ii)
require that any such work be performed by
either the Landlord or its contractors in which
case the Tenant shall pay the Landlord's Cost
on account thereof; the Landlord may refuse to
allow the contractors and tradesmen of the
Tenant access to the Building if their labor
affiliations may conflict with those of the
Landlord or those employed by it or if they are
not competent;
(e) the Tenant shall produce evidence satisfactory to the Landlord
as to the existence of all necessary permits and sufficient
insurance coverage; including, but not limited to, Waivers of
Liens filed on behalf of the Landlord;
(f) the Tenant shall pay the Landlord's Cost on account of the
fees of any Expert appointed to review the plans and
specifications, whether or not the work proceeds;
(g) construction of the Leasehold Improvements
shall be performed in accordance with the plans
and specifications submitted to the Landlord
and, where applicable, approved by the
Landlord, subject to any conditions or
regulations imposed by the Landlord and in a
good and workmanlike and expeditious manner
using good quality materials;
(h) the Landlord may inspect construction as it proceeds (the onus
being on the Tenant to advise the Landlord whenever any phase
has been completed so that an inspection can be made); and
(i) if the Tenant fails to observe any of the requirements of this
section the Landlord may require that construction stop and
that the Premises be restored to their prior condition failing
which the Landlord may do so and the Tenant shall pay the
Landlord's Cost on account thereof.
Upon installation of any Leasehold Improvements, such Leasehold Improvements
shall become the property of the
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Landlord and shall not be removed by the Tenant except as hereinafter provided.
9.3 Liens. If any lien under applicable mechanics lien statutes of the
Commonwealth of Pennsylvania, as amended from time to time, or any successor
statute is registered against the title to the Building and such lien relates to
material, labor or any service alleged to have been provided to the Tenant, the
Tenant shall upon Notice by the Landlord cause such lien to be discharged within
5 days after such Notice has been given. If the Tenant shall fail to cause any
such lien to be discharged, as aforesaid, then in addition to any other rights
or remedy of the Landlord, the Landlord may (but shall not be so obligated)
discharge same by paying the amount claimed to be due into Court or directly to
any such lien claimant and the amount so paid by the Landlord and all costs and
expenses, including reasonable Attorneys' fees, incurred for the discharge of
such lien shall be due and payable by the Tenant to the Landlord as Rent upon
receipt of the Landlord's invoice for same.
9.4 Removal of Leasehold Improvements - Term. The Tenant may remove Leasehold
Improvements either upon the exercise of its rights under, and upon the terms
of, section 9.2 or with the approval of the Landlord which may be withheld in
its discretion.
9.5 Removal of Leasehold Improvements - Expiration of Term. The Landlord may
upon not less than 30 days' Notice (except in the case of default and re-entry
in which case no prior Notice need be given) require the Tenant before the
Expiration of the Term to remove some or all Leasehold Improvements and to
restore the Premises to their original condition, the cost of which shall be
borne exclusively by the Tenant. Upon the Expiration of the Term, all Leasehold
Improvements (including carpeting and light fixtures) and all personal property
of the Tenant remaining in the Premises shall become the property of the
Landlord.
ARTICLE X
TRANSFERS BY TENANT
10.1 Successors to Tenant. This lease shall inure to the benefit of and be
binding upon the executors, administrators, successors and assigns of the
Tenant, subject to the limitations of this Article.
10.2 Licenses, Franchises and Concessions. The Tenant shall not suffer or permit
any part of the Premises to be used or occupied by any persons other than the
Tenant, any subtenants permitted under section 10.3 and the employees of the
Tenant and any such permitted subtenant, or suffer or permit any part of the
Premises to be used or occupied by any licensee,
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franchisee or concessionaire, or suffer or permit any persons to be upon the
Premises other than the Tenant, such permitted subtenants and their respective
employees, customers and others having lawful business with them.
10.3 Assignment or Subletting. The Tenant may assign this lease or sublet the
Premises in whole or in part provided that:
(a) the Tenant shall by Notice first offer to
surrender this lease in respect of the whole or
the part of the Premises (the "Subject Area")
which the Tenant wishes to assign or sublet.
Such offer shall be made not less than 60 days
prior to the date on which the Tenant proposes
that the surrender be effective. The Landlord
shall have a period of 15 days after any such
offer is made to accept or to decline by
Notice;
(b) if the Landlord accepts the offer of the Tenant
to surrender the whole or any part of the
Premises pursuant to subsection (a) of this
section, the Tenant shall do so upon the date
specified in its Notice. If part of the
Premises is to be surrendered, the Rent
attributable by the Landlord thereto shall be
apportioned by the Landlord and paid to the
date of surrender and the Rent for the
remainder of the Premises shall thereafter
abate and become adjusted in accordance with
such attribution. The Landlord shall perform
all work required to separate the surrendered
part from the remainder and to make such part
capable of separate use and the Tenant shall
pay the Landlord's Cost on account thereof.
The provisions of section 9.5 shall apply to
the surrendered part of the Premises;
(c) if the Landlord declines such offer or does not respond within
the aforesaid period, the Tenant may within the next 180 day
period either assign this lease or sublet the Subject Area
provided that:
(i) the Tenant shall have received a bona fide
written offer;
(ii) the Tenant shall have provided to the Landlord a true
copy of such offer and adequate information to enable
the Landlord to assess the credit worthiness,
reputation and business of the proposed assignee or
subtenant;
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(iii) the Tenant shall have obtained the approval of
the Landlord to such assignment or sublease
(which may be withheld in its discretion and
for any reason);
(iv) the Tenant shall assign or sublet, as the case
may be, only upon the terms of the offer
provided to the Landlord; and
(v) the proposed subtenant or assignee shall have agreed with the
Landlord to observe and perform all the obligations of the
Tenant under this lease with respect to the Premises or the
Subject Area;
(d) if within the aforesaid 180 day period the Tenant has not
assigned this lease or sublet the Subject Area, the provisions
of subsection (a) of this section shall again apply; and
(e) the Tenant shall pay the Landlord's Cost on account of any
request for approval and, if applicable, the preparation of
the implementing documentation, in such form as may be
acceptable to the Landlord;
(f) Notwithstanding any assignment or subletting, the Tenant shall
remain jointly and severally liable on this lease and shall
not be relieved from performing any of the terms, covenants
and conditions of this lease.
10.4 Change in Control. Any change in the effective control of the Tenant
(including, without limitation, changes in the shareholders, directors, partners
or officers of the Tenant) shall be deemed to be an assignment of the Premises
to which the provisions of Section 10.3 shall apply. The Tenant shall provide to
the Landlord the information described in Section 10.3(c)(ii) with respect to
the person or persons to whom control is passing.
10.5 Advertising of Premises. The Tenant shall not advertise or allow the
Premises to be advertised as being available for lease without the approval by
the Landlord of the form and content of such advertisement which shall not
mention any financial terms.
ARTICLE XI
TRANSFER BY LANDLORD, SUBORDINATION AND ATTORNMENT
11.1 Transfer by Landlord. This lease shall enure to the benefit of and be
binding upon the successors and assigns of the Landlord. If the Landlord
transfers or leases the
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Building, or any part thereof, and to the extent that the transferee or lessee
becomes liable to perform the obligations of the Landlord hereunder, the
Landlord shall thereupon no longer be liable.
11.2 Subordination and Attornment. The Tenant shall upon Notice:
(a) subordinate this lease to any mortgage of the
Building or the Land to the intent that this
lease and all the interest of the Tenant in the
Premises shall be subject thereto as fully as
if such mortgage had been executed and
registered and the money thereby secured had
been advanced before the execution and delivery
of this lease; and
(b) agree to attorn to any mortgagee under such
mortgage;
11.3 Estoppel Certificates. The Tenant shall certify in writing to the Landlord
or as it may direct that this lease is unmodified and in full force and effect
(or if modified, stating the modifications and that this lease is in full force
and effect as modified), the dates to which Rent has been paid, whether or not
there is any existing default on the part of the Landlord of which the Tenant
has notice and any other requested information pertaining to the performance by
the Landlord and the Tenant of their respective obligations hereunder. The
Tenant shall provide such statement within Ten (10) days after written Notice
from the Landlord requesting same. Any such statement may be conclusively relied
upon by any purchaser or mortgagee of the Building or Land.
ARTICLE XII
TERMINATION AND RENT ABATEMENT
12.1 Termination by Tenant. If the Premises or any other part of the Building,
the Parking Facility, if any, the Common Areas or the Common Service Areas are
damaged and the Landlord is thereby unable to fulfil its obligations to the
Tenant and if in the opinion of an Expert, which opinion shall be given not more
than 45 days after the date of such damage, the damage cannot be repaired within
a 180 day period (employing normal construction methods without overtime or
other premium unless the Landlord otherwise instructs the Expert) then the
Tenant may by Notice given not more than 15 days after receipt by the Tenant of
the opinion of the Expert (whose fee shall be payable by the Tenant) terminate
this lease with effect as of the date on which such Notice is given.
12.2 Termination by Landlord. If any part of the Building, the Parking Facility,
if any, the Common Areas or the Common Service Areas is damaged and the Landlord
is thereby unable to
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fulfil its obligations to the Tenant or to any other tenant of the Project and
if in the opinion of an Expert, which opinion shall be given not more than 45
days after the date of the damage, the damage cannot be repaired within a 180
day period (employing normal construction methods without overtime or other
premium), then the Landlord may by Notice given not more than 15 days after
receipt by the Landlord of the opinion of the Expert, terminate this lease with
effect either (i) as of the date on which such Notice is given, if the Premises
have been materially damaged, or (ii) if the Premises have not been so damaged,
then as of the date stipulated by the Landlord in its Notice, which shall be not
less than 60 days after the date on which it is given.
12.3 Abatement of Rent. If the Premises are damaged to the extent that they are
incapable, notwithstanding a reasonable amount of inconvenience to the Tenant,
of being used by the Tenant for their intended purpose and if the damage has not
been caused by any act or omission of either the Tenant or those for whom it is
responsible, Rent shall abate with effect as of the date of the damage in
proportion to the area of the Premises so damaged until either:
(a) the Landlord and the Tenant, each acting
diligently, have completed their respective
obligations to repair; or
(b) the first to occur of (i) the date the proceeds
of any loss of rental income insurance
attributable to the damage are no longer
available for application on account of the
abatement of the Rent payable under this lease
and the rent payable under any other leases of
premises in the Building affected by the same
event of damage or (ii) the period of time
during which such proceeds would have been
available if the Landlord had performed its
obligation to maintain the coverage described
in part (c)(ii) of the definition of Insurance
has expired.
ARTICLE XIII
LANDLORD'S REMEDIES
13.1 Default and Re-Entry. If (i) the Tenant shall fail to make any payment of
Rent as and when same is due to be paid hereunder and such failure to pay shall
continue for five (5) days or (ii) the Tenant fails to observe or perform any of
its other obligations hereunder after Notice specifying the default and a period
to cure has been given, then the Tenant shall be deemed to be in default and the
Landlord may at any time thereafter re-enter the Premises and terminate this
lease. In the event that rent is not paid by the 5th day of
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the month, a two hundred ($200.00) dollar late charge shall apply.
Notwithstanding anything contained in this lease to the contrary, in the event
the Tenant fails to pay any item of Rent when same is due to be paid hereunder
or fails to perform any other obligations hereunder, more than twice in any
twelve (12) month period, then there shall be no obligation on the part of the
Landlord to give the Tenant written Notice and the Landlord shall be entitled to
proceed without notice in accordance with the Landlord's rights pursuant to
Article XIII hereof.
13.2 Re-letting and Sale of Personalty. Whenever the Landlord becomes entitled
to re-enter upon the Premises under any provision of this lease the Landlord in
addition to all other rights it may have, shall have the right, but shall not be
obligated, as agent of the Tenant to enter the Premises and re-let them (for a
term or terms shorter or longer than the balance of the Term, granting
reasonable concessions in connection therewith) and to receive the Rent therefor
and as the agent of the Tenant to take possession of any furniture or other
property thereon and to sell the same at public or private sale without Notice
and to apply the proceeds thereof and any Rent derived from re-letting the
Premises upon account of the Rent due and to become due under this lease and the
Tenant shall be liable to the Landlord for the deficiency, if any.
13.3 Right of Landlord to Remedy. If the Tenant defaults hereunder, the Landlord
may proceed to remedy the default, including the making of any payments due or
alleged to be due by the Tenant to third parties, and the Tenant shall pay on
demand the Landlord's cost, plus interest on account thereof, all without
prejudice to the Landlord's rights and remedies for such default by the Tenant.
13.4 Bankruptcy of Tenant. If a substantial portion of the property of the
Tenant on the Premises is seized or taken in execution or attachment by a
creditor of the Tenant or if the Tenant makes an assignment for the benefit of
creditors or if a receiver-manager is appointed to control the conduct of the
business on or from the Premises or if the Tenant becomes bankrupt or insolvent
or takes the benefit of any act now or hereafter in force for bankrupt or
insolvent debtors or if an order is made for the winding-up of the Tenant, the
next ensuing 3 months' rent immediately will become due and payable as
accelerated rent and the Landlord may re-enter and take possession of the
Premises as if the Tenant were holding over and this lease shall forthwith be
terminated upon Notice by the Landlord to this effect. Accelerated rent will be
recoverable by the Landlord in the same manner as the Rent hereby reserved.
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13.5 Interest. The Tenant shall pay to the Landlord interest at a rate equal to
Prime plus 5% per annum on all arrears of Rent and on any payment made by
Landlord for the benefit or on behalf of Tenant.
13.6 Costs. If legal action is brought by Landlord by reason of any default by
Tenant hereunder and a default is established, the Tenant shall pay all costs
incurred therefor, including reasonable attorney fees. The Tenant shall also be
responsible for, and shall pay to the Landlord, including, without limitation
reasonable compensation for all time expended by the Landlord's own personnel,
reasonable attorney fees and all other costs of any kind whatsoever arising from
or incurred as a result of any default of the Tenant or any enforcement by the
Landlord of any of the Tenant's obligations under this lease or any other
agreement or obligation of the Tenant to the Landlord whether or not related to
the Premises. The Tenant agrees that if the Tenant remains in default under this
lease after receiving Notice as required pursuant to this lease the Landlord
shall be entitled to receive from the Tenant and the Tenant shall pay a minimum
administration fee of not less than Fifty Dollars ($50.00) per day to the
Landlord which the Tenant acknowledges as being reasonable compensation for time
expended by the Landlord's personnel in enforcing any of the Landlord's rights
pursuant to this lease after the giving of such Notice, it being clearly
understood that the payment or demand for such agreed reasonable compensation
shall not be in lieu of and shall be in addition to any other fees, costs,
compensations due to the Landlord as a result of the Tenant's default pursuant
to this lease or pursuant to law or any order of court.
13.7 Confession of Judgment for Rent. Tenant hereby authorizes and empowers any
prothonotary or attorney of any court of record (the "Attorney") to appear for
Tenant in any actions which may be brought for any Rent due hereunder including
accelerated Rent and any other sums which may become due and payable hereunder
for the balance of the Term and therein confess Judgement against Tenant for all
or any part of the Rent and any other sums due hereunder: and for interest and
costs, together with an attorney's commission of ten percent (10%) or $20,000.00
whichever is greater.
13.8 Confession of Judgment for Possession. Tenant hereby authorizes and
empowers any prothonotary or attorney to appear for Tenant in any action brought
for possession hereunder and therein confess judgment in ejectment in any
competent court against Tenant and all persons claiming under Tenant for the
recovery by Landlord of possession of the Premises, for which a copy of this
lease shall, verified by an affidavit, be a sufficient warrant. Thereafter, if
Landlord so desires, a writ of execution or of possession may issue forthwith,
without any prior writ or proceedings whatsoever. Such authority shall not be
exhausted by one exercise thereof and
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if such action shall thereafter, for any reason, be terminated and possession of
the Premises remain in or be restored to Tenant, Landlord may, upon any
subsequent default by Tenant, confess judgment in ejectment to recover
possession of the Premises, and the termination for any reason of any such prior
actions shall not prevent, hinder or prejudice the right and power of Landlord
to bring subsequent actions as set forth in this paragraph. If such action is
commenced, Landlord shall be entilteled to a judgement for Attorney's commission
of ten percent (10%) of rents due or $20,000.00, whichever is greater.
ARTICLE XIV
REGULATIONS
14.1 Purpose. The Landlord may by Notice impose regulations, from time to time,
for the orderly operation of the Building, the Common Areas and the Parking
Facility, if any, the present regulations are attached hereto as Schedule "C" to
this lease.
14.2 Observance. The Tenant shall observe and shall cause those for whom it is
responsible to observe the regulations.
14.3 Enforcement. The Landlord shall enforce the regulations against all
occupants of the Building but in doing so will not be obligated to commence any
legal proceedings or be held liable for any claims by the Tenant or other
tenants arising out of the failure of the Landlord to commence legal proceedings
for any breach of regulations.
ARTICLE XV
MISCELLANEOUS
15.1 Exhibiting Premises. The Landlord may exhibit the Premises to prospective
purchasers, prospective mortgagees and, during the last 6 months of the Term,
prospective tenants.
15.2 Name of Building. The Landlord may designate the name of the Building and
the Project and upon not less than 30 days' Notice may change the name of either
the Building or the Project. The Tenant shall only refer to the Building and the
Project by their designated names and shall only use such names as its business
address.
15.3 Relocation. The Landlord and Tenant agreed that at any time during the Term
and any renewal thereof, the Landlord shall have the right, upon providing the
Tenant at least thirty (30) days' prior written Notice, to relocate the Tenant
to other premises within the Building of approximately the same size, quality
and interior design as the Premises provided, however, that the Tenant shall
have the right to
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approve such new space, which approval shall not be unreasonably withheld. The
Tenant shall give written Notice to the Landlord of its approval or disapproval
of such new space within ten (10) days of the receipt of the Landlord's notice
requesting the Tenant to relocate. The Landlord shall pay the Tenant's direct
moving costs only provided the Tenant shall provide the Landlord with reasonable
evidence of such costs. The relocation shall be effective on the date stated in
the Landlord's notice and the Tenant shall complete its move in one (1) weekend.
In the event the Landlord relocates the Tenant to such new space, this lease and
each and all of its terms, covenants and conditions shall remain in full force
and effect and be deemed applicable to such new space save and except:
(i) the Right of First Refusal, if any, if the new
space is located on a different floor than the
original Premises; and
(ii) the location and size of the Premises which
shall be in accordance with the appropriate
floor plan.
Upon the relocation taking place, the Fixed Rent per square foot for the new
space shall be the same Fixed Rent per square foot as for the Premises and the
lease will be amended accordingly. If the Tenant reasonably refuses to approve
such new space, the Landlord shall have the right to terminate this lease by
written Notice given to the Tenant within ten (10) days following the Landlord's
receipt of the Tenant's Notice disapproving such new space, which termination
shall be effective sixty (60) days after the date of the original Notice.
15.4 Notice. Any Notice to be given pursuant to this lease shall be in writing
and shall be deemed to have been given if signed by or on behalf of the party
giving Notice and delivered or mailed by registered prepaid post to the other
party as follows:
(a) to the Landlord at:
1740 Walton Road
Att: Michael Barrist
Blue Bell, PA 19422
with copy to:
Mr.Joshua Gindin, Esq.
1700 Two Logan Square
18th and Arch Streets
Philadelphia, Pa 19103
and
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<PAGE>
(b) to the Tenant at
NCO Financial System, Inc
1740 Walton Road
Blue Bell, Pa 19422
Any Notice so given shall be deemed to have been given, if delivered, on the
first business day following the date of such delivery or, if mailed, on the
third business day following the date of such mailing. Either party may by
Notice change its address. During any interruption, threatened interruption or
substantial delay in postal services, all Notices shall be delivered.
15.5 Compliance with Laws, etc. The Landlord and the Tenant shall at all times
in the performance of their respective obligations under this lease comply with
all laws, by-laws, regulations and orders of any competent authority and with
the requirements of any insurer of the interest of the Landlord in the Project.
15.6 Governing Law and Severability. This lease shall be governed by and
construed in accordance with the laws in force in the State in which the Project
is located. The Landlord and the Tenant agree that all of the provisions of this
lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate section
hereof. Should any provision or provisions of this lease be illegal or not
enforceable, it or they shall be considered separate and severable from the
lease and its remaining provisions shall remain in force and be binding upon the
parties hereto as though the said provision or provisions had never been
included.
15.7 Recordation. The Tenant may record this Lease with the prior written
approval of the Landlord, which approval the Landlord may withhold in its
discretion. If the Landlord provides such approval, the Tenant shall not record
this Lease but shall prepare and have executed by the parties hereto a short
form of lease approved by the Landlord for the purpose only of enabling notice
of this Lease to be recorded without affecting the respective rights and
obligations of the parties hereunder. The Tenant shall pay the Landlord's Cost
incurred in connection with such recordation and, for greater certainty, shall
pay the cost of any necessary survey plan of the Premises.
15.8 Condemnation. If at any time during the Term the interest of the Tenant
under this lease or the whole or any part of either the Premises or any other
part of the Building shall be taken by any lawful power or authority by the
right of condemnation or eminent domain, the Landlord may at its option, give
Notice to the Tenant terminating this lease on
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<PAGE>
the date when the Tenant or Landlord is required to yield up possession thereof
to the condemning authority. Upon such termination, or upon termination by
operation of law, as the case may be, the Tenant shall immediately surrender the
Premises and all its interest therein, the Rent shall abate and be apportioned
to the date of termination, the Tenant shall forthwith pay to the Landlord the
apportioned Rent, all other amounts which may be due to the Landlord up to the
date of termination, and the provisions of section 2.4 shall apply. The Tenant
shall have no claim upon the Landlord for the value of its property or the
unexpired Term of this lease, but the parties shall each be entitled to
separately advance their claims for compensation for the loss of their
respective interests in the Premises and the parties shall each be entitled to
receive and retain such compensation as may be awarded to each respectively. If
an award of compensation made to the Landlord specifically includes an award for
the Tenant, the Landlord will account therefor to the Tenant. In this Section
the word "condemnation" shall include a sale by the Landlord to an authority
with powers of condemnation, in lieu of or under threat of condemnation.
15.9 Hazardous Substances; Wastes.
(a) Tenant will not, and will not permit any other occupant of the
Premises to store, generate, treat or dispose any Hazardous Substances or Wastes
on or about the Premises or the Building, and hereunder shall promptly cure any
such condition. Tenant's obligations hereunder shall serve the expiration or
sooner termination of this Lease;
(b) Tenant hereby represents and warrants that Tenant has not been
identified in any litigation, proceeding or investigation as a responsible party
or potentially responsible party for any liability for disposal or release of
any Hazardous Substances or Wastes; and
(c) For the purposes hereof: (i) "Hazardous Substances" shall mean any
flammable explosives, radioactive materials, asbestos, unreaformaldehyde,
hazardous wastes, toxic substances or any other elements or compounds designated
as a "hazardous substance", "pollutant" or "contaminant" in the
CComprehensiveEnvironmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9600 et. seg or in the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6991 et. seg. or any other applicable Federal, state or local law or
regulation and (ii) "Wastes" shall mean any hazardous wastes, residual wastes,
solid wastes or other wastes as those terms are defined in the applicable
Federal, state or local laws or regulations.
15.10 Rider. The Rider attached hereto as Schedule "D" forms a part of this
Lease.
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<PAGE>
IN WITNESS WHEREOF the Landlord and the Tenant have executed this
lease under their respective seals.
Dated ________________________________________________, 199__.
1710-20 Sentry East Associates, L.P.
by: /s/ Michael J. Barrist
-----------------------------------
_____________________________ Michael J. Barrist, President
Attest 1710-20 Sentry East Inc. The
General Partner
"LANDLORD"
by: /s/ Michael J. Barrist, President
-----------------------------------
_____________________________
Attest "TENANT"
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<PAGE>
Schedule "A"
Legal Description
Unit 1710-1720 in Sentry Park East Condominium together with an undivided 40.440
percent interest in and to the common elements of the Condominium as described
in that certain Declaration of Condominium of Sentry Park East Condominium dated
June 30, 1993 as recorded in Deed Book 5046, page 2030,
Montgomery County, Pennsylvania.
<PAGE>
SCHEDULE "C"
REGULATIONS
Pursuant to Section 14.1 the Landlord hereby imposes the following regulations:
1. Deliveries of building materials, major pieces of equipment and furniture
and bulky goods shall only be made by prior arrangement with the Building
management and through the Delivery Facilities.
2. The Tenant shall only use the Building key system and shall obtain all
keys and cards providing access to the Building, the Parking Facility, if
any and the Premises from the Landlord. No additional locks shall be
installed on the doors to the Premises.
3. No bicycles or other vehicles shall be brought into the Building.
4. No inflammable oils or other dangerous materials shall be kept in the
Building.
5. The Common Areas shall not be obstructed.
6. The Tenant shall provide the Landlord with the names of all persons
entitled to enter the Premises outside normal business hours. The Landlord
shall only be required to allow access to the Premises by such persons.
7. The Tenant shall not install any power or water consuming machinery and
equipment, except normal office equipment, without the approval of the
Landlord and, if required by the Landlord, shall connect such machinery
and equipment to separate meters.
8. If required by the Landlord, the Tenant shall arrange for pest control.
9. The Tenant shall not remove or alter the Building standard window
coverings or except with the approval of the Landlord install any
additional window coverings.
10. The Tenant shall keep all window blinds down so as to prevent direct
sunlight from penetrating the Premises.
11. The Landlord may restrict canvassing or peddling in the Building.
12. The Tenant shall maintain with the Landlord current lists of the names and
license plate numbers of each employee using the Parking Facility, if any
and shall cause its employees to affix to their automobiles whatever
manner of identification the Landlord may require.
<PAGE>
13. The Tenant shall observe the directions of the Landlord as to parking
locations in the Parking Facility, if any according to automobile size.
14. The Tenant shall leave the Premises in a condition suitable for the
performance by the Landlord of its janitorial services.
<PAGE>
1710-20 SENTRY EAST ASSOCIATES L.P.
AND
NCO Financial System, Inc
OFFICE PREMISES LEASE
<PAGE>
TABLE OF CONTENTS
1.INTERPRETATION
1.1 Defined Terms - General
1.2 Defined Terms - Operating Costs and Taxes
1.3 Number, Gender and Joint and Several Liability
1.4 Procedure for Approval
1.5 Divisions
1.6 Entire Agreement
1.7 Reasonableness
1.8 Nature of the Lease
2. DEMISE AND TERM
2.1 Demise-Premises
2.2 Licenses
2.3 Term
2.4 Surrender on Termination
2.5 Holding Over
3. RENT
3.1 Items of Rent
3.2 General
3.3 Final Determination of Certain Items of Rent
3.4 Insufficient Funds
3.5 Deposit
4. USE OF PREMISES
4.1 Use
4.2 Waste and Nuisance
4.3 Extraordinary Equipment
4.4 Fire Prevention and Energy Conservation
4.5 Exterior Appearance of Premises
5. LIMITATION OF LIABILITIES
5.1 Unavoidable Delay
5.2 Limitation of Landlord's Liability
5.3 Indemnity
6. TAXES
6.1 Landlord's Taxes
6.2 Tenant's Taxes
6.3 Assessment Appeals
7. INSURANCE
7.1 Landlord's Insurance
7.2 Tenant's Insurance
8. OPERATION, SERVICES, MAINTENANCE, REPAIR AND ACCESS BY LANDLORD
8.1 Quiet Enjoyment
8.2 Standard of Operation
<PAGE>
8.3 Services to Premises
8.4 Services to Building
8.5 Additional Services
8.6 Extra Operating Costs
8.7 Maintenance and Repair
8.8 Access by Landlord
9. MAINTENANCE, REPAIR AND IMPROVEMENTS BY TENANT
9.1 Maintenance of Premises
9.2 Leasehold Improvements
9.3 Liens
9.4 Removal of Leasehold Improvements - Term
9.5 Removal of Leasehold Improvements - Expiration of
Term
10. TRANSFERS BY TENANT
10.1 Successors to Tenant
10.2 Licenses, Franchises and Concessions
10.3 Assignment or Subletting
10.4 Change in Control
10.5 Advertising of Premises
11. TRANSFER BY LANDLORD, SUBORDINATION AND ATTORNMENT
11.1 Transfer by Landlord
11.2 Subordination and Attornment
11.3 Estoppel Certificates
12. TERMINATION AND RENT ABATEMENT
12.1 Termination by Tenant
12.2 Termination by Landlord
12.3 Abatement of Rent
13. LANDLORD'S REMEDIES
13.1 Default and Re-Entry
13.2 Re-letting and Sale of Personalty
13.3 Right of Landlord to Remedy
13.4 Bankruptcy of Tenant
13.5 Interest
13.6 Costs
13.7 Confession of Judgment for Rent
13.8 Confession of Judgment for Possession
14. REGULATIONS
14.1 Purpose
14.2 Observance
14.3 Enforcement
15. MISCELLANEOUS
15.1 Exhibiting Premises
15.2 Name of Building
15.3 Relocation
15.4 Notice
<PAGE>
15.5 Compliance with Laws, etc
15.6 Governing Law and Severability
15.7 Recordation
15.8 Condemnation
15.9 Rider
Schedule "A" Legal Description
Schedule "B" Floor Plan
Schedule "C" Regulations
<PAGE>
THIS LEASE MADE in duplicate this _____ day of_______________, 199____
1710-20 SENTRY EAST ASSOCIATES, L.P.
(the "Landlord")
of the FIRST PART,
- and -
NCO Financial System, Inc.
(the "Tenant")
of the SECOND PART,
WHEREBY the parties agree as follows:
<PAGE>
ARTICLE I
INTERPRETATION
1.1 Defined Terms - General. In this lease:
"Building" means that certain building known as 1710 Walton Road, Blue
Bell, Pa. 19422 located on the Land.
"Common Areas" means those parts of the Project designated by the Landlord for
common use by the Landlord and the tenants of the Project, including without
limitation, the landscaped portions of the Project, the public sidewalks and the
landscaped portions of the streets adjacent to the Project, the Delivery
Facilities, and Parking Facilities, if any.
"Common Service Areas" means those parts of the Project, whether or not within
the Building, designated by the Landlord which provide services to the Project;
"Cost of Utilities" means the cost of electricity and other utilities supplied
to tenants of premises in the Building as determined by the Landlord who in
making its determination shall take into account the readings of any electrical
check meters installed by the Tenant;
"Delivery Facilities" means those portions of the Project designated by the
Landlord as facilities for common use by the Landlord and tenants of the Project
for deliveries;
"Expert" means any architect, engineer, land surveyor, chartered accountant, or
other professional consultant, as the case may be, appointed by the Landlord and
qualified in the opinion of the Landlord to perform the particular function;
"Expiration of the Term" means the termination of this lease by either
passage of time or operation of any of its provisions;
"Fixed Rent" means the amount payable under section 3.1(a);
"Insurance" means coverage with respect to the following risks in amounts equal,
in the case of the Landlord, to those maintained by prudent owners of like
buildings and, in the case of the Tenant, to those maintained by prudent tenants
of like premises:
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<PAGE>
(a) comprehensive general liability;
(b) all risks coverage;
(c) in the case of the Landlord:
(i) boiler and machinery; and
(ii) loss of rental income by reason of damage; and
(d) in the case of the Tenant, comprehensive
general liability;
and in the case of the Landlord, such other coverage as the Landlord may require
to maintain and in the case of the Tenant, such other coverage as the Landlord
may require, in each case having regard to the risks which are customarily
insured against by prudent landlords and tenants of like premises;
"Landlord's Cost" means with respect to any cost incurred by the Landlord the
actual amount thereof and a fee on account of management and overhead, said fee
to be equal to the amount the Landlord might reasonably pay to a third party for
the administration and management of the Building.
"Leasehold Improvements" means the fixtures and improvements made by or on
behalf of the Tenant in the Premises;
"Notice" has the meaning set forth in section 15.4;
"Parking Facility", if any, means those portions of the Project designated by
the Landlord for parking;
"Premises" means the portion of the Building, excluding its exterior, outlined
in red on the floor plan attached to, and forming part of, this lease, currently
known as suite 300.
"Prime" means the rate of interest from time to time announced by Mellon Bank,
N.A. as its prime rate;
"Project" means the improvements constructed on the Land including the Building,
the Common Areas (whether on or adjacent to the Land), the Parking Facility, if
any, and any other building;
"Land" means the land as described in Schedule "A" attached hereto.
"Rent" means the amounts payable by the Tenant to the Landlord under
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<PAGE>
this lease;
"Term" means the term of this lease as specified in section 2.3 and any
permitted overholding; and
"Unavoidable Delay" means any event, beyond the control of the party affected
thereby which prevents the fulfillment by such party of any obligation hereunder
and not caused by such party and not avoidable by the exercise of reasonable
effort or foresight by such party.
1.2 Defined Terms - Operating Costs and Taxes. For the purpose of calculating
the Proportionate Share of Operating Costs and Taxes:
"Fiscal Year" means a calendar year provided that the Landlord may by Notice
specify an annual date upon which each subsequent Fiscal Year is to begin, in
which event the Fiscal Year which would otherwise be current when such annual
date first occurs thereafter shall terminate on the preceding day;
"Operating Costs and Taxes" means for a Fiscal Year the aggregate costs paid or
payable by the Landlord in accordance with generally accepted accounting
principles applied in the real estate management industry on account of Taxes,
Insurance and the operation, management, maintenance and repair of the Building
and on a proportionate basis as hereinafter provided, the Land, the Common
Areas, the Common Service Areas and those costs associat ed with Condominium
Association Fees, together with a charge, the annual cost of which for the
purpose of this Lease shall be deemed to be management fees paid by the Landlord
for the administration and management of the Building and the Land, and, if the
Landlord itself manages the Building and the Land, a fee equal to the amount the
Landlord might reasonably pay to a third party for the administration and
management of the Building and the Land. Without limiting the generality of the
foregoing, Operating Costs and Taxes shall also include the cost amortized at
Prime of all capital improvements made after the Building is substantially
completed, which (i) have the effect of reducing the costs which would otherwise
be included in Operating Costs and Taxes, or (ii) are required by any competent
governmental authority. Operating Costs and Taxes shall exclude the following:
(i) costs directly recoverable from tenants or insurers;
(ii) debt service, depreciation or other costs of a capital
nature and interest on any of the foregoing, except as
hereinafter provided;
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<PAGE>
(iii) costs of procuring any lease; and
(iv) income, corporate and other taxes of a personal nature
of the Landlord to the extent not imposed in lieu of
Taxes.
The proportion of Operating Costs and Taxes attributable to the Land, Common
Areas and the Common Service Areas shall be allocated equitably by the Landlord
to all buildings forming part of the Project and will be based to the extent
possible on the respective aggregate areas of Rentable Space in the Building and
all other buildings forming part of the Project. If at any time there are
unoccupied premises in the Building, the Landlord may make an equitable
adjustment of the amount of Operating Costs and Taxes by reason of the fact that
unoccupied premises result in lower costs in order that the tenants of the
occupied premises will bear the actual amount of the Operating Costs and Taxes
attributed to their respective premises;
"Taxes" means all taxes and other charges imposed by any lawful authority
against the Land and any improvements thereon or upon the Landlord in respect
thereof and all costs relating to any appeal thereof, and includes (without
limiting the generality of the foregoing) any Rental Taxes;
"Proportionate Share" means the ratio, the numerator of which is the Rentable
Space of the Premises and the denominator of which is the aggregate Rentable
Space of the Building (exclusive of any storage areas);
"Rentable Space" whether in the case of a whole floor of the Building or in the
case of premises comprising part of a floor of the Building shall be determined
by the Landlord's architect or land surveyor according to the American National
Standard for measuring floor area in office buildings as established by the
Builders Owners and Managers Association International and in effect as of the
date of commencement of the Term;
"Rental Taxes" means any tax or duty imposed upon the Landlord which is measured
or based in whole or in part directly upon the Rent payable under this lease or
services provided by the Landlord whether existing at the date hereof imposed by
any governmental authority.
1.3 Number, Gender and Joint and Several Liability. The necessary grammatical
changes required to make the provisions of this lease apply in the plural sense
where the Tenant comprises more than one entity and to corporations,
associations, partnerships or individuals, male or female, shall be assumed as
though in each case fully expressed. If
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<PAGE>
the Tenant is more than one person or entity its liability shall be joint and
several. If the Tenant is a partnership each person who is or becomes a member
of the partnership or any successor partnership shall be jointly and severally
liable.
1.4 Procedure for Approval. Any request for approval shall be requested by
Notice and in the absence of reply given by Notice not later than 15 days after
Notice of the request has been received, or such other period of time as is
otherwise expressly provided in this lease, the approval shall be deemed to have
been given unless the approval may by the terms of this lease be withheld in the
discretion of the party whose approval is requested. Each approval shall be in
writing unless by operation of the preceding sentence it is deemed to have been
given. If either party withholds its approval it shall give Notice of its reason
unless the approval may by the terms of this lease be withheld in its
discretion.
1.5 Divisions. All references in this lease to articles, sections and other
subdivisions are to those in this lease.
1.6 Entire Agreement. This lease and the regulations imposed by the Landlord
pursuant to section 14.1 constitute the entire agreement between the Landlord
and the Tenant concerning the subject matter of this lease. This lease may only
be amended by an agreement in writing signed by the parties hereto.
1.7 Reasonableness. The Landlord and the Tenant shall, except as otherwise
expressly provided in this lease, each act reasonably, having regard to the fact
that they are the owner and a tenant, respectively, of a good quality office
building, in the exercise and the enforcement of their respective rights under
this lease. Each right shall be exercisable and enforceable from time to time,
except as aforesaid.
1.8 Nature of the Lease. This lease is a completely net lease to the Landlord
and accordingly, except as otherwise expressly provided in this lease, the
Landlord has no obligations to the Tenant with respect to either the Premises,
the Building, the Common Areas, the Common Service Areas, the Parking Facility,
or if any, the Project.
ARTICLE II
DEMISE AND TERM
2.1 Demise-Premises. The Landlord hereby leases the Premises to the Tenant and
the Tenant hereby leases and accepts the Premises from the Landlord, (being
3,436 square feet of Rentable Space and currently known as suite 300) to have
and to hold during the Term, subject to the
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<PAGE>
terms of this lease.
2.2 Licenses. The Landlord hereby grants to the Tenant throughout the Term and
subject to control by the Landlord, a non-exclusive license, revocable at any
time upon Notice by the Landlord:
(a) to use those parts of the Common Areas giving access to
the Premises and the Parking Facility, if any;
(b) to have its name displayed on the main lobby directory
board for the Building, on the floor lobby directory
board on each floor on which the Premises are located
and on the main door to the Premises, all such signs to
be under the exclusive control of the Landlord and to
conform to the uniform pattern of identification signs
for tenants of the Building prescribed by the Landlord;
and
(c) if the Premises constitute one or more full floors of the
Building, to have a sign displaying the name of the Tenant in
the elevator lobby of each such floor provided that the design
of the sign has been approved by the Landlord.
2.3 Term. The Term shall be ten (10) years beginning January 1, 1996 at 12:00
Midnight and ending the last day of December, 2005 at 5:00 PM.
2.4 Surrender on Termination. Forthwith upon the Expiration of the Term, the
Tenant shall vacate and deliver up possession of the Premises in a broom clean
condition and in good and substantial repair in accordance with the Tenant's
obligation under this lease to repair the Premises, but subject to the Tenant's
rights and obligations in respect of removal in accordance with sections 9.4 and
9.5. At the same time the Tenant shall surrender to the Landlord at the place
then fixed for the payment of Rent all keys and other devices which provide
access to the Premises, the Building or any part thereof and shall inform the
Landlord of all combinations to locks, safes and vaults, if any, in the
Premises.
2.5 Holding Over. If the Tenant shall continue to occupy the Premises at the
expiration of this lease with or without the consent of the Landlord and without
any further written agreement the Tenant shall be a monthly tenant at two
hundred (200%) of the monthly Fixed Rent herein reserved for the last year of
the Term and otherwise on the terms and conditions herein set forth, except as
to the length of tenancy.
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<PAGE>
ARTICLE III
RENT
3.1 Items of Rent. The tenant shall pay to the Landlord:
(a) $54,976.00 oer annum in 12 equal Installments of
$4,581.33 each based on the rate of $16.00 per square foot per
annum of Rentable Space.
(b) the Proportionate Share of Operating Costs and Taxes
over the Base Year 1996;
(i) any additional services and equipment agreed to be
provided by the Landlord at the request of the Tenant;
(C) the amount, if any, by which the Operating Costs and
Taxes attributed to the Premises by the Landlord
exceeds the Proportionate Share of Operating Costs and
Taxes if such excess is occasioned by the use or
improvement of the Premises.
3.2 General. All amounts payable by the Tenant to the Landlord under this lease
shall be deemed to be Rent. The Tenant shall pay Rent without abatement,
deduction or set-off, except as expressly provided, in lawful money of the
United States to such person and at such address as the Landlord may advise. The
Tenant shall pay items of Rent of a recurring nature in advance on the first day
of each month of the Term and shall pay other items of Rent within 15 days of
the delivery of an invoice therefor. The Landlord shall estimate and may
re-estimate, items of Rent of a recurring and variable nature for each Fiscal
Year and advise the Tenant thereof. If the Commencement Date is not the first
day of a month or if the Expiration of the Term does not occur on the last day
of a month, Rent for the partial month shall be pro-rated on a per diem basis.
3.3 Final Determination of Certain Items of Rent. The Landlord shall within 180
days after the end of each Fiscal Year provide to the Tenant a statement (the
"Statement") setting out in detail the Proportionate Share of Operating Costs
and Taxes and such other items of Rent of a recurring and variable nature for
such Fiscal Year. If the aggregate monthly Installments on account thereof paid
during such Fiscal Year differ from the actual amount thereof set forth in the
Statement, the Tenant shall pay or the Landlord shall refund the difference
within 30 days after the Statement is provided. The Tenant may within the 60 day
period after the Statement is provided examine the books and records of the
Landlord relating to the Project. The Tenant may by Notice given within such 60
day period but not otherwise dispute the Statement whereupon the matter shall be
finally resolved by an Expert. If the Expert determines that the amount payable
by the Tenant has been overstated by more than three percent(3%) the Landlord
shall pay the
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<PAGE>
fee of the Expert.
If the Expert determines that the amount payable by the Tenant has not been
overstated by three percent (3%) or more the Tenant shall pay such fee. Any
adjustment required to any previous payment made by the Tenant or the Landlord
by reason of any such determination shall be made forthwith and shall bear
interest at a rate equal to Prime plus one percent (1%) per annum from the date
the actual overpayment or underpayment is made.
3.4 Insufficient Funds. The Tenant agrees that if any of the Tenant's cheques
are returned for lack of sufficient funds, the Tenant shall pay to the Landlord
upon receipt of the Landlord's invoice for same, a minimum administrative fee of
not less than Fifty Dollars ($50.00).
3.5 Deposit. The Landlord acknowledges receipt of the Deposit in the amount of
$00.00 prior to the execution of this lease, which sum shall be deposited in an
account of Landlords choice. The Deposit shall be applied as a security deposit
for the due performance by the Tenant of all the covenants and obligations on
its part herein contained, the Landlord hereby reserving unto itself at its sole
discretion the right to apply such sum to any damages resulting from any default
by the Tenant of any of its covenants and obligations hereunder or towards the
payment or reduction of any claim of the Landlord against the Tenant including
monthly Rent. If the Deposit hereunder shall be applied in accordance with the
provisions hereof, the Tenant covenants to provide sufficient funds to ensure
that the Deposit remains at the level herein before indicated within ten (10)
days of receipt of the Landlord's Notice therefor. Provided the Tenant is not
then in default under the lease and provided that the Tenant has not, in any
way, damaged the Premises, the Landlord shall, within thirty (30) days of the
Tenant's vacating the Premises, return to the Tenant the balance of the security
deposit referred to in section 3.5. Landlord shall be under no obligation to
refund any interest that may have accrued on said deposit.
ARTICLE IV
USE OF PREMISES
4.1 Use. The Premises shall be used for general office purposes only and not for
any other purpose without the prior written consent of the Landlord, which
consent may be withheld at the discretion of the
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<PAGE>
Landlord, the Tenant shall not permit any part of the Premises to be occupied by
any person other than the Tenant and its employees and any subtenant permitted
under section 10.3 and the employees of such subtenant.
4.2 Waste and Nuisance. The Tenant shall not commit or permit any waste or
damage to the Premises or any manner of use causing annoyance to other tenants
of the Project.
4.3 Extraordinary Equipment. The Tenant shall not install any equipment which
might affect the capacity of either the structure or the basic systems of the
Building.
4.4 Fire Prevention and Energy Conservation. The Tenant shall comply with the
requirements of the Landlord with respect to fire prevention and, with respect
to the Premises, energy conservation.
4.5 Exterior Appearance of Premises. The Tenant shall keep the exterior
appearance of the Premises tidy and business-like and shall not erect any sign
or other like object within the Premises which is visible from the exterior of
the Premises.
ARTICLE V
LIMITATION OF LIABILITIES
5.1 Unavoidable Delay. Except as herein otherwise expressly provided, if and
whenever and to the extent that either the Landlord and the Tenant shall be
prevented, delayed or restricted in the fulfillment of any obligations hereunder
in respect of the supply or provision of any service or utility, the making of
any repair, the doing of any work or any other thing (other than the payment of
Rent) by Unavoidable Delay, the time for fulfillment of such obligation shall be
extended during the period in which such circumstance operates to prevent, delay
or restrict fulfillment thereof, and the other party to this Lease shall not be
entitled to compensation for any inconvenience, nuisance or discomfort thereby
occasioned nor shall Rent abate.
5.2 Limitation of Landlord's Liability. The Landlord shall only be liable for
any personal injury or death suffered by the Tenant or any person in its employ
who may be upon the Premises or for the loss or any damage to any property
located within the Premises of the Tenant or of any employee of the Tenant if
caused by the actual fault or negligence of the Landlord. It is expressly
understood and agreed by Tenant that none of Landlord's covenants, undertakings
or agreements are made or intended as personal covenants, undertakings or
agreements by Landlord or its partners, and any liability for damages or breach
or
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nonperformance by Landlord or for damages caused by or arising from any other
action whatsoever, shall be collectable only out of Landlord's interest in the
Project and no personal liability is assumed by, nor at any time by be asserted
against, Landlord or its partners or any of its or their officers, agents,
employees, legal representatives, successors or assigns, if any, all such
liability, being expressly waived released by Tenant.
5.3 Indemnity. The Tenant and the Landlord shall each indemnify and save the
other harmless in respect of:
(a) all claims and liabilities arising from any act or omission of
the indemnitor or any person for whose conduct the indemnitor
is responsible and the costs incurred by the indemnitee in
connection with any action pertaining thereto; and
(b) any damage suffered by the indemnitee by reason of the breach
by the indemnitor of any of its obligations under this lease
and the costs incurred by the indemnitee in connection with
any action pertaining thereto.
ARTICLE VI
TAXES
6.1 Landlord's Taxes. The Landlord shall pay before delinquency the Taxes
relating to the Building.
6.2 Tenant's Taxes. The Tenant shall pay before delinquency all taxes and other
charges imposed by any lawful authority against the Tenant or any sub-tenant,
licensee or occupant of the premises which if not paid would constitute either a
lien on either the Land or the Building or a liability of the Landlord.
6.3 Assessment Appeals. The Tenant shall not conduct any appeal from any
governmental assessment or determination of the value of the Land, the Building
or the Premises.
ARTICLE VII
INSURANCE
7.1 Landlord's Insurance. The Landlord shall maintain Insurance with respect to
its interest in the Building, the Common Areas and the Parking Facility, if any.
Such insurance shall include, if available,
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a waiver of any right of subrogation with respect to property insurance only,
against the Tenant.
7.2 Tenant's Insurance. The Tenant shall maintain Insurance with respect to its
interest in the Premises, the Leasehold Improvements and all operations of the
Tenant in and from the Premises in the amounts and forms as specified below. The
Tenant shall at the request of the Landlord provide the Landlord with
certificates of such insurance. If both the Landlord and the Tenant have claims
to be indemnified under any such insurance, the indemnity shall be applied first
to the settlement of the claim of the Landlord and the balance to the settlement
of the claim of the Tenant. Such insurance shall include the Landlord and any
Mortgagee designated by Notice by the Landlord as named insureds as their
interests may appear and, if available, shall contain a cross-liability clause
protecting the Landlord in respect of claims by the Tenant as if the Landlord
were separately insured and a provision prohibiting the insurer from materially
altering or canceling the coverage without first giving the Landlord at least 30
days' prior written notice thereof. Such insurance shall include, if available,
a waiver of any right of subrogation with respect to property insurance only,
against the Landlord.
(a) Liability Insurance. Tenant shall provide on or before it enters
the Demised Premises and shall keep in force during the term, for the benefit of
Landlord and Tenant, liability insurance against any liability occasioned by any
occurrence in or about the Demised Premises or any appurtenance thereto. Such
policy is to be written in a combined single limit of at least $1,000,000 for
injury or death to one or more than one person arising from any one occurrence
and with respect to property damages. In addition, Tenant shall maintain and
provide a $2,000,000 umbrella policy on terms which Landlord shall specify.
(b) Fire Insurance. Tenant shall insure and keep its equipment,
personal property and all leasehold improvements benefitting the Demised
Premises or elsewhere on the Real Estate insured against damage by fire, water
damage and other casualties and risks covered by "All Risk" and extended
coverage insurance. Landlord shall not carry insurance of any kind on Tenant's
property, and, except as provided by law or by reason of its fault or its breach
of any of its obligations hereunder, shall not be obligated to repair any damage
thereto or replace the same.
(c) Worker's Compensation. Tenant shall maintain Worker's
Compensation insurance, insuring against and satisfying Tenant's obligations and
liabilities under the applicable Worker's Compensation laws. Tenant shall also
maintain Employers Liability Insurance in the amount of at least $1,000,000.
ARTICLE VIII
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OPERATION, SERVICES, MAINTENANCE,
REPAIR AND ACCESS BY LANDLORD
8.1 Quiet Enjoyment. The Landlord covenants with the Tenant for quiet enjoyment.
8.2 Standard of Operation. The Landlord shall operate and manage the Building,
the Land, the Common Areas, the Common Service Areas and the Parking Facility,
if any, to the standard of a good quality office building, subject to the
limitations arising from the design of the Building and its basic systems.
8.3 Services to Premises. The Landlord shall provide the following services to
the Premises:
(a) heat, ventilation and air conditioning as required for
the comfortable use and occupancy of the Premises during
the normal business hours as determined by the Landlord
from time to time (and being, at the date of this lease,
8:00 a.m. to 6:00 p.m. Monday to Friday except on legal
or statutory holidays);
(b) electrical power for lighting and office equipment;
(c) replacement of tubes and ballasts;
(d) janitorial services;
8.4 Services to Building. The Landlord shall provide for the Tenant and others
the following services:
(a) elevators;
(b) washroom facilities on each floor of the Building on
which the Premises are located;
(c) heat, ventilation, air conditioning, lighting, and
janitorial service in the appropriate interior portions
of the Common Areas;
(d) snow removal and landscape maintenance for the
appropriate exterior portions of the Common Areas;
(e) exterior window washing at such intervals as landlord
deems appropriate;
(f) garbage removal; and
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(g) janitorial services for the appropriate interior
portions of the Common Areas.
8.5 Additional Services. The Landlord, if it shall from time to time so elect,
shall have the exclusive right, by way of Additional Services, to provide or
have its designated agents or contractors provide any janitorial or cleaning
services to the Premises required by the Tenant which are additional to those
required to be provided by the Landlord under section 8.3, including the
Additional Services which the Landlord agrees to provide by arrangement and to
supervise the moving of furniture or equipment of the Tenant and the making of
repairs or alterations conducted within the Premises, and to supervise or make
deliveries to the Premises. The cost of Additional Services (including the
Landlord's administration fee) provided to the Tenant, whether the Landlord
shall be obligated hereunder or shall elect to provide them as Additional
Services, shall be paid to the Landlord by the Tenant from time to time promptly
upon receipt of invoices therefor from the Landlord. The cost of Additional
Services charged directly to the Tenant and other tenants shall be credited in
computing Operating Costs and Taxes to the extent that they would otherwise have
been included.
8.6 Extra Operating Costs. Upon request by the Tenant, the Landlord may agree
from time to time to arrange for extra heating, ventilating and air conditioning
supply, electrical supply or for the supply of other services to the Premises
above those normally provided to tenants of the Building or outside of normal
business hours. The Tenant will pay to the Landlord in the manner in which
Operating Costs and Taxes are paid from time to time hereunder any and all
additional costs and expenses of the Landlord which may arise in respect of the
use by the Tenant of the Premises for business hours that do not coincide with
normal business hours for the Building generally or that may arise in respect of
extra heating, ventilating and air conditioning supply, electrical supply and
other services which are arranged to be provided to the Tenant as a result of
its activities over and above those normally provided to the tenants of the
Building or outside of normal business hours, plus an administration fee equal
to fifteen percent (15%) of each component thereof. The Landlord reserves the
right to install at the Tenant's expense meters to check the Tenant's
consumption of electricity, water or other utilities.
8.7 Maintenance and Repair. The Landlord shall maintain and repair the
following:
(a) the Building and its basic systems but not the Premises
or the premises of other tenants;
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(b) the structural elements of the Premises; and
(c) the Common Areas, the Common Service Areas and the Parking
Facility, if any, except where such maintenance and repair is
required due to the negligence of the Tenant or those for whom
the Tenant is in law responsible, in which circumstances the
Tenant shall be liable for the cost of such maintenance and
repair.
8.8 Access by Landlord. The Landlord may enter the Premises in order:
(a) to perform its obligations hereunder;
(b) to install, maintain and repair equipment within or
about the Premises for the supply of services to other
premises in the Building;
(c) to make repairs or alterations to the Building;
(d) to take such steps as the Landlord may deem necessary
for the safety or preservation of the Project; and
(e) to inspect the state of repair of the Premises.
Prior to the exercise of this right the Landlord whenever possible shall consult
with the Tenant in order to minimize inconvenience to the Tenant and in its
exercise of this right, shall observe the security requirements of the Tenant.
8.9 Interruption of Services. Landlord shall have no responsibility or liability
to Tenant, nor shall there be any abatement for rent for any failure to supply
any of said services and facilities that Landlord has agreed to supply hereunder
during such period as such services and facilities are out of order, undergoing
repair or if prevented by labor disorders, strikes, accidents or other causes
beyond Landlord's control. If Landlord, in its sole discretion, deems it
advisable or convenient to interrupt any of said services to make repairs,
alterations or improvements or because of labor disturbances, strikes, accidents
or causes beyond Landlord's control, Landlord may, after prior written notice to
Tenant, do so for the period that Landlord deems expedient and advisable without
any abatement in rent or other liability to Tenant.
ARTICLE IX
MAINTENANCE, REPAIR AND IMPROVEMENTS BY TENANT
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9.1 Maintenance of Premises. The Tenant shall maintain and repair the Premises
and the Leasehold Improvements.
9.2 Leasehold Improvements. The Tenant may make Leasehold Improvements provided
that:
(a) the Tenant shall furnish the Landlord with
professionally prepared plans and specifications
therefor;
(b) Such plans and specifications shall be approved by the
Landlord and, at its election, any Expert;
(c) the Tenant shall advise the Landlord of the identity of
its contractors and tradesmen and their respective labor
affiliations;
(d) the Landlord shall either (i) approve any contractors
proposed by the Tenant to perform any work which may
affect the structure, the walls or the systems of the
Building or (ii) require that any such work be performed
by either the Landlord or its contractors in which case
the Tenant shall pay the Landlord's Cost on account
thereof; the Landlord may refuse to allow the
contractors and tradesmen of the Tenant access to the
Building if their labor affiliations may conflict with
those of the Landlord or those employed by it or if they
are not competent;
(e) the Tenant shall produce evidence satisfactory to the Landlord
as to the existence of all necessary permits and sufficient
insurance coverage; including, but not limited to, Waivers of
Liens filed on behalf of the Landlord;
(f) the Tenant shall pay the Landlord's Cost on account of the
fees of any Expert appointed to review the plans and
specifications, whether or not the work proceeds;
(g) construction of the Leasehold Improvements shall be performed
in accordance with the plans and specifications submitted to
the Landlord and, where applicable, approved by the Landlord,
subject to any conditions or regulations imposed by the
Landlord and in a good and workmanlike and expeditious manner
using good quality materials;
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(h) the Landlord may inspect construction as it proceeds (the onus
being on the Tenant to advise the Landlord whenever any phase
has been completed so that an inspection can be made); and
(i) if the Tenant fails to observe any of the requirements of this
section the Landlord may require that construction stop and
that the Premises be restored to their prior condition failing
which the Landlord may do so and the Tenant shall pay the
Landlord's Cost on account thereof.
Upon installation of any Leasehold Improvements, such Leasehold Improvements
shall become the property of the Landlord and shall not be removed by the Tenant
except as hereinafter provided.
9.3 Liens. If any lien under applicable mechanics lien statutes of the
Commonwealth of Pennsylvania, as amended from time to time, or any successor
statute is registered against the title to the Building and such lien relates to
material, labor or any service alleged to have been provided to the Tenant, the
Tenant shall upon Notice by the Landlord cause such lien to be discharged within
5 days after such Notice has been given. If the Tenant shall fail to cause any
such lien to be discharged, as aforesaid, then in addition to any other rights
or remedy of the Landlord, the Landlord may (but shall not be so obligated)
discharge same by paying the amount claimed to be due into Court or directly to
any such lien claimant and the amount so paid by the Landlord and all costs and
expenses, including reasonable Attorneys' fees, incurred for the discharge of
such lien shall be due and payable by the Tenant to the Landlord as Rent upon
receipt of the Landlord's invoice for same.
9.4 Removal of Leasehold Improvements - Term. The Tenant may remove Leasehold
Improvements either upon the exercise of its rights under, and upon the terms
of, section 9.2 or with the approval of the Landlord which may be withheld in
its discretion.
9.5 Removal of Leasehold Improvements - Expiration of Term. The Landlord may
upon not less than 30 days' Notice (except in the case of default and re-entry
in which case no prior Notice need be given) require the Tenant before the
Expiration of the Term to remove some or all Leasehold Improvements and to
restore the Premises to their original condition, the cost of which shall be
borne exclusively by the Tenant. Upon the Expiration of the Term, all Leasehold
Improvements (including carpeting and light fixtures) and all personal property
of the Tenant remaining in the Premises shall become the property of the
Landlord.
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ARTICLE X
TRANSFERS BY TENANT
10.1 Successors to Tenant. This lease shall inure to the benefit of and be
binding upon the executors, administrators, successors and assigns of the
Tenant, subject to the limitations of this Article.
10.2 Licenses, Franchises and Concessions. The Tenant shall not suffer or permit
any part of the Premises to be used or occupied by any persons other than the
Tenant, any subtenants permitted under section 10.3 and the employees of the
Tenant and any such permitted subtenant, or suffer or permit any part of the
Premises to be used or occupied by any licensee, franchisee or concessionaire,
or suffer or permit any persons to be upon the Premises other than the Tenant,
such permitted subtenants and their respective employees, customers and others
having lawful business with them.
10.3 Assignment or Subletting. The Tenant may assign this lease or sublet the
Premises in whole or in part provided that:
(a) the Tenant shall by Notice first offer to surrender this
lease in respect of the whole or the part of the
Premises (the "Subject Area") which the Tenant wishes to
assign or sublet. Such offer shall be made not less
than 60 days prior to the date on which the Tenant
proposes that the surrender be effective. The Landlord
shall have a period of 15 days after any such offer is
made to accept or to decline by Notice;
(b) if the Landlord accepts the offer of the Tenant to
surrender the whole or any part of the Premises pursuant
to subsection (a) of this section, the Tenant shall do
so upon the date specified in its Notice. If part of
the Premises is to be surrendered, the Rent attributable
by the Landlord thereto shall be apportioned by the
Landlord and paid to the date of surrender and the Rent
for the remainder of the Premises shall thereafter abate
and become adjusted in accordance with such attribution.
The Landlord shall perform all work required to separate
the surrendered part from the remainder and to make such
part capable of separate use and the Tenant shall pay
the Landlord's Cost on account thereof. The provisions
of section 9.5 shall apply to the surrendered part of
the Premises;
(c) if the Landlord declines such offer or does not respond
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within the aforesaid period, the Tenant may within the next
180 day period either assign this lease or sublet the Subject
Area provided that:
(i) the Tenant shall have received a bona fide written
offer;
(ii) the Tenant shall have provided to the Landlord a true
copy of such offer and adequate information to enable
the Landlord to assess the credit worthiness,
reputation and business of the proposed assignee or
subtenant;
(iii) the Tenant shall have obtained the approval of the
Landlord to such assignment or sublease (which may be
withheld in its discretion and for any reason);
(iv) the Tenant shall assign or sublet, as the case may be,
only upon the terms of the offer provided to the
Landlord; and
(v) the proposed subtenant or assignee shall have agreed with the
Landlord to observe and perform all the obligations of the
Tenant under this lease with respect to the Premises or the
Subject Area;
(d) if within the aforesaid 180 day period the Tenant has not
assigned this lease or sublet the Subject Area, the provisions
of subsection (a) of this section shall again apply; and
(e) the Tenant shall pay the Landlord's Cost on account of any
request for approval and, if applicable, the preparation of
the implementing documentation, in such form as may be
acceptable to the Landlord;
(f) Notwithstanding any assignment or subletting, the Tenant shall
remain jointly and severally liable on this lease and shall
not be relieved from performing any of the terms, covenants
and conditions of this lease.
