<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
-----------------------------------
Date of Report (Date of earliest event reported): March 24, 1998
NCO Group, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania 0-21639 23-2858652
- ------------------------------------ ------------------------------- ---------------------------------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
515 Pennsylvania Avenue
Fort Washington, Pennsylvania 19034
----------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (215) 793-9300
--------------
===============================================================================
<PAGE>
Item 5. Other Events
In March 1998, the Company entered into an agreement with FCA International
Ltd. ("FCA") pursuant to which NCO Group, Inc. ("NCO" or the "Company") is
making a cash tender offer (the "FCA Tender Offer") for all of the outstanding
common shares of FCA at $9.60 per share, Canadian (equivalent to $6.77 in U.S.
dollars based upon the exchange rate as of the date of the agreement). The
purchase price of approximately $67.6 million will be paid with borrowings under
the Company's revolving credit facility. The FCA Tender Offer is conditioned
upon the tender of two-thirds of the outstanding FCA common shares, on a
fully-diluted basis, and the satisfaction of certain conditions, including
regulatory approvals. The FCA Tender Offer will expire on May 6, 1998 unless
withdrawn or extended. FCA's Board of Directors has approved the agreement and
recommended that shareholders tender their common shares into the offer.
Pursuant to the agreement, Fairfax Financial Holdings Limited ("Fairfax") has
agreed, subject to certain conditions, to tender to the bid, the common shares
of FCA owned or controlled by it. Fairfax currently owns or controls
approximately 27% of the common shares of FCA outstanding on a fully-diluted
basis.
Founded in 1926, FCA is the largest accounts receivable management company
in Canada with significant operations in the United States and the United
Kingdom. FCA provides accounts receivable management services principally to the
government, financial, education, telecommunications, utilities, healthcare,
retail and commercial sectors. FCA has undergone a major reorganization,
consolidating 88 branch offices into 17 branch locations including three new
major branches in Mobile, Alabama, Brantford, Ontario and Vancouver, British
Columbia. For the fiscal year ended June 30, 1997 and the nine months ended
March 31, 1998, FCA's revenues were approximately $62.8 million and $45.0
million, respectively. Approximately 45% of FCA's consolidated revenues in 1997
was derived from U.S. operations, 40% from Canadian operations and 15% from
operations in the United Kingdom. The acquisition of FCA will give the Company
the leading market presence in Canada, significantly expand its U.S. operations
and provide a platform for further expansion into Europe from the United
Kingdom. The Company also expects to realize substantial cost savings from
integrating FCA with its operations.
There are several risks associated with the acquisition of FCA including
the ability to complete the acquisition of any outstanding shares of FCA not
purchased by the Company in the FCA Tender Offer, the ability to operate FCA's
business profitably and the fact that FCA has significant operations outside of
the United States. With respect to the FCA Tender Offer, if at least two-thirds
of the outstanding shares of FCA common stock, on a fully-diluted basis, are
tendered and the other conditions to closing have been satisfied or waived, the
Company will be required to purchase the shares so tendered and may have to
pursue other means, including calling a special meeting of FCA shareholders to
approve an amalgamation, merger or other transaction, in order to complete the
acquisition of any outstanding FCA shares not tendered. In such event, the
remaining holders of FCA shares may have the right to dissent to such
transaction and demand payment for the fair value of their FCA shares. As a
result, the Company may incur additional delays and costs in completing the
acquisition of all of the outstanding shares of FCA common stock. FCA has had
losses of $4.4 million, and $1.4 million for its fiscal years ended June 30,
1996 and 1997, respectively. There can be no assurance that the Company will be
able to operate FCA's business profitably following the acquisition of FCA. To
date, all of the Company's operations have been conducted in the United States.
FCA is headquartered in Canada and also has offices in the United Kingdom and,
as a result of such acquisition, a portion of the Company's operations would be
conducted outside the United States. There are a number of risks inherent in
international operations including government controls, regulatory requirements
that may be more onerous than those imposed in the United States, difficulties
in managing international operations and fluctuations in currency exchange
rates.
-1-
<PAGE>
Item 7. Financial Statements and Exhibits.
The following financial statements are being filed as part of
this report:
(a) Financial Statements of FCA:
Auditors's Report
Consolidated Balance Sheets as of June 30, 1997 and 1996
Consolidated Statements of Earnings for the years ended June 30, 1997,
1996 and 1995
Consolidated Statements of Retained Earnings for the years ended
June 30, 1997, 1996 and 1995
Consolidated Statements of Changes in Financial Position for the years
ended June 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Earnings for the three months and nine
months ended March 31, 1998 and 1997 (unaudited)
Consolidated Statements of Changes in Financial Position for the
three months and nine months ended March 31, 1998 and 1997
(unaudited)
(b) Pro Forma Financial Information.
Pro Forma financial information concerning the proposed FCA
acquisition is incorporated by reference from the Company's
Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on May 4, 1998.
EXCHANGE RATE DATA
The following table sets forth the applicable exchange rates to convert
Canadian dollars to U.S. dollars.
<TABLE>
<CAPTION>
Fiscal Years Ended For the Nine Months
June 30, Ended March 31,
----------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Exchange rate at end of period................. -- 0.7323 0.7249 -- 0.7032
Average exchange rate during period............ 0.7250 0.7347 0.7318 0.7354 0.7104
</TABLE>
For the periods presented, FCA published its consolidated financial
statements in Canadian dollars, the functional currency of the country in which
a substantial majority of FCA's revenues were generated.
(c) Exhibits
2.1 Agreement dated March 24, 1998 among the Company, FCA and Fairfax.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NCO GROUP, INC.
By: /s/ Steven L. Winokur
----------------------------
Executive Vice President, Finance
and Chief Financial Officer
Date: May 4, 1998
-3-
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
<PAGE>
================================================================================
AUDITORS' REPORT
================================================================================
To the Shareholders of
FCA International Ltd.:
We have audited the accompanying consolidated balance sheets of FCA
International Ltd. as at June 30, 1997 and 1996, and the related consolidated
statements of earnings, retained earning and changes in financial position for
the three years in the period ended June 30, 1997. These financial statements
are the responsibility of the Corporation'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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at June 30, 1997
and 1996, and the results of its operations and the changes in its financial
position for the three years in the period ended June 30, 1997 in accordance
with Canadian generally accepted accounting principles.
Arthur Anderson & Co.
Montreal, Canada General Partnership
September 2, 1997 Chartered Accountants
F-1
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
<TABLE>
<CAPTION>
ASSETS
1997 1996
---------------- ----------------
Current assets
<S> <C> <C>
Cash and term deposits (Note 7) $ 4,028,030 $ 8,276,310
Accounts receivable - clients (Note 2) 8,792,514 7,798,743
Purchased claims receivable (Note 3) 12,906,398 42,707,694
Income taxes recoverable 500,222 193,063
Prepaid expenses 2,526,440 2,698,389
Purchased accounts receivable 3,260,655 3,307,856
---------------- ----------------
32,014,259 64,982,055
Trust funds - cash 11,041,584 10,553,374
Purchased claims receivable (Note 3) 3,726,393 7,135,091
Capital assets (Note 4) 8,635,555 6,922,960
Pre-operating expenses (Note 5) 2,633,262 2,509,833
Other assets 3,943,945 3,018,702
Goodwill 2,506,143 2,603,267
================ ================
$ 64,501,141 $ 97,725,282
================ ================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Bank advances (Note 2) $ 1,727,531 $ 5,324,269
Accounts payable and accrued liabilities 6,781,505 7,965,022
Purchased claims payable (Note 3) 857,481 3,545,345
Obligations under capital leases (Note 6) 196,803 -
---------------- ----------------
9,563,320 16,834,636
Funds held in trust for clients 11,041,584 10,553,374
Purchased claims payable (Note 3) 113,072 407,942
Bank loan (Note 7) 19,320,000 44,880,000
Obligations under capital leases (Note 6) 813,973 -
Deferred income taxes 64,000 117,000
================ ================
$ 40,915,949 $ 72,792,952
================ ================
Commitments and contingencies (Note 10)
Capital stock (Notes 8 and 9)
Authorized:
Unlimited number of common shares Issued and fully paid:
9,077,124 (1996 - 9,087,124) shares $ 12,551,177 $ 12,564,977
Retained earnings 10,933,571 12,438,644
Cumulative translation adjustments 100,444 (71,291)
---------------- ----------------
23,585,192 24,932,330
================ ================
$ 64,501,141 $ 97,725,282
================ ================
</TABLE>
Approved on behalf of the Board:
W. Edwin Jarmain, Chairman of the Board
John H. Moynan, President and Chief Executive Officer
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995 (In
Canadian dollars)
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------- ---------------
<S> <C> <C> <C>
Gross revenue from operations $ 85,762,564 $ 84,408,472 $ 82,034,798
Operating, selling and administration expenses 79,109,192 77,963,216 75,957,035
------------- ------------- --------------
Earnings before interest and other expenses 6,653,372 6,445,256 6,077,763
Interest expense on bank loan 2,406,312 4,136,641 1,478,602
------------- ------------- --------------
Earnings before other expenses 4,247,060 2,308,615 4,599,161
------------- ------------- --------------
Other expenses (income)
Amortization of goodwill 122,153 122,544 138,516