10.4 Change in Control. Any change in the effective control of the Tenant
(including, without limitation, changes in the shareholders, directors, partners
or officers of the Tenant) shall be deemed to be an assignment of the Premises
to which the provisions of Section 10.3 shall apply. The Tenant shall provide to
the Landlord the information described in Section 10.3(c)(ii) with respect to
the person or persons to whom control is passing.
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10.5 Advertising of Premises. The Tenant shall not advertise or allow the
Premises to be advertised as being available for lease without the approval by
the Landlord of the form and content of such advertisement which shall not
mention any financial terms.
ARTICLE XI
TRANSFER BY LANDLORD, SUBORDINATION AND ATTORNMENT
11.1 Transfer by Landlord. This lease shall enure to the benefit of and be
binding upon the successors and assigns of the Landlord. If the Landlord
transfers or leases the Building, or any part thereof, and to the extent that
the transferee or lessee becomes liable to perform the obligations of the
Landlord hereunder, the Landlord shall thereupon no longer be liable.
11.2 Subordination and Attornment. The Tenant shall upon Notice:
(a) subordinate this lease to any mortgage of the Building
or the Land to the intent that this lease and all the interest
of the Tenant in the Premises shall be subject thereto as
fully as if such mortgage had been executed and registered and
the money thereby secured had been advanced before the
execution and delivery of this lease; and
(b) agree to attorn to any mortgagee under such mortgage;
11.3 Estoppel Certificates. The Tenant shall certify in writing to the Landlord
or as it may direct that this lease is unmodified and in full force and effect
(or if modified, stating the modifications and that this lease is in full force
and effect as modified), the dates to which Rent has been paid, whether or not
there is any existing default on the part of the Landlord of which the Tenant
has notice and any other requested information pertaining to the performance by
the Landlord and the Tenant of their respective obligations hereunder. The
Tenant shall provide such statement within Ten (10) days after written Notice
from the Landlord requesting same. Any such statement may be conclusively relied
upon by any purchaser or mortgagee of the Building or Land.
ARTICLE XII
TERMINATION AND RENT ABATEMENT
12.1 Termination by Tenant. If the Premises or any other part of the Building,
the Parking Facility, if any, the Common Areas or the Common Service Areas are
damaged and the Landlord is thereby unable to fulfil
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its obligations to the Tenant and if in the opinion of an Expert, which opinion
shall be given not more than 45 days after the date of such damage, the damage
cannot be repaired within a 180 day period (employing normal construction
methods without overtime or other premium unless the Landlord otherwise
instructs the Expert) then the Tenant may by Notice given not more than 15 days
after receipt by the Tenant of the opinion of the Expert (whose fee shall be
payable by the Tenant) terminate this lease with effect as of the date on which
such Notice is given.
12.2 Termination by Landlord. If any part of the Building, the Parking Facility,
if any, the Common Areas or the Common Service Areas is damaged and the Landlord
is thereby unable to fulfil its obligations to the Tenant or to any other tenant
of the Project and if in the opinion of an Expert, which opinion shall be given
not more than 45 days after the date of the damage, the damage cannot be
repaired within a 180 day period (employing normal construction methods without
overtime or other premium), then the Landlord may by Notice given not more than
15 days after receipt by the Landlord of the opinion of the Expert, terminate
this lease with effect either (i) as of the date on which such Notice is given,
if the Premises have been materially damaged, or (ii) if the Premises have not
been so damaged, then as of the date stipulated by the Landlord in its Notice,
which shall be not less than 60 days after the date on which it is given.
12.3 Abatement of Rent. If the Premises are damaged to the extent that they are
incapable, notwithstanding a reasonable amount of inconvenience to the Tenant,
of being used by the Tenant for their intended purpose and if the damage has not
been caused by any act or omission of either the Tenant or those for whom it is
responsible, Rent shall abate with effect as of the date of the damage in
proportion to the area of the Premises so damaged until either:
(a) the Landlord and the Tenant, each acting diligently,
have completed their respective obligations to repair;
or
(b) the first to occur of (i) the date the proceeds of any
loss of rental income insurance attributable to the
damage are no longer available for application on
account of the abatement of the Rent payable under this
lease and the rent payable under any other leases of
premises in the Building affected by the same event of
damage or (ii) the period of time during which such
proceeds would have been available if the Landlord had
performed its obligation to maintain the coverage
described in part (c)(ii) of the definition of Insurance
has expired.
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ARTICLE XIII
LANDLORD'S REMEDIES
13.1 Default and Re-Entry. If (i) the Tenant shall fail to make any payment of
Rent as and when same is due to be paid hereunder and such failure to pay shall
continue for five (5) days or (ii) the Tenant fails to observe or perform any of
its other obligations hereunder after Notice specifying the default and a period
to cure has been given, then the Tenant shall be deemed to be in default and the
Landlord may at any time thereafter re-enter the Premises and terminate this
lease. In the event that rent is not paid by the 5th day of the month, a two
hundred ($200.00) dollar late charge shall apply.
Notwithstanding anything contained in this lease to the contrary, in the event
the Tenant fails to pay any item of Rent when same is due to be paid hereunder
or fails to perform any other obligations hereunder, more than twice in any
twelve (12) month period, then there shall be no obligation on the part of the
Landlord to give the Tenant written Notice and the Landlord shall be entitled to
proceed without notice in accordance with the Landlord's rights pursuant to
Article XIII hereof.
13.2 Re-letting and Sale of Personalty. Whenever the Landlord becomes entitled
to re-enter upon the Premises under any provision of this lease the Landlord in
addition to all other rights it may have, shall have the right, but shall not be
obligated, as agent of the Tenant to enter the Premises and re-let them (for a
term or terms shorter or longer than the balance of the Term, granting
reasonable concessions in connection therewith) and to receive the Rent therefor
and as the agent of the Tenant to take possession of any furniture or other
property thereon and to sell the same at public or private sale without Notice
and to apply the proceeds thereof and any Rent derived from re-letting the
Premises upon account of the Rent due and to become due under this lease and the
Tenant shall be liable to the Landlord for the deficiency, if any.
13.3 Right of Landlord to Remedy. If the Tenant defaults hereunder, the Landlord
may proceed to remedy the default, including the making of any payments due or
alleged to be due by the Tenant to third parties, and the Tenant shall pay on
demand the Landlord's cost, plus interest on account thereof, all without
prejudice to the Landlord's rights and remedies for such default by the Tenant.
13.4 Bankruptcy of Tenant. If a substantial portion of the property of the
Tenant on the Premises is seized or taken in execution or attachment by a
creditor of the Tenant or if the Tenant makes an assignment for the benefit of
creditors or if a receiver-manager is
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appointed to control the conduct of the business on or from the Premises or if
the Tenant becomes bankrupt or insolvent or takes the benefit of any act now or
hereafter in force for bankrupt or insolvent debtors or if an order is made for
the winding-up of the Tenant, the next ensuing 3 months' rent immediately will
become due and payable as accelerated rent and the Landlord may re-enter and
take possession of the Premises as if the Tenant were holding over and this
lease shall forthwith be terminated upon Notice by the Landlord to this effect.
Accelerated rent will be recoverable by the Landlord in the same manner as the
Rent hereby reserved.
13.5 Interest. The Tenant shall pay to the Landlord interest at a rate equal to
Prime plus 5% per annum on all arrears of Rent and on any payment made by
Landlord for the benefit or on behalf of Tenant.
13.6 Costs. If legal action is brought by Landlord by reason of any default by
Tenant hereunder and a default is established, the Tenant shall pay all costs
incurred therefor, including reasonable attorney fees. The Tenant shall also be
responsible for, and shall pay to the Landlord, including, without limitation
reasonable compensation for all time expended by the Landlord's own personnel,
reasonable attorney fees and all other costs of any kind whatsoever arising from
or incurred as a result of any default of the Tenant or any enforcement by the
Landlord of any of the Tenant's obligations under this lease or any other
agreement or obligation of the Tenant to the Landlord whether or not related to
the Premises. The Tenant agrees that if the Tenant remains in default under this
lease after receiving Notice as required pursuant to this lease the Landlord
shall be entitled to receive from the Tenant and the Tenant shall pay a minimum
administration fee of not less than Fifty Dollars ($50.00) per day to the
Landlord which the Tenant acknowledges as being reasonable compensation for time
expended by the Landlord's personnel in enforcing any of the Landlord's rights
pursuant to this lease after the giving of such Notice, it being clearly
understood that the payment or demand for such agreed reasonable compensation
shall not be in lieu of and shall be in addition to any other fees, costs,
compensations due to the Landlord as a result of the Tenant's default pursuant
to this lease or pursuant to law or any order of court.
13.7 Confession of Judgment for Rent. Tenant hereby authorizes and empowers any
prothonotary or attorney of any court of record (the "Attorney") to appear for
Tenant in any actions which may be brought for any Rent due hereunder including
accelerated Rent and any other sums which may become due and payable hereunder
for the balance of the Term and therein confess Judgement against Tenant for all
or any part of the Rent and any other sums due hereunder: and for interest and
costs, together with an attorney's commission of ten percent (10%) or
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$20,000.00 whichever is greater.
13.8 Confession of Judgment for Possession. Tenant hereby authorizes and
empowers any prothonotary or attorney to appear for Tenant in any action brought
for possession hereunder and therein confess judgment in ejectment in any
competent court against Tenant and all persons claiming under Tenant for the
recovery by Landlord of possession of the Premises, for which a copy of this
lease shall, verified by an affidavit, be a sufficient warrant. Thereafter, if
Landlord so desires, a writ of execution or of possession may issue forthwith,
without any prior writ or proceedings whatsoever. Such authority shall not be
exhausted by one exercise thereof and if such action shall thereafter, for any
reason, be terminated and possession of the Premises remain in or be restored to
Tenant, Landlord may, upon any subsequent default by Tenant, confess judgment in
ejectment to recover possession of the Premises, and the termination for any
reason of any such prior actions shall not prevent, hinder or prejudice the
right and power of Landlord to bring subsequent actions as set forth in this
paragraph. If such action is commenced, Landlord shall be entilteled to a
judgement for Attorney's commission of ten percent (10%) of rents due or
$20,000.00, whichever is greater.
ARTICLE XIV
REGULATIONS
14.1 Purpose. The Landlord may by Notice impose regulations, from time to time,
for the orderly operation of the Building, the Common Areas and the Parking
Facility, if any, the present regulations are attached hereto as Schedule "C" to
this lease.
14.2 Observance. The Tenant shall observe and shall cause those for whom it is
responsible to observe the regulations.
14.3 Enforcement. The Landlord shall enforce the regulations against all
occupants of the Building but in doing so will not be obligated to commence any
legal proceedings or be held liable for any claims by the Tenant or other
tenants arising out of the failure of the Landlord to commence legal proceedings
for any breach of regulations.
ARTICLE XV
MISCELLANEOUS
15.1 Exhibiting Premises. The Landlord may exhibit the Premises to prospective
purchasers, prospective mortgagees and, during the last 6 months of the Term,
prospective tenants.
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15.2 Name of Building. The Landlord may designate the name of the Building and
the Project and upon not less than 30 days' Notice may change the name of either
the Building or the Project. The Tenant shall only refer to the Building and the
Project by their designated names and shall only use such names as its business
address.
15.3 Relocation. The Landlord and Tenant agreed that at any time during the Term
and any renewal thereof, the Landlord shall have the right, upon providing the
Tenant at least thirty (30) days' prior written Notice, to relocate the Tenant
to other premises within the Building of approximately the same size, quality
and interior design as the Premises provided, however, that the Tenant shall
have the right to approve such new space, which approval shall not be
unreasonably withheld. The Tenant shall give written Notice to the Landlord of
its approval or disapproval of such new space within ten (10) days of the
receipt of the Landlord's notice requesting the Tenant to relocate. The Landlord
shall pay the Tenant's direct moving costs only provided the Tenant shall
provide the Landlord with reasonable evidence of such costs. The relocation
shall be effective on the date stated in the Landlord's notice and the Tenant
shall complete its move in one (1) weekend. In the event the Landlord relocates
the Tenant to such new space, this lease and each and all of its terms,
covenants and conditions shall remain in full force and effect and be deemed
applicable to such new space save and except:
(i) the Right of First Refusal, if any, if the new space is
located on a different floor than the original Premises;
and
(ii) the location and size of the Premises which shall be in
accordance with the appropriate floor plan.
Upon the relocation taking place, the Fixed Rent per square foot for the new
space shall be the same Fixed Rent per square foot as for the Premises and the
lease will be amended accordingly. If the Tenant reasonably refuses to approve
such new space, the Landlord shall have the right to terminate this lease by
written Notice given to the Tenant within ten (10) days following the Landlord's
receipt of the Tenant's Notice disapproving such new space, which termination
shall be effective sixty (60) days after the date of the original Notice.
15.4 Notice. Any Notice to be given pursuant to this lease shall be in writing
and shall be deemed to have been given if signed by or on behalf of the party
giving Notice and delivered or mailed by registered prepaid post to the other
party as follows:
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<PAGE>
(a) to the Landlord at:
1740 Walton Road
Att: Michael Barrist
Blue Bell, PA 19422
with copy to:
Mr.Joshua Gindin, Esq.
1700 Two Logan Square
18th and Arch Streets
Philadelphia, Pa 19103
and
(b) to the Tenant:
NCO Financial System, Inc.
1740 Walton Road
Blue Bell, Pa 19422
Any Notice so given shall be deemed to have been given, if delivered, on the
first business day following the date of such delivery or, if mailed, on the
third business day following the date of such mailing. Either party may by
Notice change its address. During any interruption, threatened interruption or
substantial delay in postal services, all Notices shall be delivered.
15.5 Compliance with Laws, etc. The Landlord and the Tenant shall at all times
in the performance of their respective obligations under this lease comply with
all laws, by-laws, regulations and orders of any competent authority and with
the requirements of any insurer of the interest of the Landlord in the Project.
15.6 Governing Law and Severability. This lease shall be governed by and
construed in accordance with the laws in force in the State in which the Project
is located. The Landlord and the Tenant agree that all of the provisions of this
lease are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate section
hereof. Should any provision or provisions of this lease be illegal or not
enforceable, it or they shall be considered separate and severable from the
lease and its remaining provisions shall remain in force and be binding upon the
parties hereto as though the said provision or provisions had never been
included.
15.7 Recordation. The Tenant may record this Lease with the prior written
approval of the Landlord, which approval the Landlord may withhold in its
discretion. If the Landlord provides such approval, the Tenant shall not record
this Lease but shall prepare and have executed by the parties hereto a short
form of lease approved by the Landlord for the purpose only of enabling notice
of this Lease to be
- 25 -
<PAGE>
recorded without affecting the respective rights and obligations of the parties
hereunder. The Tenant shall pay the Landlord's Cost incurred in connection with
such recordation and, for greater certainty, shall pay the cost of any necessary
survey plan of the Premises.
15.8 Condemnation. If at any time during the Term the interest of the Tenant
under this lease or the whole or any part of either the Premises or any other
part of the Building shall be taken by any lawful power or authority by the
right of condemnation or eminent domain, the Landlord may at its option, give
Notice to the Tenant terminating this lease on the date when the Tenant or
Landlord is required to yield up possession thereof to the condemning authority.
Upon such termination, or upon termination by operation of law, as the case may
be, the Tenant shall immediately surrender the Premises and all its interest
therein, the Rent shall abate and be apportioned to the date of termination, the
Tenant shall forthwith pay to the Landlord the apportioned Rent, all other
amounts which may be due to the Landlord up to the date of termination, and the
provisions of section 2.4 shall apply. The Tenant shall have no claim upon the
Landlord for the value of its property or the unexpired Term of this lease, but
the parties shall each be entitled to separately advance their claims for
compensation for the loss of their respective interests in the Premises and the
parties shall each be entitled to receive and retain such compensation as may be
awarded to each respectively. If an award of compensation made to the Landlord
specifically includes an award for the Tenant, the Landlord will account
therefor to the Tenant. In this Section the word "condemnation" shall include a
sale by the Landlord to an authority with powers of condemnation, in lieu of or
under threat of condemnation.
15.9 Hazardous Substances; Wastes.
(a) Tenant will not, and will not permit any other occupant of the
Premises to store, generate, treat or dispose any Hazardous Substances or Wastes
on or about the Premises or the Building, and hereunder shall promptly cure any
such condition. Tenant's obligations hereunder shall serve the expiration or
sooner termination of this Lease;
(b) Tenant hereby represents and warrants that Tenant has not been
identified in any litigation, proceeding or investigation as a responsible party
or potentially responsible party for any liability for disposal or release of
any Hazardous Substances or Wastes; and
(c) For the purposes hereof: (i) "Hazardous Substances" shall mean any
flammable explosives, radioactive materials, asbestos, unreaformaldehyde,
hazardous wastes, toxic substances or any other elements or compounds designated
as a "hazardous substance", "pollutant" or "contaminant" in the
CComprehensiveEnvironmental
- 26 -
<PAGE>
Response, Compensation and Liability Act, 42 U.S.C. Section 9600 et.
seg or in the Resource Conservation and Recovery Act, 42 U.S.C. Section
6991 et. seg. or any other applicable Federal, state or local law or
regulation and (ii) "Wastes" shall mean any hazardous wastes, residual
wastes, solid wastes or other wastes as those terms are defined in the
applicable Federal, state or local laws or regulations.
15.10 Rider. The Rider attached hereto as Schedule "D" forms a part of this
Lease.
- 27 -
<PAGE>
IN WITNESS WHEREOF the Landlord and the Tenant have executed this
lease under their respective seals.
Dated ________________________________________________, 199__.
1710-20 Sentry East Associates, L.P.
Attest:________________ by: /s/ Michael J. Barrist
------------------------------
Michael J. Barrist, President
1710-20 Sentry East Inc. The
General Partner
"LANDLORD"
Attest:________________ by: /s/ Michael J. Barrist, President
------------------------------
"TENANT"
- 28 -
<PAGE>
Schedule "A"
Legal Description
Unit 1710- 1720 in Sentry Park East Condominium together with an undivided
40.440 percent interest in and to the common elements of the Condominium as
described in that certain Declaration of Condominium of Sentry Park East
Condominium dated June 30, 1993 as recorded in Deed Book 5046, page 2030,
Montgomery County, Pennsylvania.
<PAGE>
SCHEDULE "C"
REGULATIONS
Pursuant to Section 14.1 the Landlord hereby imposes the following regulations:
1. Deliveries of building materials, major pieces of equipment and furniture
and bulky goods shall only be made by prior arrangement with the Building
management and through the Delivery Facilities.
2. The Tenant shall only use the Building key system and shall obtain all
keys and cards providing access to the Building, the Parking Facility, if
any and the Premises from the Landlord. No additional locks shall be
installed on the doors to the Premises.
3. No bicycles or other vehicles shall be brought into the Building.
4. No inflammable oils or other dangerous materials shall be kept in
the Building.
5. The Common Areas shall not be obstructed.
6. The Tenant shall provide the Landlord with the names of all persons
entitled to enter the Premises outside normal business hours. The Landlord
shall only be required to allow access to the Premises by such persons.
7. The Tenant shall not install any power or water consuming machinery and
equipment, except normal office equipment, without the approval of the
Landlord and, if required by the Landlord, shall connect such machinery
and equipment to separate meters.
8. If required by the Landlord, the Tenant shall arrange for pest control.
9. The Tenant shall not remove or alter the Building standard window
coverings or except with the approval of the Landlord install any
additional window coverings.
10. The Tenant shall keep all window blinds down so as to prevent direct
sunlight from penetrating the Premises.
11. The Landlord may restrict canvassing or peddling in the Building.
12. The Tenant shall maintain with the Landlord current lists of the names and
license plate numbers of each employee using the Parking
<PAGE>
Facility, if any and shall cause its employees to affix to their
automobiles whatever manner of identification the Landlord may require.
13. The Tenant shall observe the directions of the Landlord as to parking
locations in the Parking Facility, if any according to automobile size.
14. The Tenant shall leave the Premises in a condition suitable for the
performance by the Landlord of its janitorial services.
<PAGE>
AMENDMENT NO. 1
TO LEASE DATED MAY 9, 1995
This agreement, made and entered into this _____ day of ______________ 1995, by
and between the 1710-20 Sentry East Associates, L.P. (hereinafter referred to
as "Landlord") and NCO Financial Systems (hereinafter referred to as "Tenant")
with an office at 1710 Walton Road, Blue Bell, PA 19422.
Witnesseth:
WHEREAS, Landlord and Tenant entered into a certain Agreement of Lease dated May
9,1995. (hereinafter referred to as "Lease") whereby the Landlord leased to
Tenant and Tenant hired from Landlord the Demised Premises of approximately
3,436 square feet, on the Third (3rd) Floor, being outlined on Exhibit "A"
attached thereto in the building (hereinafter called "building") known as 1710
Walton Road, Blue Bell, Montgomery County, Pennsylvania for a term of beginning
the 1st day of January, 1996 and ending the 31st of December 2005; and
WHEREAS, the parties hereto desire to amend the Lease as hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto with intent to be legally
bound, hereby agree as follows:
1. Modification to Paragraph 2.1 Demise - Premises.
Effective June 1, 1996 the square footage shall be modified to reprsent 1,036
rentable square feet in suite 302.
2. Modification to Paragraph 3.1 Items of Rent.
Effective June 1, 1996 the following shall be subsituted:
(a) $16,575.96 per annum in 12 equal installments of $1,381.33 each
based on the rate of $16.00 per square foot per annum of rentable
space.
3. Whole Agreement. Except as expressly modified by this Amendment all
provisions of the Lease are hereby ratified and confirmed, and shall remain in
full force and effect throughout the term of the Lease.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this First Amendment as of the day and year first above written.
LANDLORD:
1710-20 Sentry East Associates, L.P.
Attest: ___________________ By: /s/ Michael J. Barrst
----------------------------------------
President, 1710-20 Sentry East Inc.
The General Partner
TENANT:
NCO Financial Systems
Attest: ___________________ By: /s/ Michael J. Barrst
----------------------------------------
<PAGE>
Exhibit 10.7
1740 SENTRY PARK EAST
OFFICE LEASE AGREEMENT
. . .
1740 SENTRY EAST ASSOCIATES, L.P.
LANDLORD
AND
NCO FINANCIAL SYSTEMS, INC.
TENANT
. . .
<PAGE>
1740 SENTRY PARK EAST
OFFICE LEASE AGREEMENT
<TABLE>
<CAPTION>
Paragraph Page
- ---------
<S> <C>
1. Demise................................................................................................. 1
2. Term................................................................................................... 1
3. Use of Premises ....................................................................................... 2
4. Rent .................................................................................................. 2
5. Additional Rent ...................................................................................... 4
6. Security Deposit ......................................................................................10
7. Building Services .....................................................................................11
8. Landlord's Right to Enter .............................................................................13
9. Additional Covenants of Tenant ........................................................................13
10. Assignment and Subleasing ............................................................................16
11. Insurance ............................................................................................18
12. Waiver of Claims; Indemnification ....................................................................21
13. Fire or Other Casualty ...............................................................................21
14. Repairs ..............................................................................................24
15. Tenant's Fixtures, Alterations and Improvements ......................................................25
16. Landlord's Alterations and Improvements ..............................................................26
17. Defaults .............................................................................................27
18. Remedies ... .........................................................................................28
19. Confession of Judgment ...............................................................................31
20. Remedies Cumulative ..................................................................................32
21. Notice and Grace .....................................................................................32
22. Condemnation .........................................................................................33
23. Subordination; Attornment ............................................................................34
24. Notices ..............................................................................................35
25. Quiet Enjoyment ......................................................................................35
26. Tenant Holding Over ..................................................................................36
27. Brokers ..............................................................................................36
28. Rules and Regulations ................................................................................37
29. Use of Common Areas; Parking .........................................................................37
30. Landlord's Forebearance not Considered Waiver ........................................................38
31. Landlord's Liability; Rights .........................................................................39
32. Estoppel Certificate .................................................................................40
33. Landlord's Lien' Waiver ..............................................................................41
34. Renewal Option .......................................................................................41
35. Miscellaneous ........................................................................................42
</TABLE>
<PAGE>
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") made this 1st day of July, 1993, by
and between 1740 SENTRY EAST ASSOCIATES, L.P., a Pennsylvania limited
partnership ("Landlord") having a mailing address at 1740 Sentry Park East, Blue
Bell, PA 19422 and NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation
("Tenant") having a mailing address at 1740 Sentry Park East, Blue Bell Office
Campus, Blue Bell, PA 19422.
W I T N E S S E T H T H A T:
1. Demise. Landlord hereby demises and lets unto Tenant and Tenant
takes and leases from Landlord all that certain office building comprising
15,000 rentable square feet (the "Premises") and known as 1740 Sentry Park East,
Blue Bell, Pennsylvania.
2. Term. The term of this Lease shall commence on the earlier of (a)
the date Tenant takes possession of the Premises, or (b) October, 1, 1993. Such
date is referred to in this Lease as the "Commencement Date". Unless sooner
terminated in accordance with the terms hereof, the term of this Lease shall end
without the necessity for notice from either party to the other at 12:01 a.m.
local time on the tenth (10th) anniversary of the first day of the first full
calendar month during the term. If Landlord is unable to give Tenant possession
of the Premises by reason of
<PAGE>
the holding over of a previous occupant or by any other reasonable cause, except
as expressly provided in this Paragraph 2, Landlord shall not be liable in
damages to Tenant and the Commencement Date shall be deemed to be the date
specified in (b) above; provided, however, that during the period that Landlord
is unable to give possession, all rights and remedies of both parties under this
Lease shall be suspended.
3. Use of Premises. Tenant shall use and occupy the Premises throughout
the term only for office uses in connection with the conduct of Tenant's
business and in conformity with all applicable law. Tenant, at its own expense,
shall obtain all governmental licenses and permits necessary for such use.
4 Rent.
(a) During the intitial five (5) Lease Years (as hereinafter
defined), Tenant shall pay minimum annual rent of Two Hundred Seventeen Thousand
Five Hundred Dollars ($217,500), computed at the annual rate of $14.50 per
rentable square foot, payable in equal monthly installments of Eighteen Thousand
One Hundred Twenty Five Dollars ($18,125). During the final five (5) Lease
Years, Tenant shall pay minimum annual rent of Two Hundred Fifty Five Thousand
Dollars ($255,000), computed at the annual rate of $17.00 per rentable square
foot, payable in equal monthly installments of Twenty One Thousand Two Hundred
Fifty Dollars ($21,250). Each monthly installment of minimum annual rent is
payable in advance on the first day of each month during the term of this Lease,
the first installment to be paid upon the
2
<PAGE>
Commencement Date. If the Commencement Date shall fall on a date other than the
first day of a calendar month, rent shall be apportioned pro rata on a per diem
basis for the period between the Commencement Date and the first day of the
following calendar month and such apportioned sum shall be paid on the
Commencement Date.
(b) Tenant shall pay to Landlord, as additional rent, all
other charges, fees and sums payable hereunder within ten (10) days after
Landlord's written demand.
(c) All rent shall be payable without offset, deduction, prior
notice or demand at the office of Landlord set forth above, or at such other
place as Landlord may from time to time designate by notice to Tenant.
Notwithstanding anything contained in this Lease, Tenant shall pay a late charge
of ten percent (10%) on each dollar of rent, or any other sum collectable as
rent under this Lease, not paid within ten (10) days after the same is due for
the purpose of defraying expenses of handling such delinquent payment, together
with interest from and after the date which is thirty (30) days after the date
such payment was due at the rate of 2% in excess of the prime rate of interest
announced from time to time by Mellon Bank, N.A. Any charge or payment herein
reserved, included or agreed to be collected as rent may be proceeded for and
recovered by Landlord in the same manner as rent due and in arrears.
(d) Tenant's obligation to pay rent hereunder shall be the
absolute and unconditional obligation of Tenant without the right to offset or
deduct for any reason, and payable
3
<PAGE>
notwithstanding any early termination of this Lease, or at the
occurrence of any event of default.
5. Additional Rent.
(a) For each Lease Year, or portion thereof, Tenant shall pay
to Landlord, as additional rent, the following:
(i) The cost of all electrical consumption
attributable to the Premises. Landlord shall bill Tenant for such electric
consumption at the same rate billed Landlord by the electric utility provider.
Upon request from Tenant, Landlord shall provide Tenant information pertaining
to the costs charged Landlord for electricity by the electric utility provider.
Tenant shall have the right, exerciseable upon written notice to Landlord, to
elect thereafter to be billed for electric consumption at the rate Tenant would
be billed by the electric provider if Tenant directly contracted with such
provider for electric service. Tenant may exercise such right one time during
the term of this Lease, as it may be extended or renewed. Following such
election, Tenant may not thereafter rescind such election or otherwise have the
right to again be billed for electric consumption at the Premises at the same
rate billed Landlord by the electric utility provider.
(ii) All Operating Expenses (as defined below)
related to the operation of the Premises, provided, that in no event shall the
amount payable by Tenant in any Lease Year after the second Lease Year on
account of Operating Expenses exceed ten percent (10%) of such amount payable by
Tenant for the immediately preceding Lease Year.
4
<PAGE>
(iii) Taxes (as defined below) related to the
premises.
(b) As used in this Lease, the following terms shall have the
meanings set forth below.
(i) "Operating Expenses" shall include the cost and
expense to Landlord of operating, maintaining and repairing all or part of the
Premises and its share of condominium fees due and payable to the Unit Owners'
Association (the "Association") of Sentry Park East Condominium (the
"Condominium") of which Landlord is a member and the Premises are a part,
including without limitation the costs and expenses of the following:
(A) all wages, salaries and fees of all
employees and agents engaged in the management, operation, repair, replacement,
maintenance and security of the Premises, including taxes, insurance and all
other employee benefits relating thereto;
(B) all supplies and materials used in the management,
operation, repair, replacement, maintenance and security of the Premises;
(C) all utilities, including, without limitation, gas,
water, sewer, electricity, power, heating, lighting, air conditioning and
ventilation incurred by Landlord in connection with the operation and use of the
Premises, the Limited Common Elements and Commons Elements of the Condominium as
assessed by the Association and the servicing thereof;
(D) all maintenance, monitoring and service contracts for
the operation, repair, replacement, maintenance and
5
<PAGE>
security of the Premises, the Limited Common Elements and Common Elements of the
Condominium as assessed by the Association, including, without limitation,
window cleaning, security system, heating, ventilating and air-conditioning
system, fire sprinkler system, elevator and landscaping for the Building;
(E) all fire (with all risk coverage) and other casualty
and public liability insurance for the Premises and Landlord's personal property
and fixtures used in connection therewith;
(F) all janitorial services for the Premises;
(G) the operation, repair, replacement and maintenance of
the grounds of the Premises, the Limited Common Elements, and Common Elements of
the Condominium as assessed by the Association including, but not limited to,
electrical consumption, lighting, snow removal, repairs and maintenance to the
parking lot, and landscaping;
(H) any capital improvements made to the Premises for the
purpose of reducing operating expenses or which may be required by governmental
authority under any governmental law or regulation that was not applicable as of
the date of this Lease, which cost shall be amortized over such reasonable
period as Landlord shall determine, together with interest on the unamortized
balance at the rate equal to the Prime Rate or such higher rate as may have been
paid by the Landlord on funds borrowed for the purpose of constructing such
capital improvements; and
(I) all other costs and expenses necessarily
6
<PAGE>
and reasonably incurred by Landlord in the proper operation and maintenance of
the Premises or as part of its membership in the Association.
(ii) Notwithstanding the foregoing, the following shall be
excluded from the term "Operating Expenses":
(A) expenses for any capital improvements made to the
Premises, except as provided in clause (H) above;
(B) expenses (other than deductibles) for repairs or other
work occasioned by fire, windstorm or other insured casualty unless such
casualty is caused by Tenants negligence;
(C) legal expenses incurred by Landlord in matters not
related to this Lease; and
(D) interest or amortization payments on any mortgage or
mortgages affecting the Premises.
(iii) "Taxes" shall mean all real property taxes and
assessments, special or otherwise, without discounts, and personal property
taxes, charges and assessments, which are levied, assessed or imposed by any
governmental authority during any calendar year or portion thereof of the term
hereof with respect to the Premises and any improvements, fixtures and equipment
and all other property of the Condominium for which Landlord is obligated to
pay, and any tax which shall be levied or assessed in addition to or in lieu of
such real or personal property taxes (including, without limitation, any
municipal income tax), and any license fees, tax
7
<PAGE>
measured by or imposed upon rents, or other tax or charge upon Landlord's
business of leasing the Premises, but shall not include any federal or state
income taxes. Should the Commonwealth of Pennsylvania, or any political
subdivision thereof, or any governmental authority having jurisdiction over the
building or the Premises impose a tax assessment or charge a fee which Landlord
shall be required to pay wholly or partially in substitution (or in addition to)
for any of the above Real Estate Taxes, all such assessments, fees and charges
shall be deemed to constitute Real Estate Taxes hereunder.
(c) Landlord shall have the right to require Tenant to pay monthly, in
advance, during the term of this Lease, an amount equal to one-twelfth of
Operating Expenses and Taxes as estimated by Landlord. Landlord shall make an
estimate of the Operating Expenses and Taxes and notify Tenant as to such
estimate on or before the 15th day of September of each year during the term of
this Lease of the monthly payment amount that Tenant shall be required to pay
Landlord.
(d) On or before August 1 of each year during the term of this Lease,
Landlord shall provide Tenant a statement setting forth the actual Operating
Expenses and Real Estate Taxes incurred during the prior calendar year or any
portion thereof. Operating Expenses shall be accounted for in accordance with
generally accpeted accounting principles. Within thirty (30) days after delivery
of such statement to Tenant an adjustment shall be made between Landlord and
Tenant to reflect any difference between Tenant's
8
<PAGE>
payment hereunder, if any, and the actual Operating Expense and Taxes due
hereunder by Tenant. Any adjusted amounts payable by Tenant shall be paid with
the next installment of minimum annual rent. Any adjusted amounts payable by
Landlord shall be paid by crediting the amount owed to Tenant against the next
installments of minimum annual rent payable until paid; provided, that if the
Lease term has by then expired, any amounts payable by Landlord shall be paid to
Tenant at the time such statement is delivered to Tenant. Tenant shall have the
right, at its sole cost and expense, to audit Landlord's books and records
pertaining to Operating Costs for any Lease Year, provided that Tenant has
notified Landlord of Tenant's intention to do so within thirty (30) days after
the delivery of the aforesaid statement to Tenant. Such audit shall be performed
during regular business hours at the office of Landlord where such books and
records are kept. If Tenant's audit reveals a discrepancy in the amount that was
or should have been billed to Tenant, Landlord and Tenant, or their respective
auditors, shall mutually agree upon a reconciliation of such discrepancy and
appropriate adjustments in the amount paid or payable by Tenant therefor shall
be promptly made.
(e) The additional rent due under the terms and conditions of
this paragraph 5 shall be payable by Tenant without any setoff or deduction and
shall be prorated as aforesaid during the first and last calendar years of the
Lease Term or any renewal thereof.
(f) Delay in computation of any of the aforementioned
9
<PAGE>
sums shall not be deemed a default hereunder or constitute a waiver of
Landlord's right to collect any of such sums.
(g) Tenant shall not be entitled to any rebate or credit in
the event Operating Expenses or Real for any calendar year are lower than the
amount payable on account of the Base Year.
(h) The term "Lease Year" shall mean the first twelve (12)
full calendar months of the term of this Lease and each succeeding twelve month
period, including renewal terms, except that if the Commencement Date is not the
first day of a calendar month, then the period from the Commencement Date to the
next succeeding calendar month shall be added to and included within the first
twelve (12) full calendar months to constitute the first Lease Year.
6. Security Deposit. Tenant shall, upon execution of this Lease,
deposit with Landlord as security for Tenant's performance of all the terms,
covenants and conditions of this Lease, an amount equal to $18,125. Landlord may
from time to time use, apply or retain the whole or any part of the sum
deposited to the extent required for the payment of minimum rent, additional
rent, and any other sums payable by Tenant under this Lease as to which Tenant
is in default or to reimburse Landlord for any sum Landlord may expend or be
required to expend by reason of Tenant's default. Upon demand by Landlord,
Tenant shall restore such security deposit to the extent of the amount so
applied by Landiord. The security deposit is to be retained by Landlord until
the expiration of this Lease and shall be returnable to Tenant provided that (a)
the Premises
10
<PAGE>
have been vacated and returned to Landlord in the condition Tenant is obligated
to maintain same under this Lease; (b) Landlord shall have inspected the
Premises after such vacation; and (c) Tenant shall have complied with all the
terms, covenants and conditions of this Lease. The security deposit is not to be
considered as the last monthly installment of rent due under the Lease. If the
Premises are sold, Landlord shall have the right to transfer such sum deposited
to such purchaser, by which transfer Landlord shall be released from all
liability for such sum, and Tenant shall look solely to the new landlord for the
return thereof.
7. Building Services.
(a) The following services and facilities shall be supplied by
Landlord at no additional cost to Tenant in connection with Tenant's use of the
Premises, as applicable:
(i) Landlord shall supply heat and air conditioning to the
Premises from the equipment and facilities for such purposes that are installed
in the Premises during ordinary business hours, except on Saturdays, Sundays and
legal holidays as the same in Landlord's judgment becomes necessary. Heat shall
be supplied between the fifteenth (15th) day of October of each year and the
fourteenth (14th) day of May next succeeding, and air conditioning shall be
supplied between the fifteenth (15th) day of May of each year and the fourteenth
(14th) day of October next succeeding. Heat and air conditioning shall be
furnished for the days and periods mentioned between the hours of 8:00 a.m. and
8:00 p.m. Landlord shall furnish heat and air conditioning at other days and
periods
11
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upon receipt of written request from Tenant, and Landlord shall bill Tenant at
cost for such additional heat and air conditioning and Tenant shall pay same
upon receipt.
(ii) Landlord shall supply janitor service.
(iii) Landlord shall provide a listing of Tenant's name on
a building directory in the building lobby.
(iv) Landlord shall cause the Premises to be posted with
"no solicitation' signs. Landlord will enforce, and will assist Tenant in
enforcing "no solicitation" rules applicable to the Premises, unless Landlord is
advised by its counsel that the right to solicit is protected by applicable law.
(b) Landlord's services shall be provided at a level and
in a manner consistent with the operation of comparable first-class office
buildings in the Blue Bell, Pennsylvania area. Landlord shall have no
responsibility or liability to Tenant, nor shall there be any abatement in rent
for any failure to supply any of said services and facilities that Landlord has
agreed to supply hereunder during such period as such services and facilities
are out of order, undergoing repair or if prevented by labor disorders, strikes,
accidents or other causes beyond Landlord's control. If Landlord, in its sole
discretion, deems it advisable or convenient to interrupt any of said services
to make repairs, alterations or improvements or because of labor disturbances,
strikes, accidents or causes beyond Landlord's control, Landlord may, after
prior written notice to Tenant, do so for the period that Landlord deems
expedient and advisable without any abatement in
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rent or other liability to Tenant.
8. Landlord's Right to Enter. Tenant shall permit Landlord, Landlord's
agents, contractors, employees, and any other person or persons authorized by
Landlord, upon reasonable prior oral or written notice to Tenant, to inspect the
Premises at any time, and to enter the Premises for the purpose of cleaning and
if the Landlord shall so elect, for making alterations, improvements, or repairs
to the Premises, or for any other reasonable purpose in connection with the
operation and maintenance of the Premises. Notwithstanding the foregoing,
Landlord shall have no obligation to provide Tenant prior notice for entry
relating to marketing, emergency maintenance or repairs, or repairs requested by
Tenant. In connection with any such entry, Landlord shall use reasonable efforts
to minimize disruption to Tenant's business operations.
9. Additional Covenants of Tenant.
(a) Tenant agrees and covenants that it will without
demand:
(i) comply with all Rules and Regulations issued from time
to time by the Association;
(ii) comply with all requirements of any of the publicly
constituted authorities, and with the terms-of any State or Federal statute or
local ordinance or regulation applicable to Tenant or its use of the Premises;
(iii) give to Landlord prompt written notice of any
accident, fire or damage occurring on or to the Premises; and (iv) peaceably
deliver up and surrender possession of the Premises
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to Landlord at the expiration or sooner termination of this Lease and promptly
deliver to Landlord at its office all keys for the Premises.
(b) Tenant agrees and covenants that it will do none of the
following without the prior written consent of Landlord:
(i) place or allow to be placed upon the Premises or on the
inside or outside of the Building any sign, projection or device;
(ii) use, operate, or maintain any machine equipment or
fixture that, in Landlord's reasonable opinion, is harmful to the Building or is
disturbing to other tenants occupying the Building or Park; or
(iii) place any weights in any portion of the Premises
beyond the safe carrying capacity of the Building
(c) None of Tenant, its employees or invitees, shall generate,
store, dispose of or otherwise handle any toxic substance or hazardous substance
on the Premises in any fashion contrary to applicable law. (d) Tenant shall
furnish to Landlord the following financial statements:
(d) Tenant shall furnish to Landlord the following financial
statements:
(i) Annual Statements. As soon as available, and in any event
within one hundred twenty (120) days after the end of each fiscal year, audited
financial statements of tenant, showing the profit and loss and surplus for such
fiscal year, and the balance sheet of tenant as of tenant as of the end of such
fiscal year, setting forth in comparative form the corresponding figures for the
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preceding fiscal year, all in reasonable detail, in form acceptable to Landlord,
and prepared on a audit basis in accordance with GAAP by an Tenant and
acceptable to Landlord; and such financial statements shall be accompanied by a
certification, signed by the President or Chief Financial Officer of Tenant,
certifying that no event of default has occurred under the terms of the Lease
during the preceding fiscal year;
(ii) Quarterly Statements. As soon as available, and in any
event within forty-five (45) days after the end of each fiscal quarter of each
fiscal year, true and correct copies of the financial statements of Tenant, such
financial statements to include but not be limited to a balance sheet, a
statement of income and expenses and a statement of profit and loss and surplus,
showing, at a minimum, the assets and liabilities of Tenant as of the end of
such fiscal quarter and the net income, expenses and retained earnings of Tenant
for such fiscal quarter (and in particular, detailing all rental revenue, loan
payments, expenses and net cash flow), and setting forth in comparative form the
corresponding figures as of the end of the corresponding quarter of the previous
fiscal year, all in reasonable detail, and prepared in accordance with GAAP by
the management of Tenant and acceptable to Landlord;
(e) Tenant hereby covenants and agrees with Landlord, that
Tenant shall:
(i) Cash Flow Coverage; Debt Service. Maintain a ratio of
"cash flow" (defined as "net income after dividends plus
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depreciation, plus interest and rental expenses, determined in accordance with
GAAP for the four preceding fiscal quarters then ended") to "debt service"
(defined as "current maturities of long term debt plus interest expenses, as
determined in accordance with GAAP, as of the four preceding fiscal quarters
then ended") equal to, or greater than, 2.00 : 1.00; such covenant to be tested
on a quarterly basis; and
(ii) Total Liabilities to Tangible Net Worth. Maintain a
ratio of total liabilities, minus funds held in trust for clients (with "total
liabilities" to be determined in accordance with GAAP) to Tangible Net Worth
(defined as "total assets minus total liabilities, each to be determined in
accordance with GAAP, excluding, however, from the determination of total assets
all assets which would be classified as intangible assets under GAAP, including,
without limitation, goodwill, licenses, patents, trademarks, trade names, copy
rights and franchises") equal to, or less than, 1.75 : 1.00 such covenants to be
tested on a quarterly basis.
10. Assignment and Subleasing.
(a) Without Landlord's prior written consent, Tenant shall not
assign, mortgage, pledge or encumber this Lease, or any interest in this Lease,
or sublease or otherwise permit the use of the Premises or any part thereof by
any person or persons other than Tenant.
(b) No assignment of this Lease shall be valid unless the
assignee shall agree in writing with Landlord to be bound by all of
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the terms, covenants and conditions contained in this Lease. Upon the valid
assignment of this Lease to an entity or person approved by Landlord, Tenant
shall be released from liability for the performance of all obligations of the
tenant thereafter arising under this Lease. The foregoing release, however,
shall not affect any obligations of Tenant which may have accrued prior thereto,
whether or not then known to Landlord.
(c) Each request by Tenant to sublease all or part of the
Premises shall be accompanied by notice of the name and financial background of
the proposed sublessee, the area of the Premises proposed to be subleased, and
the rent to be paid. In response to Tenant's request for sublease approval,
Landlord shall have the options of (i) deny the consent; (ii) granting such
consent or (iii) terminating the Lease with respect only to that area of the
Premises proposed to be subleased. If Landlord elects option (ii), Tenant may
consummate such sublease, provided, Tenant shall pay to Landlord, as additional
rent, one-half (1/2) of any profit which may inure to the benefit of Tenant as a
result of any subleasing of the Premises. Such profit shall be payable to
Landlord upon receipt by Tenant. If Landlord elects option (iii), Tenant shall
surrender to Landlord and vacate that area of the Premises for which the Lease
has been terminated, all in accordance with the terms of this Lease pertaining
to termination thereof or expiration of its term, and Tenant's Proportionate
Park Share of Real Estate Taxes and Operating Expenses shall be adjusted
accordingly. If Tenant is a corporation, any dissolution, liquidation, merger,
consolidation or
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other reorganization of such corporation, or any transfer of a controlling
percentage of the corporate stock of Tenant, shall constitute an assignment of
this Lease for purposes of this Paragraph 10. If Tenant is a partnership, any
transfer of the entire general partnership interest held by any person or
persons who are at the time of the execution of this Lease general partners of
the Tenant (except as a result of transfers by bequest or inheritance) shall
constitute an assignment of this Lease for purposes of this Paragraph 10.
11. Insurance.
(a) Tenant shall during the entire term and during such other
time as Tenant occupies the Premises, take out and maintain the following
insurance, at the Tenant's sole expenses, in such form and with such companies
as Landlord may reasonably approve:
(i) comprehensive general liability insurance
against claims for bodily injury, including death, and property damage or loss
arising out of the use and/or occupation of the Premises, or the Tenant's
business on or about the Premises; such insurance shall name Landlord as an
additional insured and shall be for the amount of not less than Five Million
Dollars ($5,000,000.00) combined single limit or such other amount as may be
reasonably required by Landlord from time to time; such comprehensive general
liability insurance shall, for Tenant's benefit only, include contractual
liability insurance in a form and of a nature broad enough to insure the
obligations imposed upon Tenant under the terms of this Lease;
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(ii) all risk insurance, including sprinkler leakage
if applicable, upon Tenant's furniture, fixtures and improvements and upon all
other property located in the Premises owned by Tenant or which Tenant is
legally liable, all in an amount equal to the full replacement value thereof;
provided, however, that Tenant may at its election refrain from carrying such
insurance, it being understood that Tenant shall bear all risks of damage to
such property and that Landlord is released from any and every manner of
liability with respect to damage to or destruction of any such property
regardless of how such damage or destruction may occur, unless such damage or
destruction results from the gross negligence or other tortious act of Landlord
or of any person for whose conduct Landlord is responsible.
(b) The policies of insurance referred to above shall contain
provisions that such policies of insurance shall not be cancelled without the
insurer providing Landlord thirty (30) days written notice stating when such
cancellation shall be effective. Landlord shall be provided with a certificate
of insurance evidencing such coverage and any renewals thereof.
(c) Evidence satisfactory to Landlord of all such policies of
insurance shall be provided to Landlord on or before the first day of the first
month of each lease year.
(d) Landlord shall maintain throughout the term of this Lease
insurance against loss or damage to the Building by fire and such other
casualties as may be included within either fire and extended coverage insurance
or all-risk insurance.
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(e) Tenant shall not do, cause or suffer to be done, any act,
manner or thing whereby any insurance now in force or hereafter pxaced on the
Premises or on the Building or Park, or any part thereof, shall become void or
suspended, or whereby the same shall be rated as a more hazardous risk than at
the date of execution of this Lease, or employ any person or persons
objectionable to the insurance companies or have any highly inflammable,
volatile or explosive matter of any kind in or about'the Premises. In case of a
breach of this covenant (in addition to all other remedies given to Landlord
herein) Tenant agrees to pay to Landlord any and all increase or increases of
premiums on insurance carried by Landlord on the Premises, the Building or the
Park caused thereby.
(f) Notwithstanding anything herein to the contrary, Landlord
and Tenant each hereby releases the other, its agents and employees, to the
extent of the releasing party's actual recovery under its insurance policies,
from any and all liability for any loss or damage which may be inflicted upon
the property of such party, notwithstanding that such loss or damage shall have
arisen out of the negligent or other tortious act or omission of the other
party, its agents or employees; provided, however, that this release shall be
effective only with respect to loss or damage occurring during such time as the
appropriate policy of insurance of the party so releasing shall contain a clause
to the effect that such release shall not affect said policy of the right of the
insured to recover thereunder, and each party thereto shall use
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reasonable efforts to have such a clause included in its said
policies.
12. Waiver of Claims; Indemnification. Neither Landlord nor any partner
within Landlord shall be held responsible for, and each is hereby expressly
relieved from, any and all liability by reason of any injury, loss, or damage to
any person or property in or about the Premises due to any cause whatever, and
whether the loss, injury or damage be to the person or property of Tenant or any
other person, unless due to the gross negligence of Landlord, its servants or
employees. Tenant further agrees to indemnify, defend and save Landlord and each
partner in Landlord harmless from and against all claims by any employee or
invitee of Tenant made on account of such injury, loss or damage, including but
not limited to reasonable attorney's fees and other legal expenses. Landlord
agrees to indemnify, defend and save Tenant harmless from and against all claims
by any employee or invitee of Landlord made on account of any injury, loss or
damage to any of Tenant's employees or property within the Premises due to
Landlord's failure to perform any of its obligations under this Lease or the
gross negligence of Landlord or its servants or employees, including but not
limited to reasonable attorneys' fees and other legal expenses. The obligations
of the parties under this Paragraph shall survive the expiration or earlier
termination of this Lease.
13. Fire or Other Casualty.
(a) In the event the Premises are damaged by fire,
explosion, flood, tornado, or other casualty, or otherwise, after
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the commencement of the term of this Lease, the Lease shall continue in full
force and effect. If the extent of the damage is less than fifty percent (50%)
of the cost of replacement of the Premises, the damage shall promptly be
repaired by Landlord at Landlord's expense, provided that Landlord shall not be
obligated to so repair if such fire, explosion, or other casualty is caused
directly by the gross negligence or other tortious act of Tenant, its
subtenants, or their agents or employees, and provided further that Landlord
shall not be obligated to expend for such repair an amount in excess of the
insurance proceeds made available to Landlord for repair of such damage, and
that in no event shall Landlord be required to replace Tenant's stock in trade,
fixtures, furniture, furnishings, floor coverings and equipment. In the event of
any such damage and (i) Landlord is not required to repair as hereinabove
provided, or (ii) the Premises shall be damaged to the extent of fifty percent
(50%) or more of the cost of replacement, or (iv) all buildings (taken in the
aggregate) in the Condominium shall be damaged to the extent of fifty percent
(50%) or more of the aggregate cost of replacement, Landlord may elect either to
repair or rebuild the Premises or to terminate this Lease upon giving notice of
such election ("Landlord's Election Notice") to Tenant within ninety (90) days
after the occurrence of the event causing the damage. If Landlord elects to
repair or rebuild, Landlord shall also provide Tenant with notice of Landlord's
estimate of the time necessary to restore the Premises and Building. If Landlord
estimates that the time for such restoration
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<PAGE>
shall exceed 180 days from the giving of Landlord's Election Notice, Landlord
shall endeavor to provide Tenant alternate space in the Park or, for such time
as an affiliate of Landlord owns and controls leasing at Whitpain Office Campus,
at Whitpain Office Campus. If Landlord is unable to provide such alternate space
for Tenant's use, Tenant may, by written notice given to Landlord within twenty
(20) days after the giving of Landlord's Election Notice, terminate this Lease.
Such termination shall be effective upon Landlord's receipt of Tenant's notice
as though such date were the date set forth in this Lease for the expiration of
its term.
(b) If the casualty, repairing, or rebuilding shall render the
Premises untenantable, in whole or in part, and the damage shall not have been
due to the fault or neglect of Tenant, a proportionate abatement of minimum
annual rent and additional rent shall be allowed from the date when the damage
occurred until the date Landlord completes the repairing or rebuilding, said
proportion to be computed on the basis of the relation which the rentable area
of the space rendered untenantable bears to the total rentable area of the
Premises. If Landlord is required or elects to repair the Premises as herein
provided, Tenant shall repair or replace its stock in trade, fixtures,
furniture, furnishings, floor covering and equipment and promptly reoccupy the
Premises upon completion of such repairs.
(c) No damage or destruction of the Premises shall allow the
Tenant to surrender possession of the Premises nor affect Tenant's liability for
the payment of rent or any other covenant
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contained herein, except as specifically provided in this Lease. Notwithstanding
any of the provisions contained herein to the contrary, Landlord shall have no
obligation to rebuild the Premises and may at its own option cancel this Lease
unless the damage or destruction is a result of casualty covered by Landlord's
insurance policy.
14. Repairs.
(a) Tenant shall keep the Premises in good order and
condition, ordinary wear and tear and damage by accidental fire or other
casualty not caused by Tenant or those claiming under Tenant or their employees
or invitees respectively, alone excepted. Tenant shall make all necessary
repairs to the Premises. Tenant shall also remove all dirt, rubbish, waste and
refuse from the Premises resulting from Tenant's repairs.
(b) Landlord shall make all necessary repairs to the footings,
foundations and structural columns forming a part of the Premises; provided,
however, Landlord shall have no responsibility to make any repair unless and
until Landlord receives written notice of the need for such repair. Landlord
shall also make all necessary repairs to the roof, exterior walls of the
Premises, driveways, sidewalks, curbs, loading, parking and landscaped areas
abutting the Premises, if any, provided, however, Landlord shall have no
responsibility to make any such repair unless and until Landlord receives
written notice of the need for such repair. Notwithstanding the foregoing
provisions of this subparagraph 14(b), repairs made necessary by Tenant's use or
occupancy of the
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Premises (other than any resulting from the normal conduct of Tenant's business
over the term of this Lease), Tenant's installations in or upon the Premises, or
by any act or omission of Tenant or any employee, agent, contractor or invitee
of Tenant shall be made at the sole cost and expense of Tenant.
15. Tenant's Fixtures, Alterations and Improvements.
(a) Tenant shall have the right to install upon the
Premises trade fixtures used in the conduct of Tenant's business; provided,
however, that neither the installation nor removal of such trade fixtures shall
affect the structural integrity of the Premises or Building and that Tenant
shall repair all damage to the Premises and Building resulting therefrom.
(b) Tenant shall not make or permit to be made any
alterations, improvements or additions to the Premises or Building without on
each occasion first presenting to Landlord plans and specifications therefor and
obtaining Landlord's prior written consent thereto. Landlord's consent shall not
be unreasonably withheld if such alterations, improvements or additions do not
affect the structural integrity of the Premises or Building. All alterations,
improvements and additions by Tenant shall be performed in such manner and by
such contractors as to assure harmonious labor relations and so as not to damage
the Building or interfere with its operation. Tenant shall, at Tenant's sole
cost and expense, secure all necessary licenses and permits and obtain and
deliver to Landlord a waiver in recordable form executed by all persons or firms
furnishing labor or materials on behalf of Tenant
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and waiving the right to file mechanics' or materialmen's liens. Tenant shall
cause the contractors to carry worker's compensation insurance in statutory
amounts and promptly pay any contractors and materialmen who supply work or
materials to Tenant, and shall deliver to Landlord prior to commencement of any
such work a certificate of insurance evidencing such coverage. Should any
mechanics' or materialmen's lien or notice of lien be filed for work performed
for Tenant other than by Landlord, Tenant shall bond against or discharge the
same within ten (10) days after the lien or notice of lien is filed regardless
of the validity of such lien or claim. Notwithstanding any provision of this
Lease to the contrary, Tenant shall not have the power to subject the interest
of Landlord in the Premises to any mechanic's, materialmen's or other liens.
(c) All alterations, improvements and additions which may be
made by or for Tenant shall be deemed a part of the Building and become the
property of Landlord and shall not thereafter be removed by Tenant unless
Landlord shall, upon notice to Tenant, require removal of same in which event
Tenant shall remove such alterations, improvements, and additions or fixtures,
and restore the Premises to the same order and condition in which they were upon
initial occupancy. Should Tenant fail to do so, Landlord may do so and Tenant
shall pay to Landlord the complete cost and expense thereof as additional rent.
16. Landlord's Alterations and Improvements. Landlord hereby
reserves the right at any time and from time to time to make
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alterations or additions to the Premises as Landlord may determine.
17. Defaults. The occurrence of any of the following shall
constitute a default under this Lease:
(a) Tenant's failure to pay in full when due any and all
installments of rent and/or other charges or payments herein reserved, included,
or agreed to be treated or collected as rent and/or any other charges, expenses,
or costs herein agreed to be paid by Tenant;
(b) Tenant's failure to perform or comply with any
covenant or agreement herein contained;
(c) Tenant vacates the Premises or removes or attempts to
remove or manifests an intention to remove any goods or property therefrom
otherwise than in the ordinary and usual course of business without having first
paid and satisfied Landlord in full for all rent or other charges, expenses, and
costs then due or that may thereafter become due until the expiration of.the
term of this Lease; or
(d)(i) Tenant makes an assignment for the benefit of
creditors, or (ii) Tenant files a voluntary petition under any bankruptcy or
insolvency law, or if an involuntary petition alleging an act of bankruptcy or
insolvency is filed against Tenant (and not discharged within sixty (60) days),
or (iii) a petition is filed by or against Tenant seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future state or federal bankruptcy act or any other
present or
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future federal, state or other statute or law, or (iv) Tenant seeks or consents
to or acquiesces in the appointment of a trustee, receiver or liquidator of
Tenant or of all or any substantial part of its properties, or (v) a permanent
or temporary receiver of Tenant for substantially all of the assets of Tenant
shall be appointed, or (vi) Tenant pleads bankruptcy or insolvency as a defense
in any action or proceeding, or (vii) an order, judgment or decree shall be
entered by any court of competent jurisdiction on the application of a creditor
adjudicating Tenant as bankrupt or insolvent, or approving a petition seeking
reorganization of Tenant, or its guarantor, or appointment of a receiver,
trustee or liquidator of Tenant or its guarantor, if any, or of all or
substantially all of either of their respective assets, or (viii) any department
of the state or the federal government or any officer thereof, duly authorized,
takes possession of the business or property of Tenant by reason of insolvency
or alleged insolvency of Tenant or whenever Tenant permits or otherwise suffers
this Lease to be taken under any writ of execution, or (ix) if this Lease passes
to or devolves upon, by law or otherwise (except as otherwise herein provided)
one other than Tenant or in the event of any of the preceding, Tenant fails to
restore and maintain the security deposit required under Paragraph 6 and
otherwise fails to provide Landlord with adequate assurance of financial
responsibility.
18. Remedies. Upon the occurrence of a default under this
Lease, thereupon ipso facto and without written notice or other
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action by Landlord, except as expressly provided in Paragraph 21, at the sole
option of Landlord:
(a) Landlord shall be entitled to recover damages for
such breach; and/or
(b) in addition to any rent and other charges already due and
payable, the rent for the entire unexpired balance of the term of this Lease, as
well as all other charges, costs and expenses herein agreed to be paid by
Tenant, at the option of Landlord, or anyone acting on Landlord's behalf at
Landlord's option, or any part thereof, shall be taken to be due and payable and
in arrears, as if by the terms of this Lease said rent, charges, costs and
expenses were on that day due and payable; and/or
(c) Landlord, or anyone acting on Landlord's behalf at
Landlord's option, may without written notice or demand enter the
Premises and
(i) take possession of and sell all goods and chattels
therein at auction on seven (7) days' notice served in person on Tenant or left
or posted on or to the Premises and pay Landlord out of the proceeds of said
auction sale; or
(ii) remove from the Premises all goods and chattels found
therein to any other place or location as Landlord may desire and any costs
reasonably incurred for said removal and any charges made for storage of said
goods and chattels at the location to which they are removed Tenant agrees to
pay; or
(iii) take possession and lease the Premises or any part to
such person, company, firm or corporation as may in
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Landlord's sole discretion seem best and Tenant shall be liable for any loss of
rent for the then current term; or
(iv) proceed by distress and sale of the goods and chattels
there found to levy the rent and/or other charges herein payable as rent and all
costs and officers' commissions, including watchmen's wages, and further
including a sum equal to five percent (5%), of the amount of the levy as
commissions to the constable or other persons making the levy, shall be paid by
Tenant, and in such case all costs, officers' commissions and other charges
shall immediately attach and become part of the claim of Landlord for rent, and
any tender of rent without said costs, commissions and charges made after the
issue of a warrant of distress shall not be sufficient to satisfy the claim of
Landlord; and/or
(d) this Lease and the term hereby created shall determine and
become absolutely void without any right on the part of Tenant to reinstate this
Lease by payment of any sum due or by other performance of any condition, term
or covenant broken; whereupon, Landlord shall be entitled to recover all sums
actually due and in arrears hereunder as of the date of such breach as above
provided in an amount equal to the amount of rent reserved for the balance of
the term of this Lease.
(e) Following Tenant's vacation of the Premises, Landlord
shall show same to prospective new tenants on the same basis as other space is
shown to prospective new tenants; provided, that the foregoing shall not
obligate Landlord to attempt to release the Premises prior to leasing any other
space at the Park or on terms
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more favorable than those by which other space at the Park may be leased or
offered for lease.
19. Confession of Judgment.
(a) When this Lease shall be determined by condition broken,
either during the original term of this Lease or any renewal or extension
thereof, and also when and as soon as the term hereby created or any extension
thereof shall have expired, it shall be lawful for any attorney as attorney for
Landlord to file an agreement for entering in any competent Court an amicable
action and judgment in ejectment against Tenant and all persons claiming under
Tenant for the recovery by Landlord of possession of the Premises, for which
this Lease or a copy of this Lease shall be his sufficient warrant, whereupon,
if Landlord so desires, a writ of execution or of possession may issue
forthwith, without any prior writ or proceedings whatsoever, and provided that
if for any reason after such action shall have been commenced the same shall be
determined and the possession of the Premises remain in or be restored to
Tenant, landlord shall have the right upon any subsequent default or defaults or
upon the termination of this Lease to bring one or more amicable action or
actions to recover possession of the Premises.
(c) In any amicable action in ejectment the Landlord shall
first cause to be filed in such action an affidavit made by Landlord or someone
acting for Landlord setting forth the facts necessary to authorize the entry of
judgment, and if a true copy of this Lease be filed in such action, it shall not
be necessary to
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file the original as a warrant of attorney, any rule of court, custom or
practice to the contrary notwithstanding.
(d) If proceedings shall be commenced by Landlord to recover
possession under the Acts of Assembly, either at the end of the term or sooner
termination of this Lease, or for nonpayment of rent or for any other reason,
Tenant specifically waives the right to the three months' notice and/or the
fifteen (15) or thirty (30) days' notice required by the Act of April 6, 1951,
P.L. 69, and agrees that five (5) days' notice shall be sufficient in either or
any other case.
20. Remedies Cumulative. All of the remedies hereinbefore given to
Landlord and all rights and remedies given to Landlord by law and equity shall
be cumulative and concurrent. No determination of this Lease or the taking or
recovering of the premises shall deprive Landlord of any of its remedies or
actions against Tenant for any and all sums due at the time of which, under the
terms hereof, would in the future become due, nor shall the bringing of any
action for rent or breach of covenant, or the resort to any other remedy herein
provided for the recovery of rent be construed as a waiver of the right to
obtain possession of the Premises. Tenant releases and discharges Landlord, and
its agents, from all claims, actions, suits, damages and penalties, for or by
reason or on account of any entry, distraint, levy, appraisement, removal of
said goods and chattels or sale.
21. Notice and Grace. Landlord shall have no right to
exercise any remedy (other than collection of a late charge and
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default interest pursuant to subparagraph 4(c)) for default by Tenant and Tenant
shall not be, or deemed to be, in default hereunder unless and until Landlord
shall send to Tenant written notice of any default specifying the default, and
(a) if the default is in payment of money, unless Tenant fails to remedy the
default within ten (10) days after said notice is mailed, or (b) if the default
is other than in payment of money and is susceptible of being cured, unless
Tenant fails to begin to cure the default within twenty (20) days following
mailing of said notice and proceeds expeditiously and diligently to cure the
default. Notwithstanding the foregoing, Landlord shall not be obligated to
provide Tenant with notice of substantially similar defaults and a grace period
for curing such defaults more than twice in any twelve-month period, nor shall
Landlord be obligated to provide Tenant with any notice or grace period with
respect to any default described in subparagraphs 17(c) or 17(d) of this Lease.
22. Condemnation. If the Premises or any part thereof is taken or
condemned for a public or quasi-public use, this Lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor, rent shall
abate in proportion to the square feet of leased space taken or condemned or
shall cease if the entire Premises is taken; provided, however, if a partial
taking shall render the Premises unsuitable, as determined by Landlord, for
Tenant's business, then this Lease shall cease and terminate as aforesaid. If
all or part of the Building or Park (other than
33
<PAGE>
the Premises) is taken or condemned for a public or quasi-public use, Landlord
shall have the option to terminate this Lease as of the date title shall vest in
the condemnor. Tenant waives all claims against Landlord for any part of the
award for the complete or partial taking of the Premises. Landlord shall provide
Tenant with written notice of the partial or complete termination of this Lease
by reason of the aforesaid promptly after Landlord becomes aware of same.
Nothing in this Paragraph shall be interpreted to limit or prevent Tenant from
making any claim against the condemning authority for removal expenses, business
dislocation damages and moving expenses.
23. Subordination; Attornment.
(a) This Lease is subject and subordinate to any and all
mortgages now or hereafter placed upon the property of which the Premises is a
part, and to all renewals, modifications and extensions thereof, but as long as
Tenant is not in default and performs its obligations hereunder Tenant shall not
be disturbed in its possession of the Premises and this Lease shall remain in
full force and effect. This subordination shall be self-executing, but Tenant
agrees upon demand of Landlord to execute, acknowledge and deliver all such
instruments as shall be requested by any mortgagee or proposed mortgagee to
confirm such subordination, and Tenant agrees to execute an estoppel agreement
in favor of any mortgagee, if requested to do so by any mortgagee.
Notwithstanding the foregoing, the holder of any such mortgage may at any time
subordinate, in whole or in part, its mortgage to the operation and
34
<PAGE>
effect of this Lease without Tenant's consent by giving written notice thereof
to Tenant, and thereupon this Lease shall be deemed prior to such mortgage and
such holder shall have the same rights with respect to this Lease as though this
Lease were executed and delivered prior to the execution and delivery of such
mortgage.
(b) In the event of the sale or assignment of Landlord's
interest in the Building of or in the event of sale upon foreclosure of any
mortgage made by Landlord encumbering the Building, Tenant shall attorn to the
purchaser and recognize such purchaser as Landlord under this Lease.
24. Notices. All notices required to be given by either party hereto to
the other shall be in writing. All such notices shall be deemed to have been
properly given if served personally, or if sent by United States registered or
certified mail, or if sent by a recognized courier guaranteeing overnight
delivery, addressed to Landlord at the address set forth in the heading of this
Lease, and addressed to Tenant at the Premises, or to such other address which
either party may hereafter designate in writing by notice given in a like
manner.
25. Quiet Enjoyment. Landlord agrees that Tenant, on paying the rent
and other sums payable hereunder and performing the covenants and conditions
herein set forth, subject as aforesaid, shall and may, peaceably and quietly
have, hold and enjoy the Premises for the term aforesaid, free and clear of
anyone claiming through Landlord.
35
<PAGE>
26. Tenant Holding Over. If Tenant or any person claiming through
Tenant shall not immediately surrender possession of the Premises at the
termination of this Lease, Tenant shall be liable to Landlord for any loss or
damage Landlord may sustain thereby, and Landlord shall also be entitled to
recover compensation for such use and occupancy at the rate of two times the
minimum annual rent payable immediately prior to such holdover; provided,
however, that Landlord shall in all events be entitled to recover as minimum
compensation for such use and occupancy, no matter the duration of same, an
amount equal to two times the monthly installment of minimum annual rent payable
immediately prior to the commencement of such holdover. Neither Landlord's
demand nor Landlord's receipt of such compensation for use and occupancy shall
be deemed to provide Tenant with any right to use, occupy or possess the
Premises for any period. If Tenant fails to surrender possession of the Premises
immediately upon the expiration of the term hereof, all obligations of Tenant
and all rights of Landlord applicable during the term of this Lease shall be
equally applicable during such period of subsequent occupancy.
27. Brokers. Tenant covenants, represents and warrants that Tenant has
had no dealings or negotiations with a broker or agent or finder in connection
with the consummation of this Lease except as previously disclosed to Landlord
in writing and Tenant covenants and agrees to pay, hold harmless and indemnify
Landlord from and against any and all costs, expenses (including reasonable
attorney's fees) and liability for any compensation, commissions or
36
<PAGE>
charges claimed by any broker or agent with whom Tenant has had any dealings or
negotiations with respect to this Lease or negotiations thereof, other than as
previously disclosed to Landlord in writing prior to the execution of this
Lease.
28. Rules and Regulations. Tenant shall comply with the rules and
regulations attached to and made a part of this Lease as Exhibit A. Reasonable
additions, alterations and modifications of such rules and regulations dealing
with the Premises, the Building, the Park and the tenants thereof may from time
to time be made by Landlord and be deemed a part of this Lease and shall be
effective at such time as notice thereof is given to Tenant. All rules and
regulations will be faithfully observed by Tenant, Tenant's employees, and all
persons visiting the Premises, or claiming under Tenant. Nothing contained in
this Lease shall be construed to impose upon Landlord any duty or obligation to
enforce the rules and regulations or terms, covenants or conditions in any other
lease, as against any other tenant, and Landlord shall not be liable to Tenant
for violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees.
29. Use of Common Areas; Parking.
(a) Tenant shall have the non-exclusive right, in common with
others, to the use of any common entrances, lobbies, ramps, drives, stairs and
similar access and serviceways and common areas in and adjacent to the Building.
(b) Tenant shall have the non-exclusive right, in common
with others, to park in areas designated for such purpose by
37
<PAGE>
Landlord. Tenant shall not overburden the parking facilities and shall cooperate
with Landlord and other tenants in the use of parking facilities. Landlord
reserves the right in its absolute discretion to determine whether parking
facilities a,re becoming crowded and, in such event, to allocate parking spaces
among Tenant and other tenants.
(c) Landlord shall designate not less than twelve (12) spaces
within the parking lot in the area in and around the Building to be designated
"Visitor Parking". The choice of which spaces are to be so designated shall be
made by Landlord in its discretion. Landiord shall have no obligation to enforce
such designation or to otherwise ensure that such spaces are used by visitors to
the Building.
(d) Tenant shall not be entitled to any compensation or
diminution or abatement of rent in the event Landlord shall at any time change
or diminish the size, area, location, type or arrangement of the common areas
and parking facilities, or if available parking spaces are inadequate for
Tenant's needs. No such change or diminution or unavailability of parking spaces
shall be deemed a constructive or actual eviction. The foregoing restrictions
shall not apply, with respect to a reduction in the number of parking spaces
available at the Park, unless such reduction is made to comply with applicable
law or administrative or court order.
30. Landlord's Forebearance not Considered Waiver. No delay
or forebearance by Landlord in exercising any right or remedy
38
<PAGE>
hereunder or in undertaking or performing any act or matter which is not
expressly required to be undertaken by Landlord shall be construed,
respectively, to be a waiver of Landlord's rights or to represent any agreement
by Landlord to undertake or perform Isuch act or matter thereafter.
31. Landlord's Liability; Rights.
(a) It is expressly understood and agreed by Tenant that none
of Landlord's covenants, undertakings or agreements are made or intended as
personal covenants, undertakings or agreements by Landlord or its partners, and
any liability for damage or breach or nonperformance by Landlord shall be
collectible only out of Landlord's interest in the Premises and no personal
liability is assumed by, nor at any time may be asserted against, Landlord or
its partners or any of its or their officers, agents, employees, legal
representatives, successors or assigns, if any, all such liability, if any,
being expressly waived and released by Tenant.
(b) The Landlord named in the heading of this Lease and any
subsequent owners of such Landlord's interest in the Building, as well as their
respective heirs, personal representatives, successors and assigns shall each
have the same rights, remedies, powers, authorities and privileges as it would
have had it originally signed this Lease as Landlord, including the right to
proceed in its own name to enter judgment by confession or otherwise, but any
such person, whether or not named herein, shall have no liability under this
Lease after it ceases to hold such interest.
39
<PAGE>
32. Estoppel Certificate.
(a) Tenant shall from time to time, within ten (10) days after
request of Landlord, execute, acknowledge and deliver to Landlord a written
instrument, in recordable form if requested, certifying (i) that this Lease is
in full force and effect and has not been modified, supplemented or amended (or
stating such modifications, supplements and amendments as may exist); (ii) the
dates to which rent has been paid; (iii) the amount of any prepaid rent or
credits owed to Tenant; (iv) if applicable, that Tenant has accepted possession
of the Premises, the Commencement Date and term of this Lease; (v) whether
Landlord is then in default under this Lease and specifying such default, if
any; and (vi) any other fact or condition reasonably requested. Any
certification delivered pursuant to this subparagraph may be relied upon by
Landlord, any partner within Landlord, and any mortgagee, prospective mortgagee
or purchaser of the Park or any interest therein.
(b) The failure of Tenant to execute, acknowledge and deliver
to Landlord a written instrument in accordance with the provisions specified
above shall constitute an acknowledgement by Tenant, which may be relied upon by
Landlord, any partner within Landlord, and any mortgagee, prospective mortgagee
or purchaser of the Park or any interest therein, that this Lease is in full
force and effect and has not been modified, supplemented or amended, except as
may be set forth in Landlord's request, that rent has not been paid beyond the
due date immediately preceding the date of such request, that tenant has no
right of set-off or other defense
40
<PAGE>
to this Lease, and of the truth of such other facts and conditions as have been
requested to be certified. Notwithstanding the foregoing, Tenant's failure to
furnish such written instrument within the time period provided herein shall
constitute a default under this Lease.
33. Landlord's Lien Waiver. Following request by Tenant, Landlord shall
execute and deliver to Tenant an agreement in favor of a lender providing
financing to Tenant waiving Landlord's lien on Tenant's trade fixtures and
personal property. The form and content of such agreement shall be satisfactory
to Landlord.
34. Renewal Option.
(a) Upon not less than six (6) months' prior written notice to
Landlord, and provided no default by Tenant then exists under this Lease, Tenant
may renew the term of this Lease for an additional term of five (5) years.
Tenant may exercise such renewal option up to five (5) times; each exercise
shall be for a five year renewal term or such other term as Landlord and Tenant
agree. Each renewal term shall be on the same terms and conditions governing the
initial term of this Lease, except minimum annual rent for each renewal term
shall equal the product obtained by multiplying the minimum annual rent payable
as of the end of the immediately preceding Lease Year times a fraction, the
numerator of which equals 90% of the Index (as hereinafter defined) announced
for the calendar month immediately preceding the calendar month in which the
renewal term commences and the denominator of which is the Index announced for
the calendar month in which the Commencement
41
<PAGE>
Date occurs. In no event shall minimum annual rent payable during any renewal
term be less than that payable during the immediately preceding Lease Year.
(b) The "Index" is the Consumer Price Index, All Urban
Consumers (CPI-U), U.S. City Average - All Items (1982-84=100)
published by the Bureau of Labor Statistics of the United States
Department of Labor.
(c) If the Index ceases to use the 1982-1984 average of 100 as
the basis of calculation, or if a substantial change is made in the number of
items contained in the Index, then the Index shall be adjusted to the figure
that would have been arrived at had the manner of computing the Index in effect
at the Commencement Date not been altered. If the Index (or successor index) is
not available, a reliable governmental or other non-partisan publication
evaluating the information theretofore used in determining the Index shall be
used.
35. Miscellaneous.
(a) All rights and liabilities herein given to, or imposed
upon the respective parties hereto, shall extend to and bind the several and
respective heirs, executors, administrators, successors and assigns of said
parties.
(b) Each term, remedy, provision, condition, obligation and/or
waiver contained in this Lease, or any amendment or supplement hereto, is a
separate and distinct covenant and, if any such term, remedy, provision,
condition, obligation and/or waiver is declared unenforceable or
unconstitutional, or invalid by any
42
<PAGE>
court of competent jurisdiction or by any act of Congress or by any other
governmental authority, such decision, statute, ordinance or regulation will not
affect in any manner the enforceability or validity of any other term, remedy,
provision, condition, obligation and/or waiver contained herein, and they will
remain in full force, virtue and effect.
(c) The titles of the Paragraphs hereof are inserted solely
for convenience of reference and are not intended to indicate all of the subject
matter of the respective sections; they shall not constitute a part of any
section nor shall they be interpreted or construed to affect the meaning,
construction or effect of any Paragraph.
43
<PAGE>
(d) All times, whenever stated in this Lease, are declared to
be of the essence of this Lease.
IN WITNESS WHEREOF, intending to be legally bound, the parties
have executed this Lease as of the day and year first above
written.
Attest: LANDLORD:
1740 Sentry East Associates,
L.P.
By: 1740 Sentry East, Inc., its
general partner
___________________________ By /s/ Michael J. Barrist
--------------------------------
President
Attest: TENANT
NCO FINANCIAL SYSTEMS, INC.
___________________________ By /s/ Michael J. Barrist
--------------------------------
President
44
<PAGE>
Exhibit 10.9
SOFTWARE LICENSE AGREEMENT
CR Software, Inc. agrees to grant and NCO Financial Systems
Inc., DBA National Collections Office (henceforth referred to
as Customer) agrees to accept on the following terms and
conditions, nontransferable and non exclusive licenses to use
the credit bureau reporting software package (Licensed
Programs) herein delivered with this agreement.
TERMS: This agreement and any licenses, programs or materials to which
it applies may not be assigned, sublicensed or otherwise
transferred by the Customer without prior written consent from
CR Software. CR Software is the sole owner of the licensed
programs. No right to print or copy, in whole or in part, the
licensed programs is granted except as hereinafter expressly
provided.
PERMISSION
TO COPY: The Customer may copy the licensed programs ONLY for use as
backup copies. These backup copies are for the SOLE use of the
customer. The Customer must obtain a separate license for each
office in which the licensed programs will be operated.
PROTECTION
AND SECURITY: The Customer agrees not to provide or otherwise make available
any licensed program including but not limited to program
listings, object code and source code, in any form to any
person or entity other than CR Software, without prior written
consent from CR Software.
LIMITATION OF
LIABILITY: CR Software shall have no liability or responsibility to
customer or any other person or entity with respect to any
liability, loss or damage caused or alleged to be caused
directly or indirectly by computer equipment or programs sold
or licensed by CR Software, including but not limited to any
interruption of service, loss of business or anticipatory
profits or consequential computer equipment and/or computer
programs. CR Software warrants that its software performs the
functions and features stated in its literature.
INITIAL INITIAL
-------- ---------
Customer CR Software
<PAGE>
This software is sold as is and is not warranted for fitness
for a particular purpose regardless of any statements that may
have been made by CR Software or its employees.
RESPONSIBILITIES:
CR Software will correct any programming errors in its software
that may be uncovered in the course of operating the system.
These corrections will be made available free of charge to any
one licensed to use the system. CR Software reserves the right
to charge an optional software maintenance fee. CR Software is
not responsible for the correction of errors in NCR or other
companies' software.
MULTIUSER
INFORMATION:
Customers using the multi-user or cardless versions of our
software agree to purchase the UNIX operating system. As stated
in the responsibilities section, CR Software is not responsible
for maintaining or correcting errors in the UNIX operating
system.
GENERAL:
Good data processing procedure dictates that the Customer test
the programs, run and test sample data, and run the system
previously in use for a period of time adequate to insure that
the results of operation of the computer equipment and/or
programs are satisfactory.
Customer Signature: /s/ Michael J. Barrist
------------------------
Name (Please Print):
------------------------
Title (Please Print):
------------------------
Date:
------------------------
CR Software Signature:
------------------------
Name (Please Print):
------------------------
Title (Please Print):
------------------------
Date:
------------------------
<PAGE>
CR SOFTWARE PURCHASE AGREEMENT
Purchaser: NCO Financial Systems Inc.
DBA National Collections Office
1777 Walton Road
Blue Bell, PA 19422
The Purchaser agrees to acquire the hardware and software package described
below:
HARDWARE:
1 Tower 32/600 SCSI Disk Sub-System:
Frame and Cabinet
Power Supply
SCSI Disk Controller
One 8" 368 MB Winchester Disk
One 32/600 SCSI Disk Sub-System Cable
One SCSI Interface Board
TOTAL HARDWARE $15,000
SOFTWARE:
CRS Credit Bureau Reporting Software $ 1,960
TOTAL SYSTEM PRICE $16,960.00
<PAGE>
The NCR Tower 32/600 SCSI Disk Sub-System has the capacity to house up to three
internal hard drives, thus providing a maximum of 1104 MB of internal storage.
The above system is configured with one 368 MB hard drive providing storage for
approximately 300,000 debtors.
The CR Software Credit Bureau Reporting package will convert your data from its
current format to the format required by the credit bureau you wish to report.
As soon as you provide CRS with the credit bureau and appropriate contacts, CRS
will make the necessary arrangements for the Purchaser to begin reporting to
that credit bureau.
Purchaser agrees to provide a $15,000 deposit with this order. The balance of
the system, $1,960, is due and payable after the software has been used to
generate the first monthly credit bureau report.
Purchaser agrees to sign and abide by the terms of our software licensing
agreement.
CR Software agrees to pay for all installation and delivery charges for the NCR
32/600 SCSI Disk Sub-System.
CR Software will support the Credit Bureau Reporting Software at no additional
charge provided NCO Financial Systems, Inc. remains on CRS monthly support.
<PAGE>
Purchaser Signature: /s/ Michael J. Barrist
---------------------------
Name (Please Print):
---------------------------
Title (Please Print):
---------------------------
Date:
---------------------------
CR Software Signature:
---------------------------
Name (Please Print):
---------------------------
Title (Please Print):
---------------------------
Date:
---------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
by and between
NCO GROUP, INC.,
NCO FINANCIAL SYSTEMS, INC.,
NCO FUNDING, INC.
and NCO OF NEW YORK, INC.
and
MELLON BANK, N.A.
September 5, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS; CONSTRUCTION ........................................ 1
1.1. Certain Definitions....................................... 1
1.2. Construction............................................. 17
1.3. Accounting Principles.................................... 18
ARTICLE 2 - THE CREDITS ..................................................... 19
2.1. Revolving Credit Loans................................... 19
2.2. Uniland Letter of Credit................................. 19
2.3 Revolving Credit Commitment Fee; Reduction of the
Revolving Credit Committed Amounts..................... 20
2.4 Making of Loans.......................................... 21
2.5 Interest Rates........................................... 21
2.6 Prepayments Generally.................................... 22
2.7 Optional Prepayments..................................... 22
2.8 Mandatory Prepayments.................................... 22
2.9 Interest Payment Dates................................... 22
2.10 Additional Compensation in Certain Circumstances......... 23
2.11. Taxes.................................................... 24
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES .................................. 25
3.1. Corporate Status......................................... 26
3.2. Corporate Power and Authorization........................ 26
3.3. Execution and Binding Effect............................. 26
3.4. Governmental Approvals and Filings....................... 26
3.5. Absence of Conflicts..................................... 26
3.6. Audited Financial Statements............................. 27
3.7. Interim Financial Statements............................. 27
3.8. Absence of Undisclosed Liabilities....................... 28
3.9. Absence of Changes....................................... 28
3.10. Accurate and Complete Disclosure......................... 28
3.11. Projections.............................................. 28
3.12. Solvency................................................. 29
3.13. Margin Regulations....................................... 29
3.14. Partnerships, Etc........................................ 29
3.15. Ownership and Control.................................... 29
3.16. Litigation............................................... 30
3.17. Absence of Events of Default............................. 30
3.18. Absence of Other Conflicts............................... 30
3.19. Insurance................................................ 30
3.20. Title to Property........................................ 31
3.21. Intellectual Property.................................... 31
3.22. Taxes.................................................... 31
3.23. Employee Benefits........................................ 31
3.24. Environmental Matters.................................... 31
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3.25. Business Interruptions....................................32
3.26. Names.....................................................32
3.27. Regulation O..............................................33
ARTICLE 4 - CONDITIONS OF LENDING ........................................... 33
4.1. Conditions to Initial Loans.............................. 33
4.2. Conditions to All Loans.................................. 37
ARTICLE 5 - AFFIRMATIVE COVENANTS ........................................... 38
5.1. Basic Reporting Requirements............................. 38
5.2. Insurance................................................ 42
5.3. Payment of Taxes and Other Potential Charges and
Priority Claims........................................ 42
5.4. Preservation of Corporate Status......................... 43
5.5. Governmental Approvals and Filings....................... 43
5.6. Maintenance of Properties................................ 43
5.7. Avoidance of Other Conflicts............................. 44
5.8. Financial Accounting Practices............................44
5.9. Use of Proceeds.......................................... 44
5.10. Continuation of or Change in Business.................... 44
5.11. Employment of Management................................. 44
5.12. Consolidated Tax Return.................................. 45
5.13. Fiscal Year.............................................. 45
5.14. Bank Accounts.............................................45
5.15. Submission of Collateral Documents........................45
5.16. Collection of Accounts....................................46
5.17. MAB/NCO New York Merger...................................46
ARTICLE 6 - NEGATIVE COVENANTS .............................................. 46
6.1. Financial Covenants...................................... 46
6.2. Liens.................................................... 47
6.3. Indebtedness............................................. 48
6.4. Guaranties, Indemnities, etc............................. 48
6.5. Loans, Advances and Investments.......................... 49
6.6. Dividends and Related Distributions...................... 49
6.7 Sale-Leasebacks.......................................... 50
6.8. Leases................................................... 51
6.9. Mergers, Acquisitions, etc............................... 51
6.10. Dispositions of Properties............................... 51
6.11. Issuance of Stock........................................ 52
6.12. Dealings with Affiliates................................. 52
6.13. Capital Expenditures..................................... 53
6.14. Limitations on Modification of Certain Agreements
and Instruments........................................ 53
6.15. Limitation on Payments and Modification of
Restricted Indebtedness................................ 54
6.16. Limitation on Other Restrictions on Dividends by
Subsidiaries, etc...................................... 54
6.17. Limitation on Other Restrictions on Liens................ 54
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6.18. Limitation on Other Restrictions on Amendment of
the Loan Documents, etc................................ 54
ARTICLE 7 - DEFAULTS ........................................................ 54
7.1. Events of Default........................................ 55
7.2. Consequences of an Event of Default...................... 58
ARTICLE 8 - MISCELLANEOUS ................................................... 59
8.1. Holidays................................................. 59
8.2. Records.................................................. 59
8.3. Amendments and Waivers................................... 59
8.4. No Implied Waiver; Cumulative Remedies................... 60
8.5 Notices.................................................. 60
8.6. Expenses; Taxes; Indemnity............................... 60
8.7. Severability............................................. 62
8.8. Prior Understandings..................................... 63
8.9. Duration; Survival....................................... 63
8.10. Counterparts............................................. 63
8.11. Limitation on Payments................................... 63
8.12. Set-Off.................................................. 63
8.13. Sharing of Collections................................... 64
8.14. Successors and Assigns; Participations;
Assignments............................................ 65
Schedule 3.1 Corporate Status
Schedule 3.8 Absence of Undisclosed Liabilities
Schedule 3.11 Projections
Schedule 3.14 Partnerships, etc.
Schedule 3.15 Ownership and Control
Schedule 3.19 Insurance
Schedule 3.21 Intellectual Property
Schedule 3.24 Environmental Matters
Schedule 3.26 Names
Schedule 6.2 Permitted Liens
Schedule 6.3 Permitted Indebtedness
Schedule 6.5 Existing Loans, Advances and Investments
Schedule 6.12 Permitted Dealings with Affiliates
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Amended and Restated Limited Guaranty
Exhibit C Form of Warrant Documents
Exhibit D Form of Amended and Restated Security Agreement
Exhibit E Form of Amended and Restated Stock Pledge Agreement
Exhibit F Form of Stock Pledge Agreement
Exhibit G Form of MAB Guaranty
Exhibit H Form of MAB Security Agreement
Exhibit I Form of Insurance Assignments
Exhibit J Form of Opinion of Blank, Rome, Comisky & McCauley
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Exhibit K Form of Opinion of Joshua Gindin
Exhibit L Form of Quarterly Compliance Certificate
-iv-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
September 5, 1996, by and between NCO Group, Inc., a Pennsylvania corporation
("NCO Group"), NCO Financial Systems, Inc., a Pennsylvania corporation ("NCO
Financial"), NCO Funding, Inc., a Delaware corporation ("NCO Funding"), and NCO
of New York, Inc. a New York corporation ("NCO New York")(NCO Group, NCO
Financial, NCO Funding and NCO New York are each individually a "Borrower" and
collectively the "Borrowers") and Mellon Bank, N.A., a national banking
association (the "Lender").
Recitals:
A. NCO Financial and the Lender entered into that certain
Credit Agreement dated as of July 28, 1995 ("Credit Agreement"), pursuant to
which the Lender made available to NCO Financial certain credit facilities.
B. On the Second Closing Date (as defined below), NCO New York
(as assignee of NCO Financial) will acquire all of the outstanding common stock
of Management Adjustment Bureau, Inc. in an acquistion more particularly
described in a Stock Purchase Agreement dated as of July 18, 1996 among the
owners of the stock and NCO Financial.
C. In order to finance the MAB Acquisition, the Borrowers have
requested that the Lender amend and restate the Credit Agreement in order to
increase the Revolving Credit Commitment to $15,000,000.
D. The Borrowers and the Lender have agreed to amend and
restate the Credit Agreement and to thereby increase the amount of the Revolving
Credit Commitment and amend certain other terms and provisions of the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and intending to be legally bound hereby, the
Borrowers and the Lender agree that the Credit Agreement is hereby amended and
restated in its entirety as follows:
ARTICLE 1 - DEFINITIONS; CONSTRUCTION
1.1. Certain Definitions. In addition to other words and terms
defined elsewhere in this Agreement, as used herein the following words and
terms shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
<PAGE>
"Account" shall mean any right to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument
or chattel paper, whether or not it has been earned by performance.
"Affiliate" of a Person (the "Specified Person") shall mean
(a) any Person which directly or indirectly controls, or is controlled
by, or is under common control with, the Specified Person, (b) any
director or officer (or, in the case of a Person which is not a
corporation, any individual having analogous powers) of the Specified
Person or of a Person who is an Affiliate of the Specified Person
within the meaning of the preceding clause (a), and (c) for each
individual who is an Affiliate of the Specified Person within the
meaning of the foregoing clauses (a) or (b), any other individual
related to such Affiliate by consanguinity within the third degree or
in a step or adoptive relationship within such third degree or related
by affinity with such Affiliate or any such individual. For purposes of
the preceding sentence, "control" of a Person means (a) the possession,
directly or indirectly, of the power to direct or cause the direction
of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Annual Budget" shall have the meaning set forth in
Section 5.1 hereof.
"Business Day" shall mean any day other than a Saturday,
Sunday, public holiday under the laws of the Commonwealth of
Pennsylvania or other day on which banking institutions are authorized
or obligated to close in the city in which is located the Lender's
office.
"Capital Expenditures" of any Person shall mean, for any
period, all expenditures (whether paid in cash or accrued as
liabilities during such period) of such Person during such period which
would be classified as capital expenditures in accordance with GAAP
(including, without limitation, expenditures for maintenance and
repairs which are capitalized, Capitalized Leases to the extent an
asset is recorded in connection therewith in accordance with GAAP, and
Purchase Money Indebtedness), but excluding any Capital Assets acquired
as part of a Permitted Acquisition.
"Capitalized Lease" shall mean at any time any lease which is,
or is required under GAAP to be, capitalized on the balance sheet of
the lessee at such time, and "Capitalized Lease Obligation" of any
Person at any time shall mean the aggregate amount which is, or is
required
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under GAAP to be, reported as a liability on the balance sheet of such
Person at such time as lessee under a Capitalized Lease.
"Cash Equivalent Investments" shall mean any of the following,
to the extent acquired for investment and not with a view to achieving
trading profits: (a) obligations fully backed by the full faith and
credit of the United States of America maturing not in excess of nine
months from the date of acquisition, (b) commercial paper maturing not
in excess of nine months from the date of acquisition and rated "P-1"
by Moody's Investors Service or "A-1" by Standard & Poor's Corporation
on the date of acquisition, and (c) the following obligations of any
domestic commercial bank having capital and surplus in excess of
$500,000,000, which has, or the holding company of which has, a
commercial paper rating meeting the requirements specified in clause
(b) above: (i) time deposits, certificates of deposit and acceptances
maturing not in excess of nine months from the date of acquisition, or
(ii) repurchase obligations with a term of not more than seven days for
underlying securities of the type referred to in clause (a) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, and any successor statute
of similar import, and regulations thereunder, in each case as in
effect from time to time.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List, as the same may be
amended from time to time.
"Change of Management" shall mean that a majority of the Board
of Directors of NCO Group shall be other than those who were directors
on the date hereof, or Michael Barrist or Charles Piola, Jr. shall die,
become disabled, shall be terminated from employment with NCO Group
(voluntarily or involuntarily), or for any reason shall cease to serve
as President and Executive Vice President, respectively, of NCO Group,
having duties and responsibilities substantially similar to those held
by them on the date hereof; provided, however, that (a) the disability
of Michael Barrist shall not fall within the definition of a Change of
Management, so long as within thirty (30) calendar days of such
disability NCO Group has delivered to the Lender a succession plan
which is acceptable to the Lender in its sole and absolute discretion,
(b) after a Qualified IPO, the termination from employment of Michael
Barrist with NCO Group (voluntarily or involuntarily) shall not fall
within the definition of a
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Change of Management, so long as a replacement is hired within thirty
(30) calendar days of such termination who is reasonably acceptable to
the Lender in its sole and absolute discretion, (c) the disability of
Charles Piola (to the extent such disability prevents Charles Piola
from performing his duties with NCO Group for ninety (90) consecutive
days) shall not fall within the definition of a Change of Management,
so long as NCO Group has delivered to the Lender a succession plan
which is acceptable to the Lender, and (d) after a Qualified IPO, the
termination from employment of Charles Piola with NCO Group
(voluntarily or involuntarily) shall not fall within the definition of
a Change of Management.
"Closing Date" shall mean the date of the first Loan under the
Credit Agreement.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to
sections of the Code shall be construed also to refer to any successor
sections.
"Collateral" shall mean the property from time to time subject
to or purported to be subject to the Liens of the Security Documents.
"Consolidated Current Assets" at any time shall mean the
"current assets" of NCO Group and its consolidated Subsidiaries
determined on a consolidated basis in accordance with GAAP.
"Consolidated Current Liabilities" at any time shall mean the
"current liabilities" of NCO Group and its consolidated Subsidiaries
determined on a consolidated basis in accordance with GAAP, except that
Consolidated Current Liabilities shall include the aggregate amount of
Revolving Credit Loans to the extent not included in "current
liabilities" in conformity with GAAP.
"Consolidated Current Ratio" at any time shall mean the ratio
of the Consolidated Current Assets at such time to the Consolidated
Current Liabilities at such time.
"Consolidated EBIT" for any period, with respect to NCO Group
and its consolidated Subsidiaries, shall mean the sum of (a)
Consolidated Net Income for such period, (b) Consolidated Interest
Expense for such period, (c) charges against income for foreign,
federal, state and local income taxes for such period, (d)
extraordinary losses to the extent included in determining such
Consolidated Net
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Income, minus (e) extraordinary gains to the extent included in
determining such Consolidated Net Income, all as determined on a
consolidated basis in accordance with GAAP.
"Consolidated EBITDA" for any period, with respect to NCO
Group and its consolidated Subsidiaries, shall mean the sum of (a)
Consolidated EBIT for such period, (b) depreciation expense for such
period, and (c) amortization expense for such period, all as determined
on a consolidated basis in accordance with GAAP.
"Consolidated Funded Debt" shall mean all obligations of NCO
Group and its consolidated Subsidiaries incurred from time to time for
Indebtedness, including without limitation the Obligations and Purchase
Money Indebtedness.
"Consolidated Interest Coverage Ratio" for any period shall
mean the ratio of Consolidated EBIT for such period to the Consolidated
Interest Expense for such period.
"Consolidated Interest Expense" for any period shall mean the
total interest expense of NCO Group and its consolidated Subsidiaries
for such period determined on a consolidated basis in accordance with
GAAP.
"Consolidated Net Income" for any period shall mean the net
earnings (or loss) after taxes of NCO Group and its consolidated
Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP; provided, that there shall be deducted therefrom
(a) the income (or deficit) of any Person accrued prior to the date it
becomes a consolidated Subsidiary or is merged into or consolidated
acquired by or combined with NCO Group or any consolidated Subsidiary
in a business combination accounted for as a pooling of interests,
including, in the case of a successor to NCO Group or any consolidated
Subsidiary by consolidation or merger or transfer of assets, any
earnings of the successor corporation prior to such consolidation,
merger or transfer of assets, (b) income or loss accounted for by NCO
Group on the equity method because of the income (or deficit) during
such period of any Person (other than a consolidated Subsidiary) in
which NCO Group or any consolidated Subsidiary has an ownership
interest, but the deduction for such equity income shall be reversed to
the extent that during such period or at any subsequent time an amount
not in excess of such income has been actually received by NCO Group or
such consolidated Subsidiary in the form of cash or property dividends
or similar distributions, (c) income or loss of a foreign Subsidiary,
but the deduction for such Subsidiary income shall be reversed to the
extent that during such period or at any subsequent time an amount not
in excess of such income has been actually received by NCO Group or
such consolidated Subsidiary in the
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form of cash or property dividends or similar distributions, not
subject to foreign currency translation, (d) the undistributed earnings
of any consolidated Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such consolidated
Subsidiary is restricted (whether such restriction arises by operation
of Law, by agreement, by its articles of incorporation or by-laws (or
other constituent documents), or otherwise), (e) any restoration to
income of any contingency reserve, except to the extent that provision
for such reserve was made against income during such period, and (f)
any gain arising from the acquisition of any securities, or the
extinguishment, under GAAP, of any Indebtedness, of NCO Group or any
consolidated Subsidiary.
"Consolidated Net Worth" at any time shall mean the total
amount of stockholders' equity of NCO Group and its consolidated
Subsidiaries at such time determined on a consolidated basis in
accordance with GAAP.
"Controlled Group Member" shall mean each trade or business
(whether or not incorporated) which together with any Borrower is
treated as a single employer under Sections 4001(a)(14) or 4001(b)(1)
of ERISA or Sections 414(b), (c), (m) or (o) of the Code.
"Credit Agreement" shall mean the Credit Agreement between NCO
Financial and the Lender dated as of July 28, 1995.
"Debt Service Coverage Ratio" shall mean the ratio of (a)
Consolidated Net Income, plus depreciation, plus amortization, for the
immediately preceeding 12 month period, to (b) Consolidated Interest
Expense for the immediately preceeding 12 month period, plus current
maturities of any outstanding Indebtedness.
"Dollar," "Dollars" and the symbol "$" shall mean lawful money
of the United States of America.
"Environmental Affiliate" shall mean, with respect to any
Person, any other Person whose liability (contingent or otherwise) for
any Environmental Claim such Person has retained, assumed or otherwise
is liable for (by Law, agreement or otherwise).
"Environmental Approvals" shall mean any Governmental Action
pursuant to or required under any Environmental Law.
"Environmental Claim" shall mean, with respect to any
Person, any action, suit, proceeding, investigation, notice,
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claim, complaint, demand, request for information or other
communication (written or oral) by any other Person (including but not
limited to any Governmental Authority, citizens' group or present or
former employee of such Person) alleging, asserting or claiming any
actual or potential (a) violation of any Environmental Law, (b)
liability under any Environmental Law or (c) liability for
investigatory costs, cleanup costs, governmental response costs,
natural resources damages, property damages, personal injuries, fines
or penalties arising out of, based on or resulting from the presence,
or release into the environment, of any Environmental Concern Materials
at any location, whether or not owned by such Person.
"Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on
CERCLIS or on any similar state list of sites requiring investigation
or cleanup, or which is the subject of any pending or threatened
action, suit, proceeding or investigation related to or arising from
any alleged violation of any Environmental Law.
"Environmental Concern Materials" shall mean (a) any flammable
substance, explosive, radioactive material, hazardous material,
hazardous waste, toxic substance, solid waste, pollutant, contaminant
or any related material, raw material, substance, product or by-product
of any substance specified in or regulated or otherwise affected by any
Environmental Law (including but not limited to any "hazardous
substance" as defined in CERCLA or any similar state Law), (b) any
toxic chemical or other substance from or related to industrial,
commercial or institutional activities, and (c) asbestos, gasoline,
diesel fuel, motor oil, waste and used oil, heating oil and other
petroleum products or compounds, polychlorinated biphenyls, radon and
urea formaldehyde.
"Environmental Law" shall mean any Law, whether now existing
or subsequently enacted or amended, relating to (a) pollution or
protection of the environment, including natural resources, (b)
exposure of Persons, including but not limited to employees, to
Environmental Concern Materials, (c) protection of the public health or
welfare from the effects of products, by-products, wastes, emissions,
discharges or releases of Environmental Concern Materials or (d)
regulation of the manufacture, use or introduction into commerce of
Environmental Concern Materials including their manufacture,
formulation, packaging, labeling, distribution, transportation,
handling, storage or disposal. Without limitation, "Environmental
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Law" shall also include any Environmental Approval and the terms and
conditions thereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and any successor statute of similar import, and
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed also to refer to any
successor sections.
"Event of Default" shall mean any of the Events of Default
described in Section 7.1 hereof.
"Final S Corp. Distribution" shall mean the final distribution
by NCO Financial to its shareholders of its accumulated adjustment
account, in an amount equal to all previously taxed but undistibuted S
corporation earnings of NCO Financial, estimated to be approximately
$3,000,000 as of September 1, 1996.
"GAAP" shall have the meaning set forth in Section 1.3
hereof.
"Governmental Action" shall have the meaning set forth
in Section 3.4 hereof.
"Governmental Authority" shall mean any government or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
"Guarantors" shall mean Michael Barrist, Charles Piola, Jr.,
Bernie Miller and Annette Barrist.
"Guaranty Equivalent" shall have the meaning set forth below:
A Person (the "Deemed Guarantor") shall be deemed to subject to a
Guaranty Equivalent in respect of any indebtedness, obligation or
liability (the "Assured Obligation") of another Person (the "Deemed
Obligor") if the Deemed Guarantor directly or indirectly guarantees,
becomes surety for, endorses, assumes, agrees to indemnify the Deemed
Obligor against, or otherwise agrees, becomes or remains liable
(contingently or otherwise) for, such Assured Obligation. Without
limitation, a Guaranty Equivalent shall be deemed to exist if a Deemed
Guarantor agrees, becomes or remains liable (contingently or
otherwise), directly or indirectly: (a) to purchase or assume, or to
supply funds for the payment, purchase or satisfaction of, an Assured
Obligation, (b) to make any loan, advance, capital
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contribution or other investment in, or to purchase or lease any
property or services from, a Deemed Obligor (i) to maintain the
solvency of the Deemed Obligor, (ii) to enable the Deemed Obligor to
meet any other financial condition, (iii) to enable the Deemed Obligor
to satisfy any Assured Obligation or to make any Stock Payment or any
other payment, or (iv) to assure the holder of such Assured Obligation
against loss, (c) to purchase or lease property or services from the
Deemed Obligor regardless of the non-delivery of or failure to furnish
of such property or services, (d) in a transaction having the
characteristics of a take-or-pay or throughput contract or as described
in paragraph 6 of FASB Statement of Financial Accounting Standards No.
47, or (e) in respect of any other transaction the effect of which is
to assure the payment or performance (or payment of damages or other
remedy in the event of nonpayment or nonperformance) of any Assured
Obligation.
"Indebtedness" of a Person shall mean:
(a) All obligations on account of money borrowed by,
or credit extended to or on behalf of, or for or on account of
deposits with or advances to, such Person;
(b) All obligations of such Person evidenced by
bonds, debentures, notes or similar instruments;
(c) All obligations of such Person for the deferred
purchase price of property or services, including without
limitation, with respect to the Borrower, all obligations
incurred by the Borrower to a seller in connection with any
Permitted Acquisition;
(d) All obligations secured by a Lien on property
owned by such Person (whether or not assumed); and all
obligations of such Person under Capitalized Leases (without
regard to any limitation of the rights and remedies of the
holder of such Lien or the lessor under such Capitalized Lease
to repossession or sale of such property);
(e) The face amount of all letters of credit issued
for the account of such Person and, without duplication, the
unreimbursed amount of all drafts drawn thereunder, and all
other obligations of such Person associated with such letters
of credit or draws thereon;
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(f) All obligations of such Person in respect of
acceptances or similar obligations issued for the account of
such Person;
(g) All obligations of such Person under a product
financing or similar arrangement described in paragraph
8 of FASB Statement of Accounting Standards No. 49 or
any similar requirement of GAAP; and
(h) All obligations of such Person under any interest
rate or currency protection agreement, interest rate or
currency future, interest rate or currency option, interest
rate or currency swap or cap or other interest rate or
currency hedge agreement.
"Indemnified Parties" shall mean the Lender, its respective
affiliates, and the directors, officers, employees, attorneys and
agents of each of the foregoing.
"Law" shall mean any law (including common law), constitution,
statute, treaty, convention, regulation, rule, ordinance, order,
injunction, writ, decree or award of any Governmental Authority.
"Lien" shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement
of any nature whatsoever, including but not limited to any conditional
sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security.
"Loan" shall mean any loan by the Lender to any Borrower under
this Agreement, and "Loans" shall mean all Loans made by the Lender
under this Agreement.
"Loan Documents" shall mean this Agreement, the Note, the
Security Documents, the Warrant Documents, and all other agreements and
instruments extending, renewing, refinancing or refunding any
indebtedness, obligation or liability arising under any of the
foregoing, in each case as the same may be amended, modified or
supplemented from time to time hereafter.
"MAB" shall mean Management Adjustment Bureau, Inc., a
New York corporation.
"MAB Acquisition" shall mean that certain transaction pursuant
to which NCO New York (as assignee of NCO Financial) will acquire all
of the outstanding stock of MAB in an acquistion more particularly
described in a Stock
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Purchase Agreement dated as of July 18, 1996 among the owners of the
stock and NCO Financial.
"MAB/NCO New York Merger" shall mean the merger by which NCO
New York shall merge into MAB, with MAB as the surviving entity.
"Material Adverse Effect" shall mean: (a) a material adverse
effect on the business, operations, condition (financial or otherwise)
or prospects of any Borrower, (b) a material adverse effect on the
ability of any Borrower to perform or comply with any of the terms and
conditions of any Loan Document, or (c) an adverse effect on the
legality, validity, binding effect, enforceability or admissibility
into evidence of any Loan Document, or the ability of the Lender to
enforce any rights or remedies under or in connection with any Loan
Document.
"Multiemployer Plan" shall mean any employee benefit plan
which is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA and to which any Borrower or any Controlled Group
Member has or had an obligation to contribute.
"NCO 1996 Stock Option Plan" shall mean the employee stock
option plan to be adopted by NCO Group pursuant to which NCO Group
shall issue options to purchase no more than 5,212 shares of its common
stock.
"NCO Reorganization" shall mean the corporate reorganization
of NCO Financial pursuant to which (a) the shareholders of NCO
Financial will swap their shares in NCO Financial for an equivalent
number of shares in NCO Group, a newly formed Pennsylvania corporation,
so that the capitalization of NCO Group shall be identical to the
capitalization of NCO Financial prior to the stock-for-stock swap, and
NCO Financial shall thereby become a wholly-owned subsidiary of NCO
Group, (b) NCO Group shall form NCO Funding, a new wholly-owned
subsidiary, as a Delaware corporation, (c) NCO Group shall form NCO New
York, a new wholly-owned subsidiary, as a New York corporation.
"Net Cash Proceeds" with respect to any property shall mean
cash or cash equivalents received by any Borrower from the sale or
other disposition of such property, minus the sum of (a) expenses
reasonably incurred in respect of such sale or other disposition, (b)
any sales or transfer taxes payable as a result of such sale and (c)
the amount required to discharge any indebtedness or obligation secured
by a
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Lien on such property and required to be discharged in connection with
such sale or other disposition.
"Net Realizable IPO Proceeds" shall have the meaning set forth
in Section 5.14 hereof.
"Note" shall mean the Revolving Credit Note of the Borrowers
executed and delivered under this Agreement, together with all
extensions, renewals, refinancings or refundings of any thereof in
whole or part.
"Obligations" shall mean all indebtedness, obligations and
liabilities of any Borrower to the Lender from time to time arising
under or in connection with or related to or evidenced by or secured by
or under color of this Agreement or any other Loan Document, and all
extensions, renewals or refinancings thereof, whether such
indebtedness, obligations or liabilities are direct or indirect,
otherwise secured or unsecured, joint or several, absolute or
contingent, due or to become due, whether for payment or performance,
now existing or hereafter arising. Without limitation of the foregoing,
such indebtedness, obligations and liabilities include the principal
amount of all Loans, interest, fees, indemnities or expenses under or
in connection with this Agreement or any other Loan Document, and all
extensions, renewals and refinancings thereof, whether or not such
Loans were made in compliance with the terms and conditions of this
Agreement or in excess of the obligation of the Lender to lend.
Obligations shall remain Obligations notwithstanding any assignment or
transfer or any subsequent assignment or transfer of any of the
Obligations or any interest therein.
"Participant" shall have the meaning set forth in
Section 8.13(b) hereof.
"PBGC" means the Pension Benefit Guaranty Corporation
established under Title IV of ERISA or any other governmental agency,
department or instrumentality succeeding to the functions of said
corporation.
"Pension-Related Event" shall mean any of the following
events or conditions:
(a) Any action is taken by any Person (i) to
terminate, or which would result in the termination of, a
Plan, either pursuant to its terms or by operation of law
(including, without limitation, any amendment of a Plan which
would result in a termination under Section
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4041(e) of ERISA), or (ii) to have a trustee appointed
for a Plan pursuant to Section 4042 of ERISA;
(b) PBGC notifies any Person of its determination
that an event described in Section 4042 of ERISA has occurred
with respect to a Plan, that a Plan should be terminated, or
that a trustee should be appointed for a Plan;
(c) Any Reportable Event occurs with respect to a
Plan;
(d) Any action occurs or is taken which could result
in any Borrower becoming subject to liability for a complete
or partial withdrawal by any Person from a Multiemployer Plan
(including, without limitation, seller liability incurred
under Section 4204(a)(2) of ERISA), or any Borrower or any
Controlled Group Member receives from any Person a notice or
demand for payment on account of any such alleged or asserted
liability; or
(e) (i) There occurs any failure to meet the minimum
funding standard under Section 302 of ERISA or Section 412 of
the Code with respect to a Plan, or any tax return is filed
showing any tax payable under Section 4971(a) of the Code with
respect to any such failure, or any Borrower or any Controlled
Group Member receives a notice of deficiency from the Internal
Revenue Service with respect to any alleged or asserted such
failure, or (ii) any request is made by any Person for a
variance from the minimum funding standard, or an extension of
the period for amortizing unfunded liabilities, with respect
to a Plan.
"Permitted Acquisitions" shall mean the MAB Acquisition and
any acquisition by any Borrower of all of the properties of any going
concern or going line of business; provided, however, that each such
business being acquired by such Borrower must (1) have a positive
EBITDA for the immediately preceding twelve months prior to the
acquisition, after adjustments for unusual expense items, (2) be in the
same or a similar line of business as such Borrower, and (3) after
recasting such Borrower's financial statements for the immediately
preceding twelve month period to include the results of operations from
the target of the acquisition, and preparing pro-forma financial
statements for the immediately succeeding twelve month period, the
combined Borrower and target shall have met the financial covenants
described in Section 6.1 of this Agreement for the
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immediately preceding twelve months prior to the acquisition and on a
pro-forma basis for the immediately following twelve month period after
the acquisition. The aggregate purchase price of Permitted
Acquisitions, other than the MAB Acquisition, shall not exceed
$3,500,000, among all Borrowers, in any rolling twelve month period.
"Permitted Liens" shall have the meaning set forth in
Section 6.2 hereof.
"Person" shall mean an individual, corporation, partnership,
trust, unincorporated association, joint venture, joint-stock company,
Governmental Authority or any other entity.
"Plan" means any employee pension benefit plan within the
meaning of Section 3(2) of ERISA (other than a Multiemployer Plan)
covered by Title IV of ERISA by reason of Section 4021 of ERISA, of
which any Borrower or any Controlled Group Member is or has been within
the preceding five years a "contributing sponsor" within the meaning of
Section 4001(a)(13) of ERISA, or which is or has been within the
preceding five years maintained for employees of any Borrower or any
Controlled Group Member.
"PNC Accounts" shall have the meaning set forth in
Section 5.14 hereof.
"Postretirement Benefits" shall mean any benefits, other than
retirement income, provided by any Borrower to retired employees, or to
their spouses, dependents or beneficiaries, including, without
limitation, group medical insurance or benefits, or group life
insurance or death benefits.
"Postretirement Benefit Obligation" shall mean that portion of
the actuarial present value of all Postretirement Benefits expected to
be provided by any Borrower which is attributable to employees' service
rendered to the date of determination (assuming that such liability
accrues ratably over an employee's working life to the earlier of his
date of retirement or the date on which the employee would first become
eligible for full benefits), reduced by the fair market value as of the
date of determination of any assets which are segregated from the
assets of such Borrower and which have been restricted so that they
cannot be used for any purpose other than to provide Postretirement
Benefits or to defray related expenses.
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"Potential Default" shall mean any event or condition which
with notice or the passage of time would constitute an Event of
Default.
"Prime Rate" as used herein, shall mean the interest rate per
annum announced from time to time by the Lender, as its prime rate. The
Prime Rate may be greater or less than other interest rates charged by
the Lender to other borrowers and is not solely based or dependent upon
the interest rate which the Lender may charge any particular borrower
or class of borrowers.
"Purchase Money Indebtedness" shall mean at any time any (a)
Indebtedness incurred for the deferred purchase price in connection
with a Capital Expenditure and (b) Indebtedness for borrowed money of
any Borrower which is incurred in connection with a Permitted
Acquisition, and which (i) is unsecured, (ii) is fully and permanently
subordinated, as to both principal and interest, to any Obligations,
(iii) contains no financial covenants, and (iv) contains permanent
"stand still" or forbearance provisions acceptable to the Lender which
apply upon the occurrence of an Event of Default or Potential Default
under this Agreement.
"Qualified IPO" shall mean an underwritten "best efforts"
initial public offering of shares of NCO Group's common stock in which
the aggregate net proceeds to NCO Group are at least $9,500,000.
"Regular Payment Date" shall mean the first day of each month
after the date hereof.
"Reportable Event" means (a) a reportable event described in
Section 4043 of ERISA, (b) a withdrawal by a substantial employer from
a Plan to which more than one employer contributes, as referred to in
Section 4063(b) of ERISA, (c) a cessation of operations at a facility
causing more than twenty percent (20%) of Plan participants to be
separated from employment, as referred to in Section 4062(e) of ERISA,
or (d) a failure to make a required installment or other payment with
respect to a Plan when due in accordance with Section 412 of the Code
or Section 302 of ERISA which causes the total unpaid balance of missed
installments and payments (including unpaid interest) to exceed
$750,000.
"Responsible Officer" shall mean Michael Barrist or
Charles Piola, Jr.
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"Revolving Credit Commitment" shall have the meaning set forth
in Section 2.1(a) hereof.
"Revolving Credit Commitment Fee" shall have the meaning set
forth in Section 2.2(a) hereof.
"Revolving Credit Committed Amount" shall mean Fifteen
Million Dollars ($15,000,000).
"Revolving Credit Loans" shall have the meaning set forth in
Section 2.1(a) hereof.
"Revolving Credit Maturity Date" shall mean July 31,
1999.
"Revolving Credit Note" shall mean the promissory note of the
Borrowers executed and delivered under Section 2.1(c) hereof, any
promissory note issued in substitution therefor, together with all
extensions, renewals, refinancings or refundings thereof in whole or
part.
"Second Closing Date" shall mean September 5, 1996.
"Security Agreement" shall mean the Amended and Restated
Security Agreement dated as of the date hereof and duly executed on
behalf of each Borrower, as it may be amended, modified or supplemented
from time to time, and delivered to the Lender pursuant Section 4.1(c)
hereof.
"Security Documents" shall have the meaning set forth
in Section 4.1(e) hereof.
"Solvent" means, with respect to any Person at any time, that
at such time (a) the sum of the debts and liabilities (including,
without limitation, contingent liabilities) of such Person is not
greater than all of the assets of such Person at a fair valuation, (b)
the present fair salable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (c) such
Person has not incurred, will not incur, does not intend to incur, and
does not believe that it will incur, debts or liabilities (including,
without limitation, contingent liabilities) beyond such person's
ability to pay as such debts and liabilities mature, (d) such Person is
not engaged in, and is not about to engage in, a business or a
transaction for which such person's property constitutes or would
constitute unreasonably small capital, and (e) such Person is not
otherwise insolvent as defined in, or otherwise in a condition which
could in any
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circumstances then or subsequently render any transfer, conveyance,
obligation or act then made, incurred or performed by it avoidable or
fraudulent pursuant to, any Law that may be applicable to such Person
pertaining to bankruptcy, insolvency or creditors' rights (including
but not limited to the Bankruptcy Code of 1978, as amended, and, to the
extent applicable to such Person, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act, or any other applicable Law
pertaining to fraudulent conveyances or fraudulent transfers or
preferences).
"Stock Payment" by any Person shall mean any dividend,
distribution or payment of any nature (whether in cash, securities, or
other property) on account of or in respect of any shares of the
capital stock (or warrants, options or rights therefor) of such Person,
including but not limited to any payment on account of the purchase,
redemption, retirement, defeasance or acquisition of any shares of the
capital stock (or warrants, options or rights therefor) of such Person,
in each case regardless of whether required by the terms of such
capital stock (or warrants, options or rights) or any other agreement
or instrument.
"Subsidiary" of a Person at any time shall mean any
corporation of which a majority (by number of shares or number of
votes) of any class of outstanding capital stock normally entitled to
vote for the election of one or more directors (regardless of any
contingency which does or may suspend or dilute the voting rights of
such class) is at such time owned directly or indirectly, beneficially
or of record, by such Person or one or more Subsidiaries of such
Person, and any trust of which a majority of the beneficial interest is
at such time owned directly or indirectly, beneficially or of record,
by such Person or one or more Subsidiaries of such Person.
"Taxes" shall have the meaning set forth in Section
2.10 hereof.
"Uniland L/C shall have the meaning set forth in
Section 2.2 hereof.
"Uniland L/C Committed Amount" shall mean Three Hundred
Thousand Dollars ($300,000).
"Warrant Documents" shall have the meaning set forth in
Section 4.1(c) hereof.
1.2. Construction. Unless the context of this
Agreement otherwise clearly requires, references to the plural
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include the singular, the singular the plural and the part the whole; "or" has
the inclusive meaning represented by the phrase "and/or"; and "property"
includes all properties and assets of any kind or nature, tangible or
intangible, real, personal or mixed. References in this Agreement to
"determination" (and similar terms) by the Lender include good faith estimates
by the Lender (in the case of quantitative determinations) and good faith
beliefs by the Lender (in the case of qualitative determinations). The words
"hereof," "herein," "hereunder" and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
References herein to "out-of-pocket expenses" of a Person (and similar terms)
include, but are not limited to, the fees of in-house counsel and other in-house
professionals of such Person to the extent that such fees are routinely
identified and specifically charged under such Person's normal cost accounting
system. The section and other headings contained in this Agreement and the Table
of Contents preceding this Agreement are for reference purposes only and shall
not control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection and exhibit references are to this
Agreement unless otherwise specified.
1.3. Accounting Principles.
(a) As used herein, "GAAP" shall mean generally accepted
accounting principles in the United States, applied on a basis consistent with
the principles used in preparing NCO Financial's financial statements as of
December 31, 1994 and for the fiscal year then ended, as referred to in Section
3.6 hereof.
(b) Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters shall be
made, and all financial statements to be delivered pursuant to this Agreement
shall be prepared, in accordance with GAAP (including principles of
consolidation where appropriate), and all accounting or financial terms shall
have the meanings ascribed to such terms by GAAP.
(c) If and to the extent that the financial statements
generally prepared by the Borrowers apply accounting principles other than GAAP,
all financial statements referred to in this Agreement or any other Loan
Document shall be delivered in duplicate, one set based on the accounting
principles then generally applied by the Borrowers and one set based on GAAP, if
different. To the extent this Agreement or such other Loan Document requires
financial statements to be accompanied by an opinion of independent accountants,
each set of financial statements shall be accompanied by such an opinion.