Amortization of capital assets (Note 4) 2,360,006 2,542,546 2,688,300
Amortization of pre-operating costs (Note 5) 645,617 - -
Interest expense 559,871 450,323 261,187
Investment income (616,715) (808,873) (989,858)
------------- ------------- --------------
3,070,932 2,306,540 2,098,145
------------- ------------- --------------
Earnings before reorganization charge 1,176,128 2,075 2,501,016
Reorganization charge (Note 5) 2,100,000 3,100,000 -
------------- ------------- --------------
(Loss) Earnings before income taxes (923,872) (3,097,925) 2,501,016
------------- ------------- --------------
Income tax provision (recovery)
- Current (Note 11) 628,000 739,000 144,000
- Deferred (51,000) (171,000) 180,000
------------- ------------- --------------
577,000 568,000 324,000
============= ============= ==============
Net (loss) earnings for the year $ (1,500,872) $ (3,665,925) $ 2,177,016
============= ============= ==============
Net (loss) earnings per share $ (0.17) $ (0.40) $ 0.23
============= ============= ==============
Net earnings per share - fully diluted $ (0.17) $ (0.40) $ 0.23
============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(In Canadian dollars)
<TABLE>
<CAPTION>
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Balance - beginning of year $ 12,438,644 $ 16,316,995 $ 16,389,249
------------- -------------- --------------
Net (loss) earnings for the year (1,500,872) (3,665,925) 2,177,016
Purchase and cancellation of capital stock (Note 8) (4,201) (212,426) (1,346,490)
Loss on share purchase loan (Note 12) - - (902,780)
------------- -------------- --------------
(1,505,073) (3,878,351) (72,254)
============= ============== ==============
Balance - end of year $ 10,933,571 $ 12,438,644 $ 16,316,995
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(In Canadian dollars)
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
Cash provided by (used in)
<S> <C> <C> <C>
Operations
Net (loss) earnings for the year $ (1,500,872) $ (3,665,925) $ 2,177,016
Items not affecting working capital:
Amortization 3,160,615 3,615,156 2,826,816
Deferred income taxes (53,000) (171,000) 180,000
Net changes in non-cash working capital balances
relating to operations (2,265,297) 18,324 (1,866,533)
-------------- -------------- ---------------
(658,554) (203,445) 3,317,299
-------------- -------------- ---------------
Investments
Additions to capital assets - net (3,736,547) (2,795,824) (2,703,508)
Decrease (increase) in purchased claims receivable 33,209,994 591,465 (50,434,250)
(Decrease) increase in purchased claims
payable (2,982,734) 170,046 3,783,241
Increase in non-operating assets - net (1,689,104) (2,495,782) (256,291)
-------------- -------------- --------------
24,801,609 (4,530,095) (49,610,808)
-------------- -------------- --------------
Financing
Increase in bank loan - 4,089,533 43,510,467
Increase in obligations under capital leases 1,010,776 - -
Decrease in bank loan (25,560,000) (2,720,000) -
Purchase and cancellation of capital stock (18,001) (401,489) (2,130,463)
Issue of capital stock - - 26,000
Proceeds from repayment of share purchase loan - - 452,250
-------------- -------------- --------------
(24,567,225) 968,044 41,858,254
-------------- -------------- --------------
Decrease in cash before currency translation
adjustments (424,170) (3,765,496) (4,435,255)
Effect of currency translation adjustments (227,372) (265,973) 15,391
-------------- -------------- --------------
Decrease in cash during the year (651,542) (4,031,469) 4,419,864
Cash and cash equivalents, beginning of year 2,952,041 6,983,510 11,403,374
============== ============== =============
Cash and cash equivalents, end of year $ 2,300,499 $ 2,952,041 $ 6,983,510
============== ============== ==============
Represented by:
Cash and term deposits $ 4,028,030 $ 8,276,310 $ 6,983,510
Bank advances (1,727,531) (5,324,269) -
============== ============== ==============
$ 2,300,499 $ 2,952,041 $ 6,983,510
============== ============== ==============
</TABLE>
F-5
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
1. SIGNIFICANT ACCOUNTING POLICIES
a) Basis of consolidation
These consolidated financial statements include the accounts of the
Corporation and its subsidiaries, all of which are wholly-owned.
b) Translation of foreign operations
The Corporation's foreign operations are self-sustaining. The assets
and liabilities of foreign operations are translated at the exchange
rates prevailing at the balance sheet date. Revenue and expenses are
translated at the average exchange rates for the year or at the
applicable forward contract rate. Gains or losses on translation are
shown as a separate component in shareholders' equity.
c) Capital assets and amortization
Capital assets are stated at cost less accumulated amortization and are
amortized using the straight line method. The rates of amortization
vary by asset class and country and are as follows:
Computer equipment and programs 15% to 20%
Automobiles 25% to 33 1/3%
Furniture and fixtures 10% to 20%
Leasehold improvements Lease term
d) Pre-operating expenses
Expenses related to the establishment of the Corporation's new call
centres in Mobile, Alabama and Brantford, Ontario have been capitalized
and are being amortized over a period of four years commencing July 1,
1996.
e) Goodwill
Goodwill represents the excess of the cost of investment in businesses
purchased over the cost assigned to the fair value of net assets
acquired and is being amortized over forty years.
Goodwill is written down when there has been a permanent impairment in
the value of unamortized goodwill. A permanent impairment in goodwill
is determined by comparison of the carrying value of unamortized
goodwill with undiscounted future earnings of the related business.
F-6
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
f) Revenue
Revenue related to collections is recognized upon receipt of funds.
Funds held in trust for clients are remitted in most cases within one
month of the end of the month in which collection is made.
Revenue related to purchased claims receivable is recognized from the
date of purchase to maturity in a manner resulting in a constant rate
of return on the investment in individual purchased claims receivable.
The investment in purchased claims receivable for the purpose of income
recognition is composed of the maturity value of claims receivable less
unearned revenue.
g) Use of estimates
The presentation of financial statements, in accordance with generally
accepted accounting principles, requires management to make estimates
and assumptions which affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities at
the date of the financial statements and revenues and expenses for the
period reported. Actual results could differ from these estimates.
2. OPERATING LINE OF CREDIT
The Corporation has a $6,600,000 operating line of credit of which
$1,900,000 has been allocated to letters of credit and $1,700,000 is
assigned to cover forward exchange contracts (Note 10). The line of credit
is collateralized by a deed of movable hypothec on accounts receivable and
a guarantee and postponement of claim of one of the Corporation's
subsidiaries, as well as a general assignment of book debts.
One of the Corporation's subsidiaries has a U.S. $5,000,000 line of credit
of which U.S. $1,000,000 is allocated to letters of credit. The line of
credit is collateralized by a pledge of the borrowing subsidiary's shares.
3. PURCHASED CLAIMS RECEIVABLE
Purchased claims receivable represent the maturity value of settled
personal injury claims that are to be paid by an agency of the State of New
Jersey. This amount is disclosed on the balance sheet net of unearned
revenue of $919,453 (1996 - $2,611,403, 1995 - $5,461,000). The portion of
the maturity value owing to third parties is disclosed separately on the
balance sheet as purchased claims payable.
F-7
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
--------------- ------------------ -------------- ------------------
<S> <C> <C> <C> <C>
Real estate $ 15,465 $ - $ 15,465 $ -
Computer equipment and programs 41,597,977 36,420,054 40,790,717 36,703,677
Automobiles 317,839 150,542 301,383 158,786
Furniture and fixtures 9,701,781 8,497,002 12,769,977 11,587,759
Leasehold improvements 4,704,049 2,633,958 4,052,923 2,557,283
=============== =============== ============== ===============
$ 56,337,111 $ 47,701,556 $ 57,930,465 $ 51,007,505
=============== =============== ============== ===============
Net Book Value $ 8,635,555 $ 6,922,960
============== =============
</TABLE>
5. REORGANIZATION CHARGE
During the year, the Corporation established a new call centre in
Brantford, Ontario and undertook the reorganization of some of its Canadian
collection operations. In addition, the Corporation undertook the
consolidation of some administrative areas of its U.S. operations. The
reorganization charge of $2.1 million includes $1.6 million for the
Canadian reorganization and $500,000 for the U.S. consolidation. The
reorganization charge includes severance costs for all employees of
$1,047,000, a reserve for unsettled leases of $844,000 and other costs of
$209,000.
In addition, the Corporation capitalized $760,000 of pre-operating expenses
relating to the reorganization. These costs consist primarily of employee
relocation costs.
F-8
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
6. OBLIGATIONS UNDER CAPITAL LEASES
Capital lease payments due in the next five years are as follows:
1998 $ 287,372
1999 287,372
2000 283,173
2001 260,021
2002 130,113
--------------
Total minimum lease payments 1,248,051
Less: Amount representing interest 237,275
==============
Balance of the obligations $ 1,010,776
==============
7. BANK LOAN
The bank loan is a U.S. dollar denominated term loan payable by one of the
Corporation's subsidiaries. The loan can be repaid at any time and is due
in full on October 15, 2000. The loan is a limited recourse loan and is
collateralized by a security interest and lien on the purchased claims
receivable, and by a U.S. $2,000,000 assignment of term deposits to the
bank. The subsidiary has the option of paying interest at the bank's prime
rate or of fixing the rate at the London Interbank Offered Rate (LIBOR)
plus 1.75% on borrowings collateralized by claims purchased after September
1, 1996 or LIBOR plus 2.75% on borrowings collateralized by claims
purchased prior to that date, each for fixed periods not to exceed eighteen
months.
8. CAPITAL STOCK
In accordance with Normal Course Issuer Bids authorized by the Board of
Directors, the Corporation purchased and cancelled 10,000 of its common
shares for a total cost of $18,001. The excess of the price paid per share
over the average stated capital per share in the amount of $4,201 was
charged to retained earnings.