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ARTICLE 2 - THE CREDITS
2.1. Revolving Credit Loans.
(a) Revolving Credit Commitment. Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
the Lender agrees (such agreement being herein called "Revolving Credit
Commitment") to make loans (the "Revolving Credit Loans") to the Borrowers at
any time or from time to time on or after the date hereof and to but not
including the Revolving Credit Maturity Date. The Lender shall have no
obligation to make a Revolving Credit Loan to the extent that the aggregate
principal amount of Revolving Credit Loans at any time outstanding would exceed
the Revolving Credit Committed Amount.
(b) Nature of Credit. Within the limits of time and amount set
forth in this Section 2, and subject to the provisions of this Agreement, the
Borrowers may borrow, repay and reborrow Revolving Credit Loans hereunder.
(c) Revolving Credit Note. The obligation of the Borrowers to
repay the unpaid principal amount of the Revolving Credit Loans made by the
Lender and to pay interest thereon shall be evidenced in part by a promissory
note of the Borrowers, dated the Second Closing Date (the "Revolving Credit
Note") in substantially the form attached hereto as Exhibit A, with the blanks
appropriately filled, payable to the order of the Lender in a face amount equal
to $15,000,000 ("the Revolving Credit Committed Amount").
(d) Maturity. To the extent not due and payable earlier, the
Revolving Credit Loans shall be due and payable on the Revolving Credit Maturity
Date.
2.2. Uniland Letter of Credit.
(a) Uniland Letter of Credit Commitment. Subject to
the terms and conditions of this Agreement, the Lender agrees to issue a standby
letter of credit for the account of the Borrowers as support for the obligations
of MAB under its office lease with Uniland Partnership, L.P. ("Uniland L/C"), in
a face amount not to exceed the Uniland L/C Committed Amount. The Uniland L/C
shall be issued on a one-time only basis, and the Borrowers may not borrow and
reborrow under this commitment.
(b) Conditions Precedent to Issuance. The obligation
of the Lender to issue the Uniland L/C is subject to
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the satisfaction, in addition to the conditions set forth in Article 4 hereof,
of the following conditions precedent:
(i) The Lender shall have received from the
Borrower true and correct copies of the lease and any related documents between
MAB and Uniland Partnership, L.P., shall have completed its review of such
documents and shall have determined, to its reasonable satisfaction, that such
documents are commercially reasonable and customary documents for transactions
of this type.
(ii) The Borrowers shall have executed and
delivered to the Lender such documents as the Lender may reasonably request in
connection with the issuance of the Uniland L/C.
(iii) The Borrowers shall have completed
such other acts and satisfied any other conditions in the
Lender's reasonable discretion.
(c) Termination of Agreement Prior to Uniland L/C
Expiration. Immediately upon the termination of this Agreement, the Borrower
agrees to either: (i) provide to the Lender cash collateral, or collateral in
the form of Cash Equivalent Investments, in an amount equal to the maximum
amount of the Lender's obligations under the Uniland L/C, or (ii) cause to be
delivered to the Lender releases of all of the Lender's obligations under the
Uniland L/C. At the Lender's discretion, any proceeds of Collateral received by
the Lender after the occurrence and during the continuation of an Event of
Default or Potential Default may be held as the cash collateral required by this
Section 2.2(c).
2.3. Revolving Credit Commitment Fee; Reduction of the
Revolving Credit Committed Amounts.
(a) Revolving Credit Commitment Fee. The Borrowers shall pay
to the Lender a commitment fee (the "Revolving Credit Commitment Fee") equal to
one-half of one percent (1/2%) per annum (based on a year of 360 days and actual
days elapsed), for each day from and including the date hereof to but not
including the Revolving Credit Maturity Date, on the amount (not less than zero)
equal to (i) the Revolving Credit Committed Amount on such day, minus (ii) the
aggregate principal amount of the Revolving Credit Loan outstanding on such day.
Such Revolving Credit Commitment Fee shall be due and payable for the preceding
period for which such fee has not been paid: (x) on each Regular Payment Date,
(y) on the date of each reduction of the Revolving Credit Committed Amount
(whether optional or mandatory) on the amount so reduced and (z) on the
Revolving Credit Maturity Date.
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(b) Reduction of the Revolving Credit Committed Amount. The
Borrowers may at any time or from time to time reduce the Revolving Credit
Committed Amount to an aggregate amount (which may be zero) not less than the
sum of the unpaid principal amount of the Revolving Credit Loans then
outstanding plus the principal amount of the Revolving Credit Loans not yet made
as to which notice has been given by the Borrowers under Section 2.3 hereof. Any
reduction of the Revolving Credit Committed Amount shall be in an aggregate
amount which is an integral multiple of $500,000. Reduction of the Revolving
Credit Committed Amount shall be made by providing not less than three Business
Days' notice (which notice shall be irrevocable) to such effect to the Lender.
After the date specified in such notice, the Revolving Credit Commitment Fee
shall be calculated upon the Revolving Credit Committed Amount as so reduced.
2.4. Making of Loans. Whenever a Borrower desires that the
Lender make a Revolving Credit Loan, such Borrower shall make a telephonic
request to Lender (before 11:00 A.M. Philadelphia time), to be confirmed in
writing by such Borrower on the same day by facsimile transmission, and the
request shall include the following information (a separate notice being
required for each such Loan):
(a) The date, which shall be a Business Day, on which
such proposed Loan is to be made; and
(b) The aggregate principal amount of such proposed Loan,
which shall be an integral multiple of $25,000 and which shall not be less than
$100,000.
The Lender may rely upon any and all telephonic and written requests and
confirmations purported to be made by a Borrower through any Responsible
Officer. Unless any applicable condition specified in Article 4 hereof has not
been satisfied, on the date specified in such request the Lender shall make the
proceeds of the Loan available to such Borrower in funds immediately available.
2.5. Interest Rate; Payments Generally; Interest
on Overdue Accounts.
(a) Interest Rate. The unpaid principal amount of the Loans
shall bear interest for each day until due at a per annum rate equal to one and
three-eighths percent (1-3/8%) in excess of the Prime Rate.
(b) Payments Generally. All payments and prepayments
to be made by the Borrowers in respect of principal, interest,
fees, indemnity, expenses or other amounts due from the Borrowers
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hereunder or under any Loan Document shall be payable in Dollars at 12:00
o'clock Noon, Philadelphia time, on the day when due without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
and an action therefor shall immediately accrue, without setoff, counterclaim,
withholding or other deduction of any kind or nature, except for payments to a
Lender subject to a withholding deduction under Section 2.10 hereof. Except for
payments under Sections 2.10 and 8.6 hereof, such payments shall be made to the
Lender in Dollars in funds immediately available, and payments under Sections
2.10 and 8.6 hereof shall be made to the Lender at such domestic account as it
shall specify to the Borrowers from time to time in funds immediately available
at such account. Any payment or prepayment received by the Lender after 12:00
o'clock Noon, Philadelphia time, on any day shall be deemed to have been
received on the next succeeding Business Day.
(c) Interest on Overdue Amounts. After the occurrence and
continuance of an Event of Default, to the extent permitted by Law, after there
shall have become due (by acceleration or otherwise) principal, interest, fees,
indemnity, expenses or any other amounts due from the Borrowers hereunder or
under any other Loan Document, such amounts shall bear interest for each day
until paid (before and after judgment), payable on demand, at a rate per annum
(in each case based on a year of 360 days and actual days elapsed) which for
each day shall be equal to two percent (2%) in excess of the contract rate
described in Section 2.5(a) above. To the extent permitted by law, interest
accrued on any amount which has become due hereunder or under any other Loan
Document shall compound on a day-by-day basis, and hence shall be added daily to
the overdue amount to which such interest relates.
2.6. Prepayments Generally. Whenever a Borrower
desires or is required to prepay any part of the Loans, it shall
provide notice to the Lender setting forth the following information:
(a) The date, which shall be a Business Day, on which
the proposed prepayment is to be made; and
(b) The total principal amount of such prepayment.
2.7. Optional Prepayments. The Borrowers shall have
the right at their option from time to time to prepay its Loans
in whole or part without premium or penalty. Any such prepayment
shall be made in accordance with Section 2.6 hereof.
2.8. Mandatory Payments.
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(a) Asset Sales. The Borrowers shall prepay a principal amount
of the Loans from time to time in an amount not less than the Net Cash Proceeds
upon the sale of assets in accordance with Section 6.10(b) hereof, payable to
the Lender upon receipt of any Net Cash Proceeds, to the extent that such Net
Cash Proceeds exceed $25,000 in the aggregate, among all Borrowers, per annum.
(b) Applicability of Certain Provisions. Prepayments required
by this Section 2.7 are subject to all of the terms and conditions applicable to
prepayments generally pursuant to Section 2.5 hereof and Section 2.9 hereof and
to all of the terms and conditions applicable to optional prepayments pursuant
to Section 2.6 hereof.
2.9. Interest Payment Dates. Interest shall be due
and payable on each Regular Payment Date.
2.10. Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting From Taxes,
Reserves, Capital Adequacy Requirements, Expenses, Etc. If any Law or guideline
or interpretation or application thereof by any Governmental Authority charged
with the interpretation or administration thereof or compliance with any request
or directive of any Governmental Authority (whether or not having the force of
Law) now existing or hereafter adopted:
(i) subjects the Lender to any tax or changes the
basis of taxation with respect to all loans made by the Lender which are similar
to the Loans in this Agreement, or with respect to payments made under all loans
by the Lender which are similar to payments by the Borrowers of principal,
interest, commitment fee or other amounts due from the Borrowers hereunder or
under the Note (except for taxes on the overall net income or overall gross
receipts of the Lender imposed by the jurisdictions (federal, state and local)
in which the Lender's principal office is located),
(ii) imposes, modifies or deems applicable any
reserve, special deposit or similar requirement against credits or commitments
to extend credit extended by, assets (funded or contingent) of, deposits with or
for the account of, or other acquisitions of funds by, the Lender,
(iii) imposes, modifies or deems applicable any
capital adequacy or similar requirement (A) against assets (funded or
contingent) of, or credits or commitments to extend
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credit extended by, the Lender, or (B) otherwise applicable to the obligations
of the Lender under this Agreement, or
(iv) imposes upon the Lender any other condition or
expense with respect to this Agreement, the Note or its making, maintenance or
funding of any Loan or any security therefor, and the result of any of the
foregoing is to increase the cost to, reduce the income receivable by, or impose
any expense (including loss of margin) upon the Lender, or, in the case of
clause (iii) hereof, any Person controlling the Lender, with respect to this
Agreement, the Note or the making, maintenance or funding of any Loan (or, in
the case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on the Lender's or controlling Person's capital,
taking into consideration the Lender's or controlling Person's policies with
respect to capital adequacy) by an amount which the Lender in its reasonable
discretion deems to be material, the Lender may from time to time notify the
Borrowers of the amount determined in good faith (using reasonable averaging and
attribution methods) by the Lender (which determination shall be conclusive) to
be necessary to compensate the Lender for such increase, reduction or imposition
in writing together with all relevant calculations and information. Such amount
shall be due and payable by the Borrowers to the Lender ten Business Days after
such notice is given. A certificate by such Lender as to the amount due and
payable under this Section 2.10 from time to time and the method of calculating
such amount shall be conclusive, absent manifest error.
2.11. Taxes.
(a) Payments Net of Taxes. All payments made by the Borrowers
under this Agreement or any other Loan Document shall be made free and clear of,
and without reduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, and all liabilities with respect
thereto, excluding
(i) income or franchise taxes imposed on the Lender
by any Governmental Authority of any jurisdiction under the laws of which the
Lender is organized or any political subdivision or taxing authority thereof or
therein or as a result of a connection between the Lender and any jurisdiction
other than a connection resulting solely from this Agreement and the
transactions contemplated hereby, and
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(ii) income or franchise taxes imposed by any
jurisdiction in which the Lender's lending offices which make or book Loans are
located or any political subdivision or taxing authority thereof or therein (all
such non-excluded taxes, levies, imposts, deductions, charges or withholdings
being hereinafter called "Taxes"). If any Taxes are required to be withheld or
deducted from any amounts payable to the Lender under this Agreement or any
other Loan Document, the Borrowers shall pay the relevant amount of such Taxes
and the amounts so payable to the Lender shall be increased to the extent
necessary to yield to the Lender (after payment of all Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement and the other Loan Documents. Whenever any Taxes are paid by the
Borrowers with respect to payments made in connection with this Agreement or any
other Loan Document, as promptly as possible thereafter, the Borrowers shall
send to the Lender for its own account a certified copy of an original official
receipt received by the Borrowers showing payment thereof.
(b) Indemnity. Each Borrower hereby indemnifies the Lender for
the full amount of all Taxes attributable to payments by or on behalf of such
Borrower hereunder or under any of the other Loan Documents, any Taxes paid by
the Lender, and any present or future claims, liabilities or losses with respect
to or resulting from any omission to pay or delay in paying any Taxes (including
any incremental Taxes, interest or penalties that may become payable by the
Lender as a result of any failure to pay such Taxes), whether or not such Taxes
were correctly or legally asserted. Such indemnification shall be made within 30
days from the date the Lender makes written demand therefor.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Lender as
follows:
3.1. Corporate Status. Each Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Borrower has corporate power and authority
to own its property and transact the business in which it is engaged or
presently proposes to engage. Each Borrower is duly qualified to do business as
a foreign corporation and is in good standing in all jurisdictions in which the
ownership of its properties or the nature of its activities or both makes such
qualification necessary or advisable. Schedule 3.1 hereof states as of the date
hereof the jurisdiction of incorporation of each Borrower and the
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jurisdictions in which each Borrower is qualified to do business as a foreign
corporation.
3.2. Corporate Power and Authorization. Each Borrower has
corporate power and authority to execute, deliver, perform, and take all actions
contemplated by each Loan Document to which it is a party, and all such action
has been duly and validly authorized by all necessary corporate proceedings on
its part. Without limitation of the foregoing, each Borrower has the corporate
power and authority to borrow pursuant to the Loan Documents to the fullest
extent permitted hereby and thereby from time to time, and has taken all
necessary corporate action to authorize such borrowings.
3.3. Execution and Binding Effect. This Agreement and each
other Loan Document to which any Borrower is a party and which is required to be
delivered on or before the Second Closing Date pursuant to Section 4.1 hereof
has been duly and validly executed and delivered by such Borrower. This
Agreement and each other Loan Document constitutes, the legal, valid and binding
obligation of each Borrower, enforceable against each Borrower in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or other similar laws of general application affecting
the enforcement of creditors' rights or by general principles of equity limiting
the availability of equitable remedies.
3.4. Governmental Approvals and Filings. No approval, order,
consent, authorization, certificate, license, permit or validation of, or
exemption or other action by, or filing, recording or registration with, or
notice to, any Governmental Authority (collectively, "Governmental Action") is
or will be necessary or advisable in connection with the execution and delivery
of any Loan Document, consummation of the transactions herein or therein
contemplated, performance of or compliance with the terms and conditions hereof
or thereof or to ensure the legality, validity, binding effect, enforceability
or admissibility in evidence hereof or thereof.
3.5. Absence of Conflicts. Neither the execution and
delivery of any Loan Document, nor consummation of the
transactions herein or therein contemplated, nor performance of
or compliance with the terms and conditions hereof or thereof
does or will
(a) violate or conflict with any Law, or
(b) violate, conflict with or result in a breach of any term
or condition of, or constitute a default under, or result in (or give rise to
any right, contingent or otherwise, of any
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Person to cause) any termination, cancellation, prepayment or acceleration of
performance of, or result in the creation or imposition of (or give rise to any
obligation, contingent or otherwise, to create or impose) any Lien upon any
property of the Borrower (except for any Lien in favor of the Lender securing
the Obligations) pursuant to, or otherwise result in (or give rise to any right,
contingent or otherwise, of any Person to cause) any change in any right, power,
privilege, duty or obligation of the Borrower under or in connection with,
(i) the articles of incorporation or by-laws (or
other constituent documents) of any Borrower,
(ii) any agreement or instrument creating, evidencing
or securing any Indebtedness to which any Borrower is a party or by which any of
them or any of their respective properties (now owned or hereafter acquired) may
be subject or bound, or
(iii) any other material agreement or instrument to
which any Borrower is a party or any of its properties (now owned or hereafter
acquired) may be subject or bound.
3.6. Audited Financial Statements. NCO Financial has
heretofore furnished to the Lender balance sheets of NCO Financial and MAB,
respectively, as of December 31, 1995, and the related statements of income,
cash flows and changes in stockholders' equity for the fiscal year then ended,
as examined and reported on by Coopers & Lybrand, independent certified public
accountants for NCO Financial, and Brock, Schecter & Pollakoff, independent
certified public accountants for MAB, who each delivered an unqualified opinion
in respect thereof. NCO Financials' financial statements present fairly the
financial condition of NCO Financial, as of the end of such fiscal year, and the
results of its operations and its cash flows for the fiscal year then ended, all
in conformity with GAAP. To the best of the Borrowers' knowledge, after due
inquiry, MAB's financial statements present fairly the financial condition of
MAB, as of the end of such fiscal year, and the results of its operations and
its cash flows for the fiscal year then ended, all in conformity with GAAP.
3.7. Interim Financial Statements. NCO Financial has
heretofore furnished to the Lender interim company prepared balance sheets of
NCO Financial and MAB, respectively, dated May 31, 1996, together with the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the applicable fiscal periods ending on such date. NCO
Financial's financial statements present fairly the financial condition of NCO
Financial, as of the end of each such fiscal quarter and the
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results of its operations and its cash flows for the fiscal periods then ended,
all in conformity with GAAP, subject to normal and recurring year-end audit
adjustments. To the best of the Borrowers' knowledge, after due inquiry, MAB's
financial statements present fairly the financial condition of MAB, as of the
end of each such fiscal quarter and the results of its operations and its cash
flows for the fiscal periods then ended, all in conformity with GAAP, subject to
normal and recurring year-end audit adjustments.
3.8. Absence of Undisclosed Liabilities. No Borrower has any
liability or obligation of any nature whatever (whether absolute, accrued,
contingent or otherwise, whether or not due), forward or long-term commitments
or unrealized or anticipated losses from unfavorable commitments, except (w) as
disclosed in the financial statements referred to in Sections 3.6 and 3.7
hereof, (x) matters that, individually or in the aggregate, could not have a
Material Adverse Effect, (y) as disclosed in Schedule 3.8 hereof, and (z)
liabilities, obligations, commitments and losses incurred after December 31,
1995 in the ordinary course of business and consistent with past practices.
3.9. Absence of Changes. Since December 31, 1995, there has
been no change in the business, operations, condition (financial or otherwise),
or prospects of NCO Financial or, to the best of the Borrowers' knowledge, after
due inquiry, MAB, which could in either case have a Material Adverse Effect.
3.10. Accurate and Complete Disclosure. All information (taken
as a whole) heretofore, contemporaneously or hereafter provided (orally or in
writing) by any Borrower to the Lender pursuant to or in connection with any
Loan Document or any transaction contemplated hereby or thereby is or will be
(as the case may be) true and accurate in all material respects on the date as
of which such information is dated (or, if not dated, when received by the
Lender as the case may be) and does not or will not (as the case may be) omit to
state any material fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances in which it was
provided. Each Borrower has disclosed to the Lender in writing every fact or
circumstance which has, or which could have, a Material Adverse Effect.
3.11. Projections. Attached hereto as Schedule 3.11 are
projections prepared by the Borrowers demonstrating the projected financial
condition and results of operations of the Borrowers, for the period commencing
on December 31, 1996 and ending on December 31, 1998, which projections are
accompanied by a written statement of the assumptions and estimates underlying
such projections. Such projections were prepared on the basis of
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such assumptions and estimates. Such projections, assumptions and estimates, as
of the date of preparation thereof and as of the date hereof, are reasonable,
are made in good faith, are consistent with the Loan Documents, and represent
each Borrower's best judgment as to such matters. Nothing has come to the
attention of the Borrowers which would lead the Borrowers to believe that such
projections will not be attained or exceeded. Nothing contained in this Section
shall constitute a representation or warranty that such future financial
performance or results of operations will in fact be achieved.
3.12. Solvency. On and as of the Second Closing Date, and
after giving effect to all Loans and other obligations and liabilities being
incurred on such date in connection therewith, and on the date of each
subsequent Loan or other extension of credit hereunder and after giving effect
to application of the proceeds thereof in accordance with the terms of the Loan
Documents, each Borrower is and will be Solvent.
3.13. Margin Regulations. No part of the proceeds of any Loan
hereunder will be used for the purpose of buying or carrying any "margin stock,"
as such term is used in Regulations G and U of the Board of Governors of the
Federal Reserve System, as amended from time to time, or to extend credit to
others for the purpose of buying or carrying any "margin stock". No Borrower is
engaged in the business of extending credit to others for the purpose of buying
or carrying "margin stock". No Borrower owns any "margin stock". Neither the
making of any Loan nor any use of proceeds of any such Loan will violate or
conflict with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, as amended from time to time.
3.14. Partnerships, Etc. No Borrower is a partner (general or
limited) of any partnership, is a party to any joint venture, or owns
(beneficially or of record) any equity or similar interest in any Person
(including but not limited to any interest pursuant to which the Borrower has or
may in any circumstance have an obligation to make capital contributions to, or
be generally liable for or on account of the liabilities, acts or omissions of
such other Person), except for (x) matters set forth in Schedule 3.14 hereof
(which reflects the results of the NCO Reorganization and the MAB Acquisition).
3.15. Ownership and Control. Schedule 3.15 hereof states as of
the date hereof the authorized capitalization of each Borrower, the number of
shares of each class of capital stock issued and outstanding of each Borrower
and the number and percentage of outstanding shares of each such class of
capital stock and the names of the record owners of such shares and the
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direct or indirect beneficial owners of such shares. The outstanding shares of
capital stock of each Borrower have been duly authorized and validly issued and
are fully paid and nonassessable. Except as described in Schedule 3.15, there
are no options, warrants, calls, subscriptions, conversion rights, exchange
rights, preemptive rights or other rights, agreements or arrangements
(contingent or otherwise) which may in any circumstances now or hereafter
obligate any Borrower to issue any shares of its capital stock or any other
securities.
3.16. Litigation. To the best of each Borrower's knowledge,
there is no pending or (to such Borrower's knowledge after due inquiry)
threatened action, suit, proceeding or investigation by or before any
Governmental Authority against any Borrower, other than alleged violations of
the Fair Debt Collection Practices Act which would not cause a Material Adverse
Effect.
3.17. Absence of Events of Default. No event has
occurred and is continuing and no condition exists which
constitutes an Event of Default or Potential Default.
3.18. Absence of Other Conflicts. No Borrower is in
violation of or conflict with, or is subject to any contingent
liability on account of any violation of or conflict with:
(a) any Law to the best of its knowledge, after due
inquiry,
(b) its articles of incorporation or by-laws (or other
constituent documents), or
(c) any material agreement or instrument or arrangement to
which it is party or by which it or any of its properties (now owned or
hereafter acquired) may be subject or bound.
3.19. Insurance. Each Borrower maintains with financially
sound and reputable insurers insurance with respect to its properties and
business and against at least such liabilities, casualties and contingencies and
in at least such types and amounts as is customary in the case of corporations
engaged in the same or a similar business or having similar properties similarly
situated. Schedule 3.19 hereof sets forth a list of all insurance currently
maintained by each Borrower, setting forth the identity of the insurance
carrier, the type of coverage, the amount of coverage and the deductible. There
are no claims, actions, suits, proceedings against, arising under or based upon
any of such insurance policies except as set forth in such Schedule 3.19.
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3.20. Title to Property. Each Borrower has good and marketable
title in fee simple to all real property owned or purported to be owned by it
and good title to all other property of whatever nature owned or purported to be
owned by it, including but not limited to all property reflected in the most
recent audited balance sheet referred to in Section 3.6 hereof or submitted
pursuant to Section 5.1(a) hereof, as the case may be (except as sold or
otherwise disposed of in the ordinary course of business after the date of such
balance sheet), in each case free and clear of all Liens, other than Permitted
Liens.
3.21. Intellectual Property. Each Borrower owns, or is
licensed or otherwise has the right to use, all the patents, trademarks, service
marks, names (trade, service, fictitious or otherwise), copyrights, technology
(including but not limited to computer programs and software), processes, data
bases and other rights, free from burdensome restrictions, necessary to own and
operate its properties and to carry on its business as presently conducted and
presently planned to be conducted without conflict with the rights of others.
Except as described in Schedule 3.21, no Borrower owns any patents, trademarks
or copyrights.
3.22. Taxes. All tax and information returns required to be
filed by or on behalf of any Borrower have been properly prepared, executed and
filed. All taxes, assessments, fees and other governmental charges upon any
Borrower or upon any of its properties, incomes, sales or franchises which are
due and payable have been paid other than those not yet delinquent and payable
without premium or penalty, and except for those being diligently contested in
good faith by appropriate proceedings, and in each case adequate reserves and
provisions for taxes have been made on the books of such Borrower. The reserves
and provisions for taxes on the books of each Borrower are adequate for all open
years and for its current fiscal period. No Borrower has knowledge of any
proposed additional assessment or basis for any material assessment for
additional taxes (whether or not reserved against).
3.23. Employee Benefits. No Borrower has a Plan or
Plans.
3.24. Environmental Matters.
(a) Each Borrower, and each of its respective Environmental
Affiliates, is and has been in full compliance with all applicable Environmental
Laws, except for (x) matters set forth in Schedule 3.24 hereof and (y) matters
which, individually or in the aggregate, could not have a Material Adverse
Effect. There are to each Borrower's knowledge after due inquiry no
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circumstances that may prevent or interfere with such full
compliance in the future.
(b) Each Borrower and its respective Environmental Affiliates
has all Environmental Approvals necessary or desirable for the ownership and
operation of their respective properties, facilities and businesses as presently
owned and operated and as presently proposed to be owned and operated, except
for (x) matters set forth in Schedule 3.24 hereof and (y) matters which,
individually or in the aggregate, could not have a Material Adverse Effect.
(c) There is no Environmental Claim pending or to the
knowledge of any Borrower after due inquiry threatened, and there are no past or
present acts, omissions, events or circumstances that could form the basis of
any Environmental Claim, against any Borrower or any of its respective
Environmental Affiliates, except for (x) matters set forth in Schedule 3.24
hereof, and (y) matters which, if adversely decided, individually or in the
aggregate, could not have a Material Adverse Effect.
(d) No facility or property now or previously owned, operated
or leased by any Borrower or any of its respective Environmental Affiliates is
an Environmental Cleanup Site. No Borrower nor any respective Environmental
Affiliate has directly transported or directly arranged for the transportation
of any Environmental Concern Materials to any Environmental Cleanup Site. No
Lien exists, and no condition exists which could result in the filing of a Lien,
against any property of any Borrower or any of its respective Environmental
Affiliates under any Environmental Law.
3.25. Business Interruptions. Within two (2) years prior to
the Second Closing Date, neither the business, property nor operations of any
Borrower have been materially and adversely affected in any way by any casualty,
strike, lockout, combination of workers, order of the United States of America,
or any state or local government, or any political subdivision or agency
thereof, directed against any Borrower. To the best of each Borrower's
knowledge, there are no pending or threatened labor disputes, strikes, lockouts
or similar occurrences or grievances against the business being operated by any
Borrower.
3.26. Names. Within five (5) years prior to the Second Closing
Date, neither NCO Financial nor MAB has conducted business under or used any
other names (whether corporate or assumed) except for its present corporate name
and those names listed in Schedule 3.26 attached hereto and made part hereof.
NCO Financial and MAB are each the sole owner of their respective names and any
and all business done and all invoices using such
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name or any names listed in Schedule 3.26 represent sales and business of such
Borrower and are owned solely by such Borrower.
3.27. Regulation O. No director, executive officer or
principal shareholder of any Borrower is a director, executive officer or
principal shareholder of the Lender. For the purposes hereof the terms
"director" (when used with reference to the Lender), "executive officer" and
"principal shareholder" have the respective meanings assigned thereto in
Regulation O issued by the Board of Governors of the Federal Reserve System.
ARTICLE 4 - CONDITIONS OF LENDING
4.1. Conditions to Initial Loans. The obligation of the Lender
to make Loans on the Second Closing Date is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan, of the
following conditions precedent, in addition to the conditions precedent set
forth in Section 4.2 hereof:
(a) Agreement; Note. The Lender shall have received this
Agreement, duly executed by each Borrower, and an executed Revolving Credit
Note, in the form of Exhibit "A" hereto, duly executed on behalf of each
Borrower.
(b) Nonrecourse Guaranty. The Lender shall have received, from
the Guarantors, an Amended and Restated Limited Guaranty Agreement,
substantially in the form of Exhibit "B" hereto (as amended, modified or
supplemented from time to time, the "Guaranty"), duly executed on behalf of each
Guarantor.
(c) Warrant Documents. The Lender shall have received the 1996
Warrant Agreement, the Amendment to Warrant Agreement, the Common Stock Purchase
Warrant (3,770 Warrant Shares), the Common Stock Purchase Warrant (1,000 Warrant
Shares) and the Amended and Restated Registration Rights Agreement, in
substantially the form of Exhibit "C" hereto (as amended, modified or
supplemented from time to time, each a "Warrant Document" and collectively the
"Warrant Documents"), duly executed on behalf of each Borrower.
(d) Facility Fee. The Lender shall have received a facility
fee ("Facility Fee") from the Borrower of $40,000, representing the unpaid
balance of a total facility fee of $80,000.
(e) Certain Security Documents Pertaining to Personal
Property. The Lender shall have received the following documents (as amended,
modified or supplemented from time to time, each a
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"Security Document" and collectively the "Security Documents"), each of which
shall be in form and substance satisfactory to the Lender, (except for the
certificates representing the stock certificates and other instruments pledged
pursuant to such Security Documents and the stock powers delivered in connection
therewith):
(i) Executed copies of each of the following:
(A) An Amended and Restated Security
Agreement, duly executed on behalf of each Borrower, in substantially the form
of Exhibit "D" hereto (as amended, modified or supplemented from time to time,
the "Security Agreement").
(B) An Amended and Restated Stock Pledge
Agreement, duly executed on behalf of the Guarantors, in substantially the form
of Exhibit "E" hereto (as amended, modified or supplemented from time to time,
the "Guarantor Pledge Agreement").
(C) A Stock Pledge Agreement, duly executed
on behalf of NCO Group, and a Stock Pledge Agreement, duly executed on behalf of
NCO New York, each in substantially the form of Exhibit "F" hereto, as may be
amended, modified or supplemented from time to time.
(D) A Guaranty and Suretyship Agreement,
duly executed on behalf of MAB, in substantially the form of Exhibit "G" hereto,
as may be amended, modified or supplemented from time to time.
(E) A Security Agreement, duly executed on
behalf of MAB, in substantially the form of Exhibit "H" hereto, as may be
amended, modified or supplemented from time to time.
(F) Insurance Assignments, duly executed by
the Borrower, in substantially the form of Exhibit "I" hereto (as amended,
modified or supplemented from time to time, the "Insurance Assignments"), in
order to assign to the Lender (1) the $1,000,000 keyman life insurance policy
issued by Travelers Life Insurance Company (Policy #7293181) on the lives of
Michael Barrist and Charles Piola, Jr. (on a "first to die" basis), and (2) the
$1,000,000 keyman life insurance policy issued by Travelers Life Insurance
Company (Policy #7266517) on the life of Michael Barrist.
(ii) Certificates and instruments representing the
stock certificates and other instruments pledged pursuant to such Security
Documents, accompanied by duly executed instruments
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of transfer or assignment in blank, and, to the extent required by the Security
Documents, duly endorsed to the order of the Lender, in form and substance
satisfactory to the Lender.
(iii) Evidence of the completion of all recordings
and filings of or with respect to, and of all other actions with respect to, the
above Security Documents as may be necessary or, in the opinion of the Lender,
desirable to create or perfect the Liens created or purported to be created by
such Security Documents as valid, continuing and perfected Liens in favor of the
Lender securing the Obligations, prior to all other Liens other than Permitted
Liens; and evidence of the payment of any necessary fee, tax or expense relating
to such recording or filing. Without limitation of the foregoing, the Lender
shall receive:
(A) Proper financing statements duly
executed by the Borrowers or, in the opinion of the Lender, desirable to create
or perfect such Liens in favor of the Lender.
(iv) Evidence of the insurance required by the terms
of the above Security Documents, containing the endorsements required by such
Security Documents and this Agreement.
(v) Waivers of landlord's liens, warehouseman's liens
and like rights.
(vi) Evidence that all other actions necessary or, in
the opinion of the Lender, desirable to create, perfect or protect the Liens
created or purported to be created by the above Security Documents have been
taken.
(vii) A contemporaneous search of UCC, real property,
tax, judgment and litigation dockets and records and other appropriate registers
shall have revealed no filings or recordings in effect with respect to the
Collateral purported to be covered by the above Security Documents, except such
as are acceptable to the Lender (it being understood that such acceptance does
not limit the obligations of the Borrowers with respect to the priority of the
Liens in favor of the Lender), and the Lender shall have received a copy of the
search reports received as a result of the search and of the acknowledgment
copies of the financing statements or other instruments required to be filed or
recorded pursuant to this subsection bearing evidence of the recording of such
statements or instruments at each of such filing or recording places.
(f) Capitalization, etc. The corporate and capital
structure of each Borrower, the articles of incorporation and by-
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laws (or other constituent documents) of each Borrower, and the terms,
conditions, amounts and holders of all equity, debt and other indebtedness,
obligations and liabilities of each Borrower, shall be satisfactory to the
Lender.
(g) Corporate Proceedings. The Lender shall have received
certificates by the Secretary or Assistant Secretary of each Borrower dated as
of the Second Closing Date as to (i) true copies of the articles of
incorporation and by-laws (or other constituent documents) of each Borrower in
effect on such date (which, in the case of articles of incorporation or other
constituent documents filed or required to be filed with the Secretary of State
or other Governmental Authority in its jurisdiction of incorporation, shall be
certified to be true, correct and complete by such Secretary of State or other
Governmental Authority not more than 30 days before the Second Closing Date),
(ii) true copies of all corporate action taken by each Borrower relative to this
Agreement and the other Loan Documents and (iii) the incumbency and signature of
the respective officers of each Borrower executing this Agreement and the other
Loan Documents, together with satisfactory evidence of the incumbency of such
Secretary or Assistant Secretary. The Lender shall have received certificates
from the appropriate Secretaries of State or other applicable Governmental
Authorities dated not more than 30 days before the Second Closing Date showing
the good standing of each Borrower in its state of incorporation and each state
in which each Borrower does business.
(h) Insurance. The Lender shall have received a report from
each Borrower's insurance broker, addressed to the Lender, satisfactory in form
and substance to the Lender, as to insurance matters pertaining to such
Borrower. The Lender shall have received evidence satisfactory to it that the
insurance policies required by this Agreement and the other Loan Documents have
been obtained, containing the endorsements required hereby and thereby.
(i) Financial Statements, Projections. The Lender shall have
received copies of the financial statements, combining financial statements, pro
forma financial statements and projections referred to in Sections 3.6, 3.7,
3.8, 3.11 and 3.12 hereof.
(j) Legal Opinions of Counsel to the Loan Parties. The Lender
shall have received an opinion addressed to the Lender, dated the Second Closing
Date, of Blank, Rome, Comisky & McCauley, and Joshua Gindin, Esquire, counsel to
the Borrowers, in substantially the form attached hereto as Exhibit "J" and
Exhibit "K", respectively (which are substantially the same as
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the opinions issued in connection with the Credit Agreement, with appropriate
additional provisions which address the transactions described herein).
(k) Responsible Officer Certificates. The Lender shall have
received certificates from a Responsible Officer of each Borrower as to such
matters as the Lender may request.
(l) Fees, Expenses, etc. All fees and other compensation
required to be paid to the Lender pursuant hereto or pursuant to any other
written agreement on or prior to the Second Closing Date shall have been paid or
received, including but not limited to those referred to in the commitment
letter.
(m) Interest Rate Cap. The Borrowers shall deliver to the
Lender evidence satisfactory to the Lender that the Borrowers have purchased an
interest rate cap agreement with a financial institution acceptable to the
Lender pursuant to which the Borrowers have reduced their risk of exposure to a
Prime Rate in excess of 12%. This interest rate cap agreement shall be in force
until July 31, 1998 and shall apply to a minimum of $6,000,000 of Obligations.
(n) Management Letters. The Lender shall have received copies
of the management letters issued by NCO Financial's and MAB's certified public
accountants in connection with their respective audited financial statements
dated December 31, 1995 (provided that MAB's management letters may be delivered
within ten days of the Second Closing Date).
(o) MAB Acquisition. The MAB Acquisition shall have closed.
(p) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents shall
be satisfactory in form and substance to the Lender.
4.2. Conditions to All Loans. The obligation of the Lender to
make any Loan is subject to performance by each Borrower of its obligations to
be performed hereunder or under the other Loan Documents on or before the date
of such Loan, satisfaction of the conditions precedent set forth herein and in
the other Loan Documents and to satisfaction of the following further conditions
precedent:
(a) Notice. Appropriate notice of such Loan shall have been
given by the Borrowers as provided in Article 2 hereof.
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(b) Representations and Warranties. Each of the
representations and warranties made by each Borrower in Article 3 hereof shall
be true and correct in all material respects on and as of such date as if made
on and as of such date, both before and after giving effect to the Loans
requested to be made on such date.
(c) No Defaults. No Event of Default or Potential Default
shall have occurred and be continuing on such date or after giving effect to the
Loans requested to be made on such date.
(d) No Violations of Law, etc. Neither the making nor use of
the Loans shall cause the Lender to violate or conflict with any Law.
(e) No Material Adverse Effect. There shall not have occurred,
or be threatened, any other event, act or condition which could have a Material
Adverse Effect since the last Loan.
Each request by a Borrower for any Loan shall constitute a representation and
warranty by such Borrower that the conditions set forth in this Section 4.2 have
been satisfied as of the date of such request. Failure of the Lender to receive
notice from the Borrower to the contrary before such Loan is made shall
constitute a further representation and warranty by the Borrower that the
conditions referred to in this Section 4.2 have been satisfied as of the date
such Loan is made.
ARTICLE 5 - AFFIRMATIVE COVENANTS
Each Borrower hereby covenants to the Lender as follows:
5.1. Basic Reporting Requirements.
(a) Annual Audit Reports. As soon as practicable, and in any
event within 90 days after the close of each fiscal year of the Borrowers, the
Borrowers shall furnish to the Lender, consolidated statements of income, cash
flows and changes in stockholders' equity of the Borrowers for such fiscal year
and a consolidated balance sheet of the Borrowers as of the close of such fiscal
year, and notes to each, all in reasonable detail, setting forth in comparative
form the corresponding figures for the preceding fiscal year, together with all
management letters issued in connection therewith. Such financial statements
shall be accompanied by an opinion of independent certified public accountants
of recognized national standing selected by the Borrowers and reasonably
satisfactory to the Lender. A copy of
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the opinion of such accountants shall be delivered to the Lender and signed by
such accountants. Such opinion shall be free of exceptions or qualifications not
acceptable to the Lender in its reasonable discretion and in any event shall be
free of any exception or qualification which is of "going concern" or like
nature or which relates to a limited scope of examination. Such opinion in any
event shall contain a written statement of such accountants substantially to the
effect that (i) such accountants examined such financial statements in
accordance with generally accepted auditing standards and accordingly made such
tests of accounting records and such other auditing procedures as such
accountants considered necessary under the circumstances and (ii) in the opinion
of such accountants such financial statements present fairly the financial
position of the Borrowers as of the end of such fiscal year and the results of
their operations and their cash flows and changes in stockholders' equity for
such fiscal year, in conformity with GAAP.
(b) Monthly Financial Statements. As soon as practicable, and
in any event within 30 days after the end of each month, the Borrowers shall
furnish to the Lender internally prepared monthly consolidating financial
statements of the Borrowers, signed by a Responsible Officer of the Borrowers
(which may be in the same format as those previously provided by NCO Financial).
(c) Quarterly Compliance Certificates. The Borrowers shall
deliver to the Lender a Quarterly Compliance Certificate in substantially the
form set forth as Exhibit "L" hereto, duly completed and signed by Michael
Barrist, of the Borrowers concurrently with the delivery of the financial
statements referred to in subsections (a) and (b). The Quarterly Compliance
Certificate shall confirm that the unamortized remaining balance of all acquired
delinquent pools of Accounts does not exceed $350,000, in the aggregate among
all Borrowers, at any point in time. From time to time the Borrowers may seek
the prior written consent of the Lender (in its sole discretion) so that the
unamortized remaining cost balance of all acquired delinquent pools of accounts
may exceed $350,000.
(d) Accountants' Certificate. Each set of financial statements
delivered pursuant to Section 5.1(a) hereof shall be accompanied by management
letters.
(e) Annual Budget. As soon as practicable, and in any event
within 45 days after the start of each fiscal year, the Borrowers shall deliver
to the Lender a consolidated Annual Budget, which shall include the following:
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(i) The annual projections of profit and loss
statements, balance sheets and cash flow reports (prepared on an annual basis)
for the succeeding fiscal year, together with a statement of the assumptions and
estimates upon which such projections are based. The projections shall be
accompanied by a cover letter stating that such projections, estimates and
assumptions, as of the date of preparation thereof, are reasonable, made in good
faith, consistent with the Loan Documents, and represent the Borrowers' best
judgment as to such matters.
(ii) A summary report of any changes for the
forthcoming fiscal year to the Borrowers' business plan prepared by Siegel
Management Company and previously delivered to the Lender.
(f) Commercial Finance Reports. As soon as practicable, and in
any event within 30 days after the end of each month, the Borrowers shall
furnish to the Lender a report of a Responsible Officer of the Borrowers setting
forth information as to (i) receivables (which may be in the same format as
regularly delivered by NCO Financial prior to the Second Closing Date), and (ii)
payables (which may include, among other things, a breakout of aging and
payments).
(g) Certain Other Reports and Information. Promptly upon their
becoming available to the Borrowers, the Borrowers shall deliver to the Lender a
copy of (i) all regular or special reports, registration statements and
amendments to the foregoing which the Borrowers shall file with the Securities
and Exchange Commission (or any successor thereto) or any securities exchange,
(ii) all reports, proxy statements, financial statements and other information
distributed by the Borrowers to its stockholders, bondholders or the financial
community generally, and (iii) all accountants' management letters pertaining
to, all other reports submitted by accountants in connection with any audit of,
and all other material reports from outside accountants with respect to, the
Borrowers.
(h) Further Information. The Borrowers will promptly
furnish to the Lender such other information and in such form as
the Lender may reasonably request from time to time.
(i) Notice of Certain Events. Promptly upon becoming aware of
any of the following, the Borrowers shall give the Lender notice thereof,
together with a written statement of a Responsible Officer of the Borrowers
setting forth the details thereof and any action with respect thereto taken or
proposed to be taken by the Borrowers:
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(i) Any Event of Default or Potential Default.
(ii) Any material adverse change in the business,
operations or condition (financial or otherwise) or prospects of any Borrower.
(iii) Any pending or threatened action, suit,
proceeding or investigation by or before any Governmental Authority against or
affecting any Borrower, except for matters that if adversely decided,
individually or in the aggregate, could not have a Material Adverse Effect.
(iv) Any material violation, breach or default by any
Borrower under any agreement or instrument which could have a Material Adverse
Effect.
(v) Any material amendment or supplement to, or
extension, renewal, refinancing, or refunding of, or waiver by any other party
thereto of any right under or conditions of, any agreement or instrument
creating, evidencing or securing any Indebtedness of any Borrower; any agreement
or instrument material to the business, operations, condition (financial or
otherwise) or prospects of any Borrower, and any negotiations pertaining to any
of the foregoing.
(vi) Any Pension-Related Event. Such notice shall be
accompanied by: (A) a copy of any notice, request, return, petition or other
document received by any Borrower or any Controlled Group Member from any
Person, or which has been or is to be filed with or provided to any Person
(including without limitation the Internal Revenue Service, PBGC or any Plan
participant, beneficiary, alternate payee or employer representative), in
connection with such Pension-Related Event, and (B) in the case of any
Pension-Related Event with respect to a Plan, the most recent Annual Report
(5500 Series), with attachments thereto, and the most recent actuarial valuation
report, for such Plan, if not previously provided.
(vii) Any Environmental Claim pending or threatened
against any Borrower, or any past or present acts, omissions, events or
circumstances (including but not limited to any dumping, leaching, deposition,
removal, abandonment, escape, emission, discharge or release of any
Environmental Concern Material at, on or under any facility or property now or
previously owned, operated or leased by any Borrower that could form the basis
of such Environmental Claim, which Environmental Claim, if adversely resolved,
individually or in the aggregate, could have a Material Adverse Effect.
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(j) Visitation; Verification. Each Borrower shall permit such
Persons as the Lender may designate from time to time to visit and inspect any
of the properties of such Borrower, to examine its books and records and take
copies and extracts therefrom and to discuss its affairs with its directors,
officers, employees and independent accountants at such times and as often as
the Lender may reasonably request. Each Borrower hereby authorizes such
officers, employees and independent accountants to discuss with the Lender the
affairs of such Borrower. The Lender shall have the right to examine accounts,
inventory and other properties and liabilities of each Borrower from time to
time, and each Borrower shall cooperate with the Lender in such examination.
5.2. Insurance. Each Borrower shall maintain insurance on all
insurable tangible Collateral against fire, flood, casualty and such other
hazards as may be reasonably acceptable to the Lender in such amounts, with such
deductibles and with such insurers as may be reasonably acceptable to the
Lender. The policies of all such casualty insurance shall contain standard
Lender's Loss Payable Clauses issued in favor of the Lender under which all
losses thereunder shall be paid to the Lender as the Lender's interest may
appear. Such policies shall expressly provide that the requisite insurance
cannot be altered or canceled without thirty (30) days prior written notice to
the Lender and shall insure the Lender notwithstanding the act or neglect of the
insured. In the event any Borrower fails to procure or cause to be procured any
such insurance or to timely pay or cause to be paid the premium(s) on any such
insurance, the Lender may do so for such Borrower but such Borrower shall
continue to be liable for the cost of such insurance. Each Borrower hereby
appoints the Lender as its attorney-in-fact, exercisable at the Lender's option,
to endorse any check which may be payable to such Borrower in order to collect
the proceeds of such insurance. Any and all amount or amounts received or
collected by the Lender pursuant to the provisions of this paragraph, in excess
of $100,000 per year in the aggregate, may be applied by the Lender to any
Obligations or to repair, reconstruct or replace the loss of or damage to
Collateral as the Lender in its sole judgment may from time to time determine.
Each Borrower shall furnish to the Lender from time to time upon request the
policies under which such insurance is issued, certificates of insurance and
such other information relating to such insurance as the Lender may request, and
provide such other insurance and endorsements as are required by this Agreement
and the other Loan Documents.
5.3. Payment of Taxes and Other Potential Charges and Priority
Claims. Each Borrower shall pay or discharge
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(a) on or prior to the date on which penalties attach thereto,
all taxes, assessments and other governmental charges imposed upon it or any of
its properties;
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like Persons
which, if unpaid, might result in the creation of a Lien upon any such property;
and
(c) on or prior to the date when due, all other lawful claims
which, if unpaid, might result in the creation of a Lien upon any such property
or which, if unpaid, might give rise to a claim entitled to priority over
general creditors of such Borrower or such Subsidiary in a case under Title 11
(Bankruptcy) of the United States Code, as amended;
provided, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced such Borrower need not pay or discharge
any such tax, assessment, charge or claim so long as (x) the validity thereof is
contested in good faith and by appropriate proceedings diligently conducted, and
(y) such reserves or other appropriate provisions as may be required by GAAP
shall have been made therefor.
5.4. Preservation of Corporate Status. Each Borrower shall
maintain its status as a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and to be
duly qualified to do business as a foreign corporation and in good standing in
all jurisdictions in which the ownership of its properties or the nature of its
business or both make such qualification necessary or advisable.
5.5. Governmental Approvals and Filings. Each Borrower shall
keep and maintain in full force and effect all Governmental Actions necessary or
advisable in connection with execution and delivery of any Loan Document,
consummation of the transactions herein or therein contemplated, performance of
or compliance with the terms and conditions hereof or thereof or to ensure the
legality, validity, binding effect, enforceability or admissibility in evidence
hereof or thereof, except in connection with a Qualified IPO.
5.6. Maintenance of Properties. Each Borrower shall maintain
or cause to be maintained in good repair, working order and condition the
properties now or hereafter owned, leased or otherwise possessed by it and shall
make or cause to be made all needful and proper repairs, renewals, replacements
and improvements thereto so that the business carried on in
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connection therewith may be properly and advantageously conducted at all times.
5.7. Avoidance of Other Conflicts. Each Borrower shall not
violate or conflict with, be in violation of or conflict with, or be or remain
subject to any liability (contingent or otherwise) on account of any violation
or conflict with
(a) any Law in a manner which could cause a Material Adverse
Effect,
(b) its articles of incorporation of by-laws (or other
constituent documents), or
(c) any material agreement or instrument to which it is party
or by which any of them or any of their respective Subsidiaries is a party or by
which any of them or any of their respective properties (now owned or hereafter
acquired) may be subject or bound.
5.8. Financial Accounting Practices. Each Borrower shall make
and keep books, records and accounts which, in reasonable detail, accurately and
fairly reflect its transactions and dispositions of its assets and maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (a) transactions are executed in accordance with management's
general or specific authorization, (b) transactions are recorded as necessary
(i) to permit preparation of financial statements in conformity with GAAP and
(ii) to maintain accountability for assets, (c) access to assets is permitted
only in accordance with management's general or specific authorization and (d)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
5.9. Use of Proceeds. Subject to the terms and conditions of
this Agreement, the Borrowers shall apply the proceeds of all Loans hereunder
only for working capital and acquisition financing. The Borrowers shall not use
the proceeds of any Loans hereunder directly or indirectly for any unlawful
purpose, in any manner inconsistent with Section 3.13 hereof, or inconsistent
with any other provision of any Loan Document.
5.10. Continuation of or Change in Business. Each Borrower
shall continue to engage in its business substantially as conducted and operated
during the present and preceding fiscal year, and no Borrower shall engage in
any other business.
5.11. Employment of Management; Shareholder Status.
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(a) NCO Group shall continue at all times to employ Michael
Barrist as its President and Chief Executive Officer, and Mr. Barrist shall
continue to be at all times the majority shareholder of NCO Group; provided that
in the event of a Qualified IPO, Mr. Barrist shall remain as President and Chief
Executive Officer (unless a replacement is hired who is reasonably satisfactory
to the Lender in its sole and absolute discretion), and the requirement that he
be the majority shareholder of NCO Group shall not apply.
(b) NCO Group shall continue at all times to employ Charles
Piola, Jr., as its Executive Vice President, and Mr. Piola shall continue to be
at all times a shareholder of NCO Group; provided that in the event of a
Qualified IPO, the requirement that he remain as Executive Vice President shall
not apply.
5.12. Consolidated Tax Return. No Borrower shall not
file or consent to the filing of any consolidated income tax
return with any Person other than another Borrower.
5.13. Fiscal Year. No Borrower shall change its
fiscal year or fiscal quarter.
5.14. Bank Accounts. As additional consideration for the
establishment by the Lender of the Revolving Credit Loans, each Borrower shall
maintain all of its depository and disbursement accounts with the Lender, except
that the Borrowers may maintain (i) accounts with PNC Bank, N.A. ("PNC
Accounts"), and (ii) certain trust accounts required to be maintained by a
Borrower at a bank other than the Lender. The Borrowers agree that the aggregate
amount of funds contained in the PNC Accounts shall never exceed twenty percent
(20%) of the "Net Realizable IPO Proceeds" (as defined below). For these
purposes, "Net Realizable IPO Proceeds" shall mean the gross proceeds realized
from a Qualified IPO, less (a) amounts for any commissions and expenses
associated with the Qualified IPO (including any fees paid to Montgomery
Securities and/or Janney Montgomery Scott, Inc.), (b) an amount necessary to pay
all Revolving Credit Loans down to a zero balance, and (c) an amount necessary
to pay the Final S Corp. Distribution.
5.15. Submission of Collateral Documents. Each Borrower shall
promptly, but in no event later than twenty (20) days following the conversion
of an Account to an instrument or chattel paper, notify the Lender if an Account
becomes evidenced or secured by an instrument or chattel paper and, upon request
of the Lender, promptly deliver any such instrument or chattel paper to the
Lender.
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5.16. Collection of Accounts. Each Borrower shall continue to
collect its Accounts in the ordinary course of its business.
5.17. MAB/NCO New York Merger. By no later than October 5,
1996, the Borrowers shall have completed the MAB/NCO New York Merger, unless the
Borrowers provide the Lender with sufficient information to justify (in the sole
discretion of the Lender) delaying or electing not to complete the MAB/NCO New
York Merger.
ARTICLE 6 - NEGATIVE COVENANTS
Each Borrower hereby covenants to the Lender as follows:
6.1. Financial Covenants.
(a) Consolidated Current Ratio. The Consolidated
Current Ratio shall not at any time be less than .3 to 1.00. For
purposes of determining the Consolidated Current Ratio,
Consolidated Current Liabilities shall include all Obligations.
(b) Consolidated Net Worth. As of the last day of each fiscal
quarter, Consolidated Net Worth shall not at any time be less than $1,300,000,
plus any increase in Consolidated Net Worth as a result of any Permitted
Acquisition, a Qualified IPO (but for these purposes any increase in
Consolidated Net Worth as a result of a Qualified IPO shall be reduced by the
amount of the Final S Corp. Distribution), or any other issuance of capital
stock, plus 90% of Consolidated Net Income. For purposes of this provision only,
Consolidated Net Income shall be calculated after S corporation tax
distributions and compensation dividends, but without deductions for net losses.
(c) Funded Debt to Consolidated EBITDA. As of the last day of
each fiscal quarter, the Funded Debt to Consolidated EBITDA Ratio for the
immediately preceding twelve month period shall not be more than 3.25 to 1.00.
For purposes of this provision only, Stock Payments which are paid as annual
compensation dividends pursuant to Section 6.6 hereof shall be included as
operating expenses in the calculation of Consolidated EBITDA, but tax bonuses
paid to shareholders in lieu of S corporation tax distributions and the Final S
Corp. Distribution shall not be included as operating expenses of Consolidated
EBITDA. In addition, for purposes of this provision only, Consolidated EBITDA
shall include the pre-acquisition EBITDA, for
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the immediately preceeeding 12 month period, of any company
acquired by any Borrower.
(d) Consolidated Interest Coverage Ratio. As of the end of the
next full month after the Second Closing Date and as of the last day of each
fiscal quarter thereafter, the Consolidated Interest Coverage Ratio for such
fiscal quarter shall not be less than 3.00 to 1.00. For purposes of this
provision only, Stock Payments which are paid as annual compensation dividends
pursuant to Section 6.6 hereof shall be included as operating expenses in the
calculation of Consolidated EBIT, but tax bonuses paid to shareholders in lieu
of S corporation tax distributions and the Final S Corp. Distribution shall not
be included as operating expenses in the calculation of Consolidated EBIT.
(e) Net Trade Accounts Receivable Ratio. On a consolidated
basis, the ratio of the Borrowers' net trade accounts receivable to Obligations
shall not at any time be less than .25 to 1.00, and the Borrowers may pledge
cash or cash equivalents to the Lender in order to maintain this ratio;
provided, however, that any bad debts shall be accounted for in a consistent
manner with the most recently delivered financial statements.
(f) Consolidated Debt Service Coverage Ratio. As of the last
day of each fiscal quarter, the Consolidated Debt Service Coverage Ratio shall
not be less than 2.50 to 1.00.
6.2. Liens. No Borrower shall at any time create, incur,
assume or suffer to exist any Lien on any of its property (now owned or
hereafter acquired), or agree, become or remain liable (contingently or
otherwise) to do any of the foregoing, except for the following ("Permitted
Liens"):
(a) Liens pursuant to the Security Documents in favor
of the Lender to secure the Obligations;
(b) Liens existing on the date hereof securing obligations
existing on the date hereof, as such Liens and obligations are listed in
Schedule 6.2 hereto or Liens relating to Purchase Money Indebtedness for Capital
Expenditures permitted by Section 6.14;
(c) Liens arising from taxes, assessments, charges or claims
described in Section 5.3 hereof that are not yet due or that remain payable
without penalty or to the extent permitted to remain unpaid under the proviso to
such Section 5.3 , provided that the aggregate amount secured by all Liens
described in this Section 6.2(c) shall not at any time exceed $300,000;
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"Permitted Lien" shall in no event include any Lien imposed by, or required to
be granted pursuant to, ERISA or any Environmental Law. Nothing in this Section
6.2 shall be construed to limit any other restriction on Liens imposed by the
Security Documents or otherwise in the Loan Documents.
6.3. Indebtedness. No Borrower shall at any time create,
incur, assume or suffer to exist any Indebtedness, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except:
(a) Indebtedness to the Lender pursuant to this Agreement and
the other Loan Documents;
(b) Indebtedness of such Borrower existing on the date hereof
and listed in Schedule 6.3 hereof (but not any extensions, renewals or
refinancings thereof);
(c) Purchase Money Indebtedness;
(d) Accounts payable to trade creditors arising out of
purchases of goods or services in the ordinary course of business; and
(e) Capitalized Leases which are permitted as Capital
Expenditures.
6.4. Guaranties, Indemnities, etc. No Borrower shall
be or become subject to or bound by any Guaranty Equivalent, or
agree, become or remain liable (contingently or otherwise) to do
any of the foregoing, except:
(a) Guaranty Equivalents which in the aggregate do not exceed
$100,000 at any one time among all Borrowers, except for a guaranty executed in
favor of The Uniland Partnership, L.P., in connection with the MAB Acquisition
(a copy of which has been delivered to the Lender);
(b) Contingent liabilities arising from the endorsement of
negotiable or other instruments for deposit or collection or similar
transactions in the ordinary course of business; and
(c) Indemnities by a Borrower of the liabilities of its
directors or officers in their capacities as such pursuant to provisions
presently contained in their articles of incorporation or by-laws (or other
constituent documents) or as permitted by Law.
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6.5. Loans, Advances and Investments. No Borrower shall at any
time make or suffer to exist or remain outstanding any loan or advance to, or
purchase, acquire or own (beneficially or of record) any stock, bonds, notes or
securities of, or any partnership interest (whether general or limited) in, or
any other interest in, or make any capital contribution to or other investment
in, any other Person, or agree, become or remain liable (contingently or
otherwise) to do any of the foregoing, except:
(a) Loans and investments existing on the date hereof and
listed in Schedule 6.5 hereof, which reflects the results of the NCO
Reorganization (but not any amendments, extensions or refinancings thereof);
(b) Receivables owing to such Borrower arising from sales of
inventory under usual and customary terms in the ordinary course of business;
(c) Demand advances to officers and employees of a Borrower to
meet expenses incurred by such officers and employees in the ordinary course of
business and in amounts at any time outstanding not exceeding $5,000 to any one
officer or employee and $10,000 in the aggregate among all Borrowers; and
(d) Cash Equivalent Investments and securities held on the
Second Closing Date in the PNC Accounts, and, after a Qualified IPO, marketable
securities listed on a major stock exchange and Cash Equivalent Investments in
an initial amount which does not exceed twenty percent (20%) of the Net
Realizable IPO Proceeds; provided, however, that the aggregate total market
value of all of the foregoing shall not exceed thirty percent (30%) of the
Borrowers' consolidated cash, Cash Equivalent Investments and marketable
securities; and
(e) Loans from a Borrower to another Borrower, provided that
the Borrowers shall cause any such loans to be evidenced by a promissory note,
which shall immediately be delivered to the Lender as Collateral. provided,
however, that the total amount of loans, advances and investments described in
subsections (a) through (d) above shall not exceed $50,000 at any one time, but
excluding certain existing promissory notes to 1710/20 Sentry East Associates
limited partnership, 1730 Sentry East Associates limited partnership, and 1740
Sentry East Associates limited partnership, in an aggregate amount which does
not exceed $250,000 (and which shall each be satisfied in conection with a
Qualified IPO).
6.6. Dividends and Related Distributions.
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(a) No Borrower shall declare or make any Stock Payment, or
agree, become or remain liable (contingently or otherwise) to do any of the
foregoing, except that NCO Financial may make Stock Payments to shareholders who
are officers of NCO Financial in such amounts as may be required to permit such
shareholders to pay their federal and state income taxes arising as a result of
NCO Financial's S corporation status and for the Final S Corp. Distribution, but
such Stock Payments must be made in accordance with applicable federal and state
laws governing S corporations.
(b) Prior to a Qualified IPO, the Borrowers shall not pay
total annual compensation in excess of the following amounts to the following
individuals:
Michael Barrist $201,634
Charles Piola, Jr. $201,634
Bernie Miller $136,103
Annette Barrist $ 45,872
The amount of the above base salaries may be adjusted annually for increases in
the Consumer Price Index.
(c) Except for the Final S Corp. Distribution which may be
paid pursuant to Section 6.6(e) of this Agreement, the Borrowers shall not pay
Stock Payments as total annual compensation dividends in excess of the lesser of
$450,000 or 15% of the Borrowers' most recent fiscal year end consolidated
pre-tax income. For purposes of this provision, "pre-tax income" shall mean
pre-tax income of the Borrowers, plus 100% of any withheld bonuses for tax
purposes. For purposes of this provision, shareholders who are officers of NCO
Financial may take part of their tax distribution in the form of a 100% withheld
bonus.
(d) By no later than April 15, 1997, NCO Financial shall
deliver to the Lender a certificate or report, dated as of the date of the
annual audited financial statements, by an accounting firm acceptable to the
Lender providing information satisfactory to the Lender regarding tax
distributions by NCO Financial to shareholders for S corporation federal and
state taxes for 1996 and regarding the Final S Corp. Distribution.
(e) The Final S Corp. Distribution, but only if all
outstanding Revolving Credit Loans have been paid down to a zero balance.
6.7. Sale-Leasebacks. No Borrower shall at any time enter into
or suffer to remain in effect any transaction to which
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such Borrower is a party involving the sale, transfer or other disposition by
such Borrower of any property (now owned or hereafter acquired), with a view
directly or indirectly to the leasing back of any part of the same property or
any other property used for the same or a similar purpose or purposes, or agree,
become or remain liable (contingently or otherwise) to do any of the foregoing.
6.8. Leases. No Borrower shall at any time enter into or
suffer to remain in effect any lease, as lessee, of any property, or agree,
become or remain liable (contingently or otherwise) to do any of the foregoing,
except:
(a) Operating leases of equipment or office space used by the
lessee in the ordinary course of business;
(b) Leases cancellable by the lessee without penalty on not
more than 90 days' notice; and
(c) Capitalized Leases permitted under Section 6.3 hereof.
(d) Leases for the Buffalo, N.Y. and Denver, CO. offices of
MAB, in connection with the MAB Acquisition (copies of which have previously
been delivered to the Lender).
6.9. Mergers, Acquisitions, etc. Except for the MAB/NCO New
York Merger, no Borrower shall (v) merge with or into or consolidate with any
other Person, (w) liquidate, wind-up, dissolve or divide, (x) except for
Permitted Acquisitions, acquire all or any substantial portion of the properties
of any going concern or going line of business, (y) except for Permitted
Acquisitions, acquire all or any substantial portion of the properties of any
other Person, or (z) agree, become or remain liable (contingently or otherwise)
to do any of the foregoing; provided, however, that the Borrowers may seek the
prior written consent of the Lender for an acquisition which is not a Permitted
Acquisition, but in connection with considering the Borrowers' request, the
Lender may require appropriate third party due diligence regarding the proposed
acquisition.
6.10. Dispositions of Properties. No Borrower shall sell,
convey, assign, lease, transfer, abandon or otherwise dispose of, voluntarily or
involuntarily, any of its properties, or agree, become or remain liable
(contingently or otherwise) to do any of the foregoing, except:
(a) The Borrowers may sell inventory in the ordinary course of
business;
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(b) The Borrowers may dispose of equipment which is obsolete
or no longer useful in the business of such Borrower, provided, that an amount
equal to the Net Cash Proceeds of such disposition shall be paid as a mandatory
prepayment in accordance with Section 2.7 hereof; and
(c) The Cash Equivalent Investments and securities described
in Section 6.5(d).
By way of illustration, and without limitation, it is understood that the
following are dispositions of property subject to this Section 6.10: any
disposition of accounts, chattel paper or general intangibles, with or without
recourse, any disposition of any leasehold interest. Nothing in this Section
6.10 shall be construed to limit any other restriction on dispositions of
property imposed by the Security Documents or otherwise in the Loan Documents.
6.11. Issuance of Stock. No Borrower shall issue, sell,
otherwise dispose or suffer to remain outstanding, voluntarily or involuntarily,
any additional shares of capital stock, or any options, warrants, calls,
subscriptions, conversion rights, exchange rights, preemptive rights or other
rights, agreements or arrangements (contingent or otherwise) which may in any
circumstances now or hereafter obligate such Borrower to issue any shares of its
capital stock, except:
(a) Shares of capital stock outstanding on the date hereof and
set forth on Schedule 3.15 hereof;
(b) Warrants, options, and convertible notes, which are not
callable or redeemable prior to the Revolving Credit Maturity Date, and which
are issued:
(i) in connection with the NCO 1996 Stock Option
Plan, with a strike price which shall not be less than fair market value at the
time the NCO 1996 Stock Option Plan was adopted, or
(ii) as additional consideration in connection with
Permitted Acquisitions, with a strike price which shall not be less than fair
market value at the time the warrants, options or convertible notes were issued
in connection with a Permitted Acquisition; and
(c) In connection with a Qualified IPO.
6.12. Dealings with Affiliates. No Borrower shall
enter into or carry out any transaction with (including, without
limitation, purchase or lease property or services from, sell or
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lease property or services to, loan or advance to, or enter into, suffer to
remain in existence or amend any contract, agreement or arrangement with) any
Affiliate of such Borrower, directly or indirectly, or agree, become or remain
liable (contingently or otherwise) to do any of the foregoing, except:
(a) Existence and performance of contracts, agreements
and arrangements in existence as of the date hereof and set forth
in Schedule 6.12 hereof; and
(b) Directors, officers and employees of a Borrower may be
compensated for services rendered in such capacity to such Borrower, provided
that such compensation is in good faith and on terms no less favorable to such
Borrower than those that could have been obtained in a comparable transaction on
an arm's-length basis from an unrelated Person, and the board of directors of
such Borrower (including a majority of the directors having no direct or
indirect interest in such transaction) approve the same.
(c) Transactions in the ordinary course of business and
consistent with past practices between one Borrower and another Borrower, in
good faith and on terms no less favorable to either Borrower than those that
could have been obtained in a comparable transaction on an arm's-length basis
from an unrelated Person; and
(d) Other transactions with Affiliates in good faith and on
terms no less favorable to a Borrower than those that could have been obtained
in a comparable transaction on an arm's-length basis from an unrelated Person.
6.13. Acquired Delinquent Pools of Accounts. The Borrowers
shall not acquire delinquent pools of Accounts to the extent that the
unamortized remaining balance on the Borrowers' consolidated balance sheet for
all such acquired pools shall exceed $350,000, in the aggregate among all
Borrowers, at any given point in time. From time to time the Borrowers may seek
the prior written consent of the Lender (in its sole discretion) so that the
unamortized remaining balance of all acquired delinquent pools of accounts may
exceed $350,000.
6.14. Capital Expenditures. No Borrower shall make any Capital
Expenditures on or after the date hereof, except for Capital Expenditures not in
excess of $1,000,000, in the aggregate among all Borrowers, in any rolling four
quarter period; provided, however, that the Borrowers may carry forward into the
future for purposes of this provision no more than $500,000 in unspent Capital
Expenditures per rolling four quarter period, but the total amount of such
unspent Capital Expenditures
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carried forward may not exceed $1,000,000 in the aggregate at any one time. For
purposes of this provision, (a) all leases, except for real estate leases and
automobile leases, shall be deemed to be Capitalized Leases and therefore shall
be accounted for as a Capital Expenditure, and (b) Purchase Money Indebtedness
shall be accounted for as a Capital Expenditure.
6.15. Limitations on Modification of Certain Agreements and
Instruments. No Borrower shall materially amend, modify or supplement materially
its articles of incorporation or by-laws (or similar constituent documents),
except in connection with a Qualified IPO.
6.16. Limitation on Payments of Purchase Money Indebtedness.
No Borrower shall directly or indirectly, pay, prepay, purchase, redeem, retire,
defease or acquire, or make any payment (on account of principal, interest,
premium or otherwise) of, or grant or suffer the existence of any Lien on any of
its property (now owned or hereafter acquired) to secure any indebtedness,
obligation or liability with respect to, or amend, modify or supplement any of
the terms and conditions of, any Purchase Money Indebtedness, or, or agree,
become or remain liable (contingently or otherwise) to do any of the foregoing,
except that so long as no Event of Default or Potential Default has occurred,
the Borrowers may pay principal and interest on Purchase Money Indebtedness when
due, to the extent consistent with the subordination provisions of such Purchase
Money Indebtedness.
6.17. Limitation on Other Restrictions on Liens. No Borrower
shall enter into, become or remain subject to any agreement or instrument to
which such Borrower is a party or by which its properties (now owned or
hereafter acquired) may be subject or bound that would prohibit the grant of any
Lien upon any of its properties (now owed or hereafter required), except the
Loan Documents and any Liens relating to Purchase Money Indebtedness for
Permitted Capital Expenditures pursuant to Section 6.14.
6.18. Limitation on Other Restrictions on Amendment of the
Loan Documents, etc. No Borrower shall enter into, become or remain subject to
any agreement or instrument to which such Borrower is a party or by which any
Borrower or any of their respective properties (now owned or hereafter acquired)
may be subject or bound that would prohibit or require the consent of any Person
to any amendment, modification or supplement to any of the Loan Documents,
except for the Loan Documents.
ARTICLE 7 - DEFAULTS
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7.1. Events of Default. An Event of Default shall mean the
occurrence or existence of one or more of the following events or conditions
(for any reason, whether voluntary, involuntary or effected or required by Law):
(a) Any Borrower shall fail to pay when due principal
of any Loan.
(b) Any Borrower shall fail to pay when due interest on any
Loan, any fees, indemnity or expenses, or any other amount due hereunder or
under any other Loan Document.
(c) Any representation or warranty made or deemed made by any
Borrower in or pursuant to or in connection with any Loan Document, or any
statement made by any Borrower in any financial statement, certificate, report,
exhibit or document furnished by any Borrower to the Lender pursuant to or in
connection with any Loan Document, shall prove to have been false or misleading
in any material respect as of the time when made or deemed made (including by
omission of material information necessary to make such representation, warranty
or statement not misleading).
(d) Any Borrower shall default in the performance or
observance of any covenant contained in this Agreement; provided, however, that
with respect to Section 6.6, such default may be cured by the return of the
Borrowers, in the form of equity, of any dividends or distributions in excess of
the permitted amounts in Section 6.6 (as long as such excess dividends or
distributions have not exceeded $25,000 in the immediately preceeding 12
months.)
(e) Any Borrower shall default in the performance or
observance of any other covenant, agreement or duty under this Agreement or any
other Loan Document and (i) in the case of a default under Section 5.1 hereof
such default shall have continued for a period of ten days and (ii) in the case
of any other default such default shall have continued for a period of ten (10)
days after the Lender has sent notice of such default (as long as such ten (10)
day period does not extend more than thirty (30) days beyond the date of
occurrence of such default) provided that such default is capable of being cured
(which shall be determined in the sole and absolute discretion of the Lender.)
(f) Any Cross-Default Event shall occur with respect to any
Cross-Default Obligation; provided, that if a Cross-Default Event would have
occurred with respect to a Cross-Default Obligation but for the grant of a
waiver or similar indulgence, a Cross-Default Event shall nevertheless be deemed
to have occurred if any Borrower directly or indirectly gave or agreed to give
any
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consideration for such waiver or indulgence (including but not limited to a
reduction in maturity, an increase in rates or the granting of collateral). As
used herein, "Cross-Default Obligation" shall mean any Indebtedness or Guaranty
Equivalent of any Borrower in which the principal obligation of such Borrower
exceeds $100,000, or any agreement or instrument creating, evidencing or
securing such Indebtedness or Guaranty Equivalent. As used herein,
"Cross-Default Event" with respect to a Cross- Default Obligation shall mean the
occurrence of any default, event or condition which causes any Person or Persons
to cause all or any part of such Cross-Default Obligation to become due (by
acceleration, mandatory prepayment or repurchase, or otherwise) before its
otherwise stated maturity, or failure to pay all or any part of such
Cross-Default Obligation at its stated maturity.
(g) One or more judgments for the payment of money shall have
been entered against any Borrower, which judgment or judgments exceed $100,000
in the aggregate, and such judgment or judgments shall have remained
undischarged and unstayed for a period of thirty consecutive days.
(h) One or more writs or warrants of attachment, garnishment,
execution, distraint or similar process exceeding in value the aggregate amount
of $100,000 shall have been issued against any Borrower or any of their
properties and shall have remained undischarged and unstayed for a period of
thirty consecutive days.
(i) Any Governmental Action now or hereafter made by or with
any Governmental Authority required in connection with any Loan Document is not
obtained or shall have ceased to be in full force and effect or shall have been
materially modified or amended or shall have been held to be illegal or invalid,
and the Lender shall have determined in good faith (which determination shall be
conclusive) that such event or condition could have a Material Adverse Effect.
(j) Any Security Document shall cease to be in full force and
effect, or any Lien created or purported to be created in any Collateral
pursuant to any Security Document shall fail to be valid, enforceable and
perfected Lien in favor of the Lender securing the Obligations, prior to all
other Liens, or any Borrower or any Governmental Authority shall assert any of
the foregoing.
(k) Any Loan Document or term or provision thereof shall cease
to be in full force and effect, or any Borrower shall, or shall purport to,
terminate, repudiate, declare voidable or void or otherwise contest, any Loan
Document or term
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or provision thereof or any obligation or liability of any Borrower thereunder,
and the result of which is a material effect on the rights and remedies of the
Lender under the Loan Documents.
(l) The Lender shall have determined in good faith that an
event or condition has occurred which will have a Material Adverse Effect.
(m) Any one or more Pension-Related Events referred to in
subsection (a)(ii), (b) or (e) of the definition of "Pension-Related Event"
shall have occurred; or any one or more other Pension-Related Events shall have
occurred and the Required Lenders shall determine in good faith (which
determination shall be conclusive) that such other Pension-Related Events,
individually or in the aggregate, could have a Material Adverse Effect.
(n) Any one or more of the events or conditions set forth in
the following clauses (i) or (ii) shall have occurred in respect of any
Borrower, and the Lender shall determine in good faith (which determination
shall be conclusive) that such events or conditions, individually or in the
aggregate, could have a Material Adverse Effect: (i) any past or present
violation of any Environmental Law by such Person, (ii) the existence of any
pending or threatened Environmental Claim against any such Person, or the
existence of any past or present acts, omissions, events or circumstances that
could form the basis of any Environmental Claim against any such Person.
(o) A Change of Management shall have occurred.
(p) A proceeding shall have been instituted in respect
of any Borrower:
(i) seeking to have an order for relief entered in
respect of any Borrower, or seeking a declaration or entailing a finding that
any Borrower is insolvent or a similar declaration or finding, or seeking
dissolution, winding-up, charter revocation or forfeiture, liquidation,
reorganization, arrangement, adjustment, composition or other similar relief
with respect to any Borrower, its assets or its debts under any Law relating to
bankruptcy, insolvency, relief of debtors or protection of creditors,
termination of legal entities or any other similar Law now or hereafter in
effect, or
(ii) seeking appointment of a receiver, trustee,
liquidator, assignee, sequestrator or other custodian for such Person or for all
or any substantial part of its property,
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and such proceeding shall result in the entry, making or grant of any such order
for relief, declaration, finding, relief or appointment, or such proceeding
shall remain undismissed and unstayed for a period of sixty consecutive days.
(q) Any Borrower shall become insolvent; shall fail to pay,
become unable to pay, or state that it is or will be unable to pay, its debts as
they become due; shall voluntarily suspend transaction of its or his business;
shall make a general assignment for the benefit of creditors; shall institute
(or fail to controvert in a timely and appropriate manner) a proceeding
described in Section 7.1(p)(i) hereof, or (whether or not any such proceeding
has been instituted) shall consent to or acquiesce in any such order for relief,
declaration, finding or relief described therein; shall institute (or fail to
controvert for a period of sixty consecutive days in a timely and appropriate
manner) a proceeding described in Section 7.1(p)(ii) hereof, or (whether or not
any such proceeding has been instituted) shall consent to or acquiesce in any
such appointment or to the taking of possession by any such custodian of all or
any substantial part of its property; shall dissolve, wind-up, revoke or forfeit
its charter (or other constituent documents) or liquidate itself or any
substantial part of its property; or shall take any action in furtherance of any
of the foregoing.
7.2. Consequences of an Event of Default.
(a) If an Event of Default specified in subsections (a)
through (p) of Section 7.01 hereof shall occur and be continuing or shall exist,
then, in addition to all other rights and remedies which the Lender may have
hereunder or under any other Loan Document, at law, in equity or otherwise, the
Lender shall be under no further obligation to make Loans hereunder, and the
Lender may, by notice to the Borrowers, from time to time do any or all of the
following:
(i) Declare the Revolving Credit Commitment
terminated, whereupon the Commitments will terminate and any fees hereunder
shall be immediately due and payable without presentment, demand, protest or
further notice of any kind, all of which are hereby waived, and an action
therefor shall immediately accrue.
(ii) Declare the unpaid principal amount of the
Loans, interest accrued thereon and all other Obligations to be immediately due
and payable without presentment, demand, protest or further notice of any kind,
all of which are hereby waived, and an action therefor shall immediately accrue.
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(b) If an Event of Default specified in subsection (q) or (r)
of Section 7.1 hereof shall occur or exist, then, in addition to all other
rights and remedies which the Lender may have hereunder or under any other Loan
Document, at law, in equity or otherwise, the Revolving Credit Commitment shall
automatically terminate and the Lender shall be under no further obligation to
make Loans, and the unpaid principal amount of the Loans, interest accrued
thereon and all other Obligations shall become immediately due and payable
without presentment, demand, protest or notice of any kind, all of which are
hereby waived, and an action therefor shall immediately accrue.
ARTICLE 8 - MISCELLANEOUS
8.1. Holidays. Whenever any payment or action to be made or
taken hereunder or under any other Loan Document shall be stated to be due on a
day which is not a Business Day, such payment or action shall be made or taken
on the next following Business Day and such extension of time shall be included
in computing interest or fees, if any, in connection with such payment or
action.
8.2. Records. The unpaid principal amount of the Loans owing
to the Lender, the unpaid interest accrued thereon, the interest rate or rates
applicable to such unpaid principal amount, the duration of such applicability,
the Revolving Credit Committed Amount, and the accrued and unpaid Revolving
Credit Commitment Fees shall at all times be ascertained from the records of the
Lender, which shall be conclusive absent manifest error.
8.3. Amendments and Waivers. Neither this Agreement nor any
Loan Document may be amended, modified or supplemented except in accordance with
the provisions of this Section. The Lender and the Borrowers may from time to
time amend, modify or supplement the provisions of this Agreement or any other
Loan Document for the purpose of amending, adding to, or waiving any provisions,
releasing any Collateral, or changing in any manner the rights and duties of the
Borrowers or the Lender. Any such amendment, modification or supplement made by
Borrowers and the Lender in accordance with the provisions of this Section shall
be binding upon the Borrowers and the Lender. Any such amendment, modification
or supplement must be in writing and shall be effective only to the extent set
forth in such writing. Any Event of Default or Potential Default waived or
consented to in any such amendment, modification or supplement shall be deemed
to be cured and not continuing to the extent and for the period set forth in
such waiver or consent, but no such waiver or consent
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shall extend to any other or subsequent Event of Default or Potential Default or
impair any right consequent thereto.
8.4. No Implied Waiver; Cumulative Remedies. No course of
dealing and no delay or failure of the Lender in exercising any right, power or
privilege under this Agreement or any other Loan Document shall affect any other
or future exercise thereof or exercise of any other right, power or privilege;
nor shall any single or partial exercise of any such right, power or privilege
or any abandonment or discontinuance of steps to enforce such a right, power or
privilege preclude any further exercise thereof or of any other right, power or
privilege. The rights and remedies of the Lender under this Agreement and any
other Loan Document are cumulative and not exclusive of any rights or remedies
which the Lender would otherwise have hereunder or thereunder, at law, in equity
or otherwise.
8.5. Notices.
(a) Except to the extent otherwise expressly permitted
hereunder or thereunder, all notices, requests, demands, directions and other
communications (collectively "notices") under this Agreement or any Loan
Document shall be in writing (including telexed and facsimile communication) and
shall be sent by first-class mail, or by nationally-recognized overnight
courier, or by telex or facsimile transmission (with confirmation in writing
mailed first-class or sent by such an overnight courier), or by personal
delivery. All notices shall be sent to the applicable party at the address
stated on the signature pages hereof or in accordance with the last unrevoked
written direction from such party to the other parties hereto, in all cases with
postage or other charges prepaid. Any such properly given notice to the Lender
or the Borrowers shall be effective on the earliest to occur of receipt,
telephone confirmation of receipt of telex or facsimile communication, one
Business Day after delivery to a nationally-recognized overnight courier, or
three Business Days after deposit in the mail.
(b) The Lender may rely on any notice (whether or not such
notice is made in a manner permitted or required by this Agreement or any Loan
Document) purportedly made by or on behalf of any Borrower, and the Lender shall
have no duty to verify the identity or authority of any Person giving such
notice.
8.6. Expenses; Taxes; Indemnity.
(a) Each Borrower agrees to pay or cause to be paid and to
save the Lender harmless against liability for the payment of all reasonable
out-of-pocket costs and expenses (including but not limited to reasonable fees
and expenses of counsel, including
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local counsel, auditors, consulting engineers, appraisers, and all other
professional, accounting, evaluation and consulting costs) incurred by the
Lender from time to time arising from or relating to (i) the negotiation,
preparation, execution, delivery, administration and performance of this
Agreement and the other Loan Documents, (ii) any requested amendments,
modifications, supplements, waivers or consents (whether or not ultimately
entered into or granted) to this Agreement or any Loan Document, and (iii) the
enforcement or preservation of rights under this Agreement or any Loan Document
(including but not limited to any such costs or expenses arising from or
relating to (A) the creation, perfection or protection of the Lender's Lien on
any Collateral, (B) the protection, collection, lease, sale, taking possession
of, preservation of, or realization on, any Collateral, including without
limitation advances for storage, insurance premiums, transportation charges,
taxes, filing fees and the like, (C) collection or enforcement of an outstanding
Loan or any other amount owing hereunder or thereunder by the Lender, and (D)
any litigation, proceeding, dispute, workout, restructuring or rescheduling
related in any way to this Agreement or the Loan Documents).
(b) Each Borrower hereby agrees to pay all stamp, document,
transfer, recording, filing, registration, search, sales and excise fees and
taxes and all similar impositions now or hereafter determined by the Lender to
be payable in connection with this Agreement or any other Loan Documents or any
other documents, instruments or transactions pursuant to or in connection
herewith or therewith, and each Borrower agrees to save the Lender harmless from
and against any and all present or future claims, liabilities or losses with
respect to or resulting from any omission to pay or delay in paying any such
fees, taxes or impositions.
(c) Each Borrower hereby agrees to reimburse and indemnify
each of the Indemnified Parties from and against any and all losses,
liabilities, claims, damages, reasonable out of pocket expenses, obligations,
penalties, actions, judgments, suits, costs or disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnified Party in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnified Party shall be designated a party thereto) that
may at any time be imposed on, asserted against or incurred by such Indemnified
Party as a result of, or arising out of, or in any way related to or by reason
of, this Agreement or any other Loan Document, any transaction from time to time
contemplated hereby or thereby, or any transaction financed in whole or in part
or directly or indirectly with the proceeds of any Loan (and without in any way
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limiting the generality of the foregoing, including any violation or breach of
any Environmental Law or any other Law by any Borrower; any Environmental Claim
arising out of the management, use, control, ownership or operation of property
by any of such Persons, including all on-site and off-site activities involving
Environmental Concern Materials; any grant of Collateral; or any exercise by the
Lender or any Lender of any of its rights or remedies under this Agreement or
any other Loan Document); but excluding any such losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements resulting solely from the gross negligence or willful misconduct
of such Indemnified Party, as finally determined by a court of competent
jurisdiction. If and to the extent that the foregoing obligations of each
Borrower under this subsection (c), or any other indemnification obligation of
such Borrower hereunder or under any other Loan Document, are unenforceable for
any reason, such Borrower hereby agrees to make the maximum contribution to the
payment and satisfaction of such obligations which is permissible under
applicable Law.
8.7. Severability; Joint and Several Liability;
Presumptions.
(a) Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
(b) Maximum Amount of Joint and Several Liability. Without
limiting the preceding subsection (a), to the extent that mandatory and
non-waivable provisions of applicable Law (including but not limited to any
applicable Laws pertaining to fraudulent conveyance or fraudulent transfer, and
any applicable business corporation or partnership Law) otherwise would render
the full amount of any Borrower's obligations hereunder and under any other Loan
Documents invalid or unenforceable, such Borrower's obligations hereunder and
under the other Loan Documents shall be limited to the maximum amount which does
not result in such invalidity or unenforceability.
(c) Limitation on Amount of Liability Presumed Not to Apply.
Notwithstanding anything to the contrary in this Section 8.7 or elsewhere in
this Agreement, this Agreement shall be presumptively valid and enforceable to
its fullest extent in accordance with its terms, as if this Section 8.7 were not
a part of this Agreement.
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<PAGE>
8.8. Prior Understandings. This Agreement and the
other Loan Documents supersede all prior and contemporaneous
understandings and agreements, whether written or oral, among the
parties hereto relating to the transactions provided for herein
and therein.
8.9. Duration; Survival. All representations and warranties of
each Borrower contained herein or in any other in the Loan Document or made in
connection herewith or therewith shall survive the making of, and shall not be
waived by the execution and delivery of, this Agreement or any other Loan
Document, any investigation by or knowledge of the Lender, the making of any
Loan, or any other event or condition whatever. All covenants and agreements of
each Borrower contained herein or in any other Loan Document shall continue in
full force and effect from and after the date hereof so long as such Borrower
may borrow hereunder and until payment in full of all Obligations. Without
limitation, all obligations of each Borrower hereunder or under any other Loan
Document to make payments to or indemnify the Lender shall survive the payment
in full of all other Obligations, termination of such Borrower's right to borrow
hereunder, and all other events and conditions whatever.
8.10. Counterparts. This Agreement may be executed in
any number of counterparts and by the different parties hereto on
separate counterparts each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute
but one and the same instrument.
8.11. Limitation on Payments. The parties hereto intend to
conform to all applicable Laws in effect from time to time limiting the maximum
rate of interest that may be charged or collected. Accordingly, notwithstanding
any other provision hereof or of any other Loan Document, the Borrowers shall
not be required to make any payment to or for the account of any Lender, and the
Lender shall promptly refund any payment made by the Borrowers, to the extent
that such requirement or such failure to refund would violate or conflict with
nonwaivable provisions of applicable Laws limiting the maximum amount of
interest which may be charged or collected by such Lender.
8.12. Set-Off. Each Borrower hereby agrees that if an Event of
Default or Potential Default shall have occurred and be continuing or shall
exist and if any Obligation of any Borrower shall be due and payable (by
acceleration or otherwise), the Lender shall have the right (except with respect
to trust accounts established by a Borrower on behalf of its customers), without
notice to such Borrower, to set-off against and to
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appropriate and apply to such Obligation any indebtedness, liability or
obligation of any nature owing to such Borrower by the Lender, including but not
limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, whether or not evidenced by a
certificate of deposit) now or hereafter maintained by such Borrower with the
Lender. Such right shall be absolute and unconditional in all circumstances
(except with respect to trust accounts established by a Borrower on behalf of
its customers) and, without limitation, shall exist whether or not the Lender or
any other Person shall have given notice or made any demand to such Borrower,
whether such indebtedness, obligation or liability owed to such Borrower is
contingent, absolute, matured or unmatured (it being agreed that the Lender may
deem such indebtedness, obligation or liability to be then due and payable at
the time of such set-off), and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to the
Lender. The rights provided by this Section are in addition to all other rights
of set-off and banker's lien and all other rights and remedies which the Lender
may otherwise have under this Agreement, any other Loan Document, at law or in
equity, or otherwise, and nothing in this Agreement or any other Loan Document
shall be deemed a waiver or prohibition of or restriction on the rights of
set-off or bankers' lien of the Lender.
8.13. Successors and Assigns; Participations;
Assignments.
(a) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Borrowers, the Lender, all future holders
of the Notes, and their respective successors and assigns, except that no
Borrower may assign or transfer any of its rights hereunder or interests herein
without the prior written consent of the Lender, and any purported assignment
without such consent shall be void.
(b) Participations. The Lender may, in the ordinary course of
its commercial banking business and in accordance with applicable Law, at any
time sell participations to one or more commercial banks or other Persons (each
a "Participant") in all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation, all or a
portion of its Commitments and the Loans owing to it and any Note held by it);
provided, that
(i) the Lender's obligations under this Agreement
and the other Loan Documents shall remain unchanged,
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(ii) the Lender shall remain solely responsible to
the Borrower hereto for the performance of such obligations,
(iii) the Borrowers shall continue to deal solely
and directly with the Lender in connection with the Lender's rights and
obligations under this Agreement and each of the other Loan Documents, and
(iv) such Participant shall not be a competitor of
any Borrower.
(c) Financial and Other Information. Each Borrower authorizes
the Lender to disclose to any Participant (each, a "transferee") and any
prospective transferee any and all financial and other information in such
Person's possession concerning such Borrower and its affiliates which has been
or may be delivered to such Person by or on behalf of such Borrower in
connection with this Agreement or any other Loan Document or such Person's
credit evaluation of such Borrower and its affiliates; provided that the Lender
shall notify such Borrower of the identity of the transferee and shall obtain a
commercially reasonable confidentiality letter (a copy of which shall be
provided to the Borrowers) with respect to the disclosure of such information,
in accordance with applicable Law.
(d) Assignments to Federal Reserve Bank. The Lender may at any
time assign all or any portion of its rights under this Agreement, including
without limitation any Loans owing to it, and any Note held by it to a Federal
Reserve Bank. No such assignment shall relieve the Lender from its obligations
hereunder.
8.14. Governing Law; Submission to Jurisdiction:
Waiver of Jury Trial; Limitation of Liability.
(a) Governing Law. THIS AGREEMENT AND ALL OTHER LOAN DOCUMENTS
(EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH OTHER LOAN
DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CHOICE OF LAW
PRINCIPLES.
(b) Certain Waivers. EACH BORROWER HEREBY IRREVOCABLY
AND UNCONDITIONALLY:
(i) AGREES THAT ANY ACTION, SUIT OR PROCEEDING BY
ANY PERSON ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
OR ANY STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN
CONNECTION HEREWITH OR THEREWITH (COLLECTIVELY, "RELATED LITIGATION") MAY BE
BROUGHT IN ANY STATE
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OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN PHILADELPHIA AND
MONTGOMERY COUNTIES, PENNSYLVANIA, SUBMITS TO THE JURISDICTION OF SUCH COURTS,
AND TO THE FULLEST EXTENT PERMITTED BY LAW AGREES THAT IT WILL NOT BRING ANY
RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE LENDER TO BRING ANY ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM);
(ii) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT
ANY TIME TO THE LAYING OF VENUE OF ANY RELATED LITIGATION BROUGHT IN ANY SUCH
COURT, WAIVES ANY CLAIM THAT ANY SUCH RELATED LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM, AND WAIVES ANY RIGHT TO OBJECT, WITH RESPECT TO ANY RELATED
LITIGATION BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION
OVER THE BORROWER;
(iii) CONSENTS AND AGREES TO SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY RELATED LITIGATION BY
REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO SUCH BORROWER AT THE
ADDRESS FOR NOTICES DESCRIBED IN THIS AGREEMENT, AND CONSENTS AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT
NOTHING HEREIN SHALL AFFECT THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN
ANY OTHER MANNER PERMITTED BY LAW); AND
(iv) WAIVES THE RIGHT TO TRIAL BY JURY IN ANY
RELATED LITIGATION.
(c) Limitation of Liability. TO THE FULLEST EXTENT PERMITTED
BY LAW, NO CLAIM MAY BE MADE BY ANY BORROWER AGAINST THE LENDER, OR ANY
AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY OR ANY OF THEM FOR ANY SPECIAL,
INCIDENTAL, INDIRECT, OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY CLAIM ARISING
FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY STATEMENT,
COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION HEREWITH OR
THEREWITH (WHETHER FOR BREACH OF CONTRACT, TORT OR ANY OTHER THEORY OF
LIABILITY). EACH BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY
CLAIM FOR ANY
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SUCH DAMAGES, WHETHER SUCH CLAIM PRESENTLY EXISTS OR ARISES HEREAFTER AND
WHETHER OR NOT SUCH CLAIM IS KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement as of the date first
above written.
ATTEST: NCO GROUP, INC.
By /s/ JOSHUA GINDIN By /s/ MICHAEL J. BARRIST
------------------------ -----------------------
Title: MICHAEL J. BARRIST
Title: President and Chief
Executive Officer
[Corporate Seal]
ATTEST: NCO FINANCIAL SYSTEMS, INC.
By /s/ JOSHUA GINDIN By /s/ MICHAEL J. BARRIST
------------------------ -----------------------
Title: MICHAEL J. BARRIST
Title: President and Chief
Executive Officer
[Corporate Seal]
ATTEST: NCO FUNDING, INC.
By /s/ JOSHUA GINDIN By /s/ MICHAEL J. BARRIST
------------------------ -----------------------
Title: MICHAEL J. BARRIST
Title: President and Chief
Executive Officer
[Corporate Seal]
ATTEST: NCO OF NEW YORK, INC.
By /s/ JOSHUA GINDIN By /s/ MICHAEL J. BARRIST
------------------------ -----------------------
Title: MICHAEL J. BARRIST
Title: President and Chief
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Executive Officer
[Corporate Seal]
Address for Notices to each Borrower:
-------------------------------------
c/o NCO Group, Inc.
1740 Walton Road
Blue Bell, PA 19422-0987
Attn: MICHAEL J. BARRIST
Telephone: (610) 832-1400
Facsimile: (610) 832-1435
with copies to: BLANK, ROME, COMISKY & McCAULEY
Four Penn Center Plaza
Philadelphia, PA 19103
Attn: Joel C. Shapiro, Esq.
Telephone: (215) 569-5476
Facsimile: (215) 569-5555
and to: JOSHUA GINDIN, ESQ.
1700 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Telephone: (215) 567-5830
Facsimile: (215) 636-0366
MELLON BANK, N.A.
By /s/LIZ A. MELLACE
-----------------------------------
LIZ A. MELLACE
Title: Assistant Vice President
Address for Notices:
Plymouth Meeting Executive Campus
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Attn: LIZ A. MELLACE
Telephone: (610) 941-8423
Facsimile: (610) 941-4136
with a copy to: REED SMITH SHAW & McCLAY
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2500 One Liberty Place
Philadelphia, PA 19103
Attn: Ben Burke Howell, Esq.
Telephone: (215) 851-8172
Facsimile: (215) 851-1420
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<PAGE>
SCHEDULES TO AMENDED AND
RESTATED CREDIT AGREEMENT
<PAGE>
SCHEDULE 3.1
CORPORATE STATUS
----------------
(a) NCO Financial's state of incorporation is Pennsylvania.
(b) NCO Financial is qualified to do business as a foreign
corporation in the following states:
1. North Carolina
2. Arkansas
3. West Virginia
4. Massachusetts
5. New Jersey
6. Delaware
(c) NCO Group, Inc.'s state of incorporation is Pennsylvania.
(d) NCO Funding, Inc.'s state of incorporation is Delaware.
(e) NCO of New York, Inc.'s state of incorporation is New
York.
<PAGE>
SCHEDULE 3.8
ABSENCE OF UNDISCLOSED LIABILITIES
----------------------------------
There are no undisclosed liabilities
<PAGE>
SCHEDULE 3.11
PROJECTIONS
-----------
All projections required by Section 3.11 have previously been submitted
by the Borrowers to Lender.
<PAGE>
SCHEDULE 3.14
PARTNERSHIPS
------------
NONE
<PAGE>
SCHEDULE 3.15
OWNERSHIP AND CONTROL - NCO FINANCIAL SYSTEMS, INC.
---------------------------------------------------
Authorized Capitalization: 100,000 shares common stock
Stock, issued and outstanding: 90,495 shares (not including
Stock Option Plan)
Record Owners: 100% - NCO Group, Inc.
<PAGE>
SCHEDULE 3.15
OWNERSHIP AND CONTROL - NCO OF NEW YORK, INC.
---------------------------------------------
Authorized Capitalization: 200 shares common stock
Stock, issued and outstanding: 200 shares (not including
Stock Option Plan)
Record Owners: 100% owned by NCO Group, Inc.
<PAGE>
SCHEDULE 3.15
OWNERSHIP AND CONTROL - NCO FUNDING, INC.
-----------------------------------------
Authorized Capitalization: 1,000 shares common stock
Stock, issued and outstanding: 1,000 shares (not including
Stock Option Plan)
Record Owners: 100% owned by NCO Group, Inc.
<PAGE>
SCHEDULE 3.15
OWNERSHIP AND CONTROL - NCO GROUP, INC.
---------------------------------------
Authorized Capitalization: 200,000 shares common stock
Stock, issued and outstanding: 90,495 shares (not including
Stock Option Plan)
Record Owners:
Michael Barrist - 50,723 shares/ 56.05%
Annette H. Barrist - 6,877 shares/ 7.6%
Charles C. Piola, Jr. - 28,370 shares/ 31.35%
Bernie Miller - 4,525 shares/ 5%
Stock option Plan: 4762 for 1995 Stock Option Plan
<PAGE>
SCHEDULE 3.19
PROPERTY AND BUSINESS INSURANCE
-------------------------------
Attached hereto is a copy of a Certificate of Insurance for
the period 9/l/96 - 9/l/97 setting forth all property and business insurance
currently maintained by Borrower.
<PAGE>
SCHEDULE 3.21
INTELLECTUAL PROPERTY
---------------------
NONE
<PAGE>
SCHEDULE 3.24
ENVIRONMENTAL MATTERS
---------------------
NONE
<PAGE>
SCHEDULE 3.26
NAMES
-----
NCO Financial and MAB conduct business solely under the name NCO Financial
Systems, Inc. and Management Adjustment Bureau, Inc., respectively, except that
NCO Financial conducts business on occasion under the names of "B. Richard
Miller", "Sentry Group", "National Collection Office", "Collection Service
Division of Transamerica", and "Eastern Collection Services".
<PAGE>
SCHEDULE 6.2
LIENS
-----
The amount of any liens securing obligations or arising from taxes, assessments,
charges or claims in existence for which the Borrowers are liable is NONE.
Except as set forth on the attached Schedule 3.19, the amount of any liens
securing obligations or arising from taxes, assessments, charges or claims in
existence for which Management Adjustment Bureau, Inc. is liable is NONE.
<PAGE>
SCHEDULE 6.3
The amount of any indebtedness in existence for which NCO Financial is liable or
may become liable, other than the exceptions as stated in Section 6.3, is NONE,
except as may be permitted in the Security Agreement executed by Management
Adjustment Bureau, Inc. of even date herewith.
<PAGE>
NCO FINANCIAL SYSTEMS, INC.
CREDIT AGREEMENT
SCHEDULE 6.5
Loans and investments owned by NCO Financial as of the date of this agreement
are as follows:
Investments held by PNC as reflected in the attached statement of
account.
<PAGE>
SCHEDULE 6.12
PERMITTED DEALINGS WITH AFFILIATES
----------------------------------
1. Lease Agreement between NCO Financial and its Affiliate, 1740 Sentry
East Associates, for the premises 1740 Walton Road, Blue Bell, PA,
Borrower's corporate office.
2. Lease Agreement between NCO Financial and its Affiliate, 1730 Sentry
East Associates, for office space at 1730 Walton Road, Blue Bell, PA.
3. Lease Agreement between NCO Financial and its Affiliate, 1710-20 Sentry
East Associates, for office space at 1710-20 Walton Road, Blue Bell,
PA.
<PAGE>
Exhibit 10.14
AMENDED AND RESTATED SECURITY AGREEMENT
---------------------------------------
THIS AMENDED AND RESTATED SECURITY AGREEMENT (this
"Agreement"), dated September 5, 1996, by NCO Group, Inc., a Pennsylvania
corporation ("NCO Group"), NCO Financial Systems, Inc., a Pennsylvania
corporation ("NCO Financial"), NCO Funding, Inc., a Delaware corporation ("NCO
Funding"), and NCO of New York, Inc., a New York corporation ("NCO New York")
(NCO Group, NCO Financial, NCO Funding and NCO New York are each individually a
"Grantor" and collectively the "Grantors") in favor of Mellon Bank, N.A., a
national banking association (the "Lender").
RECITALS
A. NCO Financial and the Lender entered into that certain
Credit Agreement dated as of July 28, 1995 (the "Credit Agreement"), pursuant to
which the Lender made available to NCO Financial certain credit facilities.
B. As a condition precedent to the extension of credit under
the Credit Agreement, NCO Financial executed and delivered to the Lender a
Security Agreement dated July 28, 1995 in favor of Bank (the "Original Security
Agreement").
C. On the date hereof, NCO New York (as an assignee of NCO
Financial) will acquire all of the outstanding common stock of Management
Adjustment Bureau, Inc. ("MAB") in an acquisition more particularly described in
a Stock Purchase Agreement dated as of July 18, 1996 among the owners of the
stock and NCO Financial.
D. In order to finance the acquisition of Management
Adjustment Bureau, Inc. by NCO New York, NCO Financial has requested that the
Lender increase the amount of the credit facilities extended by the Lender to
NCO Financial pursuant to the Credit Agreement to $15,000,000 and add NCO Group,
NCO New York and NCO Funding as co-borrowers under the credit facilities.
E. The Grantors and the Lender have agreed to increase the
amount of the credit facilities and to enter into an Amended and Restated Credit
Agreement dated of even date herewith (the "Amended and Restated Credit
Agreement").
F. It is a condition precedent to the extension of additional
credit under the Amended and Restated Credit Agreement that the Grantors amend
and restate the Original Security Agreement in its entirety by executing and
delivering this
<PAGE>
Agreement. This Agreement is made by the Grantors among other things to induce
the Lender to enter into the Loan Documents (as defined below), and to induce
the Lender to extend credit under the Amended and Restated Credit Agreement.
NOW, THEREFORE, in consideration of the premises, and
intending to be legally bound, the Grantors hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) General. Capitalized terms
not otherwise defined herein shall have the meanings given in the
Amended and Restated Credit Agreement. In addition to the other
terms defined elsewhere in this Agreement, as used herein the
following terms shall have the following meanings:
"Loan Documents" shall mean the Amended and Restated Credit
Agreement, this Agreement, the $15,000,000 Amended and Restated
Revolving Credit Note dated September 5, 1996 from the Grantors in
favor of the Lender, the Warrant Agreement dated July 28, 1995 by and
between NCO Financial and the Lender, as amended by that certain
Amendment to Warrant Agreement dated September 5, 1996, the 1996
Warrant Agreement dated September 5, 1996 by and between NCO Group and
the Lender, the Amended and Restated Limited Guaranty Agreement dated
September 5, 1996 from Michael J. Barrist, Charles A. Piola, Jr.,
Annette H. Barrist and Bernard R. Miller (collectively the
"Guarantors") in favor of the Lender, the Amended and Restated Stock
Pledge Agreement dated September 5, 1996 from the Guarantors in favor
of the Lender, the Stock Pledge Agreement dated September 5, 1996 from
NCO Group in favor of the Lender, the Guaranty and Suretyship Agreement
dated September 5, 1996 from MAB to the Lender, the Security Agreement
dated September 5, 1996 from MAB to the Lender and all agreements and
instruments from time to time delivered under or in connection with any
of the foregoing, in each case as the same may be amended from time to
time.
"Secured Obligations" shall mean all obligations from time to
time of the Grantors to the Lender under or in connection with any Loan
Document, including all obligations to pay principal, interest, fees,
indemnities or other amounts, in each case whether such obligations are
direct or indirect, secured or unsecured, joint or several, absolute or
contingent, due or to become due, whether for payment or performance,
now existing or hereafter arising.
"UCC" shall mean the Uniform Commercial Code as in effect in
the Commonwealth of Pennsylvania from time to time.
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<PAGE>
(b) Other Definitions. The following terms are defined in this
Agreement in the Section or other place indicated:
"Amended and Restated
Credit Agreement" Recitals
"Collateral" 2.1
"Credit Agreement" Recitals
"Equipment" 2.1
"Grantors" Preamble
"Guarantors" 1.1
"Inventory" 2.1
"Lender" Preamble
"NCO Group" Preamble
"NCO Financial" Preamble
"NCO Funding" Preamble
"NCO New York" Preamble
"MAB" Recitals
"notices" 6.3
"Receivables" 2.1
"Related Contracts" 2.1
1.2. UCC Definitions. Unless otherwise defined herein, terms
defined in Article 9 of the UCC shall have the same meanings in this Agreement.
ARTICLE II
THE SECURITY
2.1. Grant of Security. As security for the full and timely
payment and performance of the Secured Obligations, the Grantors hereby assign
and pledge to the Lender, and grant to the Lender a security interest in, all
right, title and interest of the Grantors in, to and under the following,
whether now or hereafter existing or acquired (the "Collateral"):
(a) all equipment in all of its forms of the Grantors
including, without limitation, all machinery, motor vehicles,
furniture, tools, accessories, parts, fixtures and all other personal
property of the Grantors, and all parts of and all accessions to any of
the foregoing, in each case wherever located (collectively, the
"Equipment);
(b) all inventory in all of its forms of the Grantors
including, without limitation, (i) all raw materials and work in
progress therefor, finished goods thereof and materials used or
consumed in the manufacture or production thereof, (ii) all goods in
which the Grantors have an interest in mass or a joint or other
interest or right of
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<PAGE>
any kind (including, without limitation, goods in which the Grantors
have an interest or right as consignee), and (iii) all goods which are
returned to or repossessed by the Grantors, and all accessions to,
products of and documents for any of the foregoing, in each case
wherever located (collectively, the "Inventory");
(c) all accounts, accounts receivable, contract rights,
chattel paper, instruments, documents and general intangibles
(including, but not limited to, all tax refunds, intellectual property
and proprietary rights) of the Grantors, whether or not arising out of
or in connection with the sale or lease of goods or the rendering of
services, and all rights of the Grantors now or hereafter existing in
and to all security agreements, guaranties, leases and other contracts
securing or otherwise relating to any such accounts, accounts
receivable contract rights, chattel paper, instruments, documents or
general intangibles (such accounts, accounts receivable contract
rights, chattel paper, instruments, documents and general intangibles
being collectively the "Receivables," and such security agreements,
guaranties, leases and other contracts being collectively the "Related
Contracts");
(d) all additions, replacements, attachments, accretions,
accessions, components and substitutions to or for any Inventory or
Equipment;
(e) all property of the Grantors, including without
limitation, monies, securities, instruments, chattel paper and
documents, which at any time the Lender shall have or have the right to
have in its possession, or which is in transit to it (pursuant to the
terms of a letter of credit or otherwise) and, independent of and in
addition to the Lender's rights of setoff (which the Grantors
acknowledge), the balance of any account or any amount which may be
owing from time to time by the Lender to the Grantors;
(f) all books and records in whatever form (together with all
related software) of the Grantors relating to, or used or useful in
connection with, any Collateral; and
(g) all proceeds of any of the foregoing (including, without
limitation, proceeds which constitute property of the types described
in the foregoing clauses (a) through (f)) and, to the extent not
otherwise included, all payments under insurance (whether or not the
Lender is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral.
-4-
<PAGE>
As to that portion of the Collateral covered by the Original
Security Agreement, it is intended that this Section 2.1 shall, without
limitation, operate to confirm the continuation of the liens and security
interests originally created and granted under the Original Security Agreement.
2.2. Grantors Remain Liable. Notwithstanding anything to the
contrary herein or in any other Loan Document, (a) the Grantors shall remain
liable under the contracts and agreements included in the Collateral to the
extent set forth therein to perform all of their duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by the Lender of any rights or remedies under or in connection with
this Agreement or any other Loan Document shall not release the Grantors from
any of their duties or obligations under the contracts and agreements included
in the Collateral, and (c) the Lender shall not have any obligation or liability
under the contracts and agreements included in the Collateral by reason of this
Agreement or any other Loan Document, nor shall the Lender be obligated to
perform any of the obligations or duties of the Grantors thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
2.3. Continuing Agreement. This Agreement creates a continuing
security interest in the Collateral and shall continue in full force and effect
until all Secured Obligations have been paid and performed in full, and all
commitments to extend credit under the Loan Documents have terminated. Upon the
payment and performance in full of all Secured Obligations and termination of
all commitments to extend credit under the Loan Documents, the security interest
granted hereby shall terminate and all rights to the Collateral shall revert to
the Grantors. Upon any such termination, the Lender will, at the Grantors'
request and expense, immediately return to the Grantors, without any
representations, warranties or recourse of any kind whatsoever, such of the
Collateral as then may be held by the Lender hereunder, and execute and deliver
to the Grantors such documents as the Grantors may reasonably request to
evidence such termination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Grantors hereby jointly and severally represent and
warrant to the Lender as follows:
3.1. Title. The Grantors are the legal and beneficial owners
of the Collateral, free and clear of any lien, security
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<PAGE>
interest, option or other charge or encumbrance, except for the security
interest under this Agreement in favor of the Lender securing the Secured
Obligations. No effective financing statement or other item similar in effect
covering any Collateral is on file in any recording office, except such as may
be filed in favor of the Lender relating to this Agreement.
3.2. Validity, Perfection and Priority. This Agreement creates
a valid security interest in the Collateral in favor of the Lender securing the
Secured Obligations, which security interest has been duly perfected and is
prior to all other liens, security interests, options or other charges or
encumbrances. All filings and other actions necessary or desirable to perfect
and protect such security interest in favor of the Lender have been duly made
and taken.
3.3. Governmental Approvals and Filings. To the best of the
Grantors' knowledge, after due inquiry, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is or will be necessary (a) for the grant by the Grantors of the
security interest in the Collateral hereunder or for the execution, delivery or
performance of this Agreement by the Grantors, (b) to ensure the validity,
perfection or priority of the security interest in the Collateral granted
hereunder, or (c) for the exercise by the Lender of any of its rights or
remedies hereunder, except for the filing of UCC financing statements and
continuation statements in appropriate jurisdictions.
3.4. Offices, etc. Schedule 3.4 identifies as of the date
hereof the address of the chief executive office of each Grantor, of each office
(whether maintained by the Grantors or otherwise) where books and records
relating to the Collateral are kept, and of each place of business of each of
the Grantors. Schedule 3.4 also identifies all changes in the foregoing
information during the one year period ending on the date hereof.
3.5. Location of Equipment and Inventory. Schedule 3.5
identifies as of the date hereof the address of each place at which Equipment or
Inventory of the Grantors are located, except for Equipment and Inventory
described in any of clauses (i) through (v) of Section 4.4(a). Schedule 3.5 also
identifies all changes in the foregoing information during the one year period
ending on the date hereof.
3.6. Names, etc. During the one year period ending on the date
hereof, neither the Grantors nor any of their direct or indirect predecessors by
merger, consolidation or other corporate reorganization is or has been known by
or used any corporate or fictitious name or trade name (other than the corporate
names of
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<PAGE>
each of the Grantors as of the date hereof), nor have the Grantors or any such
predecessor been the subject of any merger, consolidation or other corporate
reorganization, nor have the Grantors or any such predecessor otherwise changed
their name, identity or corporate structure, except as set forth in Schedule
3.6. For each such direct and indirect predecessor of the Grantors, Schedule 3.6
also identifies the respective addresses referred to in Sections 3.4 and 3.5 for
all times during such period.
3.7. Possession and Control. The Grantors have exclusive
possession and control of the Equipment and Inventory.
3.8. Certain Receivables. The Grantors have delivered to the
Lender possession of all originals of all promissory notes or other instruments,
chattel paper and negotiable documents constituting Collateral.
3.9. Compliance with Laws, etc. To the best of Grantors'
knowledge, after due inquiry, all Inventory has been produced in compliance with
all requirements of the Fair Labor Standard Act.
3.10. Representations and Warranties Remade at Each Extension
of Credit. Each request (including any deemed request) by the Grantors for any
extension of credit under any Loan Document shall be deemed to constitute a
representation and warranty by the Grantors to the Lender that the
representations and warranties made by the Grantors in this Article III are true
and correct on and as of the date of such request with the same effect as though
made on and as of such date. Failure by the Lender to receive notice from the
Grantors to the contrary before the Lender makes any extension of credit under
any Loan Document shall constitute a further representation and warranty by the
Grantors to the Lender that the representations and warranties made by the
Grantors in this Article III are true and correct on and as of the date of such
extension of credit with the same effect as though made on and as of such date.
ARTICLE IV
COVENANTS
4.1. Books and Records; Inspection. The Grantors shall (a)
keep complete and accurate books and records concerning the Collateral and, at
the request of the Lender from time to time, permit the Lender or its
representatives to inspect and copy such books and records during normal
business hours, (b) at the request of the Lender from time to time, permit the
Lender or its representatives to inspect any Collateral not in the
-7-
<PAGE>
possession of the Lender, and (c) furnish to the Lender such information and
reports in connection with the Collateral at such times and in such form as the
Lender may reasonably request. The Lender shall have the right to examine, but
not verify the Collateral from time to time.
4.2. Transfers and Other Liens, etc.
(a) Transfers. The Grantors shall not sell, assign, lease,
transfer or otherwise dispose of any Collateral (voluntarily or involuntarily,
by operation of law or otherwise) except (i) Inventory in the ordinary course of
business, and (ii) Equipment that is worn-out or obsolete, all in the ordinary
course of business.
(b) Other Liens. The Grantors shall not create or permit to
exist any lien, security interest, option or other charge or encumbrance on any
Collateral (voluntarily or involuntarily, by operation of law or otherwise)
except for (i) the security interest under this Agreement in favor of the Lender
securing the Secured Obligations, (ii) Permitted Liens and (iii) as otherwise
permitted in Section 6.2 of the Amended and Restated Credit Agreement.
4.3. Change in Name, etc. The Grantors shall not have, use or
be know by any corporate or fictitious name or trade name other than their
corporate names as of the date hereof, nor be the subject of any merger,
consolidation or other corporate reorganization, nor otherwise change their
names, identities or corporate structures, except as permitted by Section 6.9 of
the Amended and Restated Credit Agreement, and after all actions referred to in
Section 4.7(a) hereof have been completed.
4.4. Certain Covenants Relating Primarily to Equipment
and Inventory.
(a) Location. The Grantors shall keep all Equipment and
Inventory at the addresses identified in Schedule 3.5, or upon 30 days' notice
to the Lender (specifically referring to this Section 4.4(a)), at such other
locations in jurisdictions where all actions referred to in Section 4.7(a) have
been completed provided, that the foregoing restriction shall not apply to the
following: (i) Inventory in transit to purchasers from the Grantors in the
ordinary course of business, (ii) Equipment and Inventory purchased by the
Grantors in the ordinary course of business but not yet received, (iii)
Equipment temporarily removed in the ordinary course of business for repair,
refurbishment or routine service, (iv) Equipment constituting motor vehicles,
aircraft, shipping vessels, rolling stock or other mobile goods and relocated in
the ordinary course
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<PAGE>
of business, and (v) Equipment and Inventory temporarily removed in the course
of contract work by the Grantors in the ordinary course of business. The
Grantors shall keep all Equipment and Inventory in the 48 contiguous United
States (except for Equipment and Inventory described in the proviso to the
foregoing sentence).
(b) Maintenance and Repair. The Grantors shall cause the
Equipment to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and in accordance
with any applicable manufacturer's manual; and the Grantors shall forthwith, or
in the case of any loss or damage to any of the Equipment as promptly as
practicable after the occurrence thereof, make or cause to be made all repairs,
replacements and other improvements in connection therewith which are necessary
or desirable to such ends. The Grantors shall promptly notify the Lender of any
material loss or damage to any of the Equipment.
(c) Possession and Control. The Grantors shall at all times
retain exclusive possession and control of all Equipment and Inventory.
(d) Negotiable Documents. The Grantors will not permit any
Collateral to constitute or be covered by a negotiable document except for (i)
the Promissory Note in the original principal amount of $135,900 from Richard B.
Miller in favor of the NCO Financial, and (ii) such other loans as permitted by
Section 6.5 of the Amended and Restated Credit Agreement. The Grantors shall
immediately deliver to the Lender any negotiable documents, whether allowed
hereunder or in existence in violation of this provision, in accordance with
Section 4.7.
(e) Taxes, Claims; FLSA. The Grantors shall pay promptly when
due all property and other taxes, assessments and governmental charges or levies
imposed upon, and all claims (including claims for labor, materials and
supplies) against, the Equipment and Inventory. In producing Inventory, the
Grantors shall comply with all requirements of the Fair Labor Standards Act.
(f) Certificate of Title. The Grantors shall cause the
security interests in favor of the Lender hereunder to be duly noted on any
certificate of title with respect to any Collateral, and shall promptly (and in
any event within ten days after the acquisition of any property subject to any
certificate of title), deliver or cause to be delivered to the Lender each such
certificate of title.
4.5. Certain Covenants Relating Primarily to
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<PAGE>
Receivables.
(a) Offices. The Grantors shall keep their chief executive
offices, the offices (whether maintained by the Grantors or otherwise) where
books and records relating to the Collateral are kept and their places of
business at the respective addresses identified in Section 3.5 or, upon 60 days'
notice (specifically referring to this Section 4.5(a)) to the Lender, at such
other locations in jurisdictions where all actions referred to in Section 4.7(a)
have been completed. The Grantors shall maintain their chief executive offices
in the 48 contiguous United States.
(b) Collection; Servicing. Except as otherwise provided in
this Section 4.5(b), the Grantors shall continue to collect, at their own
expense, all amounts due or to become due the Grantors under the Receivables. In
connection with such collections, the Grantors may take (and, at the Lender's
direction, shall take) such action as the Grantors or the Lender may deem
necessary or advisable to enforce collection of the Receivables; provided,
however, that the Lender shall have the right at any time, after the occurrence
of an Event of Default or Potential Default, upon notice to the Grantors of its
intention to do so, to notify (or require the Grantors to notify) the account
debtors or obligors under any Receivables of the security interest in favor of
the Lender in the Receivables and to direct such account debtors or obligors to
make payments of all amounts due or to become due to the Grantors thereunder
directly to the Lender and, upon such notification and at the expense of the
Grantors, to enforce collection of any such Receivables, and to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the same
extent as the Grantors may have done. After receipt by any of the Grantors of
the notice from the Lender referred to in the proviso to the preceding sentence,
(i) all amounts and proceeds (including instruments) received by the Grantors in
respect of the Receivables shall be received in trust for the benefit of the
Lender hereunder, shall be segregated from other funds of the Grantors and shall
be forthwith paid over or delivered to the Lender in the same form as so
received (with any necessary endorsement) to be held as collateral hereunder and
either (A) released to the Grantors so long as no Event of Default or Potential
Default shall have occurred and be continuing, or (B) if any Event of Default or
Potential Default shall have occurred and be continuing, and if the Lender does
not otherwise in its discretion elect to release such amounts to Grantors,
applied as provided in Section 5.6, and (ii) the Grantors shall not adjust,
settle or compromise the amount or payment of any Receivable, release wholly or
partly any account debtor or obligor thereof, or allow any credit or discount
thereon.
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<PAGE>
4.6. Insurance. The Grantors shall, at their own expense,
maintain or cause to be maintained insurance in accordance with Section 5.2 of
the Amended and Restated Credit Agreement. All insurance on Inventory and
Equipment shall identify the Lender as either loss payee or lender loss payee at
the option of the Lender.
4.7. Further Assurances.
(a) General. The Grantors shall from time to time, at their
expense, promptly execute and deliver all further instruments and agreements,
and take all further actions that may be necessary or appropriate, or that the
Lender may reasonably request, in order to perfect or protect any assignment,
pledge or security interest granted or purported to be granted hereby or to
enable the Lender to exercise or enforce its rights and remedies hereunder.
Without limiting the generality of the foregoing, the Grantors will:
(i) if any Collateral shall be evidenced by a promissory note
or other instrument, immediately deliver to the Lender such promissory
note or instrument, duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance
satisfactory to the Lender,
(ii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Lender may
reasonably request, in order to perfect and preserve the security
interest granted or purported to be granted hereby, and
(iii) mark conspicuously each copy of all chattel paper and
negotiable documents included in the Collateral and, at the request of
the Lender, each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Lender, indicating
that such chattel paper, negotiable document, or Collateral is subject
to the security interest granted pursuant hereto.
(b) Financing Statements, etc. The Grantors hereby authorize
the Lender to file one or more financing or continuation statements, and
amendments thereto, relating to any Collateral without the signature of the
Grantors where permitted by law. A photocopy or other reproduction of this
Agreement or any financing statement covering any Collateral shall be sufficient
as a financing statement where permitted by law.
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<PAGE>
ARTICLE V
CERTAIN RIGHTS AND REMEDIES OF THE LENDER
5.1. Lender May Perform. If the Grantors fail to perform any
obligation under or in connection with this Agreement, the Lender may (but shall
have no duty to) itself perform or cause performance of such obligation, and the
expenses of the Lender incurred in connection therewith shall be payable by the
Grantors pursuant to Section 6.4. The Lender may from time to time take any
other action which the Lender deems necessary or appropriate for the
maintenance, preservation or protection of any of the Collateral or of its
security interest therein.