F-9
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
9. SHARE OPTION PLAN
The Corporation has granted options to certain key employees and officers
to purchase common shares of the Corporation. Details of the outstanding
options are as follows:
Expiry Date Price Unexercised options
----------- ----- -------------------
November 15, 1997 $2.600 100,000
February 14, 1998 $2.950 107,000
September 19, 1998 $3.300 258,890
December 19, 1998 $9.000 40,000
December 19, 1998 $3.600 115,265
September 25, 1999 $4.000 216,550
September 15, 2001 $2.900 388,488
---------
1,226,193
=========
10. COMMITMENTS AND CONTINGENCIES
The minimum annual lease payments under operating leases, over the next
five years and in the aggregate to 2004 are as follows:
1998 $ 5,266,611
1999 3,826,500
2000 3,047,491
2001 1,779,978
2002 675,707
Thereafter 631,771
==============
$ 15,228,058
==============
Pursuant to aggregate employment agreements made with certain officers,
additional payments, which currently would not exceed $1,216,560, could
become payable upon the occurrence of certain events as defined in the
agreements.
One of the Corporation's U.S. subsidiaries (Puerto Rico) is a defendant in
an action by a former employee for alleged unlawful dismissal and age
discrimination. The amount claimed in the suit is U.S. $2.3 million plus
punitive damages. Court proceedings were concluded in June 1997, and a
judgement is expected by the end of the calendar year. Although the outcome
of this litigation cannot be predicted with certainty, management does not
believe the litigation will have a material effect on the financial
position or results of operations.
F-10
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
The Corporation has entered into a series of forward exchange contracts to
convert a portion of projected cash flows from United States operations
into Canadian funds. Commitments under the contracts for the next four
years as follows:
$ U.S. Forward
rate
-------------- ------------
1998 $ 2,160,000 1.4263
1999 1,800,000 1.4186
2000 1,440,000 1.4485
2001 1,080,000 1.4148
============== ========
$ 6,480,000 1.4272
============== ========
11. INCOME TAXES
The Corporation's U.S. subsidiaries have loss carryforwards for income tax
purposes, the benefit of which has not been recorded in these financial
statements, totaling U.S. $19,555,000 which expire as follows:
2003 $ 168,000
2004 1,281,000
2005 4,448,000
2006 7,819,000
2007 3,409,000
2008 378,000
2010 90,000
2011 492,000
2012 1,470,000
One of the Corporation's Canadian subsidiaries has loss carryforwards for
income tax purposes, the benefit of which has not been recorded in these
financial statements, totaling $3,500,000 which expire in 2004.
F-11
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
The Corporation's effective income tax rate consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
% % %
---------- ---------- ----------
<S> <C> <C> <C>
Average basic statutory income tax rate (38.0) (38.0) 38.0
Increase (decrease) in income tax rate resulting from:
Lower effective income tax rate on earnings of foreign subsidiaries (3.8) (0.4) (7.5)
Non-deductible expenses 9.7 3.8 2.1
Non-taxable portion of capital gains - (0.9) (2.6)
Tax on repatriation of foreign earnings (44.0) 10.2 -
Realization of unrecorded tax benefit - - (19.4)
Effect of unrecognized loss carryforwards 158.1 44.7 -
Realization of unrecorded tax benefit (22.8) - -
Other, net 3.3 (1.1) 2.4
---------- ---------- ----------
Effective income tax rate 62.5 18.3 13.0
</TABLE>
12. SHARE PURCHASE LOAN
In 1995 a share purchase loan was settled in accordance with the terms of
the loan agreement for the proceeds on the related shares of $452,250. The
balance of the loan was charged to retained earnings.
13. PENSION PLAN
The Corporation maintains a defined benefit pension plan for certain
employees. As at June 30, 1997, the actuarial present value of accrued
pension obligations was U.S. $3,396,621 (1996 - U.S. $3,709,821, 1995 -
U.S. $2,714,144) and the value of net assets available to provide for these
benefits was U.S. $1,636,057 (1996 - U.S. $1,458,832, 1995 - U.S.
$1,300,111).
14. FINANCIAL INSTRUMENTS
Financial instruments in the balance sheet include cash and term deposits,
accounts receivable - clients, purchased claims receivable, purchased
accounts receivable, bank advances, accounts payable and accrued
liabilities, purchased claims payable, the bank loan, and obligations under
capital leases.
F-12
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
a) Fair values of financial assets and liabilities - The fair value of
the Corporation's financial assets and liabilities other than
obligations under capital leases, is equivalent to their carrying
value due to the short-term maturity of those items. The book value of
obligations under capital leases approximates fair value based on
interest rates on comparable debt.
b) Credit risk - The Corporation is subject to credit risk through
accounts receivable - clients, purchased claims receivable, purchased
accounts receivable, and term deposits. Accounts receivable - clients
are with clients in many diverse industries and are subject to normal
industry credit risks. Purchased claims receivable are receivable from
an agency of the State of New Jersey, and are financed exclusively
through the bank loan. The bank loan is collateralized by the
purchased claims and a U.S. $2 million limited recourse against the
Corporation. The credit risk associated with the purchased claims
receivable is subject to normal credit risks and is further reduced
due to the limited recourse nature of the bank loan. Purchased
accounts receivable are primarily student loan accounts purchased at a
discount for collection by the Corporation based on the estimated net
realizable value of the accounts. Term deposits comprise short-term
financial instruments issued by large financial institutions or
corporations.
c) Foreign exchange risk - The Corporation's foreign operations are
exposed to limited foreign exchange risks as they are self sustaining,
the risk being limited to financial instruments denominated in foreign
currencies. The amount of the risk is related to the future variances
in the exchange rates used to convert financial instruments
denominated in foreign currencies. In addition, the Corporation has
entered into forward exchange contracts to convert a portion of
projected cash flows from U.S. operations into Canadian funds, thereby
limiting risk related to foreign exchange rate fluctuations.
15. SEGMENTED INFORMATION
Gross revenue from operations
<TABLE>
<CAPTION>
United Kingdom and
United States Canada Elsewhere Consolidated
------------- ------ --------- ------------
<S> <C> <C> <C> <C>
1997 $ 38,515,450 $ 34,641,473 $ 12,605,641 $ 85,762,564
1996 $ 42,839,189 $ 31,565,368 $ 10,003,915 $ 84,408,472
1995 $ 39,501,835 $ 33,457,464 $ 9,075,499 $ 82,034,798
</TABLE>
F-13
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
Earnings (loss) before reorganization charge
<TABLE>
<CAPTION>
United Kingdom and
United States Canada Elsewhere Consolidated
------------- ------ --------- ------------
<S> <C> <C> <C> <C>
1997 $ (2,633,199) $ 2,904,702 $ 904,625 $ 1,176,128
1996 $ (215,310) $ (674,990) $ 892,375 $ 2,075
1995 $ 962,588 $ 1,490,984 $ 47,444 $ 2,501,016
</TABLE>
Earnings (loss) before income taxes
<TABLE>
<CAPTION>
United Kingdom and
United States Canada Elsewhere Consolidated
------------- ------ --------- ------------
<S> <C> <C> <C> <C>
1997 $ (3,143,577) $ 1,315,080 $ 904,625 $ (923,872)
1996 $ (2,771,310) $ (1,218,990) $ 892,375 $ (3,097,925)
1995 $ 962,588 $ 1,490,984 $ 47,444 $ 2,501,016
</TABLE>
The above earnings (loss) before income taxes include the effect of
corporate allocations.
Identifiable assets
<TABLE>
<CAPTION>
United Kingdom and Goodwill on
United States Canada Elsewhere Consolidation Consolidated
------------- ------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1997 $ 34,348,075 $ 20,627,274 $ 8,801,779 $ 724,413 $ 64,501,141
1996 $ 69,865,497 $ 19,229,191 $ 7,871,923 $ 758,671 $ 97,725,282
1995 $ 75,453,959 $ 9,320,508 $ 9,234,855 $ 793,329 $ 94,802,651
</TABLE>
16. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements of FCA International are expressed in
Canadian dollars and are prepared in accordance with Canadian generally
accepted accounting principles (GAAP), which conform, in all material
respects, with those generally accepted in the United States except as
described below:
F-14
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
Reconciliation of net income
The application of U.S. GAAP would have the following effects on the
net (loss) earnings as reported:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ---------------
<S> <C> <C> <C>
Net (loss) earnings for the year - Canadian
GAAP $ (1,500,872) $ (3,665,925) $ 2,177,016
Adjustment in respect of:
Pre-operating expenses (123,429) (2,509,833) -
Post-retirement benefits other than
pensions (265,771) (288,028) (249,479)
Forward exchange contracts 39,060 523,150 (123,520)
============== =============== ===============
Net (loss) earnings for the year - U.S. GAAP $ (1,851,012) $ (5,940,636) $ 1,804,017
============== =============== ===============
</TABLE>
i) Pre-operating expenses
Under Canadian GAAP, the Corporation has capitalized expenses
related to the establishment of new call centres in Mobile,
Alabama and Brantford, Ontario and they are being amortized over a
period of four years. U.S. GAAP requires that these costs be
expensed in the period incurred.
ii) Post-retirement benefits other than pensions
The Corporation follows the "pay as you go" method to account for
post retirement benefits other than pensions. Under this method
costs are recognized as incurred by the retirees and paid by the
employer. U.S. GAAP requires the current accrued method whereby
annually a current service cost is actuarially determined and
accrued in the accounts.
iii) Forward exchange contracts
Under Canadian GAAP, hedge accounting for hedges of anticipated
but not firmly committed foreign currency transactions using
foreign exchange forwards is permitted. This is not permitted
under U.S. GAAP. Forward exchange contracts that do not qualify
for hedge accounting treatment should be marked-to-market
currently through the statement of earnings.