5.2. No Duty to Exercise Powers. The powers of the
Lender under and in connection with this Agreement are solely to
protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers.
5.3. Duties of Lender. Except for exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys received by it pursuant to this Agreement, the Lender
shall have no duty as to any Collateral. In any event the Lender (a) shall have
no duty to take any steps to preserve rights against prior parties or any other
rights pertaining to any Collateral, (b) shall have no duty as to ascertaining
or taking action with respect to calls, conversions, exchanges, tenders,
maturities or other matters pertaining to any Collateral, whether or not the
Lender has any knowledge of such matters, and (c) shall not be liable for any
action, omission, insolvency or default on the part of any agent or custodian
(other than the Lender) appointed by the Lender in good faith. The Lender shall
be deemed to have exercised reasonable care in the custody and preservation of
Collateral in its possession if it takes such action for such purpose as the
Grantors request in writing from time to time (but failure to take any such
action shall not in itself be deemed a failure to exercise reasonable care or
evidence of such failure). Subject only to the performance by the Lender of its
duties set forth in this Section 5.3, risk of loss, damage and diminution in
value of the Collateral, of whatever nature and however caused, shall be on the
Grantors.
5.4. Power of Attorney. The Grantors hereby irrevocably
appoint the Lender, with full power of substitution, to be the attorney-in-fact
of the Grantors, with full authority in the place and stead of the Grantors and
in the name of the Grantors or otherwise, from time to time in the Lender's
discretion, to take any action and to execute any instruments and agreements
which the Lender may deem necessary or advisable to
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<PAGE>
accomplish the purposes of this Agreement, including the following:
(a) to demand, collect, enforce, file claims for, sue for,
recover, compromise, release, and take any action or institute any
proceedings to collect or enforce, all rights to payments due or to
become due and all other rights of the Grantors under or in connection
with any Collateral,
(b) to receive, endorse and collect any checks, notes or other
instruments, documents, chattel paper or any other payment media in
connection with the foregoing clause (a), and
(c) to perform all obligations of the Grantors
hereunder
provided that, except for taking actions referred to in Section 4.7(a), such
power of attorney may be exercised only so long as an Event of Default has
occurred and is continuing. Such power of attorney is irrevocable and coupled
with an interest. All third parties are entitled to rely conclusively on a
representation by the Lender that it is entitled to exercise such power of
attorney.
5.5. Certain Remedies. If any Event of Default shall
have occurred and be continuing, the Lender may exercise all
rights and remedies which it may have under this Agreement, any
other agreement, at law or otherwise, and in addition, the
following provisions shall apply:
(a) The Lender may exercise all rights and remedies with
respect to the Collateral and each part thereof as are provided by the
UCC to a secured party on default (whether or not the UCC applies to
the affected Collateral). To the extent, if any, the Lender does not
otherwise have the right to do so, the Lender may (i) take absolute
possession and control of the Collateral or any part thereof, (ii)
transfer any Collateral into the name of the Lender or its nominees,
(iii) notify the parties obligated on the Collateral to make to the
Lender any payments due or to become due, (iv) receive any payments
made under or in connection with the Collateral, (v) exercise all
rights and remedies of the Grantor under or in connection with the
Collateral, (vi) demand, collect, enforce, file claims for, sue for,
recover, compromise, release, and take any action or institute any
proceedings to collect or enforce, all rights to payments due or to
become due and all other rights of the Grantors under or in connection
with any Collateral, and (vii) otherwise deal in and act with respect
to the Collateral in
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<PAGE>
all respects as though it were the outright owner thereof.
(b) Upon the request of the Lender, the Grantors will, at
their expense, forthwith assemble all or part of the Collateral as
directed by the Lender and make it available to the Lender at a place
to be designated by the Lender that is reasonably convenient to both
parties. The Lender may enter into, occupy and take possession of any
premises where any Collateral is located, without obligation to the
Grantors.
(c) All payments received by the Grantors in respect of any
Collateral shall be received in trust for the benefit of the Lender,
shall be segregated from other funds of the Grantors and shall be
forthwith paid over to the Lender in the same form as so received (with
any necessary endorsement).
(d) The Lender may, without notice except to the extent
required by law, sell the Collateral or any part thereof, in one or
more parcels, at public or private sale, at any of the Lender's offices
or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The
Grantors agree that, to the extent notice of sale is required by law,
at least ten days' prior notice to the Grantors of the time and place
of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Lender shall not be
obligated to make any sale, regardless of notice of sale having been
given. The Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
(e) The Grantors agree that the Lender may comply with any
limitation or restriction in connection with any sale of any Collateral
as the Lender may deem to be necessary or advisable in order to comply
with any law, or in order to obtain or make, or avoid the need to
obtain or make, any approval or registration of the offering, sale or
purchaser by or with any governmental agency or regulatory body. The
Grantors agree that (i) the Lender may make sales in compliance with
such limitations and restrictions, even though such sales may be at
prices and on other terms less favorable to the seller than if such
approvals or registrations were obtained or made, (ii) the Lender shall
have no obligation to delay sale of any Collateral in order to obtain
or make any such approval or registration, and (iii) it shall not be
commercially unreasonable to make
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<PAGE>
sales in compliance with such limitations and restrictions.
5.6. Application of Payments. All cash held by the Lender as
Collateral and all cash proceeds received by the Lender in respect of any sale
of, collection from, or other realization upon any of the Collateral, may in the
discretion of the Lender be held by the Lender as collateral for the Secured
Obligations, or then or at any time thereafter applied (after payment of any
amounts payable to the Lender pursuant to Section 6.4) in whole or part by the
Lender to the Secured Obligations in such order as the Lender may elect. If and
when all Secured Obligations shall have been paid in full and all commitments to
extend credit under the Loan Documents shall have terminated, any surplus of
such cash or cash proceeds held by the Lender shall be immediately paid over to
the Grantors or as otherwise required by law. The Grantors shall remain liable
for any deficiency.
ARTICLE VI
MISCELLANEOUS
6.1. Amendments, etc. No amendment to or waiver of any
provision of this Agreement, and no consent to any departure by the Grantors
herefrom, shall in any event be effective unless in a writing manually signed by
or on behalf of the Lender. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
6.2. No Implied Waiver; Remedies Cumulative. No delay or
failure of the Lender in exercising any right or remedy under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the Lender
under this Agreement are cumulative and not exclusive of any other rights or
remedies available hereunder, under any other agreement, at law, or otherwise.
6.3. Notices. Except to the extent, if any, otherwise
expressly provided herein, all notices and other communications (collectively,
"notices") under this Agreement shall be given, shall be effective, and may be
relied upon, in the same way as notices under the Amended and Restated Credit
Agreement.
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<PAGE>
6.4 Indemnity and Expenses.
(a) Indemnity. The Grantors agree to indemnify the Lender from
and against any and all claims, losses, liabilities and expenses (including
reasonable attorneys' fees) arising out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses, liabilities and expenses resulting solely from the gross negligence or
willful misconduct of the Lender.
(b) Expenses. The Grantors will upon demand pay to the Lender
the amount of all reasonable expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, which the Lender may
incur in connection with (i) the custody, preservation, use or operation of, or
the sale of, collection of or other realization upon, any Collateral, (ii) the
exercise or enforcement of any of the rights of the Lender hereunder, or (iii)
the failure by any of the Grantors to perform or observe any of the provisions
hereof.
6.5. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior and
contemporaneous understandings and agreements.
6.6. Survival. All representations and warranties of the
Grantors contained in or made in connection with this Agreement shall survive,
and shall not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Lender, any extension of credit,
termination of this Agreement, or any other event or circumstance whatever. The
obligations of the Grantors under Section 6.4 shall survive termination of this
Agreement.
6.7. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, and all such counterparts shall constitute but one and
the same agreement.
6.8. Construction. In this Agreement, unless the context
otherwise clearly requires, references to the plural include the singular, the
singular the plural, and the part the whole; and "or" is not exclusive. In this
Agreement, "include," includes," "including" and similar terms are not limiting;
"hereof," "herein," "hereunder" and similar terms refer to this Agreement as a
whole and not to any particular provision; and "expenses," "costs,"
"out-of-pocket expenses" and similar terms include the charges of in-house
counsel, auditors and other professionals of the relevant Person to the extent
that such amounts are routinely identified and charged under such Person's
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<PAGE>
cost accounting system. Section and other headings in this Agreement, and any
table of contents herein, are for reference only and shall not affect the
interpretation of this Agreement in any respect. Section and other references in
this Agreement are to this Agreement unless otherwise specified. This Agreement
has been fully negotiated between the applicable parties, each party having the
benefit of legal counsel, and accordingly neither any doctrine of construction
of security agreements in favor of the grantor, nor any doctrine of construction
of ambiguities against the party controlling the drafting, shall apply to this
Agreement.
6.9 Successors and Assigns. This Agreement shall be binding
upon the Grantors and their successors and assigns, and shall inure to the
benefit of and be enforceable by the Lender and its successors and assigns.
Without limitation of the foregoing, the Lender (and any successive assignee or
transferee) from time to time may assign or otherwise transfer all or any
portion of its rights or obligations under the Loan Documents (including all or
any portion of any commitment to extend credit), or any Secured Obligations, to
any other Person, and such Secured Obligations (including any Secured
Obligations resulting from extension of credit by such other Person under or in
connection with the Loan Documents) shall be and remain Secured Obligations
entitled to the benefit of this Agreement, and to the extent of its interest in
such Secured Obligations such other Person shall be vested with all the benefits
in respect thereof granted to the Lender in this Agreement or otherwise.
6.10. Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
exclusive of choice of law principles, except to the extent that perfection and
the effect of perfection or nonperfection of the security interests in the
Collateral is governed by the laws of a jurisdiction other than the Commonwealth
of Pennsylvania pursuant to the UCC.
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<PAGE>
IN WITNESS WHEREOF, the Grantors have caused this Agreement to
be duly executed and delivered as of the date first above written.
ATTEST: NCO GROUP, INC.
By By /s/ MICHAEL J. BARRIST
------------------------ ------------------------
Title: MICHAEL J. BARRIST
Title:
[Corporate Seal]
ATTEST: NCO FINANCIAL SYSTEMS, INC.
By By /s/ MICHAEL J. BARRIST
------------------------ ------------------------
Title: MICHAEL J. BARRIST
Title:
[Corporate Seal]
ATTEST: NCO FUNDING, INC.
By By /s/ MICHAEL J. BARRIST
------------------------ ------------------------
Title: MICHAEL J. BARRIST
Title:
[Corporate Seal]
ATTEST: NCO OF NEW YORK, INC.
By By /s/ MICHAEL J. BARRIST
------------------------ ------------------------
Title: MICHAEL J. BARRIST
Title:
[Corporate Seal]
ACCEPTED AND AGREED:
MELLON BANK, N.A.
By:
-----------------------
LIZ A. MELLACE
Assistant Vice President
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<PAGE>
SCHEDULE 3.4
------------
LOCATION OF OFFICES, ETC.
-------------------------
A. Address (including street address and county) of the chief executive
office of each of the Grantors:
B. Address (including street address and county) of each additional place
of business of each of the Grantors and any additional office (whether
maintained by a Grantor or otherwise) where books and records relating
to Collateral are kept:
C. Changes in the foregoing information during the one year period ending
on the date of the Security Agreement:
<PAGE>
SCHEDULE 3.5
------------
LOCATION OF EQUIPMENT AND INVENTORY
-----------------------------------
Address (including street address and county) of each location where Equipment
or Inventory is located:
<PAGE>
SCHEDULE 3.6
------------
NAMES, ETC.
-----------
<PAGE>
Exhibit 10.15
NCO FINANCIAL SYSTEMS, INC.
WARRANT AGREEMENT
WARRANT AGREEMENT (this "Agreement) dated as of July 28, 1995
(the "Closing Date") by and between NCO Financial Systems, Inc., a Pennsylvania
corporation (the "Company") and Mellon Bank, N.A. ("Bank")
RECITALS
1. Simultaneously with the execution and delivery of this
Agreement (the "Closing"), the Company and Bank are entering into that certain
Credit Agreement dated as of July 28, 1995 (the "Credit Agreement") pursuant to
which the Bank is making available to the Company certain credit facilities.
2. As an inducement to the Bank to enter into the Credit
Agreement, the Company proposes to issue warrants exercisable into an aggregate
of 3,770 shares of the Company's common stock (subject to adjustment as
described herein).
NOW, THEREFORE, in consideration of the foregoing, the Company
and Bank, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
1.1. Definitions. As used herein, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Accounts" has the meaning ascribed to that term in the
Uniform Commercial Code.
"Affiliate" means, as to any Person, any Subsidiary of such
Person and any other person which, directly or indirectly, controls, is
controlled by or is under common control with such Person and includes
each officer or director or general partner of such Person, and each
Person who is the beneficial owner of 5% or more of any class of voting
stock of such Person. For the purposes of this definition, "control"
means the possession of the power to direct or cause the direction of
management and policies of
<PAGE>
such Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Warrant Agreement as from time to time
amended and in effect between the parties.
"Business Day" means any day other than a Saturday, Sunday or
public holiday or the equivalent for banks under the laws of the
Commonwealth of Pennsylvania.
"Change in Control" means any transaction or any event as a
result of which any one or more persons (other than Bank or any of its
Affiliates) acquires or for the first time controls or is able to vote
(directly or through nominees or beneficial ownership) after the
Closing Date (other than as the direct result of a transfer by descent
of distribution of a decedent's estate) fifty percent (50%) or more of
any class of stock of the Company outstanding at the time having power
ordinarily to vote for the directors of the Company.
"Common Stock" includes (a) the Company's Common Stock, $.01
par value per share, as authorized on the date of this Agreement, (b)
any other capital stock of any class or classes (however designated) of
the Company, authorized on or after the date hereof, 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 dividends 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 (c) any other securities in which or for which any of
the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets of otherwise.
"Company" means and shall include NCO Financial Systems, Inc.,
a Pennsylvania corporation, and its successors and assigns.
"Credit Agreement" means that certain Credit Agreement dated
of even date herewith between the Company and the Lender.
"Equity Securities" shall have the meaning assigned to that
term in Section 2.08.
<PAGE>
"Event of Force Majeure" shall mean a declaration by Federal
authorities of a banking moratorium, a suspension of trading by a
national securities exchange, a declaration of war or any new outbreak
of hostilities or other national calamity or crisis, the effect of
which on the financial markets of the Untied States shall make it
commercially impracticable to comply with an obligation hereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Exercise Event" means any of a (i) a Change in Control, (ii)
a Qualified Disposition or (iii) a Qualified IPO.
"Holder" means Bank, its successors and assigns, and all
transferees (in whole or in part) of the Warrants.
"Outstanding Common Stock" shall have the meaning assigned to
that term in Section 2.06.
"Person" means, an individual, a corporation (including,
without limitation, a business trust), a partnership, a joint stock
company, a joint venture or other entity, a trust, an unincorporated
association, a government and any agency or political subdivision
thereof.
"Put Closing Date" shall have the meaning assigned to that
term in Section 2.03.
"Put Notice" shall have the meaning assigned to that term in
Section 2.03.
"Qualified Disposition" means (i) any merger or consolidation
of the Company with any Person, (ii) any sale, assignment, lease or
other disposition of or voluntary parting with the control of (whether
in one transaction or in a series of related transactions) all or
substantially all of the consolidated assets (whether now owned or
hereafter acquired) of the Company and (iii) any issuance of equity
securities of the Company which, when aggregated with all issuances of
equity securities of the Company subsequent to the Closing, exceeds
fifty percent (50%) of the aggregate of all outstanding equity
securities of the Company immediately after the closing on a fully
diluted basis (assuming the exercise of the Warrants and up to an
aggregate of 4,961 shares issued pursuant to the Company's Stock Option
Plan (or amendments, restatements or successors thereto)).
<PAGE>
"Qualified IPO" means a firm commitment underwritten public
offering of shares of the Company's Common Stock in which the aggregate
net proceeds to the Company are at least $9,500,000.
"Registration Rights Agreement" shall have the meaning
assigned to that term in Section 3.02.
"Repurchase Price" shall have the meaning assigned to that
term in Section 2.06.
"Securities" means collectively the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to
time.
"Stock" means shares of capital stock, beneficial or
partnership interest, participations or other equivalents (regardless
of how designated) of or in a corporation or equivalent entity, whether
voting or non-voting and, includes, without limitation, common stock
and preferred stock.
"Stock Equivalents" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to
purchase or subscribe for any stock, whether or not presently
convertible, exchangeable or exercisable.
"Subsidiary" or "Subsidiaries" means (i) any corporation more
than fifty percent (50%) of whose stock of any class or classes having
by the terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the
time stock of any class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency)
is at the time owned by the Company and/or one or more Subsidiaries of
the Company, (ii) any partnership, association, joint venture or other
entity in which the Company and/or one or more Subsidiaries of the
Company has more than a fifty percent (50%) equity interest at the
time.
"Warrant Documents" shall mean this Agreement, the Warrant,
and the Registration Rights Agreement.
"Warrant Shares" shall have the meaning assigned to that term
in Section 2.01.
<PAGE>
"Warrants" shall have the meaning assigned to that term in
Section 2.01.
1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of the
Financial Statements, and all financial data submitted pursuant to this
Agreement and all financial tests to be calculated in accordance with this
Agreement shall be prepared and calculated in accordance with such principles.
ARTICLE 2
PURCHASE, SALE AND TERMS OF WARRANTS;
OBLIGATION TO REPURCHASE
2.1. The Warrants. The Company has authorized the issuance and
sale to Bank of the Company's Common Stock Purchase Warrants for the purchase
(subject to adjustment as provided therein) of an aggregate of 3,770 shares of
the Company's common stock (the "Warrant Shares"). The Common Stock Purchase
Warrants shall be substantially in the form set forth as Exhibit 2.01 attached
hereto and are herein referred to individually as a "Warrant" and collectively
as the "Warrants", which terms shall also include any warrants delivered in
exchange or replacement thereof. The number of Warrant Shares is subject to
adjustment as set forth in the Warrants. The Warrants shall be exercisable at a
purchase price of $0.01 per Warrant Share, and shall expire at 5:00 P.M.,
Philadelphia time, on July 31, 2005.
2.2. Purchase and Sale of Warrants; Reservation of Shares.
(a) The Company agrees to issue and sell to Bank, and, subject
to and in reliance upon the representations, warranties, terms and conditions of
this Agreement, Bank agrees to purchase Warrants to acquire 3,770 Warrant
Shares. Such purchase and sale shall take place at the Closing and at the
Closing the Company will initially issue to Bank one Warrant to purchase
(subject to adjustment as provided therein) 3,770 Warrant Shares.
(b) The Company has authorized, and has reserved and covenants
to continue to reserve, free of preemptive rights and other preferential rights,
a sufficient number of its previously authorized but unissued shares of Common
Stock to satisfy the rights of exercise of the Warrants. The Company covenants
and agrees that all shares of Common Stock which may be issued upon
<PAGE>
the exercise of the rights represented by the Warrants shall, upon issuance, be
fully paid and non-assessable and free from all taxes, liens and charges with
respect to issuance. If the Exercise Price is at any time less than the par
value of the Common Stock or if the Warrants at any time are exercisable by
delivery alone and without payment of any additional consideration, the Company
also covenants and agrees to cause to be taken such action (whether by lowering
the par value of the Common Stock, the conversion of the Common Stock from par
value to no par value, or otherwise) as will permit the exercise of the Warrants
without any additional payment by the Holder thereof (other than payment of the
Exercise Price, if any, and applicable transfer taxes, if any), and the issuance
of the Common Stock, which Common Stock, upon issuance, will be fully paid and
non-assessable.
2.3. Right to Put Warrants.
(a) 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, and the Company hereby agrees to purchase, at the
Repurchase Price determined under Section 2.06, any or all of the Warrants held
by such Holder. No Holders of Warrant Shares shall have the right to sell
Warrant Shares to the Company pursuant to this Section 2.03.
(b) 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
set forth in this Section 2.03 (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 2.03 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
pursuant to Section 2.06.
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 of the Warrants being
repurchased from such Holder, determined in accordance with Section 2.06, or
shall transfer such amount by wire transfer of immediately available funds to
any account specified in writing by such Holder.
2.4. Right to Call Warrants.
(a) During the twelve-month period ending on July 31, 2001
(the "Call Period"), the Company shall have the right to
<PAGE>
repurchase from each of the Holders of the Warrants, on a pro-rata basis, and
each of the Holders of the Warrants hereby agrees to sell to the Company, on a
pro-rata basis, at the Repurchase Price determined under Section 2.06, any or
all of the Warrants. The Company shall have no right to repurchase Warrant
Shares pursuant to this Section 2.04.
(b) 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 purchase set forth in this Section 2.04 (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 pursuant to this Section 2.04 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 pursuant to Section 2.06.
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 such Holder's
pro-rata share of the Warrants being repurchased, determined in accordance with
Section 2.06, or shall transfer such amount by wire transfer of immediately
available funds to any account specified in writing by such Holder.
2.5. Insufficiency of Funds. With respect to a repurchase by
the Company under either Section 2.03 or Section 2.04, in the event that any or
all of the Repurchase Price is not paid as a result of the insufficiency of
legally available funds under the Pennsylvania Business Corporation Law or
otherwise, the obligation to effect the repurchase shall remain an obligation of
the Company and shall be performed as soon as there are funds legally available
therefor.
2.6. Repurchase Price for Warrants.
(a) The repurchase price (the "Repurchase Price") for each
Warrant ( determined on the basis of the number of Warrant Shares into which it
is then exercisable) which is to be repurchased by the Company pursuant to
either Section 2.03 or Section 2.04 shall be equal to (I) the quotient obtained
by dividing (x) the fair market value determined in accordance with Section
2.06(b) of the aggregate of all of the outstanding Common Stock as of the end of
the Company's last full fiscal quarter immediately preceding the Put Notice or
the Call Notice, as the case may be, including in such outstanding Common Stock
the Warrant Shares and all shares of Common Stock which could be
<PAGE>
acquired upon exercise or conversion of any outstanding options or other
securities then exercisable or convertible into Common Stock (collectively, as
of any time of determination the "Outstanding Common Stock"), by (y) the number
of shares of Outstanding Common Stock, minus (II) the exercisable price per
Warrant Share.
(b) For purposes of this Section 2.06, the "fair market value"
of the Outstanding Common Stock shall be determined in good faith by the Holders
of the Warrants being repurchased and the Company. If such Holders and the
Company are unable to agree on such fair market value, such Holders shall select
a pool of three independent investment banking firms or valuation firms (or a
combination thereof) from which the Company shall select one such firm to
appraise the fair market value of the Outstanding Common Stock and to perform
the computations involved. The determination of such firm shall be binding upon
the Company. All expenses of such firm shall be borne by the Company.
2.7. Delivery of Certificates Reissued. Upon the timely
receipt of the Repurchase Price for the Warrants sold to the Company pursuant to
either Section 2.03 or Section 2.04, the Holders thereof shall forward the
Warrants, as the case may be, so sold to the Company. To the extent that less
than all of such Holder's Warrants are sold, the Company shall forthwith issue
and deliver to such Holder, as appropriate, (a) Warrants in every respect
identical to the Warrants so forwarded, except that the same shall provide for
the purchase by such Holder of such lesser number of Warrant Shares as shall be
represented by the Warrants which the Company has not repurchased. Upon timely
payment of the Repurchase Price therefor Warrants so repurchased shall no longer
be exercisable or have any validity whatsoever.
2.8. Right to New Equity Securities. Prior to issuing any
equity securities or any options or convertible securities exercisable for or
convertible into such equity securities (collectively, "Equity Securities") of
the Company, other than in connection with a Qualified IPO, the Company will
simultaneously issue without charge to each of the Holders of the Warrants and
Warrant Shares the same proportion of the securities proposed to be sold by the
Company as the number of Warrants and Warrant Shares owned by such Holder bears
to the total number of shares of Outstanding Common Stock at that time,
provided, that, prior to an Exercise Event, the securities to be issued by the
Company to the Holders pursuant to this Section 2.08 shall be limited to
warrants similar in all material respects to the Warrants. Holders electing to
purchase Equity Securities pursuant to this Section shall also be entitled to
purchase (pro rata according to their holdings of Warrant and Warrant Shares)
offered Equity Securities that other Holders decline to purchase. Any such right
of purchase shall be exercisable for a period of thirty
<PAGE>
(30) days after the Holders receive written notice of a proposed issuance of
Equity Securities (and any such notice by the Company shall be given not less
than thirty (30) nor more than ninety (90) days prior to any such issuance).
This Section 2.08 shall not apply to Equity Securities issued upon exercise of
the Warrant.
2.9. Termination Upon Qualified IPO. Bank's rights under
Sections 2.03 and 2.08 shall terminate upon the closing of a Qualified IPO.
2.10. No Termination Upon Satisfaction of Credit Agreement
Obligations. Bank's rights under Sections 2.03 and 2.08 shall not terminate
solely by virtue of the satisfaction by the Company of all of its obligations to
the Bank under the Credit Agreement; provided, however, that Bank's rights under
Sections 2.03 and 2.08 shall terminate if, within one year from the date of this
Agreement, the Company receives a notice from the Bank pursuant to Section 2.09
of the Credit Agreement that the Bank is requiring additional compensation from
the Company pursuant to that Section, and the Company thereafter satisfies all
of its obligations to the Bank through a refinancing.
ARTICLE 3
CONDITIONS TO PURCHASERS' OBLIGATIONS
The obligations of Bank to purchase the Warrants at the
Closing is subject to the following conditions, all or any of which may be
waived in writing by Bank:
3.1. Representations and Warranties. Each of the
representations and warranties of the Company set forth in Article 4 hereof
shall be true and correct in all material respects at the time of the sale of
the Warrants.
3.2. Delivery at Closing. Bank shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
Bank and its counsel:
(a) A certified copy of all charter documents of the Company;
a certified copy of the resolutions of the board of directors and, to the extent
required, the stockholders of the Company evidencing approval, as applicable, of
this Agreement, the Warrant Documents and other matters contemplated hereby and
thereby; a certified copy of the By-laws of the Company ; and certified copies
of all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement, the Warrant
Documents and other matters contemplated hereby or thereby.
<PAGE>
(b) Favorable opinions of Blank, Rome, Comisky & McCauley,
counsel for the Company, as to matters set forth in Exhibit 3.02(b), and as to
such other matters as Bank or its counsel may reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign, as applicable, this Agreement, the Warrant Documents and any
other documents or certificates to be delivered pursuant hereto or thereby by
the Company, as applicable, or any of their respective officers, together with
the true signatures of such officers. Bank may conclusively rely on such
certificates until they shall receive a further certificate of the Secretary or
an Assistant Secretary of the Company, as applicable, cancelling or amending the
prior certificate and submitting the signatures of the officers named in such
further certificate.
(d) A Registration Rights Agreement (the "Registration Rights
Agreement") executed by the Company substantially in the form of Exhibit 3.02(d)
attached hereto.
(e) A certificate from a duly authorized officer of the
Company stating that all conditions set forth in this Article have been
satisfied.
(f) Such other documents referenced in any Exhibit hereto or
relating to the transactions contemplated by this Agreement as Bank or its
counsel may reasonably request.
3.3. Incurrence of Debt. The Company shall have entered into
the Credit Agreement with the Bank on terms satisfactory to the Company and
shall have closed or shall close simultaneously the transactions contemplated
thereby and received or shall simultaneously receive the funds with respect
thereto. Copies of all documents delivered to the Bank in conjunction with the
closing of the transactions contemplated by the Credit Agreement shall have been
delivered to Bank or its counsel.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BANK
4.1. Representations and Warranties of Bank. Bank hereby
represents and warrants that:
(a) It has duly authorized, executed and delivered this
Agreement and such of the Operative Documents as require execution by it.
<PAGE>
(b) Its present intention is to acquire the Securities for its
own account.
(c) The Securities are being and will be acquired for the
purpose of investment and not with a view to distribution or resale thereof;
subject, nevertheless, to the condition that, except as otherwise provided
herein, the disposition of its property shall at all times be within its
control.
(d) It acknowledges that it has reviewed and discussed the
Company's business, affairs and current prospects with such officers of the
Company and others as it has deemed appropriate or desirable in connection with
the transactions contemplated by this Agreement. It further acknowledges that it
has requested, received and reviewed such information, undertaking such
investigation and made such further inquiries of officers of the Company and
others as it has deemed appropriate or desirable in connection with such
transactions; provided, however, no investigation made heretofore or hereafter
by or on its behalf shall have any effect whatsoever on the representations and
warranties of the Company hereunder, each of which shall survive any such
investigation.
(e) It understands that it must bear the economic risk of its
investment for an indefinite period of time because the Securities are not, and
will not be, registered under the Securities Act or any applicable state
securities laws, except as may be provided in the Registration Rights Agreement,
and may not be resold unless subsequently registered under the Securities Act
and such other laws or unless an exemption from such registration is available.
It also understands that it is not contemplated that any registration will be
made under the Securities Act or that the Company will take steps which will
make the provisions of Rule 144 under the Securities Act available to permit
resale of the Securities.
(f) It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
investment in the Securities. It further represents that it is an "accredited
investor" as such term is defined in Rule 501 of Regulation D of the Commission
under the Securities Act with respect to the purchase of the Securities.
(g) It hereby acknowledges that the Warrants and each
certificate representing the Warrant Shares and any other securities issued in
respect of such shares upon any stock split, stock dividend, recapitalization,
merger or similar event (unless no longer required in the opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the Company) shall
bear a legend substantially in the following form:
<PAGE>
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES
LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
The acquisition by Bank of the Securities shall constitute a
confirmation by it of the foregoing representations made by it.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows:
5.1. Securities Act. Neither the Company nor anyone acting on
its behalf has offered any of the Warrants, or solicited any offers to purchase
or made any attempt by preliminary conversation or negotiations to dispose of
the Warrants, within the meaning of all applicable federal and state securities
laws, to any Person other than Bank, and no Person other than Bank will purchase
any Warrants except with the prior consent of Bank. Neither the Company nor
anyone acting on its behalf has offered or will offer to sell the Warrants to,
or solicit offers with respect thereto from, or enter into any preliminary
conversations or negotiations relating thereto with, any Person so as to bring
the issuance and sale of the Warrants under the registration provisions of the
Securities Act.
5.2. Other Agreements of Officers. To the best knowledge of
the Company, no officer or key employee of the Company is a party to or bound by
any agreement, contract or commitment, or subject to any restrictions,
particularly but without limitation in connection with any previous employment
of any such person, which has a material adverse effect, or in the future may
(so far as the Company can reasonably foresee) have a material adverse effect.
To the best knowledge of the Company, no officer or key employee of the Company
has any present intention of terminating his employment with the Company, as the
case may be, and the Company has no present intention of terminating such
employment.
5.3. Foreign Corrupt Practices Act. The Company has reviewed
its practices and policies and to the best of its knowledge and belief is not
engaged, nor has any of its respective officers, directors, employees or agents
engaged in any act or practice which would constitute a violation of the Foreign
Corrupt Practices Act of 1977, or any rules or regulations promulgated
thereunder.
<PAGE>
5.4. Registration Rights. Other than pursuant to the terms of
the Registration Rights Agreement, no Person has demand or other rights to cause
the Company to file any registration statement under the Securities Act relating
to any securities of the Company or any right to participate in any such
registration statement.
5.5. Representations and Warranties Incorporated from Credit
Agreement. Each of the representations and warranties given by the Company to
Bank in the Credit Agreement is true and correct in all material respects as of
the Closing Date and such representations and warranties are hereby incorporated
herein by this reference as of such date with the same effect as though set
forth herein in their entirety and made by the Company to Bank hereunder.
ARTICLE 6
DISCLOSURES TO HOLDERS
So long as any Warrants remain outstanding, the Company shall,
contemporaneously with the sending or making available thereof, send to all
Holders, in accordance with Section 7.03 herein copies of (i) the Company's
audited financial statement for each fiscal year and (ii) the Company's
unaudited financial statement for each fiscal quarter.
ARTICLE 7
MISCELLANEOUS
7.1. No Waiver; Cumulative Remedies. No failure or delay on
the part of Bank in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
7.2. Amendments, Waivers and Consents. Any provision in this
Agreement or the Warrants to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision herein or therein set forth may be omitted or waived, if the Company
shall obtain consent thereto in writing from Bank.
<PAGE>
7.3. Addresses for Notices, etc. All notices, requests,
demands and other communications provided for hereunder shall be in writing and
mailed (by first class registered or certified, postage prepaid), telegraphed,
sent by express overnight courier service or electronic facsimile transmission
(with a copy by mail), or delivered to the applicable party at the addresses
indicated below:
If to the Company:
NCO Financial Systems, Inc.
1740 Walton Road
Blue Bell, PA 19422
Attention: Michael J. Barrist
With copies to:
Blank, Rome, Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
Attention: Alan L. Zeiger, Esquire
and
Joshua Gindin, Esquire
1700 Two Logan Square
Philadelphia, PA 19103
If to Bank:
Mellon Bank, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike
Plymouth Meeting, PA 19462
Attention: Liz A. Mellace
With a copy to:
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, PA 19103
Attention: Ben Burke Howell, Esquire
Telecopy: 215-851-1420
or, as to each of the foregoing, at such other address as shall be designed by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mails or (ii) one day after
being delivered to the telegraph company, deposited with the
<PAGE>
express overnight courier service or sent by electronic facsimile transmission,
respectively, addressed as aforesaid.
7.4. Costs, Expenses and Taxes. Except as otherwise provided
herein, the Company agrees to pay on demand all reasonable costs and expenses of
Bank in connection with the preparation, execution and delivery of this
Agreement, the Warrants and other Warrant Documents and other instruments and
documents to be delivered hereunder, and in connection with the consummation of
the transaction contemplated hereby and thereby, and in connection with any
amendment, waiver (whether or not such amendment or waiver becomes effective) or
enforcement of this Agreement, the Warrants, the other Warrant Documents, and
other instruments and documents to be delivered hereunder or thereunder,
including the fees and out-of-pocket expenses of Reed Smith Shaw & McClay,
counsel for Bank. In addition, the Company agrees to pay any and all stamp and
other taxes (excluding income taxes) payable or determined to be payable in
connection with the execution and delivery of this Agreement, the Warrants, the
other Warrant Documents, and the other instruments and documents to be delivered
hereunder or thereunder and each agrees jointly and severally to save Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and filing fees.
7.5. Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the Company, and its respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest therein without the prior written
consent of Bank.
7.6. Provisions of Credit Agreement. Whenever any provision of
the Credit Agreement is referred to herein or in any instrument furnished
hereunder as expressing or constituting an obligation, condition or limitation
of this Agreement or of such instrument or as expressing or constituting a
representation herein or therein (a) such provision shall be deemed incorporated
herein or therein at length, and (b) except as otherwise provided herein or in
such instrument, the terms used in such provision referred to shall have the
meanings set forth in the Credit Agreement. Except as otherwise specifically
provided herein, and except for amendments or modifications to which Bank
consents in writing, no modification of or amendment to, or waiver of, any
provisions of the Credit Agreement and no payment of the indebtedness
outstanding thereunder or satisfaction or cancellation thereof, shall modify,
amend, waive or otherwise affect any provision thereof as referred to in this
Agreement or in any instrument furnished hereunder, which provision, for the
purpose of this Agreement and such instrument, shall remain unmodified and in
full force and effect.
<PAGE>
7.7. Indemnification. The Company agrees to indemnify and hold
harmless Bank, its subsidiaries, directors, officers, partners, counsel and
employees, from and against any and all liability (including, without
limitation, reasonable legal fees incurred in defending against any such
liability) under, arising out of or relating to this Agreement, the Warrants and
the Warrant Shares, the transactions contemplated hereby or thereby or in
connection herewith or therewith, including (to the maximum extent permitted by
law) any liability arising under federal or state securities laws, except to the
extent such liability shall result from any act or omission on the part of Bank;
provided that the Company shall not be liable for the reasonable fees and
expenses of more than one separate firm for all indemnified parties, unless
representation of all parties by the same counsel would be inappropriate due to
actual or potential differing interests among them. The obligations of the
Company under this Section 7.07 shall survive and continue to be in full force
and effect notwithstanding the satisfaction of the Company's obligations under
the Credit Agreement and the termination of this Agreement.
7.8. Survival of Representations and Warranties. All
representations and warranties made in this Agreement, the Warrants, the Warrant
Documents or any other instrument or document delivered in connection herewith
or therewith, shall survive the execution and delivery hereof and thereof,
regardless of any investigation made by Bank.
7.9. Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
7.10. Severability. The invalidity or unenforceability
of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
7.11. Governing Law. This Agreement shall be governed by and
construed in accordance with, the internal laws of the Commonwealth of
Pennsylvania.
7.12. Governing Law; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE IN
PENNSYLVANIA, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF PENNSYLVANIA (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED
STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE COMPANY AGREES
THAT THE STATE AND FEDERAL COURTS OF PENNSYLVANIA LOCATED IN MONTGOMERY COUNTY,
PENNSYLVANIA, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO
THE MAXIMUM EXTENT PERMITTED BY LAW, THE COMPANY HEREBY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY
<PAGE>
JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR OTHERWISE)
ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY RELATED MATTERS, AND AGREES
THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
(b) THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE
UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE COMPANY AT
ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON THE EARLIER IF (i) THE COMPANY'S RECEIPT THEREOF
AND (ii) FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL. NOTHING IN THIS
SECTION SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNY PERMITTED BY LAW.
7.13. Headings. Article, Section and subsection headings in
this Agreement are included herein for convenience or reference only and shall
not constitute a part of this Agreement for any other purposes.
7.14. Sealed Instrument. This Agreement is executed as an
instrument under seal.
7.15. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and each of the parties hereto may execute this Agreement by
signing any such counterpart.
7.16. Further Assurances. From and after the day of this
Agreement, upon the request of Bank, the Company shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Warrants.
7.17. Consent to Jurisdiction. The Company irrevocably submits
to the non-exclusive jurisdiction of any state or federal court sitting in the
Commonwealth of Pennsylvania over any suit, action or proceeding arising out of
or relating to this Agreement or any of the Warrants or Warrant Shares. To the
fullest extent it may effectively do so under applicable law, the Company
irrevocably waives and agrees not to assert, by way of motion, as a defense or
otherwise, any claim that is not subject to the jurisdiction of any such court,
any objection that it may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in such court has been brought in an
inconvenient forum.
7.18. Effect of Judgment. The Company agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
suit, action or proceeding of the nature
<PAGE>
referred to in Section 7.17 brought in any such court shall, subject to such
rights of appeal on issues other than jurisdiction as may be available to the
Company, be conclusive and binding upon the Company and may be enforced in the
courts of the United States of America or the Commonwealth of Pennsylvania (or
any other courts to the jurisdiction of which the Company is or may be subject)
by a suit upon such judgment.
7.19. Service of Process. The Company consents to service of
process in any suit, action or proceeding of the nature referred to in Section
7.17 by mailing a copy thereof by registered or certified mail, postage
prepared, return receipt requested, to the address of the Company specified in
or designated pursuant to Section 7.03. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company, as the case may be.
7.20. No Limitation. Nothing in Sections 7.12, 7.17, 7.18 or
7.19 shall affect the right of Bank to serve process in any manner permitted by
law, or limit any right that Bank may have to bring proceedings against the
Company in the courts of any jurisdiction to enforce in any lawful manner a
judgment obtained in one jurisdiction in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Agreement or have caused it to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
NCO FINANCIAL SYSTEMS, INC.
By:________________________________
Name:
Title:
MELLON BANK, N.A.
By:________________________________
Name:
Title:
<PAGE>
AMENDMENT TO WARRANT AGREEMENT
This AMENDMENT TO WARRANT AGREEMENT (this "Amendment") dated
as of September 5, 1996 (the "Second Closing Date") by and between NCO Group,
Inc., a Pennsylvania corporation (the "Company") and Mellon Bank, N.A. (the
"Lender").
RECITALS
1. NCO Financial Systems, Inc. (the "Predecessor") and the
Lender entered into that certain Credit Agreement dated as of July 28, 1995 (the
"Original Credit Agreement") pursuant to which the Lender made available to the
Company certain credit facilities.
2. As an inducement to the Lender to enter into the Original
Credit Agreement, the Predecessor issued a Common Stock Purchase Warrant (the
"Warrant") exercisable into an aggregate of 3,770 shares of the Predecessor's
common stock and entered in to that certain Warrant Agreement dated July 28,
1995 by and between the Predecessor and the Lender (the "Warrant Agreement").
3. Pursuant to a reorganization of the Predecessor, the
Company became the sole securityholder of the Predecessor and the former
securityholders of the Predecessor became the securityholders of the Company.
4. Simultaneously with the execution and delivery of this
Agreement (the "Closing"), the Predecessor, the Company, NCO Funding, Inc., NCO
of New York, Inc. (collectively, the "Borrowers") and the Lender are entering
into that certain Amended and Restated Credit Agreement dated as of September 5,
1996 (the "Credit Agreement") pursuant to which the Lender is extending
additional credit to the Borrower.
5. As an inducement to the Lender to enter into the Credit
Agreement and to reflect the reorganization of the Predecessor, the Company is
entering into this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
AMENDMENTS
1. Section 2.9 of the Warrant Agreement shall be amended and
restated to read in its entirety as follows:
"2.9. Termination Upon Qualified IPO. Bank's rights under
Sections 2.3 and 2.8 and the Company's rights
<PAGE>
under Section 2.4 shall terminate upon the closing of a
Qualified IPO."
2. The definition of "Qualified Disposition" shall be amended
and restated to read in its entirety as follows:
"Qualified Disposition" means (i) any merger or consolidation
of the Company with any Person, (ii) any sale, assignment,
lease or other disposition of or voluntary parting with the
control of (whether in one transaction or in a series of
related transactions) all or substantially all of the
consolidated assets (whether now owned or hereafter acquired)
of the Company and (iii) any issuance of equity securities of
the Company which, when aggregated with all issuances of
equity securities of the Company subsequent to the Closing,
exceeds fifty percent (50%) of the aggregate of all
outstanding equity securities of the Company immediately after
the Closing on a fully diluted basis (assuming the exercise of
the Warrants and up to an aggregate of 15,000 shares issued
pursuant to the Company's stock option plans (or amendments,
restatements or successors thereto)).
3. All reference to the "Company" in the Warrant Agreement
shall be references to NCO Group, Inc., successor by reorganization to NCO
Financial Systems, Inc.
MISCELLANEOUS
4. Exchange of Warrant. The Company shall issue to the Lender
a Common Stock Purchase Warrant for the right to purchase up to 3,770 shares of
the Company's Common Stock as a replacement for the Common Stock Purchase
Warrant issued by the Predecessor to the Lender for the right to purchase up to
3,770 shares of the Predecessor's Common Stock.
5. Reaffirmation; No Waiver. Except as expressly modified
herein, the terms of the Warrant Agreement remain in full force and, are in no
manner impaired hereby and, are hereby reaffirmed by all of the parties.
6. Severability. The provisions of this Amendment are intended
to be severable. If any provision of this Amendment shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
<PAGE>
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
7. Prior Understandings. This Amendment supersedes all prior
and contemporaneous understandings and agreements, whether written or oral,
among the parties hereto relating to the transactions provided for herein and
therein.
8. Counterparts. This Amendment may be executed in any number
of counterparts and by the different parties hereto on separate counterparts
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
9. Successors and Assigns. This Amendment shall be binding
upon and inure to the benefit of the Company, the Lender, all future holders of
the Warrant, and their respective successors and assigns, except that the
Company may not assign or transfer any of its rights hereunder or interests
herein without the prior written consent of the Lender, and any purported
assignment without such consent shall be void.
10. Governing Law. THIS AMENDMENT AND ALL OTHER AMENDMENT
DOCUMENTS (EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH
OTHER AMENDMENT DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF PENNSYLVANIA, WITHOUT REGARD TO CHOICE
OF LAW PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Amendment as of the
date first above written.
Attest: NCO GROUP, INC., as successor by
reorganization to NCO
Financial Systems, Inc.
By: /s/ xxxxxx Sec. By: /s/ Michael J. Barrist
----------------------- --------------------------------
Name: Name: Michael J. Barrist
Title: Title: President
MELLON BANK, N.A.
By: /s/ Liz A. Mellace
--------------------------------
Name: Liz A. Mellace
Title: Assiatant Vice President
<PAGE>
NCO GROUP, INC.
---------------
1996 WARRANT AGREEMENT
----------------------
1996 WARRANT AGREEMENT (this "Agreement) dated as of September
5, 1996 (the "Closing Date") by and between NCO Group, Inc., a Pennsylvania
corporation (the "Company") and Mellon Bank, N.A. ("Bank")
RECITALS
1. Simultaneously with the execution and delivery of this
Agreement (the "Closing"), the Company and Bank are entering into that certain
Amended and Restated Credit Agreement dated as of September 5, 1996 (the "Credit
Agreement") pursuant to which the Bank is making available to the Company and
its subsidiaries certain credit facilities.
2. As an inducement to the Bank to enter into the Credit
Agreement, the Company proposes to issue warrants exercisable into an aggregate
of 1,000 shares of the Company's common stock (subject to adjustment as
described herein).
NOW, THEREFORE, in consideration of the foregoing, the Company
and Bank, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
1.1. Definitions. As used herein, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Accounts" has the meaning ascribed to that term in the
Uniform Commercial Code.
"Affiliate" means, as to any Person, any Subsidiary of such
Person and any other person which, directly or indirectly, controls, is
controlled by or is under common control with such Person and includes
each officer or director or general partner of such Person, and each
Person who is the beneficial owner of 5% or more of any class of voting
stock of such Person. For the purposes of this
<PAGE>
definition, "control" means the possession of the power to direct or
cause the direction of management and policies of such Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Warrant Agreement as from time to time
amended and in effect between the parties.
"Business Day" means any day other than a Saturday, Sunday or
public holiday or the equivalent for banks under the laws of the
Commonwealth of Pennsylvania.
"Change in Control" means any transaction or any event as a
result of which any one or more persons (other than Bank or any of its
Affiliates) acquires or for the first time controls or is able to vote
(directly or through nominees or beneficial ownership) after the
Closing Date (other than as the direct result of a transfer by descent
of distribution of a decedent's estate) fifty percent (50%) or more of
any class of stock of the Company outstanding at the time having power
ordinarily to vote for the directors of the Company.
"Common Stock" includes (a) the Company's Common Stock,
without par value, as authorized on the date of this Agreement, (b) any
other capital stock of any class or classes (however designated) of the
Company, authorized on or after the date hereof, 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 dividends 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 (c) any other securities in which or for which any of
the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of
assets of otherwise.
"Company" means and shall include NCO Group, Inc., a
Pennsylvania corporation, and its successors and assigns.
"Credit Agreement" means that certain Amended and Restated
Credit Agreement dated of even date herewith between the Company and
the Lender.
-2-
<PAGE>
"Equity Securities" shall have the meaning assigned to that
term in Section 2.8.
"Event of Force Majeure" shall mean a declaration by Federal
authorities of a banking moratorium, a suspension of trading by a
national securities exchange, a declaration of war or any new outbreak
of hostilities or other national calamity or crisis, the effect of
which on the financial markets of the Untied States shall make it
commercially impracticable to comply with an obligation hereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Exercise Event" means any of a (i) a Change in Control, (ii)
a Qualified Disposition or (iii) a Qualified IPO.
"Holder" means Bank, its successors and assigns, and all
transferees (in whole or in part) of the Warrants.
"Outstanding Common Stock" shall have the meaning assigned to
that term in Section 2.6.
"Person" means, an individual, a corporation (including,
without limitation, a business trust), a partnership, a joint stock
company, a joint venture or other entity, a trust, an unincorporated
association, a government and any agency or political subdivision
thereof.
"Put Closing Date" shall have the meaning assigned to that
term in Section 2.3.
"Put Notice" shall have the meaning assigned to that term in
Section 2.3.
"Qualified Disposition" means (i) any merger or consolidation
of the Company with any Person, (ii) any sale, assignment, lease or
other disposition of or voluntary parting with the control of (whether
in one transaction or in a series of related transactions) all or
substantially all of the consolidated assets (whether now owned or
hereafter acquired) of the Company and (iii) any issuance of equity
securities of the Company which, when aggregated with all issuances of
equity securities of the Company subsequent to the Closing, exceeds
fifty percent (50%) of the aggregate of all outstanding equity
securities of the Company
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immediately after the Closing on a fully diluted basis (assuming the
exercise of the Warrants and up to an aggregate of 15,000 shares issued
pursuant to the Company's stock option plans (or amendments,
restatements or successors thereto)).
"Qualified IPO" means a firm commitment underwritten public
offering of shares of the Company's Common Stock in which the aggregate
net proceeds to the Company are at least $9,500,000.
"Registration Rights Agreement" shall have the meaning
assigned to that term in Section 3.2.
"Repurchase Price" shall have the meaning assigned to that
term in Section 2.6.
"Securities" means collectively the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to
time.
"Stock" means shares of capital stock, beneficial or
partnership interest, participations or other equivalents (regardless
of how designated) of or in a corporation or equivalent entity, whether
voting or non-voting and, includes, without limitation, common stock
and preferred stock.
"Stock Equivalents" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to
purchase or subscribe for any stock, whether or not presently
convertible, exchangeable or exercisable.
"Subsidiary" or "Subsidiaries" means (i) any corporation more
than fifty percent (50%) of whose stock of any class or classes having
by the terms thereof ordinary voting power to elect a majority of the
directors of such corporation (irrespective of whether or not at the
time stock of any class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency)
is at the time owned by the Company and/or one or more Subsidiaries of
the Company, (ii) any partnership, association, joint venture or other
entity in which the Company and/or one or more Subsidiaries of the
Company has more than a fifty percent (50%) equity interest at the
time.
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"Warrant Documents" shall mean this Agreement, the Warrant,
and the Registration Rights Agreement.
"Warrant Shares" shall have the meaning assigned to that term
in Section 2.1.
"Warrants" shall have the meaning assigned to that term in
Section 2.1.
1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of the
Financial Statements, and all financial data submitted pursuant to this
Agreement and all financial tests to be calculated in accordance with this
Agreement shall be prepared and calculated in accordance with such principles.
ARTICLE 2
PURCHASE, SALE AND TERMS OF WARRANTS;
OBLIGATION TO REPURCHASE
2.1. The Warrants. The Company has authorized the issuance and
sale to Bank of the Company's Common Stock Purchase Warrants for the purchase
(subject to adjustment as provided therein) of an aggregate of 1,000 shares of
the Company's common stock (the "Warrant Shares"). The Common Stock Purchase
Warrants shall be substantially in the form set forth as Exhibit 2.1 attached
hereto and are herein referred to individually as a "Warrant" and collectively
as the "Warrants", which terms shall also include any warrants delivered in
exchange or replacement thereof. The number of Warrant Shares is subject to
adjustment as set forth in the Warrants. The Warrants shall be exercisable at a
purchase price per Warrant Share equal to: 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, and shall expire at
5:00 P.M., Philadelphia time, on July 31, 2005.
2.2. Purchase and Sale of Warrants; Reservation of Shares.
(a) The Company agrees to issue and sell to Bank, and, subject
to and in reliance upon the representations, warranties,
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terms and conditions of this Agreement, Bank agrees to purchase Warrants to
acquire 1,000 Warrant Shares. Such purchase and sale shall take place at the
Closing and at the Closing the Company will initially issue to Bank one Warrant
to purchase (subject to adjustment as provided therein) 1,000 Warrant Shares.
(b) The Company has authorized, and has reserved and covenants
to continue to reserve, free of preemptive rights and other preferential rights,
a sufficient number of its previously authorized but unissued shares of Common
Stock to satisfy the rights of exercise of the Warrants. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by the Warrants shall, upon issuance, be fully paid
and non-assessable and free from all taxes, liens and charges with respect to
issuance. If the Exercise Price is at any time less than the par value of the
Common Stock or if the Warrants at any time are exercisable by delivery alone
and without payment of any additional consideration, the Company also covenants
and agrees to cause to be taken such action (whether by lowering the par value
of the Common Stock, the conversion of the Common Stock from par value to no par
value, or otherwise) as will permit the exercise of the Warrants without any
additional payment by the Holder thereof (other than payment of the Exercise
Price, if any, and applicable transfer taxes, if any), and the issuance of the
Common Stock, which Common Stock, upon issuance, will be fully paid and
non-assessable.
2.3. Right to Put Warrants.
(a) 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, and the Company hereby agrees to purchase, at the
Repurchase Price determined under Section 2.6, any or all of the Warrants held
by such Holder. No Holders of Warrant Shares shall have the right to sell
Warrant Shares to the Company pursuant to this Section 2.3.
(b) 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
set forth in this Section 2.3 (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 2.3 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
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(ii) the date five Business Days after a final determination of the Repurchase
Price pursuant to Section 2.6.
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 of the Warrants being
repurchased from such Holder, determined in accordance with Section 2.6, or
shall transfer such amount by wire transfer of immediately available funds to
any account specified in writing by such Holder.
2.4. Right to Call Warrants.
(a) 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, and each of the Holders of the
Warrants hereby agrees to sell to the Company, on a pro-rata basis, at the
Repurchase Price determined under Section 2.6, any or all of the Warrants. The
Company shall have no right to repurchase Warrant Shares pursuant to this
Section 2.4.
(b) 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 purchase set forth in this Section 2.4 (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 pursuant to this Section 2.4 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 pursuant to Section 2.6.
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 such Holder's
pro-rata share of the Warrants being repurchased, determined in accordance with
Section 2.6, or shall transfer such amount by wire transfer of immediately
available funds to any account specified in writing by such Holder.
2.5. Insufficiency of Funds. With respect to a repurchase by
the Company under either Section 2.3 or Section 2.4, in the event that any or
all of the Repurchase Price is not paid as a result of the insufficiency of
legally available funds under the Pennsylvania Business Corporation Law or
otherwise, the obligation to effect the repurchase shall remain an obligation
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of the Company and shall be performed as soon as there are funds legally
available therefor.
2.6. Repurchase Price for Warrants.
(a) The repurchase price (the "Repurchase Price") for each
Warrant (determined on the basis of the number of Warrant Shares into which it
is then exercisable) which is to be repurchased by the Company pursuant to
either Section 2.3 or Section 2.4 shall be equal to (I) the quotient obtained by
dividing (x) the fair market value determined in accordance with Section 2.6(b)
of the aggregate of all of the outstanding Common Stock as of the end of the
Company's last full fiscal quarter immediately preceding the Put Notice or the
Call Notice, as the case may be, including in such outstanding Common Stock the
Warrant Shares and all shares of Common Stock which could be acquired upon
exercise or conversion of any outstanding options or other securities then
exercisable or convertible into Common Stock (collectively, as of any time of
determination the "Outstanding Common Stock"), by (y) the number of shares of
Outstanding Common Stock, minus (II) the exercisable price per Warrant Share.
(b) For purposes of this Section 2.6, the "fair market value"
of the Outstanding Common Stock shall be determined in good faith by the Holders
of the Warrants being repurchased and the Company. If such Holders and the
Company are unable to agree on such fair market value, such Holders shall select
a pool of three independent investment banking firms or valuation firms (or a
combination thereof) from which the Company shall select one such firm to
appraise the fair market value of the Outstanding Common Stock and to perform
the computations involved. The determination of such firm shall be binding upon
the Company. All expenses of such firm shall be borne by the Company.
2.7. Delivery of Certificates Reissued. Upon the timely
receipt of the Repurchase Price for the Warrants sold to the Company pursuant to
either Section 2.3 or Section 2.4, the Holders thereof shall forward the
Warrants, as the case may be, so sold to the Company. To the extent that less
than all of such Holder's Warrants are sold, the Company shall forthwith issue
and deliver to such Holder, as appropriate, (a) Warrants in every respect
identical to the Warrants so forwarded, except that the same shall provide for
the purchase by such Holder of such lesser number of Warrant Shares as shall be
represented by the Warrants which the Company has not repurchased. Upon timely
payment of the Repurchase Price therefor Warrants so repurchased shall no longer
be exercisable or have any validity whatsoever.
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2.8. Right to New Equity Securities. Prior to issuing any
equity securities or any options or convertible securities exercisable for or
convertible into such equity securities (collectively, "Equity Securities") of
the Company, other than in connection with a Qualified IPO, the Company will
simultaneously issue without charge to each of the Holders of the Warrants and
Warrant Shares the same proportion of the securities proposed to be sold by the
Company as the number of Warrants and Warrant Shares owned by such Holder bears
to the total number of shares of Outstanding Common Stock at that time,
provided, that, prior to an Exercise Event, the securities to be issued by the
Company to the Holders pursuant to this Section 2.8 shall be limited to warrants
similar in all material respects to the Warrants. Holders electing to purchase
Equity Securities pursuant to this Section shall also be entitled to purchase
(pro rata according to their holdings of Warrant and Warrant Shares) offered
Equity Securities that other Holders decline to purchase. Any such right of
purchase shall be exercisable for a period of thirty (30) days after the Holders
receive written notice of a proposed issuance of Equity Securities (and any such
notice by the Company shall be given not less than thirty (30) nor more than
ninety (90) days prior to any such issuance). This Section 2.8 shall not apply
to Equity Securities issued upon exercise of the Warrant.
2.9. Termination Upon Qualified IPO. Bank's rights under
Sections 2.3 and 2.8 and the Company's rights under Section 2.4 shall terminate
upon the closing of a Qualified IPO.
2.10. No Termination Upon Satisfaction of Credit Agreement
Obligations. Bank's rights under Sections 2.3 and 2.8 shall not terminate solely
by virtue of the satisfaction by the Company of all of its obligations to the
Bank under the Credit Agreement; provided, however, that Bank's rights under
Sections 2.3 and 2.8 shall terminate if, within one year from the date of this
Agreement, the Company receives a notice from the Bank pursuant to Section 2.9
of the Credit Agreement that the Bank is requiring additional compensation from
the Company pursuant to that Section, and the Company thereafter satisfies all
of its obligations to the Bank through a refinancing.
ARTICLE 3
CONDITIONS TO PURCHASERS' OBLIGATIONS
The obligations of Bank to purchase the Warrants at the
Closing is subject to the following conditions, all or any of which may be
waived in writing by Bank:
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3.1. Representations and Warranties. Each of the
representations and warranties of the Company set forth in Article 4 hereof
shall be true and correct in all material respects at the time of the sale of
the Warrants.
3.2. Delivery at Closing. Bank shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
Bank and its counsel:
(a) A certified copy of all charter documents of the Company;
a certified copy of the resolutions of the board of directors and, to the extent
required, the stockholders of the Company evidencing approval, as applicable, of
this Agreement, the Warrant Documents and other matters contemplated hereby and
thereby; a certified copy of the By-laws of the Company; and certified copies of
all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement, the Warrant
Documents and other matters contemplated hereby or thereby.
(b) Favorable opinions of Blank, Rome, Comisky & McCauley,
counsel for the Company, as to matters set forth in Exhibit 3.2(b), and as to
such other matters as Bank or its counsel may reasonably request.
(c) A certificate of the Secretary or an Assistant Secretary
of the Company which shall certify the names of the officers of the Company
authorized to sign, as applicable, this Agreement, the Warrant Documents and any
other documents or certificates to be delivered pursuant hereto or thereby by
the Company, as applicable, or any of their respective officers, together with
the true signatures of such officers. Bank may conclusively rely on such
certificates until they shall receive a further certificate of the Secretary or
an Assistant Secretary of the Company, as applicable, cancelling or amending the
prior certificate and submitting the signatures of the officers named in such
further certificate.
(d) An Amended and Restated Registration Rights Agreement (the
"Registration Rights Agreement") executed by the Company substantially in the
form of Exhibit 3.2(d) attached hereto.
(e) A certificate from a duly authorized officer of the
Company stating that all conditions set forth in this Article 3 have been
satisfied.
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(f) Such other documents referenced in any Exhibit hereto or
relating to the transactions contemplated by this Agreement as Bank or its
counsel may reasonably request.
3.3. Incurrence of Debt. The Company shall have entered into
the Credit Agreement with the Bank on terms satisfactory to the Company and
shall have closed or shall close simultaneously the transactions contemplated
thereby and received or shall simultaneously receive the funds with respect
thereto. Copies of all documents delivered to the Bank in conjunction with the
closing of the transactions contemplated by the Credit Agreement shall have been
delivered to Bank or its counsel.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BANK
4.1. Representations and Warranties of Bank. Bank hereby
represents and warrants that:
(a) It has duly authorized, executed and delivered this
Agreement and such other documents as it is required to execute pursuant to this
Agreement and the Credit Agreement.
(b) Its present intention is to acquire the Securities for its
own account.
(c) The Securities are being and will be acquired for the
purpose of investment and not with a view to distribution or resale thereof;
subject, nevertheless, to the condition that, except as otherwise provided
herein, the disposition of its property shall at all times be within its
control.