F-15
<PAGE>
FCA INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(In Canadian dollars)
iv) Income taxes
Under U.S. GAAP, Statement of Financial Accounting Standards No.
109 requires that a deferred tax amount be recognized for loss
carry-forwards. Although the Corporation has tax loss carry
forwards in various jurisdictions, due to uncertainty of
utilization, the deferred tax assets amounts would have been
completely offset in these financial statements by a valuation
allowance.
b) Earnings (loss) per share
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ---------------- ----------------
U.S. GAAP
<S> <C> <C> <C>
Basic (loss) earnings per share $ (0.20) $ (0.65) $ 0.19
============== =============== ================
Diluted (loss) earnings per share $ (0.20) $ (0.65) $ 0.19
============== =============== ================
</TABLE>
Earnings per share amounts in accordance with U.S. GAAP are based on U.S.
GAAP net earnings.
17. COMPARATIVE STATEMENTS
Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
F-16
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
Unaudited
AS AT AS AT
MARCH 31, MARCH 31,
1998 1997
$ $
- -------------------------------------------------------------------------------
ASSETS
Current assets
Cash and term deposits 4,033,770 4,828,105
Accounts receivable - clients 8,990,466 9,280,745
Purchased claims receivable -- 18,139,810
Income taxes recoverable 787,255 527,886
Prepaid expenses 2,338,060 1,647,923
Purchased accounts receivable 2,241,490 3,061,421
- -------------------------------------------------------------------------------
18,391,041 37,485,890
Trust funds - cash 9,515,832 10,783,014
Purchased claims receivable -- 3,592,274
Capital assets - net 9,812,573 7,776,785
Pre-operating expenses 2,125,705 2,765,888
Other assets 5,092,929 3,457,159
Goodwill 2,459,465 2,533,514
- -------------------------------------------------------------------------------
47,397,545 68,394,524
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank advances 3,614,572 2,423,280
Accounts payable and accrued liabilities 4,058,862 7,335,404
Purchased claims payable -- 1,634,609
Obligations under capital leases 354,466 164,674
- -------------------------------------------------------------------------------
8,027,900 11,557,967
Funds held in trust for clients 9,515,832 10,783,014
Purchased claims payable -- 170,095
Bank loan 3,266,000 21,804,000
Obligations under capital leases 836,474 788,469
Deferred income taxes 4,000 117,000
- -------------------------------------------------------------------------------
21,650,206 45,220,545
- -------------------------------------------------------------------------------
Shareholders' equity 25,747,339 23,173,979
- -------------------------------------------------------------------------------
47,397,545 68,394,524
- -------------------------------------------------------------------------------
Note : Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
F-17
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
<TABLE>
<CAPTION>
3 months ended 3 months ended 9 months ended 9 months ended
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998 1997
$ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenue from operations 21,000,182 21,569,627 63,300,419 63,472,798
- ------------------------------------------------------------------------------------------------------------------------------------
Operating, selling and administration expenses 19,374,191 19,896,271 58,197,273 58,584,086
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before interest and other expenses 1,625,991 1,673,356 5,103,146 4,888,712
Interest expense on bank loan (Note 1) 135,460 450,734 752,108 2,014,267
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before other expenses 1,490,531 1,222,622 4,351,038 2,874,445
- ------------------------------------------------------------------------------------------------------------------------------------
Other expenses (income)
Amortization of goodwill 31,550 33,344 94,385 94,778
Amortization of capital assets 606,127 563,456 1,890,612 1,699,604
Amortization of pre-operating expenses 218,875 190,672 647,746 406,000
Interest expense 146,015 116,998 467,751 412,737
Investment income (112,574) (155,820) (390,994) (483,918)
- ------------------------------------------------------------------------------------------------------------------------------------
889,993 748,650 2,709,500 2,129,201
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before reorganization charge 600,538 473,972 1,641,538 745,244
Reorganization charge -- 2,100,000 -- 2,100,000
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 600,538 (1,626,028) 1,641,538 (1,354,756)
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax provision (recovery)
- current 148,000 233,000 423,000 603,000
- deferred (7,000) -- (60,000) --
- ------------------------------------------------------------------------------------------------------------------------------------
141,000 233,000 363,000 603,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 459,538 (1,859,028) 1,278,538 (1,957,756)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share 0.05 (0.21) 0.14 (0.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings per share - fully diluted 0.05 -- 0.13 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Interest expense on bank loan used exclusively for the purchase of
personal injury claims receivable.
Note 2: Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.
F-18
<PAGE>
FCA INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Unaudited
<TABLE>
<CAPTION>
3 months ended 3 months ended 9 months ended 9 months ended
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in)
Operations
Net earnings (loss) 459,538 (1,859,028) 1,278,538 (1,957,756)
Items not affecting working capital:
Amortization 856,552 828,352 2,632,743 2,241,262
Deferred income taxes (7,000) -- (60,000) --
Net changes in non-cash working capital
balances relating to operations (948,642) 1,204,543 (2,000,083) (1,149,542)
- -----------------------------------------------------------------------------------------------------------------------------
360,448 173,867 1,851,198 (866,036)
- -----------------------------------------------------------------------------------------------------------------------------
Investments
Additions to capital assets - net (896,387) (1,095,001) (2,974,020) (2,329,140)
Decrease in purchased claims receivable 10,316,934 8,381,535 16,632,791 28,110,701
Decrease in purchased claims payable (769,789) (578,296) (970,553) (2,148,583)
Increase in other assets - net (363,056) (1,894,444) (1,228,984) (1,065,851)
- -----------------------------------------------------------------------------------------------------------------------------
8,287,702 4,813,794 11,459,234 22,567,127
- -----------------------------------------------------------------------------------------------------------------------------
Financing
Increase in obligations under capital leases 161,661 221,803 180,164 953,143
Decrease in bank loan (8,874,700) (5,596,000) (16,054,000) (23,076,000)
Proceeds from issuance of capital stock 395,642 -- 655,642 --
- -----------------------------------------------------------------------------------------------------------------------------
(8,317,397) (5,374,197) (15,218,194) (22,122,857)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash before currency
translation adjustments 330,753 (386,536) (1,907,762) (421,766)
Effect of currency translation adjustments 11,435 146,394 26,461 (125,450)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during the period 342,188 (240,142) (1,881,301) (547,216)
Cash and cash equivalents
Beginning of period 77,010 2,644,967 2,300,499 2,952,041
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
End of period 419,198 2,404,825 419,198 2,404,825
- -----------------------------------------------------------------------------------------------------------------------------
Represented by:
Cash and term deposits 4,033,770 4,828,105 4,033,770 4,828,105
Bank advances (3,614,572) (2,423,280) (3,614,572) (2,423,280)
- -----------------------------------------------------------------------------------------------------------------------------
419,198 2,404,825 419,198 2,404,825
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-19
<PAGE>
Exhibit 2.1
NCO GROUP, INC.
515 PENNSYLVANIA AVENUE
FORT WASHINGTON, PA
19034 U.S.A.
March 24, 1998
FCA International Ltd.
c/o V. Edwin Jarmain
Chairman of the Steering Committee
and Chairman of the Board
Suite 2525 121 King Street West
Toronto, Ontario
Fairfax Financial Holdings Limited
Suite 800,
95 Wellington Street West
Toronto, Ontario
Dear Sirs:
NCO Group, Inc. ("NCO") understands that:
(a) Fairfax Financial Holdings Limited directly or indirectly is the
beneficial owner of or exercises control or direction over an aggregate
of 2,840,485 common shares (the "Fairfax Shares") in the capital of FCA
International Ltd. (together with its subsidiaries, "FCA");
(b) Fairfax Financial Holdings Limited is entering into this agreement on
its own behalf and on behalf of each of its subsidiaries which owns or
exercises control or direction over any portion of the Fairfax Shares
and references herein to "Fairfax" mean Fairfax Financial Holdings
Limited in both such capacities;
(c) M. Kaulkin & Associates, Inc. has been retained as FCA's financial
adviser and exclusive agent in connection with a process to explore
alternative ways to enhance shareholder value including the possible
sale or merger of part or all of FCA;
(d) Fairfax has adequate knowledge and access to information concerning FCA
such that the underlying value of FCA was the material factor
considered by Fairfax in entering into this agreement and there are no
factors peculiar to Fairfax including non-financial factors which
Fairfax considered relevant in assessing the adequacy or sufficiency of
the Bid Price (as hereinafter defined) that had the effect of reducing
the Bid Price from an amount that would otherwise have been considered
acceptable by Fairfax; and
<PAGE>
Page 2
(e) NCO is a corporation incorporated under the laws of the Commonwealth of
Pennsylvania, and has made a proposal to FCA and Fairfax whereby a
direct or indirect wholly-owned subsidiary of NCO ("Bidco") would make
a take-over bid for all of the issued and outstanding common shares of
FCA (the "FCA Shares").
The purpose of this letter is to set forth various agreements and
understandings between the parties in order to proceed to implement the
Transaction.