(d) It acknowledges that it has reviewed and discussed the
Company's business, affairs and current prospects with such officers of the
Company and others as it has deemed appropriate or desirable in connection with
the transactions contemplated by this Agreement. It further acknowledges that it
has requested, received and reviewed such information, undertaking such
investigation and made such further inquiries of officers of the Company and
others as it has deemed appropriate or desirable in connection with such
transactions; provided, however, no investigation made heretofore or hereafter
by or on its behalf shall have any effect whatsoever on the representations and
warranties of the Company hereunder, each of which shall survive any such
investigation.
(e) It understands that it must bear the economic risk of its
investment for an indefinite period of time because the
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Securities are not, and will not be, registered under the Securities Act or any
applicable state securities laws, except as may be provided in the Registration
Rights Agreement, and may not be resold unless subsequently registered under the
Securities Act and such other laws or unless an exemption from such registration
is available. It also understands that it is not contemplated that any
registration will be made under the Securities Act or that the Company will take
steps which will make the provisions of Rule 144 under the Securities Act
available to permit resale of the Securities.
(f) It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
investment in the Securities. It further represents that it is an "accredited
investor" as such term is defined in Rule 501 of Regulation D of the Commission
under the Securities Act with respect to the purchase of the Securities.
(g) It hereby acknowledges that the Warrants and each
certificate representing the Warrant Shares and any other securities issued in
respect of such shares upon any stock split, stock dividend, recapitalization,
merger or similar event (unless no longer required in the opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to the Company) shall
bear a legend substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES
LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
The acquisition by Bank of the Securities shall constitute a
confirmation by it of the foregoing representations made by it.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as follows:
5.1. Securities Act. Neither the Company nor anyone acting on
its behalf has offered any of the Warrants, or solicited any offers to purchase
or made any attempt by preliminary conversation or negotiations to dispose of
the Warrants, within the meaning of all applicable federal and state securities
laws, to any Person other than Bank, and no Person other than Bank will purchase
any Warrants except with the prior
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consent of Bank. Neither the Company nor anyone acting on its behalf has offered
or will offer to sell the Warrants to, or solicit offers with respect thereto
from, or enter into any preliminary conversations or negotiations relating
thereto with, any Person so as to bring the issuance and sale of the Warrants
under the registration provisions of the Securities Act.
5.2. Other Agreements of Officers. To the best knowledge of
the Company, no officer or key employee of the Company is a party to or bound by
any agreement, contract or commitment, or subject to any restrictions,
particularly but without limitation in connection with any previous employment
of any such person, which has a material adverse effect, or in the future may
(so far as the Company can reasonably foresee) have a material adverse effect.
To the best knowledge of the Company, no officer or key employee of the Company
has any present intention of terminating his employment with the Company, as the
case may be, and the Company has no present intention of terminating such
employment.
5.3. Foreign Corrupt Practices Act. The Company has reviewed
its practices and policies and to the best of its knowledge and belief is not
engaged, nor has any of its respective officers, directors, employees or agents
engaged in any act or practice which would constitute a violation of the Foreign
Corrupt Practices Act of 1977, or any rules or regulations promulgated
thereunder.
5.4. Registration Rights. Other than pursuant to the terms of
the Registration Rights Agreement, no Person has demand or other rights to cause
the Company to file any registration statement under the Securities Act relating
to any securities of the Company or any right to participate in any such
registration statement.
5.5. Representations and Warranties Incorporated from Credit
Agreement. Each of the representations and warranties given by the Company to
Bank in the Credit Agreement is true and correct in all material respects as of
the Closing Date and such representations and warranties are hereby incorporated
herein by this reference as of such date with the same effect as though set
forth herein in their entirety and made by the Company to Bank hereunder.
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ARTICLE 6
DISCLOSURES TO HOLDERS
So long as any Warrants remain outstanding, the Company shall,
contemporaneously with the sending or making available thereof, send to all
Holders, in accordance with Section 7.3 herein copies of (i) the Company's
audited financial statement for each fiscal year and (ii) the Company's
unaudited financial statement for each fiscal quarter.
ARTICLE 7
MISCELLANEOUS
7.1. No Waiver; Cumulative Remedies. No failure or delay on
the part of Bank in exercising any right, power or remedy hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
7.2. Amendments, Waivers and Consents. Any provision in this
Agreement or the Warrants to the contrary notwithstanding, changes in or
additions to this Agreement may be made, and compliance with any covenant or
provision herein or therein set forth may be omitted or waived, if the Company
shall obtain consent thereto in writing from Bank.
7.3. Addresses for Notices, etc. All notices, requests,
demands and other communications provided for hereunder shall be in writing and
mailed (by first class registered or certified, postage prepaid), telegraphed,
sent by express overnight courier service or electronic facsimile transmission
(with a copy by mail), or delivered to the applicable party at the addresses
indicated below:
If to the Company:
NCO Group, Inc.
1740 Walton Road
Blue Bell, PA 19422
Attention: Michael J. Barrist
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With copies to:
Blank, Rome, Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 19103
Attention: Alan L. Zeiger, Esquire
and
Joshua Gindin, Esquire
1700 Two Logan Square
Philadelphia, PA 19103
If to Bank:
Mellon Bank, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike
Plymouth Meeting, PA 19462
Attention: Liz A. Mellace
With a copy to:
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, PA 19103
Attention: Ben Burke Howell, Esquire
Telecopy: 215-851-1420
or, as to each of the foregoing, at such other address as shall be designed by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) two days after being deposited in the mails or (ii) one day after
being delivered to the telegraph company, deposited with the express overnight
courier service or sent by electronic facsimile transmission, respectively,
addressed as aforesaid.
7.4. Costs, Expenses and Taxes. Except as otherwise provided
herein, the Company agrees to pay on demand all reasonable costs and expenses of
Bank in connection with the preparation, execution and delivery of this
Agreement, the Warrants and other Warrant Documents and other instruments and
documents to be delivered hereunder, and in connection with the consummation of
the transaction contemplated hereby and thereby, and in connection with any
amendment, waiver (whether or not such amendment or waiver becomes effective) or
enforcement of this Agreement, the Warrants, the other Warrant Documents, and
other instruments and documents to be delivered hereunder or
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thereunder, including the fees and out-of-pocket expenses of Reed Smith Shaw &
McClay, counsel for Bank. In addition, the Company agrees to pay any and all
stamp and other taxes (excluding income taxes) payable or determined to be
payable in connection with the execution and delivery of this Agreement, the
Warrants, the other Warrant Documents, and the other instruments and documents
to be delivered hereunder or thereunder and each agrees jointly and severally to
save Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and filing
fees.
7.5. Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the Company, and its respective
successors and assigns, except that the Company shall not have the right to
assign its rights hereunder or any interest therein without the prior written
consent of Bank.
7.6. Provisions of Credit Agreement. Whenever any provision of
the Credit Agreement is referred to herein or in any instrument furnished
hereunder as expressing or constituting an obligation, condition or limitation
of this Agreement or of such instrument or as expressing or constituting a
representation herein or therein (a) such provision shall be deemed incorporated
herein or therein at length, and (b) except as otherwise provided herein or in
such instrument, the terms used in such provision referred to shall have the
meanings set forth in the Credit Agreement. Except as otherwise specifically
provided herein, and except for amendments or modifications to which Bank
consents in writing, no modification of or amendment to, or waiver of, any
provisions of the Credit Agreement and no payment of the indebtedness
outstanding thereunder or satisfaction or cancellation thereof, shall modify,
amend, waive or otherwise affect any provision thereof as referred to in this
Agreement or in any instrument furnished hereunder, which provision, for the
purpose of this Agreement and such instrument, shall remain unmodified and in
full force and effect.
7.7. Indemnification. The Company agrees to indemnify and hold
harmless Bank, its subsidiaries, directors, officers, partners, counsel and
employees, from and against any and all liability (including, without
limitation, reasonable legal fees incurred in defending against any such
liability) under, arising out of or relating to this Agreement, the Warrants and
the Warrant Shares, the transactions contemplated hereby or thereby or in
connection herewith or therewith, including (to the maximum extent permitted by
law) any liability arising under federal or state securities laws, except to the
extent such liability shall result from any act or omission on the part of Bank;
provided that the Company shall not be liable for the reasonable fees and
expenses of more than one separate firm for all indemnified
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parties, unless representation of all parties by the same counsel would be
inappropriate due to actual or potential differing interests among them. The
obligations of the Company under this Section 7.7 shall survive and continue to
be in full force and effect notwithstanding the satisfaction of the Company's
obligations under the Credit Agreement and the termination of this Agreement.
7.8. Survival of Representations and Warranties. All
representations and warranties made in this Agreement, the Warrants, the Warrant
Documents or any other instrument or document delivered in connection herewith
or therewith, shall survive the execution and delivery hereof and thereof,
regardless of any investigation made by Bank.
7.9. Prior Agreements. This Agreement constitutes the entire
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
7.10. Severability. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7.11. Governing Law. This Agreement shall be governed by and
construed in accordance with, the internal laws of the Commonwealth of
Pennsylvania.
7.12. Governing Law; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE IN
PENNSYLVANIA, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF PENNSYLVANIA (WITHOUT GIVING EFFECT TO CONFLICT OF LAWS) AND THE UNITED
STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE COMPANY AGREES
THAT THE STATE AND FEDERAL COURTS OF PENNSYLVANIA LOCATED IN MONTGOMERY COUNTY,
PENNSYLVANIA, WILL HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO
THE MAXIMUM EXTENT PERMITTED BY LAW, THE COMPANY HEREBY WAIVES ANY RIGHT THAT IT
MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT,
EQUITY, OR OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY RELATED
MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING
WITHOUT A JURY.
(b) THE COMPANY AGREES THAT SERVICE OF PROCESS MAY BE MADE
UPON IT BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE COMPANY AT
ITS ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT AND SERVICE SO MADE SHALL
BE DEEMED TO BE COMPLETED UPON THE EARLIER IF (i) THE COMPANY'S RECEIPT THEREOF
AND (ii) FIVE DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL.
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NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
7.13. Headings. Article, Section and subsection headings in
this Agreement are included herein for convenience or reference only and shall
not constitute a part of this Agreement for any other purposes.
7.14. Sealed Instrument. This Agreement is executed as an
instrument under seal.
7.15. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument, and each of the parties hereto may execute this Agreement by
signing any such counterpart.
7.16. Further Assurances. From and after the day of this
Agreement, upon the request of Bank, the Company shall execute and deliver such
instruments, documents and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Warrants.
7.17. Consent to Jurisdiction. The Company irrevocably submits
to the non-exclusive jurisdiction of any state or federal court sitting in the
Commonwealth of Pennsylvania over any suit, action or proceeding arising out of
or relating to this Agreement or any of the Warrants or Warrant Shares. To the
fullest extent it may effectively do so under applicable law, the Company
irrevocably waives and agrees not to assert, by way of motion, as a defense or
otherwise, any claim that is not subject to the jurisdiction of any such court,
any objection that it may now or hereafter have to the laying of venue of any
such suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in such court has been brought in an
inconvenient forum.
7.18. Effect of Judgment. The Company agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
suit, action or proceeding of the nature referred to in Section 7.17 brought in
any such court shall, subject to such rights of appeal on issues other than
jurisdiction as may be available to the Company, be conclusive and binding upon
the Company and may be enforced in the courts of the United States of America or
the Commonwealth of Pennsylvania (or any other courts to the jurisdiction of
which the Company is or may be subject) by a suit upon such judgment.
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7.19. Service of Process. The Company consents to service of
process in any suit, action or proceeding of the nature referred to in Section
7.17 by mailing a copy thereof by registered or certified mail, postage
prepared, return receipt requested, to the address of the Company specified in
or designated pursuant to Section 7.3. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company, as the case may be.
7.20. No Limitation. Nothing in Sections 7.12, 7.17, 7.18 or
7.19 shall affect the right of Bank to serve process in any manner permitted by
law, or limit any right that Bank may have to bring proceedings against the
Company in the courts of any jurisdiction to enforce in any lawful manner a
judgment obtained in one jurisdiction in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Agreement or have caused it to be executed by their respective officers
thereunto duly authorized, as of the date first above written.
NCO GROUP, INC.
By: /s/ MICHAEL J. BARRIST
--------------------------------
Name: MICHAEL J. BARRIST
Title: President
MELLON BANK, N.A.
By: /s/ LIZ A. MELLACE
--------------------------------
Name: LIZ A. MELLACE
Title: Assistant Vice President
<PAGE>
Exhibit 10.17
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT dated September 5, 1996 between NCO Group,
Inc., a Pennsylvania corporation (the "Company") and Mellon Bank, N.A. ("Bank").
Unless otherwise provided in this Agreement, capitalized terms used herein shall
have the meanings set forth in paragraph 8 hereof.
WHEREAS, pursuant to a reorganization of NCO Financial
Systems, Inc. ("Predecessor"), the Company became the sole securityholder of
Predecessor and the former securityholders of Predecessor became the
securityholders of the Company;
WHEREAS, prior to the reorganization described above,
Predecessor issued to Bank a Common Stock Purchase Warrant for the right to
purchase up to 3,770 shares of the Common Stock of Predecessor (the "1995
Warrant") pursuant to that certain Warrant Agreement dated July 28, 1995 between
Predecessor and Bank (the "1995 Warrant Agreement") and subject to that certain
Registration Rights Agreement dated July 28, 1995 between Predecessor and Bank
(the "Original Agreement");
WHEREAS, due to the reorganization described above, the
Company shall issue to Bank on the date hereof a Common Stock Purchase Warrant
for the right to purchase up to 3,770 shares of the Common Stock of the Company
as a replacement for the 1995 Warrant;
WHEREAS, as an inducement for the Bank to extend additional
credit to the Company, the Company shall issue to Bank on the date hereof,
pursuant to that certain 1996 Warrant Agreement dated September 5, 1996 between
the Company and Bank (the "1996 Warrant Agreement"), a Common Stock Purchase
Warrant for the right to purchase up to 1,000 shares of the Common Stock of the
Company (the "1996 Warrant"); and
WHEREAS, the Company and Bank intend that the holders of the
Warrants shall be entitled to certain registration rights.
NOW THEREFORE, the parties hereto agree to amend the Original
Agreement by restating the Original Agreement in its entirety to read as
follows:
1. Required Registrations.
(a) At any time after a period of twelve (12) months
immediately following the closing of the Company's first underwritten public
offering of its securities pursuant to a registration statement, any holder of
the Registrable Securities
<PAGE>
may request, in writing, that the Company effect the registration of Registrable
Securities owned by such holder on a form that may be used for the registration
of Registrable Securities. If the holder initiating the registration intends to
distribute the Registrable Securities by means of an underwriting, it shall so
advise the Company in its request. In the event such registration is
underwritten, the right of other holders to participate shall be conditioned on
such holders' participation in such underwriting. Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all holders of Registrable Securities. Such holders shall have
the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Securities as such holders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Securities
requested to be registered by all holders may not be included in the offering,
then the Company shall include in such registration (i) first, the securities of
the holder of Registrable Securities initiating the registration, (ii) second,
the securities requested to be included therein by the other holders of the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares owned by each such holder. Thereupon, the Company shall, as expeditiously
as possible, use its best efforts to effect the registration (on a form that may
be used for the registration of Registrable Securities) of all Registrable
Securities which the Company has been requested to so register.
(b) At any time after a period of twelve (12) months
immediately following the closing of the Company's first underwritten public
offering of its securities pursuant to a registration statement, if the Company
becomes eligible to file a registration statement on Form S-3 (or any successor
form relating to secondary offerings), then any holder of Registrable Securities
may request the Company, in writing to effect the registration on Form S-3 (or
such successor form) of Registrable Securities. Upon receipt of any such
request, the Company shall promptly give written notice of such proposed
registration to all holders of Registrable Securities. Such holders shall have
the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Securities as such holders may request in such notice of
election; provided that if the underwriter (if any) managing the offering
determines that, because of marketing factors, all of the Registrable Securities
requested to be registered by all holders may not be included in the offering,
then the Company shall include in such registration
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(i) first, the securities of the holder of Registrable Securities initiating the
registration, (ii) second, the securities requested to be included therein by
the other holders of the Registrable Securities requested to be included in such
registration, pro rata among the holders of such Registrable Securities on the
basis of the number of shares owned by each such holder. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-3 (or such successor form) of all Registrable Securities
which the Company has been requested to so register. The Company shall keep any
registration statement on Form S-3 filed pursuant to this Section 1(b) effective
for a period of not less than 90 days.
(c) The Company shall not be required to effect more than one
registration pursuant to the first sentence of paragraph (a) above or pursuant
to the first sentence of paragraph (b) above.
(d) The Registration Expenses shall be paid by the
Company in all Required Registrations.
(e) If at any time of any request to register Registrable
Securities pursuant to this Section 1, the Company is engaged or has fixed plans
to engage within 30 days of the time of the request in a registered public
offering as to which the holders of Registrable Securities may include
Registrable Securities pursuant to Section 2 or is engaged in any other activity
which, in the good faith determination of the Company's Board of Directors,
would be adversely affected by the requested registration to the material
detriment of the Company, then the Company may at its option direct that such
request be delayed for a period not in excess of six months from the effective
date of such offering or the date of commencement of such other material
activity, as the case may be, such right to delay a request to be exercised by
the Company not more than once in any one-year period.
2. Piggyback Registrations.
(a) Right to Piggyback. Subject to the limitations contained
herein, at any time prior to July 31, 2005, whenever the Company proposes to
register any of its securities under the Securities Act and the registration
form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such a registration
and shall include in such registration all Registrable Securities with respect
to which the Company has
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received written requests for inclusion therein within 30 days after the receipt
of the Company's notice.
(b) Excluded Registration. The right of any holder of
Registrable Securities to a Piggyback Registration pursuant to subparagraph (a)
of this Paragraph shall not apply to the Company's registration of its
securities in connection with a Qualified IPO (as defined in the 1996 Warrant
Agreement) to be conducted by the Company on or before December 31, 1996.
(c) Piggyback Expenses. The Registration Expenses of
the holders of Registrable Securities shall be paid by the Company in all
Piggyback Registrations.
(d) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering without adversely
affecting the marketability of the offering, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, (ii)
second, the securities requested to be included therein by the holders of the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares owned by each such holder, and (iii) third, other securities requested to
be included in such registration
(e) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
without adversely affecting the marketability of the offering, the Company shall
include in such registration the securities requested to be included therein by
the holders requesting such registration, the Registrable Securities requested
to be included in such registration and the other securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of securities so requested to be included therein.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to this
paragraph 2, and if such previous registration has not been withdrawn or
abandoned, the Company shall not file or cause to be effected any other
registration of
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<PAGE>
any of its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-8 under the Securities Act or any successor forms), whether on its own behalf
or at the request of any holder or holders of such securities, until a period of
at least 90 days has elapsed from the effective date of such previous
registration
3. Holdback Agreements.
(a) Each holder of Registrable Securities shall not effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the ten days prior to and the 90-day
period (or longer if requested by the underwriter of the offering) beginning on
the effective date of any underwritten Required or Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration), unless the underwriters managing the registered public offering
otherwise agree.
(b) The Company (i) shall not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the ten days prior to
and during the 90-day period beginning on the effective date of any underwritten
Required or Piggyback Registration (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing the registered public offering otherwise agree,
and (ii) shall cause each holder of at least 5% (on a fully-diluted basis) of
its Common Stock, or any securities convertible into or exchangeable or
exercisable for Common Stock, purchased from the Company at any time after the
date of this Agreement (other than in a registered public offering) to agree not
to effect any public sale or distribution (including sales pursuant to Rule 144)
of any such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company shall use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof; and pursuant thereto
the Company shall as expeditiously as possible:
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<PAGE>
(a) prepare and file with the Securities and Exchange
Commission a registration statement on the appropriate form under the Securities
Act, which form shall be available for the sale of such Registrable Securities
in accordance with the intended method or methods of distribution thereof, and
use its commercially reasonable efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall furnish
to the counsel selected by the holders of a majority of the Registrable
Securities covered by such registration statement copies of all such documents
proposed to be filed, which documents shall be subject to the review and comment
of such counsel);
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments, post-effective
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary or appropriate to keep such
registration statement effective for the period required for sale of the
Registrable Securities, provided that in no event shall the Company be obligated
to keep such registration statement effective for more than 90 days, cause such
prospectus as so supplemented to be filed as required under the Securities Act,
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement or supplement to the
prospectus;
(c) if requested by the managing underwriter or underwriters
or a holder of Registrable Securities being sold in connection with an
underwritten offering, immediately incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a majority in interest of the Registrable Securities being sold
reasonably agree should be included therein relating to the plan of distribution
with respect to such Registrable Securities, including, without limitation,
information with respect to the principal amount of Registrable Securities being
sold to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or best
efforts underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such Prospectus supplement or post-effective amendment;
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<PAGE>
(d) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(e) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions where such registration or qualification is required as any seller
reasonably requests and do any and all other' acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(f) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which the prospectus included in such registration statement as then
in effect, contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of any such
seller, the Company shall prepare a supplement or amendment to such prospectus
so that, thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not contain an untrue statement of a material fact
required to be stated therein or omit to state any fact necessary to make the
statements therein not misleading;
(g) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed or traded, and, if not so listed or traded, to be listed on the NASD
automated quotation system and, if listed on the NASD automated quotation
system, use commercially reasonable efforts to secure NASDAQ authorization for
such Registrable Securities and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register as such with
respect to such Registrable Securities with the NASD;
(h) cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate
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<PAGE>
the timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and enable such
Registrable Securities to be in such denominations and registered in such names
as the selling holders or the managing underwriters, if any, may request at
least ten Business Days prior to any sale of Registrable Securities; provide a
transfer agent and registrar for all such Registrable Securities not later than
the effective date of such registration statement;
(i) enter into such customary agreements (including, if there
is an underwriter, underwriting agreements in customary form);
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company that is customary, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(k) cooperate, and cause the Company's officers, directors,
employees and independent accountants to cooperate, with the selling holders of
Registrable Securities and the managing underwriters, if any, in the sale of the
Registrable Securities and take any actions necessary to promote, facilitate or
effectuate such sale;
(l) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission;
(m) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and
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<PAGE>
its counsel as may be required under the rules and regulations of the NASD),
fees and expenses of compliance with securities or blue sky laws (including fees
and disbursements of counsel for the underwriters or selling holders in
connection with blue sky qualifications and determination of their eligibility
for investment under applicable laws), printing expenses, messenger, telephone
and delivery expenses, fees and disbursements of custodians, and fees and
disbursements of counsel for the Company and all independent certified public
accountants (including the expenses of any special audit and "cold comfort"
letters required by or incident to such performance), underwriters (excluding
underwriters' discounts and commissions) and other Persons retained by the
Company (all such expenses being herein called "Registration Expenses"), shall
be borne as provided in this Agreement, except that the Company shall, in any
event, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of any
liability insurance if such insurance coverage is obtained by the Company and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the NASD automated quotation system,
(b) In connection with each Piggyback Registration, the
Company shall reimburse the holders of Registrable Securities included in such
registration for the reasonable fees and disbursements of one counsel chosen by
the holders of a majority of the Registrable Securities included in such
registration.
(c) To the extent Registration Expenses are not required to be
paid by the Company, each holder of securities included in any registration
hereunder shall pay those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
6. Indemnification and Contribution
(a) The Company agrees to indemnify each holder of Registrable
Securities which is included in a registration statement pursuant to Section 1
herein, its officers and directors and each Person who controls such holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment
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thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall index such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the holders of Registrable
Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information and affidavits as the Company
and any underwriter reasonably requests for use in connection with any such
registration statement or prospectus and shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder.
(c) Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (provided that the failure to give prompt
notice shall not impair any Person's right to indemnification hereunder to the
extent such failure has not materially prejudiced the indemnifying party) and
(ii) unless in such indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party shall not be subject to any
liability for any settlement made by the indemnified party without its consent
(but such consent shall not be unreasonably withheld). An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim shall not be
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obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) If the indemnification provided for in this Section 5 is
unavailable to an indemnified party under paragraphs (a) or (b) hereof in
respect to any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Company and
the holder of Registrable Securities in connection with the statements or
omissions that resulted in such losses, claim, damages, liabilities or expenses.
The relative fault of the Company and the holder of Registrable Securities in
connection with the statements that resulted in such losses, claims, liabilities
or expenses shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of material facts or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the holder of the Registrable Securities and the parties relative intent,
knowledge, access to information and opportunity to correct such statement or
omission.
(e) Notwithstanding any other provision of this Section, the
liability of any holder of Registrable Securities for indemnification or
contribution under this Section shall be individual to each holder and shall not
exceed an amount equal to the number of shares sold by such holder of
Registrable Securities multiplied by the net amount per share which he receives
in such underwritten offering.
(f) The indemnification and contribution provided for under
this Agreement shall remain in full force and effect regardless of any
investigation made by or on behalf of the indemnified party or any officer,
director or controlling Person of such indemnified party and shall survive the
transfer of securities.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all
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questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements; provided that no holder of Registrable Securities included in any
underwritten registration shall be required to make any representations or
warranties to the Company or the underwriters other than representations and
warranties directly regarding such holder and such holder's intended method of
distribution
8. Definitions.
"Common Stock" means the Company's Common Stock, without par
value.
"NASD" means the National Association of Securities Dealers.
"Person" means any individual, corporation, partnership,
limited liability company, trust, estate, association, cooperative, government
or governmental entity (or any branch, subdivision or agency thereof) or any
other entity.
"Registrable Securities" means (i) any Common Stock or other
securities issued or issuable upon the exercise of the Warrants ("Warrant
Shares") or (ii) any Common Stock or other securities issued or issuable with
respect to Warrant Shares by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Registrable Securities, such
securities shall cease to be Registrable Securities when they have been
distributed to the public pursuant to a offering registered under the Securities
Act or eligible to be sold to the public through a broker, dealer or market
maker in compliance with Rule 144 under the Securities Act (or any such rule
then in force). For purposes of this Agreement, a Person shall be deemed to be a
holder of Registrable Securities whenever such Person has the right to acquire
directly or indirectly such Registrable Securities (upon conversion or exercise
in connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected.
"Securities Act" means the Securities Act of 1933, as
amended.
"Warrants" mean the Common Stock Purchase Warrant dated the
date hereof issued by the Company to Bank in replacement of the 1995 Warrant and
all other common stock purchase warrants issued by the Company to Bank and its
successors and assigns
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pursuant to the 1995 Warrant Agreement and the 1996 Warrant and all other common
stock purchase warrants issued by the Company to Bank and its successors and
assigns pursuant to the 1996 Warrant Agreement.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company shall not
hereafter enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the holders of Registrable
Securities in this Agreement.
(b) Adjustments Affecting Registrable Securities. The Company
shall not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of a majority of the
Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities. A person is
deemed to be a holder of Registrable Securities whenever such person is the
registered holder of Registrable Securities. Upon the transfer of any
Registrable Securities, the transferring holder of Registrable Securities shall
cause the transferee to execute and deliver to the Company a counterpart of this
Agreement.
(e) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
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the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
(g) Descriptive Heading. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. The corporate law of Pennsylvania shall
govern all issues and questions concerning the relative rights of the Company
and its stockholders. All issues and questions concerning the construction,
validity, interpretation and enforcement of this Agreement shall be governed by,
and construed in accordance with, the laws of Pennsylvania, without giving
effect to any choice of law or conflict of law rules or provisions (whether of
Pennsylvania or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than Pennsylvania.
(i) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to each Person at the address
indicated below:
If to Company:
NCO Group, Inc.
1740 Walton Road
Blue Bell, PA 19422
Attn: Michael J. Barrist
With copies to:
Blank, Rome, Comisky & McCauley
Four Penn Center
Philadelphia, PA 19103
Attn: Alan L. Zeiger, Esquire
and
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Joshua Gindin, Esquire
1700 Two Logan Square
Philadelphia, PA 19103
If to Bank:
Mellon Bank, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike
Plymouth Meeting, PA 19462
Attention: Liz A. Mellace
With a copy to:
Reed Smith Shaw & McClay
2500 One Liberty Place
Philadelphia, PA 19103
Attention: Ben Burke Howell, Esquire
or to such other address or to the attention of such other person as the
recipient parry has specified by prior written notice to the sending party.
(j) Consent to Jurisdiction: Service of Process. Company and
Bank hereby irrevocably consent to the jurisdiction of the Courts of Common
Pleas of Montgomery County, Pennsylvania and of the United States District Court
for the Eastern District of Pennsylvania in any and all actions and proceedings
in connection with this Agreement, and irrevocably consent, in addition to any
methods of service of process permissible under applicable law, to service of
process by certified mail, return receipt requested to the address of Company
and Bank as set forth herein. Nothing in this Section shall affect or limit the
right of any Holder to serve legal process in any other manner permitted by law.
Company and Bank agree that in any action or proceeding brought by them in
connection with this Agreement or the transactions contemplated hereby,
exclusive jurisdiction shall be in the courts of the Courts of Common Pleas of
Montgomery County, Pennsylvania, and the United States District Court for the
Eastern District of Pennsylvania.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the successful party shall be entitled
to recover all of its own costs and expenses (including, but not limited to,
reasonable attorneys' fees and expenses) arising out of or relating to such
action or
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proceeding in addition to all other remedies available hereunder, or at law or
in equity.
(l) No Inconsistent Agreements. The Company will not on or
after the date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. Except as set forth in Schedule 3.02 to the 1996 Warrant
Agreement, the Company has not previously entered into any agreement with
respect to its securities granting any registration or similar rights to any
Person.
(m) Waiver of Jury Trial. The Company and Bank hereby waive
any right that they may have to a trial by jury of any dispute arising under or
relating to this Agreement or any related matters, and agree that any such
dispute shall be tried before a judge sitting without a jury.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
NCO GROUP, INC.
By: /s/ MICHAEL J. BARRIST
--------------------------
Its: President
-------------------------
MELLON BANK, N.A.
By: /s/ LIZ A. MELLACE
--------------------------
Its: Assistant Vice President
-------------------------
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Exhibit 10.18
AMENDED AND RESTATED LIMITED GUARANTY AGREEMENT
THIS AMENDED AND RESTATED LIMITED GUARANTY AGREEMENT (this
"Agreement"), dated as of September 5, 1996, made by MICHAEL J. BARRIST, CHARLES
C. PIOLA, JR., ANNETTE H. BARRIST and BERNARD R. MILLER, each an adult
individual residing in the Commonwealth of Pennsylvania (collectively the
"Guarantors"), in favor of MELLON BANK, N.A., a national banking association
(the "Lender").
RECITALS
A. NCO FINANCIAL SYSTEMS, INC., a Pennsylvania corporation
("NCO Financial") entered into a Credit Agreement dated as of July 28, 1995 (the
"Credit Agreement") with the Lender. The Guarantors, as owners of all of the
outstanding shares of stock of NCO Financial, derived substantial direct and
indirect benefit from the transactions contemplated by the Credit Agreement.
B. As a condition precedent to the extension of credit under
the Credit Agreement, the Guarantors executed and delivered to the Lender a
Limited Guaranty Agreement dated July 28, 1995 (the "Original Limited
Guaranty").
C. On the date hereof, NCO of New York, Inc. ("NCO New York"),
as a assignee of NCO Financial, will acquire all of the outstanding common stock
of Management Adjustment Bureau, Inc. ("MAB") in an acquisition more
particularly described in a Stock Purchase Agreement dated as of July 18, 1996
among the owners of the stock and NCO Financial.
D. In order to finance the acquisition of MAB by NCO New York,
NCO Financial has requested that the Lender increase the amount of the credit
facilities extended by the Lender to NCO Financial pursuant to the Credit
Agreement to $15,000,000 and add NCO Group, Inc. ("NCO Group"), NCO New York and
NCO Funding, Inc. ("NCO Funding") as co-borrowers under the credit facilities.
(Hereinafter, NCO Group, NCO Financial, NCO Funding and NCO New York shall
collectively be referred to as the "Borrowers".)
E. The Borrowers and the Lender have agreed to increase the
amount of the credit facilities and to enter into an Amended and Restated Credit
Agreement dated of even date herewith (the "Amended and Restated Credit
Agreement").
F. In order to secure the Guaranteed Obligations (as defined
below), the Guarantors have executed and delivered an Amended and Restated Stock
Pledge Agreement dated of even date herewith (as amended from time to time, the
"Stock Pledge Agreement") pursuant to which the Guarantors have pledged all of
the outstanding shares of stock of NCO Group.
<PAGE>
G. It is a condition precedent to the extension of credit
under the Amended and Restated Credit Agreement that the Guarantors amend and
restate the Original Limited Guaranty by executing and delivering this
Agreement. This Agreement is made by the Guarantors among other things to induce
the Lender to enter into the Loan Documents (as defined below), and to induce
the Lender to extend credit under the Amended and Restated Credit Agreement.
H. The Guarantors acknowledge that the Lender has relied and
will rely on this Agreement in entering into the Loan Documents and extending
credit under the Amended and Restated Credit Agreement. The Guarantors further
acknowledge that they have, independently and without reliance upon the Lender
or any representation by or other information from the Lender, made their own
credit analysis and decision to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, and
intending to be legally bound, the Guarantors hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) General. Capitalized terms not otherwise
defined herein shall have the meanings given in the Amended and Restated Credit
Agreement. In addition to the other terms defined elsewhere in this Agreement,
as used herein the following terms shall have the following meanings:
"Guaranteed Obligations" shall mean all obligations from time
to time of the Borrowers to the Lender under or in connection with any
Loan Document, including all obligations to pay principal, interest,
fees, indemnities or other amounts, in each case whether such
obligations are direct or indirect, secured or unsecured, joint or
several, absolute or contingent, due or to become due, whether for
payment or performance, now existing or hereafter arising (including
interest and other obligations arising or accruing after the
commencement of any bankruptcy, insolvency, reorganization, dissolution
or similar proceeding with respect to the Borrowers or any other
Person, or which would have arisen or accrued but for the commencement
of such proceeding, even if such obligation or the claim thereof is not
enforceable or allowable in such proceeding).
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"Loan Documents" shall mean the Amended and Restated Credit
Agreement, this Agreement, the Amended and Restated Stock Pledge
Agreement dated September 5, 1996 from the Guarantors in favor of the
Lender, the $15,000,000 Amended and Restated Revolving Credit Note
dated September 5, 1996 from the Borrowers in favor of the Lender, the
Amended and Restated Security Agreement dated September 5, 1996 from
the Borrowers in favor of the Lender, the Warrant Agreement dated July
28, 1995 by and between NCO Financial and the Lender, as amended by
that certain Amendment to Warrant Agreement dated September 5, 1996,
the 1996 Warrant Agreement dated September 5, 1996 by and between NCO
Group and the Lender, the Stock Pledge Agreement dated September 5,
1996 from NCO Group in favor of the Lender, the Guaranty and Suretyship
Agreement dated September 5, 1996 from MAB in favor of the Lender, the
Security Agreement dated September 5, 1996 from MAB in favor of the
Lender and all agreements and instruments from time to time delivered
under or in connection with any of the foregoing, in each case as the
same may be amended from time to time.
(b) Other Definitions. The following terms are defined in this
Agreement in the Section or other place indicated:
"Amended and Restated
Credit Agreement" Recitals
"Borrowers" Recitals
"Credit Agreement" Recitals
"direct and indirect security" 2.3(d)
"Guarantors" Preamble "Lender" Preamble
"MAB" Recitals
"NCO Financial" Recitals
"NCO Funding" Recitals
"NCO Group" Recitals
"NCO New York" Recitals
"notices" 4.3
"Original Limited Guaranty" Recitals
"Related Litigation" 4.7(b)
"Stock Pledge Agreement" Recitals
ARTICLE II
GUARANTY AND SURETYSHIP
2.1. Guaranty and Suretyship. The Guarantors hereby
absolutely, unconditionally and irrevocably guarantee and become surety for the
full and punctual payment and performance of the Guaranteed Obligations as and
when such payment or performance
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shall become due (at scheduled maturity, by acceleration or otherwise) in
accordance with the terms of the Loan Documents. This Agreement is an agreement
of suretyship as well as of guaranty, is a guarantee of payment and performance
and not merely of collectibility, and is in no way conditioned upon any attempt
to collect from or proceed against the Borrowers or any other Person or any
other event or circumstance. The obligations of the Guarantors under this
Agreement are direct and primary obligations of the Guarantors and are
independent of the Guaranteed Obligations, and a separate action or actions may
be brought against the Guarantors regardless of whether action is brought
against the Borrowers or any other Person or whether the Borrowers or any other
Person are joined in any such action or actions.
As to that portion of the Guaranteed Obligations covered by
the Original Limited Guaranty, it is intended that this Section 2.1 shall,
without limitation, operate to confirm the continuation of the guaranty and
suretyship originally created under the Original Limited Guaranty.
2.2. Limited Recourse. Notwithstanding anything to the
contrary contained herein or in any other Loan Document, no recourse shall be
had for the payment or performance of the Guaranteed Obligations against the
Guarantors or any assets of the Guarantors, nor shall the Guarantors be
personally liable for the Guaranteed Obligations, except that recourse may be
had against the Collateral (as defined in the Stock Pledge Agreement) which has
been pledged to the Lender by the Guarantors in the Stock Pledge Agreement,
provided, however, that nothing contained herein shall constitute a waiver of
any of the Guaranteed Obligations.
2.3. Obligations Absolute. The Guarantors agree that the
Guaranteed Obligations will be paid and performed strictly in accordance with
the terms of the Loan Documents, regardless of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting the Guaranteed Obligations,
any of the terms of the Loan Documents or the rights of the Lender or any other
Person with respect thereto. The obligations of the Guarantors under this
Agreement shall be absolute, unconditional and irrevocable, irrespective of any
of the following:
(a) any lack of legality, validity, enforceability or
allowability (in a bankruptcy, insolvency, reorganization, dissolution
or similar proceeding, or otherwise), or any avoidance or
subordination, in whole or in part, of any Loan Document or any of the
Guaranteed Obligations;
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<PAGE>
(b) any increase, decrease or change in the amount, nature,
type or purpose of any of the Guaranteed Obligations (whether or not
contemplated by the Loan Documents as presently constituted); any
change in the time, manner, method or place of payment or performance
of, or in any other term of, any of the Guaranteed Obligations; any
execution or delivery of any additional Loan Documents; or any
amendment to, or refinancing or refunding of, any Loan Document or any
of the Guaranteed Obligations;
(c) any impairment by the Lender or any other Person of any
recourse of the Guarantors against the Borrowers or any other Person;
any failure to assert any breach of or default under any Loan Document
or any of the Guaranteed Obligations; any extensions of credit in
excess of the amount committed under or contemplated by the Loan
Documents, or in circumstances in which any condition to such
extensions of credit has not been satisfied; any impairment by the
exercise or non-exercise, or any other failure, omission, breach,
default, delay or wrongful action in connection with any exercise or
non-exercise, of any right or remedy against the Borrowers or any other
Person under or in connection with any Loan Document or any of the
Guaranteed Obligations; any refusal of payment or performance of any of
the Guaranteed Obligations, whether or not with any reservation of
rights against the Guarantors; or any application of collections
(including collections resulting from realization upon any direct or
indirect security for the Guaranteed Obligations) to other obligations,
if any, not entitled to the benefits of this Agreement, in preference
to Guaranteed Obligations entitled to the benefits of this Agreement,
or if any collections are applied to Guaranteed Obligations, any
application to particular Guaranteed Obligations;
(d) any taking, exchange, amendment, termination,
subordination, release, loss or impairment of, or any failure to
protect, perfect, or preserve the value of, or any enforcement of,
realization upon, or exercise of rights or remedies under or in
connection with, or any failure, omission, breach, default, delay or
wrongful action by the Lender or any other Person in connection with
the enforcement of, realization upon, or exercise of rights or remedies
under or in connection with, or any other action or inaction by the
Lender or any other Person in respect of, any direct or indirect
security for any of the Guaranteed Obligations. As used in this
Agreement, "direct or indirect security" for the Guaranteed
Obligations, and similar phrases, includes any collateral security,
guaranty, suretyship, letter of credit, capital maintenance agreement,
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put option, subordination agreement or other right or
arrangement of any nature providing direct or indirect assurance of
payment or performance of any of the Guaranteed Obligations, made or on
behalf of any Person;
(e) any merger, consolidation, liquidation, dissolution,
winding-up, charter revocation or forfeiture, or other change in,
restructuring or termination of the corporate structure or existence
of, the Borrowers or any other Person; any bankruptcy, insolvency,
reorganization, dissolution or similar proceeding with respect to the
Borrowers or any other Person; or any action taken or election made by
the Lender (including any election under Section 1111(b)(2) of the
United States Bankruptcy Code), the Borrowers or any other Person in
connection with any such proceeding;
(f) any defense, setoff or counterclaim (including any defense
of failure of consideration, breach of warranty, statute of frauds,
bankruptcy, lack of legal capacity, statute of limitations, lender
liability, accord and satisfaction or usury, and excluding only the
defense of full, strict and indefeasible payment and performance),
which may at any time be available to the Borrowers or any other Person
with respect to any Loan Document or any of the Guaranteed Obligations;
or any discharge by operation of law or release of the Borrowers or any
other Person from the performance or observance of any Loan Document or
any of the Guaranteed Obligations; or
(g) any other event or circumstance, whether similar or
dissimilar to the foregoing, and whether known or unknown, which might
otherwise constitute a defense available to, or limit the liability of,
the Borrowers, the Guarantors, a guarantor or a surety, excepting only
full, strict and indefeasible payment and performance of the Guaranteed
Obligations.
2.4. Waivers, etc. The Guarantors hereby waive any defense to
or limitation on their obligations under this Agreement arising out of or based
on any event or circumstance referred to in Section 2.3. Without limitation, the
Guarantors waive each of the following:
(a) all notices, disclosures and demands of any nature which
otherwise might be required from time to time to preserve intact any
rights against the Guarantors, including (i) any notice of any event or
circumstance described in Section 2.3, (ii) any notice required by any
law, regulation or order now or hereafter in effect in any
jurisdiction,
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(iii) any notice of nonpayment, nonperformance, dishonor, or
protest under any Loan Document or any of the Guaranteed Obligations,
(iv) any notice of the incurrence of any Guaranteed Obligation, (v) any
notice of any default or any failure on the part of the Borrowers or
any other Person to comply with any Loan Document or any of the
Guaranteed Obligations or any direct or indirect security for any of
the Guaranteed Obligations, and (vi) any notice of any information
pertaining to the business, operations, condition (financial or
otherwise) or prospects of the Borrowers or any other Person;
(b) any right to any marshalling of assets, or to the exercise
against the Borrowers or any other Person of any other right or remedy
under or in connection with any Loan Document or any of the Guaranteed
Obligations or any direct or indirect security for any of the
Guaranteed Obligations; any requirement of promptness or diligence on
the part of the Lender or any other Person; any requirement to exhaust
any remedies under or in connection with, or to mitigate the damages
resulting from default under, any Loan Document or any of the
Guaranteed Obligations or any direct or indirect security for any of
the Guaranteed Obligations; and any requirement of acceptance of this
Agreement, and any requirement that the Guarantors receive notice of
such acceptance; and
(c) any defense or other right arising by reason of any law
now or hereafter in effect in any jurisdiction pertaining to election
of remedies (including anti-deficiency laws, "one action" laws or
similar laws), or by reason of any election of remedies or other action
or inaction by the Lender (including commencement or completion of any
judicial proceeding or nonjudicial sale or other action in respect of
collateral security for any of the Guaranteed Obligations), which
results in denial or impairment of the right of the Lender to seek a
deficiency against the Borrowers or any other Person, or which
otherwise discharges or impairs any of the Guaranteed Obligations or
any recourse of the Guarantors against the Borrowers or any other
Person.
2.5. Reinstatement. This Agreement shall continue to be
effective, or be automatically reinstated, as the case may be, if at any time
payment of any of the Guaranteed Obligations is avoided, rescinded or must
otherwise be returned by the Lender for any reason, all as though such payment
had not been made.
2.6. No Stay. Without limitation of any other provision of
this Agreement, if any acceleration of the time for payment or performance of
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any Guaranteed Obligation, or any condition to any such acceleration, shall at
any time be stayed, enjoined or prevented for any reason (including stay or
injunction resulting from the pendency against the Borrowers or any other Person
of a bankruptcy, insolvency, reorganization, dissolution or similar proceeding),
the Guarantors agree that, for purposes of this Agreement and their obligations
hereunder, such Guaranteed Obligation shall be deemed to have been accelerated,
and such condition to acceleration shall be deemed to have been met.
2.7. Subrogation, etc. The Guarantors hereby irrevocably waive
and release any and all rights they now have or hereafter may have (known and
unknown, whether arising by operation of law, by agreement or otherwise) against
the Borrowers or any other Person arising from the existence, payment,
performance or enforcement of any of the obligations of the Guarantors under or
in connection with this Agreement or any other Loan Document, including any and
all rights of subrogation, reimbursement, exoneration, contribution or
indemnity.
2.8. Continuing Agreement. This Agreement is a continuing
guaranty and shall continue in full force and effect until all Guaranteed
Obligations and all other amounts payable under this Agreement have been paid
and performed in full, and all commitments to extend credit under the Loan
Documents have terminated, subject in any event to reinstatement in accordance
with Section 2.5. This Agreement shall terminate upon the occurrence of a
Qualified IPO (as defined in the Amended and Restated Credit Agreement).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Guarantor hereby represents and warrants to the Lender as
follows:
3.1. All the Guarantors are sui juris and of full capacity to
make and perform this Agreement.
3.2 This Agreement has been duly executed and delivered by the
Guarantors and such execution and delivery and the performance by the Guarantors
of the Guarantors' obligations hereunder will not to the best of each
Guarantor's knowledge, violate any applicable provision of law or judgment,
order or regulation of any court or of any public or governmental agency or
authority nor conflict with or constitute a breach of or a default under any
instrument to which the Guarantors are a party or by which the Guarantors or any
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of the Guarantors' property is bound, and this Agreement is a legal, valid and
binding obligation of the Guarantors enforceable in accordance with its terms.
3.3 Representations and Warranties Remade at Each Extension of
Credit. Each request (including any deemed request) by the Borrowers for any
extension of credit under any Loan Document shall be deemed to include a
representation and warranty by the Guarantors to the Lender that the
representations and warranties made by the Guarantors in this Article III are
true and correct on and as of the date of such request with the same effect as
though made on and as of such date. Failure by the Lender to receive notice from
the Guarantors to the contrary before the Lender makes any extension of credit
under any Loan Document shall constitute a further representation and warranty
by the Guarantors to the Lender that the representations and warranties made by
the Guarantors in this Article III are true and correct on and as of the date of
such extension of credit with the same effect a though made on and as of such
date.
ARTICLE IV
MISCELLANEOUS
4.1. Amendments, etc. No amendment to or waiver of any
provision of this Agreement, and no consent to any departure by the Guarantors
herefrom, shall in any event be effective unless in a writing manually signed by
or on behalf of the Lender. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
4.2. No Implied Waiver; Remedies Cumulative. No delay or
failure of the Lender in exercising any right or remedy under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the Lender
under this Agreement are cumulative and not exclusive of any other rights or
remedies available hereunder, under any other agreement, at law, or otherwise.
4.3. Notices. Except to the extent, if any, otherwise
expressly provided herein, all notices and other communications (collectively
"notices") under this Agreement shall be in writing (including facsimile
transmission) and shall be sent by first-class mail, by nationally-recognized
overnight courier, by personal delivery, or by facsimile transmission in all
cases with charges prepaid.
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If to Lender: MELLON BANK, N.A.
Plymouth Meeting Executive Campus
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Attn: Liz A. Mellace
Phone: (610) 941-8425
Fax: (610) 941-4136
With a copy to: REED SMITH SHAW & McCLAY
2500 One Liberty Place
Philadelphia, PA 19103
Attn: Ben Burke Howell, Esq.
Phone: (215) 851-8172
Fax: (215) 851-1420
If to Guarantors: MICHAEL J. BARRIST
President & Chief Executive Officer
NCO Financial Systems, Inc.
1740 Walton Road
Blue Bell, PA 19422-0987
Phone:
Fax:
CHARLES C. PIOLA, JR.
Executive Vice President
NCO Financial Systems, Inc.
1740 Walton Road
Blue Bell, PA 19422-0987
Phone:
Fax:
ANNETTE H. BARRIST
Secretary
NCO Financial Systems, Inc.
1740 Walton Road
Blue Bell, PA 19422-0987
Phone:
Fax:
BERNARD R. MILLER
Senior Vice President of Planning
NCO Financial Systems, Inc.
1740 Walton Road
Blue Bell, PA 19422-0987
Phone:
Fax:
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With a copy to: BLANK, ROME, COMISKY & McCAULEY
Four Penn Center Plaza
Philadelphia, PA 19103
Attn: Joel C. Shapiro, Esq.
Phone: (215) 569-5476
Fax: (215) 569-5555
and to: JOSHUA GINDIN, ESQ.
1700 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Phone: (215) 567-5830
Fax: (215) 636-0366
Any properly given notice shall be effective when received, except that properly
given notices to the Guarantors shall be effective at the following time, if
earlier: if given by telephone, when telephoned; if by first-class mail, three
Business Days after deposit in the mail; if by overnight courier, one Business
Day after pickup by such courier; and if by facsimile transmission, upon
transmission. The Lender may rely on any notice (whether or not made in a manner
contemplated by this Agreement) purportedly made by or on behalf of the
Guarantors, and the Lender shall have no duty to verify the identity or
authority of the Person giving such notice.
4.4. Expenses. Each Guarantor agrees to pay upon demand all
reasonable expenses (including reasonable fees and expenses of counsel) which
the Lender may incur from time to time arising from or relating to the or
exercise, enforcement or preservation of rights or remedies under, this
Agreement, arising from or related to such Guarantor's breach of this Agreement.
4.5. Construction. In this Agreement, unless the context
otherwise clearly requires, references to the plural include the singular, the
singular, the plural and the part the whole; "or" is not exclusive; and
"include" means include without limitation (and similarly for similar terms).
This Agreement has been fully negotiated between the applicable parties, each
party having the benefit of legal counsel, and accordingly neither any doctrine
of construction of guaranties or suretyships in favor of the guarantor or
surety, nor any doctrine of construction of ambiguities against the party
controlling the drafting, shall apply to this Agreement. Section and other
references in this Agreement are to this Agreement unless otherwise specified.
4.6. Successors and Assigns. This Agreement shall be binding
upon the Guarantors, their successors and assigns, and
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shall inure to the benefit of and be enforceable by the Lender and its
successors and assigns.
4.7. Certain Legal Matters.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
exclusive of choice of law principles.
(b) Submission to Jurisdiction and Venue; Consent to Service
of Process; Waiver of Jury Trial; Etc. The Guarantors hereby irrevocably and
unconditionally:
(i) agree that any action, suit or proceeding by any Person
arising from or relating to this Agreement or statement, course of
conduct, act, omission or event in connection with any of the foregoing
(collectively, "Related Litigation") may be brought in any state or
federal court of competent jurisdiction sitting in Philadelphia County,
Pennsylvania, submit to the jurisdiction of such courts, and agree not
to bring any Related Litigation in any other forum (but nothing herein
shall affect the right of the Lender to bring any Related Litigation in
any other forum);
(ii) acknowledge that such courts will be the most convenient
forum for any Related Litigation, waive any objection to the laying of
venue of any Related Litigation brought in any such court, waive any
claim that any Related Litigation brought in any such court has been
brought in an inconvenient forum, and waive any right to object, with
respect to any Related Litigation, that such court does not have
jurisdiction over them;
(iii) consent and agree to service of any summons, complaint
or other legal process in any Related Litigation by registered or
certified U.S. mail, postage prepaid, to them at the addresses for
notices described in this Agreement, and consent and agree that such
service shall constitute in every respect valid and effective service
(but nothing herein shall affect the validity or effectiveness of
process served in any other manner permitted by law); and
(iv) waive the right to trial by jury in any Related
Litigation.
(c) Limitation of Liability. No claim may be made by the
Guarantors against the Lender or any affiliate, director, officer, employee,
attorney or agent of the Lender for any special, indirect, or consequential
damages in respect of any claim arising from or relating to this Agreement or
any other Loan Document or any statement, course of conduct, act, omission
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or event in connection with any of the foregoing (whether for breach of
contract, tort or any other theory of liability); and the Guarantors hereby
waive, release and agree not to sue upon any claim for any such damages, whether
or not accrued and whether or not known or suspected to exist.
IN WITNESS WHEREOF, the Guarantors have caused this Agreement
to be duly executed and delivered as of the date first above written.
WITNESS:
/s/JOEL SHAPIRO /s/ MICHAEL J. BARRIST
- -------------------------------- --------------------------
JOEL SHAPIRO MICHAEL J. BARRIST
WITNESS:
/s/ JOSHUA GINDEN /s/ CHARLES C. PIOLA, JR.
- -------------------------------- --------------------------
CHARLES C. PIOLA, JR.
WITNESS:
/s/ JOSHUA GINDEN /s/ ANNETTE H. BARRIST
- -------------------------------- --------------------------
ANNETTE H. BARRIST
WITNESS:
/s/ JOSHUA GINDEN /s/ BERNARD R. MILLER
- -------------------------------- --------------------------
BERNARD R. MILLER
ACCEPTED AND AGREED:
MELLON BANK, N.A.
By: /s/ LIZ A. MELLACE
-----------------------------------
LIZ A. MELLACE
Assistant Vice President
<PAGE>
AMENDED AND RESTATED STOCK PLEDGE AGREEMENT
THIS AMENDED AND RESTATED STOCK PLEDGE AGREEMENT (this
"Agreement"), dated as of September 5, 1996, made by MICHAEL J. BARRIST, CHARLES
C. PIOLA, JR., ANNETTE H. BARRIST and BERNARD R. MILLER, each an adult
individual residing in the Commonwealth of Pennsylvania (collectively the
"Grantors"), in favor of MELLON BANK, N.A., a national banking association (the
"Lender").
RECITALS
A. NCO Financial Systems, Inc. ("NCO Financial") entered into
a Credit Agreement dated as of July 28, 1995 (the "Credit Agreement") with the
Lender. The Grantors, as owners of all the outstanding shares of stock of NCO
Financial, derived substantial direct and indirect benefit from the transactions
contemplated by the Credit Agreement.
B. As a condition precedent to the extension of credit under
the Credit Agreement, the Grantors executed and delivered to the Lender a Stock
Pledge Agreement dated July 28, 1995 (the "Stock Pledge").
C. On the date hereof, NCO of New York, Inc. ("NCO New York"),
as a assignee of NCO Financial, will acquire all of the outstanding common stock
of Management Adjustment Bureau, Inc. ("MAB") in an acquisition more
particularly described in a Stock Purchase Agreement dated as of July 18, 1996
among the owners of the stock and NCO Financial.
D. Pursuant to a reorganization of NCO Financial, NCO Group,
Inc., a Pennsylvania corporation ("NCO Group"), became the sole shareholder of
NCO Financial and the Grantors became the shareholders of NCO Group.
E. In order to finance the acquisition of MAB by NCO New York,
NCO Financial has requested the Lender to increase the amount of the credit
facilities extended by the Lender to NCO Financial pursuant to the Credit
Agreement to $15,000,000 and to add NCO Group, NCO New York and NCO Funding,
Inc. ("NCO Funding") as co-borrowers under the credit facilities. (Hereinafter,
NCO Group, NCO Financial, NCO Funding and NCO New York shall collectively be
referred to as the "Borrowers".)
F. The Borrowers and the Lender have agreed to increase the
amount of the credit facilities and to enter into an Amended and Restated Credit
Agreement dated of even date herewith (the "Amended and Restated Credit
Agreement").
G. It is a condition precedent to the extension of
additional credit under the Amended and Restated Credit Agreement
<PAGE>
that the Grantors amend and restate the Stock Pledge in its entirety by
executing and delivering this Agreement. This Agreement is made by the Grantors
among other things to induce the Lender to enter into the Loan Documents (as
defined below), and to induce the Lender to extend credit under the Amended and
Restated Credit Agreement.
NOW, THEREFORE, in consideration of the premises, and
intending to be legally bound, the Grantors hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) General. Capitalized terms not otherwise
defined herein shall have the meanings given in the Amended and Restated Credit
Agreement. In addition to the other terms defined elsewhere in this Agreement,
as used herein the following terms shall have the following meanings:
"Designated Pledged Shares" shall mean the shares of capital
stock identified in Schedule 3.4(a).
"Distributions" shall mean all property, rights and interests
of any kind or nature (whether cash, securities or other) from time to
time received, receivable or otherwise distributed with respect to or
in exchange for any Collateral, including all cash, securities or other
property received or receivable as dividends, or as a result of any
stock splits, reclassifications, mergers or consolidations, or as any
other distributions (whether similar or dissimilar to the foregoing),
or as a result of exercise of any options, warrants or rights included
in or associated with any Collateral, or as principal, interest or
premium.
"Loan Documents" shall mean the Amended and Restated Credit
Agreement, this Agreement, the Amended and Restated Limited Guaranty
Agreement dated September 5, 1996 from the Grantors in favor of the
Lender (the "Guaranty"), the $15,000,000 Amended and Restated Revolving
Credit Note dated September 5, 1996 from the Borrowers in favor of the
Lender, the Amended and Restated Security Agreement dated September 5,
1996 from the Borrowers to the Lender, the Warrant Agreement dated July
28, 1995 by and between NCO Financial and the Lender, as amended by
that certain Amendment to Warrant Agreement dated September 5, 1996,
the 1996 Warrant Agreement dated September 5, 1996 by and between NCO
Group and the Lender, the Stock Pledge Agreement dated September 5,
1996 from NCO Group in favor of the Lender, the Guaranty
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and Suretyship Agreement dated September 5, 1996 from MAB to the
Lender, the Security Agreement dated September 5, 1996 from MAB to the
Lender and all agreements and instruments from time to time delivered
under or in connection with any of the foregoing, in each case as the
same may be amended from time to time..
"Secured Obligations" shall mean the Guaranteed Obligations
(as that term is defined in the Guaranty).
"UCC" shall mean the Uniform Commercial Code as in effect in
the Commonwealth of Pennsylvania from time to time.
(b) Other Definitions. The following terms are defined in this
Agreement in the Section or other place indicated:
"Amended and Restated
Credit Agreement" Recitals
"Borrowers" Recitals
"Collateral" 2.1
"Credit Agreement" Recitals
"Grantors" Preamble
"Guaranty" 1.1
"Lender" Preamble
"NCO Financial" Recitals
"NCO Funding" Recitals
"NCO Group" Recitals
"NCO New York" Recitals
"MAB" Recitals
"Notices" 6.3
1.2. UCC Definitions. Unless otherwise defined herein, terms
defined in Articles 8 or 9 of the UCC shall have the same meanings in this
Agreement.
ARTICLE II
THE SECURITY
2.1. Grant of Security. As security for the full and timely
payment and performance of the Secured Obligations, the Grantors hereby assign
and pledge to the Lender, and grant to the Lender a security interest in, all
right, title and interest of the Grantors in, to and under the following,
whether now or hereafter existing or acquired (the "Collateral"):
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(a) the Designated Pledged Shares, and all additional
shares of stock of the Borrower from time to time acquired
by the Grantors in any manner;
(b) all Distributions; and
(c) all proceeds of any of the foregoing.
2.2. Continuing Agreement. This Agreement creates a continuing
security interest in the Collateral and shall continue in full force and effect
until all Secured Obligations have been paid and performed in full, and all
commitments to extend credit under the Loan Documents have terminated.
2.3 Termination. Upon the occurrence of either (a) the closing
of a Qualified IPO (as defined in the Amended and Restated Credit Agreement), or
(b) the payment and performance in full of all Secured Obligations and
termination of all commitments to extend credit under the Loan Documents, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Grantors. Upon any such termination, the Lender
will, at the Grantors' request and expense, return to the Grantors, without any
representations, warranties or recourse of any kind whatsoever, such of the
Collateral as then may be held by the Lender hereunder, and execute and deliver
to the Grantors such documents as the Grantors may reasonably request to
evidence such termination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Grantors hereby represent and warrant to the Lender as
follows:
3.1. Title. Each Grantor is the legal and beneficial owner of
his/her respective Collateral, free and clear of any lien, security interest,
option or other charge or encumbrance, except for the security interest under
this Agreement in favor of the Lender securing the Secured Obligations.
3.2. Validity, Perfection and Priority. This Agreement creates
a valid security interest in the Collateral in favor of the Lender securing the
Secured Obligations, which security interest has been duly perfected and is
prior to all other liens, security interests, options or other charges or
encumbrances. No filing or other action is or will be necessary to perfect or
protect such security interest, except for delivery to the Lender of the
certificates evidencing the Designated Pledged Shares, which delivery has been
duly made.
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3.3. Governmental Approvals and Filings. To the best of each
Grantor's knowledge, after due inquiry, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is or will be necessary (a) for the grant by the Grantors of the
security interest in the Collateral hereunder or for the execution, delivery or
performance of this Agreement by the Grantors, (b) to ensure the validity,
perfection or priority of the security interest in the Collateral granted
hereunder, or (c) for the exercise by the Lender of any of its rights or
remedies hereunder, except as may be required in connection with a disposition
of Collateral constituting securities by laws affecting the offering and sale of
securities generally.