1. THE TRANSACTION
a) Take-Over Bid
Subject to satisfaction of certain conditions (as hereinafter described), NCO
agrees that Bidco will:
i) as soon as is reasonably practicable, but no later than April
6, 1998, make a cash take-over bid for all of the FCA Shares
(including FCA Shares issued pursuant to currently outstanding
stock options) in accordance with the Securities Act (Ontario)
and other applicable securities legislation at a price per
share (the "Bid Price") of $9.60 (Cdn.) (such cash take-over
bid by Bidco for all of the FCA Shares at such price or a
greater price being hereinafter referred to as the "Take-Over
Bid"); and
ii) pay for the FCA Shares tendered under the Take-Over Bid on a
day (the "Take-Up Date") which is not earlier than 20 business
days following the date on which the Take-Over Bid is made and
within 10 days following the satisfaction of all of the
conditions set forth in Sections 1(c) and 1(d)(ii) hereof,
provided that if Bidco does not, as a result of the failure of
any of such conditions to be satisfied, take-up and pay for
the FCA Shares tendered under the Take-Over Bid on or prior to
May 22, l998 (the "Outside Date"), then, subject to Section 5,
this agreement shall terminate and the parties shall have no
further obligations hereunder.
FCA shall take all corporate and other steps set out in the attached Schedule
"A" with respect to any invested options to purchase FCA Shares prior to the
Take-Up Date and in connection with the exercise and/or termination of all
outstanding options to purchase FCA Shares.
b) Fairfax to Tender
Subject to certain conditions set forth below, unless:
i) this agreement has been terminated or has expired in
accordance with its terms; or
<PAGE>
Page 3
ii) subject to Section 2(a), a proposal is made to effect an
Extraordinary Business Combination (as hereinafter defined)
that would yield to Fairfax an amount in cash per share that
is not less than 5% in excess of the Bid Price,
Fairfax agrees that it will tender into the Take-Over Bid all of the
Fairfax Shares within 15 days after the date upon which the circular in
respect of the Take-Over Bid is mailed to FCA shareholders and will not
withdraw such shares so tendered notwithstanding any withdrawal right
that might otherwise be available to Fairfax under applicable
securities laws. For greater certainty, Fairfax shall not sell,
transfer or assign any of the Fairfax Shares unless and except to the
extent expressly permitted hereby.
c) Mutual Conditions
Mutual conditions precedent to the continued compliance by the parties with
their respective obligations herein are:
i) there shall have been compliance with the Hart, Scott Rodino
Antitrust Improvements Act, 1976 (the "HSR Act") and the
waiting period under the HSR Act shall have expired prior to
the Outside Date, it being acknowledged that either of the
parties may require application for early termination of the
waiting period;
ii) no proceedings shall have been commenced or threatened
pursuant to the Competition Act (Canada) by any competent
regulatory authority in respect of the acquisition by Bidco of
FCA Shares pursuant to the Take-Over Bid;
iii) no order or decree of a court of competent jurisdiction or
applicable governmental authority and no applicable law,
regulation or prohibition in law shall be in existence or have
been made, issued or applied to cease trade the common shares
of FCA, prohibit, or establish a requirement for a regulatory
approval as a condition of, the Take-Over Bid or prohibit or
restrict the ownership of the FCA Shares, or any of them, by
Bidco; and
iv) there shall be no injunction or similar order preventing
completion of the Take-Over Bid.
The foregoing conditions precedent may be waived, in whole or in part, only if
all of the parties hereto waive such conditions precedent in their discretion by
written instrument but otherwise shall not be subject to waiver.
d) Conditions for the Benefit of NCO
i) The conditions precedent in favour of NCO to Bidco making the
Take-Over Bid are:
<PAGE>
Page 4
A) FCA and Fairfax shall be in compliance in all
material respects with all of their respective
obligations hereunder;
B) the representations and warranties of FCA and Fairfax
contained herein shall be true and correct in all
material respects as of the date hereof and as of the
date that the Take-Over Bid is made as if made on
that date; and
C) from the date hereof until the date on which the
Take-Over Bid is made, there shall not have been any
adverse change in, or discovery of any previously
undisclosed fact which has, or may reasonably be
expected to have, a material adverse effect on the
business, operations, assets, capitalization,
financial condition, results or prospects of FCA nor
shall any change of law have been enacted or be
introduced which has or may reasonably be expected to
have a material adverse effect on the business,
operations, assets, capitalization, financial
condition, results or prospects of FCA; for greater
certainty, the rendering of a judgment in the lawsuit
"Carlos Diaz, et al. v. Financial Collection
Agencies, Inc. (P.R.) Civil No. KAC 91-1658 before
the Superior Court, San Juan Section of the
Commonwealth of Puerto Rico" (the "Puerto Rican
Litigation") whether in favour of or against the
Company shall not be considered to have a material
adverse effect on the business, operations, assets,
capitalization, financial condition, results or
prospects of FCA; and
ii) The conditions contained in Sections 1(d)(i)(A) and (C) (with
the reference in Section 1(d)(i)(C) to the date on which the
Take-Over Bid is made being deemed to be a reference to the
later of the last date (including any extensions granted by
Bidco) on which the offer made pursuant to the Take-Over Bid
may be accepted by the shareholders of FCA and the termination
of the waiting period under the HSR Act) are also conditions
in favour of NCO to Bidco taking up and paying for the FCA
Shares tendered under the Take-Over Bid, as well as the
following conditions:
A) there shall have been validly deposited under the
Take-Over Bid and not withdrawn on or prior to the
Take-Up Date at least 66.67% of the FCA Shares (the
"Minimum Number of FCA Shares") (calculated on a
fully diluted basis, including after giving effect to
all rights to unissued FCA Shares that are
exercisable on that date);
B) FCA shall have taken all reasonable corporate and
other steps and actions and provided all necessary
cooperation prior to the Take-Up Date which NCO shall
have determined, acting reasonably, to be appropriate
and advisable in connection with the Take-Over Bid,
and FCA shall not have taken any actions outside of
the normal course of business which makes
<PAGE>
Page 5
the completion of the Take-Over Bid by NCO
inadvisable as determined by NCO, acting reasonably;
and
iii) NCO shall be satisfied, acting reasonably, that no person
(other than Royal Bank of Canada in respect of certain letters
of credit and foreign exchange arrangements aggregating
approximately $1,950,000 (Cdn.), Barclays Bank PLC in respect
of certain letters of credit aggregating
approximately(pound)500,000 (U.K) and PNC Bank, National
Association in respect of a term loan, the outstanding
indebtedness under which is approximately $2,400,000 (U.S.)
and an operating line of credit of up to $4,000,000 (U.S.) of
which $3,900,000 (Cdn.) was outstanding as of December 31,
l997) has, on the Take-Up Date, security securing any
indebtedness or liability of the FCA Group other than security
solely in respect of or in connection with leasing
arrangements or purchase money security interests.
The foregoing conditions precedent may be waived, in whole or in part, by NCO in
its discretion by written instrument but otherwise shall not be subject to
waiver.
e) Conditions in Favour of Fairfax and FCA
The conditions precedent in favour of Fairfax and FCA in respect of their
respective obligations in connection with the Take-Over Bid and the other
transactions contemplated hereby are:
i) NCO shall be in compliance in all material respects with all
of its obligations hereunder;
ii) the representations and warranties of NCO contained herein
shall be true and correct in all material respects as of the
date hereof and as of the Take-Up Date as if made on that
date; and
iii) no Financing Default Event (as hereinafter defined) shall have
occurred.
The foregoing conditions precedent may be waived, in whole or in part, by
Fairfax insofar as they are in favour of it or by FCA insofar as they are in
favour of it in their respective discretion by written instrument but otherwise
shall not be subject to waiver.
2. OBLIGATIONS REGARDING COMPETING EXTRAORDINARY BUSINESS COMBINATIONS
AND NON-SOLICITATION
a) Fairfax's Agreement
Fairfax agrees with NCO that Fairfax will not, so long as this agreement has not
been terminated or has not expired in accordance with its terms, join in, tender
into or otherwise support any Extraordinary Business Combination (as hereinafter
defined) made prior to the Outside Date
<PAGE>
Page 6
unless the consideration per FCA Share inherent in such Extraordinary Business
Combination is payable in cash, relates to 100% of the issued and outstanding
shares of FCA and yields to Fairfax an amount per share that is not less than 5%
in excess of the Bid Price. Upon receipt of any information in respect of an
Extraordinary Business Combination, but prior to determining to join in, tender
into or otherwise support any such Extraordinary Business Combination, Fairfax
shall forthwith notify Bidco in writing of such receipt of information.
Contemporaneously with the completion of any Extraordinary Business Combination
that yields to Fairfax an amount per share that is not less than 5% in excess of
the Bid Price, Fairfax shall pay to NCO, or as it may direct, an amount equal to
50% of such excess amount multiplied by the number of outstanding Fairfax Shares
on the date hereof (which shall be adjusted to take into account any
consolidations, subdivisions, stock splits or other similar reorganizations
affecting FCA). Nothing in this Section 2(a) shall be construed to require
Fairfax to tender into the Take-Over Bid.
b) Non-Solicitation by Fairfax
Fairfax agrees that, so long as this agreement has not been terminated or has
not expired in accordance with its terms, Fairfax will not solicit, initiate,
encourage or participate in the submission of proposals or offers from any other
person relating to, or facilitate, encourage or participate in any effort or
attempt with respect to, the acquisition or disposition of any part of the
outstanding shares in the capital of FCA or any amalgamation, merger, sale or
lease of all or any substantial part of FCA's assets, any take-over bid,
reorganization, plan of arrangement, recapitalization, liquidation or winding up
of or other business combination or similar transaction involving FCA and any
other person other than NCO or Bidco (each an "Extraordinary Business
Combination") or participate in any discussions or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
co-operate in any way with, or assist or participate in any Extraordinary
Business Combination. Nothing in this Section 2(b) shall be construed to
derogate from the provisions of Section 2(a) or to require Fairfax to tender
into the Take-Over Bid.
c) Non-Solicitation by FCA
Subject to the second last sentence of this Section 2(c), FCA agrees that, so
long as this agreement has not been terminated or has not expired in accordance
with its terms, FCA will not solicit, initiate or encourage submission of
proposals or offers from any other person relating to, or facilitating,
participating in or encouraging any effort or attempt with respect to, any
Extraordinary Business Combination; provided, however, that the foregoing shall
not prevent the board of directors of FCA from making such public disclosure
which, in the judgment of the board of directors of FCA upon the advice of
counsel, is required under applicable law. In addition, FCA shall forthwith
close all data or information rooms previously maintained in respect of FCA or
any of its assets in order to solicit bids or expressions of interest in
relation to FCA and/or any portion of its assets. Notwithstanding any provisions
in this agreement to the contrary, nothing in this agreement shall preclude
FCA's directors from complying with their fiduciary obligations following
consultation with and advice from counsel in this respect. For
<PAGE>
Page 7
greater certainty, the immediately preceding sentence shall not relieve FCA from
its obligations pursuant to Sections 2(d), 5 and 6 hereof.
d) Notification to NCO
In the event that Fairfax or FCA becomes aware of any proposed Extraordinary
Business Combination, it shall forthwith and from time to time notify NCO of all
information (including, without limitation, the identity of the party or parties
to such Extraordinary Business Combination and the particulars, in reasonable
detail, of such Extraordinary Business Combination) known to Fairfax or FCA, as
the case may be, regarding the same.
3. CERTAIN AGREEMENTS
a) Operation of Business
During the period commencing on the date hereof and continuing until the Take-Up
Date, FCA agrees (except as expressly contemplated by this agreement or to the
extent that NCO shall otherwise consent in writing) that:
i) FCA will carry on its business in the regular and ordinary
course in substantially the same manner as heretofore
conducted and, without limiting the generality of the
foregoing, will not sell, assign, transfer or otherwise
dispose of any of its assets except for non-material assets
disposed of in the ordinary course;
ii) FCA will not subdivide, combine or reclassify any of its
outstanding shares, declare or pay any dividends, make any
other distribution to shareholders or authorize any act to
implement any of the foregoing, nor shall FCA amend or
authorize any amendment to its articles or by-laws;
iii) FCA will not reserve, set aside, issue, authorize or propose
or commit to the issuance of (whether through the allotment,
reservation, issuance or granting of additional options,
warrants, commitments, subscriptions, rights to purchase or
otherwise), or directly or indirectly, through an affiliate or
otherwise, purchase or propose the purchase of, any securities
of FCA including any shares in its capital of any class or
securities convertible into or exchangeable for, or rights,
warrants or options to acquire, any such shares or other
convertible or exchangeable securities (other than the
issuance of treasury shares pursuant to the exercise of
existing options);
iv) except for matters arising in the ordinary course and
consistent with past practice, FCA will not enter into any
transaction or other form of agreement with any person with
whom it does not deal at arm's length (as that term is
interpreted for purposes of the Income Tax Act (Canada);
<PAGE>
Page 8
v) FCA shall, on a timely basis, give all notices and request any
third party consents identified by NCO as being required under
contracts to which FCA and/or any of its subsidiaries
(collectively, the "FCA Group") is a party as a result of the
transactions contemplated hereby;
vi) FCA shall as expeditiously as reasonably possible in the
circumstances after the Take-Over Bid has been made take such
steps as may be requested by NCO or Bidco to hold, after the
Take-Up Date, such meetings of shareholders of FCA as may be
required to obtain the approval of an amalgamation or
arrangement in such form as NCO or Bidco may reasonably
require so that Bidco may directly or indirectly become the
owner of all of the issued and outstanding FCA Shares not
tendered under the Take-Over Bid; and
vii) FCA will take all reasonable corporate and other steps and
actions and provide all necessary cooperation prior to the
Take-Up Date which NCO determines, acting reasonably, to be
appropriate and advisable in connection with the Take-Over
Bid, and FCA shall not take any actions outside of the normal
course of business which makes the completion of the Take-Over
Bid by NCO inadvisable as determined by NCO, acting
reasonably.
b) Shareholder List
FCA will cause a list of its shareholders prepared by its transfer agent and a
list of holders of options to purchase unissued shares in the capital of FCA
prepared by it to be delivered to Bidco within two business days (which term, as
used herein, means any day other than a Saturday, Sunday or statutory or civic
holiday in Toronto, Ontario or Montreal Quebec) following the date hereof and
thereafter from time to time as reasonably required by NCO or Bidco.
c) Litigation Proceedings
In the event that any person including, without limitation, any securities
regulatory authority, seeks to prevent, delay or hinder the making of or the
taking up and paying for the FCA Shares tendered under the Take-Over Bid or
seeks to invalidate all or any portion of this agreement, each of the parties
hereto shall vigorously and diligently resist such proceedings and not consent
to any order that would have such effect.
d) Disclosure Regarding Financial Commitments and the Loss Thereof
NCO shall forthwith notify Fairfax and FCA in the event (a "Loss of Financing
Event") that any equity or debt financing commitment in its favour in order to
finance the payment of the Bid Price for the FCA Shares tendered under the
Take-Over Bid is withdrawn or modified or otherwise not completed by reason of a
breach by the person(s) making the commitment or it becomes evident that a
condition precedent to any such financing cannot be satisfied and will not be
waived, such that Bidco would not reasonably be able to fully fund the amount
required to
<PAGE>
Page 9
be paid by it to take up all of the FCA Shares which may be tendered under the
Take-Over Bid. NCO shall use all commercially reasonable efforts to satisfy the
conditions precedent to such financing or obtain waivers thereof as soon as
reasonably practicable.
If a Loss of Financing Event occurs, NCO shall have until the lesser of 10
business days after the occurrence of such event and the Take-Up Date to obtain
and provide Fairfax and FCA with an accurate and complete copy of a replacement
commitment from a creditworthy person or persons subject only to normal
conditions precedent; otherwise upon the expiration of such period a Financing
Default Event shall be deemed to have occurred. Upon the occurrence of a
Financing Event of Default, Fairfax and FCA may invoke the condition contained
in Section 1(e)(iii) and shall be entitled to liquidated damages from NCO in the
amount of Two Million Dollars ($2,000,000 (Cdn.)), but without any other
recourse to or liability on the part of NCO.
e) NCO to Apply for Regulatory Approvals
NCO will make all reasonable efforts to obtain any necessary governmental and
regulatory approvals referred to in Section 1(c)(i). FCA shall promptly render
to NCO such assistance within FCA's powers as NCO may reasonably request in
connection therewith.
f) Circulars
FCA will fully cooperate with NCO in connection with the preparation of the
circular which will accompany the Take-Over Bid (the "Bidco Circular") and shall
cause the board of directors of FCA to deliver to shareholders a circular, such
directors' circular to contain (subject to compliance by the directors with
their fiduciary duties in the event that a competing Extraordinary Business
Combination proposal has been made) a recommendation that the shareholders of
FCA accept the Take-Over Bid.
g) Satisfying Conditions
Each of the parties shall use reasonable commercial efforts to consummate the
Take-Over Bid, provided that none of the parties shall be required to incur any
substantial liability or payment which is not contemplated by the other
provisions hereof or the terms of the Take-Over Bid.
h) Resignation of Directors
FCA shall use its best efforts to cause the directors of FCA to resign and
appoint nominees of Bidco as soon as practicable after Bidco takes up shares
under the Take-Over Bid and in a manner that does not require a resolution of
shareholders of FCA.
i) Access to Information
FCA shall provide reasonable access to NCO and Bidco during the period that the
Take-Over Bid is outstanding to assist them in an orderly transition and to use
its best efforts to assist Bidco
<PAGE>
Page 10
in any matters preparatory to its proposed reorganization of FCA, including in
connection with the calling of any shareholder meeting in respect thereof.
4. REPRESENTATIONS AND WARRANTIES
a) Fairfax's Representations and Warranties
Fairfax hereby represents and warrants to the other parties hereto as follows:
i) each of the Fairfax Shares either:
A) is now and, at the time Bidco takes up and pays for
such shares under the Take-Over Bid, will be owned by
Fairfax as the sole beneficial owner thereof with a
good and marketable title thereto free and clear of
any mortgages, liens, charges, restrictions, security
interests, adverse claims, pledges, encumbrances or
demands of any nature or kind whatsoever; or
B) is a share over which Fairfax now exercises
sufficient control and direction such that Fairfax
can agree on the terms herein contained that such
share will be tendered into the Take-Over Bid and has
the authority to and will have the authority, at the
time that NCO takes up and pays for such shares under
the Take-Over Bid, to tender such shares into the
Take-Over Bid on a basis such that if Bidco takes up
and pays for such shares thereunder, such shares will
(unless and to the extent encumbered by Bidco) be
owned by Bidco as the sole beneficial owner thereof
with a good and marketable title thereto free and
clear of any mortgages, liens, charges, restrictions,
security interests, adverse claims, pledges,
encumbrances or demands of any nature or kind
whatsoever;
ii) no person has any agreement or option, or right or privilege
(whether by law, pre-emptive or contractual), capable of
becoming an agreement or option, for the purchase, acquisition
or transfer from Fairfax of any of the Fairfax Shares or any
interest therein or right thereto, except NCO pursuant hereto;
iii) Fairfax is a validly subsisting corporation under the laws of
Canada, and has and will have at all times all necessary
corporate power and authority to execute and deliver this
agreement and to perform its obligations hereunder; and
iv) this agreement has been duly executed and delivered by Fairfax
and constitutes a valid and binding obligation of Fairfax
enforceable against it in accordance with its terms.