3.4. Designated Pledged Shares. The Designated Pledged Shares
include all of the capital stock owned by each of the Grantors as of the date
hereof. Schedule 3.4(a) sets forth, for each class of capital stock to which
Designated Pledged Shares belong, the respective owners of the Designated
Pledged Shares, the total number of issued and outstanding shares of such class
and the percentage of such total number of issued and outstanding shares
represented by the Designated Pledged Shares. To the best of each Grantors'
knowledge, after due inquiry, the Designated Pledged Shares have been duly
authorized and validly issued and are fully paid and nonassessable. All of the
Designated Pledged Shares are certificated securities.
ARTICLE IV
COVENANTS
4.1. Books and Records; Inspection. The Grantors shall (a)
keep complete and accurate books and records concerning the Collateral and, at
the request of the Lender from time to time, permit the Lender or its
representatives to inspect and copy such books and records, and (b) furnish to
the Lender such information and reports in connection with the Collateral at
such times and in such form as the Lender may reasonably request. The Lender
shall have the right to verify the Collateral from time to time.
4.2. Transfers and Other Liens, etc.
(a) Transfers. The Grantors shall not sell, assign, lease,
transfer or otherwise dispose of any Collateral (voluntarily or involuntarily,
by operation of law or otherwise).
(b) Other Liens. The Grantors shall not create or
permit to exist any lien, security interest, option or other
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<PAGE>
charge or encumbrance on any Collateral (voluntarily or involuntarily, by
operation of law or otherwise) except for the security interest under this
Agreement in favor of the Lender securing the Secured Obligations.
(c) Other Shares. The Grantors shall cause the Borrower not to
issue any capital stock or other securities in addition to or in substitution
for the Designated Pledged Shares issued by the Borrower, except (i) to the
Grantors, and (ii) as otherwise permitted in the Loan Documents. All shares of
capital stock and other securities of the Borrower from time to time outstanding
shall constitute Collateral, and the Grantors shall deliver to the Lender,
immediately upon issuance thereof, all certificates and instruments constituting
or evidencing any such shares of capital stock or other securities.
4.3. Certain Covenants.
(a) Delivery of Certificates and Instruments. All certificates
or instruments at any time representing or evidencing any Collateral shall be
immediately delivered to and held by or on behalf of the Lender pursuant hereto,
and shall be in suitable form for transfer by delivery, or shall be accompanied
by instruments of transfer or assignment, duly executed in blank, all in form
and substance satisfactory to the Lender. The Lender shall have the right, at
any time, after the occurrence of an Event of Default or Potential Default, to
transfer to or to register in the name of the Lender or its nominee any
Collateral. In addition, the Lender shall have the right at any time to exchange
certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
(b) Voting Rights.
(i) Subject to Section 4.3(b)(ii), the Grantors shall be
entitled to exercise all voting and other consensual rights pertaining to the
Collateral; provided, that the Grantors shall not exercise or refrain from
exercising any such right if such action would (A) conflict with any provision
of this Agreement or any other Loan Document, or (B) impair the value of any
Collateral or impair the interest or rights of the Grantors or the Lender.
(ii) If an Event of Default or Potential Default has occurred
and is continuing, the Lender may from time to time give notice to the Grantors
revoking in whole or in part the rights of the Grantors under Section 4.3(b)(i).
If and to the extent such notice has been given, all voting and other consensual
rights pertaining to the Collateral shall thereupon be vested in the
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Lender, who shall thereafter have the sole right to exercise or refrain from
exercising such rights.
(iii) The Lender shall execute and deliver to the Grantors
such proxies and other instruments as the Grantors may reasonably request for
the purpose of enabling the Grantors to exercise the voting and other consensual
rights which it is entitled to exercise pursuant to Section 4.3(b)(i). The
Grantors hereby grant the Lender an irrevocable proxy, with full power of
substitution, coupled with an interest, to exercise all voting and other
consensual rights pertaining to the Collateral, exercisable if and to the extent
that the Lender is entitled to exercise such rights pursuant to Section
4.3(b)(ii). All third parties are entitled to rely conclusively on a
representation by the Lender that it is entitled to exercise such power of
attorney.
(c) Distributions.
(i) Subject to Section 4.4(c)(ii), the Grantors shall be
entitled to receive and retain all Distributions permitted under Section(s) 6.6
of the Amended and Restated Credit Agreement, except for the following:
(A) Distributions paid or payable other than in cash,
(B) Distributions paid or payable in cash in
connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus
or paid-in surplus,
(C) Distributions paid or payable in cash in respect
of principal of, or in redemption of, or in exchange for, any
Collateral, and
(D) Distributions made in contravention of any
provision of the Loan Documents.
Distributions referred to in the foregoing clauses (A), (B), (C) and (D) shall
be Collateral, and shall be forthwith delivered to the Lender to hold as such.
(ii) If an Event of Default or Potential Default has occurred
and is continuing, all rights of the Grantors to receive and retain the
Distributions that it would otherwise be authorized to receive and retain
pursuant to Section 4.3(c)(i) shall automatically cease, and all such rights
shall thereupon
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vest in the Lender. Such Distributions shall be Collateral, and
shall be forthwith delivered to the Lender to hold as such.
(iii) If the Grantors receive any payment or property which
they are not entitled to retain pursuant to Section 4.3(c)(i) or 4.3(c)(ii),
such payment or property shall be received in trust for the benefit of the
Lender, shall be segregated from other funds and property of the Grantors, and
shall be forthwith delivered to the Lender as Collateral in the same form as so
received (with any necessary endorsement).
4.4. Further Assurances. The Grantors shall from time to time,
at their expense, promptly execute and deliver all further instruments and
agreements, and take all further actions, that may be necessary or appropriate,
or that the Lender may reasonably request, in order to perfect or protect any
assignment, pledge or security interest granted or purported to be granted
hereby or to enable the Lender to exercise or enforce its rights and remedies
hereunder.
ARTICLE V
CERTAIN RIGHTS AND REMEDIES OF THE LENDER
5.1. Lender May Perform. If the Grantors fail to perform any
obligation under or in connection with this Agreement, the Lender may (but shall
have no duty to) itself perform or cause performance of such obligation, and the
expenses of the Lender incurred in connection therewith shall be payable by the
Grantors pursuant to Section 6.4. The Lender may from time to time take any
other action which the Lender deems necessary or appropriate for the
maintenance, preservation or protection of any of the Collateral or of its
security interest therein.
5.2. No Duty to Exercise Powers. The powers of the Lender
under and in connection with this Agreement are solely to protect its interest
in the Collateral and shall not impose any duty upon it to exercise any such
powers.
5.3. Duties of Lender. Except for exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys received by it pursuant to this Agreement, the Lender
shall have no duty as to any Collateral. In any event the Lender (a) shall have
no duty to take any steps to preserve rights against prior parties or any other
rights pertaining to any Collateral, and (b) shall have no duty as to
ascertaining or taking action with respect to calls, conversions, exchanges,
tenders, maturities or other matters pertaining to any Collateral, whether or
not the Lender has any
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knowledge of such matters, and (c) shall not be liable for any action, omission,
insolvency or default on the part of any agent or custodian (other than the
Lender) appointed by the Lender in good faith. The Lender shall be deemed to
have exercised reasonable care in the custody and preservation of Collateral in
its possession if it takes such action for such purpose as any Grantor requests
in writing from time to time (but failure to take any such action shall not in
itself be deemed a failure to exercise reasonable care or evidence of such
failure). Subject only to the performance by the Lender of its duties set forth
in this Section 5.3, risk of loss, damage and diminution in value of the
Collateral, of whatever nature and however caused, shall be on the Grantors,
absent Lender's gross negligence or willful misconduct.
5.4. Power of Attorney. The Grantors hereby irrevocably
appoint the Lender, with full power of substitution, to be the attorney-in-fact
of the Grantors, with full authority in the place and stead of the Grantors and
in the name of the Grantors or otherwise, from time to time in the Lender's
discretion, to take any action and to execute any instruments and agreements
which the Lender may deem necessary or advisable to accomplish the purposes of
this Agreement (subject to the rights of the Grantors under Section 4.3),
including the following:
(a) to demand, collect, enforce, file claims for, sue for,
recover, compromise, release, and take any action or institute any
proceedings to collect or enforce, all rights to payments due or to
become due and all other rights of the Grantors under or in connection
with any Collateral,
(b) to receive, endorse and collect any checks, notes or other
instruments, documents or chattel paper in connection with the
foregoing clause (a), and
(c) to perform all obligations of the Grantors hereunder,
provided that (except for taking actions referred to in Section 4.4) such power
of attorney may be exercised only so long as an Event of Default has occurred
and is continuing. Such power of attorney is irrevocable and coupled with an
interest. All third parties are entitled to rely conclusively on a
representation by the Lender that it is entitled to exercise such power of
attorney.
5.5. Certain Remedies. If any Event of Default shall have
occurred and be continuing, the Lender may exercise all rights and remedies
which it may have under
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this Agreement, any other agreement, at law or otherwise, and in addition, the
following provisions shall apply:
(a) The Lender may exercise all rights and remedies with
respect to the Collateral and each part thereof as are provided by the
UCC to a secured party on default (whether or not the UCC applies to
the affected Collateral). To the extent, if any, the Lender does not
otherwise have the right to do so, the Lender may (i) take absolute
possession and control of the Collateral or any part thereof, (ii)
transfer any Collateral into the name of the Lender or its nominees,
(iii) notify the parties obligated on the Collateral to make to the
Lender any payments due or to become due, (iv) receive any payments
made under or in connection with the Collateral, (v) exercise all
rights and remedies of the Grantors under or in connection with the
Collateral, (vi) demand, collect, enforce, file claims for, sue for,
recover, compromise, release, and take any action or institute any
proceedings to collect or enforce, all rights to payments due or to
become due and all other rights of the Grantors under or in connection
with any Collateral, and (vii) otherwise deal in and act with respect
to the Collateral in all respects as though it were the outright owner
thereof.
(b) The Lender may, without notice except to the extent
required by law, sell the Collateral or any part thereof, in one or
more parcels, at public or private sale, at any of the Lender's offices
or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The
Grantors agree that, to the extent notice of sale is required by law,
at least ten days' prior notice to the Grantors of the time and place
of any public sale or the time after which any private sale is to be
made, shall constitute reasonable notification. The Lender shall not be
obligated to make any sale, regardless of notice of sale having been
given. The Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
(c) The Grantors recognize that the Lender may be unable, or
may deem it inadvisable, to effect a public sale of some or all of the
Collateral by reason of requirements of applicable securities laws, but
may deem it advisable, for the purpose of complying with such laws, to
resort to one or more private sales to members of a restricted group of
offerees who will be obliged, among other things, to acquire such
Collateral for their own accounts for
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investment and not with a view to distribution or resale. The Grantors
agree that (i) the Lender may make private sales in such manner, even
though such sales may be at prices and on other terms less favorable to
the seller than if such Collateral were sold by public sale, (ii) the
Lender shall have no obligation to delay sale of any Collateral in
order to permit the issuers of such Collateral, even if such issuers
would agree, to register or qualify such Collateral for public sale
under applicable securities laws, and (iii) it shall not be
commercially unreasonable to make private sales in such manner.
5.6. Application of Payments. All cash held by the Lender as
Collateral and all cash proceeds received by the Lender in respect of any sale
of, collection from, or other realization upon any of the Collateral, may in the
discretion of the Lender be held by the Lender as collateral for the Secured
Obligations, or then or at any time thereafter applied (after payment of any
amounts payable to the Lender pursuant to Section 6.4) in whole or part by the
Lender to the Secured Obligations in such order as the Lender may elect. If and
when all Secured Obligations shall have been paid in full and all commitments to
extend credit under the Loan Documents shall have terminated, any surplus of
such cash or cash proceeds of the Collateral held by the Lender shall be paid
over to the Grantors or as otherwise required by law.
ARTICLE VI
MISCELLANEOUS
6.1. Amendments, etc. No amendment to or waiver of any
provision of this Agreement, and no consent to any departure by the Grantors
herefrom, shall in any event be effective unless in a writing manually signed by
or on behalf of the Lender. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
6.2. No Implied Waiver; Remedies Cumulative. No delay or
failure of the Lender in exercising any right or remedy under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the Lender
under this Agreement are cumulative and not exclusive of any other rights or
remedies available hereunder, under any other agreement, at law, or otherwise.
6.3. Notices. Except to the extent, if any, otherwise
expressly provided herein, all notices and other communications (collectively,
"notices") under this Agreement shall be given,
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shall be effective, and may be relied upon, in the same way as notices under the
Guaranty.
6.4. Indemnity and Expenses.
(a) Indemnity. Any Grantor who breaches his or her obligations
under this Agreement hereby agrees to indemnify the Lender from and against any
and all claims, losses, liabilities and expenses (including reasonable
attorneys' fees) arising out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), arising from such Grantor's
breach, except claims, losses, liabilities and expenses resulting solely from
the gross negligence or willful misconduct of the Lender.
(b) Expenses. The Grantors will upon demand pay to the Lender
the amount of all reasonable expenses, including the reasonable fees and
expenses of the Lender's counsel and of any experts and agents, which the Lender
may incur in connection with (i) the custody, preservation, use or operation of,
or the sale of, collection of or other realization upon, any Collateral, (ii)
the exercise or enforcement of any of the rights of the Lender hereunder, or
(iii) the failure by the Grantors to perform or observe any of the provisions
hereof.
6.5. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous understandings and agreements.
6.6. Survival. All representations and warranties of the
Grantors contained in or made in connection with this Agreement shall survive,
and shall not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Lender, any extension of credit,
termination of this Agreement, or any other event or circumstance whatever. The
obligations of the Grantors under Section 6.4 shall survive termination of this
Agreement.
6.7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all such
counterparts shall constitute but one and the same agreement.
6.8. Construction. In this Agreement, unless the context
otherwise clearly requires, references to the plural include the singular, the
singular the plural, and the part the whole; and "or" is not exclusive. In this
Agreement, "include," "includes," "including" and similar terms are not
limiting; and "hereof," "herein," "hereunder" and similar terms refer to this
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Agreement as a whole and not to any particular provision; and "expenses,"
"costs," "out-of-pocket expenses" and similar terms include the charges of
in-house counsel, auditors and other professionals of the relevant Person to the
extent that such amounts are routinely identified and charged under such
Person's cost accounting system. Section and other headings in this Agreement,
and any table of contents herein, are for reference only and shall not affect
the interpretation of this Agreement in any respect. Section and other
references in this Agreement are to this Agreement unless otherwise specified.
This Agreement has been fully negotiated between the applicable parties, each
party having the benefit of legal counsel, and accordingly neither any doctrine
of construction of security agreements in favor of the grantor, nor any doctrine
of construction of ambiguities against the party controlling the drafting, shall
apply to this Agreement.
6.9. Successors and Assigns. This Agreement shall be
binding upon the Grantors and their successors and assigns, and
shall inure to the benefit of and be enforceable by the Lender
and its successors and assigns.
6.10. Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
exclusive of choice of law principles, except to the extent that perfection and
the effect of perfection or nonperfection of the security interests in the
Collateral is governed by the laws of a jurisdiction other than the Commonwealth
of Pennsylvania pursuant to the UCC.
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IN WITNESS WHEREOF, the Grantors have caused this Agreement to
be duly executed and delivered as of the date first above written.
WITNESS:
/s/ JOEL SHAPIRO /s/ MICHAEL J. BARRIST
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WITNESS:
/s/ JOSHUA GINDEN /s/ CHARLES C. PIOLA, JR.
- ------------------------- --------------------------
CHARLES C. PIOLA, JR.
WITNESS:
/s/ JOSHUA GINDEN /s/ ANNETTE H. BARRIST
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ANNETTE H. BARRIST
WITNESS:
/s/ JOSHUA GINDEN /s/ BERNARD R. MILLER
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BERNARD R. MILLER
ACCEPTED AND AGREED:
MELLON BANK, N.A.
By: /s/ LIZ A. MELLACE
----------------------
LIZ A. MELLACE
Assistant Vice President
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SCHEDULE 3.4(a)
DESIGNATED PLEDGED SHARES
OWNER: MICHAEL J. CHARLES C. ANNETTE H. BERNARD R.
BARRIST PIOLA, JR. BARRIST MILLER
ISSUER: NCO NCO NCO NCO
Group, Group, Group, Group,
Inc. Inc. Inc. Inc.
CLASS: Common Common Common Common
PAR VALUE: $.01 $.01 $.01 $.01
STOCK
CERTIFICATE NO.: 1 2 3 4
NO. OF SHARES: 50,723 28,370 6,877 4,525
PERCENTAGE
SHARE: 56.05% 31.35% 7.6% 5.00%
<PAGE>
Exhibit 10.20
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of
September 5, 1996, made by NCO OF NEW YORK, INC., a New York corporation (the
"Grantor"), in favor of MELLON BANK, N.A., a national banking association (the
"Lender").
RECITALS
A. NCO Financial Systems, Inc. ("NCO Financial") entered into
a Credit Agreement dated as of July 28, 1995 (the "Credit Agreement") with the
Lender.
B. On the date hereof, Grantor, as a assignee of NCO
Financial, will acquire all of the outstanding common stock of Management
Adjustment Bureau, Inc. ("MAB") in an acquisition more particularly described in
a Stock Purchase Agreement dated as of July 18, 1996 among the owners of the
stock and NCO Financial.
C. Pursuant to a reorganization of NCO Financial, NCO Group,
Inc., a Pennsylvania corporation ("NCO Group"), became the sole shareholder of
NCO Financial and the former shareholders of NCO Financial became the
shareholders NCO Group. NCO Group is also the sole shareholder of Grantor and
NCO Funding, Inc., a Delaware corporation ("NCO Funding").
D. In order to finance the acquisition of MAB by Grantor, NCO
Financial has requested that the Lender increase the amount of the credit
facilities extended by the Lender to NCO Financial pursuant to the Credit
Agreement to $15,000,000 and add Grantor, NCO Group and NCO Funding as
co-borrowers under the credit facilities. (Hereinafter, Grantor, NCO Financial,
NCO Funding and NCO Group shall collectively be referred to as the "Borrowers".)
E. The Borrowers and the Lender have agreed to increase the
amount of the credit facilities and to enter into an Amended and Restated Credit
Agreement dated of even date herewith (the "Amended and Restated Credit
Agreement").
F. It is a condition precedent to the extension of additional
credit under the Amended and Restated Credit Agreement that the Grantor executes
and delivers this Agreement. This Agreement is made by the Grantor among other
things to induce the Lender to enter into the Loan Documents (as defined below),
and to induce the Lender to extend credit under the Amended and Restated Credit
Agreement.
NOW, THEREFORE, in consideration of the premises, and
intending to be legally bound, the Grantor hereby agrees as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1. Definitions. (a) General. Capitalized terms
not otherwise defined herein shall have the meanings given in the
Amended and Restated Credit Agreement. In addition to the other
terms defined elsewhere in this Agreement, as used herein the
following terms shall have the following meanings:
"Designated Pledged Shares" shall mean the shares of capital
stock identified in Schedule 3.4(a).
"Distributions" shall mean all property, rights and interests
of any kind or nature (whether cash, securities or other) from time to
time received, receivable or otherwise distributed with respect to or
in exchange for any Collateral, including all cash, securities or other
property received or receivable as dividends, or as a result of any
stock splits, reclassifications, mergers or consolidations, or as any
other distributions (whether similar or dissimilar to the foregoing),
or as a result of exercise of any options, warrants or rights included
in or associated with any Collateral, or as principal, interest or
premium.
"Loan Documents" shall mean the Amended and Restated Credit
Agreement, this Agreement, the $15,000,000 Amended and Restated
Revolving Credit Note dated September 5, 1996 from the Borrowers in
favor of the Lender, the Amended and Restated Security Agreement dated
September 5, 1996 from the Borrowers to the Lender, the Warrant
Agreement dated July 28, 1995 by and between NCO Financial and the
Lender, as amended by that certain Amendment to Warrant Agreement dated
September 5, 1996, the 1996 Warrant Agreement dated September 5, 1996
by and between NCO Group and the Lender, the Amended and Restated
Limited Guaranty Agreement dated September 5, 1996 from Michael J.
Barrist, Charles A. Piola, Jr., Annette H. Barrist and Bernard R.
Miller (collectively the "Guarantors") in favor of the Lender, the
Amended and Restated Stock Pledge Agreement dated September 5, 1996
from the Guarantors in favor of the Lender, the Stock Pledge Agreement
dated September 5, 1996 from NCO Group in favor of the Lender, the
Guaranty and Suretyship Agreement dated September 5, 1996 from MAB to
the Lender, the Security Agreement dated September 5, 1996 from MAB to
the Lender and all agreements and instruments from time to time
delivered under or in connection with any of the foregoing, in each
case as the same may be amended from time to time..
"Secured Obligations" shall mean all obligations from time to
time of the Borrowers to the Lender under or in connection with any
Loan Document, including all obligations
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to pay principal, interest, fees, indemnities or other amounts, in each
case whether such obligations are direct or indirect, secured or
unsecured, joint or several, absolute or contingent, due or to become
due, whether for payment or performance, now existing or hereafter
arising.
"UCC" shall mean the Uniform Commercial Code as in effect in
the Commonwealth of Pennsylvania from time to time.
(b) Other Definitions. The following terms are defined in this
Agreement in the Section or other place indicated:
"Amended and Restated
Credit Agreement" Recitals
"Borrowers" Recitals
"Collateral" 2.1
"Credit Agreement" Recitals
"Grantor" Preamble
"Guarantors" 1.1
"Lender" Preamble
"NCO Financial" Recitals
"NCO Funding" Recitals
"NCO Group" Recitals
"MAB" Recitals
"Notices" 6.3
1.2. UCC Definitions. Unless otherwise defined herein, terms
defined in Articles 8 or 9 of the UCC shall have the same meanings in this
Agreement.
ARTICLE II
THE SECURITY
2.1. Grant of Security. As security for the full and timely
payment and performance of the Secured Obligations, the Grantor hereby assigns
and pledges to the Lender, and grants to the Lender a security interest in, all
right, title and interest of the Grantor in, to and under the following, whether
now or hereafter existing or acquired (the "Collateral"):
(a) the Designated Pledged Shares, and all additional shares
of stock of MAB from time to time acquired by the Grantor in any
manner;
(b) all Distributions; and
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(c) all proceeds of any of the foregoing.
2.2. Continuing Agreement. This Agreement creates a continuing
security interest in the Collateral and shall continue in full force and effect
until all Secured Obligations have been paid and performed in full, and all
commitments to extend credit under the Loan Documents have terminated.
2.3 Termination. Upon the payment and performance in full of
all Secured Obligations and termination of all commitments to extend credit
under the Loan Documents, the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Lender will, at the Grantor's request and expense, return to
the Grantor, without any representations, warranties or recourse of any kind
whatsoever, such of the Collateral as then may be held by the Lender hereunder,
and execute and deliver to the Grantor such documents as the Grantor may
reasonably request to evidence such termination.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Grantor hereby represents and warrants to the Lender as
follows:
3.1. Title. Grantor is the legal and beneficial owner of its
respective Collateral, free and clear of any lien, security interest, option or
other charge or encumbrance, except for the security interest under this
Agreement in favor of the Lender securing the Secured Obligations.
3.2. Validity, Perfection and Priority. This Agreement creates
a valid security interest in the Collateral in favor of the Lender securing the
Secured Obligations, which security interest has been duly perfected and is
prior to all other liens, security interests, options or other charges or
encumbrances. No filing or other action is or will be necessary to perfect or
protect such security interest, except for delivery to the Lender of the
certificates evidencing the Designated Pledged Shares, which delivery has been
duly made.
3.3. Governmental Approvals and Filings. To the best of
Grantor's knowledge, after due inquiry, no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is or will be necessary (a) for the grant by the Grantor of the
security interest in the Collateral hereunder or for the execution, delivery or
performance of this Agreement by the Grantor, (b) to ensure the
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validity, perfection or priority of the security interest in the Collateral
granted hereunder, or (c) for the exercise by the Lender of any of its rights or
remedies hereunder, except as may be required in connection with a disposition
of Collateral constituting securities by laws affecting the offering and sale of
securities generally.
3.4. Designated Pledged Shares. The Designated Pledged Shares
include all of the capital stock of MAB owned by the Grantor as of the date
hereof. Schedule 3.4(a) sets forth, for each class of capital stock to which
Designated Pledged Shares belong, the total number of issued and outstanding
shares of such class and the percentage of such total number of issued and
outstanding shares represented by the Designated Pledged Shares. To the best of
Grantor's knowledge, after due inquiry, the Designated Pledged Shares have been
duly authorized and validly issued and are fully paid and nonassessable. All of
the Designated Pledged Shares are certificated securities.
ARTICLE IV
COVENANTS
4.1. Books and Records; Inspection. The Grantor shall (a) keep
complete and accurate books and records concerning the Collateral and, at the
request of the Lender from time to time, permit the Lender or its
representatives to inspect and copy such books and records, and (b) furnish to
the Lender such information and reports in connection with the Collateral at
such times and in such form as the Lender may reasonably request. The Lender
shall have the right to verify the Collateral from time to time.
4.2. Transfers and Other Liens, etc.
(a) Transfers. The Grantor shall not sell, assign, lease,
transfer or otherwise dispose of any Collateral (voluntarily or involuntarily,
by operation of law or otherwise).
(b) Other Liens. The Grantor shall not create or permit to
exist any lien, security interest, option or other charge or encumbrance on any
Collateral (voluntarily or involuntarily, by operation of law or otherwise)
except for the security interest under this Agreement in favor of the Lender
securing the Secured Obligations.
(c) Other Shares. The Grantor shall cause the Borrower not to
issue any capital stock or other securities in addition to or in substitution
for the Designated Pledged Shares issued by the Borrower, except (i) to the
Grantor, and (ii) as
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otherwise permitted in the Loan Documents. All shares of capital stock and other
securities of the Borrower from time to time outstanding shall constitute
Collateral, and the Grantor shall deliver to the Lender, immediately upon
issuance thereof, all certificates and instruments constituting or evidencing
any such shares of capital stock or other securities.
4.3. Certain Covenants.
(a) Delivery of Certificates and Instruments. All certificates
or instruments at any time representing or evidencing any Collateral shall be
immediately delivered to and held by or on behalf of the Lender pursuant hereto,
and shall be in suitable form for transfer by delivery, or shall be accompanied
by instruments of transfer or assignment, duly executed in blank, all in form
and substance satisfactory to the Lender. The Lender shall have the right, at
any time, after the occurrence of an Event of Default or Potential Default, to
transfer to or to register in the name of the Lender or its nominee any
Collateral. In addition, the Lender shall have the right at any time to exchange
certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
(b) Voting Rights.
(i) Subject to Section 4.3(b)(ii), the Grantor shall be
entitled to exercise all voting and other consensual rights pertaining to the
Collateral; provided, that the Grantor shall not exercise or refrain from
exercising any such right if such action would (A) conflict with any provision
of this Agreement or any other Loan Document, or (B) impair the value of any
Collateral or impair the interest or rights of the Grantor or the Lender.
(ii) If an Event of Default or Potential Default has occurred
and is continuing, the Lender may from time to time give notice to the Grantor
revoking in whole or in part the rights of the Grantor under Section 4.3(b)(i).
If and to the extent such notice has been given, all voting and other consensual
rights pertaining to the Collateral shall thereupon be vested in the Lender, who
shall thereafter have the sole right to exercise or refrain from exercising such
rights.
(iii) The Lender shall execute and deliver to the Grantor such
proxies and other instruments as the Grantor may reasonably request for the
purpose of enabling the Grantor to exercise the voting and other consensual
rights which it is entitled to exercise pursuant to Section 4.3(b)(i). The
Grantor hereby grants the Lender an irrevocable proxy, with full power of
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substitution, coupled with an interest, to exercise all voting and other
consensual rights pertaining to the Collateral, exercisable if and to the extent
that the Lender is entitled to exercise such rights pursuant to Section
4.3(b)(ii). All third parties are entitled to rely conclusively on a
representation by the Lender that it is entitled to exercise such power of
attorney.
(c) Distributions.
(i) Subject to Section 4.4(c)(ii), the Grantor shall be
entitled to receive and retain all Distributions permitted under Section(s) 6.6
of the Amended and Restated Credit Agreement, except for the following:
(A) Distributions paid or payable other than in
cash,
(B) Distributions paid or payable in cash in
connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus
or paid-in surplus,
(C) Distributions paid or payable in cash in
respect of principal of, or in redemption of, or in
exchange for, any Collateral, and
(D) Distributions made in contravention of any
provision of the Loan Documents.
Distributions referred to in the foregoing clauses (A), (B), (C) and (D) shall
be Collateral, and shall be forthwith delivered to the Lender to hold as such.
(ii) If an Event of Default or Potential Default has occurred
and is continuing, all rights of the Grantor to receive and retain the
Distributions that it would otherwise be authorized to receive and retain
pursuant to Section 4.3(c)(i) shall automatically cease, and all such rights
shall thereupon vest in the Lender. Such Distributions shall be Collateral, and
shall be forthwith delivered to the Lender to hold as such.
(iii) If the Grantor receives any payment or property which
they are not entitled to retain pursuant to Section 4.3(c)(i) or 4.3(c)(ii),
such payment or property shall be received in trust for the benefit of the
Lender, shall be segregated from other funds and property of the Grantor, and
shall be forthwith delivered to the Lender as Collateral in the same form as so
received (with any necessary endorsement).
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4.4. Further Assurances. The Grantor shall from time to time,
at its expense, promptly execute and deliver all further instruments and
agreements, and take all further actions, that may be necessary or appropriate,
or that the Lender may reasonably request, in order to perfect or protect any
assignment, pledge or security interest granted or purported to be granted
hereby or to enable the Lender to exercise or enforce its rights and remedies
hereunder.
ARTICLE V
CERTAIN RIGHTS AND REMEDIES OF THE LENDER
5.1. Lender May Perform. If the Grantor fails to perform any
obligation under or in connection with this Agreement, the Lender may (but shall
have no duty to) itself perform or cause performance of such obligation, and the
expenses of the Lender incurred in connection therewith shall be payable by the
Grantor pursuant to Section 6.4. The Lender may from time to time take any other
action which the Lender deems necessary or appropriate for the maintenance,
preservation or protection of any of the Collateral or of its security interest
therein.
5.2. No Duty to Exercise Powers. The powers of the Lender
under and in connection with this Agreement are solely to protect its interest
in the Collateral and shall not impose any duty upon it to exercise any such
powers.
5.3. Duties of Lender. Except for exercise of reasonable care
in the custody and preservation of any Collateral in its possession and
accounting for moneys received by it pursuant to this Agreement, the Lender
shall have no duty as to any Collateral. In any event the Lender (a) shall have
no duty to take any steps to preserve rights against prior parties or any other
rights pertaining to any Collateral, and (b) shall have no duty as to
ascertaining or taking action with respect to calls, conversions, exchanges,
tenders, maturities or other matters pertaining to any Collateral, whether or
not the Lender has any knowledge of such matters, and (c) shall not be liable
for any action, omission, insolvency or default on the part of any agent or
custodian (other than the Lender) appointed by the Lender in good faith. The
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if it takes such action for such
purpose as any Grantor requests in writing from time to time (but failure to
take any such action shall not in itself be deemed a failure to exercise
reasonable care or evidence of such failure). Subject only to the performance by
the Lender of its duties set forth in this Section 5.3, risk of loss, damage and
diminution in value of
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the Collateral, of whatever nature and however caused, shall be on the Grantor,
absent Lender's gross negligence or willful misconduct.
5.4. Power of Attorney. The Grantor hereby irrevocably
appoints the Lender, with full power of substitution, to be the attorney-in-fact
of the Grantor, with full authority in the place and stead of the Grantor and in
the name of the Grantor or otherwise, from time to time in the Lender's
discretion, to take any action and to execute any instruments and agreements
which the Lender may deem necessary or advisable to accomplish the purposes of
this Agreement (subject to the rights of the Grantor under Section 4.3),
including the following:
(a) to demand, collect, enforce, file claims for, sue for,
recover, compromise, release, and take any action or institute any
proceedings to collect or enforce, all rights to payments due or to
become due and all other rights of the Grantor under or in connection
with any Collateral,
(b) to receive, endorse and collect any checks, notes or other
instruments, documents or chattel paper in connection with the
foregoing clause (a), and
(c) to perform all obligations of the Grantor
hereunder,
provided that (except for taking actions referred to in Section 4.4) such
power of attorney may be exercised only so long as an Event of Default has
occurred and is continuing. Such power of attorney is irrevocable and coupled
with an interest. All third parties are entitled to rely conclusively on a
representation by the Lender that it is entitled to exercise such power of
attorney.
5.5. Certain Remedies. If any Event of Default
shall have occurred and be continuing, the Lender may
exercise all rights and remedies which it may have under
this Agreement, any other agreement, at law or otherwise,
and in addition, the following provisions shall apply:
(a) The Lender may exercise all rights and remedies with
respect to the Collateral and each part thereof as are provided by the
UCC to a secured party on default (whether or not the UCC applies to
the affected Collateral). To the extent, if any, the Lender does not
otherwise have the right to do so, the Lender may (i) take absolute
possession and control of the Collateral or any part thereof, (ii)
transfer any Collateral into the name of the Lender or its nominees,
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(iii) notify the parties obligated on the Collateral to make to the
Lender any payments due or to become due, (iv) receive any payments
made under or in connection with the Collateral, (v) exercise all
rights and remedies of the Grantor under or in connection with the
Collateral, (vi) demand, collect, enforce, file claims for, sue for,
recover, compromise, release, and take any action or institute any
proceedings to collect or enforce, all rights to payments due or to
become due and all other rights of the Grantor under or in connection
with any Collateral, and (vii) otherwise deal in and act with respect
to the Collateral in all respects as though it were the outright owner
thereof.
(b) The Lender may, without notice except to the extent
required by law, sell the Collateral or any part thereof, in one or
more parcels, at public or private sale, at any of the Lender's offices
or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as the Lender may deem commercially reasonable. The Grantor
agrees that, to the extent notice of sale is required by law, at least
ten days' prior notice to the Grantor of the time and place of any
public sale or the time after which any private sale is to be made,
shall constitute reasonable notification. The Lender shall not be
obligated to make any sale, regardless of notice of sale having been
given. The Lender may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to
which it was so adjourned.
(c) The Grantor recognizes that the Lender may be unable, or
may deem it inadvisable, to effect a public sale of some or all of the
Collateral by reason of requirements of applicable securities laws, but
may deem it advisable, for the purpose of complying with such laws, to
resort to one or more private sales to members of a restricted group of
offerees who will be obliged, among other things, to acquire such
Collateral for their own accounts for investment and not with a view to
distribution or resale. The Grantor agrees that (i) the Lender may make
private sales in such manner, even though such sales may be at prices
and on other terms less favorable to the seller than if such Collateral
were sold by public sale, (ii) the Lender shall have no obligation to
delay sale of any Collateral in order to permit the issuers of such
Collateral, even if such issuers would agree, to register or qualify
such Collateral for public sale under applicable securities laws, and
(iii) it shall not be commercially unreasonable to make private sales
in such manner.
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5.6. Application of Payments. All cash held by the Lender as
Collateral and all cash proceeds received by the Lender in respect of any sale
of, collection from, or other realization upon any of the Collateral, may in the
discretion of the Lender be held by the Lender as collateral for the Secured
Obligations, or then or at any time thereafter applied (after payment of any
amounts payable to the Lender pursuant to Section 6.4) in whole or part by the
Lender to the Secured Obligations in such order as the Lender may elect. If and
when all Secured Obligations shall have been paid in full and all commitments to
extend credit under the Loan Documents shall have terminated, any surplus of
such cash or cash proceeds of the Collateral held by the Lender shall be paid
over to the Grantor or as otherwise required by law.
ARTICLE VI
MISCELLANEOUS
6.1. Amendments, etc. No amendment to or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless in a writing manually signed by
or on behalf of the Lender. Any such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
6.2. No Implied Waiver; Remedies Cumulative. No delay or
failure of the Lender in exercising any right or remedy under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy. The rights and remedies of the Lender
under this Agreement are cumulative and not exclusive of any other rights or
remedies available hereunder, under any other agreement, at law, or otherwise.
6.3. Notices. Except to the extent, if any, otherwise
expressly provided herein, all notices and other communications (collectively,
"notices") under this Agreement shall be given, shall be effective, and may be
relied upon, in the same way as notices under the Amended and Restated Credit
Agreement.
6.4. Indemnity and Expenses.
(a) Indemnity. If Grantor breaches its obligations under this
Agreement, Grantor hereby agrees to indemnify the Lender from and against any
and all claims, losses, liabilities and expenses (including reasonable
attorneys' fees) arising out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), arising from such
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Grantor's breach, except claims, losses, liabilities and expenses resulting
solely from the gross negligence or willful misconduct of the Lender.
(b) Expenses. The Grantor will upon demand pay to the Lender
the amount of all reasonable expenses, including the reasonable fees and
expenses of the Lender's counsel and of any experts and agents, which the Lender
may incur in connection with (i) the custody, preservation, use or operation of,
or the sale of, collection of or other realization upon, any Collateral, (ii)
the exercise or enforcement of any of the rights of the Lender hereunder, or
(iii) the failure by the Grantor to perform or observe any of the provisions
hereof.
6.5. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior and
contemporaneous understandings and agreements.
6.6. Survival. All representations and warranties of the
Grantor contained in or made in connection with this Agreement shall survive,
and shall not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Lender, any extension of credit,
termination of this Agreement, or any other event or circumstance whatever. The
obligations of the Grantor under Section 6.4 shall survive termination of this
Agreement.
6.7. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, and all such counterparts shall constitute but one and
the same agreement.
6.8. Construction. In this Agreement, unless the context
otherwise clearly requires, references to the plural include the singular, the
singular the plural, and the part the whole; and "or" is not exclusive. In this
Agreement, "include," "includes," "including" and similar terms are not
limiting; and "hereof," "herein," "hereunder" and similar terms refer to this
Agreement as a whole and not to any particular provision; and "expenses,"
"costs," "out-of-pocket expenses" and similar terms include the charges of
in-house counsel, auditors and other professionals of the relevant Person to the
extent that such amounts are routinely identified and charged under such
Person's cost accounting system. Section and other headings in this Agreement,
and any table of contents herein, are for reference only and shall not affect
the interpretation of this Agreement in any respect. Section and other
references in this Agreement are to this Agreement unless otherwise specified.
This Agreement has been fully negotiated between the applicable parties, each
party
-12-
<PAGE>
having the benefit of legal counsel, and accordingly neither any doctrine of
construction of security agreements in favor of the grantor, nor any doctrine of
construction of ambiguities against the party controlling the drafting, shall
apply to this Agreement.
6.9. Successors and Assigns. This Agreement shall be
binding upon the Grantor and its successors and assigns, and
shall inure to the benefit of and be enforceable by the Lender
and its successors and assigns.
6.10. Choice of Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
exclusive of choice of law principles, except to the extent that perfection and
the effect of perfection or nonperfection of the security interests in the
Collateral is governed by the laws of a jurisdiction other than the Commonwealth
of Pennsylvania pursuant to the UCC.
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be duly executed and delivered as of the date first above written.
ATTEST: NCO OF NEW YORK, INC.
By:/s/ JOSHUA GINDEN, SEC. By /s/ MICHAEL J. BARRIST
---------------------------- -----------------------
Title: MICHAEL J. BARRIST
Title: President
[Corporate Seal]
ACCEPTED AND AGREED:
MELLON BANK, N.A.
By: /s/ LIZ A. MELLACE
----------------------------
LIZ A. MELLACE
Assistant Vice President
-13-
<PAGE>
SCHEDULE 3.4(a)
---------------
DESIGNATED PLEDGED SHARES
-------------------------
OWNER: NCO NCO NCO
Group, Group, Group,
Inc. Inc. Inc.
ISSUER: NCO NCO NCO of
Financial, Funding, New York,
Inc. Inc. Inc.
CLASS: Common Common Common
PAR VALUE: $.01 $.01 $.01
STOCK
CERTIFICATE NO.: 1 1 1
NO. OF SHARES: 90,495 1,000 200
PERCENTAGE
SHARE: 100% 100% 100%
<PAGE>
Exhibit 10.21
THIS NOTE AND THE SHARES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS COVERING SUCH SECURITIES
OR THE COMPANY RECEIVES AN OPINION OF COUNSEL (SATISFACTORY TO THE
COMPANY AND ITS COUNSEL) FOR THE HOLDER OF THESE SECURITIES, OR AN
OPINION OF THE COMPANY'S COUNSEL, STATING THAT SUCH SALE, TRANSFER OR
ASSIGNMENT IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
NON-NEGOTIABLE SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$1,000,000 September 1, 1996
FOR VALUE RECEIVED, NCO GROUP, INC., a Pennsylvania corporation (the
"Company"), hereby promises to pay to CRAIG COSTANZO (the "Holder"), the
principal sum of One Million Dollars ($1,000,000) together with interest on the
unpaid principal balance hereof from the date of this Note and for a term of
five (5) years therefrom (the "Term").
1. The unpaid balance of principal shall bear interest at the rate of
eight percent (8%) per annum computed on a daily basis upon the unpaid balance
with each day representing 1/365th of a year.
2. During the Term, payments of interest only shall be payable on the
first (1st) day of each month, commencing October 1, 1996. Notwithstanding the
foregoing, if the date of execution of this Note is other than the first day of
a month, the first monthly installment hereunder shall include interest from the
date this Note has been executed.
3. This Note is subject to the terms of a Subordination Agreement dated
September 5, 1996, in favor of Mellon Bank ("Bank") which Subordination
Agreement is incorporated herein by reference. Notwithstanding any contrary
statement contained in this Note, no payment on account of the principal or
interest thereof shall become due or be paid except in accordance with the terms
of said Subordination Agreement.
4. This Note has been issued pursuant to and in accordance
<PAGE>
with the terms and conditions of a certain Stock Purchase Agreement dated July
18, 1996 (the "Agreement"), the Company and the Holder being parties thereto.
The Company's obligation to render payment hereunder shall be subject to the
terms and conditions of the Agreement, including, but not limited to, the
Holder's obligation to complete Closing, and may be subject to diminution by
set-off, counterclaim, abatement or otherwise pursuant to the Company's rights
to indemnification under the Agreement.
5. All payments hereon are to be made to the Holder, at the address of
the Holder as set forth in Section 14 of this Note (or such other address as may
be specified by written notice to the Company in accordance with the notice
provisions as set forth in this Note) in lawful money of the United States of
America.
6. Subject to the provisions of the Subordination Agreement, in the
event that (a) any payment of interest due hereunder shall not be paid when due,
and such nonpayment shall continue for a period of more than 15 days after
receipt by the Company of written notice from the Holder, or (b) the Company
shall cease doing or conducting business, or (c) any proceeding in bankruptcy
shall be commenced by or against the Company, which proceeding shall not be
stayed or dismissed within 90 days from the date such proceeding is commenced,
or (d) a receiver shall be appointed for the Company's assets, or (e) the
Company shall make an assignment for the benefit of creditors, or (f) if the
Holder is required to give the Company notice pursuant to section (a) above more
than three (3) times in any twelve (12) month period then, the entire principal
amount outstanding and accrued interest thereon shall, at the option of the
Holder, become immediately due and payable regardless of any prior forbearance.
Furthermore, in the event that the Company is in default of its obligations
under Bank debt (referenced above), and Bank has given the Holder written notice
of such default, then that declared event of default shall be a default
hereunder. Upon the occurrence of a default hereunder due to the foregoing, the
following shall apply:
(a) The interest rate hereunder shall immediately increase to
Prime Rate (as announced in the Wall Street Journal from time to time) plus four
percent (4%) until such time as the default is cured or this Note is repaid; or
(b) The Company shall have ninety (90) days to cure such
default by:
(i) curing the default with Bank and paying to the
Holder all amounts of interest and principal due and payable up to the date the
Company cures the default; or
(ii) repaying the entire outstanding principal
hereunder and all accrued interest. Upon such repayment, the right of Conversion
as herein set forth shall become a right to purchase
2
<PAGE>
the Common Stock pursuant to the same terms and conditions as a Conversion, and
for such purpose, this Note shall serve as a Warrant to purchase the Common
Stock.
(c) In the event that the Company does not cure the foregoing
default within the required ninety (90) day period, the Holder's covenant not to
compete or interfere with the business of the Company, as set forth in paragraph
8 of the Agreement, shall become null and void.
7. At the election of the Holder, in his sole discretion, at any time
and from time to after the registration of the Company's common stock (the
"Common Stock") pursuant to a registration statement on Form S-1 (or any
equivalent successor form) (the "Registration Statement") under the Securities
Act of 1933, as amended, but before all amounts due hereunder by the Company are
repaid to the Holder or the end of the Term, whichever is first to occur, all or
any part of the outstanding principal amount of this Note and any accrued but
unpaid interest thereon up to and including the date determined by the Holder on
which a conversion ("Conversion") is to be effective (the "Conversion Date") and
all other amounts due and owing hereunder (if any) (collectively, the
"Conversion Amount"), as designated by the Holder, shall be converted into an
amount of the Common Stock equal to the Conversion Amount divided by the IPO
price (as hereinafter defined) per share of the Common Stock on the Conversion
Date, provided, however, that an appropriate adjustment shall be made in the
event of any change to the Common Stock by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization or other similar circumstances. The "IPO price" shall
be equal to the price per share at which the Common Stock was sold to the public
as set forth in the Registration Statement on the date it is declared effective
by the Securities and Exchange Commission (the "IPO"). The foregoing
notwithstanding, in the event that the Holder has defaulted in performing any
material obligation under the Agreement or if the Holder or Mary Anne Costanzo,
the Holder's wife, breach any covenant under paragraph 8 of the Agreement,
unless such breach is pursuant to their right under paragraph 6(c) of this Note,
and such default is not cured within 30 days after notice by the Company, the
right of Conversion shall be forfeited immediately, without the requirement of
Notice from the Company.
8. If the Holder desires to exercise his elective right of Conversion
hereunder, the Holder shall give written notice (the "Conversion Notice") to the
Company, at least 30 days prior to the Conversion Date stating his intention to
convert this Note, at the Company's offices, on the Conversion Date and stating
the Conversion Amount. On or prior to the Conversion Date, the Holder shall
surrender this Note for cancellation to the Company in exchange for (a) a
certificate evidencing the number of shares of Common Stock into which this Note
is being converted, and (b) if
3
<PAGE>
the principal amount of this Note is being converted in part only, a replacement
Note of like tenor and date executed by the Company evidencing the balance due.
The Conversion shall be deemed to have occurred immediately prior to the close
of business on the Conversion Date (the "Effective Time"). With respect to the
Conversion Amount to be converted, until the Effective Time, nothing herein
shall be construed as conferring on the Holder the right to receive notice as a
stockholder in respect of the meetings of stockholders or the election of
directors of the Company or any other matter, to vote or to consent to actions,
to receive dividends, distributions or other amounts payable to holders of
record of Common Stock or to any other rights whatsoever as a stockholder of the
Company.
9. With respect to any Conversion of this Note by the Holder:
(a) Anything in this Note to the contrary notwithstanding, if
the Holder exercises his right of Conversion by sending the Conversion Notice as
required pursuant to Section 8, then, regardless of whether the Holder
surrenders this Note as required on or prior to the Conversion Date, the
Conversion Amount designated by the Holder shall be deemed "satisfied in full"
as of the Effective Time and, thereafter, the Holder shall be treated for all
purposes as the record holders of the Common Stock into which the Conversion
Amount has been converted.
(b) the Company shall not be obligated to issue any
certificates representing the Common Stock into which the Conversion Amount has
been converted, or any replacement Note for any amount not converted, until this
Note is delivered to the Company or the Holder notifies the Company that this
Note has been lost, stolen or destroyed and executes an agreement satisfactory
to the Company to indemnify the Company from any loss incurred by it in
connection therewith. Until the Note or such agreement is received, the Company
may withhold all dividends, distributions and other amounts otherwise payable to
the Holder on account of the Common Stock into which the Conversion Amount has
been converted and any principal and interest payment otherwise payable to the
Holder on account of any replacement Note.
(c) All certificates representing shares of the Common Stock
to be issued to the Holder hereunder on any Conversion of this Note shall bear
the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES
LAWS COVERING SUCH
4
<PAGE>
SECURITIES OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
(SATISFACTORY TO THE COMPANY AND ITS COUNSEL) FOR THE HOLDER
OF THESE SECURITIES, OR AN OPINION OF THE COMPANY'S COUNSEL,
STATING THAT SUCH SALE, TRANSFER OR ASSIGNMENT IS EXEMPT FROM
THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
The foregoing notwithstanding, the sale of the Common Stock acquired by the
Holder through a Conversion shall be restricted for a period of one hundred
eighty (180) days following the IPO.
(d) Subject to rules and regulations of the Securities and
Exchange Commission, whenever the Company proposes to register any of its
securities under the Securities Act of 1933 and the registration form to be used
may be used for the registration of securities of the type held by the Holder
upon Conversion (a "Piggyback Registration"), the Company shall give prompt
written notice to the Holder of its intention to effect such a registration and
the Holder shall, at his sole expense, have the right to a Piggyback
Registration of his Common Stock.
(e) The shares of the Common Stock issued pursuant to the
Holder's right of Conversion hereunder shall be deemed fully paid and not liable
to any further call or assessment. The Holder shall have and possess all rights
appertaining to owners of the Common Stock of the Company and shall have the
same rights and preferences upon liquidation as all other holders of the Common
Stock.
(f) The Holder shall pay any and all franchise, transfer, and
filing fees and taxes which may be imposed by any governmental agency with
respect to the issuance and delivery of the Common Stock upon any Conversion of
this Note.
10. The Company does hereby waive presentment, demand for payment,
notice of dishonor, notice of protest and all other notices or demands in
connection with the delivery, acceptance, performance of or default on this
Note, except as otherwise provided herein.
11. All of the terms and provisions of this Note shall be binding upon,
inure to the benefit of and be enforceable by each of the parties hereto, and
their respective heirs, executors, administrators, successors and permitted
assigns. This Note or any part hereof may not be transferred or assigned by the
Holder except with the written consent of the Company which consent shall not be
unreasonably withheld.
12. No failure to exercise, delay in exercising, or single or partial
exercise by the Holder of any right, power or remedy with
5
<PAGE>
respect to this Note shall constitute a waiver thereof, preclude any other or
further exercise thereof, or preclude the exercise of any other right, power or
remedy.
13. If any part of this Note is adjudged illegal, invalid or
unenforceable, then the remainder hereof shall not be affected thereby.
14. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered in person or sent by
Certified Mail, Return Receipt Requested, postage prepaid, or by facsimile, or
delivered by overnight delivery service, to the party to receive such notice
addressed as follows:
If to Company: 1740 Walton Road
Blue Bell, PA 19422
With copy to: Joshua Gindin, Esquire
1700 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
If to Holder: 331 Wellingwood Drive
East Amherst, NY 14051
With copy to: Harry G. Meyer, Esquire
1800 One M & T Plaza
Buffalo, NY 14203
or to such other address as either party shall designate by notice given to the
other.
15. This Note shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Pennsylvania. This Note may not be varied,
amended or modified except in writing signed by the Company and the Holder.
IN WITNESS WHEREOF, this Note has been executed by the Company as of
the date and year first above written.
Attest: NCO GROUP, INC.
________________________ By: /s/ Michael Barrist
----------------------------
Michael Barrist, President
6
<PAGE>
Exhibit 10.22
DISTRIBUTION AND TAX INDEMNIFICATION AGREEMENT
THIS DISTRIBUTION AND TAX INDEMNIFICATION AGREEMENT ("Agreement") is
made and dated as of _______________, 1996, by and among NCO FINANCIAL SYSTEMS,
INC., a Pennsylvania corporation (the "Company"), and MICHAEL J. BARRIST,
ANNETTE BARRIST, CHARLES C. PIOLA, JR., and BERNARD R. MILLER (the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Company elected to be taxed as an "S" corporation under
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code") and
under similar provisions of various state tax laws, for the period commencing on
January 1, 1987 and ending on the date the Company ceased to be eligible to be
an S corporation (the "S Corporation Period");
WHEREAS, for Federal and certain state income tax purposes, the Company
did not incur any income tax liability during the S Corporation Period, and the
Company's items of income, loss, deductions and credit were passed through and
included in the determination of the taxable income the Shareholders;
WHEREAS, it was the Company's practice to distribute to the
Shareholders with respect to each calendar year an amount at least equal to each
Shareholder's pro rata share of the Company's taxable income for such year
multiplied by the Effective Tax Rate (the highest of the combined effective
Federal and state personal income tax rates applicable to the Shareholder,
taking into account any
<PAGE>
deductions or credits allowed by any Federal or state taxing
jurisdictions for income taxes paid to any other jurisdiction); and
WHEREAS, the parties to this Agreement desire to set forth their
agreement with respect to distributions to be made to the Shareholders with
respect to undistributed earnings of the Company for the S Corporation Period,
and certain taxes, interest and penalties which may be imposed upon the
Shareholders as a result of the conduct of the Company's business during the S
Corporation Period;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants and conditions hereinafter contained, intending to be
legally bound, the parties hereto agree as follows:
1. On or before December 31, 1996, the Company will distribute
$3,000,000 to the Shareholders. The distribution shall be allocated among the
Shareholders pro rata in accordance with their ownership of stock of the Company
immediately prior to the end of the S Corporation Period. The amount of the
distribution is the estimate of the Company's Accumulated Adjustments Account
("AAA") as determined under Section 1368(e)(1) of the Code for the S Corporation
Period.
2. On or before March 15, 1997, the actual AAA account shall
be determined for the S Corporation Period, without reduction for the $3,000,000
distribution provided for Section 1 (the "Final AAA"). The Final AAA shall be
determined by the Company's accountants, subject to review and approval by the
Shareholders' accountants.
- 2 -
<PAGE>
(a) If the Final AAA exceeds $3,000,000, then within
thirty days after such determination the Company shall make a cash distribution
to the Shareholders equal to the amount of such excess, such distribution to be
made pro rata among the Shareholders in accordance with their ownership of stock
of the Company immediately prior to the end of the S Corporation Period.
(b) If the Final AAA is less than $3,000,000, then
within thirty days after such determination the Shareholders shall contribute to
the Company cash equal to the amount of such deficiency, net of any taxes,
interest or penalties imposed by any tax authority on the Shareholders with
respect to the portion of the distribution under Section 1 in excess of the
Final AAA, such contribution to be made pro rata among the Shareholders in
accordance with there ownership of stock of the Company immediately prior to the
end of the S Corporation Period.
3. If, after the S Corporation Period, there is an increase in
the taxable income of the Company for any taxable year during the S Corporation
Period, whether as a result of a final determination with respect to an amended
return filed by the Company or a Shareholder or an audit of the Company or a
Shareholder conducted by the Internal Revenue Service, then within thirty days
after the date of the final determination, the Company will distribute to each
Shareholder an amount of cash equal to the sum of (A) the product of (i) the
Shareholder's pro rata share of the Company's increased taxable income for such
period, as determined under Section 1366 of the Code, multiplied by (ii) the
- 3 -
<PAGE>
Effective Tax Rate, plus (B) any interest and penalties imposed on the
Shareholder by the Code with respect to such increase in taxable income and any
legal and accounting fees incurred by the Shareholder in connection with such
determination, plus (C) an amount equal to the federal and state income taxes
imposed with respect to all distributions to the Shareholder pursuant to this
Section 3 such that the amount received by the Shareholder pursuant to this
Section 3, net of all such taxes, is equal to the sum of the amounts specified
in (A) and (B) of this Section 3.
4. The Company may, at its own expense, upon written notice
from the Company to the Shareholder, request that the Shareholder contest any
adjustment proposed by a tax authority with respect to taxes for the S
Corporation Period. If the Company shall request that any proposed adjustment be
contested, then the Shareholder shall, at the Company's expense, contest the
proposed adjustment or permit the Company and its representatives, at the
Company's request, to contest the proposed adjustment (including pursuing all
remaining administrative and judicial appeals). The Company shall pay to the
Shareholder on demand all costs and expenses (including, without limitation,
legal and accounting costs and expenses) that the Shareholder may incur in
contesting such proposed adjustments. The Shareholder shall not make, accept or
enter into a settlement or other compromise with respect to any taxes
indemnified hereunder, or forego or terminate any proceeding otherwise required
hereunder without the consent of the Company, which shall not be unreasonably
withheld.
- 4 -
<PAGE>
5. If a Shareholder receives a refund of federal and/or state
income taxes, including interest (a "Refund"), due to any reduction in the
Shareholder's share of the Company's income for any taxable year during the S
Corporation Period, whether due to a decrease in the Company's taxable income as
reported for any taxable year in the S Corporation Period or due to a
determination that the Company's taxable income was not includible in
Shareholder's taxable income at any time during the S Corporation Period, then
within thirty days after the receipt of such Refund, the Shareholder shall pay
to the Company an amount of cash equal to the amount of such Refund, net of any
taxes, interest or penalties imposed by any tax authority on any distributions
to the Shareholder with respect to the S Corporation Period in excess of the
Shareholder's share of taxable income of the Company for the S Corporation
Period.
6. The obligation to make the payments provided for in Section
2(a) and Section 3 of this Agreement shall be a joint and several liability of
the Company and any corporation that is or becomes a member of the affiliated
group that includes the Company, as determined under Section 1504(a) of the
Code.
7. The covenants and agreements of the parties set forth in
this Agreement shall survive indefinitely.
8. All notices, requests, demands and other communications
which are required or which may be given under this Agreement shall be in
writing.
- 5 -
<PAGE>
9. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral and written, between the parties
hereto with respect to the subject matter hereof.
10. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
11. No provision of this Agreement may be amended, waived or
otherwise modified without the prior written consent of each of the parties
hereto.
12. This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania, without reference
to the principles of conflicts of law.
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the day and year first above written.
NCO FINANCIAL SYSTEMS, INC.
By:____________________________
Name: Michael J. Barrist
Title: President
SHAREHOLDERS
/s/ MICHAEL J. BARRIST
---------------------------------
MICHAEL J. BARRIST
- 6 -
<PAGE>
/s/ ANNETTE BARRIST
---------------------------------
ANNETTE BARRIST
/s/ CHARLES C. PIOLA, JR.
---------------------------------
CHARLES C. PIOLA, JR.
/s/ BERNARD R. MILLER
---------------------------------
BERNARD R. MILLER
- 7 -
<PAGE>
Exhibit 21.1
NCO Group, Inc. owns all of the outstanding stock of: (i) NCO Financial
Systems, Inc., a Pennsylvania Corporation; (ii) NCO of New York, Inc., a New
York Corporation; (iii) NCO Funding, Inc., a Delaware Corporation; and (iv) CC
Services, Inc., a Pennsylvania Corporation.
NCO of New York, Inc. owns all of the outstanding stock of Management
Adjustment Bureau, Inc., a New York Corporation.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333- ) of our report dated February 16, 1996, except for notes 1,2,3,7
and 13 for which the date is September 5, 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."
/s/ Coopers & Lybrand, L.L.P.
- -----------------------------
Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
September 9, 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 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
September 6, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001022608
<NAME> NCO GROUP INC.
<MULTIPLIER> 1
<CURRENCY> DOLLAR
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995 JUN-30-1996
<PERIOD-START> JAN-1-1994 JAN-1-1995 JAN-1-1996
<PERIOD-END> DEC-31-1994 DEC-31-1995 JUN-30-1996
<EXCHANGE-RATE> 1 1 1
<CASH> 526,018 804,550 989,773
<SECURITIES> 0 0 0
<RECEIVABLES> 610,576 1,418,001 2,895,164
<ALLOWANCES> 7,400 23,200 64,554
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 1,573,728 2,725,377 4,257,959
<PP&E> 962,512 1,222,044 2,154,992
<DEPRECIATION> 485,185 584,911 734,919
<TOTAL-ASSETS> 4,105,719 7,873,133 14,654,530
<CURRENT-LIABILITIES> 1,101,127 1,913,836 1,799,932
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 349,326 537,326 537,326
<OTHER-SE> 1,073,358 1,514,021 2,613,435
<TOTAL-LIABILITY-AND-EQUITY> 4,105,719 7,873,133 14,654,530
<SALES> 8,577,895 12,732,597 12,542,664
<TOTAL-REVENUES> 8,604,630 12,782,070 12,590,079
<CGS> 0 0 0
<TOTAL-COSTS> 7,231,872 10,839,680 10,048,521
<OTHER-EXPENSES> 215,117 396,585 422,814
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 71,588 180,205 357,494
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 1,086,053 1,365,600 1,761,250
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,086,053 1,365,600 1,761,250
<EPS-PRIMARY> 0.00 0.00 0.00
<EPS-DILUTED> 0.00 0.00 0.00
</TABLE>