<PAGE>
Page 11
b) Representations and Warranties of FCA
FCA hereby represents and warrants to NCO as follows:
i) FCA is a validly subsisting corporation under the laws of
Canada, and has all necessary corporate power and authority to
execute and deliver this agreement and to perform its
obligations hereunder;
ii) this agreement has been duly executed and delivered by FCA,
has been approved by the board of directors of FCA and
constitutes a valid and binding obligation of FCA enforceable
against it in accordance with its terms;
iii) FCA has filed all documents, including financial statements
(the "Public Documents") required under applicable provincial
securities laws, regulations, rules and policies (the
"Securities Laws") to be filed by it. As of their respective
dates, the Public Documents complied in all material respects
with the then applicable requirements of the Securities Laws,
and, at the respective times they were filed, none of the
Public Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not
misleading. FCA is a reporting issuer under, and within the
meaning of, the Securities Laws and is not in default in any
material respect of any requirement of such Securities Laws.
The consolidated financial statements (including, in each
case, any notes thereto) of FCA included in the Public
Documents (collectively, the "Financial Statements") complied
as to form in all material respects with applicable accounting
requirements as of their respective dates of filing, were
prepared in accordance with Canadian generally accepted
accounting principles applied on a consistent basis during the
period involved (except as may be indicated therein or in the
notes thereto) and fairly presented the consolidated financial
position of FCA as of the respective dates thereof and the
consolidated cash flows for the periods then ended (subject,
in the case of unaudited statements, to the absence of
footnote disclosure and to normal year-end audit adjustments
and to any other adjustments described therein). Except as
disclosed in the Public Documents, FCA has not, since June 30,
1997, made any change in the accounting practices or policies
applied in the preparation of its Financial Statements. As at
the date hereof, the number of FCA Shares issued and
outstanding is, in the aggregate, 9,307,354, and the number of
outstanding options to acquire FCA Shares is 1,136,931;
iv) Since the date of the most recent Financial Statements, the
business of the FCA Group has been operated only in the
ordinary course, consistent with past practice, and the FCA
Group has not incurred any indebtedness, liabilities or
obligations (whether accrued, absolute, contingent or
otherwise) other than in the ordinary and normal course of
business, consistent with past practice;
<PAGE>
Page 12
v) Except for the Puerto Rican Litigation , since December 31,
1997, there has not been any material adverse change in the
condition, operations, affairs, personnel or future prospects
of the businesses carried on by the FCA Group, or the assets
or financial condition of the FCA Group other than changes in
the ordinary and normal course of business, none of which has
been materially adverse;
vi) the FCA Group has conducted its business in compliance, in all
material respects, with all laws, statutes, regulations,
ordinances, rules, policies, guidelines, decrees, orders,
authorizations, approvals, notices, quotas, licenses, permits,
directives, judgments or other requirements applicable
thereto;
vii) Except as may result by virtue of the implementation of the
steps and actions contemplated by Section 3(a)(vii), the FCA
Group is the sole legal and beneficial holder or user of all
quotas, permits, licenses and authorizations necessary for the
lawful operation in all material respects of the business of
the FCA Group pursuant to all applicable laws, statutes,
regulations, ordinances, rules, policies, guidelines, decrees,
orders, notices, directives and other requirements of all
applicable governmental authorities. All such quotas, permits,
licenses and authorizations are valid and subsisting and in
good standing. No material violations have been recorded in
respect of any such quotas, licenses, permits and
authorizations, and no proceeding (other than possible
government action) is pending or, to the best of the knowledge
of FCA, threatened to revoke or limit any thereof;
viii) Except to the extent reflected or reserved against in the
Financial Statements, the FCA Group is not liable for any
governmental taxes, levies, duties, assessments, reassessments
and other charges of any nature whatsoever (collectively,
"Taxes");
ix) The FCA Group has on a timely basis filed all Tax returns,
information returns, elections or designations in respect of
any Taxes required to be filed by the FCA Group under any Tax
legislation except where the failure to file a Tax return on a
timely basis was not material. No such filing has contained
any material misstatement or omitted any statement of material
fact that should have been included therein.
x) With the exception of the Puerto Rican Litigation, there is no
suit, action, dispute, civil or criminal litigation,
arbitration, legal, administrative or other proceeding or
governmental investigation, including, without limitation,
appeals and applications for review, in progress, pending or,
to the best of FCA's knowledge, threatened against the FCA
Group, or relating to its business or assets, which, if
determined adversely to the FCA Group, might have a material
adverse effect on the FCA Group;
<PAGE>
Page 13
xi) FCA is not aware of any material fact, change or event that
has occurred in respect of FCA or the FCA Shares which is not
generally disclosed at the date hereof and which if disclosed
could reasonably be expected to affect the Bid Price;
xii) FCA has not engaged any broker or other agent, other than M.
Kaulkin & Associates, in connection with the transactions
contemplated by this agreement and, accordingly, there is no
commission, fee or other remuneration payable to any broker or
agent, other than M. Kaulkin & Associates, who purports or may
purport to act or have acted for FCA; and
xiii) the FCA Group's assets in Canada as at June 30, 1997, do not
exceed Twenty-Five Million Dollars (Cdn.) ($25,000,000 (Cdn.))
and the FCA Group's revenues from sales to, from or into
Canada for the fiscal year ended June 30, 1997 do not exceed
Forty Million Dollars (Cdn.) ($40,000,000 (Cdn.)).
c) Representations and Warranties of NCO
NCO hereby represents and warrants to FCA and Fairfax as follows:
i) Bidco will be a validly subsisting corporation under the laws
of Canada. NCO will have at all times all necessary corporate
power and authority to execute and deliver this agreement and
to perform its obligations hereunder;
ii) this agreement has been duly executed and delivered by NCO and
constitutes a valid and binding obligation of NCO enforceable
against it in accordance with its terms;
iii) NCO has received a commitment to lend, from its commercial
lender, funds sufficient to fully fund the payment of the Bid
Price for all of FCA Shares which are capable of being
tendered under the Take-Over Bid. Accurate and complete copies
of such commitments have been given to FCA; and
iv) NCO's assets in Canada as at the end of its most recently
completed fiscal year do not exceed Three Hundred and
Seventy-Five Million Dollars ($375,000,000) (Cdn.) and its
revenues from sales to, from or into Canada for such fiscal
year do not exceed Three Hundred and Sixty Million Dollars
($360,000,000) (Cdn.).
5. BREAK-UP FEES
FCA acknowledges that NCO will be expending significant time and resources in
implementing the Take-Over Bid. Therefore, if the Take-Over Bid is not made or
is withdrawn by reason of:
<PAGE>
Page 14
a) the failure of the Minimum Number of FCA Shares to have been
tendered to and not withdrawn from the bid;
b) FCA entering into an agreement, arrangement or understanding
with respect to, or FCA or the FCA Shares becoming subject to,
an Extraordinary Business Combination at any time prior to the
Outside Date; or
c) a third party commencing a take-over bid for the FCA Shares
prior to the Outside Date at a price which is not less than
the Bid Price,
FCA agrees that it shall, within 2 business days following demand therefor, pay
all of NCO's direct out of pocket expenses including, without limitation, legal
and other counsel and consulting fees, financing commitment fees and penalties
and other third party outlays (the "Offering Expenses") incurred or expended by
NCO and/or Bidco or to which NCO and/or Bidco is subject in connection with
making the Take-Over Bid, up to a maximum of $750,000 (Cdn.) in the case of (a)
alone and $1,500,000 (Cdn.) in the case of (b) or (c). If, at any time prior to
the Outside Date, an Extraordinary Business Combination is commenced or
announced with respect to any of the FCA Shares, so long as either NCO is in
compliance in all material respects with its obligations hereunder or NCO
delivers notification pursuant to Section 6(b)(i), FCA shall, subject to the
completion of such Extraordinary Business Combination and contemporaneously with
such completion, pay to NCO an amount equal to $4,000,000 (Cdn.), less, if and
to the extent already paid, the Offering Expenses.
6. TERMINATION
a) Termination at Option of FCA
FCA shall be entitled to terminate this agreement by notice to NCO if:
i) no Take-Over bid is made by Bidco at least 21 days prior to
the Outside Date, or the Take-Over Bid, if made, by its terms,
or by the terms of any amendment thereto, permits or requires
Bidco to pay for the FCA Shares tendered thereunder after the
Outside Date or it is evident that, other than by reason of
any default on the part of Fairfax or FCA or other than by
reason of the initiation or announcement of an Extraordinary
Business Combination, there is no reasonable likelihood that a
Take-Over Bid will be made providing for the payment for the
FCA Shares tendered thereunder on or before the Outside Date
or, if Bidco makes the Take-Over Bid, the FCA Shares tendered
thereunder will be paid for on or before the Outside Date; or
ii) there occurs any event constituting a failure of any of the
conditions precedent set out in Sections 1(c) or (e) or
resulting in there being no reasonable likelihood that one or
more of such conditions will be satisfied;
<PAGE>
Page 15
and upon the giving of any such notice, this agreement and the obligations of
the parties hereunder (except for, in the case of a termination pursuant to
Section 6(a)(i) involving the initiation or an announcement of an Extraordinary
Business Combination, the obligations of FCA set forth in Section 5, shall
terminate.
b) Termination at Option of NCO
Without limiting any of its other rights whether hereunder or otherwise, NCO
shall be entitled to terminate this agreement by notice to FCA and Fairfax:
i) if an Extraordinary Business Combination has been initiated or
announced in circumstances in which Fairfax has notified NCO
that Fairfax intends to join in, tender into or otherwise
support such Extraordinary Business Combination or in
circumstances in which FCA announces that it intends to
support or proceed with an Extraordinary Business Combination
in lieu of the Take-Over Bid; or
ii) upon the occurrence of any event constituting a failure of any
of the conditions precedent set out in Sections 1(c) or (d) or
resulting in there being no reasonable likelihood that one or
more of such conditions will be satisfied;
and upon the giving of any such notice, the obligations of the parties hereunder
(except for the obligations of Fairfax set forth in Section 2(a) and of FCA set
forth in Sections 5 shall terminate.
7. GENERAL
a) Disclosure
No disclosure of the terms of this agreement shall be made by any party hereto
except to its board of directors, its professional advisers and appropriate
governmental regulatory authorities. Notwithstanding the foregoing, FCA shall be
entitled to make such disclosure as FCA deems to be reasonably necessary to
management employees of FCA on a need to know basis, and NCO may make such
disclosure to its lenders, or as may be required by applicable law or regulatory
authorities. The parties shall co-ordinate the making and dissemination of any
public announcement relating to the subject matter of this agreement. The
parties acknowledge that a summary of the terms of this agreement will be
included in any circular delivered in connection with the Take-Over Bid.
b) Expenses
Except as otherwise expressly provided in this agreement, each party shall be
responsible for its own fees, expenses and other costs incurred in connection
with this agreement and the transactions contemplated hereby.
<PAGE>
Page 16
c) Assignment
This agreement shall be binding upon and enure to the benefit of and enforceable
by the parties hereto and their respective successors but shall not be
assignable by any party hereto unless otherwise agreed by the other parties
hereto.
d) Time
Time shall be of the essence of this agreement.
e) Notice
Any notice, consent or other communication required or permitted to be given
hereunder shall be in writing and shall be sufficiently given if delivered
personally or via recognized courier service or sent by telecopier:
In the case of NCO:
NCO Group, Inc.
515 Pennsylvania Avenue
Fort Washington, PA
19034 U.S.A.
Attention: Chairman and Chief Executive Officer
Facsimile No.: (215) 793-2908
with a copy to:
Goodman Phillips & Vineberg
250 Yonge Street, Suite 2400
Toronto, Ontario M5B 2M6
Attention: Stephen Bloom
Facsimile No.: (416) 979-1234
If to FCA:
FCA International Ltd.
376 Victoria Avenue,
Westmount, Quebec H3Z 1CZ
Attention: Robert Di Sante
Facsimile No.: (514) 485-5187
<PAGE>
Page 17
with a copy to:
FCA International Ltd.
Suite 2525, Box 36
121 King Street west
Toronto, Ontario M5H 3T7
Attention: W. E. Jarmain
Facsimile No.: (416) 869-7301
with a copy to:
Lang Michener
BCE Place, Box 747, Suite 2500
181 Bay Street
Toronto, Ontario M5J 2T7
Attention: Albert Gnat
Facsimile No.: (416) 365-1719
If to Fairfax:
Suite 800
95 Wellington St. West
Toronto, Ontario
Attention: Eric Salsberg
Facsimile No.: (416) 367-2201
or at such other address as the party to which such notice, consent or other
communication to be given has last notified the party giving the same in the
manner provided in this Section. Any notice, consent or other communication so
given shall be deemed to have been received on the date of delivery or sending
if delivered or sent during normal business hours during a business day, failing
which the same shall be deemed to have been received on the next following
business day.
f) Governing Law
This agreement and the rights and obligations of the parties hereto shall be
governed by and construed and interpreted in accordance with the laws of the
Province of Ontario and the laws of Canada applicable therein. Each of the
parties hereto hereby irrevocably attorns to the jurisdiction of the courts of
the Province of Ontario and agrees that the courts having jurisdiction in such
province shall have exclusive jurisdiction over all disputes and claims arising
out of the agreement. Each party hereto agrees that service of process shall be
effectively made if made in accordance with Section 7(e) hereof or as otherwise
provided by law.
<PAGE>
Page 18
g) Survival
The representations and warranties contained herein shall merge on the date on
which the Take-Over Bid is made by Bidco.
h) Entire Agreement
This agreement sets forth the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated hereby. There are no
warranties, representations, terms, conditions or collateral agreements,
expressed, implied or statutory, among the parties hereto other than as
expressly set forth in this agreement.
If you are in agreement with the foregoing, kindly signify your acceptance by
signing the enclosed copy of this letter where indicated below and returning
same to the undersigned.
Yours very truly,
NCO GROUP, INC.
By: /s/ Michael J. Barrist
---------------------------
Name: Michael J. Barrist
Title: Chairman & CEO
Each of the undersigned hereby agrees to be bound by the foregoing.
FCA INTERNATIONAL LTD,
By: /s/ W. S. Jarmaine
--------------------------
Name: W. S. Jarmaine
Title: Chairman of the Board
FAIRFAX FINANCIAL HOLDINGS LIMITED on its own
behalf and on behalf of each of its
subsidiaries which owns or exercises control or
direction over any portion of the Fairfax
Shares
By: /s/ Eric Salsberg
----------------------
Name: Eric Salsberg
Title: Vice President, Corporate Affairs
<PAGE>
SCHEDULE "A"
PROCEDURES TO DEAL WITH OUTSTANDING
OPTIONS UNDER THE FCA
SHARE OPTION PLAN
The following are the proposed procedures to deal with options outstanding under
the FCA Share Option Plan including those issued under the Plan to cover CPOP
awards:
1. As soon as the bid has been announced, FCA will send a letter to each
optionee stating that the bid has been announced and
a) describing the Board's powers under the Plan to permit all outstanding
options, both vested and unvested, to be exercised within 20 days
following the date on which FCA notifies the optionees of such action
and to determine that upon the expiration of such 20 day period any
options not exercised during such 20 day period shall cease to have
any force or effect whatsoever;
b) stating that if the optionee agrees within a period of 21 days
following the date on which the bid is made to exercise his options on
an escrowed basis subject to NCO taking up and paying for the shares
tendered under its bid and to tender into the bid, FCA will lend him
the money to exercise his options, taking security in the form of a
pledge of the resulting shares and will arrange that such shares
be tendered into the bid, repay itself its loan out of the proceeds of
sale under the bid and cause the balance to be paid to the optionee;
c) stating that after all bid conditions (other than the condition
relating to the cancellation of all outstanding options and other
conditions wholly within FCA's powers to satisfy) have been satisfied
and prior to NCO taking up and paying for the shares tendered under
the bid, the FCA board will exercise its power to permit the exercise
of all options for a 20 day period and if all of the optionees do not
agree to exercise their options, it will also exercise its power to
determine that the options will terminate at the end of the 20 day
period; and
d) enclosing a copy of the escrow agreement and other documents required
to exercise the optionee's options and borrow the funds to pay the
option price and tender into the bid, including;
i) a notice exercising the options,
ii) a promissory note for the aggregate option exercise price
containing a pledge of the option shares,
iii) a stock transfer power covering the pledge options shares; and
iv) a direction to NCO and the depository under the bid to pay to FCA
out of the balance of the proceeds an amount equal to the
aggregate option price for the optionee's option shares and
directing the transfer agent, if the depositary, to retain
<PAGE>
-2-
such certificates as depositary under the bid. If the transfer
agent is not the depositary, to direct the transfer agent to
delivery such certificates to the depositary under the bid.
The letter should also state that the optionee will be asked to sign a
letter of transmittal under the bid when the same becomes available.
2. Once the bid is made, FCA will proceed to sign up the optionees to the
extent that it can, holding the documents signed by the optionees in escrow
under the terms of the escrow agreement, except the letters of transmittal
and directions re funds.
3. Prior to the last day for acceptance, FCA will tender into the bid in
respect of each optionee who signs an escrow agreement, the letter of
transmittal signed by that optionee together with the direction re payment
of proceeds and a guaranteed delivery undertaking signed by itself. Note
that the bid terms must contemplate FCA (along with other eligible
institutions) signing such undertakings and provide that FCA can give any
necessary signature guarantees.
4. If the bid conditions are never satisfied, FCA will, no later than the
Outside Date, cancel the escrowed documents as required by the terms of the
escrow agreement and notify the optionees who signed them that it has done
so.
5. Immediately after all of the bid conditions (other than that relating to
the cancellation of all outstanding options) have been satisfied, but prior
to NCO taking up and paying for the shares tendered under the bid:
a) FCA's Board will pass a resolution permitting the exercise, within 20
days following the optionees being notified of the resolution, of all
options outstanding under the Plan, vested and unvested, and, if all
outstanding options have not been agreed to be exercised in escrow or
otherwise, also determining that if the options are not exercised
within the 20 day period, upon the expiration of such period, such
options shall cease to have further force and effect whatsoever; and
b) FCA will notify all of the optionees in writing as required by the
terms of the Plan that the FCA Board has passed the resolution
exercising such powers.
6. Coincidentally with NCO taking up and paying for the shares tendered into
its bid,
a) FCA will draw cheques payable to itself for the option exercise prices
of the optionees who have signed escrow agreements;
b) cause the transfer agent (who, presumably, is also the depository
under the NCO bid) to issue share certificates in the name of the
respective optionees for the optioned shares of the optionees who
signed escrow agreements; and
c) direct the transfer agent or such other depositary as may be
determined by NCO to retain such certificates as depository under the
bid.
7. Immediately following NCO taking up and paying for the shares theretofore
tendered under the bid, NCO will extend the bid for at least the balance of
the 20 day period if an options remain outstanding and unexercised.
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8. Upon receipt by FCA of payment of the portion of the proceeds of the bid
payable to each optionee who signed an escrow agreement covering the amount
lent by FCA to the optionee, FCA will return the promissory note signed by
that optionee marked "cancelled".
